# HOECHST PHARMACEUTICALS LTD. AND ANOTHER ETC v. STATE OF BIHAR AND OTHERS

- **Citation:** [1983] 3 S.C.R. 130
- **Court:** Supreme Court of India
- **Decided:** 1983-05-06
- **Bench:** A.P. Sen, E.S. Venkataram!Ah, R.B. Misra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hoechst-pharmaceuticals-ltd-and-another-etc-v-state-of-bihar-and-others-8474
- **Pages:** 68

## Headnote

Bihar Finance Act,.1981-Sub-ss. (/)and (3) of s. 5-Levy of surcharge
on sales tax and prohibition from passing on liability thereof to purchasersWhether l'oid in terms of opening words of Art. 246(3) for being in conflict with
Paragraph 21 of Drugs (Price Control) Order, 1979 issued under s. 3(1) of
Essential Commodities Act ?-Whether violative of Arts. 14 and 19(1) (g) ?-
Whether it is an essential characteristic of Sales Tax that the seller must have
right to pass it on to ~nsumer ?-Whether classification of dealers on the basis
of'gross turnover' as defined ins. 2( j) invalid?
,-
Constitution of India-Art. 246-State Legislature's Power to 111ake law
with respect to matters enumerated in List II-Whether subject to Parliament's
power to make law in re~pect of matters enumerated in List 111 ?-Doctrine of
'pith and substance' a~d the principle of' Federal Sufremacy".
E
Constitution of India-Art. 254(i)-Can repugna11cy between a Stale lair
F
and a law made by Parliament arise outside the Concurrent field?
Constitution of India-Arts. 200 and 201-Governor's decision lo refer a
Bill to President-Whelher subject to Court's scrutiny?-• Assent of Presfden_t'--
Whether justiciable'?
Sub-section (I) of s. S of the Bihar Finance Act, 1981 provides for the
levy of a surCharge in addition to the tax payable, On every dealei whose gross
turnover during a year exceeds Rs. 5 lakhs and, sub-,s. (3) thereof prohibits
such a dealer from collecting amount of surcharge payabie by him from the
purchn.sers. In exercise of the pow~r· conferred by this _seCtion, the State
G
Government fixed the rate of surcharge at 10 per cent of the total amount of
tax payable by a dealer.
H
Two of the appellants in this batch of appeals were companies engaged in
the manufacture and sale of the medicines throughout India whose branches!
sales depots in Bihar were registered as dealers.
Their products were sold
through wholesale distributors/stockists appointed in _almost all tl)e districts of
the State and their gross turnover within the State during the relevant period
ran into crores ofrupees.-Most of.the medicines and drugs sold by them were
~overed ~ tte Drn~s (frice Control) Crder, 1979 iss¥•11 up~er 1ub·B. (I) Q(
.A
HOECHST V. BIHAR
131
s. 3 of the Essential Commodities Act in terms of which they were expressly
prohibited from selling those medicines and drugs in excess of the controlled
price· fixed- by the Central Government from time to time but were allowed to
pass on the liability to the consumer. -During the assessment years 1980..81
and 1981-82 they had to pay the surcharge under s. 5(1) of the Bihar Finance
Act, 1981at10 per cent of the tax payable by them.
The appellants challenged the Constitutional validity of sub-s. (3) of
s. 5 but the same was repelled by the High _Court relying on the decision in
S. Kodar v. State of Kera/a, [1979] I S.C.R. 121.
It was contended on behalf of the appellants: (i) that sub-s. (3) ofs. 5
of the Act which is a State Jaw relatable to Entry 54 of List JI of the Sev<nth
Schedule to the Constitution and which provides that no de'11er shaU be
en titled to collect the surcharge levied on him is void in ternis of the opening
words of Art. 246(3) of the Constitution' as it is in direct conflict with paragraph 21 of the Drugs (Price Control) order, 1979, issued under sub-s. (I) of
s. 3 of the Essential Commodities Act, 1955 which is a Union Law relatable to
Entry 33 of List III and which enables the ntanufacturer or producer of drugs
to pass on the liability to pay sales tax to the consumer; (ii} that the words
•·a -law n1ade by Parliament which Parliament is competent to enact'' contained
in Art. 254(1) must be construed to mean not only a law made by Parliament
with respect to one of the matters enumerated in the Concurrent List but also
to include a law made by Parliament with respect to any 'of the matters
enumerated in the Union List and therefore sub-s. (3) of s. 5 of the Act being
repugnant to Paragraph 21 of the Contro

## Text

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130
HOECHST PHARMACEUTICALS LTD.
AND ANOTHER ETC.
v.
STATE OF BIHAR AND OTHERS
May 6, 1983
(A.P. SEN, E.S. VENKATARAM!AH AND
R.B. MISRA, JJ.]
Bihar Finance Act,.1981-Sub-ss. (/)and (3) of s. 5-Levy of surcharge
on sales tax and prohibition from passing on liability thereof to purchasersWhether l'oid in terms of opening words of Art. 246(3) for being in conflict with
Paragraph 21 of Drugs (Price Control) Order, 1979 issued under s. 3(1) of
Essential Commodities Act ?-Whether violative of Arts. 14 and 19(1) (g) ?-
Whether it is an essential characteristic of Sales Tax that the seller must have
right to pass it on to ~nsumer ?-Whether classification of dealers on the basis
of'gross turnover' as defined ins. 2( j) invalid?
,-
Constitution of India-Art. 246-State Legislature's Power to 111ake law
with respect to matters enumerated in List II-Whether subject to Parliament's
power to make law in re~pect of matters enumerated in List 111 ?-Doctrine of
'pith and substance' a~d the principle of' Federal Sufremacy".
E
Constitution of India-Art. 254(i)-Can repugna11cy between a Stale lair
F
and a law made by Parliament arise outside the Concurrent field?
Constitution of India-Arts. 200 and 201-Governor's decision lo refer a
Bill to President-Whelher subject to Court's scrutiny?-• Assent of Presfden_t'--
Whether justiciable'?
Sub-section (I) of s. S of the Bihar Finance Act, 1981 provides for the
levy of a surCharge in addition to the tax payable, On every dealei whose gross
turnover during a year exceeds Rs. 5 lakhs and, sub-,s. (3) thereof prohibits
such a dealer from collecting amount of surcharge payabie by him from the
purchn.sers. In exercise of the pow~r· conferred by this _seCtion, the State
G
Government fixed the rate of surcharge at 10 per cent of the total amount of
tax payable by a dealer.
H
Two of the appellants in this batch of appeals were companies engaged in
the manufacture and sale of the medicines throughout India whose branches!
sales depots in Bihar were registered as dealers.
Their products were sold
through wholesale distributors/stockists appointed in _almost all tl)e districts of
the State and their gross turnover within the State during the relevant period
ran into crores ofrupees.-Most of.the medicines and drugs sold by them were
~overed ~ tte Drn~s (frice Control) Crder, 1979 iss¥•11 up~er 1ub·B. (I) Q(
.A
HOECHST V. BIHAR
131
s. 3 of the Essential Commodities Act in terms of which they were expressly
prohibited from selling those medicines and drugs in excess of the controlled
price· fixed- by the Central Government from time to time but were allowed to
pass on the liability to the consumer. -During the assessment years 1980..81
and 1981-82 they had to pay the surcharge under s. 5(1) of the Bihar Finance
Act, 1981at10 per cent of the tax payable by them.
The appellants challenged the Constitutional validity of sub-s. (3) of
s. 5 but the same was repelled by the High _Court relying on the decision in
S. Kodar v. State of Kera/a, [1979] I S.C.R. 121.
It was contended on behalf of the appellants: (i) that sub-s. (3) ofs. 5
of the Act which is a State Jaw relatable to Entry 54 of List JI of the Sev<nth
Schedule to the Constitution and which provides that no de'11er shaU be
en titled to collect the surcharge levied on him is void in ternis of the opening
words of Art. 246(3) of the Constitution' as it is in direct conflict with paragraph 21 of the Drugs (Price Control) order, 1979, issued under sub-s. (I) of
s. 3 of the Essential Commodities Act, 1955 which is a Union Law relatable to
Entry 33 of List III and which enables the ntanufacturer or producer of drugs
to pass on the liability to pay sales tax to the consumer; (ii} that the words
•·a -law n1ade by Parliament which Parliament is competent to enact'' contained
in Art. 254(1) must be construed to mean not only a law made by Parliament
with respect to one of the matters enumerated in the Concurrent List but also
to include a law made by Parliament with respect to any 'of the matters
enumerated in the Union List and therefore sub-s. (3) of s. 5 of the Act being
repugnant to Paragraph 21 of the Control Order is void under Art. 254;
(iii) that it both sub-s. (1) and sub-s. (3) of s. 5 were relatable to Entry 54 of
List II, there was no need for the Governor to have referred the Bihar Finance
Bill 1981 to the President for his assent and that the President's assent i:s
justiciable; (iv) that dealers of essential commodities who cannot raise their
sale prices beyond the controlled price cannot be equated with other dealers
who can raise their sate prices and absorb the surcharge and since sub-s. (3)
of s. 5 treats "unequals as equals" it is arbitraiy and irrational and therefore
violative of Art. 14 of the Constitution: (v) that sales tax. being esscntiaJly an
indirect tax, the legislature was not competent to make a provision prohibiting
.,the dealer fro1n c._ollecting the amount of surcharge and that the true nature
·and character of surcharge being virtually a tax on income, sub-s. (3) of s. 5
is unconstitutional as it imposes an unreasonable restricti9n upon the freedom
of trade guaranteed under Art. 19(1)(g); (vi) that sub-s. (3) of s. 5 of the Act
which is a State law being repugnant to p;;iragraph 21 of the Drugs (Price
Control) Order which is issued under _a Union law, the latter must prevail in
view of the non obstant: clause ins. 6 of the Essential Comn1odities Act and
the former which is inconsistent therewith should be by-passed in terms of the
decision in Hari Shankar Bagla and Anr. v. State of Madhya Pradesh, [1955]
1 S.C.R. 380; and (Vii) that in view of the decision in A. V. Fernandez v. State
of Kera/a, [195]] S.C.R. 837, sub-s. (I) of s. 5 of the Act which makes Jhe
"gross turnover" ns defined in s. 2,( .0 of the Act which includes transactions
taking place in the course of inter-state or International Commerce to be the.
basis for the levy of surcharge is u,ltra vires the State Legislature,
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132
SUPREME COURT RBPORTS
11983} "3 s.c.R.
. Dismissing the appeals,
HELD: I. (a) It cannot be doubted that the surcharge partakes of the
nature of sales tax and therefore. it was within the competence of the Stat•:
Legislatl.:Jre to enact sub-s. (1) of s. 5 of the Act for the purpose of levying
surcharge on certain class of dealers in addition to the tax payable by them.
When the.State ~gislature had competence to levy tax on sale at purchase of
goods under Entry 54 of List II of the Seventh Schedule it was equally compe·
tent to select the class of dealers on whom the charge would fall. If that be so.
the State Legislature could undoubtedly have enacted sub-s. (3) of s. 5 prohibit·
ing the dealers liable to pay the surcharge under sub-s.(l) thereof from recoverina the same from the purchaser. (156 H-157 BJ
(b) The po,,ler of the State Legislature to make a law with respect to
the .levy and jmposition of ·a tax on sale or purchase- of goods relatable to
Entry 54 of List II and to make 'anciliary provisions in that behalf is plenary
and is not subject to the power of Parliament to make a law under Entry 33
'of List III. There is no wan:ant for projecting the power of Parliament to
make a law under Entry 33 of List III into the State's power of taxation under
Entry 54 of List 11. Otherwise, Entry 54 of List II will have to be read as:
"Taxes on sale or purchase of goods other than the essential com111odities, etc."
When One entry is made 'subject to' another entry, all that it means· is that
out of the scope of the former entry, a field of legislation covered by the:
latter .entry has been reserved to .be.specially dealt with by the appropriate
legislature. Entry 54 of List II is only subject to Entry 92A of List I and
there can be no further curtailment of the State's power of taxation.
[183 F-H, 184 A-BJ
(c) The Constitution effects a complete separation of the taxing power
~f the Union and of the States under Art. 246
The various entries in the
three lists are Ilot 'powers' of legislation, but 'fields' of legislation. The power
to legislate is given· by Art. 246 and other Arti.cles of the Constitution.
Taxation is considered to be a distinct matter for purposes of legislative com~
petence. I-Jenee, the power to tax cannot be deduced from a general legislative entry as an ancillary power. Further, the element of tax does not directly
flow from the power to regulate trade or commerce "in, and the production,
supply and distribution of essential commodities under Entry 33 of List III,
although the liability tO pay tax may be a matter incidental to the Centre's
power of.price control. [184 E-GJ
(d) A scrutiny of Lists I and II would show that there is no overlapping
anyv.,·here in the taxing power and that the Constitution gives independent
sources of taxation to the Union and the States. There is a distinction made
bet-Ween general subjects of legislation and taxation and th.,se are dealt with
iit separate groups of entries: in List l, Entries 1 to 81 deal with general
subjects of legislattion and entries 82 to 92A deal with taxes; in List_ II,
Entries i to 44 deal with general subjects of legislation and Entries 45
to 63 deal With taxes.
This mutual exclusiveness is also brought out
bf the fact that ~n I...ist irr; th<;:re i§ ~o ~ntry ~li;tting_ to a tax; it only
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HOECHST v. BIHAR
133
Cnntains an entry relating to levy of fees. Thus, in our Constitution, a conflict of taidng power of the Union and of the States cannot .arise. The two
laws viz., sub·s. (3) of s. 5 of the Act and paragraph 21 of the Drugs (Price
Control) Order issued under SUb·S. (1) of s. 3 or the Essential Commodities
Act operate on two separate and distinct fi.elds and both are capable of b.eing
obeyed. There is no question of any clash between them. [184 H-185 F] ·
M.P. Sundararamier and Co. v. State of Andhra Pradesh and Anr., [1958]
S.C.R. 1422, referred to.
Seervai: Consti~utional Law of lndia,
13rd Ed., Vol, I, pp. 81-82, referred
to.
(e) 'The words 'Notwithstanding anything contained in els. (2) and (3)'
in cl. (I) of Art. 246 and the words "Subject to els. (1) and t2)" in cl. (3)
thereof lay down the principle of Federal Supremacy viz., that in. case of
inevitable conflict between Union and State powers, the Union power as enume~
rated in List I shall prevail over the State power as enum•.::ratcd in.Lists 11 and
Ill, and in case of overlapping between Lists 11 and 111, the fOrmer shall prevail.
But the principle of ·Federal S.upr~macy laid dOwn in Art. 246 cannot be
resorted to unless there is aii 'irreconcilable' conflict between the Entr:ies in the
Union and State Lists.
The non obstante clause in cl. (1) of Art. 246 must
operale only if reconciliation should prove in1possible. However, no question of
conflict between the twO Lists will arise is the impugned legislation, by the
application of the doctrine of 'pith and substance' appears to fall exclusively
~tnder one List, and encroachment upon·another List is on1y incidental.
[165 A-E]
(f) The true principle applicable in judging the constitutional validity
of sub·s. (3) of s. 5 of the Act is to determine whether in its pith a11d substance
it is a law-relatable to Entry 54 of List II and not whether there is repugnancy
between it and paragraph 21 of the Drugs (Price Control) Order. The constitutionality of thC law has to be judged by its real subject· matter and not by its
incidental effect upon any topic Of legislation in another field .. Once it is found
that in pith and substance the impugned Act is a· law on a pennitted field any
incidental encroachment on a forbidden field does not affect the competence
of the legislature to enact that Act. No doubt, in many cases it can be said
that the enactment which is under consideration may be regarded from more
than one angle and as operating in more than one field. If, however, the
matter dealt with comes within any of t~1c classes of subjects enumerated in
List II, then, under the terms of Art. 246(3) it is not to be deemed to come "
within the classes of subjects assigned exclusively to Parliament under Art.
246(1) even though the classes of subjects looked at singly overlap in many
respects. The whole distribution of powers 1nust be looked at from the point
of view of.determining the quest!on of validity of the impugned Act. It is
within the competence <?f the State Legislature under Ar!. 246(3) to provide for
?1a~ters whi~h, tho~gh wi.thin. the com~etence of Pit.rliament, are necessarily
1nc1dental to effective leg1slat1on by the State Legislature on the subject of legislation expressly enumerated in List II. [162 B, 171D,177 C-Ej
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SuP!l.EME COURT REPORTS
(1~83) j s.c.ft.
Jn the Central Provinces and Berar Sales of Motor Spirit and Lubric,ants
Taxation ·Act, 1938, [1939] F.C.R, 18; Citizen lnsurance Con1pany v. Willia1n
·parsons; L.R. [1882} 7 A.C. 96; Attorney General for the Province of Ontario v.
Attorney-General for the Dominion of Canada, L.R. [1912] A.C. 571; A.L:s.P.P.L.
·Subrahmanyan Chettiar v .. Muttuswami Goundan, [1940] F.C.R .. 188; Governor
General in COuncU v. Province of Mudras, .[ 1945] F.C.R. 179; The Province of
Madras v. Messers Boddu Paidanna & Sons, [1942] F.C.R. 90; Prafulla Kumar
Mukh,,jee & Ors. v. Bank of Commerce Ltd., Khulna, A.I.R. [1947] P.C. 60; and
Grand Ttunk Railway· Company of Canada v. Attorney General of Ctlnada, L.R.
[1907] A.C. 65, referred to.
2. (a) The question of repugnancy under Art. 254(1) between a law
made by Parliament and a law made by, the State Legislature arises only in
case both the legislations occupy the same field with respect to one of lhe
matters.enumerated in the Concurrent List and there is direct conflict between
the two laws. It is only when~ both these requirements are fuUiJled that the
State law will, to the exteht of repugnaucy become void. Art. 254(1) has·.no
applicatiol! to cases of repugnancy due to overlapping found between List JI
on the one hand and List I and List III on the other. If such overlapping exists
in any particular case, the State law will . be ultra vires because of the non
obstante cl<iuse,in Art. 246(1) read with the opening .words 'Subject to' in Art.
246(3). In such a case, the State law will fail not because of repugnance to
the Union law but due to want of legislative competence. [145 C, 181 F}
(b) It is no doubt true th8.t the expression "a Jaw made by Parliament
which Parliament is competent to enact" in Art. 254(1) is susceptible of a
c·onstruction that repugnance between a State law and a law made by Parliament may take place outside the Concurrent sphere because Parliament ~s
competent to enact Jaw with respect to subjects included in List 111 as well as
List I. But, if Art. 254(1) is read as a whole, it will be seen that it is expressl,y
made subject to cl. (2) which i:nakes reference to ·repugnancy in the field of
Concurrent List. Jn other words, if cl. (2) is to b~ the guide in the dett.::rrnination of the scope of cl. (I), the repugnancy bCtween Union -and State law must
be taken to refer only to th.e Concurrent field. Art. 254(1) speaks of a Stati~
law.being repri:gnant to a law made by Parliament or an existing laW. The
words "with respect to" qualify both the clauses in Art. 254(1) viz., a law
made by Parliament which Parliament is competent to enact as well as aity
provision of an existing law. The underlying principle is that the question of
repugnancy adses only when both the legislatures are competent to legislate irn
the sam~ field, i.e., with respect -to One of the matters enumerated the Con~
current List. [181 G-182 A, B-CJ.
Deep Chand v. State of Uttar Pradesh & Ors., [1959] Supp. 2 S.C.R.,$;
Ch_Tika Ramji & Ors. v. Slate of Uttar Prade.ih & Ors., [1956] S.C.R. 393;'
Zaverbhai Amidas v. Stale of Bombay, [1955] 1 S.C.R. 799; M. Karunanidhi v.
Union of India, [1979] 3 S.C.R. 254; T. Barai v. Henry Ah Hoe, [1983] l S.C.C'.
177; A. S. Krishna v. State of Madr:as, '[1957] S.C.R. 399; Clyde Engineering
Co. Ltd. v. Cnwburn, [1926] 37 Com. L.R. 465; Ex Parle Mclean, [1930] 43
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Com. LR. 472; and Stock Motor Ploughs Limited ~v. Forsyth, [1932] Com. L.R.
128, referred to.
(c) _Entry 54 of List II is a tax ~ntry and therefore there is no question
of repugnancy between sub-s. (3) of s. 5 of the Act and paragraph 21 of the
Control Order. The question of repugnancy can only _rarise in connection with
the subjects enumerated in the Concurrent List as regards which both the Union
and the State Legislatures have concurrent powers. [178 G·l 79 B]
3. It is clear from Arts. 200 and 201 that a Bill passed by the State
Assembly may become law if the Governor gives his assent to it or if, h.lving
been reserved by the Governor for the consideration of the President, it is
assented to by the President. There is no provision in the Constitution which
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ineffective as an Act if there was no compelling necessity fof the Governor to
reserve it for tne assent of the President. It is for the Governor to exercise
his discretion and to decide w:1ether he should assent to the Bill or should
reserve it for consideration of the President to avoid any future complication.
Even if it ultimately turns out that there was no necessity for the Governor to ,
have reserved a Bill for the consideration of the President still he having done
so and obtained the assent of the President, the Act so passed cannot be held
to be unconstitutional on the ground of want of proper assent. This aspect
of the matter, as the law now stands, is not open to scrutiny by the Courts.
In the instant case, thf' Finance Bill which ultimately became the Act in question was a consolidating Act relating the different subjects and perhaps the .
Governor felt that it was necessary 'to reserve it for the assent of the President.
The assent of the President is not justifiable' and the Court cannot spell out any
infirmity arising out of his decision to give such assent. [193 A-194 B]
Teh Chang Poh@ Char Meh. v. Public Prosecutor, Malaysia, L.R. [1980]
A.C. 458, referred to.
4. (a) There is no ground for holding that sub-s. (3f o.f s. 5 of the Act
is arbitrary or irrational or that it treats "unequals as equals" or that it imposes
a disproportionate burden on a certain class of dealers. A surcharge in its
true nature and character is nothing but a higher rate of tax to raise revenue
·for general purposes. The levy of surcharge under sub-s. (1) of s. 5 falls
uni(ormly On a certain class of dealers depending upon their capacity to bear
the additional burdeil. The economic wisdom of a tax is within the exclusive
province of. the legisla~ure. The only question for the Court to consider is
whether there is rationality in the behalf of the legislature that capacity to pay
the tax increases by and large with an increase of receipts. The _view taken by
the Court in Kodar's case that, to make the tax. of a large dealer· heavier is
not arbitrary discrimination, but an attempt to proportion fhe payment to
capacity to pay, and thus to arrive at a more genuine equality, is in consonance
with social justice in an egalitarian State. [186 H~l87 A, 191 B, 191 A]
S. Kodar v. State of Kera/a, (1975] 1 S.C.R. 121, relied on,
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SUPREME COURT REPORTS
· (1983) 3 S.C.R.
(b) There is no basf$-for the submission that the Court was wrong·in
Kodar's case. The contention that ability to pay is not a relevant criterion for
upholdin& the validity of sub-s. (3) of s. 5 of the Act in question cannot be
accepted. On questions of economic regulations and related matters, the Court
must defer to the legislative judgment. When the power to tax exists the
extent of the burden is a matter for the discretion of the law-makers
It {5 not
the function of the Court to cOnsider the propriety or justn.ess of a t~x or enter
upon ·the reabn of legislative policy. If the evident intent and general opera-
.tion of the tax legislation is to· adjust the burden with a fair and reasonable
degree of equality, the constitutional requirement is satisfied. The equality
.clause in Art. 14 ~does hot tak~ a\vay from the State the power to classify a
class of persons who n1ust beat the heavier burden of tax. The clasSification
having some reasonable basis does not offend against that clause merely
becnuse it is not made with mathematical nicety or because in .practice it results
in some inequalities. [189 H-190 G]
(c) There is no factual foundation laid to support the contention that
the levy of surcharge imposes a disproportionate burden on a certain class of
dealers such as manufacturers or producers of drugs, etc. The business carried
on by the appellants in the State of Bihar alone is of such magnitude.that they
have the capacity to· bear the additional burde~ of surCharge, That apart,
under the iCheme of the Control Order the profit margins of manufacturers and
producers of medicines and drugs is considerably higher than that of whole~
salers. If the appellants find that the levy of surcharge cannot be borne within
the present price structure of nledicines and drugs, they have the right to apply
to the Central Governillent for revision of the retail price of 'formulations'·
under paragraph 15 of the Control Order. [186 F, 187 G, 189 G]
5 . . It is no doubt.true that a sales tax is, according to the accepti::d
notions intended to be passed on to the buyer, and the provisions authorising
and reg~lating the collection of sales tax by the seller from the purchaser are
a usual feature of sales tax legislation. HoWever, it is not an essential characteristic.of sales tax t"l?at the seller must have the right to, pass it on to the con-·
sumer; nor is the power of the legislature to impose a tax o.n sales conditional·
on its making a provision for sellers to collect the tax from the purchasers ..
Whether a.law should be enacted; imp_osing a sales tax, or validating the
imposition of sales tax, when the seller is not in a position to pass it on to the
consumer, is a m.atter of policy and~ does not affect the competence of t~te
legislature.
The contention based on
P~rt. 19(l)(g) cannot therefore be
sustained-
[191 E-H]
Tire Tata Iron. & Steel Co., Ltd. v. The Sta~e of Bihar, {1958] S.C.R. 1355;
M/s. J. K. Jute Mills Co. Ltd. v. The State of Uttar Pradesh, [1962] 2 _S.C.R.
I ands. Kodar v. State of Kera/a, [1975] 1 ~.C.R. 12J, referred to.
6 .. (a) .The appellants being manufacturers or ~reducers of 'fotmulaf ns' ire not govenied by paragr~Ph 21 of the Control Order but by paragraph
d~ thereof and therefore the price chargeable by them to wholesaler or distri··
butor is inclusive of sales tax. There-being no ·conflct bet_ween sub-s. (3) of
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liOECl!ST V, BIHAR
. s. 5 of the Act and paragraph 24 of th~· Control_ Order, the question ofthe:nonobstante clause to s. 6 of the E~sentjaJ Coinmodities Act coming into play does
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not arise. [158 G]
Hari Shankar Bag/a & •Anr. v. State of Madl1ya Pradesh, [1955] 1 S~C.R.
380, referred to.
(b) Even otherwise. i.e., if some of the appellants were governed by
paragraph 21 of the Control Order, that would hardly make .any difference ..
·Under the scheme of the Act, a dealer is free to pass on the liability to pay
Sales tax payable under s. 3 and additional sales tax payable under s. 6 to the
purchaseu.
Sub~s. (3) of s. 5 however irriposes a f1mitation on dealers liable
to pay sm:charge·undcr sub-s. (1) .thereof from collecting the amourit of surcharge payable by the1n from the purchasers which only means that surcharge
payable by such dealers under sub-s. (1) of s. 5 will cut into the profits earned
by such dealers. The controlled price or retail price of medicines and drugs
under paragraph 21 remains the same, and the. cOnsumer interest is taken care
of inascnuch as the liability lO pay surcharge under sub-s. (3) of s. 5 cannot
be passed on. That being so, there is no confiict between sub-s. (3) of s. 5 of
the Act and paragraph 21 of the Control Order.
[158 H-159 CJ
The predominant object of issuing a contiol order under sub~s. (1) of
s. 3 of the Essential Commodities Act is to secure the equitable distribution
and availability of essential commodities at fair prices to the ~consun1crs, and
the mere circu1nstance that some of those engaged in the field of industry, trade
or corrimercc may suffer a loss is no ground fOr treating such a regulittory law
to be unreasonable, unless the basis adopted for price fixation is so unreasonable as to be in excess of the lower to fix the price, or there is a statutory
obligation to ensure a fair return to the industry. [159 G-H]
Shree Afeenakshi Mills Ltd'. v. Union of ~ndia, [1974] 2 S.C.R. 398; and
Prag Ice & Oil Mills v. Union of India, [1978] 3 S.C.R. 293, referred to.
7. The decision in Fernandez's c;ase is an authority for the proposition
that the State Legislature, notwithstanding Art. 286 of the Constitution, while
making a law under Entry 54 of the List JI. can, for purposes of registration
of a dealer and submission of returns of sales tax, include the transactions
co\·ercd by Art. 286. That being so, the constitutional validity of sub·S. (1) of
s. 5 which provides for the clnssification of dealers whose gross turnover during
a year exceeds Rs. 5 lakhs for the purpose of le·vy of surcharge 'in addition to
the tax payable by them, is not assailable. So long as. sales in the course of
inter~State trade and Comn1erce or sales outside the State and sales in the
course of import into, or export out of the territory of India are not t'axed
there is nothing to prevent the State Legislatuie ·while making a law for th~
levy of surcharge under Entry 54 of the List I[ to take into--accouut the total
turnover of the dealer within the State and provide that if the gross turnover
of such dealer exceeds R_s. 5 Iakhs in a year he shall in addition to the tax
also pay a Surcharge at Such rate not exceeding 10% of the tax as m'ay b;
provided. The liability to pay the surcharge is not on the gross turnover
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SUPREME COURT REPORTS
[19S3J 3 s.c.i.
including the transactions covered by Art. 286 but is only on inside sales and
the surcharged is sought to be levied on dealers who have a . position of economic superiority. The definition of gross turnover in s. 2(j) is adopted not
for the purpose of bringing to surcharge· inter-State sales etc., but is only for
the purpose of classifying dealers within the State and to identify the class of
dealers liable to pay such surcharge. There is sufficient' territorial nexus
between the persons sought to be charged and the State seeking to tax them.
".'
[196 F-197 DJ
A. V. Fernandez v. State of Kerala, [1957] S.C.R. 837; State of Bombay v.
R.M.D. Chamarbaugwala, [1957) S.C.R. 874; The Tata Iron and Steel Company
Ltd. v. State of Bihar. [1958) S.C.R. 1355; and lnternaJional Tourist Corpora/ion
etc. v. Strite of Haryana and Ors., [1981] 2 S.C.R. 364, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2567,
2818-20;2648, 3277, 2817, 2918, 3079-83, 3001-04, 3543-48, 2810-16,
3375, 2864-2917, 2989-3000, 3084-3088, 3268-71, 3253-54, 3399;34·00
of 1982:
Appeals by special leave from the Judgments and Orders dated
the 30th April, 1982, 5th, 6th, 7th, 10th, 11th, 12th, _13th, 18th,
May, 1982, 3rd, 17th, 23rd, August, 1982 of the Patna High Court
in C.W.J.C Nos. 1788, 3726, 3727, 4529of1981, 253, 688, 1473 of
1982, 2771/81, 96/82, 1233, 1498, 1907, J9C6 of 81, 1042, 1043, 1121,
1044of1982, 3198, 3197, 3195, 3147, 3146, 3148, 1573, 1377, 1802,
1852, 1800, 1950, 1776 of 1981, 1038 of 1982, 1300, 1301, 1303,
1329, 1334, 1383, 1648 of 1981, 255 of 1982, 1193, Jl98, 1204,
1206, 1209, 1211, 1213, 1214, 1262-64, 1273, 1282, 1283, 1287, 1331,
1351, 1382, 1384, 1386, 1431, 1432, 1484, 1488, 1489, 1548, 1645,
1734, 1833 ofl981, 78of1982, 1154, 1160, 1168, 1169, 1186, 1187,
1191, 1549, 1556, 1557-58, 1415, 1461, 1465, 1487 of 1981, 251 of
1982, 228, 1321of1981, 394, 1478 of 1982, 1320/81 0 902, 565/82,
1775, J.177, 1801of1981, 503/82, 1804/81, 1, 3, 4, 6 & 7 of 1982,
3079, 3528 of 1981, 1947/82, 1254/82, 2922/81, 1372/82, 1408 &
1482 of 1981.
AND
Special Leave Petitions Nos. 10744-53, 9554-58, 9788, 9821-22,
10907, 9095, 11202-05, 9886-88, 9500-02, 9753, 9523, 10912, 11069,
10754-56, 10797-10812, 10891, 9702, 9782, 9561, 14001, 14364-66
of 1982, 1393-96, 1422·23, 1472-73of1983.
From the Judgments and Orders dated the 30th April, 1982,
3rd May, 5th, 6th, 7th, 10th, 11th, 12th, 13th May, 19th Augus.t
9th & 15th September, 8th & 18th October 1982, 20th & 21st
January, 1983 of the Patna High Court in C.W.J.C. Nos. 1176, 15161
'
.
HOECHST v. BIHAR (Sen, J.)
1435, 1177, 1618, 1469 & 1252 of 1982, 3398/81, 1355/82, 525/82,
3640, 3641, 3642, 3743 & 3745 of 1982, 1326, 1784, 1405, 1854, 3337,
1656 of 1981, 349, 1108, 1148, 4073, 4074, 4075 of 1982, 3118, 3080,
1161, 1374, 2804, 3035of1981, 4213/82, 1517/82, 1278, 1414, 1290,
1291, 1292, 1297, 1306, 1200, 1212, 1256, 1276, )277 & 1485of1981,
484, 509/82, 1517, 1578, 1450, 4037, 2944, 1788, 2889 of]981, 1547,
506, 507, 508, 4931_, 1253, 1431, 1432, 207 & 214 of 1982 & 182 &
203 of 1983.
WITH
A
Writ Petitions Nos. 9266, 10055-56, 7002-09,' 7019-23, 7024,
C
7921-22, 7996·97, 8508-10; 9680-92, 9322, 7647-53, 8005, 8067, 7160
of 1982 & 415, 76-78, 640-41, 652 of 1983
(Under article 32 of the Constitution of India)
A-B. Divan, A.K. Sen, Shankar Ghose, P.R. Mridul, Hardev
Singh & S.T. Deasi, Talat Ansari, Ashok Sagar, Sandeep Thakore,
Ms. Rainu Walla, D.N. Misra, D.P. Mukherjee,. B.R. Agarwafa,
Miss Vijayalakshmi Menon, U.P. Singh, B.B. Singh. B.S. Chauhan,
Anil Kumar Sharma, Praveen Kumar, A.T. Patra, Vineet Kumar,
A.K. Jha, M.P. Jha, R.S. Sodhi, A. Minocha, Mrs. lndu Goswamy,
S.K. Sinha, Vinoo Bhagat, P.N. Misra, K.K. Jain and Pramod Dayal
for the Appellants.
K. Parasaran, Solicitor General, R.B. Mahto, Addi. Advocate
General, Bihar, Pramod Swarup and U.S. Prasad for the Respondents.
The Judgment of the Court was delivered by
SEN, J. These are appeals by special leave from a judgment
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and order of tb.e High Court of Patna dated April 30, 1982 by which
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the High Court upheld the constitutional validity of sub-s. (I) of
s.5 of the Bihar Finance Act, 1981 ("Act'' for short) which provides
for the levy of a surcharge on every dealer whose gross turnover
during a year exceeds Rs. 5 lakhs, in addition to the tax payable by
him, at such rate not exceeding 10 per centum of the total amount
H j
of tax, and of sub-s. (3) of s. 5 of the Act which prohibits such dealer
from collecting the amount of surcharge payable by him from the
purchasers~,
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it983) 3 !.c.R. -
. TheBihar Finance Act 1981, is not only an Act for the levy
of a tax on the sale or purchase of goods but also is an Act to consolidate and amend various other law.s.
We are·here concerned with
' s. 5 of the Act which finds place in Part I of the Act which bears the
heading "Levy of tax on the sale and, purchase of goods in Bihar
and is relatable to Entry 54 of List II of the Seventh Schedule. By
two separate notifications dated January 15, J98J the State Gov,ernment of Bihar in exercise of the powers conferred by sub-s. ( l) s. j
of the Act appointed January, 15, 1981 to. be the date from which
surcharge under s. 5 shall be leviable and fixed the· rate of surcharge
at IO per centum of the total amount of the tax papable by a dealer
wose gross turnover during a year exceeds Rs. 5 lakhs, in addition
to the tax payble by him. The Act was reserved for the previous
assent of the President and received his assent on April 20, 1981.
There is no point raised as regards the validity of the notifications in
question and therefore there is no need for us to deal with it.
The principal contention advanced by the appellants in these
appeals is that the fic!J of price fixation of essential commodities
in general, and drugs and formulations in particular, is an occupied
field by virtue of_ various· control orders issued by the Central
Government from time to tiine under sub-s. (I) of s. 3 of the
Essential Commodities Act, 1955 which allows the manufacturer of
producer of goods to pass on the tax liability to the consumer and
therefore the State Legislature of Bili'ar had no legislativC:competence
to enact sub-s. (3) of s. 5 of the Act which interdicts that no dealer
liable to pay a surcharge, in addition to the tax payable· by him,
shall be entitled to collect the amount ·of surcharge, and thereby
trenches upon a field occupied by a law made by
Parliament.
Alternatively, the submission is that if sub-s (3) of s. 5 of the Act
were to cover all sales including sales of essential commodities whose
prices are fixed by the Central Government by various cont.rol orders
issued under the Essential commodities Act, then there will be
repugnancy beiwcen the State law and the various ·control orders
which according to s. 6 of the Essential Commodities Act must
prevail. There is also a subsidiary contention put forward on behalf
of the appellants that sub-s. (!)of s. 5 of the _Act is ultra vires th1:
State Legislature in as much as the liability to pay surcharge is 011
a dealer whose gross turnover during a year exceeds Rs. 5 laks oir
more i.e. inclu.sive of transactions relating to Sale or purchase of
goods which have taken place in the conrse of inteNtate t~ade or
commerce or outside the State or in the course of unport mto, 01
. I
HOECHST v. B!HAR (Sen, J.)
141"
export of goods outside the territory of Iudia. The submissibn is that
such transactions are covered by Art. 286. 9f the Constitution and
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therefore .are outside the purview of the Act and thus they cannot
· be taken into consideration for computation of the gross turnover
as defined in s. 2 (j) of the Act . for the purpose of bearing the
incidence of surcharge under sub-s. (l) of s. 5 of the Act.
It will be. convenient, having regard to the course taken in the
arguments, to briefly refer to the facts as are, discernible from the
records in Civil Appeal No. 2567 of 1982 -
Messrs Hoechst
Pharmaceuticals Limited & Another v. The State of Bihar & Others,
and Civil Appeal No. 3277 of 1982 -
Messrs Glaxo Labor.atories.
(India) Limited v.
The State of Bihar & Others. Messrs Hoechst.
Pharmaceuticals Limited and Messrs Glaxo Laboratories
(ludia)
Limited are companies incorcorated under the Companies Act, 1956
engaged in the manufacture and sale of various medicines and life
saving drugs. throughout India including the State of Bihar. They
have their branch or sales depot at Patna registered as a dealer under
s. 14 of the Act and effect sales of their manufactured products
through wholesale distributors or stockists appointed .in almost aff
the districts of Bihar who, in their turn, sell 'theIIJ to retailers through
whom' the medicines and drugs reach 'the consumers. Almost 94%
of the medicines and drugs sold by them are ai the controlled price
exclusive of local taxes under the Drugs (Price Control) Order,
1979 issued by the Central Government under sub-s. (I) of s. 3 of
the Essential Commodities Act and they are expressly prohibited
from selling these medicines and drugs in excess of the controlled
price so fixed by the Central Government from time to time which
allows the manufacturer or producer to pass on the tax liability to
the consumer. The appellants have placed on record tjleir printed
price-lists of their well-known medicines and drugs manufactured
by them showing the price at which they sell to the retailers as also
the retail price, both inclusive of excise _duty. It appears . therefrom
that one of the terms of their contract is that sales tax and local
. taxes will be charged wherever applicable.
These appellants have also placed on record their orders of
assessment together with notices of demand, for the assessment years
1980-81and1981-82. For the assessment year 1980-81, the Commercial Taxes Officer, Patna Circle, Patna determined the gross turnover
of sales in the.State of Bihar through their branch office at Patna of
Messrs H:oechst Pharmace1,1.ticals Limited on the basis of the returo
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[1983j 3 s.c.R..
SUPREME COURT REPORTS
filed by them at Rs. 3,13,69,598,12p. and the tax payable" thereon at
Rs." 19,65,137.52.p. The tax liability for the period from January 15,
1981 to Match 31, 1981 comes to Rs. 3,85,023.33.p .. and the
surcharge thereon at 10% amounts to Rs. 38,503.33p. Thus the total
tax assessed of Messrs Hoechst Pharmaceuticals Limited including
~urcharge for
the
assessment
year
1980·8 l
amounts
to
!ls. 20,03,640.85p.
The figures for the assessment year 1981·82 arc
not available. Foe the assessment years 1980·81 and 1981·82 the
!mnual returns filed by Messrs Glaxo Laboratories (India) Limited
show the gross turnover of their sales in the State of Bihar through
their branch at"Patna a(Rs. 5,17,83,985.76p. and Rs. 5,89,22,346.64p.
respectively. They have paid tax along with the return amounting to
Rs. 34,06,809.80p. and Rs. 40,13,057.28p. inclusive of surcharge at
10% of the tax for the period from January 15, 1981 to March 31,
1981
and April
1981 to January 19,
1982 amounting to .
"Rs. 34,877.62p. and Rs. 3,09,955.86p. respectively. There is excess
payment of Rs. 55,383.98p. in the assessment year 1980·81 and
Rs. 13,112.35p. in the year 1981·82. These figures show the magnitude
of the business carried on by these appellants in the State of Bihar
"alone and their capacity to bear the additional burden of surcharge
levied under sub-s. (1) of s. 5 of the Act.
The High Court referred to the decision in S. Kodar v. State ·of
Kera/a(') where tli.is Court upheld the constitutional validity of sub·s.
(2) of s. 2 of the Tamil Nadu Additional Sales Tax Act, 1970 which
, is in pari materia with sub-s. 3 of s. 5 of the Act and which
interdicts that no dealer referred to in sub·s. (I) shall be entitled to
collect the additional tax payable by him. It held that the surcharge
levied under" suti-s. (I) of s. 5 is in reality an additional tax on the
aggregate of sales effected by a dealer during a year and that it was
ilot necessary that the dealer should be enable"d to pass on th1!
incidence of tax on sale to the purchaser in order that it might be a
tax on the sale of goods.
Merely because the dealer is prevented by
shb-s. (3) of s. 5 of the Act from collecting the surcharge, it does noi: "
cease to be a surcharge on sales tax. It held relying on Kodar' s
case, supra, that the charge under sub·s. (l} of s. 5 of the Act falls
.it a unifrom rate of 10 per centum of the tax on all dealers falling
within the class specified therein i. e. whose gross turnover during a
year exceeds Rs. 5 lakhs, and is therefore not discriminatory and
violative of Art. 14 of the Constitution, nor is it possible to say that
(1) (197S) 1 S.C.R. 121, .
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HOECHST v. BIHAR (Sen, J.)
143
because a dealer is disabled from passing on the incidence of surcharge to the purchaser, sub-s. (3) of s. S imposes an unreasonable
restriction on the fundamental right guarnteed under Art. 19 (!) (g).
As regards the manufacturers and producers of medicines and drugs,
the High Court held that there was no irreconciliable conflict
between sub-s. (3) of s. S of the Act and paragraph 21 of the Drugs
(Price Control) Order 1979 and both the laws are capable of being
obeyed. Undeterred by the decision of this Court in Kodar's case,
supra, the appellants h~ve ch~llenged the constitutional validity of
sub-s. (3) ofs. 5 of the Act in these appeals on the ground that the
Court in that case did not consider the effect of price fixation of
essential commodities by the Central Government under sub-s. (1)
of s. 3 of the Essential Commodities Act which, by reason of s. 6 of
that Act, has an overriding .