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

PETITIONER: SITA RAM BISHAMBHER DAYAL & ORS.

       Vs.

RESPONDENT: STATE OF U.P. & ORS.

DATE OF JUDGMENT21/10/1971

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. KHANNA, HANS RAJ

CITATION:  1972 AIR 1168            1972 SCR  (2) 141  CITATOR INFO :  RF         1973 SC1461  (17,63)  R          1974 SC1660  (21,36)  R          1975 SC1007  (15)  RF         1979 SC 321  (42)  R          1979 SC1475  (23)  RF         1982 SC 710  (55)  F          1985 SC 421  (25)  RF         1990 SC 560  (13,33)

ACT: U.P.  Sales Tax Act, 1948, s.  3D(1)--Its  validity--Whether delegation of  authority under the section excessive and bad in  law--Is  the  section  violative  of  Art.  14  of   the Constitution.

HEADNOTE: The  appellants  are dealers in Rab.  The  State  Government under  s.  3D(1)  of the U.P. Sales Tax  Act,  1948,  levied purchase tax in respect of their, dealings in Rab.   Section 3D(1)  of  the  Act,  inter alia,  provides  that  for  each assessment year, there shall be levied and paid a tax on the turnover  of first purchases made by a dealer or  through  a dealer in respect of such goods, at such rates not exceeding 2  paise per rupee in the case of foodgrains and 5 paise  in respect of other goods and in the explanation it is provided that  "in the case of purchase made by a  registered  dealer through  a licensed dealer, ’the registered dealer shall  be the,  first  purchaser  and in every  other  case  of  fresh purchase, the dealer through whom the first purchase is made shall  be deemed to be the first purchaser.  The  appellants challenged  the  vires of s. 3(d)(1) of the Act  before  the High Court but the High Court held against the appellants. In  appeal  this Court, it was contended by  the  appellants that  in  empowering the Government to, levy  tax  on  goods other  than foodgrains at a rate not exceeding 5 paise in  a rupee, the legislature had given an unduly wide power to the executive.  Such a delegated power was, therefore, excessive and  bad in law and secondly, s. 3D(1) infringed Art. 14  of the Constitution because it discriminated between registered dealers  who  purchased  through licensed  dealers  and  the registered dealers who purchased through other dealers. Dismissing the appeals, HELD: (i) The power to fix the rate of tax is a  legislative

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

power,  but  if the legislature lays  down  the  legislative policy and provides the necessary guidelines that power  can be  delegated  to  the executive., Though a  tax  is  levied primarily for the purpose of gathering revenue, in selecting the objects to be taxed and in determining the rate of  tax, various social and economic factors are to be considered and since  the  legislatures have very little time  to  go  into details,  they  have  to  delegate  certain  powers  to  the Executive.  This Court has ruled that if a reasonable  upper limit is prescribed, the legislature can always delegate the power of fixing the rate of purchase ’tax or sales tax. [143 E] Devi Days Gopal Krishnan v. State of Punjab, 20 S.T.C.  430, followed. In   the  present  case,  taking  into   consideration   the legislative  practice  in this country and the rate  of  tax levied or leviable under the various sales tax laws in force in this country, it cannot be said that the power  delegated to  the.  executive is excessive and in the absence  of  any material,  it  cannot be said that the  maximum  rate  fixed under s. 3D(1) is unreasonably high. 144 E-F] (ii)  Section  3D  is  not  violative  of  Art.  14  of  the Constitution.   In the present case, there is nothing  wrong for  the  legislature  to  make  a  classification   between licensed  dealers  and  dealers who  are  not  licensed.   A licensed  dealer has to maintain true and  correct  accounts and other particulars of 142 purchasers  whereas dealers who are not registered  are  not required  to  maintain any accounts.  Hence,  if  registered dealers are permitted to make purchases through dealers  who are not licensed and those dealers are themselves not liable to  be  taxed, then opportunity for evasion of  tax  becomes larger.  Under the circumstances, the classification is  not unjustified. [145 G] State  of  Madras v. Gannon Dunkerlay & Co.  (Madras)  Ltd., [1959]  S.C.R.  379 and Devi Deo Gopal Krishna v.  State  of Punjab, 20 S.T.C. 430, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 62 and 1672 of 1969. Appeals from the judgments and orders dated May 17, 1968  of the Allahabad High Court in Writ Petitions Nos. 310 and  627 of 1968. J. P. Goyal and Sobhag Mal Jain, for the appellants (in both the appeals). L.  M. Singhvi and O. P. Rana, for the respondents (in  both the appeals). The Judgment of the Court was delivered by Hegde,  J. These are appeals by certificate.  They  raise  a common  question of law for decision.  The  only  contention arising for decision in these appeals is as to the vires  of s. 3-D(1) of the U.P. Sales Tax Act, 1948 (to be hereinafter referred  to as the Act).  The validity of that section  has been  assailed  on two different grounds viz. (1)  that  the power  delegated  to  the  executive  under  S.  3-D(1)   is excessive  and  as  such  bad in law  and  (2)  Section  3-D infringes  Art.  14  of the Constitution in as  much  as  it discriminates  between the registered dealers  who  purchase through  the agency of licensed dealers and  the  registered dealers who purchase through other dealers, The  appellants  are dealers in Rab.  In  respect  of  their

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

dealings  in Rab, they have been levied purchase tax as  per the notification issued by the Government under s. 3 (D) (1) of  the Act.  They are challenging the validity of the  levy on the grounds mentioned above. The High Court has repelled both the above contentions.  The High  Court has come to the conclusion that the  power  con- ferred  on  the  State Government under s. 3-D  is  a  valid power.   It  opined  that the conferment  of  power  on  the executive to fix the rate of tax within the limits laid down in  the section is not impermissible.  Further it held  that the section is not hit by Art. 14 of the Constitution. 143 Before proceeding to consider the correctness of the conten- tions  advanced on behalf of the appellant, it is  necessary to read S. 3-D(1). It says:               "Except as provided in sub-section (2),  there               shall  levied  and paid, for  each  assessment               year  or part thereof, a tax on the  turnover,               to  be  determined in such manner  as  may  be               prescribed,  of  first  purchases  made  by  a               dealer  or  through  a  dealer,  acting  as  a               purchasing  agent in respect of such goods  or               class  of  goods,  and  at  such  rates,   not               exceeding  two paisa per rupee in the case  of               foodgrains, including cereals and pulses,  and               five  paisa  per rupee in the  case  of  other               goods and with effect from such date, as  may,               from  time to time, be notified by  the  State               Government in this behalf.               Explanation.-In the case of a purchase made by               a  registered dealer through the agency  of  a               licensed  dealer, the registered dealer  shall               be  deemed to be the first purchaser,  and  in               every  other  case of a first  purchase,  made               through the agency of a dealer, the dealer who               is  the agent shall be deemed to be the  first               purchaser." It  is  true that the power to fix the rate of a  tax  is  a legislative  power  but  if the legislature  lays  down  the legislative  policy and provides the  necessary  guidelines, that power can be delegated to the executive.  Though a  tax is levied primarily for the purpose of gathering revenue, in selecting  the  objects to be taxed and in  determining  the rate  of tax, various economic and social aspects,  such  as the  availability of the goods, administrative  convenience, the  extent  of  evasion, the impact of tax  levied  on  the various sections of the society etc. have to be  considered. In  a modem society taxation is an instrument  of  planning. It  can be used to achieve the economic and social goals  of the  State.   For  that reason the power to tax  must  be  a flexible  power.  It must be capable of being  modulated  to meet the exigencies of the situation.  In a Cabinet form  of Government,  the executive is expected to reflect the  views of  the legislatures.  In fact in most matters it gives  the lead  to the legislature.  However, much one  might  deplore the  "New Despostism" of the executive, the very  complexity of  the modern society and the demand it makes on  its  Gov- enment  have  set  in  motion  forces  which  have  made  it absolutely  necessary for the legislatures to  entrust  more and  more  powers  to the executive.   Text  book  doctrines evolved  in  the  19th  Century have  become  out  of  date. Present position as regards delegation of legislative  power may  not  be  ideal,  but  in  the  absence  of  any  better alternative, there is no Escape from it.  The legisla- 144

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

tures  have  neither  the time, nor  the  required  detailed information nor even the mobility to deal in detail with the innumerable  problems  arising time and again.   In  certain matters they can only lay down the policy and guidelines  in as clear a manner as possible. In  State  of  Madras v. Gannon  Dunkerley  &  Co.  (Madras) Ltd.(1) this Court observed :               "Now, the authorities are clear that it is not               unconstitutional for the legislature to  leave               it  to  the  executive  to  determine  details               relating to the working of taxation laws, such               as the selection of persons on whom the tax is               to  be levied, the rate at which it is  to  be               charged  in  respect of different  classes  of               goods and the like". It  was not contended before us that the power delegated  to the executive to select the goods on which the purchase  tax is  to  be  Ievied was an excessive delegation  nor  was  it contended  that  the  power  granted  to  the  executive  to determine the rate of tax by itself amounts to an  excessive delegation.   All that was said was that in  empowering  the Government  to levy tax on goods other than foodgrains at  a rate  not  exceeding  5 paise in a  rupee,  the  legislature parted  with one of its essential legislative  functions  as the power given to the executive is an unduly wide one.   We are  unable to accede to this contention.  Whether  a  power delegated  by the legislature to the executive has  exceeded the permissible limits in a given case depends on its  facts and  circumstances.   That question does not  admit  of  any general  rule.   It  depends upon the nature  of  the  power delegated and the purposes intended to be achieved.   Taking into consideration the legislative practice in this  country and  the  rate of tax levied or leviable under  the  various sales  tax laws in force in this country, it cannot be  said that the power delegated to the executive is excessive.   In Devi Dass Gopal Krishnan and ors. v. The State of Punjab and ors(2)  this Court ruled that it is open to the  legislature to delegate the power of fixing the rate of purchase tax  or sales  tax if the legislature prescribes a reasonable  upper limit. We are unable to accept the contention of Mr. Goyal, Iearned Counsel for the appellant that the maximum rate fixed  under S.  3-D  is  unreasonably high.  At any  rate  there  is  no material  before  us on the basis of which, we can  come  to that conclusion. This  takes us to the contention that s. 3-D is ultra  vires Art. 14 of the Constitution.  The argument on this  question proceeds  thus : The explanation to s. 3-D provides that  in ’the case of (1) [1959] S.C.R. 379. (2) 20 S.T.C. 430. 145 purchase made by a registered dealer through the agency of a licensed dealer, the registered dealer would be deemed to be the  first purchaser whereas in every other case of a  first purchase made through the agency of a dealer, the dealer who is  the  agent would be deemed to be  the  first  purchaser. This difference according to Mr. Goyal is discriminatory  in character.   He  urged that there was no  justification  for making an agent liable to pay sale tax merely because he  is an unlicensed agent.  According to him there is no  rational distinction  between  the purchases  made  through  licensed dealers and those made through unlicensed dealers. The  power to levy tax includes within itself the  power  to provide  against evasion of tax.  A licensed dealer  has  to

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

function according to the conditions of his licence.  He  is bound  to maintain true and correct accounts of his  day  to day transactions Of sales and purchase of goods notified  in sub-s.  (1)  of s. 3-D in an intelligible-form and  in  such manner,  if  any, as may be prescribed and further  he  must furnish  to  the  assessing authority  the  details  of  the aforesaid  transactions  together with the name  and  parti- culars  of  the  purchaser and the number and  date  of  the registration certificate filed by the purchaser under s.  8A and  such  other information regarding the  transactions  as may, subject to rule, if any, in this behalf be required. Hence whenever a purchase is made through a licensed  agent, the authorities have the opportunity to know what  purchases have  been made and from whom those purchases were made  but that  would not be the case when purchases are made  through dealers who are not licensed.  They are not required by  law to  maintain any accounts or submit any returns.   Hence  if registered  dealers are permitted to make purchases  through dealers  who are not licensed and those  dealers  themselves are  not  liable to be taxed then  opportunity  for  evasion becomes  larger.  The rule of discrimination does  not  rule out  classification.   The power of classification  under  a fiscal law is larger than in the case of other laws.   Hence there  was  nothing  wrong  in  the  legislature  making   a classification between licensed dealers and dealers who  are not  licensed.   Even when a dealer who is not  licensed  is liable to pay purchase tax, the ultimate burden falls on his principal.   For these reasons, we do not see any basis  for the contention that s. 3-D is violative of Art. 14. For the reasons mentioned above these appeals fail and  they are dismissed with costs-one set. S.N.                  Appeals dismissed. 146