Bench:
- Justice Y.V. Chandrachud (Chief Justice)
- Justice A.C. Gupta
- Justice A.P. Sen
- Justice E.S. Venkataramiah
- Justice R.S. Pathak
Facts:
Hoechst Pharmaceuticals Ltd., a multinational pharmaceutical company, challenged the validity of the Bihar Sales Tax Act, 1976, which imposed an additional tax on the sale of drugs and medicines in Bihar. The company argued that this additional tax conflicted with The Drugs (Prices Control) Order, 1970, issued by the Union Government under the Essential Commodities Act, 1955. The Order fixed the maximum sale price of drugs, and the company contended that the imposition of an additional sales tax by the Bihar government would increase the price beyond the limit fixed by the central law.
The company filed a writ petition in the Patna High Court, claiming that the Bihar Sales Tax Act, 1976, was unconstitutional because:
- It encroached upon a subject reserved for Parliament under the Union List.
- It was repugnant to the Drugs (Prices Control) Order, 1970, and hence void under Article 254 of the Constitution (which deals with repugnancy between State and Union laws).
The Patna High Court dismissed the petition, upholding the validity of the Bihar Sales Tax Act, 1976. Hoechst Pharmaceuticals then appealed to the Supreme Court of India.
Issues:
- Whether the Bihar Sales Tax Act, 1976, which imposed an additional sales tax on drugs and medicines, was constitutionally valid.
- Whether the Bihar Sales Tax Act was repugnant to the Drugs (Prices Control) Order, 1970, issued by the Union Government, and thus void under Article 254 of the Constitution.
- Whether the State Legislature had the legislative competence to enact a sales tax law affecting the sale of drugs, which were already regulated by the Essential Commodities Act, 1955 (a Union law).
Arguments:
Petitioners (Hoechst Pharmaceuticals Ltd.):
- The Bihar Sales Tax Act, 1976, effectively increased the price of medicines, which was contrary to the Drugs (Prices Control) Order, 1970, a law enacted under the Essential Commodities Act, 1955.
- Since the price of drugs was already controlled by the Union Government, the State Legislature had no power to impose a tax that would affect those prices.
- Article 254(1) states that if there is an inconsistency between a State law and a Central law, the Central law prevails, and the State law becomes void.
- The State law was not reserved for the President’s assent, and thus, it should be declared unconstitutional due to repugnancy with the Central law.
Respondents (State of Bihar):
- The State Legislature was empowered to impose a sales tax under Entry 54 of the State List (which deals with “Taxes on the sale or purchase of goods other than newspapers”).
- The Drugs (Prices Control) Order, 1970, only regulated the pricing of drugs but did not deal with sales tax, which was a separate matter.
- There was no repugnancy between the two laws because they operated in different legislative fields—the Union law controlled prices, while the State law imposed a tax.
- Article 254(1) applies only when two laws are inconsistent with each other. In this case, the sales tax did not directly contradict the price control mechanism, and thus Article 254(1) did not apply.
Ratio Decidendi (Legal Reasoning):
- Doctrine of Repugnancy: The Supreme Court held that Article 254 applies only when there is an actual conflict between a Union and a State law in the Concurrent List. Since sales tax falls under the State List, and price control falls under the Union List, there was no repugnancy.
- Legislative Competence of the State: The Bihar Legislature had full authority to impose a sales tax under Entry 54 of the State List. The fact that the tax indirectly affected drug prices did not make it unconstitutional.
- Separate Legislative Fields: The Court ruled that the Central Government’s power to control drug prices under the Essential Commodities Act, 1955, and the State Government’s power to impose sales tax were separate legislative fields.
- Effect of Taxation on Pricing: The mere fact that a State tax increased the price of a commodity did not make the tax unconstitutional unless the Central law explicitly prohibited the levy of such a tax.
Observations:
- Doctrine of Pith and Substance: The Court reaffirmed that if a law is in pith and substance within a Legislature’s competence, it is valid even if it incidentally affects another subject. Here, the sales tax law was primarily a taxation law and only incidentally affected drug prices.
- Article 254 Does Not Apply to State List Laws: The Court clarified that Article 254 applies only when both the Central and State laws fall within the Concurrent List. Since the Bihar Sales Tax Act was enacted under the State List, Article 254 was not applicable.
- No Express Conflict: Since the Drugs (Prices Control) Order, 1970, did not explicitly prohibit the imposition of sales tax, there was no direct conflict, and both laws could coexist harmoniously.
Decision:
The Supreme Court upheld the validity of the Bihar Sales Tax Act, 1976, ruling that:
- The State Legislature was competent to enact the sales tax law.
- There was no repugnancy between the State and Central laws because they operated in different legislative fields.
- The Drugs (Prices Control) Order, 1970, did not prohibit the imposition of sales tax, so the Bihar law was not unconstitutional.
The appeal was dismissed, and the Bihar Sales Tax Act remained valid and enforceable.
Important Terms:
- Article 254 of the Constitution: Governs conflicts between State and Central laws in the Concurrent List, stating that Central law prevails in case of inconsistency.
- Entry 54 of the State List: Grants State Legislatures the power to levy sales tax on goods.
- Doctrine of Pith and Substance: A principle that determines the true nature of legislation to decide its validity, even if it incidentally affects another subject.
- Doctrine of Repugnancy: States that if two laws conflict, the Central law prevails and the State law becomes void under Article 254(1).
- Essential Commodities Act, 1955: A Union law that allows the government to regulate the supply, distribution, and pricing of essential goods.
This case clarified the distinction between taxation laws and price control laws. It restricted the scope of Article 254, ensuring that State laws remain valid unless there is an explicit conflict. It strengthened the power of State Legislatures to levy sales taxes without interference from Union laws.