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1963 Supreme(P&H) 31
PUNJAB & HARYANA HIGH COURT
Mehar Singh and I.D.Dua JJ.
Nabha Rice And Oil Mills, Nabha
Versus
State Of Punjab
Civil Writ No. 1741 of 1962,
Decided On : FEBRUARY 18, 1963
A purchase tax imposed on the commercial transaction of sale and purchase of goods intended to be used in a manufacturing process is not an excise duty and is within the legislative competence of the State Legislature.
Headnote:
CONSTITUTIONAL LAW - SALES TAX - PURCHASE TAX - VALIDITY OF SECTION 5 OF THE PUNJAB GENERAL SALES TAX ACT (PUNJAB ACT NO. XLVI OF 1948) - WHETHER THE ACT IS VOID AB INITIO - WHETHER THE AMENDMENT OF SECTION 5 VALIDATED THE ACT - WHETHER THE TAX IS AN EXCISE DUTY - WHETHER THE ACT VIOLATES SECTION 15 OF THE CENTRAL SALES TAX ACT, 1956 - WHETHER THE DEFINITION OF "PURCHASE" IN SECTION 2(FF) OF THE PUNJAB ACT VIOLATES ARTICLE 14 OF THE CONSTITUTION - WHETHER EXTRACTION OF OIL FROM OIL SEEDS IS MANUFACTURE.
Fact of the Case:
The petitioner, a registered dealer under the East Punjab General Sales Tax Act, challenged the vires of Section 5 of the Punjab General Sales Tax Act (Punjab Act No. XLVI of 1948), as amended, which imposed a purchase tax on certain manufacturers alone. The petitioner argued that the purchase tax was in substance an excise duty and, therefore, beyond the legislative competence of the State Legislature. The petitioner also challenged the validity of the entire Act, arguing that Section 5, being the charging section, was void and, therefore, the entire Act was void ab initio. Additionally, the petitioner contended that the amendment of Section 5 did not validate the Act and that the tax violated Section 15 of the Central Sales Tax Act, 1956, and Article 14 of the Constitution.
Finding of the Court:
The Court held that the purchase tax was not an excise duty but a tax on the commercial transaction of sale and purchase of goods intended to be used in a manufacturing process. The Court further held that the entire Act was not void ab initio and that the amendment of Section 5 validated the Act. The Court also held that the tax did not violate Section 15 of the Central Sales Tax Act, 1956, or Article 14 of the Constitution. Finally, the Court held that the extraction of oil from oil seeds was a manufacture.
Issues: 1. Whether the purchase tax imposed by Section 5 of the Punjab General Sales Tax Act (Punjab Act No. XLVI of 1948), as amended, was an excise duty and, therefore, beyond the legislative competence of the State Legislature? 2. Whether the entire Act was void ab initio due to the invalidity of Section 5? 3. Whether the amendment of Section 5 validated the Act? 4. Whether the tax violated Section 15 of the Central Sales Tax Act, 1956? 5. Whether the definition of "purchase" in Section 2(ff) of the Punjab Act violated Article 14 of the Constitution? 6. Whether the extraction of oil from oil seeds was a manufacture?
Ratio Decidendi: 1. The purchase tax was not an excise duty because it was imposed on the commercial transaction of sale and purchase of goods intended to be used in a manufacturing process, and not on the manufacture or production of goods. 2. The entire Act was not void ab initio because Section 5 was not the sole charging section and the other provisions of the Act were not dependent on Section 5. 3. The amendment of Section 5 validated the Act because it removed the vice of excessive delegation of legislative power. 4. The tax did not violate Section 15 of the Central Sales Tax Act, 1956, because the tax was not more than two percent and was not levied at more than one stage. 5. The definition of "purchase" in Section 2(ff) of the Punjab Act did not violate Article 14 of the Constitution because the Legislature had a wide discretion in making legislative classifications and there was a strong presumption in favor of its validity. 6. The extraction of oil from oil seeds was a manufacture because it involved a process that transformed the oil seeds into a new product, namely, oil.
Final Decision: All the petitions were dismissed with no order as to costs.
I.D.Dua, J.
1. These nine petitions (Civil Writs Nos. 1741, 1761, 1762, 206, 608, 1576, 1527, 1481 of 1962 and No. 17 of 1963) were heard together and may be disposed of by one judgment. Main arguments were addressed in Civil Writ No. 1741 of 1962. The only question which calls for determination by us relates to the vires of Section 5 of the Punjab General Sales Tax Act (Punjab Act No. XLVI of 1948).
2. Here, I may briefly state the facts on which Civil Writ petition No. 1741 of 1962 is based. The petitioner-firm Messrs. Nabha Rice and Oil Mills. Nabha, a registered dealer under the E. P. General Sales Tax Act, claims to be a partnership firm carrying on the business of extracting oil from sarson and other oil seeds, for which purpose they have installed an oil mill. It sells sarson oil and other oils thus extracted from sarson and other oil seeds, acquired by them from third parties and is liable to pay sales tax on sales of oil. The oil seeds are also purchased through its commission, agents, though the transaction between the dealers of oil seeds and the petitioners commission agents has been stated to be independent sales and the supply by the commission agents to the petitioner in pursuance of the commission agency agreement has also been described not to amount to sale. The petition then proceeds to trace the history of the sales tax legislation and recites that the Punjab Legislature in exercise of its legislative power under entry No. 48, List II of Schedule VII read with Section. 100, Government of India Act, 1935, enacted the E. P. General Sales Tax Act in 1948 for the purpose of imposing sales tax on sales as defined by the said Act. In 1958, the State Legislature purported to impose a tax described as purchase tax on certain manufacturers alone by enacting the E.P. General Sales Tax (Amendment) Act 1958 : Act No. VII of 1958. This amending Act amended Section 4 of the principal Act and also, introduced definition of "purchase" by inserting Section 2(ff). The definitions of the term "turnover" in Section 2(i) and "dealer" in Section 2(d) of the Principal Act were also suitably amended. In 1959, certain other amendments made by the Punjab Legislature in the definition of "purchase" by Punjab Act No. 13 of 1959 and Punjab Act No. 24 of 1959 are then noticed in the petition. Section 4, it is worth noting here, has been described by the petitioner to be the charging section and is reproduced, so far, as relevant, followed by the reproduction of the definition of the word "purchase" as amended; it is then pointed out that oil seeds or oil and rasin are the only two items which have been listed in Schedule C to the Act which according to the petitioner firm, would show that out of all the raw materials required for use in the manufacture of goods for sale, the Legislature arbitrarily singled out oil seeds for the imposition of purchase-tax Stress is then laid on the plea that purchase tax; imposed only on those persons who acquire specified goods for use in the manufacture of goods for sale is in substance imposition of excise duty on manufacture and, therefore, beyond the legislative competence of the State Legislature. This is one attack on the purchase tax contained in the petition. The petition further proceeds to state that extraction of oil from oil seeds by crushing the seeds by mechanical process does not amount to manufacture of oil though it may amount to production of oil because oil already exists in oil seeds and the process of extraction merely separates oil from the seeds and does not bring it into existence for the first time. It is by this process of reasoning that extraction of oil from oil seeds, according to the petitioners plea is stated not to amount to manufacture of oil.
3. The petition then notices Section 14 of the Central Sales Tax Act, 1956 , (hereinafter called the Central Act), according to which certain goods have been declared to be of special importance to inter-State trade and com
