Karnataka High Court
P.Y. Kamat And Ors. vs State Of Karnataka And Ors. on 26 August, 1987
Equivalent citations: ILR1987KAR2942, [1988]68STC3(KAR)
ORDER S.R. Rajasekhara Murthy, J.
1. The petitioners in these writ petitions are all dealers registered under the Karnataka Sales Tax Act (hereinafter referred to as "the Act"). By the Karnataka Sales Tax (Amendment) Act, 14 of 1987, published in the Karnataka Gazette of April 2, 1987, the definition of the "year" in section 2(1)(x) of the Act underwent a change. According to the amended definition, "year" means the year commencing on the first day of April. This amendment was brought into effect from the 1st day of April, 1987.
"year" as defined earlier, read as follows :
"'year' means the financial year commencing on the first day of April; but for purposes of assessment a dealer may, at his option, declare that he will adopt the year for which the accounts of that dealer are ordinarily maintained in his books and where no such declaration is made, the year commencing on the first of April and ending on the 31st of March shall be reckoned as the assessment year :
Provided that a registered dealer shall not change his assessment year except with the previous permission of the assessing authority of the area and except on such terms and conditions as may be determined by that authority."
2. This change, brought about by the Amendment Act 14 of 1987, is challenged by the dealers in these writ petitions on various grounds.
3. By the amended definition of "year" a uniform financial year applicable to all the assesses for the purpose of assessment under the Act, is prescribed. As could be seen from the definition of "year" before amendment, the assesses were at liberty to adopt any accounting period coterminous with the year for which the accounts of the dealer were ordinarily maintained and closed. Where no such option was exercised, the year commencing on the first day of April and ending on the 31st of March of the succeeding year, would be treated as the assessment year for purposes of assessment. There is no definition of "assessment year" in the Act.
4. The main contention urged for the petitioners by their learned counsel - Sriyuths : Inderkumar, Tarakaram, Ramabhadran, B. P. Gandhi and Katageri is, that the amendment is ultra vires the power of the State Legislature falling under entry 54, List II of Schedule VII. The other grounds of challenge will be referred to later.
5. One other section in the amendment Act that was amended along with section 2(1)(x) is section 43. In section 43 of the principal Act, after sub-section (10), the following sub-section was inserted, namely :
Section 43(11)(i), (ii) and (iii).
"Section 43(11)(i) Notwithstanding anything contained in this Act, a dealer whose assessment year commenced on a date after the 1st day of April, 1986 shall complete his accounts and close them on the 31st day of March, 1987 and submit his returns as if his assessment year ended on the 31st day of March, 1987.
(ii) Where the turnover for the period specified in clause (i) (hereinafter referred to in this sub-section as returned turnover) is not less than the turnover specified under sub-section (5) of section 5 or section 6B, as amended by the Karnataka Sales Tax (Amendment) Act, 1986 (Karnataka Act 9 of 1986), it shall be assessed to tax in accordance with the provisions of this Act. Where the returned turnover is less than the turnover specified under the said sections, then, notwithstanding anything contained in this Act, such returned turnover shall be assessed to tax under this Act, if the turnover of the dealer for the year immediately preceding the assessment year referred to in clause (i) was not less then the turnovers specified under the said sections."
Clause (iii) omitted as unnecessary.
6. On the insertion of these provisions, all the assessees are required to close their accounts on the 31st March, 1987, and submit their returns for the year ended on 31st March, 1987 within 30 days as per clause (i). Clause (ii) provides for the machinery for assessment to be done for the period ending on 31st day of March, 1987. A fiction is introduced in this provision for bringing to tax the turnover for periods less than a year. We are not concerned with the validity of such assessments in these writ petitions, which are yet to be done.
7. Sri Srinivasan, learned counsel for the petitioner, in W.P. No. 9472 of 1987, which is a partnership firm, has urged that the provisions of section 43(11)(i) are impossible of compliance since the assessees cannot be asked to close their accounts on 31st March, 1987, while the amendment itself is sought to be enforced with effect from 1st April, 1987, and, secondly, that the assessments envisaged to be done as provided under section 43(11)(ii) would be illegal as any assessment for a period less than a year would be contrary to the charging section 5.
8. Before adverting to the other contentions of the other learned counsel, it would be convenient to refer to the argument of Sri Srinivasan. The accounting year adopted by the petitioner in W.P. No. 9472 of 1987 is 30th of June. The accounts for the current year are therefore required to be closed on 30th June, 1987. The assessment for the year 1st July, 1984 to 30th June, 1985, is over. The petitioner is required to close its accounts as required by the amended section 2(1)(x) on 31st March, 1987, and file its return of turnover for nine months, that is, for the period 1st July, 1986 to 31st March, 1987 (mention of 21 months in the writ petition is corrected in the course of argument as nine months). As per the accounting year adopted by the assessee, it would have to file the return for the year ending on 30th June, 1987, whereas under section 43(11)(i), the petitioner is required to file the returns for the period of 9 months ending on 31st March, 1987.
9. It is forcefully argued by Sri Srinivasan that this scheme of assessment under the amended provisions for a period less than one year is opposed to the charging section 5 of the Act. It is his contention that there is no provision in the Act to tax for a period less than a year and section 43(11)(ii) cannot be construed as charging provision.
10. The scheme of the Act would be considered in greater detail while dealing with the arguments of Sri Inderkumar. However, Sri Srinivasan has challenged the validity of the amended provisions having regard to the charging section 5, under which there can be levy of tax on a dealer for each year at the rates specified in the Act. It is argued that without amending the charging section to cover assessments to be made for periods less than a year under the amended provisions, no assessment as contemplated by the provisions of section 43(11)(ii) is possible.
11. One other argument in support of the contention of Sri Srinivasan is, that the amended definition of the "year" is brought into effect from the 1st day of April, 1987, though the assent of the Governor was received and publication was made on the 2nd April, 1987. Such being the undisputed position, the argument proceeds, the dealers cannot be asked to close their accounts on 31st March, 1987, on which day the old provisions were in force. This anomaly, which is brought about by the amended provisions, it is pointed out, has resulted in utter chaos and confusion as to the enforceability of the amended provisions, their scope and the validity of such assessments.
12. All the arguments, directed to the challenge made to the amended provisions referred to above, are advanced with respect to the levy of turnover tax under section 6-B of the Act also. The argument of Sri Srinivasan may, therefore, be summed up as follows :
13. The provisions of clause (i) of section 43(11) being impossible of compliance, any assessment that is contemplated under clause (ii) would be illegal and without authority of law. It is, therefore, prayed that clause (i) of section 43(11) should be declared as unenforceable and inoperative for the reasons stated above.
14. The other argument advanced by the learned counsel is that, "year" as amended with effect from 1st April, 1987, commences from 1st April, 1987 and ends on 31st March, 1988. Therefore, in accordance with the charging section, the turnover for the year commencing on 1st April, 1987 can be brought to charge only after the accounts for the year are closed on 31st March, 1988. He has relied upon a decision of this Court in Bhairao Rao Maloji Rao Ghorpade v. State [1962] 46 ITR 568, in which it was laid down that the period of charge under the Mysore Agricultural Income-tax Act being one year, there can be no charge for a shorter period. A decision of the Supreme Court in Mathra Parshad and Sons v. State of Punjab , is also cited in this context. The observations of Sri Hidayathullah, J., as he then was, at page 187, is adverted to and relied upon. The relevant portion of the said judgment is reproduced below :
"There is no doubt that the tax is a yearly tax. It was payable, in the first instance, by a dealer whose gross turnover during the financial year immediately preceding May 1, 1949, was above the taxable quantum. The tax is to be levied on the taxable turnover of a dealer every year. The difference between gross turnover and taxable turnover is this, that to arrive at the taxable turnover of any period some deductions have to be made for the same period. This clearly shows that the tax is for a year. The method of collection allows collection of tax at intervals; in some cases, the tax is collected at the end of the year; in some others, the tax is collected quarterly and in still other cases, even monthly. If the exemption can be said to operate for that period for which the tax is payable according as it is annually, quarterly or monthly, the tax would be different for different persons. Those who are paying the tax annually would get exemption for the whole year; but those who are paying it quarterly or monthly would get benefit in the quarter or the month of the notification but not for earlier quarters or months. It could not have been intended that the exemption was to operate differently in the case of dealers with different intervals of assessment."
15. The learned counsel draws sustenance from this judgment in support of his proposition that the charge under the Act, being for a year, there can be no assessment for a shorter period.
16. The contention of the other learned counsel advanced in support of their challenge to the amended provisions are these :
(i) that the amendment of the "year" brought about by the Amendment Act 14 of 1987, is ultra vires and beyond the legislative competence of the powers of the State Legislature falling under entry 54 of List II of Schedule VII to the Constitution;
(ii) that the amendment interferes with the freedom of trade guaranteed under article 19(1)(g) and that it is also violative of article 19(6) inasmuch as it imposes unreasonable restriction on the exercise of the right conferred under sub-clause (g).
17. Sri Inderkumar, while supporting the arguments of Sri Srinivasan as to the impracticability of enforcement of the amended provision with effect from 1st April, 1987, has advanced additional grounds of challenge on grounds (i) and (ii) stated above. He has, in the course of his argument, explained the practical difficulties which the dealers would be exposed to, by the enforcement of the amended provisions abruptly on the 2nd of April, 1987. He further submits that the amended provision can, in any case, take effect only for the year commencing on the 1st of April, 1987 and cannot have application for the period ending on 31st March, 1987. It is also stated that the switch-over to the new system would be inconsistent with the grant of registration by virtue of which the assessees are permitted to adopt their own accounting year.
18. Elaborating his arguments in relation to the first point, namely, the competency of the State Legislature, it is contended that the compulsion to adopt a particular accounting year under the amended provision is beyond the legislative competence of the State Legislature conferred under entry 54 of the State List. He has also demonstrated that the amendment would be wholly unnecessary and has no nexus to the object of the Act. The amendment, according to the learned counsel, cannot be supported as incidental and ancillary to the object of the Act.
19. He has referred to the charging provision of the Act, namely, section 5, under which the turnover of sale or purchase for each year is brought to tax. This unit of taxation, namely, "a year" is in conformity with the scheme of the Act and other provisions which lend support to his argument. It is the submission of the learned counsel that the levy of tax is on the turnover for a year depending upon the accounting year adopted by each dealer. He has referred to the provisions of Chapter V, dealing with the filing of returns, assessment, payment, recovery, etc. Section 12 provides for filing of returns of the turnover for a "year" and the assessment is also completed under section 12(2), in accordance with the provisions of the Act, and having regard to the accounting year adopted by the assessee.
20. He has also referred to the provisions of section 12-B which were introduced with effect from 1st April, 1970 providing for payment of tax in advance, i.e., every month on the basis of the monthly returns which are required to be filed by every dealer. A provisional assessment on the basis of the monthly statement is also done under sub-section (2), and the levy and collection is made, as if it is a tax, and the provisions of recovery and appeal are made applicable to such assessments. Monthly returns are filed, as required under rule 17. The annual return for purposes of final assessment is filed under rule 18, and final assessment is made under sub-rule (1). The notice of demand on a provisional assessment made under section 12-B(2), is issued in form 5, whereas a demand after final assessment for the year is issued in form 6. The reopening of the assessment under the Act, as provided under section 12-A, is also provided in respect of escapement of tax in respect of any year. From the scheme of the Act, as seen above, it is pointed out, that the unit for assessment under the Act is a "year" and not a "month".
21. Therefore, in this background, it remains to be examined as to what is the significance of "year", as defined in section 2(1)(x) as amendment by Act 14 of 1987. "Year", according to the amended definition means, the year commencing on the 1st of April. The departure from the definition of "year", before amendment is, that "year" meant the financial year commencing on the 1st day of April, but for purposes of assessment under the Act, a dealer was allowed to adopt any date during the year on which he chose to close the accounts.
22. Thus, the financial year, as defined earlier, it appears to me, was only meant for administrative purposes and the dealers were allowed to have their own accounting years of their choice for purposes of assessment.
23. But the change brought about by the amendment makes it uniform for all purposes, including assessments under the Act. The legislature has amended "year" to mean the year commencing on the 1st April of each year and ending with 31st March of the succeeding year and this period is reckoned as the year for the purpose of charging section 5.
24. Therefore, the effect of the amendment is, all assessments will have to be completed on the turnover for a year commencing from the 1st of April of each year. This amendment, according to the department's statement of objections, is introduced in order to have one uniform financial year for all, irrespective of different years ending adopted by the dealers all these years.
25. It is, therefore, necessary to examine how far the dealers are prejudiced or effected by this change which is sought to be enforced from the 1st of April, 1987. Such enforcement is stayed by an order of this Court passed in respect of dealers who have approached this Court.
26. Elaborating this contention, it is argued on behalf of the petitioners that the amendment is not one that can be justified as incidental or ancillary to the legislative power conferred on the State Legislature under entry 54. As a corollary to this argument it is submitted that the amendment was not indispensable for administering the Act for imposing the tax.
27. The arguments advanced by the other learned counsel for the petitioners support this contention, that the amendment is not to be regarded as incidental to the effectuating of the power with reference to taxation. Hence, the amendment, it is argued, should be struck down as ultra vires.
28. It is argued vehemently on behalf of the petitioners that the taxable event under the Act is the sale or purchase and the liability arises under the Act on such transaction, irrespective of the accounting year and the assessees have to pay tax on the turnover of the year adopted by them and also pay tax in advance every month under section 12-B of the Act.
29. Majority of the petitioners have adopted Deepavali year to close their accounts. Sriyuths : Inderkumar and B. P. Gandhi have argued that the amendment, if at all, is to be understood as taking effect from 1st April, 1987, and not on any day earlier. The year, even as per the amending provision, it is argued, is the year commencing on 1st April, 1987 and ending on 31st March, 1988.
30. The points that arise out of the arguments for my decision are :
(i) whether the dealers can be asked to close their accounts on 31st March, 1987 itself and submit their returns as if their assessment year ended on 31st March, 1987 ?
(ii) whether section 43(11)(i) is in conformity with the amendment of section 2(1)(x) which says "year" means year commencing on the 1st day of April ? and
(iii) whether the legislature can fix any other day, i.e., 31st March, 1987 for purposes of assessment while the amendment of the "year" is to take effect from 1st of April ?
31. It is also argued that the scheme of enforcing uniform financial year is opposed to and inconsistent with the grant of registration under the Act in respect of those who have already exercised their option and the amended year should be enforced, if at all, on the dealers who seek to register themselves hereafter. The thrust of the argument of all the petitioners is that the amendment, which was enforced in a great hurry, unmindful of the hardship and other practical difficulties faced by the dealers under the Act, without giving sufficient time to change-over to the new system, should be declared as unenforceable.
32. In support of the argument relating to entry 54, Sri Inderkumar has relied upon a number of decisions of the Supreme Court, and of the Australian High Court, which will be referred to in their order.
33. The first case cited in Durga Prosad Khaitan v. Commercial Tax Officer [1957] 8 STC 105 (Cal), that was a case which dealt with the power to demand security deposit while registering a dealer under the Act. Them said provision was upheld on the ground that, power to levy includes the power to impose reasonable safeguard in collecting it, and therefore does not contravene article 19(1)(g) or article 19(6) of the Constitution.
(2) Ashoka Marketing Ltd. v. State of Bihar [also R. Abdul Quader and Co. v. Sales Tax Officer .
34. Both the cases dealt with the provision introduced in the Sales Tax Legislation providing for recovery by State, the illegal collection made by the dealer. It was held, that such a power was not within the competence of the State Legislature conferred under entry 54, and was, therefore, not incidental to the power to levy tax. These decisions were overruled by a larger Bench of the Supreme Court in R. S. Joshi's case .
(3) Lakshminarayana Commercial Corporation v. Commercial Tax Officer [1972] 29 Stc 527 (AP).
35. Held, that the legislation, which is claimed to be incidental or ancillary to the principal power should be shown to be indispensable for carrying out of the express power granted by the constitutional provision.
(4) R. Abdul Quader and Co. v. Sales Tax Officer [1964] 15 STC 403 (SC).
36. If the amendment does not achieve the avowed object, the amendment misfires. It is argued that, applying the principle of this case that the old system worked quite effectively and the present amendment would be wholly unnecessary and does not achieve the object of the Act.
37. Sri Inderkumar has cited some of the decisions reported in Common-wealth Law Reports (Australia). The first decision cited is, page 278, Federal Commissioner of Taxation v. Official Liquidator (1940) 63 CLR 278.
38. Dealing with the scope of incidental power, the High Court of Australia held, at page 316 thus :
"Everything which is incidental to the main purpose of a legislative power is contained within the grant of the power. If carried authority to make all laws which are 'necessary or proper' to effectuate the power. But, in determining whether to produce some specific consequence is ancillary or incidental to an acknowledged power, the nature of the thing it is sought to do is all important. The exact nature of thing now in question I have already endeavoured to describe. But the special character of the main power itself must also be kept in view. For it is the natural relation between the power and the thing done that determines whether the doing of a thing is a proper incident of the power, and the existence of such a relation or connection depends on the limits and the purpose of the power on the one side and, on the other side, on the nature of what it is sought to do."
39. It was further observed at page 317 that it is enough to show that it (the impugned legislation) ought not to be regarded as properly incidental to the effectuation of the power in respect to taxation.
(ii) Burton v. Honan (1952) 86 CLR 169.
40. That was a case arising under the Customs Act and, the challenge was to the provision providing for forfeiture of goods consequent on the conviction under the Act. The forfeiture imposed by section 252 of the Act was upheld as part of the incidental power for the purpose of vindicating the customs laws.
41. The discussion on the scope of incidental power is found at page 178, and it would be useful to reproduced from the said judgment, the relevant passage is at page 178 :
"The preliminary question with which we are concerned is whether those two features of the operation of the provisions drive it beyond the application of the incidental power. On the subject, which is one of degree, we have had the advantage of a discussion on both sides, which has drawn our attention to the material considerations. On one side it is pointed out that injustice may occur to individuals who are innocent, and that they may be involved in the loss of property for which they can only have a recompense by recourse to the person who has sold it, who may, of course, not be able to restore the purchase money. On the other side it is pointed out that in the history of English and Australian customs legislation, forfeiture provisions are common, drastic and far-reaching, and that they have been considered a necessary measure to vindicate the right of the Crown and to ensure the strict and complete observance of the customs laws, which are notoriously difficult of complete enforcement in the absence of strong provisions supporting their administration. These matters of incidental powers are largely questions of degree, but in considering them we must not lose sight of the fact that once the subject-matter is fairly within the province of the Federal Legislature, the justice and wisdom of the provisions which it makes in the exercise of its powers over the subject-matter are matters entirely for the legislature and not for the judiciary.
In the administration of the judicial power in relation to the Constitution there are points at which matters of degree seem sometimes to bring forth arguments in relation to justice, fairness, morality and propriety, but those are not matters for the judiciary to decide upon. The reason why this appears to be so is simply because a reasonable connection between the law which is challenged and the subject of the power under which the legislature purported to enact it, must be shown before the law can be sustained under the incidental power."
42. Sri Tarakaram, on behalf of a batch of petitioners who have adopted the "Deepavali year" under the Act, argued that the amendment does not fall within the ambit of ancillary or incidental power. It is his contention that the definition of "year" is not an ancillary legislation necessary to be exercised in aid of the main topic of legislation. An ancillary legislation, it is argued, should pass the test whether the amendment is necessary for the levy and collection of tax concerned, or for the purpose of preventing evasion of tax. The argument further proceeds what accounting year an assessee adopts for the purpose of levy of tax on sale or purchase, is wholly irrelevant for the purpose of the main topic of legislation.
43. He has relied upon the decision of the Supreme Court in R. Abdul Quader and Co. in R. S. Joshi's case .
44. It is argued with some emphasis by Sri Tarakaram that sales tax is levied on every sale or purchase as shown in the monthly returns filed by the assessees under section 12-B. The amendment, it is argued, has no nexus to the object and purpose of the Act. The liability under the Act arises on the event of a sale or purchase, during the year, and the statement of objects is silent and nothing is set out about the need for amendment.
45. It is also argued that the petitioners, being Marwaris, have a right to adopt their own accounting year, either by custom or for religious reasons and other preferences and predictions of the dealers just as the New Year Day being adopted by Christians and Ugadi by some sections of Hindus, and the like. It is, therefore, argued, insistence on adopting a particular accounting year would offend the freedom of trade envisaged under article 19(1)(g) of the Constitution and the restrictions now placed by the amendment would also be unreasonable, since no case of any public purpose is made out by the State.
46. He has also referred to the case of State of Madras v. V. G. Row . Dealing with reasonableness of restrictions, vis-a-vis article 19 of the Constitution, Sri Patanjali Sastri, C.J., observed in paragraph 15, as follows :
"It is important in this context to bear in mind that the test of reasonableness, wherever prescribed, should be applied to each individual statute impugned, and no abstract standard, or general pattern of reasonableness, can be laid down as applicable to all cases. The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and the urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of a given case, it is inevitable that the social philosophy and the scale of values of the Judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restraint and the sobering reflection that the Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people, have in authorising the imposition of the restrictions, considered them to be reasonable."
47. The learned counsel has also referred to the "National Anthem" case (Bijoe Emmanuel v. State of Kerala), in which the provisions of article 25 came up for consideration.
48. Next, he has referred to the decision of Justice D. A. Desai (D. S. Nakara v. Union of India), at paragraph 11 at page 133 :
"Paragraph 11. The decisions clearly lay down that though article 14 forbids class legislation, it does not forbid reasonable classification for the purpose of legislation. In order, however, to pass the test of permissible classification, two conditions must be fulfilled, viz., (i) that the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from those that are left out of the group; and (ii) that the differentia must have a rational relation to the objects sought to be achieved by the statute in question. [See Ram Krishna Dalmia v. S. R. Tendolkar . The classification may be founded on differential basis according to objects sought to be achieved but what is implicit in it is that there ought to be nexus, i.e., causal connection between the basis of classification and object of the statute under consideration. It is equally well-settled by the decisions of this court that article 14 condemns discrimination not only by a substantive law but also by a law of procedure."
49. He has also referred to the decision of this Court in Baldwin High School v. Corporation of the City of Bangalore (1984) Kar LJ 218 in which it is explained, in paragraph 11, that nexus is a very important consideration to stand the test of reasonableness. Applying the said test, it is argued, that no case of lacunae, hardship, etc., is made out by the State, in support of the amendment.
50. Nextly, it is argued by Sri Tarakaram, that it is not demonstrated by the State how uniformity is achieved by the amending legislation. While different traders adopted different periods for the purpose of maintaining their accounts, and the system before amendment worked without any difficulty or problem, the amendment, it is argued, does not pass the test of reasonableness, nor has the amendment any nexus to the purpose of the Act.
51. It is argued by Sri Ramabhadran, learned counsel for the petitioner in W.P. No. 6469 of 1987, which is a private Ltd. company, which has adopted year ending 30th June for purposes of closing its accounts, that the hardship and impracticability caused by switching over to the new accounting period, namely, the year ending with 31st March, which would be set with difficulties. He has pointed out that under the Companies Act, it is permissible to adopt any period of 12 months for the purpose of closing the accounts. It is pointed out by the learned counsel that the closure of accounts on 31st March, 1987 is made compulsory by the amending Act and this would involve several consequential changes so far as the closing of accounts, preparation of balance sheet and the preparation of annual report to be placed before the annual general body meeting, etc., are concerned.
52. It is stated that from the point of view of levy of tax on the transaction of sale or purchase, which the petitioner would be liable to pay tax during the accounting year adopted by it, it would be unnecessary to switch-over to the new pattern, and it is also urged that the amendment offends the provisions of article 19(1)(g).
53. It is argued by Sri B. P. Gandhi, learned counsel for some of the petitioners, that option was exercised by the dealers while seeking registration under the Act, as to the particular accounting year chosen for closing their accounts. His argument is, that the amendment cannot be made applicable to those who have already exercised their option under the old provision and if at all, the amended definition should apply to new dealers who seek registration after 1st April, 1987.
54. It is also argued by Sri Gandhi that the amendment offends the petitioners' right to freedom of religion. The dealers have adopted a particular date or the year having regard to their religious belief and custom and the amendment seeks to interfere with their choice exercised by the dealers, and thus the amendment offends article 25. He has also highlighted the impracticable difficulties the dealers are facing by the amendment, which imposes an unreasonable restriction on their right to freedom of trade and thus violative of article 19(1)(g) and (6).
55. Sri Katageri, learned counsel, who appears for a batch of assessees, has supported the arguments of other learned counsel on the various issues arising in the case.
56. In reply to the contentions of the learned counsel for the petitioners, Sri Dattu, the learned Government Pleader, has argued that the object of the amendment is to bring about simplification of assessments, compilation of data relating to pending assessments and to have a uniform accounting year for all the assessees, and the amendment is aimed at administrative expediency and allied purposes. The amendment is also supported as a legislative action guided by public policy. Prescribing a uniform financial year for all the dealers under the Act is also sought to be justified as an ancillary and incidental power of the State Legislature in aid of the substantive power to tax, sale or purchase under the Act.
57. Sri Dattu has given a compilation of sales tax enactments of several States, which have adopted the financial year, as the year for purposes of assessment. They are : the Central Territory of Delhi, Andhra Pradesh, Assam, Bihar, Goa, Haryana, Himachal Pradesh, Kerala, Madhya Pradesh, Maharashtra, Pondicherry, Punjab, Sikkim, Tamil Nadu and Tripura.
58. It is argued that the amendment does not impose any unreasonable restriction on the freedom of trade by a dealer nor does it affect the religious sentiments of the dealers as sought to be made out by the petitioners as offending the rights guaranteed under article 19(1)(g) and (6) of the Constitution.
59. It is also argued that the amendment of "year" is nothing but a machinery provision and should be construed liberally so as to advance the purpose of the Act.
60. It is further submitted that the attack on the retrospectivity of the amendment with effect from 31st March, 1987 has no substance and the dealers were notified in advance and were asked to close their accounts of the previous year on 31st March, 1987, by advertisement in all the daily newspapers so that every dealer might close his accounts on 31st March, 1987 and adopt the new financial year, according to the amendment with effect from 1st April, 1987.
61. On the question of assessments to be made for periods shorter than a year, a provided under the amended provisions of section 43(11)(ii), it is argued by Sri Dattu that the said sub-section forms part of the charging section, and has the effect of modifying the charge imposed under section 5 and section 6-B of the Act, and all the assessments to be made as per the said provisions would be valid.
62. In support of his various contentions, Sri Dattu has cited the following decisions :
(1) Associated Cement Co. Ltd. v. Commercial Tax Officer .
"It is settled law that a distinction has to be made by courts while interpreting the provisions of a taxing statute between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax and the levying and collection of the tax so imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The courts are expected to construe the machinery sections in such a manner that a charge to tax is not defeated."
(2) Ramraj Tobacco Trading Company v. Assistant Commercial Tax Officer, Attur [1957] 8 STC 127 (Mad.).
"It has to be remembered that the power confided to the State Legislature under article 246(3) in common with other similar power to Parliament by the other sub-sections of the article is to make laws with respect to the matters specified in the several entries of the State List including entry 54. The words of the entry designate the centre and not the circumference of the power. If therefore the impugned provision has relevance to or connection with the subject assigned, it would be within the State legislative power. Again every legislative power carries with it authority to legislate in relation to acts, matters and things the control of which is found necessary to effectuate its main purpose and thus carries with it power to make laws governing or affecting many matters that are incidental or ancillary to the subject-matter."
(3) Durga Prosad Khaitan v. Commercial Tax Officer [1957] 8 STC 105 (Cal).
"The power to levy a tax would include the power to impose reasonable safeguards in collecting it, and therefore, would not contravene the provisions of article 19(1)(g) of the Constitution."
(4) R. S. Joshi, Sales Tax Officer, Gujarat v. Ajit Mills Ltd. .
"The forfeiture clause in section 37(1) of the Bombay Sales Tax Act is a punitive measure to protect public interest in the enforcement of the fiscal legislation and it falls squarely within the area of implied powers."
(5) K. T. Moopil Nair v. State of Kerala .
"The courts are not concerned with the motives of the legislature."
(6) Morisetty Bhadraiah v. Sales Tax Appellate Tribunal, Hyderabad [1964] 15 STC 787 (AP).
"Reasonableness of a taxing statute is wholly beyond the competence of the court."
(7) Indian Aluminium Co. Ltd., Calcutta v. State of Madras [1962] 13 STC 967 (Mad.).
"The definition of 'year' as amended, has nexus with the object of levying and collection of taxes."
63. Before dealing with the other contentions, I shall first deal with the general rules of construction as to coming into operation of enactments.
Section 5(1) and (iv) of the Karnataka General Clauses Act, 1899 provides :
"5. Coming into operation of enactments. - (1) Where any Mysore Act or Karnataka Act is not expressed to come into operation on a particular day, then, -
......................
(iv) in the case of Karnataka Act, it shall come into operation on the day on which the assent thereto of the Governor or the President, as the case may require, is first published in the official Gazette."
64. An Act comes into operation as provided under General Clauses Act, "(i) on any particular day or on the day on which it receives its assent by the President, in the case of the Central Act, or by the Governor, in the case of State Act, or the legislature may leave it to the Government to specify such date.
(ii) unless the legislature itself fixes the date of coming into force of an enactment, the general rules of construction is, it comes into force from the date it receives the assent and is published. The commencement, therefore, used with reference to an Act, means the day on which it comes into force."
65. In terms of the relevant provision of law, law can be given retrospective effect to govern a past transaction. A law cannot be said to be in force, unless it is brought into operation by legislative enactment, or by the exercise of authority by a delegate empowered to bring it into operation. (State of Orissa v. Chandrasekhar Singh Bhoi ).
66. The date of commencement of the Act is the date on which it comes into force. Applying the rules of construction to the amendment in this case, the new definition of "year" has come into operation with effect from 1st April, 1987, as fixed by section 1(2) of the amending Act. But section 43(11)(i) introduces an non obstante clause and makes it mandatory on all dealers to close their accounts on 31st March, 1987 and submit the returns, irrespective of the different accounting year adopted by them.
67. On the arguments of the learned counsel for the petitioners, the point that arises for decision is, what is the legal effect of the provisions of section 43(11)(i) ? The dealers are asked to close their accounts on 31st March, 1987 itself and to start their financial year from the next day, i.e., 1st April, 1987. They are also called upon to file their returns, as if their assessment year ended on 31st day of March, 1987. The argument against such an insistence is, that the dealers cannot be asked to close their accounts from 31st of March, while the amendment came into effect from 1st April.
68. The well accepted rule of construction is, that a legislation will not be given greater retrospectivity than is expressly mentioned. But, as per section 43(11)(i), the turnover of the year/period ending with 31st March, 1987 is brought to tax under the charging section even though the dealer had adopted a different accounting year and thus he had the right to close his accounts on a different day during the year 1987.
69. Thus, under the scheme of the Act, prior to the amendment, the dealers claim, they had a vested right to close their accounts on a particular day, which falls during the year 1987. In accordance with the charging section 5, and in accordance with the accounting year declared and adopted by the dealers under the old provisions, the assessments had to be completed on the turnover for the year so declared.
70. Can this privilege be taken away unilaterally by the amending provisions which are virtually made applicable from 31st March, 1987 itself, though the new uniform accounting year comes into force with effect from the 1st day of April, 1987 ? It is argued, that in the absence of specific legislation making it retrospective with effect from 31st March, 1987, the mandate to close the accounts on 31st March would be without authority of law.
71. The dealers have a vested right to be assessed on the turnover for 12 months ending on the day they had chosen under the old provisions. This was also in conformity with the charging section 5, which speaks of the turnover for a "year" which is the unit for taxation. The new definition of the year read with the provisions of section 43(11)(i) creates a new obligation on all dealers to close their account on 31st March, 1987 and impose a new duty to start their financial year from 1st April, 1987 for purposes of assessment under the Act. Thus, the transactions which were liable to be taxed up to the date on which the dealers were permitted to close their accounts during the year 1987, have now been subjected to a new liability by virtue of the amendment. The accounting year is now split into two periods, one up to 31st March, 1987 and the remaining period to be merged in the financial year 1st April, 1987 to 31st March, 1988.
72. This retrospectivity, it is argued, is not permissible since the amending provision does not permit such retrospective operation from 31st March, 1987. Therefore, the provisions of section 43(11)(i), if the Government Pleader's argument is accepted, will have a greater retrospective operation than what is authorised under section 1(2) of the amending Act. The contention of the petitioners that such a construction, which gives a retrospective operation, is contrary to the clear intendment of the amending Act, has therefore to be accepted.
73. Such a retrospective operation, if accepted as correct, would be contrary to the well-established rule of construction, that a retrospective operation is not to be given to a statute so as to impair the existing right. The consequence of giving effect to the provisions of section 43(11)(i) would be the same.
74. The argument of the learned Government Pleader that this provision is merely procedural, cannot be accepted.
75. It is not shown on behalf of the State that the retrospectivity as suggested would serve any public purpose. On the other hand, it is argued vehemently by the petitioners that the system before amendment worked without any problem, both for the dealers as well as for the department for over 40 years, and, for the first time, the dealers are asked to change-over to the new system of accounting year without giving them sufficient time to adopt to the new system.
76. The enactment now sought to be brought into force, namely, that all the dealers should adopt 1st of April as the commencement of the financial year for the purpose of assessment hereafter, is a general enactment on public policy. Having regard to the intendment of the legislature, it has got to take effect only from 1st of April, 1987 and the dealers cannot be asked to close their accounts on 31st March, 1987.
77. I am, therefore, of the opinion that the amendment, which is sought to be enforced with effect from 31st March, 1987, lacks legislative sanction and section 43(11)(i) is liable to be struck down as ultra vires. It is ordered accordingly.
78. The other points that arise out of the arguments of the petitioners are :
(i) that the amendment is ultra vires entry 54, List II of Schedule VII of the Constitution;
(ii) that the amendment violates freedom of trade guaranteed under article 19(1)(g), and imposes unreasonable restriction; and
(iii) that the amendment is violative of article 25 of the Constitution.
So far as the first point is concerned, it is argued by the petitioners that the amendment is not ancillary or incidental to the power to levy tax on the sale or purchase of goods conferred under entry 54, and that therefore, the amendment should be struck down as ultra vires of that power.
79. It is also demonstrated that the amendment of "year" has no rational relation to the object of the Act, namely, to levy tax on the turnover of sale or purchase of a dealer for a "year" as envisaged under the charging section. It is, therefore, argued that the amendment which seeks to prescribe uniform financial year for all the dealers, has no nexus to the object of the Act, and such an amendment is wholly unnecessary for administering the Act, and thus, the amendment cannot be justified as incidental or ancillary to the legislative power under entry 54.
80. Charging section 5 imposes tax on the turnover for a "year". Before the amendment to section 2(1)(x), though "year" was described and equated with the financial year commencing on the 1st of April, for purposes of assessment, a dealer could, at his option, declare any other period as the year for purposes of maintenance of accounts.
81. Under the scheme of the Sales Tax Act, a dealer is required to send every month to the assessing authority, a statement containing the particulars of the taxable turnover during the preceding month and pay tax in advance. This requirement is in a addition to and complementary to the provisions of section 12 under which every dealer whose turnover exceeds the limit fixed under the Act, is required to submit the return of his turnover for the year.
82. Under the scheme of section 12 and Chapter V relating to assessments, the dealer is taxed in respect of the turnover for every month and after the expiry of the year on the turnover for the year, in accordance with the accounting year, the dealer has declared.
83. By virtue of the amendment to section 2(1)(x), "year" means year commencing on the 1st day of April. As a result, all the dealers are now required to submit returns not only for every completed month after 1st of April, 1987, but also submit that return of the turnover for the year, such year being reckoned from the 1st of April.
84. It is argued for the Revenue that the amendment is brought about to have a uniform year for all the dealers. The amendment is also justified from the point of view of administrative expediency. It is also submitted that the same pattern of financial year is adopted by several States for purposes of levy of sales Tax.
85. Entry 54 comprehends the power to impose tax on sale or purchase, to prescribe machinery for collecting tax, to designate officers to whom the liability may be imposed and to prescribe the authority, obligation and immunity to the officers.
(See Ashoka Marketing Ltd. case - the observations of Shah, J.).
86. Therefore, prescribing a uniform year for all the dealers under the Act for purposes of assessment, is sought to be supported as a necessary incident to the power to tax. The further argument in favour of the amendment is also that it seeks to achieve streamlining of the assessments from the point of view of efficiency and administrative control.
87. It is to be examined whether the amendment falls within the ancillary and incidental powers of the State Legislature. If prescribing a machinery for a more effective administration of the Act and prescribing a uniform year is also one such provision, can it be said that such a power does not fall within the scope of legislative power of the State ?
88. Courts have taken the view that the legislature alone is competent to take a decision in such matters and as to the wisdom of the legislature in prescribing a machinery provision, which is felt necessary for the purpose of better effectuation of the purpose of the Act, it would not be proper for the court to adjudicate on the necessity or otherwise of such a provision. [See the observations of Justice Dixon, C.J., in (1952) 86 CLR 169 (Burton v. Honan)].
89. A provision in a statute may be supported as directed to and necessary for carrying out the main power. Providing for a matter incidental to the subject-matter is always held to be ancillary to the main power. Such a power to legislate extends to all matters which are necessary for the reasonable fulfilment of the legislative power over the subject-matter.
90. In fact, Justice Dixon, C.J., has further observed in his judgment referred to above [Burton v. Honan (1952) 86 CLR 169], that the matters of incidental powers are largely one of degree and has also cautioned that once the subject-matter is fairly within the purview of the State Legislature, the justice and wisdom of the provisions which it makes in the exercise of its power over the subject-matter, are matters entirely for the legislature and not for the judiciary. [See page 179 of the judgment referred to supra - Burton v. Honan (1952) 86 CLR 169].
91. The amendment to section 2(1)(x) is undoubtedly a machinery provision and the well accepted canon of interpretation as explained by the Supreme Court in Associated Cement Co. Ltd. v. Commercial Tax Officer , that while charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction. The rules of construction so far as taxing statutes are concerned, is to construe the machinery provisions in such a manner that a charge to tax is not defeated.
92. That the incidental and ancillary powers over which the legislature enacts the law under entry 54, are meant to be exercised in aid of the main topic of legislation, is also the view expressed by the Supreme Court in R. Abdul Quader's case .
93. For the above reasons, I hold that the amendment to section 2(1)(x) as substituted by Karnataka Act 14 of 1987 has legislative competence and is not ultra vires entry 54.
94. The validity of the amendment is also challenged as violative of the right to trade under article 19(1)(g).
95. The amendment is upheld as falling within the purview of ancillary and incidental power conferred on the State Legislature to levy tax on sale or purchase. The contention of the petitioners that the amendment is violative of article 19(1)(g) also deserves to be rejected.
96. The other argument ancillary to this contention that the amendment imposes unreasonable restriction on the traders, and therefore, cannot be justified under article 19(6), has also to be rejected. It is ordered accordingly.
97. I further hold that the impugned amendment does not encroach upon or infringe on the right to practice any religion or faith, much less can be said to affect any religious sentiment or belief of any citizen. I, therefore, reject this contention of Sri B. P. Gandhi based on article 25.
98. In the result, the writ petitions are allowed in part, and as a result of striking down section 43(11)(i), as inserted by section 14 of the amending Act (Karnataka Act 14 of 1987), I issue a further direction restraining the State from enforcing section 2(1)(x), as amended by Act 14 of 1987, for the current year commencing from the 1st of April and ending with 31st March, 1988.
99. Writ petitions partly allowed.