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HIGH COURT OF ALLAHABAD
Ravi S.Dhavan and V.P.Goel
UNION OF INDIA
Versus
STATE OF U P
Decided On : 01 September 1998
Civil Misc. Writ Petition No. 115 of 1995 along with C. M. W. P. Nos. 1278 and 1279 of 1993, 601, 605, 738, 1081 and 1082 of 1994 and 116 of 1995 and 262, 263 and 264 of 1998
TAXATION - TRADE TAX - EXEMPTION - PROPERTY OF UNION OF INDIA - WHETHER PROPERTY OF UNION OF INDIA IS EXEMPT FROM STATE TAXATION - WHETHER THE STATE OF U.P. CAN TAX THE UNION OF INDIA - WHETHER THE CONSTITUTION OF INDIA PERMITS SUCH AN EXERCISE - WHETHER THE GOVERNMENT OF INDIA COULD BE SUBJECTED TO TRADE TAX UNDER THE ACT - WHETHER A FEDERAL GOVERNMENT, LIKE THE GOVERNMENT OF INDIA, BE TAXED BY A PROVINCIAL GOVERNMENT - WHETHER THE CONSTITUTION OF INDIA PERMITS SUCH AN EXERCISE - WHETHER THE GOVERNMENT OF INDIA IS A "DEALER" WITHIN THE MEANING OF THE ACT - WHETHER THE EXPRESSION "DEALER" INCLUDES A GOVERNMENT - WHETHER THE GOVERNMENT OF INDIA COULD BE TAXED AS A DEALER WHICH HAS INDULGED IN THE TRANSFER OF ANY RIGHT TO USE ANY GOODS OR HAS TRANSFERRED THE PROPERTY IN GOODS - WHETHER THE RIGHT TO USE THE TELEPHONE IS CONSEQUENTIAL TO THE EXECUTION OF A WORKS CONTRACT, OR INCIDENTAL TO IT - WHETHER THE STATE OF U.P. FORGOT THAT THE LEGISLATIVE FIELD IS A SUBJECT FOR THE FEDERAL GOVERNMENT; OF PARLIAMENT - WHETHER THE SERVICES UTILISED AND AS PROVIDED BY THE DEPARTMENT OF TELEPHONES HAS BEEN MADE THE SUBJECT OF TAXATION BY THE FINANCE ACT, 1994 - WHETHER THE SAME SUBJECT-MATTER IS BEING TAXED BY TWO GOVERNMENTS - WHETHER THE CONSTITUTION OF INDIA PERMITS IT - WHETHER THE STATE OF U.P. HAS DONE, IS AN EXERCISE LEADING TO INTERFERENCE WITH FEDERAL INSTRUMENTALITY - WHETHER THE PROPERTY OF THE UNION SHALL BE EXEMPT FROM ALL TAXES IMPOSED BY A STATE OR BY ANY AUTHORITY WITHIN A STATE - WHETHER THE GOVERNMENT OF INDIA ENJOYS IMMUNITY FROM TAXATION - WHETHER THE IMMUNITY TO TAX THE UNION OF INDIA FROM BEING SUBJECTED TO STATE TAXATION, IS ABSOLUTE - WHETHER THE IMPOSITION OF TAX ON A PROPERTY OR A TAX ON THE INCOME OF A STATE, IS NORMALLY EXEMPT UNLESS PARLIAMENT ENACTS A LAW AUTHORISING THE UNION FROM IMPOSING TAX IN RESPECT OF THE SUBJECTS MENTIONED IN THE ARTICLE ITSELF - WHETHER THE BAN TO TAX THE FEDERAL GOVERNMENT IS ABSOLUTE AND IN EMPHATIC TERMS - WHETHER THE STATE OF U.P. IN ONE OF THE SETS OF THE WRIT PETITIONS IN WHICH THE COUNTER-AFFIDAVIT IS DIFFERENT FROM THE ONE FILED IN THE EARLIER WRIT PETITIONS, CONTENDS IN THE WRIT PETITION THAT THE TELECOMMUNICATION DEPARTMENT OF THE UNION OF INDIA IS ENGAGED IN COMMERCIAL ACTIVITIES AND IS NOT DISCHARGING ANY SOVEREIGN FUNCTION OF A STATE - WHETHER THE TELECOMMUNICATION DEPARTMENT OF THE GOVERNMENT OF INDIA IS NOT AN INDUSTRY WITHIN THAT DEFINITION - WHETHER THE REFERENCE TO THE CONTEXT THAT THE DEPARTMENT OF TELECOMMUNICATION IS ENGAGED IN A COMMERCIAL ACTIVITY AND IS NOT DISCHARGING A SOVEREIGN FUNCTION OF A STATE IS AN ASPECT WHICH HAS BEEN TOM FROM ITS CONTEXT NOT CONNECTED WITH THE FIELD OF TAXATION AND MISAPPLIED TO CREATE A SUBMISSION WHICH THE CONSTITUTION OF INDIA DOES NOT PERMIT - WHETHER THE COUNTER-AFFIDAVIT OF THE STATE OF U.P. FILED DURING THE COURSE OF HEARING IN ATTEMPTING TO TELL THE COURT, IN EFFECT, THAT ARTICLE 285 (1) OF THE CONSTITUTION OF INDIA HAS NO APPLICATION, IS A MISPLACED PLEADING AND WAS AN ILL-ADVISED ADVICE TO PUT UP SUCH A PLEADING FOR THE PURPOSE JUSTIFYING TAXING THE UNION OF INDIA DESPITE THE CONSTITUTION BENCH DECISION OF NINE JUDGES IN RE : NEW DELHI MUNICIPAL COMMITTEE AIR 1997 SC 2847 - WHETHER THE STATE OF U.P. MUCH EMPHASIS WAS LAID THAT THE UNION OF INDIA WAS ACTING (A) AS A "DEALER", AND (B) HAD INDULGED IN SALES IN ARRANGING THE TRANSFER OF TELEPHONE FACILITIES TO THE SUBSCRIBERS - WHETHER NONE OF THESE CASES APPLY TO THE CONTEXT OF THE PRESENT CASE - WHETHER THE STATE CANNOT INTERFERE WITH THE EXERCISE OF FEDERAL POWER - WHETHER THIS HAS BEEN SETTLED BY THE-SUPREME COURT OF THE UNITED STATES OF AMERICA IN AN ISSUE BROUGHT BEFORE IT IN THE CASE OF MCCULLOCH V. STATE OF MARYLAND ET AL 4 L. ED 579; 4 WHEAT (US) 315 - WHETHER THE EXERCISE TO MISPLACE THE GOVERNMENT OF INDIA AS A DEALER TRADING IN GOODS, OR, FOR THAT MATTER, PARTICIPATING IN A WORKS CONTRACT AND, THUS, BEING UNDER AN OBLIGATION TO FILE A RETURN UNDER THE ACT, WAS A MISCONCEIVED EXERCISE - WHETHER THE ASSESSMENT ORDERS PRESUPPOSING AN OBLIGATION TO FILE RETURNS, ARE NOT ONLY IN EXCESS OF JURISDICTION BUT A MISPLACED JURISDICTION - WHETHER THE ASSESSMENT ORDERS VIOLATE ARTICLE 285 OF THE CONSTITUTION OF INDIA AND THE OBLIGATION OF THE UNION OF INDIA BY LAW TO PROVIDE THE NETWORK OF SERVICES BY TELEPHONE - WHETHER THESE ASSESSMENT ORDERS SUFFER FROM MANIFEST ERRORS IN VIOLATING THE CONSTITUTION - WHETHER THE GOVERNMENT OF INDIA CANNOT BE TAXED IN THE DISCHARGE OF ITS SOVEREIGN FUNCTION - WHETHER IN THESE CIRCUMSTANCES, THESE ASSESSMENT ORDERS OR, FOR THAT MATTER, ANY APPEAL WHICH MAY HAVE BEEN DISMISSED AS FILED BY THE UNION OF INDIA ARE QUASHED.
Fact of the Case:
The State of U.P. does not accept the proposition in the affirmative. In fact, it has taken a stand that it can tax the Union of India. In the circumstances, when the case began a preliminary issue was raised that this Court cannot adjudicate upon the matter and that the Union of India should be relegated to the alternative remedies under the State enactment. The State enactment is the U.P. Trade Tax Act, 1948 before amendments in 1994, it was known as the U.P. Sales Tax Act, 1948. The reference hereinafter to this enactment will be as "the Act".
Finding of the Court:
The court is of the opinion that if this were an ordinary case the costs would be exemplary and the court would have no hesitation in granting it. But, in the present case, the court feels that if exemplary costs are awarded against the State of U.P. the Union of India would not get richer. The necessary corollary is that if the State of U.P. were to pay an exemplary cost to the Union of India, it would not be a loser either. No amount of costs awarded by the High Court would make the State of U.P. poor nor the Union of India gain anything.
Issues: 1. Whether the Government of India could be a trade tax assessee under the Act? 2. Can a Federal Government, like the Government of India, be taxed by a Provincial Government and whether the Constitution of India permits such an exercise?
Ratio Decidendi: The Constitution of India has dealt with the situation of States taxing the Federal Government. What the State of U.P. has done, is an exercise leading to interference with Federal instrumentality. In this regard, an observation in 31 Harvard Law Review 321 at 327, on the conduct between the Federal and the Provincial Government is relevant: " The doctrine that a State cannot tax an instrumentality of the Federal Government is not based on any express provision in the Constitution. It is said to rest upon necessary implication and to be upheld by the great law of self-preservation : as any Government, whose means employed in conducting its operations, if subject to the control of another and distinct Government, can exist only at the mercy of that Government. The soundness of the principle must be universally conceded. The only room for difference of opinion lies in its application. "
Final Decision: The petitions are allowed with costs.
These large number of the writ petitions raise issues in public law. The issue has been precipitated by the State of U. P. in taxing the Union of India and, thus, giving rise to the main question whether the property of Union of India is exempt from State taxation ? The State of U. P. does not accept the proposition in the affirmative. In fact, it has taken a stand that it can tax the Union of India. In the circumstances, when the case began a preliminary issue was raised that this Court cannot adjudicate upon the matter and that the Union of India should be relegated to the alternative remedies under the State enactment. The State enactment is the U. P. Trade Tax Act, 1948 before amendments in 1994, it was known as the U. P. Sales Tax Act, 1948. The reference hereinafter to this enactment will be as "the Act".
2. The facts are simple. The Government of India, its Department of Telecommunication, has been assumed to be in trade and business by the Trade Tax Department, and the gross revenues of the Telecommunication Department collected from subscribers, using the telephone facility, have been subjected to trade tax by the State of U. P. Prior to the Constitution being enacted, the Sales Tax Department did not tax the Government of India on the revenues collected for providing telephone services. On these facts, there is no issue. About the year 1988, the Department of Trade Tax, the Ministry of Institutional Finance, Uttar Pradesh, came to the conclusion that the Union of India, the Department of Telecommunication, on its gross turnover had not filed a return which it should have. It was presumed that, in this context, the Union of India is a "dealer" in business, and as a dealer liable to pay the trade tax. The District Manager (Telecommunication), of the districts concerned, was held as liable to pay tax with an obligation to file return under section 7 of the Act. But, as no return had been filed by the Union of India, its Department of Telecommunication, the assessing authority took recourse to the provisions of this section under sub-clause (3), that as no return was submitted by the "dealer" within the prescribed period, then, on the principle of best judgment tax was determined. The Union of India, on the assumption that it was a dealer who had not filed return was assessed to pay trade tax. The assessments were ex parte (Writ Petitions Nos. 347, 975, 1186 and 1680 of 1993, 601, 738 and 1081 of 1994, 115 and 116 of 1995 and 262, 263 and 264 of 1998) and, in one case, the Union of India filed an appeal against the ex parte order. The appeal was dismissed (Writ Petition No. 1982 of 1994 ).
3. At the time of hearing a preliminary objection was raised by learned Standing Counsel, U. P. , to the effect, that all these petitions ought to be dismissed on the ground of an alternate remedy so provided under the Act. It was also contended that in one matter (Writ Petition No. 802 of 1995 : Sub-Divisional Officer, Telegraph, Basti v. State of Uttar Pradesh decided on July 10, 1995), a writ petition was filed by the Union of India but it was dismissed in limine on the ground that against the assessment order, the Union of India on the trade tax determined may take recourse to an appeal under the Act. It is accepted by the Standing Counsel that no notice was issued on that writ petitions nor pleadings were exchanged, unlike the present cases. The circumstances were, thus, different. In the present cases, which have remained pending for quite sometime, parties, that is to say, the Union of India and the State of U. P. have exchanged pleadings and the record of the cases are ready for hearing. At this stage, it would be appropriate for the court to refer to a very recent judgment of the Supreme Court (Paradip Port Trust v. Sales Tax Officer [1999] 114 STC 178; (1998) 4 JT 483), where on issues raised between the competence of a State to impose sales tax and on the High Court dismissing the writ petitions in limine
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