This article is written by Soumya Lenka. The article concerns itself with the background of the case, the pertinent facts, the arguments on both sides and the Court‘s reasoning while delivering the verdict. The case delves into the constitutional validity of the Bombay Sales Tax Act, 1952, which was passed by the Bombay State Assembly and concerns pertinently the validity of the Act and the accompanying rules with regard to Article 286 of the Indian Constitution.
Table of Contents
Introduction
The case is set in the wake of Indian independence and is concerned with the constitutional validity of the Bombay Sales Tax Act, 1952, with regard to Article 286(1), which deals with restrictions as to the imposition of tax on the sale or purchase of goods and 286(2) of the Indian Constitution. The case revolves around the concept of domestic double taxation and serves as a landmark precedent in connection with the doctrine of severability, the doctrine of occupied fields, and the doctrine of repugnancy. The Precedent also hovers around Article 14 (Right to Equality) and whether there has been a violation of the right to equality by the impugned legislation by the State of Bombay.
Details of the case
Case name: State of Bombay vs. United Motors (India) Ltd
Petitioner: State of Bombay
Respondent: United Motors India (Ltd.)
Case type: Civil Appeal
Court: Supreme Court of India
Bench: Honourable Justices Patanjali Sastri, B. K Mukherjee, Vivian Bose, Ghulam Hasan, and P.N. Bhagwati
Author of the Judgement– Justice Patanjali Sastri
Date of Judgement: 30.03.1953
Citation: (1953) 4 SCC 133
Petitioners represented by – Advocate General of the State of Bombay, M. P. Amin, along with Senior Counsels, M. Desai and G. N. Joshi
Respondents represented by – Ld. Counsels N. M. Seervai and J. B. Dadachanji
Background of the case
In the year 1952, the Bombay State Assembly passed the Bombay Sales Tax Act, 1952. Along with the Act, a set of rules accompanying the legislation also came into effect. The Rules were known as the Bombay Sales Tax Rules, 1952. The Act was intended to regulate the sales tax regime of the state. Section 5 of the Act provides that a general tax is to be levied on every dealer whose annual turnover with respect to sales within the State of Bombay exceeds Rs. 30,000.
Section 10, in addition to Section 5, provided for a special tax. It stated that every dealer whose turnover with respect to the sales of ‘special goods’ exacerbates beyond Rs 5,000 annually is under an obligation to pay the special tax to the State government. The term special goods refers to a niche class of consumer goods. These classes of goods generally come from a specific company and have a great brand value attached to them.
Section 2 of the Bombay Sales Tax Act provides for the definition of the term ‘sale’ for the purposes of the legislation. The term ‘sale’ as defined under Section 2(14) provides that sale is any transfer of property in goods for cash, deferred payment, or other valuable considerations.
An explanation to the provision provides that the ‘sale’ here refers to any sale of any goods that have actually been delivered in the State of Bombay for consumption, irrespective of the fact that the property in the goods has passed via any other state during the transaction.
Further Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, brought forth the deduction for a set of sales while considering the taxable turnover. The exemptions occur when the sale is (a) in the course of the import of the goods into, or the export of the goods out of, the territory of India and (b) in the course of inter-state trade or commerce in consonance with what Article 286 provides.
There is an additional condition for the sales to be exempted from the application of Sections 5 and 10 of the Act. Under Rule 5(2), it is required that the goods should be consigned or transported by railways, aircraft, ships, or boats registered for carrying cargo or motor transport via post.
Facts of the case
After the enactment of the impugned legislation, several petitions were filed in the Bombay High Court under Article 226 of the Indian Constitution by several companies (registered under the then Indian Companies Act, 1913) and partnership firms. All of these petitioners (now respondents) were carrying on the business of buying and selling motor cars in the State of Bombay.
It was challenged that Sections 5 and 10 of the Act and the accompanying rules are ultra vires the very power of the state legislature with regard to the restrictions imposed on the state legislatures by virtue of Article 286 of the Indian Constitution.
It was further alleged that the Act and its provisions are contrary to the constitutional principle of the right to equality guaranteed under Article 14 of the Indian Constitution. It was alleged that the Act and its provisions are patently arbitrary, and the classification made in the legislation is discriminatory per se and arbitrary on the ground that the classification does not fulfil any legitimate purpose. Hence, the legislation is to be struck down.
They prayed that a writ of mandamus be issued by the Hon’ble High Court of Bombay to prevent the State of Bombay from imposing any of the provisions of the contentious Act. It was challenged that Article 19(1)(g) which guarantees the freedom to practice any profession or to carry on any occupation, trade, or business to all citizens, is violated by the Act and the assisting rules.
The Act required registration of certain businesses by the dealers and obtaining a licence as a condition of carrying businesses or dealerships in the concerned market. It was thereby challenged that this condition restrains the traders from freely carrying on with their commercial activities, and hence, it was challenged by the respondents that the Act should be rendered wholly void and that it is without any sanction of law.
In retaliation to the allegations of the respondents, the State of Bombay argued that the Bombay Sales Tax Act, 1952, was brought by the State Assembly to serve as a complete and a comprehensive legislation regulating the sales market and provided for a machinery to deal with questions of concern within the Act and also answer the questions arising about the constitutionality of the same.
It was submitted that on a reading of the provisions of the act in consonance with each other, it becomes quite evident that the Act is constitutionally valid and there is no violation of any fundamental rights. The Act serves as a comprehensive manual for the state’s tax regime, and hence, the allegation that it is constitutionally invalid is a baseless allegation, and there is no ground for the maintainability of such a petition under Article 226 and the demand for the issue of the writ of mandamus is to be struck down.
It was submitted that the provisions of the Act and the concerned rules do not in any manner stand in contrast with Article 286(1) and (2) of the Indian Constitution. Further, there has been no infringement of fundamental rights guaranteed under Articles 14 and 19(1)(g) of the Indian Constitution by the concerned provisions of the enactment.
The Ld. judges of the High Court of Bombay, after hearing the contentions from both sides held that it is important to go into the competency of the State Legislature of Bombay with regard to the enactment of the legislation. Coming to the question of infringement of the fundamental rights envisaged by the Indian Constitution under Articles 14 and 19(1)(g), the Court was of the opinion that the issue is not important to the locus of the case around which it revolves and maintained silence.
On the merits, it was held by the High Court that the definition and scope of the term “sale” as used for the purposes of the Act are extremely wide and have the three categories of sale exempted by Article 286 from the imposition of sales tax by the States.
Hence, it was observed by the Court that the wide definition is patently arbitrary and void per se as it stands in contravention of Articles 14 and 19 of the Indian Constitution. It was further observed by the Court that the use of the word ‘sale’ in Section 5 and Section 10 of the Bombay Sales Tax Act when read in consonance with the definition of the word ‘sale’ in Section 2 (14) of the Act, makes it quite evident that Section 5 and Section 10 have to be struck down because they stand in contrast to Article 286(1) and (2).
Hence, the Court was of the opinion that no offending provision of the Act is severable from the remaining entire legislation and that all the parts of the provisions originate and have their inception in the definition of sales as provided under Section 2(14) and hence, the court rendered the whole Act arbitrary and void.
In determining the validity of the Bombay Sales Tax Rules, the court held that the rules originate from the Bombay Sales Tax Act and are an accompanying or assisting piece of legislation. Hence, it was of the opinion that it would not have any more legal validity as its mother enactment lacks the sanction of law as already declared by the Court. The Court therefore held the entire set of rules as void.
The State of Bombay was not satisfied with the verdict of the Hon’ble Bombay High Court Bench, and hence, a civil appeal under Article 132(1) of the Indian Constitution was filed in the Hon’ble Supreme Court of India to adjudicate the matter.
Issues raised
- Whether the Hon’ble High Court of the Judicature of Bombay erred in law in rendering the entire Bombay Sales Tax Act, 1952, void?
- Whether the Hon’ble High Court of Bombay was judicially sound in rendering the accompanying Bombay Sales Tax Rules, 1952, also void of being patently arbitrary and in contravention of the Indian Constitution?
Laws involved in State of Bombay vs. United Motors (India) Ltd. (1953)
The Bombay Sales Tax Act, 1952
Section 2 of Bombay Sales Tax Act
This provision provides for the definition of the term ‘sale’. The term ‘sale’ as defined under Section 2(14) provided that sale is any transfer of property in goods for cash or deferred payment or other valuable considerations.
Section 5 of Bombay Sales Tax Act
It provided that a general tax is to be levied on every dealer whose annual turnover in respect to sales within the State of Bombay exceeds Rs. 30,000.
Section 10 of Bombay Sales Tax Act
Section 10- This provision of the Act provided for a special tax .It stated that every dealer whose turnover in respect to the sales of ‘special goods’ exacerbates beyond Rs 5,000 annually is under an obligation to pay the special tax to the State government.
Bombay Sales Tax Rules, 1952 – These rules were made to accompany the mother legislation and provided for rules.
Rule 5 (2) of Bombay Sales Tax Act
It requires that the goods should be consigned or transported by railways, aircraft, ship or boat registered for carrying cargo or motor transport via post to be exempted from the sales tax.
Arguments of the parties
Petitioners
The Petitioners were represented by the Advocate General of the State of Bombay, M. P. Amin, along with senior counsels, M. Desai and G. N. Joshi. The Ld. Counsels were in sharp opposition to the view and reasoning of the Hon’ble Bombay High Court in rendering the entire Bombay Sales Tax Act, 1952, void. Further, they argued that the Court did not exercise judicial procedure and scheme by not even considering the state’s objection to the allegations of the respondents they had made in their petition challenging the validity of the concerned enactment. \
It was further submitted by the Ld. Advocate General of Bombay that the writ petition was filed by the respondents in the Hon’ble Bombay High Court under Article 226 of the Indian Constitution. So, it was very necessary that there was an allegation as to the violation or infringement of any fundamental rights guaranteed by the Constitution, which in this case is also present. It was submitted by the Petitioners that the Bombay High Court, without dealing with the allegations of the respondents, found that the Act and its provisions violate their fundamental rights with regard to Article 14 and Article 19, and so it renders the Act unconstitutional. Hence, it was argued that the Court has contravened the procedure envisaged under Article 226 of the Constitution.
The Petitioners stated that it is a settled principle of Indian constitutional jurisprudence that, in the case of any petition under Article 226 or 32, the courts cannot issue a writ when any fundamental rights are not infringed. But the peculiar fact of this case is that the Hon’ble two Judge bench of the Bombay High Court refrained from answering or delving deeper into the allegations as to such a violation. Hence, the whole direction is in itself a contravention of the procedure established by law.
The Ld. Counsels appearing on behalf of the petitioners further went to elucidate and explicate the scope of Article 286 and the explanation attached thereto. It was submitted that the scope and meaning of Article 286(1)(b), as well as the accompanying clause 2, have not been rightly interpreted by the Hon’ble Bombay High Court. It was contended that clause 1(b) of Article 286 nevertheless prohibits the imposition of tax on sales where the sale or purchase of the goods or services takes place in another state, but that doesn’t mean that the state of delivery is the only State in which the sale or purchase has taken place. Such a construction of the provision dehors the real ambit and intention with which it was inculcated into the Indian Constitution.
To substantiate the contention, it was stated that if that was the intention, then definitely, without any impediment, the decision of the Ld. High Court bench would have been correct, but to the very contrary, the position of such inculcation seemed to be different. It was argued that the Article does not deter the state through which the goods or services pass from imposing a tax on them. They added that the state of delivery is not the only state in which the sale or purchase takes place. Thus, every state via which the goods pass is to be considered a place of sale. Hence, it is very necessary to understand that the sale of goods also takes place in the states via which it passes. They submitted that the non-obstante clause is of a wide ambit and there is no implicit or explicit interpretation possible which asserts that the state of delivery can only impose a tax on the goods and not the state via which the goods are transported. Thus, the state of delivery as well as the states via which the goods pass have the power to impose taxes.
The Ld. Counsels submitted that the whole delivery, purchase/sale phenomenon is not a straight jacket phenomenon. In some cases, when goods are delivered from one state to another, there is a direct disposition of goods between the state of buying and the state of delivery or purchase. In most cases of consignment of a large quantity of goods, the products are transported via a number of states before they get to their deemed state of delivery. Hence, Article 286 nevertheless bars the states from imposing tax on sales purchases in cases of such direct consignment or disposition of goods between traders in either state as well as the inter-state transactions, except in the state of delivery where the goods are consumed. However, they had a strong objection to the construction that the states are under an absolute bar to levy taxes. He stated that this bar is applicable only to a few cases. He stated that in cases of interstate trade or transactions of a huge scale, the clause would not be applicable.
Relying on this argument, he submitted that to construe that clause 1(b) absolutely bars the state passing to impose or levy tax on the goods passing via them to their delivery state would render the true purpose of Article 286 mundane. Hence, it was contended that the State of Bombay is empowered to levy tax on integer state sales or purchases, and the provisions of the Bombay Sales Tax Act, 1952, are not in contravention of Article 286 and should be declared valid.
Coming to the expression of “inter-state trade and commerce” as used in Article 286(2), a unique construction of the term “inter-state trade” was put forth by the Ld. Counsel on behalf of the petitioners. It was submitted by the Ld. Advocate General that it may be construed to mean transactions between the trader of one state and that of another. So, the prohibitive clause nevertheless bars taxation on such transactions by other states than the state of delivery but it nowhere hampers the power of the states to levy tax on sales or purchases in the course of dealings between a trader and a consumer.
The Ld. Counsels put forth a unique contention to further substantiate their stance and validate the enactment of the Bombay Sales Tax Act, 1952. It was contended that in order to elucidate the true meaning of Article 286, it has to be read in consonance with Article 246 (3) read with entry 54 of List 11 of the Seventh Schedule to the Constitution. The scheme provides that the Legislature of any state has the implicit power and authority to pass any legislation regulating the tax on sales of goods or purchases for the whole of the state or any part thereof, and the only exemption or prohibition is with regard to taxation on print media.
The Ld. Counsels appearing for the Petitioner submitted that on a combined reading of Entry 54 and that of Article 286, it becomes quite evident that the expression “for such state or any part thereof” as used in Article 286 cannot be construed to mean that the restriction that the sale or purchase referred to must take place within the territory of that state. All that it means is that the laws with regard to the imposition of the tax on sales or purchases of goods must be for the purpose of the state enacting the legislation. So, a state is empowered to pass legislation regulating taxation on sales or purchases for the purposes of the state, and nowhere does it mean that the state must only be the delivery state, as alleged by the respondents.
So, it is to be held that in the case of sales tax, it is not necessary that the sale or purchase take place within the territory of the state in the sense that all the ingredients of the sale or purchase take place within the territorial limits of the state. These ingredients involve the initial agreement to sell or purchase, the transaction of goods in pursuance of such agreement thereof, and the subsequent delivery of the goods. Hence, it was contended that if any of the activities mentioned as ingredients of the sale take place within the jurisdictional as well as the territorial limits of the state, the state is so empowered to tax on such sales, provided, of course, that such transactions ultimately lead to a concluded sale.
Further, it was submitted that when the whole scheme of Article 286 is read with Articles 301 and 304, it becomes quite evident that the states have the legislative freedom and authority to impose taxes on inter-state transactions, provided that such taxation is in the public interest of the state.
The Ld. Counsels argued that the Constitution and its provisions must be read in consonance with one another. A unilateral construction will not suffice in cases of complex matters. Hence, the Centre-State relations, which in itself is a complex issue, and the facets of the same cannot be construed by relying on a single provision. For determining the taxing powers of the state in cases of inter-state sales, Article 286 must be read in consonance with Article 246 (3), 301, 304, and entry 54 of List II of the Seventh Schedule. Thus, the Bombay High Court Bench erred in taking into account only Article 286 to interpret the power of the state in relation to taxation, and that it should have relied on the allied provisions for a comprehensive understanding. Hence, they argued that the Bombay Sales Tax Act, 1952, should be declared valid and not ultra vires of the Indian Constitution.
Respondent
The Respondents, represented by Ld. Counsels N. M. Seervai and J. B. Dadachanji, argued that the High Court of Bombay was right in upholding that the Bombay Sales Tax Act, 1952 is unconstitutional and ultra vires of Article 286.
The Ld. Counsels asserted the opinion of the Bombay High Court that Article 286 and the impugned clauses 1 and 2 absolutely bar any other state other than the state of purchase or delivery from imposing a tax. The Counsels argued that the Bombay State government by empowering the State of Bombay via the impugned Bombay Sales Tax Act to levy tax on sales of goods and services not being consumed in the state has contravened the scheme as envisaged under Article 286 and is in absolute contravention of the Constitution and is void on the face of it
It was further contended that the contentions and the interpretations relied on by the petitioners lack any legal force. The contention that Article 286 is not applicable in all cases and that the expression ‘inter-state trade and commerce’ in clause 2 of the article is applicable only to certain cases is invalid. Article 286 is clear in its language, and there is no ambiguity whatsoever in the language, which gives an indication that the state has a discretionary right in most cases to levy tax on sales in other states or in cases where the goods pass through the state. The provisions are clear, and the only construction possible is that the state of delivery only possesses the power to levy or impose tax on sales and neither the state of export nor the states via which the concerned goods pass.
It was contended that Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, nevertheless comply with the scheme envisaged under Article 286. On the other hand, there is a condition that the goods should be consigned by a railway, shipping, aircraft company, or country boat registered for carrying cargo or public motor transport service, or by registered post. This is in absolute contravention of Article 286. It was contended that Article 286 does not leave any scope for states to impose any additional conditions, and hence the Bombay Sales Tax Rules, 1952, are void.
It was contended by Ld. Counsel Seervai, that Sections 5 and 10 of the impugned Act fixed Rs. 30,000 and Rs. 5,000 as the minimum taxable turnover for general tax and special tax, respectively, which is in violation of the constitutional doctrine of equality as envisaged under Article 14. It was contended that such a classification is discriminatory and patently arbitrary with regard to Article 14 of the Indian Constitution. It was argued that there is no rationale behind such an imposition of taxable turnovers and that such a classification discriminates between sellers whose turnovers are less than 30,000 and 5,000, respectively, and those whose turnovers are more.
It was contended by the respondents (in the initial petition) that the Bombay Sales Tax Act, 1952, being totally ultra vires of the Constitution, lacks any legal validity. Hence, any condition whatsoever that impinges on the freedom of the dealer and businesses to act in a constrained manner is wholly a void condition and would be in contravention of Article 19(1)(g). The Act provided that licensing for certain businesses as a requirement for carrying business in the state or via the state. It was argued by the Respondents to be an attack on the freedom of trade and occupation as enshrined under Article 19(1)(g) of the Indian Constitution.
Judgement in State of Bombay vs. United Motors (India) Ltd. (1953)
The five Judge bench in a 4:1 majority held that the Bombay Sales Tax Act, 1952, is not absolutely invalid and does not entirely contravene Article 14 and Article 286 of the Indian Constitution. However, the Court was of the opinion that clause 1 of sub-rule 2 of Rule 5 of the Bombay Sales Tax Rules, 1952, was ultra vires as it explicitly provided that in order for the exemption mentioned under Article 286 to be applied for the sales in the state, the goods shall be consigned only through a railway, shipping or aircraft company or country boat registered for carrying cargo or public motor transport service or by registered post. A portion of an enactment or provision which is constitutionally invalid can be separated from the rest of the provisions if the remaining part of the legislation complies with the constitutional scheme as per the doctrine of severability. Hence, in the impugned case, the Court held that the sub-rule 2 is severable from other rules of the Bombay Sales Tax Rules, 1952, as this does not affect the whole structure of the rules as well as the mother enactment, i.e Bombay Sales Tax Act, 1952.
The rationale behind this judgement
Meaning and Scope of Article 286
Before going into the constitutional validity of the Bombay Sales Tax Act, 1952, the Court held that it is very important to delve into the actual scope meaning, and the nature of the restrictions placed by Article 286, its clauses and what does it entail as a prohibitive provision on the state legislatures. The contention that Article 246(3) provides powers to the state legislature to legislate and impose taxes on sales or purchases even in cases where the State imposing tax is not the state of delivery was held to be incorrect. The majority opinion of the Court held that Article 286(1) and (2) imposes restrictions on the state power and there needs to be construction on the basis of a combined reading of both the provisions as contended by the Petitioners. The Court was of the opinion that Article 286 imposed certain restrictions on the State and the State doesn’t have any explicit or implicit powers whatsoever to enact a law imposing or authorising tax on any sale of goods or purchases occurring in other states.
The majority opinion of the Court was that only the ‘State of delivery has the right to impose tax on sales and not any other state’. It held that if that was the intention of the Constitution makers, then they would have never inculcated Article 286(1) and (2) into the constitutional scheme. The sole purpose of inculcation of Article 286(1) and (2) is to prevent the multiple taxation on sales of goods by the states. Hence, the Court was of the view that the State is under an absolute bar to impose such tax on sales where the sale takes place outside the state.
Meaning and Scope of the Bombay Sales Tax Act, 1952
Coming to Articles 301 and 304 of the Indian Constitution, the Court refuted the contentions of the Petitioners held that interstate commercial transactions, including sales, are outside the purview of the taxing powers of the states, which do not constitute the State of delivery. Article 304 is an exemplary provision that can only be invoked and used with the prior consent of the President and is hence, subject to ratification by the Parliament.
Coming strictly to the validity of the Bombay Sales Tax Act, 1952, the Court held that the Act must be read in consonance with the Rules (the Bombay Sales Tax Rules, 1952) so as to have a comprehensive understanding of the whole scheme of taxation. The Court held that Rules 5 and 6 of the Bombay Sales Tax Rules, 1952, provide for the exemption on tax as has already been provided under Article 286 of the Indian Constitution. The Court held that Rule 5 Clause 1 of sub-rule 2, which provides that the exemption of tax on sales is only applicable when the goods are transported via railways, shipping, aircraft company or country boats registered for carrying cargo, public motor transport services, or by registered post, is invalid as it goes against Article 286 and provides the state with the powers to tax on sales of goods which are consigned via any other mode. Clause 1 of Sub Rule 2 of Rule 5 was held, as per the majority opinion, to be constitutionally invalid and ultra vires of the legislative powers of the state and hence, contravening the Constitution. The Court held that this part is severable by the Doctrine of Severability and, hence, does not have any huge impact on the Constitutionality of the entire Act and the accompanying rules.
Sections 5 and 10 of the Act
The Court held that Section 5 and Section 10, which are the two pertinent sections of the impugned Act, explicitly provide for a tax regime on all sales made within the territorial limits of the State of Bombay, and the accompanying Section 18, which lays the tax on purchases, is restricted in its scope and cannot be construed to take into account all those sales which take place outside the jurisdictional limits of the State of Bombay. Hence, the Court held that the intention of the Act is crystal clear and there can be no ambiguous interpretation. The majority opinion of the bench held that the concerned provisions of the Act impose a tax on only the sales taking place within the limits of the state, in which every state is empowered under the Constitution of India.
Whether there was a violation of fundamental rights
In regard to whether there has been any violation of Article 14 and Article 19(1)(g) by the imposition of tax, it was held that the imposition of tax is a valid use of the legislative machinery by the state as there was a need for a regulatory mechanism for the same in the State of Bombay in the impugned case. Sections 5 and 10 of the Bombay Sales Tax Act, 1952, provide that taxable turnovers are those where the sales are more than 30,000 and 5,000 for the imposition of “general tax” and “special tax,” respectively. This was alleged by the Respondents to be in contrast to Article 14 of the Constitution, as there seemed to be no purpose for such discrimination. The Court, refuting the allegations made by the Respondents, held that there is a purpose behind such a differentiation.
It held that the purpose behind such a clause would be to facilitate trade by small dealers and traders. By fixing the minimum limits for the sales of goods or purchases to come into the bracket of taxation, the State of Bombay has ensured that the small traders and businessmen who have a very low sales and are engaged in small scale business with very minimal turnover annually are exempted from the obligation to pay taxes. It was done in the opinion of the majority bench of the Court, not only to facilitate small scale businesses and industries to come up in the market but also to enable them to sustain in the market. If they are imposed with the burden of taxes at such an early stage of their business, these businesses will not be able to grow in the market and will eventually perish.
It was also observed by the Ld. Judges that the State of Bombay would have thought that it is not administratively feasible to impose and collect taxes from minuscule and nascent commercial setups that have no organisational framework or facilities. Hence, the Court held that Sections 5 and 6 of the Bombay Sales Tax Act, 1952 are valid and that the classification sought for or provided for is reasonable and prudent on the account of the state. Hence, the Court held that the state has acted well within the contours of the law in inculcating such provisions in the impugned act and that there has been no violation of the constitutional principle of equality enshrined under Article 14 of the Indian Constitution, absolutely negating the contention of the respondents.
Coming to Article 19(1)(g) and the freedom of trade and occupation enshrined therein, the Court here also negated the contention of the respondents that there has been any violation of this fundamental principle whatsoever by the passing of the Bombay Sales Tax Act, 1952. The Bombay Sales Tax Act, 1952 provided licencing as a pre-condition for businesses to carry on with their commercial activity in the state or via the state. The Respondents contended that, as the Act is ultra vires, any condition arising out of the enactment that curbs the freedom of trade and occupation in any manner would be in contrast to Article 19(1)(g) of the Constitution.
The Court, in its majority opinion, held that the Bombay Sales Tax, 1952, was brought into force by the State of Bombay to regulate the unorganised tax regime of the state. To have a robust tax regime, it is very pertinent that, in the very first place, the commercial or business sector of the state is organised and for that, the State of Bombay was obliged to enforce the licencing of businesses as that’s the only way to organise the sector. So, the Court saw no force and legitimacy in the allegations of the Respondents and held that the State of Bombay had a purpose in bridging a requirement of licencing as a condition to carry on businesses, and that is to regulate the sector and to facilitate a strict and robust tax regime for the state. Article 19(1)(g) nevertheless enshrines the freedom of trade and occupation but the freedom is subject to reasonable restrictions by the state for the greater good of the nation. The Court hence held that the prior condition of licencing is a prudent condition imposed by the state under the impugned provisions of the Act and is hence, not in violation of the freedom of trade, occupation, and business as provided under Article 19(1)(g) of the Indian Constitution.
Analysis of the case
The landmark case serves as a precedent for the limits of the state’s powers with regard to taxation. Broadly, the verdict sheds light on the actual scope of the restrictions put forth by Article 286 of the Indian Constitution. Most importantly, the case serves as a milestone in establishing the constitutional principle of ‘no multiple taxation’ enshrined under Article 286. It also sheds light on the doctrine of severability and its true nature. Further, the case also deals with the fundamental doctrines of equality and freedom of trade enshrined under Articles 14 and 19. The Court establishes the fact that fundamental rights are nevertheless pivotal and of utmost reverence in the Constitution but the same are not absolute and are subject to restrictions by the state for the greater good of the nation. Nevertheless, such restrictions should be reasonable or not, depending on the peculiar facts and circumstances of each case. The Court also established the pivotal principle of construction of statutes that any provision of a statute or legislation needs to be read in consonance with the accompanying provisions to elucidate and explicate the true meaning of the provision. A unilateral reading does not suffice in most cases. In the impugned case, the Court reiterated this principle of construction by refuting the allegation of the respondents that the definition of ‘Sales’ in the Bombay Sales Tax Act, 1952, is ultra vires of the Constitution. It held that the Act must be read in consonance with the Bombay Sales Tax Rules, 1952, to understand its true scope and meaning.
Conclusion
Indian constitutional law is a very peculiar subject and the framers of our Constitution have drafted it with a vision for the future. They have inculcated Article 286 because they were certain that multiple taxation may be a problem for the economy of the country in the future. This foreseeability of our constitution makers is what makes our constitution, one of the finest legal documents in the history of mankind. Further, it is noteworthy to assert that the Indian judiciary has truly acted as the guardian and protector of constitutional values in a true sense. The case shows and establishes the fact that time and again, Indian judicature has shown commendable judicial prowess and has acted as a bar to irresponsible legislative tyranny trying to subvert constitutional ethos.
Frequently Asked Questions (FAQs)
The concept of restrictions as to the taxing powers of states has been mentioned in which Article of the Indian Constitution?
The constitutional restrictions as to the imposition of tax on the sale or purchase of goods by the states are dealt under Article 286 of the Indian Constitution
Which provision of the Bombay Sales Tax Act, 1952 provided for a special tax?
Section 10 of the Bombay Sales Tax Act, 1952, provided for a special tax in this case. It stated that every dealer whose turnover with respect to the sales of ‘special goods’ exacerbates beyond Rs 5,000 annually is under an obligation to pay the special tax to the state government.
The case reestablishes the constitutional bar on what kind of taxation?
The case reestablishes the constitutional bar on multiple taxation by the states. Multiple taxation is a kind of exploitative taxation where the states, which are neither the state of delivery nor the state of consumption, impose taxes on the sales of goods or services passing through them. It creates an unnecessary burden on the market and is averse to economic growth.
References
