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Firm Of A. Gowrishankar v. Sto Secunderabad & Another
Factual and Procedural Background
The Hyderabad General Sales Tax Act, 1950, originally exempted sales of coarse and medium cloth. Hyderabad Act 27 of 1952, effective 1 August 1952, amended the principal Act and brought those goods within the tax net. In October–December 1952, the Sales Tax Officer, Secunderabad, issued five provisional assessments against the present appellants, taxing their sales—including coarse and medium cloth—from 1 August 1952 onward.
Each appellant challenged the assessments administratively and simultaneously sought writs before the Hyderabad High Court, contending that the tax was barred by Article 286(3) of the Constitution and by Explanation II to Section 2(k) of the principal Act. On 30 September 1953, the High Court dismissed all five writ petitions but certified the cases for appeal under Article 132. The present consolidated appeals before the Supreme Court arise from those certificates.
Legal Issues Presented
- Whether, in view of Article 286(3) of the Constitution and parliamentary declarations of essential goods, the State could levy sales tax on coarse and medium cloth under the Hyderabad General Sales Tax Act as amended by Act 27 of 1952.
- Whether Act 52 of 1952—declaring coarse and medium cloth “essential for the life of the community”—rendered the State amendment ineffective because it lacked Presidential assent.
- Whether Explanation II to Section 2(k) of the principal Act independently exempted transfers of such cloth from the definition of “sale.”
Arguments of the Parties
Appellants' Arguments
- The Essential Supplies (Temporary Powers) Act 24 of 1946, applied to Hyderabad from 17 August 1950, declared cotton textiles essential; hence Article 286(3) barred the tax.
- Parliament’s Act 52 of 1952 expressly declared coarse and medium cloth essential; therefore any State law taxing those goods after 9 August 1952 could operate only with Presidential assent, which the Hyderabad amendment lacked.
- Hyderabad Act 27 of 1952 was rushed through eight days before Act 52 of 1952 to circumvent forthcoming federal restrictions and should be regarded as invalid in substance.
- Explanation II to Section 2(k) of the principal Act excludes from “sale” any transfer of goods immune from tax under Article 286; consequently, sales of the declared essential cloth remained untaxable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Konduri Bachiraja Lingam v. State of Hyderabad (C.A. No. 192 of 1955) | Upheld the view that the Essential Supplies Act of 1946 did not bar the impugned tax. | The majority adopted the reasoning of that decision to reject the appellants’ first contention; Bose, J. relied on it for his dissent. |
Court's Reasoning and Analysis
1. Essential Supplies Act 24 of 1946: The appellants ultimately did not press this point; in any event, the Court, following its reasoning in Konduri Bachiraja Lingam, held that the 1946 Act did not invoke Article 286(3) so as to invalidate the tax.
2. Parliamentary Act 52 of 1952 and Article 286(3): Article 286(3) disables only those State laws enacted after Parliament has declared goods essential. Both the principal Act (1950) and its amendment (Act 27 of 1952) preceded the commencement of Act 52 of 1952 (9 August 1952). Hence their validity remained intact regardless of the absence of Presidential assent.
3. Allegation of Legislative Evasion: The Court stated that legislative motive is irrelevant if the legislature was competent, and the appellants did not challenge competency; therefore Act 27 of 1952 could not be impugned on alleged bad faith.
4. Explanation II to Section 2(k): The provision excludes from “sale” only those transfers that could not be taxed because of Article 286(3). Since Hyderabad had enacted no post-1952 legislation taxing essential goods, Article 286(3) did not come into play; consequently, sales of coarse and medium cloth remained taxable under the existing Act.
5. Dissent: Bose, J. adopted the reasoning in Konduri Bachiraja Lingam and would have allowed the appeals, but he was in the minority.
Holding and Implications
DISMISSED WITH COSTS.
The Supreme Court, by majority, upheld the validity of Hyderabad Act 27 of 1952 and confirmed the tax liability on sales of coarse and medium cloth. The immediate consequence is that the appellants must pay the assessed sales tax. The judgment turns on temporal sequencing under Article 286(3) and creates no new doctrinal departure beyond reaffirming that only State legislation enacted after a parliamentary declaration of essential goods requires Presidential assent.
The Judgment of the Court was delivered by
A.K Sarkar, J.— The Hyderabad General Sales Tax Act, 1950, came into force on May 1, 1950. As it originally stood, sales of coarse and medium cloth were not liable to be taxed under it. The Act was amended by Hyderabad Act 27 of 1952 which came into force on August 1, 1952 and as a result of the amendment, sales of coarse and medium cloth were made taxable under the principal Act. Thereafter, the Sales Tax Officer, Secunderabad, on different dates in the months of October, November and December, 1952, made five provisional orders of assessment, one in respect of each of the five appellants before us, whereby he levied a tax on the sales of the appellants including the sales of coarse and medium cloth made by them on and after August 1, 1952, being the date from which sales of coarse and medium cloth became taxable under the amendment earlier mentioned. The appellants appealed from these orders of assessment to the higher Sales Tax Authorities under the provisions of the Act. Pending the decision of the appeals each of the appellants moved the High Court at Hyderabad for the issue of a writ of mandamus or other appropriate writs directing the Sales Tax Officer not to collect tax on sales of coarse and medium cloth. The appellants contended that these goods had been declared essential goods and sales in respect of them were not liable to be taxed in view of Article 286(3) of the Constitution and explanation II to Section 2(k) of the Act, as the principal Act and the amending Act had not been reserved for the consideration of the President nor received his assent. The High Court delivered judgment on September 30, 1953, dismissing all the five applications. It however granted certificates under Article 132 of the Constitution. These appeals have come to us under these certificates. The High Court directed that as the point involved in all the appeals was the same only the papers in one appeal might be printed to cover all. The question to be decided in these appeals is whether sales of coarse and medium cloth are liable to be taxed under the principal Act as amended by Hyderabad Act 27 of 1952 (the amended Act being hereafter referred to as the “principal Act”) in view of Article 286(3) of the Constitution and certain other enactments to which reference will be presently made, declaring these varieties of cloth to be essential goods. It may here be stated that by a farman issued by H. E. H. the Nizam on November 23, 1949, it was directed that the Constitution of India when promulgated would apply to the territories of Hyderabad. At the relevant period Hyderabad was one of the Part B States defined in the Constitution.
2. The first enactment to which the appellants refer is the Essential Supplies (Temporary Powers) Act, 24 of 1946. This Act declared cotton textiles to be essential goods and was applied to the Hyderabad State on August 17, 1950. The point is that in view of this declaration, under the provisions of Article 286(3) of the Constitution sales of coarse and medium cloth were not liable to be taxed. The learned advocate for the appellants however stated that he did not wish to press this point. In any case for the reasons mentioned in our judgment in CA No. 192 of 1955 this point is without substance.
3. The appellants next relied on Act 52 of 1952 which declared coarse and medium cotton cloth to be goods essential for the life of the community. This was a law passed expressly under the powers conferred on Parliament by Article 286(3). The appellants contend that in view of this Act which had come into force on August 9, 1952, the principal Act could not after its date impose any tax on the sales of coarse and medium cloth. Again, we are unable to agree. Article 286(3) states that the law of a State shall not impose a tax on the sale or purchase of any goods which have been declared by Parliament by law to be essential for the life of the community and therefore it contemplates a law passed by a State after the Parliamentary law declaring goods to be essential. Neither the principal Act nor its amendment by Act 27 of 1952 were passed after Act 52 of 1952. Section 3 of Act LII of 1952 is set out below:
“3. No law made after the commencement of this Act by the legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any goods declared by this Act to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.”
4. This section clearly states that a law by a State Legislature made after the commencement of Act 52 of 1952, shall not impose a tax on the sale or purchase of commodities declared essential by the Parliamentary Act. In doing this it is only carrying out the clear intention of Article 286(3). Therefore, a law made by a State Legislature before Act 52 of 1952 commenced to operate is not at all affected by Article 286(3). The principal Act and its amending Act were such Acts and were hence effective in imposing a tax on coarse and medium cloth. It was stated that Hyderabad Act, 27 of 1952 which enabled the principal Act to levy a tax on sales of coarse and medium cloth was enacted only 8 days before Act 52 of 1952 was enacted and, in fact, the amending Act was enacted in a hurry to avoid the effect of Act 52 of 1952 with full knowledge that the bill for this Act was pending before Parliament. It is said that the Hyderabad Act, 27 of 1952 was passed only with a view to get round the Parliamentary Act, 52 of 1952. We have no sufficient materials in this case to accept that view. Besides, the validity of an Act depends on the legislative competency and if competency is not challenged, as it is not in this case, the Act must be a valid piece of legislation whatever may have been the intention which led to its enactment. We are not here concerned with a law which is not within the competency of the legislature but is disguised as such. As to such a law different considerations may apply. We are, therefore, unable to hold that Hyderabad Act, 27 of 1952, was not a valid piece of legislation.
5. It remains to deal with the contention based on Explanation II of Section 2(k) of the principal Act. That explanation is in these terms:
Explanation 2.—Notwithstanding anything to the contrary in any other law for the time being in force, a transfer of goods, in respect of which no tax can be imposed by reason of the provisions contained in Article 286 of the Constitution, shall not be deemed to be “sale” within the meaning of this clause.
6. It is said that the purpose and effect of this explanation was to make all sales of goods declared essential by Parliamentary enactment exempt from liability to tax under the principal Act. We do not think that such is the effect of the explanation. It only says that a sale of goods in respect of which no tax can be imposed by reason of Article 286(3) shall not be a sale liable to be taxed by the principal Act. Article 286(3) only prevents State legislatures by a law passed after a Parliamentary Act declaring goods to be essential for the life of the community from taxing the sales of these goods. Therefore, a transfer of goods which under the explanation is not to be regarded as a sale within the meaning of the Act is a transfer of goods which cannot be taxed under an Act of a State Legislature passed after the Parliamentary Act declaring these goods to be essential for the life of the community. The Parliamentary Act declaring goods to be essential on which learned advocate for the appellants relied for his present argument was Act 52 of 1952. But after this Act, no Act was passed by the Hyderabad Legislature purporting to tax any sales of goods declared essential by Act 52 of 1952. Therefore, it cannot be said that the transfer of coarse and medium cloth are not sales within the meaning of the principal Act.
7. The result is that the appeals must fail and they are dismissed with costs.
Vivian Bose, J.—For the reasons given in my judgment in Civil Appeal No. 192 of 1955 (Konduri Bachiraja Lingam v. State of Hyderabad) delivered today, I would allow these appeals.
9. In accordance with the opinion of the majority, these appeals are dismissed with costs.
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