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Firm Of Soma Rajaiah And Others v. Sales Tax Officer, Secunderabad And Another
Structured Summary of the Opinion
Factual and Procedural Background
The applicants are some members of the Wholesale Cloth Merchants Association of Secunderabad (claimed to consist of about 150 merchants), who are registered dealers under the Hyderabad General Sales Tax Act, 1950. They carry on the business of selling cloths of various qualities (including super-fine, coarse and medium varieties). The applicants challenged the imposition of sales tax on course and medium cotton cloths as made leviable by the third amendment to the Hyderabad General Sales Tax Act, enforceable from 1-3-1952, and specifically as applied for the period after 1-8-1952. In November 1952 the Sales Tax Officer of Secunderabad treated sale amounts of coarse and medium cloths as assessable turnover and demanded payment of tax; the applicants were advised to file appeals but, instead, filed five writ applications in the nature of mandamus and other appropriate directions under Article 226 of the Constitution directly in this Court, asserting that the assessments were ultra vires for reasons set out in their pleadings.
Legal Issues Presented
- Whether the word "law" in Clause (3) of Article 286 of the Constitution, as used in that clause, covers a State enactment already in existence (i.e., a pre-existing law) such that the absence of Presidential assent after Parliament declares a commodity "essential for the life of the community" renders the earlier State taxing law invalid.
- Whether the continuance of the Hyderabad General Sales Tax Act's levy on medium cotton cloth (in circumstances discussed) violates the constitutional guarantee of equal protection of the laws (Article 14) by amounting to arbitrary discrimination between subjects of different States.
Arguments of the Parties
Applicants' Arguments
- The Essential Supplies (Temporary Powers) Act (24 of 1946), as extended to Hyderabad (from 17-8-1950), includes "cotton and woollen textiles" as "essential commodity"; therefore when the Hyderabad General Sales Tax Act was amended to tax cotton cloth, that amendment required the President's assent under Article 286(3) and, lacking it, is unconstitutional.
- Parliament enacted the Essential Goods (Declaration and Regulation of Tax on Sale and Purchase) Act (52 of 1952) which came into force on 9-8-1952 and declared coarse and medium cloths essential; because that Act was enacted for the purposes of Article 286(3), the parts of the Hyderabad Act taxing these cloths are void from 9-3-1952 for failure to comply with Article 286(3) (as alleged by the applicants).
- Explanation (2) to Section 2(k) of the Hyderabad General Sales Tax Act declares that transfers of goods in respect of which no tax can be imposed by reason of Article 286 shall not be deemed a "sale"; thus continuation of taxation contrary to Article 286 is inconsistent with the State taxing statute itself.
- The levy and collection of the tax on the basis of a pre-existing State law (after Parliamentary declaration) amounts to denial of equal protection and constitutes unjustifiable and arbitrary discrimination between subjects of different States.
Government's Arguments
- The Government Advocate raised a preliminary objection that the writ petition under Article 226 was not the proper remedy where other remedies (such as appeal/revision to taxing authorities) existed and that constitutional issues should not be entertained by direct petition in this Court. (The Court expressly rejected this preliminary objection.)
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Bihar v. Kameshwar Singh, AIR 1952 SC 252 | Interpretive principle that a provision requiring assent (in Article 31(3) as discussed) relates to laws that have been passed, reserved and then assented to (i.e., a sequence), supporting a temporal/sequential reading of similar constitutional clauses. | The Court applied the observation to Article 286(3), treating the Chief Justice's view about Article 31(3) as persuasive in construing the word "law" in Article 286(3) to refer to laws made after parliamentary declaration, not to pre-existing State laws. |
| Narayan Deo v. State of Orissa, AIR 1953 SC 375 | Explanation of the doctrine of "colourable legislation"—that the doctrine concerns competency of the Legislature, not the motives; it asks whether the Legislature transgressed constitutional powers. | The Court relied on this exposition to reject the applicants' contention that the State amendment was a colourable exercise of power, concluding the amendment was within the State's legislative competence (covered by Item 54, Seventh Schedule). |
Court's Reasoning and Analysis
The Court confined the issues to two main questions: (1) the proper interpretation of the word "law" in Clause (3) of Article 286 and whether that word includes pre-existing State taxing statutes; and (2) whether the continued levy on medium cotton cloth violated the guarantee of equality of laws.
On the interpretation of Article 286(3), the Court examined the text and structure of Article 286 as a whole. It noted that the three clauses of Article 286 impose varying degrees of restriction on State taxation powers and that Clause (3)'s phrase "as have been declared by Parliament by law to be essential for the life of the community" uses the present perfect tense, which the Court read as indicating a temporal sequence—i.e., the parliamentary declaration precedes the State law taxing the declared goods for Clause (3) to operate. The Court reasoned that if Article 286(3) were intended to cover pre-existing State laws, the drafter would have used words such as "existing" to indicate that effect. Thus the Court concluded the ordinary grammatical and textual reading points to Clause (3) governing State laws enacted after the parliamentary declaration.
The Court reinforced its textual analysis with authorities and statutory context. It relied on the observation of the Chief Justice of India in State of Bihar v. Kameshwar Singh regarding Article 31(3) to support a sequential understanding of provisions that require assent for validity. The Court also invoked the general principle of statutory construction that doubts should be resolved in favor of sustaining legislative action. Further, the Court pointed to Section 3 of the Essential Goods Act, 1952 (a Parliamentary statute), which explicitly declares that no State law enacted after the commencement of that Act imposing tax on essential goods shall have effect unless reserved for and assented to by the President; the Court treated this express provision as evidence that Parliament did not intend Article 286(3) to reach back and invalidate pre-existing State legislation, because Parliament itself saw fit to restrict post-commencement State laws by statute.
On the contention of "colourable legislation," the Court summarized the doctrine as described in Narayan Deo v. State of Orissa (that the doctrine tests legislative competency rather than motives) and concluded that the third amendment to the Hyderabad General Sales Tax Act could not be held colourable. The amendment was within the legislative competence of the State (covered by Item 54 of the Seventh Schedule) and preceded the Central Act; hence it was not within the ambit of Article 286(3) as argued by the applicants.
Regarding the equality argument (Article 14), the Court held that territorial classification is a valid and well-established basis of classification; therefore taxing a particular commodity within a particular area, if otherwise constitutional, does not violate Article 14. The Court found no force in the applicants' contention of arbitrary discrimination.
The Court also observed that the period during which the Hyderabad amendment might arguably have been invalid for lack of Presidential assent while the Emergency Act applied would have been a very short period (described as one week between 1-8-1952 and 9-8-1952). Because the applications did not specify how much of the sales tax related to that narrow period, the Court declined to pronounce on the constitutionality of the tax solely for that short interval as it would be inadvisable without specific allegations and quantification.
Finally, the Court addressed procedure: it rejected the preliminary objection that a writ under Article 226 was an improper remedy for constitutional issues, observing that lower civil authorities cannot resolve constitutional questions satisfactorily and that appeals or revisions in taxing authorities are not decisive on constitutional issues.
Holding and Implications
DISPOSED OF: The Court dismissed all five writ applications.
Direct effect on the parties:
- The Court held that the taxation under the Hyderabad General Sales Tax Act (as amended earlier) is not invalidated by Article 286(3) on the basis advanced by the applicants and is being validly levied for the periods challenged (subject to the reservation noted below about the very short period).
- The Court declined to make any specific pronouncement about the narrow one-week period between 1-8-1952 and 9-8-1952 because the applicants did not allege or quantify the tax attributable to that period.
- Each party was directed to bear their own costs.
Broader implications:
The opinion limits itself to the direct questions in controversy (interpretation of Article 286(3), the colourable legislation argument, and equality under Article 14) and does not purport to set out broader policy consequences beyond these holdings.
This summary was prepared exclusively from the information contained in the provided opinion.
Mohd. Ahmed Ansari, J.:— These five applications for Writs in the nature of MANDAMUS or for appropriate directions under Article 226 of the Constitution, are by some members of the Wholesale Cloth Merchants Association of Secunderabad. The applicants claim that the Association consists of about 150 merchants of Secunderabad, and they are registered dealers under the Hyderabad General Sales Tax Act of 1950. The business the carry on is of selling cloths of various qualities including super-fine, course and medium varieties made in mills or woven on power-looms. The sales of course and medium cotton cloth for the period after 1-8-1952, are being taxed under the third amendment to the Hyderabad General Sales Tax Act which makes the aforesaid commodity liable to pay the tax, and the common object of the Writ applications is to challenge the legality of such taxation on the grounds which are mentioned later in this judgment.
2. The applicants assert that the Sales Tax Officer of Secunderabad had in November, 1952, treated the sale-amounts of course and medium, cloths as assessable turnover and demanded payments of tax; on objections the applicants were advised to file appeals; but as it is more expedient and desirable to invoke the jurisdiction of this Court under Article 226 on their claim of the assessments being ultra vires, they have not appealed but have come directly to this Court.
3. The following grounds are urged for declaring the aforesaid assessment as unconstitutional:
(i) Under the Essential Supplies (Temporary Powers) Act (24 of 1946), which had been by an amendment extended to the Hyderabad State from 17-8-1950. ‘cotton and woolen Textiles’ have been included in the definition of ‘Essential commodity’; the amended Hyderabad General Sales Tax Act which imposes the tax on sales of cotton cloth has not received the assent of the President; it, therefore, offends Article 286(3) of the Constitution and the taxing of the commodity is illegal;
(ii) The next ground is that the Parliament has passed the Essential Goods (Declaration and Regulation of Tax on Sale and Purchase) Act (52 of 1952), which came into force from 9-8-1952; in the Schedule to this Act course and medium cloths are included; the Act has been enacted for the purposes of Article 286(3). and as the Hyderabad General Sales Tax Act has not after this Act received the President's assent, that part of the Hyderabad Act, which authorises levy of Sales Tax on the course and medium cloths, is void from 9-3-1952, for the failure to comply with the provisions of Article 286(3).
(iii) The third ground is that the continuance of the levying of tax on the aforesaid commodity under the Hyderabad General Sales Tax Act without the assent of the President is contrary to the provisions of the taxing statute itself; for according to Explanation (2) to Section 2(k) of the Hyderabad General Sales Tax Act, notwithstanding anything 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.
(iv) The last ground is that the levy and collection of the tax on sales on the ground of a pre-existing law amounts to a denial of equal protection and constitutes unjustifiable and arbitrary discrimination between subjects of different States.
4. In our opinion, only two questions need be adjudicated in these cases. The tax on the commodity which is being challenged, became leviable under an amendment to the Hyderabad Act, which came into force from 1-8-1952, and its invalidity on the ground of absence of consent of the President to the Hyderabad Act when the Emergency Act was operative in this State, assuming the contention of the applicants to be correct, covers a very short period of one week. The applications do not disclose how much of the Sales Tax relate to this period, and in absence of such specific allegation we think any pronouncement on the constitutionality of the tax for this period would be inadvisable. The first question in the case is whether the subsequent enactment by the Parliament declaring a particular commodity as essential for the life of the community necessitates obtaining of the President's assent under Article 286(3) to preserve the legality of a taxing statute on the sale of such commodity which had been passed earlier by a Legislature. The Explanation to the Hyderabad General Sales Tax Act relied on by the applicants, in our view, does but declare the constitutional position, which would be the same even if the Explanation was not incorporated in the Act, and if the answer to the question is against the applicants no separate adjudication on this issue is necessary. Therefore, the question which we will determine first in these cases is one relating to the interpretation of Cl. (3) of Article 286 and the word ‘law’ used therein. The other question is whether the guarantee of the equal protection of the laws has been violated by the continuance of the Hyderabad General Sales Tax Act so far as the taxation on the medium cotton cloth is concerned, which we will decide next.
5. The Hyderabad General Sales Tax Act came into force on 1-5-1950, and the course and medium cloths were made liable to taxation under the third amendment to the Act which became enforceable from 1-3-1952. Thus the main Act and its amendment were both existing laws before the Central Act, No. 52 of 1952 became operative on 9-8-1952. It was urged on behalf of the applicants that the object of Article 286 of the Constitution is to discontinue the practice prevailing under the Government of India Act, 1935, when provinces as they then were, levied Sales Tax on commodities on the basis of one or more ingredients constituting a sale which resulted in multiple taxation of one transaction and heavy burden on the consuming public. In these circumstances, the word ‘law’ referred to in Cl. (3) of Article 286 should cover pre-existing laws also. Had the intention been to cover subsequent laws only the word ‘bill’ would have been used as in Cl. (2) of Article 288. Therefore, an existing law levying Sales Tax on a commodity declared essential for the life of the community by Parliament is invalidated unless the assent of the President has been obtained for taxing the commodity under Article 286, Cl. (3). The relevant part of the Article reads as follows:
“286. (3) No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law 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.”
6. We regret that we cannot accept the interpretation sought to be placed on the Clause. The three Clauses of the Article place varying degree of restrictions on the power of the States to law Sales Tax. Under Cl. (1) the restriction is absolute, i.e, the States are barred from imposing any tax on sale of goods where the sale transaction takes place outside the State or in the course of exports or imports of the commodity outside or into the territory of India. Then by Cl. (2) inter-State trade or commerce cannot be taxed except where Parliament by law otherwise provides. Under Cl. (3) the assent of the President is sufficient to validate the law. The use of the present perfect tense in the phrase “as have been declared by Parliament by law to be essential for the life of the community” indicates that some sequence of time is intended, and this sequence can only be the passage of law taxing a commodity after its declaration by the Parliament to be essential for the life of the community; otherwise words such as ‘existing’ would have been used to indicate earlier laws also.
7. There are other reasons which support our conclusions on this point. One is the following observation of his Lordship the Chief Justice of India at p. 265 in — ‘State of Bihar v. Kameshwar Singh’, AIR 1952 SC 252 (A):
“……………Similarly, Article 31(3) must, in my judgment, be understood as having reference to what, in historical sequence, having been passed by the House or Houses of the State Legislature and reserved by the Governor for the consideration of the President and assented to by the latter, has thus become a law. If it was intended that such a law should have the assent of both the Governor and the President, one would expect to find not only a more clear or explicit provision to that effect, but also some reference in Article 200 to the Governor's power to reserve a measure for the consideration of the President after himself assenting to it. On the other hand, as we have seen, where reservation by the Governor is made obligatory, he is prohibited from giving his assent.”
8. What has been held about Article 31(3) applies equally to Article 286(3), for in both the assent is made necessary for the validity of an enactment passed by the State Legislature. Then there is the general principle of the construction of statutes that a reasonable doubt must be solved in favour of the legislative action and the Act sustained.
9. Moreover, Section 3 of the Essential Goods Act of 1952 in express terms declares that no law made after the commencement of the Act by the Legislature of a State imposing a tax on the sale 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. It is inconceivable that Parliament would place limits on a constitutional provision had the provision been as wide as has been urged by the Advocate of the applicants. For these reasons, we are of the opinion that as the applicants are being taxed under an enactment which is earlier to the Central Act, the earlier Act is not covered by Cl. (3) of Article 286 and therefore the tax is being validly levied.
10. It was also urged before us that the enactment of a statute taxing specific commodities immediately before the enforcement of a Parliamentary Act declaring them essential for the life of the community is a colourable exercise of a legislative power. But the Supreme Court in — ‘Narayan Deo v. State of Orissa’, AIR 1953 SC 375 (B), have said what can be called ‘colourable legislation’
“It may be made clear at the outset that the doctrine of colourable legislation does not involve any question of ‘bona fides’ or ‘mala fides’ on the part of the Legislature. The whole doctrine resolves itself into the question of competency of a particular Legislature to enact a particular law. If the Legislature is competent to pass a particular law, the motives which impelled it to act are really irrelevant. On the other hand, if the Legislature lacks competency, the question of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power………….
If the Constitution of a State distributes the legislative powers amongst different bodies, which have to act within their respective spheres marked out by specific legislative entries, or if there are limitations on the legislative authority in the shape of fundamental rights, questions do arise as to whether the Legislature in a particular case has or has not, in respect to the subject-matter of the statute or in the method of enacting, it, transgressed the limits of its constitutional powers. Such transgression may be patent, manifest or direct, but it may also be disguised, covert and indirect and it is to this latter class of cases that the expression ‘colourable legislation’ has been applied in certain judicial pronouncements………”.
11. Judged by the aforesaid test, the third amendment of the Hyderabad General Sales Tax Act cannot be held as colourable, as it is covered by Item 54 of the Seventh Schedule of the, Constitution, was passed earlier to the Central Act, and is not covered by law as used in Article 286(3). We also think that there is no force in the argument that the enactment infringes the guarantee relating to equality before the law. It is well established by authorities both American and Indian that territorial classification is a good classification for purposes of Article 14. Therefore, if the taxing of a particular commodity within a particular area is otherwise constitutional, it does not become unconstitutional on ground of violating of the equal guarantee contained in Article 14.
12. In conclusion, we would say that we do not accept the contention of the learned Advocate for the Government that the application for the Writ is not the proper remedy even where constitutional issues are involved. Obviously, the lower civil authorities cannot decide such constitutional issues. Therefore, filing of a suit would not be as efficacious remedy as the filing of the petition. As regards appeals and revisions to the taxing authorities, it is equally obvious that the view of these authorities on constitutional issues are not decisive, and we see no reason why the applicants, where such issues are raised, should be troubled with seeking redress from authorities when final and satisfactory adjudication on the issues can be had by the applications to this Court.
13. We, therefore, reject the preliminary objection of the Government Advocate, but we dismiss the applications on the ground that they are not being asked to pay tax which is illegal. This judgment will govern all the five applications. Each party to bear his own costs.
A./V.S.B
14. Applications dismissed.
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