Hoechst Pharmaceuticals Ltd.
Vs.
State Of Bihar and Others
Decided on 6 May, 1983
Statute Referred
Bihar Finance Act, 1981
Constitution of India
Facts
The petitioner was a company that manufactured and sold various medicines and life-saving drugs all over India, including the state of Bihar.
The petitioner had branch or sales store at Patna registered as a dealer and effected sales of their manufactured products through wholesale distributors/stockists in the districts of Bihar who in order sold them to retailers through whom the medicines and drugs reached the consumers.
Nearly 94% of the medicines and drugs sold by company/distributors were at the controlled price absolute of local levy under the Drugs (Price Control) Order, 1979, issued by the Central Government under sub-section(1) of section 3 the Essential Commodities Act and they were conspicuously prohibited from selling these medicines and drugs in excess of the controlled price so fixed by the Central Government from occasionally which allows the manufacturer or producer to pass on the tax liability to the consumer. Section 5(1) of the Bihar Finance Act, 1981, provided for the imposition of a surcharge on any dealer whose gross turnover during a fiscal year exceeds Rs. 5 lakhs, in addition to the tax payable by him, at a rate not exceeding 10% of the total amount of the tax, and Section 5(3) of the Act in this it is prohibited for such a dealer to collect the balance of the payable surcharge.
The petitioner challenged the constitutional validity of the said sections, placing on record their printed price-lists of their well-known medicines and drugs manufactured by them showing the price at which they sell to the retailers as also the sale price, both inclusive of excise duty.
It appeared from the terms of the agreement that sales tax and local taxes would be charged wherever applicable.
The constitutional validity was upheld by the High Court, although it was challenged in an appeal.
Issue
Whether the subject-matter of the impugned legislation was competently enacted under Art. 246 or not?
Contentions by parties
Petitioners Arguments
The petitioner argued that the State Legislature has no capability to make law by which sale or purchase in the course of inter-State trade or commerce is included in the total turnover used to calculate the surcharge liability. The justification given is that interstate and export sales are transactions for which the State Legislature has no authority to legislate. The imposition of a surcharge after accounting for inter-state and export sales is thus beyond the legislative capability of the state legislature.
Petitioners affirmed that inter-State sales and export sales have been taken into contemplation for the purpose of ascertaining the gross turnover does not amount to levy or imposition of tax on such sales.
Learned counsel referred to the decision in A. V. Fernandez v. State of Kerala AIR 1957 SC 657
Petitioner stated that there is a bias between two persons similarly situated having the same quantum of inter-State sales, there being no rational basis for the classification.
Petitioner contend that in some cases dealers are liable to sales tax at the first stage of sale while in other cases it is at the last stage. As a result, one class of manufacturers may have to bear the burden of taxation, while another class of manufacturers does not.
The petitioners stated that petitioner having to carry on trade and business at a loss.
Petitioners affirmed that there is inconsistency between the Drugs (Price Control) Order made under the provisions of the Essential Commodities Act and the impugned provision. Section 5(3) of the Finance Act and the corresponding provision of the Ordinance has no point against the petitioner-dealer who sells drugs at prices governed by the Order. The Order was issued in accordance with exercise under the powers of Section 3 of the Essential Commodities Act
Respondent Arguments
Respondent stated that the support of classification is the gross turnover. One who has higher gross turnover and one who has lower turnover be a part of two different classes or categories.
Respondent affirmed that the imposition of tax based on the gross turnover, rational classification. The classification can rest on the volume of business, including non-liable sales. It is based on the position to pay the tax increase. The respondent referred S. Kodar’s case AIR 1974 SC 2272
Respondent argued that there is no logical for imposing a higher burden of surcharge on the petitioner.
Respondent stated that there is not irrational or arbitrary in this. When it comes to the percentage of surcharge, everything is handled the same. But it is but natural that if the percentage of initial tax is lower, the net effect of the imposition of surcharge will also be lower.
Judgement
The contention which is now raised is of serious moment to the States, and a matter evidently of deep interest to the Union. The duty of the court is simply to determine as a matter of law, according to the true establishment of Article 246(3) of the Constitution, whether the State’s power of taxation of sale of goods under Entry 54 of List II and to make coincident provisions in regard thereof, is capable of being improve upon by a law made by Parliament with respect to one of the matters set out in the Concurrent List. The contention fails to require under consideration that the Constitution effects an entire separation of the taxing power of the Union and of the States under Article 246.
It is equally well settled that the varied entries within the three Lists aren’t ‘powers’ of legislation, but ‘fields’ of legislation. Article 246 and other articles of the Constitution grant the power to legislate. Taxation is taken into account to be a definite matter for purposes of legislative competence.
Hence, the facility to tax can’t be deduced from a general legislative entry as a coincident power. Further, the element of tax doesn’t directly be due the facility to manage trade or commerce in, and therefore the production, supply and distribution of essential commodities under Entry 33 of List III, although the liability to pay tax could also be a matter accompanying the Centre’s power of control . It would therefore appear that there’s a distinction made between general subjects of legislation and taxation.
The general subjects of legislation are covered in one group of entries, while the power of taxation is covered in another. In List I, Entries 1 to 81 affect general subjects of legislation; Entries 82 to 92-A affect taxes. In List II, Entries 1 to 44 affect general subjects of legislation; Entries 45 to 63 affect taxes.
This incompatibility is additionally brought out by the very fact that in List III, the Concurrent Legislative List, there’s no entry concerning a tax, the State’s exclusive power to form a law with reference to the levy and imposition of a tax on sale or purchase of products relatable to Entry 54 of List II of the Seventh Schedule.
It follows that the two laws viz. Section 5(3) of the Act and paragraph 21 of the Control Order issued by the Central Government under Section3(1) of the Essential Commodities Act function in two different and distinct areas, both of which can be obeyed. There is no doubt of any clash between the 2 laws and therefore the question of repugnancy doesn’t inherit play.
Conclusion
There are different exemption at the State and the Centre respectively, the misuse of the provisions of the Constitution in the garb of State self-reliance to support their political interests, is becoming more evident. This struggle hampers the coherent functioning of the enumerated Constitutional structure.
As laid down under the Constitution, the principal aim of the States is to take all action to implement and promote the scheme of social and economic justice including the welfare of the people.
