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PETITIONER: STATE OF KERALA

       Vs.

RESPONDENT: ATTESEE (AGRO INDUSTRIAl4L, TRADING CORPORATION)

DATE OF JUDGMENT27/10/1988

BENCH: RANGNATHAN, S. BENCH: RANGNATHAN, S. MUKHARJI, SABYASACHI (J)

CITATION:  1989 AIR  222            1988 SCR  Supl. (3) 601  1989 SCC  Supl.  (1) 733 JT 1988 (4)   250  1988 SCALE  (2)1597

ACT:     Kerala  General  Sales  Tax  Act--Section  9  and  Third Schedule   Item  7--‘Cotton   fabrics’--Definition   of--’As defined  in Central Excises and Salt  Act  1944’--Subsequent amendment  of  definition in Centra/Excises and  Salt  Act-- Whether  to  be taken note of in  construing  definition  of ‘Cotton  fabrics’ in Sales Tax Act--PVC cloth--Exemption  Of from tax. %     Statutory  Interpretation--Legislation by  incorporation or reference--Principle of interpretation.

HEADNOTE:     Section 9 read with Third Schedule item 7 of the  Kerala General Sales Tax Act 1963 granted exemption from sales  tax to certain items including cotton fabrics. ‘Cotton  fabrics’ was defined as having the same meaning as assigned to it  in item  19  of the first Schedule to the Central  Excises  and Salt Act, 1944. This definition of ‘cotton fabrics’ in  1944 Act was amended in 1969 by the Finance Act 1969.     In  1957, Parliament enacted the Central Sales Tax  Act, 1956  and  Additional Duties of Excise  ((Goods  of  Special Importance)  Act, 1957 affecting the levy of sales  tax  and excise duty. Definition of ‘cotton fabrics’ occurring in the aforesaid Acts was also related to its definition under  the 1944 Act.     The respondent-assessee was manufacturing PVC cloth,  an item  of  goods  which was clearly covered  by  the  amended definition but, perhaps, not by the original one. He claimed exemption  from  sales tax in respect  of  assessment  years 1971-72 and 1972-73.     On  a  reference made to the High Court under  the  1963 Act, it observed that the concept of ‘cotton fabrics’ in the Central Excises and Salt Act seemed to be integrally  linked with  the provisions of the (General Sales Tax Act) the  Act under  which  the levy of sales tax was governed,  prior  to enforcement  of  the  1963 Act), and that it  would  not  be regarding  the  latter  Act as  unaffected  by  the  growing concept  of the term ‘cotton fabrics’ in the Central  Excise                                                   PG NO 601                                                   PG NO 602

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and Salt Act, and that unless the extended definition of the Central  Excises  and Salt Act imported into the  Sales  Tax Act, the latter Act would become unworkable and ineffectual.     In  the  appeals by certificate to this  Court,  it  was submitted  on   behalf of the State-appellant that  the  PVC cloth  manufactured  by  respondent  was  not  entitled   to exemption  from sales tax if the earlier definition  of  the 1944  Act, before the amendment, was to apply, and that  the 1963  Act  has  incorporated  in  its  Third  Schedule   the definition  of the 1944 Act as it stood at the time  of  its enactment  and that this incorporation is unaffected by  the subsequent changes made in the 1944 Act, that the concept of ‘cotton  fabrics’  in  the  1944 and  1963  Acts  were   not integrally linked and that it is not appropriate to say that unless  the extended definition of the former were  imported into the latter, the latter Act would become unworkable  and ineffectual.     On  the question whether the exemption given to  ‘cotton fabrics’ in item 7 should be restricted to ‘cotton  fabrics’ as  defined  in  the 1944 Act as it  stood  on  1.4.1963  or whether  it  would also cover goods falling under  the  said definition after its amendment in 1969.     Dismissing the appeals, this Court,     HElD: ( 1 ) It would be correct to say that the 1963 Act brings  in      the definitions of the 1944 Act by  way  of reference or citation and not by way of incorporation. For a reading  of  the Act shows that the Act intended  to  confer exemption  on a number of goods set out in the Schedule.  Of these, since items 5 to 7 are defined in the 1944, Act,  the Act  referes to those definitions to ascertain the scope  of these items. There are no express words used by the  statute which  will justify an inference that the intention  was  to incorporate  those definitions, standing on that  date  into the 1963 Act. [613A-C]     Secretary  of State v. Hindustan  Cooperative  Insurance Society  Ltd., [1931] 58 I.A. 259; Collector of  Customs  v. Nathella .Sampathu      Chetty & another, [1962] 3 SCR  786; Ram Sarup y. State, [1963] 3 SCR 858; Ram Kirpal v. States [ 1970]  3  SCR 233; Ne- Central Jute Mills Co.  Ltd.  v.  the Assistant  Collector, [1971] 2 SCR 92; Bhajva v.  Gopikabai, [1978] 3 SCR 561; Mahindra & Mahindra Ltd v. Union, [1979] 2 SCR   1038   and  Western  Coal  Fields  v.   Special   Area Development, Authority, [1982] 2 SCR 1, referred to.                                                   PG NO 603     (2) ‘Silk fabrics’ as defined in item 20 of the 1944 Act was  included in 1961 in the CST Act and the 1957  Act.  The fact  that ‘cotton fabrics’ though listed as item 12 in  the Schedule to the 1944 Act was not brought into the list in s. 14  till 1.10.1958 or that ‘silk fabrics’ was  dropped  from the  list in s. 14 w.e.f. 11.6.1968 though it  continues  in the  Schedule  to the 1944 Act does not alter  the  position that  these three Acts are inter-connected and that  certain goods taken out from the Schedule to the 1944 Act were to be subjected  to the special treatment outlined in the CST  Act and the 1957 Act.[615A-B]     (3) Though the 1963 Act referred only to the definitions in  the  1944 Act, the entries in the Schedule  have  to  be juxtaposed  into the broad pattern or scheme evolved by  the 1956-57 enactments. Even assuming that the reference in  the items of the Schedule to the definitions in the 1944 Act  is by way of incorporation and not reference, one cannot escape the  conclusion  that the circumstances are covered  by  the exceptions  outlined in the decision of this Court in  State of  Madhya  Pradesh  v. Narasimhan! [1976]  1  SCR  6.  They certainly  fall within the scope of exception (a)  mentioned

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therein  and also fall within exception (c)  if  ‘unworkable and  ineffectual’ are read to take in also ‘unrealistic  and impractical’. [616D-E]     (3) The 1963 Act on a proper constructions does indicate a policy that certain; items which arc subject to additional excise  duty should be left out of sales tax levy except  in cases  where there is a specific indication or provision  of the Act to the contrary. The Kerala State legislature cannot be  said  to  have attracted the 1944  Act  definition  with their  future amendments blindly and without application  of mind. On the other hand, it has been done in pursuance of  a scheme,  a  purpose and a policy. It cannot,  therefore.  be said  that there has been any abdication of its  legislative functions by the Kerala Legislature. [618F-G]     B  .  Shama Rao v. The Union  Territory  of  Pondicherry [1967] 2 SCR 650, distinguished.     Gwalior Rayon Silk Mfg. (Wvg.) Co. Lnd. v. The Asslstant Commissioner  of  Sale’s  Tax and Ors., [1974]  2  SCR  8?9, referred to.     (5)  The High Court was right in the view it took  viz., that  the scope of the exemption available under item  7  of the  Third Schedule to the 1963 Act will vary  according  to the scope of the corresponding entry in the Schedule to  the 1944  Act  as  it stands at the relevant  time.  So  far  as assessment  years  1971-72  and 1972-73  are  concerned  the definition  of cotton fabrics in item 19 of the Schedule  to                                                   PG NO 604 the  1944  Act, as amended by the Finance  Act  1969  w.e.f. 1.4.1969, will apply. [618H; 619A-B]

JUDGMENT:     CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.  207-208 (NT) of 1979.     From  the Judgment and Order dated 10th August, 1977  of the Kerala High Court in T.R.C. Nos. 61 and 62 of 1976.     P.S. Poti and K.R. Nambiar for the Appellants.     T.S. Krishnamoorthy Iyer, S.B. Sawhney and V.B.  Saharya for  the Respondents.     The Judgment of the Court was delivered by     S. RANGANATHAN, J. 1. A very interesting question as  to the   principles   of  interpretation  of   legislation   by incorporation  or  references arises  for  consideration  in these  appeals arising out of certain assessments  to  sales tax in Kerala. Section 9 of the Kerala General Sales Tax Act 1963  which  came into force on 1.4.1963  granted  exemption from  sales tax on goods specified in the third Schedule  to the said Act. These included the following:     5.  Sugar as defined in item 1 of the First Schedule  to the Central Excises and Salt Act. 1944:     6. Tobacco as defined in item 4 of the First Schedule to the Central Excises and Salt Act. 1944 and     7.  Cotton  fabrics, silk fabrics  woollen  fabrics  and rayon or artificial silk fabrics as defined in item Nos. 19. 20,  21  and 22 respectively of the First  Schedule  to  the Central Excises and Salt Act. 1944.     The  question  before us is whether, in respect  of  the assessment  years  1971-72 and 1972-73, with  which  we  are concerned,  the  exemption given to ‘cotton  fabrics’  under item  7  above should be restricted to ‘cotton  fabrics’  as defined  in the Central Excises & Salt Act, 1944 (‘the  1944 Act’) as it stood on 1.4.1963 or whether it would also cover goods falling under the said definition after its  amendment in 1969.

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   2. Though we are concerned only with the  interpretation of  the Kerala General Sales Tax Act, 1963, it is  necessary                                                   PG NO 605 to refer back to the earlier history of some Central as well as State legislations:     (i) We start with the 1944 Act. By this Act, excise duty was levied on the manufacture or production of various types of  goods enumerated in the First Schedule to the Act.  Item 19  (originally item 12) of the First Schedule, as it  stood on 1.4.1963, defined ‘cotton fabrics’ thus:     "cotton fabrics--     ‘Cotton   Fabrics’   mean  all  varieties   of   fabrics manufactured either wholly or partly from cotton and include dhoties, sarees, chadars, bed sheets, bed-spreads,  counter- panes  and table cloths, but do not include any such  fabric xxx             xxx         xxx                          xxx Item  19  was  amended  by  the  Finance  Act,  1969.  After amendment, it reads thus:     "Cotton Fabrics     ‘Cotton   Fabrics’  means  all  varieties   of   fabrics manufactured  either  wholly  or  partly  from  cotton   and includes dhoties, sarees, chaddars, bed sheets, bed spreads, counter  panes,  table cloths, embroidery in the  piece,  in strips  or in motifs and fabrics impregnated or coated  with preparations of cellulose derivatives or of other artificial plastic materials but does not include xxx xxx"                                       (Underlining ourS ) The question set out earlier assumes importance because  the respondents-assessees  deal  in "P.V.C. Cloth", an  item  of goods which is clearly covered by the amended definition but perhaps, not by the original one.     (ii)  In  1957,  there  were  certain  legislations   of Parliament affecting the levy of sales tax and excise  duty. The  first  of  these was the Central Sales  Tax  Act,  1956 (C.S.T. Act) passed in pursuance of Article1e 286 (3) of the Constitution of India which reads thus:     "Any  law of a State shall, in so far as it  imposes  or authorises the imposition of, a tax on the sale or purchase                                                   PG NO 606 of   goods   declared  by  Parliament  by  law  to   be   of special importance  in inter-state  trade  or  commerce,  be subject to such restrictions and conditions in regard to the system  of  levy, rates and other incidents of  the  tax  as Parliament may by law specify."     The  C.S.T. Act received the assent of the President  on 24.12.56.  S.  14 of the Act declared certain  goods  to  be goods   of  special  importance  in  inter-state  trade   or commerce.  (hereinafter  referred to as  ‘declared  goods’.) These included, as on 1.4.1963, the following:     "(ii-a) cotton fabrics, as defined in Item No. 19 of the First Schedule to the Central Excises and Sait Act, 1944; xxx                       xxx                     xxx     (vii)  rayon or artificial silk fabrics, as  defined  in Item No. 22 of the First Schedule to the Central Excises and Salt Act, 1944(1 0f 1944)     (viii)  sugar,  as defined in Item No. 1  of  the  First Schedule  to the Central Excises and Salt Act. 1944 (  1  of 1944)     (ix)  tobacco,  as defined in Item No. 4  of  the  First Schedule  to the Central Excises and Salt Act, 1944 (  1  of 1944)     (x)  woollen fabrics, as defined in Item No. 21  of  the First Schedule to the Central Excises and Salt Act, 1944     (xi) silk fabrics as defined in Item No 20 of the  First Schedule to the Central Excises and Salt Act. 1944.-

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The  definitions  of the above goods were  thus  related  to their  definitions  under  the 1944 Act. S. 15  of  the  Act imposed certain restrictions and conditions in regard to tax on sale or purchase of declared goods within a State. It may be  mentioned that this section, as originally   enacted  in 1956,  had been amended w.e.f. 6.6.1957. by Act 16  of  1957 and, again, by Act 31 of 1956, w.e.f. 1.10.1958.     (iii) About the same time as the C.S.T. Act,  Parliament also  enacted  the  Additional Duties of  Excise  (Goods  of Special   Importance)  Act,  1957  (‘the  1957  Act’).   The statement  of  objects  and  reasons of this  Act  reads  as follows:                                                   PG NO 607     " The object of this legislation is to impose additional duties  of excise in replacement of the sales tax levied  by the  Union  and the States on sugar, tobacco and  mill  made tex-tiles and to distribute the net proceeds of these taxes, except  the proceeds attributable to Union  Territories,  to the  States.  The  distribution  of  the  proceeds  of   the additional  duties broadly followed the pattern  recommended by  the Second Finance Commission. Provision has  been  made that the States which levy a tax on the sale or purchase  of these  commodities after 1st April, 1958 to not  participate in  the distribution of the net proceeds. Provision is  made in  the  Act for including these goods in  the  category  of goods  declared to be of special importance  in  inter-state trade  or  commerce  so that, following  the  imposition  of uniform duties of excise on them, the rates of sales tax, if levied by the State are subject from 1st April, 1958 to  the restrictions in s 15 of the Central Sales Tax Act. 1956 S. 3 of this Act originally levied an additional excise duty on  sugar tobacco, cotton fabrics, rayon or artificial  silk and  woollen fabrics and s. 2(c) defined the above goods  as having  the meanings respectively assigned to them  in  item Nos. 8, 9, 12, 12A and 12B (subsequently changed as item  1, 4,19,12  and 22 respectively) of the First Schedule  to  the 1944 Act. It ma be mentioned here that the Finance Act  1961 had  amended s. 14 of the C.S.T. Act by including,  as  item (xi):  "silk  fabrics  as defined in item 20  of  the  First Schedule  of the 1944 Act". It also  simultaneously  amended the 1957 Act by adding a reference to ‘silk fabrics’ in s. 3 (1),  in  the  definition clause s. 2 (c)  as  well  in  the Schedule.  However, in  1968 when the Central Sales Tax  Act was  amended  against  by deleting the  reference  to  ‘silk fabrics’;  there was no corresponding amendment in the  1957 Act.  The  Finance (N0. 2) Act. 1977, substituted  the  word "man  made fabrics" for the words "rayon or artificial  silk fabrics":  w.e.f. 8.8.1977 and included a definition  of  he new  expression in item 22 of the Schedule to the  1944  Act and the 1957 Act.     S.  7 of the Act, as originally enacted,  declared  that the  goods declared to by of special importance would,  from 1.4.1968,  be  subject to the  restrictions  and  conditions specified  in  s.  15 of the Central  Sales  Tax  Act.  This section  was  omitted, w.e.f. 1.10.1958. by Act 31  of  1958 which also amended s. 15 of the Central Sales Tax Act     (iv)  The  levy  of sales tax  in  Kerala  was  formerly governed  by  the Central Sales Tax Act (Act XI  of  1125)--                                                   PG NO 608 Malayalam  Era  1125 corresponds to 1950  of  the  Gregorian Calendar.  This  Act was amended by the  General  Sales  Tax (Amendment) Ordinance, (No. 8 of 1957) w.e.f. 14.12.57,  the Ordinance   being   replaced  by  the  General   Sales   Tax (Amendment)  Act VII of 1958 with retrospective effect  from the same date. This amendment Act inserted s. 5A in the 1125

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Act which exempted certain goods from the levy of sales tax. Sub-section (1) of this section read thus:     "5A.  Exemption  of  the tax on the  sale  of  mill-made textile (other than pure silk), tobacco and sugar:     (1) The sale by any dealer of--     (i) mill-made textile, other than pure silk,     (ii) tobacco, and     (iii) sugar; other than stock of such goods in his possession, custody or control  immediately before the 14th day of December,  1957, shall, as from that date, be exempt from taxation under s  . 3, sub-s . (1) ."     Thus  Act was replaced by the Kerala General  Sales  Tax Act,  1963  (‘the 1963 Act’), as  already  mentioned  w.e.f. 1.4.63.     (v)  We have already referred to s. 9 and item 7 of  the Third Schedule to the 1963 Act. The Kerala General Sales Tax (Second  Amendment) Act, (Act 16 of 1967) amended item 7  of 1963 Act to reads as follow w.e.f. 1.9.1967;     "7.  Cotton  fabrics,  woollen  fabrics  and  rayon   or artificial  silk fabrics as defined in item nos. 19, 21  and 22 respectively of the First Schedule to the Central Excises & Salt Act, 1944. In other words, the exemption granted to ‘silk fabrics’  was taken  away  mention may also be made that by  reason  of  a later  amendment, ‘silk fabrics’ was included as one of  the items on which single point tax was leviable under the  1963 Act.  This  item, in the First Schedule to the   Act  as  it stood on 1.4.1980. read:                                                   PG NO 609     "101  ‘Silk fabrics’, that is to say, all  varieties  of fabrics  manufactured  either  wholly or  partly  from  silk including  embroidery in piece, in strips or in mofits,  but not  including  such  fabrics on which  duty  of  excise  is leviable   under  sub-section  (1)  of  Section  3  of   the Additional  Duties of Excise (Goods of  Special  Importance) Act (Central Act 58 of 1957)".     (vi)  Reference may also be made to one more  enactment, though it has no direct bearing on the issue before us. This is  the  Additional Duties of Excise (Textiles  and  Textile Articles)  Act,  1978  (Central Act 40 of  1978).  This  Act charged  an additional duty of excise in respect of  various goods  specified in the Schedule to the Act over  and  above the duty chargeable on them under the 1944 Act. These  goods included "cotton fabrics" "silk fabrics", "woollen fabrics-- ,"man-made  fabrics"  and "wool tops" as  defined  in  items 19,320,21,22 and 43 of the First Schedule to the 1944 Act.     3. These are the relevant statutory provisions. On these the question to be considered is: What is the effect of  the mention  of the definition of "cotton fabrics" given in  the 1944  Act in the Schedule to the 1963 Act? Does  it  attract only  the  said  definition  as on  1.4  1963  or  also  the subsequent amendments thereto? To appreciate the contentions urged,  it  is necessary to make a brief  reference  to  the principles  of  interpretation  of an  enactment  which  for purposes  of  convenience.  refers  to  or  incorporates   a provision of another. These have been discussed in   various earlier  decision  viz,  Secretary  of  State  v.  Hindustan Cooperative  Insurance Society Ltd.,  [1931]  58 I .A.  259, Collector of Customs v. Nathella Sampathu Chetty &  another, [1962] 3 S.C.R. 786, Ram Sarup v. State, [1963] 34 SCR  858. Ram Kirpal v. State. [1970] 3 S.C.R, New Central Jute  Mills Co. Ltd. v. The Assistant Collector. [1971] 2 SCR 92,  State of Madhya Pradesh v. Narasimhan, [1976] 1 S.C.R. 61,  Bhajva v. Gopikabai, [1978] 3 S.C.R. 561, Mahindra & Mahindra  Ltd.

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v.  Union, [1979] 2 S.C.R. 10348 and Western Coal Fields  v. Special  Area Development Authority. [1982] 2 S.C.R.  1.  It unnecessary to make a detailed reference to these decisions. It is sufficient to say that they draw a distinction between referential legislation which merely contains a reference to or citation of, a provision of another statue and a piece of referential  legislation which incorporates within itself  a provision  of  another  statute. In  the  former  case,  the provisions  of  the  second  statue,  along  with  all   its amendments and variations from time to time, should be  read into the first statute. In the later case, the position will be  as outlined in Narasimhan, [1976] 1 S.C.R.  where  after                                                   PG NO 610 referring   to Secretary of State v.  Hindustan  Cooperative Insurance  Society  Ltd.,  [1931] 58 I.A.  259,  this  Court summed up the position thus:     "On a consideration of these authorities, therefore,  it seems that the following proposition emerges:     Where  a  subsequent Act incorporates  provisions  of  a previous Act then the borrowed provisions become an integral and  independent part of the subsequent Act and are  totally unaffected  by any repeal or amendment in the previous  Act. This  principle,  however, will not apply in  the  following cases:     (a)  where the subsequent Act and the previous  Act  are supplemental to each other;     (b) where the two Acts are in pari materia;     (c)  where  the amendment in the previous  Act,  if  not imported  into  the subsequent Act also,  would  render  the subsequent Act wholly unworkable and ineffectual; and     (d)  where  the amendment of the  previous  Act,  either expressly  or  by  necessary intendment,  applies  the  said provisions to the subsequent Act." Applying  the above principles to the facts of  the  present case, the High Court in its judgment on a reference made  to it  under  the  1963  Act (and reported in  4  1  S.T.C.  1) observed:     "In  the  light of the principles  thus  formulated,  it seems unnecessary for us to labour the point whether we  are confronted  in these cases with a "reference" or  "citation" on the one hand, or an "incorporation" on the other, of  the definition of ‘cotton fabrics’ in item 19 of the Schedule  1 of  the Central Excise and Salt Act, into the provisions  of Section  9 read with item No. 7 of the III Schedule  of  the General Sales Tax Act, 1963. If the definition was merely by way  of  ‘reference  or ’citation’, the  referred  or  cited provision grows and shrinks with the changes in the  parent. Even  in  the case of an incorporated definition  while  the general  principle  is  that  the  incorporated   definition                                                   PG NO 611 remains  static  and is unaffected by  the  developments  or fluctuations  of  the  parental source  from  which  it  was incorporated,   two   of  the   well-recognised   exceptions formulated  by the Supreme Court in State of M.P. v.  M.  V. Narasimhan,  AIR 1975 SC 1835 seem to apply here,  that  is, exceptions (a) and (c), xxx. The concept of ‘cotton fabrics’ in  the Central Excises and Salt Act seems to be  integrally linked with the provisions of the General Sales Tax Act  and we do not think that we would be justified in regarding  the latter Act as unaffected by the growing concept of the  term ‘cotton  fabrics’  in the Central Excises and Salt  Act.  We feel too, that unless the extended definition of the Central Excises and Salt Act is imported into the Sales Tax Act, the latter Act would become unworkable and ineffectual."     4.  Sri Potti, learned counsel for the State of  Kerala,

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submitted   that  the  P.V.C.  cloth  manufactured  by   the respondents in this case was not entitled to exemption  from sales tax if the earlier definition of the 1944 Act,  before the amendment, were to apply. He submitted that the 1963 Act has incorporated in its third schedule the definition of the 1944  Act as it stood at the time of its enactment and  that this  incorporation is unaffected by subsequent  changes  in the  1944  Act.  11 contested the correctness  of  the  High Court’s observations that the concept of ‘cotton fabrics  in the  1944  and 1963 Acts were integrally  linked  and  that, unless the extended definitions of the former were  imported into the latter, the latter Act would become unworkable  and ineffectual. According to him, the provisions of the CST Act and  the 1957 Act have been unnecessarily brought  into  the discussion  in  order  to forge  a  connection  between  the various enactments and in an attempt to lend strength to  an argument  that  the exemption of an item of goods  from  the levy  of  sales  tax  by the State  was  correlated  to  the existence of a levy of additional excise duty in respect  of those  very goods under the 1957 Act. He submits  that  this argument  is  not tenable and that there  is  no  connection between the 1944 Act, the CST Act, the 1957 Act and the 1963 Act. His submissions are these:     (a) When the Kerala Act of 1125--M.E. was amended by Act VII of 1958 w.e.f. 14.12.1957, the Kerala State  Legislature was  fully alive to the proposals to introduce the  CST  Act and  the  1957 Act; nevertheless, the description  of  items granted exemption from sales tax was worded differently  and not correlated to the definitions of the 1944 Act;                                                   PG NO 612     (b)  Silk fabrics were not eligible for exemption  under the 1125 Act as amended in 1957 and remained liable to sales tax  till  3 1.3.1963 though additional excise on  them  had been  introduced w.e.f. 1.4.1963. The exemption  from  sales tax  was conferred only on 1.4.1963 by the 1963 Act.  Again, this exemption was taken away w.e.f. 1.9.1967 although  such fabrics  continued to be subject to additional excise  duty. Thus,  though  it  is  true  that,  between  14.12.1957  and 31.3.1961 there was sales tax but no additional excise  duty on  pure  silk textiles and between 1.4.1863  and  31.8.1967 there  was additional excise duty but no sales tax  on  silk fabrics,  it  is  equally true  that  between  1.4.1961  and 31.3.1963  and again after 1.9.1967 they are liable to  both sales  tax  and  additional  excise duty.  It  is  thus  not possible  to  view the two levies as  supplementary  to,  or inter--dependent on, each other.     (c)   The  1963  Act  only  incorporates  a   definition contained  in the 1944 Act. The 1957 Act is  an  independent Act,  applicable to some of the goods to which the 1944  Act are applicable. It has its own schedule, the descriptions in which need not be--though they generally are--identical with those  in  the schedule to the 1944 Act. The 1944  and  1957 Acts   may  be  somewhat  inter-linked  but  there   is   no justification  to  import  that  connection  also  for   the purposes of the 1963 Act.     (d)  The objects and reasons of the 1957 Act  explicitly state  that  the  levy of additional excise  duty  on  goods thereunder  does  not preclude the State  legislatures  from levying any sales tax on only, such levy will be subject  to the restrictions contained in the CST Act.     (e)  It should not also be overlooked that the 1963  Act is an enactment of a State legislature. To construe entry in its Schedule as authorising the applicability, not merely of the  then current definition of the 1944 Act but its  future amendments  as well, will render it subject to the  vice  of

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excessive  delegation.  In this context,  our  attention  is drawn  to the decisions of the Supreme Court in  Shama  Rao, [1967]  2  SCR  657  Gwalior Rayon, 11974]  2  SCR  345  and International  Cotton, [1975] 2 S.C.R 879. To avoid such  an infirmity we are asked to place a restrictive interpretation on the 1963 Act. even assuming for purposes of argument that it may be capable of a wider interpretation .                                                    PG NO 613     5. There is some force in these contentions, but,  after hearing both counsel, we are of opinion that the  conclusion of  the High Court should be upheld. In the first place,  we think it would be correct to say that the 1963 Act brings in the  definitions  of  the 1944 act by way  of  reference  or citation and not by way of incorporation. For, a reading the Act  shows  that the Act intended to confer exemption  on  a number  of  goods set out in the Schedule. Of  these,  since items 5 to 7 are defined in the 1944 Act, the Act refers  to those  definitions  to ascertain the scope of  these  items. There  are no express words used by the statute  which  will justify  an inference that the intention was to  incorporate those  definitions, as standing on that date, into the  1963 Act.  That  apart,  as pointed out by the  High  Court,  the question whether it is an instance of reference or  citation as contrasted with incorporation pales into significance  if all  the  Central and State enactments referred  to  at  the outset  are really part of an integrated scheme  evolved  to achieve   a  particular  purpose.  In  this   context,   Sri Krishnamurthy Iyer, invited our attention to a passage  from Hind Engineering Co. v. CST, [1973] 31 STC 115, dealing with an identical entry in regard to ‘cotton fabrics’ in Schedule of  the Bombay Sales Tax Act, 1959, where a deivision  bench of  the  Gujarat  High  Court  traced  the  genesis  of  the exemption  of ‘cotton fabrics’ from the liability  to  sales tax. We do not think it necessary to extract the whole of it here,   particularly  as  the  provisions  of   the   Bombay legislations  in  this  context and their  history  are  not identical  with  those of the Kerala statute. It  is  clear, however, that the provisions of exemption from sales tax  on the  items  with  which we are concerned  here  and  certain others cannot be understood in isolation but should be  read in   the  background  of  certain  historical   developments pertaining  to  sales  tax levy. These may  now  be  briefly referred to.     6.  Article  286 of the Constitution  of  India  imposed certain restrictions on the legislative powers of the States in  the  matter of levy of sales tax on sales  taking  place outside the State, sales in the course of import or  export, sales  in  the course of interstate trade  or  commerce  and sales  of  declared goods. The Sales Tax Acts  in  force  in several States were not in conformity with the provisions of the  Constitution and attempts to bring those laws to be  in conformity  with  these  provisions gave rise to  a  lot  of litigation. This led to an amendment of Act. 286. Clause (2) of  the article, as it stands, since 11th  September,  1956, authorised   Parliament   to   formulate   principles    for determining  when sale or purchase of goods can be  said  to take  place  in  the course of import or export  or  in  the course  of  inter-State  trade or commerce  Clause  (3)  was amended, in terms already set out to restrict the powers  of                                                   PG NO 614 a  State to impose sales or purchase tax on declared  goods. The  C.S.T.  Act,  1956 which came into  force  on  5:1.1957 formulated the principles referred to in Article 286(2).  As already  mentioned, this Act was amended, alia, by  Act   16 of 1957 w.e.f. 6.6. 1957 and by Act 31 of 1958 w.e.f.  1.10.

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1958.  S. 14 listed the goods which are considered to be  of special  importance in inter-state  trade or commerce  which included the six items set out earlier. S. 15 of the Act, as originally  enacted,  was  brought into  force  only  w.e.f. 1.10.1958. It stipulated that levy of sales tax on  declared goods  should not be at a rate exceeding 2% or be levied  at more  than  one point in a State. Before this  section  came into force, it was amended by Act 16 of 1957 which  retained the  first  restriction  and,  so  far  as  the  second   is concerned,  provided that the tax should be levied  only  on the  last  sale or purchase inside the State and  even  that should  not be levied when that last sale or purchase is  in the course of inter-state trade or commerce as defined.  Act 31  of  1958  amended  S.  15  to  impose  certain  modified restrictions and conditions with the details of which we are not here concerned. These restrictions clearly entailed loss of revenue to the States and it was considered expedient and desirable to compensate the State for the proportionate loss of  sales tax incurred by them. Thus, even before s. 15  was brought  into force, the Central Government decided to  pass an Act to provide for the levy and collection of  additional duties  of excise on certain goods and for the  distribution of  a  part of the net proceeds thereof among the  State  in pursuance       of   the   principles    of   distribution recommended  by the Second Finance Commission in its  report dated 30.9.1957. This proposal to levy additional duties  of excise on certain special goods was a part and parcel of  an integrated scheme under which sales tax levied at  different rates  by  the  States  on  certain  goods  was   ultimately substituted  by the levy of additional duties of  excise  on such  goods and the States were compensated by payment of  a part of the net proceeds of the said additional levy on such goods.  That this clearly was the genesis and object of  the 1957  Act also appears from its objects and reasons set  out earlier. Some of the items liable to excise duty were picked out  from  the Schedule to the 1944 Act.  They  were  listed among  the declared goods of section 14 of the CST  Act  and also  made liable to additional excise duty under  the  1957 Act.  A  perusal of the lists under these  three  enactments show  that  out of the items listed in the Schedule  to  the 1944   Act,  sugar,  tobacco,  cotton  fabrics,   rayon   or artificial  fabrics and woollen fabrics were categorised  as declared goods and subjected to additional excise duty. When the  numerical  order  of  these  items  in  the  1944   Act (originally  8, 9, 12, 12A, 12B) came to be changed in  1960 (as 1, 4, 19, 22, 21) a corresponding change was effected in the 1957 Act.                                                   PG NO 615 ‘Silk  fabrics’  as defined in item 20 of the 1944  Act  was included  in 1961 in the CST Act and the 1957 Act. The  fact that  ‘cotton  fabrics’  though listed as  item  12  in  the Schedule to the 1944 Act was not brought into the list in s. 14  till 1.10.1958 or that ‘silk fabrics’ was  dropped  from the  list in s. 14 w.e.f. 11.6.1968 though it  continues  in the  Schedule  to the 1944 Act does not alter  the  position that  these three acts are interconnected and  that  certain goods taken out from the Schedule to the 1944 Act were to be subjected  to the special treatment outlined in the CST  Act and the 1957 Act.     7.  This  may  be so, says Sri Potti, but  there  is  no justification  to  bring the 1963 Act into this  group.  His short point is that the State legislature is completely free within  its domain. Its power to levy sales tax  includes  a power to levy a tax on sales of declared goods as well.  Nor is such power inhibited by the levy of an additional  excise

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duty  on certain goods. The 1957 amendment to the  1125  Act made  no reference even to the 1944 Act. The 1963 Act  makes no  reference either to the CST Act or to the 1957 Act.  Sri Potti  emphasises, pointing out to the practical effects  of the  two  legislations (the 1963 Act and the  1957  Act)  to which  attention has been invited already, that it  was  not the  policy of the Kerala State legislature to  exempt  from sales  tax goods which suffered additional excise duty.  The sales  tax exemption is conferred on a  totally  independent basis. It is not linked to the fluctuations in, or variation of,  the treatment under the CST Act and the 1957  Act.  The description of items 5, 7 and 8, by simply incorporating the definitions then readily available in the 1944 Act (not  the CST  Act or the 1957 Act), was not intended to  bring  about the  result  that these definitions should be  read  in  the light of the changes that they may undergo for the  purposes of the 1944 Act.     8.  Sri  Potti is certainly correct in saying  that  the wordings  of  the  Acts do not  show  an  exact  correlation between the liability to pay additional excise duty and  the exemption from the levy of sales tax under the 1963 Act. But it  would not be correct to say that the provisions  of  the latter can be interpreted without reference to the other two legislations.  The  CST  Act has a definite  impact  on  the manner  and extent of sales tax levy, in so far as  declared goods  are  concerned for such levy  cannot  transgress  the limitations and restrictions of s. 15 thereof. S. 15 applies in respect of goods listed in s. 14 which, in turn is linked to the list in the 1944 Act. The 1957 Act also has a bearing on  the sales tax levy of various States. By  levying  sales tax on an item covered by the Schedule to the 1957 Act,  the State  will have to forego its share on distribution of  the proceeds  of the additional excise duty  levied. Whether  it                                                   PG NO 616 should  impose  sales  tax on an item  of   declared  goods, limited  by the restrictions in s. 15 of the CST Act and  at the  risk  of losing a share in the additional  excise  duty levied  in respect of those very items, is for the State  to determine.  As pointed out by Sri Potti, it was open to  the Kerala  Legislature to decide--and it did so  also--that  on some  items  there should be one or other of the  levies  or both  of them and to modify these levies depending upon  its own  financial exigencies. But these factual  or  periodical variations  do not detract from the basic reality  that  the policy  of sales tax levy on declared goods has to  keep  in view,  and be influenced by, the provisions of the  CST  Act and the 1957 Act. The reference to the 1957 Act  definitions for  purposes  of  grant of exemption in  the  1963  Act  as enacted  originally as  well as when the latter was  amended in 1967 and the specific reference to the 1957 Act when  the First Schedule to the 1963 Act was amended in 1980 are quite significant  in  this  context. We  therefore,  think  that, though the 1963 Act referred only to the definitions in  the 1944 Act, the entries in the Schedule have to be  juxtaposed into  the  broad pattern or scheme evolved  by  the  1956-57 enactments  set out earlier in  the judgment. Doing so,  and even  assuming  that  the  reference in  the  items  of  the Schedule  to  the definitions in the 1944 Act is by  way  of incorporation  and  not  reference, one  cannot  escape  the conclusion  that  the  circumstances  are  covered  by   the exceptions  outlined  in Narasimhan, [1976] 1  SCR  6.  They certainly  fall within the scope of exception (a)  mentioned therein  and  also  fall within exception (c)  if  we   read "unworkable  and ineffectual" to take in  also  "unrealistic and impractical".

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   9.  We do not find much substance in arguments  of  Shri POtti  based on Shama Rao [1967] 2 SCR 657.  This   devision really  concerned  a delegation of power  to  the  executive Government  to decide contents of a legislation by  allowing it  a  latitude in fixing a date for  its  commencement.  It cannot  be  understood as an authority for  the  proposition that  a  State  legislature  can  adopt  only  the  existing provisions  of a statutes passed by another legislature  but not  is  future amendments and modifications. In  the  first place,  such a proposition will strike at the very  root  of the concept of referential legislation as explained in   the decisions  referred  to above and the distinction  drawn  by them between cases of mere reference or citation on the  one hand and of incorporation, on the other. Secondly, in  Shama Rao only three of the five Judges expressed an opinion about this  aspect of the case. Their view point was presented  by Shelat J. in the following words:     "The  question then is whether in extending  the  Madras Act in the manner and to the extent it did under sec. (2)(1)                                                   PG NO 617 of  the Principal Act the Pondicherry legislature  abdicated its  legislative power in favour of the Madras  legislature. It  is  manifest that the Assembly refused  to  perform  its legislative  functions entrusted under the Act  constituting it.  It  may  be  that a mere  refusal  may  not  amount  to abdication  if the legislature instead of going through  the full  formality  of  legislation  applies  its  mind  to  an existing statute enacted by another legislature for  another jurisdiction, adopts such an Act and enacts to extend it  to the  territory under its jurisdiction. In doing so,  it  may perhaps  be  said that it has laid down a policy  to  extend such an Act and directs the executive to apply and implement such  an  Act. But when it not only adopts such an  Act  but also provides that the Act applicable to its territory shall be the Act amended in future by the other legislature, there is  nothing for it to predicate what the amended  Act  would be.  Such a case would be clearly one of non-application  of mind and one of refusal to discharge the function  entrusted to it by the Instrument constituting it. It is difficult  to see  how such a case is not one of abdication or  effacement in favour of another legislature at least in regard to  that particular matter. " This conclusion has been explained and distinguished in  the Gwalior Rayon, case [1974] 2 SCR 879  in which Khanna J  and Mathew  J  delivered  separate  but  concurring   judgments. Khanna J. said:     It  would  appear from the above that the  reason  which prevailed with the majority in striking down the Pondicherry Act  was  the  total surrender in the matter  of  sales  tax legislation by the Pondicherry Legislature in favour of  the Madras  Legislature.  No such surrender is involved  in  the present case because of the Parliament having adopted in one particular  respect  the  rate of local sales  tax  for  the purpose of central sales tax. Indeed, as mentioned  earlier, the  adoption  of the local sales tax is in pursuance  of  a legislative policy induced by the desire to prevent  evasion of  the payment of central sales tax by discouraging  inter- State sales to unregistered dealers No such policy could  be discerned  in the Pondicherry Act which was struck  down  by this Court.                                                   PG NO 618     Another  distinction, though not very material, is  that in  the  Pondicherry case the provisions of the  Madras  Act along with the subsequent amendments were made applicable to an area which was within the Union Territory of  Pondicherry

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and  not  in Madras State. As against that, in  the  present case  we  find that the Parliament has adopted the  rate  of local  sales tax for certain purposes of the  Central  Sales Tax  Act only for the territory of the State for  which  the Legislature  of that State had prescribed the rate of  sales tax. The central sales tax in respect of the territory of  a State is ultimately assigned to that State under artcle  269 of  the Constitution and is imposed for the benefit of  that State. We would, therefore, hold that the appellants  cannot derive much assistance from the above mentioned decision  of this Court." Methew J. observed:     We  think that the principle of the ruling in Shama  Rao v. Pondicherry, (supra) must be confined to the facts of the case. It is doubtful whether there is any general  principle which  precludes  either Parliament or a  State  legislature from  adopting  a law and the future amendments to  the  law passed respectively by a State legislature or Parliament and incorporating  them in its legislation. At any  rate,  there can  be no such prohibition when the adoption is not of  the entire  corpus of law on a subject but only of  a  provision and  its future amendments and that for a special reason  or purpose .     " We think that the principle of the ruling in Shama Rao v. Pondicherry, (supra) must be confined to the facts of the case. It is doubtful whether there is any general  principle which  precludes  either Parliament or a  State  legislature from  adopting  a law and the future amendments to  the  law passed respectively by a State legislature or Parliament and incorporating  them in its legislation. At any  rate,  there can  be no such prohibition when the adoption is not of  the entire  corpus of law on a subject but only of  a  provision and  its future amendments and that for a special reason  or purpose .     10.  We have attempted to show that the 1963 Act,  on  a proper  construction,  does indicate a policy  that  certain items which are subject to additional excise duty should  be left out of sales tax levy except in cases where there is  a specific  indication  or  provision  of  the  Act   to   the contrary.  The  Kerala State legislature cannot be  said  to have  attracted the 1944 Act definitions with  their  future amendments  blindly and without application of mind. On  the other  hand.  it has been done in pursuance of a  scheme,  a purpose  and  a policy. It cannot, therefore, be  said  that there  has been any abdication of its legislative  functions by the Kerala legislature.     11.  For the above reasons, we are of opinion, that  the High Court was right in the view it took viz. that the scope of  the  exemption  available  under item  7  of  the  third                                                   PG NO 619 Schedule to the 1963 Act will vary according to the scope of the  corresponding entry in the Schedule to the 1944 Act  as it  stands at the relevant time. So far as assessment  years 1971-72 and 1972-73 are concerned, the definition of ‘cotton fabrics’  in  item 19 of the Schedule to the  1944  Act,  as amended by the Finance Act 1969 w.e.f. 1.4.1969, will apply.     12. Sri Krishnamurthy Iyyer for the assessees  contended that  it is possible to spell out, from certain passages  in the judgment of the High Court where judicial decisions  are discussed, an inference that the High Court was inclined  to the  view  that  PVC  Cloth would be  covered  even  by  the previous  unamended  definition  in the 1944  Act.  He  also attempted to support this view by citing certain cases.  Sri Potti contested the correctness of both these arguments.  In the  view  we have taken on the main issue, we  consider  it

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unnecessary to go into this question. In any event, the High Court  has returned no specific answer to this  issue  which was  clearly  an  aspect  of the  questions  posed  for  its consideration by the Tribunal (at page 42 of the paper book) and,  even  if we had accepted the contention of  Sri  Potti that  only  the definition as on 1.4.1964  works  apply,  we would  have  perhaps  only  left it to  the  High  Court  to consider this aspect of the matter afresh.     13.  Sri  Krishnamurthy  Iyer also  submitted  that  the certificate  of fitness of appeal granted by the High  Court (page  l15  of the paper book) is defective inasmuch  as  it does not specify the substantial questions of law which,  in the  view  of the High Court, needed consideration  by  this Court.  But we do not think we need go into this  aspect  or reject  the  appeal  as defective.  Since  the  appeal  does involve  a substantial question of law of  great  importance (which  we  have  discussed above),  we  have  proceeded  to dispose of the appeal on merits.     14.  In the result, the appeal fails and  is  dismissed. We, however make no order as to costs. R.P.D.                                      Appeal dismissed.