# VRAJLAL MANII.AL AND 00. AND AliOTllER v. STATE OF MAiJIIYA PRADESH AND AliOTllER

- **Citation:** [1986] 2 S.C.R. 98
- **Court:** Supreme Court of India
- **Decided:** 1986-04-02
- **Bench:** A.P. Sen, D.P. Madon
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/vrajlal-manii-al-and-00-and-aliotller-v-state-of-maijiiya-pradesh-and-aliotller-9347
- **Pages:** 28

## Headnote

Madhya Pradesh General Sales Tax Act 1958/Madhya Pradesh .J<,
General Sales Tax (Amendment) Act, 1968
c
Section 8(1) - Effect of Amending
Act
1968
-
Tendu
"I
leaves treated different from 'raw materials' - Increase in )
rate of tax - Whether within legislative competence of State - ~
Whether violates Articles 14, 19(l)(g), 301
and
304 of
Constitution.
The Madhya Pradesh General Sales Tax Act, 1958 came into
D
force on April 1, 1959 repealing all the earlier sales tax
laws in force in the State. With effect from that date tho!
Central Government or a State Government or any of their
departments or offices which buy, sell, supply or distributo!
J
goods,
directly
or
otherwise,
for
cash
or
other
considerations, is to be deemed to be a 'dealer' for th<! •
E
purposes of the Act irrespective of the fact whether such
purchase, sale, supply or distribution of goods is in the
course of business or not.
F
•
By the Madhya Pradesh General Sales Tax (Amendment) Act
1968, which came into force from April 15, 1968 sub-s. (1) of !
s. 8 of the M.P. Sales Tax Act was substituted and tendu~
leaves ceased to be raw material for the purposes of s. 8 and
.
"
consequently became exigible to tax at the rate of 7% under
s.6 read with residuary Entry No.l in Part VI of Schedule II.
By s. 10 of the Madhya Pradesh General Sales Tax
G
(Amendment
and Validation) Act,
1971
certain amendments,
including the amendments made by clause (i) of s.2, were
deemed to have formed part of the M. P. Sales Tax Act from the
I'
date of its co11111encement. A new sub-cl. (i) was substituted "
for the original sub-cl. (i) and a further Explanation II was
inserted in cl. (d) of s.2 with retrospective effect from
H
April 1, 1959. By the 1971 Act sub-s. (1) of s.8 was again
substituted and a new sub-s. (3) was inserted in s.8, and they
VRAJLAL MANILAL v. STATE
99
-""""-. C8Jl8 into force on May 6, 1971. With effect froa that date the
proVisions of s.8 ceased to a~ply to sales of any goods 111lde
by the Forest Depart11ent of the State Government or any of the
offices under that Department, but where goods were purchased
by a registered dealer from the Forest Department or any of
the of fices of that Department and used by him as a raw
material for the manufacture of other goods for sale within
~the State of Madhya Pradesh or in the course of inter-State
trade or co.-erce or in course of export out of the territory
of India such dealer became entitled to a set-off of an amount
•
equal to the difference between the tax payable at the full
; rate on such goods as mentioned in Schedule II and the tax
-,.J payable on raw material at the rate of 2%. Purchases of Tendu
· leaves by the registered dealers f roa the Forest Department of
.._the State Government or any of the offices under that
' Department did not, however, qualify for the set-off.
The appellant-firm carried on business as mallllf acturers
of bidis and dealers in tendu leaves. It filed a petition
under Art. 226 of the Constitution challenging the validity of
amendaent 118de in sub-s. (1) of the Madhya Pradesh General
es Tax Act 1958 by the Madhya Pradesh General Sales Tax
endment) Act 1968 to the extent that the said aaend.Ent
ated tendu leave differently from other raw materials.
After the enactment of the Madhya Pradesh General Sales
(Amendment and Validation) Act 1971, the writ petition was
aded to challenge also the validity of the amendments.
~
~1milar writ petitions were also filed by other bidi
llllDUfacturers and dealers in tendu leaves. The High Court
A
B
c
D
E
j
dismissed all these petitions.
F
In the Appeal to this Court on behalf of the appellants
it was contended : (i) that as sales and purchases of tendu
leaves cease to be exigible to tax under s.8 by reason of the
amendments ll&de therein and as tendu leaves were not mentioned
in any of the entries in Schedule II to the M. P. Sales Tax
G
Act, sales and purchases of tendu leaves could not be made
-y- exigible to tax under s.6 read with the residuary Entry No

## Text

_Characters 0–39,862 of 60,375. This is a partial read: ask again with offset=39862 for what follows._

A
B
98
VRAJLAL MANII.AL AND 00. AND AliOTllER
v.
STATE OF MAiJ!IYA PRADESH AND AliOTllER
APRIL 2, 1986
[A.P. SEN AND D.P. MADON, JJ.]
Madhya Pradesh General Sales Tax Act 1958/Madhya Pradesh .J<,
General Sales Tax (Amendment) Act, 1968
c
Section 8(1) - Effect of Amending
Act
1968
-
Tendu
"I
leaves treated different from 'raw materials' - Increase in )
rate of tax - Whether within legislative competence of State - ~
Whether violates Articles 14, 19(l)(g), 301
and
304 of
Constitution.
The Madhya Pradesh General Sales Tax Act, 1958 came into
D
force on April 1, 1959 repealing all the earlier sales tax
laws in force in the State. With effect from that date tho!
Central Government or a State Government or any of their
departments or offices which buy, sell, supply or distributo!
J
goods,
directly
or
otherwise,
for
cash
or
other
considerations, is to be deemed to be a 'dealer' for th<! •
E
purposes of the Act irrespective of the fact whether such
purchase, sale, supply or distribution of goods is in the
course of business or not.
F
•
By the Madhya Pradesh General Sales Tax (Amendment) Act
1968, which came into force from April 15, 1968 sub-s. (1) of !
s. 8 of the M.P. Sales Tax Act was substituted and tendu~
leaves ceased to be raw material for the purposes of s. 8 and
.
"
consequently became exigible to tax at the rate of 7% under
s.6 read with residuary Entry No.l in Part VI of Schedule II.
By s. 10 of the Madhya Pradesh General Sales Tax
G
(Amendment
and Validation) Act,
1971
certain amendments,
including the amendments made by clause (i) of s.2, were
deemed to have formed part of the M. P. Sales Tax Act from the
I'
date of its co11111encement. A new sub-cl. (i) was substituted "
for the original sub-cl. (i) and a further Explanation II was
inserted in cl. (d) of s.2 with retrospective effect from
H
April 1, 1959. By the 1971 Act sub-s. (1) of s.8 was again
substituted and a new sub-s. (3) was inserted in s.8, and they
VRAJLAL MANILAL v. STATE
99
-""""-. C8Jl8 into force on May 6, 1971. With effect froa that date the
proVisions of s.8 ceased to a~ply to sales of any goods 111lde
by the Forest Depart11ent of the State Government or any of the
offices under that Department, but where goods were purchased
by a registered dealer from the Forest Department or any of
the of fices of that Department and used by him as a raw
material for the manufacture of other goods for sale within
~the State of Madhya Pradesh or in the course of inter-State
trade or co.-erce or in course of export out of the territory
of India such dealer became entitled to a set-off of an amount
•
equal to the difference between the tax payable at the full
; rate on such goods as mentioned in Schedule II and the tax
-,.J payable on raw material at the rate of 2%. Purchases of Tendu
· leaves by the registered dealers f roa the Forest Department of
.._the State Government or any of the offices under that
' Department did not, however, qualify for the set-off.
The appellant-firm carried on business as mallllf acturers
of bidis and dealers in tendu leaves. It filed a petition
under Art. 226 of the Constitution challenging the validity of
amendaent 118de in sub-s. (1) of the Madhya Pradesh General
es Tax Act 1958 by the Madhya Pradesh General Sales Tax
endment) Act 1968 to the extent that the said aaend.Ent
ated tendu leave differently from other raw materials.
After the enactment of the Madhya Pradesh General Sales
(Amendment and Validation) Act 1971, the writ petition was
aded to challenge also the validity of the amendments.
~
~1milar writ petitions were also filed by other bidi
llllDUfacturers and dealers in tendu leaves. The High Court
A
B
c
D
E
j
dismissed all these petitions.
F
In the Appeal to this Court on behalf of the appellants
it was contended : (i) that as sales and purchases of tendu
leaves cease to be exigible to tax under s.8 by reason of the
amendments ll&de therein and as tendu leaves were not mentioned
in any of the entries in Schedule II to the M. P. Sales Tax
G
Act, sales and purchases of tendu leaves could not be made
-y- exigible to tax under s.6 read with the residuary Entry No. 1
in Part VI of Schedule II; (ii) that neither the State
Government nor any of its departments including the Fores~
Department or its off ices was a dealer as defined in cl. (d)
of s.2; (iii) that the impugned amendments to s.8 are
H
A
B
c
D
E
F
G
H
100
SUPREME COURT REPORTS
[1986] 2 S.C.R.
violative of Arts. 14, 19(1 )(g) 286(3), 301 and 304 of the )
Constitution as tendu leaves were discriminated against
hostilely as compared with other raw materials in that the
rate of tax on the sales and purchases of tendu leaves was
made nuch higher than the rate of tax on the sales and
purchases of other raw materials; that there was no reasonable
basis for making a distinction between tendu leaves and other
raw materials inasDl.lch as the only use to which tendu leaves •
were put was as a raw material in the manufacture of bidis;
that td.thout amending the definition of "raw material" given
in cl. (1) of s. 2 of the M.P. Sales Tax Act, a different rate
of tax cannot be levied upon tendu leaves; and that by t8Jdng ·
tendu leaves at a higher rate than in the neighbouring States 1 J
the cost of bidis manufactured in the State of Madhya Pradesh
increased considerably and thus it impeded the freedom of _.
trade and co11111erce throughout the territory of India.
Dismissing the Appeal,
HELD: 1. Schedule I to the M.P. Sales Tax Act 1958 sets
out the list of goods which are exempted from payment of tax
under s.10. Parts I to V of Schedule II set out the different
classes of goods and the rate at which tax is payable. The
residuary Entry No. 1 of Part VI states that the rate of tax
on sales and purchases of "All other goods not
included in
Schedule I or any other part of this Schedule" shall be the
one specified in that Entry. Therefore, sales or purchases of
any class of goods not specifically mentioned in any of the
Entry in Schedule I or any of the Entries in Parts I to V of
Schedule II are exigible of tax at the rate shown in the
residuary Entry, unless there is any specific provision in-the_
Act to the contrary as there is ins. 8. [112 D-F]
M/s. Amrarkban Kahboob r.o. v. '1'he State of Boabay (nm
Maharashtra) and others, [1961] 1 s.c.R. 709, relied upon.
2. Merely because a particular provision in a statute is
labelled as an Explanation it does not mean that it is
inserted merely with a view to explain the meaning of words )
contained in the section of which it forms a part. 'nle true
scope and effect of an Explanation can only be judged by its
express language and not merely by the label given to it. The
language of Explanation II to cl. (d) of s. 2 of M.P. Sales
VRAJLAL MANILAL v. STATE
101
-i' Tax Act shows . that its purpose is to create a legal fiction,
and that while under the main clause for a person to be
dealer, he l!USt carry on the business of buying, selling
supplying or distributing
goods,
even if the Central
Goveament or a State Government or any of their departments
or offices does not carry on such business, if it buys, sells,
. supplies or distributes goods, it is to be deemed to be a
--'P-dealer for the purpose of the Act, that is, for the purposes
of the levy and collection of the tax under the Act. After the
amendment of cl. (~),by the 1971 Act it is irrelevant for the
purposes of the levy of tax under.the Act whether the Central

Govermient or State Government or any of their departments or ·
h
offices have bought or sold goods in the course of business.
[114 B-F]

Oriellr Paper Kills I.bi. v. lbe State of Madhya Pradesh
I
~others, [1971] 28 S.T.C. 532, referred to.
I
3. Tendu leaves do not stand on the same footing . as
other ra:"' i::aterials. Their only use appears to be as a
consw:iable packing material or container for tobacco in the
i:anufacture of bidis just as a cigarette paper is used in the
i::anufacture of cigarettes. Thus, tendu leaves from a separate
class of coi::Dercial commodity and it is open to the State to
l
~:;..tax theI:1 differently' from other commercial colllllOdities falling
in the class of goods kn= as "raw material" [119 H; 120 A]
'
}'..essrs !'..ohanlal Hargovind of Jubbtlpore v. rn..tssioner
of Inca=-t=, C.P. and Berar, Nagpur, L.R. (1948-49) 57 I.A.
235, 237; s.c. A.I.R. 1949 P.C. 311, approved.
'(
Xh=ja:i Cian:l etc. v. State of Jamu and Kaafud.r and
Ot!i.exs, [1984] 2 s.c.R. 858; State of Orissa and others v. Ille
Titaghur Paper Mills Company I.bi. and another, [1985) 3 s.c.R.
26, 65; T.G. Vei:Jtataraman, , etc. v. r State of Madras and
miother, [1969) 2 S.C.C. 299; Jaipur Hosiery Mills (P) I.bi.
Jctpur v. lbe State of Rajasthan and others, [1971) l S.C.R.
396, and Uoecl!st Pharnceuticales I.bi. and Another etc. v.
_,f:lt~~e of lliht!r a:ld Others, [1983] 3 s.c.R. 130, relied upon.
4. Tendu leaves cannot by any stretch of imagination be
equated with bidis or tobacco because just as cigarettes paper
used for rolling cigarettes cannot be equated by any stretch
of ii::agination with cigarettes or tobacco. [123 A)
A
B
c
D
E
F
G
H
A
B
102
S~
COURT REPORTS
[1986] 2 s.c.R.
5. 'nle increase in the rate of tax on a particular ~
commdity cannot per ~ be said to impede free trade and
co-erce in that comodity. [124 A)
~
State of lerala •· A.B. Abda1. lbadir an4 otbera. [1970)
1 s.c.R. 700, relied upon.
6. In the instant case there was nothing' to show tha~
impugned increase in the rate of tax on the sales and purchas ~
es of tendu leaves has put an end to that trade or has caused
that trade to decline nor was there any material to show that
by reason of the increase in the rate of tax on the sales and
c
purchases of tendu leaves, the trade in bidis manufactured i~)..
the State of Madhya Pradesh had stopped or had deceased. Art•
301 to 304 were neither enacted to safeguard the pleasure_.
derived by bidi sllOkers from an indulgence in their habit to
ensure that bidi sDK>lters would continue to get for all time
bidis 118.DUf actured in Madhya Pradesh at the same price. 'nle
D
increase in the rate of tax on the sales and purchase of tendu
leaires does not also ~nt to an unreasonable restriction on
the right to carry on trade or business in tendu leave or
bidis. [124 D-E; 124 H; 125 A]
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 2635 of•
E
1972.
F
From the Judgment and Order dated 14th October, 1971 of
the Madhya Pradesh High Court in Miscellaneous Petition No.
317 of 1971.
Rameshwar Nath for the Appellants.
A.K. Sanghi for the Respondents.
The Judgment of- the Court was delivered by
G
MADON, J. The Fi rst Appellant is a partnership firm 1
registered under the Indian Partnership Act, 1932, (Act No. IX
of 1932). The Second appellant is one of the partners of the)
First appellant Firm. The First appellant Firm carried on at
all relevant times business as manufacturers of bidis and
dealers in tendu leaves. The Appellants filed a writ petition
H
/
VRAJLAL MANII.AL v. STATE [MAOON, J.]
103
~ under Article 226 and 227 of the Constitution of India, being
Miscellaneous Petition No. 317 of 1971, against the State of
Madhya Pradesh and the Divisional Forest Officer, Raisen
Division, challenging the validity of the Amendment made in
sub-section ( 1) of section 8 of the Madhya Pradesh General
Sales Tax Act, 1958 (M.P. Act No. 2 of 1959), by the Madhya
Pradesh General Sales Tax (Amendment) Act, 1968 (M.P. A.ct No.
x.. 9 of 1968) to the extent that the said amendment treated tendu
leaves differently from other raw materials and for an
appropriate writ, order or direction quashing the levy of
Sales tax on tendu leaves disposed of by the State Government
, and for restraining the State Government and its Officers from
,J enforcitli or giving effect
to the Madhya Pradesh General
·'Sales Tax (Amendment) Act, 1968, to the extent that it amended
,1.,. section 8(1) of the Madhya Pradesh General Sales Tax Act,
1958. In view of the reliefs claimed in the said writ
petition, it is difficult to understand how Article 227 of the
Constitution could
at
all come into the picture. This
obviously was the result of the general laxity in drafting
pleadings which is unfortunately becoming more prevalent as
each year passes. The said writ petition was in reality a
petition filed under Article 226 of the Constitution. After
_J_ the enactment of the Madhya Pradesh General Sales Tax
(Amendment and Validation) Act 1971 (M.P. Act No. 13 of 1971),
which inter alia amended the definition of 'dealer' in clause
(d) of section 2 with retrospective effect and further amended
section 8; the Appellants amended their writ petition to
challenge also the validity of the said amendments. The said
writ petition was heard along with sixty-four similar writ
petitions filed by other bidi manufacturers and dealers in
tendu leaves and by a CO!llllk)n judgment delivered on October 14,
-1971, all these writ petitions were dismissed with costs. The
Appellants thereafter obtained from the High Court under
sub-clause
(a)
of
clause
(1)
of Article 133
of
the
Constitution, as it stood prior to the amendment of clause (1)
by
the Constitution (Thirtieth Amendment)
Act,
1972,
a
certificate of fitness to appeal to this Court on the ground
that the aroount or value of the subject matter of the dispute
in the High Court, namely, the liability to pay tax, as also
of the dispute on appeal was roore than Rs. 20, 000 and the
Appellants have accordingly filed the present Appeal.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
104
SUPREME COURT REPORTS
[1986] 2 S.C.R.
Prior to April 1, 1959, there were different laws in ~
force in the State of Madhya Pradesh relating to the levy of
tax on the sales and purchases of goods, each of them applying
to dif f ercnt regions of the State. These laws were the Central
Provinces and Berar Sales Tax Act, 1947, the Madhya Bharat
Sales Tax Act, Samvat 2007, the Central Provinces and Berar
Sales Tax Act, 1947, as extended to and in force in the
Vindhya Pradesh and Bhopal regions, the Rajas than Sales Tax .)\
Act, 1954, as in force in the Sironj region, -and the Vindhya
Pradesh Sales Tax on Coal Ordinance, 1948. With a view to
consolidate and amend all these laws and to replace them by a
uniform law for the levy of tax on the sales and purchases of
goods in the entire State of Madhya Pradesh, the Madhya .l.
Pradesh Legislature enacted the Madhya Pradesh General Sale~
Tax Act,
1958 (M.P. Act No. 2 of 1959). This Act will_;,
hereinafter be referred to in short as "the M.P. Sales Tax
Act". Under sub-section (2) of section 1, the M.P.
Sales Tax
Act extended to the whole of Madhya Pradesh and under
sub-section (3) of section (1) it was to come into force on
such date as the State Government may,
by notification,
appoint in that behalf. The M. P. Sales Tax Act was brought
into force on April 1, 1959, by the Madhya Pradesh Separate
Revenue Department Notification No. 622-1586-V-SR dated March
.~
21, 1959, published in the Madhya Pradesh Gazette dated March
27, 1959, Part 3, Section I, at page SO. By the M.P. Sales Tax
Act all the earlier sales tax laws in force in the State of
Madhya Pradesh were repealed.
All fiscal enactments are fair game for the amending ·
zeal of the Legislatures and the M.P. Sales Tax Act has not I
been an exception to this rule. We are, horwever, concerned in
this Appeal with only a few sections of the M.P. Sales Tax Act f
and with only certain amendments made therein and we will
confine ourselves to referring to them only.
Section 4 of the M. P. Sales Tax Act provides for the
incidence of taxation. Under it every dealer whose turnover
exceeds the limit specified in sub-section (5) of section 4
for a particular period is liable to pay tax on his taxable '
turnover in respect of his sales or supplies of goods effected
in Madhya Pradesh. Clause (d) of section 2 defines the term
"dealer". The relevant provisions of that definition as
originally enacted were as follows :
•
VRAJLAL MANILAL v. STATE [MADON, J.]
105
"(d) 'dealer' means any person who carries on the
business
of
buying,
selling,
supplying
or
distributing goods, directly or otherwise, whether
for
cash,
or
for
def erred
payment,
or
for
commission,
reDUneration
or
other
valuable
consideration and includes -
(i) the Central or a State Government or any of
their departments, a local authorl.ty, a company, an
undivided Hindu Family or any society (including a
co-operative society), club, firm or association
which carries on such business;
x
x
x
x
x
x
"
-'-- By clause (i) of section 2 of the Madhya Pradesh General Sales
Tax (Amendment and Validation) Act, 1971 (M.P. Act No. 13 of
1971) (hereinafter referred to as "the 1971 ii.ct"),
clause (d)
of section 2 was amended. By this amendment, a new sub-clause
(i) was substituted for the original sub--clause (i) and a
further Explanation to the said clause (d) was inserted as
Explanation II. This substituted sub-clause (i) is as follows:
"(i) a local authority, a company, undivided Hindu
Family or any society (including a co-operative
society), club, firm or association which carries
on such business".
'\ The new Explanation II is as follows
-\
" Explanation II. -
The
Central or a State
Governments or any of their departments or off ices
which, whether or not in the course of business,
buy, sell, supply or distribute goods, directly or
otherwise, for cash or for deferred payment, or for
commission,
renuneration or for other valuable
consideration, shall be deemed to be a dealer for
the purposes of this Act."
By section 10 of the 1971 Act certain amendments, including
the amendments made by clause (i) of section 2, were deemed to
•.
have formed part of the M.P. Sales Tax ii.ct from the date of
its commencement. The new sub-clause (i) was thus substituted
• \
A
B
c
D
E
F
G
H
A
106
SUPREME COURT REPORTS
[19861 2 s.c.R.
and the new Explanation II was thus inserted in clause (d) of
'
section 2 with retrospective effect from April 1, 1959. By
section 11 of the 1971 Act, all assessments, re-assessments,
levy or collection of any tax or imposition of any penalty
made or purported to be made and any action or thing taken or
done or purported to have been taken or done in relation to
B
such assessment, re-assessment, levy, collection or imposition
under the M, P, Sales Tax Act before the commencement of the
1971 Act were validated as if they had been made, taken or -\
done under the M.P. Sales Tax Act as amended inter alia by
section 2 of the 1971 Act. The 1971 Act came into force-;;;:;:-May
6, 1971.
•
c
Section 6 of the M. P. Sales Tax Act provides for the }'--
levy of tax. As originally enacted section 6 read as follows :
D
"6. Levy of tax. -
The tax payable by a dealer under this Act shall be
levied on his taxable turnover relating to goods
specified in Schedule II, at the rate and at the
point
mentioned
in the corresponding entry in
columns 3 and 4 respectively, of the said Schedule."
E
Schedule II to the M.P, Sales Tax Act is divided into several
parts. Part VI is the residuary part and contains only one
entry which is as follows :
F
PART VI
"l. All other goods not
4 per cent
included in Schedule I
or any other part of
this Schedule.
On the point of
first sale in
the State by a
dealer liable
to tax.
11
y
)-
I
G
Section 11 of the M.P. Sales Tax Act confers upon the State
Government the power to amend, by notification, any entry in
Schedule II. By Notification No. 2741-1789-V-ST dated August
'~
29, 1967, the rate of tax mentioned in the said residuary
entry was increased from four per cent to seven per cent with
effect from September l, 1967. Schedule I mentioned
in the
H
said residuary entry contains the list of goods which are
/
VRAJLAL MANILAL v. STATE [MADON, J. ]
107
, --{ exempted from tax by section 10 of the M.P. Sales Tax Act.
j
Under Entry 42 of Schedule I to the M. P. Sales Tax Act,
, tobacco, manufactured or unmanufactured, cured or uncured, and
tobacco products including cigarettes, cigars, cheroots and
J .
./
bidis are exempt from tax. Section 7 provides for the levy of
purchase tax. As originally enacted (omitting the proviso
thereto which is not material for our purpose) section 7 was
as follows
I
•
)._
"7. Levy of purchase tax. -
Every
dealer
who
in course of his
business
purchases any taxable goods, in circumstances in
which no tax under section 6 is payable on the sale
price of such goods and either consumes such goods
in the manufacture of other goods for sale or
otherwise or disposes of such goods in any manner
other than by
way
of sale in the State or
despatches them to a place outside the State except
as a direct result of sale or purchase in the
course of inter-State trade or coumerce, shall be
liable to pay tax on the purchase price of such
goods at the same rate at which it would have been
leviable on the sale price of such goods under
section 6:
x
x
x
x
x
x
x
II
Clause (1) of section 2 of the M. P. Sales Tax Act, as
originally enacted and as it stood at all relevant times,
>; defined the expression "raw material". This definition was as
...,
follows :
-\
'\
"(l) 'raw material' means an article used as an
ingredient in any manufactured goods or an article
consumed in the process of manufacture and includes
fuel and lubricants required for the process of
manufacture,
but does
not include bullion and
specie".
\' Section 8 provides for the rate of tax iii. the case of raw
materials.
As
originally enacted, section 8 provided as
follows :
A
B
c
D
E
F
G
H
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"8. Rate of tax for raw material. -
)----, !
(1) Notwithstanding anything contained in this Act,
~
but subject to such restrictions and conditions as
may be prescribed, the rate of tax payable on the
\
sale to or purchase by a registered dealer of any
I
raw material for the manufacture of other goods for
sale in the State of Madhya Pradesh or in the
course of inter-State trade or commerce shall be-',
one per cent of the sale or purchase price of such
raw material.
( 2)
Where
any
raw
material
purchased
by
a
registered dealer under sub-section (1) is utilised"'-
by him for any purpose other than a purpose
specified in the said sub-section, such dealerJ.
shall be liable to pay tax at the full rate
mentioned in column 3 of Schedule II on the
purchase of such raw material, together with such
penalty not exceeding twenty-five per cent of the
amount of the sales-tax payable by such dealer as
the Commissioner may determine having regard to the
J.
circumstances in which such use was made."
Section 8 was amended several times. It is unnecessary to
refer to those amendments except to mention that by the
substitution of section 8(1) made by the Madhya Pradesh
General Sales Tax (Amendment and Validation) Act, 1967 (M.P.
Act No. 23 of 1967) the rate of tax on the sale or purchase of ~
raw material was increased to two per cent, This amendment
came into force on December 21, 1967. We are concerned in this ) r
appeal only with the amendments made by the Madhya Pradesh
--
General Sales Tax (Amendment) Act, 1968 (M.P. Act No. 9 of
1968) (hereinafter referred to as "the 1968 Act"), which was
brought into force from April 15, 1968, and the 1971 Act. By
the 1968 Act sub-section (1) of section 8 was substituted as
follows :
"(1) Notwithstanding anything contained in section
6 or section 7 but subject to such restrictions and
conditions as may be prescribed, the rate of tax
payable on the sale to or purchase by a registered
dealer of any rdW material other than tendu leaves
-
VRAJLAL MANUAL v. STATE [MADON, J, ]
109
for the manufacture of other goods for sale in the
State of Madhya Pradesh or in course of inter-State
trade or connnerce shall be two per cent of the sale
or purchase price of such raw material :
A
Provided that when the tax payable on the sale or
B
purchase of such raw material under sections 6 or 7
is payable at a rate lower than two per cent, the
tax payable under
this
sub-section shall
be
calculated at such lower rate."
By the 1971 Act sub-section (1) of section 8 was again
·~ubstituted and a new sub-section (3) was inserted in section
C
8. The amendments made in section 8 by the 1971 Act were not
J..retrospective and they, therefore came into force on May 6,
1971 , namely, the date of the coming into force of the 1971
Act, Section 8, as it emerged after the amendments made by the
1971 read as follows :
. "'
118. Rates of tax for raw -terlal. -
(1) Notwithstanding anything contained in section 6
or section 7 but subject to the provisions of
sub-section (3) and to such restrictions and conditions as may be prescribed, the tax payable under
section 6 or section 7, as the case may be, on the
sale or purchase by a registered dealer of any raw
material
other
than
tendu
leaves
for
the
manufacture of other goods for sale in the State of
Madhya Pradesh or in the course of inter-State
trade or commerce or in the course of export out of
the territory of India shall be levied at 2 per
cent of the . sale or purchase price of such raw
material
Provided that when the tax payable on the sale or
purchase of such raw material under section 6 or 7
is payable at a rate lower than two per cent, the
tax payable
under
this sub-section shall be
calculated at such lower rate.
(2)
Where
any
raw
material
purchased
by
a
registered dealer under sub-section (1) is utilised
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SUPREME COURT REPORTS
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by him for any purpose other than a purpose
specified in the said sub-section, such dealer
shall be liable to pay as penalty an amount not
less than the difference between the amount of tax
on the sale of such raw material at the full rate
mentioned in column (3) of Schedule II and the
amount of tax payable under sub-section (1) and not
exceeding one and one-quarter times the amoun1t of ·-'
tax at such full rate as the Commissioner may
determine having regard to the circumstances in
which such use was made :
•
Provided that no such penalty shall be imposed lln a)-..
registered dealer where any raw material purchased
by him under sub-section (1), is sold by him, J.
subject to such restrictions and conditions as may
be prescribed, to another registered dealer, for
the purpose specified in that sub-section :
Provided further that where such registered dealer
subsequently
purchasing
the
raw
material
as
~
aforesaid, utilises it for any purpose other than
the purpose specified in sub-section ( l) he shall ;....
be liable to pay the penalty specified under
sub-section (2).
(3) Nothing in this section shall apply to the
sales of any goods made by the Forest Department of 'r
the State Government or any of the offices under
that Department :
)·
Provided that where any goods other than teruiu
leaves purchased by any registered dealer from lthe
Forest Department or any of the offices under that
Department are used by him as a raw material for
the manufacture of other goods for sale in the
State of Madhya Pradesh or in the course of
inter-State trade or conmerce or in the course of
export out of the territory of India, the dealer y·
shall be entitled, in such manner, as may be
prescribed to a set off of an amount equal to the
,.
VRAJLAL MANll.AL v, STATE [MADON, J. ]
111
difference between the tax payable at the full rate
on such goods as mentioned in Schedule II and the
tax payable on raw material at the rate specified
in sub-section (1)."
The result of the various amendments to the M.P. Sales
Tax Act referred to above is fourfold, namely,
(1) with effect from April 1, 1959, the Central
Government or a State Government or any of their
departments or offices which buy, sell, supply or
distribute goods, directly or otherwise, for cash
A
B
or other consideration, is to be deemed to be a
c
dealer for the purposes of the M.P. Sales Tax Act
irrespective of the fact whether such purchase,
sale, supply or distribution of goods is in the
course of business or not;
(2) with effect from April 15, 1968, tendu leaves
ceased to be raw material for the purposes of
section
8
of
the
M. P.
Sales
Tax
Act
and
consequently became exigible to tax at the rate of
seven per cent under section 6 read with the
residuary Entry No. 1 in Part VI of Schedule II;
(3) with effect from May 6, 1971, the provisions of
section 8 ceased to apply to sales of any goods
made
by
the
Forest
Department
of the State
Government
or
any of the off ices under that
Department, but where goods were purchased by a
registered dealer from the Forest Department or any
of the offices of that Department and used by him
as a raw material for the manufacture of other
goods for sale within the State of Madhya Pradesh
or in the course of inter-State trade or commerce
or in the course of export out of the territory of
India, such dealer became entitled to a set-off of
an amount equal to the difference between the tax
payable at the full rate on such goods as mentioned
in Schedule II and the tax payable on raw material
at the rate of two per cent; and
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[1986] 2 S.C.R.
(4) purchases of tendu leaves by registered dealers
from the Forest Department of the State Government
or any of the offices under that Department did
not, however, qualify for the set-off mentioned
above even though the condition prescribed for
obtaining such set-off was fulfilled.
Before we turn to the challenge to the constitutional ,
validity of the impugned amendments to section 8, it will be
convenient to dispose of two other contentions which were
raised in this Appeal. The first contention was that as sales
and purchases of tendu leaves cease to be exigible to tax
under section 8 by reason of the amendments made therein and )-
as tendu leaves were not mentioned in any of the entries in
Schedule II to the M.P. Sales Tax Act, sales and purchases of )
tendu leaves could not be made exigible to tax under section 6
read with the residuary entry No. 1 in Part VI of Schedule II.
This argument requires merely to be stated in order to be
rejected. Schedule I to the M.P. Sales Tax Act sets out the
list of goods which are exampted from payment of tax under
section 10. Parts I to V of Schedule II to the M.P. Sales Tax
Act set out the different classes of goods and the rate at
which tax is payable in respect of the sales and purchases
thereof. The residuary Entry no. 1 of Part VI states that the
rate of tax on sales and p<lrchases of "All other goods not
included in Schedule I or any other part of this Schedule"
shall be the one specified in that Entry. Therefore, sales or
purchases of any class of goods not specifically mentioned in
any of the entries in Schedule I or any of the entries in
Parts I to V of Schedule ll are exigible to tax at the rate
shown in the residuary entry, unless there is any specific
provision in the M.P. Sales Tax Act to the contrary as there
is in section 8 which originally provided that its provisions
would apply notwithstanding anything contained in the M.P.
Sales Tax Act and after the amendment of section 8 by the
Madhya Pradesh General Sales Tax (Amendment) Act, 1961 (M.P.
Act No. 20 of 1961), which was brought into force on June 1,
1961, provided that they would apply notwithstanding anything
contained in section 6 or section 7 of the M.P. Sales Tax Act.
No authority is necessary for a proposition so obv,ous as this
but i.f one were required, we need only refer to the decision
VRAJLAL MANI LAL v. STATE [MADON, J. ]
113
-1 of a Constitution Bench of this Court in M/s. Anwarkhan
Mahboob Co. v. The State of Bombay (now Maharashtra) and
others, [1961] 1 S.C.R. 709 in which this proposition was laid
down where a similar residuary entry fell to be construed.
A
The next contention was that neither the State Government
B
nor any of its departments including the Forest Department or
;.._its offices was a dealer within the meaning of that term as
defined in clause (d) of section 2 as nor1e of them carried on
the business of buying, selling, supplying or distributing
goods and that Explanation II which was inserted in the said
clause (d) did not have the effect of enlarging the concept of
' ~ dealer as defined in that clause. In support of this
C
contention reliance was placed upon a decision of the Madhya
J.Pradesh High Court in Orient Paper Mills Ltd. v. The State of
Madhya Pradesh and others, [1971] 28 S.T.C. 532 in which it
was held that the State Government or the Forest Department
could not, merely by selling the forest produce grown on their
land, be regarded as carrying on any business of buying,
D
selling, supplying or distributing goods and, therefore, in
respect of mere sales of forest produce, neither the State
._,Government nor the Forest Department was a dealer within the
'meaning of the definition of that term contained in clause (d)
of section 2. As the Statement of Objects and Reasons to the
Legislative Bill which, when enacted became the 1971 Act,
E
,,
expressly states it was in view of the judgments of the Madhya
Pradesh High Court on various provisions of the M.P. Sales Tax
Act whereby the State stood to lose a considerable amount
of
revenue by way of tax and penalty, that it was proposed to
amend the M.P. Sales Tax Act suitably in the light of the said
-\judgments in order to safeguard the revenue of the State and
F
-to validate the imposition of penalty and that amongst the
amendments which were being made was that the definition of
"dealer" was proposed to be amended in the light of the
judgment in the case of Orient: Paper Mills Ltd. v. The State
of Madhya Pradesh and others, [1971] 28 S.T.C. 532, so as "to
include the Central Government or a State Government selling
G
goods not during the course of business". In this context, it
"I"' is pertinent to note that for a person to be a dealer within
the meaning of clause (d), he llllst be one who carries on the
business of hlying, selling, supplying or distributing goods
and the definition
as
originally
enacted included within
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SUPREME COURT REPORTS
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)-
its scope the Central Government or a State Government or any
of their departments which carried on such business. This
definition was retrospectively amended by the 1971 Act, and
the reference to the "Central Government or a State Government
or any of their departments" in sub-clause (I) of clause' (d)
was omitted from that sub-clause and Explanation II was added
which expressly provided that "the Central Government or a
State Government or any of their departments or offices which, ~
whether or not in the course of business, buy, sell, supply or
distribute goods, directly or otherwise, for cash ••• or for
other valuable consideration shall be deemed to be a dealer
for the purposes of this
Act". Merely because a particular
provision in a statute is labelled as an Explanation, it does~
not mean that it is inserted merely with a view to explain the
meaning of words contained in the section of which it forms a.l
part. The true scope and effect of an Explanation can only be
judged by its express language and not merely by the label
given to it. The language of Explanation II shows that its
purpose is to create a legal fiction, and that while under the
main clause, for a person to be a dealer, he rrust carry on the
business of buying, selling, supplying or distributing goods,
~
even if the Central Government or a State Goverrlllent or any of 11111
their departments or offices does not carry on such business, ·
if it buys, sells, supplies or distributes goods, it is to be
deemed to be a dealer for the purposes of the M.P. Sales Tax
Act, that is, for the purposes of the levy and collection of
tax under the M.P. Sales Tax Act. After the amendment of
clause (d) by the 1971 Act, it is irrelevant for the purposes
of the levy of tax under the M.P. Sales Tax Act whether the Y
•
Central Government or a State Government or any of their
•
departments or offices have bought or sold goods in the course)-,
of business. There is, therefore, no substance in the above -
contention and it rrust accordingly be rejected.
The challenge to the constitutional validity of the
impugned amendments to section 8 was founded upon Articles 14,
286(3), 301 and 304 of the Constitution.
So far as the challenge under Article 14 is concerned r
the submissions made in support thereof were that by the
impugned amendments tendu leaves were discriminated 'against
hostilely as compared with other raw materials in that the
H
rate of tax on the sales and purchases of tendu
leaves was
VRAJLAL MANILAL v, STATE
[MADON, J. ]
llS
~
A
made ruch higher than the rate of tax on
the sales and
J
purchases of other raw materials, not only within the State of
Madhya Pradesh but also as compared with the rate of tax in
the neighbouring States, and that there was no reasonable
basis for making a distinctlon between tendu leaves and other
raw materials inasruch as the only use to which tendu leaves
B
were put was as a raw material in the manufacture of bidis. As
~pointed out by Lord Greene delivering the opinion of the Judicial Committee of
the Privy Council in Messrs Mohanlal
Bargovind of Jubbulpore v. Connissioner of lncoJE--tax, C.P.
""
and Berar, Nagpur, L.R.
[1948-49]
57 I.A. 235, 237; s.c.
·A.I.R.
1949
P.C.
311
bidis are
country-made cigarettes
,,l,_,composed of tobacco contained or rolled in leaves of a
tree,
·C
known as tendu leaves, which fulfil a corresponding function
·"'- in the finished cigarette to that played by a cigarette paper.
Thus, without the use of tendu leaves bldis cannot be manufactured. Until the amendment to section 8 made by the 1968
Act, for the purpose of levying tax on the sales and purchases
of tendu leaves the State of Madhya Pradesh had throughout
D
treated tendu
leaves
in the
same
manner
as
other
raw
~
materials. From this, however, it does not follow that there
was any constitutional or legal obligation upon the State to
·<, continue doing so far all time. The structure of our Constitution is federal in character. A salient feature of such a
Constitution is the distribution of legislative and administrative powers between the federated unit and the federating
units, that is, between the Central or Federal Government and
'i the State or Provincial Governments. In keeping with its
federal character, our Constitution has bifurcated the field
~
of taxation as regards sales and purchases of goods between
\ the Union and the State. Under clause (1) of Article 246 of
'the Constitution, Parliament has exclusive power to make laws
with respect to any of the matters enumerated in List I in the
Seventh Schedule to the Constitution which is headed the
"Union List". Under clause (2) of the same Article, the Legislature of any State has the exclusive power to make laws for
such State or any part thereof with respect to any of the
...,
matters enumerated in List II of the Seventh Schedule to the
I' Constitution which is headed the "State List". The M.P. Sales
Tax was enacted after the Constitution was amended by the
Constitution (Sixth Amendment) Act, 1956. Under the Constitution as so amended, taxes on the sale or purchase of newspapers and on advertisements published therein and taxes on
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[1986] 2 S.C.R.
the sale or purchase of goods other than newspapers, where ~ ~
such sale or purchase takes place in the course of inter-State
).
trade or commerce, fil.11 within the exclusive legislative field
of Parliament under Entries 92 and 92A respectively in the
Union List, while under Entry 54 in the State List taxes on
the sale or purchase of goods other than newspapers fall within the exclusive legislative field of the State Legislatures,
subject to the provisions of Entry 92A in the Union List. It
~
is unnecessary to dilate upon this subject for all that is
required to be done is to quote the following passage from the
judgment of this Court in Khazajan Chand etc. v. State of
.,,.
Jallllll and Kashmir & Ors.,
[1984]
2 S.C.R.