STATE OF KARNATAKA & ANR. v. M-S. HANSA CORPORATION

Citation: [1981] 1 S.C.R. 823

Court: Supreme Court of India

Bench: Y.V. CHANDRACHUD, D.A. DESAI

Case summary

To further augment the finances for compensating the municipalities, ad<;li:tional fund was sought to be generated by levy of tax under the impugned legislation....

Judgment text

STATE OF KARNATAKA & ANR. v. MIS. HANSA CORPORATION Se,ptember 25, 1980 [Y. V. CHANDRACHUD, C. J. AND D. A. DESAI, J. ] Karnataka Tax on Entry of Goods into Local Areas for Consumption. Use er Sale therein Act, 1979-Section 3-Validity of-Power of State Government . /9 levy tax on select goods entering some local areas--State if bound to impose iax on all goods entering any local area. The Karnataka Tax on Entry of Goods Into Local Areas for Consumption, Use or Sale therein Act 1979 was enacted by the State Legislature to levy tax "on certain select goods at the time of their entry into a local area. This tax was devised to off set the short fall in the funds of municipal and other local bodies by reason of the abolition of octroi which by experience was found to impede the development of trade and commerce.

, Section 3 of the impugned Act provides that the tax shall be levied on entry of the sc11eduled goods into a local area for consumption, use or sale therein at such rate as may be specified by the State Government and different Tates may be specified for different local areas. By a notification issued under section 3 of the Act the State Government -specified 27 local areas in the State which could levy the· tax on scheduled :goods and specified the rate of tax for each such local area therein. The Sche" than) case substantially agreed with the majority decision in the case of Atiabari Tea Co. , there would be a clear difference between the said two views in relation to the scope and effect of the provisions of Art. 304(b). According to the majority view in the case of Aitiabari Tea Co. , if an Act is passed under Art.

304(b) and its validity is impeached, then the State may seek to justify the Act on the ground that the restrictions imposed by it are reasonable and in the public interest, and in doing so, it may, for instance, rely on the fact that the taxes levied by the impugned Act are compensatory in character. On the other hand, according to the majority decision in the Automobile Transport Rajasthan case, compensatory taxation would be outside Art. 301 and cannot, therefore, fall under Art. 304(b) ". On a conspectus of these decisions it appears well settled that if a tax is compensatory in character it would be immune from the challenge under Art. 301. If on the other hand the tax is not sliown to be compensatory in character it would be ne . ( ) wherein it is observed that in Kalyani Stores case (Supra) the Court did not intend to lay down a proposition of universal applicability that the imposition of a duty or tax in every case woold tantamount per se to an infringemell! t of Art.

301 and that only- ~uch restrictions or impediments which directly or immediately impede 'free flow of trade, commerce and intercourse would fall wifliin the prohibition contained in Art. 301. Even apart from this, a levy which appears to be quite reasonable in its impact on the movement of goodr1 and is imposed for the purpose of augmenting munrcipal · finances which suffered a dent on account of abolition of octroi cannot be s. aid 10 impose an unreasonable restriction on the freedom of inter-State I trade, commerce and intercourse. In this connection it would be ' useful to recall the observations of this Court in Khyerbari Tea Co. . Ltd. case that the power conferred on this Court to strike down a taxing statute if it contravenes the provisions of Arts.

14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it ii> a power ~f paramount charaCter. It is, therefore, idle to contend that the levy imposed an unreasonable ·---;. restriction on the freedom of trade and commerce. The next question is whether this levy is in public intere8t. '. As has been pointed out earlier, the levy was to compensate the loss "Suffered by abolition of octroi. These ve~y people were paying octroi H. (1) [1966] I S. C. R. 865. (2) [1970] I S. C. R. 700. SUPRE. ~E COURT REPORTS [1981] 1 S. C. R. without a demur.

After removing the obnoxious features of octroi a very modest impost is levied on entry of goods in a local area and that too not for further augmenting finances of the municipalities but for compensating the loss suffered by the abolition of octroi is certainly a levy in public interest. A! l has been repeatedly observed by this Court, the taxes generally are imposed for raising public revenue for better governance of the country and for carrying out welfare activities of our welfare State envisaged in the constitution and, therefore, even if a tax to some e,xtent imposes an economic impediment to the activity taxed, that by itself is not sufficient either to stigmatise the levy as unreasonable or not in public interest. The last limb of the argument is whether the proviso to Art. 304(b) rs satisfied or not. The proviso imposes an obligation to obtain the Presidential sanction before introducing the bill or amendment for the purpose of clause (b) of Art.

304 in the legislature of a State. It cannot be gainsaid that Presidential sanction was not obtained before introducing the bill which was ultimately enacted into the impugned Act but after the bill was enacted into an Act the same Was' submitted to the President for his assent and it is common ground . that the President has accorded his assent. If prior presidential sanction is a sine qua non, the requirement of the proviso is not satisfied but in this context it would be advantageous to refer to Art. 255 whicff provides that no Act of Parliament or of the Legislature of a ,State and no provision in any :)uch Act shall be invalid by reason only that some recommendation or previous sanction required by the Constitution was not given if assent to that Act was given by the President. Now, in this case it is common ground that the President did accord his sanction to the impugned Act. Therefore, the requirement of the proviso is satisfied.

To sum up, the impugned tax is not discrimmatory in character as envisaged by Art. 304(a) and it does· impose restrictions but the restrictions imposed are reasonable and in public interest and the Act subsequently having recerved the assent of the President, tlie proviso to Art. 304(b) is complied with and,, therefore, the impugned Act is saved by Art. 304 and could not be struck down on the ground that it was violative of Art. 301. The contention must accordingly be negatived. Two minor subsidiary points were sought to be made en passant by Mr. S. T. Desai and a brief mention of them would be in order. It was urged that there is a certain amount of vagueness in s. 3 inasmuch as no light is thrown by the words of the section or the other provisions of the A:ct on the question as to computation of tax to be KARNATAKA v. HANSA coR. i>:N. (Desai, J.

) 845 made at specified percentage ad valorem withOui specifying which pnce is to be taken into consideration for levy of fax, namely, the sale price or the purchase priCe of the concerned scheduled gOOds. . It was ~ sfild that sale price and purchase price of a dealer wo~ld lie. different and in the absence of any guideline in the chitrgmg section or any other . provision in the A'ct ii would lead to arbitraiy determiliatioii or eo! f! ~ putation of tax by takillg "in one case sale price of the scheduled goods and in another case purchase pnce". The contentfoii overlooks the specific guideline to be found in the charging section itself. The taxing event is the entry of scheduled goods into a local area. The tax becomes payable on the entry of scheduled goods in a local ·area. -Therefore, the price of the scheduled goods at the time of entry paid by the dealer who is the importer of goods within the scheduled area .

, • would be the ad valorem price on the basis of which tax would be ( "" computed. No subsequent rise or fall in price has any relevance to the computation of the tax. The charging section says that the tax ·shall be levied and collected on ihe entry of scheduled goods in a local area at specified percentage not exceeding two per cent ad valorem. Therefore, the price of the scheduled goods at the time when the tax becomes chargeable irrespective of the fact that it would be computed at a later date when the dealer submits his retura as required by the other provisions of the Att, would be the price for computation of tax. And there is no ambiguity or any vagueness fa this behalf. There is thus specific guideline in the charging section itself for taking into account the price according to which tax --t· would' be computed.

The Hight Court negatived this contention by observing that it would be open to the dealer to choose either the sale price or the purchase price whichever is favourable to him for computation of his liability to tax. This, approach overlooks t~e pecific language of s. 3 which clearly indicates what price is to be taken into account for computing the tax. When t:he goods are brought within the local area they have a certain price. The price may be the price which the importer of goods has paid before bringing the goods within the local area. Even if the dealer is the manufacturer of goods at a place outside the local area and ·brings the goods within the local area he must have determined the price of the goods.

Therefore, the dealer has some specific price of the sche- 't cluled goods which are being brought within the local area at the time of entry in the local area and the entry being the taxing event that ~ould be the price which alone can be taken into account for computmg the tax ad valorem. Therefore, we find it difficult to agree with · the reasoning adopted by the High Court in rejecting the contention but for the reasons hereinabove mentioned the contention is devoid -of merits and accordingly it must be negatived. · A As we are not able to uphold the contentions which found favour with the High Court in striki:ng down the impugned Act and the notification issued thereunder and as we find no merit in other contentions canvas&ed on behalf of the respondents for sustaining the judgment of the High Court, this appea1 must succeed.

Accordingly this appeal is allowed and the judgment of the lligh Court is quashed B and set aside and the petition filed by the Respondent in the High Court is dismissed wi. th costs ! hroughout. P. B. R. Ap""'1 ol/ow,d. A I ',. , ~·