http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

PETITIONER: STATE OF KERALA AND ORS.

       Vs.

RESPONDENT: M/S TRAVANCORE CHEMICALS & MARUFACTURING CO.AND ARU.

DATE OF JUDGMENT:       11/11/1998

BENCH: S.P.BHARUCHA, G.T.NANAVATI, B.N.KIRPAL

ACT:

HEADNOTE:

JUDGMENT:  JUDGMENT Kirpal.J. Leave granted. Delay condoned. In these appeals the appellants are aggrieved by  the common  judgment  of  the  Kerala  High  Court which has held Section 59A of the Kerala General Sales Tax  Act,  1963  (for short ’the Act’) as being invalid. Respondents in these appeals,  manufacture  and  sell various  commodities like copper sulphate, batteries, battery plates, electrical goods, laboratory apparatus, battery spare parts etc.    If  during  the  course  of  their   assessment proceedings under the Act any question used to arise relating to  the  rate  of  tax  leviable on the goods sold by various dealers or the entry under which a particular item sold by  a dealer  would  fall  the  same  used  to  be  decided  by the assessing and the appellate authorities under the Act.  By an amendment Section 59A was inserted in  the  Act  with  effect from 1st  April,  1978.  This section sought to give power to the Government to determine the rate of tax and it  reads  as follows:             "59A, Power of Government to  determine  rate  of             tax  -  If  any question arises as to the rate of             tax leviable  under  this  Act  on  the  sale  or             purchase  of  any  goods,  such question shall be             referred to the  Govt.    for  decision  and  the             decision   of   the   Government   thereon  shall             notwithstanding any other provision in this  Act,             be final." In exercise of the powers given by the  said  Section 59A the  State  Govt.  issued  orders,  from  time  to  time, purporting  to  clarify the rate of sales tax. On 23rd April, 1984, an order was issued by the State  Govt.  Purporting  to clarify  the  rate  of sales tax on various items. One of the items contained in this order was tinned foods like Horlicks, Viva, Boost,  Bournvita,  Ovumalt  etc.  By  this  order  the Government  stated  that  the  said items of tinned food were covered by Entry-6 of the First Schedule of the Act. M/s Parry and Company,  one  of  the  respondents  in these  appeals,  wrote  a letter dated 11th Dec., 1984 to the Secretary,   Board   of   Revenue,   with   regard   to   the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

classification of  aforesaid  item - Horlicks.  It was stated in this letter that they were registered dealers  since  30th June,  1957  and  all  along successive officers had accepted their classification of Horlicks as a  mild  product  falling under SI.   No.  33 of the First Schedule and therefore, they were liable to pay tax at a lesser rate and not at  the  rate of ten per  cent  which  was payable under SI.  No.  6 of the First Schedule.  To thin letter the reply which was  received was to the following effect :             "No.0S 2661/85/TX/Ldis.  Office of the Board of             Revenue (Taxes) Trivandrum - 1             dated             31.1.1985             From             The Secretary,             Board of Revenue (Taxes),                   Trivandrum             To             M/s Parry & Company Ltd.,             "DARE HOUSE" Post Box No.12,             Madras - 600001             Gentleman,             Sub :Taxes  - Sales tax rate of tax on Horlicks                     etc.             Ref :Your letter dated 11.12.1984             The  case  at  issue  has   already   been             examined  previously  and Govt. In GO Rt.314/84/TD             Dt. 23.4.1984 have clarified that  Horlicks  would             come  under  Entry  6 of the First schedule to the             K.G.S.T.Act, 1963.             Yours faithfully                                                           Sd/-             (Secretary [Taxes]}" It  is in view of such decisions  taken  by  the  State Govt.  in  determining  the entries under which different items would fall, in exercise of its power under Section 59A  of  the Act, that the respondents in these appeals filed different writ petitions   in   the   Kerala   High   Court   challenging  the constitutional validity of Section 59A. The main contention  of the  dealers  was that Section 59A gave the Govt. arbitrary and unguided power in determining the rate  of  tax  applicable  to different  items  and  furthermore,  the said power had in fact been exercised in an arbitrary manner. The High Court in the impugned judgment referred to  an earlier  bench decision of that Court in Dadha Pharma Pvt. Ltd. Vs. State of Kerala [1990 (2) KLT 307]. That was a case by  way of  revision before the High Court under Section 41 of the Act. The High Court had to deal with the  applicability  of  Section 59A  in that case. As it was exercising limited jurisdiction of tax  revision  it  obviously  could  not   pronounce   on   the constitutional validity of Section 59A. The Court observed that if  literal meaning was given to the words used in that Section then such  literal  interpretation  would  render  the  Section vulnerable  to  attack  of being vague and uncertain and as one taking away guaranteed rights. The Court,  however,  read  down the  section  in  a  drastic  manner and sought to provide some safeguards against the arbitrary exercise of power by the Govt. In the present case the High Court, exercising its jurisdiction under Article 226 of  the  Constitution,  felt  unfettered  and proceeded  to  examine  the constitutional validity of the said provision. After analysing the provision and seeing the  manner in  which the power had been exercised under Section 59A of the Act, the High Court  came  to  the  conclusion  that  the  said section had all of the features of deleterious vagueness and it was  unconstitutional  being  violative  of  Article  14 of the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

Constitution. On behalf of the appellants it  was  contended  by  Mr. K.N.Bhat,  learned  senior counsel, that Section 59A is a piece of delegated legislation conferring power  on  the  Govt.    to decide any question regarding rate of tax.  The section, it was submitted, furnishes the limitations subject to which the power could be  exercised.    This  power,  it  was contended, was in respect of  classification  under  the  Schedule  and  not  for levying a tax. On  the  other  hand  the  learned  counsel   for   the respondents  submitted  that  the effect of Section 59A is that whenever a direction is issued under  the  said  provision  the statutory right  of  appeal etc.  is taken away and the section itself contains no guidelines and gives unbridled powers to the Govt.  to act in any manner it feels like.         Like other taxing statutes the Kerala General Sales Tax Act contains elaborate provisions relating to assessment of tax and  filing of appeals and revisions to the higher authorities. Chapter IV deals with assessment, collection and levy  of  tax. Section  17  contains  the procedure which is to be followed by the assessing authority. If the assessing  authority  does  not accept  the  return as submitted by the dealer then he is under an obligation to give a reasonable opportunity to the dealer of being heard before finalising the assessment. In the  event  of the  dealer  being  aggrieved by the assessment order so passed Chapter-VII contains  provisions  for  appeals  and  revisions. Appeal  to  the Appellate Assistant Commissioner is filed under Section  34;  Section  36  gives  the  power  to   the   Deputy Commissioner  to  revise  an order on an application being made and power of revision is also given to  the  Board  of  Revenue under  Section  38  of the Act. Section 39 is a provision which provides for appeal to the Appellate Tribunals against  certain orders.  Section  40  enables an appeal to be filed to the High Court by any person objecting to an order affecting  him  which was  passed  by  the  Board  of Revenue under Section 37, while Section 41 gives a person right to file a revision in the  High Court  from an order passed by the Tribunal under Section 39 of the Act. It is apparent from reading of these  provisions  that questions like the rate of tax or the entry under which sale of particular  goods  are to be taxed can be raised and determined before various quasi judicial and judicial  authorities.  There is  a  right  of appeal and revision which is given to a person who is aggrieved by any order. Plain reading of Section 59A shows that if any question relating to the rate of tax leviable under the Act on any goods is referred  to  the  Govt.    then   its   decision   thereon, notwithstanding  any  other  provision  in  this Act is final". This section does not indicate as to who can make  a  reference to the  Govt.  There is no obligation on the Government to hear any dealer before it decides as to the rate of tax leviable  on the sales  or  purchase  of  any type of goods.  In fact, as we have noticed earlier, by an omnibus  order  dated  23rd  April, 1984 the  Govt.    decided  rates  of tax payable in respect of various items without any opportunity  of  being  heard  having been granted to any of the dealers.  Lastly section 59A clearly states that  the decision so given by the Govt.  shall be final and would have an over-riding effect. There is no warrant in our opinion in  trying  to  read down  the  provisions  of  Section  59A.  The works of the said provision are clear and unambiguous.  The  said  section  gives absolute  power  to  the Govt. to decide any question regarding the rate of tax leviable on the sale or purchase of  goods  any manner  it  deems  proper  and  finality  is  given  to  such a decision. Section 59A   enables   the   Govt.      to   pass   an

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

administrative order which  has  the  effect  of  negating  the statutory provisions  of  appeal,  revision  etc.  contained in Chapter VII of the Act which would have enabled  the  appellate or  reversional  authority to decide upon questions in relation to which an order under Section 59A is passed.  Quasi  judicial or  judicial determination stands replaced by the power to take an administrative decision.  There is nothing  in  Section  59A which  debars  the  Government  from  exercising the power even after a dealer has succeeded on a question relating to the rate of tax before an appellate authority.  The power under  Section 59A  is  so  wide and unbridled that it can be exercised at any time and the decision so rendered shall be final.  It may  well be  that  the  effect of this would be that such a decision may even attempt to over-ride  the  appellate  or  the  reversional power  exercised  by the High Court under Section 40 of the Act as the case  may  be.    The  section  enables  passing  of  an executive  order  which has the effect of subverting the scheme of a quasi-judicial and judicial resolution of the lis  between the State and the dealer. We are unable to agree with the submission of Mr.  Bhat that the section furnishes a limitation subject  to  which  the power can  be  exercised.    The  section  does not contain any guidelines as to at what stage the power can be  exercised  and not  does  the exercise of such a power make it amenable to the appellate or reversional provisions provided by the Act.  It is no doubt true that in certain enactments of  other  States  the Govt.  has  the  power  but  such  power is not unbridled.  For example under Section 49 of the  Delhi  Sales  Tax  Act,  1975, power  has  been  given  to  the  Commissioner  of Sales Tax to determine certain disputed questions.  The said  section  reads as under:           "49 Determination of disputed questions - (1) If any            question   arises,  otherwise  than  in  proceedings            before a  court,  or  before  the  Commissioner  has            commenced  assessment  or  reassessment  or a dealer            under section 23 or  section  24,  whether  for  the            purposes of this Act.            (a)  any person, society, club or association or any            firm or any branch or department of any  firm  is  a            dealer; or            (b)  any particular thing done to any goods  amounts            to or results in the manufacture of goods within the            meaning  of  that  term  as  given  in clause (h) of            section 2; or            (c)  any transaction is a sale, and if so, the  sale            price therefor; or            (d)    any  particular  dealer  is  required  to  be            registered; or            (e)  any tax is payable in respect of any particular            sale or if the tax is payable, the rate thereof;            the Commissioner shall, within such period as may be            prescribed make an order determining such question.            Explanation  - For the purposes of this sub-section,            the Commissioner shall be deemed to  have  commenced            assessment or reassessment of a dealer under section            23 or section 24, when the dealer is served with any            notice  by  the  Commissioner  under  section  23 or            section 24, as the case may be.            [2]   The   Commissioner   may   direct   that   the            determination  shall not affect the liability of any            person under this Act as respects any sale  effected            prior to the determination.            [3]  If any such  question  arises  from  any  order            already  passed  under  this Act or under the Bengal            Finance (Sales Tax) Act, 1941, as then in  force  in

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

          Delhi,  no  such  question  shall be entertained for            determination under this section; but such  question            may  be  raised  in  appeal  against  or  by  way of            revision of such order." The aforesaid section  itself  provides  that  a  question  for determination  must arise otherwise than in proceeding before a Court or before the Commissioner has  commenced  assessment  or re-assessment.    Furthermore   sub-section   2   enables   the Commissioner to direct that the determination of  the  question shall  not affect the liability of any person under that Act in respect to any sale effected prior  to  the  determination.  No such  safeguard  or guideline as provided in said Section 49 of the Delhi Sales Tax Act is present in the main provision. We  are  in  complete  agreement  with  the view of the Kerala High Court that Section 59A of the Act is  violative  of Article  14  of  the  Constitution  and  the  High  Court  was, therefore, right in striking down the said provision.  For  the aforesaid reasons these appeals are dismissed with costs.