THE INDORE IRON AND STEEL REGISTERED STOCK-HOLDERS' ASSOCIATION versus THE STATE OF MADHYA PRADESH AND OTHERS

19'61

July Zli

924

SUPREME COURT REPORTS

[1962J

'L'HE INDOHE IRON AND 8'fEEL REGISTERED STOCK-HOLDERS' ASSOCIATION v. THE STATE OF MADHYA PRADESH AND OTHERS (P. B. GAJENDRA<fADKAR, K. SUllBA RAO, M. HIDAYATULLAH, J.C. SHAH and RAGHUBAR DAYAL, JJ.)

Satea Tax-Commodity declared essential for tke lif< of community-Impo,gition of tax by State Government under prior enactment-Constitutional validity-Constitution of India, Art. 286 (3)-J:ssential Goode (Declaration 'Jm,d Reyulation of Tax "" Sa/, "'' Purchase) Act, 1952, ss.2, 3 Madhya Bharat Bales Tax Act, Samt-at 2007, s. 5( 2).

The constituent members of the appellant Association, \Vho carried on business in iron and steel articles were assessed to sales tax for the years 1953-.54 and 1954-.55 under a notifi cation dated October 24, 1953, issued by the State of Madhya Bharat under s. 5(2) of the Madhya Bharat Sales Tax Act, Samvat 2007, (Act No. 30 of 1950). The appellant moved the High Court under Art. 226 of the Constitution challenging the validity of the assessment on the ground that the said articles were covered by the declaration made by Parliament by s. 2 of the Essential Guods (Declaration and Regulation of Tax on Sale or Purchase) Act, 1952, that iron and steel were essential <ommoditics within tlie meaning of Art. 286(3) of the Consti tution which was operative from August 9, 1952. The High Court found against the appellant.

Held that even asswning that the words "iron and steel" in Entry 14 of the Schedule to the Act were comprehensive enough to include articles made of iron and steel, that would not necessarily render the uotification invalid under Art. 286(3} of the Constitution.

Article 286( 3) as it stood before the Constitution (Sixth Amendment} Act, i'956, could be succe,sfully. invoked onlr if three conditions were satisfied,--( I) that the impugned leg1Sla· tion wa!i une by the Legisld.turc of a State, 1.:onstitutt:d un?er the Uons\itution, .(2) that it was subsequ~nt to the declaration made by the Parliament as to the essential character of the commodity and ( 3) that it could be, but wa; not, reserved for the President's comideration and assent.

It wa:; obvious, therefore, that a subsequent Parliamentary

2 S.C.R.

SUPREME COURT REPORTS

925

declaration could not affect the validity of an enactment retrospectively.

Sardar Soma Singh v. The State of Pepsu and Union of India, (1954) S. C.R. 955 and Firm of A. Gowri•hankar v. Sales Tax Ufficer, Secunderabad, A. I. R. 1958 S. C. 883, referred to.

Although the Act, under which the impugned notllication was made, satisfied the first condition, it did not satisfy the second or the third and, mnsequently, its validity could not be questioned unde1 Art. 286(3) of the Constitution,

1961

The Indore Iran aiui Stul Registered Stocf,,, holrler1' ,48111. v. The State of Madhya Prarleak

Held, further, that it was apparent from s. 3 of the Essential Goods (Declaration and Regulation of Tax on Sale or Purchase) Act, 1952, that if a law had been passed prior to the commencement of the Act authorising the imposition of a tax, itS'validity could not be challenged on the ground that the said commodity was subsequently declared by the Act to be essential for the life of the community. The. impugned notification and the State Act under which it was made were, therefore, outside the purview of s. 3 of the Act.

C1vn, APPELLATE JURISDICTION: Civil ApPeals

Nos. 509 and 510 of 1960.

Appeals by special leave from the judgmellt and order dated October 26, 1956, of the former Madhya Bharat High Court Indore, in Ci·;i! Misc. Cases Nos; 26 of 54 and 48 of 55.

A. V. Viswanatlta Sastri, C. B. Agarwala and

A. G. Ratnaparkhi, for the appellants.

R. J, Bhave and I. N. Shroff, for the respon·

dents.

1961. July 26. The Judgment of the Court

was delivered by

GAJENDRAGADKAR, J.-The appellant, Indore Iron and Steel Registered Stock.holders' Association (Private) Ltd., is a registered Associa- tion whose constituent members carry on bu8ine8s generally in fabricated iron and steel material and more partic~larly in iron sheets, plain or corrugated, b~rs, ro~s, hght an~ heavy structurals, nail8, joints, wire nails and ftll kmds and v~rieties of wires and

the Gajend1agaiikar

J.

I

1961

The Indore lroro and Sleei Registered Stock holdtre' Assn. v. The State of Jf adhya Pradesh

Gajendragadkar J.

926

SUPREME COURT REPORTS

[1962)

pipe,. This hnsine8s iR carried on by the consti tueut members of the appellant at Indore anu Ratlam at 'Vhich :places they have their rngistered officeo. The State of Madhya Bharat, by its Act :No. 30 of 1950, imposed sales tax in the territory of }fadhya Bharat on the sales of goods tJ,ierein specified with elFect from May 1, 1950, and under the provisions of the said Act the Commissioner of Sales Tax, Madhya Bharat, and the Sales Tax Officer, Indore, who are respondents 2 and 3, were appointed aut.horities for the assessment of tax leviable under the Act and for its recovery in their respective areas.

"Iron

Section ;l of the Act is the charging section and it provides for t.he incidence of taxation, Sec tion !, which deals with the application of the Act, exemption and exclusion, provides by Sub.s. (2) that no tax shall be payable under the Act on the sale. of goods specified in the second colunin of Sch. l on conditions mentioned in column 3 of and steel" appears in the Schedule. Sch. 1 as item 39. Section 5 prescribes the rate of tax and it provides that the tax will be recoverable as notified from time to time by the Government by publication in the official gazette subject to the condition that it shall not be less than Rs. l ·9-0 per cent or more than 6! per cent. Section 4(3) autho rises the Government by notification to modify Sch. l time. Similarly s. 5(2) authorises the Government while notifying the tax payable by a dealer to notify the goods and the point of t.heir sale at which the tax is payable. It is by virtue of this delegated power that the State of Madhya Bharat, respondent I, purported to is~11e not.ifi<'ations to which we will presently refer.

from

time

to

On May 22, 1950, a notification was issued under s. 5(2) specifying serially the articles taxed, the stage of sale by traders in Madhya Bharat on which tho tax is levied and the rate of sales tax per Item 27 in the list dealt with goods manu- cent.

1961 -The Indore Iron

and Steel Registered Stock /wider•' A•sn. v. The State of JI adhya Praduh

Gajendragad kar J.

28.C.R.

SUPREME COURT REPORTS

927

factured from things (wastu) except gold and silver or goods manufactured from more than one metal (except circles and sheets of copper, brass and alu minium). The notifications provided that the tax had to be paid by the producer or importer at the rate of Rs. 3-2-0 per cent.

Meanwhile Art. 286(3) of the Constitution had come into force. This Article as it then stood pro vided that no law ·made by.the J ... egjslature of a State imposing, or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared Ly Parliament by law to be essential for the life of the community, shall have effect unlesH it has been reserved for the considera tion of the President and has reeeivt>d his assent.

Thereafter Parliam<'nt by law proceeded to make the declaration as contemplated by this Article by s. 2 of Act 52 of 1952 [Essential Goods (Declarat.ion and Regulation of Tax on sale or purchase) Act] (hereafter called the Act) which was passed on August 9, 1952. Section 2 of the Act provides that the goods specified in th<> Schedule are hereby declared to be essential for the life of Item 14 in the Schedule refers to the community. 'iron and steel'. Thus, as a result of tlu·se provi sions 'i1 on and stee !' cam!' to be declared as essential for the life of the community within the meaning of Art. 286(3) as from August 9, 1952.

Respondent 1 thereupon purported to give effect to the provisions of Art. 286(3) ands. 2 of the Act by issuing two notifiratiuns on October 24, 1953. By the first notification it was provided that no tax shall be payable inter alia on the sale 'Iron and steel' was placf'd at of iron and steel. item 39 in the said Schedule. The other notifica tion issued on the same day by itrm 9 in the list provided for the sale of the articles specifif'd in the said item. This item reads thus :

I

1961

The Indore Iron and Steel Registered Stock holders' Assn. v. The State of Madhya Pradesh

Gajendragad kar J.

928

SUPREME COURT REPORTS

[1962]

"Every kind of metal including copper, brass, manganese, zinc, lead, mercury, bronze, nickel, aluminium, tin and their ore form (ex cluding iron, steel, gold and silver) and goods prepared any metal other than gold and silver, utensils and wires, goods prepared from one ore more than one metal, ntensils and wires which· also includes mangars, metal pieces and scraps, cutting and lantern, gas, stove and type-letters (excluding circles and sheets of copper, brass and aluminium)." It is common-ground that under this notification the artidcs in which the constituents of the appellant deal would be liable to pay the sales tax in question. After this notification was issued the appellant wrote to respondent 3 claiming exemption from payment of sales tax for the goods and articles in which its constituent members are dealing but this plea was rejected by the said respondent, and the constituent members of the appellant were called upon to pay sales tax each in respect of their indi vidual turnover. It was under these circumstances that the appellant filed two writ petitions under Art. 226 of the Constitution in the High Court of Madhya Bharat at Indore in which it challenged the validity of the assessment orders passed for the two years 1953-54 and 1954-55 respectively (Peti tions Nos. 26 of 1954 and 48 of 1955).

The appellant's case was that the articles in which the constituent members of the appellant dealt were covered by the parliamentary declara tion contained in s. 2 of the Act and as such were no longer liable to pay sales tax. This plea was resisted by the respondents. It was urged on their behalf thnt the notification issued by respondent 1 on Octo b<•r 2'1, l!l53 was valid, nnd item 27 in the list notifier] bronght thf' articles in question within the misl'hief of the S:iles Tax Act and so the petitioners were not entitled to any writ as claimed by them. The High Court has upheld the pie&

1961

The Indore Jro11 and Steel Registered Stock· holders' Assn. v. The State nf Madhya Pradesh

Gajendragadkar .1.

2S.C.R.

SUPREME COURT REPORTS

929

raised by the respondents, rejected the contentions urged by the appellant 11nrl has <lismisscrl the writ petitions filed by it. It is against these orders of dismissal passed by the High Court in the two writ petitions filed by the appellant that the present appeals, Nos. 509 and 510 of 1960, have been brought to this Court by special leave granted by this Court.

Two points have been urged before us by Mr. Viswanatha Sastri, on behalf r>f the appellant, It is urged that s. 2 in support of these appeals. of the Act which contains the parliamentary declaNtion as contemplated by Art. 286(3) covers iron and steel as understood in their commercial sense. The words "iron and steel" should not be interpreted in their narrow dictionary meaning. They do not mean iron and steel a~ they come out after smelting but they mean articles exclusively made from iron and steel in which the identity of In other words, iron and steel has not been lost. iron and steel in the context mean all articles made exclusively of iron and steel in which steel mer chants normally and generally trade. It is further argued that in construing the words "iron and steel" we must bear in mind the fact that the objeet of Art. 286(3) is to safeguard the interest of the consumer in regard to the articles which Parliament may declare to be .essential for the life of the com munity, and it is suggested that if the narrow dic tionary meaning of the words is adopted it would not 'Serve the said obj~ct and purpose of the consti tutional provision.

Mr. Sastri has also relied on what he has described as the legislative history which indicates that the said words should receive a broad and In that connec wide construction in tbe context. tion he has invited our attention to the provisions of s. 2(d), s. 3 categories specified the in the Second Schedule to the Iron and Steel

i111d

I

1961

The Indore Iron and Steel !legistered Stock holders' Asen. v. The Stale of Madhya Pradesh

Gajendragad l"1r J.

930

SUPREME COURT REPORTS

(Control of Produciion and Distribution) Order, 1941. These categories, according to Mr. Sa:stri, unmistak ably support his argument that the expression "iron and steel" as used in the order was obviously used in a very wide and broad sense. Similarly, he has referred to the provisions of s. 2(a)(vii) of Act XXIV of 1946 (The Essential Supplies (Temporary Powers) Act, 1946) and s. 2(a)(vi) of Act 10 of 1955 (The Essential Commodities Act, 1955). His conten tion is that it would be legitimate for the Court to consider the legislative history in the matter of the use of these words and their denotation, and that the legislative history to which he has referred supports his argument that the words "iron and steel" should receive a very liberal interpretation in determining the effect of the provisions of s. 2 of the Act. The High Court was not impressed by It has held that the words "iron this argument. and steel" as used in Entry 14 to Sch. I of the Act do not include within their ambit articles made of iron and steel such as those with which we are concerned in the present proceedings. Mr. Sastri seriously que8tions the correctness of this conchi sion.

It is clear that even if we were to accept Mr. Sastri's contention in regard to the denotation of the words "iron and &tee l" as used by the relevant provisions of the Act it would still have to be shown by the appellant that the impugned notification is invalid because it contravenes the provisions of Art. 286(3). In other words, in order to succeed in the present appeals the appellant has to prove two facts, (1) that the words "iron and steel'' in respect of which the requisite parliamen tary decbration has been made by s. 2 of the Aciu include commodities like those with which we are concerned, and (2) that the impugned notification contravenes Art. 286(3). It would thus be seen that unless the appellant succeeds in both these contentions the appeals are bound to fail. Since

I

1961

The Indore Iron and Steel Registered Stock· holders' Assn. v. The State of Madhya Pradesh

Gajendragadkar J;

2 S.C.R.

SUPREME COURT REPORTS

931

we have reached the <'onclusion that even on the assumption that the parliamentary declr.ration made by the relevant provision of the Act includes commodities with which we are concerned ib c·orrect it does not follow that the impugned notification contravened Art. 286(3) we do not propose to deal with the first point raised by Mr. Sastri. In dealing with these appeals we would assume in his favour that the words "iron and sted" should receive th;e broad and wide interpretation for "·hich he contends.

that the

Assuming then that the articles in which the constituents of the appellant deal are covered by the parliamentary declaration made by the Act does it follow impugned notification contravenes Art. 286(3) ? That takes us to the provisions of Art. 286(3) which we have already cited. This provision can be successfully invoked only if three conditions are satisfied. The first condition is that the impugned law must be one which is made by the Legislature of a State which obviously means a State which came into existence under and after the Constitution ; and that shows that the impugned law must be a law made by the Legislature of a State subsequent to the Constitu tion. This condition is satisfied in the present case because the impugned notification has been issued by virtue of the authority delegated to respondent I by Act 30 of 1950 and this Act was passed after the Constitution was adopted.

Let us then consider the second condition which is also in the nature of a condition precedent. This condition requires that the impugned law must impose or authorise the imposition of a tax on the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the co=unity. There can be little doubt that this condition postulates that at the time is a when the impugned law is passed

there

•.

'

1961

'L'he Indore Iron and Steel R egi8tertd Stock holders' A•an. v. The State ~f Madhya Prade8h

Gajendragadkar J.

.•

932

SUPREME COURT REPORTS

[1962J

preexisting declaration made by Parliament in re ganl to the essential character of a commodity. The !'rraterial words in respect of this condition are that the sale or purchase of any such goods as have been declared by Parliament by law to be essential for the life of the community. Therefore, if tho parlia mentary declaration follows the impugned enactment it cannot retrospectively affect the validity of the said enactment. Article 286(3) contemplates that if in the face of an existing parliamentary declara tion about the essential character of a commodity the Legislature of a State purports to impose or authorise the imposition of a tax on such commodiey the enactment would be invalid unless the law made by the Legislature has been reserved for the consideration of the President and has received his assent.

'l'he

third condition emphasises that the impugned law must have been passed subsequent to the Constitution, because unless the relevant pro vision of the Constitution for the reservation of the law for the consideration of the President has come into force this condition cannot apply. This requirement obviously means that the office of the President must have come into existence and so this condition can become operative only after the Constitution has come into force. Therefore, the third condition supports the conclusion which arises from the word8 used in the first condition itself.

the commodities

Thus the position is that Act 30 of 1950 satisfies the first condition but not the second. It is conceded that the relevant provisions of the M. B. Act of 1950 authorise the imposition of tax ou in question and that the impugned notifif'tt1 ion is otherwise consistent with, and justiii<-•l b.v. tlw said provisions of the Act. Now, if the HH id ;)l. H. Act authorises the imposition of tax on the good8 in question and the said goods were not declared by Parliament by law to be

1961

The 1 ndore lror. and Steel Registered Stock holders' A88n. v. The State of Madhya Pradesh

Gajtndrrigadkar J.

2 S.C.R.

SUPREME COURT REPORTS

933

essential for the life of the community before the its validity cannot be date of the said Act challenged on the ground that it was not reserved for the consideration of the President and had not received his assent. It is only when all the condi tions prescribed by Art. 286(3) are present that the validity of the impugned law can be successfully challenged.

The question about

the construction of Art. 286(3) has been considered by this Court on two In Sardar Sarna Singh v. The State of occasions. Pepsu and Union of India('), S. R. Das, J., as he then was, who spoke for the Court has observed that it is quite clear that s. 3 of Act 52 of 1952 does not affect the Ordinance there challenged for the said Ordinance was not made after the commence ment of the Act, and that Art. 286(3) contemplates a law which can be but has not been reserved for the consideration of the President and has not received his assent. This position clearly points to post-constitutional law for there can be no question of an el.\sting law continued by Art. 372 licing reserved for the consideration of the President for receiving his assent. This decision supports the conclusion that the law contemplated by the first condition specified in Art. 286(3) must be post constitutional law. To the same effect are the observations made in the majority judgment of this Court in Firrn of A. Gowrisha11kar v. Sales Tax Offieer, Secunderabad( 2

).

the

commencement of

In this connection it would be relevant to refer to s. 3 of the Act itself. It provides that no law made after this Act by Legislature of a State imposing or the authorising sale or purchase of any goods declared by this Act to be essential for the life of the community shall have effect unless it has been reserved for the con sideration of the President and has received his

imposition of a

tax on

the

(I) (1954) S.C.R. 955. (2) A.I.R. 1958 S.C. 883.

I

. t

•

1961

The I ntlore Iron and Stttl Registered Swck kolders' Assn. v. The State of Madhya Pradesh

Uajendragadkar

. J.

934

SUPREME COURT REPORTS

[1962]

assent. This provision also shows that the decla· ration made by the Act was intended to be pros· pective in operation and it would affect lawsmade !j,fter the commencement of the Act, and that clearly must mean that if a law had been passed prior to the commencement of the Act and it authorised the imposition of a tax on the sale or purchase of certain commodities its validity can not be challenged on the ground that the said com modities have been subsequently declared by the Act to be essential for the life of the community. The impugned notification with which we are con cerned and the Act under which it has been issued are thus outside the purview of s. 3 of the Act. That in substance IS the finding made by the High Court on the second contention raised before it by the appellant. In our opinion, the conclusion of the High Court on this point is right.

In the result the appeafa fail and are. dis

missed with costs.

Appeals dismissed.

1961

July 28.

THE AHMEDABAD MISCELLANEOUS INDUSTRIAL WORKERS' UNION v. THE AHMEDABAD ELEC'1'RICITY CO. LTD. (K.N. WANCHOO and K.C. DAS GUPTA, JJ.)

Bonus-Payable by electricity company-Depr,ciation Modt nf calculation-Indian. -Ineome-ta,v Act (11 af 1922), Rules-Scli. VII-Electricity (Supply) Act, W48 (54 of 1.948).

The respondent, which is an electricity company, con· tested the claim of the appellant for three months' wages as bonus on the ground that if calculation was made on the Full Bench Formula evolved by the Labour Appellate Tribunal and the Associated Cement Companies approved by this Court in (l!J59) S. C.R. 925, there would Ltd. v. Its Workmen, be no surplus available to pay the bonus. The question which arose for decision was \Vhcther d.:;preciation should be calcu lated according to the provisions of Income-tax Act and the