Hoechst Pharmaceuticals Ltd. & ANR Vs. State of Bihar & Ors [1983] INSC 63 (6 May 1983)
SEN, A.P. (J) SEN, A.P. (J) VENKATARAMIAH, E.S. (J) MISRA, R.B. (J)
CITATION: 1983 AIR 1019 1983 SCR (3) 130 1983 SCC (4) 45 1983 SCALE (1)723
CITATOR INFO :
R 1985 SC 12 (13) RF 1986 SC1085 (14) F 1987 SC 494 (6) F 1988 SC 322 (4) RF 1988 SC 329 (14) RF 1988 SC1708 (24) R 1990 SC1637 (21) RF 1990 SC2072 (11,46) R 1992 SC1310 (7) RF 1992 SC2169 (15)
ACT:
Bihar Finance Act, 1981-Sub-ss. (I) and (3) of s. 5- Levy of surcharge on sales tax and prohibition from passing on liability thereof to purchasers- Whether void in terms of opening words of Art. 246(3)for being in conflict with Paragraph 21 of Drugs (Price Control) order, 1979 issued under s. 3(1) of Essential Commodities Act?-whether violative of Arts. 14 and 19(1) (g) ?- Whether it is an essential characteristic of Sales Tax that these seller must have right to pass it on to consumer 7-Whether classification of dealers on the basis of 'gross turnover' as defined in s. 2(j) invalid ? Constitution of India-Art. 246-State Legislatures Power to make law with respect to matters enumerated in List 11- Whether subject to Parliaments power to make law in respect of matters enumerated in List 111 ?-Doctrine of 'pith and substance' and the principle of 'Federal Supremacy'.
Constitution of India-Art. 254(i)-Can repugnancy between a State law and a law made by Parliament arise outside the Concurrent field ? Constitution of India-Arts. 200 and 201-Governor's decision to refer a Bill t o President-Whether subject to Court s scrutiny ?-'Assent of President '- Whether justifiable ?
HEADNOTE:
Sub-section (l) of s. S of the Bihar Finance Act, 1981 provides for the levy of a surcharge in addition to the tax payable, on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs and, sub-s. (3) thereof prohibits such a dealer from collecting amount of surcharge payable by him from the purchaser. In exercise of the power conferred by this section, the State Government fixed the rate of surcharge at 10 per cent of the total amount of tax payable by a dealer.
Two of the appellants in this batch of appeals were companies engaged in the manufacture and sale of the medicines throughout India whose branches sales depots in Bihar were registered as dealers. Their products were sold through wholesale distributors/ stockiest appointed in almost all the districts of the Slate and their gross turnover within the State during the relevant period ran into crores of rupees. Most of the medicines and drugs sold by them were covered by the Drugs (Price Control) Order, 1919 issued under sub-s. (l) of 131 s. 3 of the Essential Commodities Act in terms of which they were expressly prohibited from selling those medicines and drugs in excess of the controlled A price fixed by the Central Government from time to time but were allowed to pass on the liability to the consumer. During the assessment years 1980-81 and 1981-82 they had to pay the surcharge under s. 5(1) of the Bihar Finance Act, 1981 at 10 per cent of the tax payable by them.
The appellants challenged the Constitutional validity of sub-s. (3) of s. 5 but the same was repelled by the High Court relying on the decision in S. Kodar. v. State of Kerala, [1979]1 S.C.R. 121.
It was contended on behalf of the appellants: (i) that sub-s. (3) of s. S of the Act which is a State law relatable to Entry 54 of List 11 of the Seventh Schedule to the Constitution and which provides that no dealer shall be entitled to collect the surcharge levied on him is void in terms of the opening words of Art. 246(3) of the Constitution as it is in direct conflict with paragraph 21 of the Drugs (Price Control) order 1979, issued under sub-s.
(1) of s. 3 of the essential Commodities Act, 1955 which is a Union Law relatable to Entry 33 of List III and which enables the manufacturer or producer of drugs to pass on the liability to pay sales tax to the consumer; (ii) that the words "a law Mads by Parliament which Parliament is competent to enact ' contained in Art. 254(1) must be construed to mean not only a law made by Parliament with respect to one of the matters enumerated in the Concurrent List but also to include a law made by Parliament with respect to any of the matters enumerated in the Union List and therefore sub-s. (3) of s. 5 of the Act being repugnant to Paragraph 21 of the Control order is void under Art.
(iii) that if both sub-s. (1) and sub-s. (3) of s. 5 were relaxable to Entry 54 of List II, there was no need for the Governor to have referred the Bihar Finance Bill, 1981 to the President for his assent and that the President's assent is justiciable; (iv) that dealers of essential commodities who cannot raise their sale prices beyond the controlled price cannot be equated with other dealers who can raise their sale prices and absorb the surcharge and since sub-s.
(3) of s. S treats "unequals as equals" it is arbitrary and irrational and therefore Violative of Art. 14 of the Constitution: (v) that sales tax being essentially an indirect tax, the legislature was not competent to make a provision prohibiting the dealer from collecting the amount of surcharge and that the true nature and character of surcharge being virtually a tax on income, sub-s. (3) of s. 5. is unconstitutional as it imposes an unreasonable restriction upon the freedom of trade guaranteed under Art.
19(1)(g). (vi) that sub-s. (3) of s. S of the Act which is a State law being repugnant to paragraph 21 of the Drugs (Price Control) Order which is issued under a Union law, the latter must prevail in view of the non obstants clause in s.
6 of the Essential Commodities Act and the former which is inconsistent therewith should be by-passed in terms of the decision in Hari Shankar Bagla and Anr. v. State of Madhya Pradesh, [1955] I S.C.R. 380. and (vii) that in view of the decision in A. V fernandez v. State of Kerala.[1957] S.C.R.
837, sub-s. (1) of s. 5 of the Act which makes the "gross turnover" as defined in s. 2(j) of the Act which includes transactions taking place in the course of inter-state or International Commerce to be the basis for the levy of surcharge is ultra vires the State Legislature, 132 Dismissing the appeals,
HELD: 1. (a) It cannot be doubted that the surcharge partakes of the nature of sales tax and therefore it was within the competence of the State Legislature to enact sub- s. (1) of s. 5 of the Act for the purpose of levying surcharge on certain class of dealers in addition to the tax payable by them. When the State Legislature had competence to levy tax on sale or purchase of goods under Entry 54 of List II of the Seventh Schedule it was equally competent to select the class of dealers on whom the charge would fall.
If that be so, the State Legislature could undoubtedly have enacted sub-s. (3) of s. S prohibiting the dealers liable to pay the surcharge under sub-s.(l) thereof from recovering the same from the purchaser. [156 H-157 B] (b) The power of the State Legislature to make a law with respect to the levy and imposition of a tax on sale or purchase of goods relatable to Entry 54 of List II and to make ancillary provisions in that behalf is plenary and is not subject to the power of Parliament to make a law under Entry 33 of List III. There is no warrant for projecting the power of Parliament to make a law under Entry 33 of List III into the State s power of taxation under Entry 54 of List II. Otherwise, Entry 54 of List II will have to be read as:
"Taxes on sale or purchase of goods other than the essential commodities, etc." When one entry is made 'subject to' another entry, all that it means is that out of the scope of the former entry, a field of legislation covered by the latter entry has been reserved to be specially dealt with by the appropriate legislature. Entry 54 of List II is only subject to Entry 92A of List I and there can be no further curtailment of the State's power of taxation.
[183 F-H, 184 A-B] (c) The Constitution effects a complete separation of the taxing power of the Union and of the States under Art.
246 The various entries in the three lists are not 'powers of legislation, but 'fields of legislation. The power to legislate is given by Art. 246 and other Articles of the Constitution. Taxation is considered to be a distinct matter for purposes of legislative competence. Hence, the power to tax cannot be deduced from a general legislative entry as an ancillary power. Further, the element of tax does not directly flow from the power to regulate trade or commerce in, and the production supply and distribution of essential commodities under Entry 33 of List II, although the liability to pay tax may be a matter incidental to the Centre's power of price control. [184 E-G] (d) A scrutiny of Lists I and II would show that there is no overlapping anywhere in the taxing power and that the Constitution gives independent sources of taxation to the Union and the States. There is a distinction made between general subjects of legislation and taxation and these are dealt with in separate groups of entries: in List I, Entries I to 81 deal with general subjects of legislation and entries 82 to 92A deal with taxes; in List II Entries I to 44 deal with general subjects of legislation and Entries 45 to 63 deal with taxes. This mutual exclusiveness is also brought out by the fact that in List III, there is no entry relating to a tax it only 133 contains an entry relating to levy of fees. Thus, in our Constitution, a conflict of taxing power of the Union and of the States cannot arise. The two A laws viz., sub-s. (3) of s. S of the Act and paragraph 21 of the Drugs (Price Control) order issued under sub-s (I) of s. 3 of the Essential Commodities Act operate on two separate and distinct fields and both are capable of being obeyed. There is no question of any clash between them. [184 H-185 F] M.P. Sundararamier and Co. v. State of Andhra Pradesh and Anr., [1958] S.C.R. 1422, referred to. Seervai: Constitutional Law of India, 3rd Ed., Vol, I, pp. 81-82, referred to.
(e) The words `Notwithstanding anything contained in cls. (2) and (3) in cl. (1) of Art. 246 and the words "Subject to cls. (1) and (2)" in cl. (3) thereof lay down the principle of Federal Supremacy viz., that in case of inevitable conflict between Union and State powers, the Union power as enumerated in List I shall prevail over the State power as enumerated in Lists ll and III, and in case of overlapping between Lists li and III, the former shall prevail. But the principle of Federal Supremacy laid down in Art. 246 cannot be resorted to unless there is an 'irreconcilable' conflict between the Entries in the Union and State Lists. The non obstante clause in cl. (I) of Art.
246 must operate only if reconciliation should prove impossible. However, no question of conflict between the two Lists will arise is the impugned legislation, by the application of the doctrine of 'pith and substance' appears to fall exclusively under one List, and encroachment upon another List is only incidental [165 A-E] (f ) The true principle applicable in judging the constitutional validity of sub-s. (3) of s. S of the Act is to determine whether in its pith and substance it is a law relatable to Entry 54 of List II and not whether there is repugnancy between it and paragraph 21 of the Drugs (Price Control) order The constitutionality of the law has to be judged by its real subject matter and. not by its incidental effect upon any topic of legislation in another field. Once it is found that in pith and substance the impugned Act is a law on a permitted field any incidental encroachment on a forbidden field does not affect the competence of the legislature to enact that Act. No doubt, in many cases it can be said that the enactment which is under consideration may be regarded from more than one angle and as operating in more than one field. If, however, the matter dealt with comes within any of the classes of subjects enumerated in List II, then, under the terms of Art. 246(3) it is not to be deemed to come within the classes of subjects assigned exclusively to Parliament under Art. 246(1) even though the classes of subjects looked at singly overlap in many respects. The whole distribution of powers must be looked at from the point of view of determining the question of validity of the impugned Act. It is within the competence of the State Legislature under Art. 246(3) to provide for matters which though within the competence of Parliament, are necessarily incidental to effective legislation by the State Legislature on the subject of legislation expressly enumerated in List II. [162 B, 171 D, 177 C-E] 134 In the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, [1939] F.C.R, 18;
Citizen Insurance Company v. William Parsons, L.R. [1882] 7 A.C. 96; Attorney General for the Province of ontario v. Attorney General for the Dominion of Canada, L.R. [1912] A.C. 571; A.L.S.P.P.L. Subrahmanyam Chettiar v. Muttuswami Goundan, [1940] F.C.R. 188; Governor General in Council v. Province of Madras, [1945] F.C.R. 179; The Province of Madras v. Messers Boddu Paidanna & Sons, [1942] F.C.R. 90, Prafulla Kumar Mukherjee & Ors v. Bank of Commerce Ltd., Khulna, A.I.R. [1947] P.C. 60; and Grand Trunk Railway Company of Canada v. Attorney General of Canada, L R [19071 A.C. 65, referred to.
2.(a) The question of repugnancy under Art. 254(1) between a law made by Parliament and a law made by the State Legislature arises only in case both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent List and there is direct conflict between the two laws. It is only when both these requirements are fulfilled that the State law will, to the extent of repugnancy become void. Art. 254(1) has no application to cases of repugnancy due to overlapping found between List ll on the one hand and List I and List Ill on the other. If such overlapping exists in any particular case, the State law will be ultra Vires because of the non obstante clause in Art. 246(1) read with the opening words 'Subject to' in Art 246(3). In such a case, the State law will fail not because of repugnance to the Union law but due to want of legislative competence. [145 C, 181 F] (b) It is no doubt true that the expression "a law made by Parliament which Parliament is competent to enact" in Art. 254(1) is susceptible of a construction that repugnance between a State law and a law made by Parliament may take place outside the Concurrent sphere because Parliament is competent to enact law with respect to subjects included in List III as well as List I. But, if Art. 254(1) is read as a whole, it will be seen that it is expressly made subject to cl. (2) which makes reference to repugnancy in the field o Concurrent List. In other words, if cl. (2) is to be the guide in the determination of the scope of cl. (l), the repugnancy between Union and State law must be taken to refer only to the Concurrent field. Art. 254(1) speaks of a State law being repugnant to a law made by Parliament or an existing law. The words "with respect to qualify both the clauses in Art. 254(1) viz., a law made by Parliament which Parliament is competent to enact as well as any provision of an existing law. The underlying principle is that the question of repugnancy arises only when both the legislatures are competent to legislate in the same field, i.e., with respect to one of the matters enumerated the Con- current List. [181 G-182 A, R-C] Deep Chand v. State of Uttar Pradesh & Ors [1959] Supp.
2 S.C.R. 8 Ch. Tika Ramji & ors v. State of Uttar Pradesh & Ors., [1956] S.C.R. 393 zaverbhai Amidas v. State of Bombay, [1955] I S.C.R. 799; M. Karunanidhi v. Union of India, [1979] 3 S.C.R. 254; T. Barai v. Henry Ah Hoe, [1983] I S.C.C. 177; A. S. Krishna v. State of Madras, [1957] S.C.R. ; Clyde Engineering Cø. Ltd. v. Cowburn, [1926] 37 Com.
L.R. 465; Ex Parte Mclean, [1930] 43 135 Com. L R. 472; and Stock Motor Ploughs Limited v. Forsyth, [1932] Com. L.R. 128, referred to.
(c) Entry 54 of List II is a tax entry and therefore there is no question of repugnancy between sub-s. (3) of s. 5 of the Act and paragraph 21 of the Control order. The question of repugnancy can only arise in connection with the subjects enumerated in the Concurrent List as regards which both the Union and the State Legislatures have concurrent powers. [178 G-179 B] B
3. It is clear from Arts. 200 and 201 that a Bill passed by the State Assembly may become law if the Governor gives his assent to it or if, having been reserved by the Governor for the consideration of the President, it is assented to by the President. There is no provision in the Constitution which lays down that a Bill which has been assented to by the President would be ineffective as an Act if there was no compelling necessity for the Governor to reserve it for the assent of the President. It is for the Governor to exercise his discretion and to decide whether he should assent to the Bill or should reserve it for consideration of the President to avoid any future complication. Even if it ultimately turns out that there was no necessity for the Governor to have reserved a Bill for the consideration of the President still he having done so and obtained the assent of the President, the Act so passed cannot be held to be unconstitutional on the ground of want of proper assent. This aspect of the matter, as the law now stands, is not open to scrutiny by the Courts. In the instant case, the Finance Bill which ultimately became the Act in question was a consolidating Act relating the Different subjects and perhaps the Governor felt that it was necessary to reserve it for the assent of the President The assent of the President is not justifiable and the Court cannot spell out any infirmity arising out of his decision to give such assent. [193 A-194 B] Teh Chang Poh @ Char Meh. v. Public Prosecutor., Malaysia, L.R. [1980] A.C 458. referred to.
4. (a) There is no ground for holding that sub-s. (3) of s. 5 of the Act is arbitrary or irrational or that it treats "unequals as equals" or that it imposes a disproportionate burden on a certain class of dealers. A surcharge in its true nature and character is nothing but a higher rate of tax to raise revenue for general purposes.
The levy of surcharge under sub-s. (l) of s. S falls uniformly on a certain class of dealers depending upon their capacity to bear the additional burden. The economic wisdom of a tax is within the exclusive province of the legislature. The only question for the Court to consider is whether there is rationality in the behalf of the legislature that capacity to pay the tax increases by and large with an increase of receipts. The view taken by the Court in kodar's case that, to make the tax of a large dealer heavier is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay, and thus to arrive at a more genuine equality, is in consonance with social justice in an egalitarian State. [186 H-187 A, 191 B, 191 A] S. Kodar v. State of Kerala, [1975] I S.C.R. 121, relied on.
136 (b) There is no basis for the submission that the Court was wrong in Podar's case. The contention that ability to pay is not a relevant criterion for upholding the validity of sub-s. (3) of s. 5 of the Act in question cannot be accepted. On questions of economic regulations and related matters, the Court must defer to the legislative judgment.
When the power to tax exists, the extent of the burden is a matter for the discretion of the law-makers It is not the function of the Court to consider the propriety or justness of a tax or enter upon the realm of legislative policy. If the evident intent and general operation of the tax legislation is to adjust the burden with a fair and reasonable degree of equality, the constitutional requirement is satisfied The equality clause in Art. 14 does not take away from the State the power to classify a class of persons who must bear the heavier burden of tax. The classification having some reasonable basis does not offend against that clause merely because it is not made with mathematical nicety or because in practice it results in some inequalities. [189 H-190 G] (c) There is no lacteal foundation laid to support the contention that the levy of surcharge imposes a disproportionate burden on a certain class of dealers such as manufacturers or producers of drugs, etc. The business carried on by the appellants in the State of Bihar alone is of such magnitude that they have the capacity to bear the additional burden of surcharge That apart under the scheme of the Control order the profit margins of manufacturers and producers of medicines and drugs is considerably higher than that of wholesalers. If the appellants find that the levy of surcharge cannot be borne within the present price structure of medicines and drugs, they have the right to apply to the Centrals Government for revision as the retail price of 'formulations under paragraph I S of the Control order.
[186 F, 187 G, 189 G]
5. It is no doubt true that a sales tax is, according to the accepted notions, intended to be passed on to the buyer, and the provisions authorising and regulating the collection of sales tax by the seller from the purchaser are a usual feature of sales tax legislation. However, it is not an essential characteristic of sales tax that the seller must have the right to pass it on to the consumer; nor is the power of the legislature to impose a tax on sales conditional on its making a provision for sellers to collect the tax from the purchasers Whether a law should be enacted, imposing a sales tax, or validating the imposition of sales tax, when the seller is not in a position to pass it on to the consumer, is a matter of policy and does not affect the competence of the legislature. The contention based on Art.
19(1)(g) cannot therefore be sustained. [191 E-H] The Tata Iron & Steel Co., Ltd. v. The State of Bihar, [1958] S.C.R. 1355; M/s. J. K Judge Mills Co. Ltd. v. 'The State of Uttar Pradesh, 1962, 2 S.C.R. 1 and S. Kodar v.
State of Kerla, [1975] I S.C.R. 121, referred to.
6. (a) The appellants being manufacturers or producers of 'formulations' are not governed by paragraph 21 of the Control order but by paragraph 24 thereof and therefore the price chargeable by them to wholesaler or distributor is inclusive of sales tax. There being no conflict between sub- s. (3) of 137 s. 5 of the Act and paragraph 24 of the Control order, the question of the non obstante clause to s. 6 of the Essential Commodities Act coming into play does A not arise. [158 G] Hari Shankar Bagla & Anr. v. State of Madhya Pradesh, [1955] 1 S.C.R. 380, referred to.
(b) Even otherwise, i.e., if some of the appellants were governed by paragraph 21 of the Control order, that would hardly make any difference. Under the scheme of the Act, a dealer is free to pass on the liability to pay sales tax payable under s. 3 and additional sales tax payable under s. 6 to the purchasers. Sub-s. (3) of s. 5 however imposes a limitation on dealers liable to pay surcharge under sub-s. (I) thereof from collecting the amount of surcharge payable by them from the purchasers which only means that surcharge payable by such dealers under sub-s.
(I) of s. 5 will cut into the profits earned by such dealers. The controlled price or retail price of medicines and drugs under paragraph 21 remains the same, and the consumer interest is taken care of inasmuch as the liability to pay surcharge; under sub-s. (3) of s. 5 cannot be passed on. That being so, there is no conflict between sub-s. (3) of s. 5 of the Act and paragraph 21 of the Control order.
[158 H-159 C] The predominant object of issuing a control order under sub-s. (I) of s. 3 of the Essential Commodities Act is to secure the equitable distribution and availability of essential commodities at fair prices to the consumers, and the mere circumstance that some of those engaged in the field of industry, trade or commerce may suffer a loss is no ground for treating such a regulatory law to be unreasonable, unrest the basis adopted for price fixation is so unreasonable as to be in excess of the lower to fix the price, or there is a statutory obligation to ensure a fair return to the industry. [159 G-H] Shree Meenakshi Mills Ltd. v. Union of India, [1974] 2 S.C.R. 398; and Prag Ice & oil Mills v. Union of India, [1978] 3 S.C.R. 293. referred to
7. The decision in Fernandez's case is an authority for the proposition that the State Legislature, notwithstanding Art. 286 of the Constitution, while r making a law under Entry 54 of the List II can, for purposes of registration of a dealer and submission of returns of sales tax, include the transactions covered by Art. 286. That being so, the constitutional validity of sub s. (I) of s. 5 which provides for the classification of dealers whose gross turnover during a year exceeds Rs. 5 lakhs for the purpose of levy of surcharge in addition to the tax payable by them, is not assailable. So long as sales in the course of inter-State trade and Commerce or sales outside the State and sales in the course of import into, or export out of the territory of India are not taxed there is nothing to prevent the State Legislature while making a law for the levy of surcharge under Entry 54 of the List II to take into account the total turnover of the dealer within the State and provide that if the gross turnover of such dealer exceeds Rs. 5 lakhs in a year he shall, in addition to the tax, also pay a surcharge at such rate not exceeding 10% of the tax as may be provided. The liability to pay the surcharge is not on the Gross turnover 138 including the transactions covered by Art. 286 but is only on inside sales and A the surcharged is sought to be levied on dealers who have a position of economic superiority. The definition of gross turnover in s. 2(j) is adopted not for the purpose of bringing to surcharge inter-State sales etc., but is only for the purpose or classifying dealers within the State and to identify the class of dealers liable to pay such surcharge. There is sufficient territorial nexus between the persons sought to be charged and the State seeking to tax them.
[196 F-197 D] A. V. Fernandez v. State of Kerala, [1957] S.C.R. 837;
State of Bombay v. R.M.D. Chamarbaugwala, [1957] S.C.R. 874;
The Tata Iron and Steel Company Ltd. v. State of Bihar, [1958] S.C.R. 1355; and International Tourist Corporation etc. v. State of Haryana and Ors., [1981] 2 S.C.R. 364, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2567, 2818-20, 2648, 3277, 2817, 2918, 3079-83, 3001-04, 3543-48, 2810-16, 3375, 2864-2917, 2989-3000, 3084-3088, 3268-71, 3253-54, 3399-3400 of 1982.
Appeals by special leave from the Judgments and orders dated the 30th April, 1982, 5th, 6th, 7th, 10th, 11th, 12th, 13th, 15th, May, 1982, 3rd, 17th, 23rd, August, 1982 of the Patna High Court in C.W.J.C Nos. 1788, 3726, 3727, 4529 of 1981, 253, 688, 1473 of 1982, 2771/81, 96/82, 1233, 1498, 1907, 1986 of 81, 1042, 1043, 1121, 1044 of 1982, 3198, 3197, 3195, 3147, 3146, 3148, 1573, 1377, 1802, 1852, 1800, 1950, 1776 of 1981, 1038 of 1982, 1300, 1301, 1303, 1329, 1334, 1383, 1648 of 1981, 255 of 1982, 1193, 1198, 1204, 1206, 1209, 1211, 1213, 1214, 1262-64, 1273, 1282, 1283, 1287, 1331, 1355 1382, 1384, 1386, 1431, 1432, 1484, 1488, 1489, 1548, 1645, 1734, 1833 of 1981, 78 of 1982, 1154, 1160, 1168, 1169. 1186, 1187, 1191, 1549, 1556, 1557-58, 1415, 1461, 1465, 1487 of 1981, 251 of 1982, 228, 1321 of 1981, 394, 1478 of 1982, 1320/81, 902, 565/82, 1775, 1177, 1801 of 1981, 503/82, 1804/81, 1, 3, 4, 6 & 7 of 1982, 3079, 3528 of 1981, 1947/82, 1254/82, 2922/81, 1372/82, 1408 & 1482 of 1981.
AND Special Leave Petitions Nos. 10744-53, 9554-58, 9788, 9821-22, 10907, 9095, 1202-05, 9886-88, 9500-02, 9753, 9523, 10912, 11069, 10754-56, 10797-10812, 10891, 9702, 9782, 9561, 14001, 14364-66 of 1982, 1393-96, 1422-23, 1472-73 of 1983.
From the Judgments and orders dated the 30th April, 1982, 3rd May, 5th, 6th, 7th, 10th, 11th, 12th, 13th May, 19th August 9th & 15th September, 8th & 18th October 1982, 20th & 21st January, 1983 of the Patna High Court in C.W.J.C. Nos. 1176, 1516 139 1435, 1177, 1618, 1469 & 1252 of 1982, 3398/81, 1355/82, 525182, 3640, 3641, 3642, 3743 & 3745 of 1982, 1326, 1784, 1405, 1854, 3337, A 1656 of 1981, 349, 1108, 1148, 4073, 4074, 4075 of 1982, 3118, 3080, 1161, 1374, 2804, 3035 of 1981, 4213/82, 1517/82, 1278, 1414, 1290, 1291, 1292, 1297, 1306, 1200, 1212, 1256, 1276, 1277, 1485 of 1981, 484, 509/82, 1517, 1578, 1450, 4037, 2944, 1788, 2889 of 1981, 1547, 506, 507, 508, 4931, 1253, 1431, 1432, 207 & 214 of 1982 & 182 & 203 of 1983.
WITH Writ Petitions Nos. 9266, 10055-56, 7002-09, 7019-23, 7024, 7921-22, 7996.97, 8508-10, 9680-92, 9322, 7647-53, 8005, 8067, 7160 of 1982, 415 76-78, 640-41, 652 of 1983 (Under article 32 of the Constitution of India) A.B. Divan, A.K. Sen, Shankar Ghose, P.R. Mridul, Hardev Singh & S.T. Deasi, Talat Ansari, Ashok Sagar, Sandeep Thakore, Ms. Rainu Walia, D.N. Misra, D.P.
Mukherjee, B.R. Agarwala, Miss Vijayalakshmi Menon, U.P.
Singh, B.B. Singh. B.S. Chauhan, Anil Kumar Sharma, Praveen Kumar, A.T. Patra, Vineet Kumar, A.K. Jha, M.P. Jha, R.S.
Sodhi, A. Minocha, Mrs. Indu Goswamy, S.K. Sinha, Vinoo Bhagat, P.N. Misra, KK. Jain and Pramod Dayal for the Appellants.
K Parasaran, Solicitor General, R.B. Mahto, Addl.
Advocate General. Bihar. Pramod Swarup and U.S. Prasad for the Respondents.
The Judgment of the Court was delivered by SEN, J. These are appeals by special leave from a judgment and order of the High Court of Patna dated April 30, 1982 by which the High Court upheld the constitutional validity of sub-s. (I) of s.5 of the Bihar Finance Act, 1981 ("Act' for short) which provides for the levy of a surcharge on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs, in addition to the tax payable by him, at such rate not exceeding 10 per centum of the total amount of tax, and of sub-s. (3) of s. 5 of the Act which prohibits such dealer from collecting the amount of surcharge payable by him from the purchasers.
140 The Bihar Finance Act 1981, is not only an Act for the levy A of a tax on the sale or purchase of goods but also is an Act to consolidate and amend various other laws. We are here concerned with s. S of the Act which finds place in Part I of the Act which bears the heading "Levy of tax on the sale and, purchase of goods in Bihar and is relatable to Entry 54 of List II of the Seventh Schedule. By two separate notifications dated January 15, 1981 the State Government of Bihar in exercise of the powers conferred by sub-s. (I) s. S of the Act appointed January, IS; 1981 to be the date from which surcharge under s. 5 shall be leviable and fixed the rate of surcharge at 10 per centum of the total amount of the tax payable by a dealer whose gross turnover during a year exceeds Rs. 5 lakhs, in addition to the tax payable by him. The Act was reserved for the previous assent of the President and received his assent on April 20, 1981. There is no point raised as regards the validity of the notifications in question and therefore there is no need for us to deal with it.
The principal contention advanced by the appellants in these appeals is that the field of price fixation of essential commodities in general, and drugs and formulations in particular, is an occupied field by virtue of various control orders issued by the Central Government from time to time under sub-s. (I) of s. 3 of the Essential Commodities Act, 1955 which allows the manufacturer of producer of goods to pass on the tax liability to the consumer and therefore the State Legislature of Bihar had no legislative competence to enact sub-s. (3) of s. S of the Act which interdicts that no dealer liable to pay a surcharge, in addition to the tax payable by him, shall be entitled to collect the amount of surcharge, and thereby trenches upon a field occupied by a law made by Parliament. Alternatively, the submission is that if sub-s (3) of s. 5 of the Act were to cover all sales including sales of essential commodities whose prices are fixed by the Central Government by various control orders issued under the Essential commodities Act, then there will be repugnancy between the State law and the various control orders which according to s. 6 of the Essential Commodities Act must prevail. There is also a subsidiary contention put forward on behalf of the appellants that sub-s. (I) of s. S of the Act is ultra vires the State Legislature in as much as the liability to pay surcharge is on a dealer whose gross turnover during a year exceeds Rs. 5 lakhes or more i.e. inclusive of transactions relating to Sale or purchase of goods which have taken place in the course of inter-state trade or commerce or outside the State or in the course of import into, or 141 export of goods outside the territory of India. The submission is that such transactions are covered by Art. 286 of the Constitution and A therefore are outside the purview of the Act and thus they cannot be taken into consideration for computation of the gross turnover as defined in s. 2 (j) of the Act for the purpose of bearing the incidence of surcharge under sub-s. (1) of s. 5 of the Act.
It will be convenient, having regard to the course taken in the arguments, to briefly refer to the facts as are discernible from the records in Civil Appeal No. 2567 of 1982 - Messrs Hoechst Pharmaceuticals Limited & Another v. The State of Bihar & others, and Civil Appeal No. 3277 of 1982 - Messrs Glaxo laboratories (India) Limited v. The State of Bihar & others. Messrs Hoechst Pharmaceuticals Limited and Messrs Glaxo Laboratories (India) Limited are companies incorporated under the Companies Act, 1956 engaged in the manufacture and sale of various medicines and life saving drugs throughout India including the State of Bihar.
They have their branch or sales depot at Patna registered as a dealer under s. 14 of the Act and effect sales of their manufactured products through wholesale distributors or stockists appointed in almost all the districts of Bihar who, in their turn, sell them to retailers through whom the medicines and drugs reach the consumers. Almost 94% of the medicines and drugs sold by them are at the controlled price exclusive of local taxes under the Drugs (Price Control) order, 1979 issued by the Central Government under sub-s.
(1) of s. 3 of the Essential Commodities Act and they are expressly prohibited from selling these medicines and drugs in excess of the controlled price so fixed by the Central Government from time to time which allows the manufacturer or producer to pass on the tax liability to the consumer.
The appellants have placed on record their printed price- lists of their well-known medicines and drugs manufactured by them showing the price at which they sell to the retailers as also the retail price, both inclusive of excise duty. It appears there from that one of the terms of their contract is that sales tax and local taxes will be charged wherever applicable.
These appellants have also placed on record their orders of assessment together with notices of demand, for the assessment years 1980-81 and 1981-82. For the assessment year 1980-81, the Commercial Taxes officer, Patna Circle, Patna determined the gross turnover of sales in the State of Bihar through their branch office at Patna of Messrs Hoechst Pharmaceuticals Limited on the basis of the return 142 filed by them at Rs. 3,13,69,598,12p. and the tax payable thereon at Rs. 19,65,137.52.p. The tax liability for the period from January 15, 1981 to March 31, 1981 comes to Rs. 3,85,023.33.p. and the surcharge thereon at 10% amounts to Rs. 38,503.33p. Thus the total tax assessed of Messrs Hoechst Pharmaceuticals Limited including surcharge for the assessment year 1980-81 amounts to Rs. 20,03,640.85p. The figures for the assessment year 1981-82 are not available.
Foe the assessment years 1980-81 and 1981-82 the annual returns filed by Messrs Glaxo Laboratories (India) Limited show the gross turnover of their sales in the State of Bihar through their branch at Patna at Rs. 5,17,83,985.76p. and Rs. 5,89,22,346.64p. respectively. They have paid tax along with the return amounting to Rs. 34,06,809.80p. and Rs.
40,13,057.28p. inclusive of surcharge at 10% of the tax for the period from January 15, 1981 to March 31, 1981 and April 1981 to January 19, 1982 amounting to Rs. 34,877.62p. and Rs. 3,09,955.86p. respectively. There is excess payment of Rs. 55,383.98p. in the assessment year 1980-81 and Rs. 13,112.35p. in the year 1981-82. These figures show the magnitude of the business carried on by these appellants in the State of Bihar alone and their capacity to bear the additional burden of surcharge levied under sub-s. (I) of s. 5 of the Act.
The High Court referred to the decision in S. Kodar v. State of Kerala(1) where this Court upheld the constitutional validity of sub-s. (2) of s. 2 of the Tamil Nadu Additional Sales Tax Act, 1970 which is in pari materia with sub-s. 3 of s. S of the Act and which interdicts that no dealer referred to in sub-s. (l) shall be entitled to collect the additional tax payable by him. It held that the surcharge levied under sub-s. (1) of s. 5 is in reality an additional tax on the aggregate of sales effected by a dealer during a year and that it was not necessary that the dealer should be enabled to pass on the incidence of tax on sale to the purchaser in order that it night be a tax on the sale of goods. Merely because the dealer is prevented by sub-s. (3) of s. 5 of the Act from collecting the surcharge, it does not cease to be a surcharge on sales tax. It held relying on Kodar's case, supra, that the charge under sub-s.
(I) of s. 5 of the Act falls at a uniform rate of 10 per centum of the tax on all dealers falling within the class specified therein i. e. whose gross turnover during a year exceeds Rs. 5 lakhs, and is therefore not discriminatory and violative of Art. 14 of the Constitution, nor is it possible to say that 143 because a dealer is disabled from passing on the incidence of surcharge to the purchaser, sub-s. (3) of s. 5 imposes an unreasonable A restriction on the fundamental right guaranteed under Art. 19 (1) (g). As regards the manufacturers and producers of medicines and drugs, the High Court held that there was no irreconcilable conflict between sub-s. (3) of s. 5 of the Act and paragraph 21 of the Drugs (Price Control) order 1979 and both the laws are capable of being obeyed. Undeterred by the decision of this Court in Kodar's case, supra, the appellants have challenged the constitutional validity of sub-s. (3) of s. 5 of the Act in these appeals on the ground that the Court in that case did not consider the effect of price fixation of essential commodities by the Central Government under sub-s (I) of s.
3 of the Essential Commodities Act which, by reason of s. 6 of that Act, has an overriding effect notwithstanding any other law inconsistent therewith.
These appeals were argued with much learning and resource particularly with respect to federal supremacy and conflict of powers between the Union and State Legislatures and as to how if there is such conflict, their respective powers can be fairly reconciled. In support of these appeals, learned counsel for the appellants have advanced the following contentions viz: (1) The opening words of Art.
246 (3) of the Constitution "Subject to clauses (1) and (2)" make the power of the Legislature of any State to make laws for such State or any part thereof with respect to any of the matters enumerated in List II of the Seventh Schedule subject to the Union power to legislate with respect to any of the matters enumerated in List I or List III. That is to say, sub-s. (3) of s. 5 of the Act which provides that no dealer shall be entitled to collect the surcharge levied on him must therefore yield to s. 6 of the Essential Commodities Act which provides that any order made under s.
3 of the Act shall have effect notwithstanding anything inconsistent therewith contained in any enactment other then the Act or any instrument having effect by virtue of any enactment other than the Act. The entire submission proceeds on the doctrine of occupied field and the concept of federal supremacy. In short, the contention is that the Union power shall prevail in a case of conflict between List II and List III. (2) sub-s. (3) of s. 5 of the Act which provides that no dealer shall be entitled to collect the amount of surcharge levied on him, clearly falls within Entry 54 of List II of the Seventh Schedule and it collides with, and or is inconsistent with, or repugnant to, the scheme of Drugs (Price Control) order? 1979 generally so far as 144 price fixation of drugs is concerned and particularly with paragraph 21 which enables the manufacturer or producer of drugs to pass on the liability to pay sales tax to the consumer. If that be so, then there will be repugnancy between the State law and the Control order which according to s. 6 of the Essential Commodities Act, must prevail. It is the duty of the Court to adopt the rule of harmonious construction to prevent a conflict between both the laws and care should be taken to see that both can operate in different fields without encroachment. It is therefore submitted that there is no question of repugnancy and it can be avoided by the principle of reconciliation. That is only possible by giving full effect to the non obstante clause in s. 6 of the Essential Commodities Act. (3) The provisions contained in sub-s. (3) of s. 5 of the Act is ex facie and patently discriminatory. The Essential Commodities Act treats certain controlled commodities and their sellers in a special manner by fixing controlled prices. The sellers so treated by this Central law are so circumstanced that they cannot be equated with other sellers not effected by any control orders. The class of dealers who can raise their sale prices and absorb the surcharge levied under sub-s. (1) of s. 5 and a class of dealers like the manufacturers andproducers of medicines and drugs who cannot raise their sale prices beyond the controlled price are treated similarly. Once the fact of different classes being separate is taken, than a State law which treats both classes equally and visits them with different burdens, would be violative of Art. 14. The State cannot by treating unequals as equals impose different burden on different classes. (4) The restriction imposed by sub-s. (3) of s. 5 of the Act which prevents the manufacturers of producers of medicines and drugs from passing on the liability to pay surcharge is confiscatory and casts a disproportionate burden on such manufacturers and producers and constitutes an unreasonable restriction on the freedom to carry on their business guaranteed under Art. 19 (1) (g). (5) Sub-s (1) s. 5 of the Act is ultra vires the State Legislature of Bihar insofar as for the purpose of the levy of surcharge on a certain class of dealers, it takes into account his gross turnover as defined in s. 2 (j) of the Act. It is urged that the State Legislature was not competent under Entry 54 of List II of the Seventh Schedule to enact a provision like sub-s. (1) of s. S of the Act which makes the grass turnover of a dealer as defined in s. 2 (j) to be the basis for the levy of a surcharge i. e. inclusive of transactions relating to sale or purchase of goods which have taken place in the course of inter-state trade or commerce or outside the territory of India. Such transactions are outside the purview of the Act and therefore they cannot be taken 145 into consideration for computation of the gross turnover as defined in s. 2 (j) of the Act for the purpose of bearing the incidence of surcharge.
The contention to the contrary advanced by the learned Solicitor General appearing on behalf of the State of Bihar is that there is no inconsistency between sub-s. (3) of s. 5 of the Act and paragraph 21 of the Control order and both the laws are capable of being obeyed. According to him, the question of repugnancy under Art. 254(1) between a law made by Parliament and a IdW made by the State Legislature arises only in case both the legislations occupy the same field with respect to one of the matters enumerated in the Concurrent list, and there is direct conflict between the two laws. It is only when both these requirements are fulfilled that the State law will to the extent of repugnancy, become void. The learned Solicitor General contends that the question has to be determined not by the application of the doctrine of occupied field but by the rule of 'pith and substance'. He further contends that the appellants being manufacturers or producers of drugs are not governed by paragraph 21 of the Control order which relates to retail sale but by paragraph 24 thereof which deals with sale by a manufacturer or producer to wholesale distributor.
Under paragraph 24 of the Control order, the manufacturer or producer is not entitled to pass on the liability to pay sales tax and the price that he charges to the wholesaler or distributor is inclusive of sales tax. He also contends that the controlled price of an essential commodity particularly of medicines and drugs fixed by a control order issued by the Central Government under sub-s. (1) of s: 3 of the Essential Commodities Act is only the maximum price thereof and there is nothing to prevent a manufacturer or producer of medicines and drugs to sell it at a price lower than the controlled price. All that will happen, the learned Solicitor General reasons, is that the levy of surcharge under sub-s. (1) of s. 5 of the Act will cut into the profits of the manufacturer or producer but that will not make the State law inconsistent with the Central law. As regards medicines and drugs, the surcharge being borne by the manufacturers or producers under sub-s. (3) of s. 5 of the Act, the controlled price of such medicines and drug to the consumer will remain the same. Lastly, the Solicitor General submits that there is no material placed by the, appellants to show that the levy of surcharge under sub-s.
(I) of s. 5 of the act would impose a burden disproportionate to the profits 146 earned by them or that it is confiscatory in nature. There is, our opinion, considerable force in these submissions.
Before proceeding further it is necessary to mention that the contentions raised on behalf of manufacturers and producers of medicines and drugs can govern only those appellants who are dealers in essential commodities, the controlled price of which is exclusive of sales tax as filed by control orders issued by the Central Government under sub-s. (1) of s. 3 of the Essential Commodities Act, but cannot be availed of by the other appellants who are dealers in other commodities. The case of such appellants would be squarely governed by the decision of this Court in Kodar's case, supra, and their liability to pay surcharge under sub- s. (1) of s. 5 of the Act must be upheld, irrespective of the contentions raised in these appeals, on based on the opening words "Subject to clauses (1) and (2)" in Art.
246(3) of the Constitution and on s. 6 of the Essential Commodities Act. It is therefore necessary to first deal with the principle laid down in Kodar's case, supra.
In Kodar's case, supra, this Court upheld tho Constitution validity of the Tamil Nadu Additional Sales Tax Act, 1970 which imposes additional sales tax at 5% on a dealer whose annual gross turnover exceeds Rs. 10 lakhs. The charging provision in sub-s. (1) of s. 2 of that Act is in terms similar to sub-s. (1) of s. 5 of the Act, and provides that the tax payable by a dealer whose turnover for a year exceeds Rs. 10 lakhs shall be increased by an additional tax 5% of the tax payable by him. Sub-s. (2) of that Act is in pari materia with sub-s. (3) of s. 5 of the Act and provides that no dealer referred to in sub-s. (I) shall be entitled to collect the additional tax payable by him. The Court laid down that: (l) The additional tax levied under sub-s. (I) of s. 2 of that Act was in reality a tax on the aggregate of sales effected by a dealer during a year and therefore the additional tax was really a tax on the sale of goods and not a tax on the income of a dealer and therefore falls within the scope of Entry 54 of List II of the Seventh Schedule.
(2) Generally Speaking, the amount or rate of tax is a matter exclusively within the legislative judgment and so long as a tax retains its avowed character and does not confiscate property to the State under the guise of a tax, its reasonableness cannot be questioned by the Court The imposition of additional tax on a dealer whose annual turnover exceeds Rs. 10 lakhs is not an unreasonable restriction on the fundamental rights guaranteed under Art.
19(1)(g) or (f) as the tax 147 is upon the sale of goods and was not shown to be confiscatory. (3) It is not an essential chracteristic of a sales tax that the seller must have the right to pass it on to the consumer, nor is the power of the Legislature to impose a tax on sales conditional on its making a provision for seller to collect the tax from the purchasers. Merely because sub-s. (2) of s. 2 of that Act prevented a dealer from passing on the incidence of additional tax to the purchaser, it cannot be said that the Act imposes an unreasonable restriction upon the fundamental rights under Art. 19(1)(g) or (f). The Act was not violative of Art. 14 of the Constitution as classification of dealers on the basis of their turnover for the purpose of levy of additional tax was passed on the capacity of dealers who occupy position of economic superiority by reason of their greater volume of businesses i.e. On capacity to pay and such classification for purposes of the levy was not unreasonable.
In order to appreciate the implications of the wide ranging contentions advanced before us, it is necessary to set out the relevant statutory provisions.
Sub-s. (1) of s. 5 of the Act provides for the levy of surcharge on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs and, the material provisions of which are in the following terms:
"5. Surcharge (I) Every dealer whose gross turnover during a year exceeds rupees five lakhs shall, in addition to the tax payable by him under this Part, also pay a surcharge at such rate not exceeding ten per centum of the total amount of the tax payable by him, as may be fixed by the State Government by a notification published in the official Gazette:
Provided that the aggregate of the tax and surcharge payable under this Part shall not exceed, in respect of goods declared to be of special importance in inter-State trade or commerce by section 14 of the central Sales Tax Act, 1256 (Act 74 of 1956), the rate fixed by section 15 of the said Act:
The expression "gross turnover" as defined in s. 2(j) Of the Act insofar as material reads: - 148 "2(j) "gross turnover" means- (i) for the purposes of levy of sales tax, aggregate of sale prices received and receivable by a dealer, during any given period, in respect of sale of goods (including the sale of goods made outside the State or in the course of inter-State trade or commerce or export) but does not include sale prices of goods or class or classes or description of goods which have borne the incidence of purchase tax under section 4." Sub-s. (3) of s. 5 of the Act, the constitutional validity of which is challenged, provides:
"5(3) Notwithstanding anything to the contrary contained in this Part, no dealer mentioned in sub-s. (1), who is liable to pay surcharge shall be entitled to collect the amount of this surcharge." It is fairly conceded that not only sub-s. (1) of s. 5 of the Act which provides for the levy of surcharge on dealers whose gross turnover during a year exceeds Rs. 5 lakhs, but also sub-s. (3) of s. 5 of the Act which enjoins that no dealer who is liable to pay a surcharge under sub-s.
(I) shall be entitled to collect the amount of surcharge payable by him, are both relatable to Entry 54 of List II of the Seventh Schedule which reads:
"54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92A of List I." There can be no doubt that the Central and the State legislations operate in two different and distinct fields.
The Essential Commodities Act provides for the regulation, production, a supply distribution and pricing of essential commodities and is relatable to Entry 33 of List III of the Seventh Schedule which reads:
"33. Trade and commerce in, and the production, supply and distribution of,- .
(a) the products of any industry where the control of such industry by the Union is declared by Parliament 149 by law to be expedient in the public interest, and imported goods of the same kind as such products." The definition of "essential commodities" in s. 2(a) of the Essential Commodities Act now includes 'drugs' by the insertion of cl. (iva) therein by Act 30 of 1974. Sub-s. (I) of s. 3 of the Essential Commodities Act provides: B "3. Powers to control production, supply, distribution, etc., of essential commodities- (1) If the Central Government is of opinion that it is necessary or expedient so to do for maintaining or increasing supplies of any essential commodity or for securing their equitable distribution and availability at fair prices, or for securing any essential commodity for the defence of India or the efficient conduct of military operations it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof. and trade and commerce therein." Sub-s. (2) lays down without prejudice to the generality of the powers conferred by sub-s. (1), an order made therein may provide for the matters enumerated in cls. (a) to (f).
Cl. (c) of sub-s. (2) provides:
"For controlling the price at which an essential com modify may be bought or sold." S. 6 of the Essential Commodities Act which has an important bearing on these appeals is in these terms:
"6. Effect of orders inconsistent with other enactments- Any order made under section 3 shall have effect not withstanding anything inconsistent therewith contained in any enactment other than this Act or any instrument having effect by virtue of any enactment other than this Act." The Drugs (Price Control) order, 1979 issued by the Central Government in exercise of the powers conferred under s. 3 of the Essential Commodities Act, 1955 provides for a comprehensive scheme of price fixation both as regards bulk drugs as well as 150 formulations. The expressions "bulk drug" and "formulation" are A defined in paragraph 2(a) and 2(f ) as:
"2. In the order, unless the context otherwise requires,- (a) "bulk drug" means any substance including pharmaceutical, chemical, biological or plant product or medicinal gas conforming to pharmacopoeal or other standards accepted under the Drugs and Cosmetics Act, 1940, which is used as such or as an ingredient in any formulations;
(f) "formulations" means a medicine processed out of, or containing one or more bulk drug or drugs, with or without the use of any pharmaceutical aids for internal or external use for, or in the .
diagnosis, treatment, mitigation or prevention of disease in human beings or animals, but shall not include- We are here concerned with the impact of sub-s. (3) of s. 5 of the Act on the price structure of formulation, but none the less much stress was laid on fixation of price of bulk drugs under paragraph 3(2) which allows a reasonable return to the manufacture under sub paragraph (3) thereof. A manufacturer or producer of such bulk drugs is entitled to sell it at a price exceeding the price notified under sub- paragraph (1), plus local taxes, if any, payable.
What is of essence is the price fixation of formulations and the relevant provisions are contained in paragraph, 10 to 15, 17, 20, 21 and 24. Paragraph 10 provides for a formula according to which the retail price of formulation shall be calculated and it reads:
"10. Calculation of retail price of formulations-The retail price of a formulation shall be calculated in accordance with the following formula, namely:
R.P.=(M.C+C.C+P.M.+P.C) X 1 + MU / 100 + ED Where- "R.P." means retail price.
151 "M C." means material cost and includes the-cost of drugs and other pharmaceutical aids used including h overages, if any, and process loss thereon in accordance with such norms as may be specified by the Government from time to time by notification in official Gazette in this behalf.
"C.C." means conversion cost worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf.
"P.M." means the cost of packing material including process loss thereon worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf.
"P.C." means packing charges worked out in accordance with such norms as may be specified by the Government from time to time by notification in the official Gazette in this behalf.
"M.U." means mark-up referred to in paragraph 11.
"E.D." means excise duty:
Provided that in the case of an imported formulation the landed cost shall from the basis for fixing its price along with such margin as the Government may allow from time to time.
Provided further that where an imported formulation is re-packed, its landed cost plus the cost of packing materials and packing charges as worked out in accordance with such norms as may be specified by the Government from time to time, by notification in the official Gazette, shall form the basis for fixing its price.
Explanation-For the purposes of this paragraph, "landed cost" shall mean the cost of import of drug inclusive of customs duty and clearing charges".
152 The expression "mark-up" referred to above is dealt within a paragraph 11 and it provides:
"11. Mark-up referred to in paragraph 10 includes the distribution cost, outward freight, promotional expenses, manufacturers margin and the trade commission and shall not exceed- (i) forty percent in the case of formulations specified in Category I of the Third Schedule;
(ii) fifty-five percent in the case of formulations specified in Category II of the said Schedule:
(iii) one hundred per cent in the case of formulations specified in Category III of the said Schedule." It is unnecessary for our purposes to reproduce the provisions of paragraphs 12 to 14 which formulate a detailed scheme of price fixation.
Paragraph 15 confers power of revision of prices and it reads:
"15. Power to revise prices of formulations-Not withstanding anything contained in this order .
(a) The Government may, after obtaining such information as it may consider necessary from a manufacturer or an importer, fix or revise the retail price of one or more formulations marketed by such manufacturer or importer, including a formulation not - specified in any of the categories of the Third Schedule in such manner as the pre-tax return on the sales turnover of such manufacturer or importer does not exceed the maximum pre-tax return specified in the Fifth Schedule;
(b) the Government may, if it considers necessary so to do in public interest, by order, revise the retail price of any formulation specified in any of the categories of the Third Schedule." 153 Paragraph 17 Casts a mandatory duty on the Central Government to maintain 'Drugs Prices Equalisation Account' to which shall be credited- (a) by the manufacturer, importer or distributor, as the case may be- (i) the amount determined under sub-paragraph (2) of paragraph 7;
(ii) the excess of the common selling price or, as the case may be, pooled price over his retention price;
(b) such other amount of money as the Central Government may, after due appropriation made by Parliament by law in this behalf, grant from time to time.
The amount credited to the Drugs Prices Equalisation Account is meant to compensate a manufacturer, importer or distributor the short-fall between his retention price and the common selling price or, as the case may be, the pooled price for the purpose of increasing the production, or securing the equitable distribution and availability at fair prices, of drugs after meeting the expenses incurred by the Government in connection therewith. Every manufacturer, importer or distributor is entitled to make a claim for being compensated for the short-fall.
Paragraph 19 interdicts that every manufacturer or importer of a formulation intended for sale shall furnish to the dealers, State Drug Controllers and-the Government, a price list showing the price at which the formulation is sold t.) a retailer inclusive of excise duty. Every such manufacturer or retailer has to give effect to the change in prices as approved by the Government. Every dealer is required to display the price list at a conspicuous part of the premises.
It is, however, necessary to reproduce paragraphs 20, 21 and 24 as they are of considerable importance for our purposes and they read:
"20. Retail price to be displayed on label of container-Every manufacturer, importer or distributor of a formulation intended for sale shall display in indelible 154 print mark on the label of the container of the formulation or the minimum pack thereof offered for retail sale, the maximum retail price of that formulation with the words "retail price not to exceed" preceding it, and "local taxes extra" succeeding it." "21. Control of sale prices of formulations specified in Third Schedule-No retailer shall sell any formulation specified in any of the categories in the Third Schedule to any person at a price exceeding the price specified in the current price list or the price indicated on the label of the container or pack thereof, whichever is less, plus the local taxes, if any, payable.
Explanation-For the purpose of this paragraph, "local taxes" includes sales tax and octroi actually paid by the retailer under any law in force in a particular area." "24. Price to the wholesaler and retailer- (a) No manufacturer, importer or distributor shall sell a formulation to a wholesaler unless otherwise permitted under the provisions of this order or any other o
