1998 JTR(SC) 1128
1999 AIR(SC) 230 ; 1998 AIR(SCW) 3596 ; 1998 7 JT 558 ; 1999 1 KLT 91 ; 1998 6 Scale 119 ; 1998 8 SCC 188 ; 1998 Supp2 SCR 651 ; 1999 112 STC 191 ; 1999 KHC 53 ; 1998 8 Supreme 386
1998(8) Supreme 386
Supreme Court of India
(From Kerala High Court)
S.P. Bharucha, G.T. Nanavati and B.N. Kirpal, JJ.
State of Kerala & Ors. -Appellants
versus
M/s. Travancore Chemicals & Manufacturing Co. & Anr. etc. etc. -Respondents
Civil Appeal No. 4112-4415 of 1994
With
C.A. Nos. 4151, 4145A, 4145B-4145C, 4154, 4153, 4150, 4149, 4155, 4147, 4156, 4148/94
C.A. Nos. 5666-67/98 @ SLP (C) No. 1130-1131/95
C.A. Nos. 4293-4294, 7222-7223/95
C.A. Nos. 5668-71/98 @ SLP (C) No. 9730-33/91
C.A. Nos. 8273, 9180/95
C.A. Nos. 5672, 5674-75, 5673/98 @ SLP (C) Nos. 3376/96, 4758-59/94, 4760/94
C.A. Nos. 4152, 4146 of 1994
Decided on 11-11-1998
Counsel for the Parties :
For the Appearing Parties : K.N. Bhat, P. Krishna Moorthy, T.L.V. Iyer, Joseph Vellapalli, M.L. Verma, Raju Ramachandran, Sr. Advovates, G. Prakash, Ms. Beena Prakash, M.T. George, B.B. Sawhney, Ms. Indra Sawhney, Roy Abraham, C.K. Sasi, Ms. Baby Krishnan, M.K.D. Namboodari, R.N. Keshwani, Ramesh Babu, N. Sudhakaran, C.N. Sree Kumar, S. Balakrishnan, S. Prasad, R. Sasiprabhu, V.J. Francis, P.N. Ramalingam, K.R. Nambiar, M.A. Firoz, Advocates.
Important point
Power under Section 59A of the Kerala General Sales Tax Act is so wide and unbridled that it does not contain any guidelines as to at what stage the power can be exercised, nor does the exercise of such a power make it amenable to the appellate or revisional provisions provided by the Act and as such Section 59A has to be struck down as violative of Article 14 of the Constitution.
Act
Referred
:CONSTITUTION OF INDIA : Art.14
DELHI SALES TAX ACT : S.49
KARNATAKA GENERAL SALES TAX ACT : S.59(a)
KERALA GENERAL SALES TAX ACT : S.59(a)
(A) The impugned Section 59A of the Kerala General Sales Tax Act, 1963, confers an absolute and unbridled power on the State Government to determine the rate of tax on sale or purchase of any goods, rendering any other provision in the Act, including the appellate and revisionary provisions in Chapter VII, inoperative. This power is exercisable without providing an opportunity of hearing to the dealers and is made final, overriding even the quasi-judicial and judicial resolutions under Sections 40, 39, 38, 36, and 34 of the Act. The section is analogous to, and stands in contrast with, Section 49 of the Delhi Sales Tax Act, 1975, which provides for determination of disputed questions by the Commissioner subject to specific safeguards and does not negate other statutory remedies. The provisions of Article 14 of the Constitution mandate equality and non-arbitrary exercise of power, requiring that taxing statutes do not vest unguided and arbitrary discretion in the Executive.
(B) The section is void for being violative of Article 14 of the Constitution on grounds of deleterious vagueness and arbitrary exercise of power; it negates the statutory appeal and revision mechanism; it provides no guidelines for exercise of power; and it enables an executive order to override quasi-judicial and judicial findings.
Facts of the case:
Respondents manufacture and sell commodities such as copper sulphate, batteries, electrical goods, and tinned foods. Under Section 59A, the State Government issued an order on 23rd April, 1984, classifying tinned foods like Horlicks under Entry-6 of the First Schedule, attracting a higher rate of tax. M/s. Parry and Company, a dealer registered since 1957, contended that the item should be classified as a milk product under Sl. No. 3, attracting a lower tax rate. The Government, without providing an opportunity to be heard, reiterated through an order dated 31st January, 1985, that Horlicks would continue to fall under Entry-6 and that its decision was final. The dealers challenged the constitutional validity of Section 59A before the Kerala High Court.
Findings of Court:
The High Court examined the scope and effect of Section 59A and observed that the section vests unfettered and absolute power in the Government to decide questions regarding the rate of tax, without any guidelines, hearing, or finality safeguards. The Court held that the section enables the Government to pass administrative orders that negate the protections of Chapter VII, including appeal and revision rights, and can potentially override even the High Courts adjudicatory powers under Section 40. The section was found to be vague and arbitrary in its operation.
Issues:
Whether Section 59A of the Kerala General Sales Tax Act, 1963, is constitutionally valid; whether it violates Article 14 of the Constitution by vesting arbitrary and unbridled power in the Executive; and whether a provision that negates statutory appeal and revision provisions can be sustained.
Ratio Decidendi:
Section 59A is unconstitutional because it confers absolute, unguided, and arbitrary power on the Government to determine tax rates and classify goods, without any procedural safeguards, guidelines, or opportunity of being heard, thereby violating Article 14. The section permits executive orders to override the entire scheme of quasi-judicial and judicial remedies provided under the Act, which is not permissible under the principles of equality and due process.
Result:
The appeals are dismissed with costs, and Section 59A of the Kerala General Sales Tax Act, 1963, is struck down as unconstitutional.
(A) The impugned Section 59A of the Kerala General Sales Tax Act, 1963, confers an absolute and unbridled power on the State Government to determine the rate of tax on sale or purchase of any goods, rendering any other provision in the Act, including the appellate and revisionary provisions in Chapter VII, inoperative. This power is exercisable without providing an opportunity of hearing to the dealers and is made final, overriding even the quasi-judicial and judicial resolutions under Sections 40, 39, 38, 36, and 34 of the Act. The section is analogous to, and stands in contrast with, Section 49 of the Delhi Sales Tax Act, 1975, which provides for determination of disputed questions by the Commissioner subject to specific safeguards and does not negate other statutory remedies. The provisions of Article 14 of the Constitution mandate equality and non-arbitrary exercise of power, requiring that taxing statutes do not vest unguided and arbitrary discretion in the Executive.
(B) The section is void for being violative of Article 14 of the Constitution on grounds of deleterious vagueness and arbitrary exercise of power; it negates the statutory appeal and revision mechanism; it provides no guidelines for exercise of power; and it enables an executive order to override quasi-judicial and judicial findings.
Facts of the case:
Respondents manufacture and sell commodities such as copper sulphate, batteries, electrical goods, and tinned foods. Under Section 59A, the State Government issued an order on 23rd April, 1984, classifying tinned foods like Horlicks under Entry-6 of the First Schedule, attracting a higher rate of tax. M/s. Parry and Company, a dealer registered since 1957, contended that the item should be classified as a milk product under Sl. No. 3, attracting a lower tax rate. The Government, without providing an opportunity to be heard, reiterated through an order dated 31st January, 1985, that Horlicks would continue to fall under Entry-6 and that its decision was final. The dealers challenged the constitutional validity of Section 59A before the Kerala High Court.
Findings of Court:
The High Court examined the scope and effect of Section 59A and observed that the section vests unfettered and absolute power in the Government to decide questions regarding the rate of tax, without any guidelines, hearing, or finality safeguards. The Court held that the section enables the Government to pass administrative orders that negate the protections of Chapter VII, including appeal and revision rights, and can potentially override even the High Courts adjudicatory powers under Section 40. The section was found to be vague and arbitrary in its operation.
Issues:
Whether Section 59A of the Kerala General Sales Tax Act, 1963, is constitutionally valid; whether it violates Article 14 of the Constitution by vesting arbitrary and unbridled power in the Executive; and whether a provision that negates statutory appeal and revision provisions can be sustained.
Ratio Decidendi:
Section 59A is unconstitutional because it confers absolute, unguided, and arbitrary power on the Government to determine tax rates and classify goods, without any procedural safeguards, guidelines, or opportunity of being heard, thereby violating Article 14. The section permits executive orders to override the entire scheme of quasi-judicial and judicial remedies provided under the Act, which is not permissible under the principles of equality and due process.
Result:
The appeals are dismissed with costs, and Section 59A of the Kerala General Sales Tax Act, 1963, is struck down as unconstitutional.
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.
2. 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 Government for decision and the decision of the Government thereon shall, notwithstanding any other provision in this Act, be final.”
3. In exercise of the powers given by the said Section 59A the State Government 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 Government 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 Entery-6 of the First Schedule of the Act.
4. M/s. Parry and Company, one of the respondents in these appeals, wrote a letter dated 11th December, 1984 to the Secretary, Board of Revenue, with regard to the 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 milk product falling under Sl. No. 3 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 Sl. No. 6 of the First Schedule. To this letter the reply which was received was to the following effect :
“No. OS 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 Government in GO Rt.314/84/TD dated 23.4.1984 have clarified that Horlicks would come under Entry 4 of the First Schedule to the K.G.S.T. Act, 1963.
Yours faithfully
Sd/-
(Secretary [Taxes])”
5. It is in view of such decisions taken by the State Government 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 Government 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.
6. The High Court in the impugned judgment referred to an earlier bench decision of that Court in Dadha Pharma Pvt. Ltd. v. State of Kerala1. 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 Government. 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 5A 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 Constitution.
7. 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 Government of 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.
8. 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 Government to act in any manner it feels like.
9. Like all 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. Chpater-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.
10. 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 Government 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 Government. 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 Government 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 Government shall be final and would have an over-riding effect.
11. There is no warrant in our opinion in trying to read down the provisions of Section 59A. The words of the said provision are clear and unambiguous. The said section gives absolute power to the Government to decide any question regarding the rate of tax leviable on the sale or purchase of goods in any manner it deems proper and finality is given to such a decision.
12. Section 59A enables the Government to pass an 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 revisional 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 revisional 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.
13. 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 nor does the exercise of such a power make it amenable to the appellate or revisional provisions provided by the Act. It is no doubt true that in certain enactments of other States the Government 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 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.
14. 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.
(C.R.)
**********
Parallel Citations of other Journals :.
State of Kerala v. M/s. Travancore Chemicals & Manufacturing Co., 1998(8) Supreme 386
00078