RAJESH BALIA, J. - (1.) THE precise controversy which has been raised by the petitioners in this group of cases is whether Article 285(1) of the Constitution of India, which exempts the property of the Union of India from imposition of all taxes by the State extends to the levy of Sales tax imposed by any enactment of the State on any transaction which can properly constitute a sale for the purpose of levy of tax on sale or purchase of goods. In exercise of the powers conferred under Entry -54 of the State list through the Law enacted by the State legislature.
(2.) PROVISION Of The Constitution: For appreciating the contours of the controversy whether the immunity from imposition of tax envisaged Under Article 285 of the Constitution of India is absolute in terms irrespective of the nature of tax and reaches in -direct taxes also or the immunity is confined to the taxes leviable on property directly, it will be profitable to refer to the provisions of Articles 285, 287 and 289 of the Constitution of India in extenso, before embarking upon an enquiry to find the answer: Article 285. (1) The property of the Union shall save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State. (2) Nothing in Clause (1) shall, until Parliament by law otherwise provides, prevent any authority within a State from levying any tax on any property of the Union to which such property was immediately before the commencement of this Constitution liable or treated as liable, so long as that tax continues to be levied in that State. Article 287. Save in so far as Parliament may be law otherwise provide, no law of a State shall impose, or authorise the imposition of, a tax on the consumption or sale of electricity (whether produced by a Govt. or other persons) which is (a) consumed by the Government of India, or sold to the Government of India, for consumption by that Government; or (b) consumed in the construction, maintenance or operation or any railway by the Government of India or a railway company operating that railway or sold to that Government or any such railway company for consumption in the construction, maintenance or operation of any railway.and any such law imposing, or authorising the imposition of, a tax on the sale of electricity shall secure that the price of electricity sold to the Government of India for consumption by that Government, or to any such railway company as aforesaid for consumption in the construction, maintenance or operation of any railway, shall be less by the amount of the tax than the price charged to other consumers of a substantial quantity of electricity. Article 289(1) The property and income of a State shall be exempt from Union taxation. (2) Nothing in Clause (1) shall prevent the Union from imposing, or authorising the imposition of, any tax to such extent, if any, as Parliament may by law provide in respect of a trade or business of any kind carried on by, or on behalf of, the Government of a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. (3) Nothing in Clause (2) shall apply to any trade or business, or to any class of trade or business, which Parliament may by law declare to be incidental to the ordinary functions of Government. In the first instance, attention of the court has been invited to a decision of the Supreme Court in Re: Sea Customs Act (1878) Section 20(2) AIR 1963 SC 1760, which was an advice tendered by a Bench of 9 Hon'ble Judges on a reference made Under Section 143 of the Constitution of India to the Supreme Court by the President of India seeking advice on the authority of the Parliament in amending Section 20 of the Sea Customs Act, 1878, a central legislation. The necessity of making that reference arose because under Sub -section (1) of Section 20 of the Sea Customs Act, 1878 levy of customs duty on goods imported or exported by sea was envisaged. Sub -Section(2) of Section 20 further made imposition of Customs Duty applicable in respect of all goods belonging to Government of a State and used for the purposes of a trade or business of any kind carried on by, or on behalf of, that Government, or of any operations connected with such trade or business as they apply in respect of goods not belonging to any Government. By the proposed amendment, it was proposed to extend the levy of customs duty in respect of all goods belonging to the Government of a State irrespective of whether such goods are used or not for the purposes set out in the said Sub -section (2) as was in force. In the aforesaid circumstances, the question that directly arose was whether the proposed amendment would be violative of Article 289 of the Constitution of India. It was in the aforesaid background, following three questions were referred for the opinion of the Supreme Court by the President of India: Now, therefore, in exercise of the powers conferred upon me by Clause (1) of Article 143 of the Constitution of India. I, Rajendra Prasad, President of India, hereby refer the following question to the Supreme Court of India for consideration and report of its opinion thereon: (1) Do the provisions of Article 289 of the Constitution preclude the Union from imposing or authorising the imposition of, customs duties on the import or export of the property of a State used for purposes other than those specified in Clause (2) of that article? (2) Do the provisions of Article 289 of the Constitution of India preclude the Union from imposing or authorising the imposition of, excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in clause (2) of that article? (3) Will Sub -section (2) of Section 20 of the Customs Act, 1878 (Act 8 of 1878) and Sub -section (1 -A) of Section 3 of the Central Excises and Salt Act, 1944 (Act 1 of 1944) as amended by the Bill set out in the Annexure be inconsistent with the provisions of Article 289 of the Constitution of India. In that case, four separate opinions were delivered by the Hon'ble Judges of the Bench. B.P. Sinha, C.J. I., speaking for himself and three other Hon'ble Judges, on construction of the provisions of Articles 285 and 289 of the Constitution of India opined as under: We are, therefore, of opinion reading Article 289 and its complementary Article 285 together that the intention of the Constitution -makers was that Article 285 would exempt all property of the Union from all taxes on property levied by a State or by any authority within the State while Article 289 contemplates that all property of the States would be exempt from all taxes on property which may be leviable by the Union. Both the Articles in our opinion are concerned with taxes directly either on income or on property and not with taxes which may indirectly affect income or property. The contention, therefore, on behalf of the Union that these two Articles should be read in the restricted sense of exempting the property or income of a State in one case and the property of the Union in the other from taxes directly either on property or on income as the case may be, is correct. Rajagopala Ayyangar, J. concurred with the opinion expressed by B.P. Sinha, C.J. by his separate judgment. Rajagopala Ayyangar, J. in his concurring judgment has only dealt with the specific contention raised on behalf of the State, which does not appear to find place in the leading judgment of Hon'ble Chief Justice. The contention raisedon behalf of the State was that the non -obstante Clause with which Clause (2) opens should be taken to indicate that but for that Clause, the exemption would be operative so as to deprive the Union of the power to levy tax in the converse circumstance. In other words, but for Clause (2) even where tax related to a activity of trade of commerce in which the State engages, it would be entitled to claim exemption from Union taxes. Thus, Clause (2) of Article 289 of the Constitution of India is by way of exception to Clause (1). This argument centres round the reason that if indirect taxes were not included in immunity envisaged in Clause (1), the empowering of Parliament to levy tax in respect of transactions and operations connected with trading or business activity of the State would be surpulsage and superfluous, which cannot be imputed to any part of the Constitution. However, noticing the last part of Clause (2) of Article 289 of the Constitution, Ayyangar, J. did not accept the contention to read Clause (2) of Article 289 as an exception restricting operation of Clause (1) of Article 289 of the Constitution of India itself. It was observed as under: There is also another angle from which the relevance of Clause (2) to the construction of Clause (1) of Article 289 might be tested. One of the more serious arguments put forward on behalf of the States to which I have adverted was that if the expression 'taxes' in relation to the exemption of property from tax were confined to direct taxes on property, the exemption would be unmeaning, as such taxes could not be imposed by the Union. Now let me take the taxes specified in Article 289(2). They include, for instance, taxes on property used or occupied for the purpose of such trade or business.' A tax on the use of property or on the property itself which is occupied for the purpose of trade would obviously be a direct tax on property which ex concessis the Central legislature under the Government of India Act and Parliament under the Constitution are incompetent to impose. It is not contentions of the States that the Centre has such a power to levy a tax on occupation or use of property where it is in connection with trade or business. This would at least show that it is not justifiable to imply from Clause (2) that but for that provision Parliament would be entitled to impose such a tax. The aforesaid two opinion constituted majority view. The minority opinion also consisted of two separate opinions: one rendered by S.K. Das, J. for himself and on behalf of two other Hon'ble Judges and the other by Hidayatullah, J. The minority opinion did not make any distinction between the direct taxes and in direct taxes to be within the immunity envisaged Under Article 285(1) or Article 289 of the Constitution of India. The principle reason which prevailed with the minority opinion delivered by S.K. Das.J. was that: the word 'property' does not qualify the expression all taxes occurring in Articles 285(1) or taxes in Article 289 of the Constitution of India. S.K. Das.J. said: that the word 'property' in Clause (1) of Article 289 has a comprehensive connotation and refers to all property and assets of a State. Article 294 which occurs in the same part of the Constitution states that as from the commencement of the Constitution, all property and assets which immediately before such commencement were vested in His Majesty for the purposes of the Government of the Dominion of India and all property and assets which immediately before such commencement were vested in His Majesty for the purposes of the Government of each Governor's Province shall vest respectively in the Union and the corresponding State. It is clear therefore, that in the Constitution, the word 'property' is used in a comprehensive sense to include all assets, movable or immovable. Apart from those assets, which vested in the Union or a State at the commencement of the Constitution, the Union or a State may acquire new assets. This is also provided for in Articles 296 to 298 of the Constitution. Therefore, in both Articles 285 and 289, the word 'property' means all properly and assets which may thereafter, be acquired by the Union or a State. In Clause (1) of Article 289 the subject of the sentence is 'property and income' and the predicate Is shall be exempt from Union taxation'. He further considered the expression 'taxation' in its comprehensive meaning and said: Grammatically, the Clause can only mean this: all property and income of a State shall be exempt from all taxation by the Union, giving the word 'taxation' its comprehensive meaning, as required by Article 366(28). It Is necessary to emphasise here that the word 'property' used in the sentence is not used as a word qualifying the word 'taxation': rather it is used as a subject which gets the benefit of a exemption from Union taxation. One can understand that when one says that State income shall be free from Union Income -tax, particularly when there is only one legislative item with regard to a tax on income (other than agricultural income) which is Entry -82 in list -4. But we fail to appreciate how the word 'property' can be used as qualifying the word 'taxation' and thereby restricting the ambit of Its comprehensive connotation. The Union power of taxation on or in relation to property of various kinds ranges over a wide field, see Entries -82 to 92 -A of the Constitution. Why then should the use of the word 'property' in Articles 285 and 289 refer only to those items which enable the imposition of a direct tax on property and not to others? We find no legitimate ground for such restriction in the context of Article 289. Such a restriction would, in our opinion, be clearly against the plain language of the article.' With this premises, it was further observed in that opinion as under: 'If Clause (1) of Article 289 has a restricted meanings as is contended for by the learned Solicitor -General on behalf of the Union, then the distinction drawn between trading or business activities on one hand and governmental functions on the other in Clause (2) and Clause(3) of Article 289 loses its full significance; for Clauses (1) and (2) distinguish between trading and other functions and Clauses (2) and (3) distinguish between ordinary trading and trading which is really governmental function. If all that the Union is prevented from doing so to put a tax on property as such, what was the purpose of drawing a distinction between the trading or business activities of Government and its governmental functions? If the tax is to be levied on property as such, then obviously there cannot be any impost on a trading or business activity, as for example, on the production or manufacture of goods etc. Why was it necessary then to make a reference to trading or business activities or operations in Clauses (2) and (6) of Article 289? It would have been enough merely to say that property used or occupied in connection with a trade or business will be liable to a tax, but not other property. But the ambit of Clause (2) is much wider than the mere use or occupation of property in connection with trade or business. It has reference to trading or business activities, such as, the production and manufacture of goods, transportation of goods etc. Why was it necessary for the Constitution -makers to refer to such trading or business activities in Clause (2) if all that they had in mind in Clause (1) was a direct tax on property in our opinion, the learned Solicitor -General has given no satisfactory explanation with regard to this aspect of the case. He suggested at first that Clause (2) was no, an exception, but merely explanatory of Clause (1). It is difficult to understand why there should be a reference to business or trading activities in Clause (2) if the entire intendment was to confine the exemption to a direct tax on property. The learned Solicitor General then said that even if Clause (2) was an exception, it was an exception only in the matter of property tax. That would mean that only the last portion of Clause (2) which refers to property used or occupied for the purpose of trading or business activities of a State Government has any significance and not the other parts which relate to trading or business activities, such as, production or manufacture of goods etc. The third reason which weighed with the minority opinion reads as under: If, therefore, we look to the context of Article 289, particularly Clauses (2) and (3) thereof, it becomes manifest that there is nothing in Article 289 which restricts the comprehensive meaning to be given to the word 'taxation' in Article 289. Similar is the position with regard to Clause (2) of Article 285. That again creates an exception to Clause (1) of Article 285 and saves any tax on any property of the Union to which such property was immediately before the commencement of the Constitution liable or treated as liable to tax, so long as that tax continues to be levied in that State. Hidayatullah, J. in his separate opinion reached the same conclusion: My answers to the questions are: (1) The provisions of Article 289 of the Constitution preclude the Union from imposing of authorizing the imposition of customs duties on the import or export of the property of a State used for purpose other than those specified in Clause (2) of that Article, if the imposition is to raise revenue but not to regulate external trade. (2) The provisions of Article 289 of the Constitution of India preclude the Union from imposing or authorizing the imposition of excise duties on the production or manufacture in India of the property of a State used for purposes other than those specified in Clause (2) of that Article. The aforesaid details have been noticed as they have relevant bearing on the reading the ratio of subsequent decisions on the issue inasmuch as while all the cases that have been referred to this Court during the course of arguments have arisen in relation to immunity claimed by the State in respect of imposition of taxes levied by the Parliament whether in exercise of its powers to legislate on subjects referred to the union list proper or it related to the law made by the Parliament in relation to State list with reference to its authority to legislate Under Article 246(2) of the Constitution of India as Legislature for Union Territory, latter part of controversy not relevant for the present purposes.
(3.) DECISION In A.P. State road Transport Corp. v. I.T.O. : [1994]52ITR524(SC) One has to keep in mind that the aforesaid decision not being of adjudicating nature but only in the nature of an advice to President does not bind the Court tendering the advice. For the purpose of Article 141 it binds all other Courts in India, as declaration of law subject to any judgment tendered by Supreme Court is an adjudication of the issue. The opinion rendered by Supreme Court in Re: Sea Customs Act, 1878, Section 20(2) was referred to by the Supreme Court in Andhra Pradesh State Road Transport Corporation v. Income Tax Officer : [1994]52ITR524(SC) . That was a case where Andhra Pradesh State Road Transport Corporation also claimed' exemption from union taxes on its income by dint of the provisions of Article 289(1) of the Constitution of India. The Constitution Bench of 5 Judges of the Supreme Court, four of whom were members of 9 Judges Bench which has rendered the opinion in Re: Sea Customs Act, 1878, Section 20(2), opined as under: (14). The scheme of Article 289 appears to be that ordinarily the income derived by a State both from governmental and nongovernmental or commercial activities shall be immune from income -tax levied by the Union, provided, of course, the income in question can be said to be the income of the State. This general proposition flows from Clause (1). (15) Clause (2) then provides an exception and authorises the Union to impose a tax in respect of the income derived by the Government of a State from trade or business carried on by it, or on its behalf: that is to say, the income from trade or business carried on by the Government of a State or on its behalf which would not have been taxable under Clause (1) can be taxed, provided a law is made by Parliament in that behalf. If Clause (1) has stood by itself, it may not have been easy to include within its purview income derived by a State from commercial activities, but since Clause (2) in terms, empowers the Parliament to make a law levying a tax on commercial activities carried on by or on behalf of a State, the conclusion is inescapable that these activities were deemed to have been included in Clause (1) and that alone can be the justification for the words in which Clause (2) has been adopted by the Constitution. It is plaint that Clause (2) proceeds on the basis that but for its provision, the trading activity which is covered by it would have claimed exemption from Union taxation under Clause (1). That is the result of reading Clauses (1) and (2) together. Thus, in the aforesaid case, the Court accepted the premise which was not accepted by Ayyangar, J. in his opinion in Re: Sea Customs Act, 1878 (supra) that Clause (2) of Article 289 of the Constitution is to be read as an exception of Clause (1) and Clause (3) is to be read as an exception of Clause (2) of Article 289. In other words, the court accepted that all the three Clauses of Article 289 do not stand independent of each other but are integral part of the whole scheme. On this ground as well as on the ground that the Corporation cannot be equated with the State, the plea of the Corporation was rejected.;