Sharfaji Rao vs Commissioner of Sales Tax

Jaganmohan Reddy, J.—This is an application for the issue of a Writ of Certiorari against the Commissioner of Sales Tax in respect of an assessment made by him. The petitioner is a. manufacturer of ready-made clothes and has been as such ordered to pay sales tax upon the turnover of his business in the sale of ready-made clothes under s. 3, Hyderabad General Sales Tax Act, for the period from 1-5-1950 to 31-3-1951. The learned Advocate for the petitioner contends that this order of the Sales Tax Officer confirmed by the Commissioner is without jurisdiction in that:

(a) Ready-made clothes are exempt as they were made out of exempted articles specified in item 17 of Seh. I read with the Notification of Government No. 75 dated 2-8-1950;

(b) as cloth is a commodity essential to the life of the community, any sales tax imposed on it by any Act of the State Legislature unless the same is reserved for the assent of the President of the Republic and has received his assent, is ultra vires Art. 286 of the Constitution.

With respect to the first point no authority has been cited by the petitioner''s Advocate for the proposition that any article made out of an exempted article should also be exempt. Item 17 of sch. I, Hyderabad General Sales Tax Act is as follows;

Cloth, of such descriptions as may from time to time be specified by notification in the Gazette, costing less per yard than Rs. 3 or such other sum as may be so specified.

The Government by Notification NO. 75 referred to above specified all cotton cloth of Indian manufacture costing per yard less than Rs. 3 as being exempt from sales-tax. Ex facie it would appear that the Legislative intent of the above exemption is only to exempt cloth which costs less than Rs. 3 per yard and it can hardly be said that ready-made garments can be sold per yard or that they can be described as cloth costing less than Rs. 3 per yard. The said garments are sold as units which are made out of cloth upon which labour is expended and the cost of which includes cost of the cloth, labour and profit. The article so made is entirely a different article from that specified in item 17.

All fiscal enactments should be interpreted strictly and the subject is not to be taxed unless the language of the Statute clearly imposes the obligation. Respondent''s Advocate has cited a passage from Crawford''s Interpretation of Laws (1940) page 506-507 in support of his argument that all exemptions from taxation must be strictly construed and not extended beyond the express requirements of the language used. The passage cited refers to American Revenue Laws where they are not regarded as penal laws in the sense that requires them to be construed with strictness in favour of the defendant. They are regarded rather in their remedial character as intended to prevent fraud suppress public wrong, and promote the public good and are construed as most effectually to accomplish those objects (See Cliquot''s Champagne Fenerstein, Fenerstein v. United States, (1866) 3 wall. 145 and as cited in Maxwell''s Interpretation of Statutes, 8th Edn., page 253). Whatever the view point, there is authority for the proposition that exemptions also must be strictly construed and limited to the exemption itself. In Commrs. of Inland Revenue v. James Forrest, (1890) 15 A. C. 334, certain observations of Lord Halsbury, Lord Chancellor, also support the view that since all exemptions from taxation increase the burden on other members of the community, they should be deprecated. In Varasuki & Co. v. Province of Madras, 1950-2 Mad. L. J. 449, a Bench of the Madras High Court has also held that exemptions must be strictly construed.

What we have to see is the legislative intent of the enactment under consideration and whether the assessee can really come within the exemption specified thereunder. The argument of the learned Advocate that the exemption given was mainly to minimise the burden upon the poorer classes of the community and as such all articles made of such exempted goods should also be exempt, is untenable, for the reason that a poor person may not be and often is not in a position to purchase sufficient cloth of the value of less than its. 3 per yard to fulfil his personal requirements. Further a garment made of such cloth may or may not be within the reach of the poorer classes of the community as it must always depend on the value of the cloth and the cost of labour expended on it. In the case of Ishwardas Kapur & Sons v. Member, Board of Revenue of Bengal, 50 cal. w. N. 622, the question that fell for determination was whether an embroidered article made out of handloom cloth, exempted under item 16 of the Schedule of the Bengal Finance (Sales Tax) Act 1941, is exempt. Gentle and Das JJ., held that it does not. Gentle J. during the course of his judgment observed as follows at page 623:

In ray opinion the exception with respect to handloom woven cloth applies only to that cloth SIMPLICITER. If its value is increased, other work being carried at upon it, whether it be by hand or by machinery in the way of embroidery, tapestry or the like, then the cloth or the shawl or whatever it may be is not as it comes from the handloom, is not handloom woven cloth SIMPLICITER, but becomes something more than that.

Similarly under the Madras General Sales Tax Act in the case of Varasuki & Co. v. Province of Madras, 1950-2 Mad. L. J. 449, it has been decided that any exemption of any article from Sales Tax must be confined to the exemption itself and not extended. If salt it exempted, the gunny bags in which it is packed and sold is not exempt and must be included in the definition of turnover under the rules. It appears to us that where the intention of the Act is to levy sales tax on all articles generally other than those which are specified in the exempted list, the assessee must show that he comes within that exempted past. If the contention of the assessee''s Advocate that whatever article is manufactured from an exempted article is also exempt is to be held valid, then the whole purpose and meaning of the Sales Tax would have been nullified in that it is difficult to envisage cases of items of exemption from which other articles are not made and which it is the intention of the Legislature to tax. However, from the aforesaid we are of the view that ready-made garments made of cloth costing less than Rs. 3 per yard do not come within the exemption specified in item 17 of sch. I, Hyderabad General Sales Tax Act.

With respect to the constitutional point urged before us by the Advocate for the petitioner, his contention is (as has already been noticed) that inasmuch as Hyderabad General Sales Tax Act has not been reserved for the consideration of the President and his assent under cl. (3) of Art. 286 of the Constitution has not been obtained, it is an invalid law. Clause (3) of Art. 286 is as follows:

No law made by the Legislature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent.

Before any law can be impugned as not conforming with the provisions of cl. (3) of Art. 286 there must be a law of the Parliament declaring any commodity or article as being essential for the life of the community. The learned Advocate for the petitioner on being questioned during the course of his arguments as to whether there is any such law of the Legislature, has referred us to the Essential Supplies (Temporary Powers) "Act as being that law. But he was not able to show that either ready-made garments or cloth as such was included within the purview of that Act. On the other hand counsel for the respondent has brought to our notice that there is a Bill before the Parliament to declare, in pursuance of cl. (3) of Art. 286 of the Constitution, certain goods to be essential for the life of the community but that Bill, which has been pending since June 1951, has yet to be enacted as a law. Be that as it may, no law in force has been brought to our notice from which we can say that ready-made garments have been declared to be articles essential for the life of the community and consequently the contention of the Advocate for the petitioner based upon Art. 286 of the Constitution also fails.

In the result, as the petitioner has not made out a case for the issue of a writ of certiorari his application is dismissed.

Application dismissed.