http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: CHANDRANA & CO.

       Vs.

RESPONDENT: STATE OF MYSORE

DATE OF JUDGMENT11/11/1971

BENCH: MATHEW, KUTTYIL KURIEN BENCH: MATHEW, KUTTYIL KURIEN VAIDYIALINGAM, C.A.

CITATION:  1972 AIR  217            1972 SCR  (2) 344  1972 SCC  (1)  17

ACT: Mysore  Sales Tax Amendment Act, 1963 (IX of 1964),  s.  5AI position  of Sales Tax at rate higher than in Central  Sales Tax  Act  on  textiles for period  when  textiles  were  not declared goods--Competency of the State Legislature.

HEADNOTE: Section  15  of the Central Sales Tax  Act,  1956,  subjects every  sales tax law of a State to the restriction that  the tax  on  the sale or purchase of ,declared goods  shall  not exceed  the  rate prescribed in the section.   On  April  1, 1958,  textiles  became declared goods  and  thereafter  the Mysore  State  Legislature  enacted  the  Mysore   Sales-tax (Amendment) Act, 1963 (Mys.  Act IX of 1964) by which a  new sub-s.  5(A)  was introduced in the  Mysore  Sales-tax  Act, 1957,  imposing on sales of textiles during  the  assessment period October 1, 1957 to March 31, 1958, when textiles were not declared goods, tax at the rate specified in the  Second Schedule  to the 1957-Act, that is, at a rate in  excess  of that   specified  in  the  Central  Sales  ’lax  Act.    The Substituted sub-section of the amending Act was to be deemed always  to have been there.  In the appeal to this Court  it was contended that if the Mysore Legislature had no power on February  27,  1964, the date on which Act IX of  1964  came into  force, to impose tax on sales of declared goods  at  a rate  in excess of that specified in s. 15 of  ,the  Central Sales  Tax Act, it was not competent to the  legislature  to give  retrospective effect to s. 5A covering the  period  of assessment even if during that period it had the power to do so.  Dismissing the appeal, HELD  : . (i) It was because textiles became declared  goods from  April  1, 1958, that the Mysore Legislature  lost  its power  to  tax the sales of textiles At a rate  higher  than that  specified in s. 15 of the Central Sales Tax Act as  it stood  at the relevant time.  Though the goods on ’,he  sale ,of  which  tax was imposed remained the same  in  substance their legal quality became different.  As textiles were  not declared goods before April 1, 1958, there was no inhibition on  the part of the legislature in ,subjecting the  turnover of  sales of textiles, before that period, to tax at a  rate higher  than, that specified in s. 15 of the  Central  Sales Tax Act. [351 E]

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

A.  Hajee Abdul Shakoor & Co. V. State of Madras,  [1964]  8 S.C.R. 217, 231, explained and held inapplicable. (ii) Looked at from a different angle, the only limit on the pover of a legislature to create a fiction is that it should not transcend its power by the creation of the fiction.  The limitation on the power of the legislature of Mysore when it enacted  Act  IX of 1964 was that on the  sale  of  declared goods it could not have imposed sales tax at the rate higher than that specified in s. 15 of the Central Sales Tax Act as it  stood  then.  There was no limitation on  its  power  to impose tax on the turnover of sales of textiles before April 1, 1958, when they were not declared goods. [351 H] [The  question whether, after April 1, 1958,  when  textiles became  declared goods, the rate of tax as provided  in  the Second  Schedule to the Mysore General Sales Tax Act,  1957, as amended would stand modified 345 in view of the s. 15 of the Central Sales Tax Act, 1956, did not  arise for consideration and, therefore, no opinion  was expressed on that aspect.] [352 B]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  107  and 1080 of 1967. Appeals  by special leave from the judgment and order  dated November  16,  1966 of the Mysore High Court  in  Sales  Tax Revision Petition No. 52 of 1965 and Writ Petition No.  2349 of 1965 respectly. S.  T. Desai and T. A. Ramachandran, for the  appellant  (in both the appeals). A. R. Somanatha Iyer, M. S. Narasimhan and R. B. Datar,  for the  respondent (in C.A. No. 1079 of 1967)  and  respondents Nos. 2 to 4 (in C.A. No. 1080 of 1967). The Judgment of the Court was delivered by- Mathew, J. These two appeals, by Special Leave, are from the judgment dated November 16, 1966 of the Mysore High Court in S.T.R.P. No. 52 of 1965 and Writ Petition NO. 2349 of 1965. The appellant was a dealer, among other things, in textiles, with  its head office at Mercara and a branch at  Bangalore. It  was  assessed to sales tax on April 29, 1965  under  the Mysore General Sales Tax Act, 1957, on its turnover for  the period from October 1, 1957 to March 31, 1958.  The question in  dispute  was  whether  the  turnover  of  Rs.   3,87,200 estimated to be the value of the stock of mill cloth held by the Appellant on December 14, 1957 was exigible to tax.  The contention  of the Appellant before the assessing  authority was  that  the turnover related to mill cloth on  which  the additional  excise  duty was not payable and  therefore  not paid  and  so the turnover was exempt from sales  tax.   The contention  was  rejected.  The Appellant  appealed  to  the Deputy  Commissioner  of Commercial Taxes.  The  appeal  was dismissed.   Its further appeal to the Sales  Tax  Appellate Tribunal also proved unsuccessful. The Appellant took the matter in revision to the Mysore High Court and it also filed a writ petition.  Its contention  in the  writ petition was that sub-section (5A)  introduced  in section  5 of the Mysore General Sales Tax Act, 1957 by  Act No. 9 of 1964 under which the levy was made was ultra  vires the powers of Mysore Legislature and therefore void. A  Division  Bench of the High Court by  a  common  judgment dismissed the petitions. 346 The  Mysore Sales Tax Act, 1957 hereinafter referred  to  as

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

"the Act", came into force on October 1, 1957.  Section 5 of the  Act is the principal charging section.  Under the  Act, as  it  stood  originally  promulgated,  cloth  of   various categories  specified  in items Nos.  1 to 7 in  the  Second Schedule to the Act was subjected to a single point levy  in accordance with the provisions of section 5(5) of the Act. Pursuant  to a proposal for imposition of additional  duties of excise in respect of certain articles including cloth, in lieu  of  the sales tax leviable by the  several  States  in India,-  Parliaiment passed the Additional Duties of  Excise (goods of special importance) Act, 1957, (58 of 1957)  which came into force on December 24, 1957.  The Mysore Sales  Tax (Amendment)  Ordinance  1957, (Mysore Ordinance 9  of  1957) came  into  force on December 14, 1957.  The  Ordinance  was replaced  by  the  Mysore Sales Tax  (Amendment)  Act,  1958 (Mysore  Act  No. 9 of 1958) which was  given  retrospective effect as from December 14, 1957. Sub-section  (5A) inserted in section 5 by the Amending  Act No. 9 of 1958 read as follows:-               "(5A)  Notwithstanding anything  contained  in               sub-sections  (3) and (5), and subject to  the               provisions of subsection (1) of section 8,  in               respect of-               (a)  (i) the sale of goods mentioned in  items               1,  2, 3, 4, 5, 6, 7, 27, 28 , 29, 30, 31,  32               and 42 of the Second Schedule, and               (ii)  the purchase of the goods  mentioned  in               items 3  of the Third Shedule;               on which excise duty or additional excise duty               levied  by the Central Government with  effect               from the fourteenth day of December, 1957, has               not been paid;               (b)  the sale of goods mentioned in  items  33               and 42 of the Second Schedule held in stock by               the dealer on the fourteenth day of  December,               1957,  on  which the said excise duty  is  not               payable :               the tax payable under this Act shall be levied               at  the rates and at the points  specified  in               the said Second or Third Schedule, as the case               may  be, on the dealer in such goods  whatever               his total turnover during the year relating to               such goods may be." 347 The  existing section 8 of the Act was re-numbered  as  sub- section (1) thereof and continued to read as follows :-               "No tax shall be payable under this Act on the               sale of goods specified in the Fifth  Schedule               subject to the conditions, and exceptions,  if               any, set out therein." The following sub-section (2) was added by Amending Act No.9 of 1958 to section 8 : -               "(2) Subject to the provisions of  sub-section               (1) in respect of the sale or purchase of  the               goods mentioned in items 1, 2, 3, 4, 5, 6,  7,               27, 28, 29 ,  30, 31, 32 and 42 of the  Second               Schedule acquired by a dealer on or after  the               fourteenth day of December, 1957, on which the               said  excise  duty  is not  payable  shall  be               exempt from the tax payable under this Act." Entry No. 8A in the Fifth Schedule in the Amending Act No. 9 of 1958 was to have  effect from 1-4-58. The entry reads               "8A.   All  varieties  of  textiles,   namely,               cotton,  woollen or silken  including,  rayon,               art  silk  or nylon, whether  manufactured  by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

             handloom, powerloom or otherwise but exclusive               to pure silk." In  Writ  Petition No. 368 of 1961, the  Mysore  High  Court considered  the  effect of these  amendments.  Applying  the principle  enunciated by this Court in Innamuri  Gopalan  v. State  of Andhra Pradesh(1), the Court held that before  the charge created by section 5 (5A) (a) can come into operation excise  duty  or  additional excise duty  should  have  been levied  and  the same not paid by the assessee.  And  as  it could not have been levied if it was not leviable under law, section  5  (5A) (a) was inapplicable.The  Court  said  that admittedly,  additional excise duty was not leviable on  the stock  of  cloth in question, The Court  further  held  that Entry 8A of the Fifth Schedule completely exempted the stock of cloth from the payment of any sales tax. In  view of the above decision of the High Court, a  further amendment was effected by the Mysore Legislature by enacting Mysore Sales Tax (Amendment) Act, 1963 (Mysore Act No. 9  of 1964)  whereby the new sub-section (5A) was inserted in  the place  of the sub-section of the same number  introduced  by Mysore Act No. 9 of 1958. (1) 14 S.T.C. 742. 9-L500 Sup.CI/72 348 The  substituted sub-section, according to section  5(5)  of the amending Act was deemed always to have been there.   The new subsection (5A) reads as follows :-               "(5A)  Notwithstanding anything  contained  in               subsections (3) and (5),-               (i) in respect of the sale of goods  mentioned               in items 1, 2, 3, 4, 5, 6, 7, 27, 28, 29,  30,               31,  32, 33, 34 and 42 of the Second  Schedule               and               (ii)  the purchase of the goods  mentioned  in               item 3 of the Third Schedule, held in stock by               any dealer on the fourteenth day of  December,               1957,               tax  shall be levied at the rates and  at  the                             points  specified in the said Second or  Third               Schedule, as the case may be, on the dealer on               such goods whatever his total turnover  during               the year relating to such goods may be :               Provided  that no tax under  this  sub-section               shall  be  payable  by  a  dealer  who  is   a               manufacturer  of such goods on  production  of               proof  that excise duty or  additional  excise               duty  levied  by the Central  Government  with               effect  from the fourteenth day  of  December,               1957,   has  been  paid  in  respect  of   the               manufacture of such goods." The main argument of the Appellant before the High Court was that  sub-section (5A) of Section 5 as amended by Act No.  9 of  1964  purported to levy tax not on actual sales  but  on fictitious  or deemed sales, and therefore  the  sub-section was  bad, as the Legislature had no Power pursuant to  Entry 54 of State List of the Seventh Schedule to the Constitution to  tax  non-existent  sales.   The  Court  over-ruled   the contention and held that the tax imposed was on actual sales and not on deemed or fictitious ones.The Court also held :-               "It  will be remembered that the  Position  as               stated  in the judgment of this Court in  Writ               Petition 368 of 1961 was that the total effect               of   the  amendment  was  to  give   paramount               operation or importance to sub-section (1)  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

             Section 8 which was a categorical statement of               exemptions.  The Opening words of  sub-section               (5A),  as  then inserted,  also  included  the               expression  subject  to  sub-section  (1)   of               section  8.  The said expression  was  totally               deleted when by the subsequent amendment a new               text  was  substituted  for  sub-section   5A.               Another   important  circumstance   is   that,               whereas    sub-section   5A   as    originally               introduced  contained  the words  "  on  which               excise  duty or additional excise duty  levied               by the 349               Central   Government  with  effect  from   the               fourteenth day of December 1957, has not  been               paid", no such words are found in the text  of               the  substituted  sub-section  5-A.   On   the               contrary,  the  position  was  simplified   by               stating that tax will be levied in respect  of               sales  or  purchases,  as  the  case  may  be,               relatable  to the stock held by the dealer  on               14-12-1957,  and the possibility of  taking  a               case beyond the purview of the sub-section was               limited  to manufacturers by stating the  idea               separately in a proviso." Before  us,  counsel for the Appellant did  not  attack  the reasoning  of the High Court on any of the grounds taken  in the special leave petition.  The Appellant, however,  sought permission by C.M.P. 4827/70 to raise an additional  ground, namely,  that  on February 27, 1967 the date  on  which  the Mysore  Act  No. 9 of 1964 came into force  textiles  having become  declared  goods  the Mysore  State  Legislature  was competent  to levy tax on sales of textiles only subject  to the  restrictions and conditions laid down in section 15  of the  Central  Sales Tax Act, 1956, one of  the  restrictions being  that the rate of tax should not exceed two per  cent, and  as  on that day the Legislature had lost its  power  to make  a  law for levy of sales tax on sales of  textiles  at rates ranging from 3% to 10%.  Section 5A introduced by  Act No.  9 of 1964 was bad or at any rate the rates provided  in the  Second  Schedule  to  the  Act  would  stand   modified protanto.   Being a pure question of law, we  permitted  the Appellant  to urge the ground in support of the appeals  and allowed the said application. The relevant portion of Section 15 of the Central Sales  Tax Act as it stood on February 27, 1964 ran as follows :-               "15.  Every sales tax law of a State shall, in               so  far  as  it  imposes  or  authorises   the               imposition of a tax on the sale or purchase of               declared  goods, be subject to  the  following               restrictions and conditions, namely :-               (a) the tax payable under that law in  respect               of  any sale or purchase of such goods  inside               the State shall not exceed two per cent of the               sale  or purchase price thereof, and such  tax               shall not be levied at more than one stage;               (b)       x             x              X. " Counsel  for the Appellant contended that Act No. 9 of  1964 was  retrospective  in  character and for  enacting  such  a measure  the Legislature must have power on the date of  the enactment  and that its competency at some anterior time  is immaterial.  In other words, the contention was that if  the Mysore  Legislature  had no power on February  27,  1964  to impose tax on sales of 350

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

declared  goods  at, a rate in excess of that  specified  in section  15 of the Central Sales Tax Act as it  stood  then, namely  2%, it was not competent to the Legislature to  give retrospective  effect to section 5A covering the  period  of assessment here even if during that period it had the  power to do so.  Counsel submitted that even though textiles  were not declared goods during the assessment period namely  from October 1, 1957 to March 31, 1958 and the State  Legislature was  competent to levy sales tax at a rate higher than  that specified  in section 15 of the Central Sales Tax Act as  it then  stood,  the  Legislature lost that  power  the  moment textiles  became  declared goods and that its power  to  tax sales of textiles became restricted to 2% at the time of the enactment  of Act No. 9 of 1964 and therefore even  for  the assessment  period it could not have passed a  law  imposing tax at a rate in excess of two per cent.  In support of this proposition,  counsel relied upon certain observations in  A Hajee  Abdul Shakoor and Company v. State of Madras(1);  one of  the, questions which this Court had to consider in  that case  was  whether the Madras Legislature was  competent  to enact  the  provisions  of sub-section (1) of s.  2  of  the Madras  General  Sales Tax (Special Provisions)  Act,  1963. Hides  and skins had been declared under Act LII of 1952  to be essential for the life of the community.  Art. 286(3)  of the  Constitution  as it stood before its amendment  by  the Constitution VI Amendment Act of 1956, on September 11, 1958 provided  that  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  ’he  life  of  the community shall have effect unless it has been reserved  for the  consideration  of the President and  has  received  his assent.  By August 28, 1963, when the Act was enacted by the Madras Legislature, Art. 286(3) had been amended and Act LII of  1952 had also been repealed.  Consequently there was  no Constitutional  requirement for the Act being  reserved  for the  assent  of the President before it could  be  enforced. But  it was contended for the petitioner there that the  Act was  really enacted for a period, when if passed, it had  to receive the President’s assent for its enforcement and  that therefore the State Legislature could not even in 1963 enact this provision affecting the taxation law in respect of  the sale or purchase of goods which were good (1) [1964] 8 S.C.R. 217 at 231. 351 declared essential for the life of the community.  It was in repelling  this  contention that this Court  said  that  the State  Legislature was free to enact laws which  would  have retrospective  operation and "its competence to make  a  law for   a  certain  past  period,  depends  on   its   present legislative power and not on what it possessed at the period of time when its enactment is to have operation." We do not think that the above proposition has any  applica- tion  to  the case in hand.  The question  here  is  whether Mysore  Legislature was competent in 1964 to impose  tax  on sales  of textiles during the assessment period namely  from October  1,  1957 to March 31, 1958 at a rate in  excess  of that specified in section 15 of the Central Sales Tax Act as it  stood then, when textiles were not declared  goods.   We think  that imposition of sales tax on textiles at the  rate specified  in  the Second Schedule to the  Act  before  they became declared goods was permissible for the Legislature of Mysore.   The  power of the Legislature  to  retrospectively levy tax has not been controverted. There  was  no  fetter on the power of  the  Legislature  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

Mysore  on February 27, 1964 in enacting a measure  imposing sales  tax  on the turnover of undeclared goods  during  the assessment period at the rate specified in the 2nd  Schedule to  the Act.  It was because textiles became declared  goods from  April  1, 1958 that the Mysore  Legislature  lost  its power  to  tax the sales of textiles at a rate  higher  than that  specified in section 15 of the Central Sales Tax  Act, as  it stood at the relevant time.  Though the goods on  the sale  of  which  tax  was  imposed  remained  the  same   in substance,   their  legal  quality  became  different.    As textiles were not declared goods before April 1, 1958, there was  no inhibition on the part of the Mysore Legislature  in subjecting  the  turnover of sales of textiles  before  that period to a tax higher than that specified in section 15  of the Central Sales Tax Act. The  matter can be looked at from a different angle.  As  we have already indicated, by virtue of section 5(5) of the Act No.  9 of 1964, the substituted sub-section (5A) was  deemed to  have  been in the Mysore General Sales Tax  Act  always. The  only  limit on the power of a legislature to  create  a fiction  is  that it should not transcend its power  by  its creation.  The limitation on the power of the legislature of Mysore in 1964 when it enacted Act No. 9 of 1964 was that on the sale of declared goods it could 352 not  have  imposed  sales tax at a  rate  higher  than  that specified  in section 15 of the Central Sales Tax Act as  it stood then.  There was no limitation on its power to  impose tax  on  the turnover of sales of textiles before  April  1, 1958, when they were not declared goods. The  question  whether  after April 1,  1958  when  textiles became  declared goods, the rate of tax as provided  in  the Second Schedule to the Mysore General Sales Tax Act 1957, as amended,  would stand modified in view of section 15 of  the Central Sales Tax Act, 1956 does not arise for consideration before us and so we express no opinion on that aspect. We  dismiss the appeals with costs.  There will be only  one hearing fee. K.B.N.                      Appeals dismissed. 353