Full Judgment Text
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PETITIONER:
BUXA DOOARS TEA COMPANY LTD. ETC.
Vs.
RESPONDENT:
STATE OF WEST BENGAL AND OTHERS
DATE OF JUDGMENT12/05/1989
BENCH:
PATHAK, R.S. (CJ)
BENCH:
PATHAK, R.S. (CJ)
KANIA, M.H.
CITATION:
1989 AIR 2015 1989 SCR (3) 293
1989 SCC (3) 211 JT 1989 (2) 571
1989 SCALE (1)1321
CITATOR INFO :
D 1991 SC1676 (30)
ACT:
West Bengal Rural Employment and Production Act, 1976:
ss. 4(2)(aa) & 4(4)--Rural employment cess--Levy of in
respect of tea estates on despatches of tea grown
therein--Constitutional validity of--Whether beyond legisla-
tive competence.
Constitution of India: Articles 301, 304(b) & Seventh
Schedule List II Entry 49--West Bengal Rural Employment and
Production Act, 1976--Whether constitutionally valid.
Statutory Interpretation: True nature of legislation
imposing levy--Determination of.
HEADNOTE:
Section 4(1) of the West Bengal Rural Employment. and
Production Act, 1976 provided for levy of rural employment
cess on immovable properties. Clause (aa) of s. 4(2) as
amended by s. 7(b) of the West Bengal Taxation Laws (Amend-
ment) Act, 1981 provided for levy of rural employment cess
in respect of tea estates on the despatches of tea grown
therein. The first proviso thereto provided for exclusion of
despatches of tea for sale made at recognised centres. The
second proviso thereto empowered the State Government 10 fix
different rates of cess on despatches of different classes
of tea. Sub-section (4) of the amended s. 4 provided for
exemption of certain categories of despatches from the
liability to pay the whole or part of the cess or to reduce
the rate of the cess payable thereon. The first proviso to
s. 4(2)(aa) was. however, omitted by the West Bengal Taxa-
tion Laws (Amendment) Act, 1982. Article 304(b) of the
Constitution permits the legislature of a State to impose
reasonable restrictions on the freedom of trade, commerce or
intercourse with or within that State provided the Bill or
amendment for that purpose is introduced with the previous
sanction of the President.
It was contended for the petitioners that the levy of
the cess under s. 4(1) read with s. 4(2)(aa) of the Act, as
amended in 1981 and 1982. was violative of the freedom
guaranteed by Article 301 of the Constitu-
294
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tion and also lay outside the legislative competence of the
State Government.
Allowing the writ petitions.
HELD: 1.1 If the levy of a tax on goods has direct and
immediate effect of impeding the movement of goods through-
out the territory of India, there is a violation of Article
301 of the Constitution. If, however, the impact of the levy
is indirect or remote, no valid complaint can be made in
relation to Article 301. There is also no violation of
Article 301 if the case fails under Article 304(b) and its
proviso. [299F, 300D-E]
1.2 Therefore, if the legislature of a State enacts a
law which imposes such reasonable restrictions on the free-
dom of trade, commerce or intercourse with or within that
State as may be required in the public interest and further
that the Bill or amendment for the purposes of clause (b)
has been introduced or moved in the Legislature of a State
with the previous sanction of the President, such enactment
will not offend Article 301. The rural employment cess in
the instant case was a tax. [300F, 299F]
Ariabari Tea Co., Ltd. v. The State of Assam & Ors..
[1961] 1 S.C.R. 809; The Automobile Transport (Rajasthan)
Ltd. v. The State of Rajasthan & Ors., [1963] 1 S.C.R. 491;
Firm A.T.B. Mehtab Majid and Company v. State of Madras &
Anr., [1963] Suppl. 2 S.C.R. 435; Kalyani Stores v. TIre
State of Orissa & Ors., [1966] 1 S.C.R. 865; State of Mysore
v. Ii. Sanjeeviah, [1967] 2 S.C.R. 361 and Andhra Sugars
Ltd. & Anr. etc. v. State of Andhra Pradesh & Ors., [1968] 1
S.C.R. 705, referred to.
2.1 To determine whether the levy was in respect of tea
estates, and, therefore, of land thus making an indirect
impact or was a levy on despatches of tea thereby directly
impeding movement of goods, the substance of the legislation
must be ascertained from the relevant provisions of the
statute. [301B]
2.2 The subject of the levy, the nature of which de-
fines the quality of the levy, however, must not be confused
with the measure of liability, that is to say, the quantum
of the tax. Furthermore, the standards laid down for measur-
ing the liability under the levy must bear a relationship to
the nature of levy. [301B-C, 302D-E]
295
Union of India & Ors. v. Bombay Tyre International Ltd.
JUDGMENT:
2.3 If the levy is regarded as one in respect of tea
estates and the measure of the liability is defined in terms
of the weight of tea despatched from the tea estate there
must be a nexus between the two indicating a relationship
between the levy on the tea estate and the criteria for
determining the measure of liability. If there is no nexus
at all it can conceivably be inferred that the levy is not
what it purports to be. [301H, 302A]
2.4 In the instant case, the nexus with the tea estate
is lost altogether in the provisions for exemption or reduc-
tion of the levy and throughout the nexus is confined to
despatches of tea rather than related to the tea estate.
There is nothing to suggest that a particular tea estate
produces only one class of tea, and when reference is made
to a certain class of tea the reference identifies a certain
class of tea estates. [302E-F]
2.5 While there must always be a nexus between the
subject of the levy and the measure of the levy that nexus
extends into different dimensions. Variations considered
appropriate for the purpose of determining the measure must
correspond to variations in the subject of the levy. If the
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measure of levy is to vary with the despatches of different
classes of tea, there must be something in the class of tea
concerned which points to a reason located in the particular
tea estate or classes of tea estates which are made the
subject of the levy. So also, if the measure varies with the
centre of sale of tea, the variation must relate to a reason
to be found in the nature of the tea estate concerned.
Ultimately, the benefit of exemption or reduced levy must be
related to the need for exempting the tea estate from that
levy or relieving it from part of the normal levy. [302F,
303A]
2.6 In the instant case the relevant statutory provi-
sions, including s. 4(2)(aa) and s. 4(4), indicate no such
relationship or nexus between the tea estate and the varied
treatment accorded in respect of the despatch of different
kinds of tea. The levy of rural employment cess was, there-
fore, a levy in respect of despatches of tea and not in
respect of tea estates. It must, thus, be regarded as con-
stituting a direct and immediate restriction on the flow of
trade and commerce in tea throughout the territory of India.
[303B-C]
2.7 Such a levy could avoid the injunction declared in
Article 301
296
only if it satisfied the provisions of Article 304(b) and
the proviso thereto. The amendments made to the West Bengal
Act in 1981 and 1982 had not been moved in the Legislature
of the State with the previous sanction of the President.
The provisions brought into the Act by the said amendments
were, therefore, unconstitutional and void and could not be
given effect to. [303C-D, F, G]
3. Under the Tea Act, 1953 Parliament had assumed con-
trol of the tea industry including the tea trade and control
of tea prices. Under s. 25 of that Act a cess on tea pro-
duced in India had also been imposed. The State legislation
imposing a cess on despatches of tea was, therefore, also
void for want of legislative competence as it pertained to a
covered field. [304B]
4. The petitioners are entitled to the refund of cess paid
by them. [304D]
&
CIVIL ORIGINAL JURISDICTION: Writ Petitions Nos. 2687,
5822 of 1983 etc.
(Under Article 32 of the Constitution of India).
Dr. Shankar Ghosh, T.S.K. Iyer, M.L. Lahoty, P.S. Jha,
D.D. Gupta, S.K. Jain, D.P. Mukherjee, S.R. Srivastava, P.N.
Tewari and Parijat Sinha for the petitioners.
Tapas Ray, Anil B. Dewan, T.C. Roy, G.S. Chatterjee,
Dalip Sinha and H.K. Puri for the respondents.
The judgment of the Court was delivered by
PATHAK, CJ. By these writ petitions and transferred
cases the petitioners challenge the validity of the levy of
cess in respect of tea estates under the West Bengal Rural
Employment and Production Act, 1976.
The West Bengal Rural Employment and Production Act,
1976, (shortly referred to as the "West Bengal Act") is
intended to provide the additional resources for the promo-
tion of employment in rural areas and for implementing rural
production programmes. The additional resources are sought
to be raised from two sources, a surcharge on land revenue
under s. 3 of the Act and a rural employment cess under s. 4
of the Act. We are concerned here with the levy of the rural
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employment cess.
297
Originally s. 4 of the West Bengal Act provided as follows:
"4.(1) On and from the commencement of this
Act, all immovable properties on which road
and public work cesses are assessed according
to the provisions of the Cess Act, 1880, shall
be liable to the payment of rural employment
cess:
Provided that no raiyat who is
exempted from paying revenue in respect of his
holding under clause (a) of subsection (1) of
section 23B of the West Bengal Land Reforms
Act, 1955, shall be liable to pay rural em-
ployment cess.
(2) The rural employment cess shall
be levied annually--
(a) in respect of lands, at the rate
of six paise on each rupee of development
value thereof;
(b) in respect of coal mines, at the
rate of fifty paise on each tonne of coal on
the annual dispatches therefrom;
(c) in respect of mines other than
coal mines and quarries, at the rate of six
paise on each rupee of annual net profits
thereof."
The West Bengal Taxation Laws (Amendment) Act, 1982
amended the West Bengal Act and by s. 7(b) thereof amend-
ments were made in s. 4(2) of the West Bengal Act with
effect from 1 April, 1981. As a result, as from that date,
s. 4(2) in so far as it is material read as follows:
4(2). The rural employment cess shall be
levied annually--
(a) in respect of lands, other than a
tea estate, at the rate of six paise on each
rupee of development value thereof;
(aa) in respect of a tea estate at
such rate, not exceeding rupees six on each
kilogram of tea on the dispatches from such
tea estate of tea grown therein, as the State
Government may, by notification in the Offi-
cial Gazette, fix in this behalf:
298
Provided that in calculating the
dispatches of tea for the purpose of levy of
rural employment cess, such dispatches for
sale made at such tea auction centres as may
be recognised by the State Government by
notification in the Official Gazette shall be
excluded.
Provided further that the State
Government may fix different rates on des-
patches of different classes of tea.
Explanation--For the purpose of this
section, "tea" means the plant Camellia Sinen-
sis (L) O. Kuntze as well as all varieties of
the product known commercially as tea made
from the leaves of the plant Camellia Sinensis
(L) O. Kuntze, including green tea and green
tea leaves, processed or unprocessed;"
Section 4 was also amended further by the
insertion of sub-s. (4) which provided:
"(4) The State Government may, if it considers
necessary so to do, by notification in the
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Official Gazette, exempt such categories of
despatches or such percentage of despatches
from the liability to pay the whole or any
part of the rural employment cess, or reduce
the rate of the rural employment cess payable
thereon, under clause (aa) of sub-section (2),
on such terms and conditions as may be speci-
fied in the notification.
Provided that the State Government
may, at any time, add to, amend, vary of
rescind any such notification."
Thereafter the West Bengal Taxation Laws (Amendment) Act,
1982 was enacted with effect from 1 October, 1982. S. 4(2)
of the West Bengal Act was amended and under clause (aa)
thereof the first proviso was omitted.
Pursuant to the amendments in the West Bengal Act in
1981 and 1982, various notifications were issued by the
State Government, which for our purpose broadly cover these
different periods:
(a) First Period: 1 April, 1981 to 30 Septem-
ber, 1982--
299
Rural employment cess was levied at the rate
of Rs.5 per Kg. on all despatches of tea, but
in respect of despatches to two tea auction
centres within West Bengal the rate of duty
was nil, and in respect of tea sold in West
Bengal through registered dealers otherwise
than through the two tea auction centres the
rate of tax was Rs.2.50 per Kg.
(b) Second Period: 1 October, 1982 to 28
March, 1984--
Rural employment cess was levied at the rate
of Rs. 1.50 per Kg. on all despatches of tea
except that for despatches to the said two tea
auction centres the rate of levy was 30 paise
per Kg.
(c) Third Period: 29 March, 1984 onwards--
Rural employment cess was levied at the
rate of Rs.3 per Kg. on all despatches of tea
except that for despatches to the said two tea
auction centres in West Bengal the rate of tax
was only 30 paise per Kg.
Learned counsel for the petitioners contend that the
levy of the cess under s. 4(1) read with s. 4(2)(aa) of the
West Bengal Act as amended in 1981 and 1982 is ultra vires
inasmuch as the statutory provisions violate Article 14 and
Article 301 of the Constitution and also lie outside the
legislative competence of the State Government. It seems to
us that these cases can be disposed of on the short ground
based on Article 301 of the Constitution and want of legis-
lative competence.
There can be no dispute that the rural employment cess is a
tax. cannot also be disputed that if the levy of a tax on
goods has the direct and immediate effect of impeding the
movement of goods throughout the territory of India, there
is a violation of Article 301 of the Constitution. If,
however, the impact of the levy is indirect or remote, no
valid complaint can be made in relation to Article 301. In
Atiabari Tea Co., Ltd. v. The State of Assam and Others,
[1961] 1 S.C.R. 809, Gajendragadkar, J (as he then was)
speaking for the majority in that case held that tax laws
would effect trade and commerce and could be violative of
the freedom guaranteed by Article 30 1, provided they di-
rectly or immediately affect the freedom of trade and com-
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merce and not indirectly or in a remote manner. This princi-
ple was affirmed by this Court in The Automobile Transport
(Rajasthan)
300
Ltd. v. The State of Rajasthan and Others, [1963] 1 S.C.R.
491 and again in Firm A.T.B. Mehtab Majid and Company v.
State of Madras and Another, [1963] Suppl. 2 S.C.R. 435. But
the declaration in Article 301 that trade, commerce and
intercourse throughout the territory of India shall be free
is subject to Article 304(b) which provides:
"304. Restrictions on trade, commerce and
intercourse among States. Notwithstanding
anything in Article 301 or Article 303, the
Legislature of a State may by law--
(
a
)
.
.
.
. ..... ....
(b) impose such reasonable restrictions
on the freedom of trade, commerce or inter-
course with or within that State as may be
required in the public interest.
Provided that no Bill or amendment
for the purposes of clause (b) shall be intro-
duced or moved in the Legislature of a State
without the previous sanction of the Presi-
dent."
Therefore, there is no violation of Article 30 1 if the case
falls under Article 304(b) and its proviso. In Kalyani
Stores v. The State of Orissa and Others, [1966] 1 S.C.R.
865 this Court held that a restriction on the freedom of
trade and commerce which is guaranteed by Article 301 cannot
be justified unless the procedure provided in Article 304 is
followed. That was also the view taken in State of Mysore v.
H. Sanjeeviah, [1967] 2 S.C.R. 361 and Andhra Sugars Ltd. &
Anr. Etc. v. State of Andhra Pradesh & Ors., [1968] 1 S.C.R.
705. In other words, if the Legislature of a State enacts a
law which imposes such reasonable restrictions on the free-
dom of trade, commerce or intercourse with or within that
State as may be required in the public interest and further
that the Bill or amendment for the purposes of clause (b)
has been introduced or moved in the Legislature of a State
with the previous sanction of the President, such enactment
will not offend the Article 301.
The question then is whether the impugned levy impedes
the free flow of trade and commerce throughout the territory
of India, and if it does, whether it fails within the excep-
tion carved out in Article 304(b). If the levy imposes a
cess in respect of tea estates, it may well De said that
even though the free flow of tea is impeded in its movement
throughout the territory of India it is in consequence of an
indirect or
301
remote effect of the levy and that it cannot be said that
Article 301 is contravened. The contention of the petition-
ers is, however, that it is ostensibly only in respect of
tea estates but in fact it is a levy on despatches of tea.
If that contention is sound, there can be no doubt that it
constitutes a violation of Article 301 unless the legisla-
tion is brought within the scope of Article 304(b). To
determine whether the levy is in respect of tea estates or
is a levy on despatches of tea, the substance of the legis-
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lation must be ascertained from the relevant provisions of
the statute. It cannot be disputed that the subject of the
levy, the nature of which defines the quality of the levy,
must not be confused with the measure of liability, that is
to say, the quantum of the tax. There is a plenitude of case
law supporting that principle, among the cases being Union
of India and Others v. Bombay Tyre International Ltd. and
Others, [1984] 1 S.C.R. 347.
But what is the position here? The statute speaks of a
levy "in respect of a tea estate", and it says that the levy
will not exceed Rs.6 on each Kilogram of tea on the des-
patches from such tea estate of tea grown therein. The
statute also provides that in calculating the despatches of
tea for the purpose of levy of rural employment cess, the
despatches for sale made at such tea auction centres as may
be recognised by the State Government shall be excluded. And
there is a proviso which empowers the State Government to
fix different rates on despatches of different classes of
tea. There is also s. 4(4) which empowers the State Govern-
ment to exempt such categories of despatches or such per-
centage of despatches from the liability to pay the whole or
any part of the rural employment cess, or to reduce the rate
of the rural employment cess payable thereon under clause
(aa) of sub-s. (2) on such terms and conditions as it may
specify by notification. As from 1 October, 1982 the posi-
tion remained the same except that the first proviso to s.
4(2)(aa) excluding the despatches for sale made at recog-
nised tea auction centres was deleted. The remaining provi-
sions continued as before. Now, for determining the true
nature of the legislation, whether it is a legislation in
respect of tea estates. and therefore of land, or in respect
of despatches of tea, we must, as we have said, take all the
relevant provisions of the legislation into account and
ascertain the essential substance of it. It seems to us that
although the impugned provisions speak of a levy of cess in
respect of tea estates, what is really contemplated is a
levy on despatches of tea instead. The entire structure of
the levy points to that conclusion. If the levy is regarded
as one in respect of tea estates and the measure of the
liability is defined in terms of the weight of tea des-
patched from the tea estate there must be a nexus between
the two indicating a
302
relationship between the levy on the tea estate and the
criteria for determining the measure of liability. If there
is no nexus at all it can conceivably be inferred that the
levy iS not what it purports to be. The statutory provisions
for measuring the liability on account of the levy throws
light on the general character of the tax as observed by the
Privy Council in Re: A Reference under the Government of
Ireland Act, 1920 and Section 3 of the Finance Act (Northern
Ireland), 1934, [1936] 2 All E.R. 111. In R.R. Engineering
Co. v. Zila Parishad, Bareilly & Anr., [1980] 3 S.C.R. 1,
this Court observed that the standard on which the tax is
levied was a relevant consideration for determining the
nature of the tax, although it could not be regarded as
conclusive in the matter. Again in The Hingir-Rampur Coal
Co. Ltd. and Others. v. The State of Orissa and Others,
[1961] 2 S.C.R. 537, this Court observed that the method of
determining the rate of levy would be relevant in consider-
ing the character of the levy. All these cases were referred
to in Bombay Tyre International Ltd. (supra) where in the
discussion on the point at page 367 this Court said:
"Any standard which maintains a nexus with the
essential character of the levy can be regard-
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ed as a valid basis for assessing the measure
of the levy."
It is apparent that the standards laid down for measur-
ing the liability under the levy must bear a relationship to
the nature of the levy. In the case before us, however, we
find that the nexus with the tea estate is lost altogether
in the provisions for exemption or reduction of the levy and
that throughout the nexus is confined to despatches of tea
rather than related to the tea estate. There is nothing to
suggest that a particular tea estate produces only one class
of tea, and when reference is made to a certain class of tea
the reference identifies a certain class of tea estates. We
may presume that a tea estate produces different classes of
tea and not one class of tea only. While there must always
be a nexus between the subject of the levy and the measure
of the levy that nexus extends into different dimensions.
Variations considered appropriate for the purpose of deter-
mining the measure must correspond to variations in the
subject of the levy. If the measure of levy is to vary with
the despatches of different classes of tea there must be
something in the class of tea concerned which points to a
reason located in the particular tea estate or classes of
tea estates which are made the subject of the levy. So also
if the measure varies with the centre of sale of tea, the
variation must relate to a reason to be found in the nature
of the tea estate or classes of tea estates. In other words,
there must be a reason why one class of tea is treated
303
differently from another class of tea when deciding upon the
rate to be applied to different classes of tea and that
reason must be found in the nature of the tea estate con-
cerned. Ultimately the benefit of exemption or reduced levy
must be related to the need for exempting the tea estate
from that levy or relieving it from part of the normal levy.
When the provisions before us are examined in their totali-
ty, we find no such relationship or nexus between the tea
estate and the varied treatment accorded in respect of
despatches of different kinds of tea. It seems to us that
having regard to all the relevant provisions of the statute,
including s. 4(2)(aa) and s. 4(4), in substance the impugned
levy is a levy in respect of despatches of tea and not in
respect of tea estates.
Treating it as a levy on despatches of tea it is evident
that the levy must be regarded as constituting a direct and
immediate restriction on the flow of trade and commerce in
tea throughout the territory of India, and the levy can
avoid the injunction declared in Article 301 only if it
satisfies the provisions of Article 304(b) and the proviso
thereto. For bringing the legislation within the saving
provisions of Article 304(b) it is necessary that the Bill
or amendment should have been introduced or moved in the
Legislature of the State with the previous sanction of the
President. It is not disputed that the amendments to the
West Bengal Act made in 198 1 and 1982 did not satisfy that
requirement. Indeed, it appears that the West Bengal Govern-
ment had sent an earlier Bill to the President with the
object of levying a tax on the income from tea but the
Presidential assent was not granted. It appears further that
the Finance Minister of WeSt Bengal made a statement in the
West Bengal Legislature on 27 February, 1981 stating that he
would introduce the rural employment cess on despatches of
tea. He referred to a Bill for amending the West Bengal
Marketing (Regulation) Act, 1972 having been sent to the
President and the President not having signified his consent
to the amendment.
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In our opinion, the impugned provisions brought into the
West Bengal Act by the amendments in 1981 and 1982 so far as
they purport to relate to tea estates are unconstitutional
and void and cannot be given effect to.
Another aspect of the matter may be considered, and that
relates to legislative competence. If the impugned legisla-
tion were to be regarded as a levy in respect of tea es-
tates, it would be referable to Entry 49 in List II of the
Seventh Schedule of the Constitution which speaks of "taxes
on lands and buildings". But if the legislation is in sub-
stance legislation in respect of despatches of tea, legisla-
tive authority must be
304
found for it with reference to some other Entry. We have not
been shown any Entry in List II or in List III of the Sev-
enth Schedule which would be pertinent. It may be noted that
Parliament had made a declaration in s. 2 of the Tea Act,
1953 that it was expedient in the public interest that the
Union should take under its control the tea industry. Under
the Tea Act, Parliament has assumed control of the tea
industry including the tea trade and control of tea prices.
Under s. 25 of the Act a cess on tea produced in India has
also been imposed. It appears to us that the impugned legis-
lation is also void for want of legislative competence as it
pertains to a covered field.
We do not consider it necessary to express our opinion
on the other points raised between the parties in this case.
In the result, the writ petitions filed in this Court and
the petitions in the Transferred Cases are allowed, the
impugned amendments effected in the West Bengal Rural Em-
ployment and Production Act, 1976 by the amending Acts of
1981 and 1982 so far as they purport to relate to tea es-
tates are declared void and the petitioners are held enti-
tled to the refund of cess paid by them under the impugned
statutory provisions. The petitioners are entitled to their
costs.
P.S.S. Petitions
allowed.
305