Nemi Chand v. State of Rajasthan — 1979 DIGILAW 106 (RAJ)

D.P. GUPTA, J.—These three writ petitions raise common questions of fact and law and as such it would be convenient to dispose them off by a common order. 2. All the three petitioners were whole-sale dealers in lanced poppy-heads in the town of Bhawanimandi, District Jhalawar, in the State of Rajasthan, during the year 1965-66 and they held licences issued under the provisions of the Indian Opium Act and the Rajasthan Opium Lanced Poppy Heads Rules, 1960. The petitioners case is that they were exporting lanced poppy heads to persons out side the State of Rajasthan. 3. According to the provisions of sec. 3 of the Rajasthan Sales Tax Act, 1954 (hereinafter referred to as "the Act") a dealer was liable to pay tax on their taxable turnover in respect of sale of goods at such rates, as may be prescribed by the State Government from time to time. Sec. 4(1) of the Act provides for exemption on sale of certain items of goods mentioned in the Schedule annexed to the Act. Sub-sec. (2) of sec. 4 further authorises the State Government to grant exemption from payment of sales tax on such goods as it considers proper. Sec. 5 of the Act authorises the State Government to prescribe the rate of tax by notification in the Official Gazette. Thus, the provisions of sub-sec. (1) of sec. 4 of the Act, read with item No. 11 of the Schedule attached to the Act, provided for exemption from payment of sales tax on the sale of goods on which duty is or may be levied under the Rajasthan Excise Act, 1950 or the Indian Opium Act, as applied to Rajasthan. The case of the petitioners is that as they were paying the duty under the Indian Opium Act, in accordance with the rules framed thereunder, they were not liable to make payment of sales tax on the sale of lanced poppy heads. However, by an amendment introduced in the Act by sec. 26 of the Rajasthan Taxation Laws (Amendment) Act, 1964 (Act No. 13 of 1964) a change was brought about in the Schedule annexed to the Act and the entry against item No. 11 of the Schedule was omitted with the result that the exemption earlier provided for from payment of Sales Tax in respect of opium and excisable articles was withdrawn. Thereafter, by a Notification dated March 6, 1965 sales tax was imposed on sale of opium at the rate of 10 per cent. By a subsequent Notification dated November 2, 1965, the sales tax chargeable on opium was maintained at 10 per cent. Thus, the exemption, which was so far enjoyed by the petitioners in respect of the sale of poppy heads, was no longer available after the Notification dated March 6, 1965 was published, as a consequence of the enactment of sec. 26 of the Amending Act No. 13 of 1964. 4. The contention of the learned counsel for the petitioners is that although the Rajasthan Sales Tax Act, 1954 received the assent of the President of India on December 22, 1954, yet, the Rajasthan Taxation Laws (Amendment) Act, 1964 was not reserved for the assent of the President nor it received the assent of the President, nor the Bill in respect thereof was introduced in the Legislative Assembly after obtaining the previous sanction of the President and as such, the provisions of sec. 26 thereof were void, as they imposed restrictions on the freedom of trade, commerce and intercourse, within the meaning of Art. 301 of the Constitution of India. 5. In order to fully appreciate the controversy raised in these writ petitions it is necessary to mention that taxes on sale of goods is covered by entry 54 of list II (State List) of Schedule VII of the Constitution. As such, the State Legislature is authorised to make laws providing for imposition of taxes on the sale of goods. However, Art. 301 of the Constitution provides that trade, commerce and inter-course through-out the territory of India shall be free, subject to other provisions of Part XIII of the Constitution. Art. 304 authorises the imposition of reasonable restrictions on the freedom of trade, commerce and inter-course, with or within the State, as embodied in Art. 301, to the extent the same may be required in the public interest and subject to the condition that no Bill imposing such restrictions on the freedom of trade shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Thus, there are three conditions which must be satisfied before an Act placing restrictions on the freedom of trade, commerce and inter-course with or within the State could be validly enacted, under Art. 304(b) of the Constitution, namely, that the previous sanction of the President must be obtained, the Legislation must be in public interest and it must impose only such restrictions which are reasonable. If, however, the previous sanction of the President is not obtained, that infirmity can be cured by reserving the Act for the assent of the President and obtaining such assent, as has been provided in Art. 255 of the Constitution. 6. The question as to whether the provisions of Art. 301 of the Constitution are applicable to tax legislation or statutes imposing duties on goods was considered by their Lordships of the Supreme Court in Atiabari Tea Co. Ltd. vs. The State of Assam (1), and it was held that the imposition of Taxes may impede the free flow of trade, commerce and inter-course and that a tax can be levied by a State Legislature on goods, manufactured or produced or imported in the State and thereby reasonable restrictions can be placed on the freedom of trade, either with another State or in different areas of the same State, subject to the compliance with the provisions of Art. 304 of the Constitution. Therefore, tax legislation should be deemed to be covered by the provisions of Art. 301 of the Constitution. The following observations of their Lordships may be usefully reproduced :— "Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Art. 301. The argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or medicate, direct or remote, adopts in our opinion, an extreme approach which cannot be upheld. The argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or medicate, direct or remote, adopts in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a Legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage Bill may indirectly affect trade or commerce. We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Art. 301 a rational and workable test to apply would be : Does the impugned restriction operate directly or immediately on trade or its movement ?" 7. It was held in the aforesaid case that if the purpose or object of the Act is to collect tax on goods, solely on the ground that they are carried by road or by inland water ways within the area of the State, then it was certainly a restriction placed on the free movement of goods, which attracted the applicability of provisions of Art. 301 and could only be done by satisfying the requirements of Art. 304(b) of the Constitution. 8. The aforesaid decision of the Supreme Court in Atiabari Tea Companys case (1) is a land-mark in the history of freedom of trade, commerce and inter-course in this country. A larger Bench of the Supreme Court, consisting of 7 Judges, later considered the matter again in Automobile Transport (Rajasthan) Ltd. vs. State of Rajasthan(2) and a majority of the Court accepted the interpretation placed on Arts. 301 and 304(b) of the Constitution by the majority in Atiabari Tea Companys case, subject to one clarification that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Art. 301 and such regulatory and compensatory measures need not comply with the requirements of the proviso to Art. 304(b) of the Constitution. It was held in the aforesaid case that imposition of tax may amount to restrictions on the freedom of trade and commerce, but what in reality facilitates trade and commerce is not a restriction and that which in reality hampers and burdens trade and commerce is a restriction. 9. Then, in Firm A.T.B. Mehtab Majid & Co. It was held in the aforesaid case that imposition of tax may amount to restrictions on the freedom of trade and commerce, but what in reality facilitates trade and commerce is not a restriction and that which in reality hampers and burdens trade and commerce is a restriction. 9. Then, in Firm A.T.B. Mehtab Majid & Co. vs. State of Madras (3), it was held that imposition of sales tax on inter State sales may amount to putting restrictions on the free flow of trade and would offend Art. 301 of the Constitution and can only be held to be valid, if the conditions laid down in Art. 304(b) are satisfied It was observed by their Lordships of the Supreme Court in the aforesaid case as under :— "It is therefore now well settled that taxing laws can be restrictions on trade, commerce and inter-course, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales Tax, of the kind under consideration here, cannot be said to be a measure regulating any trade or compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Art. 301 and will be valid only if it comes within the terms of Art. 304(a)." 10. The same view was reiterated by their Lordships of the Supreme Court in State of Madhya Pradesh vs. Bhailal Bhai (4) and it was held that although, the imposition of inter State sales-tax creates the liability to tax on the sale of imported goods and not on the import itself, yet trade and commerce between one area and another is directly impeded by the imposition of such tax, which contravenes the provisions of Art. 301 of the Constitution, unless it comes within the saving provisions contained in Art. 304 of the Constitution. It was observed that the aforesaid result directly flows from the decision in Atiabari Tea Companys case (1) and the latter decision in Automobiles Transport case (2), did not alter the position, except for a slight modification that if the tax could be claimed to be regulatory or compensatory, it may not be covered by the provisions of Art. 301 of the Constitution. It was also held that the imposition of inter State sales-tax cannot be claimed as a regulatory or compensatory measure. 11. In Kalyani Stores vs. State of Orissa (5) it was held by their Lordships of the Supreme Court that the Notification enhancing or levying duty or tax is purely of fiscal nature and infringes the guarantee of freedom of trade, commerce and intercourse under Art. 301 of the Constitution and cannot be said to be a reasonable restriction on the freedom of trade and must be regarded as invalid. 12. In State of Mysore vs. H. Sanjeeviah (6), it was held that rules regulating transit of timber, fire-wood, charcoal and bamboos in specified areas of the State of Mysore amounts to imposing restrictions on the free flow of trade and was void, being derogatory of the freedom of trade, commerce and intercourse guaranteed under Art. 301 of the Constitution. 13. As a result of the aforesaid decisions of the Supreme Court, it can be fairly said to be well settled that the imposition of tax on inter State sales, encumbers or hampers the freedom of trade from one State to another and can be justified only if (the conditions enumerated in Art. 304(b) are satisfied. 14. In Andhra Sugars Ltd. vs. State of Andhra Pradesh (7) it was held that normally a tax on the sale of goods does not directly impede the free movement or transport of goods and is not violative of Art. 301 of the Constitution. Following the decision in Andhra Sugar Ltd.s case (7) a majority of the Judges of the Supreme Court again observed in the State of Madras N.K. Nataraja Mudaliar (8) as under : "It must, therefore, be regarded as settled law that tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so." (Italic is added). Although, in the aforesaid case Bachawat J., in his concurring judgment, observed as under :— "Indeed, normally, an inter-State sale would occasion such movement, because the purchaser has to move the goods from the sellers place to some other place. An inter-State sale may also be affected by a transfer of documents of title to the goods during their movement from one part of the State to another part of the same State. An inter-State sale may also be affected by a transfer of documents of title to the goods during their movement from one part of the State to another part of the same State. But, there can be no doubt that a tax on such sales would not normally offend Art. 301. That article makes no distinction between movement from one part of the State to another part of the same State and movement from one State to another. Now, if a tax on inter-State sale does not offend Art. 301, logically, I do not see how a tax on inter State sale can do so. Neither tax operate directly or immediately on the free flow of trade or the free movement of the transport of goods from one part of the country to the other. The tax is on the sale. The movement is incidental to and a consequence of the sale." 15. In T.G. Venkataraman vs. State of Madras (9), the Supreme Court also observed as under : "...tax laws are aimed at dealing with complex problems of infinite variety necessitating adjustment of several disparate elements. The Courts accordingly admit, subject to adherence to the fundamental principles of the doctrine of equality, a larger play to Legislative discretion in the matter of classification. The power to classify may be exercised so as to adjust the system of taxation in all proper and reasonable ways the Legislature may select persons, properties, transactions and objects and apply different methods and even rates for tax, if the Legislature does so reasonably. XXX If the classification is rational, the Legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject to different classes of property to tax in different ways and adopt different modes of assessment." 16. The same view was also reiterated by their Lordships of the Supreme Court in Hans Raj Bagrecha vs. State of Bihar (10). The facts of the aforesaid case were that the Bihar Sales Tax Act, as originally enacted, did not provide for the levy of purchase tax by the Bihar Finance Act, 1966. Purchase-tax was introduced with effect from April 1, 1967 by incorporating secs. 3(A) and 5(A) in the Bihar Sales Tax Act, 1959. The petitioner Hansraj Bagrecha moved a petition before the High Court of Patna challenging the validity of Secs. Purchase-tax was introduced with effect from April 1, 1967 by incorporating secs. 3(A) and 5(A) in the Bihar Sales Tax Act, 1959. The petitioner Hansraj Bagrecha moved a petition before the High Court of Patna challenging the validity of Secs. 3-A and 5-A of the Bihar Sales Tax Act, 1959, as introduced by the Finance Act, 1966. It was held by their Lordships of the Supreme Court that the argument that the levy of purchase tax must be deemed, in all circumstances, to violate the guarantee under Art. 301 and the levy will be valid only if the Act is enacted by the State Legislature with the previous sanction of the President, cannot be accepted as correct. Following the decision in Nataraja Mudaliars case(8), it was observed by their Lordships that it would be reasonable and proper to hold that restrictions, freedom from which is guaranteed under Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow on movement of trade. The following observations of their Lordships may be quoted :— "Imposition of tax of the nature of purchase tax does not by itself restrict freedom of trade, commerce or intercourse. Imposition of tax may in certain circumstances impede free flow of trade, commerce or intercourse. But every tax does not have that effect. Imposition of a purchase tax by the State does not by itself infringe the guarantee of freedom under Art. 301. The argument that imposition of sales or purchase tax must be regarded in all cases as infringing the guarantee of freedom under Art. 301 cannot be accepted as correct." 17. The same view was taken by a Bench of this Court in M/s. Walkar Anjaria & Sons (Pvt.) Ltd vs. State of Rajasthan(ll), where the question of imposition of purchase tax by the introduction of sec. 5-A in the Rajasthan Sales Tax Act was considered and it was held that the imposition of purchase tax did not operate as a restriction on the freedom of trade, as contemplated by Art. 301 of the Constitution and cannot be held to be invalid, because the assent of the President was not obtained under the proviso of Art. 304(b) of the Constitution. 18. 18. Thus, it must be held that the taxes may amount to restriction, but it is only such taxes as directly and immediately restrict the free flow of trade that would fall within the purview of Art. 301 and the extreme approach that all taxes should be governed by Art. 301, whether or not, their impact on trade is immediate or mediate, direct or remote was not accepted by the Supreme Court. However, the question which has been raised in this case do not relate to the imposition of sales tax, as Rajasthan Sales Tax Act, 1954 imposing the tax on sale of goods, satisfies the requirements of Art. 304(b) of the Constitution, as it constitutes reasonable restrictions on the freedom of trade in public interest and has received the assent of the President. The question which specifically arises in this case is as to whether the withdrawal of exemption from payment of sales tax in respect of one or more items would also amount to restricting the free flow of trade and would be violative of the provisions of Art. 301 of the Constitution. 19. It is, therefore, to be seen whether the withdrawal of exemption from payment of sales tax in case of poppy heads "directly and immediately restricts or impedes" the free flow of trade. In the writ petitions before us, the petitioners have made no averments which may support the plea that the withdrawal of exemption from payment of sales tax on poppy heads has the effect of restricting or hampering, directly or immediately, the free movement of trade, commerce and intercourse. The petitioners have neither averred nor have placed any material on record to show that their trade in poppy heads is, in any manner hampered or adversely effected by the withdrawal of the exemption from payment of sales tax in respect of opium, resulting from the omission of item No. 11 of the Schedule annexed to the Act, by sec. 26 of the Rajasthan Taxation Laws (Amendment) Act, 1964, The provision for imposition and levy of sales tax has been provided in sec 3 and sec. 5 authorises the State Government to prescribe the rate of tax, subject to the maxim specified in sec 3 of the Act. 26 of the Rajasthan Taxation Laws (Amendment) Act, 1964, The provision for imposition and levy of sales tax has been provided in sec 3 and sec. 5 authorises the State Government to prescribe the rate of tax, subject to the maxim specified in sec 3 of the Act. The matter of classification of objects, as to which items or goods should be taxed or which should not be taxed and at what rate or exempted from payment of tax under the Act, are matters which lie solely within the Legislative competence of the State Legislature. In case tax is imposed on certain, items, subject to the maximum limit prescribed in sec. 3, then it cannot be said that the same would restrict or hamper trade, commerce or intercourse, directly and immediately, or it would place restrictions or impediments which directly and immediately impede the free flow of trade and commerce. In Hansraj Bagrecha case(10) their Lordships of the Supreme Court upheld the introduction of secs. 3-A and 5-A in the Bihar Sales Tax Act by the Bihar Finance Act, 1966 on the ground that the power to impose tax on notified goods was not shown by the petitioner to restrict or impede the free flow of trade, directly or immediately, as there were no averments made in the petition to support such a plea. The principle laid down by their Lordships of the Supreme Court in Hansraj Bagrechas case(10) should govern these writ petitions as in these cases also as the petitioners have also not alleged that their trade or commerce, in respect of the sale of the lanced poppy heads, was in any manner adversely effected and the withdrawal of exemption in respect of opium had some immediate or direct impact on their trade. In the absence of any averments to that effect we are unable to hold that the withdrawl of exemption from payment of sales tax resulting from the omission of item No. 11 of the Schedule annexed to the Act, has the effect of restricting or impeding the free flow of the trade directly and immediately and in this view of the matter, the guarantee of freedom of trade contained in Art. 301 of the Constitution cannot be said to have been infringed in these cases. 20. 20. As a result of the above discussion, we find no merit in the writ petitions and the same are dismissed. However, the parties are left to bear their own costs.