Porritts and Spencer (Asia) Pvt. Ltd. vs State of Haryana and Others

Adarsh Kumar Goel, J.—This petition seeks striking down of Haryana Act No. 10 of 1981 levying sales tax on "dryer felts" retrospectively from April 26, 1971 to September 6, 1978.

The case of the Petitioner is that it is a registered dealer under the provisions of the Haryana General Sales Tax Act, 1973 and the Central Sales Tax Act, 1956. During the relevant period the "dryer felts" were exempt from tax being covered under entry 30 of Schedule B which was a Schedule of tax-free goods. Though the contention of the Petitioner that "dryer felts" were covered by entry "textiles" in item 30 of Schedule B was not accepted by the statutory authorities and by this Court, the honourable Supreme Court in Porritts and Spencer (Asia) Ltd. Vs. State of Haryana, upheld the said plea. It observed (pages 438 and 439 in 42 STC):

... The uses of textiles in a fast developing economy are manifold and it is quite common now to find ''textiles'' being used even for industrial purposes. If we look at the Customs Tariff Act, 1975, we find in Chapter 59 occurring in section XI of the First Schedule that there is a reference to ''textile fabrics'' and textile articles, ''of a kind commonly used in machinery or plant'' and Clause (4) of that Chapter provides that this expression shall be taken to apply, inter alia, to ''woven textile felts ... of a kind commonly used in paper-making or other machinery...'' This reference in a statute which is intended to apply to imports made by the trading community clearly shows that ''dryer felts'' which are ''woven textile felts ... of a kind commonly used in paper-making machinery'' are regarded in common parlance, according to the sense of ordinary traders and merchants textile fabrics. We have, therefore, no doubt that ''dryer felts'' are ''textiles'' within the meaning of that expression in item 30 of Schedule B.

To overcome the above judgment, the Haryana Legislature enacted the Haryana General Sales Tax (Amendment and Validation) Act No. 10 of 1981 amending entry 14 of Schedule B retrospectively excluding the expression "dryer felts" from "textiles". In view of the said amendment, the statutory revisional authority created demand of tax which was upheld by the Tribunal.

The contentions raised in the writ petition, inter alia, are that the State Legislature lacks legislative competence to make the goods in question taxable in view of the provisions of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ("the ADE Act, 1957"). Alternatively, "textiles" being "declared goods" under the Central Sales Tax Act, 1956, the State could not give restricted definition to the "textiles" by excluding "dryer felts" therefrom in view of Article 286 of the Constitution and thereby levy tax thereon at a higher rate.

The Petitioner has framed the following questions of law in the writ petition:

"(1) Whether the impugned amendment of Haryana Act No. 10 of 1981 is ultra vires the power of State Legislature in entry 54 of List II of the Seventh Schedule to the Constitution of India read with Article 245 of the Constitution of India ?

(2) Whether the impugned action of levy of tax at enhanced rate by the Respondents contravenes the provisions of Article 286 of the Constitution read with Sections 14 and 15 of the Central Sales Tax Act since dryer felts manufactured and sold by the Petitioner continues to be woven fabric ''textile'' during the period within the meaning of Section 14 of the Central Sales Tax Act ?

(3) Whether Respondent No. 2 has any jurisdiction to levy interest with retrospective effect that is for the period from April 26, 1971 to September 6, 1978 ?

(4) Whether the impugned amendment is not unreasonable within the meaning of Article 19(1)(g) of the Constitution of India as the Petitioner made to pay the tax from retrospective date and thereby taking away the exemption with retrospective effect ?

In the reply filed the stand taken is that the Legislature possessed power of validating the levy retrospectively which may have been earlier struck down and thus, the impugned levy was valid. There is no response to the contention raised with reference to the ADE Act, 1957.

We have heard learned Counsel for the parties.

Main contention on behalf of the Petitioner is that the goods are covered by the ADE Act, 1957 and Section 3 thereof provides for levy of additional excise duty. The Statement of Objects and Reasons of the said Act specifically mentions that additional duty of excise levied there under was in replacement of sales tax levied by the States on the items mentioned therein which included "textiles". The above matter was gone into by the honourable Supreme Court in Godfrey Phillips India Ltd. and Another Vs. State of U.P. and Others, and after considering the legislative background, it was held that the legislative competence of State was subject to provisions of the ADE Act, 1957 under which no sales tax is to be levied on the items mentioned therein and the States were entitled to receive the amount collected by way of additional excise duty. The relevant observations are as under (pages 566-569 in 139 STC):

In December, 1956, the National Development Council, Planning Commission, Government of India, and the States agreed that the sales tax in respect of, inter alia, tobacco should be replaced by a surcharge on the Central excise duties, the income derived therefrom being distributed amongst States on the basis of consumption, subject to the income from the States being assured. Pursuant to this and the recommendation of the Finance Commission in its report dated September 30, 1957, the Additional Duties of Excise (Goods of Special Importance) Act, 1957, was passed by Parliament. The object of the Act was to impose additional duties of excise in replacement of the sales tax levied by the Union and the States on sugar, tobacco and mill-made textiles and to distribute the net proceeds of these taxes, except the proceeds attributable to Union Territories, to the States. Provision was made that the State which levy a tax on the sale or purchase of these commodities after the April 1, 1958, could not participate in the distribution of the net proceeds of the additional levy under the ADE Act. Provision was also being made in the Act for including specified goods in the category of goods declared to be of special importance in inter-State trade or commerce so that, following the imposition of uniform duties of excise on them, the rates of sales tax if levied by any State were subject from April 1, 1958, to the restrictions in Section 15 of the Central Sales Tax Act, 1956.

Section 3 of the ADE Act is the charging section under which additional excise duties are leviable on specified goods manufactured or lying in stock. Sub-section (1) of Section 3 reads:

''3. Levy and collection of additional duties.--(1) There shall be levied and collected in respect of the following goods, namely, sugar, tobacco, cotton fabrics, rayon or artificial silk fabrics and woollen fabrics produced or manufactured in India and on all such goods lying in stock within the precincts of any factory, warehouse other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto, duties of excise at the rate or rates specified in the First Schedule to this Act.''

No State can levy luxury tax on items covered by Section 3 of the ADE Act in respect of goods for the same taxable event, i.e., goods stored on manufacture, just by describing the goods as luxury goods. The overlapping of the powers exercised under entry 84 of List I and entry 62 of List II would then be evident. Similarly storage or stocking of imported goods is covered by entry 83 of List I and cannot be made the subject of levy by the States.

However, while widening the scope of entry 54 of List II, the powers of the State to levy such tax are subjected to a corresponding restriction as a consequence of the constitutional curbs imposed on sales tax under Article 286 read with Sections 14 and 15 of the Central Sales Tax Act, 1956, and the ADE Act, 1957. The tax leviable by virtue of Sub-clause (b) of Clause (29A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under entry 54 of the State List is made subject to under the Constitution. The position is the same when we look at Article 286 of the Constitution. If any declared goods which are referred to in Section 14 of the Central Sales Tax Act, 1956, are involved in such transfer, supply or delivery, which is referred to in Clause (29A) of Article 366, the sales tax law of a State which provides for levy of sales tax thereon will have to comply with the restrictions mentioned in Section 15 of the Central Sales Tax Act, 1956.

...

So even if tobacco is an article of luxury, a tax on its supply is within the exclusive competence of the State but subject to the constitutional curbs prescribed under Article 286 read with Sections 14 and 15 of the Central Sales Tax Act, 1956, and most importantly the ADE Act of 1957 under which no sales tax can be levied on tobacco at all if the State was to take the benefits under that Act.

The above observations made in the context of tobacco are fully applicable to the case of textiles which is one of the item mentioned in the ADE Act, 1957.

In view of above, this petition is allowed and the impugned levy is held to be unconstitutional.