Kerala High Court
Bechu & Company vs Asst. Commissioner (Assessment) on 8 April, 2003
Equivalent citations: 2003(2)KLT1009
Author: G. Sivarajan
Bench: G. Sivarajan, J.M. James
JUDGMENT G. Sivarajan, J.
1. The main challenge in all these Writ Petitions is regarding the validity of the provisions of Sub-sections (2), (2A) and (2B) of Section 5 of the Kerala General Sales Tax Act, 1963 (for short the 'Act') inserted by the Finance Act, 1998 (Act 14 of 1998) published in the KGEx.No.1221 dated 29.7.1998 with effect from 1.4.1998. The said sub-sections read as follows:
"(2). Notwithstanding anything contained in this Act, in respect of manufactured goods other than tea, which are sold under a trade mark or brand name, the sale by the brand name holder or the trade mark holder within the Stale shall be the first sale for the purpose of this Act.
(2A). Where a dealer liable to tax under Sub-section (1), sells any goods to a trade mark or brand name holder for sale under a trade mark or brand name, no such dealer shall be liable to pay tax under the said sub-section, if he produces before the assessing authority a declaration in the prescribed form from that trade mark or brand name holder.
(2B), Where a trade mark or brand name holder consumes the goods purchased by him under Sub-section (2A), in the manufacture of other goods or uses or disposes of such goods in any manner otherwise than by way of sale within the State or despatches such goods to any place outside the State, otherwise than by way of interstate sale, such trade mark or brand name holder shall be liable to pay tax on the turnover relating to such purchase for the year irrespective of the quantum of his total turnover".
2. The petitioners in all these Writ Petitions are dealers engaged in the purchase and sale of various commodities such as palm oil and other edible oil etc. They purchase goods either locally or interstate and sell the goods under a trade mark or brand name of which they are the trade mark holders or brand name holders. However, they have not registered the trade mark or brand name under the Trade and Merchandise Marks Act. They are aggrieved by the above amendments in so far as brand name holders/ trademark holders who effect sale of manufactured goods under a brand name/trade name are treated as a separate class for point of levy of tax under the Act.
3. Sri. Arshad Hidayathullah, learned senior counsel appearing for the petitioner in O.P. No. 1144 of 2002 relying on the decisions of the Supreme Court in Krishna Chandra v. Union of India (AIR 1975 SC 1389) regarding the approach to be made in interpreting a provision in a taxing statute and the decision of the Supreme Court in Johri Mal v. Director, C of H, Punjab (AIR 1967 SC 1568) regarding the interpretation to be placed on a provision to avoid the section being struck down as arbitrary and/or ultra vires and also relying on the dictionary meaning of the word 'holder' used in Sub-sections (2), (2A) and (2B) of Section 5 submitted that the expression 'holder' used in relation to trade mark and brand name must be understood as holders of registered trade mark and registered brand name. The senior counsel, for the said purpose, referred to the meaning of the word 'holder' given in Websters New International Dictionary. The senior counsel also relied on the speech made by the Finance Minister while introducing the bill containing the pro visions of Sub-sections (2), (2A) and (2B). The senior counsel further relied on the decisions of the Supreme Court in Sales Tax Commissioner v. Modi Sugar Mills (AIR 1961 SC 1047), in The State of Punjab v. Jullundur Vegetables Syndicate (AIR 1966 SC 1295) and in Janapada Sabha v. C.P. Syndicate (AIR 1971 SC 57). The counsel also relied on a Circular issued by the Government of Tamil Nadu clarifying the scope of a similar provision contained in the Tamil Nadu Sales Tax Act which would support the interpretation placed by him on the meaning of the word "holder" used in Sub-sections (2), (2A) and (2B) of Section 5 of the Act. The senior counsel submitted that all the petitioners who have filed Writ Petitions challenging the provisions of Sub-sections (2), (2A) and (2B) of Section 5 are trade mark holders/brand name holders who are not registered under the Trade and Merchandise Marks Act and that none of the registered holders/brand name holders has challenged these provisions. The senior counsel accordingly submitted that if all dealers who are selling goods under any trade mark or brand name without any right or ownership over the said trade mark or brand name are treated on a par with registered trade mark/brand name holders who sells goods under the registered brand name/trade mark that will amount to discrimination treating dissimilarly situated persons alike attracting Article 14 of the Constitution. Senior counsel submitted that the sub-sections can be saved from the vice of Article 14 only if the expression 'holder' used in the said subsections is given the meaning holder of Registered trade mark/brand name.
4. Sri. Pathrose Mathai, learned counsel appearing for the petitioner in O.P. No. 6142 of 1999 submits that trade mark holders and brand name holders who sell the goods purchased by them from local dealers after paying the tax are being treated separately for levy of the single point tax at a different stage for the simple reason that they sell the goods purchased by them under a trade mark or brand name which is clearly against the scheme of the Act. The counsel further submitted that the classification of dealers similarly situated for the purpose of levy of tax at different stages is unreasonable and irrational and that such classification has no rational nexus with the object sought to be achieved, viz., collection of revenue. The counsel further submitted that Article 14 strikes at arbitrariness and if the classification made for the purpose of levy of tax has no nexus with the object sought to be achieved such provision is hit by Article 14. The counsel in support of his contention relied on the decision of the Supreme Court in Aryavaidaya Pharmacy and Anr. v. State of Tamil Nadu ((1989) 73 STC 346).
5. Sri. C.K. Thanu Pillai, learned counsel for the petitioner in O.P. Nos. 16054 of 2000, 23288/01, 30243/01 and 27733/02 submitted that the petitioners in all those cases have purchased goods from dealers inside the State after paying the tax, that they have not issued any declaration as contemplated under Sub-section (2A) and therefore they cannot be made liable to pay tax as provided under Sub-section (2) of Section 5 simply on the ground that have effected sale of the goods so purchased from registered dealers by using their brand name/trade mark. The counsel also submitted that if the petitioners are made liable to tax under Sub-section (2) notwithstanding the fact that they have not issued the declaration contemplated under Sub-section (2A), and since the dealers who effected the first sale in the State to the petitioners will be liable for want of production of the declaration contemplated under Sub-section (2A) it will amount to double taxation which is not at all contemplated under the scheme of the Act. The counsel also submitted that in the case the petitioner in O.P. No. 16054 of 2000 the assessing authority had also imposed penalty which is wholly illegal and unathorised.
6. Sri. M.S. Narayanan, learned counsel for the petitioner in O.P. No. 890/2002 also made submissions on the same lines of the submissions made by the counsel appearing for the petitioners in other cases.
7. Sri. P, Viswanathan, learned counsel appearing for the petitioner in O.P. No. 32968 of 2002 submitted that the provisions of Sub-section (2) of Section 5 inapplicable only when goods manufactured in the State are sold under a brand name or trade mark by the brand name holder or trade mark holder who are registered under the Trade and Merchandise Marks Act, 1958. The counsel further submitted that the notice Ext.P2 issued under Section 19(1) of the Act for reopening the assessment for the year 1999-2000 already completed is illegal.
8. Sri. S. Ananthakrishnan, learned counsel appearing for the petitioner in O.P. No. 1767 of 2003 had also made submissions on similar lines as argued by the counsel appearing for other petitioners. He further submitted that Exts.P1, P2, P4 and P5 proceedings of the respondents are illegal and liable to be quashed.
9. Sri. Raju Joseph, learned Spl. Government Pleader appearing for the respondents made the following submissions. (1) Section 5(2) is an exception to the normal rule under Section 5( 1) in regard to the point of levy and that it is only in respect of the manufactured goods other than tea sold by brand name holders and trade mark holders under a brand name or a trade mark Sub-section (2) is attracted. (2) The manufacturer as such has no relevance. The criteria is sale of goods under a brand name or a trade mark by a brand name holder or a trade mark holder and that too in respect of the manufactured goods only and (3) Section 5(2) is an independent charging provision in respect of the matters covered by the said sub-section. It is also an overriding provision which is evident from the expressions "notwithstanding anything contained in this Act" used in Sub-section (2). Section 5(2A) has two aspects: (i) it deals with a dealer liable to tax under Section 5(1) of the Act read with the Schedule and (ii) such person will be exempted only if he obtains and produces the declaration prescribed under Rule 32(13B) of the K.G.S.T. Rules. Sub-section (2) of Section 5 is an independent charging provision in respect of sale of manufactured goods under a brand name or a trade mark by brand name holders or trade mark holders, who form a separate category. It is only in respect of such transactions effected by such persons the point of levy is shifted from the point of first sale in the State deeming the later sale as the first sale for the purpose of Section 5(1). In other words, the legislature by a fiction deemed the sale of goods under a brand name or a trade mark effected by trade mark holders or brand name holders as the first sale in the State. The commodity is taxed at only one point and there is no difference in the rate of tax provided under the first schedule also. The classification is reasonable and no prejudice is being caused to the petitioners who form a separate class by postponing the levy from the point provided in the First Schedule to the point of sale effected by them. The Spl. Government Pleader also took us to the provisions of Rule 32(13B) of the Rules which provides for the contingency of non-issuance of the declaration contemplated under Sub-section (2A) r/w Rule 32(13B) of the Rules which provides for reduction of the tax paid by the trade mark holder or the brand name holder on their purchase from the tax payable by them on their sales transactions. Such a situation arises in respect of purchases effected after the insertion of Sub-sections (2), (2A) and (2B) only if the brand name holder/ trade mark holder purchasing the goods refuses to issue the certificate contemplated under Section 5(2A) and not otherwise. The Spl. Government Pleader also submitted that there is no warrant for resort to the dictionary meaning of the expression 'holder' to say that Sub-sections (2), (2A) and (2B) only contemplate sale of goods under registered trade mark or registered brand name by a registered brand name holder or registered trade mark holder. The Spl. Government Pleader took us to the definition of 'trade mark' in Trade and Merchandise Marks Act as also the provisions of Section 27 thereof and submitted that even the Trade and Merchandise Marks Act contemplates the user of a trade mark or brand name by unregistered trade mark or brand name holders and that the said statute does not prohibit the user of any unregistered trade mark or brand name except to state that a suit cannot be filed claiming right in respect of a trade mark or a brand name except by a registered trade mark holder/brand name holder. Regarding the reasonableness of the classification and to pick and choose persons and goods for the purpose of taxation the Spl. Government Pleader relied on the decisions of the Supreme Court in East India Tobacco Company v. The State of Andhra Pradesh and Anr. ((1962) 13 STC 529), Murthy Match Works and Ors. v. The Asst. Collector of Central Excise and Anr. ((1974) 4 SCC 428), State of Assam and Ors. v. Sri. Naresh Chandra Ghose ((2001) 121 STC 294) and the decision of the Supreme Court in State Bank v. N.S. Money (AIR 1976 SC 1111). The Spl. Government Pleader also relied on the decision of the Bombay High Court in Federation of Assns. v. State of Maharashtra ((1995) 97 STC 145) and submitted that the said decision has upheld a similar provision contained in the Bombay Sales Tax Act.
10. In reply to the submissions made by the Spl. Government Pleader the senior counsel Sri. Arshad Hidayatullah submitted that the decision of the Bombay High Court in 97 STC 145 is per incurium since a binding decision of the Supreme Court in Arya Vaidya Pharmacy's case though noted had not been considered. The senior counsel further submitted that the question as posed by him in the present case was not considered by the Bombay High Court in the said decision. The senior counsel further submitted that for interpreting a word in a particular statute the provisions of some other statutes cannot be relied on. He in support of the above, relied on the decision of the Supreme Court in Sales Tax Commr., Indore v. J. Singh (AIR 1967 SC 1454).
11. We have already extracted the provisions of Sub-sections (2), (2A) and (2B) of Section 5 of the Act introduced by the Finance Act, 1998 with effect from 1.4.1998. Before considering the validity of those provisions it is necessary to understand the scope and ambit of those sub-sections. Sub-section (2B) of Section 5 is almost similar to the provisions of Section 5A of the Act and there is no challenge as such to Sub-section (2B) except in O.P. No. 6142 of 1999 and in O.P. No. 1144 of 2002. We do not find any specific ground taken against the provisions of Sub-section (2B), as already noted, the said provision is similar to Section 5A. According to us, the validity of the said provision will depend on the decision on the validity of the provisions of Sub-sections (2) and (2A) under consideration. There is no doubt that the scheme of the Act as at present is to levy tax on a particular commodity only at one point though the Legislature has got the freedom to tax the same goods at all points of sale or purchase except in so far as goods covered by Sections 14 and 15 of the Central Sales Tax Act and in respect of the transactions covered by Art.286 of the Constitution of India and in respect of interstate transactions. In fact in respect of certain goods a two points levy is provided (Section 5(1) read with Schedule V). It is also well-settled that it is open to the State Legislature to fix the point of levy of tax in a series of transactions which takes place within the State.
12. Under Section 5(1) of the Act, every dealer other than a casual trader or agent of a non-resident dealer whose total turnover for a year is not less than two lakh rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year. Under Clause (i) of Sub-section (1) of Section 5 in the case of goods specified in the First or Second Schedule, tax is payable at the rates and only at the points specified against such goods in the said Schedules. It is unnecessary for us to refer to the other clauses of Sub-section (1) of Section 5 of the Act for the purpose of this case. The First and Second Schedules specified the description of goods, the point of levy and the rate of tax. It can be seen from the point of levy that the goods described in column 2 in the Schedule are taxable either at the point of first sale in the State by a dealer who is liable to tax under Section 5 or at the point of last purchase in the State by a dealer who is liable to tax under Section 5. There are certain goods with respect to which, as in the case of item 7 -- arecanut, item 37 - cloves and nutmeg, item 38 - cocoa, item 71 - ginger, item 107 - pepper, item 123 - rubber and item 142 - sugarcane, all in the First Schedule, item 4 - raw hides and skins, item 5 - coconut and copra, item 6-groundnut and groundnut seeds, all in the Second Schedule, the point of levy depends on whether the goods originated from within the State or from outside the State. In respect of goods originated from within the State the point of levy is at the point of last purchase in the State by a dealer who is liable to tax under Section 5 whereas in the case of goods brought from outside the State the point of levy is at the point of first sale in the Slate by a dealer who is liable to tax under Section 5. Nonetheless the rate remained the same. This is the scheme of taxation so far as the commodities specified in the First and Second Schedules to the Act are concerned. Sub-section (2) of Section 5 makes a slight departure from the scheme of levy contained in the First and Second Schedules to the Act and makes a further dichotomy in respect of the sale or purchase of manufactured goods and by a fiction deems the sale of such goods effected under a brand name or a trade mark by a brand name holder or a trade mark holder as the first sale in the State for the purpose of this Act.
13. In order to attract Sub-section (2) the following conditions are to be satisfied:
(1) Sale of a manufactured goods other than tea.
(2) Sale of the said goods is under a trade mark/brand name and;
(3) The sale is by the brand name holder or the trade mark holder within the State.
If all the above three conditions are satisfied the sale by the brand name holder or the trade mark holder shall be the first sale for the purpose of this Act. Sub-section (2) opens with a non obstante clause 'Notwithstanding anything contained in this Act'. It means, notwithstanding the provisions of Section 5(1) read with the first or second schedule or any other provisions of the Act. Thus, in respect of manufactured goods, if the same is sold under a trade mark or a brand name then the sale by the trade mark holder or brand name holder within the State will, be the first sale for the purpose of this Act. In effect Sub-section (2) deems the sale by the person mentioned therein as the first sale irrespective of whether or not such sate is the actual first sale in the State. Virtually Sub-section (2) is in the nature of an explanation to the point of levy. viz., "At the point of first sale in the State by a dealer who is liable to tax under Section 5" occurring in the first or the second schedule to the Act. In other words the levy of tax is under Section 5(1) read with the relevant entry in the first or the second schedule to the Act as explained in Sub-section 2. To put it differently, Sub-section (2) is not a separate charging section. It only says what the first point sale is in respect of goods specified therein. There is no change in the rate of tax or in any other matters except that brand name holders and trade mark holders who effect sale of manufactured goods under the brand name/trade mark within the State are classified separately from other dealers who are effecting sale of the very same goods but without using any trade mark or brand name only for the purpose of determining the point of levy.
14. Sub-section (2A), it must be noted, is enacted as an aid in the implementation of Sub-section (2) and to exempt or exonerate other dealers who effect actual first sale of the manufactured goods in the State from the liability to tax. It says that if such a dealer who is liable to tax under Section 5(1) sells any goods to a person to whom Sub-section (2) applies the selling dealer is not liable to pay tax under Section 5(1) if he obtains from the trade mark or brand name holder who purchase the goods for sale under a trade mark or a brand name a declaration in the prescribed form and produce the same before the assessing authority concerned.
15. On a conspectus of the provisions of Section 5(1) read with the first and second schedule and Sub-sections (2) and (2A) the scheme is very clear that the levy of tax is only at one point in a series of sales and that too in respect of certain goods at the point of first sale in the State by a dealer who is liable to tax under Section 5(1) read with first or the second schedule to the Act and that by the deeming provisions contained in Sub-section (2) the sale of manufactured goods effected by the persons to whom the said sub-section applied are treated as the persons who effect the first sale in the State, the rate of tax remains the same in respect of the sale of such goods both by dealers covered by Sub-section (2) and other dealers mentioned in the schedule. If the manufacturer of the goods or the actual first seller of the manufactured goods is a trade mark or brand name holder and the sale of the goods by him is under a trade mark or brand name, by virtue of the provisions of Sub-section (2) he is the person liable to pay tax under Section 5(1) of the Act. Sub-section 2(A) has no application to such a case. On the other hand, if the dealer who effects the sale of the very same goods is not a brand name holder or a trade mark holder whether such sale is effected under a brand name or a trade mark or not such sale will not fall under Sub-section (2) and if the sale is not effected to a dealer to whom Sub-section (2) applied then the first sale itself attracts liability to tax under Section 5(1) read with the first schedule. In such a case a question may arise when the dealer who purchased the manufactured goods within the State after paying the first point tax sells the goods to a trade mark or brand name holder for sale under a trade mark or brand name whether there is any further scope for levy of tax based on Section 5(2) of the Act on the still later transaction of the brand name/trade mark holder and consequently the need for the dealer who sells the goods to the trade mark/brand name holder to comply with the requirements of Section 5(2A) so as to exempt or exonerate him from liability under Section 5(1).
16. As already noted, the scheme of the Act is only to levy a single point tax except in respect of commodities falling under Schedule V of the Act. As such, in a case where a dealer who effects first sale in the State in respect of manufactured goods is not a brand name holder/trade mark holder and the sale is not to a trade mark holder/brand name holder for sale under a trade mark or a brand name, the sale by such dealer will be the first sale exigible to tax under Section 5(1) of the Act and consequently a second sale of the very same goods by the purchasing dealer to a trade mark holder or brand name holder for sale by him under a brand name or trade mark cannot be subjected to tax again at the hands of the second seller if he produces the certificate contemplated under Rule 28 of the Rules. There is no requirement for the second seller to produce the declaration contemplated under Section 5(2A) of the Act in such a case. Though Section 5(2) is capable of being interpreted in such a manner as to cast the single point liability in a series of sale effected within the State on the point of sale of manufactured goods made under a brand name or a trade mark by the brand name holder or the trade mark holder unless the sale which attracts Section 5(2) is confined to cases covered by Section 5(2A) of the Act it will lead to double taxation which is against the very scheme of the Act. Besides, Section 5(2) will also attract the vice of Article 14 of the Constitution and the Section will have to be struck down as unconstitutional. The principles that should be applied in such situation are that if two construction of a statute are possible one of which would make it intra vires and the other ultra vires the Court must lean to that construction which would make the operation of the statute intra vires, The reason is that no intention can be imputed to the Legislature that it would exceed its own jurisdiction. A statute has to be read as to make it valid. (Johri Mal v. Director, C of H, Punjab (AIR 1967 SC 1568)). The Court in its comity with the Legislature strives reasonably to give meaningful life and avoid cadaveric consequences (Krishna Chandra v. Union of India (AIR 1975 SC 1389)).
17. The scope of Section 5(2) is clear from the provisions of Section 5(2A) itself. It opens with "where a dealer liable to tax under Sub-section (1) sells." As already stated dealer liable to tax under Section 5(1) of the Act, by virtue of the First and Second Schedules to the Act, in the case of goods taxable at the point of sale, is the person who effects the first sale in the State if his total turnover exceeds the limits specified in Section 5(1) and also casual traders and agents of non-resident dealers whatever be the turnover and has taxable turnover. In other words the effect of Section 5(2) is to shift the taxable point from the first taxable point to the immediate next taxable point and not to any further point.
18. Thus looked at from all angles the levy contemplated under Section 5(1) read with first and second schedule and Sections 5(2) and 5(2A) is only at one point, that too, in a case where the actual first sale is by a dealer who is liable to tax under Section 5(1) is to a brand name holder or trade mark holder for sale under a brand name or trade mark the point of levy under Section 5(1) is the sale effected by such brand name holder or trade mark holder. No question of double taxation arises.
19. Next question arises as to whether in a case where a dealer who is not a brand name holder/trade mark holder effects sale of manufactured goods to a brand name or trade mark holder for sale under a brand name or trade mark if he is not able to obtain the declaration provided under Sub-section (2A) from the purchasing dealer he may not get the benefit of exemption contemplated under Sub-section (2A), for, the production of the declaration is mandatory. If the purchasing dealer does not give the declaration contemplated under Sub-section (2A) to the selling dealer at the time of purchase of the goods he will have to pay the tax on his purchases to the selling dealer. Since the liability under Sub-section (2) is independent of Sub-section (2A), in a case where the person liable under Sub-section (2) pays tax on his purchases he is entitled to get deduction of the tax paid by him on his purchase turnover from the tax due on the sale of the said goods effected by him by virtue of the provisions of Rule 32(13B) which reads, "13B. Where for any reason the goods sold by the trade mark holder or brand name holder had suffered tax at the hands of the dealer who sold the goods to such trade mark or brand name holder, the tax payable by the trade mark or brand name holder on the sale of goods shall be reduced by the amount of tax paid at such previous point of sale". This provision makes the position clear that, if for any reason, the person who is made liable to tax by virtue of Sub-section (2) suffers any tax on his purchases he gets deduction of the tax so paid from the tax due by him on the sale of the goods so purchased. Sub-section (2A) gives a right to the person who is made liable under Sub-section (2) to purchase goods without paying tax by issuing the declaration contemplated under Sub-section (2A) and if he fails to avail the benefit he cannot thereafter complain that since the first seller is liable to pay the tax due to the non production of the declaration under Sub-section (2A) if his sale is made liable to tax by invoking Sub-section (2) it will amount to double taxation.
20. It must be noted that the liability to tax under Section 5(1) by virtue of Section 5(2) is only on the trade mark holder/brand name holder who purchases the manufactured goods from the first seller when he effects the sale of the said goods under a trade mark or a brand name. The selling dealer becomes liable only because he was not able to produce evidence to the effect that he has sold the goods to a brand name holder/trade mark holder for sale under a brand name/trade mark as contemplated under Sub-section (2A). This does not cause any prejudice either to the selling dealer for, he is entitled to collect tax on his transaction from the purchaser or to the purchasing dealer (brand name holder/trade mark holder) for, he gets deduction of the tax paid by him on his purchase from the tax due on the sale of the same goods under brand name or trade name. This, self created circumstance can not make the levy a double taxation. Further, Legislature or rule making authority has taken care of to avoid any possible double taxation.
21. Under Sub-section (2A) where a dealer liable to tax under Sub-section (1), sells any goods to a trade mark or brand name holder for sale under a trade mark or brand name, no such dealer shall be liable to pay tax under the said sub-section, if he produces before the assessing authority a declaration in the prescribed form obtained from that trade mark holder or brand name holder. It must be noted that Sub-section (2A) by itself is not a substantive portion. It only provides for a rule of evidence to establish the fact that the first seller, who effects sales of a manufactured goods has effected the sale to a brand name holder or a trade mark holder who is a registered dealer under the Act for sale of the said goods under a trade mark or brand name and that no tax was collected from the purchasing dealer which alone exonerates the selling dealer from liability to tax under Section 5(1). Section 5(2), it must be noted, does not depend on whether the selling dealer produces the declaration specified in Section 5(2A) and gets the benefit of exemption from payment of sales tax. Section 5(2) is independent of Sub-section (2A) and it shifts the liability under Section 5(1) in case the manufactured goods are sold by a dealer who is liable to tax under Section 5(1) to a registered dealer, who is a brand name holder or a trade mark holder for sale by him under a brand name or a trade mark. Further, if the purchasing dealer, who is a trade mark holder or a brand name holder wants to avoid payment of tax on his purchase necessarily he has to issue the declaration specified in Section 5(2A).
22. Now we will deal with the contention of the appellants that Section 5(2) falls foul of Article 14 for the reason that trade mark holders and brand name holders who effects sale of the very same goods under a brand name/trade mark are singled out for levy of tax at a point not falling under the first or second schedule to the Act.
23. It is by now settled that all laws must pass the test of Article 14. Taxation laws are no exception to it. But in deciding whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally and that it cannot be justified on the basis of any valid classification, such law would be violative of Article 14. (East India Tobacco Co. v. State of Andhra Pradesh (1962 13 STC 529 SC (CB)).
24. A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation. A Constitution Bench of the Supreme Court in East India Tobacco Co.'s case mentioned above considered the question as to whether there is in fact real distinction between Virginia tobacco and other tobacco called country tobacco. It was observed that if there is, then the Act is valid if not it must be held to be unconstitutional. The Constitution Bench observed that there are obvious differences between the two categories of tobacco, in the nomenclature used, in the process of growing, curing and grading, in the market facilities foreign and inland in the price, and in the variety of uses to which they are put and also the class of customers that take to them. It is said that these features distinguishes Virginia tobacco from country tobacco and can be treated as a class by itself. Therefore it is within the power of the Slate to impose the tax on the sale of Virginia tobacco while exempting the country tobacco. Repelling the contention of the appellants that the charges of discrimination in taxing only Virginia tobacco and not in country tobacco, it is not sufficient merely to show there are differences between these two varieties but that it must further be shown that the differentia has reasonable relation to the object of the legislation, the Constitution Bench observed that, if a State can validly pick and choose one commodity for taxation and that is not open to attack under Article 14 the same result must fall when the State picks out one category of goods and subjects it to taxation. The Supreme Court also observed that under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and it is well settled that this burden is all the heavier when the legislation under attack is a taxation statute.
25. The Supreme Court in Murthy Match Works v. Asst. Collector of Central Excise ((1974) 4 SCC 428) considered the reasonableness of classification of match boxes into mechanised and nonmechanised sector for purpose of imposition of tax and also a mini classification between large and small sections of manual match manufactures as discriminatory with reference to a notification issued by the Government under Rule 6(1) of the Central Excise Rule, 1955. Certain principles to be borne in mind regarding classification are stated by the Supreme Court thus: "It is true that a State may classify persons and objects for the purpose of legislation and pass laws for the purpose of obtaining revenue or other objects. Every differentiation is not a discrimination. But classification can be sustained only if it is founded on pertinent and real differences as distinguished from irrelevant and artificial ones. The constitutional standard by which the sufficiency of the differentia which form a valid basis for classification may be measured, has been repeatedly stated by the courts. If it rests on a difference which bears a fair and just relation to the object for which it is proposed, it is constitutional. To put it differently, the means must have nexus with the ends. Even so, a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the Court will be reluctant and perhaps ill-equipped to investigate...... Of course, in the last analysis courts possess the power to pronounce on the constitutionality of the acts of the other branches whether a classification is based upon substantial differences or is arbitrary, fanciful and consequently illegal........ A power to classify being extremely broad and based on diverse considerations of executive pragmatism, the judicature cannot rush in where even the Legislature warily treads. All these operational restraints on judicial power must weigh more emphatically where the subject is taxation." The Supreme Court also observed that one facet of the equal protection clause, upheld by the Indian Courts is that while similar things must be treated similarly, dissimilar things should not be treated similarly. The Court also observed that it is well-established that the modern State, in exercising its sovereign power of taxation, has to deal with complex factors relating to the objects to be taxed, the quantum to be levied, the conditions subject to which the levy has to be made, the social and economic policies which the tax is designed to subserve, and what not. The Supreme Court also observed that another preposition which is equally settled is that merely because there is room for classification, it does not follow that legislation without classification is always unconstitutional. The Court cannot strike down a law because it has not made the classification which commends to the Court as proper. Nor can the legislative power be said to have been unconstitutionally exercised because within the clause a sub classification was reasonable but has not been made. The Supreme Court also referred to the famous words of Holmes, J. Bain Peanut Co. v. Pinson ((1930) 282 US 499, 501), "we must remember that the machinery of Government would not work if it were not allowed a little play in its joints". Based on the aforesaid principles the Supreme Court held that the classification was reasonable.
26. Now we will deal with the decision of the Supreme Court in Aryavaidaya Pharmacy v. State of Tamil Nadu (1989 (73) STC 346) relied on by the petitioners. In that case arishtams and asavas which were medicinal preparations were classified under the Tamil Nadu General Sales Tax Act, 1959 separately under Item No. 135 of the First Schedule attracting the levy of sales tax of 30% whereas all other medicinal preparations were shown as Item N6.95 and were subjected to a tax of 7% (later increased to 8%). The appellants who were manufacturers of ayurvedic drugs and medicine including arishtams and asavas filed a Writ Petition in the High Court challenging the higher levy of sales tax on arishtams and asavas on two grounds viz., (i) higher rate was discriminatory, and (ii) the higher rate is imposed on such medicinal preparations from neighbouring State of Kerala and those infringed Article 301 of the Constitution of India. The Government, in their counter-affidavit, explained that the higher levy of sales tax on arishtams and asavas was introduced by the State Legislature to curb the abuse of medicinal preparations for their alcoholic content by drink addicts and to eliminate the mushroom growth of ayurvedic pharmacies preparing sub-standard arishtams and asavas for purposes other than medicinal use. The High Court dismissed the Writ Petition. In appeal the Supreme Court held that the reason behind the rate of 30% on the turnover of arishtams and asavas did not constitute good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate of tax has been applied. The Supreme Court noted that the High Court observed that the imposition of the rate of 30% on the sale of arishtams and asavas must be regarded principally as a measure for raising revenue, and repelled the argument that the rate of tax was discriminatory or that Article 19(I)(g) was infringed. The Supreme Court observed that the question is whether these two medicines attract different considerations from those applied to other medicinal preparations. It was noted that Item No. 95 of the schedule mentions the rate of 7% as the tax to be levied at the point of first sale in the State and Item No. 135 provides a rate of 30% in respect of arishtams and asavas at the point of first sale. The Supreme Court observed that they do not see any reason why arishtams and asavas should be treated differently from the general class of ayurvedic medicines covered by item No. 95. It was thereafter observed as follows:
"It is open to the Legislature, or the State Government if it is authorised in that behalf by the Legislature to select different rates of tax for different commodities. But where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a Court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30 per cent on the turnover of arishtams and asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied."
The Supreme Court then relied on its earlier decision in Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India ((1963) 3 SCR 957) where the question whether the ayurvedic medicinal preparations known as mritasajibani, mritasajibani sudha and mritasajibani sura, prepared in accordance with an acknowledged ayurvedic formula could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was a Central Act. There the Supreme Court held that the three preparations were medicinal preparations, and observed that the mere circumstance that they contained a high percentage of alcohol and could be used as ordinary alcoholic beverages could not justify their being treated differently from other medicinal preparations. The Supreme Court in Aryavaidaya Pharmacy's case then held that the two preparations, arishtams and asavas, are medicinal preparations, and even though they contain a high alcohol content, so long as they continue to be identified as medicinal preparations they must be treated, for the purposes of the sales tax law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol.
27. The Supreme Court again considered almost a similar question in State of Assam v. Shri. Naresh Chandra Ghose ((2001) 121 STC 294). The question was whether Item No. 67 of the schedule to the Assam Finance (Sales Tax) Act, 1956 is violative of Article 14 of the Constitution. In that case Item No. 28 of the schedule to that Act deals with the "Medicines and drugs other than the following." Clause (d) of Item No. 28 reads, "Ayurvedic, homeopathic and unani medicines except those covered by item No. 67 of this schedule". Rate of tax was 7 paise in the rupee." As per Item No. 28 the various drugs enumerated in Sub-clauses (a) and (c) are exempted from the levy of tax, subject to the exceptions found therein. Under Sub-clause (d) it is seen that all ayurvedic, homeopathic and unani medicines are generally exempt from the levy of tax with an exception in regard to those medicinal preparations, be it ayurvedic, homeopathic or unani, if it comes within the realm of item 67 of the same schedule. Item 67 reads, "Spirituous medicinal preparations under any pharmacopoeia containing more than 12 per cent by volume of alcohol (but other than those which are declared by the State Government by notification in the official Gazette to be not capable of causing intoxication). Rate of tax 20 paise in the rupee." Thus this item carves out an exception from item No. 28 in regard to those medicinal preparations prepared under any pharmacopoeia, be it allopathic, ayurvedic, homeopathic or unani medicines if it contains more than 12 per cent by volume of alcohol. The Supreme Court observed that an analysis of these two items of the Schedule to the Act clearly shows that generally all ayurvedic, homeopathic and unani medicines are exempt from the levy Of tax. However, this exemption is not available to a specific class of medicinal preparation including allopathic, ayurvedic, homeopathic and unani medicines if it contains 12 per cent by volume of alcohol. This class of spirituous medicinal preparation is to be taxed at 20 paise in a rupee. The Supreme Court thereafter observed that, the question, therefore, for consideration is whether this type of classification which differentiates medicinal preparations based on the content of alcohol in such preparations is a valid classification or not. The Supreme Court observed thus:
"If the accepted principle in law that the Legislature has a wide discretion in selecting the persons or objects it wants to tax is correct then in our opinion such a classification cannot be construed as an arbitrary classification. Definitely, a medicinal preparation containing over 12 per cent of alcohol stands as a separate class of medicinal preparation as compared to other medicinal preparations which either do not contain any alcohol or contains less than 12 percent. It is to be noted that this classification based on the alcohol contents of the medicinal preparation is not confined to ayurvedic, homeopathic or unani medicines alone but it encompasses all spirituous medicinal preparations which are prepared under any pharmacopoeia and containing more than 12 per cent by volume of alcohol. Therefore, the Legislature or its delegates have not made any arbitrary classification for the purpose of levy impugned. The said classification being based on intelligible differentia is, therefore, in our opinion, a valid classification."
28. The Supreme Court thereafter considered the decision in Aryavaidaya Pharmacy's case mentioned above and it was observed thus:
"In that case, it is to be noted that while all other patent or proprietor y medicinal preparations belonging to different systems of medicines were taxed at 7 per cent only without any classification, arishtams and asavas prepared under the ayurvedic system alone were made subject to 30 per cent levy. The Court also noticed the fact that there were at relevant time over 130 allopathic medicines containing alcohol which were potable as against only three ayurvedic medicines out of which arishtams and asavas were alone subject to 30 per cent tax, while other medicinal preparations which also contained alcohol were subjected to a tax at 7 per cent alone. Therefore, this Court came to the conclusion that while arishtams and asavas continued to be identified a's medicinal preparations, they must be treated alike for the purpose of sales tax. The law in this case is different from the law that was considered by this Court in Aryavaidaya Pharmacy's case ((1989) 73 STC 346 : (1989) 2 SCC 285). It is already noticed that for the purpose of item 28, ayurvedic, homeopathic and unani medicines either not containing alcohol or containing less than 12 per cent alcohol have been exempted from the levy of sales tax but the Legislature thought that in regard to the medicinal preparations irrespective of the fact whether they are allopathic, ayurvedic, homeopathic or unani have to be separately classified as "spirituous medicinal preparations" if it contained more than 12 per cent by volume of alcohol (see item 67). Therefore, so far as the Assam Act is concerned, unlike the Tamil Nadu General Sales Tax Act, 1959, it identified the medicinal preparations containing more than 12 per cent alcohol as a separate class vis-a-vis such preparations either not containing alcohol or containing less than 12 percent alcohol. This difference distinguishes the basis of the judgment of this Court in Aryavaidaya Pharmacy's case ((1989) 73 STC 346: (1989) 2 SCC 285) inasmuch as the Assam Act does not identify the medicinal preparations containing more than 12 per cent alcohol as being the same as other medicinal preparations not containing alcohol. On the contrary, as could be seen these type of spirituous medicinal preparations which contained 12 per cent alcohol have been separately classified for the levy of tax under item 67 of the Schedule to the Act. We are of the considered view that the classification founded in the impugned Act in regard to the medicinal preparations based on the strength of alcohol contents in the same, cannot be said to be arbitrary and violative of Article 14 as held by the High Court in its impugned judgment."
29. Here it must be noted that all the cases referred to above were concerned either with regard to exemption or with regard to the rate of tax. Exemption on country tobacco while tax is levied on Virginia tobacco (East India Tobacco Company case); Treating unequals as equals and compelling both to bear equal burdens (Murthy Match Works case); Higher rate of tax at 30% was levied on arishtams and asavas having alcoholic content of a particular per centage while other medicinal preparations were subjected to tax only 7% (Aryavaidaya Pharmacy's case); Spirituous medicinal preparations under any pharmacopoeia containing more than 12% by volume of alcohol was subjected to tax at 20 paise in a rupee while all other ayurvedic, homeopathic or unani medicines are subjected to tax only at the rate of 7% (Shri Naresh Chandra Ghose's case). In the present case it must be noted that the rate of tax on the sale of goods remained the same whether it is assessed under Section 5(1) read with First or Second schedule or under Section 5(2). The only thing is that in cases which attracts Sub-section 2 the point of levy is shifted from the actual first point sale to the point of sale effected to a trade mark holder or a brand name holder for the sale of manufactured goods under brand name or a trade mark. That too only if the actual first sale is not by a brand name holder or a trade mark holder under a trade mark or a brand name. Thus by shifting the point of levy no prejudice is caused to the petitioners. Probably the only prejudice that may be caused is that by shifting the levy from the actual first point sale to a subsequent point of sale, value addition, if any, will also be subjected to tax. Here it must be noted that the very object of enacting Sub-section 2 of Section 5 is to augment the revenue. The reason is that the trade mark holders and brand name holders purchase manufactured goods from small scale industries or other small scale dealers for comparatively smaller amounts and sells the goods for a fairly higher amount using their trade mark or brand name which escapes taxation. Thus, if the classification made under Section 5(2) i.e. a separate treatment of trade mark holders and brand name holders who sells manufactured goods under a brand name or a trade mark from those dealers who effect sale of the same goods without using any brand name or trade mark is reasonable there cannot be any discrimination attracting Article 14. The decision of the Supreme Court in East India Tobacco Company's case and in M/s. Murthy's Match Works's case discussed earlier are authorities for the proposition that the Legislature has got a wide discretion in selecting the persons or objects it will tax and that is only when within the range of its selection the law operates unequally and that it cannot be justified on the basis of any valid classification that it would be violative of Article 14. If a State can validly pick and choose one commodity for taxation, the same result must fall when the State picks out one category of goods and subject to taxation it is not open to attack under Article 14. If the classification rests on a differentia which bears a fair and just relation to the object for which it is proposed it is constitutional. The power to classify goods or persons for the purpose of taxation being exactly broad and based on diverse considerations of executive pragmatism and operational restraints on judicial power must weigh more emphatically where the subject is taxation. The machinery of Government would not work if it were not allowed a little play in the joints. The fact that a further classification within group is also possible and that such further classification is not made cannot be a ground for attack under Article 14. In Aryavaidaya Pharmacy's case, it was noted that while all other patent or proprietory medicinal preparations belonging to the different systems of medicines were taxed at the rate of 7% only, without any classifications, based on per centage of alcoholic contents, arishtams and asavas prepared under the ayurvedic system alone were made subject to 30% levy on the ground of per centage of alcoholic content and the Court also noticed that at the relevant point of time there were over 130 allopathic medicines containing alcohol which were potable as against only three ayurvedic medicines out of which arishtams and asavas were alone subjected to higher tax while other medicinal preparations which also contained alcohol were subjected to a tax at 7% alone. According to us, the decision of the Supreme Court in Shri. Naresh Chandra Ghose's case applies to the facts of the present case, ,
30. In the present case a broad distinction is made between manufactured goods sold under a brand name or a trade mark and manufactured goods sold without a brand name or trade mark. The reason is that the State has noticed that there is substantial difference in the value of the same goods sold under a brand name or trade mark on the one hand and the value of the very same goods sold without any brand name or trade mark on the other. Since there cannot be any dispute that the State Legislature has got the power to determine the point of levy in respect of any goods, that too even in respect of the very same goods depending on the source from which it is derived and particularly in view of the fact that there is no difference in the rate of tax whatever be the point of levy, we are of the view that the provisions of Section 5(2) does not impinge Article 14.
31. Now we will deal with the contention of Sri. Arshad Hidayathullah, learned senior counsel for the petitioner in O.P. No. 1144 of 2002 that the word 'holder' used in Sub-sections (2), (2A) and (2B) of Section 5 must be understood as registered trade mark holders or registered brand name holders as otherwise the legislation will be hit by Article 14 of the Constitution. The counsel has relied on the dictionary meaning of the word 'holder' used in Sections 5(2), 5(2A) and 5(B) of the Act and submitted that going by the meaning of the word 'holder' the person who holds the trade mark or brand name must have ownership over the trade mark or brand name and that such ownership over a trade mark or a brand name can be obtained only if the trade mark or brand name is registered under the Trade and Merchandise Marks Act. The further submission of the senior counsel is that when the Legislature has used the expression brand name holder or trade mark holder it must be understood as referring to a brand name or a trade mark registered under the Act mentioned above. It is also his submission that unless the expression 'trade mark holder or 'brand name holder' used in Sub-sections (2), (2A) and (2B) of Section 5 are understood in such a manner the said provisions cannot be sustained. It is to buttress the said argument the senior counsel relied on the decisions of the Supreme Court in regard to the interpretation of statute. Of course the meaning of the word 'holder' in Collins Cobuild English Dictionary for Advanced Learners Major New Edn. (3rd Edn. 2001) is "some one who owns or has something". The word 'holder' in Webster's Third New International Dictionary means, "one that holds something" as a (1) Possessor, Owner - often used in combination". In this context it must be noted that when a person uses a particular brand name or trade name for his product, ordinarily he has got the ownership over the said brand name or trade name. It is only when it comes to the question of infringement of the trade mark or brand name used by such person a situation may arise as to whether such person can seek relief against the person who is responsible for such infringement. It is in that context the relevance of the Trade and Merchandise Marks Act arises. As the Spl. Government Pleader has pointed out any person can do business by using a trade mark or a brand name for which there is no legal impediment. This is also recognised by the Trade and Merchandise Marks Act, It is in that context the relevance of the definition of trade mark and the provisions of Section 27 of the Trade and Merchandise Marks Act occurs. There is no inhibition under the said Act for the user of a trade mark or brand name by unregistered trade mark holders or brand name holders. Section 27 of the said Act only states that no person shall be entitled to file or institute any proceedings to prevent or to recover damages for the infringement of an unregistered trade mark. An unregistered trade mark holder is also the owner of the trade mark which was but the registration grants exclusive right to the registered proprietor of the trade mark to use such trade mark. However, this section does not preclude an action against any person for passing off goods as the goods of another person or the remedies in respect thereof. If under law there is no inhibition in a person using a trade mark or brand name for his products even without registration of the trade mark or brand name under the Trade and Merchandise Marks Act when the Legislature uses the expression 'trade mark holder' or 'brand name holder' it is not possible to say that the legislative intention is that the expression 'trade mark holder' or 'brand name holder' only means registered trade mark holder or registered brand name holder. If such an interpretation is placed that will amount to rewriting the section by adding words which were not in the section. It is settled that interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The Court must look squarely at the words of me statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed; it cannot import provisions in the statutes so as to supply any assumed deficiency (Sales Tax Commissioner v. Modi Sugar Mills (AIR 1961 SC 1047). It is relevant in this context to note that wherever Legislature wanted to refer to registered trade mark/brand name holders they have said so as is evident from entry 105 of the First Schedule to the Act - Pappad, appalam and similar other items by whatever name called, sold under brand name registered under the Trade and Merchandise Marks Act, 1958.
32. The senior counsel relied on the decision of the Supreme Court in Krishna Chandra v. Union of India (AIR 1975 SC 1389) particularly paragraph 9 thereof where the Supreme Court observed that what has been described as the sound system of construction, excluding all but the language of the text and the dictionary as the key, hardly holds the field especially if the enactment has a fiscal or other mission, its surrounding circumstances speak and its history unfolds the mischief to be remedied and the Court, in its comity with the Legislature, strives reasonably to give meaningful life and avoid cadaveric consequence. The senior counsel also relied on the decision of the Supreme Court in Johri Mal v. Director, C of H, Punjab (AIR 1967 SC 1568) particularly paragraph 6 thereof where it was held that if two constructions of a statute are possible, one which would make it intra vires and the other ultra vires, the Court must lean to that construction which would make the operation of the section intra vires. The reason stated is that no intention can be imputed to the Legislature that it would exceed its own jurisdiction. A statute has to be so read so as to make it valid; it has to be construed ut res magis valeat quam pareat. These decisions regarding the interpretation of statutes have been relied on by the senior counsel only to buttress his argument that unless the word 'holder' used in Sub-sections (2), (2A) and (2B) is understood as registered trade mark/brand name holders it will lead to discrimination in that dealers who are not similarly situated are being treated alike which will infringe the provisions of Article 14 of the Constitution. In other words, according to the senior counsel unregistered trade mark/brand name holders and registered trade mark/brand name holders are two different categories and if they are treated alike for the purposes of levy of tax that will amount to discrimination violative of Article 14 of the Constitution.
33. We find that a similar question arose for consideration before the Bombay High Court in Federation of Associations of Maharashtra and Anr. v. State of Maharashtra and Anr. ((1995) 97 STC 145). In that case by the Bombay Sales Tax (Amendment and Validating Provisions) Act, 1988, an Explanation was inserted below the definition of "resale" in Section 2(26) of the Bombay Sales Tax Act, 1959 and in exercise of its rule making power Rule 42H was inserted by the State Government in the Bombay Sales Tax Rules, 1959. The cumulative effect of these attendants read with Section 8 of the principal Act is that, in respect of levy of sales tax on goods specified in Schedule C to the principal Act, no sales tax was leviable on resale of goods purchased from registered dealers, but, by virtue of the Explanation, sales of goods by dealers holding trade marks or patents would not be "resales" for the purpose of Section 8, and such, a dealer is liable to pay tax on his turnover of sales of goods purchased from registered dealers; but under Rule 42H, such a dealer is allowed drawback, set-off or refund of the whole or part of the tax in respect of his purchases of such goods, with the result that a dealer who holds a trade mark or a patent in effect pays sales tax on his turnover as reduced by the purchase price of such goods. On the grounds, inter alia, that dealers holding patents or trade marks were discriminated against, that the levy amounted to a levy on user of trade marks or patents which the State was not competent to impose, and that the levy impeded the free-flow of trade, the Explanation to Section 2(26) was challenged in Writ Petitions.
34. The Court noted that no tax is payable by dealers in general on sales of goods purchased from a registered dealer on payment of tax, tax is payable when such goods are sold by a dealer holding a patent or trade mark; undoubtedly, the sale price of the goods in the latter case will ordinarily be higher and as such, the sales tax will be payable on such higher amount. Evidently, for the purpose of levy of sales tax, the Legislature has classified dealers holding patent or trade mark and dealers not holding such patent or trade mark into two categories. It was contended that the classification made between dealers holding a patent or a trade mark and other dealers is discriminatory, irrational and has no nexus to the object of the Act. The decision of the Supreme Court in Aryavaidaya Pharmacy v. State of Tamil Nadu was also relied. The High Court observed thus:
"There is no gainsaying that fiscal status are not outside the pale of Article 14 of the Constitution and any irrational classification and/or discrimination between persons or objects similarly situated would render the classification violative of Article 14 of the Constitution. Taxing laws must also pass the test of Article 14. However, in deciding whether the taxation laws are discriminatory or not, it is necessary to keep in mind that the State has a wide discretion in selecting the persons or objects it will tax and a statute is not open to attack on the ground that it taxes some persons or objects and not others; it is only when within the range of its selection the law operates unequally which cannot be justified on the basis of any valid classification that it would be violative of Article 14. As observed by the Supreme Court in S.K. Dutta, Income-tax Officer v. Lawarence Singh Ingty ((1968) 88ITR 272, it is well-settled that a State does not have to tax everything in order to tax something. It is allowed to pick and choose district, objects, persons, methods and even rates for taxation if it does so reasonably. Reference may also be made in this connection to a latest decision of the Supreme Court in Federation of Hotel & Restaurant Association of India v. Union of India ((1989) 74 STC 102) wherein it was held that it is now well-settled that though taxing laws are not outside Article 14, having regard to the wide variety of diverse economic criteria that go into the formulation of fiscal policy, the Legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment, what is looked into is not its phraseology, but the real effect of its provisions. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of the Supreme Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes so long as it refrains from clear and hostile discrimination against particular persons or classes. The only requirement is that the classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. Moreover, the differential must have a rational nexus with the object sought to be achieved by the law. The State in the exercise of its governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well-recognised. A reasonable classification is one which includes all who are similarly situated and none who are not. In order to ascertain whether persons are similarly placed, one must look beyond the classification and to the purposes of law."
The Court thereafter observed that classification of dealers who are holders of patents or trade marks and dealers who are not, for the purpose of levy of tax on the sale of purchased goods by them, appear to be a reasonable classification, having a nexus with the object sought to be achieved.
35. Regarding the incidental contention that the scheme of the Act is to levy a single point tax on goods specified in schedule C whereas the impugned amendment has the effect of double point levy, High Court observed thus:
"It would not be correct to say that having originally enacted/contemplated a single point levy at the first stage of sale, it is not open to the Legislature to adopt a double point levy and/ or levy at a different stage or take out certain specified transactions or turnover for double point or multipoint taxation at a later stage. As observed by the Supreme Court in Polaki Motors v. State of Orissa ((1993) 88 STC 259) rates of tax, point of taxation and single point and multi-point scheme are all subject of legislative changes, additions and modifications. In the instant case, by the impugned provision, the State Legislature has provided that sales of purchased goods by dealers holding patent or trade mark shall not be deemed to be resale within the meaning of Section 2(26) of the Act and the turnover of sales of goods purchased by such dealers shall not be deducted from its turnover. In other words in case of sales of such goods the Legislature has now provided for levy of tax in the hands of the dealers selling the purchased goods in respect of resale of such goods also. However, to avoid the incidence of double taxation, provision has been made in Rule 42H for drawback, set-off or refund of tax paid on the purchase of such goods. We do not find any infirmity in this action of the State Legislature. It is within the legislative competence of the State Legislature to provide for levy of tax on any transaction at any stage and thus make the levy originally contemplated to be single point levy, a double point or multipoint levy in respect of certain class of goods or dealers. The Legislature may choose certain goods atone or certain dealers or class of dealers alone for the purpose of such levy and make changes in taxation from time to time. The fact that in the principal Act, the Legislature had provided that sales of certain goods would be subject to single point levy would not preclude it from amending the law and to provide for double point or multi-point levy at a different stage or stages or take out certain transactions for doubt point or multi-point levy."
36. The contention of the senior counsel is that the High Court did not consider a binding decision of the Supreme Court in Aryavaidaya Pharmacy's case and therefore the decision is per-incurium. The passages extracted above would clearly show that the High Court had kept in mind the principles laid down in the various decisions of the Supreme Court and the principles laid down in Aryavaidaya Pharmacy's case was not at all different. We have dealt with the said decision in detail earlier. The other contention of the senior counsel was that the Bombay High Court did not consider the question in the manner projected by him in the present case. If the classification between general dealers of manufactured goods and dealers of manufactured goods who had patent or trade mark is a reasonable classification which has a rational nexus or connection, the fact that a sub classification was reasonable but has not been made cannot be a ground for declaring the provision unconstitutional. It may be possible for the Legislature to make a sub-classification and pick and choose. Registered Trade mark holders and brand name holders alone for a separate treatment but that cannot be a ground for invalidating the provision. The classification in the instant case is reasonable having a nexus with the object sought to be achieved.
37. What remains to be considered is the contention of the senior counsel on the basis of a Circular issued by the Commissioner of Commercial Taxes, Chennai. The relevant portion reads thus:
Sub: Tamil Nadu General Sales Tax Act, 1959 - TNGST (Seventh Amendment) Act - Tax on trade mark holder - Certain guidelines issued - regarding.
The Tamil Nadu Act No. 22 of 2002 introduced a new Section 3.J in the Tamil Nadu General Sates Tax Act, 1959 providing to levy tax on trade mark holder. As per this section, a dealer who is holding a trade mark or patent thereof shall be deemed to be the first seller of such goods even if he is not the first seller in the State. However, his tax liability will be remitted to the extent of the tax paid by him at the immediate preceding point of sale.
2. "Trade mark" means a mark used in relation to goods for the purpose of indicating connection in the course of trade between the goods and some person having the right as proprietor to use the mark; "mark" includes a device, brand. Reading, label, ticket, pictorial representation, name, signature, work, letter or numeral or any combination thereof; "name" includes many abbreviation of aname. As the term employed in the section is "trade markholder", it means the dealer shall have the absolute right to bind the trade mark (i.e.), all other dealers who cannot use the trade mark are excluded from the purview. In other words, trade mark shall be registered under the Trade and Merchandise Marks Act, 1958 or the trade markis an international brand name to attract levy under this section.
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7. If a dealer purchases general goods from any local registered dealer and effects a resale of such goods within a branch name of which he is not a holder of trade mark (i.e., not registered under the Trade and Merchandise Marks Act) he is not liable to pay tax under Section 3.J of the Act, but is liable only under Section 3.H of the Act on his resale turnover."
It is not clear as to whether these guide lines issued by the Commissioner of Commercial Taxes has any legal backing. Any way, these circular issued by statutory authorities is not binding on courts in the interpretation of statute though it may reflect the views of the statutory functionaries. At any rate, this is of no assistance to interpret the provisions of the Act for, as already noted, where ever the Legislature wanted to make the position clear they have said so. Hence nothing turns on the circular issued by the Tamil Nadu Sales Tax authority.
38. We do not find any merit in the submission of the senior counsel that a further dichotomy of holders of registered trade mark/registered brand name has to be made within the said classification. Though the Legislature has got the freedom to make such a classification, nobody can compel the Legislature to make such a classification for the purpose of determining the point of levy. If any such classification of goods is made it may even be open to challenge by registered trade mark or brand name holders as without any basis. A differentia based on goods sold under a trade mark or brand name by trade mark holder or brand name holder from goods sold without any brand name or trade mark is a reasonable classification. It has nexus with the object sought be achieved. In view of our finding that the classification of goods based on the user or non user of a brand name or trade mark for such goods is a reasonable classification, the contention of the Senior Counsel cannot be sustained.
39. We have already observed that Section 5(2)(A) is only a rule of evidence and that the said sub-section is inserted only as an aid in the implementation of Section 5(2) of the Act. Since we are of the view that Sub-section 2 is legal and valid we also hold that Sub-section 2(B) is also legal and valid. There is no merit in these Writ Petitions. They are accordingly dismissed.
We make it clear that we have only considered the constitutional validity of Sub-sections (2), (2A) and (2B) of Section 5 of the Act inserted by the Kerala Finance Act, 1998 in this judgment and all other challenges arc left open to be decided in appropriate legal proceedings before the statutory authorities.