Article 265 States that No tax shall be levied or collected except by authority of law. Here are few decisions on the subject of Article 265
Case-1- If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax viz. sale of goods, then the fact that it is related to MRP loses its significance altogether-State Of Rajasthan And Anr vs Rajasthan Chemist Association on 24 July, 2006 (SC)
Issue before the Hon’ble Court-The pivotal question, therefore, which needs to be considered is whether the measure to which rate of tax is to be applied on single point transaction of sale of any formulation by the wholesaler to the retailer can be something notional which is not related to subject of tax or to say in other words, whether MRP to be chargeable subsequent to taxing event by a retailer when he sells the same goods to consumer can provide a basis which has a nexus with taxable event to provide a valid measure to which rate of tax can be applied.
Hon’ble Apex Court referred to the decision in the matter of Union of India v. Bombay Tyre International Ltd. (AIR 1984 SC 420) the expressions subject of tax, the measure of tax and nexus between the two have been succinctly analysed.
The decision arose in the context of Central Excise and Salt Act, 1944 (in short ‘Excise Act’). The controversy was what should be included in the measure of computation of liability and what fell outside the scope of measure to be excluded from consideration. Referring to a large number of decisions of different courts, including some of the decisions we have referred to above, the principle succinctly stated in Seervai’s Constitutional Law was approved by observing as follows:-
“Another principle for reconciling apparently conflicting tax entries follows from the fact that a tax has two elements, the person, things or activity on which the tax is imposed, and the amount of the tax. The amount may be measured in many ways, but decided cases establish a clear distinction between the subject matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax.”
The Court also held that the measure of tax though not always essential but is often a relevant consideration to judge the nature of levy. Following passage from R.R. Engineering Company v. Zila Parishad Bareilly (AIR 1980 SC 1088) was approved:
“It may be and is often so, that the tax on circumstances and property is levied on the basis of income which the assessee receives from his profession, trade, calling or property.Therefore, while determining the nature of a tax, though the standard on which the tax is levied may be a relevant consideration, it is not a conclusive consideration”.
This Court recognised greater freedom in adopting measure of the tax to be assessed by its own standard and administrative convenience and other factors may influence the stage at which the levy may be collected and there may be deviation in contours of measure of tax, but did not countenance it to be divorced from the nature of tax, by observing as follows:
“Any standard which maintain a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy”.
State Legislature does not have power to enlarge the definition of sales by creating a legal fiction and levy tax on a sale which has not come into existence-Hon’ble Apex Court referred to the decision in Sales Tax Office, Pilibhit v. M/s Budh Prakash Jai Prakash (AIR 1954 SC 459) and observed that
The State Legislature cannot, by enlarging the definition of “sale” by including forward contracts arrogate to itself a power which is not conferred upon it by the Constitution, and the definition of “sale” in Section 2(h) of the Act XV of 1948 must, to that extent, be declared ultra-vires.
The aforesaid decision makes it clear that subject ‘tax on sales of goods’ in Entry 48 of List II of the Seventh Schedule of the 1935 Act providing for legislative field of sale of goods ought to be confined to levy of tax on sales of goods as defined in the Sales Act and in substance, it is a levy on price of goods and the State Legislature does not have power to enlarge the definition of sales by creating a legal fiction and levy tax on a sale which has not come into existence.
State Legislature does not have legislative competence to enlarge its legislative field to cover those transactions for taxing which do not properly conform to elements of sale of goods within the Sales Act –Hon’ble Apex Court also referred to the decision in the matter of State of Madras v. Gannon Dunkerley & Co (AIR 1958 SC 560)-
The State Legislature does not have legislative competence to give the expression “sale of goods” extended meaning and to enlarge its legislative field to cover those transactions for taxing which do not properly conform to elements of sale of goods within the Sales Act. Tax on value of the material used in construction of building was held to be ultra-vires.
Sub-clause (b) of Article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof-Hon’Ble Apex Court also referred to the case of Builders’ Association of India and Ors. v. Union of India and Ors.
We do not accept the argument that sub-clause (b) of Article 366(29-A) should be read as being equivalent to a separate entry in List II of the Seventh Schedule to the Constitution enabling the States to levy tax on sales and purchases independent of Entry 54 thereof. As the Constitution exists today the power of the States to levy taxes on sales and purchases of goods including the “deemed” sales and purchases of goods under clause (29-A) of Article 366 is to be found only in Entry 54 and not outside it. We may recapitulate here with observations of the Constitution Bench in the case of Bengal Immunity Company Ltd. v. State of Bihar (1955 (2) SCR 603) in which this Court has held that the operative provisions of the several parts of Article 286 which imposes restrictions on the levy of sales tax by the States are intended to deal with different topics and one could not be projected or read into another and each one of them has to be obeyed while any sale or purchase is taxed under Entry 54 of the State List
Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not ‘sale of goods’ within the meaning of Entry 54, List II, Schedule VII of the Constitution–Hon’Ble Apex Court also referred to the decision in the case of Bhopal Sugar Industries v. D.B. Dube (AIR 1964 SC 1037)
Consumption by an owner of goods in which he deals is therefore not a sale within the meaning of the Sale of Goods Act and therefore it is not ‘sale of goods’ within the meaning of Entry 54, List II, Schedule VII of the Constitution. The legislative power for levying tax on sale of goods being restricted to enacting legislation for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for ‘retail sale’ is beyond the competence of the State Legislature. But the clause in the definition in Section 2(1) “and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricant sold to him for retail sale” which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II, Schedule VII of the Constitution is severable, from the rest of the definition, and that clause alone must be declared invalid.”
Having identified tax event, tax cannot be levied on a person unconnected with event, nor the measure or value to which rate of tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified-Hon’ble Apex Court also referred to the decision in the case of M/s Govind Saran Ganga Saran v. Commissioner of Sales Tax & Ors. (AIR 1985 SC 1041) on analyzing Article 265 wherein following observation was made:
“The components which entered into tax are well known. The first is the character of the imposition known by its nature which transpires attracting the levy. The second is a clear communication of the person on whom the levy is imposed and which is obliged to pay the tax. The third is rate at which the tax is imposed and the fourth is the measure or value to which the rate is applied for computing the tax liability”.
Obviously, all the four components of a particular concept of tax has to be inter related having nexus with each other. Having identified tax event, tax cannot be levied on a person unconnected with event, nor the measure or value to which rate of tax can be applied can be altogether unconnected with the subject of tax, though the contours of the same may not be identified.
In the case of tax on sale, price on which transaction took place and not the value of goods is relevant criterion to hold nexus between measure of tax and the taxing event-Hon’ble Apex Court referred to the decision in the case of Hotel Balaji & Ors v. State of Andhra Pradesh and Ors and observed as follows-
In Hotel Balaji’s case (supra) levy of purchase tax at the last point sale within the State by a dealer/manufacturer who has sold the goods manufactured by him in the course of inter state trade and commerce, on the purchase price of the raw materials, was the subject of challenge. The contention has been raised before this Court that since tax was leviable in cases where the goods manufactured were not sold in the State, it amounted to levy of Excise Duty on manufacture though named as purchased tax. In holding that levy was essentially a tax on purchase of goods within the State, one of the factors which weighed with this Court was that the levy was upon the purchase price of the raw material and not upon the value of the manufactured products. That is to say when the tax was levied at the transaction of purchase, notwithstanding it was leviable in case of goods manufactured by the dealer and were sold in a manner not taxable within the State is nonetheless tax leviable at purchase price and not on the value of the manufactured products. So it was held that the essential character of tax on purchase was retained and consequently it did not lose its character as a tax on purchase of goods. The Court obviously indicated that in the case of tax on sale, price on which transaction took place and not the value of goods is relevant criterion to hold nexus between measure of tax and the taxing event.
The position would have been different had the tax on taxable transaction of purchase have been levied with reference to price relatable to subsequent transaction of sale. In that event, the price forming part of subsequent sale would have lost nexus with the transaction that become taxable in the State.
Hon’ble Apex Court IN State Of Rajasthan And Anr vs Rajasthan Chemist Association on 24 July, 2006 (SC) finally held as follows-
In the context of meaning assigned to expression ‘sale of goods’ or price or consideration element of such ‘sale of goods’ as taxable event, the conclusion that can fairly be reached is that for the taxing event of sale, if the price is to be the basis for measuring tax, it must relate to actual transaction of sale that become subject of tax and not to a different transaction that may take place in future at a price.
The charging Section 4 stipulates that the tax payable by a dealer under the Act shall be at single point in the series of sales by successive dealers, as may be prescribed and shall be levied at such rates not exceeding fifty per cent on the taxable turnover, as may be notified by the State Government in the Official Gazette. This shows that there is no scope for multi point levy of tax and the tax is levied on the first point sale within the State in a series of sales and tax is leviable at rate applied to aggregate of price received or receivable by the dealer on such sales.
If the legislation can provide for a measure of tax on subject of tax by substituting any notional value, which at no point of time becomes part of or related to subject of tax viz. sale of goods, then the fact that it is related to MRP loses its significance altogether. If this is permitted to be done the legislation can provide for any measure the purpose of applying the rate of tax, whether it is founded on MRP or any other fixed value which legislature may provide will make little difference. It is not contended by appellant that even if the measure is not relatable to MRP, it can substitute any value as a measure of tax. Subject of tax is not the goods or goods sold, but a transaction of ‘sale of goods’ as defined under the Sales Act.
Case-2- Whether the assessment be one relating to income-tax, agricultural income-tax or sales-lax, the process of best judgment assessment is a quasi-judicial process, an honest and bona fide attempt in a judicial manner to determine the tax liability of a person. And such determination must be related to the materials before the authority- M. Appukutty vs Sales Tax Officer, Spl. Circle I, … on 23 December, 1964 Equivalent citations: AIR 1966 Ker 55, 1966 17 STC 380 Ker
19. It is too well established a principle to be sought to be supported by decisions that the rejection of the account books does not give the Taxing Authority a right to make any assessment in any way it likes without any reference to the materials before him. Whether the assessment be one relating to income-tax, agricultural income-tax or sales-lax, the process of best judgment assessment is a quasi-judicial process, an honest and bona fide attempt in a judicial manner to determine the tax liability of a person. And such determination must be related to the materials before the authority.
20. I do not find even the slightest judicial approach to the question in this case. There was no material before the authority which would in any manner justify the addition of 27,60,000 and odd Rupees to the turnover. The addition made is arbitrary and capricious and is even mala fide in the sense that there has been no application of the mind to the question involved.
21. When tax is imposed illegally in such a fashion, I think, there is an infringement of the fundamental right of a person like the petitioner before me to curry on his trade or business. It was held by this Court in Aluminium Industries Ltd. v. Agricultural Income Tax and Rural Sales-tax Officer, 1961 Ker LJ 1336 that collecting tax not legally due infringes the right to carry on business guaranteed by the Constitution. No doubt quasi-judicial authorities have jurisdiction to decide rightly as well as wrongly. But no judicial or quasi-judicial authority has the right to decide in an arbitrary manner and if it so decides, I think, this Court is not helpless to safeguard the interests of the victim of such decision by interfering under Article 226 of the Constitution. Further I am of the view that in such cases Article 265 of the Constitution “No tax shall be levied or collected except by authority of law,” is also violated. There is no collection of tax by the authority of law when assessments are made in this arbitrary fashion.
Case-3-There is nothing in Art. 265 of the Constitution from which one can spin out the constitutional vice called double taxation- Avinder Singh Etc vs State Of Punjab & Anr. Etc on 19 September, 1978 Equivalent citations: 1979 AIR 321, 1979 SCR (1) 845
There is nothing in Art. 265 of the Constitution from which one can spin out the constitutional vice called double taxation. (Bad economics may be good law and vice versa). Dealing with a somewhat similar argument, the Bombay High Court gave short shrift to it in Western India Theatres(1). Some undeserving contentions die hard, rather survive after death. The only epitaph we may inscribe is: Rest in peace and don’t be re- born ! If on the same subject-matter the legislature chooses to levy tax twice over there is no inherent invalidity in the fiscal adventure save where other prohibitions exist.
Case-1-Use of Words “Such as” is only illustrative- Good Year India Limited v. Collector of Customs, Bombay (SC)
“The words “such as stainless steel, nickel monel, incoloy, hastelloy” in sub-heading (2) are only illustrative of the various metals from which valves can be made but the said description is not exhaustive of the metals. If the material from which the valves are made is a corrosion-resisting material then the valves would fall under sub-heading (2) of Heading 84.61.”
Emphasis Supplied
Case-2-Use of Words “such”-Commissioner of Income-tax, Punjab, Himachal Pradesh and Bilaspur, Simla v. Jagan Math Maheshwary (P & H HC)
In its grammatical usage, and in its natural and ordinary sense, the word ‘such’ is understood to refer to the last antecedent, unless the meaning of the sentence would thereby be impaired, which does not seem to be the case here. The word ‘such’ indicates something just before specified, or spoken of, that is proximalely, and not merely previously. It particularises that immediately preceding antecedent, and not everything that has gone before. It signifies what has preceded proximately and not just previously or formerly.
Thus, it is clear that the expression, ‘such revocation or renunciation” occurring in! Section 206 will refer only to the “re-vocation and renunciation” dealt with in] Section 205.
Emphasis Supplied
Case-3- Meaning of Erroneous-M/S. The Malabar Industrial Co. vs Commissioner Of Income-Tax, … on 10 February, 2000 (SC)
An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income-tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income-tax Officer is unsustainable in law.
Emphasis Supplied
Case-4-Meaning of the Word “Sufficient cause”- Basawaraj & ANR. Vs. The Special Land Acquisition Officer [Civil Appeal No. 6974 of 2013] (SC)
Sufficient cause is the cause for which defendant could not be blamed for his absence. The meaning of the word “sufficient” is “adequate” or “enough”, inasmuch as may be necessary to answer the purpose intended. Therefore, the word “sufficient” embraces no more than that which provides a platitude, which when the act done suffices to accomplish the purpose intended in the facts and circumstances existing in a case, duly examined from the view point of a reasonable standard of a cautious man. In this context, “sufficient cause” means that the party should not have acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case or it cannot be alleged that the party has “not acted diligently” or “remained inactive”.
However, the facts and circumstances of each case must afford sufficient ground to enable the Court concerned to exercise discretion for the reason that whenever the Court exercises discretion, it has to be exercised judiciously. The applicant must satisfy the Court that he was prevented by any “sufficient cause” from prosecuting his case, and unless a satisfactory explanation is furnished, the Court should not allow the application for condonation of delay. The court has to examine whether the mistake is bona fide or was merely a device to cover an ulterior purpose. (See: Manindra Land and Building Corporation Ltd. v. Bhootnath Banerjee & Ors., AIR 1964 SC 1336; Lala Matadin v. A. Narayanan, AIR 1970 SC 1953; Parimal v.Veena @ Bharti AIR 2011 SC 1150; and Maniben Devraj Shah v. Municipal Corporation of Brihan Mumbai AIR 2012 SC 1629.)
10. In Arjun Singh v. Mohindra Kumar, AIR 1964 SC 993 this Court explained the difference between a “good cause” and a “sufficient cause” and observed that every “sufficient cause” is a good cause and vice versa. However, if any difference exists it can only be that the requirement of good cause is complied with on a lesser degree of proof that that of “sufficient cause”.
11. The expression “sufficient cause” should be given a liberal interpretation to ensure that substantial justice is done, but only so long as negligence, inaction or lack of bona fides cannot be imputed to the party concerned, whether or not sufficient cause has been furnished, can be decided on the facts of a particular case and no straitjacket formula is possible. (Vide: Madanlal v. Shyamlal, AIR 2002 SC 100; and Ram Nath Sao @ Ram Nath Sahu & Ors. v. Gobardhan Sao & Ors., AIR 2002 SC 1201.)Emphasis Supplied
