2.3 If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea despatched from the tea estate there must be a nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability. If there is no nexus at all it can conceivably be inferred that the levy is not what it purports to be. [301H, 302A]
2.4 In the instant case, the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and throughout the nexus is confined to despatches of tea rather than related to the tea estate. There is nothing to suggest that a particular tea estate produces only one class of tea, and when reference is made to a certain class of tea the reference identifies a certain class of tea estates. [302E-F]
2.5 While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions. Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy. If the measure of levy is to vary with the despatches of different classes of tea, there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy. So also, if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate concerned. Ultimately, the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy. [302F, 303A]
2.6 In the instant case the relevant statutory provisions, including s. 4(2)(aa) and s. 4(4), indicate no such relationship or nexus between the tea estate and the varied treatment accorded in respect of the despatch of different kinds of tea. The levy of rural employment cess was, therefore, a levy in respect of despatches of tea and not in respect of tea estates. It must, thus, be regarded as constituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India. [303B-C] 2.7 Such a levy could avoid the injunction declared in Article 301 only if it satisfied the provisions of Article 304(b) and the proviso thereto. The amendments made to the West Bengal Act in 1981 and 1982 had not been moved in the Legislature of the State with the previous sanction of the President. The provisions brought into the Act by the said amendments were, therefore, unconstitutional and void and could not be given effect to. [303C-D, F, G]
3. Under the Tea Act, 1953 Parliament had assumed control of the tea industry including the tea trade and control of tea prices. Under s. 25 of that Act a cess on tea produced in India had also been imposed. The State legislation imposing a cess on despatches of tea was, therefore, also void for want of legislative competence as it pertained to a covered field. [304B] 4. The petitioners are entitled to the refund of cess paid by them. [304D]
CIVIL ORIGINAL JURISDICTION: Writ Petitions Nos. 2687, 5822 of 1983 etc. (Under Article 32 of the Constitution of India).
Dr. Shankar Ghosh, T.S.K. Iyer, M.L. Lahoty, P.S. Jha, D.D. Gupta, S.K. Jain, D.P. Mukherjee, S.R. Srivastava, P.N. Tewari and Parijat Sinha for the petitioners.
Tapas Ray, Anil B. Dewan, T.C. Roy, G.S. Chatterjee, Dalip Sinha and H.K. Puri for the respondents. The judgment of the Court was delivered by
PATHAK, CJ. By these writ petitions and transferred cases the petitioners challenge the validity of the levy of cess in respect of tea estates under the West Bengal Rural Employment and Production Act, 1976.
The West Bengal Rural Employment and Production Act, 1976, (shortly referred to as the "West Bengal Act") is intended to provide the additional resources for the promotion of employment in rural areas and for implementing rural production programmes. The additional resources are sought to be raised from two sources, a surcharge on land revenue under s. 3 of the Act and a rural employment cess under s. 4 of the Act. We are concerned here with the levy of the rural employment cess. Originally s. 4 of the West Bengal Act provided as follows:
"4.(1) On and from the commencement of this
Act, all immovable properties on which road
and public work cesses are assessed according
to the provisions of the Cess Act, 1880, shall
be liable to the payment of rural employment
cess:
Provided that no raiyat who is
exempted from paying revenue in respect of his
holding under clause (a) of subsection (1) of
section 23B of the West Bengal Land Reforms
Act, 1955, shall be liable to pay rural em-
ployment cess.
(2) The rural employment cess shall
be levied annually--
(a) in respect of lands, at the rate
of six paise on each rupee of development
value thereof;
(b) in respect of coal mines, at the
rate of fifty paise on each tonne of coal on
the annual dispatches therefrom;
(c) in respect of mines other than
coal mines and quarries, at the rate of six
paise on each rupee of annual net profits
thereof."
The West Bengal Taxation Laws (Amendment) Act, 1982 amended the West Bengal Act and by s. 7(b) thereof amendments were made in s. 4(2) of the West Bengal Act with effect from 1 April, 1981. As a result, as from that date, s. 4(2) in so far as it is material read as follows:
4(2). The rural employment cess shall be
levied annually--
(a) in respect of lands, other than a
tea estate, at the rate of six paise on each
rupee of development value thereof;
(aa) in respect of a tea estate at
such rate, not exceeding rupees six on each
kilogram of tea on the dispatches from such
tea estate of tea grown therein, as the State
Government may, by notification in the Offi-
cial Gazette, fix in this behalf:
Provided that in calculating the
dispatches of tea for the purpose of levy of
rural employment cess, such dispatches for
sale made at such tea auction centres as may
be recognised by the State Government by
notification in the Official Gazette shall be
excluded.
Provided further that the State
Government may fix different rates on des-
patches of different classes of tea.
Explanation--For the purpose of this
section, "tea" means the plant Camellia Sinen-
sis (L) O. Kuntze as well as all varieties of
the product known commercially as tea made
from the leaves of the plant Camellia Sinensis
(L) O. Kuntze, including green tea and green
tea leaves, processed or unprocessed;"
Section 4 was also amended further by the
insertion of sub-s. (4) which provided:
"(4) The State Government may, if it considers
necessary so to do, by notification in the
Official Gazette, exempt such categories of
despatches or such percentage of despatches
from the liability to pay the whole or any
part of the rural employment cess, or reduce
the rate of the rural employment cess payable
thereon, under clause (aa) of sub-section (2),
on such terms and conditions as may be speci-
fied in the notification.
Provided that the State Government
may, at any time, add to, amend, vary of
rescind any such notification." Thereafter the West Bengal Taxation Laws (Amendment) Act, 1982 was enacted with effect from 1 October, 1982. S. 4(2) of the West Bengal Act was amended and under clause (aa) thereof the first proviso was omitted.
Pursuant to the amendments in the West Bengal Act in 1981 and 1982, various notifications were issued by the State Government, which for our purpose broadly cover these different periods:
(a) First Period: 1 April, 1981 to 30 Septem-
ber, 1982--
Rural employment cess was levied at the rate
of Rs.5 per Kg. on all despatches of tea, but
in respect of despatches to two tea auction
centres within West Bengal the rate of duty
was nil, and in respect of tea sold in West
Bengal through registered dealers otherwise
than through the two tea auction centres the
rate of tax was Rs.2.50 per Kg.
(b) Second Period: 1 October, 1982 to 28
March, 1984--
Rural employment cess was levied at the rate
of Rs. 1.50 per Kg. on all despatches of tea
except that for despatches to the said two tea
auction centres the rate of levy was 30 paise
per Kg.
(c) Third Period: 29 March, 1984 onwards--
Rural employment cess was levied at the
rate of Rs.3 per Kg. on all despatches of tea
except that for despatches to the said two tea
auction centres in West Bengal the rate of tax
was only 30 paise per Kg.
Learned counsel for the petitioners contend that the levy of the cess under s. 4(1) read with s. 4(2)(aa) of the West Bengal Act as amended in 1981 and 1982 is ultra vires inasmuch as the statutory provisions violate Article 14 and Article 301 of the Constitution and also lie outside the legislative competence of the State Government. It seems to us that these cases can be disposed of on the short ground based on Article 301 of the Constitution and want of legislative competence. There can be no dispute that the rural employment cess is a tax. cannot also be disputed that if the levy of a tax on goods has the direct and immediate effect of impeding the movement of goods throughout the territory of India, there is a violation of Article 301 of the Constitution. If, however, the impact of the levy is indirect or remote, no valid complaint can be made in relation to Article 301. In Atiabari Tea Co., Ltd. v. The State of Assam and Others, [1961] 1 S.C.R. 809, Gajendragadkar, J (as he then was) speaking for the majority in that case held that tax laws would effect trade and commerce and could be violative of the freedom guaranteed by Article 30 1, provided they directly or immediately affect the freedom of trade and commerce and not indirectly or in a remote manner. This principle was affirmed by this Court in The Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan and Others, [1963] 1 S.C.R. 491 and again in Firm A.T.B. Mehtab Majid and Company v. State of Madras and Another, [1963] Suppl. 2 S.C.R. 435. But the declaration in Article 301 that trade, commerce and intercourse throughout the territory of India shall be free is subject to Article 304(b) which provides:
"304. Restrictions on trade, commerce and
intercourse among States. Notwithstanding
anything in Article 301 or Article 303, the
Legislature of a State may by law--
(b) impose such reasonable restrictions
on the freedom of trade, commerce or inter-
course with or within that State as may be
required in the public interest.
Provided that no Bill or amendment
for the purposes of clause (b) shall be intro-
duced or moved in the Legislature of a State
without the previous sanction of the Presi-
dent." Therefore, there is no violation of Article 30 1 if the case falls under Article 304(b) and its proviso. In Kalyani Stores v. The State of Orissa and Others, [1966] 1 S.C.R. 865 this Court held that a restriction on the freedom of trade and commerce which is guaranteed by Article 301 cannot be justified unless the procedure provided in Article 304 is followed. That was also the view taken in State of Mysore v. H. Sanjeeviah, [1967] 2 S.C.R. 361 and Andhra Sugars Ltd. & Anr. Etc. v. State of Andhra Pradesh & Ors., [1968] 1 S.C.R. 705. In other words, if the Legislature of a State enacts a law which imposes such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest and further that the Bill or amendment for the purposes of clause (b) has been introduced or moved in the Legislature of a State with the previous sanction of the President, such enactment will not offend the Article 301.
The question then is whether the impugned levy impedes the free flow of trade and commerce throughout the territory of India, and if it does, whether it fails within the exception carved out in Article 304(b). If the levy imposes a cess in respect of tea estates, it may well De said that even though the free flow of tea is impeded in its movement throughout the territory of India it is in consequence of an indirect or remote effect of the levy and that it cannot be said that Article 301 is contravened. The contention of the petitioners is, however, that it is ostensibly only in respect of tea estates but in fact it is a levy on despatches of tea. If that contention is sound, there can be no doubt that it constitutes a violation of Article 301 unless the legislation is brought within the scope of Article 304(b). To determine whether the levy is in respect of tea estates or is a levy on despatches of tea, the substance of the legislation must be ascertained from the relevant provisions of the statute. It cannot be disputed that the subject of the levy, the nature of which defines the quality of the levy, must not be confused with the measure of liability, that is to say, the quantum of the tax. There is a plenitude of case law supporting that principle, among the cases being Union of India and Others v. Bombay Tyre International Ltd. and Others, [1984] 1 S.C.R. 347.
But what is the position here? The statute speaks of a levy "in respect of a tea estate", and it says that the levy will not exceed Rs.6 on each Kilogram of tea on the despatches from such tea estate of tea grown therein. The statute also provides that in calculating the despatches of tea for the purpose of levy of rural employment cess, the despatches for sale made at such tea auction centres as may be recognised by the State Government shall be excluded. And there is a proviso which empowers the State Government to fix different rates on despatches of different classes of tea. There is also s. 4(4) which empowers the State Government to exempt such categories of despatches or such percentage of despatches from the liability to pay the whole or any part of the rural employment cess, or to reduce the rate of the rural employment cess payable thereon under clause (aa) of sub-s. (2) on such terms and conditions as it may specify by notification. As from 1 October, 1982 the position remained the same except that the first proviso to s. 4(2)(aa) excluding the despatches for sale made at recognised tea auction centres was deleted. The remaining provisions continued as before. Now, for determining the true nature of the legislation, whether it is a legislation in respect of tea estates. and therefore of land, or in respect of despatches of tea, we must, as we have said, take all the relevant provisions of the legislation into account and ascertain the essential substance of it. It seems to us that although the impugned provisions speak of a levy of cess in respect of tea estates, what is really contemplated is a levy on despatches of tea instead. The entire structure of the levy points to that conclusion. If the levy is regarded as one in respect of tea estates and the measure of the liability is defined in terms of the weight of tea despatched from the tea estate there must be a nexus between the two indicating a relationship between the levy on the tea estate and the criteria for determining the measure of liability. If there is no nexus at all it can conceivably be inferred that the levy iS not what it purports to be. The statutory provisions for measuring the liability on account of the levy throws light on the general character of the tax as observed by the Privy Council in Re: A Reference under the Government of Ireland Act, 1920 and Section 3 of the Finance Act (Northern Ireland), 1934, [1936] 2 All E.R. 111. In R.R. Engineering Co. v. Zila Parishad, Bareilly & Anr., [1980] 3 S.C.R. 1, this Court observed that the standard on which the tax is levied was a relevant consideration for determining the nature of the tax, although it could not be regarded as conclusive in the matter. Again in The Hingir-Rampur Coal Co. Ltd. and Others. v. The State of Orissa and Others, [1961] 2 S.C.R. 537, this Court observed that the method of determining the rate of levy would be relevant in considering the character of the levy. All these cases were referred to in Bombay Tyre International Ltd. (supra) where in the discussion on the point at page 367 this Court said:
"Any standard which maintains a nexus with the
essential character of the levy can be regard-
ed as a valid basis for assessing the measure
of the levy."
It is apparent that the standards laid down for measuring the liability under the levy must bear a relationship to the nature of the levy. In the case before us, however, we find that the nexus with the tea estate is lost altogether in the provisions for exemption or reduction of the levy and that throughout the nexus is confined to despatches of tea rather than related to the tea estate. There is nothing to suggest that a particular tea estate produces only one class of tea, and when reference is made to a certain class of tea the reference identifies a certain class of tea estates. We may presume that a tea estate produces different classes of tea and not one class of tea only. While there must always be a nexus between the subject of the levy and the measure of the levy that nexus extends into different dimensions. Variations considered appropriate for the purpose of determining the measure must correspond to variations in the subject of the levy. If the measure of levy is to vary with the despatches of different classes of tea there must be something in the class of tea concerned which points to a reason located in the particular tea estate or classes of tea estates which are made the subject of the levy. So also if the measure varies with the centre of sale of tea, the variation must relate to a reason to be found in the nature of the tea estate or classes of tea estates. In other words, there must be a reason why one class of tea is treated differently from another class of tea when deciding upon the rate to be applied to different classes of tea and that reason must be found in the nature of the tea estate concerned. Ultimately the benefit of exemption or reduced levy must be related to the need for exempting the tea estate from that levy or relieving it from part of the normal levy. When the provisions before us are examined in their totality, we find no such relationship or nexus between the tea estate and the varied treatment accorded in respect of despatches of different kinds of tea. It seems to us that having regard to all the relevant provisions of the statute, including s. 4(2)(aa) and s. 4(4), in substance the impugned levy is a levy in respect of despatches of tea and not in respect of tea estates.
Treating it as a levy on despatches of tea it is evident that the levy must be regarded as constituting a direct and immediate restriction on the flow of trade and commerce in tea throughout the territory of India, and the levy can avoid the injunction declared in Article 301 only if it satisfies the provisions of Article 304(b) and the proviso thereto. For bringing the legislation within the saving provisions of Article 304(b) it is necessary that the Bill or amendment should have been introduced or moved in the Legislature of the State with the previous sanction of the President. It is not disputed that the amendments to the West Bengal Act made in 198 1 and 1982 did not satisfy that requirement. Indeed, it appears that the West Bengal Government had sent an earlier Bill to the President with the object of levying a tax on the income from tea but the Presidential assent was not granted. It appears further that the Finance Minister of WeSt Bengal made a statement in the West Bengal Legislature on 27 February, 1981 stating that he would introduce the rural employment cess on despatches of tea. He referred to a Bill for amending the West Bengal Marketing (Regulation) Act, 1972 having been sent to the President and the President not having signified his consent to the amendment.
In our opinion, the impugned provisions brought into the West Bengal Act by the amendments in 1981 and 1982 so far as they purport to relate to tea estates are unconstitutional and void and cannot be given effect to.
Another aspect of the matter may be considered, and that relates to legislative competence. If the impugned legislation were to be regarded as a levy in respect of tea estates, it would be referable to Entry 49 in List II of the Seventh Schedule of the Constitution which speaks of "taxes on lands and buildings". But if the legislation is in substance legislation in respect of despatches of tea, legislative authority must be found for it with reference to some other Entry. We have not been shown any Entry in List II or in List III of the Seventh Schedule which would be pertinent. It may be noted that Parliament had made a declaration in s. 2 of the Tea Act, 1953 that it was expedient in the public interest that the Union should take under its control the tea industry. Under the Tea Act, Parliament has assumed control of the tea industry including the tea trade and control of tea prices. Under s. 25 of the Act a cess on tea produced in India has also been imposed. It appears to us that the impugned legislation is also void for want of legislative competence as it pertains to a covered field.
We do not consider it necessary to express our opinion on the other points raised between the parties in this case. In the result, the writ petitions filed in this Court and the petitions in the Transferred Cases are allowed, the impugned amendments effected in the West Bengal Rural Employment and Production Act, 1976 by the amending Acts of 1981 and 1982 so far as they purport to relate to tea estates are declared void and the petitioners are held entitled to the refund of cess paid by them under the impugned statutory provisions. The petitioners are entitled to their costs. P.S.S. Petitions allowed.