1. Dispute over the validity of purchase tax on oil-seeds, iron, and cotton under the Punjab General Sales Tax Act, 1948, and subsequent amendments. (Para 1 , 3 , 4 , 5 )
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1967 Supreme(SC) 125
SUPREME COURT OF INDIA
K. SUBBA RAO, C.J.I., J.C. SHAH, J.M. SHELAT, V. BHARGAVA AND G.K. MITTER, JJ.
Appeals), Respondents.
M/s. Devgam Iron and Steel Rolling Mills, Govindgarh, etc., Appellants
Versus
State of Punjab and others (In all Appeals), Respondents.
Prabhudayal Himatsingka and others Appellants
Versus
State of Punjab and another, Respondents.
Punjab Cloth Mills Ltd., Appellant
Versus
State of Punjab and another, Respondents.1. Civil Civil Appeals Nos. 526, 527 and 529 of 1964; Civil Appeals Nos. 39 to 43, 81 and 540 of 1965, D/- 10-4-1967.
1. Civil.Appeals Nos. 526, 527 and 529 of 1964
2. Civil Appeals Nos. 39 to 43 of 1965.
3. Civil Appeal No. 81 of 1965.
4. Civil Appeal No. 540 of 1965.
Advocates appeared
Mr. M. C. Setalvad, Senior Advocate (M/s. R. K. Garg and S C. Agarwal, Advocates of M/s. Ramamurthi and Co., with 1898 him), for Appellants (In C. As. Nos. 526, 527 and 529 of 1964), M/s. R. Ganapathy and R. N. Sachthey, Advocates, for Respondents (In C. As. Nos. 526, 527 and 529 of 1964);, M/s. Rameshwarr Nath and Mahinder Narain, Advocates of M/s. Rajinder Narain and Co., for Appellants (In C. As. Nos. 39 to 43 of 1965) M/s. Hardev Singh and R. N. Sachthey, Advocates, for Respondents (In C. As. Nos. 39 to 43 of 1965); Mr. S. T. Desai, Senior Advocate, (Mr. O. C. Mathur, Advocate of M/s. J. B. Dadachanji and Co., with him) for Appellants (In C. As. Nos. 81 and 540 of 1965). M/s. R. Ganapathy Iyer and R. N. Sachthey, Advocates for Respondents (In C. A. No. 81 of 1965), M/s. O. P. Malhotra and R. N. Sachthey, Advocates, for Respondents (In C. A. No. 540 of 1965).
Advocates:
HARDEV SINGH, K.N.Sachthey, M.C.SETALVAD, Mahinder Narain, O.C.MATHUR, O.P.MALHOTRA, R.Ganapathy Iyer, R.K.GARG
HARDEV SINGH, K.N.Sachthey, M.C.SETALVAD, Mahinder Narain, O.C.MATHUR, O.P.MALHOTRA, R.Ganapathy Iyer, R.K.GARG
The court held that delegation of power to fix tax rates requires statutory guidelines to avoid being void for excessive delegation. It further ruled that manufacture changes the identity of goods, allowing separate purchase tax on raw materials and sales tax on finished products.
Headnote:(A) General Sales Tax Act - Sections 2, 4, 5, 6 - Central Sales Tax Act - Section 15 - Constitution of India - Article 14, Entry 54, List II - Excessive Delegation - Purchase Tax vs. Excise Duty - Manufacture - Power to fix tax rates must be supported by reasonable guidance or legislative policy within the statute; absence of such guidance renders the provision void for excessive delegation. (Paras 15-16)
(B) Distinction between chargeability and quantification - A charging section remains valid and does not become void simply because the section providing for the fixation of rates is struck down, although the tax may remain unenforceable until rates are prescribed. (Paras 19-21)
(C) Definition of "purchase" - The term "acquisition" in the context of purchase tax means "transfer" and "valuable consideration" refers to monetary payment; such a definition falls within the legislative competence to tax the "sale or purchase of goods". (Paras 24-26)
(D) Purchase Tax vs. Excise Duty - A levy is a purchase tax and not an excise duty if the taxable event is the purchase of goods, regardless of whether the goods are intended for use in manufacture. (Para 28) (E) Concept of Manufacture - Manufacture involves transforming raw materials into a changed form for use; producing oil from seeds or converting scrap iron into rolled steel constitutes manufacture as the raw materials lose their identity and become new marketable commodities. (Paras 30-31) (F) Multi-stage Taxation - Taxing raw materials at the purchase stage and finished goods at the sale stage does not violate the prohibition against taxing the same goods at more than one stage, as the process of manufacture changes the identity of the goods. (Para 29)
Facts of the case:
Assessees engaged in the business of oil milling, steel rolling, and textile manufacturing challenged the validity of purchase tax imposed on the acquisition of oil-seeds, iron scrap, and cotton. The challenges were based on the grounds of excessive delegation of power to the executive for fixing tax rates, the nature of the tax being an excise duty rather than a purchase tax, and alleged violations of the Central Sales Tax Act regarding multi-stage taxation.
Findings of Court:
The original provision empowering the government to fix tax rates without guidelines was void, but a subsequent amendment specifying a maximum rate cured the defect. The definition of "purchase" was held to be within legislative competence. The court found that the taxable event was the purchase, not the manufacture, and that the transformation of raw materials into finished goods constituted "manufacture," justifying the tax.
Issues: Whether the delegation of power to fix tax rates was excessive; whether the definition of "purchase" was ultra vires the State Legislature; whether the purchase tax was in fact an excise duty; and whether the levy of tax at both the purchase and sale stages violated the Central Sales Tax Act.
Ratio Decidendi: The court ruled that the legislature cannot abdicate its essential function of determining legislative policy. It held that "manufacture" occurs when raw materials are transformed into a different article for use, which changes the identity of the goods, thereby allowing for separate taxation at the purchase of raw materials and the sale of the resulting product.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Challenges regarding excessive delegation in tax-rate fixation, the definition of purchase as an excise duty, and conflicts with the Central Sales Tax Act. (Para 7 , 17 , 24 , 28 , 29 , 30 , 31 , 32 , 35 )
3. Analysis of legislative guidance in delegation, the distinction between purchase tax and excise duty, and the legal meaning of manufacture and acquisition. (Para 8 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 18 , 19 , 20 , 21 , 22 , 23 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 33 , 34 )
4. Tax-rate delegation requires clear legislative guidelines; purchase tax on raw materials for manufacture is a valid sales tax, not an excise duty. (Para 15 , 16 , 25 , 26 , 28 )
5. Appeals dismissed with costs. (Para 39 )
6. When is the delegation of power to fix tax rates considered excessive and void?
Delegation is void if the legislature abdicates its essential function by failing to provide clear legislative policy or guidelines for the executive to fix rates, as the court cannot discover a latent policy to sustain arbitrary power. (Para 15 , 16 )
7. Does a tax on the purchase of goods intended for manufacture constitute an excise duty?
No; excise duty requires the taxable event to be the manufacture or production of goods, whereas purchase tax is levied on the acquisition of goods, and the intended use is only relevant for fixing the taxable event. (Para 28 )
8. How should the terms acquisition and valuable consideration be interpreted in a purchase tax statute?
Acquisition must be interpreted as transfer, and valuable consideration must mean monetary payment, to ensure consistency with the legal concept of sale and avoid anomalies in the taxing event. (Para 25 , 26 )
9. Does the transformation of raw materials into a different marketable commodity constitute manufacture?
Yes; manufacture involves transforming or fashioning raw materials into a changed form for use, such as producing oil from seeds or converting scrap iron into rolled steel sections. (Para 30 , 31 )
10. Can an amending act revive a section of a statute that was void from its inception?
Yes, if the amendment cures the original defect and is intended to operate retrospectively, it can effectively insert the corrected provision into the Act and give it legal life. (Para 8 , 22 )
Judgment
SUBBA RAO, CJI. : The decision on these appeals depends upon the interpretation of the relevant provisions of the Punjab General Sales Tax Act, 1948 (Punjab Act XLVI of 1948), as amended by Punjab Act of 1958, relating to three categories of goods, namely, oil-seeds, iron and cotton.
2. The facts may be briefly stated.
3. The assessees in Civil Appeals Nos. 526, 527 and 529 of 1964 carry on business at Moga in Punjab and each owns an oil mill. They purchase oil seeds and, after crushing the same in their oil mills, sell the oil and the residual oil-cake. They are registered dealers under the Act. The Amending Act imposed a purchase tax of 2 per cent on the purchase of oi1-seeds "for the use in the manufacture of goods for sale". This was in addition to the sales-tax leviable on the sales of oil and oil-cake. On June 23, 1959, the Excise and Taxation Officer, Ferozepore, the 3rd respondent in the said appeals issued notices to the 3 appellants-assessees to the effect that they did not submit their returns for the year ending 1958-.39 and failed to pay purchase-tax in respect thereof and asked them to show cause why they should not be prosecuted for the said default. The appellants filed 3 petitions under Art. 226 of the Constitution in the High Court of Punjab questioning the validity of the relevant provisions of the Act and for appropriate reliefs. A Division Bench of the High Court heard the petitions, along with other connected petitions and dismissed the petitions of the appellants so far as they related to purchase-tax on oil seeds. Hence the appeals.
4. Civil Appeals Nos. 39 to 43 of 1965 relate to purchase-tax on iron. The appellants carry on business in rolling steel at Gobindgarh. They purchase steel scrap and steel ingots and convert them into rolled steel sections. Under the Act, the assessing authority imposed purchase-tax at the rate of 2 per cent on the purchase of steel scrap and steel ingots made by them during the period April 1, 1958 to March 31, 1959 for making rolled steel section and selling the same. The appellants filed petitions under Art. 226 of the Constitution in the High Court for appropriate writs for quashing the orders of the assessing authorities and for prohibiting them from levying purchase-tax on the goods purchased and for refund of the tax illegally collected from them. A Division Bench of the High Court dismissed the petitions. Hence the appeals.
5. Appeals Nos. 81 of 1965 and 540 of 1965 relate to purchase-tax on cotton. The appellants in Civil Appeal No. 81 of 1965 are the trustees of Birla Education Trust. They own a cotton and textile mill Bhiwani. They purchase cotton from various dealers in Punjab and outside for the manufacture of yarn and cloth. By an order, dated March 11, 1962, the District Taxation Officer, Hissar, imposed purchase-tax on the appellants in respect of the cotton purchased by them for the assessment years 1958-59 and 1959-60. The appellant in Civil Appeal No. 540 of 1965 is a limited company carrying on the business of producing and selling yarn. For the purpose of its business it acquires cotton from commission agents. It is a registered dealer under the Act. The Excise and Taxation Officer Hissar, by his order dated November 29, 1961, assessed the appellant to purchase-tax for the assessment year 1958-59 in respect of the cotton purchased by it and so too on January 27, 1962, he had taken proceedings for making assessment to purchase tax for the assessment year 1959-60 in respect of the same commodity. The appellants in both the appeals filed petitions under Art. 226 of the Constitution in the High Court questioning the validity of the said orders. The said writ petitions were dismissed by a division Bench of the High Court. Hence the appeals.
6. We shall at first take the points raised which are common to all the appeals and then proceed to consider the points peculiar to some of the appeals.
7. Mr. M. C. Setalvad, learned counsel appearing for the appellants
