Supreme Court of India
VRAJLAL MANILAL AND CO. AND ANOTHERversusSTATE OF MADHYA PRADESH AND ANOTHER
- Citation
- 1986 INSC 58
- Decided
- 2 April 1986
- Disposal
- Dismissed
- Bench
- A P SEN
Holding
The amendments to the Madhya Pradesh General Sales Tax Act, including the higher tax rate on tendu leaves and the expanded definition of dealer, are constitutionally valid and do not violate Articles 14, 19(1)(g), 286(3), 301 or 304.
Summary
The appellants, a bidi manufacturing partnership and dealers in tendu leaves, challenged the Madhya Pradesh General Sales Tax (Amendment) Act, 1968 and the 1971 amendment which re‑classified tendu leaves as non‑raw material and taxed them at a higher rate. They alleged violations of Articles 14, 19(1)(g), 286(3), 301 and 304 of the Constitution, arguing discrimination, unreasonable restriction on trade and lack of legislative competence. The Supreme Court held that the State could validly classify tendu leaves as a distinct commercial commodity and levy a higher tax rate; the classification had a reasonable basis and did not infringe the equality clause or impede free trade. The amendments to the definition of "dealer" were also upheld as a permissible legal fiction. Consequently, the appeal was dismissed with costs.
Issues considered
- Whether the amendment treating tendu leaves differently from other raw materials violates Article 14 of the Constitution.
- Whether the amendment infringes the right to practice any profession, trade or business under Article 19(1)(g).
- Whether the amendment contravenes Article 286(3) relating to Parliament's power over inter‑State trade taxes.
- Whether the amendment impedes freedom of trade, commerce and intercourse under Articles 301 and 304.
- Whether the definition of "dealer" in the Sales Tax Act, as amended by the 1971 Act, is constitutionally valid.
- Whether the residuary entry in Schedule II makes tendu leaves taxable despite the amendment to Section 8.
Legislation cited
- Central Sales Tax Act, 1956s. Section 14
- Constitution of Indias. Art.14, s. Art.19(1)(g), s. Art.286(3), s. Art.301, s. Art.304
- Madhya Pradesh General Sales Tax Act, 1958s. 10, s. 11, s. 2(d), s. 6, s. 7, s. 8, s. Schedule II (Parts I‑V, Part VI)
- Madhya Pradesh General Sales Tax (Amendment) Act, 1968s. Section 8(1) (substitution)
- Madhya Pradesh General Sales Tax (Amendment and Validation) Act, 1971s. Explanation II to Section 2(d), s. Section 2(d) (amendment), s. Section 8(1) and 8(3)
Subjects
sales taxclassificationequality clausefreedom of tradestate taxation powertendu leavesraw materialconstitutional challengeArticle 14Article 19(1)(g)Article 301Article 304Article 286(3)
Judgment
98
A
VRAJLAL MANII.AL AND 00. AND AliOTllER
v.
STATE OF MAiJ!IYA PRADESH AND AliOTllER
APRIL 2, 1986
B [A.P. SEN AND D.P. MADON, JJ.]
Madhya Pradesh General Sales Tax Act 1958/Madhya Pradesh .J<,
General Sales Tax (Amendment) Act, 1968
Section 8(1) - Effect of Amending Act 1968 - Tendu "I
c leaves treated different from 'raw materials' - Increase in )
rate of tax - Whether within legislative competence of State - ~
Whether violates Articles 14, 19(l)(g), 301 and 304 of
Constitution.
The Madhya Pradesh General Sales Tax Act, 1958 came into
D force on April 1, 1959 repealing all the earlier sales tax
laws in force in the State. With effect from that date tho!
Central Government or a State Government or any of their
departments or offices which buy, sell, supply or distributo! J
goods, directly or otherwise, for cash or other
considerations, is to be deemed to be a 'dealer' for th<! •
E purposes of the Act irrespective of the fact whether such
purchase, sale, supply or distribution of goods is in the
course of business or not.
•
By the Madhya Pradesh General Sales Tax (Amendment) Act
1968, which came into force from April 15, 1968 sub-s. (1) of !
F s. 8 of the M.P. Sales Tax Act was substituted and tendu~
leaves ceased to be raw material for the purposes of s. 8 and .
consequently became exigible to tax at the rate of 7% under "
s.6 read with residuary Entry No.l in Part VI of Schedule II.
By s. 10 of the Madhya Pradesh General Sales Tax
G (Amendment and Validation) Act, 1971 certain amendments,
including the amendments made by clause (i) of s.2, were
deemed to have formed part of the M. P. Sales Tax Act from the I'
date of its co11111encement. A new sub-cl. (i) was substituted "
for the original sub-cl. (i) and a further Explanation II was
inserted in cl. (d) of s.2 with retrospective effect from
H April 1, 1959. By the 1971 Act sub-s. (1) of s.8 was again
substituted and a new sub-s. (3) was inserted in s.8, and they
VRAJLAL MANILAL v. STATE 99
A
-""""-. C8Jl8 into force on May 6,
1971. With effect froa that date the
proVisions of s.8 ceased to a~ply to sales of any goods 111lde
by the Forest Depart11ent of the State Government or any of the
offices under that Department, but where goods were purchased
by a registered dealer from the Forest Department or any of
the of fices of that Department and used by him as a raw B
material for the manufacture of other goods for sale within
~the State of Madhya Pradesh or in the course of inter-State
trade or co.-erce or in course of export out of the territory
of India such dealer became entitled to a set-off of an amount
• equal to the difference between the tax payable at the full
; rate on such goods as mentioned in Schedule II and the tax
-,.J payable on raw material at the rate of 2%. Purchases of Tendu c
· leaves by the registered dealers f roa the Forest Department of
.._the State Government or any of the offices under that
' Department did not, however, qualify for the set-off.
The appellant-firm carried on business as mallllf acturers
of bidis and dealers in tendu leaves. It filed a petition D
under Art. 226 of the Constitution challenging the validity of
amendaent 118de in sub-s. (1) of the Madhya Pradesh General
es Tax Act 1958 by the Madhya Pradesh General Sales Tax
endment) Act 1968 to the extent that the said aaend.Ent
ated tendu leave differently from other raw materials.
E
After the enactment of the Madhya Pradesh General Sales
(Amendment and Validation) Act 1971, the writ petition was
aded to challenge also the validity of the amendments.
~ ~1milar writ petitions were also filed by other bidi
llllDUfacturers and dealers in tendu leaves. The High Court
j dismissed all these petitions. F
In the Appeal to this Court on behalf of the appellants
it was contended : (i) that as sales and purchases of tendu
leaves cease to be exigible to tax under s.8 by reason of the
amendments ll&de therein and as tendu leaves were not mentioned
in any of the entries in Schedule II to the M. P. Sales Tax G
Act, sales and purchases of tendu leaves could not be made
-y- exigible to tax under s.6 read with the residuary Entry No. 1
in Part VI of Schedule II; (ii) that neither the State
Government nor any of its departments including the Fores~
Department or its off ices was a dealer as defined in cl. (d)
of s.2; (iii) that the impugned amendments to s.8 are H
100 SUPREME COURT REPORTS [1986] 2 S.C.R.
A violative of Arts. 14, 19(1 )(g) 286(3), 301 and 304 of the )
Constitution as tendu leaves were discriminated against
hostilely as compared with other raw materials in that the
rate of tax on the sales and purchases of tendu leaves was
made nuch higher than the rate of tax on the sales and
purchases of other raw materials; that there was no reasonable
basis for making a distinction between tendu leaves and other
B raw materials inasDl.lch as the only use to which tendu leaves •
were put was as a raw material in the manufacture of bidis;
that td.thout amending the definition of "raw material" given
in cl. (1) of s. 2 of the M.P. Sales Tax Act, a different rate
of tax cannot be levied upon tendu leaves; and that by t8Jdng ·
c
tendu leaves at a higher rate than in the neighbouring States 1 J
the cost of bidis manufactured in the State of Madhya Pradesh
increased considerably and thus it impeded the freedom of _.
trade and co11111erce throughout the territory of India.
Dismissing the Appeal,
D HELD: 1. Schedule I to the M.P. Sales Tax Act 1958 sets
out the list of goods which are exempted from payment of tax
under s.10. Parts I to V of Schedule II set out the different
classes of goods and the rate at which tax is payable. The
residuary Entry No. 1 of Part VI states that the rate of tax
on sales and purchases of "All other goods not included in
E Schedule I or any other part of this Schedule" shall be the
one specified in that Entry. Therefore, sales or purchases of
any class of goods not specifically mentioned in any of the
Entry in Schedule I or any of the Entries in Parts I to V of
Schedule II are exigible of tax at the rate shown in the
residuary Entry, unless there is any specific provision in-the_
F Act to the contrary as there is ins. 8. [112 D-F]
M/s. Amrarkban Kahboob r.o. v. '1'he State of Boabay (nm
Maharashtra) and others, [1961] 1 s.c.R. 709, relied upon.
2. Merely because a particular provision in a statute is
G labelled as an Explanation it does not mean that it is
inserted merely with a view to explain the meaning of words )
contained in the section of which it forms a part. 'nle true
scope and effect of an Explanation can only be judged by its
express language and not merely by the label given to it. The
language of Explanation II to cl. (d) of s. 2 of M.P. Sales
H
VRAJLAL MANILAL v. STATE 101
A
-i' Tax Act shows . that its purpose is to create a legal fiction,
and that while under the main clause for a person to be
dealer, he l!USt carry on the business of buying, selling
supplying or distributing goods, even if the Central
Goveament or a State Government or any of their departments
or offices does not carry on such business, if it buys, sells, B
. supplies or distributes goods, it is to be deemed to be a
--'P-dealer for the purpose of the Act, that is, for the purposes
of the levy and collection of the tax under the Act. After the
amendment of cl. (~),by the 1971 Act it is irrelevant for the
purposes of the levy of tax under.the Act whether the Central
l Govermient or State Government or any of their departments or ·
offices have bought or sold goods in the course of business. c
h
I
I
[114 B-F]
Oriellr Paper Kills I.bi. v. lbe State of Madhya Pradesh
~others, [1971] 28 S.T.C. 532, referred to.
3. Tendu leaves do not stand on the same footing . as D
other
I consw:iable ra:"' i::aterials. Their only use appears to be as a
packing material or container for tobacco in the
i:anufacture of bidis just as a cigarette paper is used in the
i::anufacture of cigarettes. Thus, tendu leaves from a separate
class of coi::Dercial commodity and it is open to the State to
~:;..tax theI:1 differently' from other commercial colllllOdities falling
l
E
in the class of goods kn= as "raw material" [119 H; 120 A]
'
}'..essrs !'..ohanlal Hargovind of Jubbtlpore v. rn..tssioner
of Inca=-t=, C.P. and Berar, Nagpur, L.R. (1948-49) 57 I.A.
235, 237; s.c. A.I.R. 1949 P.C. 311, approved.
F
'( Xh=ja:i Cian:l etc. v. State of Jamu and Kaafud.r and
Ot!i.exs, [1984] 2 s.c.R. 858; State of Orissa and others v. Ille
Titaghur Paper Mills Company I.bi. and another, [1985) 3 s.c.R.
26, 65; T.G. Vei:Jtataraman, , etc. v. r State of Madras and
miother, [1969) 2 S.C.C. 299; Jaipur Hosiery Mills (P) I.bi.
Jctpur v. lbe State of Rajasthan and others, [1971) l S.C.R. G
396, and Uoecl!st Pharnceuticales I.bi. and Another etc. v.
_,f:lt~~e of lliht!r a:ld Others, [1983] 3 s.c.R. 130, relied upon.
4. Tendu leaves cannot by any stretch of imagination be
equated with bidis or tobacco because just as cigarettes paper
used for rolling cigarettes cannot be equated by any stretch H
of ii::agination with cigarettes or tobacco. [123 A)
102 S~ COURT REPORTS [1986] 2 s.c.R.
A
5. 'nle increase in the rate of tax on a particular ~
commdity cannot per ~ be said to impede free trade and
co-erce in that comodity. [124 A) ~
State of lerala •· A.B. Abda1. lbadir an4 otbera. [1970)
1 s.c.R. 700, relied upon.
B
6. In the instant case there was nothing' to show tha~
impugned increase in the rate of tax on the sales and purchas ~
es of tendu leaves has put an end to that trade or has caused
that trade to decline nor was there any material to show that
by reason of the increase in the rate of tax on the sales and
c purchases of tendu leaves, the trade in bidis manufactured i~)..
the State of Madhya Pradesh had stopped or had deceased. Art•
301 to 304 were neither enacted to safeguard the pleasure_.
derived by bidi sllOkers from an indulgence in their habit to
ensure that bidi sDK>lters would continue to get for all time
bidis 118.DUfactured in Madhya Pradesh at the same price. 'nle
D increase in the rate of tax on the sales and purchase of tendu
leaires does not also ~nt to an unreasonable restriction on
the right to carry ontrade or business in tendu leave or
bidis. [124 D-E; 124 H; 125 A]
CIVIL APPELLATE JURISDICTION Civil Appeal No. 2635 of•
E 1972.
From the Judgment and Order dated 14th October, 1971 of
the Madhya Pradesh High Court in Miscellaneous Petition No.
317 of 1971.
F Rameshwar Nath for the Appellants.
A.K. Sanghi for the Respondents.
The Judgment of- the Court was delivered by
G MADON, J. The Fi rst Appellant is a partnership firm
regis tered under the Indian Partnership Act, 1932, (Act No. IX
1
of 1932). The Second appellant is one of the partners of the)
First appellant Firm. The First appellant Firm carried on at
all relevant times business as manufacturers of bidis and
dealers in tendu leaves. The Appellants filed a writ petition
H
/
VRAJLAL MANII.AL v. STATE [MAOON, J.] 103
~ under Article 226 and 227 of the Constitution of India, being A
Miscellaneous Petition No. 317 of 1971, against the State of
Madhya Pradesh and the Divisional Forest Officer, Raisen
Division, challenging the validity of the Amendment made in
sub-section ( 1) of section 8 of the Madhya Pradesh General
Sales Tax Act, 1958 (M.P. Act No. 2 of 1959), by the Madhya B
Pradesh General Sales Tax (Amendment) Act, 1968 (M.P. A.ct No.
x.. 9 of 1968) to the extent that the said amendment treated tendu
leaves differently from other raw materials and for an
appropriate writ, order or direction quashing the levy of
Sales tax on tendu leaves disposed of by the State Government
, and for restraining the State Government and its Officers from
,J enforcitli or giving effect to the Madhya Pradesh General c
·'Sales Tax (Amendment) Act, 1968, to the extent that it amended
,1.,. section 8(1) of the Madhya Pradesh General Sales Tax Act,
1958. In view of the reliefs claimed in the said writ
petition, it is difficult to understand how Article 227 of the
Constitution could at all come into the picture. This
obviously was the result of the general laxity in drafting D
pleadings which is unfortunately becoming more prevalent as
each year passes. The said writ petition was in reality a
petition filed under Article 226 of the Constitution. After
_J_ the enactment of the Madhya Pradesh General Sales Tax
(Amendment and Validation) Act 1971 (M.P. Act No. 13 of 1971),
which inter alia amended the definition of 'dealer' in clause E
(d) of section 2 with retrospective effect and further amended
section 8; the Appellants amended their writ petition to
challenge also the validity of the said amendments. The said
writ petition was heard along with sixty-four similar writ
petitions filed by other bidi manufacturers and dealers in
tendu leaves and by a CO!llllk)n judgment delivered on October 14, F
-1971, all these writ petitions were dismissed with costs. The
Appellants thereafter obtained from the High Court under
sub-clause (a) of clause (1) of Article 133 of the
Constitution, as it stood prior to the amendment of clause (1)
by the Constitution (Thirtieth Amendment) Act, 1972, a
certificate of fitness to appeal to this Court on the ground G
that the aroount or value of the subject matter of the dispute
in the High Court, namely, the liability to pay tax, as also
of the dispute on appeal was roore than Rs. 20, 000 and the
Appellants have accordingly filed the present Appeal.
H
104 SUPREME COURT REPORTS [1986] 2 S.C.R.
Prior to April 1, 1959, there were different laws in ~
A
force in the State of Madhya Pradesh relating to the levy of
tax on the sales and purchases of goods, each of them applying
to dif f ercnt regions of the State. These laws were the Central
Provinces and Berar Sales Tax Act, 1947, the Madhya Bharat
Sales Tax Act, Samvat 2007, the Central Provinces and Berar
B Sales Tax Act, 1947, as extended to and in force in the
Vindhya Pradesh and Bhopal regions, the Rajas than Sales Tax .)\
Act, 1954, as in force in the Sironj region, -and the Vindhya
Pradesh Sales Tax on Coal Ordinance, 1948. With a view to
consolidate and amend all these laws and to replace them by a
uniform law for the levy of tax on the sales and purchases of
c goods in the entire State of Madhya Pradesh, the Madhya .l.
Pradesh Legislature enacted the Madhya Pradesh General Sale~
Tax Act, 1958 (M.P. Act No. 2 of 1959). This Act will_;,
hereinafter be referred to in short as "the M.P. Sales Tax
Act". Under sub-section (2) of section 1, the M.P. Sales Tax
Act extended to the whole of Madhya Pradesh and under
D sub-section (3) of section (1) it was to come into force on
such date as the State Government may, by notification,
appoint in that behalf. The M. P. Sales Tax Act was brought
into force on April 1, 1959, by the Madhya Pradesh Separate
Revenue Department Notification No. 622-1586-V-SR dated March .~
21, 1959, published in the Madhya Pradesh Gazette dated March
E 27, 1959, Part 3, Section I, at page SO. By the M.P. Sales Tax
Act all the earlier sales tax laws in force in the State of
Madhya Pradesh were repealed.
All fiscal enactments are fair game for the amending ·
zeal of the Legislatures and the M.P. Sales Tax Act has not I
F been an exception to this rule. We are, horwever, concerned in
this Appeal with only a few sections of the M.P. Sales Tax Act f
and with only certain amendments made therein and we will
confine ourselves to referring to them only.
Section 4 of the M. P. Sales Tax Act provides for the
G incidence of taxation. Under it every dealer whose turnover
exceeds the limit specified in sub-section (5) of section 4
for a particular period is liable to pay tax on his taxable '
turnover in respect of his sales or supplies of goods effected
in Madhya Pradesh. Clause (d) of section 2 defines the term
"dealer". The relevant provisions of that definition as
H originally enacted were as follows :
VRAJLAL MANILAL v. STATE [MADON, J.] 105
A
"(d) 'dealer' means any person who carries on the
business of buying, selling, supplying or
distributing goods, directly or otherwise, whether
for cash, or for def erred payment, or for
commission, reDUneration or other valuable
consideration and includes -
B
(i) the Central or a State Government or any of
their departments, a local authorl.ty, a company, an
undivided Hindu Family or any society (including a
co-operative society), club, firm or association
• which carries on such business;
c
x x x x x x "
-'-- By clause (i) of section 2 of the Madhya Pradesh General Sales
Tax (Amendment and Validation) Act, 1971 (M.P. Act No. 13 of
1971) (hereinafter referred to as "the 1971 ii.ct"), clause (d)
of section 2 was amended. By this amendment, a new sub-clause
D
(i) was substituted for the original sub--clause (i) and a
further Explanation to the said clause (d) was inserted as
Explanation II. This substituted sub-clause (i) is as follows:
"(i) a local authority, a company, undivided Hindu
Family or any society (including a co-operative
E
society), club, firm or association which carries
on such business".
'\ The new Explanation II is as follows
" Explanation II. - The Central or a State
-\ Governments or any of their departments or off ices
F
which, whether or not in the course of business,
buy, sell, supply or distribute goods, directly or
otherwise, for cash or for deferred payment, or for
commission, renuneration or for other valuable
consideration, shall be deemed to be a dealer for G
the purposes of this Act."
By section 10 of the 1971 Act certain amendments, including
the amendments made by clause (i) of section 2, were deemed to
•. have formed part of the M.P. Sales Tax ii.ct from the date of
its commencement. The new sub-clause (i) was thus substituted H
•
\
106 SUPREME COURT REPORTS [19861 2 s.c.R.
A
and the new Explanation II was thus inserted in clause (d) of '
section 2 with retrospective effect from April 1, 1959. By
section 11 of the 1971 Act, all assessments, re-assessments,
levy or collection of any tax or imposition of any penalty
made or purported to be made and any action or thing taken or
done or purported to have been taken or done in relation to
B such assessment, re-assessment, levy, collection or imposition
under the M, P, Sales Tax Act before the commencement of the
1971 Act were validated as if they had been made, taken or -\
done under the M.P. Sales Tax Act as amended inter alia by
section 2 of the 1971 Act. The 1971 Act came into force-;;;:;:-May
6, 1971. •
c
Section 6 of the M. P. Sales Tax Act provides for the }'--
levy of tax. As originally enacted section 6 read as follows :
"6. Levy of tax. -
D The tax payable by a dealer under this Act shall be
levied on his taxable turnover relating to goods
specified in Schedule II, at the rate and at the
point mentioned in the corresponding entry in
columns 3 and 4 respectively, of the said Schedule."
E Schedule II to the M.P, Sales Tax Act is divided into several
parts. Part VI is the residuary part and contains only one
entry which is as follows :
PART VI
y
F "l. All other goods not 4 per cent On the point of I
included in Schedule I first sale in )-
or any other part of the State by a
this Schedule. dealer liable
to tax. 11
G Section 11 of the M.P. Sales Tax Act confers upon the State
Government the power to amend, by notification, any entry in
Schedule II. By Notification No. 2741-1789-V-ST dated August '~
29, 1967, the rate of tax mentioned in the said residuary
entry was increased from four per cent to seven per cent with
effect from September l, 1967. Schedule I mentioned in the
H said residuary entry contains the list of goods which are
/
VRAJLAL MANILAL v. STATE [MADON, J. ] 107
A
, --{ exempted from tax by section 10 of the M.P. Sales Tax Act.
j Under Entry 42 of Schedule I to the M. P. Sales Tax Act,
, tobacco, manufactured or unmanufactured, cured or uncured, and
tobacco products including cigarettes, cigars, cheroots and
./ bidis are exempt from tax. Section 7 provides for the levy of
purchase tax. As originally enacted (omitting the proviso
J. thereto which is not material for our purpose) section 7 was B
as follows
)._
"7. Levy of purchase tax. -
Every dealer who in course of his business
purchases any taxable goods, in circumstances in
which no tax under section 6 is payable on the sale
c
price of such goods and either consumes such goods
in the manufacture of other goods for sale or
otherwise or disposes of such goods in any manner
other than by way of sale in the State or
I despatches them to a place outside the State except
as a direct result of sale or purchase in the
course of inter-State trade or coumerce, shall be
D
liable to pay tax on the purchase price of such
goods at the same rate at which it would have been
leviable on the sale price of such goods under
section 6:
II E
x x x x x x x
• Clause (1) of section 2 of the M. P. Sales Tax Act, as
originally enacted and as it stood at all relevant times,
>; defined the expression "raw material". This definition was as
..., follows :
F
-\
"(l) 'raw material' means an article used as an
ingredient in any manufactured goods or an article
consumed in the process of manufacture and includes
fuel and lubricants required for the process of
manufacture, but does not include bullion and
G
specie".
'\
\ ' Section 8 provides for the rate of tax iii. the case of raw
materials. As originally enacted, section 8 provided as
follows :
H
108 SUPREME COURT REPORTS [1986] 2 s.c.R.
A
"8. Rate of tax for raw material. - )----, !
(1) Notwithstanding anything contained in this Act, ~
but subject to such restrictions and conditions as
may be prescribed, the rate of tax payable on the \
sale to or purchase by a registered dealer of any I
B raw material for the manufacture of other goods for
sale in the State of Madhya Pradesh or in the
course of inter-State trade or commerce shall be-',
one per cent of the sale or purchase price of such
raw material.
c ( 2) Where any raw material purchased by a
registered dealer under sub-section (1) is utilised"'-
by him for any purpose other than a purpose
specified in the said sub-section, such dealerJ.
shall be liable to pay tax at the full rate
mentioned in column 3 of Schedule II on the
D purchase of such raw material, together with such
penalty not exceeding twenty-five per cent of the
amount of the sales-tax payable by such dealer as
the Commissioner may determine having regard to the J.
circumstances in which such use was made."
E Section 8 was amended several times. It is unnecessary to
refer to those amendments except to mention that by the
substitution of section 8(1) made by the Madhya Pradesh
General Sales Tax (Amendment and Validation) Act, 1967 (M.P.
Act No. 23 of 1967) the rate of tax on the sale or purchase of ~
raw material was increased to two per cent, This amendment
F came into force on December 21, 1967. We are concerned in this ) r
appeal only with the amendments made by the Madhya Pradesh --
General Sales Tax (Amendment) Act, 1968 (M.P. Act No. 9 of
1968) (hereinafter referred to as "the 1968 Act"), which was
brought into force from April 15, 1968, and the 1971 Act. By
the 1968 Act sub-section (1) of section 8 was substituted as
G follows :
"(1) Notwithstanding anything contained in section
6 or section 7 but subject to such restrictions and
conditions as may be prescribed, the rate of tax
payable on the sale to or purchase by a registered
H dealer of any rdW material other than tendu leaves
VRAJLAL MANUAL v. STATE [MADON, J, ] 109
A
for the manufacture of other goods for sale in the
State of Madhya Pradesh or in course of inter-State
trade or connnerce shall be two per cent of the sale
or purchase price of such raw material :
Provided that when the tax payable on the sale or B
purchase of such raw material under sections 6 or 7
is payable at a rate lower than two per cent, the
tax payable under this sub-section shall be
calculated at such lower rate."
By the 1971 Act sub-section (1) of section 8 was again
·~ubstituted and a new sub-section (3) was inserted in section C
8. The amendments made in section 8 by the 1971 Act were not
J..retrospective and they, therefore came into force on May 6,
1971 , namely, the date of the coming into force of the 1971
Act, Section 8, as it emerged after the amendments made by the
1971 read as follows :
D
11
8. Rates of tax for raw -terlal. -
(1) Notwithstanding anything contained in section 6
. "' or section 7 but subject to the provisions of
sub-section (3) and to such restrictions and condi-
tions as may be prescribed, the tax payable under E
- section 6 or section 7, as the case may be, on the
sale or purchase by a registered dealer of any raw
material other than tendu leaves for the
manufacture of other goods for sale in the State of
Madhya Pradesh or in the course of inter-State
trade or commerce or in the course of export out of F
the territory of India shall be levied at 2 per
cent of the . sale or purchase price of such raw
material
Provided that when the tax payable on the sale or
purchase of such raw material under section 6 or 7 G
is payable at a rate lower than two per cent, the
tax payable under this sub-section shall be
calculated at such lower rate.
(2) Where any raw material purchased by a
registered dealer under sub-section (1) is utilised H
llO SUPREME COURT REPORTS [1986] 2 S.C.R.
A
by him for any purpose other than a purpose
specified in the said sub-section, such dealer
shall be liable to pay as penalty an amount not
less than the difference between the amount of tax
on the sale of such raw material at the full rate
mentioned in column (3) of Schedule II and the
B amount of tax payable under sub-section (1) and not
exceeding one and one-quarter times the amoun1t of ·-'
tax at such full rate as the Commissioner may
determine having regard to the circumstances in
which such use was made : •
c Provided that no such penalty shall be imposed lln a)-..
registered dealer where any raw material purchased
by him under sub-section (1), is sold by him, J.
subject to such restrictions and conditions as may
be prescribed, to another registered dealer, for
the purpose specified in that sub-section :
D
Provided further that where such registered dealer
subsequently purchasing the raw material as ~
aforesaid, utilises it for any purpose other than
the purpose specified in sub-section ( l) he shall ;....
be liable to pay the penalty specified under
E sub-section (2).
(3) Nothing in this section shall apply to the
sales of any goods made by the Forest Department of
'r
the State Government or any of the offices under
that Department : ,.
F )·
Provided that where any goods other than teruiu
leaves purchased by any registered dealer from lthe
Forest Department or any of the offices under that
Department are used by him as a raw material for
the manufacture of other goods for sale in the
G State of Madhya Pradesh or in the course of
inter-State trade or conmerce or in the course of
export out of the territory of India, the dealer y·
shall be entitled, in such manner, as may be
prescribed to a set off of an amount equal to the
H
VRAJLAL MANll.AL v, STATE [MADON, J. ] 111
A
difference between the tax payable at the full rate
on such goods as mentioned in Schedule II and the
tax payable on raw material at the rate specified
in sub-section (1)."
The result of the various amendments to the M.P. Sales B
Tax Act referred to above is fourfold, namely,
(1) with effect from April 1, 1959, the Central
Government or a State Government or any of their
departments or offices which buy, sell, supply or
distribute goods, directly or otherwise, for cash
or other consideration, is to be deemed to be a c
dealer for the purposes of the M.P. Sales Tax Act
irrespective of the fact whether such purchase,
sale, supply or distribution of goods is in the
course of business or not;
(2) with effect from April 15, 1968, tendu leaves D
ceased to be raw material for the purposes of
section 8 of the M. P. Sales Tax Act and
consequently became exigible to tax at the rate of
seven per cent under section 6 read with the
residuary Entry No. 1 in Part VI of Schedule II;
E
(3) with effect from May 6, 1971, the provisions of
section 8 ceased to apply to sales of any goods
made by the Forest Department of the State
Government or any of the off ices under that
Department, but where goods were purchased by a
registered dealer from the Forest Department or any F
of the offices of that Department and used by him
as a raw material for the manufacture of other
goods for sale within the State of Madhya Pradesh
or in the course of inter-State trade or commerce
or in the course of export out of the territory of
India, such dealer became entitled to a set-off of G
an amount equal to the difference between the tax
payable at the full rate on such goods as mentioned
in Schedule II and the tax payable on raw material
at the rate of two per cent; and
H
112 SUPREME COURT REPORTS [1986] 2 S.C.R.
A
(4) purchases of tendu leaves by registered dealers
from the Forest Department of the State Government
or any of the offices under that Department did
not, however, qualify for the set-off mentioned
above even though the condition prescribed for
obtaining such set-off was fulfilled.
B
Before we turn to the challenge to the constitutional ,
validity of the impugned amendments to section 8, it will be
convenient to dispose of two other contentions which were
raised in this Appeal. The first contention was that as sales
and purchases of tendu leaves cease to be exigible to tax
c under section 8 by reason of the amendments made therein and )-
as tendu leaves were not mentioned in any of the entries in
Schedule II to the M.P. Sales Tax Act, sales and purchases of )
tendu leaves could not be made exigible to tax under section 6
read with the residuary entry No. 1 in Part VI of Schedule II.
This argument requires merely to be stated in order to be
D rejected. Schedule I to the M.P. Sales Tax Act sets out the
list of goods which are exampted from payment of tax under
section 10. Parts I to V of Schedule II to the M.P. Sales Tax
Act set out the different classes of goods and the rate at
which tax is payable in respect of the sales and purchases
thereof. The residuary Entry no. 1 of Part VI states that the
E rate of tax on sales and p<lrchases of "All other goods not
included in Schedule I or any other part of this Schedule"
shall be the one specified in that Entry. Therefore, sales or
purchases of any class of goods not specifically mentioned in
I
any of the entries in Schedule I or any of the entries in
Parts I to V of Schedule ll are exigible to tax at the rate
F shown in the residuary entry, unless there is any specific
provision in the M.P. Sales Tax Act to the contrary as there
is in section 8 which originally provided that its provisions
would apply notwithstanding anything contained in the M.P.
Sales Tax Act and after the amendment of section 8 by the
Madhya Pradesh General Sales Tax (Amendment) Act, 1961 (M.P.
G Act No. 20 of 1961), which was brought into force on June 1,
1961, provided that they would apply notwithstanding anything
contained in section 6 or section 7 of the M.P. Sales Tax Act.
No authority is necessary for a proposition so obv,ous as this
but i.f one were required, we need only refer to the decision
H
VRAJLAL MANI LAL v. STATE [MADON, J. ] 113
A
-1 of a Constitution Bench of this Court in M/s. Anwarkhan
Mahboob Co. v. The State of Bombay (now Maharashtra) and
others, [1961] 1 S.C.R. 709 in which this proposition was laid
down where a similar residuary entry fell to be construed.
The next contention was that neither the State Government B
nor any of its departments including the Forest Department or
;.._its offices was a dealer within the meaning of that term as
defined in clause (d) of section 2 as nor1e of them carried on
the business of buying, selling, supplying or distributing
goods and that Explanation II which was inserted in the said
clause (d) did not have the effect of enlarging the concept of
' ~ dealer as defined in that clause. In support of this C
contention reliance was placed upon a decision of the Madhya
J.Pradesh High Court in Orient Paper Mills Ltd. v. The State of
Madhya Pradesh and others, [1971] 28 S.T.C. 532 in which it
was held that the State Government or the Forest Department
could not, merely by selling the forest produce grown on their
land, be regarded as carrying on any business of buying, D
selling, supplying or distributing goods and, therefore, in
respect of mere sales of forest produce, neither the State
._,Government nor the Forest Department was a dealer within the
'meaning of the definition of that term contained in clause (d)
of section 2. As the Statement of Objects and Reasons to the
Legislative Bill which, when enacted became the 1971 Act, E
expressly states it was in view of the judgments of the Madhya
Pradesh High Court on various provisions of the M.P. Sales Tax
,, Act whereby the State stood to lose a considerable amount of
revenue by way of tax and penalty, that it was proposed to
amend the M.P. Sales Tax Act suitably in the light of the said
-\judgments in order to safeguard the revenue of the State and F
-to validate the imposition of penalty and that amongst the
amendments which were being made was that the definition of
"dealer" was proposed to be amended in the light of the
judgment in the case of Orient: Paper Mills Ltd. v. The State
of Madhya Pradesh and others, [1971] 28 S.T.C. 532, so as "to
include the Central Government or a State Government selling G
goods not during the course of business". In this context, it
"I"' is pertinent to note that for a person to be a dealer within
the meaning of clause (d), he llllst be one who carries on the
business of hlying, selling, supplying or distributing goods
and the definition as originally enacted included within
H
114 SUPREME COURT REPORTS [1986] 2 s.c.R.
A )-
its scope the Central Government or a State Government or any
of their departments which carried on such business. This
definition was retrospectively amended by the 1971 Act, and
the reference to the "Central Government or a State Government
or any of their departments" in sub-clause (I) of clause' (d)
was omitted from that sub-clause and Explanation II was added
B which expressly provided that "the Central Government or a
State Government or any of their departments or offices which, ~
whether or not in the course of business, buy, sell, supply or
distribute goods, directly or otherwise, for cash • • • or for
other valuable consideration shall be deemed to be a dealer
for the purposes of this Act". Merely because a particular
c provision in a statute is labelled as an Explanation, it does~
not mean that it is inserted merely with a view to explain the
meaning of words contained in the section of which it forms a.l
part. The true scope and effect of an Explanation can only be
judged by its express language and not merely by the label
given to it. The language of Explanation II shows that its
D purpose is to create a legal fiction, and that while under the
main clause, for a person to be a dealer, he rrust carry on the
business of buying, selling, supplying or distributing goods, ~
even if the Central Government or a State Goverrlllent or any of 11111
their departments or offices does not carry on such business, ·
if it buys, sells, supplies or distributes goods, it is to be
E deemed to be a dealer for the purposes of the M.P. Sales Tax
Act, that is, for the purposes of the levy and collection of
tax under the M.P. Sales Tax Act. After the amendment of •
clause (d) by the 1971 Act, it is irrelevant for the purposes
of the levy of tax under the M.P. Sales Tax Act whether the Y
Central Government or a State Government or any of their •
F departments or offices have bought or sold goods in the course)-,
of business. There is, therefore, no substance in the above -
contention and it rrust accordingly be rejected.
The challenge to the constitutional validity of the
impugned amendments to section 8 was founded upon Articles 14,
G 286(3), 301 and 304 of the Constitution.
So far as the challenge under Article 14 is concerned r
the submissions made in support thereof were that by the
impugned amendments tendu leaves were discriminated 'against
hostilely as compared with other raw materials in that the
H rate of tax on the sales and purchases of tendu leaves was
VRAJLAL MANILAL v, STATE [MADON, J. ] llS
~ A
made ruch higher than the rate of tax on the sales and
J purchases of other raw materials, not only within the State of
Madhya Pradesh but also as compared with the rate of tax in
the neighbouring States, and that there was no reasonable
basis for making a distinctlon between tendu leaves and other
raw materials inasruch as the only use to which tendu leaves B
were put was as a raw material in the manufacture of bidis. As
~pointed out by Lord Greene delivering the opinion of the Judi-
cial Committee of the Privy Council in Messrs Mohanlal
Bargovind of Jubbulpore v. Connissioner of lncoJE--tax, C.P.
"" and Berar, Nagpur, L.R. [1948-49] 57 I.A. 235, 237; s.c.
·A.I.R. 1949 P.C. 311 bidis are country-made cigarettes
,,l,_,composed of tobacco contained or rolled in leaves of a tree, ·C
known as tendu leaves, which fulfil a corresponding function
·"'- in the finished cigarette to that played by a cigarette paper.
Thus, without the use of tendu leaves bldis cannot be manu-
factured. Until the amendment to section 8 made by the 1968
Act, for the purpose of levying tax on the sales and purchases
of tendu leaves the State of Madhya Pradesh had throughout D
treated tendu leaves in the same manner as other raw
~ materials. From this, however, it does not follow that there
was any constitutional or legal obligation upon the State to
·<, continue doing so far all time. The structure of our Constitu-
tion is federal in character. A salient feature of such a
Constitution is the distribution of legislative and adminis- E
trative powers between the federated unit and the federating
units, that is, between the Central or Federal Government and
the State or Provincial Governments. In keeping with its
'i
federal character, our Constitution has bifurcated the field
~ of taxation as regards sales and purchases of goods between
\ the Union and the State. Under clause (1) of Article 246 of F
'the Constitution, Parliament has exclusive power to make laws
with respect to any of the matters enumerated in List I in the
Seventh Schedule to the Constitution which is headed the
"Union List". Under clause (2) of the same Article, the Legis-
lature of any State has the exclusive power to make laws for
such State or any part thereof with respect to any of the G
..., matters enumerated in List II of the Seventh Schedule to the
I' Constitution which is headed the "State List". The M.P. Sales
Tax was enacted after the Constitution was amended by the
Constitution (Sixth Amendment) Act, 1956. Under the Constitu-
tion as so amended, taxes on the sale or purchase of news-
papers and on advertisements published therein and taxes on H
116 SUPREME COURT REPORTS [1986] 2 S.C.R.
~~
A
the sale or purchase of goods other than newspapers, where
such sale or purchase takes place in the course of inter-State ).
trade or commerce, fil.11 within the exclusive legislative field
of Parliament under Entries 92 and 92A respectively in the
Union List, while under Entry 54 in the State List taxes on
the sale or purchase of goods other than newspapers fall with-
B in the exclusive legislative field of the State Legislatures,
subject to the provisions of Entry 92A in the Union List. It ~
is unnecessary to dilate upon this subject for all that is
required to be done is to quote the following passage from the
judgment of this Court in Khazajan Chand etc. v. State of .,,.
Jallllll and Kashmir & Ors., [1984] 2 S.C.R. 858 (at pages ~
c 873-4): ).__
"Our Constitution is federal in its structure and a .A
salient feature of a federal polity is distribution
of legislative and administrative powers between
the federated unit and the federating units, that
D is between the federal government and the State
governments. Thus, matters in respect of which our
Constitution-inakers felt that there should be -'1
unif ormity of law throughout the country have been
placed by them in Union List (List I in the Seventh .\.. "
Schedule to the Constitution) conferring exclusive
E power upon Parliament to make laws with respect
thereto, while matters which they felt were of .J
local concern and may require laws to be made
having regard to the particular needs and pecul:tar
problems of each State have been assigned to the r '
F
State Legislatures by placing them in List Il of A
the Seventh Schedule, that is, the State List. } '
Inter-State trade and commerce is a matter which
affects all the States in India and thus the whole
country. It is for this reason that in the Seventh
Schedule to the Constitution the subject of taxes
on the sale or purchase of goods taking place in
G the course of inter-State trade or commerce has
been put in List I and made a Union subject. Taxes
on the sale or purchase of goods taking place
within the State affect only those who carry on the
business of buying and selling goods within the
State and, therefore, this subject has been put in
H
List II of the Seventh Schedule, namely, the State
VRAJLAL MANILAL v. STATE [MADON, J. ] 117
A
---1 List. Sales tax is the biggest source of revenue
for a State and it is for the State to decide how
J and in what manner it will raise this revenue and
to determine which particular transactions of sale
or purchase of goods taking place within that State
should be taxed and at what rates, and which B
particular transactions of sale or purchase of
goods should be exempted from tax or taxed at a
lower rate having regard to the subject-matter of
sale, as for instance, where particular goods
constitute necessities for the poorer classes of
people or where the goods in question are of such a
nature as are required to be exempted from tax or c
taxed at a lower rate in order to encourage a local
industry. Consideration of these matters !lllst,
from the nature of things, differ from State to
State. Similarly, it is for each State to determine
the methods it will adopt to collect its revenue
from this source and to decide whlch methods would o
be most efficacious for this purpose. The provision
of the sales tax law of each State !lllst, therefore,
necessarily differ in various respects from the
provisions of sales tax laws of other States. If
the provisions of the legislation of every State on
a particular topic are to be identical in every E
-
respect, there is no purpose in including that
topic in the State List and it may as well be
included in the Union List. Merely because the
provisions of a State law differ from the
provisions of other State laws on the same subject
cannot make such provisions discriminatory." F
Further, as pointed out by this Court in State of Orissa and
others v. The Titagarh Paper Mills Company Ltd. and another,
[1985] 3 S.C.R. 26, 65, a State is free when there is a series
of sales in respect of the same goods to tax each one of such
sales or purchases in that series or to levy the tax at one or G
more points in such series of sales or purchases. Legislations
A of all States in this respect are not uniform, some States
1' having adopted a single point levy, others a two point levy,
and yet others a !llllti-point levy •
•
Just as section 2 of the M.P. Sales Tax Act contains a H
definition of the term "raw material", it also contains in
' 118 SUPREME COURT REPORTS [1986] 2 s.c.R.
A
clause (g) of that section a definition of the term "goods". ,}-
Under that definition, the term "goods" inter alia means "all
kinds of movable property other than actionable claims,
newspapers, stocks, shares, securities or Government stamps
and includes all materials, articles and commodities". If the
contention that sales and purchases of all raw materials llllSt
B be taxed at the same rate were true, it would necessarily
follow that sales and purchases of all goods must also be
taxed at the same rate. A submission which leads to such an-\
absurd result can hardly be contenanced by the Court.
Arguments such as those advanced before us have
c consistently rejected by this Court. We need give only
instances. In T.G. Venkataraman, etc. v. State of Madras
another, [1969] 2 S.C.C. 299, a notification issued under the
Madras General Sales Tax Act, 1959, which imposed tax on sales
of cane jaggery and exempted sales of palm jaggery, was
challenged on the ground that it violated Article 14 because
D it was discriminatory and opposed to equal treatment under
Article 14. This challenge was repelled by the Court holding
that cane jaggery and palm jaggery were commercially different
collLOO:lities. In Jaipur Hosiery Mills (P) Ltd., Jaipur v. The
State of Rajasthan and others, [1971] 1 S.C.R. 396, a
notification issued under the Rajasthan Sales Tax Act, 1950, ,"-
E which exempted from tax the sale of any garment the value of
which did not exceed four rupees but excluded "hosiery
products and hats of all kinds" from this exemption, was
challenged under Article 14. Repelling this challenge, this •
Court held (at pages 397-8) :
F "It ;Is well settled that although a taxing statute
can be challenged on the ground of infringement of)-1
Art. 14 but in deciding whether the law challenged
is discriminatory it has to be borne in mind that
in matters of taxation the legislature possesses
the large freedom in the matter of classification.
G Thus wide discretion can be exerclsed in selecting
persons or objects which will be taxed and the
statute is not open to attack on the mere ground )
that it taxes some persons or objects and notr'
others. It is only when within the range of its
selection the law operates unequally and cannot be
H justified on the basis of a valid classification
VRAJLAL MANILAL v. STATE [MADON, J. ] 119
A
that there would be a violation of Art. 14".
~ In Hoechst Pharmaceuticals Ltd. and Another etc. v. State of
Bihar and Others, [1983] 3 S.C.R. 130 the Constitutional
validity of sub-section (3) of section 5 of the Bihar Finance
Act, 1981, was challenged inter alia under Article 14. B
Sub-section (1) of section 5 provided for the levy of a
surcharge, in addition to the tax payable, on every dealer
>whose turnover during a year exceeded rupees five lakhs while
sub-section (3) of section 5 prohibited such a dealer from
collecting the amount of surcharge payable by him from the
~ purchasers. This challenge was repelled. In the course of the
judgment this Court said (at page 190) C
~·
" On questions of economic regulations and related
matters, the Court llllst defer to the legislative
judgment. When the power to tax exists, the extent
of the burden is a matter for discretion of the
law-makers. It is not the function of the Court to D
consider the propriety or justness of the tax, or
enter upon the realm of legislative policy. If the
evident intent and general operation of the tax
legislation is to adjust the burden with a fair and
reasonable degree of equality, the constitutional
requirement is satisfied. The equality clause in E
- Art. 14 does not take from the State power to
classify ~ class of persons who llllSt bear the
heavier burden of tax. The classification having
some reasonable basis does not offend against that
clause merely because it is not made with
mathematical nicety or because in practice it F
results in some inequalities."
In Khazajan Chand etc. v. State of Jal!lllll and Kashmir and
others, a challenge to section 8(2) of the Jalllllll and Kashmir
' General Sales Tax Act, 1962, on the ground that it was
violative of Article 14 as it hostilely discriminated against G
dealers in the State of Jalllllll arrd Kashmir as compared with
....._ 9,ealers in other States in the matter of the rate at which
~nterest was payable when default was made in payment of tax
.. by the prescribed time was negatived by this Court •
Tendu leaves do not stand on the same footing as other H
120 SUPREME COURT REPORTS [19861 2 s.c.R.
A
raw materials. Their only use appears to be as a consumabl<f-
packing material or container for tobacco in the manufacture
of bidis just as a cigarette paper is used in the manufacture "'
of cigarettes. Thus, tendu leaves form a separate class of
commercial commodity and it is open to the State to tax them
differently from other commercial commodities falling in the
B class of goods known as "raw material". The High Court has
justified the different treatment given to tendu leaves as
compared to that given to other raw materials by a referencd·
to the Madhya Pradesh Tendu Patta (Vyapar Viniyaman)
Adhiniyam, 1964 (M.P, Act No, 29 of 1964), which was passed in
order to control the trade in tendu leaves. The long title of ~
c that Act is "An Act to make provision for regulating in thEf
public interest the Trade of Tendu Leaves by creation of Btatt'-
monopoly in such trade". In pursuance of the rule-making power
conferred by section 19 of the said Act, the State Government
made rules called the Madhya Pradesh Tendu Patta (Vyapar
Viniyaman) Niyamavali, 1966. Under the said Act, , the State
D
Governments to appoint agents in respect of different units
for the purpose of purchase of and trade in tendu leaves and
no person other than the State Government or an officer of the
State Government authorized in writing in that behalf or an
agent in respect of the unit in which the tendu leaves hav).
grown can purchase or transport tendu leaves, Further, the
E
State Government is authorized by the said Act to fix, in
consultation with the Advisory Committee to be set up there-
under, the price at which tendu leaves are to be purchas,~d by -
it or its authorized officer or agent from the growers of
tendu leaves other than the State Government in the Revenu~
Commissioner's Division, The said Act received the assent of
F the President qn November 3, 1964, which assent was publishe~ "
in the Madhya Pradesh Gazette Extraordinary on November 28(
1964, and was brought into force in the whole of Madhya
Pradesh with effect from November 28, 1964, by forest
Department Notification No. 14334-X-64 dated November 28, ,
1964, published in the Madhya Pradesh Gazette Extraordinary
G
dated November 28, 1964, at page 3368, The said Act, created a
monopoly in the State Government with respect to the trade in ..._
tendu leaves in the State as tendu leaves are a major natural.-
produce of the State. According to the High Court, the said
Act, therefore, put the trade in tendu leaves in a separate
class from the trade in other raw materials and consequently
H
it provided a reasonable basis for treating the trade in tendu
VRAJLAL MANILAL v. STATE [MADON, J.] 121
A
-~ leaves differently from the trade in other raw materials. In
our opinion, it was strictly not necessary for the High Court
to go to the said Act for the purpose of seeking justification
for levying tax on the sales and purchases of tendu leaves at
a rate different from that on the sales and purchases of other
goods. As pointed out earlier, tendu leaves constituted a B
different commercial commodity and it was open to the State to
tax them at a rate different from the rate of tax on other
>-- commodities. The said Act would be a justification for
treating differently the State as a dealer in tendu leaves
from other dealers in tendu leaves. We may mention that the
validity of the said Act was upheld by a Constitution Bench
J of this Court in M/s. Amar Khan Meliboob & Co. v. State of c
Madhya Pradesh and others, [1966] 2 S.C.R. 1+0.
In support of the challenge under Article 14, it was
further contended that without amending the definition of "raw
material" given in clause (1) of section 2 of the M.P. Sales
Tax Act, a different rate of tax cannot be levied upon tendu D
leaves. Section 8 was amended both by the 1968 Act and the
1971 Act but the definition of "raw material" was not amended
and it continued to remain the same. We are unable to
understand what difference this makes. By section 8 tendu
-',, leaves are expressly excluded from the concessional rate of
tax in respect of other raw materials. Clause (1) of section 2 E
- defines the term "raw material". This cannot:, however, prevent
the State from taxing different classes of raw materials at
different rates. If this contention of the Appellants was to
-, be accepted, it would lead to the absurd result that as goods
are defined clause (g) of section 2 to mean all kinds of
~ movable property excluding certain specific articles mentioned F
. ~_therein, section 6 and Schedule II to the M.P. Sales Tax Act
which provide for different rates of tax on different classes
of goods are also bad in law. This contention is thus wholly
without any substance.
Turning now to the challenge under Article 286(3) to the G
validity of the impugned amendments, we find this challenge to
be as hollow and untenable as the challenge under Article 14.
Clause (3) of Article 286, after its amendment by the
Constitution (Sixth Amendment) Act, 1956, provided as follows:
"(3) Any law of a State shall, in so far as it H
122 SUPREME COURT REPORTS [19861 2 s.c.R.
imposes, or authorises the imposition of, a tax on
the sale or purchase of goods declared by .>-
Parliament by law to be of special importance in
inter-State trade or commerce, be subject to such
restrictions and conditions in regard to the system
-
of levy, rates and other incidents of the tax as
Parliament may by law specify."
Clause (3) of Article 286 was substituted by the Constitutl.on -\
(Forty-sixth Amendment) Act, 1982. Clause (3) as so
substituted does not affect the position so far as goods
declared by Parliament by law to be of special importance in
"v inter-State trade or commerce are concerned.
In pursuance of the power conferred by Article 286(3)
Parliament has declared by section 14 of the Central Sales Tax ~
Act, 1956 (Act No. LXXIV of 1956), certain goods to be of
special importance in inter-State trade or conmerce. Amongst
D the goods so declared is "tobacco, as defined in Item No.4 of
the First Schedule to the Central Excises and Salt Act, 1941111 •
The relevant provisions of the said Item No.4 are as followi1 :
"4. TOBACCO -
'Tobacco' means any form of tobacco, whether cured
-
or uncured and whether manufactured or not, and
includes the leaf, stalks and stems of the tobacco
plant, but does not include any part of a tobacco
plant while still attached to the earth.
I. Unmanufactured tobacco -
x x x x x
II. Manufactured tobacco -
,' x x x x "
Under the sub-heading ''Manufactured tobacco" are set out
cigars and cher.oots, cigarettes, and bidis in the manufacture
of which any process has been conducted with or without the
aid of power. Tendu leaves nowhere feature in the said Item
I No.4 though tobacco and bidis do. It is, therefore, toba,cco
VRA.Jl.AL·MANILAL v. STATE [MADON, J.] 123 A
~and bidis which are goods of special i~ortance in inter-State
trade and commerce and not tendu leaves. Tendu leaves cannot
by any stretch of imagination be equated with bidis or tobacco
just as cigarette paper used for rolling cigarettes cannot be B
equated by any stretch of imagination with cigarettes or
tobacco. This being the position, it is wholly unnecessary to
consider the other arguments advanced in support of this
challenge.
,..
The challenge to the i~ugned amendments under Articles
301 and 304 of the Constitution was that by taxing tendu c
~ leaves at a higher rate than in the neighbouring States, the
,cost of bidis manufactured in the State of Madhya Pradesh
-'increased considerably and thus it i~eded the freedom of
trade and commerce throughout the territory of India. Article
-'- 301 provides as follows :
D
"301. Freedom of trade, ~rce and intercourse.
Subject to the other provisions of this Part,
trade, commerce and intercourse throughout the
territory of India shall be free."
E
-'- Under clause (b) of Article 304 of the Constitution, the
Legislature of a State may by law i~ose such reasonable
restrictions on the freedom of trade, commerce or intercourse
- with or within that State as may be required in the public
interest. The Bill or any amendment of an Act for the purposes
, of clause (b), is, however, not to be introduced or moved in F
the Legislature of a State without the previous sanction of
_, I the President. It may be mentioned that the M.P. Sales Tax Act
~]}ad received the assent of the President on February 27, 1959,
but neither the 1968 Act nor the 1971 Act was submitted to the
President for his sanction and the question, therefore, of
either of these Acts receiving the sanction of the President G
cannot arise.
The only question, therefore, is whether taxing the sales
...i... and purchases of tendu leaves at a higher rate than in the
--{neighbouring States violates Article 301 by impeding the free
trade and commerce in tendu leaves throughout the territory of H
India. An increase in the rate of tax on the sales and
purchases of tendu leaves would necessarily result in an
124 SUPREME COURT REPORTS [19861 2 s.c.R.
A
increase in the cost of manufacture of bidis and consequently)--
in their sale price. An increase in the rate of tax on a
particular coDlllOdity cannot per ~ be said to impede free
trade and conmerce in that coDlllOdity. In State of Ieral!• •·
A.B. Abdal lhadir and others, [1970] l S.C.R. 700, after
referring to and explaining the earlier decisions on t:his
B subjet, this Court held as follows (at page 710)
"As we have already pointed out it is well·~
established by numerous authorities of this Court
that only such restrictions or impediments which
directly and fr Uately impede the free fl°"' of ._
c trade, conmerce and intercourse fall within the.
prohibition imposed by Art. 301. A tax may in'"-
certain cases directly and i111Dediately restrict: or
hamper the flow of trade, but every imposition of,>.,
tax does not do so. Every case rust be judged on
its own facts and in its own setting of time and
D circumstance."
There was no material before the High Court and no
material before us to show that the impugned increase in the
rate of tax on the sales and purchases of tendu leaves has put )...
an end to that trade or has caused that trade to decline nor ·
E was there any material before the High Court or before us to
show that by reason of the increase in the rate of tax on the
sales and purchases of tendu leaves, the trade in b:ldis ._
manufactured in the State of Madhya Pradesh has stopped or has
decreased. Far from this happening, on the contrary, all ,,
factors point to the opposite con.:lusion. Tendu leaves are a
F major natural produce of the State of Madhya Pradesh and had )-t
the impugned increase in the rate of tax on the sales and
purchases of tendu leaves the effect of putting an end to the
trade in tendu leaves or bidis or of causing a decline in that
trade, the revenue of the State would have suffered and the
State would have once again made the sales and purchases of
G tendu leaves exigible to a lower or concessional rate of tax.
What the State, however, has in fact done is to increase the
rate of tax mentioned in the residuary entry, namely, Entry ~
No. l in Part VI of Schedule II to the M.P. Sales Tax Act, and r--
consequently on the sales and purchases of tendu leaves, so
that as from October l, 1978, the rate is ten per cent. After
H all, we rust bear in mind that Articles 301 to 304 were
VRAJLAL MANILAL v. STATE [MADON, J.] 125
A
~either enacted to safeguard the pleasure derived by bidi
smokers from an indulgence in their habit nor to ensure that
bidi smoker would continue to get for all time bidis
manufactured in Madhya Pradesh at the same price.
The validity of the impugned amendment was also B
challenged under Article 19(1) (g) of the Constitution. No
µttempt was made to argue this point nor any materials in
support thereof were produced either in the High Court or
before us and we fail to see how the increase in the rate of
tax on the sales and purchases of tendu leaves amounted to an
unreasonable restriction on the right to carry on trade or
~ ~usiness in tendu leaves or bidis. The only points argued c
before us were those which we have dealt with above.
;_
In the result, this appeal fails and is dismissed with
costs.
D
A.P.J. Appeal dismissed.
-
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