Article 136 of the comstitution

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SCHOOL OF LAW, CHRIST UNIVERSITY

IN THE HON’BLE SUPREME COURT OF INDIA S.L.P. NO. : ____ 2012

IN THE MATTER OF: GIRIVANDHAN TRADERS PETITIONER V.

STATE OF MAHARASHTRA RESPONDENT

SPECIAL LEAVE PETITION FILED UNDER ARTICLE 136 OF THE CONSTITUTION OF INDIA, 1950

SUBMISSION TO THE SUPREME COURT OF INDIA WRITTEN SUBMISSION ON BEHALF OF THE RESPONDENT

MOST RESPECTFULLY SUBMITTED COUNSEL FOR THE RESPONDENT

MEMORIAL FOR RESPONDENT

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TABLE OF CONTENTS TABLE OF CONTENTS…………………………………………………………………….….I INDEX OF AUTHORITIES…………………………………………………………………… III STATUTES BOOKS DICTIONARIES ARTICLE, REPORTS AND JOURNALS WEBSITES TABLE OF CASES LIST OF ABBREVIATIONS……………………………………………………………….…..VI STATEMENT OF FACTS ………………………………………………………………….… VII STATEMENT OF JURISDICTION …………………………………………………………......IX QUESTIONS PRESENTED……………………………………………………………….……X SUMMARY OF PLEADINGS…………………………………………………………………..XI PLEADINGS …………………………………………………………………………………1 I. THE ACT IS WITHIN THE LEGISLATIVE COMPETENCE OF THE STATE………………………………………………………………………………. 1 II. THE IMPUGNED ACT DOES NOT VIOLATE ARTICLE 301 TO 304 OF THE CONSTITUTION……………………………………………………………………5 i. The tax imposed is a compensatory tax ii. In the alternative, the tax imposed fulfills the requirements of Section 304(a)

III. THE CLASSIFICATION FOR THE PURPOSE OF TAX IS VALID AND CONSISTENT WITH ARTICLE 14……………………………………………….9

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IV. THE ACT CONSTITUTES A VALID DELEGATION OF POWERS TO THE STATE GOVERNMENT……………………………………………………………11

V. THE TAX COLLECTED UNDER THE IMPUGNED ACT BY THE STATE GOVERNMENT SHOULD NOT BE REFUNDED BACK……………………….15 PRAYER FOR RELIEF………………………………………………………………………XIII

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INDEX OF AUTHORITIES

I. STATUTES 1) INDUSTRIAL DEVELOPMENT AND REGULATION ACT, 1951 2) MAHARASHTRA VALUE ADDED TAX ACT, 2002 3) THE CONSTITUTION OF INDIA, 1950

II. BOOKS 1) ANIRUDH PRASAD, CENTRE-STATE RELATIONS IN INDIA (1st ed. 1985) 2) ARVIND. P. DATAR, COMMENTARY

ON

THE CONSTITUTION

OF

INDIA, 2NDEDN.

(WADHWA AND COMPANY LAW PUBLISHERS: 2007) 3) B.K. SHARMA, INTRODUCTION TO THE CONSTITUTION OF INDIA (4th ed. 2007) 4) D.D BASU, SHORTER CONSTITUTION OF INDIA vol.2 (14th ed. 2010) 5) DR. NARENDER KUMAR, CONSTITUTIONAL LAW

OF

INDIA, 8THEDN. (ALLAHABAD

LAW AGENCY: 2011) 6) DURGA DAS BASU, COMMENTARY ON THE CONSTITUTION OF INDIA, VOL. I, 8THEDN. (WADHWA AND COMPANY LAW PUBLISHERS: 2007) 7) DURGA DAS BASU, COMMENTARY ON THE CONSTITUTION OF INDIA, VOL. II, 8THEDN. (WADHWA AND COMPANY LAW PUBLISHERS: 2007) 8) H.M. SEERVAI, CONSTITUTIONAL LAW OF INDIA vol.3 (4th ed. 2004) 9) I.P. MASSEY, ADMINISTRATIVE LAW (7th ed. 2008) 10) J.B.L, HANSARIA, WRIT JURISDICTION (3rd ed. 2005) 11) P.K. MAJUMDAR & R.P. KATARIA, COMMENTARY ON THE CONSTITUTION OF INDIA vol. 2 (10th ed. 2009) 12) PROF M.P. JAIN, INDIAN CONSTITUTIONAL LAW (5th ed. 2005) 13) V.N.SHUKLA, CONSTITUTION OF INDIA (10th ed. 2004) III. DICTIONARIES 1) D.S. CHOUDHARY, UNIVERSAL’S LAW DICTIONARY (1ST EDN. 2010) 2) GARNER BRYAN A., BLACK’S LAW DICTIONARY, (7TH EDN. 2002) 3) P. RAMANATHA AIYAR, ADVANCED LAW LEXICON VOL.4 (3RD EDN. 2007)

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SLCU NATIONAL MOOT COURT COMPETITION 2012 IV. ARTICLE, REPORTS AND JOURNALS 1) NIRANJAN V., INTERSTATE TRADE AND COMMERCE; THE DOCTRINE OF PROPORTIONALITY REAFFIRMED (2011) 2) SRIKANTH HARIHARAN, A FEDERATIONAL PROSPECTIVE OF INTERSTATE TRADE, COMMERCE AND INTERCOURSE (2008) 3) GUPTA SUNIL, A COMMENT ON MAFATLAL V. UNION OF INDIA (2003) 4) KUMAR ARVIND, SHORT ESSAY ON INTER-STATE TRADE AND COMMERCE(INDIA) (2010)

V. WEBSITES 1) http://www.bcasonline.org/ContentType/Contentin.asp?1401 2) http://www.fas.org/sgp/crs/misc/97-589.pdf (last accessed: 30-8-2012) 3) http://www.indlaw.com/display.aspx?58B0AEB6-20B3-46BA-8CEF-21E8411C23EF 4) http://www.taxmann.com/fileopener.aspx?surl=http://www.taxmann.com/taxmannfl ashes/flashart22-3-10_6.htm&searchid=2691

VI. TABLE OF CASES 1) A.V. Nachane v. Union of India, AIR 1982 SC 1126 2) ACC v. State of Chattisgarh AIR 2007 (NOC) 669 3) Agricultural Market Committee v. Shalinmar Chemical Work AIR 1997 SC 2502 4) Ajay Kumar Banerjee v. Union of India AIR 1984 SC 1130 5) Andhra Sugar v. Andhra Pradesh A.I.R. 1968 S.C. 599 6) Ashutosh Gupta v. State of Rajasthan, AIR 2002 SC 1533 7) Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232 8) Automobile Transport Ltd. v State of Rajasthan AIR 1962 SC 1406 9) Avinder Singh v. State of Punjab, AIR 1979 SC 321 10) Banarasi Das v. State of M.P. AIR 1958 SC 909 11) Chiranjit Lal Chowdhuri v. The Union of India and Others.1951 AIR 41, 1950 SCR 869 12) Consumer Action Group v. State of Tamil Nadu AIR 2000 SC 3060 13) Devidas v. State of Punjab AIR 1967 SC 1895 MEMORIAL FOR PRESONDENT

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SLCU NATIONAL MOOT COURT COMPETITION 2012 14) Food Corporation of India v. Bhanu Lodh AIR 2005 SC 2775 15) Gammon India Ltd. v. Union of India AIR 1974 SC 960 16) Girnar Traders v. State of Maharashtra, 2011(3) SCC 1 17) Govt. of AP v. PL Devi (2008) 4 SCC 720 18) I.R.Coelhoe v. State of Tamil Nadu AIR 2007 SC 861 19) Jain and Jain, Principles of Administrative Law, 2008, 119 20) Jindal Stainless Ltd.(2) v. State of Haryana (2006) 7 SCC 241 21) Kishan Prakash Sharma v. Union of India AIR 2001 SC 1502 22) M.C. of Delhi v. Birla Cotton S. & W. Mills AIR 1968 SC 1232 23) Mohan Das v State of Karnataka, AIR 2005 SC 2178 24) Orissa Cement Ltd And Ors. v. State Of Orissa 1989 SCR Supl. (1) 692 25) Orissa Cement Ltd And Ors. v. State Of Orissa 1991 SCR (2) 105 26) Ram Krishan Dalmia v. Justice S.R. Tendolkar AIR 1958 SC 538 27) Re, Delhi Laws Act, 1912, AIR 1951 SC 332 28) S.P. Industries Company Ltd. v. Electricity Inspector, AIR 2007 SC 1984 29) Sardar Inder Singh v. State of Rajasthan AIR 1957 SC 510 30) St. Johns Teachers’ Training Institute v. Regional Directo, N.C.T.E AIR 2003 SC 1533 31) State of Kerala v. Mother Provincial, AIR 1970 SC 2079 32) V.M.Sanjawala v. State of Bomba, AIR 1961 SC 4 33) Vijay Lakshmi v. Punjab University and Others (2002) 8 SCC 440 34) Zameer Ahmed v. State of Maharashtra AIR 2010 SC 2633

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SLCU NATIONAL MOOT COURT COMPETITION 2012 LIST OF ABBREVIATIONS

Hon’ble……………………………………………………………………………..Honorable S.L.P…………………………………………………………………….Special Leave Petition V. ………………………………………………………………………………………...versus R/W…………………………………………………………………………………...read with AIR………………………………………………………………………….…All India Report SC ………………………………………………………………………...…….Supreme Court Co…………………………………………………………………………………..….company Ltd………………………………………………………………………………….……limited P………………………………………………………………………………………...….page St…………………………………………………………………………………………...saint M/S……………………………………………………………………………..………Messers SCR………………………………………………………………………Supreme Court Cases SCC………………………………………………………………………Supreme Court Cases Etc………………………………………………………………………………………Etcetera A.P.……………………………………………………………………….....…Andhra Pradesh Int…………………………………………………………………………………International i.e. ……………………………………………………………………………………....that is

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STATEMENTS OF FACTS

1. Background  Around 2009, when internal government reports were predicting a steady rise in inflation, the Government of Maharashtra noticed a rather strange trend: limestone prices for local limestone were seen to fall consistently.  Being slightly alarmed (considering that limestone was a nascent industry, and also perhaps considering that limestone units were being set up in marginal constituencies in the state and were seen as having prospects for substantially increasing employment) the Government of Maharashtra constituted a committee to study the sector.  In early 2010, an internal note was circulated indicating that the fall in prices of local limestone was caused in a substantial part by increased cement being brought in to the state from outside. 2. First Bill  After greater study, the State Government was of the view that restricting the entry of cement was the only realistic way of controlling the rise of 'external' cement in the domestic market. Accordingly, the State Government tabled a Bill titled the "Regulation of Cement Markets Bill, 2010", which sought to impose restrictions on the quantity of cement which could be brought in to the state from outside the state.  There were some concerns raised (particularly by bureaucrats from the law ministry) that such a Bill would offend federal principles and the Chief Minister thought it best to refer the Bill to the Advocate General for his Opinion. The Advocate General opined that the bill as framed ran the risk of unconstitutionality as violating the principles of freedom of inter-state trade and commerce. 3. Impugned Act  Having regard to the Advocate General's opinion, the Bill was withdrawn. Pressure from the “limestone lobby” however mounted, and the State Government felt it was critical to address the problems of the sector. Accordingly, in early 2011 the state government introduced the "Maharashtra Local Industries (Regulation and Promotion)

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SLCU NATIONAL MOOT COURT COMPETITION 2012 Bill, 2011". This Bill was enacted and came into force on April 1, 2011 as the Maharashtra Local Industries (Regulation and Promotion) Act, 2011.  Immediately, “cement, to the extent such cement is sold within Greater Mumbai or the Districts of Pune, Ahmednagar or Chandrapur” was notified as a 'notified good' under the Act, and the notification was duly laid before the legislature. 4. Challenges and the Appeals  Shortly after the coming into force of the Act, several manufacturers of cement based outside Maharashtra challenged the constitutional validity of the Act. Around 11 writ petitions were filed before the Bombay High Court in June 2011. These petitions were consolidated, with the lead matter being taken up as Girivandan Traders v. State of Maharashtra.  The Bombay High Court granted ad-interim stay on collection of tax till August 2011. In August 2011, the ad-interim stay was not extended. The writ petitions were admitted and posted for final hearing in December 2011, but interim protection was not granted. The Bombay High Court finally dismissed the writ petitions in January 2012.  Meanwhile, a Special Leave Petition against the Bombay High Court’s Order was filed in the Supreme Court. The grounds were much the same as before the High Court. The Leave was granted and is presently posted for final hearing before the Hon’ble Supreme Court of India.

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STATEMENT OF JURISDICTION

The Petitioners Girivandan Traders have filed a Special Leave Petition to the Hon’ble Supreme Court of India under Article 136(1) of The Constitution of India against the order of the Bombay High Court. Article 136(1) of The Constitution of India, guarantees that notwithstanding anything in this Chapter, the Supreme Court may, in its discretion, grant special leave to appeal from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India. It is humbly submitted that in conformity with the above provision, the State of Maharashtra submits to the jurisdiction of the Court. Pursuant to Article 136, the Court has jurisdiction to decide all matters referred to it for decision. The State of Maharashtra agrees to act consistently with the Court’s decision.

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QUESTIONS PRESENTED

I.

WHETHER THE CLASSIFICATION FOR THE PURPOSE OF TAX IS VALID AND CONSISTENT WITH ARTICLE 14?

II.

WHETHER THE IMPUGNED LAW VIOLATES ARTICLE 301 TO 304 OF THE CONSTITUTION?

III. WHETHER THE ACT IS WITHIN THE LEGISLATIVE COMPETENCE OF THE STATE?

IV. WHETHER ACT CONSTITUTES A VALID DELEGATION OF POWERS TO THE STATE GOVERNMENT? V.

WHETHER OR NOT THE TAX COLLECTED UNDER THE IMPUGNED ACT BY THE STATE GOVERNMENT BE REFUNDED BACK OR NOT?

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SUMMARY OF PLEADINGS  THAT WHENEVER THE VIRES OF AN ACT IS CHALLENGED ON THE GROUND OF VIOLATION OF CONSTITUTION, THERE IS ALWAYS A PRESUMPTION OF CONSTITUTIONALITY OF THE ACT.

I. THE ACT IS WITHIN THE LEGISLATIVE COMPETENCE OF THE STATE.  That the impugned Act is within the Legislative Competence of the State.  That Doctrine of Pith and Substance or the Doctrine of Incidental Encroachment is applicable to the present scenario.  That in pith and substance, the impugned Act is a regulatory measure for the promotion of industries in the State, which is the exclusive domain of the State Legislature II. THE IMPUGNED ACT DOES NOT VIOLATE ARTICLE 301 TO 304 OF THE CONSTITUTION.  That the impugned does not violate Article 301-304 of the Constitution of India.  That the tax levied by the State Government is compensatory in nature.  In the alternative, the tax imposed fulfills the requirements of Section 304(a) III. THE CLASSIFICATION FOR THE PURPOSE OF TAX IS VALID AND CONSISTENT WITH ARTICLE 14.  That the classification for the purpose of tax is valid and consistent with Article 14.  That the doctrine of reasonable classification has been followed.  That the State has wide powers to determine the subject and the rate of tax. IV. THE ACT CONSTITUTES A VALID DELEGATION OF POWERS TO THE STATE GOVERNMENT.  That the delegation done the Act is not hit by doctrine of excessive delegation.  That requirement of laying down the notifications made by State Government before each house of the Legislature is an adequate safeguard.  That the govt has changed its position by actually disbursing 50 Crores out of total taxes collected. V. THE TAX COLLECTED UNDER THE IMPUGNED ACT BY THE STATE GOVERNMENT SHOULD NOT BE REFUNDED BACK. MEMORIAL FOR PRESONDENT

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PLEADINGS

Most respectfully showeth;

1. Before I proceed to the various issues in concern, it is essential to point out that the Bombay High Court has in its order passed in January 2012, upheld the constitutional validity of the impugned statute, Maharashtra Local Industries (Development and Promotion) Act. This Hon’ble Court has over a period of time, settled various principles of interpretation for determining the validity of a statute and the first among them is “Presumption of Constitutionality”. The High Court having upheld the statute, it raises an extremely strong presumption in favour of the constitutionality of the impugned Act and this Court should be extremely cautious in declaring otherwise. Further the burden of proving the alleged unconstitutionality lies on the petitioner and in view of the various infirmities in the arguments of the petitioners, it is submitted that the no question of declaring the said law as unconstitutional arises, as will be proved through the subsequent points on the merits on the case:

I. THE ACT IS WITHIN THE LEGISLATIVE COMPETENCE OF THE STATE.

2. The Indian Constitution contains a very elaborate scheme of the distribution of powers and functions between the Centre and the State. Article 246(3) of the Constitution empowers the State Legislature to make laws with respect to any of the matters which fall within their fields of legislation as enumerated in List II in the Seventh Schedule, referred to as the State List. Entries in the lists are themselves, not powers of the legislation, but fields of legislation.1 3. The Constitution gives autonomy to the States to legislate within their respective fields. 2 In the present case the impugned legislation falls well within the legislative competence of the State as the subject matter of the Act is within Entries 26,27,52 and 54 of List II.These are reproduced as under for the convenience of the Court: “26. Trade and commerce within the State subject to the provisions of Entry 33 of List III. 1 2

S.P. Industries Company Ltd. v. Electricity Inspector, AIR 2007 SC 1984 Prof M.P. Jain, Indian Constitutional Law (5 th ed. 2005) at 967

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SLCU NATIONAL MOOT COURT COMPETITION 2012 27. Production, supply and distribution of goods subject to the provisions of Entry 33 of List III. ……. 52. Taxes on the entry of goods into a local area for consumption, use or sale therein. ……. 54. Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of Entry 92-A of List I.” 4. It is well established that the Entries in the three Lists are not always set out with scientific precision or logical definition. The Court has to keep in mind that function of these constitutional lists is not to confer power, but to merely demarcate the legislative heads or fields of legislation and the area over which the appropriate legislatures can operate. These Entries have always been construed liberally as they define fields of power which spring from the constitutional mandate contained in various clauses of Article 246.3 5. This Court in the case of Jijubhai Nanbhai Kachar v. State of Gujarat [1995 Supp.(1) SCC 596], referring to the principle of interpretation of Entries in the legislative lists, held as under: “7. It is settled law of interpretation that entries in the Seventh Schedule are not powers but fields of legislation. The legislature derives its power from Article 246 and other related articles of the Constitution. Therefore, the power to make the Amendment Act is derived not from the respective entries but under Article 246 of the Constitution. The language of the respective entries should be given the widest scope of their meaning, fairly capable to meet the machinery of the Government settled by the Constitution. Each general word should extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. When the vires of an enactment is impugned, there is an initial presumption of its constitutionality and if there is any difficulty in ascertaining the limits of the legislative power, thedifficulty must be resolved, as far as possible in favour of the legislature putting the most liberal construction upon the legislative entry so that it may have the widest amplitude….” 6. The primary object of applying these principles is not limited to determining the reference of legislation to an Entry in either of the lists, but there is a greater legal requirement to be

3

Girnar Traders v. State of Maharashtra, 2011(3) SCC 1

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SLCU NATIONAL MOOT COURT COMPETITION 2012 satisfied in this interpretative process. A statute should be construed so as to make it effective and operative on the principle expressed in the maxim ut res magis valeat quam pereat.4. 7. Thus in the present case the impugned statute falls well within the legislative competence of the State in the following manner: i.

The Act is aimed at consolidating and amending the law relating to the regulation, promotion and protection of certain industries, which matters are exclusively domains of the State Legislature under Entry 26 and 27 of List II.The State is empowered to enact any laws for the regulation of trade and commerce (Entry 26)and to regulate the production, supply and distribution of goods within the State(Entry 27). Hence the state has rightly utilised its power under Article 246 read with List II, Seventh Schedule of the Constitution.

ii.

Secondly, the Act aims at levying certain taxes and fees for orderly development in the State of Maharashtra, whereby taxes are sought to be imposed on certain goods as notified under the Act. A proper construction of entries 52 and 54 keeping the view the principles enumeratedaboveindicates that the State Legislature has a power to impose these taxes on goods produced inside or outside the State. The tax can be imposed on goods produced inside the State through a liberal interpretation of Entry 54 read with Entry 26 and 27 and on the goods produced outside the State and sold within the State through a joint reading of the taxation entries under Entry 52, 54 with Entries 26 and 27. The state is empowered under Entry 54 to impose taxes on the sale of goods within the state. The said tax is also being levied at the time of sale of goods in the State. As far as goods coming from outside the State are concerned, it is submitted that the Doctrine of Territorial Nexus is applicable to the sale of those goods taking place in the State and hence, the state is empowered to tax those goods within the State of Maharashtra.

8. So far as the question of encroachment of any Union entry is concerned, it is submitted that the Doctrine of Pith and Substance or the Doctrine of Incidental Encroachment is applicable to the present scenario. 9. Explaining this key doctrine designed to test the validity of legislation challenged on grounds of lack of competence, the Supreme Court in a recent decision Zameer Ahmed v. State of Maharashtra5 has revisited the doctrine of pith and substance as a time tested test for 4

Supra note 14. Maxim implies “that the thing may rather have effect than be destroyed” and is one of the advanced and widely accepted principles for determination of validity of statutes. 5 AIR 2010 SC 2633 MEMORIAL FOR PRESONDENT

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SLCU NATIONAL MOOT COURT COMPETITION 2012 interpretation of Schedule VII of the Constitution which delineates the legislative subjectmatter between Centre and States. 10. Applying the same to examine the validity of MCOCA, the Bench explained the doctrine in the following terms; “One of the proven methods of examining the legislative competence of a legislature with regard to an enactment is by the application of the doctrine of pith and substance. This doctrine is applied when the legislative competence of the legislature with regard to a particular enactment is challenged with reference to the entries in various lists. If there is a challenge to the legislative competence, the courts will try to ascertain the pith and substance of such enactment on a scrutiny of the Act in question. In this process, it is necessary for the courts to go into and examine the true character of the enactment, its object, its scope and effect to find out whether the enactment in question is genuinely referable to a field of the legislation allotted to the respective legislature under the constitutional scheme. This doctrine is an established principle of law in India recognized not only by this Court, but also by various High Courts. Where a challenge is made to the constitutional validity of a particular State Act with reference to a subject mentioned in any entry in List I, the Court has to look to the substance of the State Act and on such analysis and examination, if it is found that in the pith and substance, it fallss under an entry in the State List but there is only an incidental encroachment on any of the matters enumerated in the Union List, the State Act would not become invalid merely because there is incidental encroachment on any of the matters in the Union List.”6 11. It is submitted that in pith and substance, the impugned Act is a regulatory measure for the promotion of industries in the State, which is the exclusive domain of the State Legislature under Entries 26, 27, 52 and 54. The enactment as a whole, its main objects, its scope and effect are directed towards the regulation and promotion of trade and commerce within the state, which are matters under Entries 26 and 27 of the State List. Any implications on interstate trade and commerce is merely incidental and ancillary to the primary purpose of the Act, viz, regulation, protection and promotion of certain industries in the State and orderly industrial development in the state of Maharashtra. As far as taxes on interstate trade is governed, the same continue to be governed by the Central Government under the Central Sales Tax Act, 1956 and the said Act nowhere impinges upon the Union Government’s

6

Ibid.

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SLCU NATIONAL MOOT COURT COMPETITION 2012 Powers. Even if any impingement is purported to be caused, the same is entirely incidental and an incidental cause cannot be allowed to override the primary cause. The primary cause continues to be the orderly development of the State of Maharashtra. 12. Hence, it is submitted that in view of the various tests and principles propounded by this Court, the Legislature of Maharashtra has made a valid Act for the regulation, promotion and protection of certain industries within the state of Maharashtra.

II. THE IMPUGNED ACT DOES NOT VIOLATE ARTICLE 301 TO 304 OF THE CONSTITUTION. 13. It is humbly submitted before this Hon’ble Court that the impugned Act does not violate Articles 301-304 of the Constitution of India. 14. Part XIII of the Constitution contains provisions on ‘Inter-State Trade and Commerce’. Article 301, the omnibus provision, declares that ‘trade, commerce and intercourse’ shall be free throughout the territory of India. Article 302 authorizes Parliament to impose restrictions on this freedom if necessary in the public interest. Articles 303(1) and (2) restrict this power of Parliament by providing that it may not be used to discriminate between States, except in cases of scarcity. Article 304(a) allows the State Legislature to impose non-discriminatory taxes on goods, while Article 304(b) allows it to impose other reasonable restrictions (with Presidential consent), notwithstanding Articles 301 and 303.7 15. Article 301 provides that trade, commerce and intercourse shall be free. The word ‘free’ in Article 301 cannot mean absolute freedom or that each and every restriction on trade and commerce is invalid. This Court explained in Atiabari8 that freedom of trade and commerce guaranteed by Article 301 is freedom from such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Thus, a restriction which is indirect or inconsequential impediment on trade, commerce or intercourse is not hit by Article 301 and this has been reaffirmed recently by a 5 Judge Bench of this court in Jindal Stainless Ltd.v. State of Haryana9. 16. Hence, it is settled that imposition of a duty or tax in every case does not tantamount per se to any infringement of Article 301 of the Constitution. Every case must be judged on its own

7 8 9

http://www.indlaw.com/display.aspx?58B0AEB6-20B3-46BA-8CEF-21E8411C23EF Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232 (2006) 7 SCC 241

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SLCU NATIONAL MOOT COURT COMPETITION 2012 facts and in its own setting of times and circumstances.10It may also be pointed out that in Andhra Sugar v. Andhra Pradesh11, this Court has held that sales tax does not normally constitute a restriction on the freedom of movement, since it is an indirect restriction. A sales tax law would thus not have to be tested for its validity on the touchstone of Article 301.12So whether in the present case whether said tax falls within the ambit of Article 301 is a question which in itself is prone to doubt. It is submitted that since the said tax , being a sales tax having an indirect and inconsequential restriction on the freedom of trade cannot be said to be violative of Article 301 of the Constitution in view of the ratio of the said decision. 17. Even if the said ratio is not acceptable to the Court , it is our humble submission that the impugned Act imposes a compensatory tax which is intended to facilitate trade, rather than impede it and hence cannot be said to be violative of Article 301 of the Constitution.

i. The tax imposed is a compensatory tax

18. It is well settled that regulatory measures or measures imposing compensatory taxes will not attract part XIII of the Constitution and that in that case there can be no question of violation of Article 301. 19. This theory of Compensatory Taxes was formulated by a 7 Judge Bench of this Hon’ble Court in the landmark case of Automobile Transport Ltd. v State of Rajasthan13, which held: “Regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Article 301.” 20. The Court defined what a compensatory tax or regulatory measure was. A tax imposed ontraders is compensatory if it actually facilitates trade, by improving tradefacilities. In the words of Das, J., “…[a compensatory tax is] making a charge for the use of tradingfacilities, such as, roads, bridges, aerodromes etc. The collectionof a toll or a tax for the use of a road or for the use of a bridgeor for the use of an aerodrome is no barrier or burden ordeterrent to traders who, in their absence, may have to take alonger or less convenient or more expensive route. Such compensatorytaxes are no hindrance to anybody’s freedom…”

10

State of Kerala v. Mother Provincial, AIR 1970 SC 2079 A.I.R. 1968 S.C. 599 12 Niranjan V., Interstate Trade and Commerce; The Doctrine of Proportionality Reaffirmed (2011) 13 AIR 1962 SC 1406 11

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SLCU NATIONAL MOOT COURT COMPETITION 2012 21. More recently, the 5 Judge Bench which was called upon to decide the scope of compensatory taxes vis-à-vis Article 301 upon a reference under Article 145 in Jindal Stainless Steel Ltd(2) v. State of Haryana14 stated that “Compensatory tax is a compulsory contribution levied broadly in proportion to the special benefits derived to defray the cost of regulation or to meet the outlay incurred for some special advantage to trade, commerce and intercourse.”15 22. In other words, since a compensatory tax actually benefits trade, there is no question of it violating a provision that states that trade shall be free. It follows that the crux of a compensatory tax is the robust relationship between the quantum of the levy, and the benefit to trade as a result of the levy.16In Automobile Transport, it was said, "A working test for deciding whether a tax is compensatory or not is to enquire whether the trade is having the use of certain facilities for the better conduct of its business.”The second test established by the Court was that the tax imposed must confer approximately as much benefit on trade as the tax the traders are asked to pay, in others words, the tax must satisfy the principle of proportionality. This test has recently been reaffirmed by a 5-Judge Bench of the Supreme Court in Jindal Stainless Ltd.(2) v. State of Haryana17whereby the Court again stated that “it is of the essence of compensatory tax that the service rendered or facility provided should be more or less commensurate with the tax levied.” 23. In the present case, as rightly held by the Bombay High Court, the tax collected by the impugned Act is compensatory as the State government is not using the tax for augmenting its revenue. Instead a specific provision has been inserted in the Act, i.e., Section 5, for the creation of a Fund for the promotion of industries dealing with the same goods as the notified goods, including for the development of adequate markets in such goods. In furtherance of the said provision, a “Package Scheme of Incentives for Limestone and Cement Industries” was launched by the Government of Maharashtra in June 2012, which provided for the grant of capital subsidies to local limestone and cement units. It is submitted that the Government, in conformity with the criterion for compensatory taxes, allocated an amount of Rs. 350 crores towards these scheme which is equivalent and commensurate to the tax collected by the Government.

14

Infra note 12

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http://www.bcasonline.org/ContentType/Contentin.asp?1401 http://www.taxmann.com/fileopener.aspx?surl=http://www.taxmann.com/taxmannflashes/flashart22-310_6.htm&searchid=2691 17 (2006) 7 SCC 241 16

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SLCU NATIONAL MOOT COURT COMPETITION 2012 24. Thus it is contended that the said tax is a compensatory tax, conferring special benefits to trade and therefore it is immune from challenge under Article 301. It may be pertinent to point out the observations of this Court in Automobile18, whereby this Court held that it is not necessary to put the money collected from the tax into a separate fund so long as the facilities for the trades people are provided and the expenses incurred in providing them are borne by the state out of whatever source it may be. Since in the present case the requisite facilities or advantage to the concerned industries has been provided in proportion to the amount collected, thus the said tax constitutes a compensatory tax and is immune from challenge under Article 301.

ii. In the alternative, the tax imposed fulfills the requirements of Section 304(a)

25. Section 304(a) constitutes an exception to Section 301 and where there is no violation of Section 301, the question of violation of Article 304 does not arise. 19 In the present case the said Act providing for the levy of a compensatory tax does not violate the provisions of Article 301. Even if, arguendo, it is presumed that the said Act is violative of Article 301, it is submitted that this Act stills stands owing to its conformity with the provisions of Article 304(a). Article 304(a) authorizes the State Legislature to impose on goods imported from other States or the Union Territories any tax to which similar goods manufactured or produced in that State are subject so, however, as not to discriminate between goods so imported and goods so manufactured or produced. 26. The definition of notified goods as under Section 2(b) provides for the levy of tax on those goods for which substantial raw materials are acquired outside the State. This tax is being imposed on goods produced inside the State as well as outside the State at a constant rate prescribed by the State Government. The rates of tax being the same for the manufacturer of notified goods within the State as well as for the manufacturers from other States, the tax fulfills the requirements of Section 304, and, in no manner, can be said to be discriminatory.

18 19

Supra note 14 Srikanth Hariharan, A Federational Prospective of Interstate Trade, Commerce and Intercourse (2008)

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SLCU NATIONAL MOOT COURT COMPETITION 2012 III. THE CLASSIFICATION FOR THE PURPOSE OF TAX IS VALID AND CONSISTENT WITH ARTICLE 14. 27. Equality secured by Article 1420 does not mean absolute equality, which is a human impossibility. As has been reiterated by the Supreme Court of India in a number of decisions, all persons are not equal by their nature, attainment or circumstances. The varying needs of different classes of persons often require separate treatment.21 From the very nature of the society, there should be different laws, applying differently in different places. Application of the same laws uniformly to all, under different circumstances, may result in violation of the principle of equality. The Legislature is required to deal with diverse problems resulting from an infinite variety of human relations. It must, therefore, have power to make laws dealing with particular problems. Accordingly, the Legislature has been given the power to make laws distinguishing, selecting and classifying persons and things upon which its laws are to operate.

22

Thus, to apply the principle of equality in a practical manner, the Courts have

evolved the principle that if the law in question is based on reasonable classification it is not regarded as discriminatory.23 The Court laid down the following tests to determine the reasonableness of classification in Ram Krishan Dalmia v. Justice S.R. Tendolkar :24 a) That, the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group b) That, the differentia must have a rational relation to the object sought to be achieved by the Statute in question. 28. In the instant case, the impugned Act creates a valid classification as the notified goods for taxation purposes u/s 2 of the Act are clearly defined and distinguishable from other goods of the same industry. Those goods for which substantial raw materials are acquired outside the State shall be considered notified goods. And the said classification has indubitable nexus to the object sought to be achieved by the Statute which is reproduced as under:

20

The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.

21

Chiranjit Lal Chowdhuri v. The Union of India and Others.1951 AIR 41, 1950 SCR 869

22

Ashutosh Gupta v. State of Rajasthan, AIR 2002 SC 1533

23

Vijay Lakshmi v. Punjab University and Others (2002) 8 SCC 440

24

AIR 1958 SC 538

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SLCU NATIONAL MOOT COURT COMPETITION 2012 “to consolidate and amend the law relating to the regulation, promotion and protection of certain industries and the levying of certain taxes and fees for orderly industrial development in the state of Maharashtra”. 29. In order to achieve the aforementioned objects, it was essential to classify the goods for the purpose of identifying the sale of goods which shall be subjected to additional tax under Section 3 of the Act. 30. It is to be pointed out here that the levy of tax by the State is a sovereign function and the power to tax is one of the most extensive and searching powers. It has been explained time and again by this Court that in the matter of taxation, the Legislature has greater latitude, to give effect to its policy of raising revenue and for that purpose selecting persons or objects it will tax.

25

It is open to the State to decide, the basis of taxation and to alter the same, from

time to time. Thus, a State is not obliged to tax everything in order to tax something. It can select districts, objects, persons, methods and even rates of taxation. The power to levy tax includes the power to pick and choose objects and persons for the purpose of taxation and to grant exemptions.26 31. Also this Court has propounded the principle that it must be presumed that the Legislature understands and correctly appreciates the needs of its own people, that, its laws are directed to problems made manifest by experience and that, its discriminations are based on adequate grounds.27 The Legislature is free to recognize the degree of harm and may confine its restrictions to those cases where the needs is deemed to be the clearest. Also, in order to sustain the presumption of constitutionality, the Court can take into consideration, matters of common knowledge, matters of common report, the history of the times and may presume every state of facts which can be conceived existing at the time of legislation. 32. Thus in the present case it is submitted that the State of Maharashtra, in exercise of its powers of taxation under Article 246 has made a valid classification of goods in the impugned Act , keeping in view the problems being faced by certain nascent and underdeveloped industries of the State. It is directly and rationally related to the object of the Act, ie, the levying of certain taxes and fees for the orderly development in the State of Maharashtra.

25

Mohan Das v State of Karnataka, AIR 2005 SC 2178

26

ACC v. State of Chattisgarh, AIR 2007 (NOC) 669

27

Govt. of AP v. PL Devi, (2008) 4 SCC 720

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SLCU NATIONAL MOOT COURT COMPETITION 2012 IV. THE ACT CONSTITUTES A VALID DELEGATION OF POWERS TO THE STATE GOVERNMENT. 33. It is humbly submitted before this Hon’ble Court that the Act constitute a valid delegation of powers to the State Government. 34. Legislature, being the creative of the Constitution, must function within the limitation prescribed by it.28 The power of delegation is ancillary to the power of Legislation. The power to legislate carries with it the power to delegate. Scope of delegation and the legislation, made in the exercise thereof is to be determined on the touchstone of the Constitution. The main justification for delegated legislation is that the legislature being overburdened and the needs of the modern day society, being complex, it cannot possibly foresee every administrative difficulty that may arise after the statute has began to operate. Delegated Legislation fills those needs.29 Further this Hon’ble Court in Re, Delhi Laws Act, 1912 has held that in view of the exigencies of the modern govt., the legislature needs to delegate the legislative power. However, while delegating the legislative power, the legislature must retain in its own hands the essential legislative functions and that what can be delegated is the task of subordinate legislation necessary for implementing the purposes and objects of the statute concerned.30 35. For determining the permissible limits of delegation of legislative power, this Court propounded certain principles in the landmark case of In Re, Delhi Laws Act, 1912 and the same have been firmly established through series of decisions subsequently. 31 These are as follows:  that the legislature should not delegate its essential legislative function/power, that has been expressly vested in it by the Constitution,  that, the Legislature must, itself., perform the essential legislative function,  that the essential legislative function/power consists in the determination or choosing of the legislative policy and of formally enacting that policy into binding rule of conduct. It means that the Legislature should itself lay down standards or policy in the delegating Act and the delegate would then legislate to further the legislative policy, i.e. to execute the policy, 28

I.R.Coelhoe v. State of Tamil Nadu, AIR 2007 SC 861 St. Johns Teachers’ Training Institute v. Regional Director, N.C.T.E, AIR 2003 SC 1533 30 M.C. of Delhi v. Birla Cotton S. & W. Mills, AIR 1968 SC 1232; Re, Delhi Laws Act, 1912, AIR 1951 SC 332;V.M.Sanjawala v. State of Bombay, AIR 1961 SC 4 31 Agricultural Market Committee v. Shalinmar Chemical Works, AIR 1997 SC 2502 29

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SLCU NATIONAL MOOT COURT COMPETITION 2012  that the legislature cannot abdicate or efface itself by creating a parallel legislative body. 36. Thus it is settled that the Legislature, before delegating discretion on the administrative bodies, must discharge its essential legislative function.Moreover, this Hon’ble Court has, in Consumer Action Group v. State of Tamil Nadu32, ruled that the presence of legislative policy/guidance for the delegate is sufficient enough to compensate even the wide powers being conferred on delegate. 37. The expression “essential legislature function” has been held to comprise the formulation of policy and enacting it into a binding rule of conduct for the delegate. 33 It requires the Legislature to declare the policy the law, lay down the legal principles and provide standards for the guidance of the delegate to enact delegated legislation. What is, therefore, required, to meet a challenge against excessive delegation, is some policy-statement, which may be read by the court to comprise or mean sufficient guidance for the delegate34. 38. Now the question arises as to where to locate or to find the legislative policy. In this respect, it has been well-settled in a catena of decisions that the policy statement or the guidance may be found anywhere in the Statute, i.e., in the express provisions of the Statute delegating discretion, or other provisions of the Statute, the Preamble to the Statute or any scheme prescribed.35 Further, the legislative policy may be gathered from the object clause, from the history of the enactment or from the scheme of the Act, etc.36 39. In the impugned Act, the State Legislature has clearly stated the objectives and reasons of enactment of the Act. Further, besides the statement of objects and reasons, the entire history which led to the creation of the Act, has also been provided by the Legislature from which the legislative policy can be gathered and the intention of the Legislature can be understood.This is sufficient guidance for the state government37 to work as a subordinate legislature with regard to the certain ancillary matters and not as body parallel to the State Legislature. The State Legislature being sufficiently guided by the objectives, reasons, policy and history of the enactment, the delegation of certain subordinate matters in the Act falls out of the purview of ‘Excessive Delegation’. 32

AIR 2000 SC 3060 Re Delhi Laws Act, 1912 34 Avinder Singh v. State of Punjab, AIR 1979 SC 321 35 Consumer Action Group v. State of T.N., AIR 2000 SC 3060; A.V. Nachane v. Union of India, AIR 1982 SC 1126; Sardar Inder Singh v. State of Rajasthan, AIR 1957 SC 510 36 Food Corporation of India v. Bhanu Lodh AIR 2005 SC 2775; Ajay Kumar Banerjee v. Union of India, AIR 1984 SC 1130; Kishan Prakash Sharma v. Union of India, AIR 2001 SC 1502; A.V. Nachane v. Union of India, AIR 1982 SC 1126 37 Consumer Action Group v. State of Tamil Nadu, AIR 2000 SC 3060 33

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SLCU NATIONAL MOOT COURT COMPETITION 2012 40. In Maharashtra Local Industries (Regulation and Promotion) Act, 2011(the impugned Act) the State Legislature has delegated its power on the State Government only in some subordinate matters. The matters left for the legislation by the State Government do not relate to the formulation or modificationof ‘essential legislative function’ so as to affect the provisions of the Act. 41. The various provisions in the impugned Act that deal with the delegation of power on the State Government are: -

a) Section 2(b) "notified goods" means "such goods which are produced either inside or outside the State, but substantial raw materials for which are acquired outside the State, as the State Government may notify, having regard to the objects of this Act: Provided that, every such notification shall be laid before the State Legislature in accordance with s.5." 42. It is humbly submitted before this Hon’ble Court that the power delegated to the State Government is not excessive because the inclusion of the goods for levy of tax has to be done with regards to the objects of the Act. Moreover, the legislative policy which was to guide in the selection of goods to be kept under the category of ‘notified goods’, was apparent on the face of the Act, namely to regulate, promote and protect certain industries and to levy tax for the orderly industrial development in the State of Maharashtra. This Hon’ble Court in Banarasi Das v. State of M.P.38 in similar circumstances upheld the provision conferring power on the Government to bring certain sales transactions within the purview of the Sales Tax Act. It is further submitted that the latter part of Section 2(b) of the impugned Act requiring the notifications to be laid before the State Legislature in accordance with Section 5 of the impugned Act is an adequate safeguard against the abuse of power by the delegate39.

b) Section 3(1) “Additional tax shall be charged on all notified goods at a rate of 12.5 percent of market value or such other rate as may be prescribed by the State Government”. 43. Under this provision, the State Government has been given the power to fix the rate of tax to be levied upon the ‘notified goods’. The State government having already fixed the rate of tax @12.5% has reduced the scope of misuse of the power conferred on the State Government. The rate of tax that can be altered by the State Government has to be in neighboring of 38 39

AIR 1958 SC 909 Jain and Jain, Principles of Administrative Law, 2008, 119

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SLCU NATIONAL MOOT COURT COMPETITION 2012 ’12.5%’. This Hon’ble Court in Devidas v. State of Punjab40has held that “enabling the government to fix an arbitrary rate might not be sustainable but it was alright to confer a reasonable area of discretion on the government by a fiscal statute”. Similar is the case of instant case, where after reading within the provisions of the statute41, inference can be drawn that the power to determine the rate of tax is not an arbitrary or an unbridled power. It is therefore humbly submitted that the Section 3(1) of the Act falls out of the purview of the doctrine of ’excessive delegation’.

c) Section 4 “A sum equivalent to so much of the additional sales tax as may be practicable in the opinion of the State Government, may be used for the promotion of industries dealing with the same goods as the notified goods, including for the development of adequate markets in such goods”. 44. It is humble submitted before this Hon’ble Court that the history, reasons, objectives of the enactment clearly show the legislative policy and the intention behind the enactment of the impugned Act which is to regulate, promote and protect the new and emerging industries and for the orderly industrial development in the State of Maharashtra. The tax proceeds have to be used for the purpose of development of adequate markets and industries dealing with ‘notified goods’. Now the question as to the what portion of funds collected from the levy of tax has to be used for the purposes of the Act is to be decided by the State Government and not by the State Legislature because the latter being already over-burdenedcannot see every administrative difficulty that may arise42. Furthermore, the state government through its concerned departments is in a better position to know the market conditions of Maharashtra dealing with the ‘notified goods’ and the remedies for the adequate industrial developments in the state. It is therefore submitted that the power delegated to the state govt. under Section 4 of the impugned Act is not hit by the doctrine of excessive legislation.

d) Section 6(3) “The State Government may by notification extend any exemption or deduction provision in force under any other law to the payment of additional tax under this 40

AIR 1967 SC 1895 http://www.fas.org/sgp/crs/misc/97-589.pdf (last accessed: 30-8-2012) 42 St. Johns Teachers Training Institute v. Regional Director, N.C.T.E.,AIR 2003 SC 1533 41

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SLCU NATIONAL MOOT COURT COMPETITION 2012 Act: Provided that such notification shall be laid before each house of the State Legislature”. 45. It is humbly submitted that the delegation of power under this provision of the impugned Act is validly safeguarded by the necessary requirement of laying down the notification before the State Legislature. This is an adequate safeguard against the abuse of delegated power43.

e) Section 7(1): Removal of difficulties Clause 46. The ‘Removal of difficulties’ clause in the impugned Act delegates the power on the State Government to make modifications in the provisions of the Act in case any difficulty arises, subject however to the condition that such modification shall be consistent with the provision of the Act. This Hon’ble Court in Gammon India Ltd. v. Union of India44 has held that such provisions do not contemplate situations of excessive delegation of legislative power. The Court also said that it being “a narrow power” cannot be exercised broadly and there is application of the doctrine of Excessive Legislation. Further, Section 7(2) of the impugned Act provides that any such order made for the purpose of Section 7(1) shall be laid before each house of the State Legislature which is an additional safeguard against the abuse of delegated power. 47. In the nutshell, it is therefore humbly submitted before this Hon’ble Court that the provisions of the impugned Act delegating power over the State Government are wide out of the scope of the doctrine of excessive delegation and hence are valid in law.

V. THE TAX COLLECTED UNDER THE IMPUGNED ACT BY THE STATE GOVERNMENT SHOULD NOT BE REFUNDED BACK. 48. It is humbly submitted before this Hon’ble Court that the tax collected under the impugned Act by the State Government shall not be refunded back to the petitioners. 49. That in the light of the arguments made in the foregoing contentions the Hon’ble Court shall be pleased to announce that the impugned Act is constitutionally valid in law and in such a case no question of refund of the taxes collected by the State Government arises.

43 44

Supra note 35 AIR 1974 SC 960

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SLCU NATIONAL MOOT COURT COMPETITION 2012 50. However, in the arguendo it is submitted that this Hon’ble Court in Orissa Cement Ltd And Ors. v. State Of Orissa45 has held that the even if the levy of tax is found to be unconstitutional, the Court is not obliged to grant an order of refund.Therefore a finding regarding the invalidity of a levy need not automatically result in direction for a refund of all collections thereof made earlier. The declaration regarding the invalidity of a provision and the determination of the relief that should be granted in consequence thereof are two deferent things and, in the latter sphere, the Court has, and must be held to have, a certain amount of discretion. Once the principle that the Court has a discretion to grant or decline refund is recognized, the ground on which such discretion should be exercised is a matter of consideration for the Court having regard to all the circumstances of the case.The Court is entitled to refuse the prayer for refund for good and valid reasons. 51. It is therefore, settled in the above submission that the grant of refund by the Hon’ble Court is a matter of its own discretion. Further, this discretion has to be exercised with regards to the facts and circumstances of each case in question. In the instant case, the facts and circumstances are such that the discretion of the Court is likely to shift towards the refusal to grant the refund the taxes already collected. 52. The State of Maharashtra had announced a “Package Scheme of Incentives for Limestone and Cement Industries”, which provided for grant of capital subsidies to local limestone and cement units. This was done to give effect to the Section 4 of the impugned Act. For the furtherance of the objectives of this scheme, the government had allotted an amount of Rs. 350 Crores and out of which 50 Crores has already been disbursed to the local industries.By disbursing the funds allocated for the scheme, the government has changed its position. Any declaration of the Court regarding the refund of tax shall be valid only prospectively and in no case it should be valid with retrospective effect. In other words, the courts should not declare taxes collected illegal retrospectively. Further this Hon’ble Court in India Cement Ltd v. State Of Tamil Nadu Etc46held that the declaration of the invalidity of the tax amount, if any, be done only prospectively. 53. It is therefore, submitted before this Hon’ble Court that no tax refund be granted in the instant case. Moreover, no grant of compound interest be allowed.

45 46

1991 SCR (2) 105 1989 SCR Supl. (1) 692

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PRAYER FOR RELIEF

Wherefore, in the light of the issues raised, arguments advanced, reasons given and authorities cited, it is humbly prayed before the Hon’ble Court to adjudge and declare: (i)

That the impugned Act creates a valid classification having a rational nexus to the object and is therefore consistent with Article 14 of the Constitution

(ii)

That the Act imposes a tax which is compensatory in character and hence there is no violation of Articles 301 to 304

(iii)

That the legislation was within the legislative competence of the State under Article 246, the subject matter of the Act being within Entries 26,27,52 and 54 of List II

(iv)

That the Act provides sufficient guidance to the Executive and is not invalid for excessive delegation

(v)

That in the light of the aforesaid reasons, the Maharashtra Local Industries(Regulation and Promotion) Act is constitutionally valid and shall continue to have effect and no refund needs to be paid to the petitioners

And any other relief that this Hon’ble Court may be pleased to grant in the interest of justice, equity and good conscience. And for this act of kindness Your Lordships respondents shall as duty bound ever pray.

S.D./Counsel for respondent

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