Holding

Section 59A of the Kerala General Sales Tax Act, 1963 is violative of Article 14 of the Constitution and is unconstitutional.

Summary

The State of Kerala appealed against a Kerala High Court judgment that struck down Section 59A of the Kerala General Sales Tax Act, 1963. Section 59A gave the State Government absolute and final power to determine the rate of sales tax on any goods, without any requirement to hear the affected dealers and without any provision for appeal or revision. The Supreme Court examined whether such unfettered power violated the equality clause of Article 14 of the Constitution. It held that the provision was arbitrary, lacked any procedural safeguards, and effectively removed the statutory right of appeal, thereby contravening Article 14. Consequently, the Court affirmed the High Court’s decision and dismissed the State’s appeals.

Issues considered

Whether Section 59A of the Kerala General Sales Tax Act, 1963, which confers absolute and final power on the Government to determine tax rates, violates Article 14 of the Constitution.
Whether the provision deprives dealers of the statutory right of appeal and revision, rendering it unconstitutional.
Whether Section 59A can be read down or limited to make it consistent with constitutional requirements.

Legislation cited

Constitution of Indias. Article 14
Delhi Sales Tax Act, 1975s. 49
Kerala General Sales Tax Act, 1963s. 59A

Subjects

Article 14EqualityArbitrarinessSales TaxKerala General Sales Tax ActConstitutional validityDelegated legislationTax rate determinationRight of appeal

Judgment

STA TE OF KERALA AND ORS. A
v.
MIS. TRANVANCORE CHEMICALS AND
. MANUFACTURING CO. AND ANR. ETC. ETC .

NOVEMBER l l, 1998
B
[S.P. BHARUCHA, G.T. NANA YA TI AND B.N. KIRPAL, JJ.]

Sales Tax:

Kera/a General Sales Tax Act, 1963-Section 59A-Determination of C
rate of tax-By an amendment Section 59A was inserted-Power to determine
rate of tax given to State Govt.-Challenged on the ground that it gives
unguided power to determine rate of tax-No statutory right of appeal-
High Court holding that it is unconstitutional being violative of Article 14-
0n appeal. Held, Section 59A gives absolute and final power to Government D
to determine rate of tax-No obligation to hear t/1e dealer before imposing
the tax-No statutory provision of appeal, revision etc.-Violative of Article
14 of the Constitution-Hence rightly struck down by High Court.

Constitution of India, 1950-Article 14-Kerala General Sales Tax
Act, 1963-Section 59A-Held, violative of Article 14 of the Constitution. E

The respondents were manufacturers and sellers of various
commodities. The assessing authorities as also the appellate authorities
used to decide the question relating to the rate of tax leviable on the goods
sold by various dealers or the entry under which a particular item would fall F
By an amendment Section 59A was inserted in the Kerala General Sales Tax
Act, 1963 and the powP.r to determine the rate of tax applicable was given
to the Government. The State Government in exercise of its power under
Section 59A of the Act issued an order stating that the items of tinned goods
were covered by Entry 6 of the First Schedule of the Act. One of the
respondents wrote a letter to the Secretary, Board of Revenue stating that G
their product Horlicks has been classified in the past by all the successive
officers as a milk product falling under Entry No. 3 of the First Schedule
and, therefore, they were liable to pay tax at a lesser rati:.and not at the rate
payable under Entry No. 6 of the First Schedule. The Secretary, Board of
Revenue in his reply stated that the case at issue has already been examined H
651
652 SUPREME COURT REPORTS (1998) SUPP. 2 S.C.R.

A by the Government and have clarified that Horlicks would come under Entry
6 of the First Schedule to the Act. The respondent dealers filed writ petition
in the High Court challenging the constitutional validity of Section 59A of
the Act. The High Court held that Section 59A of the Act had all the features
of deleterious vagueness and it was unconstitutional being violative of Article
B 14 of the Constitution. Hence the present appeal.

The appellant State contended that Section 59A is a piece of delegated
legislation conferring power on the Government to decide any question
regarding rate of tax; that the Section provided the limitations subject to
which the power could be exercised; and that this power was in respect of
C classification under the Schedule and not for levying a tax.

The contention of the respondent dealers was that the effect of Section
59A is that whenever a direction is issued under the said provision the
statutory right of appeal etc. is taken away and the section itself contains
no guidelines and gives unbridled powers to the Government.
D
Dismissing the appeals, the Court

HELD: I.I. Section 59A ofthe Kerala General Sales Tax Act, 1963
is violative of Article 14 of the Constitution and the High Court was, therefore,
E right in striking down the said provision. [659-F-G)

1.2. Section 59A of the Act gives absolute power to the Government to
decide any question regarding the rate of tax leviable on the sale or purchase
of goods in any manner it deems proper and finality is given to such a
F decision. Plain reading of Section 59A shows that if any question relating
to the rate of tax leviable under the Act on any goods is referred to the
Government then its decision thereon, "notwithstanding any other provision
in this Act is final. " This section does not indicate as to who can make a
reference to the Government. There is no obligation on the Government to
hear any dealer before it decides as to the rate of tax leviable on the sales
G or purchase of any type of goods. In fact, by an omnibus order the Government
decided rates of tax payable in respect of various items without any opportunity
of being heard having been granted to any of the dealers. Lastly Section 59A
clearly states that the decision so given by the Government shall be final and
would have an over-riding effect. [657-F; D-E)

H 2. Section 59A enables the Government to pass an administrative order
STATE v. TRANVANCORECHEM.ANDMANUFACT.CO. [KIRPAL,J.] 653
which has the effect of negating the statutory provisions of appeal, revision A
etc. contained in Chapter VII of the Act which would have enabled the
appellate or revisional authority to decide upon questions in relation to which
an order under Section 59A is passed. Quasi-judicial or judicial determination
• stands replaced by the power to take an administrative decision. There is
nothing in Section 59A which debars the Government from exercising the B
power even after a dealer has succeeded on a question relating to the rate
of tax before an appellate authority. The power under Section 59A is so wide
and unbridled that it can be exercised at any time and the decision so
rendered shall be final. It may well be that the effect of this would be that
such a decision may even attempt to over-ride the appellate or the revisional
power exercised by the High Court under Section 40 of the Act as the case C
may be. The section enables passing of an executive order which has the
effect of subverting the scheme of a quasi-judicial and judicial resolution of
the list between the State and the dealer. (657-G-H; 658-A-B)

Dadha Pharma Pvt. Ltd. v. State ofKera/a, (1990) 2 KLT 307, referred D
to.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4112-4145
of 1994 etc. etc.
E
From the Judgment and Order dated 15.11.90 of the Kerala High Court
in O.P. Nos. 2300/85, 6362/82, 6523/83, 5445, 6055, 9691, 9697/84, 754, 2320,
4714,5082,6130,6691, 10552, 10615,9480/85292,400,4796,4807,4896,5071/
86,636, 1334, 1505,2360,2414,2159,3086,3123,3106/87,4485,4506, 7059/89.
F
K.N. Bhat, P. Krishna Moorthy, T.L.V. Iyer, Josoph Vellapall~ M.L. Venna,
Raju Ramachandran, G. Prakash, Ms. Beena Prakash, M.T. George, B.B.
Sawhney, Ms. Indra Sawhney, Roy Abraham, C.K. Sasi, Ms. Baby Krishnan,
M.K.D. Namboodari, R.N. Keshwani, Ramesh Babu, N. Sudhakaran, C.N. Sree
Kumar, S. Balakrishnan, S. Prasad, R Sasiprabhu, V.J. Francis, P.N. Ramalingam, G
K.R. Nambiar and M.A. Firoz for the Appearing Parties.

The Judgment of the Court was delivered by

KIRPAL, J. Leave granted. Delay condoned. H
654 SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A In these appeals the appellants are aggrieved by the common judgment
of the Kerala High Court which has held Section 59A of the Kerala General
Sales Tax Act, 1963 (for short 'the Act') as being invalid.

•
Respondents in these appeals, manufacture and sell various commodities
B like copper sulphate, batteries, battery plates, electrical goods, laboratory
apparatus, battery spare parts etc. If during the course of their assessment
proceedings under the Act any question used to arise relating to the rate of
tax leviable on the goods sold by various dealers or the entry under which
a particular item sold by a dealer would fall the same used to be decided by
the assessing and the appellate authorities under the Act. By an amendment
C Section 59A was inserted in the Act with effect from !st April, 1978. This
section sought to give power to the Government to determine the rate of tax
and it reads as follows:

"59A, Power of Government to determine rate of tax-If any question
D arises as to the rate of tax leviable under this Act on the sale or
purchase of any goods, such question shall be referred to the Govt.
for decision and the decision of the Government thereon shall,
notwithstanding any other provision in this Act, be final."

E In exercise of the powers given by the said Section 59A the State Govt.
issued orders, from time to time, purporting to clarify the rate of sales tax. On
23rd April, 1984, an order was issued by the State Govt. purporting to clariff
the rate of sales tax on various items. One of the items contained in this order
was tinned foods like Horlicks, Viva, Boost, Bournvita, Ovumalt etc. By this
F order the Government stated that the said items of tinned food were covered
by Entry-6 of the First Schedule of the Act.

Mis Parry and Company, one of the respondents in these appeals, wrote
a letter dated I Ith Dec., 1984 to the Secretary, Board of Revenue, with regard
G to the classification of aforesaid item - Horlicks. It was stated in this letter that
they were registered dealers since 30th June, 1957 and all along successive
officers had accepted their classification of Horlicks as a milk product falling
under SI. No. 3 of the First Schedule and, therefore, they were liable to pay
tax at a lesser rate and not at the rate of ten per cent which was payable under
SI. No. 6 of the First Schedule. To this letter the reply which was received was
H to the following effect :
STATE v. TRANVANCORECHEM.ANDMANUFACT.CO. [KIRPAL,J.] 655
"No. OS 2661/85/TX/Ldis. Office of the Board of Revenue A
(Taxes) Trivandrum - 1
dated

31.l.1985
B
From

The Secretary,
Board of Revenue (Taxes),
Trivandrum

To
c
Mis Parry & Company Ltd.,
"DARE HOUSE" Post Box No.12,
Madras - 60000 l

Gentleman, D

Sub : Taxes - Sales tax rate of tax on Horlicks etc.

Ref: Your letter dated l l.12.1984

The case at issue has already been examined previously and Govt. in E
GO Rt.314/84/TD Dt. 23 .4.1984 have clarified that Horlicks would come under
Entry 6 of the First Schedule to the K.G.S.T.Act, 1963.

Yours faithfully
Sd/- F
(Secretary [Taxes]"

It is in view of such decisions taken by the State Govt. in determining
the entries under which different items would fall, in exercise of its power
under Section 59A of the Act, that the respondents in these appeals filed
"t. different writ petitions in the Kerala High Court challenging the constitutional G
validity of Section 59A. The main contention of the dealers was that Section
S9A gave the Govt. arbitrary and unguided power in determining the rate of
tax applicable to different items and, furthermore, the said power had in fact
been exercised in an arbitrary manner.

The High Court in the impugned judgment referred to an earlier bench H
656 SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A decision of that Court in Dadha Pharma Pvt. Ltd. v. State of Kera/a, (1990)
2 KLT 307. That was a case by way ofrevision before the High Court under
Section 41 of the Act. The High Court had to deal with the applicability of
Section 59A in that case. As it was exercising limited jurisdiction of tax
revision it obviously could not pronounce on the constitutional validity of •
Section 59A. The Court observed that if literal meaning was given to the
B words used in that Section then such literal interpretation would render the
Section vulnerable to attack of being vague and uncertain and as one taking
away guaranteed rights. The Court, however, read down the section in a
drastic manner and sought to provide some safeguards against the arbitrary
exerci~e of power by the Govt. In the present case the High Court, exercising

c its jurisdiction under Article 226 of the Constitution, felt unfettered and
proceeded to examine the constitutional validity of the said provision. After
analysing the provision and seeing the manner in which the power had been
exercised under Section 59A of the Act, the High Court came to the conclusion
that the said section had all of the features of deleterious vagueness and it
was unconstitutional being violative of Article 14 of the Constitution.
D
On behalf of the appellants it was contended by Mr. K.N. Bhat, learned
senior counsel, that Section 59 A is a piece of delegated legislation conferring
power on the Govt. to decide any question regarding rnte of tax. The section,
it was submitted, furnishes the limitations subject to which the power could
E be exercised. This power, it was contended, was in respect of classification
under the Schedule and not for levying a tax.

On the other hand the learned counsel for the respondents submitted
that the effect of Section 59A is that whenever a direction is issued under
the said provision the statutory right of appeal etc. is taken away and the
F section itself contains no guidelines and gives unbridled powers to the Govt.
to act in any manner it feels like.

Like other taxing statutes the Kerala General Sales Tax Act contains
elaborate provisions relating to assessment of tax and filing of appeals and
G revisio'lS to the higher authorities. Chapter IV deals with assessment, collection r
and levy of tax. Section 17 contains the procedure which is to be followed
by the assessing authority. If the assessing authority does not accept the
return as submitted by the dealer then he is under an obligation to give a
reasonable opportunity to the dealer' of being heard before finalising the
assessment. In the event of the dealer being aggrieved by the assessment
~

H order so passed Chapter-VII contains provisions for appeals and revisions. '
STATEv.TRANVANCORECHEM.ANDMANUFACT.CO.[KIRPAL,J.J 657
Appeal to the Appellate Assistant Commissioner is filed under Section 34; A
Section 36 gives the power to the Deputy Commissioner to revise an order
on an application being made and power ofrevision is also given to the Board
of Revenue under Section 38 of the Act. Section 39 is a provision which
,. provides for appeal to the Appellate Tribunals against certain orders. Section
40 enables an appeal to be filed to the High Court by any person objecting B
to an order affecting him which was passed by the Board of Revenue under
Section 37, while Section 41 gives a person right to file a revision in the High
Court from an order passed by the Tribunal under Section 39 of the Act. It
is apparent from reading of these provisions that questions like the rate of
tax or the entry under which sale of particular goods are to be taxed can be
raised and determined before various quasi judicial and judicial authorities. C
There is a right. of appeal and revision which is given to a person who is
aggrieved by any order.

Plain reading of Section 59A shows that if any question relating to the
rate of tax leviable under the Act on any goods is referred to the Govt. then D
its decision thereon, notwithstanding any other provision in this Act is
final". This section does not indicate as to who can make a reference to the
Govt. There is no obligation on the Government to hear any dealer before it
decides as to the rate of tax leviable on the sales or purchase of any type
of goods. In fact, as we have noticed earlier, by an omnibus order dated 23rd
April, 1984 the Govt. decided rates of tax payable in respect of various items E
without any opportunity of being heard having been granted to any of the
dealers. Lastly section 59 A clearly states that the decision so given by the
Govt. shall be final and would have an over-riding effect.

There is no warrant in our opinion in trying to read down the provisions F
of Section 59A. The works of the said provision are clear and unambiguous.
The said section gives absolute power to the Govt. to decide any question
regarding the rate of tax leviable on the sale or purchase of goods any manner
it deems proper and finality is given to such a decision.

G
Section 59A enables the Govt. to pass an administrative order which
has the effect of negating the statutory provisions of appeal, revision etc.
contained in Chapter VII of the Act which would have enabled the appellate
or reversional authority to decide upon questions in relation to which an
order under Section 59A is passed. Quasi-judicial or judicial determination
stands replaced by the power to take an administrative decision. There is H
658 SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R.

A nothing in Section 59A which debars the Government from exercising the
power even after a dealer has succeeded on a question relating to the rate
of tax before an appellate authority. The power under Section 59A is so wide
and unbridled that it can be exercised at any time and the decision so
rendered shall be final. It may well be that the effect of this would be that
B such a decision may even attempt to over-ride the appellate or the revisional
power exercised by the High Court under Section 40 of the Act as the case
may be. The section enables passing of an executive order which has the
effect of subverting the scheme of a quasi-judicial and judicial resolution of
the /is between the State and the dealer.

C We are unable to agree with the submission of Mr. Bhat that the section
furnishes a limitation subject to which the power can be exercised. The
section does not contain any guidelines as to at what stage the power can
be exercised and nor does the exercise of such a power make it amenable to
the appellate or revisional provisions provided by the Act. It is no doubt true
that in certain enactments of other States the Govt. has the power but such
D power is not unbridled. For example under Section 49 of the Delhi Sales Tax
Act, 1975, power has been given to the Commissioner of Sales Tax to determine
certain disputed questions. The said section reads as under:

"49 Determination of disputed questions - (I) If any question arises,
otherwise than in proceedings before a court, or before the
E
Commissioner has commenced assessment or reassessment or a dealer
under section 23 or section 24, whether for the purposes of this Act.-

(a) any person, society, club or association or any firm or any branch
or department of any firm is a dealer; or
F (b) any particular thing done to any goods amounts to or results in
the manufacture of goods within the meaning of that term as given
in clause (h) of section 2; or

(c) any transaction is a sale, and if so, the sale price therefore; or

G (d) any particular dealer is required to be registered; or

(e) any tax is payable in respect of any particular sale, or if the tax
is payable, the rate thereof;

the Commissioner shall, within such period as may be prescribed,
H make an order determining such question.
STATE v. TRANVANCORECHEM.ANDMANUFACT.CO. [KIRPAL,J.) 659
Explanation-For the purposes of this sub-section, the Commissioner A
shall be deemed to have commenced assessment or reassessment of
... a dealer under section 23 or section 24, when the dealer is served with
any notice by the Commissioner under section 23 or section 24, as
the case may be.

(2) The Commissioner may direct that the determination shall not B
affect the liability of any person under this Act as respects any sale
effected prior to the determination.

(3) If any such question arises from any order already passed under
this Act or under the Bengal Finance (Sales Tax) Act, 1941, as then
in force in Delhi, no such question shall be entertained fo~ C
determination under this section; but such question may be raised in
appeal against or by way of revision of such order."

The aforesaid section itself provides that a question for determination
must arise otherwise than in proceeding before a Court or before the
Commissioner has commenced assessment or re-assessment. Furthermore D
sub-section 2 enables the Commissioner to direct that the determination of
the question shall not affect the liability of any person under that Act in
respect to any sale effected prior to the determination. No such safeguard or
guideline as provided in said Section 49 of the Delhi Sales Tax Act is present
in the main provision. E
We are in complete agreement with the view of the Kerala High Court
that Section 59A of the Act is violative of Article 14 of the Constitution and
the High Court was, therefore, right in striking down the the said provision.
For the aforesaid reasons these appeals are dismissed with costs.
F
S.V.K.L Appeals dismissed.