Principle of interpretation of entries in Constitution :
Lists I, II & III of Seventh Schedule to Constitution give bifurcation of powers between Union and State Government.
Principles in interpretation of these entries are discussed below. These principles will be relevant to interpret new entries relating to GST.
Hon. Supreme Court, in Ujagar Prints (2) v. UOI 39 ELT 493 = 1989 (3) SCC 488 = AIR 1989 SC 516 = 179 ITR 317 (SC) = 74 STC 401 (SC 5 member bench); have held that entries in the seventh schedule are merely topics or fields of legislation and are not sources of legislative power (in other words, these are for reference purposes and do not restrict the power of legislature). It is not necessary to support legislation under only one entry. Legislation could be composite legislation drawing upon several entries. Such a ‘rag-bag’ legislation is particularly familiar in taxation.
In State of AP v. NTPC 2002 AIR SCW 1956 = 127 STC 280 (SC 5 member bench), it was observed, ‘It is well settled and hardly needs any authority to support the proposition, that several entries in the three lists of seventh schedule are legislative heads or fields of legislation and not the source of legislative empowerment – same view in Association of Natural Gas v. UOI 2004 AIR SCW 2035 (SC 5 member Constitution Bench) * Girnar Traders (3) v. State of Maharashtra (2011) 3 SCC 1 (SC 5 member Constitution bench) * Offshore Holdings P Ltd. v. Bangalore Development Authority (2011) 3 SCC 139 (SC 5 member Constitution bench).
Function of the lists is not to confer powers, they merely demarcate the legislative field – State of West Bengal v. Committee for Protection of Democratic Rights (2010) 3 SCC 571 (SC 5 member Constitution Bench).
In Hari Krishna Bhargav v. UOI AIR 1966 SC 619 also, it was held that Parliament can enact a single statute in matters which call for exercise of powers under two or more entries in the list I of Seventh Schedule, and the fact that one such entries is residuary entry does not attract any disability.
In Synthetics and Chemicals Ltd. v. State of UP – (1991) 80 STC 270 = (1990) 1 SCC 109 = AIR 1990 SC 1927 (SC 7 member bench) also, it was held that entries in three lists to Seventh Schedule are not powers but fields of legislation. These demarcate the area over which the appropriate Legislatures can operate. Widest amplitude should be given to the language of these entries. Each general words should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it – similar view in Navinchandra Mafatlal v. CIT – AIR 1955 SC 58 = 26 ITR 758 = (1955) 1 SCR 829 (Constitution Bench) * CWT v. Ellis Bridge Gymkhana 229 ITR 1 = 95 Taxman 143 = AIR 1998 SC 120 = (1998) 1 SCC 384 = 1997 AIR SCW 4074 (SC) * Express Hotels P Ltd. v. State of Gujarat (1989) 3 SCC 677 = 178 ITR 151 = 74 STC 157 = AIR 1989 SC 1949 * UOI v. Delhi High Court Bar Association 2002 AIR SCW 1347 = 37 SCL 451 (SC 3 member bench). Same views in India Cement Ltd. v. State of Tamil Nadu – (1990) 1 SCC 12 = AIR 1990 SC 85 (SC 7 member bench) – quoted and followed in Jijubhai Nanbhai Khachar v. State of Gujarat – AIR 1995 SC 142 = (1995) Supp 1 SCC 596 – same view in Goodricke Group Ltd. v. State of WB (1995) Suppl 1 SCC 707 = 98 STC 32 (SC 3 member) * Welfare Association ARP Maharashtra v. Ranjit P Gohil (2003) 9 SCC 358 = 2003 AIR SCW 1663 * Hindustan Lever v. State of Maharashtra (2003) 48 SCL 630 (SC) * Dharam Dutt v. UOI 2004 AIR SCW 147 * Association of Leasing and Financial Services v. UOI (2011) 2 SCC 352 = 7140 = 29 STT 316 = 35 VST 549 (SC 3 member bench) * B K Srinivasan v. State of Karnataka AIR 1987 SC 1059 = 1987(1) SCC 658 – quoted with approval in K T Plantation Pvt. Ltd. v. State of Karnataka (2011) 9 SCC 1 (SC 5 member Constitution Bench).
In Hotel Balaji v. State of AP 88 STC 98 = AIR 1993 SC 1048 = 1993 AIR SCW 3 (3 member bench) also, it was observed that legislative entries should be interpreted liberally. In Elel Hotels & Investments Ltd.
v. UOI 178 ITR 140 = AIR 1990 SC 1664 = 74 STC 146 = (1989) 3 SCC 698 = 44 Taxman 304 also, it was held that widest meaning should be given to entries in the schedule to the Constitution – similar views in CWT v. Dr. Karan Singh (1993) 67 Taxman 3 (SC 5 member bench) * R S Rekchand Mohta Spg & Wvg v. State of Maharashtra AIR 1997 SC 2591 = 1997 AIR SCW 2546 (SC 3 member bench) * Tripura Goods Transport Corpn v. Commissioner of Taxes 1999 AIR SCW 184 = AIR 1999 SC 719 = 1999(2) SCC 253 = 112 STC 609 * UOI v. Shah Govardhan L 2002 AIR SCW 4325 *Godfrey Philips India v. State of UP AIR 2005 SC 1103 = (2005) 2 SCC 515 = 2005 AIR SCW 613 = 139 STC 537 (SC 5 member Constitution Bench).
In K P Abdulla – (1971) 3 SCC 355 = 27 STC 1 (SC), it was held that widest import and significance should be attached to entries in the Seventh Schedule. It was also held that a taxing entry confers power upon legislature to legislate for matters ancillary or incidental, including provisions for preventing evasion of tax – similar views in Sardar Baldev Singh v. CIT – (1960) 40 ITR 605 (SC) = AIR 1961 SC 736 * Khyrbari Tea Co. Ltd. v. State of Assam – AIR 1964 SC 925. In Balaji v. ITO AIR 1962 SC 123 = 1962(2) SCR 983 = (1961) 43 ITR 393 (SC), it was held that entries in List to seventh schedule are not powers but are only fields of legislation and the entry can sustain law made to prevent the evasion of tax. – quoted with approval in UOI v. M V Valliappan – (1999) 105 Taxman 605 = AIR 1999 SC 2526 (SC 5 member Constitution Bench).
In Banarasi Dass v. WTO – (1965) 56 ITR 224 (SC) = AIR 1965 SC 1387 also, it was held that Court must interpret the relevant words in the entry in a natural way and give them the widest interpretation.
Supreme Court, in S D Fine Chemicals v. 1995 (77) ELT 49 (SC) = (1995) 99 STC 313 (SC), has confirmed the above views. (In this case, provision for levy of duty on ‘deemed manufacture’ was upheld. It was held that definition of ‘manufacture’ under Central Excise is expansive and it includes processes mentioned in CETA as amounting to manufacture, even if these processes do not amount to manufacture.)
In UOI v. Harbhajan Singh Dhillon – 1971 (2) SCC 779 = (1972) 83 ITR 582 (SC) = (1972) 2 SCR 33 = AIR 1972 SC 1061 (SC 7 member bench), it was observed that in order to find out competence of Union Parliament to legislate, all that is necessary is to find out whether the particular topic is covered in List II or List III. If it is not, it is not necessary to go any further or search for field in List I. Union Parliament has exclusive powers to legislate upon any topic or field not covered in List II or List III. Of course, it has concurrent power also in respect of subjects in List III. – quoted with approval in Naga People’s Movement of Human Rights v. UOI 1998 AIR SCW 8 = (1998) 2 SCC 109 = AIR 1998 SC 431 (SC 5 member bench) * Attorney
General of India v. Amaratlal Prajivandas – (1994) 74 Taxman 469 = 83 Comp Cas 804 = AIR 1994 SC 2179 = 1994 AIR SCW 2652 = (1994) 5 SCC 54 (SC 9 member constitution bench).
If no entry is found in List 2 and List 3 of the Schedule, the question of Parliament lacking legislative competence to do so would not arise – Tamil Nadu Kalyana Mandapam Association v. UOI 2004 (167) ELT 3 = (2004) 5 SCC 632 = 136 Taxman 596 = 267 ITR 9 = 4 STT 308 = 2004 AIR SCW 3991 = 135 STC 480 = 3 STR 260 = 1 VST 180 (SC).
Under Income Tax also, provisions of ‘deemed income’ have been upheld.
In Balaji v. ITO AIR 1962 SC 123 = 1962(2) SCR 983 = (1961) 43 ITR 393 (SC) = 1961 (43) ITR 393 (SC), provision of clubbing of income of wife or minor children was upheld. In other words, income of A can be taxed in hands of B. In UOI v. A Sanyasi Rao AIR 1996 SC 1219 = 1996 AIR SCW 1251 = 85 Taxman 321 = (1996) 3 SCC 465 = 219 ITR 330 (SC 3 member bench), it was observed that heads of legislation in the lists should not be construed in a narrow and pedantic sense, but should be given a large and liberal interpretation. – – In this case, provision of ‘presumptive tax’ under section 44AC of IT Act on business of timber, alcoholic liquor etc. based of purchase price was upheld. However, it was also held that regular assessment under sections 28 to 43C of IT Act has to be made.
In Calcutta Gas Co. v. State of West Bengal AIR 1962 SC 1044 = 1962 Supp 3 SCR 1, it was observed that when some entries in different lists or in same list overlap or may appear to be in direct conflict with each other, it is the duty of Court to reconcile the entries and bring about harmony between them. – . – . – Every attempt should be made to harmonise the apparently conflicting entries not only of different lists but also of the same list and to reject that construction which will rob one of entries of its entire content and making it nugatory – quoted with approval in SIEL Ltd. v. UOI AIR 1998 SC 3076 = (1998) 7 SCC 26.
In Tripura Goods Transport Corpn. v. Commissioner of Taxes 1999 AIR SCW 184 = AIR 1999 SC 719 = 1999(2) SCC 253 = 112 STC 609, it was held that if any legislature makes any ancillary or subsidiary provisions which incidentally transgresses over its jurisdiction for achieving the object of such legislation, then it would be a valid peace of legislation.
In Second GTO v. D H Hazareth AIR 1970 SC 999 = 76 ITR 713 (SC Constitution Bench), it was observed, ‘The entries in the lists must be regarded as enumeratio simplex of broad categories. Since they are likely to overlap occasionally, it is usual to examine pith and substance of legislation with a view to determining which entry they can be substantially related, a slight connection with another entry in another list notwithstanding. – – The entries must receive a large and liberal interpretation because the few words in entry are intended to confer vast and plenary powers. If, however, no entry in any of the three lists covers it, it belongs to Parliament under Entry 97 of Union List as a topic of legislation. – similar views in International Tourist Corporation v. State of Haryana AIR 1981 SC 774 = (1981) 2 SCC 319 – quoted with approval in Association of Leasing and Financial Services v. UOI (2011) 2 SCC 352 = 7140 = 29 STT 316 = 35 VST 549 (SC 3 member bench).