Bombay High Court
Varun Polymol Organics Ltd. And Another vs State Of Maharashtra And Others on 17 November, 1994
Equivalent citations: 1995(3)BOMCR502
Author: Vishnu Sahai
Bench: Vishnu Sahai
JUDGMENT D.R. Dhanuka, J.
1. The 1st petitioner herein has set up a manufacturing unit at MIDC, Mahad, an underdeveloped area of the State of Maharashtra in district Raigad manufacturing pesticides covered under entry 31 of Schedule C, Part II appended to the Bombay Sales Tax Act, 1959. The 1st petitioner has several branches within the State as well as outside the State. The 1st petitioner holds registration certificates under the Bombay Sales Tax Act, 1959 as well as the Central Sales Tax Act, 1956. The 2nd petitioner is the director of the 1st petitioner-company and is a citizen of India. The above referred unit of the 1st petitioner is an eligible unit duly covered under 1983 Package Scheme of incentives introduced by the Government of Maharashtra. The 1st petitioner has complied with all the conditions of eligibility prescribed by the said scheme. By virtue of the provisions contained in the said scheme as well as entry 136 of relevant exemption notification issued by the Government of Maharashtra under section 41 of the Bombay Sales Tax Act, 1959, the petitioner No. 1 is entitled to (i) exemption from payment of purchase tax/sales tax payable under the Bombay Sales Tax Act, 1959, on purchase of raw materials; (ii) sales tax payable under the said Act on sales of finished goods and (iii) Central sales tax payable under the Central Sales Tax Act, 1956, on sale of finished goods effected in the course of inter-State trade and commerce up to a ceiling limit of Rs. 1,00,16,675 during the period March 27, 1989 to March 26, 1996. With a view to ensuring that the eligible unit does not avail of the tax exemption in excess of the stipulated ceiling limit, the notional sales tax liability of the unit is required to be assessed every year so as to debit the unit against its total entitlement of tax exemption as aforesaid. The rights and obligations of the eligible unit in respect of tax exemption are governed by the notification issued by the Government of Maharashtra under section 41 of the Bombay Sales Tax Act, 1959. The said notification is of legislative character. The said 1983 Scheme, inter alia, treats branch transfer of stock of goods or transfer of goods on consignment basis, though not in pursuance of an agreement of sale or connected with transaction of sale, as "deemed sales" for purpose of computation of benefit of tax exemption availed of by the eligible unit. The petitioners are very much aggrieved by the impugned provisions contained in clause 2.11 of 1983 Scheme.
2. By this writ petition filed under article 226 of the Constitution of India, the petitioners have impugned portions of clause 2.11 of the "Package Scheme of Incentives, 1983" propounded by Government of Maharashtra offering sales tax exemption to the entrepreneurs setting up industrial units in underdeveloped or backward areas of the State to the extent of ceiling specified therein, in so far as the said Scheme treats "branch transfers" of goods manufactured by petitioner No. 1 to its own depots or branches within the State or outside the State or "mere consignment of goods", without there being any transaction of sale, as "deemed sales" for purpose of computation of "sales tax exemption" availed of by petitioner No. 1 as more particularly set out therein.
3. The petitioner No. 1 has set up an industrial unit in the backward area/underdeveloped area at a place known as Mahad in Raigad district. The above referred industrial unit of petitioner No. 1 is an eligible unit entitled, inter alia, to sales tax exemption for the period specified in the certificate of eligibility dated March 17, 1989, issued by the Development Corporation of Konkan Ltd. and entitlement certificate dated March 27, 1989, issued by the Deputy Commissioner of Sales Tax, Maharashtra State, Bombay, to the extent of Rs. 1,00,16,675 subject to the conditions specified in entry 136 of the Schedule appended to Government Notification No. STA-1059(iii)G-1 dated December 28, 1959, as amended. The said unit is duly covered under the 1983 Package Scheme propounded by Government of Maharashtra. The extent of sales tax exemption available to petitioner No. 1 a sum of Rs. 1,00,16,675 is fixed on the basis of 100 per cent of the gross value of fixed capital investment in respect of the eligible unit covered under the scheme. No tax liability can be created without authority of law. No tax exemption can be granted except to the extent and in the manner set out in the tax legislation. It is thus far too obvious that the extent of sales tax exemption available to petitioner No. 1 is governed by exemption notification issued by the Government of Maharashtra in exercise of its power of delegated legislation under section 41(1) of the Bombay Sales Tax Act, 1959, i.e., entry 136 of the Schedule appended to the exemption notification and not by Government circulars or schemes as such. Nevertheless for purpose of understanding the background of relevant provisions of law concerning the extent of tax exemption available to the eligible unit and the computation of benefits enjoyed or availed of by the unit, it is necessary to refer to at least two clauses of the 1983 Package Scheme here and now.
"5. Sales tax incentive under Part I :
5.1(A) Exemption :
By way of sales tax incentive as an exemption, the eligible unit will be entitled to exemption from payment of -
(i) purchase tax/sales tax payable under the Bombay Sales Tax Act, 1959, on the purchases of raw materials;
(ii) sales tax payable under the Bombay Sales Tax Act, 1959, on the sales of finished products of the eligible unit; and
(iii) Central sales tax payable under the Central Sales Tax Act, 1956, on the sales of finished products of the eligible unit effected in the course of inter-State trade or commerce :
[Note : Section 8(5) of the Central Sales Tax Act, 1956, inter alia, empowers the State Government to grant exemption (i.e., from liability to pay Central sales tax) to a dealer having his place of business in the State in respect of the sales by him, in the course of inter-State trade or commerce, etc., as more particularly set out therein]."
Clause 2.11 of the scheme defines "notional sales tax liability" as under :
"2.11 Notional sales tax liability :
Notional sales tax liability means -
(a) Sales tax/general sales tax/purchase tax that would have been payable on the purchase of raw materials and sales tax/general sales tax payable on the sales of finished products of the eligible unit under the local sales tax law but for an exemption, computed at the maximum rates specified under the local sales tax law as applicable from time to time.
For the purpose of the above clause, sales made on consignment basis within the State of Maharashtra or branch transfers within the State of Maharashtra shall also be deemed to be 'sales made within the State eligible to tax'.
And
(b) Tax payable under the Central Sales Tax Act, 1956, on the sales of finished products of the eligible unit made in the course of inter-State trade or commerce computed at the rate of tax applicable to such sales as if these were made against certificate in form 'C' on the basis that the sales are eligible to tax under the said Act.
For the purposes of the above clause, branch transfers/transfers on consignment basis outside the State of Maharashtra shall be deemed to be 'sale in the course of inter-State trade or commerce."
(The underlined (Here italicised), portions of clause 2.11 of the scheme are impugned portions of the clauses under the scheme.)
4. The petitioners have impugned the above referred portions of the said scheme, inter alia, on the following grounds :
(a) The State Legislature has no legislative competence to levy tax on sales or purchase of goods unless the transaction amounts to sale or purchase of goods within the framework of entry 54 of List II of the Seventh Schedule to the Constitution of India read with the wider definition of the expression "sale or purchase of goods" under sub-clause (29A) of article 366 of the Constitution of India inserted therein by the Constitution (Forty-sixth Amendment) Act, 1982. Mere transfer of stocks from one branch to another within the State or outside the State can never constitute sale. The State Legislature has neither legislative nor executive competence to treat the "branch transfer" of goods as deemed sales. Even the magic power of the Legislature to create fictions by enacting "deeming" provisions cannot transgress the width of legislative power. The State Legislature has no power to treat "consignment of goods" as deemed sales or levy "consignment tax" thereon. Similarly the State has no power to levy any tax on the transaction of sale in the course of inter-State trade or commerce.
(b) The power of the State executive is coextensive with power of the State Legislature. No fiction can be resorted to or provided in a Government circular, resolution or scheme which transgresses directly or indirectly the legislative jurisdiction of the State Legislature. The State executive cannot do what the State Legislature is prohibited from enacting.
(c) The petitioner No. 1 is entitled to exemption from payment of sales tax, purchase tax, Central sales tax, within the period specified in the certificate of entitlement, subject to the ceiling set out therein as set out in entry 136 forming part of statutory notification issued by the State Government under section 41(1) of the Bombay Sales Tax Act, 1959 and the above referred entitlement of petitioner No. 1 cannot be curtailed by computing the tax exemption availed of by the petitioner No. 1 on the assumption that the branch transfers or consignment of goods within the State or outside the State are "deemed sales" and are to be treated as if eligible to sales tax/purchase tax even though these transactions do not and cannot amount to sales and are not taxable under the Bombay Sales Tax Act, 1959. The petitioners have contended that the quantum of tax incentives availed of by petitioner No. 1 must be computed only by taking into consideration transactions which amount to actual sales and which would have been taxable but for the 1st petitioner's entitlement to exemption from payment of tax under a valid notification issued under section 41(1) of the Act, the said notification being of a legislative character.
(d) The impugned portion of 1983 Package Scheme is thus beyond the jurisdiction of the State Government and is inconsistent with the constitutional scheme and the provisions of the Constitution as well as the provisions of the Bombay Sales Tax Act, 1959 and the notification of exemption issued by the State Government under section 41(1) of the Act.
(e) The impugned portion of the 1983 Scheme is totally arbitrary and irrational. The impugned portion of the scheme is violative of article 14 of the Constitution of India.
(f) The impugned portion of the 1983 Scheme amounts to a fraud on the Constitution.
(g) The basic clause of the scheme as well as exemption notification is to grant of sales tax exemption up to monetary limit of Rs. 1,00,16,675 as specified in the certificate of entitlement issued by the Commissioner of Sales Tax. The notional sales tax liability of the eligible unit to be computed by the assessing authorities every year for purpose of ascertaining the extent of benefit of tax exemption availed of by the unit cannot he more than the actual sales tax liability of the eligible unit which would have been incurred by the unit in the absence of tax exemption as aforesaid. The deeming provisions made in the 1983 Package Scheme (which are impugned in this petition) are clearly severable and are not inextricably mixed up with the entire scheme of grant of incentives in such a manner so as to make the doctrine of severability inapplicable in the situation.
(h) The impugned assessment orders are liable to be set aside and modified so as to exclude the "branch transfers" or "consignment of goods" from the computation of turnover of sales for purpose of computation of notional sales tax liability of petitioner No. 1.
5. The State of Maharashtra does not dispute the correctness of the basic submission made on behalf of the petitioners to the effect that the State has no jurisdiction to levy sales tax or purchase tax on branch transfers or on consignment of goods within the State or outside the State. The respondents contend that the respondents have merely provided a measure for ascertainment of notional sales tax liability so as to compute the tax exemption availed of by the eligible unit. The respondents have contended that such measure need not coincide with actual tax liability under the Act and the notification but for the exemption. The respondents have contended that if the impugned provisions of 1983 Scheme are viewed in this perspective, it would be found that the impugned provisions of the scheme are valid and cannot be faulted with. The respondents have contended that it is up to the State to grant such concessions or incentives to the eligible unit as the State authorities deem fit. The respondents have further contended that the scheme of 1983 represents an indivisible contract between the eligible unit and the State and the impugned portions of the scheme are not severable. The respondents have contended that the petitioners were fully aware of the mode and manner in which the availment of tax benefits would be computed by the authorities from inception and the petitioners should not be now allowed to challenge the impugned portion of the scheme. The respondents have generally denied the correctness of the submissions made on behalf of the petitioners. The respondents have also invited the attention of the court to the newly incorporated section 41B of the Act, newly incorporated in the Bombay Sales Tax Act, 1959, by Maharashtra Act 29 of 1994. Section 41(1) of the Bombay Sales Tax Act, 1959, reads as under :
"41. (1) Subject to such conditions as it may impose, the State Government may, if it is necessary so to do in the public interest, by notification in the Official Gazette, exempt any specified class of sales or purchases from payment of the whole or any part of any tax payable under the provisions of this Act and such exemption shall take effect from the date of the publication of the notification in the Official Gazette or such other date as may be mentioned therein."
[Note : Section 41 was renumbered as sub-section (1) of that section by Maharashtra Act 21 of 1962, section 17.] Section 41B has been newly inserted in the Bombay Sales Tax Act, 1959, by the Amending Act known as Act No. 29 of 1994. The said section has come into effect from May 1, 1994, subject to the said section being operative only on and after the necessary rules are framed providing for "calculation of cumulative quantum of benefits under the package scheme of incentives". The said section reads as under :
"41B. (1) In order to determine whether the cumulative quantum of benefits received by any dealer to whom a certificate of entitlement has been granted by the Commissioner under entry 136 of the Schedule to the notification issued under section 41, has at any time after the 1st January, 1980, exceeded the relevant monetary ceiling under any Package Scheme of Incentives for any period whether before or after the date of commencement of the Maharashtra Tax Laws (Levy and Amendment) Act, 1994 (hereinafter, in this section, referred to as 'the commencement date'), the Commissioner shall calculate the cumulative quantum of benefits in the manner prescribed in respect of all the relevant periods and the Package Scheme of Incentives.
(2) If it is found that the cumulative quantum of benefits so calculated in respect of any eligible unit has exceeded the relevant monetary ceiling where such ceiling is provided in the package scheme of incentives, then the Commissioner shall, require the dealer by order in writing to pay the tax, interest or penalty in respect of each relevant period and shall for the purpose of recovery of such tax, interest or penalty, serve on the dealer a notice :
Provided that, no order under this section shall be passed without giving the dealer a reasonable opportunity of being heard.
(3) The notice so issued, shall be deemed to be a notice issued under sub-section (4) of section 38 and the relevant provisions of this Act shall apply to such notice as they apply to a notice issued under sub-section (4) of section 38."
No rules are yet framed. In our opinion, the said section has no bearing on determination of issues involved in this petition.
6. Having highlighted the nature of controversy required to be adjudicated upon in this petition, we shall first summarise the facts and relevant provisions of laws. We shall then refer to the relevant case law cited at Bar. In the end, we shall formulate our conclusions and the reasons in support thereof.
Summary of material facts
7. (a) In order to achieve dispersal of industries outside the Bombay - Thane - Pune belt and to attract the entrepreneurs to the underdeveloped and developing areas of the State, the respondent No. 1 has propounded a scheme offering incentives to the new and other units covered thereunder known as the package scheme of "Incentives". It is common knowledge that but for the offer of these incentives including guarantee of sales tax holiday for a prescribed number of years, the entrepreneurs might not undertake the project to set up the unit in these areas for economic reasons. The State, Government propounds these schemes for encouraging the entrepreneurs for advancing economic development of the country. It is also common knowledge that sales tax exemption cannot be ensured to a dealer except under an exemption notification issued under the relevant provision of the relevant sales tax legislation. The first of such scheme was introduced in the year 1964. The said scheme was amended from time to time till the year 1979. On January 5, 1980, the Government of Maharashtra propounded the revised package scheme of incentives. The said revised scheme was amended by the State Government from time to time, inter alia, by Government resolution No. IDL-1082/(4077)-IND-8 dated May 4, 1983. The modified package scheme of incentives continued to be in force from time to time. The said scheme obligated the concerned entrepreneurs to undertake various effective steps before the concerned unit could be entitled to benefit of incentives offered under the scheme. The said scheme contemplated issue of an eligibility certificate by the implementing agency named therein as well as the issue of the entitlement certificate by the prescribed authority so as to certify the entitlement of the concerned unit to the sales tax exemption during the period set out therein subject to the ceiling of the amount mentioned therein. The said scheme provided for grant of sales tax exemption to the eligible unit as set out under clause 5. 1(A) thereof. The eligible unit was given an option to opt for grant of sales tax exemption or the grant of "sales tax deferral". Clause 5.2 of the said scheme provided that the quantum of the sales tax incentive contemplated under the scheme either as an exemption or as deferral under para 5.1 will be as per the scales and subject to ceilings as provided in the table forming part of the said scheme Clause 2 of the said scheme provided for definitions of various words and expressions used in the said scheme. Clause 2.9 of the scheme provided that "local sales tax law" would mean the Bombay Sales Tax Act, 1959, as modified from time to time and the rules made thereunder as modified from time to time.
(b) The said scheme contemplated that the maximum entitlement of sales tax incentives by way of sales tax exemption shall be specified in the eligibility certificate for sales tax incentive under Part I of the above referred scheme and the figure of such maximum entitlement shall be worked out in light of the provisions contained in the said scheme, i.e., on the basis of "fixed capital investment" in the project set up, etc. The said scheme contemplated that the certificate of eligibility as well as the certificate of entitlement shall also specify the period during which the eligible unit can avail of the above referred exemption from sales tax subject to availment of "sales tax exemption" not exceeding the maximum entitlement of sales tax exemption specified in the certificate of entitlement. The said scheme as implemented during the course of years contemplated sales tax assessment of the eligible unit every year for purpose of computation of "notional sales tax liability" so as to entitle the respondent No. 1 to debit the assessee with the amount of notional sales tax liability computed by the prescribed authority as a result of the assessments made against his entitlement to sales tax exemption as aforesaid.
(c) By clause 2.11 of the said scheme, the expression "notional sales tax liability" was defined. The said definition is already extracted in the earlier part of the judgment and need not be extracted again.
(d) On March 17, 1989, the Development Corporation of Konkan Limited issued an eligibility certificate for sales tax incentive under Part I of the 1983 Scheme in favour of the petitioner No. 1 stating therein that the petitioner No. 1 was entitled to sales tax incentive by way of exemption during the period March 27, 1989 to March 26, 1996, in the amount not exceeding Rs. 65,22,313. It was also stated in the said certificate that the petitioner No. 1 held necessary registration certificate under the Bombay Sales Tax Act, 1959, bearing registration No. N-29-A-625 dated November 23, 1987 and also registration under the Central Sales Tax Act, 1956, bearing No. MAH/One M 3684 dated July 23, 1987. The amount of maximum entitlement of sales tax incentive by way of exemption was enhanced by the prescribed authority to Rs. 1,00,16,675 by an addendum issued by the Deputy Commissioner of Sales Tax dated November 2, 1991. On March 27, 1989, the Deputy Commissioner of Sales Tax issued the necessary certificate of entitlement in favour of petitioner No. 1 in terms aforesaid. In the said certificate of entitlement, it was stated by the prescribed authority that the said certificate was valid for the period March 27, 1989 to March 26, 1996. By the said certificate it was provided that the petitioner No. 1 was entitled to claim exemption under entry 136 of the Schedule appended to Government Notification, Finance Department, No. STA-1059(iii) G-1, dated December 28, 1959, as more particularly set out therein. By the said certificate, it was directed that the petitioner No. 1 shall be entitled to exemption in respect of payment of tax on sale and purchase effected during the period of validity of the said certificate subject to the petitioner No. 1 incorporating a declaration in the sales bill or cash memorandum issued by petitioner No. 1 in the format set out therein which is as under :
"This sale is exempt from tax under the provisions of entry No. 136 of the Schedule appended to the Government Notification, Finance Department No. STA-1059(iii)G-1 dated December 28, 1959, at the buyer purchasing these goods and any subsequent buyer purchasing these goods shall -
(i) not be entitled to claim drawback, set-off or refund under any provisions of the Act or the Rules framed thereunder, in respect of the purchases of these goods.
(ii) not give any certificate in form 31 or 31-A under the Bombay Sales Tax Rules, 1959 to any subsequent purchaser of these goods."
By the said certificate of entitlement it was further provided that the petitioner No. 1 shall be entitled to purchase goods free from whole of tax on his furnishing to the registered dealer a declaration in form BC bearing the seal and signature of the Sales Tax Officer, having jurisdiction over his place of business, declaring, inter alia, that the goods are required for use in the manufacture of goods at the said industrial unit for sales within the State or in the course of inter-State trade or commerce or in the course of export out of the territory of India or in the packing of goods so manufactured.
(e) Since the petitioner No. 1 unit was entitled to total sales tax exemption for the duration of the above referred certificate subject to reaching of the prescribed ceiling limit of Rs. 1,00,16,675, annual assessments were required to be made by the prescribed sales tax authority so as to compute the "notional sales tax liability" of the eligible unit within the framework of the 1983 Scheme and the Bombay Sales Tax Act, 1959 and the exemption notification issued under section 41(1) of the Act so as to debit the amount so computed against the maximum entitlement of the sales tax exemption to which the petitioner No. 1 was and is entitled under the above referred eligibility certificate issued by Development Corporation of Konkan Limited as well as entitlement certificate issued by the Deputy Commissioner of Sales Tax, Maharashtra State, Bombay. It is obvious that the petitioner is not entitled to sales tax exemption once the aggregate of the lawful debits made to the eligible unit on basis of annual assessments made in respect of "notional sales tax liability" reach the figure of prescribed ceiling and the said debits cannot be inflated by the State by resorting to device of creating fictions in the scheme which are not permissible in the law.
(f) For the period March 27, 1989 to March 31, 1989, the notional sales tax liability of the petitioner No. 1 was calculated by the assessing authority at Rs. 47,736. For the period April 1, 1989 till March 31, 1990, the notional sales tax liability of petitioner No. 1 was calculated at Rs. 42,28,578. For the period April 1, 1990 till March 31, 1991, the notional sales tax liability of the petitioner No. 1 was calculated at Rs. 52,39,655. Copies of impugned assessment orders pertaining to petitioner No. 1 computing the notional sales tax liability as aforesaid are annexures "D" and "E" to the writ petition. In the assessment order, exhibit "E", to the petition, it is, inter alia, observed as under :
"The dealers have sales depots out of Maharashtra State for sales of their own products (pesticides). The manufacturing unit is at Mahad and office at Thane. The goods manufactured are brought to Thane godown and then dispatched out of Maharashtra State from plane. This is done due to transport facility at Thane. The godown at Thane is a central warehouse for products at Mahad.
The goods are despatched to sales depots out of Maharashtra State as per tentative requirements of these depots. However, if any depot is surplus of stock the goods are called lock, and again, despatched to the depots as per the requirements. As the dealers do not deal in the products of others and the sales depots out of Maharashtra State are exclusively for the sales of their own products, despatched from this office, the claim of branch transfers is accepted after reducing the amount of stock returned from the sales depots."
Thus the assessing authority has calculated notional sales tax liability on branch transfers, the branches outside Maharashtra, as more particularly set out in the petition. The petitioners would have never incurred any sales tax liability on "branch transfers" of locks within the State of Maharashtra or outside the State under the State sales tax law or Central Sales Tax Act or under the local sales tax law or in respect of mere consignment of goods.
(g) The assessing authority did not grant any set-off to petitioner No. 1 on presumptive basis as permissible to regular dealers liable to pay sales tax under the Act in terms of rules 42AC, 41D and 44D of the Rules framed by the State Government under the Bombay Sales Tax Act, 1959. We would like to observe here and now that we do not propose to adjudicate on question Nos. (iv) and (v) formulated in para 3 of this writ petition in view of different branches of Maharashtra Sales Tax Tribunal having taken a different view on the subject and the alternate remedy of making an application for reference being available to the petitioners. We shall concentrate and adjudicate only in respect of the controversy pertaining to the constitutional and legal validity of the impugned State action of treating branch transfers and consignment of goods as "deemed sales" for purpose of computation of "notional sales tax liability" as aforesaid. Prima facie no such set-off can be claimed by the eligible unit by virtue of the provisions contained in entry 136 of the Schedule to the relevant exemption notification. In our opinion, "notional sales tax liability" cannot be larger than actual sales tax liability subject to the exemption from tax being restricted in terms of exemption notification issued under section 41(1) of the Act.
Relevant provision of sales tax law and the Constitution of India.
8. (A) Section 2(12B) of the Bombay Sales Tax Act, 1959, defines the expression "eligibility certificate" as "a certificate granted by SICOM or the relevant Regional Development Corporation under the package scheme of incentives designed by the State Government for promoting industrialization of the backward areas of the State".
Section 2(12C) of the Act defines "eligible unit" as the industrial unit in respect of which an eligibility certificate is issued.
Section 2(28) of the Act defines the expression "sale" as under :
"'Sale' means a sale of goods made within the State for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge, and the words 'sell', 'buy' and 'purchase' with all their grammatical variations, and cognate expressions, shall be construed accordingly;
Explanation. - For the purpose of this clause, -
(a) a sale within the State, includes a sale determined to be inside the State in accordance with the principles formulated in sub-section (2) of section 4 of the Central Sales Tax Act, 1956;
(b)(i) every disposal of goods referred to in Explanation to clause (11);
(ii) a delivery of goods on hire-purchase or any system of payment by instalments;
(iii) the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service is made or given on or after the 2nd day of February 1983, for cash, deferred payment or other valuable consideration;
(iv) the transfer, otherwise than in pursuance of a contract, or property in any goods for cash, deferred payment or other valuable consideration;
(v) the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
shall be deemed to be a sale;"
Section 2(29) of the Act defines the expression "sale price". Section 2(32) of the Act defines the expression "tax" as sales tax, turnover tax, purchase tax, or additional tax as the case may be, payable under the Act. Section 2(35) of the Act defines the expression turnover of purchases. Section 2(36) of the Act defines the expression "turnover of sales". Section 3 of the Act is a charging section in respect of liability of a dealer to pay tax under the Act on his turnover of sales and on his turnover of purchases. Section 41(1) of the Act is of special relevance for the purpose of this petition. The said section reads as under :
"41. (1) Subject to such conditions as it may impose, the State Government may, if it is necessary so to do in the public interest, by notification in the Official Gazette, exempt any specified class of sales or purchases from payment of the whole or any part of any tax payable under the provisions of this Act and such exemption shall take effect from the date of the publication of the notification in the Official Gazette or such other date as may be mentioned therein."
The power of the State Government to issue notification under section 41 of the Act exempting any specified class of sales or purchase from the payment of the whole or any part of any tax payable under any Act is legislative in character. The subject-matter of tax exemption is thus governed only by the Act or the exemption notification issued under section 41(1) of the Act and cannot be whittled down or regulated by an executive fiat or the Government circular or Scheme or Government Resolution. On December 28, 1959 the Government of Maharashtra issued its Notification No. STA-1059(iii)G-1 in exercise of powers conferred on it under section 41(1) of the Act. Entry No. 136 of the Schedule appended to the said notification is directly relevant for the purpose of deciding this petition. Column Nos. 4, 5 and 6 of entry 136 will be shown immediately after columns Nos. 1, 2 and 3 thereof.
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Serial No. Classes of sales or purchases Exemption
Entry No. whether of
whole or part
of tax
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1 2 3----------------------------------------------------------------------
136. (1)(a) Sale, by a registered dealer, being an Whole of tax industrial unit set-up in the developing regions of the State of Maharashtra and certified by the State Industrial and Investment Corporation of Maharashtra Limited or as the case may be the relevant Regional Development Corporation as an eligible unit under the 1979 Scheme or the 1983 Scheme falling under the Package Scheme of Incentives and to whom a certificate of entitlement has been granted by the Commissioner for the purposes of this entry, of goods manufactured in the said unit, made during the period covered by the certificate of entitlement.
(b) Sales of any goods being raw material Whole of tax
as explained in Explanation II given
below by a registered dealer to a
registered dealer being an eligible
industrial unit referred to in clause
(a) during the period covered by the
certificate of entitlement.
(c) Purchase of any goods being raw Whole of tax
materials as explained in Explanation
II given below, by a registered dealer,
being an eligible industrial unit
referred to in clause (a), from an
unregistered dealer, during the period
covered by the certificate of
entitlement.
2.(a) Sale, by a registered dealer, being Whole of tax
an industrial unit set-up in the
developing regions of the State of
Maharashtra and certified by the State
Industrial and Investment Corporation
of Maharashtra Limited or as the case
may be, the relevant Regional
Development Corporation, as an eligible
unit under the 1988 Scheme falling
under the Package Scheme of Incentives
and to whom a certificate of entitlement
has been granted by the Commissioner for
the purpose of this entry, of goods
manufactured in the said unit and of
scrap goods, made during the period
covered by the certificate of
entitlement.
(b) Sales of any goods being raw material Whole of tax
as explained in Explanation II given
below by a registered dealer to a
registered dealer being an eligible
industrial unit referred to in clause
(a) during the period covered by the
certificate of entitlement.
(c) Purchase of any goods being raw Whole of tax
materials as explained in Explanation
II given below, by a registered dealer,
being an eligible industrial unit
referred to in clause (a), from an
unregistered dealer, during the period
covered by the certificate of entitlement.
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Conditions G.N.F.D. No. and date With effect
from
----------------------------------------------------------------------
4 5 6----------------------------------------------------------------------
1. If the selling dealer G.N.F.D. No. STA- With effect incorporates the following 1080/21/RES-8, dated from July 5, declaration in addition to the 5th July, 1980 and 1980 the certificate under Government Notification, section 12-A of the Bombay Finance Department Sales Tax Act, 1959, in No. STA-1081/232/ the sale bill or cash RES-8, dated 25th June, memorandum issued by him 1981, and Government in respect of the sale, Notification, Finance namely :- Department No. STA-
1088/173/Taxation-2
This sate is exempt from dated 3rd October, 1988,
tax under the provision of dated 5th October, 1988
entry No. 136 in the and G.N.F.D. STA-1089/
Schedule appended to 92/Taxation-2 dated
Government Notification, 9th February, 1990.
Finance Department No.
STA-1059-(iii)-G-1, dated
the 28th December, 1959
and the buyer, including
any subsequent buyer
purchasing these goods
(irrespective of whether
the buyer or any of the
subsequent buyer holds a
trade mark or a patent
in respect of the goods so
purchased or holds a
patent in respect of the
method or process of
manufacturing the goods
purchased) -
(i) shall not be entitled
to claim drawback,
set-off or refund under
any provisions of the
Bombay Sales Tax Act,
1959, or the Rules
framed thereunder, in
respect of purchases
of these goods; and
(ii) shall not give any
certificate in form,
31 under the Bombay
Sales Tax Rules, 1959
to any subsequent
purchaser of these
goods.
2. If the selling dealer
fulfils the conditions
specified in the appendix
hereto.
1. If the purchasing dealer 5-7-1980 to
furnishes to the selling date
dealer a declaration in
form BC bearing the seal
and signature of the Sales
Tax Officer or the
Assistant Commissioner of
Sales Tax as the case may
be, having jurisdiction
over the place of business
of the purchaser, declaring,
inter alia, that the goods
are required for use in the
manufacture of goods at the
said unit for sale within
the State or in the course
of inter-State trade or
commerce or in the course
of export out of the
territory of India or for
transfer outside the State
or in packing of goods so
manufactured and that the
purchase is made during the
period covered by the
certificate of entitlement.
2. The declaration furnished
by the purchasing dealer
shall be in printed form and
shall be serially numbered
in the chronological order
of issue and the dealer
shall keep mechanically
duplicated copies or carbon
copies of such certificates
duly signed and dated and
if required by the Sales Tax
Officer or the Assistant
Commissioner of Sales Tax as
the case may be, in whose
jurisdiction the unit is
situated, produce before
him such copies.
3. If the purchasing dealer
fulfils the conditions
specified in the appendix
hereto.
1. If the goods are used by 5-7-1980 to
the purchasing dealer in date
the manufacture of goods
at the said industrial unit
for sale within the State
or in the course of
inter-State trade or
commerce or in the course
of export out of the
territory of India or
transfer outside the State
or in packing of goods so
manufactured.
2. If the purchasing dealer
fulfils the conditions
specified in the appendix
hereto.
1. If the selling dealer
incorporates the following
declaration, in addition
to the certificate under
section 12-A of the Bombay
Sales Tax Act, 1959,
in the sale bill or cash
memorandum issued by him
in respect of the sale,
namely :-
This sale is exempt from
tax under the provision
of entry No. 136 in the
Schedule appended to
Government Notification,
Finance Department No.
STA-1059-(iii)-G-1, dated
the 28th December, 1959
and the buyer including
any subsequent buyer
purchasing these goods
(irrespective of whether
the buyer or any of the
subsequent buyer holds
trade mark or a patent
in respect of the goods
so purchased or holds a
patent in respect of the
method or process of
manufacturing the goods
purchased) -
(i) shall not be entitled to
claim drawback, set-off
or refund under any
provisions of the Bombay
Sales Tax Act, 1959, or
the Rules framed
thereunder, in respect
of the purchases of these
goods; and
(ii) shall not give any
certificate in form 31
under the Bombay Sales
Tax Rules, 1959 to any
subsequent purchaser of
these goods".
2. If the selling dealer
fulfils the conditions
specified in the appendix
hereto.
1. If the purchasing dealer
furnishes to the selling
dealer a declaration in
form BC bearing the seal
and signature of the
Sales Tax Officer or the
Assistant Commissioner of
Sales Tax as the case may
be, having jurisdiction
over the place of business
of the purchaser,
declaring, inter alia,
that the goods are
required for use in the
manufacture of goods at
the said unit for sale
within the State or in
the course of inter-State
trade or commerce or in
the course of export out
of the territory of India
or for transfer outside
the State or in packing
of goods so manufactured
and that the purchase is
made during the period
covered by the certificate
of entitlement.
2. The declaration furnished
by the purchasing dealer
shall be in printed form
and shall be serially
numbered in the
chronological order of
issue and the dealer shall
keep mechanically
duplicated copies or
carbon copies of such
certificates duly signed
and dated and if required
by the Sales Tax Officer
or the Assistant
Commissioner of Sales
Tax as the case may be
in whose jurisdiction
the unit is situated,
produce before him such
copies.
3. If the purchasing dealer
fulfils the conditions
specified in the appendix
hereto.
1. If the goods are used by
the purchasing dealer in
the manufacture of goods
at the said industrial
unit for sale within the
State or in the course of
inter-State trade or
commerce or in the course
of export out of the
territory of India or for
transfer outside the State
or in packing of goods so
manufactured.
2. If the purchasing dealer
fulfils the conditions
specified in the appendix
hereto.
Explanation I. - For the purpose of this entry "developing
regions" means. The regions mentioned and classified as such in
Government Resolution, Industries, Energy and Labour Department,
outlining the 1979 Scheme, the 1983 Scheme or the 1988 Scheme,
as the case may be.
Explanation II. - "Raw materials" include components, intermediate
goods, substances, consumables, stores and packing materials
which are utilised in the process of manufacture and packing
of finished products by the eligible industrial units referred
to in sub-entry (1) or (2), as the case may be.
Explanation III. - For the purposes of sub-entry (2) of this entry,
the word "manufacture" or its cognate expression used in this
entry would cover processes specified in clauses (i), (vii),
(xviii) and (xviii-a) of rule 3 of the Bombay Sales, Tax Rules,
1959.
APPENDIX
A. Where the dealer conducting the industrial unit for which the certificate of entitlement has been granted (which unit is hereafter in this appendix referred to as the "said industrial unit") has additional place or places of business either within the jurisdiction of the same Sales Tax Officer/Assistant Commissioner of Sales Tax or within the jurisdiction of different Sales Tax Officer/Assistant Commissioner of Sales Tax the dealer shall furnish a separate return in respect of said industrial unit and shall not be entitled to the permission to furnish consolidated return as far as the said industrial unit is concerned.
B. Separate books of accounts shall be maintained in respect of the said industrial unit.
C. No authorisation, recognition or permit shall be obtained in respect of the said industrial unit where the dealer has no additional place of business, and where the dealer has additional place or places of business and has obtained authorisation, recognition or as the case may be, a permit, he shall not use the authorisation, recognition or as the case may be, the permit for making purchases for the purpose of the business carried on by the said industrial unit.
D. Where the dealer has effected any purchases free of tax on furnishing a declaration in form BC referred to in column (4) of clause (b) each of sub-entries (1) and (2) above, he shall not be entitled to claim any drawback, set-off or refund in respect of such purchases under any provisions of the Bombay Sales Tax Act, 1959 or the Rules framed thereunder.
By the above referred notification read with entry 136 thereof as amended from time to time, it was clearly provided that sales and purchases by the registered dealers covered under the said entry were totally exempted from whole of the tax subject to the conditions specified in column 3 thereof. The said entry 136 was once again recast and the revised entry 136 is operative with effect from April 1, 1993. The changes made are of no material consequence for our purpose.
(B) Entry 54 in the State List, i.e., List II appended to the Seventh Schedule of the Constitution of India reads as under :
"54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I."
By the Constitution (Sixth Amendment) Act, 1956, a new entry No. 92-A was inserted in the Union List so as to empower the Union Legislature to levy taxes on the sale or purchase of goods other than newspapers where such sales or purchases took place in the course of inter-State trade or commerce. By the said Constitution Amendment Act, the present entry No. 54 in the State List was substituted and the legislative power of the State was confined to levy "taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I. By the same Amendment Act, a new sub-clause (g) was inserted in clause (1) of article 269 of the Constitution recognising and/or conferring the power on the Central Legislature to levy and collect tax on the sale or purchase of goods other than newspapers where such a sale or purchase took place in the course of inter-State trade or commerce. Such taxes could be assigned by the Central Government to the States in accordance with clause (2) of article 269. It is not necessary to refer to sub-article (3) of article 269 which was newly inserted in the Constitution by the said amending Act for the purpose of considering this petition. Article 286 of the Constitution as amended provided that no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase took place outside the State or in the course of import of the goods into or export of the goods out of the territory of India.
(C) The Central Sales Tax Act, 1956 (Act No. 74 of 1956) was enacted by Parliament. The said Act came into force on December 21, 1956. The said Act also provided for definition of the expression "sale" by section 2(g) of the Act. Section 6-A of the Act provided that no dealer shall be liable to pay tax under the Central Sales Tax Act merely because transfer of goods from one State to another unless such transfer had taken place as a result of sale. Section 8 of the said Act prescribed rate of tax on sales in the course of inter-State trade or commerce. Section 8(5) of the Act empowered the State Government to issue a notification in public interest so as to provide that no tax under the Central Act shall be payable by any dealer having his place of business in the State in respect of the sales by him in the course of inter-State trade or commerce from any such place of business of any such goods or class of goods as may be specified in the notification or that such sales shall be subjected to lower rate of tax.
(D) On February 2, 1983, the Constitution (Forty-sixth Amendment) Act, 1982 received the assent of the President of India. By the said Act sub-clause (b) was inserted in article 269 of the Constitution of India so as to empower the Union Parliament to levy tax on consignment of goods (where the consignment was to the person making it or to any other person) where such consignment took place in the course of inter-State trade or commerce. By the said Constitution Amendment Act, sub-clause (29A) was inserted in article 366 of the Constitution. By the said article, enlarged definition of the expression "tax on the sale or purchase of goods" was provided. The said definition reads as under :
"(29A) 'tax on the sale or purchase of goods' includes -
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
(b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract;
(c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments;
(d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration;
(f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration, and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."
In our opinion, these are the only provisions of law which have some bearing on the problems under consideration of this Court.
Relevant case law :
8. We shall now refer to the authorities cited at the Bar by Shri N. H. Seervai, the learned counsel for the petitioners.
9. In State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. , the Supreme Court construed entry 48 in List II forming part of Schedule VII to the Government of India Act, 1935, reading as under :
"Taxes on the sale of goods."
While construing the said entry, the court held that the expression "sale of goods" used in the said entry was liable to be construed in the sense in which the said expression was understood in English and English law. While referring to Chalmer's well-known treatise on the Sale of Goods, the apex Court held that the essence of sale was the transfer of the property in a thing from one person to another for a price. The Supreme Court held that in order to constitute a sale, it was necessary that there should he transfer of title to the goods by one person to another for the monetary consideration. In para 26 of the judgment (page 373 of STC), T. L. Venkatarama Aiyar, J., speaking for the court observed that the power to enact a law with respect to tax on sale of goods under entry 48 must, to be intra vires, be one relating in fact to sale of goods, and, accordingly, the Provincial Legislature could not in the purported exercise of its power to tax sales, tax transactions which were not sales by merely enacting that they shall be deemed to be sales. It is thus not open to the State Legislature to enact a law or levy tax on deemed sales if the transaction does not amount to sale in fact as understood under the Sale of Goods Act. In other words, the concept of sale as provided in the Indian Sale of Goods Act, 1930, was treated as incorporated in entry 48 of List II, Schedule VII to the Government of India Act, 1935. This decision is of considerable relevance for the purpose of understanding the constitutional history having bearing on the subject and for understanding the background which led to the enactment of the Constitution (Forty-sixth Amendment) Act, 1982 and insertion of sub-clause (29A) in article 366 of the Constitution. We are, firmly of the opinion that even the extended definition of the expression "tax on sale or purchase of goods" does not assist the respondents in this case so as to treat mere branch transfers or transfer of stocks from one branch to another as sale of goods. As far as consignment of tax is concerned, we need say nothing in this judgment save and except referring to the obvious fact that entry 54 in List II, Seventh Schedule to the Constitution in terms provides that the power conferred under the said entry was subject to the provisions of entry 92-A, List I and the subject-matter of consignment tax is directly the subject-matter of specific Union entry contained in entry 92-B of List I.
10. In Gannon Dunkerley & Co. v. State of Rajasthan , the Supreme Court interpreted various provisions of the Constitution (Forty-sixth Amendment) Act, 1982. In para 31 of the said judgment (pages 224-225 of STC), S. C. Agrawal, J., speaking for the Bench of five Judges of the Supreme Court observed that the legislative power of the States under entry 54 of the State List was subject to two limitations - one flowing from the entry itself which made the said power "subject to the provisions of entry 92-A of List I", and the other flowing from the prohibition contained in article 286. Parliament alone has the power to make a law in respect of taxes on sale or purchase of goods where such sale or purchase takes place in the course of inter-State trade or commerce. The State Legislature has no power to levy tax in respect of transactions of sale or purchase which takes place in the course of inter-State trade or commerce. No tax can he levied by the State Legislature in respect of sales or purchase of goods which take place outside the State. Reference may be made, if necessary, also to sub-clause (29A) of article 366 and article 269(1)(g) as well as article 269(1)(h) of the Constitution.
11. In Century Club v. State of Mysore [1965] 16 STC 38; AIR 1967 Mys 25, it was held by the Division Bench of the Mysore High Court that the State Legislature had no power to create a fiction while enacting a legislation under entry 54 of List II which had the effect of transgressing the constitutional limitations. In other words, the Legislature cannot do indirectly what it cannot do directly. Thus, the Legislature has no jurisdiction to provide for levy of tax on transactions which are not in reality sales or purchases. The High Court of Madras took the same view in the case of State of Tamil Nadu v. A. Rafeeq Ahmed & Co. [1983] 52 STC 281. The High Court of Andhra Pradesh took the same view in the case of Tholasi Venkatamunuswamy Chetty & Sons v. Commercial Tax Officer, Chittoor reported in [1974] 33 STC 497. In this case the court observed that the power to create a legal fiction or an imaginary state of affairs was one of the magic powers of the Legislature and so long as that power did not go beyond the legislative competence, a deeming provision could not be held to be invalid. In Chandarana & Co. v. State of Mysore [1972] 29 STC 302, Mathew, J., speaking for the Supreme Court observed as under :
"The only limit on the power of a Legislature to create a fiction is that it should not transcend its power by its creation."
12. We have no hesitation in accepting the submission of Shri Seervai in light of the interpretation of the various provisions of the relevant Acts and the Constitution in the above referred cases and holding that neither the State Legislature nor the State executive is and/or has jurisdiction to treat directly or indirectly mere branch transfer from one State to another or mere transfer of goods on consignment basis as deemed sales for whatever purpose - not even for the purpose of computing "notional sales tax liability" under the above referred package scheme of 1983.
13. There is another facet of the case as indicated below. Neither the State Legislature nor the State executive has any power to make any provision which is in the opinion of the court arbitrary or irrational or manifestly unreasonable or perverse. Such is the limitation on the powers of the State where the Legislature or executive enter in the sphere of public contracts. We shall now refer to the relevant case law cited by the learned counsel Shri Seervai on this aspect of the case.
14. In Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay , the Supreme Court has held that if there was arbitrariness in the State action, the action was liable to be struck down under article 14 of the Constitution of India. In para 31 of the judgment Sabyasachi Mukharji, J., as his Lordship then was, referred to the observations of Lord Justice block in Council of Civil Service Unions v. Minister for the Civil Service [1984] 3 All ER 935 at page 950 where the learned Lord Justice specified three grounds subject to control of judicial review, namely, illegality, irrationality and procedural impropriety. It appears to us that the decision of the State Government to treat mere branch transfers or consignment of goods as deemed sales so as to whittle down the entitlement to exemption from tax is manifestly arbitrary and is irrational.
15. In Kasturi Lal Lakshmi Reddy v. State of Jammu & Kashmir , the Supreme Court took a similar view. Arbitrariness in executive action or even in the sphere of contracts is an independent ground of attack available to the party aggrieved for seeking judicial redress from the writ court.
15A. In Mahabir Auto Stores v. Indian Oil Corporation the Supreme Court held that the action of the State while engaging in commercial transaction must also he reasonable, fair and just. Thus, the horizons of administrative law under article 16 of the Constitution of India are widened every day by the judgments of the Supreme Court so as to enable the citizen to obtain relief from the court whenever the impugned action is found to be arbitrary, unreasonable or irrational and eliminate arbitrariness from every activity of welfare State. No branch of the activity of the State in whichever sphere is exempted from judicial review on such a ground. Even the largess of the State is subject to rule of arbitrariness and if the scheme promulgated by the State contains arbitrary or irrational conditions, such arbitrary or irrational conditions can be struck down by the constitutional court.
16. In Kumari Shrilekha Vidyarthi v. State of U.P. the court took the similar view about the powers of the court to strike off arbitrary conditions imposed by the State even in contractual matters. Non-arbitrariness is a necessary concomitant of rule of law and is imperative for all actions of every public functionary as observed in para 48 of the above referred judgment of the court.
17. Shri R. D. Soni, the learned Assistant Government Pleader, has heavily relied on ratio of the judgment of the Supreme Court in the case of Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax . In this case, the Supreme Court interpreted rules 41 and 41-A of the Bombay Sales Tax Rules, 1961. In this case, the apex Court observed that the State of Maharashtra was entitled to levy and collect sales tax only in respect of sales effected within the State and not in respect of goods which were despatched by the appellant to his branches and agents outside the State. In this context, the court held that rules 41 and 41-A of the Bombay Sales Tax Rules providing for set-off of the purchase tax paid by the manufacturing dealer did not suffer from any infirmity merely because the said rules provided for deduction of one per cent of sale price of goods sent out of State and sold there for purpose of computation of set-off. As a matter of fact, the observations made by the court in para 9 of the judgment (page 193 of STC) to the effect that no tax can be levied by the State in respect of goods despatched by the appellant to its branches and agents outside the State of Maharashtra are helpful to the petitioner. Apart from the above referred observations, we see no relevance of this case for purpose of deciding the controversy which is subject-matter of this petition. It must also be stated in passing that the grant of sales tax exemption interlinked with compliance of several onerous conditions under a scheme like 1983 Scheme here cannot be described as mere indulgence or concession or bounty. In our opinion, the State is not entitled to incorporate irrational and illegal conditions in the scheme propounded by it and the impugned conditions do not enjoy any immunity from judicial scrutiny by the writ court.
18. There is a dispute between the parties as to whether the impugned portions of clause 2.11 of the above referred scheme are coverable. The learned counsel for the State has submitted that in case of a package scheme, some portion of its clauses or part thereof can never be struck down. We do not agree. In an appropriate case, the beneficial provisions can be retained and the illegal and offending portions struck down. The learned counsel for the petitioner cited the following judgments on this aspect of the controversy :
1. State of Bombay v. F. N. Balsara AIR 1951 SC 318.
2. R. M. D. Chamarbaugwalla v. Union of India .
In our opinion, it is enough to refer to the proposition of law formulated by the Supreme Court in para 22 of its judgment in the case of R. M. D. Chamarbaugwalla and particularly proposition No. 2. The said proposition No. 2 reads as under :
"2. If the valid and invalid provisions are so inextricably mixed up-that they cannot be separated from one another, then the invalidity of a portion must result in the invalidity of the Act in its entirety. On the other hand, if they are so distinct and separate that after striking out what is invalid, what remains is in itself a complete code independent of the rest, then it will be upheld notwithstanding that the rest has become unenforceable. (Vide, Cooley's Constitutional Limitations, Volume I at pages 360-361; Crawford on Statutory Construction, pages 217-218)."
In our opinion, the impugned portion of 1983 scheme are clearly distinct and separate and are not so inextricably mixed up that they cannot be separated from one another.
In D. S. Nakara v. Union of India , one more cited by Mr. Seervai, the doctrine of severability was applied so as to retain the beneficial part of the relevant memorandum and make the same applicable to the pensioners irrespective of date of their retirement.
The blue pencil rule evolved and/or recognised by the eminent text book writers on law of contract like Anson and Cheshire supports the approach and submissions of the learned counsel for the petitioner in this behalf.
Reasons and conclusions :
19. In our opinion, the issues arising in this petition are far too simple and no complex questions as such arise for consideration of the court.
20. It is well-settled law that the power of the State Legislature to enact a law for levy of sales tax or purchase tax is restricted to article 246(3) of the Constitution read with entry 54 in List II of the Seventh Schedule thereto. It is equally well-settled that the expression "sale" used in entry 54 of List II must be interpreted so as to be applicable only to transactions where there is a transfer of property in goods by one party to another for consideration. Whenever a dealer transfers stocks of goods from one branch to another, there is no transaction of sale. In such a case, there are no two parties to the transaction and there is no consideration, for transfer of goods. In such a case, the State Legislature has no, legislative competence to levy tax as if the transfer of goods or transportation of goods from one branch to another is deemed sale. Even the extended definition of the expression "tax on the sale or purchase of goods" as specified in sub-clause (29A) of article 366 of the Constitution does not provide for levy of a tax on mere branch transfer. Article 366(29A) of the Constitution provides for levy of a tax on the transfer of property in any goods for consideration in cash or deferred payment, etc., as set out therein. Article 366(29A) of the Constitution provides for levy of tax on the transfer of property in goods involved in the execution of a works contract. None of the sub-clauses of clause (29A) of article 366 takes within its sweep mere branch transfer of goods in the definition of "sale or purchase" of goods. Neither the State Legislature nor the Central Legislature has any legislative jurisdiction to levy tax on mere branch transfers of the goods. Such transactions cannot be treated as sale at all. Parliament alone has power to levy tax on the consignment of goods under article 246(1) of the Constitution read with entry 92B of List I contained in the Seventh Schedule appended to the Constitution. In no circumstances the State Legislature has any legislative power to levy any tax on the consignment of goods.
21. Article 162 of the Constitution provides that subject to the provisions of the Constitution the executive power of a State shall extend to the matters with respect to which the Legislature of the State has power to make laws. The executive power of the State executive is coextensive with that of the State Legislature. Similarly, the executive power of the Union is co-extensive with the power of the Union Legislature.
22. It is not open to the State Legislature to enact a legislation to the effect that a particular transaction shall be deemed to be a sale even though it cannot actually be a sale if by creating the said fiction it transgresses its legislative jurisdiction. The State executive has also no power to provide in any of the Government resolutions or Government scheme so as to treat a non-sale transaction as "a deemed sale" by creation of a fiction. The State Government cannot resort to the forbidden device by treating transactions like branch transfers or consignment of goods as "deemed sales" for purpose of computation of notional sales tax liability or for purpose of calculation of tax exemption availed of by the eligible unit. No indirect circumvention is permissible. Under entry 136 of exemption notification, the petitioner No. 1 is entitled to exemption from payment of whole of tax as set out therein. No new restriction or condition could be or can be added thereto by a mere Government circular, scheme or resolution.
23. We shall now summarise our conclusions with the formulation of further reasons in support thereof to the extent necessary in addition to reasons already set out in the earlier part of this judgment.
(1) Neither the State Legislature nor the State executive has any jurisdiction to levy sales tax, directly or indirectly by enacting fiction or otherwise, on branch transfers or consignment of goods outside the State. None of such transactions can be treated as sales or "deemed sales" for purpose of levy of tax under entry 54, List II appended to the Seventh Schedule of the Constitution, "actually or notionally".
(2) Neither the "branch transfers" nor mere consignment of goods can be treated as "deemed sales" as if exigible to sales tax even as a measure of computation of sales tax incentives availed of by the eligible unit nor for purpose of computation of "notional sales tax liability" as purported to be done by respondent No. 1 in this case. The respondent No. 1 is not entitled to circumvent the constitutional and other provisions of law in force by resorting to creation of "deemed provisions" in a Government circular, Government resolution or the scheme. "The notional sales tax liability" required to be computed for purpose of ascertaining the quantum of tax benefit availed of by the unit so as to keep the unit within the ceiling limit of tax exemption, cannot be more than the actual sales tax liability which would have been incurred by the eligible unit but for the tax exemption. If the exemption notification issued under section 41(1) of the Act provides only for partial exemption from tax or prescribes lawful conditions appended thereto, that would be a different matter.
(3)(a) The impugned portions of 1983 scheme are in conflict with the conditions of exemption stipulated by entry 136 of the Schedule forming part of relevant exemption notification and are thus void. Sales and purchases by the eligible industrial unit to whom a certificate of entitlement has been granted by the Commissioner of Sales Tax under the 1983 Scheme falling under entry 136 of the Schedule to the notification under section 41 of the Bombay Sales Tax Act, 1959, are exempted from "whole of tax" during the period covered by the certificate of entitlement subject to the ceiling prescribed therein, subject only to conditions specified in the said notification and no other condition. The said notification is of a legislative character. The conditions of exemption stipulated under the said notification cannot be enlarged or modified merely by issue of a Government resolution or an executive fiat. The State Government is not entitled to curtail or whittle down the "whole of tax exemption" by resorting to a device of converting non-sales into deemed sales in the garb of prescribing the so-called measure of computation for computation of tax exemption benefits availed of by the assessee-unit. Non-taxable transactions cannot be treated as deemed taxable and included in the turnover of sales and purchase for computation of benefits availed of.
(b) By virtue of entry 136 in the Schedule to the exemption notification, the petitioner No. 1 is entitled to exemption from whole of tax subject only to the condition specified therein and no other. The said entitlement cannot be whittled down directly or indirectly by providing for computation of amount of exemption availed of on a fictional or non-permissible basis or otherwise. The said entry does not provide for inclusion of branch transfers or transfer of goods on consignment basis in the turnover of sales. There is a clear conflict between the impugned portions of clause 2.11 of the impugned scheme and the above referred notification issued under section 41 of the Bombay Sales Tax Act, 1959. We have no doubt that the notification issued under section 41 of the Bombay Sales Tax Act, 1959, referred to hereinabove has an overriding effect and the impugned portion of clause 2.11 of the scheme is thus void to the extent of inconsistency with the above referred notification.
(4) The petitioners are not precluded in law from impugning illegal portion of condition laid down in the 1983 Scheme merely because the relevant scheme was propounded by the respondent No. 1 as a package scheme of incentives. There can be no estoppel against law. Fundamental rights cannot be waived. In an appropriate case, it is open to the writ court to effect severance of invalid portions of the scheme from the valid and beneficial provisions thereof.
(5) The impugned portions of clause 2.11 of the 1983 Scheme are without jurisdiction, unconstitutional, totally arbitrary and totally irrational. The impugned portions of clause 2.11 are thus violative also of constitutional guarantee enshrined in article 14 of the Constitution of India.
(6) The impugned portions of clause 2.11 of the scheme are clearly distinct and severable and the rest of the scheme is easily workable as incorporated in the exemption notification and are not inextricably mixed up with the valid provisions of the scheme.
(7) The impugned assessment orders are liable to be modified so as to exclude "the branch transfers" and "consignment of goods" from the computation of "notional sales tax liability" and computation of sales tax availed of by petitioner No. 1.
24. Operative part : In the result, the petition is allowed and the rule is made absolute in the following terms and as indicated below :
(1) It is hereby declared that clause 2.11(a) as well as clause 2.11(b) of the 1983 Package Scheme, exhibit "A", to the petition, is void ab initio, illegal, unconstitutional, without jurisdiction and ultra vires to the extent the said clauses treat "sales made on consignment basis" within the State or outside the State or branch transfers within the State or outside the State as "deemed sales" for the purpose of determination of notional sales tax liability or otherwise. The above referred illegal portions of clause 2.11 of the aforesaid scheme are struck down.
(2) We issue a writ of mandamus directing the respondents not to give effect and not to enforce the impugned portions of clause 2.11 of the said scheme to the extent indicated hereinabove.
(3) The rule is made absolute in terms of prayer (c) also.
(4) The petitioner shall be entitled to avail of the benefits flowing from this judgment on the footing as if the impugned portions of clause 2.11 were never operative at any point of time.
(5) The impugned assessment orders copies whereof are annexures exhibits "D" and "E" to the petition and all consequential communications issued by the respondents are hereby quashed to the extent the branch transfers of goods and mere consignment of goods, within the State or outside the State, by petitioner No. 1, are treated as "deemed sales" and are included in the turnover of sales for purpose of computation of notional sales tax liability or for purpose of computation of tax exemption benefit availed of by petitioner No. 1. The prescribed authority under the Bombay Sales Tax Act, 1959, is hereby directed to pass supplementary assessment orders and re-calculate the figures of notional sales tax liability from inception in light of this judgment within 8 weeks from today as far as possible after giving a reasonable opportunity of being heard to the petitioners. It is hereby clarified that the petitioner shall be entitled to avail of the balance of tax exemption during the period specified in certificate of eligibility and subject to the ceiling prescribed therein forthwith on the footing, that the petitioners have not received any benefit of tax exemption in respect of branch transfers or consignment of goods.
(6) The respondents are hereby directed to permit the petitioners to avail of "the whole of tax exemption" as available under entry 136 of the Schedule appended to the exemption notification referred to in the judgment subject to ceiling limit reaching Rs. 1,00,16,675 after deducting therefrom the tax exemption already availed of but without taking into consideration the transaction of branch transfer and consignment goods within the State or outside the State. The petitioner shall be bound to comply with all the lawful conditions prescribed by the exemption notification read with entry 136 of the Schedule as provided in the said entry itself.
(7) The dispute regarding presumptive set-off formulated in questions Nos. (iv) and (v) of para 3 of the petition is kept open and is not adjudicated in this petition.
(8) No order as to costs.
25. Writ petition allowed.