# STATE OF KARNATAKA & ANR v. MIS. HANSA CORPORATION Se,ptember 25, 1980

- **Citation:** [1981] 1 S.C.R. 823
- **Court:** Supreme Court of India
- **Decided:** 1981
- **Case number:** Civil Appeal No. 3094 of 1979
- **Bench:** Y. V. Chandrachud, D. A. Desai
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-karnataka-anr-v-mis-hansa-corporation-se-ptember-25-1980-8178
- **Pages:** 24

## Headnote

Karnataka Tax on Entry of Goods into Local Areas for Consumption. Use
er Sale therein Act, 1979-Section 3-Validity of-Power of State Government
./9 levy tax on select goods entering some local areas--State if bound to impose
iax on all goods entering any local area.
The Karnataka Tax on Entry of Goods Into Local Areas for Consumption,
Use or Sale therein Act 1979 was enacted by the State Legislature to levy tax
"on certain select goods at the time of their entry into a local area.
This tax
was devised to off set the short fall in the funds of municipal and other local
bodies by reason of the abolition of octroi which by experience was found
to impede the development of trade and commerce.
, Section 3 of the impugned Act provides that the tax shall be levied on
entry of the sc11eduled goods into a local area for consumption, use or sale
therein at such rate as may be specified by the State Government and different
Tates may be specified for different local areas.
By a notification issued under section 3 of the Act the State Government
-specified 27 local areas in the State which could levy the· tax on scheduled
:goods and specified the rate of tax for each such local area therein. The Sche"
<luled goods are all varieties of textile; tobacco, sugar and the like.
Upholding the two principal contentions, among others, raised by the
appellants in their writ petitions before the High Court that (i) section 3
·does not empower the State Government to apply the provisions of the Act
to such local areas only and to exclude other local areas and (ii) the levy of
tax on all dealers irrespective ·of the value of scheduled goods brought by
them into a local area without exempting petty dealers imposes an unreasonable
restriction on the right to carry articles, the High Court struck down the
Act as invalid.
Allowing the appeal
HELD : The express pewer of choosing and specifying different
rates
subject to maximum for different local areas is conferred on the State Government not by the expression 'such rate' but by the expression 'rates' with
the adjectival clause 'different rates may be specified for different local areas'.
It was, therefore, not necessary to qualify the expression 'such rate' again by
the expression 'as may be specified by the State Government' because that
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SUPREME COURT REPORTS
[1981] 1 S.C.R..
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is covered by the express power conferred by the expression 'different rates'
may be specified for different local areas'.
The use of article 'a' before 'local'
area' signifies not every local area but any local area. [831C-DJ
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In l'e. Sanders; ex part~ Serqueant, Law Journal (1885). 54 Q.B. 331, The
Queen v. Justices of Durham, [1895] 1 Q.B. 801, Coast Brick & Tile Works Ltd~
& Ors. v. Prem Chand Raicharnd & Anr. [1%7] 1 Appeal Cases 192 referred to.
~
Although, the taxing event is entry of scheduled goods in a local area,
section 3 empowers the State Government to specify different rates of tax.
in respect of different scheduled goods for different local areas. A local area
means an area in a city governed by the Karnataka Municipalities Act or a
municipal corporation governed by the Karnataka Municipal Corporation Act.
The local areas vary immensely
both in dimension,
population,
industrial
growth, and the scale and kind of municipal services rendered by them. If the
argument that 'a local area' should be interpreted to mean 'every local 11.rea'
is accepted it would be obligatory on the State Government to levy tax on entry
of scheduled goods in every local area. It would be unjust and inequitable
to levy tax on entry of goods at the same rates for a big municipal corporation
and a small municipal area,
each of which does not stand comparison with
the other. The choice to select local areas is a necessary concomitant of a
choice to select the rates which is a power conferred on the State Govemme~t.
The purpose underlying the statute, namely, to provide financial assistance to
the munici

## Text

_Characters 0–39,963 of 65,693. This is a partial read: ask again with offset=39963 for what follows._

STATE OF KARNATAKA & ANR.
v.
MIS. HANSA CORPORATION
Se,ptember 25, 1980
[Y. V. CHANDRACHUD, C. J. AND D. A. DESAI, J.]
Karnataka Tax on Entry of Goods into Local Areas for Consumption. Use
er Sale therein Act, 1979-Section 3-Validity of-Power of State Government
./9 levy tax on select goods entering some local areas--State if bound to impose
iax on all goods entering any local area.
The Karnataka Tax on Entry of Goods Into Local Areas for Consumption,
Use or Sale therein Act 1979 was enacted by the State Legislature to levy tax
"on certain select goods at the time of their entry into a local area.
This tax
was devised to off set the short fall in the funds of municipal and other local
bodies by reason of the abolition of octroi which by experience was found
to impede the development of trade and commerce.
, Section 3 of the impugned Act provides that the tax shall be levied on
entry of the sc11eduled goods into a local area for consumption, use or sale
therein at such rate as may be specified by the State Government and different
Tates may be specified for different local areas.
By a notification issued under section 3 of the Act the State Government
-specified 27 local areas in the State which could levy the· tax on scheduled
:goods and specified the rate of tax for each such local area therein. The Sche"
<luled goods are all varieties of textile; tobacco, sugar and the like.
Upholding the two principal contentions, among others, raised by the
appellants in their writ petitions before the High Court that (i) section 3
·does not empower the State Government to apply the provisions of the Act
to such local areas only and to exclude other local areas and (ii) the levy of
tax on all dealers irrespective ·of the value of scheduled goods brought by
them into a local area without exempting petty dealers imposes an unreasonable
restriction on the right to carry articles, the High Court struck down the
Act as invalid.
Allowing the appeal
HELD : The express pewer of choosing and specifying different
rates
subject to maximum for different local areas is conferred on the State Government not by the expression 'such rate' but by the expression 'rates' with
the adjectival clause 'different rates may be specified for different local areas'.
It was, therefore, not necessary to qualify the expression 'such rate' again by
the expression 'as may be specified by the State Government' because that
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SUPREME COURT REPORTS
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is covered by the express power conferred by the expression 'different rates'
may be specified for different local areas'.
The use of article 'a' before 'local'
area' signifies not every local area but any local area. [831C-DJ
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In l'e. Sanders; ex part~ Serqueant, Law Journal (1885). 54 Q.B. 331, The
Queen v. Justices of Durham, [1895] 1 Q.B. 801, Coast Brick & Tile Works Ltd~
& Ors. v. Prem Chand Raicharnd & Anr. [1%7] 1 Appeal Cases 192 referred to.
~
Although, the taxing event is entry of scheduled goods in a local area,
section 3 empowers the State Government to specify different rates of tax.
in respect of different scheduled goods for different local areas. A local area
means an area in a city governed by the Karnataka Municipalities Act or a
municipal corporation governed by the Karnataka Municipal Corporation Act.
The local areas vary immensely
both in dimension,
population,
industrial
growth, and the scale and kind of municipal services rendered by them. If the
argument that 'a local area' should be interpreted to mean 'every local 11.rea'
is accepted it would be obligatory on the State Government to levy tax on entry
of scheduled goods in every local area. It would be unjust and inequitable
to levy tax on entry of goods at the same rates for a big municipal corporation
and a small municipal area,
each of which does not stand comparison with
the other. The choice to select local areas is a necessary concomitant of a
choice to select the rates which is a power conferred on the State Govemme~t.
The purpose underlying the statute, namely, to provide financial assistance to
the municipalities would be better effectuated if the tax realised considerably
outweighs the administrative cost in collection. The High Court fell into an
error because it adopted a literal, grammatical construction and overlooked
the underlying object of the Act and the historical background in levying the
tax. [831C-G; 832C-E]
There is no force in the contention .that if the State Gove1'tment is granted
a choice in the matter of selection of local areas ipso facto the statute would
be unconstitutional as being violative of Article 14. It is a well accepted
principle of constitutional law that there is always a presumption of constitutionality of a statute. ·In the matter of taxing statutes the legislature which
is competent to levy a tax, has full freedom to determine the articles, the
manner and the rate of tax. [832G-H; 834E]
Khyerbari Tea Co. Ltd. & Anr. v. The State of Assam [1964] 5 S.C.R.
975 and East India Tobacco Co. v. State of Andhra Pradesh [1963] 1 S.C.R.
404, 409 referred to.
The High Court was wrong in its view that section 3 did not permit the
State Government to pick and choose the local areas for the levy of tax.
In selecting the local areas and the rates of tax to be levied on different
scheduled goods the State has adopted the criterion of population of a 1 ocal
area which undeniably is a reasonable criterion because the yield of the tax
would be directly proportionate to the consumption of the goods in the local
areas and the cansumption of goods is directly related to the population within
the local area. [835F-G]
Non-exemption of petty dealers from the operation of the Act does not
....,-
lead to the conclusion that the impugned legislatiOn constituted an unreasonable
·restriction on the fundament:al right of the petfy dealers to carry on their
trade or business. If petty dealers were to be exempt, the criterion of turnover
in the scheduled goods for classifying the petty dealers will have to be kept
high ii:t which event the big registered dealers could conveniently bring the
scheduled goods into local areas in the name of petty dealers.
The taxing
KARNATAKA v. HANSA CORPN. (De~ai, J.)
825
event being entry of scheduled goods in a local area at tho instance of a dealer,
A
the volume or quantum of business of the dealer is not at all releyant. Unlike
under the old .system of octroi where every importer was taxed, under the
Act only a dealer, dealing in scheduled goods is
required to
pay the tax.
[838B-C]
If a State tax law accords identical treatment in the matter of levy and
collection of taxes on the goods manufactured within the State and identical
goods imported from outside the State, Art. 304(a) would be complied with.
B
There is an underlying assumption in Article 304(a) that such a tax when
levied within the constraints of Article
304(a)
would not be violative of
Article 30 I and the State Legislature. has the power to levy such tax.
[84 IE]
In the instant case the tax is non-discriminatory in that it does not discriminate between scheduled goods manufactured within the State and
those
imported from outside the State.
A minor discrimination between two types
of goods if any is hardly relevant for the purposes of Article 304(a). Therefore, the impugned tax satisfies the requirements of Article 304(a}.
[841 F-G]
There is no evidence to show that the burden of tax would be so heavy
as to constitute an unreasonable restriction on the freedom of trade and commerce.
Although, in theory the tax leviable is not a single point tax and
becomes leviable at eYery point whenever the goods are taken from one local
area to another and then on to yet another no attempt was made to substa:Illtiate how the goods are so successively moved because if they kre taken for
consumption or use in one place, there is no question of taking them from
that local area to another local area and so on. [8420-G]
Even if the tax, to some extent, imposes an economic impediment to the
activity taxed that by itself is not sufficient to stigmatise the levy as unreasonable
or not in public interest. What is sought' to be done is to impose a modest
levy on certain goods at the time of their entry into a local area by removing
the obnoxious feature_s of octroi.
The tax is not intended to augment the
finance of the local bodies but to compensate them for los11 suffered by the
abolition of the octroi. [844A-B]
The requirements of the proviso to Article 304(b) aro i;atisfied because
the President accorded sanction to the impugned Act.
[844FJ
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3094 of
1979.
Appeal by Special Leave from the Judgment and Order dated
24-8-1979 of the Karnataka High Court m W.P. No. 7039/79.
L. N. Sinha, Attorney General of India and N. Nettar for the
Appellant.
S. T. Desai, N. Srinivasan, M. Mudgal and Vineet Kumar for the
.,.,.
Respondent.
The Judgment of the Court was delivered by
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Desai,
J.-Constitutional validity of Karnatafa Tax
on
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Entry of Goods Into Local Areas for Consumption, Use or Sale
Therein Act, 1979 ('Act' for short), and the Notification No. FD 66
11--64S S. C. India/SO
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SUPREME COURT REPORTS
[1981] 1 S.C.R.
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CSL 79 dated May 31, 1979, issued by the State Government in exercise of the powers conferred by section 3 of the Act is involved in
this appeal by special leave at the instance of the State of Karnataka
and one other.
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Karnataka State enacted the Act to provide for the levy of tax
on entry of goods into local areas for consumption, use or sale
therein, being Karnataka Act No. 27 of 1979.
Section 3 empowers
the State Government to levy and collect tax on entry of scheduled
goods into a local area for consumption, use or sale therein at such
rate not exceeding 2% ad valorem, as may be specified by the State
Government.
Armed with the power conferred by s. 3, the State
Government issued notification -
1 No. FD 66 CSL 79 dated May
31, 1979, specifying the local areas and the rates of tax at which
the tax shall be levied and collected under the Act on the entry of
scheduled goods mentioned in col. 2 of the table appended to the
notification into local areas specified in the corresponding entries.
Goods liable to levy of tax under the Act on entry in the specified
local areas at the specified rates are those set out in the schedule
annexed to the Act. They are (i:) all varieties of textiles, viz., cotton,
woollen, silk or artificial silk including rayon or nylon whether manufactured in mills<, powerlooms or handlooms and hosiery cloth in
lengths; (ii) tobacco and all its products; (iii) sugar other than sugar
candy confectionery and the like. In all 27 local areas were specified
for the purpose of levy of tax on entry of scheduled goods in the
respective local areas at varying rates specified in the notification.
The Act received the asse.nt of the President on May 17, 1979, and
it was published in the State Government Gazette on June 1, 1979,
and came into force from that very day.
Numerous petitions were filed under Article 226 of the Constitution in the High Court of Karnataka contending that the Act and
the Notification issued thereunder were unconstitutional on diverse
grounds. As many as 24 different contentions were canvassed before
the High Court.
Of them two, viz., contention nos. 13 and 19
found favour with the High Court with the result that the Act and
the Notification issued thereunder were declared unconstitutional and
a mandamus was issued directing the State Government and
its
officers to forebear from enforcing the provisions of the Act against
the petitioners before the High Court.
The contentions which found favour with the High Court, are :
H
(i) section 3 of the Act does not empower the State Government to
apply the provisions of the Act to certain local areas only -and to
exclude other local areas; (ii) as the Act imposes the tax on dealers
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KARNATAKA v. HANSA CORPN. (DefJai, J.)
827
irrespective of the value of scheduled goods brought by them into a
A
local area and does not exempt petty dealers, the Act imposes un·
reasonable restrictions on petty dealers.
The remaining 22 conten-'
tions were rejected some of which were canvassed before us on behalf
of the respondents to sustain the decision of the High Court.
It is necessary at this stage to notice the broad features of the
Act.
The long title and the preamble of the Act demonstrate the
·purpose for which the Act was enacted, it being to empower the
State Government to levy tax on entry of goods specified in the schedule ('scheduled goods' for short) in local areas to be specified by
the State Government in this behalf. Section 2, the c :ctionary clause
of the Act, defines· 'dealer' in the Act to have the same
meaning
assigned to it in clause (k) of s. 2 of the Karnataka Sales Tax Act,
1957. Section 2, sub-section (5) defines 'local area' as under:
"2(5). 'Local area' means the area within the limits of a
City under the Karnataka Municipal Corporations Act, 1976
· (Karnataka Act 14 of 1977), or a municipality
under
the
Karnataka Municipalities Act, 1964
(Karnataka
Act 22 of
1964)".
Section 2, sub-s. (7) defines 'scheduled goods' to mean goods
specified in the schedule to the Act. Section 3 is the charging section. It reads as under :
·
"3. Levy of tax -
There shall be levied and collected a
tax on entry of the scheduled goods into a local area for
·consumption, use or sale therein at such rate not exceeding two
percent ad valorem as may be specified by the State Government
and different rates may be specified for different local areas".
Section 4 provides for registration of dealers and makes
it
vbligatory upon every dealer in
scheduled goods• to get himself
registered under the Act in the prescribed manner.
Rule 4, sub- .
rule (3) of the Karnataka Tax on Entry of Goods into Local Areas
for consumption, Use or Sale therein Rules, 1979 ('Rules' for short),
enacted ·under t.he Act has prescribed a fee of Rs. 25/- for registration as a dealer.
Chapter III of the Act contains provisions for
return,
assessment,
payment,
recovery and collection of tax.
Chapter IV prescribes
taxing authorities.
Chapter V deals with
appeals and revisions and Chapter VI contains miscellaneous provisions.
Schedule annexed to the Act sets out the goods on the
entry of which in the specified local areas tax can be levied.
Entry 52 in State List read with Article 246 of the Constitution
confers power on the State legislature to enact a Jaw to. levy tax
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on the entry of goods
into a local area for consumption, use or
sale therein.
This tax in common parlance is known as
'octroi'.
Octroi: was leviable by the municipality under the power delegated
to it under various laws providing for setting up of and administration of municipal
corporations and municipalities.
Octroi thus
understood was being levi:ed by various municipalities and municipal
corporations in Karnataka State.
Since some time a feeling had
grown that octroi was obnoxious in character and impeded tho
development of trade and commerce and there was a clamour for its
abolition. Taking note of the resentment of the business community, A
Karnataka State abolished octroi: with effect froin April 1, f979.
However, no one was in doubt that octroi was a major source of
,
revenue to municipalities and its aboLition would' cause such a dent
on municipal finances that compensation for the loss would be
inevitable.
Accordingly, the State Government undertook a policy
of compensating the municipalities year by
year.
For generating
funds for this compensation, rates of sales' tax were raised and in
some cases a surcharge was levied.
The amount so collected was
not sufficient to bridge the gap in municipal budget. To further
augment the finances for compensating the municipalities, ad<;li:tional
fund was sought to be generated by levy of tax under the impugned
legislation. No doubt, the tax levied wa~ one on entry of scheduled
goods in local areas meaning thereby it had all the broad features
of octroi, yet the manner of levy, the method of collection and the
persons liable to pay the same were so devised by the impugned Act
as to remove the obnoxious features of octroi. As the charging
section shows, the tax was to be levied on entry of scheduled goods
~
in a 'local area at a rate to be specified by the Government not _J
exceeding 2% ad valorem. The taxing event would be the entry of
scheduled goods in a local area. In fact, octroi was being levied
,
on almost all conceivable goods entering iiito a focal
area for
consumption, use or sale therein. There appears to be a discernible
poli:cy in selecting the goods set out in the schedule, the entry of
which in a local area would provide the taxing event. The goods
selected for levy are textiles, tobacco and sugar. Way back in 1957
there was a demand for abolition of sales tax on the scheduled goods
and at the instance of the Union Government the State Governments
agreed to forego their right to levy sales tax on the aforementioned
""f"
scheduled goods on the condition that the Union Government would
levy additi:onal excise duty on them and distribute the net proceeds
H
of such duty amongst th1~ consenting States. Parliament accordingly
has enacted the Additional Duties on Goods
(Goods of Special
Importance) Act, 1957.
Therefore, while raising rates of sales tax
KARNATAKA v. HANSA CORPN. (Desai, J.)
and levying surcharge in respect of some other items the State Government could not have levied sales tax on the scheduled goods. They
were, therefore, selected for the levy of the tax under the impugned
Act on their entry into a local area.
Having noticed the historical background. leading to the enactment of the impugned
legislation we may now examine the two
contentions which found favour with the High Court and as a result
of which the Act and the notification issued thereunder were struck
down by the High Court.
The respondents· contend that upon a true construction
s. 3
permits the State Government only to specify defferent rates of tax
not exceeding the maximum prescribed in the section to be levied
on entry of scheduled goods into a local area but the State Government has no power to pick and choose local area. In other words,
· the respondents say that the tax has to be levied on entry of scheduled
goods in each and every local area as the word is under&tood in the
Act. The submission is that· the expression 'as may be specified by
the State Government' qualifies . the expression 'such rates' and not
''.local area" and this was sought to be reinforced by saying that
Article 'a' precedes local area which would mean every local area
and not any local area. It was further stated that if what is contended on behalf of the State is correct, one will have to read the word
'and' between the words 'therein' and 'at such rate' which might
imply on a grammatical construction that discretion was
conferred
upon the State Government not only to specify rate but also the
local area.
·
Legislative drafting will reach its peak of glory when perfection
is attained in demonstrably inanifesting the legislative intent by unequivocl!l language.
But it is equally undeniable that language at
its best is a very imperfect vehicle of conveying the intent of tlie
speaker.
Legislature speaks through legislation and tries its utmost
to convey what it intends to do by the legislation but even best of
draftsmen cannot claim to attain perfection.· On a very superficial
view one may be tempted to accept the construction canvassed for on
behalf of the respondents but when the section is read more minutely
with necessary pause and emphasis and the policy enacting the legislation is kept in vrew and also the inconceivable situation that may
arise if the construction canvassed for or behalf of the respondents
is kept in focus, the contention will have to be repelled.
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There is a two-fold answer to the contention that upon a literal
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grammatical construction of s. 3 the State has no choice in ·the matter
of selecting local .areas and that choice is limited to specifying rates
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[1981] 1 S.C.R.
but after choosing rates all local areas will have to be covered for the
levy of tax. It is easy to read the section with a pause and punctuation after the word 'ad valorem' so that the expression 'as may be
specified by the State Government' would qualify both the expression&
'local area' and 'such rate'.
This would be clear from the fact that
the last expression in the section 'different rates may be specified
for different local areas' would be an adjectival clause to the word
'rate' so that the power to choose and specify different rates is not
implicit in the words 'such rate' but in the expression 'different rates
may be specified for different local areas'. Thus an express power of
choosing and specifying different rates subject to
maxnnum
for
different local areas is conferred on the State· Government not by
the expression 'such rate' but by the expression
'rates' with the
adjectival clause 'different rates may be specified for different local
areas'.
It was, therefore, not necessary to qualify the
expression
'such' rate' again by the expression 'as may be specified by the State
Government' because that is covered by the express power conferred
by the expression 'different rates may be specified for different local
areas'.
In approaching the matter from this angle the expression
'as may be specified by the State Government' would qualify
th~
expression 'local area" and this construction would be further reinforced by use of Article 'a' prefixing 'local area' meaning thereby
not every local area but any local area. In this connection reference
may be made with advantage to In re. Sanders; ex parte Sergeant( 1 ),
wherein the expression 'under the hand of the Judge of a county
court' came up for coi1struction.. The construction canvassed for was
that a county court would not mean any county
court but the
country court having jurisdiction in
the
matter.
Repe.Jling
this
construction the Court, after ascertaining the object of the legislation,
held that a county court would mean any county court, an approach
dictated by strict grammatical construction .. Similarly, in The Queen
v. Justices of Durham,( 2 ) the expression 'a Court' was interpreted
to mean
any court and in accepting this construction the
Court
was guided by the bare letter of the statute which would be a proper
guide unless there would be something in it to modify the ordinary
meaning of the words used.
The Privy Council in Coast Brick &
Tile Works· Ltd. & Ors. v. Premchand Raichand & Anr.,( 3 ) observed
that the expression 'the security' should be read as 'a security', a
variation which in a poorly drawn section does not do great violence
to the language used.
Even if, therefore, a
literal
grammatical.
H
(I) Law Journal [1885] 54 Q.B. 331.
(2) [1895] 1 Q.B. 801.
(3) [1967] I Appeal Cases 192.
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KARNATAKA v. HANSA CORPN. (Desai, !.)
construction were to be adopted, on a proper reading of the section
power is conferred on the State Government by s·. 3 not only to
specify different rates for different areas but also to specify local
areas entry into which of scheduled goods would provide the taxing
event.
There is thus a power to choose and specify local areas as
well as choose and specrfy rate of taxation
subject to
maximum
prescribed in the section.
Assuming our re~ding of the section is not correct, there is
another way of approaching the matter. It cannot be gainsaid that
the State Government is empowered to specify the different rates of
tax not exceeding the maximum in respect of different
scheduled
goods for different local areas. . This implies that even though the
taxing event is entry of scheduled goods in a local area, nonetheless
different rates may be prescribed for different local areas and express
power in that behalf is conferred on the Government by providing i:n
section 3 that different rates may be specified for different local areas.
If at this stage the definition of local area is recalled which means
an area in a city governed by the Karnataka Municipalities Act or
a municipal corporation
governed by the
Karnataka
Municipal
Corporations· Act it would immediately appear that local areas vary
immensely both in dimension, populatron, industrial growth, economic
development and scale and kind of municipal service rendered.
One
has to keep in view a local area like
Bangalore
City, a
highly
industrially advanced capital city of Karnataka and a small municipality having a population of 10,000. Now, if the expression 'a local
area' in s. 3 is interpreted to mean 'every local area' as contended
on behalf of the respondenis, before any tax can be levied under s. 3
it would be obligatory on State Government to levy tax on entry of
scheduled goods in every local area in Karnataka State for consumptron, use or sale therein. The contention thus is that coverage of all
local. areas for levy of tax would provide outside maximum limit of
power under s.
3.
The question is : Is it a minimum condition
for exercise of power ? If it is, the rates of tax will have to vary
considerably in direct relation to the local area for which the rate
is being prescribed. It would be unjust and i11equitable to levy tax
on entry of goods at the same rate for such local area as Bt:fngalore
·Municipal Corporation and a small municipal . area, the fwo local
areas being uncomparable with regard to area, population, industrial
growth .and consumption of such scheduled goods in the area. Now,
if the impact of the tax is to be equitable keeping in view cost of
its collection, a tax levied at such a small rate as one paise for goods
worth Rs. 100 ad valorem for a small local area and 2% ad va/ureni
for such industrially' developed local area like Bangalore Corporation,
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it would make nonsense oE the levy apart from the uneconomic outcome keeping in view the administrative cost of collecti6ii.: If -the
Government is obliged on the construction canvassed on behalf of
the respondents to encompass all local areas for the purpose of levying tax under the statute, the rates would have to be varied so much
to avoid the evil of making the impost unjust and if the rates have
to be varied from area to area. the administrative cost in smaller
areas with lower rates and negligible entry of schedufed goods in
such area would make the tax wholly uneconomic. It inust; therefore, logically follow that choice to select local area is a necessary
concomitant of a choice to select rates, which power is admittedly
conferred on the State Government. Purpose underlying the statute,
namely, to provide financial assistance to the municipalities would be
better effectuated if the tax realised
considerably
outweighs
the
administrative cost involved in collecting the tax.
And it Is a well
known canon of construction that the purpose underlying the statute
would provide a reliable external aid for proper construction because
the Court would adopt that construction which would effectuate the
purpose.
The High Court unfortunately approached the matter from the
standpoint of literal grammatical construction of the section overlooking the object underlying the Act, the
historical
background
which the High Court itself had noticed, and holding that unless the
section is re-written as understood by the High
Court, the State
Government had no power to pick and choose local areas. Mr. S. T.
Desai, learned counsel for the
respondents,
after
drawing
our
attention to the reasoning that appealed to the High Court for holding
that s. 3 does not permit choice of local areas, urged that if the
section is so read as to enable t.he State Government to pick
and
choose or select local areas the section would be violative of Art. 14
of the Constitution because while all municipalitieS' need additional
finances to recoup the loss suffered by them on abolition of octroi,
only some local areas are selected for the purpose of levy of tax
leaving others out and there being no reasonable basis. fo sustain
the classification, s. 3 would be unconstitutional.
There is always a presumption of constitutionality of a statute.
If the language is· rather not clear and precise as it ought to be,
attempt of the Court is to ascertain the intention of the legislature
and put that construction which would lean in favour of the constitutionality unless such construction is wholly untenable.
Bowever,
where one bas to look at a section not very well drafted but the object
behind the legislation and the purpose of enacting the same is clearly
discernible, the Court cannot hold its hand and blame the draftsman
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KARNATAKA v. HANSA CORPN. (Desai, J.)
8$3
and chart an easy course of striking down the statute. In such a
A
·situation the Court should be guided by a creative approach
to
ascertain what was intended to be done by the legislature in enacting
·the legislation and so construe it as to give force and life to the inteniion of .the legislature.
This is not charting any hazardous course
but is amply borne out by an observation worth reproducing in
extenso in Seaford Court Estates Ltd. v.
Asher.( 1 ) It reads as
B
.under:
"Whenever a statute comes up for consideration it must be
remembered that it is not within human powers to foresee the
manifold sets of facts which may arise, and, even if it were, it
is not possible to provide for them in terms free from
all
ambiguity.
The English language is· not an instrument of
mathematical precision.
Our literature would be much
the
poorer if it were. This is where the draftsmen of Acts of Parliament have often been unfairly criticised.
A judge, believing
himself to be fettered by the supposed rule that he must look
to the language and nothing else, laments that the draftsmen
have not provided for this or that, or have been guilty of some .
or other ambiguity .. It would certainly save the judges trouble
if Acts of Parliament were drafted with divine prescience and
·perfect clarity.
In the absence of it, when a defect appears a
judge cannot simply fold his hands and· blame the draftsman.
'He must set to work on the constructive task of finding
the
·intention of Parliament, and he must do this not only from the
·1anguage of the statute, but also from a consideration of the
social conditions which gave rise to it and of the mischief which
·it was passed to remedy, and then he must supplement
the
written word so as to give "force and life". to the intention of
·the legislature.
That was clearly laid down (3 Co. Rep. 7b)
'by the resolution of the judges (SIR ROGER MANWOOD,
C.B., and the other barons of the Exchequer) in Heydon's case
·(1584) 3 Co. Rep. 7a, and it is the safest guide today. Good
·practicaI advice on the subject was given about the same time
by PLOWDEN in his note (2 Plowd. 465) to Eyston v. Studd
(1574), 2 Plowd. 463. Put into homely metaphor it is this : A
-judge should ask himself the question how, if the makers of
the Act had themselves come across this ruck in the texture of
it, they would have straightened it out ? He must then do as
they woula have done. A judge must not alter the material of
which the Act is woven, but he can and should iron out the
creases".
•(I) [1949) .2 All E.R. 155 at 164.
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This view was re-aflirmed in Norman v. Nor man. ( 1 )
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Let it be remembered that the impugned measure is a taxingstatute and in the matter of taxing statute the legislature enjoys a
larger discretion in the matter of classification so long as it adheres
to the fundamental principle underlying the doctrine of dasslfication.
The power of the legislature to classify is of wide range and flexibility
so that it can adjust its taxation in all proper and reasonable ways.
In Khyerbari Tea Co. Ltd., & Anr. v. The State of Assam(2 )
this
Court observed as under :
"It is, of course, true that the validity of tax laws can be
questioned in the light of the provisions· of Arts. 14, 19; and
Art. 301 if the said tax directly and immediately imposes a
restriction on the freedom of trade; but the power conferred· on
this Cour.t to strike down a taxing statute if
it
contravenes
the provisions of Arts. 14, 19 or 301 has to be exercised with
circumspection, bearing in mind that the power of the State to
levy taxes for the purpose of governance and for carrying out
its welfare activities is a necessary attribute of sovereignty and
in that sense it is a power of paramount character".
It was also observed that legislature which rs competent to levy a
tax must inevitably be given full freedom to determine which articles
should be taxed, in what manner and at what rate. It would, therefore, be idle to contend that a State must tax everything in order to
tax something.
In tax matters, "the State is allowed to pick and'
choose districts, objects, persons, methods and even rates for taxatron if it does so reasonably" (see Willis on 'Constitutional
Law',
p. 587). This statement of law has been approved by this Court in
the case of East India Tobacco Co. v. Sta:e of Andhra Pradesh( 3 ).
The question, therefore, is, whether a tax of a certain kind can be
levied on entry of goods in certain local areas·, the classification of
local areas, if found to be reasonable, the levy of tax would not be·
invalid on the ground that choosing certain areas only
excluding
some others would violate Article 14.
Whether in this
case the
classification is reasonable would be presently examined but the
contention that if the State Government is granted a choice in the
matter of selection of local area, ipso facto, the statute would be unconstitutional as being violative of Art. 14, must be negatived.
(1) [1950] All E.R. 1082.
(2) [1964] 5 S.C.R. 975.
(3) [1963] 1 S.CR. 404, 409.
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KARNATAKA v. HANSA CORPN. (Desai,/.~
In order to ascertain whether the classification of local areas for
the purposes of levy of tax is reasonable or not, a reference may be
made to the impugned notification. Table annexed to the notification
shows in all 27 local areas selected for levy of tax. They are again
divided into three groups, A, B and C for selecting rates to be levied
on different scheduled goods. A mere glance at the local areas selected and those according to the petitioner excluded, viz., areas within
t11e jurisdiction of various Gram Panchayats would bring in bold
relief that population criterion appears to have been adopted
in
selecting local areas for levy of tax. Does population criterion provide a reasonable basis for classification vis-a-vis a tax levied on
entry of goods• in the area ? It would be undeniable that population
basis would provide a reasonable criterion for selecting local areas
for the purpose of levy tax simultaneously excluding those which do
not answer the popu1ation criterion.
One unquestionable element
scientifically established about a taxing statute is that the yi:eld from
the tax must be sufficiently in excess of cost of collection so that the
tax which is levied for augmenting public finances· to be utilised for
public good would be productive.
Where the cost of administrative
machinery required to be set up for collecting tax is either marginally
lower or equal or marginally hig)ler than the yield from the tax; the
measure would be uneconomic if not counterproductive. Now, if the
tax in this case rs levied on the entry of scheduled go.ods in local
areas, the yield would be directly proportionate to the consumption
of the goods in local areas and the consumption of goods is directly
related to the population within the local area.
Viewed from this
angle, population criterion would provide a reasonable basis for
classification for selectively levying the tax by choosing local area
and by specifying different rates so as to make the tax productive.
Therefore, there is no substance in the contention that the classification in this case was unreasonable. The High Court was accordingly
in error in holding that s. 3 did not permit the State Government to
pick and choose local areas for the levy of tax and that levy of tax
under s. 3 in all local areas within Karnataka State was a minimum
condition for exercise of the power under s. 3.
The
contention
must, accordingly be negatived.
Another contention that found favour with the High Court was
contention No. 13 before the High Court which in the opinion of
the High Court was a formidable one. The contention was that the
Act in its application has not excluded petty dealers from its purview.
Developing the contention it was said that the abolished octroi would
ha:ve been less oppressive in its application than the tax under the
impugned legislation falling on petty dealers. What appealed to the
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High Court was that if a petty dealer brought within the local area
scheduled goods of the value of Rs. 5 for consumption, use or sale
therein, he is to get himself registered after paying the registration
fee, maintain ac:counts for his dealings in such good5' and submit
monthly and annual returns and to appear
before the
assessing
authority when called upon to do so.
The High Court thereafter
contrasted the position of a dealer under the Karnataka Sales Tax
Act, 1957, and observed that a dealer whose total turnover is less
than Rs. 25,000 was not liable to pay sales tax and one whose turnover was less than Rs. 10,000 was not required to get registered, to
maintain accounts or to submit returns. The High Court also found
the registration fee of Rs. 25 prescribed under the rules, the liability
to maintain accounts in the manner prescribed and to submit monthly
and yearly returns as constituting unreasonable restrictions on the
fundamental right of the petty dealers to carry on their trade or
business.
Learned Attorney-General urged that this contention was no--
where to be found in the petition filed by the petitioners in the High
Court and, therefore, the High Court was in error in entertaining the
contention.
Unfortunately, the judgment does not show that learned Advocate-General who appeared for the State raised such an
objection to the entertaining of the
contention on behalf of the
petitioners by the High Court. Not only has the High Court permitted the contention to be raised but accepted the same: In fairness
to the petitioners it would be unjust to shut ot\t the contention on
this technical ground, though we must note that Mr. S. T. Desai
learned counsel who appeared for the respondents found it difficult
to pursue the contention.
We, however, propose to deal with the
conte:q.tion on merits.
The taxing event under the statute is entry of scheduled goods
in a local area for consumption, use or sale therein af the instance of
a dealer. Tbe expression 'dealer' 11as the same meaning as assigned
to it in clause (k) of s. 2 of Karnataka Sales Tax Act, 1957, which
defines dealer to mean any person who carries on the business of
buying, selling, supplying or distributing goods, directly or otherwise,
whether for cash or for deferred
payment,
or for
comm1ss1on,
remuneration or other valuable consideration. and includes amongst
others, a casual trader. Section 10(1) makes it obligatory upon every
dealer whose total turnover in any year is not less than the specified
sum to get himself registered under the Act.
Sub7S'. (2) carves out
an exceptioru to sub-s. (1) that notwithstanding anything contained in
sub-s.
(1) every casual trader dealing in goods mentioned in
the
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KARNATAKA v. HANSA CORPN. (Desai, !.)
Third Schedule or the Fourth Schedule irrespective of the quantum
of his total turnover in such goods shall get himself registered.