1978 Supreme(Pat) 221

HIGH COURT OF PATNA
S. K. Jha & Uday Sinha, JJ.
THE ASSOCIATED CEMENT COMPANIES LTD., CEMENT HOUSE, 121 MAHARSHI KARVE ROAD, BOMBAY
VERSUS
THE STATE OF BIHAR & OTHERS –Respondents
C. W. J. C. Nos. 635, 636, 1991 & 2585 of 1976, C. W. J. C. Nos. 1382 & 2273 of 1977 & C. W. J. C. No. 660 of 1978
Decided On : 5th October, 1978

The legislative competence of a legislature to enact a law is often challenged in a federal or con-federal structure or the Government. The impugned law in such cases can be justified as falling within one or more entries of the relevant legislative lists. It may even be that parts of it may be justified under one entry and parts under another. The Indian Constitution has made taxing powers of the Union and the States mutually exclusive. Some of the difficulties which have arisen in some federal constitutions from overlapping powers of taxation have been sought to be avoided. I must not be misunderstood to mean that in fact there may not arise an overlapping of powers. In law there may not be any overlapping of taxation powers although, in fact, there may be.

Headnote:

The Court was tasked with determining whether the impugned Ordinance, which amended the Bengal Act 9 of 1880 (the Act), was beyond the legislative competence of the State Legislature. The petitioners challenged the Ordinance on several grounds, including that it encroached upon the legislative field assigned exclusively to the Union Parliament under Entry 82 of List I of the Seventh Schedule to the Constitution, that it violated the fundamental rights guaranteed under Articles 14, 19(1)(g), and 31 of the Constitution, and that it infringed or restricted the right of trade and commerce attracting the inhibition of Article 301 read with the proviso to Clause (b) of Article 304 of the Constitution.

Fact of the Case:

The Act, as originally enacted, imposed a local cess on all immovable property situate in any district or a part of the district except as otherwise provided in Section 2 of the Act. The impugned Ordinance, among other things, substituted a new Section 6 in the Act, which provided for the assessment of cess on the annual value of lands and until provision to the contrary is made by the parliament, on the royalty of mines and quarries. The petitioners contended that the Ordinance was a colourable piece of legislation, since in the guise of legislating in respect of the subject matter which may be said to fall under one or the other of the relevant entries in List II of the Seventh Schedule, for all practical purposes the State Legislature has trespassed into a forbidden field by directly or indirectly seeking to tax the income of the lessee of the mines and quarries which is the subject matter of distinct taxation in the parliamentary sphere in Entry 82 of List I of the 7th Schedule.

Finding of the Court:

The Court held that the impugned Ordinance was not beyond the legislative competence of the State Legislature and that it was protected by Entry 49 of List II of the Seventh Schedule to the Constitution. The Court found that the Act, as amended by the Ordinance, was not seeking to tax any income at all, not even incidental, encroaching upon the subject matter covered by Entry 82 of List I. The Court also held that the Ordinance did not violate any of the fundamental rights guaranteed under Articles 14, 19(1)(g), and 31 of the Constitution, and that it did not infringe or restrict the right of trade and commerce attracting the inhibition of Article 301 read with the proviso to Clause (b) of Article 304 of the Constitution.

Issues: 1. Whether the impugned Ordinance was beyond the legislative competence of the State Legislature? 2. Whether the Ordinance violated the fundamental rights guaranteed under Articles 14, 19(1)(g), and 31 of the Constitution? 3. Whether the Ordinance infringed or restricted the right of trade and commerce attracting the inhibition of Article 301 read with the proviso to Clause (b) of Article 304 of the Constitution?

Ratio Decidendi: 1. The Court held that the impugned Ordinance was not beyond the legislative competence of the State Legislature and that it was protected by Entry 49 of List II of the Seventh Schedule to the Constitution. The Court found that the Act, as amended by the Ordinance, was not seeking to tax any income at all, not even incidental, encroaching upon the subject matter covered by Entry 82 of List I. The Court also held that the Ordinance did not violate any of the fundamental rights guaranteed under Articles 14, 19(1)(g), and 31 of the Constitution, and that it did not infringe or restrict the right of trade and commerce attracting the inhibition of Article 301 read with the proviso to Clause (b) of Article 304 of the Constitution. 2. The Court held that the impugned Ordinance was not beyond the legislative competence of the State Legislature and that it was protected by Entry 49 of List II of the Seventh Schedule to the Constitution. The Court found that the Act, as amended by the Ordinance, was not seeking to tax any income at all, not even incidental, encroaching upon the subject matter covered by Entry 82 of List I. The Court also held that the Ordinance did not violate any of the fundamental rights guaranteed under Articles 14, 19(1)(g), and 31 of the Constitution, and that it did not infringe or restrict the right of trade and commerce attracting the inhibition of Article 301 read with the proviso to Clause (b) of Article 304 of the Constitution.

Final Decision: The Court allowed the writ applications in part, striking down the notification dated 18th August 1976, which fixed the rate of cess at 40 per cent of the royalty with effect from 1st April 1976, as ultra vires. The Court held that the petitioners would be liable to pay cess at the rate of 30 per cent as fixed by the notification dated 5th December 1975, for the period from 1st April 1976 to 17th August 1976, and at the rate of 40 per cent as fixed by the notification dated 18th August 1976, with effect from 18th August 1976.