# KHYERBARI TEA CO. LTD. &ANR v. THE STATE OF ASSAM - **Citation:** [1964] 5 S.C.R. 975 - **Court:** Supreme Court of India - **Decided:** 1964 - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/khyerbari-tea-co-ltd-anr-v-the-state-of-assam-3058 - **Pages:** 55 ## Headnote • 5 S.C.R. SUPREME COURT REPORTS 975 KHYERBARI TEA CO. LTD. &ANR. v. THE STATE OF ASSAM (P.B. GAJENDRAGADKAR, A.K. SARKAR, K.N. WANCHOO, K.C. DAs GUPTA AND N. RAJAGOPA1'A AYYANGAR, JJ.) Constitution of India, 1950, Arts. 301, 304(b) and Seventh Schedule, List JI, Entry 56-Assam Taxation (on Goods carried by Road or on Inland Water-ways) Act (Assam Act X of 1961)- Constitutional validity. This petition challenges the constitutional validity of the Assam Taxation (on Goods carried by Road or on Inland Waterways) Act, 1961. The previous Act of 1954 having been declared constitutionally invalid by this Court in Atiabari Tea Co. Ltd. v. State of Assam [1961] I S.C.R. 809, the Assam Legislature with the previous sanction of the President of India under Art. 304(b) of the Constitution, passed the impugned Act with retrospective effect from the date on which the Act of 1954 had been promulgated and its provisions were except for certain additional provisions substantially the same. The Assam High Court which was moved under Art. 226 of the Constitution held that the Act was constitutionally invalid. The State of Assam applied for and obtained certificates to appeal to this Court. The present petitioners moved this Court under Art. 32 of the Constitution. Since petitioner No. I was a company and as such its petition was incompetent, petitioner No. 2, the Manager of the company, was heard and some of the respondents in the appeals to be preferred by the State of Assam were allowed to intervene in the present proceedings. The case of petitioner No. 2 was that the company exported tea grown and manufactured in its own garden from Goalpara in Jalpaiguri District to Calcutta. The booking station and the destination were both in West Bengal, the total distance between them being 689 miles of which only It to 2 miles of inland waterways Jay in the State of Assam. The tea was carried by railway from Goalpara to Dhubrighat and thereafter by ferries on inland waterways and transhipped to steamers at the said Ghat. It was contended that ss. 3 and 34, which were the material provisions of the Act, were invalid and that the Assam Legislature was incompetent to enact the said provisions which constituted unreasonable restrictions on the freedom of trade guaranteed by Art. 301 and infringed Art. 19(1)(g) of the Constitution. Held. (per Gajendragadkar, Wanchoo, Das Gupta and Ayyangar JJ .), As the impugned Act was not found to be compensatory by the High Court nor was it claimed to be so by the State the only question that fell to be decided in this petition was whether the restrictions imposed by the impugned Act were 1963 December 13 976 SUPREME COURT REPORTS [1964] 1963 reasonable and in the public interest within the meaning of Art. 304(b) of the Constitution. Khyerbari Tea Atiabari Tea Co. Ltd. v. State of Assam, [1961] I S.C.R. 809, Co. Ltd. &Anr. and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, v. [1963] I S.C.R. 491, explained. The State of The entries in the three lists In the Seventh Schedule must Assam be given the widest possible interpretation. Power conferred on the Legislature to levy tax must be widely construed so as to include the power to select the taxable articles, to fix the rates, to prescribe the machinery for recovery, to prevent evasion and to prescribe the procedure for determining the amount payable by any individual. It could not be assumed that Entry 56 of List II, in giving the Legislature the power to enact the impugned Act, required that the tax must be levied only against the owner of the goods that were carried or against persons who carried them_. If the tax was really levied on goods carried, the Legislature was free to prescribe the machinery for its recovery. R.C. Jail v. Unfrm of India. [1962] Supp. 3 S.C.R. 436, Sardar Ba/dev Singh v. Commissioner of Income-tax, Delhi & Ajmer. [1961] l S.C.R. 482 and Orient Paper Mills Ltd. v. State of Orissa. [1962] I S.C.R. 549, referred to. Section 3(1) of th ## Text _Characters 0–39,900 of 121,417. This is a partial read: ask again with offset=39900 for what follows._ • 5 S.C.R. SUPREME COURT REPORTS 975 KHYERBARI TEA CO. LTD. &ANR. v. THE STATE OF ASSAM (P.B. GAJENDRAGADKAR, A.K. SARKAR, K.N. WANCHOO, K.C. DAs GUPTA AND N. RAJAGOPA1'A AYYANGAR, JJ.) Constitution of India, 1950, Arts. 301, 304(b) and Seventh Schedule, List JI, Entry 56-Assam Taxation (on Goods carried by Road or on Inland Water-ways) Act (Assam Act X of 1961)- Constitutional validity. This petition challenges the constitutional validity of the Assam Taxation (on Goods carried by Road or on Inland Waterways) Act, 1961. The previous Act of 1954 having been declared constitutionally invalid by this Court in Atiabari Tea Co. Ltd. v. State of Assam [1961] I S.C.R. 809, the Assam Legislature with the previous sanction of the President of India under Art. 304(b) of the Constitution, passed the impugned Act with retrospective effect from the date on which the Act of 1954 had been promulgated and its provisions were except for certain additional provisions substantially the same. The Assam High Court which was moved under Art. 226 of the Constitution held that the Act was constitutionally invalid. The State of Assam applied for and obtained certificates to appeal to this Court. The present petitioners moved this Court under Art. 32 of the Constitution. Since petitioner No. I was a company and as such its petition was incompetent, petitioner No. 2, the Manager of the company, was heard and some of the respondents in the appeals to be preferred by the State of Assam were allowed to intervene in the present proceedings. The case of petitioner No. 2 was that the company exported tea grown and manufactured in its own garden from Goalpara in Jalpaiguri District to Calcutta. The booking station and the destination were both in West Bengal, the total distance between them being 689 miles of which only It to 2 miles of inland waterways Jay in the State of Assam. The tea was carried by railway from Goalpara to Dhubrighat and thereafter by ferries on inland waterways and transhipped to steamers at the said Ghat. It was contended that ss. 3 and 34, which were the material provisions of the Act, were invalid and that the Assam Legislature was incompetent to enact the said provisions which constituted unreasonable restrictions on the freedom of trade guaranteed by Art. 301 and infringed Art. 19(1)(g) of the Constitution. Held. (per Gajendragadkar, Wanchoo, Das Gupta and Ayyangar JJ .), As the impugned Act was not found to be compensatory by the High Court nor was it claimed to be so by the State the only question that fell to be decided in this petition was whether the restrictions imposed by the impugned Act were 1963 December 13 976 SUPREME COURT REPORTS [1964] 1963 reasonable and in the public interest within the meaning of Art. 304(b) of the Constitution. Khyerbari Tea Atiabari Tea Co. Ltd. v. State of Assam, [1961] I S.C.R. 809, Co. Ltd. &Anr. and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, v. [1963] I S.C.R. 491, explained. The State of The entries in the three lists In the Seventh Schedule must Assam be given the widest possible interpretation. Power conferred on the Legislature to levy tax must be widely construed so as to include the power to select the taxable articles, to fix the rates, to prescribe the machinery for recovery, to prevent evasion and to prescribe the procedure for determining the amount payable by any individual. It could not be assumed that Entry 56 of List II, in giving the Legislature the power to enact the impugned Act, required that the tax must be levied only against the owner of the goods that were carried or against persons who carried them_. If the tax was really levied on goods carried, the Legislature was free to prescribe the machinery for its recovery. R.C. Jail v. Unfrm of India. [1962] Supp. 3 S.C.R. 436, Sardar Ba/dev Singh v. Commissioner of Income-tax, Delhi & Ajmer. [1961] l S.C.R. 482 and Orient Paper Mills Ltd. v. State of Orissa. [1962] I S.C.R. 549, referred to. Section 3(1) of the impugned Act which imposed the tax and s. 3(2) which made the producer liable to pay it could not therefore be impugned on the ground of legislative incompetence. M' Cullock v. Maryland, (1819)4 L. Ed. 579, considered. But the machinery set up for recovery of the tax should have a rational connection with the tax. The absence of such a nexus between them would make the tax liable to attack as being unjustified under Entry 56. Article 304(b), properly construed, does not require that laws passed under it must always be prospective. It was not correct to say that once the State Legislature passed e.n Act without recourse to that Article and it was struck down, it could not re-enact that Act under the Article and give it retrospective effect. That Article contemplates restrictions and not prohibitions and the rule that prohibitory legislation cannot have retrospective operation can have no application. Punjab· Province v. Dau/at Singh., L.R. 73 I.A. 59, held inapplicable. M.P. V. Sundararamier & Co. v. State of Andhra Pradesh [1958j S.C.R. 1422, applied. M/s. West Ramanand Electric Distribution Co. Ltd. v. State of Madras. [1963] 2 S.C.R. 747, referred to. Nor could it be said that a restrictive statute passed under Art. 304(b) with retrospective operation must necessarily defeat the scheme of Part XIII of the Constitution .. • ' - • - ' > 5 S.C.R. SUPREME COURT REPORTS 977 The mere fact that a validating taxing statute has retrospective 1963 operation does not necessarily change the character of the tax sought to be recovered by such retrospective operation. The Khyerbari Tea proviso to s. 3(2) of the impugned Act was not retrospective in Co Ltd & A r character and did not change the character of the tax. · · n · v. Rai Ramkrishna v. State of Bihar [1964] 1 S.C.R. 897 The State of referred to. Assam A law enacted under Art. 304(b) with the previous sanction of the President, does not necessarily take away the jurisdiction of the Court to consider whether the restrictions imposed by it arc reasonable and in the public interest. The observation in Atiabari Tea Co.'s case in this regard should not be taken as conclusive on the point. Although there is a presumption in favour of the constitutionality of a statute, if it is proved that it invades fundamental rights under Art. 19(1), the onus shifts on to the State and it must justify its validity under Art. 19(6). Onus under Art. 304(b) is still more in favour of the citizen as it clearly purports to restrict the freedom of trade. Saghir Ahmad v. State of U.P. (1955] 1 S.C.R. 707, applied. Hamdard Dawakhana. (Wakf) Lal Kuan, Delhi v. Union of India. [1960] 2 S.C.R. 671, referred to. The impugned Act by making the producer liable for the tax under s. 3(2) proviso or by assessing the tax on a fiat rate on weight instead of by the ton and mileage method, could not be said to have imposed unreasonable restrictions. The law of taxation is a balance of complex considerations and if the Legislature thought that a fiat rate was just and fair to the tea trade as a whole no exception could be taken to it. It was not correct to say that s. 34 of the impunged Act was discriminatory or infringed Art. 19(1) (g). It was not discriminatory in that it selected only tea and jute for taxation. The Legislature had full freedom to determine which articles it should tax, in what manner and at what rate. Raja Jagannath Baksh Singh v. State of U.P. [1963] 1 S.C.R· 220 and East India Tobacco Co. v. State of Andhra Pradesh, [1963] 1 S.C.R. 404, referred to. The power of this Court to strike down a taxing statute for contravention of Arts. 14, 19 or 301 must be exercised with circumspection. It is only in cases of such statutes as are clearly confiscatory in character that the power of this Court can be invoked or exercised. K.T.Moopi/ Nair v. State of Kera/a, [1963] 3 S.C.R. 77, referred to. The impugned Act was not colourable legislation in any sense. The power of legislation carried with it the power to make the law I SCI/64-62 1963 978 SUPREME COlJRT REPORTS [1964] retrospective and the passing of a validating Act is essentially subsidiary to that power conferred by the relevant legislative List. Khyerbari Tea Not was the Act extra-territorial in its application. Whether Co.Ltd. & Anr. the goods are carried for a long or a short distance had no bearing v. on legislative competence under Entry 56 List II under which the The' State.of impugned Act was enacted. Since the goods were carried, although over a very small part of inland waterways in Assam, the doctrine -Assam of nexus, applicable to such cases, was satisfied. . Tata Iron & Steel Co. Ltd. v. State of Bihar, [1958] S.C.R. 13~5, referred to. The word 'carried' in Entry 56, List II is of wider denotation than 'import' and the Act could not be impugned on the ground that the goods carried and taxed did not join the mass of goods in the State of Assam itself. Central India Spinning and Weaving and Manufacturing Co. Ltd. v. Municipal Committee, Wardha, [1958] S.C.R. 1!02, held inapplicable. The power to levy the tax conferred by Entry 56, List II, was not controlled by the Tea Act, 1953, passed by the Parliament under List I. Nor was it correct to say that the River Boards Act, 1956, imposed a bar on the Assam Legislature to pass the impugned Act. Per Sarkar, J.-Entries in the Legislative Lists have to be read in their widest amplitude. So road there could be no doubt that the Assam Legislature was competent under Entry 56 of List II to provide for the realisation of the tax in the manner most suitable to it. The words of the Entry were wide enough to enable the Legislature to realise the tax either from the producer, even though he did not carry it, or from the person who actually carried it. Under the proviso to s. 3(2) of the Act, a notification could not be issued with retrospective effect. That proviso made the producer liable for realisation of the tax from the purchaser from the date appointed by the notification. If the notification appoint- . ed a past date, it would be incompetent. . It was not correct to say that a statute contemplated by Art. 304(b) cannot be retrospective. A legislature competent to pass a law can pass it with retrospective effect. If the flow of the trade could be restricted prospectively, it could be restricted retrospectively as well. The restrictions imposed by Art. 304(b) stand ·on the same footing as those under Art. 19(6). There is no prohibition in Art. 304 and, therefore, it could not be said that it did not contemplate retrospective operation. It provides for reasonable restrictions on the freedom of trade and therefore permits and does not prohibit. 'J • - Punjab Province v. Dau/at Singh L.R. 73 I.A. 59, held inapplicable. ~ I ~ 5S.C.R. SUPREME COURT REPORTS 979 Entry 56 of List II does not require that the tax imposed mnst 1963 be measured according to the distance they are carried. A fiat rate is not wanting in reasonableness. It would not be wrong Khyerbari Tea to say that since a tax is collected in public interest and for public Co Ltd & Anr good the burden imposed by it on trade would prima facie be · · · reasonable in the public interest. v. The State of The legislature has the power to pick, and choose the articles on which to impose the tax and such choosing cannot by itself Assam amount to discrimination. The Act applies to all who are concerned with the carriage of tea and jute. Raja Jagannath Baksh Singh v. State of Bihar, [1963] l S.C.R. 220, referred to. Section 34 of the impugned Act did not violate Art. 14 of the Constitution, nor could it be said that it was a colourable legislation. A validating Act, passed under the same legislative power under which the invalid Act was passed, would not amount to colourable legislation. Gajapati Narayan Deo v. State of Orissa, [1954] S.C.R. 1, referred to. Since the Assam Legislature had the power· to impose the tax on carriage of goods, however short the distance over which they were carried, the impugned Act could not be said to be bad for extra-territoriality. Quaere as to on whom the onus of proving the reasonableness of a restriction imposed by a statute on which its constitutionality depends lies. ORIGINAb JURISDICTION : Writ Petiton No. 134 of 1962 .• Petition under Art. 32 of the Constitution of . India for the enforcement of Fundamental Rights. S.K. Niyogi and S.C. Mazumdar, for the petitioners. B.C. Barua, Advocate-General, Assam, M.C. Setalvad, R.B. Datar and Naunit Lal, for the respondents. G.S. Pathak, A.N. Sinha and B.N. Ghosh, for the interveners. December 13, 1963. The Judgment of P.B. Gajendragadkar, K.N. Wanchoo, K.C. Das Gupta and N. Rajagopala Ayyangar JJ. was delivered by Gajendragadkar '}. A.K. Sarkar J. delivered a separate Opinion. I 980 SUPREME COURT REPORTS ,.,,... [1964] ~ 1963 GAJENDRAGADKAR J.-The present writ petition by which the two petitioners Khyerbari Tea Co. Khyerbari Tea Ltd., ~.nd M:·. Sudhir Chandra Guha, Manager of Co. Ltd. &.Anr. the said Company, seek to challenge the validity of the v., Assam Taxation (On Goods Carried by Road or The State of on Inland Waterways) Act, 1961 (No. 10 of 1961) Assam (hereinafter called 'the Act'), is a sequel to the decision . - of this Court in the case of Atiabari Tea Co., Ltd. Ga;endragadkarv. The State of Assam(1). To this petition have J. been impleaded three respondents, the State of Assam, the Commissioner of Taxes, the taxing authority appointed under s. 6 of the Act, and the Superintendent of Taxes, Dhubri Division. We will refer to the State of Assam as the respondent hereafter. The respondent had passed a similar Act No. 13 of 1954 which had received the assent of the Governor on the 9th April, 1954. The validity of the said Act was challenged by the petitioners and certain other producers of tea by filing writ petitions before the Assam High Court. The Assam High Court dismissed the writ petitions and held that the impugned Act of 1954 was valid. The said judgment was pronounced by the High Court on the 6th of June, 1955. The petitioners whose writ petitions had been dismissed, then preferred appeals to this Court by special leave, and they also moved this Court by writ petitions under Art. 32 of the Constitution. These matters were heard by this Court in the case of Atiabari Tea Co. Ltd.C1 l and by its judgment delivered on the 26th September, 1960, the said impugned Act was struck down as being unconstitutional. Thereafter, the Act with which we are concerned in the present proceedings was passed by the Assam Assembly. It received the assent of the President on the 6th April, 1961. The relevant terms of the Act are, on the whole, substantially similar to the terms of the earlier Act which was struck down. The Act has made certain additional provisions to which we will refer later. The petitioners contend that the operative provisions of the Act are invalid, and so, they pray for issue of an appropriate writ (I) [19611 I s.c.R. 809. : ' _J - L j - 5 S.C.R. SUPREME COURT REPORTS 981 or order directing the respondent not to enforce i963 the operative provisions against them. Petitioner - No. l is a company and as such, it has no right to Khyerbari Tea move this Court under Art. 32. This position is Co.Ltd. &Anr. conceded by Mr. Mazumdar for the petitioners. v .. Petitioner No. 2 who is the Manager of Petitioner The State of No. l is, however, a citizen of India and as such, Assam he is entitled to challenge the validity of the Act -~ inasmuch as the respondent threatens to take action Gajendragadkar in pursuance of the material provisions of the Act J. against the company of which he is the Manager. Mr. Setalvad does not dispute the right of peti_ti9ner No. 2 to move this Court by a petition under Art. 32. After the Act was passed and it came into force, the question about the scope and effect of the pro~ visions contained in Part XIII of the Constitution which had been dealt with by this Court in the case of Atiabari Tea Co.<1 l came to be considered by a larger Bench in the case of the Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan<•i, and the decision of this larger Bench was pronounced on the 9th April, 1962. Since the Act has been passed by the Assam Legislature with the previous sanction of the President directly as a result of the decision of this Court in the case of Atiabari Tea Co., the present proceedings can be appropriately· described as an after-math of the said decision. · · It appears that 487 persons moved the Assam High Court by writ petitions under Art. 226 of the Constitution impeaching the validity of the Act. These writ petitions were considered by a Division Bench of the said High Court and they were allowed on the 1st August, 1963. The two learned. Judges who constituted the Division Bench have delivered concurring judgments and held that the Act is inva1id. On some of the points urged by the petitioners before them, the two learned Judges have differed; but,: in the result, they agreed in taking the view that the operative provisions of the Act were unconstitu- (1) [1961] I S.C.R. 809. (2) [1963] 1 S.C.R. 491. 982 SUPREME COURT REPORTS [1964] 1963 tional. The respondent State of Assam then moved the High Court for certificates to enable it to come Khyerbari Tea to this Court in appeal against the decision of the Co. Ltd. & Anr. High Court in the said 487 writ petitions. The High . v. Court has granted certificates,· but the said appeals The State of will take long to become ready; and so, 12 of the Assam petitioners who are respondents in some of the said -- appeals were allowed to intervene in the present GaJendragadka,.proceedings. In fact, by arrangement between Mr. J. Mazumdar who appeared for the petitioners before us and· Mr. Pathak who represents the interveners, the principal argument has been urged before us by Mr. Pathak and we expressly told Mr. Pathak that since our decision on the present writ petition would govern the decision of the appeals which the respondent is going to bring to this Court against the decision of the Assam High Court, we would permit him to raise all points in support of the view taken by the Assam High Court and would not confine him to the points which have been taken by the petitioners in their petition before us. In fact, the Assam Judgments in question have been filed by the Interveners, and Mr. Pathak has invited our attention to the main findings recorded in those judgments. Normally, counsel for interveners is not allowed a right of reply, but having regard to the fact that Mr. Mazumdar requested us to allow Mr. Pathak to lead him in the present proceedings, we have allowed both Mr. Pathak and Mr. Mazumdar to open the · case, and have beard both of them in reply. Petitioner No. 2's case is that petitioner No. l• the company, carries on the business of manufacturers~ wholesale dealers and exporters of tea at JalpaigurI in the State of West Bengal. The business of the said garden is managed by petitioner No. 2 and is subject to the control and direction of the company. Naturally, · the remuneration and prospects of petitioner No. 2 depend upon the good and economical management and the prosperity of the business of the Company. The petition avers that at all material J ' { • - ' - 5 S.C.R. SUPREME COURT REPORTS 983 times the company exported the tea grown and manu1963 factured by it in its tea garden by Railway from Garopara Railway Station in the district of Jalpaiguri Khyerbari Tea to the Calcutta port. It is common ground that Calcutta Co. Ltd. & Anr. Port is the principal tea market in the country for sale v. for consumption at home as well as for export overseas. The State of According to the petition, the tea was delivered packed Assam in chests to the North Eastern Railway Administra- . -- tion at Garopara Rly. Station and the rate charged Ga1endragadkar by the said Administration was paid to it for carrying J; the goods to Calcutta. It is clear that both the booking station and the station of destination are in the State of West Bengal. When the tea thus travels from Garopara to Calcutta, it has to traverse a short distance of about 67 miles through Assam to Dhubri Ghat, on the bank of the River Brahmaputra. It appears that by an arrangement between the Railway and the I.G.N, and R.S.N. Co. Ltd. these goods are taken over by ferries on inland waterways and are transhipped to steamers at the said Ghat. The steamers then carry the goods through the Brahmaputra in Assam up to Mankachar; the distance between Dhubri-Ghat and Mankachar is about l t to 2 miles. In their journey, the steamers cover a distance of about 572 miles in Pakistan territory, and then they reach the Calcutta Port. The total distance covered by the journey of the goods is about 689 miles. Petitioner No. 2 contends that the material provisions of the Act are invalid, because the Assam Legislature was not competent to enact the said provisions. It is also urged that the said provisions are unconstitutional because they constitute an un· reasonable restriction on the freedom of trade guaran• teed by Art. 301, as well as petitioner No. 2's funda-. mental right guaranteed by Art. 19(J)(g) of the Con· stitution. The validity of the Act is also challenged on some other grounds which would be dealt with. later. These pleas are denied by the respondent and it is urged on its behalf that the Act is constitutional, that it has been passed under Art. 304(b) after obtain- 984 SUPREME COURT REPORTS [1964) 1963 ing the previous sanction of the President; that its - material provisions are in 110 sense unreasonable Khyerbari Tea and that the restrictions imposed by them on the Co. Ltd. & Anr. freedom of trade are reasonable restrictions and are v. required in the public interest. It is also alleged The State of that the said restrictions are reasonable and in the Assam interests of the general public and as such, they are saved by clause (6) of Art. 19. Gajendragadkar · B ,. d 1. . . h h . . . J eiore ea mg wit t ese content10ns, It Is · necessary to indicate at the outset the effect of the two judgments to which we have already referred. In the case of the Atiabari Tea Co. Ltd.<1 ), three views were expressed. Sinha C.J., held that the freedom conferred by Art. 301 did not mean freedom from taxation simpliciter but only from the erection: of trade barriers, tariff walls and imposts which had a deleterious effect on the free flow of trade, commerce and intercourse. According to his view, the earlier Assam Act did not contravene Art. 301 and was valid. This view put a somewhat narrow construction on the scope and effect of the provisions contained in Art. 301. Shah J., on the other hand, placed a very wide construction on the said provision and held that the freedom of trade guaranteed by the said Article included not only freedom from discriminative tariffs and trade barriers but also from all taxation on commercial intercourse. As such, he held that the said Act was unconstitutional. c The majority view was that the freedom of trade guaranteed by Art. 301 was wider than that contained ins. 297 of the Government of India Act, 1935, which meant that taxes which directly and immediately impeded the .freedom of trade would come within the mischief of Art. 301. According to this view, A'rt. 301 ·provides that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves; and if any Act imposes · a,ny direct restrictions on .the movement of goods, (I) [19611 t. s.c.R. so9. , - • .. 5 S.C.R. SUPREME COURT REPORTS 985 it attracts the provisions of Art. 301. On the majority 1963 view, if the impugned tax imposes a restriction on the movement of trade, the Act could be sustained Khyerbari Tea if it complied with the provisions of Art. 304(b ). Co. Ltd. & Anr. In regard to the Act with which the Court was, then v. concerned, the majority judgment observed that it The State of may be that one of the objects in passing the Act Assam was to enable the State Government to raise money . -- to keep its roads and w&terways in repairs; but that GnJendragadkar object may and can be effectively achieved by adopJ. ting another course of legislation; if the said object is intended to be achieved by levying a tax on the carriage of goods, it can be so done only by satisfying the requirements of Art. 304(b). In the Automobile Transport (Rajasthan) Ltd. case( 1), the majority view expressed by Das J. on behalf of himself and Kapur & Sarkar JJ was that if a tax is compensatory in character, it cannot be said to fall within the mischief of Art. 301. According to this view, a clarificatory rider was added to the majority view expressed in the case of the Atiabari Tea Co. Ltd.<2> by providing that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Art. 301, and such measures need not comply with the requirements of the provisions of Art. 304(b). Subba Rao J., who delivered a separate judgment concurring with the conclusion reached by Das J., preferred to emphasise that taxing statutes which would escape the mischief of Art. 301 could be appropriately described as regulatory. He, therefore, held that the Rajasthan Motor Vehicles Taxation Act (No. 11 of 1951) with which the Bench was dealing, was regulatory in character and as such, not· unconstitutional. In other words, whereas Das, Kapur and Sarkar JJ., upheld the validity of the Act on the ground that it was either compensatory or regulatory, Subba Rao J., preferred to base his decision mainly on the ground that it was regulatory. 0) [1963] I S.C.R. 491. (2) [1961] I S.C.R. 809. 986 SUPREME COURT REPORTS [1964] 1963 The minority view which has been expressed by Hidayatullah J., on behalf of himself and Ayyangar Khyerbari Tea and Madholkar JJ., assumed that though regulatory Co. Ltd. & Anr. taxing statutes may be said to fall outside Art.30, comv. pensatory taxing statutes cannot make the same claim. The State of According to this view, if a taxing statute was sought Assam to be justified on the ground that the tax imposed by . - it was compensatory in character, that could be done Ga;endragadkar only by adopting the procedure prescribed by Art. J. 304(b). It may be noticed that the scope of the regulatory statutes as discussed by Hidayatullah J., is much narrower than the scope of the regulatory statutes as considered by Subba Rao J. In the result, the majority view expressed in the case of the Atiabari Tea Co.ell, was substantia!1y accepted by the majority of the learned Judges constituting the larger Bench which heard the Automobile Transport (Rajasthan) Ltd.c•l case, but a corollary was added to the said view as we have just indicated. The majority view in the Atiabari case substantially agreed with the majority decision in the case of Atiabari Tea Co., there would be a clear difference between the said two views in relation to the scope and effect of the provisions of Art. 304 (b). According to the majority view in the case of Atiabari Tea Co., if an Act is passed under Art. 304(b) and its validity is impeached, then the State may seek, to justify the Act on the ground that the restrictions imposed by it are reasonable and in the public interest, and in doing so, it may, for instance, rely on the fact that the taxes levied by the impugned Act are compensatory in character. On the other hand, according to the majority decision in the Automobile Transport (Rajasthan)< 2> case, compensatory taxation would be outside Art. 301 and cannot therefore, fall under Art. 304(b). If in the present case it had been urged before us that the tax levied by the Act is compensatory in character, it would have been necessary to consider the question once again by constituting a larger Bench. It will be recalled that the Act with which we are concerned has been passed by the Assam Legislature directly as a result of the decision of this Court in Atiabari Tea Co.'s caseCl>; that decision was that if the tax imposed by the Act was compensatory in character then the Act could be sustained only if it was passed after complying with the provisions of Art. 304(b). The Assam Legislature has accordingly adopted the said procedure and passed the Act. If the Act had been compensatory in character, it would have become necessary for us to consider the (1) [1961] 1 S.C.R 809. (2) [1963] 1 S.C.R. 491. 988 SUPREME COURT REPORTS [1964] 1963 whole position once again, because it would obviously be unfair and unjust that the earlier Act should have Khyerbari Tea been struck down though it was compensatory in Co. Ltd. & Anr. character and in testing the validity of the present v. Act, it should be open to the petitioners to contend The State of that its compensatory character is irrelevant to the Assam enquiry under Art. 304(b ). In the present case, the Assam High Court which dealt with the 487 writ Gajendragadkar petitions has found that the Act is not compensatory, J. and Mr. Setalvad has not urged before us that the Act is in fact compensatory. That is why we are proceeding to deal with the merits of the dispute between the parties in the present case on that basis. The main question, therefore, would be that the tax imposed by the Act not being compensatory in character, are there any reasons to justify the respondent's contention that the restrictions imposed by it are reasonable and in the public interest? · Let us then consider the broad features of the Act and its material provisions before dealing with the several points urged before us. The Act consists of 34 sections. As we have already noticed, the Bill was introduced after obtaining the previous sanction of the President, and the Act has been passed in accordance with the provisions of Art. 304(b). The preamble to the Act provides that the Act has been passed to provide for the levy of a tax on certain goods carried by road or on inland water-ways in the State of Assam and to validate certain taxes imposed on goods carried by road or on inland waterways and for certain other connected matters. Section 1(3) provides that the Act shall be deemed to have had effect as from the 24th April, 1954, and shall remain in force till the 31st March, 1962. In other words, the Act takes effect from the date when the earlier Act was to have taken effect, and its life continues for one year after it received the assent of the President and became effective. Section 2, inter alia, defines a producer as meaning "a producer of tea and includes the person in charge of the garden where tea is produced." The Act is concerned with - r . .. • •···· > ~ 5 S.C.R. SUPREME COURT REPORTS 989 tea and jute, but in the present proceedings, we are 1963 dealing with the petitioners whose interest lies in tea. Section 3 of the Act deals with the liability to tax, Khyerbari Tea and since its validity is seriously impugned by the Co. Ltd. & Anr · petitioners, it is necessary to read it: v. "(l) S b' h · · f h' A The State of u ~ect to t e prov1S1ons o t 1s ct, A . d ssam there shall be lev1e a tax on (a) manufactured __ _ tea and (b) jute in bales carried by motor vehicle, Gajendragadkar cart, trolley, boat, animal and human agency J . or any other means except railways and airways in such manner and in respect of such period and at such rate as specified in the Schedule. (2) Such tax levied on manufactured tea shall be realised from the producer and· that levied on jute shall be realised from the dealer; Provided that where tea is sold at the factory premises, the producer shall be liable for realisation of tax from the purchaser with effect from such date as the Government may, by notification, appoint, for the carriage of such tea as provided in this section and the producer shall be liable for the payment of such tax notwithstanding the fact that the tea is not carried by the producer; Provided further that no tax shall be levied under this Act on any jute or tea in respect of which such tax has already been paid." Section 4 provides that the tax shall be charged on the total net weight carried during a return period. Section 5 deals with the problem of determining the weight. Section 6 prescribes the taxing authorities. Section 7 requires the return to be submitted by the producer and makes appropriate provisions in that behalf. Section 8 deals with licensing; s. 9 covers the problem of assessment and it provides that the Commissioner may, by an order in writing, assess the producer and determine the tax payable by him on the basis of his return. Section l 0 deals with cancellation of assessment; s. 11 makes a provision 990 SUPREME COURT REPORTS [1964] 1963 for assessment in cases of evasion and escape and authorises the Commissioner within two years of the Khyerbari Tea expiry of the period in question to serve on the proCo. Ltd. & Anr. ducer a notice requiring him to furnish a return, v. and empowers him to proceed to assess or re-assess The State of the producer as provided by it. Section 12 deals Assam with rectification. Section 13 provides for penalty -- for non-submission of returns and evasion of taxes. Gajendragadkar Under s. 14 it is provided that assessment is no bar J. to prosecutions and penalties. Section 15 makes the tax payable by the representative of a deceased producer. Sections 16 and 17 deal with appeals and revision, while s. 18 prescribes for the computation of the period of limitation for the said two remedies. The notice of demand is provided for by s. 19, and the period when the tax is to be paid is laid down by s. 20. Section 22 prescribes the mode of recovery; s. 23 provides for refunds; and s. 24 for employers' prosecution for failure to furnish returns. Section 25 provides that no court shall take cognizance of any offence under the Act or under the rules made under it, except with the previous sanction of the Commissioner. Section 26 permits composition of offences. ·section 27 imposes an obligation on the producer to maintain and preserve account books; s. 28 confers power on appropriate authorities to require the production of accounts. Section 29 bars civil suits. Section 30 empowers the appropriate authority to take evidence; s. 31 deals with the delegation of powers; s. 32 confers power on the Government to make rules; s. 33 repeals the earlier Act of 1954 and s. 34 makes provisions by way of validation. Since this last section has also been challenged, it is necessary to read it: "34. (1) Any rule made, any liability incurred, any tax levied or realised, any returns furnished, any proceedings commenced, any notification published, any action taken or anything whatsoever done under the provisions of the Act repealed, shall be deemed to have been made, incurred, levied, realised, furnished, commenced, .... - • - a)' 5 S.C.R. SUPREME COURT REPORTS 991 published, taken or done under the corresponding 1963 provisions of this Act. (2) N . h t di h' . d . Khyerbari Tea otw1t s an ng anyt mg contame m any c Ltd & A judgment, decree or order of any court, all taxes o. · nr. imposed or realised or purporting to have been Th ;· 1 if imposed or realised under the Act repealed e a e 0 Assam shall for all purposes be deemed to be, and to have been, validly imposed or realised and Gajendragadkar accordinglyJ . (a) no suit or other proceeding shall be maintained or continued in any court against the Government or any person or authority whatsoever for the refund of any taxes so paid; and (b) no court shall enforce any decree or order directing the refund of any taxes so paid." The Schedule to the Act gives the rates for respective periods and these rates correspond to the rates prescribed by the earlier Act for the period covered by it and prescribes new rates for the period thereafter. Rules have been made under s. 32(1) and Forms prescribed for the making of returns. That, in brief, is the scheme of the Act. It has been urged before us by Mr. Pathak that s. 3 which is the charging section, is outside the legislative competence of the Assam Legislature. The Act purports to have been passed by virtue of the legislative power conferred on the State Legislature under Entry 56 in List II of the Seventh Schedule. This Entry reads thus: "Taxes on goods and passengers carried by road or on inland waterways." It will be recalled that Entry 30 in List I deals with carriage of passengers and goods by railway, sea or air, or by national waterways in mechanically propelled vessels, and so, Entry 56 in List II does not cover cases falling under Entry 30 in List I. It is only in regard to goods and passengers carried by road or inland waterways that the State Legislature can pass a law imposing taxes. Mr. Pathak's contention is thatis. 3 read with the proviso to sub-section (2) 992 SUPREME COURT REPORTS [1964] 1963 clearly contemplates that the primary and the sole -- liability to pay the tax on tea has been placed on the Khyerbari Tea producer even in cases where the tea in question Co. Ltd. & Anr. may have been sold at the tea garden before it is carried. v. In other words, the contention is that in cases where The State of tea is carried by the purchaser, it is only the purchaser Assam of the tea which is carried who can be taxed, and . -- since the producer is taxed even in such cases, the Ga;endragadkar taxation itself is beyond the legislative competence J. of the State Legislature. This argument proceeds on the assumption that the proviso lends colour to the construction of s. 3(2). Section 3(1) is enacted in terms of Entry 56 and it purports to indicate what the taxable event is. Section 3(2) makes the producer · liable to pay the tax and the proviso to s. 3(2) enables the producer to recover the tax from the purchaser with effect from such date as the Government may, by notification, appoint; this date was notified as 1st May, 1961. It is clear that the proviso is prospective, but Mr. Pathak suggests that the proviso can be explained only on the basis that s.