April r7 v. THE STATE OF UTTAR Pl{ADESH

In due course, the U. P. Sales Tax Ordinance No. IX of 1956 was replaced by the U. P. Sales Tax (Amend ment) Act XIX of 1956, and that eame into force on May 28, 1956. It merely reproduces the terms of the Ordinance No. IX of 1956 with this modification which is consequential, that the amended section including s. 3-A shall "be deemed to have effect on and from the first day of April, 1956". If notification No. ST. 905/X dated l\farch 31, 1956, is valid there is no question that the petitioner would be liable to pay sales tax for the period in question at the rate of one anna per rupee on the sale proceeds. in question its validity and One of the dealers who had been aRsessed to sales tax in accordance with this notification filed an appli cation under Art. 226 in the High Court of Allahabad calling this proved successful, the court holding that there was no power in the State to issue the impugned notification under s.

3-A on March 31, 1956, as that section was itself to come into force only on April 1, 1956, vide Adarsh ). The correctness of Bhandar v. Sales Tax Officer (1 this decision is not under challenge in these proceed ings. We do not therefore desire to express any opinion on it. vVith a view to remove the defect pointed out in Adarsh Bhandar v. Sales Ta.1· Officer('), the State legislature passed the U. P. Sales Tax (Amendment) Act XXIV of 1957. That Act received the assent of the President on August 31, 1957, and was published on September 3, 1957. It runs, so far as is material, as follows:- "For sub-section (2) of Section l of the U. P. Sales Tax (Amendment) Act,, 1956, tho following shall be and be deemed to havP always been sub stituted:- 'This Section, so much of Section 3, as relates to the substitution of the second proviso to sub-section (l) of Section 3 of the U. P. Sales Tax Act, 1948 (hereinafter called the principal Act) and section 4 shall have effect on and from the 31st day of March, 1956'." (I) A.!.R. I957 AJI. 475· ).

K. Jute }rfills Co, Ltd. v. 'State of U ttar Pradesh Venkataranza Aiyar ]. > 2 S.C.R. SUPREME COURT REPORTS 7 The result of this amendment was that s. 3-A was given retrospectively operation from March 31, 1956, instead of April 1, 1956, as originally enacted. The intention behind the legislation is obvious. If the impugned notification was, as held in Adarsh Bhandar ), invalid, because it was issued v. Sales Tax OjJicer (1 before s. 3-A was in operation, that objection could no longer hold good as th11t section would now operate from 11 point of time anterior to the issue of the notifi legislation cation. If the State thought that this would give a quietus to the controversy, they were sadly mistaken. After the Amendment Act of 1957 came into force, another dealer who was sought to be assessed pursuant to the notification dated March 31, 1956, filed a petition under Art. 226 before the Allaha bad High Court and raised the contention that as the Amendment Act merely amended s.

3-A and did not in terms validate the impugned notification, no pro ceedings could validly be taken under t.hat notification and that therefore the proposed levy was illegal. This contention was again upheld by a Full Bench in Firm Bangali Mal v. Sales Tax Officer('), which held that there was a difference between the existence of a power and its actual exercisP, that while by reason of Act XXIV of 1957, a power had been conferred on Government to issue a notification on March 31, 1956, the notification actually issued on that date could not be referred to that power, that it was in exercise of the power supposed to have been conferred bys. 3-A as it stood on March 31, 1956, and that in consequence the impugned notification was not saved by the new Act. This decision set the legislature again on the move and that brings us to what may be said to be the final round in the game. The State legislature enacted a fresh legislation for the purpose of effectuating the impugned notification.

That was U. P. Sales Tax Validation Act XV of 1958. It received the assent of the President on May 3, 1958, and was published in the Official Gazette on May 6, 1958. The preamble to the Act states that "it is expedient to provide for (1) A.LR. 1957 All. 475· (2) A.LR. 1958 All, 478. • \ /. T\. jute Mills Co. Ltd. v. State of Uttar Pradesh Venkatara1na Aiya1 J. 8 SUPREME COURT REPORTS [1962] • tho validation of certain notifications issued under the U. P. Sales Ta.x Act, 1948, (U. P. Act XV of 1948) and any action taken in pursuance thereof". Section 3 of the Act which deals with the present matter runs as follows:- " 3. Validation of certain notifications and action taken in pursuance thereof.- ( l) Notwithstanding any judgment, decree or order of any court, the notifications specified in Part A, Part B and Part C of the Schedule shall be deemed to have been issued in exercise of the powers conferred respectively by section 3, .section 3.A and section 4 of the U. P. Sales Tax Act, 1948, as if the said sections were in force on the date on which the notifications were issued in the form in which they were in force immediately before the commencement of this Act and all the said notifica tions shall be valid and shall be deemed always to have been valid and shall continue in force until amended, varied or rescinded by any notification issued under any of the said section. • (2) Anything done or any action taken (including any order made, proceeding taken, direction issued, jurisdiction exercised, assessment made or tax levied or collected) purporting to have been done or taken in pursuance of any of the notifications specified in the Schedule shall be deemed to be and to have been validly and lawfully done or taken.

" In Part B are set out the notifications issued in exercise of the powers conferred bys. 3A of the U.P. Sales Tax Act, 1948, and one of them is the impugned notifica tion No. ST. 905/X. If this legislation is valid, the impugned notification stands validated and the peti tioner would be liable to pay tax in accordance there· with. But the petitioner contends that the Validation Act has not brought about any change in the situation and that the notification dated March 31, 1956, con tinues lo be null and void now as before the Act. Two grounds have beeu urged in support of this contention -that on its true construction the Act does not in fact 1 validate the impugned not.ification and that it is not a ]. K. jute Mills Co. Ltd. v. State of Uttar Pradesh Venkafarrima Aiyar ]. 2 S.C.R. SUPREME COURT REPORTS 9 law which the State legislature was competent to enact and it is therefore a nullity. We must now exa mine these contentions.

As regard8 the first conten tion, the argument in support of it is that the words, "in the form in which they were in force immediately before the commencement of this Act" in s. 3 must, in their setting, be read as qualifying the word, "notifica tions" and not the word "sections", and in that view the notification in question is subject to the same infirmity which attached to it when it was published on March 31, 1956. We are wholly unable to appre ciate this contention. The object of the legislation as stated in the long title and in the preamble to the Act was to validate the impugned notification in relation to the amended section. Schedule B to the Act expressly mentions that notification. And if we are now to accede to the contention of the petitioner, we must hold that though the legislature set about avowedly to validate the notification dated March 31, 1956, it failed to achieve that object.

A construction which will lead to such a result must, if that is pos sible, be avoided. The words, "in the form in which they were in force immediately before the commence ment of this Act", no doubt occur after the word, "notifications". But then the words, "in the form" can have no reference to the impugned notification, because it had never changed form, whereas they were quite appropriate to s. 3A, because it had been amended. It should further be noted that the Valida tion Act was published both in Hindi and in English, and both of them were authorised versions. The words in the Hindi version make it clear beyond all doubt that the words, "in the form in which they were in force immediately before the commencement of this Act" qualify the word "sections" and not the word "notifications". That is the view expressed by a Bench of the Allahabad High Court in H. L. M. Biri ), on a comparison of the Works v.

Sales Tax Officer (1 two versions, and we are in agreement with it. There woulq have been no scope for this argument if trans posing the words, the section read, "as if the said (1) A.I.R. 1959 All. 208. a • \ ]. K. jute Mills Co. Ltd. v. State of Uttar Pradesh Venkatarama Aiyar ]. 10 SUPREME COURT Rl!:POR'l'S (1962) • sections were, in the form in which they were in force immediately before the commencement of this Act, in force on the date on which the notifications were issued. " But even in its present setting that is the meaning of the section, and the impugned notification must be held to be within the saving of the Validation Act. We now proceed to examine the second contention of the petitioner that the Validation Act is itself invalid as being ultra vires the powe•s of the State legislature under the Censtitution. The argument of the learned Attorney-General in support of this contention ma.y thus be stated.

The State legislature derives its authority to enact a law with respect to tax on the sale of goods under entry 54 in List II of the Seventh Schedule to the Constitution. It has been held that a sale for the purpose of the entry must be what in law is recognised as sale. Likewise, a law imposing tax on sales of goods must, to be intra vires, possess certain well-defined characteristics associated with such laws. In The Province of Madras v. Boddu Paida.nna and ) it has been held that sales tax is a tax on the Sons (1 occasion of sale. In the present case, the sales sought to be taxed took place between April 1, 1956 and July 31, 1956, whereas the Validation Act, by force of which the tax becomes payable, came into force in 195S. It is therefore not a tax on the occasion of sale. Moreover a sales tax is an indirect tax which can be passed on by the seller to the purchaser. The Sales Tax Acts passed by the legislatures of several States provide for the seller collecting the tax from the purchaser as does the U. P. Sales Tax Act XV of 194S, vide s.

SA. That could be done only if the tax was levied before the sale took place. Therefore by the very nature of it there could be no retrospective legis lation in respect of sales tax. And finally it is argued that the imposition of a tax retrospectively would be inconsistent with the provisions of the U.P. Sales Tax Act, 194S, and could not have been contemplated by that Act. Such for example are the provisions of s. SA which provide for the registration of dealers for (I) [1942] F.C.R. 90. • ' ], K. Jule J11ills Co. Ltd. v. State of Uttar Pradesh Venkatarama Aiyar, ]. "' 2 S.C.R. SUPREME COURT REPORTS 11 tho assessment years, the deposit into Treasury of sales tax collected from the purchasers in certain contingencies, s. 14 of the Act which imposes penalty for non-registration under s. SA, and rule 63 which provides for the deposit of the sales tax collected under s. 8A(4) within thirty days of the expiry of the month in which the amount is charged.

It is accordingly contended that whether we have regard to the true features of the sales tax legislation or the provisions of the U.P. Sales Tax Act, the Validation Act could not be held to be one with respect to sales tax, that it is therefore not within entry 54, and as there is no other entry in List II or List III of the Seventh Schedule to the Constitution, under which the legislation could be justified, it must be held to be ultra vires. So ran the argument. The point for decision, stating it succinctly, is whe ther the Validation Act is within the ambit of entry 54 in List II of the Seventh Schedule to the Constitu tion. That entry confers on the States authority to enact a law with respect to tax on ·sales of goods. Now what is the extent of that authority? There must be in fact a sale as recognised by law. It is only then that a tax could be imposed. But if the transaction sought to be taxed is not a sale, a law which seeks to tax it, treating it as a sale, would be ultra vires.

Thus in The Sales Tax Officer v. Messrs. Budh Prakash Jai Prakash(') a tax on agreement to sell was held to be not authorised by the entry, and in The State of Madras v. Gannon Dunkerley & Co., (Madras) Ltd. (2 ), a tax on the supply of materials in a contract for the construction of works simpliciter, on the footing of a sale was held to be outside the entry, and the legisla tion which imposed such a tax was struck down as ultra vires. But where the trans:wtion is one of sale of goods as known to law, the power of the State to impose a tax thereon is plenary and unrestricted subject only to any limitation which the Constitution might impose, and in the exercise of that power, it will be competent to the legislature to impose a tax (1) [1955] I S.C.R. 243. (2) [1959J s.c.R. 379. • •• j. J(. jute Mills Co. Ltd. v. State of Vilar Pradesh Ven/.latarama Aiyar ]. 12 SUPREME COURT REPOR.TS [1962] on sales which had taken place prior to the enactment of the legislation.

But it is urged on the strength of certa.in observa tions in The Province of Madras v. Boddu Paidanna and Sons(') that a sales tax is a tax on the occasion of sale, and that therefore it could not be imposed with retros pective operation. This contention is, in our judgment, wholly without substance. Kaw, the point for decision in that case was whether a tax imposed by a Provincial legislature on the sale of oil by a person who manu factured it was bad on the ground that it was in essence an excise duty. While a sales tax could be imposed by a Provincial legislature, an excise duty In could be imposed only by the Federal legislature. holding that the tax in question was a sales tax and not an excise duty, the court observed as followR:- "The duties of excise which the Coustitution Act assigns exclusively to the Central Legislature are, according to the Central Provinces Case, duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed.

The tax on the sale of goods, which the Act assigns excluslvely to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manu facturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. " (p. 101). In the context, the words, "on the occasion of the sale" have reference to the character of the transaction and not to the point of time at which the duty becomes leviable, and they ha·rn no bearing on the question as to when such a tax could be imposed. And then it is argued that a sales tax being an indirect tax, the seller who pays that tax has the right to pass it on to the consumer, that a law which impo ses a sales tax long after the sales had taken place deprives him of that right, that retrospective operation is, in consequence, an incident inconsistent with the true character of a sales tax law, and that the Valida- tion Act is therefore not a law in respect of tax on the (1) [1942J F.C.R. go·, .J • ./. K. Jute fl-1 ii ls Co.

Ltd. v. State of Uttar Pradesh Venkata1ama .Aiyar ]. 2 S.C.R. SUPREME COURT REPORTS 13 sale of goods, as recognised, and it is ultra vfres entry 54. \Ve see no force in this contention. It is no doubt trne that a sales tax is, according to accepted notions, intended to be passed on to the buyer, and provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. But it is not an essential chamc teristic of a sales tax that the seller must have tho right to pass it on to the consumer, nor is the power of the legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers. Whether a law should be enact ed, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the legislature.

This question is concluded by the decision of this Court in The Tata Iron & Steel Co., Ltd. v. The State ). The following observations of Das, C. J., of Biliar (1 bearing on this question might be quoted:- " Under the 1947 Act the primary liability to pay the sales tax, so far as the State is concerned, is on the seller. Indeed before the amendment of the 194 7 Act by the. amending Act the sellers had no authority to collect the sales tax as such from the purchaser. The seller could undoubtedly have put up the price so as to include the sales tax, which he would have to pay but he could not realise any sales tax as such from the purchaser. That circum stance could not prevent the sales tax imposed on the seller to be any the less sales tax on the sale of , goods. The circumstance that the 1947 Act, after the amendment, permitted the seller who was a registered dealer to collect the sales tax as a tax from the purchaser does not do away with the primary liability of the seller to pay the sales tax.

This is further made clear by the fact thrit the registered dealer need not, if he so pleases or choo. ses, collect the tax from the purchaser and some times by reason of competition with other registered dealers he may find it profitable to sell his goods (1) [1958} S.C.R. 1355. I I96I ]. K. Jute l\fills Co. Ltd v. State of [Jttar Pradesh Venkatarama Aiyar ]. ' .. .) 14 SUPREME COURT REPORTS [1962] and to retain his old customers even at the sacrifice of the sales tax. This also makes it clear that the sales tax need not be passed on to the purchasers and this fact does not alter the real nature of the tax which, by the express provisions of the law, is cast upon the seller. The buyer is under no liability to pay sales tax in addition to the agreed sale price unless the contract specifically provides otherwise. Sec Love v. Norman Wright (Builders) Ltd. If that be the true view of sales tax then the Bihar Legis lature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively.

" (pp. 1378-1379). The decision of this Court in Buchirajalingam v.· State of Hyderabad(') is also to the same effect. The power of a legislature to enact a law with refe rence to a topic entrusted to it, is, as already stated, unqualified subject only to any limitation imposed by the Constitution. In the exercise of such a power, it will be competent for the legislature to enact a law, which is either prospective or retrospec tive. In The Union of India v. Madan Gopal (') it was held by this Court that the power to impose tax on income under entry 82 of List I in Schedule VII to the Constitution, comprehended the power to impose income-tax with retrospective operation even for a period prior to the Constitution. The position will be the same as regards laws imposing tax on sale of goods. In M. P. V. Sundararamier & Co. v. The State of Andhra Pradesh (3 ), this Court had occasion to consider the validity of a law enacted by Parliament giving re trospective operation to laws passed by the State legis latures imposing a tax on certain sales in the course of inter-State trade.

One of the contentions raised against the validity of this legislation was that, having regard to the terms of Art. 286(2), the retrospective legislation was not within the competence of Parlia ment. In rejecting this contention, the Court obser ved: (1) A.LR. 1958 s.c. 756, 759-60, (2) [1954] s,c.R. 541. (3) [1958) S.C.R. 1422, I , 1961 ]. I<. jute .i11ills Co. Ltd. v. State of Uilar Pradesh Venkataraina Aiyar ]. ,. 2 S.C.R. SUPREME COUR'l' REPORTS 15 I. .. I. "Article 286(2) merely provides that no law of a State shall impose tax on inter-State sales 'except in so far as Parliament may by law otherwise pro vide'. It places no restrictions on the nature of the law to be passed by Parliament. On the other hand, the words 'in so far as' clearly leave it to Parliament to decide on the form and nature of the law to be enacted by it. What is material to observe is that the power conferred on Parlia ment under Art.

286(2) is a legislative power, and such a power conferred on a Sovereign Legisla ture carries with it authority to enact a law either prospectively or retrospectively, unless there can be found in the Constitution itself a limitation on that power. " (p. 1460). And it was held that the law was within the compe tence of the legislature. We must therefore hold that the Validation Act is not ultra vires the powers of the legislature under entry 54, for the reason that it ope rates retrospectively. It was finally urged on the basis of ss. 8-A, 14 and rule 23 of the U. P. Sales Tax Act that they contem plated only a prospective legislation and that those sections would be impossible of compliance under the present legislation. This is a consideration which is wholly foreign to the present question. The point which we have got to decide is whether the Validation Act is ultra vires. That has to be determined solely on the construction of entry 54 in List II in the Seventh Schedule, and any other provisions of the Constitution bearing on the question.

Even assuming that the provisions of the U. P. Sales Tax Act XV of 1948 contemplate a levy of tax in futuro, that does not affect the power of the legislature under entry 54 to enact a law with retrospective operation. It can only result in those provisions being unenforceable as regards the levy under the impugned notification. in M. P. V. Dealing with a similar contention Sundararamier & Co. v. The State of Andhra Pra desh (1), this Court observed: "It is also contended that under the Sales Tax (1) [1958] S.C.R. 1422, ]. J(. ] ule ft.lilts Co. Ltd. v. State of Uttar Pradesh Venk11tara1na Aiyar ]. 16 SUPREME COURT REPORTS [1962] Acts, the levy of tax is annm1l and the rules con template submission of quarterly returns and pay ment of taxes every quarter on the admitted turn over, and that a conditional legislation under which p<>yment of tax will becomo enforceable in futuro would be inconsistent with the scheme of the Act and the rules.

But this argument., when examined, comes to no more than this that the existing rules do not provide a machinery for the levy and the collection of taxes which might become payable in future, when Parliament lifts the ban. Assuming that that is the true position, that does not affect the fact.um of the imposition, which is the only point with which we are now concerned. That the States will have to frame rules for realising the tax which becomes now payable is not a ground for holding that there is, in fact, no imposition of tax. " (p. 1454). None of the grounds urged by the petitioner in sup port of the contention that the Validation Act is In the result we must ultra vires can be sustained. hold that the Validation Act is intra vires, and the impugned notification dated .March 31, 1956, stands validated by it. This petition must therefore be dis missed with costs. Pet it ion dismissed. ~I