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412 HANSRAJ BAGRECHA v. STATE 01<' BIHAR & ORS. September 18, J 970 [J. C. SHAH, K. S. HEGDE AND A, N. GROVER, JJ.J Constitmion of India, A.·rts. 301 & 304-The Bihm· St1les Tax A.ct, l9S9.as amended by BiharFinance A.ct, 1966, ss. 3A, SA., & 42-The Bihar Sales Tax Rules, 1959, R.31B-Levyof purchase tax on goods whether pe1· se restrlct/225e of freedom of tarade-Pres/demial msent whether rt· q1rlr~d for levy o~ tax-Stctlons 3A. d SA. of Bll1ar A ct whether lnva,Jld 011 gro11nd of contra~·entlon of .s. 15 of Ctnlral Sumption thatthe levy of purchase tax must be deemed in all circun1stancc.s to violatethe guaranteeunJi:r Art. 301 and A H c D E F G ff A B c D E F G H HANSRAJ v. B!HAR (Shah, .J.) 413 the levywill be valid oolY. if the Act is enacted by theState U$islature with Ille previoussanction of thePresidentcannot be accepted a8 correct. Imposition of taxmayin certain circumstances impedefree fiow of trade, commerceand intercourse.Butevery tax does not havethat effect. [417G; 419 EJ State of Madras v. N. K. NatarajaMudaliar[1968] 3 S.C.R. 829. Atiabari Tea Co. Ltd. v. State of Assam, (1967] l S.C.R.809 alld The Andhra Sugars Ltd. v. State of Andhra Pradesh, 21 S.T.C. 212,applied. In the present casethe petitionerhas madeno avermentsin his peti tion which supported tho pleathat impositionof purchase-taxdirectly and lmmcdlatefy mtricta or impedes· the free 11ow of trado. Since power to Impose purchase tax under 1. 3A wa1 notshuwnto l'i"Strict or Impede the free 11ow of trade directlyano immediately,it neod not seok to derivefor its validity, supportfrom Art. 304(b). 1.419 OJ (Ii) By •· IS of the CentralSales Tax Act 1 tax liablein respect of doclaredaoods on transactionsof saleor purc.naie is restricted to 3 % and ii not leviableat morethan one staae. There was no dispute that thepurchase tax on ju,le wasleviableat the ftrst pointof purchaseunder a. 3A of the BiharSales Tax Act,and the rateof tax was notshown to exceed the maximumprescribed by s. 15 of theCentralSales Tax Act. Theprovisionsof ss. 3A andSA of theBiharSales Tax Act Ill'• not therefore inconsistentwith the provisionsof s. 15 ofthe CentralSales Tax Act. [420 E] (ill) Rule31B of the Bihar Sales TaxRulesmust however be struck down as ultra vires. (420 Fl Thepowerof theStateLegislature is restrictedto legislatein respect of intra-state transactionsof saleand purchase and to mattersancillary or incidentalthereto : ithasno powerto legislatefor levyof taxon salesand purchasein thecourseof inter-Statetransactions. The power conferred by s. 42 authorisingthe impositionof restriction or transport or movement of goodsmay oolybe exercisedin respectof transactions whichfacilitatelevy, collectionand recovery of tax on transactionsof intra-Statesale or purchase. w.ben r. 3 IB prohibitstransport of gQ(>d~ to anyplaceoutsidethe Stateof Ribar unless a certificate is optained fromthe appropriateauthority, it seeksto prohibittransportof goods put'!'uant totransactions wihich maynot evenbe of thenature of sale or purchasetransactim1s;in anycaseit restrictstransportpursuant to transactionsin thecourseof inte-Statetrade and commerce. Theopera tion of theruleis notrestrictedonly to transactionsin the course of intra-s!ate trade and commerce. The roleauthorisesrestiictionson inter.state transactions and is on that accountunaulborise4.·For the same, reasons the notification issued on December 26, 1967 must be regarded as alsounauthorised. [421 E-G] CML APPELLATE JURISDICTION : Civil Appeal No. 1'985 of 1969. Appeal from the judgment and order !Jated. Janullry 4, 1969 of the Patna High Court in Civil Writ Jurisdiction case No. 520 of 1967. M. C. Chag/a, D. P. Singh and V. J. Francis, for the appellqnt. L. M. Singhvl and U. P. Singh, for respondents Nos. 1 to 4. 414 SUPREME COURT REPORTS [1971] 2 ~.R. The Judgment of the Court was delivered by SHAH, J. This appeal is filed withcertificategranted by the High Courtof Patnaurider Art. 133( 1) (a) of theConstitution. The appellant HansrajBagrechacarries on business in jute. In thecourseof hisbusinessthe appellantbuys raw jute from pro ducers in West Bengal,transportsit toKishanganjRailway Station (which is within the State of Bihar)and then re-exportsit topurchasers in West Bengal.He also buys raw jute in Bihar and exportsit tothemerchantsor millownersin West Bengal by rail from KishanganjRailway Station. The Bihar Sales Tax Act,1959, as originallyenacted did not ,providefor levy of purchase tax. By theBihar F'inance Act, · 1966,with effect from April l, 1967, among othersthe following · sections were incorporated in the Bihar Sales TaxAct,1959: S. 3 A "'The State Government may from time to time,by notificationdeclare any goods to beliableto purchase tax onturnover.of purchase: Providedthat general sales tax and special sales ta.X shallnot be payableon thesaleof goods or classof goods declared under. this section." S. SA· "The purchase tax on goods declaredunder section3A shallbe levied at thepointof purchasemade froma person other than a registered ,dealer." .By a notificationdated September 14, 1966the GovernorofBihar declared 'jute' as a commodityliable to purchase tax at the rate specified inthe notification. Section 42 oftheBihar Sales TaxAct by the first sub-section provided: "No person shalltransportfrom any railwaystation, steamerstation, air-port,post office or any other placi:, ·whether of similar nature. or otherwise,notified in this behalf by the State Govt., any consig1m1ent ofsuch goods, exceeding suchquantity, as may be specified in the notification,except in accordancewith such condi tions as maybe prescribedand suchconditionsshall be made with a view to ensuringthat there is no evasion of tax payable under this Act." Section46 of the Act investedthe State Governmentwith power to-make rulesfor all mattersexpresslyrequired or allowed by the Act to be prescn"bed andgenerallyfor carryingout the purposes of theActand regulatingthe procedureto be followed, forms to A B c D E F G II " B c D HANSRAJ v. B!HAR (Shah, J.) 415 be adoptedand feesto bepaidm connectionwith proceedings underthe Actand all othermattersancillary or incidental thereto. In exerciseof thepowersconferredunder s. 46( l) •the State of Biharpromulgatedunder Rules 31 B and 8C, Rule 31B, whichprovided: · " ( 1) No personshall tenderat anyrailwaystation, steamerstation, air-port,post-office or any otherplace, whetherof similarnature or otherwise,notified under section42, anyconsignmentof suchgoodsexceeding suchquantity,as may be specified in thenotification, fortransportto anyplaceoutsidethe State of Bihar, unlesssuch personhas obtaineda despatchpermit in FormXXVIII-Dfrom the appropriateauthority refer red to in the ExplanBlion to rule 31 andno personshall acceptsuch tenderunless the saidpermit is surrendered to him." Rule 30 ( 1) provided: "The first purchase of goodsdeclared under sec- tion14 of the CentralSales Tax Act,1956, shall be leviableto taxin termsof sections3, 3A and SA of the Act and no subsequent safos or purchasesin respect ofthesaidgoodsshall be liableto anytax underthe Act." !j: After the enactmentof ss. 3A and SA the State Government issueda notificationdated December26, 1967purportingto exercisepower under s. 42 of theBihar Sales TaxAct,1959read withr. 31B of theBihar SalesTax Rules,1959, notifyingthat no person shall tender at any railway station mentioned in Sch. II, andconsignment of goodsmentioned' in Sch. I, exceedingthe r quantity specifiedfor transportto anyplaceoutsidethe State of Bihar and no person shall acceptsuch tender in accordancewith theconditionsprescribed in r. 3 lB oftheBihar Sales Tax Rules, 1959. UnderSch. I 'Jute'exceeding 800 Kg. could not be tenderedfor transportwithout "a despatch permit", and Kisha11- ganj was one of theRailwayStations mentioned in Sch. Il. In July 1967the Superintendentof Commercial Taxes addres- G sed aletterprohibitingthe railway authorities fromloadingjute goods and despatchingthem from any railwaystation within the Pumea Districtof Bihar,excepton production of a "registratioa certificate". Byhis JetterdatedJuly 10, 1967 the Station Master Kishanganjcalled upon the Secretary, Jute Merchants Association, Kishanganj,to producea .certificate as required in theletter Gf the HSuperintendentof Commercial Taxes, before "loading jute goods for despatchwas commenced" and informed them thaf in default wagons allotted to the jutemerchants shall be cancelled and I S-L308SupCint 416 SUPREME COURT REPORTS [1971] 2 s.c.t. registration fees , forfeited and that "demurrage" will be charged. The appellant'srequest that jute booked by him be despatched fromKishanganj was turned down by the railwayauthorities, be cause the registrationcertificate issued by theSuperintendent of CommercialTaxes, Purneafor themovement of jutefromthe place was notproduced. Theappellantthen moveda petitionbefore the HighCounof Patna on August29, 1967challengingthe villidity of ss. 3A, SA, 42 and46 and r. 31B of the :Bihar Sales Tax Rules, 19S9. The HighCourtof Patna dismissedthe petition.With certificate grantedby theHighCounthis appealhas beenpreferred by the appellant. In supportof theappealcounselfor theappellantraised three contentions: (I) that ss. 3A & SA as incorporated4th Finance.Act of1966infringedthe guaranteeof freedomof tradeunderArt. 301 of theConstitutionand since theamendmentmade by the FinanceAct, 1966 didnotreceivethe assentof the Presidentunder Art. 304 (b) theamendment was not saved; (2) that ss. 3A & SA and r. SC "wc(e contrary to" s. IS of theCentral Sales TaxAct,19S6and were voidon thataccount;and (3) that r. 31B framed by the State Governmentand thenotification issued. on December26, 1967 were unauthorisedand liableto be struck down. Article 301 of theConstitutionguarantees freedom of trade, commerceand intercoursethroughout theterritoryof India. By Art. 302 theParliament is authorised by lawto imposesuch restrictionson thefreedomof trade,commerce o~ intercourse betweenone Stateand anotheror within any partof theterritory ofIndia as maybe requiredin thepublicinterest.Art. 303 ( 1) imposes restrictionsupon the powerwhich the Parliamentor the Legislatureof a State may exerciseto makeany law giving,or authorisingthe giving of, anypreferenceto one State overanother, ormakingor authorisingthe making of, anydiscrimination be tweenone State and another, by virtueof any entry relatingto tradeand commerce in any of theListsin theSeventhSchedule. Butthat clause doesnot operateto restrictthe powerof the Parliamentto makeany lawgiving,or authorisethe giving of, anypreferenceor makingor authorisingthe making of, any discrimination, if itisdeclaredby suchlaw that it is necessary todoso forthe purposeof dealingwith a situationarising from A B c D I E F G H II c D E F G H HANSRAJ "I'. BIHAB. (Shah, /.) 417 scarcity of goodsin anypart of the territoryof India; Art. 303 (2). Art. 304 provides in so faras it is relevant: "Notwithstanding anything in article 301 or article 303, the Legislature of a State mayby law- (a) (b) imposesuch reasonablerestrictionson the free domof trade,commerce or intercoursewith or within that State as may be requiredin the pub licinterest: Providedthat no Bill or amendmentfor the pur pose of clause (b) shall be introduced or movedin the Legislatureof a State without the previoussanction of the President." Art. 304 is in terms arestrictionon the freedom guaranteed by Art. 301. Notwithstandingthe amplitudeof thefreedomof trade, commerceand intercoursethroughout the territoryof India,the Legislature of a State may by lawimposeamongothers such reasonablerestrictionson the freedom of trade,commerce or intercourse with or withinthat State as may be requiredin the public interest. But thatauthorityto imposereasonable restric tions onthe freedom of trade,may onlybe exercisedby the Legislature of a State if the Bill or amendmentfor the purpose of cl. (b) is introduced or movedin the Legislature of a State with theprevioussanction of the President. It was contendedthat since s. 3A providing for the levy of purchase tax imposesa restrictionon thefreedom of trade, com merce andintercourseand on that account violatesthe freedom of tradeguaranteedby Art. 30 l, it maybe savedonly if it is legisla tion of the naturecomtemplatedby Art. 304 (b) andthe Billwhich wasenactedinto the Actreceivedthe previousassent of the President.The assumptionthat the levy of purchasetax must bedeemedin all circumstances to violate the guaranteeunder Art. 301, and the levywill be validonly if the Actis enactedby the State Legislaturewith the previoussanction of thePresident, cannot be acceptedas correct.This Courtin The State of Mad ras v. N. K. Natara;a Mudallor(')-examined the validityof laws whichimposetaxes on salein thelightof Art. 301. It was observedat p. 839 : "This Article(Art. 301) is couched in terms of thewidestamplitude;trade, commerceand inter course are therebydeclaredfree and unhampered throughoutthe territory of India.The freedomof trade (I) [1968) 3 S. C. R. 829. 418 SUPREME COURT REPORTS [1971] 2 S.C.R.. so declaredis againstthe impositionof barriers or " obstructionswithin the Stateas wellas inter-State: all restrictionswhich dir1=Ctly and immediatelyaffect the movementof tradeare declaredby Art. 301 to be in- effective. The extent to whichArt. 30 I operates to make trade and commercefree has beenconsidered by this Court in several cases. In AtiabariTea Co. Ltd.B v. The State of Assam and others(') Gajendragadkar, J., speaking for himself and Wanchpo and DasGupta JJ, observed at p. 860 : " ...... we thinkit would be reasonableand proper to holdthat restrictions,freedom from which is guaran teed by Art. 30 I, would be suchrestrictions as directly and imma:!iately restrict or impedethe free flow or move-· mentof trade.''. "In AutomobileTransport (Rajasthan) Ltd v. The State of Rajasthan and others ( 2 ) theviewexpressed byGajendragadkar, J., in AtiabariTea Co's casewas . accepted by the majority. SubbaRao, J., whoagreed With the majorityobservedthat the freedomdeclared under Art. 301 of theConstitutionof Indiareferredto the right of free movementof tradewithoutany obstruc- 0 tions by way of barriers,inter-State or intra-State, or other impedimentsoperating as 'such barriers. The same view was expressedin Firm A.T.B. MehtabMajid and Company v. State of Madrasand Another(•) by a unanimousCourt. It must be taken as settled Jaw that lhe restrictions Or impediments which directlyand im- ma:liatelyimpede or hamper the free flow of trade, commerce and . intercourse fallwithinthe prohibitlon · imposed by Art. 301 andsubjectto theother provisions of the Constitutionthey may be regardedas void; . But it is saidthat by imposing tax on sale&, .. no restriction hamperingtrade is imposed. In the Atiabmmerce. Jute is one of such classesof goods.By s. 15 as (ll [1961] IS. C.R. 809. (2) [1%3] IS. C.R. 491. 420 SUPREME COURT REPORTS [1971} 2 S.C.R. amendedby theCentralSales Tax SecondAmendmentAct XXXI of 19 5 8 itisprovided: "Every sales tax law of a Stateshall,in so far as it imposesor authorisesthe impositionof a taxon the saleor purchaseof declaredgoods, be subject to the followingrestrictionsand conditions,namely :-- (a) the tax payableunder that Jaw in respectof any saleof purchaseof suchgoodsinsidethe state shallr.ot exceedthree per c:nt of thesale or purchaseprice therQef, ancl such tax shallnot beleviedat more than onestage; ( b) wherea taxhas been leviedunder that law in respectof thesale or purchaseinside the state ofanydeclared goods andsuchgoodsare sold inthecourseof inter-statetrade or commerce, the tax so leviedshall be refundedto suchperson insuchmannerand subjectto suchconditions as may be providedin any law inforcein that State." By s. 15 of the.CentralSales Tax Act in respectof thedeclared ·' B c D goods on transactionsof sale or purchasethe tax leviable is restrict- l ed to 3%and is not Jeviable at morethan one stage. There is no disputethat the purchasetax on juteis leviable at thefirstpoint of purchaseunder s. 3 A of theBiharSales Tax Act,and the rate · E oftaxalsois notshownto exceed·the maximumprescribedby s. 15 of the CentralSales Tax Act.The provisionsof ss. 3A & SA of the BiharSales Tax Act are notthereforeinconsistentwith theprovisionsof s. 15 of theCentralSales Tax Act. But, in ourjudgment,r. 31Bof theBiharSales Tax Rules, 1959and the notificationissued on December26, 1967 are un authorisedand mustbe struckdown.The BiharSales Tax Att is enactedby theLegislature to consolidateand amend the law relating to thelevyof taxon the saleand "purchase of goods in Bihar.The StateLegislatureis competent in enactingsales-tax legislation to makea provisionwhich is ancillary or incidental to anyprovisionrelating to levy,collectionand recoveryof sales-tax and purchase-tax.A provisionwhich is,made by theAct or by theRuleswhichseeks to preventevasion of liabilityto pay tax on intra-State sales or purchasewould thereforebe withinthe competence of the Legislature or theauthoritycompetent to mah> the rules. But the StateLegislaturehas rio power to legislate for the levyof taxon transactionswhich are carriedon in the coune of inter-Statetrade or commerce or in the course of export. Section 42 of theBihar Sales TaxAct,1959, prevent~ any per- son. from transportingfrom any railwaystation, steamer station,F G " !-- ' A B c D E F G H HANSRAJ v. BIHAR (Shah, /.) 421 air-port,post office or an¥ other place any consignmentof such goods exceedingthe quantity specified with a view to ensuringthat there is noevasion of taxpayableunder the Act.But the power under s. 42 canonlybe exercisedin respectof levy,collection andrecoveryof intra-Stateor purchasetax. It cannot be utilised forthepurposeof ensuringthe effective levy of Inter-Statesales or purchase tax. Theappellantpurchasedjute bothwithin and withoutthe State of Bihar.In respect of transactionsof purchasewithin the State of Biharand despatch of goods liabilityto pay purchase-tax atthepointof purchase may arise.In respect of goodswhich arepurchasedin the State of West Bengaland broughtwithin the State of Biharand thendespatchedto other States inthecourse ofinter-Statetransactions no question of levy of purchase-tax under the Bihar Sales TaxAct arises. R. 3 IBframed by the State Government seeks to prohibittransportin pursuanceof transac tions whichare inter State, for in termsit prohibitstransporting of goods toanyplace outsidethe State of Bihdr. Again trans port of goods for personalconsumption o~ use, or of goods gifted, pledged or dealtwith otherwisethan by sale, falls withinthe in~ junctioncontainedin r. 3 lB. Thepower of the State Legislature is restricted to legislatein respectof intra-Statetransactionsof saleand purchaseand to matters ancillaryor incidentalthereto : ithasno powerto legis late for levy of taxon sales andpurchasein thecourseof inter state transactions.The powerconferred by s. 42 authorisingthe imposition of restrictionon transportor movementof goods may only be exercisedin respect of transactionswhich facilitate levy, collectionand recoveryof taxon transactions of intra-Statesale orpurchase.When r. 3 lB prohibits transportof goods to any placeoutsidethe State of Bihar unless a certificateis obtained from theappropriateauthority, it seeks to prohibit transportof goods pursuant to transactions which maynoteven be of the nature of sale orpurchasetransactions;in illlY case it restricts transportpursuant to transactionsin thecourseof inter-State tradeand commerce.The operation of the rule is notrestricted only to transactionsin thecourseof intra-State trade and com merce.The rule authorisesrestrictionson inter-State transac tionsand is on thataccountunauthorised.For the same reasons thenotification issued on December26, 1967must l>e regarded as also unauthorised. In the view we havetaken r. 31 B andthe notificationissued by the StateGovernmenton December26, 1967must be declar ed ultra vires, and since r. 3 lB and the notificationare ultra vires the communication issued by the Superintendent of Commercial ~ •) ') ·-- SUPREME COURT REPORTS [1971] 2 S.C.R. Taxes to the Railway Authorities must also be declared unautho rised.A writwill thereforeissue dechiring r. 3 !B and the noti ficationissued by the Government of Biharon December26, i 967 ultra i-ires, and the letterwritten by the Superintendentof Commercial Taxes to theRailwavAuthorities is also declared unauthorised. · Havingregard to thecircumstances, we thinkthere shouldbe noorder as to costs. G.C. B |
