Citation Codes

Equivalent Citations

citation codes

Case Number

O.P No. 338 of 1965

Advocates

For the Appellant: Government Pleader

Judges

K.K Mathew, J.

Acts

sub-section (1) of section 11 of the Travancore-Cochin General Sales Tax Act, 1125, or in sub-section (1) of section 8B of the Madras General Sales Tax Act, 1939,
provisions of the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939,
General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939,
Taxes Act, 1957 (Act 11 of 1957), hereinafter called the Act,
SECTION 2 CENTRAL SALES TAX ACT 1956
provisions of sub-section (2) of section 3

See more information ...

Smart Summary

Summary of Opinion: Validity of Kerala Surcharge on Taxes Act, 1957

Factual and Procedural Background

The petitioner was a dealer in radios and electrical goods assessed to sales tax for the year 1963-64 by an order identified as exhibit P1. The sales tax payable was fixed at Rs. 64,546.97 and, additionally, a surcharge at 5% was levied. It was admitted that the petitioner’s turnover exceeded Rs. 30,000. The petitioner challenged the validity of the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957) on the ground that the State Legislature lacked the constitutional power to enact the legislation and that the imposition of the surcharge pursuant to that Act was therefore unauthorised. The petition sought judicial relief on these grounds. The court ultimately dismissed the petition with costs.

Legal Issues Presented

Whether the State Legislature had the constitutional power to enact the Kerala Surcharge on Taxes Act, 1957 (i.e., whether the Act is intra vires the State).
Whether Entry 54 in List II of the Seventh Schedule to the Constitution (taxes on the sale or purchase of goods) justifies the levy of the surcharge imposed by the Act.
Whether the surcharge imposed by the Act is a “tax on tax” (i.e., a tax on the dealer personally because the dealer is not permitted to collect/recoup it), and if so whether that characterisation removes it from Entry 54 coverage.
Whether Article 271 of the Constitution (which allows Parliament to impose surcharges under Articles 269 and 270 for Union purposes) supports the contention that only Parliament may impose surcharges and that the State lacks power unless expressly authorised.
Whether absence of a previous recommendation by the Governor (under Article 207(1) / the requirements referenced thereunder) invalidates the Act.

Arguments of the Parties

Petitioner's Arguments

The Kerala Surcharge on Taxes Act, 1957 is invalid because the State Legislature lacked power to enact a surcharge of the type imposed; Entry 54 in List II does not permit this form of levy.
The surcharge is effectively a “tax on the dealer” (a tax on tax) because sub-section (2) of section 3 prevents the dealer from collecting the surcharge from purchasers; therefore it is not a tax on the sale of goods and falls outside Entry 54.
Article 271 demonstrates that surcharge power is a matter dealt with specifically for the Union (Parliament) and, absent express constitutional authorisation for States, the State cannot impose such a surcharge.
The Act was introduced without the previous recommendation of the Governor as required by Article 207(1); hence the Act is invalid.

State's Arguments (as reflected in the opinion)

The surcharge is an enhancement of the sales tax payable by a dealer whose turnover exceeds Rs. 30,000 and is therefore a tax on the aggregate sales effected by the dealer — that is, it is a tax on the sale or purchase of goods within Entry 54 of List II.
The preamble to the Act shows the legislative object was to increase taxes on agricultural income, taxes on the sale or purchase of goods and taxes on profession by levy of a surcharge on such taxes — indicating the surcharge is meant to operate as an increased tax on sales.
Even if there was no previous recommendation of the Governor, subsequent assent cures the defect (relying on Article 255).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Konduri Buchirajalingam v. State of Hyderabad [1958] 9 S.T.C. 397	Established that a sales tax need not be an indirect tax; the statutory liability may be placed on a dealer even if he is not permitted to recoup the amount from purchasers.	The court relied on this authority to reject the petitioner's contention that surcharge cannot be a tax on sale of goods merely because the dealer cannot collect it from purchasers; the case shows sales tax can be legally imposed on the dealer as the primary obligor.
Tata Iron and Steel Co. Ltd. v. The State of Bihar	Authority for the proposition that in law a sales tax need not be an indirect tax and can be imposed with primary liability on a person without power to recoup it.	Cited (by Konduri and relied upon in the opinion) to support the proposition that the inability to recoup does not alter the constitutional character of a sales tax.
Government of Andhra v. East India Commercial Co. Ltd. [1957] 8 S.T.C. 114	Explained that the ultimate economic incidence of sales tax falls on the consumer, and that dealers generally include the tax in the price; thus sales tax is effectively part of the price charged.	Used to support the view that sales tax (and by extension an added surcharge calculated by reference to sales tax) is an enhancement of the tax on the sale and is treated as part of the price of goods.
George Oakes (Private) Ltd. v. The State of Madras [1961] 12 S.T.C. 476	Supreme Court approval of the principle that sales tax incidence ultimately lies on the consumer and tends to be included in the price.	The court noted this approval to reinforce the analysis that sales tax and its enhancements can be characterised as part of the sale transaction and within Entry 54.
S. Ramanatha Shenoy & Co. v. Sales Tax Officer (Vaidialingam, J.)	Held that surcharge on sales tax is a tax on sale of goods coming within Entry 54 in List II.	The opinion cites this High Court decision as a direct precedent supporting the classification of the surcharge as a tax on sales under Entry 54.

Court's Reasoning and Analysis

The court structured its analysis around the constitutional competence of the State Legislature to enact the Kerala Surcharge on Taxes Act, 1957, and whether the levy imposed thereby falls within Entry 54, List II (taxes on the sale or purchase of goods).

1. Statutory Scheme: The court examined section 3 of the Act which (in summary from the opinion) increases the tax payable under the relevant State sales tax Acts by a surcharge for dealers whose turnover exceeds Rs. 30,000 and provides that the respective State sales tax Acts apply to levy and collection of the surcharge. Sub-section (2) bars dealers from collecting the surcharge from purchasers.

2. Character of the Surcharge — “Tax on Tax” Argument Rejected: The petitioner argued that because a dealer cannot collect the surcharge from purchasers the surcharge is not a tax on sale of goods but a tax on the dealer (i.e., a tax on tax). The court rejected this contention, relying on the Supreme Court’s observation in Konduri Buchirajalingam (and the Tata Iron & Steel authority cited therein) that a sales tax need not be an indirect tax and that the primary statutory liability may be placed on a dealer without any legal right to recoup the amount from purchasers. Thus the inability to pass on the surcharge does not change its character into a tax outside Entry 54.

3. Economic Incidence and Legislative Object: The court further relied on observations from Government of Andhra v. East India Commercial Co. Ltd. (approved by the Supreme Court in George Oakes) which recognise that the ultimate economic incidence of sales tax is generally on the consumer and that sales tax normally forms part of the price charged by dealers. On this basis the court reasoned that a surcharge calculated by reference to the sales tax, and payable in specified cases (here, where turnover exceeds Rs. 30,000), is properly viewed as an enhancement of the sales tax — i.e., a tax on the aggregate sales effected by the dealer. The preamble to the Act, which states the object is to increase taxes on sale or purchase of goods by levy of a surcharge on such taxes, was read as consistent with this characterization.

4. Precedential Support: The court noted a High Court decision (S. Ramanatha Shenoy & Co.) in which Vaidialingam, J. held that a surcharge on sales tax is a tax on sale of goods within Entry 54. The opinion treats that decision as directly supportive of classifying the Kerala surcharge as falling within Entry 54.

5. Article 271 Argument Addressed: The petitioner relied on Article 271 to argue that surcharges are a parliamentary competence. The court analysed Articles 269, 270 and 271 together. It explained that Articles 269 and 270 concern duties/taxes levied/collected by the Union and assigned/distributed to States in specified ways; Article 271 allows Parliament to increase those duties or taxes by a surcharge for Union purposes and to keep the proceeds in the Consolidated Fund of India. The court concluded that Article 271 was enacted to ensure that any surcharge imposed by Parliament on taxes under Articles 269/270 would be appropriated exclusively to the Union and would not be subject to assignment/distribution to States. Article 271 does not imply that Parliament alone has the constitutional power to impose surcharges generally; it does not negate or restrict the State's power to legislate on items within its competence (such as Entry 54). Thus Article 271 does not support the petitioner's contention that the State had no power to impose the surcharge.

6. Governor's Recommendation (Article 207) Issue: The petitioner contended that the Act was invalid for lack of the previous recommendation of the Governor required under Article 207(1) for bills dealing with certain fiscal matters. The court held that even if such a recommendation had not been made prior to introduction, Article 255 cures the defect where the Governor subsequently gives assent (or where the President does so in certain situations). Therefore lack of prior recommendation would not, by itself, invalidate the Act.

7. Conclusion of Analysis: Applying the above legal principles and precedents, the court determined that the surcharge is properly characterised as an enhancement of the sales tax on sales/purchases of goods and falls within Entry 54 of List II, that Article 271 did not deprive the State of competence to enact the surcharge, and that any defect in the pre-introduction recommendation (if it existed) was cured by subsequent assent. Accordingly, the court dismissed the petition.

Holding and Implications

Holding: Petition dismissed. The court upheld the validity of the Kerala Surcharge on Taxes Act, 1957 as a valid legislative exercise by the State and sustained the levy of the surcharge as falling within Entry 54 (taxes on sale or purchase of goods) of List II.

Implications:

Direct effect on the parties: The petition contesting the surcharge was dismissed with costs; the assessment including the surcharge as levied under the Act stands upheld.
Classification: The court treated the surcharge as an enhancement of the sales tax (a tax on the aggregate sales effected by a dealer whose turnover exceeds the statutory threshold), rather than as an impermissible “tax on tax” outside Entry 54.
Constitutional points: The opinion clarifies that Article 271 — which authorises Parliament to impose surcharges in respect of taxes/duties under Articles 269 and 270 for Union purposes — does not operate to strip States of their power to impose surcharges on matters within State competence. It also confirms that a procedural defect in prior gubernatorial recommendation can be cured by subsequent assent in terms of Article 255.
Precedential effect: The court relied on existing authorities to reach its conclusion. The opinion does not purport to create a new principle beyond applying and reconciling earlier decisions; it upholds prior reasoning that sales tax may be imposed with primary liability on dealers and that such charges can be characterised as part of the sale transaction for constitutional purposes.

Order: The petition is dismissed with costs.

Show full summary ...

Ernakulam Radio Company v. State Of Kerala

1. The petitioner is a dealer in radios and electrical goods. It was assessed to sales tax for the year 1963-64 by exhibit P1 order and the sales tax payable by it was fixed at Rs. 64,546.97 and on this a surcharge at 5% was levied. It is admitted that the turnover of the petitioner exceeded Rs. 30,000 and the question for consideration is whether the levy of surcharge is valid. Petitioner's counsel contended that the Kerala Surcharge on Taxes Act, 1957 (Act 11 of 1957), hereinafter called the Act, is invalid for the reason that the State Legislature had no power to enact the same and therefore the imposition of surcharge in pursuance of the provisions of the Act is unauthorised.

2. The only question for consideration, therefore, is whether the State Legislature had power to enact the Act. Petitioner's counsel contended that the only entry which may possibly justify this legislation is Entry 54 in List II in the Seventh Schedule to the Constitution but that that entry would not take in a levy like the one in question. Section 3 of the Act provides as follows:—

“(1) The tax payable under the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, shall, in the case of a dealer whose turnover exceeds thirty thousand rupees in a year, be increased by a surcharge at the rate of two and a half per centum of the tax payable for that year and the provisions of the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, shall, as the case may be, apply to the levy and collection of the said surcharge:

Provided that where in respect of declared goods as defined in clause (c) of section 2 of the Central Sales Tax Act, 1956, the tax payable by such dealer under the Travancore-Cochin General Sales Tax Act, 1125, or the Madras General Sales Tax Act, 1939, together with the surcharge payable under this sub-section, exceeds two per centum of the sale or purchase price, the rate of surcharge in respect of such goods shall be reduced to such an extent that the tax and the surcharge together shall not exceed two per centum of the sale or purchase price.

(2) Notwithstanding anything contained in sub-section (1) of section 11 of the Travancore-Cochin General Sales Tax Act, 1125, or in sub-section (1) of section 8B of the Madras General Sales Tax Act, 1939, no dealer referred to in sub-section (1) shall be entitled to collect the surcharge payable under the said sub-section.”

3. On the basis of the provisions of sub-section (2) of section 3 it was argued that since the dealer cannot pass on the incidence of surcharge on sales tax to the purchaser, surcharge is not really a tax on the sale of goods, but a tax on the dealer and that Entry 54 in List II would not justify the legislation in question. In other words, the argument was that surcharge is a tax on tax, that Entry No. 54 in List II will justify only a legislation imposing a tax on sale of goods, that tax on sale of goods is a tax on the sale itself and that since the dealer cannot pass on the incidence of surcharge to the purchaser or consumer, surcharge is really a tax on the dealer himself and not a tax on the sale of goods. This argument has no substance in Tt. The Supreme Court in Konduri Buchirajalingam v. State of Hyderabad [1958] 9 S.T.C 397. has observed:

“It is then said that the sale tax is essentially an indirect tax and therefore it cannot be demanded of the appellant without allowing him to recoup himself by collecting the amount of the tax from the persons with whom he deals. This Court has already decided in the case of Tata Iron and Steel Co. Limited v. The State of Bihar that in law a sales tax need not be an indirect tax and that a tax can be a sales tax though the primary liability for it is put upon a person without giving him any power to recoup the amount of the tax payable, from any other party.”

4. This observation will clearly show that in law sales tax need not be an indirect tax and that a tax can be a tax on the sale of goods though the primary liability for the same is placed upon the dealer without giving him an opportunity to recoup the same from the consumer.

“The ultimate economic incidence of the sales tax is on the consumer or the last purchaser and whatever he pays for the goods is paid only as price, that is to say, as consideration for the purchase. The statutory liability, however, for payment of sales tax is laid on the dealer on his total ‘turnover’ whether or not he realises the tax from the purchasers. Generally speaking, the price charged by the dealer would be inclusive of sales tax, for, it is to his interest to pass the burden of the tax to the purchaser. So far as the dealer is concerned, the payment of a sum covering the tax made by a purchaser on the occasion of sale, is really part of the price which the purchasers pay for the goods.”

5. These observations made by the Andhra High Court in Government of Andhra v. East India Commercial Co. Ltd. [1957] 8 S.T.C 114 and approved by the Supreme Court in George Oakes (Private) Ltd. v. The State of Madras [1961] 12 S.T.C 476. would further show that the sales tax charged by a dealer is really a part of the price of the articles sold by him. If that be so, I am unable to agree with the contention of counsel that the surcharge imposed in this case is a tax on tax. The preamble to the Act makes it clear that the object of the Act is to increase the sales tax payable by a dealer. The preamble reads as follows:—

“Whereas it is considered necessary to increase the taxes on agricultural income, taxes on the sale or purchase of goods and taxes on profession, by the levy of a surcharge on such taxes.”

6. No doubt, counsel for the petitioner said that by the use of the expression “by the levy of a surcharge on such taxes” the Legislature really wanted to impose a tax on sales tax and therefore it is clear that surcharge is levied on sales tax itself and is not justified by Entry 54 in List II. I am unable to agree with this contention also. The object of the Act, as is clear from the preamble, is only to increase the tax on the sale or purchase of goods and the fact that its quantum is determined with reference to the sales tax imposed would not alter its character. Counsel for the petitioner submitted that since no surcharge could be realised by the dealer from the purchaser there is no meaning in the contention of the State that it is a tax on the sale of goods. It may be noted that surcharge is to be imposed on a dealer if the turnover exceeds Rs. 30,000 a year. It is a tax on the aggregate of sales effected by the dealer during the year in question. The surcharge therefore is really an enhancement of the sales tax when the turnover of the dealer exceeds Rs. 30,000 a year, and is a tax on the aggregate of sales effected by the dealer during the year. Vaidialingam, J., has held in S. Ramanatha Shenoy & Co. v. Sales Tax Officer that surcharge on sales tax is a tax on sale of goods coming within Entry 54 in List II.

7. Counsel for the petitioner then submitted on the basis of Article 271 of the Constitution that unless there is express authorisation by the Constitution the State Legislature has no power to impose a tax by way of surcharge. Article 271 reads thus:

“Notwithstanding anything in Articles 269 and 270, Parliament may at any time increase any of the duties or taxes referred to in those articles by a surcharge for purposes of the Union and the whole proceeds of any such surcharge shall form part of the Consolidated Fund of India.”

8. The contention of counsel for the petitioner was that unless there is express authorisation for the State Legislature also to impose surcharge, there is no power in that behalf for the Legislature to enact a measure for that purpose. In order to understand the meaning of that article, it is necessary to look at Articles 269 and 270. Article 269 provides that the Government of India shall levy and collect the duties and taxes mentioned in the article and assign them to the States in the manner provided in clause (2) of the article. Clause (2) is as follows:—

“(2) The net proceeds in any financial year of any such duty or tax, except in so far as those proceeds represent proceeds attributable to Union territories, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that duty or tax is leviable in that year, and shall be distributed among those States in accordance with such principles of distribution as may be formulated by Parliament by law.”

9. Article 270 directs that taxes on income other than agricultural income shall be levied and collected by the Government of India and distributed between the Union and the States in the manner prescribed in clause (2). Clause (2) reads thus:—

“(2) Such percentage, as may be prescribed, of the net proceeds in any financial year of any such tax, except in so far as those proceeds represent proceeds attributable to Union territories or to taxes payable in respect of Union emoluments, shall not form part of the Consolidated Fund of India, but shall be assigned to the States within which that tax is leviable in that year, and shall be distributed among those States in such manner and from such time as may be prescribed.”

10. Then follows Article 271 saying that it will be open to Parliament to increase those duties and taxes by a surcharge for the purpose of the Union and the whole proceeds shall form part of the Consolidated Fund of India. It was to avoid a possible contention on the part of the States that the surcharge levied and collected by the Union should also be assigned to the States by the Union or distributed between the Union and the States, that Article 271 was enacted, providing that notwithstanding the fact that the taxes and duties levied and collected under Articles 269 and 270 must be assigned to States or distributed between the Union and the States as the case may be, the surcharge shall form part of the Consolidated Fund of the Union. In other words, the Parliament may impose a surcharge on the duties and taxes mentioned in Articles 269 and 270 and credit it to the Consolidated Fund of the Union exclusively. But for Article 271, the States could successfully contend that surcharge levied and collected by the Union must be assigned to the States or distributed between the Union and the States as the case may be. The article cannot be pressed in aid of the contention that but for that article the Parliament would have no power to levy surcharge on taxes and duties which the Parliament is competent under the Constitution to levy.

11. The only other contention advanced by counsel for the petitioner was that since there was no previous recommendation by the Governor for moving the Bill in the State Legislature the Act is invalid. This contention is raised on the basis of Article 207(1), which runs as follows:—

“A Bill or amendment making provision for any of the matters specified in sub-clauses (a) to (f) of clause (1) of Article 199 shall not be introduced or moved except on the recommendation of the Governor, and a Bill making such provision shall not be introduced in a Legislative Council:

Provided that no recommendation shall be required under this clause for the moving of an amendment making provision for the reduction or abolition of any tax.”

12. It was argued that previous recommendation of the Governor was necessary for introducing or moving a money bill in the Legislature and as no previous recommendation was made by the Governor the Act is invalid. Assuming for a moment that there was no previous recommendation by the Governor, his subsequent assent to the Bill is sufficient in law to cure the defect arising out of the want of previous recommendation by him. Article 255 is decisive of the question.

“No Act of Parliament or of the Legislature of a State and no provision in any such Act, shall be invalid by reason only that some recommendation or previous sanction required by this Constitution was not given, if assent to that Act was given—(a) where the recommendation required was that of the Governor, either by the Governor or by the President.”

13. Even assuming that there was no previous recommendation of the Governor, that would not invalidate the Act.

14. I dismiss the petition with costs.

15. Petition dismissed.

Ernakulam Radio Company v. State Of Kerala

Summary of Opinion: Validity of Kerala Surcharge on Taxes Act, 1957

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioner's Arguments

State's Arguments (as reflected in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ernakulam Radio Company v. State Of Kerala

Comments