Holding

Section 3 of the Karnataka Tax on Entry of Goods into Local Areas Act, 1979 authorises the State Government to select specific local areas and prescribe different rates of tax for each, and the tax, being non‑discriminatory, reasonable and saved by Article 304, is constitutionally valid.

Summary

The Karnataka Legislature enacted the Tax on Entry of Goods into Local Areas Act, 1979 to replace octroi by levying a tax of up to 2% ad valorem on specified goods (textiles, tobacco, sugar) entering 27 selected local areas. The State notified the areas and rates, and several petitions challenged the Act on the grounds that Section 3 did not permit the State to pick specific local areas, that the tax violated Article 14 by discriminating against non‑selected areas, and that it unreasonably restricted petty dealers, infringing Articles 301 and 304. The Karnataka High Court struck down the Act. The Supreme Court held that the language of Section 3 expressly authorises the State to specify different rates for different local areas and to select the areas themselves; the classification based on population is reasonable, the tax is non‑discriminatory, satisfies the requirements of Articles 304(a) and (b), and is a compensatory measure for the loss of octroi, thus constitutional. Consequently, the High Court judgment was set aside and the appeal allowed.

Issues considered

The scope of power conferred by Section 3 of the Karnataka Tax on Entry of Goods Act, 1979 – whether it allows the State to select specific local areas for tax levy.
Whether the classification of local areas violates Article 14 of the Constitution.
Whether the tax imposes an unreasonable restriction on the fundamental right of petty dealers to trade.
Whether the tax infringes the freedom of trade and commerce guaranteed under Article 301 and, if so, whether it is saved by Article 304.
Whether the tax complies with the proviso to Article 304(b) requiring Presidential sanction.

Legislation cited

Additional Duties on Goods (Special Importance) Act, 1957
Constitution of Indias. Article 14, s. Article 246, s. Article 255, s. Article 301, s. Article 304, s. Article 304(b)
Karnataka Municipal Corporations Act, 1976
Karnataka Municipalities Act, 1964
Karnataka Sales Tax Act, 1957
Karnataka Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Act, 1979s. 10(1), s. 2(5), s. 2(7), s. 3

Subjects

TaxationOctroi replacementState legislative powerArticle 14Article 301Article 304ReasonablenessNon‑discriminatory taxPetty dealersCompensatory taxPresidential sanction

Judgment

823

A

STATE OF KARNATAKA & ANR.

v.
B
MIS. HANSA CORPORATION

Se,ptember 25, 1980

[Y. V. CHANDRACHUD, C. J. AND D. A. DESAI, J.]

Karnataka Tax on Entry of Goods into Local Areas for Consumption. Use
c
er Sale therein Act, 1979-Section 3-Validity of-Power of State Government
./9 levy tax on select goods entering some local areas--State if bound to impose
iax on all goods entering any local area.

The Karnataka Tax on Entry of Goods Into Local Areas for Consumption,
Use or Sale therein Act 1979 was enacted by the State Legislature to levy tax
"on certain select goods at the time of their entry into a local area. This tax D
was devised to off set the short fall in the funds of municipal and other local
bodies by reason of the abolition of octroi which by experience was found
to impede the development of trade and commerce.
, Section 3 of the impugned Act provides that the tax shall be levied on
entry of the sc11eduled goods into a local area for consumption, use or sale
therein at such rate as may be specified by the State Government and different E
Tates may be specified for different local areas.

By a notification issued under section 3 of the Act the State Government
-specified 27 local areas in the State which could levy the· tax on scheduled
:goods and specified the rate of tax for each such local area therein. The Sche"
<luled goods are all varieties of textile; tobacco, sugar and the like.
F
Upholding the two principal contentions, among others, raised by the
appellants in their writ petitions before the High Court that (i) section 3
·does not empower the State Government to apply the provisions of the Act
to such local areas only and to exclude other local areas and (ii) the levy of
tax on all dealers irrespective ·of the value of scheduled goods brought by
them into a local area without exempting petty dealers imposes an unreasonable
restriction on the right to carry articles, the High Court struck down the G
Act as invalid.

Allowing the appeal

HELD : The express pewer of choosing and specifying different rates
subject to maximum for different local areas is conferred on the State Gov-
ernment not by the expression 'such rate' but by the expression 'rates' with H
the adjectival clause 'different rates may be specified for different local areas'.
It was, therefore, not necessary to qualify the expression 'such rate' again by
the expression 'as may be specified by the State Government' because that
824. SUPREME COURT REPORTS [1981] 1 S.C.R..

A:. is covered by the express power conferred by the expression 'different rates'
may be specified for different local areas'. The use of article 'a' before 'local'
area' signifies not every local area but any local area. [831C-DJ
In l'e. Sanders; ex part~ Serqueant, Law Journal (1885). 54 Q.B. 331, The
Queen v. Justices of Durham, [1895] 1 Q.B. 801, Coast Brick & Tile Works Ltd~
& Ors. v. Prem Chand Raicharnd & Anr. [1%7] 1 Appeal Cases 192 referred to. ~
Although, the taxing event is entry of scheduled goods in a local area,
B section 3 empowers the State Government to specify different rates of tax.
in respect of different scheduled goods for different local areas. A local area
means an area in a city governed by the Karnataka Municipalities Act or a
municipal corporation governed by the Karnataka Municipal Corporation Act.
The local areas vary immensely both in dimension, population, industrial
growth, and the scale and kind of municipal services rendered by them. If the
argument that 'a local area' should be interpreted to mean 'every local 11.rea'
c is accepted it would be obligatory on the State Government to levy tax on entry
of scheduled goods in every local area. It would be unjust and inequitable
to levy tax on entry of goods at the same rates for a big municipal corporation
and a small municipal area, each of which does not stand comparison with
the other. The choice to select local areas is a necessary concomitant of a
choice to select the rates which is a power conferred on the State Govemme~t.
The purpose underlying the statute, namely, to provide financial assistance to
D the municipalities would be better effectuated if the tax realised considerably
outweighs the administrative cost in collection. The High Court fell into an
error because it adopted a literal, grammatical construction and overlooked
the underlying object of the Act and the historical background in levying the
tax. [831C-G; 832C-E]
There is no force in the contention .that if the State Gove1'tment is granted
E a choice in the matter of selection of local areas ipso facto the statute would
be unconstitutional as being violative of Article 14. It is a well accepted
principle of constitutional law that there is always a presumption of consti-
tutionality of a statute. ·In the matter of taxing statutes the legislature which
is competent to levy a tax, has full freedom to determine the articles, the
manner and the rate of tax. [832G-H; 834E]
Khyerbari Tea Co. Ltd. & Anr. v. The State of Assam [1964] 5 S.C.R.
F 975 and East India Tobacco Co. v. State of Andhra Pradesh [1963] 1 S.C.R.
404, 409 referred to.
The High Court was wrong in its view that section 3 did not permit the
State Government to pick and choose the local areas for the levy of tax.
In selecting the local areas and the rates of tax to be levied on different
scheduled goods the State has adopted the criterion of population of a 1ocal
area which undeniably is a reasonable criterion because the yield of the tax
G would be directly proportionate to the consumption of the goods in the local
areas and the cansumption of goods is directly related to the population within
the local area. [835F-G]
Non-exemption of petty dealers from the operation of the Act does not ....,-
lead to the conclusion that the impugned legislatiOn constituted an unreasonable
·restriction on the fundament:al right of the petfy dealers to carry on their
trade or business. If petty dealers were to be exempt, the criterion of turnover
H in the scheduled goods for classifying the petty dealers will have to be kept
high ii:t which event the big registered dealers could conveniently bring the
scheduled goods into local areas in the name of petty dealers. The taxing
KARNATAKA v. HANSA CORPN. (De~ai, J.) 825

event being entry of scheduled goods in a local area at tho instance of a dealer, A
the volume or quantum of business of the dealer is not at all releyant. Unlike
under the old .system of octroi where every importer was taxed, under the
Act only a dealer, dealing in scheduled goods is required to pay the tax.
[838B-C]
If a State tax law accords identical treatment in the matter of levy and
collection of taxes on the goods manufactured within the State and identical
goods imported from outside the State, Art. 304(a) would be complied with. B
There is an underlying assumption in Article 304(a) that such a tax when
levied within the constraints of Article 304(a) would not be violative of
Article 30 I and the State Legislature. has the power to levy such tax. [84 IE]
In the instant case the tax is non-discriminatory in that it does not discri-
minate between scheduled goods manufactured within the State and those
imported from outside the State. A minor discrimination between two types
of goods if any is hardly relevant for the purposes of Article 304(a). There-
c
fore, the impugned tax satisfies the requirements of Article 304(a}. [841 F-G]
There is no evidence to show that the burden of tax would be so heavy
as to constitute an unreasonable restriction on the freedom of trade and com-
merce. Although, in theory the tax leviable is not a single point tax and
becomes leviable at eYery point whenever the goods are taken from one local
area to another and then on to yet another no attempt was made to substa:Ill- D
tiate how the goods are so successively moved because if they kre taken for
consumption or use in one place, there is no question of taking them from
that local area to another local area and so on. [8420-G]
Even if the tax, to some extent, imposes an economic impediment to the
activity taxed that by itself is not sufficient to stigmatise the levy as unreasonable
or not in public interest. What is sought' to be done is to impose a modest
levy on certain goods at the time of their entry into a local area by removing E
the obnoxious feature_s of octroi. The tax is not intended to augment the
finance of the local bodies but to compensate them for los11 suffered by the
abolition of the octroi. [844A-B]
The requirements of the proviso to Article 304(b) aro i;atisfied because
the President accorded sanction to the impugned Act. [844FJ
F
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3094 of
1979.
Appeal by Special Leave from the Judgment and Order dated
24-8-1979 of the Karnataka High Court m W.P. No. 7039/79.
L. N. Sinha, Attorney General of India and N. Nettar for the
Appellant. G

S. T. Desai, N. Srinivasan, M. Mudgal and Vineet Kumar for the
.,.,. Respondent.
The Judgment of the Court was delivered by
Desai, J.-Constitutional validity of Karnatafa Tax on R
Entry of Goods Into Local Areas for Consumption, Use or Sale
Therein Act, 1979 ('Act' for short), and the Notification No. FD 66
11--64S S. C. India/SO
826 SUPREME COURT REPORTS [1981] 1 S.C.R.

A CSL 79 dated May 31, 1979, issued by the State Government in exer-
cise of the powers conferred by section 3 of the Act is involved in
this appeal by special leave at the instance of the State of Karnataka
and one other.
Karnataka State enacted the Act to provide for the levy of tax
B on entry of goods into local areas for consumption, use or sale
therein, being Karnataka Act No. 27 of 1979. Section 3 empowers
the State Government to levy and collect tax on entry of scheduled
goods into a local area for consumption, use or sale therein at such
rate not exceeding 2% ad valorem, as may be specified by the State
Government. Armed with the power conferred by s. 3, the State
c Government issued notification - 1 No. FD 66 CSL 79 dated May
31, 1979, specifying the local areas and the rates of tax at which
the tax shall be levied and collected under the Act on the entry of
scheduled goods mentioned in col. 2 of the table appended to the
notification into local areas specified in the corresponding entries.
Goods liable to levy of tax under the Act on entry in the specified
D local areas at the specified rates are those set out in the schedule
annexed to the Act. They are (i:) all varieties of textiles, viz., cotton,
woollen, silk or artificial silk including rayon or nylon whether manu-
factured in mills<, powerlooms or handlooms and hosiery cloth in
lengths; (ii) tobacco and all its products; (iii) sugar other than sugar
candy confectionery and the like. In all 27 local areas were specified
E for the purpose of levy of tax on entry of scheduled goods in the
respective local areas at varying rates specified in the notification.
The Act received the asse.nt of the President on May 17, 1979, and
it was published in the State Government Gazette on June 1, 1979,

F
and came into force from that very day.

Numerous petitions were filed under Article 226 of the Constitu-
j
tion in the High Court of Karnataka contending that the Act and
the Notification issued thereunder were unconstitutional on diverse
grounds. As many as 24 different contentions were canvassed before
the High Court. Of them two, viz., contention nos. 13 and 19
found favour with the High Court with the result that the Act and
G the Notification issued thereunder were declared unconstitutional and
a mandamus was issued directing the State Government and its
officers to forebear from enforcing the provisions of the Act against
the petitioners before the High Court.

The contentions which found favour with the High Court, are :
H (i) section 3 of the Act does not empower the State Government to
apply the provisions of the Act to certain local areas only -and to
exclude other local areas; (ii) as the Act imposes the tax on dealers
KARNATAKA v. HANSA CORPN. (DefJai, J.) 827

irrespective of the value of scheduled goods brought by them into a A
local area and does not exempt petty dealers, the Act imposes un·
reasonable restrictions on petty dealers. The remaining 22 conten-'
tions were rejected some of which were canvassed before us on behalf
of the respondents to sustain the decision of the High Court.
It is necessary at this stage to notice the broad features of the
B
Act. The long title and the preamble of the Act demonstrate the
·purpose for which the Act was enacted, it being to empower the
State Government to levy tax on entry of goods specified in the sche-

l I
dule ('scheduled goods' for short) in local areas to be specified by
the State Government in this behalf. Section 2, the c:ctionary clause
of the Act, defines· 'dealer' in the Act to have the same meaning
assigned to it in clause (k) of s. 2 of the Karnataka Sales Tax Act,
1957. Section 2, sub-section (5) defines 'local area' as under:
"2(5). 'Local area' means the area within the limits of a
City under the Karnataka Municipal Corporations Act, 1976
· (Karnataka Act 14 of 1977), or a municipality under the
Karnataka Municipalities Act, 1964 (Karnataka Act 22 of D
1964)".
Section 2, sub-s. (7) defines 'scheduled goods' to mean goods
specified in the schedule to the Act. Section 3 is the charging sec-
tion. It reads as under : ·
E
"3. Levy of tax - There shall be levied and collected a
..,... tax on entry of the scheduled goods into a local area for

L. ·consumption, use or sale therein at such rate not exceeding two
percent ad valorem as may be specified by the State Government
and different rates may be specified for different local areas".
Section 4 provides for registration of dealers and makes it F
vbligatory upon every dealer in scheduled goods• to get himself
registered under the Act in the prescribed manner. Rule 4, sub- .
rule (3) of the Karnataka Tax on Entry of Goods into Local Areas
for consumption, Use or Sale therein Rules, 1979 ('Rules' for short),
enacted ·under t.he Act has prescribed a fee of Rs. 25/- for registra-
tion as a dealer. Chapter III of the Act contains provisions for G
return, assessment, payment, recovery and collection of tax.
Chapter IV prescribes taxing authorities. Chapter V deals with
appeals and revisions and Chapter VI contains miscellaneous pro-
visions. Schedule annexed to the Act sets out the goods on the
entry of which in the specified local areas tax can be levied.
H
Entry 52 in State List read with Article 246 of the Constitution
confers power on the State legislature to enact a Jaw to. levy tax
828 SUPREME COURT REPORTS [1981] 1 S.C.R.

A on the entry of goods into a local area for consumption, use or
sale therein. This tax in common parlance is known as 'octroi'.
Octroi: was leviable by the municipality under the power delegated
to it under various laws providing for setting up of and administra-
tion of municipal corporations and municipalities. Octroi thus
understood was being levi:ed by various municipalities and municipal
B corporations in Karnataka State. Since some time a feeling had

A
grown that octroi was obnoxious in character and impeded tho
development of trade and commerce and there was a clamour for its
abolition. Taking note of the resentment of the business community,
Karnataka State abolished octroi: with effect froin April 1, f979.
However, no one was in doubt that octroi was a major source of ,
c revenue to municipalities and its aboLition would' cause such a dent
on municipal finances that compensation for the loss would be
inevitable. Accordingly, the State Government undertook a policy
of compensating the municipalities year by year. For generating
funds for this compensation, rates of sales' tax were raised and in
some cases a surcharge was levied. The amount so collected was
D
not sufficient to bridge the gap in municipal budget. To further
augment the finances for compensating the municipalities, ad<;li:tional
fund was sought to be generated by levy of tax under the impugned
legislation. No doubt, the tax levied wa~ one on entry of scheduled
goods in local areas meaning thereby it had all the broad features
E of octroi, yet the manner of levy, the method of collection and the
persons liable to pay the same were so devised by the impugned Act
as to remove the obnoxious features of octroi. As the charging
section shows, the tax was to be levied on entry of scheduled goods
in a 'local area at a rate to be specified by the Government not
exceeding 2% ad valorem. The taxing event would be the entry of
_J
~

F scheduled goods in a local area. In fact, octroi was being levied ,
on almost all conceivable goods entering iiito a focal area for
consumption, use or sale therein. There appears to be a discernible
poli:cy in selecting the goods set out in the schedule, the entry of
which in a local area would provide the taxing event. The goods
selected for levy are textiles, tobacco and sugar. Way back in 1957
G there was a demand for abolition of sales tax on the scheduled goods
and at the instance of the Union Government the State Governments
agreed to forego their right to levy sales tax on the aforementioned ""f"
scheduled goods on the condition that the Union Government would
levy additi:onal excise duty on them and distribute the net proceeds
H of such duty amongst th1~ consenting States. Parliament accordingly
has enacted the Additional Duties on Goods (Goods of Special
Importance) Act, 1957. Therefore, while raising rates of sales tax
KARNATAKA v. HANSA CORPN. (Desai, J.) 829

and levying surcharge in respect of some other items the State Govern- A
ment could not have levied sales tax on the scheduled goods. They
were, therefore, selected for the levy of the tax under the impugned
Act on their entry into a local area.
Having noticed the historical background. leading to the enact-
ment of the impugned legislation we may now examine the two B
contentions which found favour with the High Court and as a result
of which the Act and the notification issued thereunder were struck
down by the High Court.
The respondents· contend that upon a true construction s. 3
permits the State Government only to specify defferent rates of tax
not exceeding the maximum prescribed in the section to be levied c
on entry of scheduled goods into a local area but the State Govern-
ment has no power to pick and choose local area. In other words,
· the respondents say that the tax has to be levied on entry of scheduled
goods in each and every local area as the word is under&tood in the
Act. The submission is that· the expression 'as may be specified by
D
the State Government' qualifies .the expression 'such rates' and not
''.local area" and this was sought to be reinforced by saying that
Article 'a' precedes local area which would mean every local area
and not any local area. It was further stated that if what is contend-
ed on behalf of the State is correct, one will have to read the word
'and' between the words 'therein' and 'at such rate' which might E
imply on a grammatical construction that discretion was conferred
upon the State Government not only to specify rate but also the
local area. ·
Legislative drafting will reach its peak of glory when perfection
is attained in demonstrably inanifesting the legislative intent by un-
equivocl!l language. But it is equally undeniable that language at F
its best is a very imperfect vehicle of conveying the intent of tlie
speaker. Legislature speaks through legislation and tries its utmost
to convey what it intends to do by the legislation but even best of
draftsmen cannot claim to attain perfection.· On a very superficial
view one may be tempted to accept the construction canvassed for on
G
behalf of the respondents but when the section is read more minutely
with necessary pause and emphasis and the policy enacting the legisla-
tion is kept in vrew and also the inconceivable situation that may
arise if the construction canvassed for or behalf of the respondents
is kept in focus, the contention will have to be repelled.
There is a two-fold answer to the contention that upon a literal H
grammatical construction of s. 3 the State has no choice in ·the matter
of selecting local .areas and that choice is limited to specifying rates
830 SUPREME COURT REPORTS [1981] 1 S.C.R.

A but after choosing rates all local areas will have to be covered for the
levy of tax. It is easy to read the section with a pause and punctua-
tion after the word 'ad valorem' so that the expression 'as may be
specified by the State Government' would qualify both the expression&
'local area' and 'such rate'. This would be clear from the fact that
the last expression in the section 'different rates may be specified
B for different local areas' would be an adjectival clause to the word
'rate' so that the power to choose and specify different rates is not
implicit in the words 'such rate' but in the expression 'different rates
may be specified for different local areas'. Thus an express power of
choosing and specifying different rates subject to maxnnum for
different local areas is conferred on the State· Government not by
c the expression 'such rate' but by the expression 'rates' with the
adjectival clause 'different rates may be specified for different local
areas'. It was, therefore, not necessary to qualify the expression
'such' rate' again by the expression 'as may be specified by the State
Government' because that is covered by the express power conferred
by the expression 'different rates may be specified for different local
D
areas'. In approaching the matter from this angle the expression
'as may be specified by the State Government' would qualify th~
expression 'local area" and this construction would be further rein-
forced by use of Article 'a' prefixing 'local area' meaning thereby
not every local area but any local area. In this connection reference
E may be made with advantage to In re. Sanders; ex parte Sergeant( 1 ),
wherein the expression 'under the hand of the Judge of a county
court' came up for coi1struction.. The construction canvassed for was
that a county court would not mean any county court but the
country court having jurisdiction in the matter. Repe.Jling this

F
construction the Court, after ascertaining the object of the legislation,
held that a county court would mean any county court, an approach
dictated by strict grammatical construction .. Similarly, in The Queen
j
v. Justices of Durham,( 2 ) the expression 'a Court' was interpreted
to mean any court and in accepting this construction the Court
was guided by the bare letter of the statute which would be a proper
guide unless there would be something in it to modify the ordinary
G meaning of the words used. The Privy Council in Coast Brick &
Tile Works· Ltd. & Ors. v. Premchand Raichand & Anr.,( 3 ) observed
that the expression 'the security' should be read as 'a security', a
variation which in a poorly drawn section does not do great violence
to the language used. Even if, therefore, a literal grammatical.
H (I) Law Journal [1885] 54 Q.B. 331.
(2) [1895] 1 Q.B. 801.
(3) [1967] I Appeal Cases 192.
KARNATAKA v. HANSA CORPN. (Desai, !.) .831

construction were to be adopted, on a proper reading of the section A
power is conferred on the State Government by s·. 3 not only to
specify different rates for different areas but also to specify local
areas entry into which of scheduled goods would provide the taxing
+ event. There is thus a power to choose and specify local areas as
well as choose and specrfy rate of taxation subject to maximum
prescribed in the section. B

Assuming our re~ding of the section is not correct, there is
another way of approaching the matter. It cannot be gainsaid that
the State Government is empowered to specify the different rates of
tax not exceeding the maximum in respect of different scheduled
goods for different local areas. . This implies that even though the c
taxing event is entry of scheduled goods in a local area, nonetheless
different rates may be prescribed for different local areas and express
power in that behalf is conferred on the Government by providing i:n
section 3 that different rates may be specified for different local areas.
If at this stage the definition of local area is recalled which means
D
an area in a city governed by the Karnataka Municipalities Act or
a municipal corporation governed by the Karnataka Municipal
Corporations· Act it would immediately appear that local areas vary
immensely both in dimension, populatron, industrial growth, economic
development and scale and kind of municipal service rendered. One
has to keep in view a local area like Bangalore City, a highly
industrially advanced capital city of Karnataka and a small munici-
pality having a population of 10,000. Now, if the expression 'a local
·-t area' in s. 3 is interpreted to mean 'every local area' as contended
on behalf of the respondenis, before any tax can be levied under s. 3

l it would be obligatory on State Government to levy tax on entry of
scheduled goods in every local area in Karnataka State for consump-
tron, use or sale therein. The contention thus is that coverage of all
local. areas for levy of tax would provide outside maximum limit of
F

power under s. 3. The question is : Is it a minimum condition
for exercise of power ? If it is, the rates of tax will have to vary
considerably in direct relation to the local area for which the rate
is being prescribed. It would be unjust and i11equitable to levy tax G
on entry of goods at the same rate for such local area as Bt:fngalore
·Municipal Corporation and a small municipal . area, the fwo local
areas being uncomparable with regard to area, population, industrial
growth .and consumption of such scheduled goods in the area. Now,
if the impact of the tax is to be equitable keeping in view cost of
its collection, a tax levied at such a small rate as one paise for goods H
worth Rs. 100 ad valorem for a small local area and 2% ad va/ureni
for such industrially' developed local area like Bangalore Corporation,

\
832 SUPREME COURT REPORTS [1981] 1 S.C.R.

A it would make nonsense oE the levy apart from the uneconomic out-
come keeping in view the administrative cost of collecti6ii.: If -the
Government is obliged on the construction canvassed on behalf of
the respondents to encompass all local areas for the purpose of levy-
ing tax under the statute, the rates would have to be varied so much
to avoid the evil of making the impost unjust and if the rates have
B to be varied from area to area. the administrative cost in smaller
areas with lower rates and negligible entry of schedufed goods in
such area would make the tax wholly uneconomic. It inust; there-
fore, logically follow that choice to select local area is a necessary
concomitant of a choice to select rates, which power is admittedly
conferred on the State Government. Purpose underlying the statute,
c namely, to provide financial assistance to the municipalities would be
better effectuated if the tax realised considerably outweighs the
administrative cost involved in collecting the tax. And it Is a well
known canon of construction that the purpose underlying the statute
would provide a reliable external aid for proper construction because
the Court would adopt that construction which would effectuate the
D
purpose.
The High Court unfortunately approached the matter from the
standpoint of literal grammatical construction of the section over-
looking the object underlying the Act, the historical background
which the High Court itself had noticed, and holding that unless the
section is re-written as understood by the High Court, the State
Government had no power to pick and choose local areas. Mr. S. T.
Desai, learned counsel for the respondents, after drawing our
attention to the reasoning that appealed to the High Court for holding
that s. 3 does not permit choice of local areas, urged that if the
section is so read as to enable t.he State Government to pick and
F choose or select local areas the section would be violative of Art. 14
of the Constitution because while all municipalitieS' need additional
finances to recoup the loss suffered by them on abolition of octroi,
only some local areas are selected for the purpose of levy of tax
leaving others out and there being no reasonable basis. fo sustain
the classification, s. 3 would be unconstitutional.
G
There is always a presumption of constitutionality of a statute.
If the language is· rather not clear and precise as it ought to be,
attempt of the Court is to ascertain the intention of the legislature
and put that construction which would lean in favour of the constitu-
tionality unless such construction is wholly untenable. Bowever,
H where one bas to look at a section not very well drafted but the object
behind the legislation and the purpose of enacting the same is clearly
discernible, the Court cannot hold its hand and blame the draftsman
KARNATAKA v. HANSA CORPN. (Desai, J.) 8$3

and chart an easy course of striking down the statute. In such a A
·situation the Court should be guided by a creative approach to
ascertain what was intended to be done by the legislature in enacting
·the legislation and so construe it as to give force and life to the inten-
iion of .the legislature. This is not charting any hazardous course
but is amply borne out by an observation worth reproducing in
extenso in Seaford Court Estates Ltd. v. Asher.( 1 ) It reads as B
.under:
"Whenever a statute comes up for consideration it must be
remembered that it is not within human powers to foresee the
manifold sets of facts which may arise, and, even if it were, it
is not possible to provide for them in terms free from all c
ambiguity. The English language is· not an instrument of
mathematical precision. Our literature would be much the
poorer if it were. This is where the draftsmen of Acts of Parlia-
ment have often been unfairly criticised. A judge, believing
himself to be fettered by the supposed rule that he must look
to the language and nothing else, laments that the draftsmen
have not provided for this or that, or have been guilty of some .
or other ambiguity .. It would certainly save the judges trouble
if Acts of Parliament were drafted with divine prescience and
·perfect clarity. In the absence of it, when a defect appears a
judge cannot simply fold his hands and· blame the draftsman.
'He must set to work on the constructive task of finding the
·intention of Parliament, and he must do this not only from the
·1anguage of the statute, but also from a consideration of the
social conditions which gave rise to it and of the mischief which
·it was passed to remedy, and then he must supplement the
l written word so as to give "force and life". to the intention of
·the legislature. That was clearly laid down (3 Co. Rep. 7b) F
'by the resolution of the judges (SIR ROGER MANWOOD,
C.B., and the other barons of the Exchequer) in Heydon's case
·(1584) 3 Co. Rep. 7a, and it is the safest guide today. Good
·practicaI advice on the subject was given about the same time
by PLOWDEN in his note (2 Plowd. 465) to Eyston v. Studd
(1574), 2 Plowd. 463. Put into homely metaphor it is this : A G
-judge should ask himself the question how, if the makers of
the Act had themselves come across this ruck in the texture of
it, they would have straightened it out ? He must then do as
they woula have done. A judge must not alter the material of
which the Act is woven, but he can and should iron out the
creases".
H

•(I) [1949) .2 All E.R. 155 at 164.
834 SUPREME COURT REPORTS [1981] I S:C.R,_

A This view was re-aflirmed in Norman v. Norman. ( 1 )

Let it be remembered that the impugned measure is a taxing-
statute and in the matter of taxing statute the legislature enjoys a
larger discretion in the matter of classification so long as it adheres
to the fundamental principle underlying the doctrine of dasslfication.
B The power of the legislature to classify is of wide range and flexibility
so that it can adjust its taxation in all proper and reasonable ways.
In Khyerbari Tea Co. Ltd., & Anr. v. The State of Assam( 2 ) this
Court observed as under :

"It is, of course, true that the validity of tax laws can be
c questioned in the light of the provisions· of Arts. 14, 19; and
Art. 301 if the said tax directly and immediately imposes a
restriction on the freedom of trade; but the power conferred· on
this Cour.t to strike down a taxing statute if it contravenes
the provisions of Arts. 14, 19 or 301 has to be exercised with
circumspection, bearing in mind that the power of the State to
D levy taxes for the purpose of governance and for carrying out
its welfare activities is a necessary attribute of sovereignty and
in that sense it is a power of paramount character".

It was also observed that legislature which rs competent to levy a
tax must inevitably be given full freedom to determine which articles
E
should be taxed, in what manner and at what rate. It would, there-
fore, be idle to contend that a State must tax everything in order to
tax something. In tax matters, "the State is allowed to pick and'
choose districts, objects, persons, methods and even rates for taxa-

F
tron if it does so reasonably" (see Willis on 'Constitutional Law',
p. 587). This statement of law has been approved by this Court in
the case of East India Tobacco Co. v. Sta:e of Andhra Pradesh( 3 ).
j
The question, therefore, is, whether a tax of a certain kind can be
levied on entry of goods in certain local areas·, the classification of
local areas, if found to be reasonable, the levy of tax would not be·
invalid on the ground that choosing certain areas only excluding
G some others would violate Article 14. Whether in this case the
classification is reasonable would be presently examined but the
contention that if the State Government is granted a choice in the
matter of selection of local area, ipso facto, the statute would be un-
constitutional as being violative of Art. 14, must be negatived.
(1) [1950] All E.R. 1082.
H.
(2) [1964] 5 S.C.R. 975.
(3) [1963] 1 S.CR. 404, 409.
KARNATAKA v. HANSA CORPN. (Desai,/.~ 83&

In order to ascertain whether the classification of local areas for A
the purposes of levy of tax is reasonable or not, a reference may be
made to the impugned notification. Table annexed to the notification
shows in all 27 local areas selected for levy of tax. They are again
divided into three groups, A, B and C for selecting rates to be levied
on different scheduled goods. A mere glance at the local areas select-
ed and those according to the petitioner excluded, viz., areas within B
t11e jurisdiction of various Gram Panchayats would bring in bold
relief that population criterion appears to have been adopted in
selecting local areas for levy of tax. Does population criterion pro-
vide a reasonable basis for classification vis-a-vis a tax levied on
entry of goods• in the area ? It would be undeniable that population
basis would provide a reasonable criterion for selecting local areas
for the purpose of levy tax simultaneously excluding those which do
not answer the popu1ation criterion. One unquestionable element
scientifically established about a taxing statute is that the yi:eld from
the tax must be sufficiently in excess of cost of collection so that the
tax which is levied for augmenting public finances· to be utilised for D
public good would be productive. Where the cost of administrative
machinery required to be set up for collecting tax is either marginally
lower or equal or marginally hig)ler than the yield from the tax; the
measure would be uneconomic if not counterproductive. Now, if the
tax in this case rs levied on the entry of scheduled go.ods in local
areas, the yield would be directly proportionate to the consumption E.
of the goods in local areas and the consumption of goods is directly
related to the population within the local area. Viewed from this
angle, population criterion would provide a reasonable basis for
classification for selectively levying the tax by choosing local area
and by specifying different rates so as to make the tax productive.
Therefore, there is no substance in the contention that the classifica- F
tion in this case was unreasonable. The High Court was accordingly
in error in holding that s. 3 did not permit the State Government to
pick and choose local areas for the levy of tax and that levy of tax
under s. 3 in all local areas within Karnataka State was a minimum
condition for exercise of the power under s. 3. The contention
must, accordingly be negatived. G

Another contention that found favour with the High Court was
contention No. 13 before the High Court which in the opinion of
the High Court was a formidable one. The contention was that the
Act in its application has not excluded petty dealers from its purview.
Developing the contention it was said that the abolished octroi would
ha:ve been less oppressive in its application than the tax under the
impugned legislation falling on petty dealers. What appealed to the
836 SUPREME COURT REPORTS [1981] 1 S.C.R.

High Court was that if a petty dealer brought within the local area
scheduled goods of the value of Rs. 5 for consumption, use or sale
therein, he is to get himself registered after paying the registration
fee, maintain ac:counts for his dealings in such good5' and submit
monthly and annual returns and to appear before the assessing
authority when called upon to do so. The High Court thereafter
B contrasted the position of a dealer under the Karnataka Sales Tax
Act, 1957, and observed that a dealer whose total turnover is less
than Rs. 25,000 was not liable to pay sales tax and one whose turn-
over was less than Rs. 10,000 was not required to get registered, to
maintain accounts or to submit returns. The High Court also found
the registration fee of Rs. 25 prescribed under the rules, the liability
c to maintain accounts in the manner prescribed and to submit monthly
and yearly returns as constituting unreasonable restrictions on the
fundamental right of the petty dealers to carry on their trade or
business.

Learned Attorney-General urged that this contention was no--
D
where to be found in the petition filed by the petitioners in the High
Court and, therefore, the High Court was in error in entertaining the
contention. Unfortunately, the judgment does not show that learn-
ed Advocate-General who appeared for the State raised such an
objection to the entertaining of the contention on behalf of the
E petitioners by the High Court. Not only has the High Court permit-
ted the contention to be raised but accepted the same: In fairness
to the petitioners it would be unjust to shut ot\t the contention on
this technical ground, though we must note that Mr. S. T. Desai
learned counsel who appeared for the respondents found it difficult
to pursue the contention. We, however, propose to deal with the
F conte:q.tion on merits.

The taxing event under the statute is entry of scheduled goods
in a local area for consumption, use or sale therein af the instance of
a dealer. Tbe expression 'dealer' 11as the same meaning as assigned
to it in clause (k) of s. 2 of Karnataka Sales Tax Act, 1957, which
G defines dealer to mean any person who carries on the business of
buying, selling, supplying or distributing goods, directly or otherwise,
whether for cash or for deferred payment, or for comm1ss1on,
remuneration or other valuable consideration. and includes amongst
others, a casual trader. Section 10(1) makes it obligatory upon every
dealer whose total turnover in any year is not less than the specified
B sum to get himself registered under the Act. Sub7S'. (2) carves out
an exceptioru to sub-s. (1) that notwithstanding anything contained in
sub-s. (1) every casual trader dealing in goods mentioned in the
KARNATAKA v. HANSA CORPN. (Desai, !.) 83·7

Third Schedule or the Fourth Schedule irrespective of the quantum A
of his total turnover in such goods shall get himself registered. And
in pas~ing it may be menti:oned that Schedule Three includes 12 items
and Schedule Four includes seven items. In other words, casual
trader who is included in the expression 'dealer' ill respect of the
goods mentioned in the Third or Fourth Schedule, irrespective of his
turnover, has to get himself registered. Therefore, it cannot be said B
that' all petty dealers are excluded from the application of Karnataka
Sale5' Tax Act. That apart, the taxing event under the impugned
Act being entry of scheduled goods in a local area at the instance
of a dealer, the volume or quantum of business of the dealer is not
at all relevant. The situation now obtaining may be contrasted with
the situation when octroi was levied. Octroi was payable by anyone c
irrespective of the fact whether he was a dealer in the goods or not,
on goods which were liable to octroi when they were brought within
the octroi limits. It was payable at the octroi limits where _there
used to be an office called 'octroi naka'. This was found to be
cumbersome and the pre8ent Act seeks to replace to some extent that
infamous octroi. The noteworthy departure made by the Act is that D
I
now unlike every importer only a dealer dealing in the scheduled
goods will have to pay the tax and that too not at the octroi limit
but afterwards while submitting returns. It would be a case of wild
imagination that a dealer in scheduled goods would bring within the
local area scheduled goods in such a small quantity a& to make
maintenance of accounts a very difficult task as also a registration
fee of Rs. 25 so heavy as to dub it an unreasonable restriction on
his right to carry on trade or commerce. Only three items are in-
cluded in scheduled goods and it is legitimate to believe that a dealer
not dealing in either of the scheduled goods would not be required
to get himself registered. And if he is going to deal in the goods his
F
turnover would not be so small in scheduled goods as to make
maintenance of accounts and payment of registration fee of Rs. 25
so disproportionately heavy as to render it as an unreasonable restric-
tion on his right to carry on trade.

Looking at the matter from a slightly different angle it must be G
confessed that if the contention of the respondents were to be upheld
it would provide a fruitful source for evasion of tax. If petty dealers
are to be excluded some criterion will have to be provided relatable .
to hrs turnover in scheduled goods for classifying who are petty
dealers. That turnover will have to be kept reasonably high to make
it rational but in that event the big re•gistered dealer can always H
conveniently defeat the tax by bringing into the local area scheduled
goods in the name of such petty dealer. It would be an incentive to

•
:838 SUPREME COURT REPORTS [1981] 1 S.C.R.

A a big registered dealer to s.et up a number of petty dealers and import
scheduled goods mto local area in the name of those petty dealers.
To avoid any such contingency, if the tax is levied on the entry of
scheduled goods. in the local area at the hands of a dealer irrespec-
tive of his turnover a potential source of evasion can be checkmated.
Viewed from either angle, non-exemption of petty dealers from the
B ·operation of the Act does not lead to the conclusion that the impugn-
ed legislation constitutes unreasonable restrictions on the fundamental
right of the petty dealers to carry on their trade or business. The

J
High Court was, therefor1e, jn our opinion, in error in striking down
the impugned legislation on the ground that the Act imposes un-
reasonable restrictions on the fundamental right of the petty dealer&
c to carry on their trade.

The two contentions which found favour with the High Cour:
for striking down the impugned Act and the notification issued there-
under, in our opinion, are not sustainable and, therefore, the Act
and the notification issued thereunder would have to be upheld.
D
Mr. S. T. Desai, learned counsel for the respondents, however,
wanted us to affirm the judgment of the High Court on some of the
contentions which the High Court negatived. It would, therefore,.
be necessary to examine some of those contentions which were
repeated before us.
E
The contention which was put into forefront was fliat the im··
pugned Act violates the 1~onstitutional guarantee of freedom of trade,
commerce and intercourse throughout India as enshrined in Part XIII
of the Constitution and is not saved by Art. 304. At one stage there
was some controversy whether a tax law was within the inhibition of
F Part XIII of the Constitution, but thii;,. controversy is no more
res· integra and it has been set at rest by the majority view in A tiabari
Tea Co. Ltd. v. The State of Assam & Ors., (1) G~iendragadkar, J.
speaking for the majority, observed that the intrinsic evidence
furnished by some of the Articles of Part XIII shows that taxing laws
are not excluded from the operation of Art. 301 which means that
G tax laws can and do amount to restrictions freedom from which is
guaranteed to.~trade und1er the said Part. He then posed a question
whether all ta"'{ laws attract the provisions of Part XIII irrespective
of the fact whether their impact on trade or its movement is direct
and immediate or indirect and remote, and proceeded to· answer it
observing that if any Ac:t imposes any direct restrictions on tbe very
H
movement of such goods it attracts the provi8ions of Art. 301 and
(1) [1963] 1 S.C.R. 491.

•
KARNATAKA v. HANSA CORPN. (Desai, J.) 839

its validity can be sustained only if i:t satisfies the requirements of A
Art. 302 or Art. 304 of Part XIII. Accordingly, the contention that
all taxes should be governed by Art. 301 whether or not their impact
on trade is immediate or mediate, direct or remote. was negatived.
The majority view in Atiabari Tea Co. Ltd. case (Supra) was re-
•examined and affirmed in The Automobile Transport (Rajasthan)
Ltd. v. The State of Rajasthan & Ors.( 1 ) Das, J. s"peaking for B
the majority in this context observed as under :

"After carefully considering the arguments advanced before
us we have come to the conclusion that the narrow interpretation
canvassed for on behalf of the majority of the State c~nnot be
accepted, namely, that the relevant articles in Part XIII apply c
only to legislation in respect of the entries relating to trade and
commerce in any of the. lists of the Seventh Schedule. But we
must advert here to one· exception which we have already indi-
cated in an earlier part of this judgment. Such regulatory
measures as do not impede the freedom of trade, commerce and
intercourse· and compensatory taxes for the use of trading faci- D
lities are not hit by the freedom declared by Art. 301.. They
are excluded from the purview of the provi:sions of Part XIII
of the Constitution for the simple reason that they do not
hamper trade, commerce and intercourse but rather facilitate
them". ' ·
E
The law was thus further clarified by pointing out that all taxes
should and could not be prohibited by Art. 301 and must of necessity
for their sustenance seek the coverage of Art. '304. If a measure is
shown to be regulatory or the tax imposed is compensatory i:n
character meaning the tax instead of hampering trade or commerce
would facilitate the same, it would be immune from a challenge F
under Art, 301. In other words, if the tax is shown to be compen-
satory irt character irrespective of the fact whether it is saved by
Art. 304 or not it does not come within the inhibition of Art. 301.
Accordingly, if validity of a tax law is challenged on the ground that
it violates freedom of inter-State commerce, trade and intercourse,
G
guaranteed by Art. 301, the contention may be repelled by showing
(i) that the tax is compensatory in character as explained in The
Automobile Transport (Rajasthan) Ltd. case (Supra); or (ii) that it
·satisfies the requirements of Art. 304.

This very question came up for further examination in
Khyerbari Tea Co. Ltd_. case (Supra) wherein constitutional validity H

(1) [1963] I S.C.R. 491.
840 SUPREME COURT REPORTS [1981] 1 S.C.R..

A of Assam Taxation (On Goods carried by Road or on Inland Water-
ways) Act, 1961, was challenged on the ground that it was violative
of Art. 301 and was not saved by Art. 304. This Court analysed
the majority view in Atiabari Tea Co. Ltd. case (Supra) and The
Automobile Transport (Rajl1S'than) Ltd., case (Supra) and observed
as under:
B "It would immediately be noticed that though the majority
view in the Automobile Transport (RajaS>than) case substantially
agreed with the majority decision in the case of Atiabari Tea
Co., there would be a clear difference between the said two
views in relation to the scope and effect of the provisions of
Art. 304(b). According to the majority view in the case of
c Aitiabari Tea Co., if an Act is passed under Art. 304(b) and
its validity is impeached, then the State may seek to justify the
Act on the ground that the restrictions imposed by it are reason-
able and in the public interest, and in doing so, it may, for
instance, rely on the fact that the taxes levied by the impugned
D Act are compensatory in character. On the other hand, accord-
ing to the majority decision in the Automobile Transport Rajas-
than case, compensatory taxation would be outside Art. 301
and cannot, therefore, fall under Art. 304(b) ".
On a conspectus of these decisions it appears well settled that
if a tax is compensatory in character it would be immune from the
E challenge under Art. 301. If on the other hand the tax is not sliown
to be compensatory in character it would be ne<;essary for the party
seeking to sustain the validity of the tax law to show that the require-
ments of Art. 304 have been satisfied.
The State did not attempt in the High Court to sustain the
validity of the impugned tax law on the submission that it was
F
compensatory in character. No attempt was made to establish that
the dealers in scheduled goods in a local area would be availing of
municipal services and municipal services can be efficiently rendered
if the municipality charged with a duty to render services has enough
and adequate funds and that the impugned tax was a measure for
G compensating the municipalities for the loss of revenue or for
augmenting its finances. As ruch a stand was not taken, it is not
necessary for us to examine whether the tax is compensatory in
· character.
It was, ll.owever, strenuously contended that the tax was not
discriminatory in character inasmuch as the impugned tax was levied
H both on scheduled goods manufactured within the State of.Karnataka
and similar goods brought into Karnataka State from outside and
accordingly Art. 304(a) has been complied with. It was further urged
KARNATAKA v. HANSA CORPN. (Desai, J.) 841

that the requirements of Art. 304(b) ~e futty satisfied. The High A
Court was of the opinion that the impugned tax was' non-discriminatory
in character inasmuch as scheduled goods imported from other States
and scheduled goods produced or manufactured within the State but
, outside the local area were treated alike by the impugned Act. In
the opinion of the High Court the discrimination, if at all, was between
goods produced or manufactured within a local area and those brought B
.
from outside the local area into it, but Art. 304(~) has no relevance .
to such differential treatment.
Article 304 lifts the embargo placed on the legislative power of
State to enact law which may infringe the freedom of inter-State trade
lllld commerce if its requirements are fulfilled. Article 304(a) imposes c
a restrictron · on the power of legislature of a State to levy tax which
may be discriminatory in character by according discriminatqry treai-
ment to goods manufactured in the State and identical goods imported
from outside the State. The effect of Art. 304(a) is to treat imported
goods on the same basis as goods manufactured or produced in a State.
This article further enables the State to levy tax on such imported D
goods in the same manner and to the same extent as may be levied on
the goods manufactured or produced inside the State. If a State tax
law accords identical treatment in the matter of levy and collection
of tax on the goods manufactured within the State and identical goods
imported from outsrde the State, Art. 304(a) would be complied with.
There is an underlying assumption in Art. 304(a) that .such a tax: when E
levied within the constraints of Art. 304(a) would not be violative of
Art. 301 and State legislature has the power to levy such tax.
Tax under the impugned legislation would be levied on scheduled
goods either manufactured or produced wrthin Karnataka State or
imported from outside on their entry in a local area. Thus, this tax F
is non-discriminatory in that it does not discriminate between sche-
duled goods manufactured or produced within Karnataka State or
those imported from outside. And the microscopic discrimination
relied upon by the respondents that there is differential treatment
accorded to goods produced within a local area and those imported
from outside the local area is hardly relevant for the purpose of G
Art. 304(a). The High Coart was accordingly right in concluding that
the impugned tax &atisfies the requirements of Art. 304(a).

The next l!mb of the contention is that the impugned tax being
leviable on the entry of goods into a local area will have a direct and
iinmediate impact on the movement of goods and consequently would H
infringe freedom of inter-State trade guaranteed by Art. 301. It must
for its validity also satisfy the requirements of Art. 304(b). In order
12-645 S. C. India/80
~42 SUPREME COURT REPORTS [1981] 1 S.C.R

A to satisfy the requirements of Art. 304(b) i:t must be shown that the
restrictions imposed by the tax law on inter-State freedom of trade and
commerce are reasonable and are in public intere&t as also the bill
for the purpose of levy of such tax has been introduced or moved in
the State legislature with the previous sanction of the Pre~ident. To
the extent the impugned tax is levied on the entry of goods in a local
B area it cannot be gainsaid that its immediate impact would be on
movement of goods and the measure would fall within the inhibition
of Art. 30( Can it, however, be said that this tax imposes restriction&
:which in the facts and circumstances of the case could not be said to
be reasonable ? It was contended on behalf of the respondents that
the tax not being single point tax it would impose a heavy burden and .
c a very burden of tax would certainly constitute unreasonable restriction
on the freedom of trade and commerce.

To substantiate the contention that the Act places unreasonable
restrictions on the freedom of trade it was submitted that it is a multi-
D point tax and in final analysis the burden would be disproportionately
heavy. It was said that whenever goods are taken from one local area
to another local area to third local area at every point of entry the tax
would be levied and, therefore, in ultimate result the burden would
be very heavy so as to make it thoroughly unreasonable. Undoubtedly,
the tax would have to be paid every time when scheduled goods enter
E a local area. In other words, it is not a single point tax and, there-
.fore, if some sclieduled goods successively enter different local· areas
for consumption, use or sale therein, there would be multiple levy.
But no attempt was made to substantiate this charge by showing as to
how goods are taken frQm one local area to another local area to
third local area ·for successive sales because if they are taken for
F consumption or use, there is no question of taking the scheduled goods
from one local area to another local area. It is, therefore, difficult to
conceive a situation realistically that the impost would be very heavy /
so as to make rt unreasonable. The High Court negatived the con-
~·-
tention and in our opinion rightly observing that the petitioners have
not been able to show that the burden of the tax was so lieavy as to
G constitute unreasonable restriction on the freedom· of trade and com-
merce. In this connection, however, reliance was placed on the deci-
sion of this Court in Kalyani Stores v. St.ate of Orissa & Ors.(1). In
that case the State enhanced the duty in respect of foreign liquors from
Rs. 40 to Rs. 70 per L.P. gallon and this levy was challenged on the
ground that it infringed the guarantee of Art. 301. The State attempt-
H ed to save the levy by contending that it was saved by Art. 304(b).·

(1) [1966] I S.C.R. 865.
KARNATAKA v. HANSA CORPN. (Desai, 1.) 843

The Court struck down the levy as' being violative of Art. 301 observ- A
mg as under:
"Article 301 has declared freedom of trade, commerce and
..--f intercourse throughout the territory of India, and restriction on
that freedom may only be justified if it falls within Art. 304.
Reasonableness of the restriction would have to be adjudged in

·
B
the light of the purpose for which the restriction is imposed, that
is "as may be required in the public interest". Without entering
upon an exhaustive categorization of what may be deemed "re-

a· ;k
-
_ .·.
quired ill' the public interest" it may be said that restrictions
whikch may validlybbl~ imhpo shed unfder Art. 304(bd) a~e thrtose "'.hthic;h
see to protect pu 1c ea1t , sa ety, mora1s an prope y w1 m
the territory".
The later decision has shown that the observation in Kalyani
Stores( 1 ) case is confined to the facts of that case. This would be
c

evident from the decision of this Court in State of Kemla v. A.Q. Abdul
Khadir & 0r£>.( 2 ) wherein it is observed that in Kalyani Stores case
(Supra) the Court did not intend to lay down a proposition of univer- D
sal applicability that the imposition of a duty or tax in every case
woold tantamount per se to an infringemell!t of Art. 301 and that only-
~uch restrictions or impediments which directly or immediately impede
'free flow of trade, commerce and intercourse would fall wifliin the
prohibition contained in Art. 301. Even apart from this, a levy which
E
appears to be quite reasonable in its impact on the movement of goodr1
and is imposed for the purpose of augmenting munrcipal · finances
which suffered a dent on account of abolition of octroi cannot be s.aid
10 impose an unreasonable restriction on the freedom of inter-State
II trade, commerce and intercourse. In this connection it would be
" ' useful to recall the observations of this Court in Khyerbari Tea Co. F
. Ltd. case that the power conferred on this Court to strike down a
taxing statute if it contravenes the provisions of Arts. 14, 19 or 301
has to be exercised with circumspection, bearing in mind that the
power of the State to levy taxes for the purpose of governance and
for carrying out its welfare activities is a necessary attribute of
sovereignty and in that sense it ii> a power ~f paramount charaCter. G
It is, therefore, idle to contend that the levy imposed an unreasonable
·---;. restriction on the freedom of trade and commerce.
The next question is whether this levy is in public intere8t. '.As
has been pointed out earlier, the levy was to compensate the loss
"Suffered by abolition of octroi. These ve~y people were paying octroi
H.
(1) [1966] I S.C.R. 865.
(2) [1970] I S.C.R. 700.
844 SUPRE.~E COURT REPORTS [1981] 1 S.C.R.

A without a demur. After removing the obnoxious features of octroi a
very modest impost is levied on entry of goods in a local area and that
too not for further augmenting finances of the municipalities but for
compensating the loss suffered by the abolition of octroi is certainly
a levy in public interest. A!l has been repeatedly observed by this
Court, the taxes generally are imposed for raising public revenue for
B better governance of the country and for carrying out welfare activities
of our welfare State envisaged in the constitution and, therefore, even
if a tax to some e,xtent imposes an economic impediment to the acti-
vity taxed, that by itself is not sufficient either to stigmatise the levy
as unreasonable or not in public interest.
c The last limb of the argument is whether the proviso to Art. 304(b)
rs satisfied or not. The proviso imposes an obligation to obtain the
Presidential sanction before introducing the bill or amendment for the
purpose of clause (b) of Art. 304 in the legislature of a State. It
cannot be gainsaid that Presidential sanction was not obtained before
introducing the bill which was ultimately enacted into the impugned
D Act but after the bill was enacted into an Act the same Was' submitted
to the President for his assent and it is common ground .that the
President has accorded his assent. If prior presidential sanction is a
sine qua non, the requirement of the proviso is not satisfied but in this
context it would be advantageous to refer to Art. 255 whicff provides
that no Act of Parliament or of the Legislature of a ,State and no
E
provision in any :)uch Act shall be invalid by reason only that some
recommendation or previous sanction required by the Constitution was
not given if assent to that Act was given by the President. Now, in
this case it is common ground that the President did accord his sanc-
tion to the impugned Act. Therefore, the requirement of the proviso
is satisfied.
F
To sum up, the impugned tax is not discrimmatory in character
as envisaged by Art. 304(a) and it does· impose restrictions but the
restrictions imposed are reasonable and in public interest and the Act
subsequently having recerved the assent of the President, tlie proviso
to Art. 304(b) is complied with and,, therefore, the impugned Act is
G
saved by Art. 304 and could not be struck down on the ground that
it was violative of Art. 301. The contention must accordingly be
negatived.

Two minor subsidiary points were sought to be made en passant
by Mr. S. T. Desai and a brief mention of them would be in order.
It was urged that there is a certain amount of vagueness in s. 3 inas-
much as no light is thrown by the words of the section or the other
provisions of the A:ct on the question as to computation of tax to be
KARNATAKA v. HANSA coR.i>:N. (Desai, J.) 845

made at specified percentage ad valorem withOui specifying which A
pnce is to be taken into consideration for levy of fax, namely, the sale
price or the purchase priCe of the concerned scheduled gOOds. .It was
~ sfild that sale price and purchase price of a dealer wo~ld lie. different
and in the absence of any guideline in the chitrgmg section or any other .
provision in the A'ct ii would lead to arbitraiy determiliatioii or eo!f!~
putation of tax by takillg "in one case sale price of the scheduled B
goods and in another case purchase pnce". The contentfoii overlooks
the specific guideline to be found in the charging section itself. The
taxing event is the entry of scheduled goods into a local area. The
tax becomes payable on the entry of scheduled goods in a local ·area.
-Therefore, the price of the scheduled goods at the time of entry paid
by the dealer who is the importer of goods within the scheduled area
., • would be the ad valorem price on the basis of which tax would be c
(
"" computed. No subsequent rise or fall in price has any relevance to
the computation of the tax. The charging section says that the tax
·shall be levied and collected on ihe entry of scheduled goods in a
local area at specified percentage not exceeding two per cent
D
ad valorem. Therefore, the price of the scheduled goods at the time
when the tax becomes chargeable irrespective of the fact that it
would be computed at a later date when the dealer submits his retura
as required by the other provisions of the Att, would be the price for
computation of tax. And there is no ambiguity or any vagueness
fa this behalf. There is thus specific guideline in the charging sec- E
tion itself for taking into account the price according to which tax
--t· would' be computed. The Hight Court negatived this contention by
observing that it would be open to the dealer to choose either the sale
price or the purchase price whichever is favourable to him for
computation of his liability to tax. This, approach overlooks t~e
pecific language of s. 3 which clearly indicates what price is to be F
taken into account for computing the tax. When t:he goods are
brought within the local area they have a certain price. The price
may be the price which the importer of goods has paid before bring-
ing the goods within the local area. Even if the dealer is the manu-
facturer of goods at a place outside the local area and ·brings the
goods within the local area he must have determined the price of the G
goods. Therefore, the dealer has some specific price of the sche-
't cluled goods which are being brought within the local area at the time
of entry in the local area and the entry being the taxing event that
~ould be the price which alone can be taken into account for comput-
mg the tax ad valorem. Therefore, we find it difficult to agree with
· the reasoning adopted by the High Court in rejecting the contention H
but for the reasons hereinabove mentioned the contention is devoid
-of merits and accordingly it must be negatived. ·
846 SUPREME COURT REPORTS [198111 S.C.R.

A As we are not able to uphold the contentions which found
favour with the High Court in striki:ng down the impugned Act and
the notification issued thereunder and as we find no merit in other
contentions canvas&ed on behalf of the respondents for sustaining the
judgment of the High Court, this appea1 must succeed. Accordingly
this appeal is allowed and the judgment of the lligh Court is quashed
B and set aside and the petition filed by the Respondent in the High

A
Court is dismissed wi.th costs !hroughout.

P.B.R. Ap""'1 ol/ow,d.

I
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