http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: M.   A. RAHMAN AND OTHERS

       Vs.

RESPONDENT: THE STATE OF ANDHRA PRADESH

DATE OF JUDGMENT: 30/03/1961

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. GAJENDRAGADKAR, P.B. SARKAR, A.K. GUPTA, K.C. DAS AYYANGAR, N. RAJAGOPALA

CITATION:  1961 AIR 1471            1962 SCR  (1) 694

ACT: Motor  Spirit-Registration  of dealers-If  ultra  vires  the Constitution-  Constitution  of  India,  Art.  19(1)(g)  The Madras  Sales  of  Motor  Spirit  Taxation  (Andhra  Pradesh Extension and Amendment) Act (Andhra Pradesh V of  1958)-The Madras Sales of Motor Spirit Taxation Act (VI Of 1939) Ss. 3 and 4, sub-ss. (1) and (4).

HEADNOTE: The  Madras Sales of Motor Spirit Taxation Act (Mad.  VI  of 1939) was made applicable to the, State of Andhra Pradesh by the  Madras Sales of Motor Spirit Taxation  (Andhra  Pradesh Extension  and  Amendment) Act (Andhra Pradesh V  of  1958). The  purpose and object of the Act was to levy  and  collect tax  on retail sales of motor spirit and the  liability  for payment  was placed upon the person effecting the sale.   In order that the State may know the persons from whom tax  was due s. 4(1) provided for registration of dealers and S. 4(6) provided  for  the suspension of such  registration  in  the event  of some contraventions.  All that any one who  wanted to  carry on business had to do was to ask for  registration which  he  would get under the rules.  The  petitioners  who were  dealers  in  motor  spirit  in  Hyderabad  filed  writ petition challenging the provisions of the said S. 4 Of sub- ss.  (1)  and (6) on the ground that such  registration  and cancellation   were  not  reasonable  restrictions  on   the fundamental  rights of the petitioners to carry on  business under Art. 19(1)(g) of the Constitution particularly as  the cancellation   of   registration  resulted  in   the   total extinction   of  the  business  and  was   an   unreasonable restriction  and prayed that sub-ss. (1) and (4) Of S. 4  Of the Act and r. 14 framed under s. 26 of the Act be  declared ultra vires. Held, that the provisions of S. 4(1) of the Act were consti- tutional.   Registration  of  dealers under  s.  4(1)was  an eminently  reasonable  provision in order to carry  out  the object of the Act, the purpose behind the registration being that  those on whom the liability to pay tax under S.  3  of the  Act  lay,  were known to the State, so  that  it  could

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

realise the tax from them. The  provision Of S. 4(6) for cancellation  of  registration for  failure to pay the tax or for fraudulently evading  the payment  of it was an additional coercive process which  was expected  to be immediately effective and enabled the  State to  realise  its  revenue.   The fact  that  in  some  cases restriction  might result in the extinction of the  business of a dealer would not by itself 695 make the provision as to cancellation of registration an un- reasonable  restriction on the fundamental right  guaranteed by Art. 19(1)(g) of the Constitution. Narendra  Kumar v. The Union of India, [1960] 2 S.C.R.  375, referred to.

JUDGMENT: ORIGINAL  JURISDICTION: Petition Nos. 145 and 149 to 158  of 1959. Writ Petition under Art. 32 of the Constitution of India for enforcement of Fundamental Rights. Sardar Bahadur, for the petitioners. C.   K.  Daphtary, Solicitor-General of India, R.  Ganapathy Iyer and T. M. Sen, for the respondents. 1961.  March 30.  The Judgment of the Court was delivered by WANCHOO, J.-These eleven petitions raise a common point  and will be disposed of together.  The brief facts necessary for present purposes are these.  The petitioners are dealers  in motor  spirit in Hyderabad.  In 1949 the Hyderabad Sales  of Motor  Spirit  Taxation Regulation, No. XXIV of  1358  Fasli (hereinafter  called  the  Regulation) was  passed  and  the petitioners  were registered as retail dealers of  petroleum products under the Regulation.  In 1957 the petitioners  and others  filed  writ petitions in the High  Court  of  Andhra Pradesh  questioning the validity of the Regulation.   There was also a prayer for stay of the levy and collection of the tax and the High Court ordered that all further  proceedings in  the  matter  of  levy,  demand  and  collection  of  tax including  cancellation  of  registration  certificate   and threatened  attachment  of  property and  the  launching  of criminal  proceedings  in  pursuance of  the  Regulation  be stayed.   The  petitioners allege that on  this  stay  being granted  by  the High Court, they thought that S. 3  of  the Regulation  was  suspended  during the period  of  stay  and therefore  they stopped collecting the tax  from  consumers. While  these petitions were pending in the High  Court,  the Madras  Sales  of  Motor  Spirit  Taxation  (Andhra  Pradesh Extension  and  Amendment) Act, No. V of  1958  (hereinafter called the Act), was passed by which 696 the  Madras  Sales of Motor Spirit Taxation Act, No.  VI  of 1939  was applied to Andhra Pradesh with some  modifications and  the  Regulation  was  repealed.   This  Act,  like  the Regulation,  had provisions for registration of dealers  and in  consequence fresh registration certificates were  issued to  the petitioners as well as to all other dealers  in  the State.   In  August  1958  the  petitions  challenging   the validity  of  the Regulation were dismissed.   In  September 1958  notice& were issued to the petitioners informing  them that  they  had failed to submit returns  showing  sales  of motor  spirit  from March 1957 to March 1958 and  they  were required to submit returns within seven days, failing  which best  judgment assessments would be made under the  relevant provision  of the Regulation.  The petitioners  made  repre-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

sentations  against this order and their main case was  that they  had not collected any tax from consumers  during  this period  and it would therefore be harsh to demand  tax  from them  in the circumstances.  Thereupon it is said that  best judgment-’ assessments were made against the petitioners and they were required to pay the tax, though liberty to pay  in installments  was  granted  to them for  this  purpose.   As however  the petitioners failed to deposit the tax  even  in installments,  the  registration certificate of one  of  the petitioners   was  cancelled  and  other  petitioners   were threatened   with   cancellation   of   their   registration certificates about October 1959.  Consequently, the  present petitions  were filed soon after challenging the  provisions of   the  Act  relating  to  cancellation  of   registration certificates on the ground that such cancellation was not  a reasonable  restriction  on the fundamental  rights  of  the petitioners  to carry on business under Art. 19 (1)  (g)  of the  Constitution.   The petitioners therefore  pray  for  a declaration that sub-ss. (1) and (6) of s. 4 of the Act  and r.  14 purported to be framed thereunder are ultra vires  as being  violative of Art. 19 (1) (g) of the Constitution  and for  consequential orders against the  respondents,  namely, the State of Andhra Pradesh and its officers, from enforcing the said provisions. The petitions have been opposed by the respondents 697 and  their  case  is that the  provisions  in  question  are reasonable  restrictions on the right guaranteed under  Art. 19   (1)   (g)  and  are  therefore  perfectly   valid   and constitutional.    The   respondents  also  say   that   the allegation of the petitioners that they did not collect  the tax  during the period of the stay orders from consumers  is false. In  order to decide the constitutionality of the  provisions which have been challenged it is necessary to look into  the purpose  and  object of the Act in  which  those  provisions appear.  The Act was passed in order to levy and collect tax on  retail  sales  of motor spirit in the  interest  of  the general revenues of the State.  Section 2 of the Act is  the definition  section.  Section 3 is the charging section  and provides  the rates at which the tax is to be levied on  all retail sales of motor spirit.  Section 4 (1) which is  being challenged is in these terms:-               "No  person shall, after the  commencement  of               this Act, carry on business in motor spirit as               an importer or as a wholesale or retail dealer               at  any place in the State unless he has  been               registered as such under this Act."               Sub-sections   (2)   and  (3)   make   certain               ancillary  provisions  and sub-s.  (4)  is  in               these terms:-               "Registration  may  be made  subject  to  such               conditions,  if  any,  as  may  be  prescribed               including  in  the case of  an  applicant  for               registration as a retail dealer, the making of               such   deposit  or  the  furnishing  of   such               security  as  the  registering  authority  may               consider  necessary to ensure the due  payment               of  the  tax which may from time  to  time  be               payable by him."               Sub-section   (5)  is  unnecessary   for   our               purpose, and sub-s. (6) is in these terms:-               "Any registration under sub-section (1) may be               suspended or cancelled by such authority,  for               such  reasons, and in such manner, as  may  be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

             prescribed." It  is not necessary to refer to other sections  which  make various provisions necessary for the enforcement of the  Act till we come to s. 26 which gives power to 88 698 the State Government to make rules to carry out the purposes of  the Act.  Rule 14 which has been attacked has been  made under  the power conferred under s. 26 and it is  not  being disputed  that if the main provisions contained in s. 4  are constitutional, the rule is within the ambit of the Act  and the rule making power of the State Government. It  will  be  clear  from  this  analysis  of  the  impugned provisions of the Act that the purpose and object of the Act is  to  levy  and collect tax for purposes  of  the  general revenues  of  the  State and the-liability  for  payment  is placed under s. 3 upon the person effecting the sale.  He is required by s. 5 of the Act to keep books of account in  the prescribed form and to submit to the Commercial Officer  and to  such other officers as may be prescribed, a I return  in such   form,  ’containing  such  particulars  and  at   such intervals,  as  may be prescribed.  Along with  the  return, under  s. 6 he is required to pay the amount of tax  due  in respect of the motor spirit sold by him in retail during the preceding month according to the return.  In order therefore that the State may have a check on the person from whom  the tax is due s. 4(l) provides for registration of dealers  who carry  on  the  business  in  motor  spirit.   Without  such registration  it would be impossible for the State  to  know the  persons who are selling motor spirit and from whom  the tax  is  due.   The provision therefore under  s.  4(l)  for registration of dealers is an eminently reasonable provision in  order  to carry out the object of the Act,  namely,  the levy  and collection of this tax for purposes of the  State. It is really no restriction on carrying on business in motor spirit;  any one who carries on such business is free to  do so  and  all that he has to do is to ask  for  registration, which  he will get subject to the provisions of sub-s.  (4). That sub-section has not been challenged in these  petitions and  therefore  we  proceed on the  assumption  that  it  is constitutional.   It follows therefore that all that  anyone who wants to carry on business in motor spirit has to do  is to  ask for registration which he will get under the  rules, and  the purpose behind registration is that those  on  whom the liability to pay tax 699 that  it  may  realise the tax  from  them.   The  challenge therefore to the constitutionality of s. 4(1) must fail. Then  we  turn  to  sub-s.  (6),  which  provides  that  any registration under sub-s. (1) may be suspended or  cancelled by such authority, for such reasons, and in such manner,  as may be prescribed.  The main attack of the petitioners is on this  sub-section.   They  contend  that  this   sub-section authorises the State to cancel a registration.The effect  of such  cancellation  read with sub-s. (1) is  that  a  person whose registration is cancelled cannot carry on business  in motor  spirit as he was doing -before the cancellation.   It is said that cancellation results in the total extinction of the  business of the person whose registration is  cancelled and thus the provision as to cancellation is an unreasonable restriction on the fundamental right to carry on business. There is no doubt that if a registration is cancelled  under sub-s.  (6)  it will not be possible for  the  person  whose registration  is  so cancelled to carry on his  business  in motor  spirit.  Rule 14 provides conditions under which  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

registration may be cancelled and we are in the present case concerned with two of them, namely, where the holder of  at. registration  certificate  (a) fails to pay the tax  or  any other  amount  payable under the Act  and  (b)  fraudulently evades the payment of the tax. The  reasonableness of this provision as to cancellation  of registration certificate has to be judged in the  background of  what we have already said about the purpose of the  levy and its liability on the seller.  It is true that there  are other  provisions in the law for realisation of public  dues from  those  who default in making payments;  but  generally speaking cancellation of registration in cases like these is one more method of compelling payment of tax which is due to the  State.   Collection of revenue is necessary-  in  order that  the administration of the State may go on smoothly  in the interest of the general public.  The State has therefore armed  itself  with  one more coercive method  in  order  to realise the tax in such cases.  It is true 700 that  cancellation  of registration may result in  a  dealer being  unable to carry on the business, but the same  result may  even  follow  from the application  of  other  coercive processes  for  realisation of dues from a trader,  for  his assets may be sold off to pay the arrears of tax and lie may thereafter be not in a position to carry on the business  at all.    Therefore   the  provision   for   cancellation   of registration for failure to pay the tax or for  fraudulently evading the payment of it is an additional coercive  process which  is expected to be immediately effective  and  enables the  State to realise its revenues which are  necessary  for carrying  on  the  administration in  the  interest  of  the general  public.  The fact that in some  cases  restrictions may  result  in the extinction of the business of  a  dealer would not by itself make the provision as to cancellation of registration an unreasonable restriction on the  fundamental right   guaranteed  by  Art.  19(1)(g).   We  may  in   this connection  refer  to Narendra Kumar v. The Union  of  India (1), where it was held that:               "the  word  ’restriction’ in Arts.  19(5)  and               19(6)  of the Constitution includes  cases  of               ’prohibition’  also; that where a  restriction               reaches the stage of total restraint of rights               special  care has to be taken by the Court  to               see   that  the  test  of  reasonableness   is               satisfied  by considering the question in  the               background  of  the  facts  and  circumstances               under  which the order was made,  taking  into               account the nature of the evil that was sought               to  be remedied by such law, the ratio of  the               harm  caused  to individual  citizens  by  the               proposed   remedy,   the   beneficial   effect               reasonably  expected to result to the  general               public,  and whether the restraint  caused  by               the  law  was more than was necessary  in  the               interests of the general public." Applying these tests we are of opinion that the cancellation of registration will be justified even though it results  in the  extinction  of  business as  such  cancellation  is  in respect of a tax meant for the general revenues of the State to  carry  on  the administration in  the  interest  of  the general public. (1)  [1960] 2 S.C.R. 375. 701 Besides,  there  is another consideration to  which  we  may advert in the end, though even otherwise the cancellation is

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

justified.   Though there is no provision in the Act or  the Rules specifically authorising the seller to pass on the tax to  the consumer, what actually happens is that  the  seller includes the tax in the price and thus passes it oil to  the consumer.   Then in his turn the seller pays the tax to  the State.  In effect by thus passing on the tax to the consumer through the price, the dealer has already collected the tax. Therefore the compulsion of payment which arises because  of the provision for cancellation of registration is under  the circumstances justified and there is-no reason why he should fail  to  pay  it  to the State  or  evade  payment  thereof fraudulently.   The  fault  for failure to pay  the  tax  or fraudulent   evasion   in  payment  thereof  lies   in   the circumstances entirely on the dealer and he cannot be  heard to complain that cancellation of registration in such a case is  a disproportionate restriction on the right to carry  on business which cannot be justified in the interests of the general public. Under the circumstances we are of opinion that the ratio  of Narendra Kumar’s case (1) applies fully to the present  case and  the  provision  contained in sub-s. (6) of s.  4  is  a reasonable  restriction within the meaning of Art. 19(6)  of the  Constitution.   The petitions therefore  fail  and  are hereby  dismissed  with  costs; there will  be  one  set  of hearing costs only. Petitions dismissed. (1) [1962] S.C.R. 375. 702