<NAME>, Ag. C.J.

1. The order in this case will also govern the disposal of Misc. Petitions Nos. 345/88, 323/83, 4051/87, 3298/87, 3361/87, 3562/87, 3777/87, 3803/87, 3810/87, 3881/87, 3882/87, 498/88, 621/88, 694/88, 942/88, 1122/88, 1253/88, 1278/88, 1290/88, 1229/88, 1423/88, 571/88, 573/88, 1885/88, 4031/88, 4107/88, 3105/88, 198/89, 3714/87 and 171/89.

2. By these petitions under Article 226 of the Constitution of India, the petitioners have prayed that the provisions of the Madhya Pradesh Upkar Adhiniyam, 1981 (Act No. 1 of 1982) as amended by the Madhya Pradesh (Sanshodhan) Adhiniyam, 1987 (Act No. 21 of 1987) imposing cess on land held in connection with mineral rights be declared as ultra vires. The material facts giving rise to these petitions briefly are as follows :

(i) The petitioners hold mining leases under the provisions of the Mines and Minerals (Regulation and Development) Act , 1957, hereinafter referred to as the M.M.R.D. Act. A Mineral Area Development Cess was imposed by the State under the provisions of the Madhya Pradesh Karadhan Adhiniyam, 1982, on the land held under the mining leases. The validity of that levy was assailed in Misc. Petition No. 410 of 1983 before this Court and a Division Bench of this Court held in <CITATION> ., 1986 MPLJ 514 that the imposition of the Mineral Area Development Cess under the provisions of the Madhya Pradesh Karadhan Adhiniyam, 1982 was unconstitutional inasmuch as <ORG> was not competent to enact such a law.

(ii) Thereafter, the provisions of Section 59 of the Madhya Pradesh Land Revenue Code, 1959, hereinafter referred to as the Code, were amended. Under the amended provisions of Section 59 of the Code, the Madhya Pradesh Land Under Mining Lease, Quarry Leases Assessment Rules, 1987, were framed and notices were sent to the holders of mining leases demanding land revenue. This demand was assailed by the holders of mining leases by petitioners under Article 226 of the Constitution of India and this Court by its judgment reported in <CITATION> , AIR 1988 Madh Pra 286 quashed the demand notices holding that the Madhya Pradesh Land Under Mining Leases and Quarry Leases Assessment Rules, 1987, were unconstitutional and invalid.

(iii) Thereafter, the Madhya Pradesh Upkar Adhiniyam, 1981 (Act No. 1 of 1982), hereinafter referred to as the Act, was amended by the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 1987 (Act No. 21 of 1987). Under the Act , as it stood prior to its amendment by Act No, 21 of 1987, Energy Development Cess was levied by Part 1 of that Act, Urban Development Cess was levied by Part II of the Act, Cess on Transfer of Vacant Land and Land Used for purpose of Agriculture was levied by Part II) of the Act and Cess on storage of coal was levied by Part IV of the Act. By the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 1987, (Act No. 21 of 1987), the heading of Part IV of the Act was substituted by the heading "Cess on Land held in connection with Mineral Rights." By the amended provisions of Section 11 of the Act, cess was levied on land held in connection with mineral rights at the rate prescribed. Section 12 of the Act, as amended, provided that the proceeds of the cess on land held in connection with mineral rights might be utilised by <ORG> for the general development of the mineral bearing areas. In pursuance of the provisions of the Act so amended, notices were issued to the petitioners demanding cess on the land held in connection with mineral rights. Aggrieved by that demand, the petitioners have filed these petitions assailing the validity of the provisions of the Madhya Pradesh Upkar (Sanshodhan) Adhiniyam, 1987, imposing cess on land held in connection with mineral rights.

3. When the matter came up for consideration before a Division Bench of this Court, it was stated on behalf of the; Slate that certain provisions of the impugned Act were likely to be amended and that the decision of this Court in <NAME> v. <ORG> of M.P., 1986 MPLJ 514 required reconsideration. The hearing was then adjourned. Thereafter the Act was further amended by <NAME>, 1989, (Act No. 9 of 1989) deleting the provisions of Section 12 of the Act which enabled the <ORG> to utilise the proceeds of cess on land held in connection with the mineral rights for the general development of the mineral bearing areas. As the correctness of the decision rendered by another Division Bench of this Court in <NAME>'s case was questioned, <ORG> was constituted to hear these petitions. That is how the matter has now come up before us for consideration.

4. On behalf of the petitioners, it was contended that as the cess levied under the impugned Act was a fee relatable to Entries 23 and 66 in List II of the VII Schedule to the Constitution, it was beyond the legislative competence of <ORG> having regard to the provisions of Entry 54 in List I of the VII Schedule to the Constitution, read with the provisions of the M.M.R.D. Act. It was urged that the power of the <ORG> to legislate on any matter referable to Entry 23 in List II of the VII Schedule to the Constitution was denuded by the declaration made by the <ORG> in Section 2 of the M.M.R.D. Act. It was further contended that even if it was held that the imposition of the cess under the provisions of the Act amounted to imposition of a tax and not a fee, <ORG> had no power to impose tax on minerals as was sought to be done under the provisions of the impugned Act because the field of taxation in respect of land held in connection with mineral rights was occupied by the provisions of Sections 18 and 25 of the M.M.R.D. Act, the Central Act of 1957. In reply, it was contended on behalf of the respondents that what was levied by the provisions of the impugned Act was a tax and not a fee and that such imposition by <ORG> was permissible in view of Entries 49 and 50 in List II of VII Schedule to the Constitution. It was urged that the field of taxation with regard to land held in connection with mineral rights was not covered by the M.M.R.D. Act and <ORG> was competent to enact a law in that behalf by virtue of Entries 49 and 50 in List II of the Seventh Schedule to the Constitution.

5. In view of the contentions advanced on behalf of the parties, the first question that arises for consideration is whether the levy imposed by the impugned Act amounts to a fee or a tax. It is conceded on behalf of the respondents that if the levy imposed by the impugned Act amounts to a fee, then <ORG> is not competent to impose such levy in view of the decision of <ORG> in ( <CITATION> .), AIR 1964 SC 1284. In that case, it was observed, relying upon the decision in ( <CITATION> ), AIR 1961 SC 459, that as there was express provision in Section 13 of the M.M.R.D. Act to levy a fee in respect of mining leases, the power of <ORG> to legislate in that behalf was taken away. In view of that decision, it is first necessary to ascertain the nature of levy imposed by the Act.

6. The charging section of the Act is Section 11 . The material provisions of Section 11 are as follows :

" Section 11 -- (i). There shall be levied and collected a cess on land held in connection with mineral rights at such rale as may be notified by <ORG>. per ton of major mineral raised therefrom subject to the maximum of Rs. 10.00 per ton of major mineral raised and the rate of cess prevailing in respect of coal during the period commencing from the date of commencement of the principal Act and ending on the date of Commencement of the M.P. Upkar (Sanshodhan) Adhiniyam 1987, shall be deemed to be the rate of cess notified under this sub-section in respect of coal.

Provided that subject to the limitation mentioned above, the State <ORG>. may, by notification, increase or reduce Ihe rate of cess at an interval of not less than one year where the rate is increased, it shall not be in excess of 50% of the rate for the time being in force.

Provided further that every notification under the above proviso shall be laid on the table of <ORG> and the provisions of Section 24-A of the M.P. General Clauses Act 1957, (Act No. 3 of 1958) shall apply thereto as they apply to a Rule."

It has to be noted that Section 12 of the Act which provided thar proceeds of the cess on land held in connection with the mineral rights, may be utilised by the State <ORG>. for the general development of the mineral bearing areas, has been omitted by Section 2 of the Act No. 9 of 1989 which reads as under :

"Sec. 12 of the Madhya Pradesh Upkar Adhiniyam 1981 (No. 1 of 1982) shall be omitted and shall be deemed to have been omitted with effect from 1st day of October 1982."

It is thus clear that after the aforesaid amendment, there is no provision in the Act laying down any manner of utilisation of the proceeds of the cess recovered under the Act. The Act now contains no provision to indicale that the cess in question is levied in consideration of any service to be rendered for the development of mineral bearing areas or for those from whom the cess is to be recovered. Can it then be held that the levy of the cess in question amounts to imposition of a fee?

7. In ( <CITATION> ), AIR 1975 SC 846, <ORG> has held that two elements are essential in order that a payment may be regarded as a fee. In the first place, it must be levied in consideration of certain services which the individuals accept either willingly or unwillingly, and in the second place, the amount collected must be earmarked to make the expenses of rendering these services and must not go to the general revenue of the State to be spent for general purposes. In ( <CITATION> ), AIR 1980 SC 1008, a Constitution Bench of <ORG> has laid down that for satisfying the test for a valid levy of fees, it must be shown that the amount of fee realised, is ear marked for rendering services and that though the element of quid pro quo need not be established with arithmetical exactitude, yet broadly and reasonably it must be established that at least a good and substantial portion of the amount collected on account of fees is spent for rendering services to those on whom falls the burden of the fee. Judged by these tests, it cannot be held that the levy of the cess in the instant case amounts to imposition of a fee.

8. The learned counsel for the petitioners, however, contended that the tests for determining whether any levy amounts to a fee or a tax, have undergone a sea change. Reliance was placed on the decisions of <ORG> in ( <CITATION> ), AIR 1981 SC 1863, ( <CITATION> ), AIR 1983 SC 617, ( <CITATION> ), AIR 1985 SC 756. It is true that the traditional concept in a fee of quid pro quo is undergoing a transformation, as held in ( <CITATION> ), (supra), but even in the aforesaid decisions of <ORG>, it has been held that the fee must have some relation to the services rendered and that though such relation need not be direct, a mere casual relation may be enough. From a perusal of the provisions of the Act, we do not, however, find even any casual relation whatsoever between the amount of cess to be recovered and any services to be rendered for that purpose.

9. It was then contended on behalf of the petitioners that in the return filed on behalf of the respondents, it was stated that the proceeds of cess levied under the Act would be utilised by <ORG>. for the general development of the mineral bearing areas. It is, however, significant to note that what has been averred in the return is that the cess under the Act has been imposed for carrying out welfare activities in the mineral bearing areas as well as in other areas within the district or the <ORG>. This averment, in the return cannot, in our opinion, transform the levy of cess to be recovered under the Act into a fee. The Act which imposes levy should indicate that it has some relation to the services to be rendered so as to impress it with the character of a fee. Under the circumstances, the contention that the levy imposed by the impugned Act is a fee, cannot be upheld. In our opinion, what has been imposed by the Act is a tax.

10. The next question for consideration is whether <ORG> is competent to levy the tax in question. Learned counsel for the respondent <ORG> contended that <ORG> has the power to impose the tax in question under Entry 49 or 50 of the <ORG> List. On behalf of the petitioners, however, our attention was invited to Entry 54 of the Union List which is as under :

"54. Regulation of mines and mineral development to the extent to which such regulation and development under the control of the <ORG> is declared by <ORG> by law to be expedient in the public interest."

It was contended on behalf of the petitioners that once a declaration had been made by <ORG> in Section 2 of the M.M.R.D. Act that the regulation of mines and mineral development under the control of the <ORG> was expedient in the public interest, the entire legislative field relating to mines and minerals was occupied and the <ORG> lost its legislative power in respect of that occupied field. This contention overlooks the significance of the words 'to the extent to which' occurring in Entry 54 in List I. In this connection, we may usefully refer to the following observations of <ORG> in ( <CITATION> ), AIR 1982 SC 697 (at p. 708) :

"That the declaration in Section 2 of the Mines and Minerals (Regulation and Development) Act 1957 does not result in invalidation of every State Legislation relating to mines and minerals is demonstrated effectively by the decision in <CITATION> , (1976) 3 SCR 688 : AIR 1976 SC 1654. <ORG> passed the Haryana Minerals (Vesting of Rights) Act 1973, under which two notifications were issued for acquisition of right to saltpetre, a minor mineral, and for auctioning certain saltpeter bearing areas. It was held by this Court that the Haryana Act was not in any way repugnant to the provisions of the Act of 1957 made by <ORG> and that the ownership rights could be validly acquired by the State Government under the State Act .

The decision of a Constitution Bench of this Court in <CITATION> ., (1980) 3 SCR 331 : AIR 1980 SC 1955, is even more to the point. In that case, 12 sugar undertakings stood transferred to and were vested in a Government undertaking under the U.P. Sugar Undertaking (Acquisition) Ordinance 1971, which later became an Act. It was contended on behalf of the sugar undertakings that since sugar is a declared industry under the Industries (Development and Regulation) Act 1951, <ORG> alone was competent to pass a law on the subject and <ORG> had no competence to pass the impugned Act by reason of Entry 52, List I, read with Entry 24, List II. The majority speaking through one of us, <NAME>, <NAME> held that the legislative power of the <ORG> under Entry 24, List II was eroded only to the extent to which control was assumed by <ORG> pursuant to the declaration made by the <ORG> in respect of a declared industry and that the field occupied by such enactment was the measure of the erosion of the legislative competence of the <ORG> legislature."

11. In view of the aforesaid decision of <ORG>, the field occupied by the M.M.R.D. Act would be the measure of erosion of the legislative competence of the <ORG>. Our attention was then invited to the provisions of Section 18(1) of the M.M.R.D. Act and it was urged that Section 18(1) of the M.M.R.D. Act was wider in scope and amplitude than Section 6 of the Mines and Minerals (Regulation and Development) Act 1948, that Clause (i) of Sub-section (2) of Section 6 of the Act of 1948, contained a provision for levy of taxes in respect of minerals and, therefore, the wider power conferred by Section 18(1) of the M.M.R.D. Act must be held to include power to levy taxes in respect of minerals. It is true, as held in ( <CITATION> ), AIR 1986 SC 1323, that where a statute confers particular powers without prejudice to the generality of a general power already conferred, the particular powers are only illustrative of the general power. But the omission in Section 18(2) of the M.M.R.D. Act of the power to levy taxes on minerals similar to that conferred by Section 6(2) of 1948 Act, is significant. That is why <ORG> observed in ( <CITATION> ), AIR 1965 SC 177, that a tax on mineral rights was not leviable by <ORG>, but only by the <ORG>, that the sole limitation on the <ORG>'s power to levy that tax was that it must not interfere with a law made by <ORG> as regards mineral development and that the attention of <ORG> was not invited to the provisions of any such law enacted by <ORG>. The learned counsel for the petitioners contended that Section 18(1) of the M.M.R.D. Act was such law. The contention cannot be upheld. Section 18(1) of the M.M.R.D. Act, as amended by Act No. 87 of 1986, reads as under :

"18. Mineral Development -- (1). It shall be the duty of <ORG> to take all such steps as may be necessary (for the conservation and systematic development of minerals in India and for the protection of environment by preventing or controlling any pollution which may be caused by prospecting or mining operations) and (for such purposes) <ORG> may, by notification in the Official Gazette (make such rules) as it thinks fit."

Section 18(2) of the Act then empowers <ORG> to frame rules on matters specified in that provision without prejudice to the generality of the powers conferred by Section 18(1) of the Act to frame rules in that behalf. But a tax cannot be imposed by a rule unless the statute specifically authorises the imposition. In this connection, we may usefully refer to the following observations of <ORG> in ( <CITATION> .) AIR 1971 SC 517 (at p. 520) :

"No tax can be imposed by any bye-law or rule or regulation unless the statute under which the subordinate legislation is made specially authorises the imposition even if it is assumed that the power to tax can be delegated to the executive. The basis of the statutory power conferred by the statute cannot be transgressed by the rule-making authority. A rule-making authority has no plenary power. It has to act within the limits of the power granted to it."

12. It was then contended on behalf of the petitioners that Section 25 of the Act provided that any tax due under the Act or the rules made thereunder, would be recovered in the same manner as an arrears of land revenue and, therefore, the M.M.R.D. Act must be held to contain provision for levy of a tax on minerals. The contention cannot be upheld.

As observed by <ORG> in ( <CITATION> ), AIR 1983 Orissa 210 (FB) and <ORG> in (<NAME> and 5 others v.

Govt. of A.P.), (1985) 1 APLJ (HC) 84, S. 25 , of the M.M.R.D. Act is a provision enabling recovery and cannot be held to be a substantive provision imposing tax. Having given our anxious consideration to the matter, we have come to the conclusion that the power of <ORG> to legislate with respect to matters covered by Entries 49 and 50 of List II in the Seventh Schedule to the Constitution, has not been taken away by the provision of the M.M.R.D. Act.

13. The next question for consideration is whether <ORG> was competent to levy the tax imposed by the impugned Act. On behalf of the respondents, it was contended that the impugned Act was relatable to Entry 49 or 50 of List II in the Seventh Schedule. These entries are as follows :

"49. Taxes on lands and buildings.

50. Taxes on mineral rights subject to any limitations imposed by <ORG> by law relating to mineral development."

As held by <ORG> in (Asstt. <CITATION> .), AIR 1970 SC 169, the legislative entries must be given a large and liberal interpretation, the reason being that the allocation of the subjects to the lists is not by way of scientific or logical definition, but by way of a mere simple enumeration of broad categories. To ascertain whether the subject-matter of the tax levied by the Act is covered by Entry 49, let us turn to the charging section which is Section 11 of the Act. That section lays down that there shall be levied and collected a cess on land held in connection with mineral rights at such rate as may be notified by the State <ORG>. per ton of major mineral raised therefrom. It is sign if icant to note that cess is not imposed on all land and that it is not dependent either on the extent of the land held in connection with mineral rights or on the value thereof. The subject-matter of tax, therefore, is major-mineral raised from the land held in connection with mineral right. If no minerals are raised, tax is not leviable. The tax is riot dependant on the extent of the land held in connection with mineral rights. It is not a case where all land is liable to payment of cess, that the liability is assessed on the basis of the value of the land and that the measure of the tax in so far as land held under a mining lease is concerned, is the value of the minerals produced. Under the impugned Act, value of the land or of the minerals produced does not play any part in the levy of cess. The quantity of major minerals raised from the land determines the liability to pay tax. In these circumstances, the impugned levy cannot be held to be a tax on land which is covered by Entry 49 of the State List. On behalf of the respondents, reliance was palced on ( <CITATION> ), AIR 1965 SC 1561, and it was contended that the fact that the tax depends upon a particular use of the land would still render the tax, a tax on land. The decision in ( <CITATION> ), AIR 1965 SC 1561, is however, distinguishable on facts. The following observations in that decision are pertinent (at p. 1563 of AIR) :

"The scheme of Section 62 , therefore, shows that whenever any land is used for the purpose of holding a market, the owner, occupier or farmer of that land has to pay a certain tax for its use as such. But there is no tax on any transaction that may take place within the market. Further, the amount of tax depends upon the area of the land on which market is held and the importance of the market subject to a maximum fixed by <ORG>, We have, therefore, no hesitation in coming to the conclusion on a consideration of the scheme of Section 62 of the Act that the tax provided therein is a tax on land, though its incidence depends upon the use of the land as a market. Further, as we have already indicated, Section 62(2) which uses the words 'impose an annual tax thereon' clearly shows that the word 'thereon' refers to any land for which a licence is issued for use as a market and not to the word 'market'. Thus the tax in the present case, being on land, would clearly be within the competence of <ORG>."

From the aforesaid observations, it is clear that whereas in ( <CITATION> ) (supra), the subject-matter of tax was land, in the instant case, it is major minerals raised from the land.

14. Learned counsel for the respondents referred to the decision of <ORG> in ( <CITATION> .), AIR 1984 SC 420, and contended that the measure of tax adopted could not be identified with the nature of the tax. Our attention was invited to the following observations of <ORG> in that case (at p. 429 of AIR) :

"It has long been recognised that the measure employed for assessing a tax must not be confused with the nature of the tax. <CITATION> , 1948 FCR 207 : AIR 1949 FC 81, <ORG> held that a tax on building under Section 3 of the Punjab Urban Immovable Property Tax Act 1940 measured by a percentage of the annual value of such buildings remained tax on buildings under that Act even though the measure of annual value of a building was also adopted as a standard for determining income from property under the Income-tax Act . It was pointed out that although the same standard was adopted as a measure for the two levies, the levies remained separate and distinct imposts by virtue of their nature. In other words, the measure adopted could not be identified with the nature of tax. The distinction was observed by a Special Bench of <ORG> in <NAME> v. State of Bihar, AIR 1952 Pat 359, where a tax on passengers and goods was assessed as a rate on the fares and freights payable by the owners of the motor vehicles. <NAME> (supra) was referred to with approval by this Court in <CITATION> , (1962) 1 SCR 517 : AIR 1961 SC 1480. This Court, in that case, repelled the contention that the levy was tax upon income and not upon passengers and goods. It pointed out that "though the measure of the tax is furnished by the fares and freights, it does not cease to be a tax on passengers and goods"."

Now, as observed in ( <CITATION> ) (AIR 1961 SC 459) (supra), it is well settled that though the method by which an impost is levied, may be relevant in determining its character, its significance and effect cannot be exaggerated. The character of impost in the instant case is that though in form it appears to be a tax on land, in substance, it is a tax on minerals, produced therefrom. The subject-matter of tax is, therefore, not covered by Entry 49 of the State List.

15. The next question for consideration is whether the impugned tax is a tax on mineral rights a subject covered by Entry 50 of List II of the Seventh Schedule. This raises a question as to what meaning should be attached to the expression 'tax on mineral 'right'. The meaning of 'mineral rights' as set out in Black's Law Dictionary, 4th Edition, at page 1146 is 'an interest in minerals in land; a right to take minerals or a right to receive a royalty.' In ( <CITATION> ) (AIR 1961 SC 459) (supra) the majority judgment did not deal with the question as to what was meant by the expression 'tax on mineral rights' in view of the fact that it was held in the majority judgment that the impost in that case was fees relatable to Entry 23 in List II. <NAME>, in his minority judgment, has dealt with the question as to the scope of Entry 50, a matter not dealt with by the majority judgment, as follows (at p. 479 of AIR) :

"The next contention on behalf of the State of Orissa is that if the cess is not justified as a fee, it is tax under Item 50 of List II of the Seventh Schedule. Item 50 provides for taxes on mineral rights subject to any limitation imposed by <ORG> by law relating to mineral development. This raises a question as to what are taxes on mineral rights. Obviously, taxes on mineral rights must be different from taxes on goods produced in the nature of duties of excise. If taxes on mineral rights also include taxes on mineral produce, there would be no difference between taxes on mineral rights and duties of excise under Item 84 of List. I. A comparison of Lists I and II of the Seventh Schedule shows that the same tax is not put in both the Lists. Therefore, taxes on mineral rights must be different from duties of excise, which taxes on minerals produced. The difference can be understood if one sees that before minerals are extracted and become liable to duties of excise, somebody has got to work the mines. The usual method of working them is for the owner of the mine to grant mining leases to those who have got the capital to work the mines. There should, therefore, be no difficulty in holding that taxes on mineral rights are taxes on the right to extract minerals and not taxes on the minerals actually extracted. Thus, tax on mineral rights would be confined, for example, to taxes on leases of mineral rights and on premium or royalty for that. Taxes on such premium and royalty would be taxes on mineral rights, while taxes on the minerals actually extracted, would be duties of excise. It is said that there may be cases where the owner himself extracts minerals and does not give any right of extraction to somebody else and that in such cases, in the absence of mining leases or subleases, there would be no way of levying tax on mineral rights. It is enough to say that these cases also, rare though they are, present no difficulty. Take the case of taxes on annual value of buildings. Where there is a lease of the buildings, the annual value is determined by the lease money; but there are many cases where owners themselves live in buildings. In such cases also, taxes on buildings are levied on the annual value worked outaccording to certain rules. There would be no difficulty where an owner himself works the mine to value the mineral rights on the same principles on which leases of mineral rights are made and then to tax the royalty which for example, the owner might have got if instead of working the mine himself, he had leased it out to somebody else. There can be no doubt therefore, that taxes on mineral rights are taxes of this nature and not taxes on minerals actually produced."

Now from a perusal of Section 11 of the Act, it would be clear that in the instant case by the charging section, tax is not imposed on the mineral rights of every holder of mining lease. The tax is levied on minerals produced in land held under mining lease. In these circumstances, the tax levied by the Act cannot be held to be a tax covered by Entry 50 of List II of the Seventh Schedule to the Constitution. Inouropinion, therefore, it has not been shown that <ORG> is competent to levy the impugned cess.

16. For all these reasons, these petitions are allowed. The provisions of Section 11 of the M.P. Upkar Adhiniyam 1981 (Act No. 1 of 1982) as amended by the M.P. Upkar (Sanshodhan) Adhiniyam 1987 (Act 21 of 1987) imposing cess on land held in connection with mineral rights, a re declared as ultra vires. The respondents are restrained from recovering any cess from the petitioners in pursuance of the aforesaid provisions. In the circumstances of the case, parties shall bear their own costs of these petitions. Security amount, if any, be refunded to the petitioners.


PETITIONER: <NAME> AND COMPANY Vs. RESPONDENT: STATE OF MADRAS DATE OF JUDGMENT: 07/05/1964 BENCH: <NAME>, RAGHUBAR BENCH: <NAME>, RAGHUBAR SUBBARAO, K. HIDAYATULLAH, M. SHAH, J.C. MUDHOLKAR, J.R. CITATION: 1964 AIR 1729 1964 SCR (8) 217 CITATOR INFO : RF 1969 SC 147 (19) D 1972 SC 217 (18) APL 1974 SC1111 (10) RF 1974 SC2344 (1) D 1977 SC 548 (4,6,7) R 1979 SC 321 (5) RF 1980 SC1227 (6) RF 1980 SC1789 (36) R 1986 SC 63 (36) RF 1987 SC1885 (8) F 1987 SC1922 (7,10,12) RF 1990 SC 820 (15) F 1992 SC1952 (10) ACT: Sales Tax-Distinction between tanned and untanned hides- Whether s. 2 ultra vires-Act whether discriminatory-Whether legislature can enact retrospective legislation-Constitution of India, Arts. 14, 19(1)(f) and (g), 31, 286(2), 301, 304- Madras General Sales tax (Turnover and Assessment) Rules, r. 16(2)(ii)-Madras General Sales Tax (Special Provisions) Act, 1963, s. 2. HEADNOTE: The petitioners are dealers in skins in the State of Madras. They purchased raw skins from places both within and outside the State of Madras, tanned the same and sold them through their agents in Madras. They were assessed to a certain amount of sales-tax in accordance with the provisions of the Madras General Sales Tax Act, 1939, and r. 16(2)(ii) of the Madras General Sales Tax (Turnover and Assessment) Rules, on the turnover of hides and skins purchased in the untanned condition outside the State and tanned within the State with respect to the assessment years 1955-56. 1956-57 and 1957- 58. The tax was assessed at 3 pies per rupee on the price of tanned hides and skins for the years 1955-56 and 1956-57 and at the rate of 2 per cent on the turnover for the year 1957-58. The petitioners filed three writ petitions under Art. 32 of the Constitution in which they contended that 8. 2 of the Madras General Sales Tax (Special Provisions) Act, 1963 was ultra vires the Constitution and was otherwise invalid and had no effect. Allowing the petition. Held, that s. 2(1) discriminates against imported hides and skins which were sold upto August 1, 1957 upto which date the tax on sale of raw hides and skins was at the rate of 3 pies per rupee and is therefore void. As sub-s. (1) of s. 2 is invalid, the other provisions of that section become unenforceable. Raw hides and skins and dressed hides and skins constitute different commodities for merchandise and hence can be treated as different goods for the purposes of the Act. Sub-rule (1) of r. 16 did not become invalid on this <ORG>'s declaring sub-rule (2) of that rule invalid in <ORG> v. State of Madras,  Supp. 2 S.C.R. 435. Held, that <ORG> was competent to enact the provisions of sub-s. (1) of s. 2 of the Act. The <ORG> can enact laws having retrospective operation. The competence of a <ORG> to make law 218 for a certain past period depends on its present legislative power and not on what power it possessed at the time when it is to operate. <ORG> v. State of Madras, [1963) Supp. 2 S.C.R. 435 <CITATION> , 7 S.T.C. 568, <CITATION> ., 9 S.T.C. 23 1, <CITATION> ,  S.C.R. 53, <CITATION> , 11 S.T.C. 173 and <CITATION> , 11 S.T.C. 149, referred to. JUDGMENT:

Original Jurisdiction: Writ Petition Nos. 201 to 203 of 1963.

Petitions under Art. 32 of the Constitution for the en- forcement of the fundamental rights.

<NAME>, <NAME> and <NAME>, for the petitioner (in all the petitions).

<NAME> and <NAME>, for the respondent (in all the petitions).

May 7, 1964. The Judgment of the Court was delivered by: <NAME> are three petitions under art. 32 by the petitioners, which is a partnership firm, praying fora declaration that s. 2 of the Madras General Sales Tax (Special Provisions) Act , 1963 (Act No. 11 of 1963)hereinafter called the Act, is ultra vires the Constitution and of no effect and for a writ of mandamus directing the State of Madras to refrain from enforcing any of the provisions of that section. Each of the petitions relates to a particular assessment year.

The petitioners are dealers in skin, carrying on business at Shenbakkam, Vellore, North Arcot District. in the State of Madras. They purchase raw skins from places both within and outside the State of Madras, tan the same and sell them through their agents in Madras. They were assessed to a certain amount of sales-tax, in accordance with the provisions of the Madras General Sales Tax Act 1939 (Madras Act IX of 1939) and r.16(2)(ii) of the rules framed thereunder viz., the Madras General Sales Tax (Turnover and Assessment) Rules, on the turnover of hides and skins purchased in the untanned condition outside the State, but tanned within the State, with respect to each of the assessment years 1955-56, 1956-57 and 1957-

The petitioners challenged earlier the validity of r. 16 on the ground that it contravened Art. 304 of the Constitution. Their contentions were negatived by <ORG>. The petitioners then filed writ petition No. 148 of 1959 in this Court against the assessment of tax for the year 1957-58. This Court allowed it as it had held on November 22, 1962 in Firm Mehtab Majid and Co. v. State of Madras(1) that r. 16(2) of the rules was invalid as it discriminated against the imported hides and skins which had been purchased or tanned outside the State. Subsequently, the validity of r. 16(1) of the rules was challenged in this Court in writ petitions Nos. 43 and 44 of 1963 by <NAME> & Co. Those writs were filed on March 5, 1963 and it was contended that subrule (1) standing by itself was ultra-vires the Constitution as it had the effect of selecting for discriminatory taxation only raw hides and skins and leaving un-taxed sales of tanned hides and skins in Madras.

On June 10, 1963, the Governor of Madras promulgated Madras Ordinance No. 3 of 1963. The explanatory statement attached to the Ordinance stated:

"The decision of <ORG> (in W.P. 147 of 1959-Firm ATB Mehtab Majid & Co. v. The State of Madras) will result in claims for refund of tax being preferred by dealers in hides and skins already assessed under the impugned rule thereby resulting in huge loss of revenue and will also result in administra-

tive complications. It is therefore considered necessary to avoid these

difficulties by removing the discrimination in the matter of levy of (1) [1963] SUPP. 2 S.C.R. 435 tax on hides and skins pointed out by <ORG> and to provide for the assess- ment or reassessment and collection of the ax from the dealers in hides and skins without any discrimination by levying the tax in all cases on the basis of the purchase price of the hides and skins in the untanned condition."

The relevant provisions of the Ordinance read: "2. Special provisions in respect of tax on sale of hides and skins in certain cases:- (1) Notwithstanding anything contained in the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the said Act), or in the rules made thereunder (hereinafter referred to as the said rules), the following provisions shall apply in respect of tax on sale of hides and skins during the period commencing on the 1st April 1955 and ending on the 31st March 1959.

(i) In the case of raw hides and skins, the tax under the said Act shall be levied from the dealer who is the last purchaser in the State and not exempt from taxation under sub- section (3) of s. 3 of the said Act at the rate of two percent of the amount for which they are bought by him.

(ii) In the case of dressed hides and skins (which were not subjected to tax under the said Act as raw hides and skins), the tax under the said Act shall be levied from the dealer who in the <ORG> is the first seller in such hides and skins not exempt from taxation under sub-section (3) of section 3 of the said Act at the rate of two percent of the amount for which such hides and skins were last purchased in the untanned condition.

Explanation II-For the removal of doubts it is hereby declared that in respect of sales to which sub-section (1) applies, nothing in rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, shall apply or shall be deemed ever to have applied.

(2) Any dealer in hides and skins who has been finally assessed under the provisions of the said Act and the said rules, may within a period of ninety days from the date of the commencement of this Ordinance apply to the authority or officer concerned for reassessment under the provisions of this Ordinance along with the correct and complete return; (3) Subject to the provisions of sub-section (1), the provisions of the said Act and the said rules shall be deem- ed to be in force for the purpose of assessment or re- assessment and recovery of the tax on sale of hides and skins during the period mentioned in sub-section (1) and, notwithstanding any provision regarding limitation in the said Act and the said rules, it shall be competent for the authority or officer concerned to assess or reassess and recover the tax on sale of hides and skins during the period mentioned in sub-section (1) as if this Ordinance had been in fore at the relevant time.

(4) The amount of tax on sale of hides and skins during the period mentioned in sub-section (1) already collected from any dealer shall be adjusted towards the tax due from him on such sale as a result of assessment or re-assessment in accordance with the provisions of this Ordinance and it the tax on such assessment or reassessment-

(i) is in excess of the amount of tax on such sale of hides and skins already collected from such dealer, such excess shall be recovered from him; or

(ii) is less than the amount of tax on such sale of hides and skins already collected from such dealer, the difference shall be refunded to him.

On July 12, 1963, <ORG>, Madras dealt with the appeals of the petitioners against the assessment for the year 1955-56 and 1956-57, and in view of s. 2(3) of the Ordinance, set aside the orders of assessment and remanded the matter for re-assessment in accordance with the provisions of the aforesaid Ordinance. On. August 28, 1963, the Act received the assent of the Governor. Sub-s.(2) of s. I provided that the Act would be deemed to have come into force on June 10, 1963. Subsection (1) of s. 2 of the Act reads:

"(1) Notwithstanding anything contained in the Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the said Act), or in the rules made thereunder (hereinafter referred to as the said rules), during the period commencing on the 1st April, 1955 and ending on the 31st March 1959, in respect of sale of dressed hides and skins (which were not subjected to tax under the said Act as raw hides and skins), the tax under the said Act shall be levied from, the dealer who in the State is the first seller in such hides and skins not exempt from taxation under sub-section (3) of section 3 of the said Act at the rate of two per cent of the amount for which such hides and skins were last purchased in the untanned condition. Explanation I.The burden of proving that a transaction is Dot liable to taxation under this ,sub-section shall be on the dealer. Explanation II.-For the removal of doubts it is hereby declared that in respect of sales to which sub--section (1) applies, nothing in rule 16(2) of the Madras General Sales Tax (Turnover & Assessment) Rules, 1939, shall apply or shall be deemed ever to have applied."

It is to be noticed that s. 2(1) of the Act is in respect of tax on sale of dressed hides and skins and not in respect of tax on sale of raw hides and skins with which clause (i) of s. 2(1) of the Ordinance dealt. Consequently the other provisions of the other sub-sections of s. 2 , though practically the same as those of the Ordinance, have been suitably modified. They are therefore not set out. It is the validity of s. 2 of the Act that is challenged in these petitions, on the ground that it violates the provisions of Arts. 14, 19(i) (f) and (g), 31, 286(2), 301 and 304 of the Constitution for the following reasons:-

1. Persons who had purchased raw hides and skins in the <ORG> of Madras in the years 1955-56 and 1956-57 paid sales tax at 3 pies per rupee and paid no further tax when those hides, after being tanned, were sold. The petitioners having purchased raw hides and skins from outside the <ORG>, did not at the time pay tax at that rate on the purchase price of the raw hides and skins but were now liable, under the impugned provision, to pay tax at the rate of 2 per cent of the amount for which such hides and skins were last purchased in untanned condition. Thus the petitioners would pay a higher tax than what was paid by the seller of dressed hides and skins purchased in the <ORG> in the raw condition and then tanned and sold and that therefore s. 2(1) discriminates against imported untanned hides and skins.

2. In the case of sale of dressed hides and skins, s. 2(i) levies a tax at the rate of 2 per cent of the amount for which hides and skins in the untanned condition were last purchased by a dealer himself outside the <ORG>. S. 2 (i) creates discrimination between the case of a local mer- chant,selling locally dressed hides and skins and the case where the dealer who is the first seller in the <ORG> and who purchased only dressed hides and skins outside the <ORG> and then sold them in the <ORG> for in his case be had not purchased such hides and skins in the untanned condition and has therefore not become liable to be assessed under s. 2(1)

3. <ORG> had by The Essential Goods (Declaration & Regulation of Tax on Sale or Purchase) Act 52 of 1952 declared hides and skins essential for the life of the com- munity. The Act provided for taxation on the sale of hides and skins during the period such declaration was in. force, i.e., between 1-4-1955 and 11-9-1956 and therefore required the assent of the President, in view of Art. 286(3) of the Constitution as it stood prior to its repeal in Sep- tember, 1965. As no such assent had been received, the Act cannot affect the sales prior to September 11, 1956 and so no tax can be levied in respect of those sales.

4. Rule 16(1) became invalid when this Court held r.16(2) invalid. Rule 16(1) has not been revived by the new Act. It follows that no tax on sale of raw hides and skins during the period 1955-57 is valid and that therefore the imposition of a tax under sub-section ( 1 ) of s. 2 of the, impugned Act imposes a tax on the imported hides and skins when sold in the <ORG> in the tanned condition while no tax is to be levied on the sale of the hides and skins purchased in the <ORG> in the raw condition, then tanned' and sold. These contentions are sought to be met for the respondent <ORG> on the following grounds:

1. It is open to the legislature to treat dressed hides and skins as a separate category from raw hides and skins. They are in fact commercially different commodities and' that therefore different rates of tax for the two different categories of goods can be legally levied. No discrimination is made between locally tanned goods and outside-tanned goods as in both cases tax is levied on the first sale of such goods within the <ORG>. It does not matter that the hides and skins tanned locally do not at- tract that liability on the first sale in view of their having been taxed earlier at the untanned stage because of the special provision of exemption.

2. It is not correct that s. 2 (1) will not apply to a dealer purchasing tanned hides and skins outside the-State and' selling them within the State. It is not necessary that the seller of the tanned hides and skins in the State be himself the last purchaser of the untanned hides and skins: for the purpose of his liability under s. 2(1) .

3. Art. 286(3) as it stood prior to the amendment in 1956 imposed fetters only on post-Constitutional law and therefore it could not operate on the Madras General Sales Tax Act, 1939, which had been enacted much earlier. S. 2(1) of the impugned Act simply lay down the machinery for the assessment and collection of tax -imposed by s. 3 as modified by s. 5 of the 1939 Act which did not require Presidential assent.

4. The decision of this <ORG> in Firm <NAME>'s Case(1) does not affect the validity of r.16(1). Sub-rule (1) and sub-rule (2) of r. 16 are severable. We are of opinion that the first contention for the peti- tioners is sound.

The effect of sub-section (1) of s.2 of the Act is the same as was the effect of sub-rule (2) of r.16 of the Turnover and Assessment Rules, 1939, and which was held to be invalid by this Court in <NAME>'s Case(1) . The impugned sub-section provides for the assessment of tax on the sale of dressed hides and skins which were not subjected to tax under the 1939 Act as raw hides and skins and thus exempts from taxation, in accordance with the provisions of sub-section (1) of s.2 of the Act the sale of tanned hides and skins with respect to which tax had been paid on their sale in the raw condition. Such tanned hides and skins had been exempted from taxation under sub-clause (ii) of r. 2 of the Turnover and Assessment Rules. The same is the position in the present case. The present rule therefore is discriminatory and invalid for the same reasons which led this Court to hold sub-rule (2) of r. 16 invalid in <NAME>'s Case(1). There is no escape from this conclusion. In the earlier case, discrimination was broughtabout on account of sale price of tanned hides and skinsto be higher than the sale price of untanned hides andskins,:bough the rate of tax was the same, while in the present case, the discrimination does not arise on account of difference of the price on which the tax is levied as the tax on the tanned hides and skins is levied on the amount for (1) [1963] SUPP. 2 S.C.R. 435.

51 S.C.-15.

which those hides and skins were last purchased in the un- tanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on the sale of untanned hides and skins. The rate of tax on the sale of tanned hides and skins is 2 per cent on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee The difference in tax works out to 7/1600th of a rupee i.e. a little less than 1/2 nayepaise per rupee. Such a discri- mination would affect the taxation up to the 1st of August 1957 when the rate of tax on the sale of raw hides and skins was raised to 2 per cent of the sale price.

The second contention has no force. There is nothing in sub-section (1) of s.2 of the Act to suggest that the seller of the tanned hides and skins in the <ORG>, should himself be the purchaser of those hides and skins in the raw condition from outside the <ORG>. An importer can import tanned hides and skins as well as untanned hide and skins from outside the <ORG>. If he imports tanned hides and skins, he need not necessarily be the last purchaser of those hides and skins in the untanned condition In that case, it may be difficult to assess the tax on the basis laid down in sub-section (1) of s.2, as the imported may not be able to inform about the price at which those hides and skins were last purchased. Such a price may then have to be determined by estimate. In case the importer himself purchases the untanned bides and skins and then imports them either in the same condition or in the tanned condition, there would be no such difficulty. The difficulty existing in the former case does not necessarily mean that the importer of tanned hides and skins when he himself is not the last purchaser, cannot be taxed under sub-section (1 ) of s.2 of the Act.

The next question is whether sub-rule (1) of r.16 be came invalid when this <ORG> declared sub-rule (2) in valid in <NAME>'s Case(1). The contention for the pettioner is that it became invalid because hides and skins whether tanned or untanned, constituted one commodity (1) [1963] SUPP. 2 S.C.R. 435.

and that therefore tax cannot be levied on the sale of hides and skins in the raw condition when no tax is levied on the sale of hides and skins in the tanned condition. It is contended for the <ORG> that they are different commodities, and constitute two separate categories for purposes of taxation. We are inclined to the view that they form dif- ferent categories.

Hides and skins in the untanned condition are undoubtedly different as articles of merchandise than tanned hides and skins.

It is urged for the petitioners that tanning is only a pre- servative process which makes no change in the nature of the article itself.

The question whether tanned skins and hides are different commodities from raw skins and hides has bee& considered by Courts a few times.

<CITATION> (1) is the observation:

"The tanning of raw hides and skins is a manufacturing process as a result of which the product that emerges is different from the raw material."

<CITATION> .(1) is also an observation to the same effect, it being:

"The stage of collection is also appropriate as, after the tanning, the hides and skins become different commodities.......... " In Encyclopaedia Britannica, Vol. 13, p. 845, it is stated, in connection with 'leather: "Leather is manufactured from the hides and skins of various animals. The object of tannin(, (or the manufacture of leather) is the conversion of the putresible skin into a material which under ordinary conditions of use does not putrefy, and which can be wetted and subsequently dried without becoming hard or horny."

(1) 7 S.T.C. 568, 573.

(2) 9 S.T.C. 231, 237.

Reference may also be made to <CITATION> (1) in which it was held that raw cashewnuts become a different commodity commercially after the application of certain processes as a result of which they are converted into edible kernels. It is therefore not correct to say that the process of tan- ning brings about no change in the raw hides and skins and that therefore both types of hides and skins form one com- modity.

The petitioners rely on two cases in support of their contention that the tanned and untanned hides and skins do not form-different commodities but constitute one commodity. <CITATION> (1) is the observation:

" Section 14(3) of the Central Sales Tax Act, 1956 (Act 74 of 1956) also treats hides and skins, whether dressed or raw, as a single commodity..... Since skins tanned or untanned, constitute only one class of goods and the sale of that class of goods can be taxed only at a single point, obviously there can be no tax on a sale of tanned goods, if tax has already been paid on an earlier transaction when those skins were untanned.' No reason is given why the two kinds of hides and skins are treated as a single commodity.

The other case relied on is <CITATION> ("). This case does not directly concern hides and skins. It however held that ginned cotton and un-ginned cotton constitute one commodity, as the process of ginning just separates the seeds as the character or identity of cotton is not altered thereby, and as ginning is not a manufacturing process. It was taken into consideration that the Constitution as well as the statutes dealing (1)  S-C.R. 53. (3) xi S.T.C. 149.

(2) II S.T.C. 173,184.

with the matter treat ginned and un-ginned cotton under the same head, indicating thereby that the legislature looked upon ginned and un-ginned cotton as one and the same thing. The fact that certain articles are mentioned under the same heading in a statute or the Constitution does not mean that they all constitute one commodity. The inclusion of several articles under the same heading may be for a reason other than that the articles constitute one and the same thing. In this connection we may refer to the Madras General Sales Tax Act, 1959. Section 4 of this Act provides that the sales tax on the sale or purchase of declared goods will be payable at the rate and only at the point specified against each article in the 11 Schedule.

The Second Schedule refers to raw hides and skins separately from dressed hides and skins against serial No. 7. The rate of tax is different and so is the point at which the tax is to be levied. This will indicate that in 1959 the legis- lature in Madras considered raw hides and skins a different commodity from dressed hides and skins. There is no good reason why the legislature be not attributed the same inten- tion when it enacted the 1939 Act especially when there are other reasons also to point to the same conclusion. We therefore hold that raw hides and skins and dressed hides and skins constitute different commodities of merchandise and they could therefore be treated as different goods for the purposes of the Act.

The provision of the Act at the relevant time for the levy of tax on the sale of hides and skins was s.5, cl. (vi) which reads:

"Subject to such restrictions and conditions as may be prescribed, including conditions as to licences and licence fees. - - - -

(vi) the sale of hides and skins, whether tanned or untanned shall be liable to tax under section 3 , sub-section (1) only at such single point in the series of sales by successive dealers as may be prescribed."

In 1957 this provision was replaced by s.5A(4) which read:

The sale of hides and skins, whether in a raw or dressed state, shall be liable to tax only at such single point in the series of sales by successive dealers as may be prescribed but at the rate of two percent on the turnover at that point."

The series of sales referred to in this provision, to our mind, meant the series of sales of each kind of hides and skins namely the series of sales of raw hides and skins and the series of sales of dressed hides and skins and do not mean a single series of sales which includes successive sales in the first instance of raw hides and skins and after tanning successive sales of tanned hides and skins. The real question is whether these provisions treat raw hides and skins and dressed or tanned hides and skins as one class of goods for the purpose of taxation or as two different classes of goods. If they treat them as one class of goods, the contention for the petitioner loses force as taxing of hides and skins at the time of their sale in a raw condition meets the requirements of law as hides and skins could be taxed only it a single point. If the dressed or tanned hides and skins are not taxed at the time of their sale that does not offend against the statutory provisions. No question of discrimination arises as a sale of raw hides and skins of whatever origin, i.e., whether produced in the <ORG> or imported into the <ORG> would be equally liable to the levy of tax.

If the statute treats both these kinds of hides and skin as different commodities the provision of sub-rule (1) of r.16 providing for the levy of tax on raw hides and skins at a certain point even in the absence of any provision for the taxation of dressed hides and skins cannot be said to be discriminatory and invalid. The articles to be taxed were not the same and the legislature could provide differently not their taxation.

We therefore hold that sub-rule (1) of r.16 did not become invalid on this <ORG>'s declaring sub-rule (2) of that rule invalid in <NAME>'s Case(1).

The only question that now remains for consideration is whether the State legislature was competent to enact the provisions of sub-section (1) of s. 2 of the Act. Hides and skins had been declared under Act LII of 1952 to be essen- tial for the life of the community. Art. 286(3) of the Constitution as it stood before its amendment by the Consti- tution VI Amendment Act of 1956, on September 11, 1956, read:

No law made by <ORG> State imposing or authorising the imposition of, a tax on the sale or purchase of any such goods as have been declared by <ORG> by law to be essential for the life of the community shall have effect unless it has been reserved for the consideration of the President and has received his assent."

This provision, however, did not apply. to the 1939 Act which had been enacted much earlier than the commencement of the Constitution. By August 28, 1963, when the Act was enacted by <ORG>, Art. 286(3) had been amended and Act Lll of 1952 had also been repealed. Consequently there was no Constitutional requirement for the Act being reserved for the assent of the President before it could be enforced. It is contended for the petitioner that the Act really enacted for a period, when if passed, it bad to receive the President's assent for its enforcement and that therefore <ORG> could not even in 1963 enact this provision affecting the taxation law in respect of the sale or purchase of goods which were goods declared essential for the of the, commissioner. We do not see why such a fetter be placed on the legislative power of <ORG>. The State legislature is free to enact laws which would have retrospective operation. Its competence to make law for a certain past period, depends on its present legislative power and not on what it possessed at the period of (1)  Supp. 2 S.C.R. 435.

time when its enactment is to have operation. We there fore do not agree with this contention.

The matter can be looked at in a different way. The 1939 Act required no assent of the President. <ORG> was doing in 1963 what the legislature enacting the 1939 Act was supposed to have enacted and therefore its enactment was not governed by the Constitutional requirement for an Act to be enacted during the period Act LII of 1952 was in force. Lastly, it has been urged for the petitioner that hides and skins have been declared to be of special importance in inter-<ORG> trade or commerce by s.14 of the Central Sales Tax Act of 1956. The tax imposed by sub-section (1) of s. 2 of the Act is a tax on the sale of hides and skins in the course of inter-<ORG> trade or commerce and therefore fen within entry No. 92A of list 1 of Seventh Schedule and that therefore the <ORG> legislature was not competent to impose it. It could impose by virtue of entry No. 54 in List II of Seventh Schedule tax on the sale or purchase of goods subject to the provisions of entry No. 92A of List 1. There is no force in this contention. The tax is imposed on the sale which took place within the <ORG>. The <ORG> legis- lature is competent to impose such a tax. The mere fact that the article sold in the <ORG> had been brought from outside the <ORG> does not make the sale of that article a sale in the course of inter-<ORG> trade or commerce. It is only when A, in <ORG> X, purchased through a commission agent in a <ORG> Y and receives the articles purchased through the commercial agency that the sale comes within the expression 'in the course of inter-<ORG> trade': <CITATION> - tory(1). (supra at p. 70).

It has been argued for the <ORG> that the Act is not affected by the provisions of Arts. 301 to 304 of the Constitution as they affect the legislative power with respect to Acts to operate in the future and not the power to enact Acts which would operate in the past. We do not consider the contention sound. The Act makes provision for a period (1)  S.C.R. 53.

subsequent to the commencement of the Constitution and therefore is to be subject to the provisions of the Constitution.

We therefore hold that sub-section (1) of s. 2 of the Act discriminates against imported hides and skins which were sold up to the 1st of August 1957 upto which date the tax on sale of raw hides and skins was at the rate of 3 pies per rupee or 19/16th percent. This however does not mean that the sub-section is valid with respect to the sales which took place subsequent to August 1, 1957. The subsection being void in its provisions with respect to a certain initial period, we cannot change the provision with respect to the period as enacted to the period for which it could be valid as that would be re-writing the enactment. We have therefore to hold that sub-s.(1) of s. 2 void accordingly hold so.

In view of the provisions of sub-section (1) of s. 2 being invalid the other provisions of that section become unenforceable.

We therefore allow the petitions with costs, one hearing fee, and hold s. 2(1) of the Act invalid and order the issue of a writ of mandamus to the State of Madras and <ORG> under the Act to refrain from enforcing any of the provisions of s. 2 of the Act.

Petitions allowed.


ORDER

1. The <ORG> is in appeal against the judgment of <ORG> of <ORG> at Madras delivered upon a reference application by the <ORG>. The three questions that <ORG> considered read as follows:

1. Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that the Income-tax Officer was not justified in diminishing the capital base with reference to the deductions allowed under Chapter VI from the total income?

2. Whether the <ORG>'s view that for the purpose of the computation of capital base, the provisions of Rule 4 of the Second Schedule would apply only to items of income which are wholly exempt under Chapter III and that those provisions would not apply to the deduction allowed under Chapter VI-a is sustainable in law?

3. Whether, on the facts and in the circumstances of the case, the <ORG> was right in holding that for the purpose of the computation of chargeable profits, the deduction under Rule 1(viii) of the First Schedule should be made only with reference to gross dividends but not the net dividends as done by the Income-tax Officer?

<ORG> answered the questions in the affirmative and in favour of the assessee.

2. It is not in dispute that the first two questions are covered against the <ORG> by the judgment of this Court in <CITATION> . 187 I.T.R. 108. The question to consider, therefore, is the third question. The judgment of this Court in <CITATION> . 155 I.T.R. 120 delivered in respect of a similar provision was considered by <ORG>, in the case of <CITATION> . 200 I.T.R. 325. The question before <ORG> was akin to Question No. 3 before us. <ORG> considered the judgment in <ORG> (S.C.) and noted that following that judgment, several <ORG> had taken the view that on a correct interpretation of Rule 1(viii) of the First Schedule to the Companies (Profits) Surtax Act , 1964, it was only the net dividend which was included in the total income and, therefore, it was this amount which was deductible in arriving at the figure of the chargeable profits. In our view, having regard to the language of the Rule, this is the correct position and, accordingly, we affirm the view taken by <ORG> in the case of <ORG> The third question is, therefore, answered in the negative and in favour of the <ORG>.

3. The civil appeals are allowed to that extent.

4. No order as to costs.