Devi Das Gopal Krishnan and Ors. v. State of Punjab and Ors. AIR 1967 SC 1895

DEVI DAS GOPAL KRISHNAN AND ORS V. STATE OF PUNJAB AND ORS.

Whether Section 5 of the East Punjab General Sales Tax Act, 1948, as originally enacted, was void?
Whether the imposition of purchase tax under the amended Act violates Article 14 of the Indian Constitution?
Whether Section 5 of the Act is void for conferring legislative power on the provincial Government, thereby constituting excessive delegation?

A delegated legislation must provide clear legislative guidance and cannot confer unfettered discretion on the executive to levy taxes.
Taxes imposed on goods must not amount to an unreasonable restriction on the fundamental right to trade under Article 19(1)(g).

The Supreme Court’s decision addressed multiple civil appeals arising under the Punjab General Sales Tax Act, 1948 (“Act”), relating to oil seeds, iron and cotton.
The amendment to the Act imposed a purchase tax of 2% for the use in the manufacture of goods for sale.
Assessees in Civil Appeals Nos. 526, 527 and 529 of 1964 owned oil mills in Punjab. They purchased oil seeds, crushed them in their oil mills, and sold the oil and the residual oil-cake. The assessees were served notice for the failure to pay purchase tax for the purchase of oil seeds.
Assessees in Civil Appeals Nos. 39 to 43 of 1965 were rolling steel manufacturers who purchased steel scrap and ingots to produce rolled steel sections for sale. The assessing officer imposed a 2% purchase tax on their purchases.
Assessees in Civil Appeals Nos. 81 and 540 of 1965 were engaged in cotton-based manufacturing operations including yarn and textile production. They were assessed for purchase tax on cotton.
All the appellants filed petitions before the Punjab and Haryana High Court under Article 226 of the Indian Constitution. The High Court heard and dismissed the petitions. As a result, the assessees appealed to the Supreme Court.

The Supreme Court held that Section 5 of the Act, prior to its amendment, was void because it conferred uncontrolled power on the provincial Government to levy tax without providing any legislative guidance.
The Court rejected the contention of excessive delegation stating that the conferment of reasonable discretion for fixing tax rates in fiscal statutes is permissible.
Section 5 of the Act specified a maximum rate of 2 pieces in a rupee. The discretion to fix the rate between 1 piece and 2 pieces in a rupee is so minimal and insignificant that it does not exceed the permissible limits. Therefore, the amendment to Section 5 was deemed valid.
The Court further held that Article 14 of the Constitution was not violated as the Legislature imposes purchase tax on goods before they lose their identity and are transformed into a different product. Where no manufacturing process occurs, and the goods retain their original form, the taxable event is the sale, not the purchase.
The Supreme Court dismissed the appeals and upheld the validity of the purchase tax provisions, affirming the judgments of the High Court.