State of West Bengal and Others v Jagmohan Lal Gupta and Others

Calcutta High Court

6 March 1980

F.M.A. No. 781 of 1974 with F.M.A. No. 876-77 of 1977

The Judgment was delivered by M.M. DUTT, J

DUTT, J.

The only question that is involved in all these appeals relates to the constitutional validity of the Bengal Finance (Sales tax) (Amendment) Ordinance, 1980.

The respondents, except respondent No. 1 in F.M.A. No. 781 of 1974, carry on the business of retail vend of country liquor under excise licences. S. 6(1) of the Bengal Finance (Sales Tax) Act, 1941, exempts payment of tax on the sale of goods specified in the first column of Section I to the Act. Entry 25 of Schedule I specified certain intoxicants including country liquor. S. 3(5) of the West Bengal Taxation Laws (Amendment) Act, 1972, omitted entry 25 from Schedule I. The effect of such omission was that sale of country liquor became chargeable to sales tax. The respondents felt aggrieved by the imposition of tax on the sale of country liquor by the impugned provision of s. 3(5) of the West Bengal Taxation Laws (Amendment) Act, 1972. They filed writ petitions in this court and obtained rules nisi out of which these appeals arise. It was the common case of the respondents that gross profits earned by the licensees from the sale of the country liquor varied between 5.7 per cent and 7.8 per cent. The imposition of sales tax at 6 per cent would render their business so unprofitable that it would not be possible for them to carry on such business. It was contended by them that the imposition of sales tax impeded the free flow of trade contrary to the provision of art. 301 of the Constitution. Further, it was contended that s. 3(5) was ultra vires the provision of art. 304(b) of the Constitution inasmuch as the requirement of that provision was not complied with.

The contentions of the respondents were upheld by the learned Judge who heard C.R. No. 6862 (W) of 1972 [Calcutta Country Spirit Opium and Drug Association Ltd. v. State of West Bengal 1974 Indlaw CAL 83 ] out of which the said F.M.A. No. 781 of 1974 arises. It was held by him that imposition of tax on the sale of country liquor by s. 3(5) of the West Bengal Taxation Laws (Amendment) Act, 1972, directly restricted the freedom of trade and, as the requirement of art. 304(b) of the Constitution was not admittedly complied with, s. 3(5) was ultra vires art. 304(b). Accordingly, by his judgment, the learned Judge made the said rule absolute. In the other two Rules, namely, C.R. No. 7414 (W) of 1972 and C.R. No. 7228 (W) of 1972, out of which F.M.A. No. 876 of 1977 and F.M.A. No. 877 of 1977 respectively arise, the said judgment was followed and relied on and these rules were also made absolute. Hence, these three appeals by the taxing authorities.art XIII of the Constitution deals with trade, commerce and intercourse within the territory of India. Art. 301 provides that subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. Art. 304(b) is as follows :

“Notwithstanding anything in art. 301 or article 303, the Legislature of a State may by law –

(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest :

Provided that no Bill or amendment for the purposes of cl. (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.”

During the pendency of the appeals in this Court, the Governor of West Bengal promulgated the impugned Ordinance being the Bengal Finance (Sales Tax) (Amendment) Ordinance, 1980 (West Bengal Ordinance No. 4 of 1980), published in the Calcutta Gazette, Extraordinary, dated 8th January, 1980, after obtaining the instructions of the President under the proviso to cl. (1) of art. 213 of the Constitution. By paragraph 2 of the Ordinance, entry 25 of Schedule I of the Bengal Finance (Sales Tax) Act, 1941, has been omitted with retrospective effect from 7th August, 1972.

It is contended by Mr. Arun Prakash Chatterjee, the learned senior standing counsel appearing on behalf of the appellants, that the only ground upon which s. 3(5) of the West Bengal Taxation Laws (Amendment) Act, 1972, has been held by the learned Judge to be ultra vires the provision of art. 304(b) of the Constitution is no longer available after the promulgation of the impugned Ordinance whereby entry 25 of Schedule I of the Bengal Finance (Sales Tax) Act, 1941, has been omitted with effect from 7th August, 1972, after obtaining the prior sanction of the Present of India as required by the proviso to art. 304(b) of the Constitution. There can be no doubt that the requirement of the proviso to art. 304(b) has been complied with, but that is not the only requirement of that article. The further condition that has to be fulfilled is that the restrictions sought to be imposed on the freedom of trade, commerce or intercourse must be reasonable restrictions. In view of the fact that the gross profits of the dealers in country liquor vary between 5.7 per cent and 7.8 per cent, as found by the learned Judge, it is difficult to hold that the imposition of sales tax at the rate of 6 per cent is a reasonable restriction unless the dealers can pass on the tax to their customers. Our attention has been drawn by Mr. Chatterjee to the introduction of “explanation II” to s. 86 of the Bengal Excise Act, 1909, by paragraph 7 of the Bengal Excise (Amendment) Ordinance, 1974 (West Bengal Ordinance No. 4 of 1974), which was published in the Calcutta Gazette, Extraordinary, dated 6th June, 1974. Explanation II, inter alia, provides that the price of an intoxicant shall be deemed to have always been exclusive of any tax, surcharge, additional surcharge or any other impost on sale or purchase of such intoxicant levied under any law for the time being in force. It is contended on behalf of the appellants that in view of explanation II, a dealer in country liquor is entitled to pass on the tax to his customers, both past and present. Though explanation II has been introduced with retrospective effect, it is impracticable to realise sales tax from customers in respect of sales of intoxicants effected prior to the enactment of explanation II. But that is a different matter. We are now concerned with the constitutional validity of the West Bengal Ordinance No. 4 of 1980.It is, however, contended by Mr. Chatterjee that even assuming that imposition of tax on sales of country liquor puts an unreasonable restriction on the freedom of the alleged trade or business in country liquor, still the respondents are debarred from challenging the vires of the impugned Ordinance on the ground that by such imposition it contravenes the provision of art. 304(b) of the Constitution. He submits that the so-called trade or business in country liquor is res extra commercium and does not fall within the category of trade or commerce as mentioned in art. 301 or art. 304(b) of the Constitution. In support of his contention, Mr. Chatterjee has placed reliance on the decisions of the Supreme Courts in Har Shankar v. Deputy Excise and Taxation Commissioner 1975 Indlaw SC 424 ], and Sat Pal and Co. v. Lt. Governor of Delhi1979 Indlaw SC 245 ]. In the Har Shankar’s case 1975 Indlaw SC 424 ], it has been held by the Supreme Court, after reviewing all the earlier decisions on the point, that there is no fundamental right to do trade or business in intoxicants, and that the State, under its regulatory powers, has the right to prohibit absolutely every from of activity in relation to intoxicants, its manufacture, storage, export, import, sale and possession. In this connection, we may refer to the following observation of Das, C.J., in State of Bombay v. R. M. D. Chamarbaugwala 1957 Indlaw SC 153 ], which has been relied on in the Har Shankar’s case 1975 Indlaw SC 424 ] :

“We find it difficult to persuade ourselves that gambling was ever intended to form any part of this ancient country’s trade, commerce or intercourse to be declared as free u/art. 301. It is not our purpose nor is it necessary for us in deciding this case to attempt an exhaustive definition of the word ‘trade’, ‘business’, or ‘intercourse’. We are, however, clearly of the opinion that whatever else may or may not be regarded as falling within the meaning of these words, gambling cannot certainly be taken as one of them. We are convinced and satisfied that the real purpose of arts. 19(1)(g) and 301 could not possibly have been to guarantee or declare freedom of gambling. Gambling activities from their very nature and in essence are extra commercium although the external forms, formalities and instruments of trade may be employed and they are not protected either by art. 19(1)(g) or art. 301 of ourConstitution.”

After referring to the above observation, it has been held in the Har Shankar’s case 1975 Indlaw SC 424 ], that the reasons mentioned by Das, C.J., for holding that there can be no fundamental right to do trade or business in an activity like gambling apply with equal force to the alleged right to trade in liquor and those reasons may not be brushed aside by restricting them to gambling operations. The same view has also been taken in the Sat Pal’s case 1979 Indlaw SC 245 ].

Mr. R. C. Deb, the learned Advocate appearing on behalf of the respondents, submits that what has been laid down in the Har Shankar’s case 1975 Indlaw SC 424] and in the Sat Pal’s case 1979 Indlaw SC 245 ], referred to above, is that as nobody has a fundamental right to carry on the trade or business in liquor, the Government is entitled to impose restriction as a regulatory measure. It is contended by him that there is a fundamental difference between imposition of restriction as a regulatory measure and where such imposition is made for fiscal purpose. As there is no fundamental right to carry on trade or business in liquor, one cannot complain against any regulatory measure that may be taken by the Government. But imposition of tax on the sale of country liquor for fiscal purpose, as has been made by the impugned Ordinance interfering with the freedom of trade or business of the respondents in country liquor, comes under the protection afforded by art. 304(b) of the Constitution. He submits that in the aforesaid Supreme Court decisions import duty was imposed on intoxicants for the purpose of controlling or regulating the trade or business in intoxicants and not for fiscal purpose and so it was held that the constitutional validity of such imposition could not be challenged.

Accordingly, it is contended by him that although the respondents have no fundamental right to carry on the trade or business in country liquor, yet they are entitled to seek the protection of art. 304(b) of the Constitution as the impugned Ordinance has imposed an unreasonable restriction on the freedom of trade or business in country liquor.It is true that both in the Har Shankar’s case 1975 Indlaw SC 424 ], and in the Sat Pal’s case 1979 Indlaw SC 245 ], import duty was imposed on intoxicants as a regulatory measure, but at the same time, in the Har Shankar’s case 1975 Indlaw SC 424 ], the alleged trade or business in liquor has been equated with gambling activities. In State of Bombay v. R. M. D. Chamarbaugwala 1957 Indlaw SC 153 ], gambling activities have been held to be extra commercium and not protected either by art. 19(1)(g) or art. 301 of the Constitution. Thus, it follows that liquor is also extra commercium. It is unthinkable that liquor will be extra commercium for the purpose of art. 19(1)(g) and res commercium for the purpose of art. 301 or 304(b) of the Constitution. “Liquor” not being an article of trade or commerce, there cannot be a lawful trade or business in liquor as contemplated by art. 19(1)(g) or art. 301 of the Constitution, although the forms in which it is being dealt with by persons under licences from the Government may resemble trade or business. In our view, in order to avail of the protection of art. 301 or art. 304(b) of the Constitution, the commodity in which the right to trade, business or intercourse is claimed should be the subject-matter of lawful trading activities. The views which we take finds support from a Full Bench decision of the Kerala High Court in Kochan Velayudhan v. State of Kerala 1960 Indlaw KER 121 (F.B.)]. It has been held in that Full Bench case that the protection afforded by art. 301 is confined to trading activities. “Liquor” is not a legitimate article of trade and freedom of trade in liquor is not protected by art. 301. In the circumstances, the respondents are not entitled to challenge the constitutional validity of the impugned Ordinance being the West Bengal Ordinance No. 4 of 1980 on the ground that it offends against the provision of art. 304(b) of theConstitution.Before we part with these cases we may dispose of another contention made on behalf of the respondents. It is said that if liquor is extra commercium, the sale of it cannot be a sale within the meaning of the Bengal Finance (Sales Tax) Act, 1941, and so no tax can be imposed on sales of liquor under the said Act. We are unable to accept the contention. Trade or business in liquor may not be trade or business as contemplated by art. 19(1)(g) or art. 301 of the Constitution, but sale of liquor having all the incidents of “sale” within the meaning of cl. (g) of s. 2 of the said Act, we do not find any reason why such sale cannot be chargeable to sale tax. This contention, therefore, fails. No other point has been urged on behalf of either party.

For the reasons aforesaid, the judgments appealed from are set aside and the rules nisi are discharged. The appeals are allowed, but there will be no order for costs.

Leave to appeal to the Supreme Court under article 131-A of the Constitution is prayed for on behalf of the respondents, but refused. There will, however, be stay of operation of this judgment for a period of four weeks from date.

SHARMA, J. – I agree.