| CITATION | 1983 AIR 1019 |
| DATE OF JUDGEMENT | 06/05/1983 |
| COURT | THE SUPREME COURT OF INDIA |
| APPELLANT | HOECHST PHARMACEUTICALS LTD. AND ANOTHER ETC |
| RESPONDENT | STATE OF BIHAR AND OTHERS |
| BENCH | SEN, A.P. (J) VENKATARAMIAH, E.S. (J) MISRA, R.B. (J) |
INTRODUCTION:
The appellant in this case operated a drug manufacturing unit in Bihar, selling medicines throughout the state. They established a wholesale unit in Patna, through which medicines were distributed to retailers and eventually to customers. It’s important to note that a significant portion, around 90-95%, of the medicines they sold were subject to controlled prices as per the Drugs Order of 1979, which falls under the Essential Commodities Act of 1955. Their total sales turnover within the state during the relevant period amounted to millions of rupees
The appellant filed a writ petition challenging a specific section, Section 2, of the Bihar Finance Act. This section mandated that if someone earned a profit exceeding 5 lakhs through any commercial activity, they were required to pay an additional 10% sales tax from their income. Importantly, they were not allowed to pass this tax burden on to their customers.
Furthermore, Section 3(1) of the Essential Commodities Act, 1955, stated that the tax burden could be shifted onto consumers. The appellant contested the constitutional validity of the state legislative act, the Bihar Finance Act, 1981. They argued that Section 5 of this act violated Article 14, Article 19(1)(f), and Article 19(1)(g) of the Indian Constitution.
FACTS OF THE CASE
The appellant lodged a formal petition under Article 254, contesting the constitutional validity of Section 2 of the Bihar Finance Act in conjunction with Section 3(1) of the Essential Commodities Act. The crux of their argument was that these provisions infringed upon their fundamental rights as guaranteed by Article 14, Article 19(1)(f), and Article 19(1)(g) of the Indian Constitution. Specifically, they contended that the requirement to pay additional taxes could not be shifted onto their customers.
The appellant also cited Article 6 of the Essential Commodities Act, which stipulates that any law created under Section 3 of the act must align with the provisions of the act itself. They argued that Section 5 of the Bihar Finance Act conflicted with this, as it prevented them from passing the extra tax burden on to their customers.
Furthermore, the appellant questioned the validity of Article 246 of the Indian Constitution, which delineates the authority of state legislatures and the Parliament to make laws. They argued that, despite the supremacy of laws created by the Parliament, Section 5 of the Bihar Finance Act placed an unfair tax burden on them, even though they were selling their drugs within the prescribed price limits.
ISSUES RAISED
1. Does the imposition of surcharge on sales tax and the prohibition from transferring this liability to purchasers, as specified in subsections (1) and (3) of Section 5 of the Bihar Finance Act, 1981, conflict with Paragraph 21 of the Drugs (Price Control) Order, 1979, issued under Section 3(1) of the Essential Commodities Act, rendering it void?
2. Are these provisions in violation of the constitutional rights enshrined in Articles 14 and 19(1)(g) of the Indian Constitution?
3. Can a situation of conflict between a state law and a law passed by the Parliament occur in areas beyond those covered by the Concurrent List, as outlined in Article 254(1) of the Indian Constitution?
CONTENTIONS OF APPELANT
1. The petitioner asserts that Section 2(2) of the Bihar Finance Act, 1981, is in conflict with Section 3(1) of the Essential Commodities Act, 1955.
2. The petitioner contends that Section 5 of the Bihar Finance Act infringes upon their fundamental rights guaranteed under Article 14, Article 19(1)(f), and Article 19(1)(g) of the Indian Constitution.
3. The petitioner invokes Article 254 of the Indian Constitution, emphasizing the supremacy of fundamental laws over state legislation in cases of contradiction within the concurrent list of Schedule VII.
CONTENTIONS OF RESPONDENT
1. The respondent argues that Article 246 of the Indian Constitution grants states the authority to formulate laws on specific matters delineated in Schedule VII.
2. They contend that the laws enacted by the state allow for the imposition of additional taxes from individuals who are financially capable of bearing this burden.
3. The substantial overpayment of Rs. 55,383.98 during the assessment year 1980-81 and Rs. 13,112.35 in the year 1981-82 serves as a clear indicator of the extensive scale of operations conducted by these appellants solely within the State of Bihar. It underscores their capability to absorb the additional surcharge burden imposed under subsection (1) of Section 5 of the Act
JUDGEMENT
The court made its findings and addressed several important concerns in its opinion. First, it confirmed that Entry 54 of List II of the Seventh Schedule of the Constitution, which gives states the right to impose taxes on the sale or purchase of goods, gave the State Legislature the authority to enact subsection (1) of Section 5 of the Bihar Finance Act, 1981, which imposed a surcharge in addition to the sales tax.
Second, the court made it clear that the State Legislature’s capacity to legislate on subjects relating to taxes under Entry 54 of List II was separate from Parliament’s jurisdiction under Entry 33 of List III, highlighting the fact that the state’s taxing authority was independent of Parliament.
The court further discussed the idea of repugnancy between state and federal laws, emphasizing that it only occurs when two laws that are on the Concurrent List that are directly at odds with one another are related to the same issue. This rule does not apply when List II and Lists I and III overlap since in those cases the state law would be deemed extra-vires due to a lack of legislative competence.
Regarding the President’s assent, the court emphasized that there is no provision in the Constitution for judicial review of the President’s decision, and that once a bill passed by a state legislature receives the President’s assent, it becomes law.
The court further maintained that judicial review cannot be used to challenge the Governor’s decision to reserve a bill for the President’s consideration. The court also confirmed the legality of Section 5’s sub-section (1), which introduced a classification of dealers in order to levy a surcharge based on their gross turnover. It said that this classification was appropriate since it sought to modify the tax burden in accordance with the dealers’ financial capacity. The court highlighted that the ability of the seller to pass the sales tax on to the customer was not a requirement for the authority to levy a sales tax.
The court ruled that paragraph 21 of the Drugs (Price Control) Order, 1979, issued in accordance with the Essential Commodities Act, did not contradict with subsection (3) of Section 5 of the law. These clauses did not conflict because they operated in different fields.
Last but not least, the court noted that the main goal of the Control Order was to guarantee the fair distribution and availability of necessities for customers at reasonable rates. It was pointed out that any monetary loss suffered by any industry members was not sufficient justification for labeling the law as unreasonable. Finally, the court dismissed the petitioner’s claims to the constitutionality of the Bihar Finance Act, 1981, upholding its validity.
CONCLUSION
In conclusion, the Hoechst Pharmaceuticals case verdict addressed a number of crucial problems and offered precise, conclusive decisions. It underlined the independence of the state’s taxing rights derived from Entry 54 of List II, independent from Parliament’s authority under Entry 33 of List III, and reaffirmed the legislative competence of the State Legislature to adopt subsection (1) of Section 5 of the Bihar Finance Act, 1981. The concept of repugnancy between state and union laws was explained by the court, which emphasized that it only applies when both laws are directly at odds with one another in the Concurrent List. The Governor’s discretion in this situation was sustained because it was determined that the President’s approval of a state measure was beyond the scope of judicial review.
The classification proposed in sub-section (1) of Section 5 based on dealers’ gross turnover was also accepted by the court as legal because it was deemed acceptable in lowering the tax burden. The court emphasized that the ability of the seller to pass the sales tax on to customers was not a requirement for the imposition of a sales tax. The court also explained that because they functioned in different regulatory domains, sub-section (3) of Section 5 did not conflict with paragraph 21 of the Drugs (Price Control) Order, 1979.
The Control Order’s main goal, which is to ensure that consumers are treated fairly in the distribution and availability of necessities, was emphasized by the court. It was decided that any monetary damages suffered by specific industry players did not make the legislation unreasonable.
In summary, the court dismissed the petitioner’s claims and affirmed the constitutionality of the Bihar Finance Act, 1981, establishing crucial legal concepts and interpretations in the process.
REFERENCE
This Case summary is written by Pulugam Devaki, Intern at Legal Vidhiya for the month of October
