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PETITIONER: T.G. VENKATARAMAN ETC.

       Vs.

RESPONDENT: STATE OF MADRAS & ANR.

DATE OF JUDGMENT: 17/07/1969

BENCH: SHAH, J.C. BENCH: SHAH, J.C. MITTER, G.K.

CITATION:  1970 AIR  508            1970 SCR  (1) 615  1969 SCC  (2) 299  CITATOR INFO :  APL        1974 SC1111  (10)  RF         1986 SC1085  (14)

ACT:     Madras General Sales Tax Act, 1959 as amended by  Madras Act  2  of  1968--’Cane jaggery’ liable  to  tax  but  ’palm jaggery’   exempted-Discrimination whether violative of Art. 14   of   Constitution--Tax  on   ’cane   jaggery’   whether restrictive  of  trade and commerce within meaning  of  Art. 301--Whether colourable exercise of power.

HEADNOTE:     As  a result of a notification dated December  30,  1967 under s. 59(1) of the Madras General Sales Tax Act and later by Act 2 of 1968 sales of jaggery became liable to tax.  But while by notification under s. 17 ’palm jaggery was exempted from  tax ’cane jaggery’ was not.  The appellants  who  were dealers  in  ’cane  jaggery’ challenged  the  levy  by  writ petitions in the High Court which were, however,  dismissed. In  appeal before this Court it was contended (i)  that  the tax  on  ’cane jaggery’ while exempting ’palm  jaggery’  was ,discriminatory   and   violative   of  Art.   14   of   the Constitution;  (ii)  that  taxation of  ’cane  jaggery’  was restrictive of trade and commerce and therefore violative of Art. 301; (iii) that the impugned legislation constituted  a colourable exercise of power.      HELD:  (i) The evidence on record clearly  showed  that ’cane   jaggery’  and  ’palm  jaggery’   were   commercially different  commodities.  The methods of production of  ’palm jaggery’ and ’cane jaggery’ were different; they reached the consumers  through different channels of  distribution;  the prices  at  which  they were sold  differed  and  they  were consumed  by  different sections of  the  community.   ’Cane jaggery’ and ’palm jaggery’ did not thus belong to the  same class  and in differently treating them for the  purpose  of taxation there was no unlawful discrimination. [620 B-E; 621 C-D]      It was incorrect to say that the State Legislature  had always  treated the two products on the same  footing.   For nearly  three  years  before April 1, 1958  sales  of  ’palm jaggery’  were exempt from tax but sales of  ’cane  jaggery’

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were not. [620 B]      Further,  it  is for the legislature to  determine  the objects  on which tax shall be levied.  The courts will  not strike  down  an  Act as  denying  equal  protection  merely because  other objects could have been but are not taxed  by the legislature. [621 B-C]      N.  Venugopala  Ravi  Varma Rajah v.  Union  of  India, [1969] 3 S.C.R. 827, applied.      (ii)   Freedom  of  trade,  commerce  and   intercourse guaranteed  by  Art. 301 of the  Constitution  is  protected against  taxing statutes as well as other statutes,  but  by imposition of tax on transactions of sale of ’cane  jaggery’ no restriction on the freedom of trade or commerce or in the course of trade with or within the State. was imposed.  [621 D--F]     State  of Madras v. N..K. Nataraja Mudaliar.   [1968]  3 S.C.R.  829, referred to.     (iii) The plea of colourable exercise of  power  had  no substance  because the legislature had power in the  present case to. levy the tax.[621 G] 4 Sup. C.I./69 616     K.C.  Gajapati  Narayan Deo & Ors. v. State  of  Orissa, [1954] S.C.R.1, applied.

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeals  Nos.  281, 284, 363, 383 to 393 and 513 to 567 of 1969.     Appeals from the judgment and order dated  December   6, 1968 of the Madras High Court in Writ Petitions Nos. 1659 of 1968.     M.S. Sethu and A.V.V. Nair, for the appellant (in  C.As. Nos. 281 and 363 of 1969).     M.S.  Sethu and P. Parameshwara Rao, for  the  appellant (in C.A. No. 284 of 1969).     H.R. Gokhale and K. Jayaram, for the appellant (in  C.A. No. 383 of 1969).     K. Jayaram and T.S. Vishwanatha Rao, for the  appellants (in C.As. Nos. 384 to 393 and 513 to 567 of 1969).     S.V.  Gupte,  S.  Mohan  and  A.  V.  Rangam,  for   the respondent (in C.A. No. 281 of 1969).     S.  Mohan  and A1. V. Rangam, for  the  respondents  (in C.As. Nos. 284, 363, 383 to 393 and 513 to 567 of 1969).     The Judgment of the Court was delivered by     Shah,  J.  At  the conclusion of the  hearing  of  these appeals  on April 23, 1969, we announced that  "the  appeals are  dismissed with costs; reasons in support of  the  order will  be  delivered thereafter". We proceed  to  record  the reasons in support of the order.     The  appellants  carry on business as dealers  in  "cane jaggery" in the State of Tamil Nadu. As a result of  certain legislative and executive measures, transactions of sale  in "cane  jaggery" were made liable as from January 1, 1968  to tax  under  the  Madras General Sales  Tax  Act,  1959,  and transactions of sale in "palm jaggery" remained exempt  from sales tax.  The appellants filed petitions in the High Court of  Madras  challenging the validity of the levy of  tax  on "cane jaggery", on three grounds:                   (1) that the levy of tax on turnover  from               sale  of "cane  jaggery"’ was   discriminatory               and  violated  the  equality  clause  of   the               Constitution;                   (2)  that  the  levy  of  tax  imposes   a

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             restriction  on trade and commerce contrary to               the   provisions   of   Part   XIII   of   the               Constitution; and                   (3)  there  is   excessive  delegation  of               legislative authority to the executive and  on               that  account the levy of tax pursuant  to  an               order made in 617               exercise of the  powers  under s. 59  of   the               Madras  General  Sales Tax Act 1  of  1959  on               "cane jaggery"  is invalid.     The High Court rejected all the contentions.     Counsel  for the appellants have in these appeals  urged the first two grounds and have in addition submitted that in levying  tax  on  turnover  from  sale  of  "cane   jaggery" legislative   power  has  been  colourably  exercised.   The argument  that   there   was  excessive  delegation  to  the executive of the legislative power was abandoned before this Court,  because  the State of Madras has enacted Act  II  of 1968 authorising levy of tax on sale of jaggery by  amending Sch. III to Madras Act 1 of 1959.     Turnover from sale of jaggery  cane or palm--was subject to  tax under s. 3(1) of the Madras Act IX of 1939 at  three pies  per  rupee. By G.O. 651 dated February 28,  1955   and G.O.  2780  dated  September 7, 1955 all   sales  of   "palm jaggery"  effected  through Co-operative Societies  and  the Palm  Gut Federation were exempt from tax. By  another  G.O. No.  1605 dated April 19, 1956, all transactions of sale  in "palm jaggery" were exempted from sales tax with effect from April  1,  1956.   Transactions of sale  in  "cane  jaggery" therefore continued  to  remain liable to’ tax whereas sales of "palm jaggery" enjoyed the benefit of exemption from tax.     After the judgment of this Court in The Bengal  Immunity Company  Ltd.  v.  The  State  of  Bihar  &  Others(1)   the Parliament  amended Art. 286 and entry 54 in List II of  the Seventh Schedule ’and added a new Entry 92A in List I in the Seventh Schedule by the Constitution (Sixth Amendment)  Act. In,  exercise  of  the  power under Entry  92A  List  I  the Parliament enacted the Central Sales Tax Act 74 of 1956.  By Ch. IV of that Act the power reserved under the amended Art. 286  cl.  (3) was exercised by the Parliament,  and  certain classes of goods were declared to be of "special  importance in   inter-State   trade   or commerce". By  s.  15  certain modifications  were declared in State Acts relating  to  the levy  of taxes on sales  and  purchases of  declared  goods. However  in  the  list of goods of  "special  importance  in inter-State trade or commerce" gur or jaggery was when,  the Act was enacted not included.     The Parliament then enacted  the  Additional  Duties  of Excise  (Goods of Special Importance) Act,  1957 (Act 58  of 1957).  Section  3  of  that Act  authorised  the  levy  and collection  of  additional  duties  in  respect  of  several classes of goods including "sugar". By s. 4 it was  provided that during each financial’ year, there shall be paid out of the Consolidated Fund of India- (1) [1955] 2 S.C.R. 603. 618 to  the  States in accordance with the  provisions  of   the second  schedule, such sums, representing a part of the  net proceeds  of  the  additional duties  levied  and  collected during  that  financial  year,  as  are  specified  in  that Schedule.  It was enacted by the proviso to cl. (2)  of  the Schedule that if during that financial year there is  levied and  collected in any State specified in the Table a tax  on the  sale or purchase of sugar by or under any law  of  that

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State, no sums shall be payable to that State under  sub-cl. (ii)  or  sub-cl.  (iii)  of  cl.  (b)’in  respect  of  that financial  year,  unless the Central Government  by  special order otherwise directs. The expression ’sugar’ was  defined in  s.  2(c) as  having the  same meaning as it has  in  the First  Schedule to the Central Excises and Salt  Act,  1944. The Governor of Madras issued Ordinance 1 of 1957  directing that transactions  of  sale  of "cane jaggery" be liable  to a single point tax at 5 per cent. with effect from April  1, 1957.  By virtue of the Central  Sales  Tax  Act,  1956,  as amended  by Act 31 of 1958 "sugar" as defined in Item No.  8 of  the First Schedule to the Central Excises and Salt  Act, 1944  was declared a commodity essential to the life of  the community  and tax could thereafter be levied on "sugar"  at the rate of 2 per cent. only. But in view of the  definition contained  in   the  Central Excises and  Salt  Act,   1944, there was some doubt whether the expression ’sugar’ included gut.  The State of  Madras  being apparently of the  opinion that   "palm  jaggery"  and  "cane jaggery" were subject  to the  provisions  of the Additional Excise Act  58  of  1957, issued  on April 15, 1958,  G.O.,  No.  1457  exempting  all sales  of "cane jaggery" from tax with effect from April  1, 1958.   Transactions  of  sale  of  "palm   jaggery"    were therefore exempt partially from sales tax from  February  28 1955 and wholly from April 1, 1956, and transactions of sale of "cane jaggery" were exempt from tax from April 1, 1958.     The  State Legislature enacted the Madras General  Sales Tax  Act 1 of 1959 with effect from April 1, 1959.  By s.  3 every  dealer whose total turnover was not less   than   Rs. 10,000 became liable to pay tax for each year at the rate of 2  per  cent  of    his taxable turnover. By s.  8  it  was: provided that subject to such restrictions and conditions as may be prescribed, a dealer who deals in goods specified  in the  Third  Schedule  shall  not  be liable to pay  any  tax under the Act in respect of  such  goods Item 5 in the Third Schedule  was "sugar including jaggery and gur." Section  17 of that Act authorised the State Government by  notification to  exempt or to make reduction in rate ’in respect  of  any tax  payable  under the Act on the sale or purchase  of  any special goods or class of goods ’at all points or  specified points  in respect of sales by successive dealers or by  any specified  class on dealers in respect of the whole or  ,any part  of  their turnover. By s. 59(1) of the Act  the  State Government was authorised by notification, to alter, add  or cancel any of the Schedules. 619     On  April  1,  1959  transactions  of  sale  of   "sugar including jaggery and gur" were exempt from liability to pay tax  under  .the Madras General Sales Tax Act  1  of   1959. The  exemption applied to all transactions of sale of  "cane jaggery"  and  "palm  jaggery". On September  10,  1965  the Government   of   India advised the  State  Government  that "jaggery" was not included in the expression ’sugar’ in  the Additional  Duties of  Excise  Act 58 of 1957. The State  of Madras  in exercise of the power under sub-s. (1 ) of s.  59 of the Madras General Sales Tax Act, issued G.O. 2261  dated December 30, 1967, that:                   "In  the said (Third) Schedule in item  5,               for   the word ’including’ the words ’but  not               including’ shall be substituted."                   The  State simultaneously  issued  another               notification that:                  "In exercise of powers conferred by section               17(1)  of the Madras General Sales  Tax   Act,               1959,    the   Governor  of   Madras   granted

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             exemption in respect of tax payable under  the               Act on  all  sales  of  palm jaggery." In  consequence  of  the  two  notifications  turnover  from transactions  of sale of "cane jaggery" which was till  then exempt  from  tax  became liable to tax under s.  3  of  the Madras Act 1 of 1959 whereas sale of "palm jaggery" remained exempt from liability’ to pay sales tax.     In  support  of the plea that the  State  had  practised unlawful  discrimination between sales  of   "palm  jaggery" and   "cane, jaggery" it was urged that "cane  jaggery"  and "palm   jaggery" which were identical commodities  and  were treated   similarly under the successive Sales Tax  Acts  of the  State  for many years past were  without  any  rational nexus  with  the object sought to be served  by  the  Madras General  Sales  Tax Act, 1959, differently treated  ’and  on that account the notification issued under s. 59 sub-s.  (1) which modifies the Third Schedule is ultra vires.     It may be recalled that the notification under s.  59(1) which  was  issued in exercise of  executive  authority  has received  legislative  sanction  by Madras Act  2  of  1968. Amendment in  the Third Schedule now flows from the exercise of legislative authority and not executive .authority.     Since s. 8 read with the Third Schedule  as  amended  by Madras  Act  2 of 1968 exempts only "sugar" from   liability to tax, sales of jaggery, cane and palm, now fall within the charging  section.  But  the Government of  Madras  have  in exercise  of  power under s. 17 of Act 1  of  1959  exempted transactions  of sale of "palm jaggery" from tax. It is true that between April 1,. 620 1958 and October 31,  1967  transactions of  sale  of  "cane jaggery"  and "palm jaggery" were exempt from  liability  to pay  sales  tax under the Madras General Sales Tax  Acts  of 1939 and 1959, but it cannot be inferred therefrom that  the Legislature treated "palm jaggery" and "cane jaggery" as the "same  commodity."  For nearly three years before  April  1, 1958 sales of "palm jaggery" were exempt from tax but  sales of "cane jaggery" were not.     The evidence on the  record  clearly  shows  that  "cane jaggery"  and  "palm  jaggery"  are  commercially  different commodities.  "Cane jaggery" is produced from the  juice  of sugarcane; "palm jaggery" is produced from the juice of  the palm   tree.  Mr.  Raghupathy,  Deputy  Secretary   to   the Government  of Madras (Commercial Taxes) has stated in   his affidavit   that   "palm jaggery" industry comes  under  the purview of Khadi and Village Industries Board and is one  of the  cottage  industries which gives ,employment  mainly  to poor  tappers.  The tappers, according  to  Mr.  Raghupathy, collect  "neera"  from  palm and  other  trees  and  prepare jaggery  by  the traditional method of  boiling  "neera"  in their  huts  and  produce jaggery without  the  aid  of  any machinery.  Production  of  "palm  jaggery"  in  the   State compared  to   "cane jaggery" is small. The price  of  "palm jaggery"  and  "cane jaggery" differ widely  and  apparently "palm jaggery" and "cane jaggery" are consumed by  different sections  of the community. It is clear that the  method  of production   of  "palm  jaggery"  and  "cane  jaggery"   are different;  they  reach  the  consumers  through   different channels of distribution; the prices at which they are  sold differ  and they are consumed by different sections  of  the community.     In  a recent judgment N. Venugopala Ravi Varma Rajah  v. Union of India and Another(1) this Court observed:      "....Tax  laws  are  aimed  at  dealing  with   complex problems  of infinite variety necessitating   adjustment  of

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several  disparate elements. The Courts  accordingly  admit, subject  to adherence to the fundamental principles  of  the doctrine   of  equality,  a  larger  play   to   legislative discretion  in the matter of  classification.  The power  to classify  may  be exercised so as to adjust  the  system  of taxation in all proper and reasonable ways: the  Legislature may select persons, properties, transactions and objects and apply   different  methods  and even rates for tax,  if  the Legislatures does so reason ably....If  the   classification is   rational, the Legislature is free to choose objects  of taxation, impose different rates, exempt classes of property from  taxation,  subject different classes of   property  to tax (1) [1969] 3 S.C.R. 827. 621 in different ways and adopt different modes of assessment. A taxing statute may contravene Article 14 of the Constitution if  it  seeks to impose  on  the  same  class  of  property, persons,  transactions  or  occupations  similarly  situate; incidence of taxation, which leads to obvious inequality." It was also said by the Court that:                   "It  is for the Legislature  to  determine               the objects on which tax shall be levied,  and               the rates thereof. The Courts will not  strike               down  an Act as  denying the equal  protection               merely because other objects  could have been,               but are not, taxed by the Legislature."       We  are accordingly of the view that  "cane   jaggery" and  "palm jaggery"  are not commodities of the same  class, and   in  any  event  in  imposing  liability  to   tax   on transactions  of sale of "cane jaggery" and exempting  "palm jaggery", no unlawful discrimination denying the   guarantee of  equal  protection  was practised.      No  serious  argument was advanced in  support  of  the plea  that the freedom of trade and commerce guaranteed   by Part XIII of the Constitution is infringed by the imposition of  tax  on "cane jaggery". Freedom of trade,  commerce  and intercourse  guaranteed by Art. 301 of the  Constitution  is protected against taxing statutes as well as other statutes, but  by imposition of tax on transactions of sale  of  "cane jaggery" no  restriction on the freedom of trade or commerce or  in  the  course of trade with or  within  the  State  is imposed.  The tax imposed on transactions of sale  of  "cane jaggery"  does  not affect the freedom of trade  within  the meaning of Art. 301. As observed by this  Court in The state of  Madras  v.  IV. K. Nataraja Mudaliar(1) "a  tax  may  in certain  cases directly and immediately restrict  or  hamper the free flow of trade, but every imposition of tax does not do so.     There  is  no substance in the contention that  the  Act which  impose  tax on "cane jaggery"  and  the  notification which exempts "palm jaggery" from liability to tax imposes a colourable exercise of authority. If the Legislature has the power  to  impose  the tax, its authority  is  not  open  to challenge  on a plea of colourable exercise of  power:  K.C. Gajapati  Naravan Deo & Others v. The State of Orissa(2).     There will be one hearing fee. G.C.          Appeals dismissed. (1) [1968] 3 S.C.R. 829. (2) [1954] S.C.R. 1. 622