M/S. Chhotabhai Jethabhai Patel and Co vs State Of Uttar Pradesh

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Petition No. 195 of 1959

Decision Date: 10 April 1962

Coram: J.L. Kapur, S.K. Das, A.K. Sarkar, M. Hidayatullah, N. Rajagopala Ayyangar, J.R. Mudholkar

The case was titled M/S. Chhotabhai Jethabhai Patel & Co. versus State of Uttar Pradesh and was decided on 10 April 1962 by the Supreme Court of India. The opinion was authored by Justice J. L. Kapur, and the bench comprised Justices J. L. Kapur, S. K. Das, A. K. Sarkar, M. Hidayatullah, N. Rajagopala Ayyangar and J. R. Mudholkar. The petitioner in the matter was the firm M/S. Chhotabhai Jethabhai Patel & Co., while the respondent was the State of Uttar Pradesh. The judgment was recorded on the same date, 10 April 1962, and the bench is identified by the name Kapur, J. L. The full composition of the bench as listed in the report includes Justice Kapur, Justice Das, Justice Sarkar, Justice Subbarao, Justice Hidayatullah, Justice Ayyangar, Justice Rajagopala Mudholkar and Justice J. R. Mudholkar. The case can be cited as 1962 AIR 1614 and also appears in the Supreme Court Reporter as 1963 SCR (1) 991; it is indexed under the citation 1962 SC1621 (8).

The matter concerned a provision of the Uttar Pradesh Sales Tax Act, 1948, specifically section 4(1)(b), which authorized the State Government to issue a notification exempting certain classes of goods from sales tax. The petitioner firm was a registered dealer of biris under the Uttar Pradesh Sales Tax Act, 1943, and the Sales Tax Officer had provisionally assessed the firm for sales tax for the quarter beginning 1 April 1958 and ending 30 June 1958. The firm challenged that assessment by filing a petition under Article 226 of the Constitution in the High Court of Allahabad, but the High Court dismissed the petition. The firm then obtained special leave to appeal to the Supreme Court and filed a petition under Article 32 of the Constitution for enforcement of its fundamental rights.

The firm argued that a notification dated 14 December 1957, issued under section 4(1)(b) of the Act, exempted hand‑made biris from sales tax. The notification stated that no tax would be payable under the Act with effect from that date by dealers for certain classes of goods, provided that the Additional Central Excise Duties payable on those goods had been paid up to 13 December 1957. The classes of goods listed in the notification included “cigars, cigarettes, biris, tobacco in any form …”. The petitioner contended that the Sales Tax Officer’s assessment was based on a misinterpretation of the notification and therefore was invalid.

The Supreme Court examined the earlier decision in Ujjam Bai v. State of U. P., W. P. No. 79 of 1959, and applied its reasoning. The Court held that the exemption in the notification was conditional: it applied only to goods on which the Additional Central Excise Duty was leviable and had been paid. Because no Central Excise Duty was leviable on hand‑made biris and no such duty had been paid, the condition precedent to the exemption was not fulfilled. Consequently, the Sales Tax Officer’s interpretation of the notification was correct, and the assessment of sales tax against the petitioner firm stood affirmed.

Counsel for the appellants appeared in Civil Appeal No. 99 of 1961, while counsel for the respondents, including the Additional Solicitor General of India and another counsel, represented the respondents in both the petition and the appeal. The judgments were delivered on 10 April 1962 by Justice Kapur. The judgment addressed two matters that arose from the same set of proceedings under the Uttar Pradesh Sales Tax Act: (1) a writ petition filed under article 32 of the Constitution and (2) an appeal against the judgment and order of the High Court of Allahabad that had been passed in proceedings instituted under article 226 of the Constitution. Both matters raised a question that had earlier been decided in writ petition No. 79 of 1959, and the Court indicated that the same principles would be applied in the present judgment.

The petitioner is a partnership firm engaged in the business of selling biris. Although its principal place of business is in Nadiad, Bombay State, it maintains a branch office in Agra, Uttar Pradesh, where biris manufactured by the firm are brought and sold. The firm was registered as a dealer under section 8 of the Uttar Pradesh Sales Tax Act (Act 15 of 1948), hereinafter referred to as “the Act.” Under the Act, a notification dated 14 December 1957 granted exemption from sales tax on certain articles; the text of that notification is reproduced elsewhere in this judgment.

On 27 February 1959, the Sales Tax Officer at Agra issued a provisional order assessing sales tax for the quarter from 1 April 1958 to 30 June 1959. The assessment amount was Rs. 62,500. The petitioner alleged that no prior notice had been served, although a notice of demand was issued on the same date as the provisional order. The petitioner appealed the assessment order to the Judge (Appeals) and also applied to the Commissioner of Sales Tax for a stay of realization of the assessed tax. On 28 April 1959, the Commissioner directed that if the petitioner deposited half of the assessed amount by 30 April 1959, the payment of the balance would be stayed pending final assessment. Accordingly, on 30 April 1959 the petitioner deposited Rs. 31,250, representing half of the assessed tax.

Concurrently, on 28 April 1959 the petitioner moved the High Court under article 226 of the Constitution, seeking a writ of certiorari to quash the assessment order and the second notice of demand, and a writ of mandamus directing the taxing authorities to refrain from recovering the tax. The High Court dismissed the petition by order dated 14 May 1959. The petitioner then applied for a certificate under article 133(1)(o) of the Constitution, which the High Court rejected on 23 October 1959. Against that dismissal, special leave was granted by this Court on 18 December 1959. In addition, the petitioner filed a separate writ petition under article 32 of the Constitution.

On 16 December 1959 a rule was issued, and that rule gave rise to the appeal against the High Court order that had been made in proceedings under Article 226 as well as to the petition filed under Article 32 of the Constitution, both of which were consequently placed before this Court. Earlier, on 29 September 1959, the Sales Tax Officer had issued another notice requiring the petitioner firm to file its returns for the period from 13 December 1957 to 31 March 1958. In the following month, a further notice was dispatched under section 15(i)(a), directing the petitioner to show cause why a penalty should not be imposed. Because the petition before the High Court had been filed earlier, that particular matter did not come before the High Court, but it was nonetheless contested in the petition under Article 32. The petition under Article 32 was dismissed for the reasons detailed in W.P. No. 79 of 1959. The appeal that the petitioner firm had filed before the Judge (Appeals) was also dismissed, and a revision against that dismissal was likewise dismissed; however, these orders have not been challenged in any subsequent proceedings. The appellant firm argued in the appeal that the order of the Sales Tax Officer, which limited the excess Central Excise Duty that had been paid, was erroneous. Tracing the history of the exemption claimed by the appellant firm would be inappropriate at this stage.

The difficulty encountered in inter‑State sales of large quantities of certain articles led the Central Government, with the concurrence of the State Governments, to impose an enhanced Central Excise Duty on the sales tax levied on those articles. The amount collected through this enhanced duty was to be distributed by the Central Government to the concerned State Governments, and the State Governments, in turn, agreed to exempt those articles from sales tax. Consequently, Parliament enacted the Additional Duties of Excise (Goods of Special Importance) Act, commonly referred to as Act 58 of 1957, which this judgment will call ‘Central Act 58 of 1957’. Under that Act, an additional Central Excise duty was imposed on tobacco, but no such duty was imposed on biris. Likewise, under the Central Excise and Salt Act, known as Act 1 of 1944 or ‘Central Act 1 of 1944’, no Central Excise duty was levied on handmade biris, although a duty was imposed on machine‑made biris for the purpose of protecting the handmade biris industry. Pursuant to the arrangement for exempting certain articles from sales tax, the Uttar Pradesh Government issued Notification No. ST‑4485/X dated 14 December 1957 under section 4(1)(b) of the Act, a notification that will be quoted elsewhere in this judgment. Liability to sales tax arises under section 3(1) of the Act, which provides: “Subject to the provisions of this Act, every dealer shall, for each assessment year, pay a tax at the rate of two naya paise per rupee on his…”.

The statute mandated that the turnover for each assessment year be determined in the manner prescribed, as expressed in Section 3(1). Section 4(1) then provided for exemption from sales tax in two categories: subsection (a) exempted the sale of water, milk, salt, newspapers and motor spirit as defined in the Uttar Pradesh Sales of Motor Spirit (Taxation) Act, 1939, as well as any other goods that the State Government might declare exempt by notification in the official gazette; subsection (b) exempted the sale of goods by the All‑India Spinners Association, the Gandhi Ashram at Meerut, their branches, or any other persons or classes of persons that the State Government might, from time to time, exempt upon satisfaction of conditions and payment of any prescribed fees, not exceeding eight thousand rupees annually as may be specified by notification.

On 14 December 1957, the Government of Uttar Pradesh issued Notification No. ST‑4485/X, published in the Uttar Pradesh Gazette Extraordinary on that same date. This notification partially modified earlier notifications No. ST‑905/X dated 31 March 1956 and No. ST‑418/X /‑902(9)‑52 dated 31 January 1957. Exercising the powers conferred by clause (b) of subsection (1) of Section 4 of the Uttar Pradesh Sales Tax Act, 1948 (as amended), the Governor ordered that, effective from 14 December 1957, no sales tax shall be payable under the Act by dealers in respect of the classes of goods specified, provided that the additional Central Excise duties leviable on those goods as of the close of business on 13 December 1957 have been paid, and that dealers furnish satisfactory proof of such payment to the assessing authority. The goods listed included: (1) …; (2) …; and (3) cigars, cigarettes, biris and tobacco, defined as any form of tobacco, whether cured or uncured and whether manufactured or not, including the leaf, stalks and stems of the tobacco plant, but excluding any part of a tobacco plant while still attached to the earth.

The petitioner submitted that this notification had been misconstrued and misapplied, resulting in a violation of his fundamental right under Article 19(1)(g) of the Constitution. The petitioner contended that, under Central Act 58 of 1957, an additional Central Excise duty had indeed been paid on tobacco as defined in Central Act 1 of 1944, and therefore the conditions of the exemption should have been satisfied.

Central Act 1 of 1944, in its fourth item of the First Schedule, defines “tobacco” as any form of tobacco, whether cured or uncured and whether manufactured or not, and includes the leaf, stalks and stems of the tobacco plant, but does not include any part of a tobacco plant while still attached to the earth. The notification expressly states that it is issued under Section 4(1)(b) of the Sales Tax Act, indicating that the exemption was conditioned upon the payment of the additional Central Excise duties.

It was observed that the notification applied strictly to those articles on which an additional Central Excise Duty was both leviable and actually paid. The record showed that such a duty was never leviable on hand‑made biris, and consequently no additional duty had been paid in respect of those goods. Because the condition of payment of the additional duty was not satisfied, the requirement for exemption under the notification could not be said to have been fulfilled. Accordingly, the sales that the petitioners had made of hand‑made biris could not be said to fall within the scope of the exemption that the notification purports to grant. In the view of the Court, the Sales Tax Officer’s construction of the notification was therefore correct, and there was no material placed before the Court to demonstrate that the Officer’s determination was erroneous in any respect. On this basis, the petition could not succeed.

The Court consequently dismissed the appeal against the order of the High Court of Allahabad and ordered that each party bear its own costs. In a related note, the learned judge observed that the present appeal and the writ petition were to be governed by the decision rendered in the connected writ petition numbered 79 of 1959. For the reasons set out in that decision, both the writ petition and the appeal were allowed, with costs awarded. In accordance with the judgment of the majority, Civil Appeal No. 99 of 1961 and Writ Petition No. 195 or 1959 were dismissed, and the parties were left to bear their own costs.