Jain Jari Stores vs The State of Madras

Jagadisan, J.—The petitioner is a firm of textile merchants carrying on business in Godown Street, Madras. The Deputy Commercial Tax Officer, Godown Division, assessed their sales turnover for the year 1956-57 at Rs. 11,33,355-12-6. This turnover included the sale value of goods purchased by the petitioner from nonresident dealers and the petitioner objected to the levy of tax at the rate of Rs. 0-1-6 in respect of these sales. The additional levy at the rate of Rs. 0-1-3 per rupee was made under the proviso to S. 3(2) of the Madras General Sales Tax Act. This objection on the part of the dealer was overruled by the assessing authority. The petitioner preferred an appeal to the Commercial Tax Officer and reiterated the contention that the sale of goods purchased from nonresident dealers should not be dealt with as the first sale under the proviso to S. 3 (2) of the Act. The appellate authority confirmed the decision of the first assessing authority. The petitioner thereupon preferred a further appeal before Sales Tax Appellate Tribunal, Madras, and confined their claim for relief against the enhanced levy under the proviso to S. 3 (2) of the Act only to the extent of the value of sales turnover of Rs. 7,88,352-0-9. The Tribunal overruled the contentions urged by the petitioner and dismissed the appeal. This revision petition is by the dealer, whose main contention is that the sales turnover of the value of Rs. 7,88,352-0-9 should not suffer any additional levy than what is properly chargeable under the main charging section of the Act. Learned Counsel for the petitioner urged the following three grounds in this revision petition : 1. The first proviso to S. 3 (2) of the Act cannot apply to the sales turnover of Rs. 7,88,352-0-9 as the sales covered by that amount were not " the first sales " in the Madras State, 2. The goods sold by the petitioner for the value of Rs. 7,88,352-0-9 were purchased from non-resident sellers at Bombay through their resident agent at Madras, who must be deemed to be " dealers " under the provisions of S. 14-A of the Act, and that therefore, the sales effected by the petitioner were only second sales and not " the first sales." 3. The first proviso to S. 3 (2) of the Act is unconstitutional as it is discriminatory in character, and therefore violative of the equality clause of the Constitution, Art. 14.

According to the petitioner the amount of Rs. 7,88,352-0-9 relates to sales effected by Bombay merchants having either branches or agents in the State of Madras. The course of business in respect of these transactions as set out in the affidavit of S. Roopchand, a partner of the petitioner-firm, is that the agent of the non-resident seller would offer goods for sale to the petitioner and fix the price. Thereafter the agent of the seller would communicate to the principal at Bombay who would send the goods through the railway taking out the railway receipts in his own name, as consignor and consignee. The railway receipts would be handed over to the petitioner by the agent or would be cleared by the

Description of the goods

(i) Cloth (other than cloth woven on handlooms whether of silk, artificial silk, wool, flax, or any other material) which is not made wholly of cotton.

The language of the proviso is sufficiently clear and expressive so as to constitute the sale by the petitioner of the goods purchased by him from outside the territory as the first sale. The taxable event covered by the proviso attracting the enhanced levy of 8 per cent is the first sale effective in the State of Madras by a dealer who is residing in the State of Madras. The sale which preceded the sale by the petitioner to others or in other words the purchase of the petitioner from the non-resident sellers cannot be aptly described as the first sale by a dealer residing in the State of Madras.

In the absence of proof of any business activity on the part of non-resident in the State, S. 14-A cannot have any application to a particular transaction. Though for the purpose of chargeability and the collection of the tax a resident agent in the State is deemed to be the dealer, it is only a statutory fiction which cannot be extended to mark the real nature of the business activity which is essentially one between a non-resident petitioner from the seller''s bank at Madras. On these averments the contention of the petitioner is that the first sale was in their favour by the non-resident seller.

Section 3 (2) of the Act, as amended by Madras Act XXIII of 1957 dated 18th December 1957 giving retrospective effect from 23rd August 1954 is in these terms:

On the first sale of any of the goods mentioned below by a dealer who is not exempt from taxation under the next succeeding subsection, the dealer shall Day a tax at the rate specified as applicable thereto; and the tax shall be paid by the dealer on his turnover in each year relating to such goods and shall be in addition to the tax to which he is liable under Sub-S. (1) on his total turnover for the year:

Provided that in the case of goods imported into the State of Madras either from outside the territory of India or from any other State in India, the tax shall be levied on the first sale effected in the State of Madras by a dealer who is residing in the State of Madras and who is not exempt from taxation under the next succeeding sub-section, after the import of the said goods into the State of Madras.........

Rate of tax on the turnover

Eight per cent.

and a resident. We are of opinion that the representative character of the resident agent with which he is clothed under S. 14-A of the Act cannot be read into the first proviso of S. 3 (2) of the Act to enable the petitioner to contend that the sale in his favour was the first sale from another dealer in the State.

The attack on the first proviso to S. 3 (2) of the Act that it offends Art. 14 of the Constitution is flimsy and unsubstantial. There is nothing in that proviso discriminating residents in the State as against non-residents. The non-resident is prima facie a person who is outside the Act except in cases provided for under S. 14-A of the Act, and no discrimination can arise on the ground that the residents in the State carrying on business of buying and selling in the State become subject to taxation at a particular rate. The equal protection clause does not prevent a State :

from adjusting its system of taxation in all proper and reasonable ways. It may, if it chooses, exempt certain classes of property from any taxation at all, such as churches, libraries and the property of charitable institutions. It may impose different specific taxes upon different trades and professions, and may vary the rates of excise upon various products; it may tax real estate and personal property in a different manner; it may tax visible property only, and not tax securities, for payment of money; it may allow deductions for indebtedness, or not allow them. All such regulations, and those of like character, so long as they proceed within reasonable limits and general usage, are within the discretion of the State Legislature. "[Bell''s Gap R. Co. v. Pennsylvania 134 U.S. 232].

Application of those principles has meant that the Court is even less likely to challenge legislative classifications under the taxing power than under the police power; Inheritance tax laws typically involve numerous discriminatory features--exemption of small estates, graduated tax rates, variation of tax rates according to whether the estate goes to lineal descendants, collateral heirs, or persons unrelated by blood--but they have uniformly been upheld against claims of denial of equal protection. The same is true of the exemption and progressive rate features of income taxes.

(See Pritchett on the American Constitution--page 666). Rottschaeffer on Constitutional Law, page 667, slates thus :

It is generally held that an issue under the equal protection clause must be decided in respect of the general classification rather than by the chance incidence of the tax upon particular tax payers [Colgate v. Harvey 296 U.S. 404= 80 L. Ed. 299]. A classification that is in general reasonable does not become invalid as applied to a particular case, merely because it might effect an unreasonable result therein.

It is now well settled that even discriminatory legislation can be upheld as constitutional if the discrimination is founded upon a reasonable distinction or classification or if any state of facts can be reasonably conceived to sustain it.

The impugned provision is not discriminatory in its terms and even if it were so, the fixing of taxing points and taxable events at the discretion of the Legislature amounts to a reasonable classification, not falling within the mischief of Art. 14 of the Constitution. The petition fails and is dismissed with costs. Counsel''s fee, Rs. 100.