FREEDOM OF TRADE COMMERCE AND INTERCOURSE

The Constitution-makers desired to promote free flow of trade and commerce in India as they fully realized that economic unity and integration of the country provided the main sustaining force for the stability and cultural unity of the federal polity and that the country should function as one single economic unit without barriers on internal trade.

The origins of Article 301 which states “Trade commerce and intercourse throughout the territory of India shall be free” may be traced directly to Section 92 of the Australian Constitution which states: Trade Commerce and intercourse among the States shall be absolutely free:  but there are some significant differences between the two provisions

1. Section 92 immunizes interstate trade only whereas Article 301 includes inter-state as well intra-State trade
2. Section 92 makes freedom of trade’ absolutely ‘free but in India exceptions to Article 301 has been laid down in Article 302-304.

Meaning of trade, commerce and intercourse

Trade means buying and selling with intention to earn profit. Business is synonymous for trade – a systematic and organized activity with intention to gain.

Commerce means transmission or movement in which profit may not be the intention. Bringing a commodity for personal consumption is commerce. Commerce includes all transportation by land, air or water. It includes telephone telegraph or wireless or e-commerce which causes movement

Intercourse means commercial as well as non-commercial intercourse. Trade is a species of intercourse where the dominant element is to earn profit. Intercourse would include movements and dealings even of non-commercial in nature. It would include travel and all forms dealings with others. Such dealings may be by speech, music, radio or television.

The content of Article 301

Freedom under Article 301 means right to free movement of persons and things, tangible or intangible, commercial or non-commercial, unobstructed by barriers, inter-State or intra-State. All obstructions to free flow of trade would offend Article 301. The object of this provision to break down any barrier between States and within the State so that India maintains economic unity for sustained economic growth.

Exceptions to Article 301

1. Parliament can impose such restriction on freedom of trade as may be necessary in public interest (article 302). However Parliament cannot discriminate between one State and another nor can it give preference to one State over another (Article 303(1). There is one case where discrimination among the States is permissible: it is in the case of famine or scarcity of goods in any part of India (Article 303(2))
2. A State may by law impose on goods imported from other States any tax to which similar goods manufactured in the State are subject( Article 304 (a)
3. A State may by law impose reasonable restriction on the freedom of trade commerce and intercourse in public interest. But this power is restricted in two respects:

(a) a State legislature cannot make a law with respect to trade and commerce which discriminates between the States (Article 303 (1) and

(b) a Bill imposing restriction on trade and commerce or intercourse shall not be introduced in the State Legislature without the previous sanction of the President

THE TEST OF DIRECT AND IMMEDIATE RESTRICTION

ATIABARI TEA CO LTD v STATE OF ASSAM, AIR 1961 SC 232(  A five judge bench decision)

In this case the Supreme Court was concerned with the Assam Taxation (on goods carried by Roads and Inland Waterways) Act 1954 which was passed under Entry 56 of List II of the seventh Schedule of the Constitution. The appellants carried on the business of growing tea and exporting it to Calcutta via Assam. In the course of passing through Assam the tea was liable to tax under the Act.

The appellants contended that the Act had violated the freedom of trade guaranteed by Article 301as it had obstructed free flow of trade   and as it was not passed after obtaining the sanction of the President as required by Article 304 (b) it was ultra vires.

MEANING OF “FREE”

The Supreme Court held that the accent on Article 301 is on the movement aspect of trade. This Article requires that the flow of the trade throughout India shall run smooth and unhampered by any restriction on the free flow and movement of trade. It is the free movement and transport of goods from one part of the country to another part that is intended to be saved by Article 301 and if a law or tax imposes a direct restriction on the very movement of such goods, it attracts the provision of Article 301 and its validity can be sustained only if it satisfied the requirement of Article 304(b).

The Court declared:

“Our conclusion therefore is that when Article 301 provides that trade shall be free throughout the territory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restriction on the very movement of such goods it attracts the provisions of Article 301. The freedom of movement of trade cannot be subject to any restriction in the form of taxes imposed on carriage of goods or their movements. Such restriction can be imposed by the State legislatures only after satisfying the requirements of Article 304(b) of the Constitution”

 “Restriction freedom from which is guaranteed by Article 301 would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restriction but it is only such taxes which directly and immediately restrict free movement of trade would fall within the purview of Article 301.”

However, such regulatory measures as traffic regulations, licensing of vehicles, marketing and health regulations, price control, economic and social planning , prescribing minimum wages only indirectly impeded the free flow of trade. These are regulatory measures which promote and facilitate trade and are permissible for an orderly society.

Since the impugned Act had not satisfied the requirement of obtaining previous assent to the Bill by the President as required by Article 304(b) it was struck down as unconstitutional.

THE COCEPT OF COMPENSATORY TAX

AUTOMOBILE TRANSPORT CO v STATE OF RAJASTHAN AIR 1962 SC 925(  A seven judge bench decision)

In Automobile case the Court held that regulatory measures or compensatory taxes for the use of trading facilities did not hamper trade, commerce and intercourse and therefore were not hit by Article 301.  Rajasthan Motor Vehicles Taxation Act 1951 provided that no one could use or keep for use a motor vehicle in Rajasthan without paying an appropriate tax.

Relying upon Atiabari case the appellants argued that since the previous sanction of the President was not obtained the Act was invalid

The Supreme Court held

The interpretation which was accepted by majority in the Atiabari case is correct, but subject to this clarification: Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of restrictions contemplated by Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution.

The Court found that in 1952-1953 the income from motor vehicle  taxation was about 34 lakhs and the expenditure on new roads and maintenance of old roads was about 60 lakhs. In 1954-55 the estimated income from tax on vehicles was 35 lakhs but the expenditure on maintenance of roads was 65 lakhs. The Supreme Court upheld the validity of the impugned Act as imposing compensatory tax which was permissible and not violative of freedom guaranteed by Article 301.

Thus the State was charging from the users of motor vehicles nearly 50% of the cost incurred by the State in maintaining and making roads

For the purpose of ascertaining whether a tax was a compensatory or not, it is necessary to inquire whether the traders were having the use of facilities for better conduct of their business and paying not patently much more that what was required for providing the facilities. It was explained by the Court that the State had to find  funds for making and maintaining roads and fund could only be raised through taxation, It was further clarified that tax so collected for providing trading facilities need not be kept in a separate fund.

A compensatory tax does not offend the freedom of trade, commerce and intercourse guaranteed by Article 301 and therefore such taxes need not meet the requirement of Article 304(b).

G K KRISHNAN v STATE OF TAMIL NADU (1975) 1 SCC 375

In this case the writ petition challenged the validity of a notification by Government of Tamil Nadu enhancing the  motor vehicle tax on omnibuses from Rs 30 per seat per quarter to Rs 100 per seat per quarter, The question for consideration was whether the tax was a compensatory tax? It was found that Rs 19.51 crores had been spent not only for maintenance of the roads but also for the construction of new ones and that the receipt from the vehicle tax was only 16.38 crores.

Following Autombile Transport Case (1962) the Supreme Court held that the impugned tax was a compensatory tax and did not violate Article 301. The Court observed that regulations like rules of traffic facilitate freedom of trade and commerce whereas restrictions impede that freedom. The collection of tax or toll for the use of roads, bridges, aerodromes, does not operate as barrier or hindrance to trade. For a tax to become a prohibited tax, it has to be a direct tax effect of which is to hinder the movement part of trade. If the tax is compensatory or regulatory it cannot operate as a restriction on the freedom of trade and commerce.  A compensatory tax need not satisfy the requirements of Article 304(b).

Working Test

The Court referred to the working test enunciated in Automobile case according to which the working test for deciding whether a tax is compensatory or not is to enquire whether the trades people are having the use of certain facilities for the better conduct of their business not patently paying much more than what is required for providing the facilities.

The very idea of a compensatory tax is service more or less commensurate with the tax levied

The Court therefore upheld the notification enhancing the tax on motor vehicles in Tamil Nadu as it was held to be a compensatory tax.

THE POWER OF STATE LEGISLATURES

CASES ON ARTICLE 304 (a)

VIDEO ELECTRONICS (PVT) LTD V STATE OF PUNJAB (1980) 4 SCC 134

In this case the petitioners who carried on the business of selling cinematographic films and other equipment like projectors, sound recording and reproducing equipment, industrial X ray films, graphic art films etc, had  challenged the notifications issued by the governments of Punjab and Uttar Pradesh which had provided temporary exemption to the new electronic local industries from paying sales tax. The UP notification stipulated that the said benefit shall be available only to those units who have commenced their production between the dates specified in the notification.

The Punjab notification provided that the rate of sales tax payable by an electronic manufacturer unit existing in Punjab would be one percent as against normal twelve percent applicable to units from other States

In the case of UP notification the Supreme Court held that in as much as it was a case of grant of exemption to a special class for a limited period on specified conditions and was not extended to all the products of those goods, it did not offend the freedom of trade guaranteed by Article 301 and 304 (a)

Similarly in the case of Punjab notification it was held that the exemption was for certain specified goods and overwhelmingly large number of local manufacturers of similar goods were subject to sales tax.

It could not be said that the local manufacturers were favoured as against outside manufacturers

The Supreme Court upholding the validity of the impugned notifications ruled:

“A state which is economically and technically weak on account of various factors should be allowed to develop economically by granting exemptions, concessions, subsidies to new industries”

Accordingly the impugned notifications were held not violative of Article 304(a).

Thus a temporary exemption from sales tax to specified goods made within the State with a view to giving incentives and encouragement to the local industry does not infringe Article 304(a) of the Constitution.

SRI MAHAVIR OIL MILLS LTD v STATE OF J&K (1996) 11 SCC 39

Under Jammu and Kashmir General Sales Tax Act the State government issued notifications   stating that as the cost of production of edible oil in the State of Jammu and Kashmir was higher than the cost of production of edible oil in the adjoining States the producers of edible oil in the State of Jammu and Kashmir will be exempted from paying sales tax on edible oil. But the manufacturers /producers of edible oil from other States were liable to pay tax at the rate of 8%.

The appellant challenged the constitutional validity of tax exemption as infringing the requirement of Article 301 and 304(a) of the Constitution.

In this case the Supreme Court invalidated the imposition of 8% sales tax by the State of J&K on the edible oil imported from other States from which the Edible Oil produced with in J&K was exempted. The Court rejected the State’s plea that such arrangement was necessary to encourage the State oil industry and to subsidize high cost of oil production within the State .By exempting unconditionally the edible oil produced within the State of J&K altogether from sales tax while subjecting the edible oil produced in other States to sales tax at 8%, the State of J&K has brought about discrimination by taxation prohibited by Article 304(a) of the Constitution.

It was held that the exemption granted from payment of sales tax to local manufacturers /producers of edible oil is unconstitutional and violative of Article301 and  304(a) of the Constitution.

Citing Video Electronics case the Supreme Court observed that a limited exception created in that case cannot be enlarged to eat up the main provision in Article 304(a) which totally prohibits discriminatory taxation by a State. By exempting unconditionally the edible oil produced within the State of Jammu and Kashmir altogether from sales tax the State had brought about discrimination by taxation prohibited by Article 304(a).

The notifications were held to be violative of Article 301 and Article 304(a)

CONCLUSION

The concept of compensatory tax has been evolved judicially in order to provide more autonomy to the States for raising revenue through taxes under Entries 56 and 57 of List II.  It has consistently been held that these taxes are by their very nature compensatory in character and are therefore outside the purview of Article 301.The power to impose tax under entry 56 or 57 List II is the power to impose taxes which are in the nature of compensatory or regulatory measures and when a tax is regulatory or compensatory in nature the measure of tax need not be proportionate to the expenditure incurred in the services provided to the traded people.

Thus regulatory measures or compensatory taxes do not offend Article 301 and such measures need not satisfy the requirement of Article 304(b).

Thus the test for adjudging the validity of law on ground of Article 301 may be stated in the following manner:

1. A measure which operates on trade, commerce and intercourse indirectly or remotely is not violative of Article 301
2. A measure which operates on trade, commerce and intercourse directly and immediately is violative of Article 301
3. A measure which operates on trade, commerce and intercourse directly and immediately may not be violative of Article 301 if it is

(a) Regulatory or

(b) Imposes compensatory tax for the use of trading facilities.

Jindal Stainless Ltd. v. State of Haryana (2016)

• Only such taxes which are non-discriminatory in nature are valid, those taxes which are discriminatory in nature are unconstitutional.
• The factum as to whether an entry tax is discriminatory or not has to be examined by the respective benches hearing the same.
• The concept of compensatory tax is flawed and has no legal basis.

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UNION OF INDIA V H S DHILLON (AIR 1972 SC 1061)

Note-This is a seven judge bench decision of the Supreme Court

Facts of Controversy

This case involved the definition of “net wealth” in the Wealth Tax Act 1957 a Central Law as amended by the Finance Act 1969. The amended definition of ‘net wealth’ included agricultural land in assets for the purpose of calculating tax on capital value of the net wealth.

The relevant entries are:

Entry 86 List I ‘taxes on capital value of assets, exclusive of agricultural land’

Entry 97 List I ‘any other matter not included in List II or List III’

Entry 49 List II ‘taxes on lands and buildings’

Article 248 states: (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in Concurrent List or State List.

(2) Such power shall include the power of making any law imposing tax not mentioned in either of those lists

It was argued that the object and effect of exclusion of agricultural land from entry 86 List I was to take agricultural land out of the ambit of Entry 97 List I and Article 248 and therefore Wealth Tax Act as amended by Finance Act including agricultural land for calculating tax on capital value of assets was a law under Entry 49 List II.

Argument of M C Seetalvad for Government of India

The impugned Act is not a law with respect to Entry 49 List II and if this is so, it must necessarily fall within the legislative competence of Parliament under Entry 97 List I read with Article 248 or under Entry 86 List I read with Entry 97 List I. The words ‘exclusive of agricultural land’ in Entry 86 L I could not cut down the scope of Entry 97 List I or Article 248 .

He argued that the proper way of testing the validity of a Central law was first to see whether the Central law was with respect to a matter or tax mentioned in List II, if it was not, no other question would arise and Central law will be valid.

Argument of Palkiwala for the Respondents

It was the scheme of the Constitution to give States exclusive power to legislate in respect of agricultural land, income on agricultural land and taxes thereon. The object and effect of  excluding  agricultural land from the scope of Entry 86 I was take it out of the ambit of Entry 97 I and Article 248 and therefore the impugned law was a law with respect to Entry 49 L II

Decision of the Supreme Court

The best way of dealing with the question of validity of the Impugned Central Law to ask two question

1. Is the impugned Act is a legislation with respect Entry 49 L II
2. If it is not is it beyond the legislative competence of Parliament?

It is unthinkable that the Constitution makers had withheld certain matters or taxes beyond the legislative competence of the legislatures of this country.

“If on proper examination of Entry 49 List II read in the light of Entry 86 List I, it is held that tax on the capital value of agricultural land is not included with in Entry 49 List II or in Entry 86 I it would be arbitrary to say that it does not fall under Entry 97 I read with Article 97 List I. We do not read ‘any other matter in Entry 97 List I to mean that it has any reference to topics excluded in Entries 1-96. The words ‘any other matter’ have reference to matters on which Parliament has been given power to legislate by the enumerated entries 1-96. Accordingly we do not interpret the words ‘any other matter’ to mean a topic mentioned by way of exclusion.”

On the terms of Entry 97 List I read with Article 248 the only question to be asked is: Is the matter sought to be legislated or included in List II or List Iii or is the tax sought to be levied mentioned in List II or List III. No question has to be asked about List I. If the answer is in the negative then it follows that Parliament has the power to make laws with respect to that matter or tax.

It must be remembered that the function of the lists is not to confer powers; they merely demarcate the legislative fields.

(The Court explained that taxing power has been distributed between the Centre and the States and there no entry in the Concurrent List dealing with taxes)

Question

Whether the impugned Act is a law with respect to Entry 49 list II

Answer

The tax under Entry 49 II is not a personal tax but a tax on property whereas wealth tax is a personal tax. Therefore the impugned Act was not a law with respect to Entry 49 List II. Parliament had not encroached upon a legislative field assigned exclusively to State Legislatures.

Hence the impugned legislation is valid either under entry 86 List I read with Entry 97 List or under Entry 97 List I standing by itself.

The Supreme Court held that the Wealth Tax Act did not fall within either  Entry 86, List I or Entry 49 List II. If the impugned Act was not a law under entry 49 List II the Central Act was valid.

However even assuming that that the Wealth Tax Act as originally enacted was a legislation under Entry 86 List I nothing in the Constitution prevented Parliament from combining its powers under Entry 86 List I with its powers under Entry 97 List I. There was no principle which prevented Parliament from relying on the powers specified under entries 1-96 and supplementing them with powers under Entry 97 List I and Article 248.

Parliament could include agricultural land in the capital value of assets under Entry 86 List I but it could include it in the exercise of its power under Entry 97 List I because agricultural land was not a matter included in any of the entries 1-96 of List I.

The Court clarified that even if there were doubts in the acceptance of this interpretation they were removed by Article 248 which gave exclusive power to Parliament to make a law on any matter not enumerated in List II or List III. As tax on capital value of assets was not included I Lists II or List III, Parliament was competent to enact a law on that subject.

Conclusion

“If a Central Act is challenged as being beyond the legislative competence of Parliament it is enough to enquire if is a law with respect to matters or taxes in List II. If is not, no further question arises”

Comment: The interpretation given by the Supreme Court in Dhillons case on scope of residuary power of Parliament can be appreciated so as to avoid any vacuum in the area of legislative powers as would have happened had the Court adopted a restrictive view of the residuary power of Parliament. This interpretation gives a new dimension to power of the Centre.

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Article 254 of the Constitution makes provision, first what would happen in case of conflict between a Central and State law with regard to the subjects enumerated in the Concurrent List and secondly for resolving such conflict. Article 254 (1) enunciates the normal rule that in the event of conflict between a Union and State law in the Concurrent list the former prevails over the latter. Clause (1) lays down that if a State law relating to a Concurrent subject is repugnant to a Union law relating to that subject, then, whether the Union law is prior or later in time, the Union law will prevail and the State law shall to the extent of such repugnancy, be void.

To the general rule laid down in clause (1), clause (2) engrafts an exception, viz, that if the President assents to a State law which has been reserved for his consideration, it will prevail notwithstanding its repugnancy to an earlier law of the Union, both laws dealing with a Concurrent subject. In such a case the Central law will give way to the State law only to  the extent of inconsistency between the two and no more.

The predominance of the State law may however be taken away if Parliament legislates under the proviso to clause (2). The proviso to clause (2) empowers the Parliament to repeal or amend a repugnant State law either directly or by itself enacting a law repugnant to State law with respect to the ‘same matter’. Even though the subsequent law made by Parliament does not expressly repeal a State law, even then the State law will become void as soon as the subsequent law of Parliament creating repugnancy is made.

A state law will be repugnant to the Union law when there is a direct conflict between the two laws. Such repugnancy may also arise when both laws operate in the same field and the two cannot possibly stand together.

HOECHST PHARMACEUTICALS V STATE OF BIHAR AIR 1983 SC 1019

Relevant Entries

List II Entry 54 —Taxes on sale and purchase of goods

List III   Entry 33 –Trade and Commerce and the production supply and distribution of the products of any industry where the control of such industry is declared by Parliament by law to be expedients in public interest.

Law passed by Parliament under entry 33 List III

Essential Commodities Act 1955 has been passed by Parliament under entry 33 List III providing for regulation production supply and distribution of essential commodities

Under this law the Central government passed an order by under section 3 of the Act which stated that manufacturers or producers of goods could pass on the tax liability (sales tax and excise duty) to the consumers. In other words the sales tax could be recovered from purchasers of goods and products by the manufacturers and producers.

The Central law was on the subject of Price Fixation of essential commodities under entry 33 List III

Law passed by Bihar Legislature under Entry 54 List II

Section 5 of Bihar Finance Act 1981 prohibited the dealers to recover surcharge ( sales tax) from the purchasers .This law interdicted that no dealer liable to pay a surcharge in addition to tax payable by him shall be entitled to collect the amount of surcharge from the purchaser.

Section 5 provided for the imposition of a surcharge at 10 percent of the amount of tax payable by a dealer whose gross turnover during a year exceeded rupees 5 lakhs, in addition to tax payable by him’

Messrs Hoechst Pharmaceuticals and Glaxo Laboratories challenged the Bihar Act on the ground that under the Central law they were allowed to pass on the tax liability to consumers but the Bihar Act denied them

Argument of Petitioners

Price fixation is an occupied field by Central law and State law is repugnant to Central Law and hence void under Article 254(1).

Argument of Bihar State

Central law and State law operated in different and distinct fields. Under entry 54 List II

Under Entry 54 the State while levying a tax on sale or purchase of goods is competent to prohibit the dealers liable to pay a surcharge from recovering the same from the purchaser.

Apparent Conflict

There was an apparent conflict between Central law which allowed manufacturers or producers of drugs to pass on the liability to pay sales tax to the purchaser and the State law which prohibits such manufacturers or producers to recover surcharge (sales tax) from purchasers

Argument of Petitioners

Since Parliament has chosen to occupy the field of price fixation under entry 33 List III the State legislature is not competent to pass a law under entry 54 List II prohibiting the passing of liability of tax to the purchasers, Hence the State law was repugnant to Central law and void under 254 (1)

The Supreme Court held

“The true principle in judging the constitutional validity of   section 5 of the Act is to determine whether in pith and substance it is a law relatable to Entry 54 of List II and not whether there is repugnancy between section 5 of the Act and Price Control order made by the Central government under Essential Commodities Act under entry 33 of List III.”

“The question of repugnancy under Article 254 (1) between a law made by Parliament and a law made by the State legislature can arise only in case both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List, and there is a direct conflict between the two laws. It is when both these requirements are fulfilled that the State law will to the extent of repugnancy, become void.”

“Article 254(1) has no application cases of repugnancy due to overlapping found between List II  on the one hand and Lists I and III on the other. If such overlapping exists in any particular case the State law will be ultra vires because of the non-obstante clause in Article 246(1) read with the opening words “subject to” in Article 246(3). In such a case the State law will fail not because of repugnance to the Union law but due to want of legislative competence”

“The underlying principle is that the question of repugnancy arises only when both the legislatures are competent to legislate in the same field that is with respect to one of the matters enumerated in the Concurrent List. Article 254(1) cannot apply unless both the Union and State Law relate to a subject specified in the Concurrent List and they occupy the same field”

Decision

There cannot be any intrusion by a law made by Parliament under entry 33 List III into a forbidden field viz the State’s exclusive power to make a law with respect to levy and imposition of a tax on sale or purchase of goods relatable to Entry 54 List II. It follows that the two laws viz the price control order passed by the Central government under Essential Commodities Act passed under entry 33 List III and Section 5 of the Bihar Finance Act operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between the two laws and the question of repugnancy does not come into play

THE APPLICATION OF PROVISO TO ARTICLE 254(2)

Zaverbhai v State of Bombay (1954)

The Central Legislature passed Essential Supplies (Temporary Powers) Act in 1946. Section 7 of the Central Act provided for penalties for contravention of orders made under Section 3 of the Act. The punishment provided under Section 7 was imprisonment up to three years or with fine or both.

In 1947 the Bombay Legislature passed a law enhancing the imprisonment which may extend up to seven years and not less than six months plus fine.

Both the Central and State laws were on a matter enumerated in List III.

Since the State law was repugnant to Central law on the same matter the assent of Centre was obtained and under Article 254(2) the State law became operative in the State of Bombay despite being repugnant to Central Law

In 1950 Central Legislature enacted a new Section 7 and divided the offences in three categories in the Essential Supplies (Temporary Powers Act).

Section 7 of the Central Act also specified punishments separately for the three categories of offences. The Central law provided for imprisonment for three years or fine or both

Since the State Law had provided for imprisonment for 7 years and not less than six months plus fine there was an apparent repugnancy between the State law and Central law.

The Supreme Court held that the Bombay Act of 1947 was impliedly repealed by Section 7 which had amended the Central Act in 1950 and Section 2 of the Bombay Act cannot prevail as against Section 7 of the Essential Supplies (Temporary Powers) Act 1946 as amended in 1950.

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Distribution of Legislative Powers

Distribution of Legislative Powers

• Article 245:Territoriality Clause
• Article 246: Subject Matter of Laws made by Parliament and State Legislatures

State Of Bihar & Others v. Sm. Charusila Dasi

Bihar  Hindu  Religious Trusts Act,  1950

Section 3 of the Act says- “This Act shall apply to all religious trusts, whether created before or after the commencement of this Act, any part of the property of which is situated in the State of Bihar “. The argument before us on behalf of the respondent is this. Under Art. 245 of the Constitution, Parliament may make laws for the whole or any part of the territory of India and the legislature of a State may make laws for the whole or any part of the State. Clause (2) of the said Article further states that no law made by Parliament shall be deemed to be invalid on the ground that it would have extra-territorial operation. Article 246 gives the distribution of legislative power; Parliament has exclusive power to make laws with respect to any of the matters enumerated in what has been called the Union List; Parliament as also the legislature of a State have power to make laws with respect to any of the matters enumerated in the Concurrent List; the legislature of a State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in the State List. Item 28 of the Concurrent List is “charities and charitable institutions, charitable and religious endowments and religious institutions “.

Learned counsel          for the respondent contends that by reason of the provisions in Arts. 245 and 246 of the Constitution read with item 28 of the Concurrent List, the Bihar legislature which passed the Act had no power to make a law which has operation outside the State of Bihar; he further contends that under s. 3 the Act is made applicable to all religious trusts, whether created before or after the commencement of the Act, any part of the property of which is situated in the State of Bihar; therefore, the Act will apply to a religious institution which is outside Bihar even though a small part of its property may lie in that State. It is contended that such a provision is ultra vires the power of the Bihar Legislature, and Parliament alone can make a  law which will apply to religious institutions having properties in different States. Alternatively, it is contended that even if the Act applies to a religious institution in Bihar, the provisions of the Act can have no application to such property of the institution as is outside Bihar…

• “An Interpretation as will make it operative and not in-operative”

It is necessary first to determine the extent of the application of the Act with reference to ss. 1 (2) and 3 of the Act read with the preamble. The preamble states:- ” Whereas it is expedient to provide for the better administration of Hindu religious trusts in the State of Bihar and for the protection and preservation of properties appertaining to such trusts.” It is clear from the preamble that the Act is intended to provide for the better administration of Hindu religious trusts in the State of Bihar. Section 1 (2) states that the Act extends to the whole of the State of Bihar, and s. 3 we have quoted earlier. If these two provisions are read in the context of the preamble, they can only mean that the Act applies in cases in which (a) the religious trust or institution is in Bihar and (b) any part of the property of which institution is situated in the State of Bihar. In other words, the aforesaid two conditions must be fulfilled for the application of the Act. It is now well settled that there is a general presumption that the legislature does not intend to exceed its jurisdiction, and it is a sound principle of construction that the Act of a sovereign legislature should, if possible, receive such an interpretation as will make it operative and not in-operative…We accordingly hold that s. 3 makes the Act applicable to all public religious trusts, that is to say, all public religious and charitable institutions within  the meaning of the definition clause in s. 2 (1) of the Act, which are situated in the State of Bihar and any part of the property of which is in that State.

• No Question of Extra-Territorial Operation

Undoubtedly, the Bihar Legislature has power to legislate in respect of, to use the phraseology of item 28 of the Concurrent List, ” charities, charitable institutions, charitable and religious endowments and religious institutions ” situate in the State of Bihar. The question, therefore, narrows down to, this: in so legislating,, has it power to affect trust property which may be outside Bihar but which appertains to the trust situated in Bihar ? In our opinion, the answer to the question must be in the affirmative. It is to be remembered that with regard, to an interest under a trust the beneficiaries’ only right is to have the trust duly administered according to its terms and this right can normally be enforced only at the place where the trust or religious institution is situated or at the trustees’ place of residence. The Act purports to do nothing more. Its aim., as recited    in the preamble, is to provide for the better administration      of Hindu religious trusts in the State of Bihar and for the protection        of properties appertaining thereto. This aim is sought to be achieved by exercising control over the trustees in personam. The trust being situate in Bihar the State has legislative power over it and also over its trustees or their servants and agents who must be in Bihar to administer, the trust. Therefore, there is really no question of the Act having extraterritorial operation.

• Sufficiency of the Territorial Connection

A deed of trust was executed by the respondent on March  II, 1938,  when she was residing at D in the State of Bihar,  in respect of  the  properties  described in  the  Schedules referred to in the deed, some of which were situated  outside the State of Bihar…(the fact) that the temples where the deities are installed are situated in Bihar, that the hospital and charitable dispensary are to be established in Bihar for the benefit of the Hindu public in Bihar gives enough territorial connection to enable the legislature of Bihar to make a law with respect to such a trust… in the Tata Iron & Steel Co.’s case…it was pointed out that sufficiency of the territorial connection involved a consideration of two elements, namely, (a) the connection must be real and not illusory and (b) the liability sought to be imposed must be pertinent to that connection. It cannot be disputed that if the religious endowment is itself situated in Bihar and the trustees function there, the connection between the religious institution and the property appertaining thereto is real and not illusory ; indeed, the religious institution and the property appertaining thereto form one integrated whole and one cannot be dissociated from the other.

• Judgment

We do  not see any reason why the principles which   were followed in The State of Bombay v. R. M. D. Chamarbaugwala  should not be followed in the present case. In R. M. D. Chamarbaugwala’s case it was found that the respondent who was the organiser of a prize competition was outside the State of Bombay; the paper through which the prize competition was conducted was printed and published outside the State of Bombay, but it had a wide circulation in the State of Bombay and it was found that ” all the activities which the gambler is ordinarily expected to undertake“ took place mostly, if not entirely, in the State of Bombay. These circumstances, it was held, constituted a sufficient territorial nexus which entitled the State of Bombay to impose a tax on the gambling that took place within its boundaries and the law could not be struck down on the ground of extra-territoriality. We are of the opinion that the same principles apply in the present case and the religious endowment itself being in Bihar and the trustees functioning there, the Act applies and the provisions of the Act cannot be struck down on the ground of extra- territoriality.

State Of A.P vs National Thermal Power Corpn

The High Court of Andhra Pradesh at Hyderabad has, by its impugned judgment dated April 11, 1990, allowed the writ petition filed by the respondent National Thermal Power Corporation Ltd. (hereinafter ‘NTPCL’, for short) and declared that the levy of duty by the State of Andhra Pradesh on the sales of electrical energy generated by the Corporation-respondent No.1 at its thermal power station set up at Ramagundam, within the State of Andhra Pradesh, and sold to the Electricity Boards of Karnataka, Kerala, Tamil Nadu and the State of Goa in pursuance of contracts of sales occasioning inter-State movement of electricity is incompetent and outside the power of State Legislature. Consequently, the tax levied and collected has also been held to be without authority of law, hence liable to be refunded in accordance with law. On a prayer made by the learned Advocate General on behalf of the State of Andhra Pradesh, the High Court certified that the case involves a substantial question of law as to the interpretation of Constitution under Article 132. The appeal has been filed pursuant to the certificate so granted by the High Court.   On 4.10.1991, a bench of two learned Judges directed the appeal to be placed for hearing before a Constitution Bench, as required by Clause (3) of Article 145 of the Constitution.

• Inter-State Sale or Intra-State Sale

Andhra Pradesh Electricity Duty Act, 1939 provides for levy of duty on certain sales and consumption of electricity by licensees in the State of Andhra Pradesh. The definition of the term ‘licensee’ specifically includes the National Thermal Power Corporation (respondent No.1) or any other Corporation engaged in the business of supplying energy. Section 3 of the Act is the charging section…the limited question arising for our consideration is __ whether sales of energy by NTPCL, the respondent No.1, to several Electricity Boards situated outside the State of Andhra Pradesh and to the State of Goa, attract the incidence of taxation under Section 3 of the Act…The controversy centres mainly around the question as to under which entry Andhra Pradesh Electricity Duty Act, 1939 is covered and whether the sales of electricity by NTPCL, the respondent No.1, to the Electricity Boards situated outside the State of Andhra Pradesh and to the State of Goa, can be construed as inter-State sale or intra- State sale.

• Section 3 of Central Sales Tax Act

When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.—A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase—

(a) occasions the movement of goods from one State to another; or

(b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1.—Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2.—Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State.

• Creating A Fiction

Generally speaking, a legislation having extra territorial operation can be enacted only by Parliament and not by any State Legislature; possibly the only exception being one where extra territorial operation of a State legislation is sustainable on the ground of territorial nexus. Such territorial nexus, when pleaded, must be sufficient and real and not illusory. In Burmah Shell Oil Storage & Distributing Co.India Ltd.(supra), which we have noticed, it was held that sale for use or consumption would mean the goods being brought inside the area for sale to an ultimate consumer, i.e. the one who consumes. In Entry 53, ‘sale for consumption’ (the meaning which we have placed on the word ‘sale’) would mean a sale for consumption within the State so as to bring a State Legislation within the field of Entry 53. If sale and consumption were to take place in different States, territorial nexus for the State, where the sale takes place, would be lost. We have already noticed that in case of electricity the events of sale and consumption are inseparable. Any State legislation levying duty on sale of electricity, by artificially or fictionally assuming that the events of sale and consumption have taken place in two States, would be vitiated because of extra territorial operation of State legislation.

• Judgment: Cannot tax an Inter-State Sale by Creating a Fictional Territorial Nexus

In 20th Century Finance Corporation’s case…The, majority has clearly opined that the State where the goods are delivered in the transaction of inter-State sale, cannot levy a tax on the basis that one of the events in the chain has taken place within the State; so also where the goods are in existence and available for the transfer of right to use, there also that State cannot exercise power to tax merely because the goods are located in that State…However, we are dealing with the case of electricity as goods, the property whereof, as we have already noted, is that the production (generation), transmission, delivery and consumption are simultaneous, almost instantaneous. Electricity as goods comes into existence and is consumed simultaneously; the event of sale in the sense of transferring property in the goods merely intervenes as a step between generation and consumption. In such a case when the generation takes place in one State wherefrom it is supplied and it is received in another State where it is consumed, the entire transaction is one and can be nothing else excepting an inter-State sale on account of instantaneous movement of goods from one State to another occasioned by the sale or purchase of goods…Though it may be permissible to fix the situs of sale either by appropriate State legislation or by Judge made law as held by the majority opinion in 20th Century Finance Corporation case, we would like to clarify that none of the two can artificially appoint a situs of sale so as to create territorial nexus attracting applicability of tax legislation enacted by any State Legislature and tax an inter-State sale in breach of Section 3 of the CST Act.

Plenary and Ancillary Powers of Legislation

In 1957, the U. P. Legislature passed the U. P. Large Land Holdings Tax Act …Entry 49 in List II of the 7th Schedule of the Constitution. This Entry relates to taxes to lands and buildings. The argument is that ‘Lands’ in the context does not include agricultural lands and so, the U. P. Legislature was not competent to levy the tax. In considering the merits of this argument, it is necessary to bear in mind that we are interpreting the words used in the Constitution and it is an elementary cardinal rule of interpretation that the words used in the Constitution which confer legislative power. must receive the most liberal construction and if they are words of wide amplitude, they must be interpreted so as to give effect to that amplitude. It would be out of place to put a narrow or restricted construction on words of wide amplitude in a Constitution. A general word used in an entry like the present one must be construed to extend to all ancillary or subsidiary matters which can fairly and reasonably be held to be included in it…It is, however, urged that since Entry 46 in list II refers to taxes on agricultural income, it follows that agricultural income is not included in Entry 49… But it must be remembered that both Entries 46 and 49 are in List II and it would make no difference whether the State legislation imposing taxes on agricultural income is sustained by reference to Entry 46 rather            than by reference to Entry 49.- Per Gajendragadkar J in Jagnnath Baksh Singh

Doctrine of Harmonious Construction:Gujarat University v. Madholkar

Shrikant son of Shri Krishna Madholkar appeared for the Secondary School Certificate examination held by  the State of Bombay in March, 1960, and was declared successful. He took instruction in the various subjects prescribed for the examination through the medium of Marathi (which is            his mother-tongue) and answered the questions at the examination also in the medium of Marathi. Shrikant joined the St. Xavier’s College affiliated to the University of Gujarat, in the First Year Arts class and was admitted in the section in which instructions were imparted through the medium of English. After successfully completing the First Year Arts course in March, 1961, Shrikant applied for admission to the classes preparing for the Intermediate Arts examination of the University through the medium of English. The Principal of the College informed Shrikant that in view of the provisions of      the Gujarat University Act, 1949, and the Statutes 207, 208 and 209 framed by the Senate of the University, as amended in 1961 he could not without the sanction of the University permit him to attend classes in which instructions were imparted through the medium of English. Shri Krishna, father of Shrikant then moved the Vice-Chancellor of the University for sanction to permit Shrikant to attend the “English medium classes” in the St. Xavier’s College. The Registrar of the University declined to grant the request, but by another letter Shrikant was “‘allowed to keep English as a medium of examination“ but not for instruction.

• Legislation in Question

St. Xavier’s College was affiliated to the University of Bombay under Bombay Act 4 of 1928. The Legislature of    the Province of Bombay enacted the Gujarat University Act, 1949…By s. 5(3) of the Act, from the prescribed date all educational institutions admitted to the privileges of the University of Bombay and situate within the University area of Gujarat were deemed to be admitted to the privileges of the University of Gujarat…Section 4 of the Act enacted a provision which is not normally found in similar Acts constituting Universities. By that. section various powers of the University were enumerated. These powers were made exercisable by diverse authorities of the University set out in s. 15. We are concerned in these appeals with the Senate, the Syndicate and the Academic Council…In 1954, the Gujarat University framed certain Regulations dealing with the media of instruction…After the constitution of a separate State of’ Gujarat, Act 4 of 1961 was enacted by the Gujarat State Legislature.

• Two Crucial Questions for Determination

A petition was then filed by Shri Krishna Madholkar on behalf of himself and his minor son Shrikant in the High Court of Gujarat for a writ or order in the nature of Mandamus or other writ, direction or order requiring the University of Gujarat to treat ss. 4(27), 18 (i) (xiv) and 38A of the Gujarat University Act, 1949 (as amended in 1961), and Statutes 207, 208 and 209 as void and inoperative…The High Court of Gujarat by order dated January 24, 1962, issued the writs prayed for. The University and the State of Gujarat have separately appealed to this Court with certificates of fitness granted by the High Court. Two substantial questions survive for determination-(1) whether under the Gujarat University Act, 1949, it is open to the University to prescribe Gujarati or Hindi or both as an exclusive medium or media of instruction and examination in the affiliated colleges, and (2) whether legislation authorising the University to impose such media would infringe Entry 66 of List I, Seventh Schedule to the Constitution.

• Judgment on Question (i)

Therefore, neither under the Act as originally framed nor under the Act as amended by Act 4 of 1961 was there any power conferred on the University to impose Gujarati or Hindi or both as exclusive medium or media of instruction and examination and if no such power was conferred upon the University, the Senate could not exercise such a power. The Senate is a body acting on behalf of the University and its powers to enact Statutes must lie within the contour of the powers of the University conferred by the Act. On the view we have expressed, consideration of the question whether the State Government is competent to enact laws imposing Gujarati or Hindi or both as an exclusive medium or media of instruction in the Universities, may appear academic, But we have thought it necessary to consider the question because the High Court has declared certain provisions of Act 4 of 1961 relating to medium of instruction as ultra vires the State Legislature and on the question which was argued at considerable length we were invited by counsel for the appellants to express our view for their guidance in any future legislation which may be undertaken.

• Question (ii)

By the Constitution a vital change has been made in the pattern of distribution of legislative powers relating to education between the Union Parliament and the State Legislatures. By item No. 11 of List II (Deleted by the 42^nd Amendment) of the Seventh Schedule to the Constitution, the State Legislature has power to legislate in respect of “‘education including Universities subject to the provisions of items 63, 64, 65 and 66 of List I and 25 of List III“…(Item 63) Power to enact legislation with respect to the institutions known at the commencement of the Constitution as the Benaras Hindu University, the Aligarh Muslim University and the Delhi University and other institutions declared by Parliament by laws to be an institution of national importance is thereby granted exclusively to Parliament. Item 64 invests the Parliament with power to legislate in respect of “‘institutions for scientific or technical education financed by the Government of India wholly or in part and declared by Parliament, by law, to be institutions of national importance”. Item 65 vests in the Parliament power to legislate for “Union agencies and institutions for (a) professional, vocational or technical training, including the training of police officers; or (b) the promotion of special studies or research; or (c) scientific or technical assistance in the investigation or detection of crime”. By item 66 power is entrusted to Parliament to legislate on “co-ordination and determination of standards in institutions for higher education or research and scientific and technical institutions”.

• “Subject to”

Item 25 of       the Concurrent List confers power upon the Union Parliament and the State Legislatures to enact legislation with respect to “vocational and technical training of labour”. It is manifest that the extensive power vested in the Provincial Legislature to legislate with respect to higher, scientific and technical education and vocational and technical training of labour, under the Government of India Act is under the Constitution controlled by the five items in List I and List III mentioned in item 11 of List II. Item 63 to 66 of List I are carved out of the subject of education  and in respect of these items the power to legislate is vested exclusively in           the Parliament. Use      of the expression “subject to” in item 11 of List II of the Seventh Schedule clearly        indicates that legislation in respect       of excluded matters cannot be undertaken by the State…  this Court in considering the import of the expression “subject to” used in an entry in List II, in relation to an entry in List I         observed that to the     extent of the restriction imposed          by the use of the expression “”subject to” in an entry in List II, the power is taken away from the State Legislature. Power of the State to legislate in respect of education including Universities must to the extent to which it is entrusted to the Union Parliament, whether such power is exercised or not, be deemed to be restricted. If a subject of legislation is covered by items 63 to 66 even if it otherwise falls within the larger field of “education including Universities” power to legislate on that subject must lie with the Parliament.

• “Harmoniously Construed”

Item 11 of List II and item 66 of List I must be harmoniously construed. The two entries undoubtedly overlap: but to the extent of overlapping, the power conferred by item 66 List I must prevail over the power of the State under item 11 of List II. It is manifest that the excluded heads deal primarily with education in institutions of national or special importance and institutions of higher education including research, sciences, technology and vocational training of labour. The power to legislate in respect of primary or secondary education is exclusively vested in the States by item No. 11 of List II, and power to legislate on medium of instruction in institutions of primary or secondary education must therefore rest with the State Legislatures. Power to legislate in respect of medium of instruction is, however, not a distinct legislative head; it resides with the State Legislatures in which the power to legislate on education. is- vested, unless it is taken away by necessary intendment to the contrary. Under items 63 to 65 the power to legislate in respect of medium of instruction having regard to the width of those items, must be deemed to vest in the Union. Power to legislate in respect of medium of instruction, in so far it has a direct bearing and impact upon the legislative head of co-ordination and determination of’ standards in institutions of higher education or research and scientific and technical institutions, must also be deemed by item 66 List I to be vested in the Union.

• A Degree of Overlapping is Inevitable

The State has the power to prescribe the syllabi and courses of study in the institutions named in Entry 66 (but not falling within entries 63 to 65) and as an incident thereof it has the power to indicate the medium in which instruction should be imparted. But the Union Parliament has an overriding legislative power to ensure that the syllabi and courses of study prescribed and the medium selected do not impair standards of education or render the co-ordination of such standards either on an All India or other basis impossible or even difficult. Thus, though the powers of the Union and of the State are in the Exclusive Lists, a degree of overlapping is inevitable…It does not, however, follow that even within the permitted relative fields there might not be legislative provisions in enactments made each in pursuance of separate exclusive and distinct powers which may conflict. Then would arise the question of repugnancy and paramountcy which may have to be resolved on the application of the “doctrine of pith and substance” of the impugned enactment. The validity of the State legislation on University education and as regards the education in technical and scientific institutions not falling within Entry 64 of List I would have to be judged having regard to whether            it impinges on the field reserved for the Union under Entry 66. In other words, the validity of State legislation would depend upon whether it prejudicially affects co-ordination and determination of standards, but not upon the existence of some definite Union legislation directed to achieve that purpose. If there be Union legislation in respect of co-ordination and determination of standards, that would have paramountcy over the State law by virtue of the first part of Art. 254(1) ; even if that power be not exercised by the Union Parliament the relevant legislative entries being in the exclusive lists, a State law trenching upon the Union field would still be invalid.

• Judgment

It is true that “medium of instruction”  is not an item in the legislative list.  It falls      within  item No. 11 as a necessary incident of the power to legislate on education : it also falls within items 63 to 66. In so far as it is a necessary incident of the powers under item 66 List I it must be deemed to be included in that item and therefore excluded from item 11 List II. How far State legislation relating to medium of instruction in institutions has impact upon co-ordination of higher education is a matter which is not susceptible, in the absence of any concrete challenge to a specific statute, of a categorical answer…We are unable, however, to agree with the High Court that Act 4           of 1961 in so far as it amended the proviso to s. 4(27) is invalid, because it is beyond the competence of the State Legislature.

By the amendment of the proviso to s. 4 (27), the Legislature purported to continue the use of English as the medium of instruction in subjects selected by the Senate beyond a period of ten years prescribed by the Gujarat University Act, 1949. Before the date on which the parent Act was enacted, English was the traditional medium of instruction in respect of all subjects at the University level. By enacting the proviso as it originally stood, the University was authorised to continue the use of English as an exclusive medium of instruction in respect of certain subjects to be selected by the Senate. By the amendment it is common ground that no power to provide an exclusive medium other than the pre-existing medium   is granted. Manifestly, imparting instruction through a common medium, which was before the Act the only medium of instruction all over the Country, cannot by          itself result in lowering standards and coordination and determination of standards cannot be affected thereby. By extending the provisions relating to imparting of instruction for a period longer than ten years through the medium of English in the, subjects selected by the University, no attempt was made to encroach upon the powers of the Union under item No. 66 List I.

Doctrine of Colourable Legislation

It is only when a legislature which has no power to legislate frames a legislation so camouflaging it as to appear to be within its competence when it knows it is not, it can be said that the legislation so enacted is colourable legislation. In K.C. Gajapati Narayan Deo v. State of Orissa, Mukherjea, J., who spoke for the Court observed as under: “It may be made clear at the outset that     the doctrine of colourable legislation does not involve any question of bona fides or mala fides on the part of the legislature. The whole doctrine resolves itself into the question of competency of a particular legislature to enact a particular law. If the legislature is competent to pass a particular law, the motives which impelled it to act          are really irrelevant. On the other hand, if the legislature lacks competency, the question       of motive does not arise at all. Whether a statute is constitutional or not is thus always a question of power.”

Thus the whole doctrine resolves itself into a question of competency of the concerned legislature to enact  the impugned legislation. If the legislature has transgressed the limits of its powers and   if such transgression is indirect, covert or disguised, such a legislation is described as colourable in legal parlance.     – Ashok Kumar v. Union of India

Doctrine of Pith and Substance

It must inevitably happen from time to time that legislation though purporting to deal with a subject in one list, touches also upon a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind observance to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, whereby the impugned statute is examined to ascertain its pith and substance or its “true nature and character,” for the purpose of determining whether it is legislation with respect to matters in this list or in that.- Sir Maurice Gwyer C.J. in Subramanyan Chettiar’s case

• “Priority in what respect?”

…the question must be asked what in pith and substance is the effect of the enactment of which complaint is made and in what list is its true nature and character to be found. If these questions could not be asked, much beneficent legislation would be stifled at birth, and many of the subjects entrusted to Provincial Legislation could never effectively be dealt with…No doubt where they come in conflict List I has priority over Lists III and II and List III has priority over List II, but, the question still remains, priority in what respect? Does the priority of the Federal Legislature prevent the Provincial Legislature from dealing with any matter which may incidentally affect any item in its list or in each case has one to consider what the substance of an Act is and, whatever its ancillary effect, attribute it to the appropriate list according to its true character? In their Lordships’ opinion the latter is the true view.- Per Lord Porter in Prafulla Kumar Mukherjee vs The Bank Of Commerce

State Of Rajasthan vs Shri G. Chawla And Dr. Pohumal

This appeal was preferred by the State of Ajmer,        but after reorganisation the b of States, the State of Rajasthan stands substituted for the former State. It was filed against the decision of the Judicial Commissioner of Ajmer, who certified the case as fit for appeal to this Court under Art. 132 of the Constitution. The Ajmer Legislative Assembly enacted the Ajmer (Sound Amplifiers Control) Act, 1952, (hereinafter called the Act) which received the assent of the President on March 9, 1953. This Act was successfully impugned by the respondents before the learned Judicial Commissioner, who held that it was in excess of the powers conferred on the State Legislature under s. 21 of the Government of Part C States Act, 1951 and, therefore, ultra vires the State Legislature. The respondents (who were absent at the hearing) were prosecuted under S. 3 of the Act for breach of the first two conditions of the permit granted to the first respondent, to use sound amplifiers on May 15 and 16, 1954. These amplifiers, it was alleged against them, were so tuned as to be audible beyond 30 yards (condition No. 1) and were placed at a height of more than 6 feet from the ground (condition No. 2). The second respondent was at the time of the breach, operating the sound amplifiers for the Sammelan, for which permission was obtained.

• Rival Entries

…the Judicial Commissioner of Ajmer held that the pith and substance of the Act fell within Entry No. 31 of the Union List and not within Entry No. 6 of the State List, as was claimed by the State…

Entry No. 31 of The Union List: Post and Telegraphs; Telephones, wireless, broadcasting and other like forms of communication.

Entry No. 6 of The State List: Public health and sanitation; hospitals and dispensaries.

The attention of the learned Judicial Commissioner was apparently not drawn to Entry No. 1 of the State List, which is to the following effect: Public order(but not including the use of naval, military or air forces of the Union in aid of civil power.)

• Not Allowed
• Judgment

There can be little doubt that the growing nuisance of blaring loud-speakers powered by amplifiers of great output needed control, and the short question is whether this salutary measure can be said to fall within one or more of the Entries in the State List. It must be admitted that amplifiers are instruments of broadcasting and even of communication,           and in that view of the matter, they fall within Entry 31 of the Union List. The manufacture, or the licensing of amplifiers or the control of their ownership or possession, including the regulating of the trade in            such apparatus is one matter, but the control of the ‘use’ of such apparatus though legitimately owned and possessed, to the detriment of tranquility, health and comfort of others is quite another. It cannot be said that public health does not demand control of the use of such apparatus by day or by night, or in the vicinity of hospitals or schools, or offices or habited localities.

 

• Unfolding the Pith and Substance

The pith and substance of the impugned Act is the control of the use of amplifiers in the interests of health and also tranquility, and thus falls substantially (if not wholly) within the powers conferred to preserve, regulate and promote them and does not so fall within the Entry in the Union List, even though the amplifier, the use of which is regulated and controlled is an apparatus for broadcasting or communication.    As Latham, C. J., pointed out in Bank of New South Wales v. The Commonwealth (1): “ A power to make laws ‘with respect to’ a subject matter is a power to make laws which in reality and substance are laws upon the subject-matter. It is not enough that a law should refer to the subject-matter or apply to the subject-matter: for example, income tax laws apply to clergymen and to hotel-keepers as members of the public; but no one would describe an income-tax law as being, for that reason, a law with respect to clergymen or hotel-keepers. Building regulations apply to buildings erected for or by banks; but such regulations could not properly be described as laws with respect to banks or banking.”

On a view of the Act as a whole, we think that the substance of the legislation is within the powers conferred by Entry No. 6 and conceivably Entry No. 1 of the State List” and it does not -purport to encroach upon the field of Entry No. 31, though it incidentally touches upon a matter provided there. The end and purpose of the legislation furnishes the key to connect it with the State List. Our attention was not drawn to any enactment under Entry No. 31 of the Union List by which the ownership and possession of amplifiers was burdened with any such regulation or control, and there being thus no question of repugnancy or of an occupied field, we have no hesitation in holding that the Act is fully covered by the first cited Entry and conceivably the other in the State List. The Judicial Commissioner’s order, with respect, cannot be upheld, and it must be set aside. We allow the appeal and reverse the decision, and we declare the Act in all its parts to be intra vires the State Legislature.

• Viswanathiah And Company And … Vs State Of Karnataka

The two appeals and the three writ petitions challenge the validity      of the provisions of the Mysore Silkworm Seed and Cocoon (Regulation of Production, Supply and Distributions) Act, 1959 (Act No. 5 of 1960), hereinafter referred to as ‘the impugned Act‘…the argument before us was limited to a single contention.            This was that the impugned provisions lack legislative competence after the enactment, by Parliament, of the Central      Silk Boards      Act (Act 61 of 1948), (hereinafter referred to as ‘the Central Act’) which contains a declaration contemplated under Entry 52 of List I in the Seventh Schedule to    the Constitution of India. We shall be addressing ourselves only to this argument.

• Facts

The above Act, was amended by the Karnataka Act 33 of 1979. In the preamble, in addition to the ‘silk worm seed’ and ‘cocoon’, reference was added to silk yarn‘…The short point made on behalf of the petitioners is that any legislation in respect of ‘silk industry’ can be enacted only by Parliament and the State Legislature is incompetent to legislate on this matter. This is because Section 2 of the Central Silk Board Act, which reads as follows: “It is hereby declared that it is expedient in the public interest that the Union should take under its control the silk industry.”…In this context, it is emphasised that originally the Central Act and the declaration in S. 2 had been restricted to ‘raw           silk industry’ but, by an amendment of 1953 effective from 25.3.1954, their scope was widened to include the entire ‘silk industry’. The long title of the Central Act is that it is “an Act to provide for the development under Central control of the silk industry and for that purpose to establish a Central Silk Board”.

• High Court’s Decision

It will at once be seen that the point raised by the petitioners/ appellants has been repelled by the High Court on the basis of a series of decisions of this Court regarding scope of Entry 52 of List I in the Seventh Schedule to the Constitution. The High Court has pointed out that when Entry 52 talks of control of industry it does not mean all aspects of the industry in question. An industry comprises of 3 important aspects: (i) raw materials (ii) the process of manufacture or production; and (iii)the distribution of the products of the industry. Legislation in regard to raw materials would be permissible under Entry 27 of List 2, notwithstanding a declaration of the industry under Entry 52 to be one within the purview of parliamentary legislation. The process of manufacture or production can be legislated on by States under Entry 24 of List 2 so long as the industry is not a controlled industry within the meaning of Entry 7 or Entry 52 of List I. So far as the third aspect viz. the distribution of the products of the industry are concerned, the State Legislature would be quite competent to legislate thereto in regard thereto under Entry 27 of List II. However, when the industry is also a controlled industry legislation in regard to the products of the industry would be permissible by both the Central and the State Legislatures by virtue of Entry 33 of List 3. This in short is the decision of the High Court (based on various SC decisions).

• SC Judgment

In other words, though the production and manufacture of raw silk cannot be legislated upon by the State Legislature in view of the provisions of the Central Act and the declaration in section 2 thereof, that declaration and Entry 52 do not in any way limit the powers of the State Legislature to legislate in respect of the goods produced by the silk industry. To interpret Entry  52 otherwise would render Entry 33 in List 3 of the Seventh Schedule to the Constitution otiose and meaningless.    In this view of the matter         the limitation contained in Entry 52 does not affect    the validity of the present legislation…In view of our conclusion above, the State legislation would be quite valid unless it is repugnant to the provisions of          a Central legislation on the       subject. A persual of the Central Act makes it clear that the pith and substance of the legislation is the constitution of a silk Board for research into the scientific, technological and economic aspects of the industry. It does not have anything to do with the aspects covered by entry 33 in List         III. There is, therefore, no infirmity in the legislation under consideration.

The State Of Karnataka & Ors.  vs M/S. Drive-In Enterprises

Facts

The Drive-in-Theatre of the respondent with which we are concerned here is a cinema with an open-air-theatre into which admissions are given to persons desiring to see cinema while sitting in their motor cars taken inside the theatre. The Drive-in-Theatre has also an auditorium wherein other persons who are without cars, view the film exhibited therein either standing or sitting. The persons who      are admitted to view the film exhibited in the auditorium are required to pay Rs.3/- for admission therein. It is not disputed that the State Government has levied entertainment tax on such admission and the same is being realised. However, if any person desires to take his car inside the theatre with a view to see the exhibition of the films while sitting in his car in the auditorium, he is further required to pay a sum of Rs.2/- to the proprietor of the Drive-in-Theatre. The appellant-State in addition to charging entertainment tax on the persons being entertained, levied entertainment tax on admission of cars inside the theatre. This levy was challenged by the proprietors of the Drive-in-Theatres by means of writ petitions before the Karnataka High Court which were allowed and levy was struck down by a single Judge of the High Court. The said judgment was affirmed by a Division Bench of that Court. It was held, that the levy being not on a person entertained (i.e. Car/Motor vehicle), the same was ultra vires.

• Karnataka Entertainment Tax Act

After the aforesaid decision, the Karnataka Legislature amended the Act by Act No.3 of 1985…After the aforesaid amendments, the appellant herein, again levied entertainment tax on admission of cars into Drive-in- Theatre. This levy was again challenged by means of a petition under Article 226 of the Constitution and the said writ petition was allowed, and as stated above , the High Court struck down (the amendments)…On    the arguments  of learned counsel of parties, the question arises as to whether the State Legislature is competent to enact law to levy tax under Entry 62 of List II of Seventh Schedule on admission of cars/motor vehicles inside the Drive-in-Theatre…when a levy is challenged, its validity has to be adjudged with reference to the competency of the State Legislature to enact such a law, and while adjudging the matter what is required to be found out is the real character and nature of levy.

• Judgment

Entry 62 of List II of Seventh Schedule empowers the State Legislature to levy tax on luxuries, entertainment, amusements, betting and gambling. Under Entry 62, the State Legislature is competent to      enact law to levy tax on luxuries and entertainment. The incidence of tax is on entertainment. Since entertainment necessarily implies the persons entertained, therefore, the incidence of tax is on the person entertained. Coming to the question whether the State Legislature is competent to levy tax on admission of cars/motor vehicles inside the Drive-in-Theatre especially when it is argued that cars/motor vehicles are not the persons entertained. Section 3 which is charging provision, provides for levy of tax on each payment of admission. Thus, under the Act, the State is competent to levy tax on each admission inside the Drive-in-Theatre. The challenge to the levy is on the ground that the vehicle is not a person entertained and, therefore, the levy is ultra vires. It cannot be disputed that the car or motor vehicle does not go inside the Drive-in-Theatre of its own. It is driven inside the Theatre by the person entertained.

• Quality of Entertainment

In other words the person entertained is admitted inside the Drive-in Theatre along with the car/motor vehicle. Thereafter the person entertained while sitting in his car         inside the auditorium views the film exhibited therein. This shows that the person entertained is admitted inside the Drive-in Theatre along with the car/motor vehicle. This further shows that the person entertained carries his car inside the Drive-in-Theatre in order to have better quality of entertainment. The quality of entertainment also depends on with what comfort the person entertained has viewed the cinema films. Thus, the quality of entertainment obtained by a person sitting in his car would be different from a squatter viewing the film show. The levy on entertainment varies with the quality of comfort with which a person enjoys the entertainment inside the Drive-in-Theatre.  In the present case, a person sitting in his car or motor vehicle has luxury of viewing cinema films in the auditorium. It is the variation in the comfort offered to the person entertained for which the State Government has levied entertainment tax on the person entertained.

• Real Nature of Levy

The real nature and character of impugned levy is not on the admission of cars or motor vehicles, but the levy is on the person entertained who takes the car inside the theatre and watches the film while sitting in  his car. We are, therefore, of the view that in pith and substance the levy is on the person who is entertained. Whatever be the nomenclature of levy, in substance, the levy under heading admission of vehicle is a levy on entertainment and not on admission of vehicle inside the Drive-in-Theatre. As            long as in pith and substance the levy satisfies the character of levy, i.e. entertainment, it is wholly immaterial in what name and form it is imposed. The word entertainment is wide enough to comprehend in it, the luxury or comfort with which a person entertains himself. Once it is found there is a nexus between the legislative competence and subject of taxation, the levy is justified and valid…We accordingly hold that the impugned levy is valid.

• Article 248:Residuary Powers of Legislation

248. (1) Parliament has exclusive power to make any law with respect to any matter not enumerated in the Concurrent List or State List.

(2) Such power shall include the power of making any law imposing a tax not mentioned in either of those Lists.

 Union of India vs. H.S. Dhillon

Section 3 of the Wealth Tax Act, 1957, imposes a tax on the capital value of the net wealth of an assessee. Net wealth, under the Act, is the amount by which the aggregate value of all assets of the assessee, computed in the manner provided by the Act, is in excess of the aggregate value of all debts (subject to some exceptions) owed by the, assessee; and assets, under s. 2(e) as it originally stood, meant generally property of every description but not including agricultural land, growing crops, grass or standing trees on such land. Section 24 of the Finance Act, 1969, amended s. 2(e) of the Wealth Tax Act and included agricultural land etc., in the assessee’s assets for the purpose of computing his net wealth. The High Court held that the amendment was beyond the legislative competence of Parliament.

• Submissions

The submissions of Mr. Setalvad, appearing on behalf of the Union in brief were these : That the impugned Act is not a law with respect to any entry (including entry 49) in List II; if this is so, it must necessarily fall within the legislative competence of Parliament under entry 86, read with entry 97, or entry 97 by itself read with Art. 248 of the Constitution; the words “exclusive of agricultural land” in entry 86 could not cut down the scope of either entry 97 List I, or Art. 248 of the Constitution.

The submissions of Mr. Palkiwala, who appeared on behalf of the respondent in the appeal, and the other counsel for the interveners, in brief, were these: It was the scheme of the Constitution to give States exclusive powers to legislate in respect of agricultural land, income on a agricultural land and taxes thereon; in this context the object and effect of specifically excluding agricultural land from the scope of entry 86 was also to take it out of the ambit of entry 97 List I and Art. 248; the High Court was wrong in holding that the impugned Act was not a law in respect of entry 49 List II.

• Questions for Consideration

It seems to us that the best way of dealing with the question of the validity of the impugned Act and with the contentions of the parties is to ask ourselves two questions; first, is the impugned Act legislation with respect to entry 49 List II? and secondly, if it is not, is it beyond the legislative competence of Parliament? We have put these questions in this order and in this form because we are definitely of the opinion, as explained a little later, that the scheme of our Constitution and the actual terms of the relevant articles, namely, Art. 246, Art. 248 and entry 97 List I, show that any matter, including tax, which has not been allotted exclusively to the State Legislatures under List II or concurrently with Parliament under List III, falls within List I, including entry 97 of that list read with Art. 248.

It seems to us unthinkable that the Constitution-makers, while creating a sovereign democratic republic, withheld certain matters or taxes beyond the, legislative competency of the legislatures in this country either legislating singly or jointly.

• Framers’ Intent

There does not seem to be any dispute that the Constitution makers wanted to give residuary. powers of legislation to the Union Parliament. Indeed, this is obvious from Art. 248 and entry 97 List I. But there is a serious dispute about the extent of the residuary power…For example, in entry 82, taxes on agricultural income have been excluded from the ambit of “taxes on income”;, in entry 84 there is exclusion of duties of excise on alcholic liquors for human consumption and on opium, Indian hemp and other narcotic drugs and narcotics; in entry 8-6, agricultural land has been excluded from the field of taxes on the capital value, of the assets; in entry 87, agricultural land has again been excluded’,from the Union Estate duty in respect of property; and in entry 88, agricultural land has been further excluded from the incidence of duties in respect of succession to property. It was urged that the object of these, exclusions was to completely deny Parliament competence to legislate on these excluded matters.

• Content of the Residuary Power

It will be noticed that all the matters and taxes which have been excluded, except taxes on the capital value of agricultural land under entry 86 List I, fall specifically within one of the entries in List II. While taxes on agricultural income have been excluded from entry 82 List I, they form part of entry 46 List II. Duties of excise excluded in entry 84 List I have been included in entry 51 List II; agricultural land exempt in entry 87 List I has been incorporated as entry 48 List II; and, similarly, agricultural land exempted from the incidence of duties in respect of succession to property (Entry 88 List I) has been made the subject-matter of duties in respect of succession in entry 47 List II. It seems to us that from this scheme of distribution it cannot be legitimately inferred that taxes on the capital value of agricultural land were designedly excluded from entry 97 List I…If the residuary subjects had ultimately been assigned to the States could it have been seriously argued that vis-a- vis the States the matter of Taxes on “Capital value of agricultural land” would have been outside the powers of States? Obviously not, If so, there ,can be no reason for excluding it from the residuary powers ultimately conferred on Parliament. The content of the residuary power does not change with its conferment on Parliament.

• Impossible to Limit the Width of Article 248

…if on a proper interpretation of entry 49 List II, read in the light of entry 86 List I, it is held that tax on the capital value of agricultural land, is not included within entry 49 List II or that the, tax imposed by the impugned statute does not fall either in entry 49 List II or entry 86 List I, it would be arbitrary to say that it does not fall within entry 97 List I. We find it impossible to limit the width of art. 248 and entry 97 List I by the words “exclusive of agricultural land” in entry 86 List I. We do- not read the words “any other matter” in entry 97 to mean–that it has any reference to topics excluded in entries 1-96 List I.’ It is, quite clear that the words “any other matter” have reference to matters on which the Parliament has been given power to legislate by the enumerated entries 1-96 List I and not to matters on which it has not been given power to legislate. The matter in entry 86 List I is the whole entry and not the entry without the, words “exclusive of agricultural land”. The matter in entry 86 List I again is not tax on capital value of assets but the whole entry…it would, we think, be erroneous to treat entry 82 List I (Taxes on income other than agricultural income) as containing two matters, one, tax on income, and the other, as “other than agricultural incomes.

• Only Question to be Asked is…

It seems to us that the function of Art. 246 (1), read with entries 1-96 List I, is to give positive power to Parliament to legislate in respect, of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so. Accordingly, we do not interpret the words “any other matter” occurring in entry 97 List I to mean a topic mentioned by way of exclusion. These words really refer to the matters contained in each of the entries 1 to 96. The words “any other matters’ had to be used because entry 97 List I follows entries 1-96 List I. It is true that the field of legislation is demarcated by entries 1-96 List I, but demarcation does not mean that if entry 97 List I confers additional powers we should refuse to give effect to it. At any rate, whatever doubt there may be on the interpretation of entry 97 List I is removed by the wide terms of Art. 248. It is framed in the widest possible terms. On its terms the only question to be asked is : Is the matter sought to be legislated on included in List II or in List III or is the tax sought to be levied mentioned in List II or in List III ? No question has to be asked about List I. If the answer is in the negative, then it follows that Parliament has power to make laws with respect to that matter or tax.

• Judgment

Although we have held that the impugned Act does not impose a tax mentioned in entry 49, List II, we would like to caution that in case the real effect of a Central Act, whether called a Wealth Tax Act or not, is to impose a tax mentioned in entry 49 List II the tax may be bad as encroaching upon the domain of State legislatures…it is (therefore) not necessary to decide the question whether the impugned Act falls within entry 86 List I, read with entry 97 List I, or entry 97 List I alone…

• Article 254: Repugnancy

(1) If any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void.

(2) Where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has received his assent, prevail in that State:

Provided that nothing in this clause shall prevent Parliament from enacting at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by the Legislature of the State.

Hoechst Pharmaceuticals Ltd. vs State Of Bihar

Art. 254 of the Constitution makes provision first, as to what would happen in the case of conflict between a Central and State law with regard to the subjects enumerated in the Concurrent List, and secondly, for resolving such conflict. Art. 254(1) enunciates the normal rule that in the event of a conflict between a Union and a State law in the concurrent field, the former prevails over the latter. Cl. (1) lays down that if a State law relating to a concurrent subject is ‘repugnant’ to a Union law relating to that subject, then, whether the Union law is prior or later in time, the Union law will prevail and the State law shall, to the extent of such repugnancy, be void…The question of repugnancy under Art. 254(1) between a law made by Parliament and a law made by the State Legislature arises only in case both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List, and there is direct conflict between the two laws. It is only when both these requirements are fulfilled that the State law will, to the extent of repugnancy become void.

• 
  (To be Read with Slide 23 Gujarat University Case)

Art. 254(1) has no application to cases of repugnancy due to overlapping found between List II on the one hand and List I and List III on the other. If such overlapping exists in any particular case, the State law will be ultra vires because of the non-obstante clause in Art. 246(1) read with the opening words “Subject to” in Art. 246(3). In such a case, the State law will fail not because of repugnance to the Union law but due to want of legislative competence. It is no doubt true that the expression “a law made by Parliament which Parliament is competent to enact” in Art. 254(1) is susceptible of a construction that repugnance between a State law and a law made by Parliament may take place outside the concurrent sphere because Parliament is competent to enact law with respect to subjects included in List III as well as ‘List I“. But if Art. 254(1) is read as a whole, it will be seen that it is expressly made subject to cl. (2) which makes reference to repugnancy in the field of Concurrent List-in other words, if cl. (2) is to be the guide in the determination of scope of cl. (1), the repugnancy between Union and State law must be taken to refer only to the Concurrent field.

• Clause 2: Exception to the General Rule

To the general rule laid down in cl.(1), cl.(2) engrafts an exception, viz., that if the President assents to a State law which has been reserved for his consideration, it will prevail notwithstanding its repugnancy to an earlier law of the Union, both laws dealing with a concurrent subject. In such a case, the Central Act will give way to the State Act only to the extent of inconsistency between the two, and no more. In short, the result of obtaining the assent of the President to a State Act which is inconsistent with a previous Union law relating to a concurrent subject would be that the State Act will prevail in that State and override the provisions of the Central Act in their applicability to that State only. The predominance of the State law may however be taken away if Parliament legislates under the proviso to cl. (2). The proviso to Art. 254(2) empowers the Union Parliament to repeal or amend a repugnant State law, either directly, or by itself enacting a law repugnant to the State law with respect to the ‘same matter’. Even though the subsequent law made by Parliament does not expressly repeal a State law, even then, the State law will become void as soon as the subsequent law of Parliament creating repugnancy is made.

Tests of Repugnancy (Deep Chand Case)

Repugnancy between two statutes may thus be ascertained on the basis of the following three principles:

(1) Whether there is direct conflict between the two provisions

(2) Whether Parliament intended to lay down an exhaustive code in respect of the subject matter replacing the Act of the State Legislature; and

(3) Whether the law made by Parliament and the law made by the State Legislature occupy the same field.

• Direct Conflict

A State law would be repugnant to the Union law when there is direct conflict between the two laws…We may briefly refer to the three Australian decisions relied upon. As stated above, the decision in Clyde Engineering Company’s case (supra), lays down that inconsistency is also created when one statute takes away rights conferred by the other. In Ex Parte McLean’s case, supra, Dixon J. laid down another test viz., two statutes could be said to be inconsistent if they, in respect of an identical subject-matter, imposed identical duty upon the subject, but provided for different sanctions for enforcing those duties. In Stock Motor Ploughs Limited’s case, supra, Evatt, J. held that even in respect of cases where two laws impose one and the same duty of obedience there may be inconsistency.

• Intended Occupation

The Supreme Court noticed the conclusive test of inconsistency laid down by Isaacs J. in Clyde Engineering Co. Ltd. v. Cowburn, 1926-37 CLR 466. The said test was: “If however, a competent legislature expressly or implicitly evinces its intention to cover the whole field that is a conclusive test of inconsistency where another legislature assumes to enter to any extent upon the same field.” The Supreme Court also cited with approval the following principle stated by Dixon J. in Ex parte Mclean. 1930-43 CLR 472. “If it appeared that the Federal Law was intended to be supplementary to or cumulative upon State law, then no inconsistency would be exhibited in imposing the same duties or in inflicting different penalties. The inconsistency does not lie in the mere co-existence of two laws which are susceptible of simultaneous obedience. It depends upon the intention of the paramount Legislature to express by its enactment, completely, exhaustively, or exclusively, what shall be the law governing the particular conduct or matter to which its attention is directed. When a Federal statute discloses such an intention, it is inconsistent with it for the law of a State, to govern the same conduct or matter.”

• Occupied Field

The test of repugnancy was thus explained by Dixon J. in — ‘Victoria v. The Commonwealth’, 58 Com-W LR 618 (C):

“Substantially it amounts to this. When a State law, if valid, would alter, impair or detract from the operation of the law of the Commonwealth Parliament, then to that extent it is invalid. Moreover, if it appears from the terms, nature or the subject-matter of a Federal enactment that it was intended as a complete statement of the law governing a particular matter or set of rights or duties, then for a State law to regulate or apply to the same matter or relation is regarded as a detraction from the full operation of the Commonwealth law and so is inconsistent.”

• Illustration
• State of Haryana enacts a law mandating that teachers in Universities in Haryana must be UGC NET qualified;
• The Law does not apply to institutions mentioned in Entries 63, 64 and 65 in List I;
• Union of India then enacts a law whereby teachers in private Universities in India need not be UGC NET qualified if they have a foreign degree;
• Doctrine of pith and substance to be invoked to see if State law and Union Law is relatable to Entry 66 List I or Entry 25 List III; if pith and substance is “coordination and determination of standards in higher education”, State Law can only be challenged on grounds of legislative competence, not repugnancy; If both laws relatable to Entry 25 List III, test of repugnancy to be applied
• Assuming both Laws are Relatable to Entry 25 List III
• Direct conflict between two laws with respect to private Universities in Haryana;
• State Law will not apply to private universities in Haryana as the Union Law “occupies the field” in this respect;
• State Law will however continue to apply to non-private Universities in Haryana as the Union Law does not cover non-private Universities in Haryana;
• Assuming that the State Law postdates the Union Law and is reserved for consideration of the President and assented to, then the State Law will prevail in Haryana over the Union Law [254(2)]
• Power of Parliament to Legislate with respect to a Matter in the State List

Articles  246(4), 247,249-253,352,356

You can grab notes on other provisions of the Constitution and other law subjects from here.

Parliamentary privileges enable the members to discharge their functions without fear and are necessary for democratic functioning. Articles 105 and 194 are identical containing the privileges of Parliament and State legislatures respectively.

Article 105 (1) provides that there shall be freedom of speech in Parliament. This freedom is however subject to rules regulation the procedure of the House. For instance under Article 121/212 the conduct of a judge of the Supreme Court or High Courts cannot be discussed in Parliament or State Legislatures. Rules may forbid the use of un-parliamentary language

Article 105(2) provides that no Member of Parliament shall be liable to any proceedings in a court of law in respect of anything said or any vote given by him in Parliament or any committee thereof. Thus Article 105(2) provides absolute immunity to MP’s from any proceedings in a court of law

Article 105(3) does not grant any specific privilege. It give to Parliament and State Legislatures all the privileges enjoyed by British House of Commons as on 26 January 1950.

Article  105(3)/194(3) contain a clear mandate to the legislature to codify the privileges.

The Parliamentary privileges under clause 3 are not codified.

The key question is: does the power of judicial review extend to parliamentary privileges? Would fundamental rights override the privileges and privileges would be subservient to fundamental rights?

Article 122(212) of the Constitution reads

• The validity of any proceedings in Parliament shall not be called in question on the ground of any alleged irregularity of procedure
• No officer or Member of Parliament in whom powers are vested by or under this Constitution for regulating procedure or the conduct of business, or for maintaining order, in Parliament shall be subject to the jurisdiction of any court in respect of the exercise by him of those powers.

In M S M Sharma v S K Sinha (AIR 1959) SC 393(  Searchlight Case)

The Supreme Court held that Parliamentary privileges shall not be subject to Article 19(1) (a) of the Constitution. In this case the editor of a newsletter Searchlight had published a report of the proceedings of Bihar Legislative Assembly which had been expunged by the Speaker. The editor was held guilty of contempt of the House. He sought injunction from the court against the contempt proceedings on the ground of his fundamental right to freedom of speech under Article 19 (1) (a) of the Constitution.

He argued that the intent of the Constituent Assembly was that the privileges should be codified eventually. Once codified they would be “law” under Article 13 (2) and therefore liable to be struck down if they violated any of the fundamental rights. Such a codified law would be subject to Article 19(1) (a).

He further argued that his right under Article 21 will be violated if he was produced before the Privileges Committee of the House which could order his imprisonment.

The State Legislature claimed its privilege to prohibit publication of proceedings as at the commencement of the Constitution the British House of Commons enjoyed the privilege to prohibit publication of debates and proceedings of the House. The Court accepted the claim of Bihar Legislature to take action for the breach of this privilege by MSM Sharma

On the question of the argument based on Article 19(1) (a) the Court held that freedom of speech in legislature contained in Article 194(1) (105(1) being specific as against the general freedom of speech under Article 19(1)(a), the general restriction that applied by Article 19(2) would not apply to freedom of speech under Article 194(1). The Supreme Court rejected the contention based upon Article 19(1) (a) and held that privileges under Article 194(3) would not be subject to Article 19(1) (a) and in case of conflict between Article 19(1)(a) and 194(3) the latter will prevail.

As regards Article 194(2) the Court held that it was not the intention of framers of the Constitution to make immunity for speeches given or vote given in legislature subject to fundamental rights guaranteed under constitution.

As regards the argument based on Article 21 the Court held that in case the Editor was produced before the Committee of Privileges in the Bihar Legislature the rules framed by the Assembly under Article 208 would constitute a procedure established by law and there would be no violation of Article 21

It is important to bear in mind that the Court in this case made no comment on whether Article 21 would override privileges.

P V Narsimha Rao v State ( 1998) 4 SCC 626

Bribe was given to some MP’s to vote against motion of no-confidence against Prime Minister P V Narsimha Rao. He was charged under IPC and Prevention of Corruption Act for entering into a conspiracy and bribing some MP’s to induce them to vote against motion of no-confidence at a time when he was the PM.

The Court’s majority held that under Article 105(2) the activity of bribe taking by an MP is in respect of anything said or any vote given by him in Parliament and anything would mean everything including accepting a bribe and so Rao could not be prosecuted in a court of law. In case after accepting bribe an MP did not actively cast his vote, he may be prosecuted because then there would be no nexus between vote and bribe.

This decision has been widely criticized for promoting corruption in political life.

In re Keshava Singh (1965) The UP Assembly Case

In 1964 Keshava Singh a private citizen was found guilty of contempt of UP Assembly as he had committed a breach of privilege of an M L A N N Pandey by printing and publishing certain contemptuous pamphlets against Pandey. Keshava Singh was summoned to Legislative Assembly. Then Keshava Singh wrote a disrespectful letter to the Speaker and acted in  an unruly manner when being reprimanded in the LA. The Speaker issued a warrant of arrest for the detention of  Keshava Singh for 7 days for contempt of the House.

.Keshava Singh moved to the High Court for a writ of Habeas Corpus. A Division Bench of High Court in Lucknow ordered his release on an interim bail pending the decision on Habeas Corpus petition.

UP Legislature issued a contempt notice against the 2 judges for having entertained the writ petition. The House passed a Resolution that the lawyers and the 2 judges be brought before the House in custody.

The Judges and advocates  filed a writ of mandamus before Allahabad High Court A Full Bench of the High Court consisting 28 Judges (except the 2 judges) made directions restraining the Speaker  from issuing warrants and restraining the Marshal of the House from executing the warrant if it had already been issued.

Taking note of a grave constitutional crisis the President of India sought advisory opinion of the Supreme Court under Article 143.

A bench of 7 judges delivered their opinion led by Justice Gajendragadkar.

Relying on Searchlight case Chief  Justice Gajendragadkar placed a radically different interpretation of parliamentary privileges, making them generally subject to fundamental rights and secured to the judiciary power to determine the legality or constitutionality of legislative privileges on case to case basis.

Broadly speaking the Court laid down the following propositions.

(a) The correct interpretation of Searchlight case would be that while Article 19(1) (a) would not override privileges. Article 21 may override privileges as in Searchlight case the Constitution bench did examine argument based on Article 21 on its merits. The Court further held that the general proposition that privileged would not be subservient to fundamental rights was incorrect.

(b) Whether a House possesses a particular privilege under 105(3) or 194(3) is for the court to decide on case to case basis. The Searchlight case did not preclude the application of all fundamental rights, it precluded the application of Article 19(1) (a) to privileges

(c ) In the matter of privilege the action of Parliament or any of its members is subject to judicial review on grounds of irrationality, illegality or unconstitutionality

(d) The House of Commons was a Superior Court and general warrants issued by it could not be reviewed by a court but Indian Parliament or legislatures are not a Court of Law. In India the courts can examine the legality of general warrant issued by a Legislature. High Court has power to issue a writ against any “authority” under Article 226 including legislature

(e) Under Article 211 the conduct of a judge can never be subject matter of any action taken by the House in exercise of powers and privileges. Therefore the action of UP legislature against the judges was improper.

(f) Article 212 is only concerned with regulation of procedure inside the House and is not a limitation on the power of the Court. This Article provides for ouster of court’s jurisdiction in respect of regulation of procedure inside the House.

(g) Article 194(3) refers to future laws defining powers and privileges of the legislature and such laws will always be subject to fundamental rights under Article 13(2) and the Courts would be competent to examine the validity of codified privileges.

Keshava Singh marked the beginning in the subservience of privileges to fundamental rights and the advisory opinion felt itself bound by the ruling of Searchlight case.\

The reasoning of Keshava Singh was adopted by a 5 judge bench in Raja Ram Pal

Raja Ram Pal v Speaker Lok Sabha (2007) 3 SCC 184

Aaj Tak a news channel conducted a sting operation “operation Duryodhan” in which 11 MP’s (10 from Lok Sabha and 1 from Rajya Sabha were caught on camera accepting bribes to ask certain questions in Parliament and thereby misusing their powers for illegal gratification and money gains. Video was telecast repeatedly leading to an uproar. The Committee of Privileges of Lok Sabha and Ethics Committee of Rajya Sabha heard the matter and found all the MP’s guilty and recommended their immediate disqualification. The recommendations were accepted and all the 11 MP’s were expelled.

The expelled MP’s approached the Supreme Court for relief and challenged their expulsion as unconstitutional. Sabharwal CJ, K G Balakrishnan, DK Jain and CK Thakkar JJ held that their expulsion was constitutional but Justice Ravindran gave a dissenting opinion holding that their expulsion was unconstitutional

Contentions of expelled MP’s

1. Expulsion is a punitive measure. The House of Commons had power to punish for its contempt in its capacity as High Court of Parliament and since this status was not accorded to Indian Parliament the power to expel for contempt could not be claimed by Parliament under Article 105 (3).
2. Article 105(3) could not be the basis of expulsion as it would come in conflict with other Articles 101 or 102 which deal with disqualification of MP’s.
3. There was a denial of principles of natural justice in inquiry proceedings of Parliament which cannot be exempted from judicial review
4. Supreme Court is the final arbiter on constitutional issues and can determine the legality of the action of Parliament. Parliament cannot determine the legality of its own actions

Speaker of Lok Sabha refused to appear before the Court viewing the matter as a political question and therefore non-justiciable and Union of India took the stand that action of expulsion was within the inherent privilege of Parliament over which the courts had no jurisdiction.

The Supreme Court cited the supremacy of the Constitution and held:

1. The contention of the petitioners that Parliament did not inherit the power of expulsion rejected as in UP Assembly case (1965) where the Court had held that British Parliament was sovereign but in India sovereignty was distributed in a federal structure. Hence British Constitution could not be compared with Indian Constitution. Parliament in India possesses the power to expel its members.
2. Provisions dealing with Disqualification did not clash with a power to expel under Article 105(3). Articles 101(dealing with vacancies) and 102 (disqualification of members) served a different purpose. While disqualification operates to prevent a candidate from re-election, expulsion occurs after the election of the member and there is no bar on re-election.
3. Power of contempt is remedial and not punitive. Parliament cannot be denied power to expel a member for contempt of the House under Article 105(3). This power was available to House of Commons as on 26.01.1950
4. Parliament is a co-ordinate organ and Supreme Court has power of judicial review under Article 13(2) which would extend to privileges on case to case basis.
5. The Court gave wide interpretation to Article 122 (212) and held that while Article 122 precluded an inquiry into the proceedings of Parliament on ground of PROCEDURAL IRREGULARITY, this provision did not oust judicial review if the proceedings of Parliament were tainted on account of SUBSTANTIVE OR GROSS ILLEGALITY OR UNCONSTITUTIONALITY. An illegal or unconstitutional procedure could be a subject of judicial review. Article 122 was intended to prohibit cases of internal parliamentary proceedings on the ground of mere procedural irregularity.
6. The Court’s majority held that privileges of parliament may be subject to fundamental rights on case to case basis. For this holding the Court drew support from Keshava Singh case.
7. The Court rejected the doctrine of Exclusive Cognisance. The English doctrine of Exclusive Cognisance stipulates that Parliament has the exclusive power to deal with breach of privileges and the court have no jurisdiction to entertain a matter arising out of breach of privileges. This doctrine has been displaced in India by Articles 122/212.

CONCLUSION

The Supreme Court’s judgment in Raja Ram Pal prohibits judicial interference with respect to internal parliamentary proceedings on the ground of procedural irregularity. The Court gave a wide interpretation of Article 122 by holding that this provision did not preclude judicial review if the procedure was illegal or unconstitutional.

The strongest implication of Raja Ram Pal is that the court will now be able to exercise scrutiny over non-legislative proceedings, not just those proceedings dealing with parliamentary expulsions. Any proceeding which is tainted with gross illegality or substantive illegality will be subject to judicial review. Raja Ram Pal opens floodgates to challenge parliamentary proceedings. This judgment makes parliamentary privileges subservient to fundamental rights on case to case basis and heavily relies on Keshava Singh opinion for its conclusion.

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D.C. Wadhwa v. State of Bihar

• These writ petitions have been filed by four petitioners challenging the practice of the State of Bihar in promulgating and repromulgating ordinances on a massive scale and in particular they have challenged the constitutional validity of three different ordinances issued by the Governor of Bihar, namely, (r) Bihar Forest Produce (Regulation of Trade) Third Ordinance, 1983, (ii) The Bihar Intermediate Education Council Third Ordinance, 1983, and (iii) The Bihar Bricks Supply (Control) Third Ordinance, 1983
• Question is, can the Governor go on re-promulgating ordinances for an indefinite period of time and thus take over to himself the power of the Legislature to legislate though that power is conferred on him under Article 213 only for the purpose of enabling him to take immediate action at a time when the legislative assembly of the State is not in session or when in a case where there is a legislative council in the State, both Houses of Legislature are not in session
• The object of this provision is that since the power conferred on the Governor to issue Ordinances is an emergent power exercisable when the Legislature is not in Session, an Ordinance promulgated by the Governor to deal with a situation which requires immediate action and which cannot wait until the legislature reassembles, must necessarily have a limited life. Since Article 174 enjoins that the Legislature shall meet at least twice in a year but six months shall not intervene between its last sitting in one session and the date appointed for its first sitting in the next Session and an Ordinance made by the Governor must cease to operate at the expiration of six weeks from the reassembly of the Legislature, it is obvious that the maximum life of an Ordinance cannot exceed seven and a half months unless it is replaced by an Act of the Legislature or disapproved by the resolution of the Legislature before the expiry of that period. The power to promulgate an Ordinance is essentially a power to be used to meet an extra-ordinary situation and it cannot be allowed to be perverted to serve political ends.
• The law-making function is entrusted by the Constitution to the Legislature consisting of the representatives of the people and if the Executive were permitted to continue the provisions of an Ordinance in force by adopting the methodology of repromulgation without submitting to the voice of the Legislature, it would be nothing short of usurpation by the Executive of the law- making function of the Legislature. The Executive cannot by taking resort to an emergency power exercisable by it only when the Legislature is not in Session, take over the            law- making function of the Legislature. That would   be clearly subverting the democratic process which lies at the core of our constitutional scheme…The Government cannot by-pass the Legislature and without enacting the provisions of the Ordinance into an Act of the Legislature, repromulgate the Ordinance as soon as the Legislature is prorogued.
• Of course, there may be a situation where it may not be possible for the Government to introduce and push through in the Legislature a Bill containing the same provisions as in the Ordinance, because the Legislature may have too much legislative business in a particular Session or the time at the disposal of the Legislature in a particular Session may be short, and in that event, the Governor may legitimately find that it is necessary to repromulgate the Ordinance. Where such is the case, re-promulgation of the Ordinance may not be open to attack. But otherwise, it would be a colourable exercise of power on the part of the Executive to continue an Ordinance with substantially the same provisions beyond the period limited by the Constitution, by adopting the methodology of repromulgation…We must accordingly strike down the Bihar Intermediate Education Council Ordinance, 1983 which is still in opera- tion as unconstitutional and void.

AK Roy v. Union of India

• CHANDRACHUD, C.J. This is a group of Writ Petitions under Article 32 of the Constitution challenging the validity of the National Security ordinance, 2 of 1980, and certain provisions of the National Security Act, 65 of 1980, which replaced the ordinance. Writ Petition No. 5724 of 1980 is by Shri A. K. Roy, a Marxist member of the Parliament, who was detained under the ordinance by an order passed by the District Magistrate, Dhanbad, on the ground that he was indulging in activities which were prejudicial to public order. Ten members of the Parliament, one an Independent and the others belonging to various political parties in opposition applied for permission to intervene in the Writ Petition on the ground that since the ordinance-making power of the President is destructive of the system of Parliamentary democracy, it is necessary to define the scope of that power. We allowed the intervention…The National Security ordinance, 1980, was passed in order “to provide for preventive detention in certain cases end for matters connected therewith”…The Parliament was not      in session when it was promulgated and its preamble recites that it was being issued because the “President is satisfied that circumstances exist which render it necessary for him to take immediate action”
• …while setting out the petitioner s case, the thrust of his argument is that the power to issue an ordinance is Dan executive power, not a legislative power, and consequently, is not law. In view of the clear and specific provisions of the Constitution bearing upon this question, it is quite impossible to accept this argument. The heading of Chapter III of Part V is “Legislative Powers of the President”. Clause (2) of Article 123 provides that an ordinance promulgated under Article 123 “shall have the same force and effect as an Act of Parliament”. The only obligation on the Government is to lay the ordinance before both Houses of Parliament and the only distinction which the Constitution makes between a law made by the Parliament and an ordinance issued by the President is that whereas the life of a law made by the Parliament would depend upon the terms of that law, an ordinance, by reason of sub clause (a) of clause (2), ceases to operate at the expiration of six weeks from the reassembly of Parliament, unless resolutions disapproving it are passed by both Houses before the expiration of that period.
• It is clear from this provision, if indeed there was any doubt about the true position, that the Constitution makes no distinction in principle between a law made by the legislature and an ordinance issued by the President. Both, equally, are products of the exercise of legislative power and, therefore, both are equally subject to the limitations which the Constitution has placed upon that power. It may sound strange at first blush that the executive should possess legislative powers, but a careful look at our Constitution will show that the scheme adopted by it envisages the exercise of legislative powers by the executive in stated circumstances. An ordinance can be issued by the President provided that both Houses of the Parliament are not in session and the President is satisfied that circumstances exist which render It necessary for him to take immediate action An ordinance which satisfies these pre-conditions has the same force and effect as an Act of Parliament.

R.K. Garg. v. Union of India

• These writ petitions raise a common question of law relating to the constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981 (hereinafter referred to as the Ordinance)…we may now proceed to consider the challenge against the constitutional validity of the Ordinance on the ground that the President had no power to issue the Ordinance under Article 123 of the Constitution. There were two limbs of the argument under this head of challenge; one was that since the Ordinance had the effect of amending the tax laws, it was outside the competence of the President under Article 123 and the other was that the subject matter of the Ordinance was in the nature of a Money Bill which could be introduced only in the House of the People and passed according to the procedure provided in Articles 109 and 110 and the President had therefore no power under Article 123 to issue the Ordinance by-passing the special procedure provided in Articles 109 and 110 for the passing of a Money Bill. There is, as we shall presently point out, no force in either of these two contentions, but we may point out straightaway that both these contentions are academic, since the Act has been brought into force with effect from the date of promulgation of the Ordinance
• It may be noted, and this was pointed out forcibly by Dr. Ambedkar while replying to the criticism against the introduction of Article 123 in the Constituent Assembly-that the legislative power conferred on the President under this Article is not a parallel power of legislation. It is a power exercisable only when both Houses of Parliament are not in session and it has been conferred ex-necessitate in order to enable the executive to meet an emergent situation. Moreover, the law made by the President by issuing an Ordinance is of strictly limited duration. It ceases to operate at the expiration of six weeks from the reassembly of Parliament or if before the expiration of this period, resolutions disapproving it are passed by both Houses, upon the passing of the second of those resolutions. This also affords the clearest indication that the President is invested with this legislative power only in order to enable the executive to tide over an emergent situation which may arise whilst the Houses of Parliament are not in session. Further more, this power to promulgate an Ordinance conferred on the President is co-extensive with the power of Parliament to make laws and the President cannot issue an Ordinance which Parliament cannot enact into a law. It will therefore be seen that legislative power has been conferred on the executive by the Constitution makers for a necessary purpose and it is hedged in by limitations and conditions. The conferment of such power may appear to be undemocratic but it is not so, because the executive is clearly answerable to the legislature and if the President, on the aid and advice of the executive, promulgates an Ordinance in misuse or abuse of this power, the legislature cannot only pass a resolution disapproving the Ordinance but can also pass a vote of no confidence in the executive.

Now once it is accepted that the President has legislative power under Article 123 to promulgate an ordinance and this legislative power is co-extensive with the power of the Parliament to make laws, it is difficult to see how any limitation can be read into this legislative power of the President so as to make it ineffective to alter or amend tax laws. If Parliament can by enacting legislation alter or amend tax laws, equally can the President do so by issuing an Ordinance under Article 123. There have been, in fact, numerous instances where the President has issued an Ordinance replacing with retrospective effect a tax law declared void by the High Court or this Court. Even offences have been created by Ordinance issued by the President under Article 123 and such offences committed during the life of the Ordinance have been held to be punishable despite the expiry of the Ordinance.

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