CASE NOTE: Legislative Competence (II)

Table of Contents
CASE NOTE: Legislative Competence (II)....................................................................................................1
I. Doctrine of Harmonious Construction.........................................................................................................1
1. Calcutta Gas Company v. State of West Bengal, AIR 1962 SC 1044................................................................................1
2. ITC Ltd. v. Agricultural Produce Market Committee, AIR 2002 SC 852............................................................................6
II. Doctrine of Pith & Substance....................................................................................................................14
1. Governor-General in Council v. Province of Madras, AIR 1945 PC 98...........................................................................14
2. Prafulla Kumar Mukherjee v. Bank of Commerce, Khulna, AIR 1947 PC 60..................................................................17
3. Hoechst Pharmaceuticals v. State of Bihar, AIR 1983 SC 1019......................................................................................22
4. Kartar Singh v. State of Punjab, (1994) 3 SCC 569.........................................................................................................30

I. Doctrine of Harmonious Construction

1. Calcutta Gas Company v. State of West Bengal, AIR 1962 SC 1044

Facts: The Oriental Gas Company was originally constituted by a deed of settlement dated April 25, 1853,
by the name of the Oriental Gas Company, and it was subsequently registered in England under the
provisions of the English Joint Stock Companies Act, 1862. By Act V of 1857 passed by the Legislative
Council of India, it was empowered to lay pipes in Calcutta and its suburbs and to excavate the streets for
the said purpose. By Acts of the Legislative Council of India passed from time to time special powers were
conferred on the said Company. In 1946 Messrs. Soorajmull Nagarmull, a firm carrying on business in India,
purchased 98 percent of the shares of the said Oriental Gas Company Limited. The said firm floated a
limited liability Company named the Calcutta Gas Co. (Proprietary) Limited and it was registered in India
with its registered office at Calcutta. On July 24, 1948, under an agreement entered into between the
Oriental Gas Company, and the Calcutta Gas Company the latter was appointed the manager of the former
Company in India for a period of 20 years from July 5, 1948. The Oriental Gas Company is the owner of the
industrial undertaking, inter alia, for the production, manufacture, supply, distribution and sale of fuel gas
Calcutta. The Calcutta Gas Company, by virtue of the aforesaid arrangement, was in charge of its general
management for a period of 20 years for remuneration. The West Bengal Legislature passed the impugned
Act and it received the assent of the President on October 1, 1960. On October 3, 1960, the West Bengal
Government issued three notifications- the first declaring that the said Act would come into force on
October 3, 1960, the second containing the rules framed under the Act, and the third specifying October 7,
1960, as the date with effect from which the State Government would take over for a period of five years
the management and control of the undertaking of the Oriental Gas Company for 'the purposes of, and in
accordance with, the provisions of the said Act.. The appellant, i.e., the Calcutta Gas Company, filed a
petition under Art. 226 of the Constitution tn. the High Court for West Bengal at Calcutta for appropriate
writs for restraining the State Government from giving effect to the said Act and for quashing the said
notifications.

Date Event
April 25, - The Oriental Gas Company was originally constituted by a deed of
 1853 settlement by the name of the Oriental Gas Company (OGC)
-Subsequently registered in England under the provisions of the
English Joint Stock Companies Act, 1862.
- Act V of 1857 (passed by the Legislative Council of India): empowered
to lay pipes in Calcutta and its suburbs and to excavate the streets for
the said purpose
1946 - Messrs. Soorajmull Nagarmull (a firm carrying on business in India)
purchased 98 percent of the shares of OGC.
- The said firm floated a limited liability Company named the Calcutta
Gas Co. (Proprietary) Limited (registered in India with its registered
office at Calcutta)
July 24, Agreement entered into between the OGC, and the Calcutta Gas Company -
1948 latter appointed the manager of the former Company in India for a period of
20 years from July 5, 1948.
OGC: owner of the industrial undertaking, inter alia, for the production,
manufacture, supply, distribution and sale of fuel gas Calcutta
October 1, W.B. act received the assent of the President
1960
October 3, 3 notifications issued,
1960 a. Act would come into force on October 3, 1960,
b. Contained the rules framed under the Act
c. Specified October 7, 1960, as the date with effect from which the
State Government would take over for a period of five years the
management and control of the undertaking of the Oriental Gas
Company for 'the purposes of, and in accordance with, the provisions
of the said Act.

Issue: The learned Advocate-General of West Bengal, and Mr. Sen, who followed him, seek to sustain the
validity of the impugned Act not only under entry 25 of List II but also under entries 33 and 42 of List III of
the Seventh Schedule to the Constitution.

Acts (in question):

a. Central Act
Industries (Development and Regulation) Act, 1951, hereinafter called the "'Central Act.", and the
impugned Act. The Central Act was, passed, as its long title shows, to provide for the development and
regulation of certain industries. Under s. 2 of the Central Act, it is declared that it is expedient in the public
interest that the Union should take under its control the industries specified in the First Schedule. Under
beading 2 of the First Schedule, item (3) is "fuel gases-(coal gas, natural gas and the like)".. ,Industrial
undertaking" is defined to mean any undertaking pertaining to a scheduled industry carried on in one or
more factories by any person or authority including Government ; and "factory" is defined to mean any
premises, including the precincts thereof, in any part of which a manufacturing process is being carried on
or is ordinarily so carried on.

b. State Act
Its provisions are confined only to the affairs of the Oriental Gas Company Limited. Its long title shows that
it was passed to provide the taking over for a limited period of the management and control, and the
subsequent acquisition of the undertaking of the Oriental Gas Company Limited. Its preamble says that it
was thought expedient to provide for the increase of the production of gas and improving the quality
thereof for supply to industrial undertakings, hospitals and other welfare institutions, to local authorities
for street lighting and to the public in general for domestic consumption and for that purpose to provide
for the taking over for a limited period of the management and control, and the subsequent acquisition, of
the undertaking.

Issue: It would be seen that the impugned Act intends to serve the same purpose as the Central Act,
though its operation is confined to the Oriental Gas Company. Both the Acts are conceived to increase the
production, quality and supply pertaining to an industry, and for that purpose to enable the appropriate
Government, if necessary, to take over the management for regulating the industry concerned to achieve
the said purposes. The impugned Act occupies a part of the field already covered by the Central Act. The
question is whether the State Legislature has constitutional competency to encroach upon the said field.

Findings:

- Legislative competence:

a. List I-Union List

Entry 7. Industries declared by Parliament by law to be necessary for the purpose of defence or for the
prosecution of war.

Entry 52. Industries, the control of which by the Union is declared by Parliament by law to be expedient in
the public interest.

b. List II-State List

Entry 24. Industries subject to the provisions of entries 7 and 52 of List I.

Entry 25. Gas and gas-works.

Entry 26.1 Trade and commerce within the State subject to the provisions of entry 33 of List III.

Entry 27. Production, supply and distribution of goods subject to the provisions of entry 33 of List Ill.

- Rules of interpretation

 Power to legislate

The power to legislate is given to the appropriate Legislatures by Art. 246 of the Constitution. The entries
in the three Lists are only legislative heads or fields of legislation : they demarcate the area over which the
appropriate Legislatures can operate.

 Widest possible amplitude

It is also well settled that widest amplitude should be given to the language of the entries. But some of the
entries in the different List or in the same

 Harmony
List may overlap and sometimes may also appear to be in direct conflict with each other. It is then the duty
of this Court to reconcile the entries and bring about harmony between them.

Examples,
 i. When the question arose about reconciling entry 45 of List I, duties of excise, and entry 18 of
List II, taxes on the sale of goods, of Government of India Act, 1935, Gwyer, C. J., in ln re The
Central Provinces and Berar Act No. X IV of 1938 (1), observed:

"A grant of the power in general terms, standing by itself, would no doubt be construed in the wider sense;
but it may be qualified (1) (1939) F. C. R. 18, 42, 44, by other express provisions in the same enactment, by
the implication of the context, and even by considerations arising out of what appears to be the general
scheme of the Act."

The learned Chief Justice proceeded to state ".......... an endeavor must be made to ,solve it, as the Judicial
Committee have said by having recourse to the context and scheme of the Act, and a reconciliation
attempted between two apparently conflicting jurisdictions by reading the two entries together and by
interpreting, arid, where necessary, modifying the language of the one by that of the other. If indeed such
a reconciliation should prove impossible, then, and only then, will the non-obstante clause operate and the
federal power prevail."

ii. The Federal Court in that case held that the entry "taxes on the sale of goods" was not covered
by the entry "duties of excise" and in coming to that conclusion, the learned Chief Justice
observed:

"Here are two separate enactments, each in one aspect conferring the power to impose a tax upon goods;
and it would accord with sound principles of construction to take the more general power, that which
extends to the whole of India, as subject to an exception created by the particular power, that which
extends to the provinced only. it is not perhaps strictly accurate to speak of the provincial power as being
excepted out of the federal power, for the two are independent of one another and exist side by side. But
the underlying principle in the two cases must be the same, that a general power ought not to be so
construed as to make a nullity of a particular power conferred by the same Act and operating in the same
field, when by reading the former in a more restricted sense effect can be given to the latter in its ordinary
and natural meaning."

- Conflicting entries in the same list

The rule of construction adopted by that decision for the purpose of harmonizing the two apparently
conflicting entries in the two Lists would equally apply to an apparent conflict between two entries in the
same List. Patanjali Sastri, J., as he then was, hold in State of Bombay v.Narothamdas Jethabai(1) that the
words "administration of justice" and (,constitution and organization of all courts" in item one of List II of
the Seventh Schedule to the Government of India Act, 1935, must be understood in a restricted sense
excluding from their scope "jurisdiction and powers of courts" specifically dealt with in item 2 of List II. In
the words of the learned Judge, if such a construction was not given "the wider construction of entry 1
would deprive entry 2 of all its content and reduce it to useless lumber." This rule of construction has not
been dissented from in any of the subsequent decisions of this Court. It may, therefore, be taken as a well
settled rule of construction that every attempt should be made to harmonize 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 the entries of its entire content and make it nugatory.

- Present Case

 3 constructions,

There are three possible constructions, namely,

(1) entry 24 of List II, which provides for industries generally, covers the industrial aspect of gas and
gas-works leaving entry 25 to provide for other aspects of gas and gas-works;
 (2) entry 24 provides generally for industries, and entry 25 carves out of it 'the specific industry of gas
and gas-works, with the result that the industry of gas and gas-works is excluded from entry 24 ;
and
(3) the industry of gas and gas-works falls under both the entries, that is, there' is a real overlepping of
the said entries.

 What is an industry?

The first question that occurs to one's mind is, what is the meaning of the expression ",indus. try" in entry
24 of List II ? Is it different from the meaning of that expression in entry 52 of List I ? Whatever may be its
connotation, it, must bear the same meaning in both the entries for the, two entries are so interconnected
that conflicting or different meanings given to them would snap the connection Entry 24 is subject to the
provisions of entry 7 and entry 52 of List I. Entry 7 of List I provides for industries declared by Parliament by
law to be necessary for the purpose of defence or for the prosecution of war; and entry 52 for industries
the control of which by the Union is declared by Parliament by law to be expedient in the public interest.
Therefore ordinarily industry is in the field of State legislation ; but, if Parliament by law makes a relevant
declaration or declarations, the industry or industries so declared would be taken off its :field and passed
on to Parliament. In the promises, the expression "industry" in all the entries must be given the same
meaning.

Assuming that the expression means only production or manufacture, would it take in its sweep
production or manufacture, of gas?

 How is there a conflict?

Entry 24 in List II in its widest amplitude takes in all industries, including that of gas and gas-works. So too,
entry 25 of the said List comprehends gas industry. There is, therefore, an apparent conflict between the
two entries and they overlap each other. In such a contingency the doctrine of harmonious construction
must be invoked.

 Doctrine of Harmonious Construction

If industry in entry 24 is interpreted to include gas and gas- works, entry 25 may become redundant, and in
the context of the succeeding entries, namely, entry 26, dealing with trade and commerce, and entry 27,
dealing with production, supply and distribution 4 of goods, it will be deprived of all its contents and
reduced to ",useless lumber". If industrial, trade, production and supply aspects are taken out of entry 25,
the substratum of the said entry would disappear : in that event we would be attributing to the authors of
the Constitution ineptitude, want of precision and tautology. On the other hand, the alternative contention
enables entries 24 and 25 to operate fully in their respective fields : while entry 24 covers a very wide field,
that is, the field of the entire industry in the State, entry 25. dealing with gas and gas-works, can be
confined to a specific industry, that is,the gas industry.

Reasons why Gas and gas-works were added as a separate entry

There may be many good reasons for the authors of the Constitution giving separate treatment to gas and
gas- works. If one can surmise, it may be that, as the industry of gas and gas-works was confined to one or
two States and was not of all India importance, it was carved out of entry 24 and given a separate entry, as
otherwise if a declaration by law was made by Parliament within the meaning of entry 7 or entry 52 of List
I, it would be taken out of the legislative power of States.

It is suggested that this interpretation would prevent Parliament to make law in respect of gas and gas-
works during war or other national emergency. Apart from the relevancy of such a consideration, the
apprehension has no justification, for under Art. 249 Parliament is enabled to take up for legislation any
matter which is specifically enumerated in List II whenever the Council of States resolves by two-thirds
majority that such a legislation is necessary or expedient in the national interest. So too, under Art. 250
Parliament can make laws with respect to any of the matters enumerated in the State List, if a
Proclamation of Emergency is in operation. Article 252 authorizes the Parliament to legislate for two or
more States, if the Houses of the Legislatures of those :States give their consent to the said course.

- Verdict

Subject to such emergency or extra- ordinary powers, the entire industry of gas and gas-works is within
exclusive legislative competence of a State. It is, therefore, clear that the scheme of harmonious
construction suggested on behalf of the State gives' full and effective scope of operation for both the
entries in their respective fields….. The former interpretation must, therefore, be accepted in preference to
the latter. In this view,' gas and-gas works are within the exclusive field allotted to the States. On this
interpretation the argument of the learned Attorney- General that, under Art. 246 of the Constitution, the
legislative power of State is subject to that of Parliament ceases to have any force, for the gas industry is
outside the legislative field of Parliament and is within the exclusive field of the Legislature of the State.
We, therefore, hold that the impugned Act was within the legislative competence of the West Bengal
Legislature and was, therefore, validly made.

We have expressed the view that the Legislature of a State has the exclusive power to make law in respect
of gas industry by virtue of entry 25 of List II, and that entry 24 does not comprehend gas industry. As we
have indicated earlier, the expression "industry" in entry 52 of List I bears the same meaning as that in
entry 24 of List II, with the result that the said expression in entry 52 of List I also does not take in a gas
industry. If so, it follows that the Central Act, in so far as it purported to deal with the gas industry, is
beyond the legislative competence of Parliament. Section 20 is an integral part of the Central Act, and if it
is taken out of the Act, it can only operate in vacuum. The said section was introduced for the effective
implementation of the provisions of the Central Act. It was also enacted by virtue of entry 52 of List I of the
Seventh Schedule to the Constitution. If the Act was constitutionally void in so far as it purported to effect
the gas industry, for the aforesaid reasons, s. 20 would equally- be void to the same extent for the same
reasons. In this context two decisions of this Court, namely Raghubir Singh v. State of Ajmer(1), and State
of Bihar v. Ummh Jha(2) may usefully be consulted, for in the said decisions this court held that ancillary
provisions enacted for carrying out the objects of a main Act would fall with the main Act on the ground
that they were enacted only to subserve the purpose of the main Act. Section 20, therefore, will not avail
the appellant to question the validity of the State action.

2. ITC Ltd. v. Agricultural Produce Market Committee, AIR 2002 SC 852

Facts: Different State Legislatures have enacted Agricultural Produce and Markets Act for regulating sale
and purchase of the agricultural produce within the market area and for levy and collection of market-fee.
Parliament having declared that it is expedient in the public interest that Union should take under its
control the tobacco industry, enacted the Tobacco Board Act, 1975 which is an Act to provide for the
development of tobacco industry under the control of the Union Government. Under the Agricultural
Produce Markets Act, the State Government having notified 'tobacco' as an agricultural produce, the
purchase and sale of tobacco is to be regulated under the provisions of the State Act and the Market
Committee has the right to levy and collect market- fee on such sale and purchase of the notified
agricultural produce viz. the tobacco.

Issues: Though several counsel have raised contentions in different forms as indicated earlier, but
essentially the following questions arise for our determination:-
1. Whether the Tobacco Board Act enacted by the Parliament under Entry 52 of List I can be held to be
constitutionally valid and within the legislative competence of the Parliament, so far as the provisions
contained in the same in relation to the growing of tobacco and sale of raw-materials, and this in turn
would depend upon the question whether the word 'industry' used in Entry 52 of List I should be given a
restricted meaning ;

2. Even if the Tobacco Board Act is held to be constitutionally valid and the Agricultural Produce Market Act
is also held to be constitutionally valid and within the powers of the State Legislature, so far as purchase
and sale of tobacco within the market area is concerned, whether both the Acts can be allowed to operate,
as was held by the minority judgment in ITC case;

3. If there is a repugnancy between the two then whether the Central Act would prevail, as was held by the
majority judgment in ITC case.

Findings:

- The 3 lists

 Federal scheme
The rules relating to the distribution of legislative power by providing the legislative heads for the
Parliament to make law in respect of subjects enumerated in List I, and similarly enumerating the subjects
in List II with respect to which the State Legislature can frame law, in fact constitutes the heart of the
federal scheme of the Constitution. But the Constitution Makers having found that the need for power
sharing devices between the Central and the State must be subordinated to the imperatives of the State's
security and stability propelled the thrust towards centralisation and by using non obstante clause under
Article 246 the federal supermacy is achieved.

 Article 246 & the 3 lists

Article 246 of the Constitution deals with the distribution of legislative powers as between the Union and
the State Legislature, with reference to the different Lists in the 7th Schedule. The various entries in 3 Lists
of the 7th Schedule are not powers of legislation but the fields of legislation. The entry in the List are
legislative heads and are of enabling character. They are designed to define and limit the respective areas
of legislative competence of the Union and the State Legislature.

 How to interpret the 3 lists?

It is a well recognised principle that the language of Entry should be given a widest scope and each general
word should be interpreted to extend to all ancillary or subsidiary matters which can fairly and reasonably
be comprehended in it. The Entries in the Lists should be read together without giving a narrow or
restricted meaning to any of them. Powers of the Union and the State Legislatures are both expressed in
precise and in definite terms and, therefore, there can be no reason in such a case in giving broader
interpretation to one rather than to the other. It is only when an apparent overlapping occurs the doctrine
of 'pith and substance' has to be applied to find out the true nature of legislation and the Entry within
which it would fall.

 Different entries same list

When different entries in the same List crop up for consideration the usual principle followed is that each
particular entry should relate to a separate subject or group of subjects and every attempt should be made
to harmonise different entries and to discard a construction which will render any of the entries
ineffective.
 - Legislative Competence

Coming to the case in hand, the relevant entries which arise for our consideration are Entries 52 of List I,
Entry 24 of List II and Entry 28 of List 2. Under Entry 52 of List 1 Tobacco Board Act has been enacted by
Parliament and under Entry 28 of List II the Agricultural Produce Market Act has been framed by the State
Legislature. Incidentally, also Entry 7 of List 1 and Entries 14 and 27 of List 2 crop up for consideration. It
would, therefore, be appropriate to indicate those Entries hereunder :

 LIST - I

Entry 7 Industries declared by Parliament by law to be necessary for the purpose of defence or for the
prosecution of war.

Entry 52 - Industries, the control of which by the Union is declared by Parliament by law to be expedient in
the public interest.

 LIST - II

Entry 24 Industries subject to the provisions of (entries 7 and 52) of List I.

Entry 27 Production, supply and distribution of goods subject to the provisions of entry 33 of List III; and

Entry 28 Markets and fairs."

Though the State Legislature has power to make law in relation to any industry under Entry 24 of List II, but
the said Entry itself being subject to the provisions of Entries 7 and 52 of List I, once Parliament makes a
declaration by law identifying an industry, the control of which is taken over by the Union in the public
interest, then the State Legislature is denuded of its competence to make any law in respect of that
industry, notwithstanding its competence under Entry 24 of List II. The industry in question having been
identified and necessary declaration to that effect being made in terms of Entry 52 of List I then over that
subject the Parliament gets exclusive power to make laws under Article 246(1) of the Constitution.

- Ambit of the expression ‘industry’

The Tobacco Board Act having been enacted by the Parliament under Article 246(1) of the Constitution and
the law in question being referable to Entry 52 of List I, the moot question that arises for adjudication is,
what is the extent and ambit of the expression 'industry' used in Entry

Contentions of the parties

52. As has been stated earlier, the expression 'industry' has been used in Entry 24 of List II and Entry 7 and
Entry 52 of List I. In deciding the legislative competence of the Parliament in enacting Tobacco Board Act
and in making provision therein in relation to the growing of tobacco as well as sale of tobacco in the
places specified therein, and on terms and conditions mentioned therein, the moot question is whether
the word 'industry' would be given a wide meaning so as to bring within its ambit all that is necessary for
the industry, including the raw material as well as the growing of the raw material, as contended by Mr.
Shanti Bhushan, or a restricted meaning would be given to the same on the basis of the observations made
by this Court in Tikaramji's case and followed in several other authorities, as contended by Mr. Dwivedi.

- Other cases

 ITC Judgement
Thus all the three learned judges did not doubt the competence of the Parliament to enact Tobacco Board
Act. While the majority view was to the effect that the Marketing Act will not operate so far as dealing with
the sale and purchase of tobacco within the market area, as the field is fully occupied by the Central Act,
namely, the Tobacco Board Act, the minority view proceeded on a finding that both Acts can be permitted
to operate in their respective sphere.

 Gold industry includes making of gold-ornaments?

In the Constitution Bench decision of this Court in Harakchand Ratanchand Banthia & ors. etc. vs. Union of
India and Ors., 1970(1) S.C.R. 479, the legislative competence of the Parliament under Entry 52 of List I
came up for consideration, while dealing with validity of the provisions of the Gold Control Act, which Act
included within its ambit the gold ornaments. One of the contention that had been advanced was that the
goldsmith's work was handicraft, requiring application of skills and the art of making gold ornaments was
not an 'industry' within the meaning of Entry 52 of List I. It had been contended on behalf of the Union
Government that the legislative entry must be construed in a large and liberal sense and goldsmith's craft
was an industry within the meaning of Entry 24 of List II as well as Entry 52 of List I and therefore,
Parliament was competent to legislate in regard to the manufacture of gold ornaments. Having considered
the relevant entries namely Entry 52 of List I and Entry 24 and 27 of List II, the Constitution Bench had
observed that - "It is well established that the widest amplitude should be given to the language of the
entries". The Court in that case did not think it necessary to attempt to define the expression "industry"
precisely or to state exhaustively of its different aspects but considered the question whether the
manufacture of gold ornaments by goldsmith in India falls within the connotation of the word "industry" in
the appropriate legislative Entries. The Court unequivocally rejected the contention raised by Mr. Daphtary
that if the process of production was to constitute "industry" a process of machinery or mechanical
contrivance was essential, as in the opinion of the Court there is no reason why such a limitation should be
imposed on the meaning of the word "industry" in the legislative lists. The Court also rejected the
argument advanced on behalf of Mr. Palkhivala that manufacture of gold ornaments was not an industry
because it required application of individual art and craftsmanship, as in the opinion of the Court mere use
of the skill or art is not a decisive factor and it was held that the said factor will not take the manufacture
of gold ornaments out of the ambit of the relevant legislative entries. It is in this connection, the Court
observed :

"It is well settled that the entries in the three lists are only legislative heads or fields of legislation
and they demarcate the area over which the appropriate legislature can operate. The legislative
entries must be given a large and liberal interpretation, the reason being that the allocation of
subjects to the lists is not by way of scientific or logical definition but is a mere enumeration of
broad and comprehensive categories."

The Court ultimately came to the conclusion that the manufacture of gold ornaments by goldsmith in India
is a process of systematic production for trade or manufacture and so falls within the connotation of the
word "industry" in the appropriate legislative Entries. At Page 490 of the aforesaid Judgment, while
construing as to what is the meaning of the word "Industry" in Entry 52 of List I and Entry 24 of List II, it
referred to the definition of "industry" in Shorter Oxford English Dictionary as well as the meaning of the
said word in Webster's Third New International Dictionary and the contention raised on behalf of the
applicant that if the word "industry" is construed in this wide sense, then Entry 27 of List II will lose all
meanings and contents, was not accepted by the Court. It is, thus clear that the Court did apply the theory
that widest amplitude and meaning should be given to the entries in the legislative lists. Further the
contention of the applicant that the legislation in fact is a legislation under Entry 27 of List II, dealing with
"Production, supply and distribution of goods" and being a special entry, the contents of Entry should be
excluded from the expression "industry" in Entry 52, was not accepted and rejected.

 Chaturbhai M. Patel vs. Union of India, 1960(2) S.C.R. 362, a

….. a Constitution Bench of this Court was construing the Entries under the Government of India Act, 1935
and one of the contention raised in that case was Sections 6 and 8 of the Central Excise & Salt Act, 1944
and the Rules made thereunder were beyond the legislative competence of the central legislature. The
relevant entries which came up for consideration in that case were Entry 45 of List I and Entries 27 and 29
of the State List, which are as under:-

"45. Duties of Excise on Tobacco and other goods manufactured or produced in India except:-

(a)alcoholic liquors for human consumption

(b)opium, Indian hemp and other narcotic drugs and narcotics, non-narcotic drugs;

© medical and toilet preparations containing alcohol or any substance included in sub-

paragraph (b) of this entry.

Item 27. Trade and commerce within the province; markets and fairs, money lending and money lenders."

Item 29. Production, supply and distribution of goods; development of industries, subject to the provisions
in List I with respect to the development of certain industries under Federal control."

A bare look at those Entries and on being compared with the Entries in list II of the Seventh Schedule of the
Constitution of India, it appears that Entry 27 of the State List under the Government of India Act now
comprises of Entries 26 and 28 of List II of the Seventh Schedule and Entry 29 of the State List in the
Government of India Act is now combined in Entry 27 of the State List relating to production, supply and
distribution of goods and also Entry 24 of List II namely development of Industries. In the aforesaid
Constitution Bench decision, a passage from the judgment of the Federal Court reported in (1940) F.C.R.
188, 201 was quoted, which may be extracted hereunder:

"It must inevitably happen from time to time that legislation, though purporting to deal with a
subject in one list, touches also on a subject in another list, and the different provisions of the
enactment may be so closely interwined that blind adherence to a strictly verbal interpretation
would result in a large number of statutes being declared invalid because the legislature enacting
them may appear to have legislated in a forbidden sphere."

The Constitution Bench approved the aforesaid Judgment of the Federal Court and referring to the
judgment of this Court in the State of Rajasthan vs. G. Chawla [AIR 1959 SC 544], the Court held :

"It is equally well-settled that the power to legislate on a topic of legislation carries with it the
power to legislate on an ancillary matter which can be said to be reasonably included in the power
given."

The Court ultimately held that the Federal Legislature did have the competence to make provisions in
Sections 6 and 8 of the Central Excise & Salt Act under Entry 45 of List I of the Government of India Act,
1935 and observed thus:

"It is within the competence of the Central legislation to provide for matters which may otherwise
fall within the competence of the Provincial legislature if they are necessarily incidental to effective
legislation by the Central legislature on a subject of legislation expressly within its power."

This indicates that the Court has all along been construing a particular legislative Entry to give wide
connotation possible and in that case, it was held while legislating upon an industry, Parliament would be
entitled to legislate also on the raw materials of that industry which is an ancillary to the industry and
there should not be any limitation in interpreting the expression "industry" to denude the power of the
Parliament and thereby make the law ineffective.

 In Synthetics and Chemicals Ltd. And Ors. vs. State of U.P. and Ors., 1990(1) SCC 109, it was held
that the Constitution must not be construed in any narrow or pedantic sense and that construction
which is most beneficial to the widest possible amplitude of its power must be adopted. In the said
case, after noticing the principle of construction in relation to a constitutional provision, providing
division of power and jurisdiction in a federal constitutional scheme, it was held:

"It is well settled that widest amplitude should be given to the language of the entries in three Lists but
some of these entries in different lists or in the same list may override and sometimes may appear to be in
direct conflict with each other, then and then only comes the duty of the court to find the true intent and
purpose and to examine the particular legislation in question. Each general word should be held to extend
to all ancillary or subsidiary matters which can fairly and reasonably be comprehended in it. In interpreting
an entry it would not be reasonable to import any limitation by comparing or contrasting that entry with
any other in the same list."

 In Express Hotels Private Ltd. Vs. State of Gujarat and Anr., 1989 (3) SCC 677, the Court was no
doubt interpreting some entries providing for taxes on luxuries but dealing with the general
principles of an Entry in a legislative list, the Court held :

"We are dealing with an entry in a Legislative List. The entries should not be read in a narrow or pedantic
sense but must be given their fullest meaning and the widest amplitude and be held to extend to all
ancillary and subsidiary matters, which can fairly and reasonably be said to be comprehended in them."

 As has been stated earlier, even in his minority judgment in ITC case, Justice Mukherjee had
observed:

"It is well settled that the cardinal rule of interpretation is that the words should be read in their ordinary
natural and grammatical meaning. But words in a constitutional document conferring legislative powers
should also be construed most liberally and in their widest amplitude."

- Present case

In view of the aforesaid rules of interpretation as well as the Constitution Bench decision referred to
above, it is difficult for us to accept the contention of Mr. Dwivedi that the word "industry" in Entry 52 of
List I should be given a restricted meaning, so as to exclude from its purview the subject of legislation
coming within entry 27 or Entry 14 of List II. Bearing in mind the constitutional scheme of supremacy of
Parliament, the normal rule of interpretation of an Entry in any of the list in the Seventh Schedule of the
Constitution, the object of taking over the control of the tobacco industry by the Parliament, on making a
declaration as required under Entry 52 of List I and on examining the different provisions of the Tobacco
Board Act, we see no justification for giving a restricted meaning to the expression "industry" in Entry 52 of
List I, nor do we find any justification in the contention of the counsel appearing for the States and also
different Market Committees that the provisions contained in Tobacco Board Act dealing with the growing
of tobacco as well as making provision for sale and purchase of tobacco, must be held to be beyond the
legislative competence of the Parliament, as it does not come within the so-called narrow meaning of the
expression "industry" on the ground that otherwise it would denude the State Legislature of its power to
make law dealing with market under Entry 28, dealing with agriculture under Entry 14 and dealing with
goods under Entry27 of List II. Such an approach of interpretation, in our considered opinion would be
against the very scheme of the constitution and supremacy of the Parliament and such an approach
towards interpreting the power sharing devices in relation to entries in List I and List II would be against
the thrust towards centralisation. In our considered opinion, therefore, the word "industry" in Entry 52 of
List I should not be given any restricted meaning and should be interpreted in a manner so as to enabling
the Parliament to make law in relation to subject matter which is declared and whose control has been
taken over to bring within its sweep any ancillary matter, which can be said to be reasonably included
within the power and which may be incidental to the subject of legislation, so that the Parliament would
be able to make an effective law. So construed and on examining different provisions of the Tobacco Board
Act, we do not find any lack of legislative competence with the Parliament so as to enact any of the
provisions contained in the said Act, the Act in question having been enacted by the Parliament on a
declaration being made of taking over of the control of the Tobacco industry by the Union and the Act
being intended for the development of the said industry.

 Calcutta Gas Co. case

In Calcutta Gas case, no doubt Tikaramji, had been followed and the Court was examining the two
competing entries in list II itself of the Seventh Schedule of the Constitution namely Entry 24 and 25. While
Entry 24 of List II is "industry", Entry 25 is 'Gas and Gas works' and the question, therefore was whether
law made by the State legislature on the subject head 'Gas and gas works' would prevail over a law made
by the State legislature over the subject "industry" and the Court held that 'Gas and gas works' being a
special subject head, law made thereunder would prevail over any law made under the general head
"industries". It may be observed that in the Calcutta Gas case (1962 Supp. S.C.R.1) at page 17, it has been
held "It is not necessary in this case to attempt to define the expression "industry" precisely or to state
exhaustively all its ingredients."

 Legislative competence

But in the case in hand, we are concerned with the legislation made by the Parliament under Entry 52 of
List I which is the Tobacco Board Act and the legislation made by the State legislature under Entry 28 or
any other ancillary Entry like Entry 14 or Entry 27 of List II, namely the Bihar Agricultural Produce Market
Act. In such a case the focus for consideration of the Court would be as to what is the scope and content of
Entry 52 of List I and once it is held that the expression 'industry' cannot be given any restricted meaning
and the law enacted by the Parliament, the Tobacco Board Act, is held to be intra vires then the State
legislation, namely, the Bihar Agricultural Produce Market Act, so far as it deals with the commodity
tobacco will go out of the general sweep of all agricultural produce notified under the State Act, as the
provisions in respect thereof have been made by the Central legislation and by application of Article 246 of
the Constitution the Central Act would prevail.

The Entries merely being the subject head of the legislation and the power to make law having emanated
from Article 246, if a particular law made by Parliament comes within the legislative competence of the
Parliament with reference to any of the Entries in List I then the State legislature would not have the
competence to make law with respect to that subject with reference to some other Entries in List II. It is of
course true, that Courts while examining the competing legislations would make an attempt and see
whether both the legislations could operate, and that question we will deal later.

 Conclusion

In the aforesaid premises, we are of the considered opinion that the Tobacco Board Act enacted by the
Parliament under Entry 52 of List I is constitutionally valid and all the provisions therein, including the
provisions relating to growing of Tobacco and sale and purchase of tobacco are within the legislative
competence of the Parliament. We are also further of the opinion that the word 'industry' in Entry 52 of
List I cannot be given a restricted meaning, particularly when a conspectus of all the decisions interpreting
Entry in any of the Lists of the Constitution including the minority view of Mukherjee, J. in ITC case is to the
effect that the Entries in the List should be given liberal and generous construction and it is well accepted
cardinal rule of interpretation that the words in constitutional document, conferring legislative powers
should be construed most liberally and in their widest amplitude.

Coming to the second question, it is no doubt true as a matter of principle of construction that in the event
there are two competing legislations, one by the Parliament and one by the State, the Court would make
an endeavour if both the legislations could be allowed to be operated upon. But on examining the
provisions of the two Acts, if it is found that the Central legislation and the State legislation come in
collision with each, then question of allowing both of them to operate would not arise. In such an event,
the Central legislation would prevail, provided the said legislation is otherwise constitutionally valid namely
the Parliament had the legislative competence to enact the legislation in question. From the aforesaid
stand point, if we examine the different provisions of the Tobacco Board Act, more particularly Sections 3,
8 and 32 and the provisions of the Agricultural Produce Markets Act, more particularly Section 4(2) thereof
as well as Section 15, which is said to be the heart and soul of the Markets Act in Belsund's case, the
conclusion is irresistible that the two Acts come in direct collision with each other and it is difficult to
reconcile the provisions of both the Acts. Necessarily, therefore, the Tobacco Board Act having been
enacted by the Parliament and making all provisions in relation to the tobacco industry including the
provisions for growing of tobacco as well as sale and purchase of raw tobacco, in accordance with the
procedure prescribed under the said Act, the provisions of the Agricultural Produce Markets Act, entitling
the Market Committee to levy fee for sale and purchase of raw tobacco within the market area will not be
operative, so far as the produce 'tobacco' is concerned. In other words, Central Act would prevail and
would govern the entire gamut of tobacco industry. It is also important to bear in mind that when
parliament decides to take over the control of a particular industry in the interest of the said industry as
well as in the national interest, the control should be effective and should be in such a manner that the
desired object can be achieved. Necessarily therefore, legislation ought to be made providing control over
the growing of tobacco as well as on its sale and purchase, which alone would subserve the very purpose
for which the control of the industry has been taken over by the Parliament. In this view of the matter, we
hold that the Tobacco Board Act and the Agricultural Produce Markets Act, collide with each other and
cannot be allowed to be operated simultaneously. Necessarily, therefore, the Tobacco Board Act would
prevail and the Agricultural Produce Markets Act, so far as it relates to levy of fee for sale and purchase of
tobacco within the market area must be held to go out of the purview of the said Act.
 II. Doctrine of Pith & Substance

Excise tax: https://www.investopedia.com/terms/e/excisetax.asp

Surcharge: https://www.business-standard.com/podcast/finance/what-are-surcharges-and-cesses-and-
how-do-they-differ-122012700068_1.html
Promissory Note: https://www.investopedia.com/terms/p/promissorynote.asp

1. Governor-General in Council v. Province of Madras, AIR 1945 PC 98

Facts: 1. This appeal is brought by the Governor-General in Council from a decree made by the Federal
Court of India in its original jurisdiction on March 17, 1942. In proceedings commenced in that Court
against the respondent, the Province of Madras, the appellant claimed that the Madras Act IX of 1939,
known as the Madras General Sales Tax Act of 1939 and hereafter referred to as "the Madras Act," in so far
as it purports to levy a tax on first sales in Madras of goods manufactured or produced in India is, except in
respect of certain excepted goods, ultra vires and beyond the competence of the Legislature of the
respondent. The Federal Court dismissed the appellant's suit following its previous decision in an appeal
from the High Court of Madras in a suit in which the present respondents were appellants and a firm called
Boddu paidanna and Sons were respondents and the validity of the same provisions of the same Act was in
issue. This case will be referred to as the Boddu Paidanna case prov. Of Mad. v. Boddu Paidanna (1942) 46
C.W.N. (F.R.) 38

Relevant provisions:
3. Section 100 of the Constitution Act provides as follows :

(1) Notwithstanding anything in the two next succeeding subsections the Federal Legislature has, and a
Provincial Legislature has not, power to make laws with respect to any of the matters enumerated in List I
in the Seventh Schedule to this Act (hereinafter called the 'Federal Legislative List').
(2) Notwithstanding anything in the next succeeding subsections the Federal Legislature, and, subject to
the preceding subsection, a Provincial Legislature also, have power to make laws with respect to any of the
matters enumerated in List III in the said Schedule (hereinafter called the 'Concurrent Legislative List').

(3) Subject to the two preceding subsections, the Provincial Legislature has, and the Federal Legislature has
not, power to make laws for a Province or any part thereof with respect to any of the matters enumerated
in List II in the said Schedule (hereinafter called the 'Provincial Legislative List').

(4) The Federal Legislature has power to make laws with respect to matters enumerated in the Provincial
Legislative List except for a Province or any part thereof.

Entry No. 45 of the Federal Legislative List is as follows:

45. Duties of excise on Tobacco and other goods manufactured or produced in India except there follow
certain exceptions.

Entry No. 48 of the Provincial Legislative List is as follows:

48. Taxes on the sale of goods and on advertisements.

Contention: 4. It is upon these two entries respectively that the parties rely, the respondent contending
that Entry No. 48 of the Provincial Legislative List authorises and justifies the impugned provisions1 of the
Madras Act, the appellant contending that so far as those provisions purport to impose a tax on first sales
they in effect impose a duty of excise and are therefore an encroachment upon the power given exclusively
to the Federal Legislature by Entry No. 45 of the Federal Legislative List.

Issue:

Findings:

- Doctine of pith and substance

5. Before further considering the provisions of the Constitution Act it will be convenient to examine
somewhat closely the Madras Act. For in a Federal constitution, in which there is a division of legislative
powers between Central and Provincial Legislatures, it appears to be inevitable that controversy should
arise whether one or other Legislature is not exceeding its own, and encroaching on the others,
constitutional legislative power, and in such a controversy it is a principle, which their Lordships do not
hesitate to apply in the present case, that it is not the name of the tax but its real nature, its "pith and
substance" as it has sometimes been said, which must determine into what category it falls.

12. Their Lordships have thought it desirable to refer to the provisions of the Madras Act in this detail in
order to emphasise its essential character. Its real nature, its "pith and substance," is that it imposes a tax
on the sale of goods. No other succinct description could be given of it except that it is a "tax on the sale of
goods." It is in fact a tax which according to the ordinary canons of interpretation appears to fall precisely
within Entry1 No. 48 of the Provincial Legislative List.

- Other case

13. It is necessary then to consider the contention, which in the Boddu Paidanna case found favour with
the High Court of Madras, that the Madras Act so far as it imposes a tax on first sales of goods
manufactured or produced in India is ultra vires the Provincial Legislature. This contention is thus clearly
stated in the appellant's formal reasons on the present appeal : (1) a tax on the manufacturer or producer
of goods on the first sale thereof is a duty of excise, (2) under the provisions of the Constitution Act the
appellant has, and the respondent has not, power to impose a duty of excise, (3) the provisions of Entry
No. 48 in the Provincial Legislative List must be construed subject to the provisions of Entry No, 45 in the
Federal Legislative List.

14. The third reason thus stated rests on the opening words of Section 100 (1) of the Constitution Act
"Notwithstanding anything in the two next succeeding sub-sections" and the opening words of Section
100(3) "subject to the two preceding sub-sections." Their Lordships do not doubt that the effect of these
words is that, if the legislative powers of the Federal and Provincial Legislatures, which are enumerated in
List I and List II of the Seventh Schedule, cannot [fairly be reconciled, the latter must give way to the
former. But it appears to them that it is right first to consider whether a fair reconciliation cannot be
effected by giving to the language of the Federal Legislative List a meaning which, if less wide than it might
in another context bear, is yet one that can properly be given to it, and equally giving to the language of
the Provincial Legislative List a meaning which it can properly bear. In this connection it must in the first
place be observed that the contention of the appellant involves doing violence to the language of Entry No.
48 of the Provincial Legislative List. For if his contention is upheld, the plain words "Taxes on the sale of
goods" must be read as if the words "other than the first sale of goods manufactured or produced in India"
were added by way of qualification. Bearing in mind first that the problem of the division of taxing power
in a Federal Constitution was in general no new one and that the framers of the constitution! must in
particular have been well aware of the controversies that had arisen in regard to "excise" and taxes on first
or other sales, and, secondly, that the contention of the appellant would remove from the range of
Provincial taxation goods which had not been in the past, nor were likely in the future to be, the subject of
an excise duty, their Lordships would be reluctant to adopt such a construction if any other was fairly open
to them. The validity of the appellant's first reason must therefore be examined in order to see whether
the Lists can be reconciled not by doing violence to the language of the Provincial List but by giving some
other than the meaning and effect, for which the appellant contends, to the relevant words of the Federal
List.

15. Their Lordships would first observe (concurring herein in the cogent reasoning of the Federal Court in
the Boddu Paidanna case [1939] F.C.R. 18 that little assistance is to be derived from the consideration of
other Federal Constitutions and of their judicial interpretations, Here there is no question of direct and
indirect taxation nor of the definition of specific and residuary powers. The Indian Constitution is unlike any
that have been called to their Lordships' notice in that it contains what purports to be an exhaustive
enumeration and division of legislative powers between the Federal and Provincial Legislatures. Where
there is such an enumeration, the language of the one list may be coloured or qualified by that of the
other. The problem is different when on the one hand there are specific, and on the other residuary,
powers.

16. The appellant's fundamental contention is that the power to impose a duty of excise, which is given to
the Federal Legislature alone by Entry No. 45 of the Federal List, entitles that Legislature and no other to
impose a tax on first sales of goods manufactured or produced in India. No other meaning, it is contended,
can fairly be given to the words "duty of excise" than one which includes a tax on the first sales of such
goods. If such a construction involves that violence must be done to the plain meaning of Entry No. 48 of
the Provincial List, that, it is said, is contemplated and safeguarded by the opening words of Section 100
(1).

17. To their Lordships this contention does not appear well-founded. The term "duty of excise" is a
somewhat flexible one : it may, no doubt, cover a tax on first and perhaps on other sales : it may in a
proper context have an even wider meaning. An exhaustive discussion of this subject, from which their
Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in In re
The Central Provinces and Berar Act No. XIV of 1938.1 Consistently with this decision, their Lordships are of
opinion that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the
commodity manufactured or produced. It is a tax upon goods, not upon sales or the proceeds of sale of
goods. Here again their Lordships find themselves in complete accord with the reasoning and conclusions
of the Federal Court in the Boddu Paidanna case. The two taxes, the one levied upon a manufacturer in
respect of his goods, the other upon a vendor in respect of his sales, may, as is there pointed out, in one
sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they
overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose
that duty at the moment when the exciseable article leaves the factory or workshop for the first time upon
the occasion of its sale. But that method of collecting the tax is an accident of administration it is not of the
essence of the duty of excise which is attracted by the manufacture itself. That this is so is clearly
exemplified in those excepted cases in which the Provincial, not the Federal, Legislature has power to
impose a duty of excise. In such cases there appears to be no reason why the Provincial Legislature should
not impose a duty of excise in respect of the commodity manufactured and then a tax on first or other
sales of the same commodity. Whether or not such a course is followed appears to be merely a matter of
administrative convenience. So by parity of reasoning may the Federal Legislature impose a duty of excise
upon the manufacture of exciseable goods and the Provincial Legislature impose a tax upon the sale of the
same goods when manufactured.

18. It appears then to their Lordships that the competing Entries No. 45 of the Federal List and No. 48 of
the Provincial List may fairly be reconciled without adopting the contention of the appellant, and that the
validity of the Madras Act cannot successfully be challenged.

19. Their Lordships would again emphasise that in coming to this conclusion they have regarded substance
not form. The tax imposed by the Madras Act is not a duty of excise in the cloak of a tax on sales. Lacking
the characteristic features of a duty of excise such as uniformity of incidence and discrimination in subject-
matter, it is in its general scope and in its detailed provisions a "tax on sales," Their Lordships must not be
taken as expressing any view upon the validity of any measure upon the substance of (which a different
opinion might be formed.

2. Prafulla Kumar Mukherjee v. Bank of Commerce, Khulna, AIR 1947 PC 60

Summary: “The Bengal Money Lenders Act passed to scale down debts owed by the agriculturists, was
challenged on the ground that being a provincial (State) law, it affected promissory notes, a Central subject
(Entry 46, List I). The Privy Council found that in its true nature and character, the legislation dealt with
money-lenders and money-lending (Entry 30, List II), and not with promissory notes. The money-lenders
commonly take a promissory note as security for a loan. A legislature would not, in any real sense, be able
to deal with money-lending if it cannot limit the liability of a borrower in respect of a promissory note
given by him. The Act was held valid even though as an ancillary effect it affected the negotiable
instrumentsa Central subject.”1

Facts: By way of introduction it is enough to say that that Act limits the amount recoverable by a
moneylender on his loans for principal and interest and prohibits the payment of sums larger than those
permitted by the Act.

3. The respondents are an incorporated body to which by an order of May 12, 1941, passed by the High
Court of Calcutta under Section 153A of the Indian Companies Act, the assets of the Khulna Loan Bank, Ltd.
(earlier known as the Khulna Loan Coy., Ltd.) were transferred.

4. Some of the cases now under appeal to their Lordships' Board were brought by the respondents who
claimed to recover loans and interest alleged to be due upon promissory notes, executed by appellant
borrowers and in other instances by appellant debtors claiming a declaration that their indebtedness was
1
M.P. Jain
at least diminished by the provisions of the Act and even in some instances that they were entitled to
repayment of sums overpaid.

5. The proceedings began in 1941, 1942 and 1948, but are concerned with loans made at a much earlier
date not by the respondents but by the Khulna Loan Company or the Khulna Loan Bank. In every case the
loans were secured by promissory notes executed contemporaneously with the transaction.

Issue: the validity of the Bengal Money Lenders Act, 1940 was challenged.

Provisions:
The impugned section 30 of the Act provided:

“Notwithstanding anything contained in any law for the time being in force, or in any agreement (1)
No borrower shall be liable to pay after the commencement of this Act” – more than a limited sum
in respect of principal and interest or more than a certain percentage of the sum advanced by way
of interest. Moreover, it is retrospective in its effect, and its limitations can be relied upon by a
borrower by way of defence to an action by the moneylender or the borrower can himself institute
a suit in respect of a loan to which the provisions of the Act apply.

Section 100, Government of India Act, 1935, is in the following terms:

“100. (1) Notwithstanding anything in the two next succeeding subsections, the Federal Legislature
has, and a Provincial Legislature has not, power to make laws with respect to any of the matters
enumerated in List I in Sch. 7 to this Act (hereinafter ca1led the ‘Federal Legislative List’).
(2) Notwithstanding anything in the next succeeding subsection, the Federal Legislature, and,
subject to the preceding subsection a Provincial Legislature also, have power to make laws with
respect to any of the matters enumerated in List III in the said Schedule (hereinafter called the
‘Concurrent Legislative List’).
(3) Subject to the two preceding subsections, the Provincial Legislature has, and the Federal
Legislature has not, power to make laws for a Province or any part thereof with respect to any of
the matters enumerated in List II in the said Schedule (hereinafter called the ‘Provincia1 Legislative
List’}.
(4) The Federal Legislature has power to make laws with respect to matters enumerated in the
Provincial Legislative List except for a Province or any part thereof.

The Federal Legislative List referred to in this section assigned to the Federal Legislature jurisdiction to
make laws with respect to

“(28) Cheques, bills of exchange, promissory notes and other like instruments.”
“(33) Corporations, that is to say, the incorporation regulation and winding up of trading corporations
including banking. ...”
“(38) Banking, that is to say, the conduct of banking business ….” and denies that jurisdiction to Provincial
Legislatures.

The Provincial Legislative List, however, empowered the Provincial Legislature in Item (27) to make
laws with respect to “Trade and Commerce within the Province; ... money lending and money lenders,”
and therefore no objection could be taken to the provisions of the Bengal Money-lenders Act, if they
were concerned only with the limitation of capital and interest recoverable.

[Entries 28, 33 and 38 are entries 46, 43 and 45 of List I and entry 27 is entry 30 of List II of the VII
Schedule to the Constitution of India.]
Issue:
Having regard to these provisions the respondents say that whilst it is true that they are money-lenders,
yet they are engaged in banking and are holders of promissory notes, matters which are solely within the
Federal jurisdiction and that a Provincial Act such as the Bengal Money-lenders Act is ultra vires in that it
deals with Federal matters. These matters, they say, are so intertwined with the rest of the Act that they
cannot be disassociated and therefore the Act is wholly void. But whether this be so or not the particular
loans, the subject matter of the actions under review, are secured by promissory notes and in addition are
matters of banking; accordingly they say that the Act is void at any rate so far as concerns promissory notes
or banking.

High Court

14. In the present cases the Judges of the High Court found in favour of the appellants on the ground that
though the Federal List prevails over the Provincial List where the two lists come in conflict, yet the Act
being a Money-lenders Act, deals with what is in one aspect at least a Provincial matter and is not rendered
void in whole or in part by reason of its effect upon promissory notes. In their view the jurisdiction of the
Provincial Legislature is not ousted by the inclusion of provisions dealing with promissory notes though
that subjectmatter is to be found in Item 28 of the Federal List. The reference to Bills of Exchange and
promissory notes in that item, they held, only applies to those matters in their aspect of negotiability and
not in their contractual aspect. In their contractual aspect the appropriate item, as they considered, was
entry (10) of List 111 "contract". "Interest on promissory notes," they say,

(I)s a matter with respect to contracts, a subject to be found in the Concurrent Legislative List. The
Bengal Act has received the assent of the Governor-General and in view of the provisions of S 107 (2),
Constitution Act, Ss. 29 (2) and 30, Bengal Money-lenders Act, 1940 must prevail.

- Contentions of the parties

19. The appellants set out their contentions under four heads. Firstly, they said that power to make laws
with respect to money-lending necessarily imports the power to affect the lender's rights against the
borrower upon a promissory note given in the course of a moneylending transaction. The Constitution Act
they said must be read as a whole so as to reconcile item 28 of List I with Item 27 of List II, and so read
Item 27 is a particular exception from the general provisions of Item 28.

20. Secondly, they argued that the impugned Act is in pith and substance an Act with respect to money-
lenders and money-lending and is not rendered void in whole or in part because it incidentally touches
upon matters outside the authorized field.

21. Thirdly, they maintained that upon its true construction, item 28 is confined to that part of the law
relating to negotiable instruments which has reference to their negotiability and does not extend to that
part which governs the contractual relationship existing between the immediate parties to a bill of
exchange or promissory note. That part, they said, lay in the field of contract.

22. If then the subject matter of the Act lay in contract, which is one of the items within the concurrent
List, it was, it was true, in conflict with an existing Indian Law viz : the Negotiable Instruments Act, 1881
within the meaning of S.31 (1), Constitution Act, but inasmuch as the impugned Act had received the
assent of the Governor-General, it must prevail over the Negotiable Instruments Act as a result of the
provision of S. 107 (2), Constitution Act.

- Negotiability or Contract
27. For instance it is no doubt true, as has been pointed out above, and has been accepted in the Courts in
India that in the case of a matter contained in the Concurrent List, the Act of a Provincial Legislature which
has been approved by the Governor-General prevails over an existing Indian Law (See S. 107 (2),
Government of India Act, 1935). If then the impugned Act is to be considered as a matter of contract, it
would prevail over the Negotiable Instruments Act if that Act or the part of it in respect of which
repugnancy is alleged is also to be regarded as contractual and therefore coming within List III.

28. But this result depends upon two assumptions viz.: (1) that the impugned Act in dealing with
promissory notes, or for that matter with banking, is concerned with contract and (2) that the reference to
negotiable instruments, promissory notes and the like instruments in List I Item 28 is a reference to them
in their capacity of negotiability only.

29. The point was raised in the Federal Court in 1940 FCR 188 but that Court did not find it necessary finally
to decide it, though Sulaiman J. in his dissenting judgment inferentially rejected it. Like the Federal Court,
their Lordships in the present case do not find it necessary to express a final opinion upon these points, but
it is, they think, essential to determine to what extent under the Indian Constitution Act of 1935 the
jurisdiction of the several legislatures is affected by ascertaining what is the pith and substance of an
impugned Act.

30. The two remaining points taken on behalf of the appellant can in their Lordships’ opinion and indeed
must be considered together since to say that power to make laws in respect to money-lending necessarily
imparts power to affect the lender's rights in respect of promissory notes given as security in money-
lending transactions is in their view to maintain that if the pith and substance of the Act, the validity of
which is challenged, is money-lending, it comes within the Provincial jurisdiction. Three questions
therefore arise, viz:
(1) Does the Act in question deal in pith and substance with money-lending ?
(2) If it does is it valid though it incidentally trenches upon matters reserved for the Federal Legislature?
(3) Once it is determined whether the pith and substance is money-lending, is the extent to which the
Federal field is invaded a material matter?

- Doctrine of Pith & Substance

31. (1) All the Courts in India have held that the transactions in question are in pith and substance money-
lending transactions and their Lordships are of the same opinion. To take promissory note as security for a
loan is the common practice of money-lenders and if a legislature cannot limit the liability of a borrower in
respect of a promissory note given by him it cannot in any real sense deal with money-lending. All the
lender would have to do in order to oust its jurisdiction would be to continue his normal practice of taking
the security of a promissory note and he would then be free from any restrictions imposed by the
Provincial Legislature. In truth, however, the substance is money-lending and the promissory note is but
the instrument for securing the loan.

 Overlapping of powers

32. (2) The second is a more difficult question and was put with great force by Counsel for the respondents.
The principles, it was said, which obtain in Canada and Australia have no application to India. In the former
instance either the Dominions and Provinces or the Commonwealth and States divide the jurisdiction
between them, the dominion or as the case may be the States retaining the power not specifically given to
the Provinces or the Commonwealth. In such cases it is recognized that there must be a considerable
overlapping of powers. But in India, it is asserted, the difficulty in dividing the powers has been foreseen.
Accordingly three, not two lists, have been prepared in order to cover the whole field and these lists have a
definite order of priority attributed to them so that anything contained in List I is reserved solely for the
Federal Legislature, and however incidentally it may be touched upon in an Act of the Provincial
Legislature, that Act is ultra vires in whole or at any rate where in any place it affects an entry in the
Federal List.

33. Similarly, any item in the Concurrent List if dealt with by the Federal Legislature is outside the power of
the Provinces and it is only the matters specifically mentioned in List II over which the Province has
complete jurisdiction, although so long as any item in the Concurrent List has not been dealt with by the
Federal Legislature the Provincial Legislature is binding.

34. In their Lordships' opinion this argument should not prevail. To take such a view is to simplify unduly
the task of distinguishing between the powers of divided jurisdictions. It is not possible to make so clean a
cut between the Powers of the various legislatures: they are bound to overlap from time to time.

35. Moreover, the British Parliament when enacting the Indian Constitution Act had a long experience of
the working of the British North America Act and the Australian Commonwealth Act and must have known
that it is not in practice possible to ensure that the powers entrusted to the several legislatures will never
overlap. As Sir Maurice Gwyer C. J. said in 1940 FCR 188, 201:

It must inevitably happen from time to time that legislation though purporting to deal with a subject in
one list, touches also upon a subject in another list, and the different provisions of the enactment may
be so closely intertwined that blind adherence to a strictly verbal interpretation would result in a large
number of statutes being declared invalid because the Legislature enacting them may appear to have
legislated in a forbidden sphere. Hence the rule which has been evolved by the .Judicial Committee,
whereby the impugned statute is examined to ascertain its pith and substance or its true nature and
character-for the purpose of determining whether it is legislation with respect to matters in this list or
in that.

- Is degree of invasion relevant?

38. (3) Thirdly, the extent of the invasion by the provinces into subjects enumerated in the Federal List has
to be considered. No doubt it is an important matter, not, as their Lordships think, because the validity of
an Act can be determined by discriminating between degrees of invasion, but for the purpose of
determining what is the pith and substance of the impugned Act. Its provisions may advance so far into
Federal territory as to show that its true nature is not concerned with Provincial matters, but the question
is not, has it trespassed more or less, but is the trespass, whatever it be, such as to show that the pith and
substance of the impugned Act is not money-lending but promissory notes or banking? Once that question
is determined the Act falls on one or the other side of the line and can be seen as valid or invalid according
to its true content.

- Does priority given to federal legislature over provincial legislature prevent the latter from dealing
with any matter which incidentally affects any matter in the former’s domain?

39. This view places the precedence accorded to the three lists in its proper perspective. No doubt where
they come in conflict List I has priority over Lists III and II and List III has priority over List II, but, the
question still remains, priority in what respect ? Does the priority of the Federal Legislature prevent the
Provincial Legislature from dealing with any matter which may incidentally affect any item in its list or in
each case has one to consider what the substance of an Act is and, whatever its ancillary effect, attribute it
to the appropriate list according to its true character? In their Lordships' opinion the latter is the true view.

40. If this be correct it is unnecessary to determine whether the jurisdiction as to promissory notes given to
the Federal Legislature is or is not confined to negotiability. The Bengal Money-lenders Act is valid because
it deals in pith and substance with moneylending, not because legislation in respect of promissory notes by
the Federal Legislature is confined to legislation affecting their negotiability– a matter as to which their
Lordships express no opinion.

41. It will be observed that in considering the principles involved their Lordships have dealt mainly with the
alleged invalidity of the Act, based upon its invasion of the Federal entry, “promissory notes" Item (25) in
List I. They have taken this course, because the case was so argued in the Courts in India.

42. But the same considerations apply in the case of banking, Whether it be urged that the Act trenches
upon the Federal List by making regulations for banking or promissory notes, it is still an answer that
neither of those matters is its substance and this view is supported by its provisions exempting scheduled
and notified banks from compliance with its requirements.

43. In the result their Lordships are of opinion that the Act is not void either in whole or in part as being
ultra vires the Provincial Legislature. This opinion renders it unnecessary to pronounce upon the effect of
the Ordinance No.11 of 1945, purporting to validate, inter alia, the impugned Act and their Lordships
express no opinion upon it. But having regard to their views expressed in this judgment they will humbly
advise His Majesty that the appeal be allowed.

3. Hoechst Pharmaceuticals v. State of Bihar, AIR 1983 SC 1019

Facts: 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.

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.

Issue:
a. 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.
b. 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.

Findings:

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 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 and producers 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 gross 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 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.

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: -

"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
by law to be expedient in the public interest, and imported goods of the same kind as such products."

- Need for fixation of bulk drugs

Much emphasis was laid on fixation of price of bulk drugs under paragraph 3 which provides by sub-
paragraph (1) that the Government may, with a view to regulating the equitable distribution of an
indigenously manufactured bulk drug specified in the First Schedule or the Second Schedule and making it
available at a fair price and subject to the provisions of sub-paragraph (2) and after making such inquiry as
it deems fit, fix from time to time, by notification in the official Gazette, the maximum price at which such
bulk drug shall be sold. Sub-paragraph (2) enjoins that while filing the price of a bulk drug under sub-
paragraph (1), the Government may take into account the average cost of production of each bulk drug
manufactured by efficient manufacturer and allow a reasonable return on net- worth. Explanation thereto
defines the expression "efficient manufacturer" to mean a manufacturer (i) whose production of such
bulkdrug in relation to the total production of such bulk drug in the country is large, or (ii) who employs
efficient technology in the production of such bulk drug. Sub-paragraph (3) provides that no person shall
sell a bulk drug at a price exceeding the price notified under sub- paragraph (1), plus local taxes, if any,
payable.

-
Much stress is laid that the average cost of an efficient manufacturer allows a reasonable return on net-
worth of the drug manufactured and the price so fixed is exclusive of local taxes i.e. sales tax. It is further
urged that the term "local taxes" in sub paragraph (3) means and includes sales tax leviable in a State and
attention is drawn to Explanation to paragraph 21 for that purpose. We fail to appreciate the relevance of
sub-paragraph (3) of paragraph 3 which relates to a manufacturer or producer of bulk drugs or of
paragraph 21 of the Control order which fixes the controlled price of formulations specified in the Third
Schedule exclusive of local taxes i.e. sales tax. The appellants are manufacturers or producers of medicines
and drugs and are governed by paragraph 24. Under paragraph 24, a manufacturer or producer is not
entitled to sell a formulation to a wholesaler at a price higher than the retail price minus 14% thereof in
case of ethical drugs and minus 12% in case of non-ethical drugs. It is quite clear upon the terms of
paragraph 24 that the price chargeable by the appellants as manufacturers or producers is a price inclusive
of sales tax. The entire argument built upon sub- paragraph (3) of paragraph 3 and paragraph 21 of the
Control order showing that the controlled price is exclusive of sales tax and thereof is in conflict with sub-s
(3) of s. S of the Act appears to be wholly misconceived. It is urged that the appellants in their price lists
have a term embodied that sales tax would be chargeable from a wholesaler or distributor and therefore
they are entitled to recover sales tax on the sale of their medicines and drugs cannot possibly prevail. Such
a term would be in clear violation of para graph 24 of the Control order which is an offence punishable
under s. 7 of the Essential Commodities Act.

- Legislative competence & Contention

It cannot be doubted that a surcharge partakes of the nature of sales tax and therefore it was within the
competence of the State Legislature to enact sub-s. (I) of s. S 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, it was equally competent to
select the class of dealers on whom the charge will fall. If that be so, the State Legislature could
undoubtedly have enacted sub-s. (3) of s. S of the Act prohibiting the dealers liable to pay a surcharge
under sub-s. (I) thereof from recovering the same from the purchaser. It is-fairly conceded that sub- s. (3)
of s. S of the Act is also relatable to Entry 54. The contention however is that there is conflict between
paragraph 21 of the Control order which allows a manufacturer or producer of drugs to pass on the liability
to pay sales tax and sub-s. (3) of s. S of the Act which prohibits such manufacturers or producers from
recovering the surcharge and therefore it is constitutionally void. It is said that- the Courts should try to
adopt the rule of harmonious construction and give effect to paragraph 21 of the Control order as the
impact of sub-s. (3) of s. S of the Act is on fixation of price of drugs under the Drugs (Price Control) order
and therefore by reason of s. 6 of the Essential Commodities Act, paragraph 21 of the Control order which
provides for the passing on of tax liability must prevail. The submission rests on a construction of Art. 246
(3) of the Constitution and it is said that the power of the State Legislature to enact a law with respect to
any subject in List II is subject to the power of Parliament to legislate with respect to matters enumerated
in Lists I and III.

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. S of A the Act however imposes a limitation on dealers liable to pay surcharge under sub-s. (1) 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. S of the Act 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 in as much as the liability to pay surcharge sub-s. (3) of s. 5
cannot be passed on. That being so, there is no conflict between sub-s. (3) of s. S of the Act and paragraph
21 of the Control order. The entire sub mission advanced by learned counsel for the appellants proceeds
on the hypothesis that the various control orders issued under sub- s. (1) of s. 3 of the Essential
Commodities Act are for the protection of the manufacturer or producer. There is an obvious fallacy in the
argument which fails to take into account the purpose of the legislation.

 Need for fixation of prices

Where the fixation of price of an essential commodity is necessary to protect the interests of consumers in
view of the scarcity of supply, such restriction cannot be challenged as unreasonable on the ground that it
would result in the elimination of middleman for whom it would be unprofitable to carry on business at
fixed rate or that it does not ensure a reasonable return to the manufacturer or producer on the capital
employed in the business of manufacturing or producing such an essential commodity.

The learned Chief Justice then observed:

"The dominant purpose of these provisions is to ensure the availability of essential commodities to the
consumers at a fair price. And though patent injustice to the producer is not to be encouraged, a
reasonable return on investment or a reasonable rate of profit is not the sine qua non of the validity of
action taken in furtherance of the powers conferred by s. 3 (1) and s. 3 (2) (c) of the Essential Commodities
Act. The interest of the consumer has to be kept ill the forefront and the prime consideration that an
essential commodity ought to be made available to the common man at a fair price must rank in priority
over every other consideration."

The contention advanced does not take note of the distinction between the controlled price fixed under cl.
(c) of sub-s. (2) of s. 3 of the Act read with sub-s. (I) thereof and the procurement price fixed under sub-ss.
(3A), (3B) and (3C). In fixing a procurement price under sub-ss. (3A), (3B) and (3C), there is a statutory
obligation cast on the Central Government to ensure a fair return to the producers or dealers of essential
commodities. while in fixing the controlled price under c]. (c) of sub-s. (2) of s. 3 read with sub-s. (1)
thereof, the predominant factor is the basis to secure the equitable distribution and availability of essential
commodities at fair prices to the consumers and a reasonable return on investment or a reasonable rate of
profit to the manufacturer or producer is not a relevant criterion although it should not ordinarily work
patent injustice to a manufacturer or producer. Just as the industry cannot complain of rise and fall of
prices due to economic factors in open market, it cannot similarly complain of some increase in, or
reduction of, prices as a result of an order issued under sub-s. (I) of s. 3 of the essential commodities Act,
or a cut in the margin of profits brought about by a provision like sub-s. (3) of s. 5 of the Act which provides
that a manufacture or producer shall not be entitled to recover the surcharge levied on him under sub-s. (I)
of s. S of the Act because such increase or reduction is also based on economic factors.

The principal point in controversy is: Whether there is repugnancy between sub-s. (3) of s. 5 of the Act and
paragraph 21 of the Control order and therefore sub-s. (3) of s. 5 must yield to that extent. The submission
is that if Parliament chooses to occupy the field and there is price fixation of an essential commodity with
liberty to pass on the burden of tax to the consumer by a law made by Parliament under Entry 33 of List III
of the Seventh Schedule, then it is not competent for the State Legislature to enact a provision like sub-s.
(3) of s. S of the Act while enacting a law under Entry 54 of List II prohibiting the passing on of liability of
tax to the purchaser.

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 of the Seventh
Schedule and not whether there is repugnancy between sub-s. (3) of s. S of the Act and paragraph 21 of
the Drugs {Price Control) order made under sub-s. (1) of s. 3 of the Essential Commodities Act, is therefore
void. In dealing with the question, we must set out Art. 246 of the Constitution which is based on s. 100 of
the Government of India Act, 1935
 - (Union v. State)Legislation

"Notwithstanding anything contained in clauses (2) and (3) ' in Art. 246 (l) and the words "Subject to
clauses A (I.) and (2)" in Art. 246(3) 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 T shall prevail
over the State power as enumerated in List II and III. and in case of overlapping between List 11 and III, the
13 former shall prevail. But the principle of Federal supremacy laid down in Art. 246 of the Constitution
cannot be resorted to unless there is an "irreconcilable" conflict between the Entries in the Union and
State Lists. In the case of a seeming conflict between the Entries in the two lists, the Entries should be read
together without giving a narrow and restricted sense to either of them. Secondly, an attempt should be
made to see whether the two Entries cannot be reconciled so as to avoid a conflict of jurisdiction. lt should
be considered whether a fair reconciliation can be achieved by giving to the language or the Union
Legislative List a meaning which, if less wide than it night in another context bear, is yet one that can
properly be given to it and equally giving to the language of the State Legislative List a meaning which it
can properly bear. The non-obstante clause in Art. 246(l) must operate only if such reconciliation should
prove impossible. Thirdly, no question of conflict between the two lists will arise if the impugned
legislation, by the application of the doctrine of "pith and substance" appears to fall exclusively under one
list, and the encroachment upon another list is only incidental.

 Repugnancy
Union and State Legislatures have concurrent power with respect to subjects enumerated in List III, subject
only to the pro- vision contained in cl. (2) of Art. 254 i.e. provided the provisions of the State Act do not
conflict with those of any (Central Act on the subject. However, in case of repugnancy between a State Act
and a Union Law on a subject enumerated in List III, the State law must yield to the Central law unless it
has been reserved for the assent of the President and has received his assent under Art. 254(2). The
question of repugnancy arises only when both the Legislatures are competent to legislate in the same field
i.e. when both the Union and the State laws relate to a subject specified in List III and occupy the same
field.

- Doctrine of Pith & Substance (reference to different case laws)

a. In A.L.S.P.P. Subrahmanyan Chettiar v. Muttuswami Goundan(l) Gwyer, C.J. reiterated that the
principles laid down by the Privy Council in a long line of decisions in the interpretation of ss. 91 and
92 of the British North America Act, 1867 must be accepted as a guide for the interpretation of s.
100 of the Government of India Act, 1935:

"It must inevitably happen from time to time that legislation, though purporting to deal with a subject in
one list, touches also on a subject in another list, and the different provisions of the enactment may be so
closely intertwined that build adherence to a strictly verbal interpretation would result in a large number
of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a
forbidden sphere. Hence the rule which has been evolved by the Judicial Committee whereby the
impugned statute is examined to ascertain its 'pith and substance' or its true nature and character for the
purpose of determining whether it is legislation in respect of matters in this list or in that."

It has already been stated that where the two lists appear to conflict with each other, an endeavour should
be made to reconcile them by reading them together and applying the doctrine of pith and substance. It is
only when such attempt to reconcile fails that the non-obstante clause in Art. 246(1) should be applied as a
matter of last resort. For, in the words of Gwyer, C.J. in C.P. & Berar Taxation Act's case, supra:

"For the clause ought to be regarded as a last re- source, a witness to the imperfections of human
expression and the fallibility of legal draftsmanship."
 b. In Prafulla Kumar Mukherjee & Ors. v. Bank of Commerce Ltd., Khulna(1) Lord Porter delivering
the judgment of the Board laid down that in distinguishing between the powers of the divided
jurisdictions under list I, II and III of the Seventh Schedule to the Government of India Act, 1935 it is
not possible to make a clean cut between the powers of the various Legislatures. They are bound to
overlap from time to time, and the rule which has. been evolved by the Judicial Committee
whereby an impugned statute is examined to ascertain its pith and substance or its true character
for the purpose of determining in which particular list the legislation falls, applies to Indian as well
as to Dominion legislation. In laying down that principle, the Privy Council observed:

"Moreover, the British Parliament when enacting the Indian Constitution had a long experience of
the working of the British North America Act and the Australian Commonwealth Act and must have
known that it is not in practice possible to ensure that the powers entrusted to the several
legislatures will never overlap."

The Privy Council quoted with approval the observations of Gwyer, C.J in Subramanyan Chettiar's case,
supra, quoted above, and observed:

"No doubt experience of past difficulties has made A the provisions of the Indian Act more exact in
some particulars, and the existence of the Concurrent List has made it easier to distinguish
between. those matters which are essential in determining to which list particular provision should
be attributed and those which are merely incidental. But the overlapping of subject-matter is not
avoided by substituting three lists for two, or even by arranging for a hierarchy of jurisdictions.
Subjects must still overlap, and where they do, the question must be asked what in pith and
substance is the effect of the enactment of which complaint is made, and in what list is its true
nature and character to be found. If these questions could not be asked, much beneficent
legislation would be stifled at birth. and many of the subjects entrusted to provincial legislation
could never effectively be dealt with."

It would therefore appear that apparent conflict with the Federal power had to be resolved by application
of the doctrine of pith and substance and incidental encroachment. Once it is found that a law made by the
Provincial Legislature was with respect to one of the matters enumerated in the Provincial List, the degree
or extent of the invasion into the forbidden field was immaterial. "The invasion of the provinces into
subjects in the Federal List", in the words of Lord Porter, "was important":

" ... not .. because the validity of an Act can be determined by discriminating between degrees of
invasion, but for the purpose of determining as to what is the pith and substance of the impugned
Act. Its pro visions may advance so far into federal territory as to show that its true nature is not
covered with Provincial matters, but the question is not, has it trespassed more or less, but is the
trespass, whatever it be, such as to show that the pith and substance of the impugned Act is not
money-lending but promissory notes or banking ? once that question is determined the Act falls on
one or the other side of the line and can be seen as valid or invalid according to its true content."

The passage quoted above places the precedence according to the three lists in its proper perspective. In
answering the objection that view does not give sufficient effect to the non-obstante clause in s. 100(1) of
the Government of India Act, 1935, as between the three lists, the Privy Council observed:

"Where they come in conflict, List I has priority over Lists III and II and List III has priority over List II."

But added:

"The priority of the Federal Legislature would not prevent the Provincial Legislature from dealing with any
matter within List II though it may incidentally affect any item in List I."
It would therefore appear that the constitutionality of the law is to be judged by its real subject matter and
not by its incidental effect on any topic of legislation in another field.

- Incidental encroachment

The decision of the Privy Council in Prafulla Kumar Mukherjee's case, supra, has been repeatedly approved
by the Federal Court and this Court as laying down the correct rule to be applied in resolving conflicts
which arise from overlapping powers in mutually exclusive lists. It may be added as a corollary of the pith
and substance rule that once it is found that in pith and substance an 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; Ralla Ram v. Province of East Punjab(2), State of Bombay v. Nerothamdas Jethabai & Anr(2),
State of Bombay v. F. N. Balsara(3), A. S. Krishna v. State of Madras(4), M. Karunanidhi v. Union of India(5),
Union of India v. H.S. Dhillon(6) and Southern Pharmaceuticals & Chemicals Trichur & Ors. etc. v. State of
Kerala & Ors. etc.(7)

It is well settled that the validity of an Act is not affected if lt incidentally trenches upon matters outside
the authorized field and therefore it is necessary to inquire in each case what is the pith and substance of
the Act impugned. If the Act, when so viewed, substantially falls within the powers expressly conferred
upon the legislature which enacted it, then it cannot be held to be invalid merely because it incidentally
encroaches on matters which have been assigned to another Legislature.

- Repugnancy

The question of "repugnancy" arises only with reference to a legislation falling in the Concurrent List but it
can be cured by resort to Art. 254 (2).

As we have endeavoured so far, the question raised as to the constitutional validity of sub-s. (3) of s. S of
the Act has to be determined by application of the rule of the pith and substance whether or not the
subject-matter of the impugned legislation was competently enacted under Art. 246, and therefore tho
question of repugnancy under Art. 254 was not a matter in issue. The submission put forward on behalf of
the appellants however is that there is direct collision and/or irreconciliable conflict between sub-s. (3) of
s. 5 of the Act which is relatable to Entry 54 of List II of the Seventh Schedule and paragraph 21 of the
Control order issued by the Central Government under sub-s. (1) of s. 3 of the Essential Commodities Act
which is relatable to Entry 33 of List III. It is sought to be argued that the words "a law made by Parliament
which Parliament is competent to enact" 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 they are wide enough to include
a law made by Parliament with respect to any of the matters enumerated in the Union List. The argument
was put in this form. In considering whether a State law is repugnant to a law made by Parliament, two
questions arise: First, is the law made by Parliament viz. the Essential Commodities Act, a valid law ? For, if
it is not, no question of repugnancy to a State law can arise. If however it is a valid law, the question as to
what constitutes repugnancy directly arises. The Second question turns on a construction of the words "a
law made by Parliament which Parliament is competent to enact" in Art. 254 (1).

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 so that the
question af conflict between laws made by both Legislatures relating to the same subject may arise.

We fail to comprehend the basis for the submission put forward on behalf of the appellants that there is
repugnancy between sub-s. (3) of s. 5 of the Act which is relatable to Entry 54 of List II of the Seventh
Schedule and paragraph 21 of the Control order issued by the Central Government under sub-s. (1) of s. 3
of the Essential Commodities Act relatable to Entry 33 of List III and therefore sub-s. (3) of s. 5 of the Act
which is a law made by the State Legislature is void under Art. 254(1). 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 II on the one hand and List I and List III 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. 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 of Concurrent List-in other words, if cl. (2) is to be the guide in the determination of scope of cl.
(1), 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) a law made by Parliament or (b) an existing law. There
was a controversy at one time as to whether the succeeding words "with respect to one of the matters
enumerated in the Concurrent List" govern both (a) and (b) or (b) alone. It is now settled that 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 under lying 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 in the Con current List. Hence, Art. 254(1) can not apply
unless both the Union and the State laws relate to a subject specified in the Con current List, and they
occupy the same field.

- Consequences of an entry being subject to another

We are unable to appreciate the contention that sub-s. (3) of s. 5 of the Act being a State law must be
struck down as ultra vires as the field of fixation of price of essential commodities is an occupied field
covered by a central legislation. It is axiomatic that 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 of the
Seventh Schedule 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 will have to be read as: 'Taxes on the sale or purchase of goods other than essential
commodities etc cetra'. 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 of the Seventh Schedule is only subject
to Entry 92A of List I and there can be no further curtailment of the State's power of taxation. It is a well
established rule of construction that the entries in the three lists must be read in a broad and liberal sense
and must be given the widest scope which their meaning is fairly capable of because they set up a
machinery of Government.

- Power to legislate stems from?

It is equally well settled that 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 legisla- tive 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 III, although the liability to pay tax may be a matter
incidental to the Centre's power of price control.

4. Kartar Singh v. State of Punjab, (1994) 3 SCC 569

Issues:
(1) that the Central Legislature has no legislative competence to enact the legislations
(2) these impugned Acts or some of the provisions of these Acts are in contravention of or ostensibly in
violation of any of the fundamental rights specified in Part III of the Constitution

Acts in question: TADA (the Terrorist Affected Areas (Special Courts) Act (No. 61 of 1984), the Terrorists
and Disruptive Activities (Prevention) Act (No. 31 of 1985) and the Terrorists and Disruptive Activities
(Prevention) Act, 1987 (No. 28 of 1987) commonly known as TADA Acts)

Findings:

c. Reasons why the acts were enacted:

21. From the recent past, in many parts of the world, terrorism and disruption are spearheading for one
reason or another and resultantly great leaders have been assassinated by suicide bombers and many
dastardly murders have been committed. Deplorably, determined youths lured by hardcore criminals and
underground extremists and attracted by the ideology of terrorism are indulging in committing serious
crimes against the humanity. In spite of the drastic actions taken and intense vigilance activated, the
terrorists and militants do not desist from triggering lawlessness if it suits their purpose. In short, they are
waging a domestic war against the sovereignty of their respective nations or against a race or community
in order to create an embryonic imbalance and nervous disorder in the society either on being stimulated
or instigated by the national, transnational or international hard-core criminals or secessionists etc.
Resultantly, the security and integrity of the countries concerned are at peril and the law and order in
many countries is disrupted. To say differently, the logic of the cult of the bullet is hovering the globe
completely robbing off the reasons and rhymes. Therefore, every country has now felt the need to
strengthen vigilance against the spurt in the illegal and criminal activities of the militants and terrorists so
that the danger to its sovereignty is averted and the community is protected.

22. Thus, terrorism and disruptive activities are a worldwide phenomenon and India is not an exception.
Unfortunately in the recent past this country has fallen in the firm grip of spiraling terrorists' violence and
is caught between the deadly pangs of disruptive activities. As seen from the Objects and Reasons of the
Act 31 of 1985, "Terrorists had been indulging in wanton killings, arson, looting of properties and other
heinous crimes mostly in Punjab and Chandigarh" and then slowly they expanded their activities to other
parts of the country i.e. Delhi, Haryana, U.P. and Rajasthan. At present they have outstretched their
activities by spreading their wings far and wide almost bringing the major part of the country under the
extreme violence and terrorism by letting loose unprecedented and unprovoked repression and disruption
unmindful of the security of the nation, personal liberty and right, inclusive of the right to live with human
dignity of the innocent citizens of this country and destroying the image of many glitzy cities like
Chandigarh, Srinagar, Delhi and Bombay by strangulating the normal life of the citizens. Apart from many
skirmishes in various parts of the country, there were countless serious and horrendous events engulfing
many cities with blood-bath, firing, looting, mad killing even without sparing women and children and
reducing those areas into a graveyard, which brutal atrocities have rocked and shocked the whole nation.

23. Everyday, there are jarring pieces of information through electronic and print media that many
innocent, defenseless people particularly poor, politicians, statesmen, government officials, police officials,
army personnel inclusive of the jawans belonging to Border Security Force have been mercilessly gunned
down. No one can deny these stark facts and naked truth by adopting an ostrich like attitude completely
ignoring the impending danger. Whatever may be the reasons, indeed there is none to deny that.

28. ….. the necessity of bringing the Acts (TADA) to effectively prevent the consequent violence. But suffice
to give the compelling reasons as shown in the Statements of Objects and Reasons for enacting the Acts of
1985 and Objects and Reasons for enacting the Acts of 1985 and 1987 which are to the effect that the
terrorists and disruptionists by their expanded activities have created dreadful fear and panic in the minds
of the citizens and disrupted communal peace and harmony; that their activities are on an escalation in
many parts of the country; that it has been felt that in order to combat and cope with such activities
effectively, it had become necessary to take appropriate legal steps effectively and expeditiously so that
the alarming increase of these activities which are a matter of serious concern, could be prevented and
severely dealt with.

29. The totality of the speeches made by the Ministers, Members of the Parliament during the debates in
the Parliament, the Statement of Objects and Reasons, the submissions made by the learned Additional
Solicitors General converge to the following conclusions:

(1) From mid-eighties, the prevailing conditions have been surcharged with the terrorism and disruption
posing a serious threat to the sovereignty and integrity of India as well as creating panic and sense of
insecurity in the minds of the people. Added to that the brutality of terrorism let loose, by the secessionists
and anti-nationals in the highly vulnerable area of Indian territory, (prejudicial to the defence of India), is
causing grave concern even about the chances of survival of the democratic polity and process;

(2) there were also continuous commission of heinous offenses such as gruesome mass killings of
defenseless innocent people including women, children and bystanders, disturbing the peace, tranquility
and security;

(3) the existing ordinary criminal laws are found to be inadequate to sternly deal with such activities
perpetrated on humanity.

30. It was only in the above prevailing circumstances, the Legislature has been compelled to bring forth
these Acts (TADA) to prevent and deal with the peril of the erupting terrorism and the consequent
potential disorder among others disrupting the law and order and to sternly deal with many groups lurking
beneath the murky surface, aiding, abetting, nourishing and fomenting terrorism besides giving financial
support and supplying sophisticated automatic lethal arms and ammunitions both from inside and outside
of India. It may not be out of place to mention that the facts of the cases appealed against and set out in
the writ petitions and SLP, if accepted in their entirety, reveal the multiple acts of violence let loose; and
the acts of savage revenge perpetrated against individuals, group of persons or any particular community
or religious sects show that the violent threat which has manifested itself is not evidently going to vanish
with such inexplicable suddenness as would seem to have been visually presumed.

33. The Parliament, evidently, taking note of the gravity of terrorism committed by terrorists either with an
intention to overawe the Government as by law established or to strike terror in the people or any section
of the people or to alienate any section of the people or to adversely affect the harmony amongst different
sections of the people and the consequent widespread apparent danger to the nation, has felt the need of
not only continuing but also further strengthening the provisions of TADA Act (Act 31 of 1985) in order to
cope with the menace of terrorism, enacted Act 28 of 1987 bringing drastic changes with regard to the
admissibility of confessions made to police officials prescribing special procedures and providing consign
punishments etc., leave apart the question with regard to the validity of these provisions to be tested on
the touchstone of the Constitution.
34. Keeping in view the above historical background, we shall unbiasedly and without any preconceived
notion, examine the various legal problems presented inclusive of the constitutional validity of the three
Acts (TADA) in general and of the various provisions in particular of those Acts on the touchstone of the
Constitution of India.

d. Relevant provisions

57. We shall now carefully examine the submissions made by the respective parties in the light of the
import and intendment of the Acts under challenge and find out as to whether this Act (TADA) falls under
Entry 1 of List II, namely, 'Public order' or under Entry 1 of List I, namely, 'Defence of India' as well as
Entries 2 and 2-A of List I read with Entries I (Criminal law) and 2 (Criminal procedure) of List III. But before
we do so, we would briefly take note of the constitutional scheme relating to distribution of legislative
powers between the Union and the States.

 Constitutional scheme relating to distribution of power

58. Under clause (1) of Article 246, notwithstanding anything in clauses (2) and (3) of the said article,
Parliament has exclusive power to make laws with respect to any of the 97 subjects enumerated in List I of
the Seventh Schedule. Under clause (3) of the said article, the State Legislatures have exclusive powers to
make laws with respect to 66 items enumerated in List II. The powers in respect of the 47 items
enumerated in List III are concurrent i.e. both Parliament and the Legislature of any State, subject to clause
(1) have power to make laws. With regard to a law made in respect of matters enumerated in the
Concurrent List provision has been made in Article 254 which gives overriding effect to a law made by
Parliament in the event of there being any repugnancy between the said law and the law made by the
Legislature of a State and the State law would prevail over a law made by Parliament only if such State law
was enacted after the law made by Parliament and has received the assent of the President. While
examining the question of legislative competence of Parliament to make a law, the proper approach is to
determine whether the subject-matter of the legislation falls in the State List which Parliament cannot
enter.

 If law does not fall in the State List

59. If the law does not fall in the State List, Parliament would have the legislative competence to pass the
law by virtue of the residuary powers under Article 248 read with Entry 97 of the Union List and it would
not be necessary to go into the question whether it falls under any entry in the Union List or Concurrent
List [See (i) Union of India v. H.S. Dhillon10 (SCC at pp. 799, 803; SCR at pp. 61 and 67-68), (ii) S.P. Mittal v.
Union of India' 1 (SCC at p. 82, paras 70 and 72; SCR at pp. 769-770), and (iii) Khandelwal Metal and Engg.
Works v. Union of India12 SCC at p. 641, para 42]. It is, therefore, necessary to examine whether the Act
falls within the ambit of Entry 1 read with Entry 64 of the State List as contended by the learned counsel
for the petitioners.

 Principles applied for construing the entries in the lists

But before we do so we may briefly indicate the principles that are applied for construing the entries in the
legislative lists. It has been laid down that the entries must not be construed in a narrow and pedantic
sense and that widest amplitude must be given to the language of these entries. Sometimes the entries in
different lists or the same list may be found to overlap or to be in direct conflict with each other. In that
event it is the duty of the court to find out its true intent and purpose and to examine the particular
legislation in its 'pith and substance' to determine whether it fits in one or other of the lists. [See :
Synthetics and Chemicals Ltd. v. State of U.p.13 (SCC at pp. 150-51, para 67; SCR at p. 673); India Cement
Ltd. v. State of T.N. 14 (SCC at p. 22, para 18; SCR at p. 705)].
  Doctrine of pith & substance

60. This doctrine of 'pith and substance' is applied when the legislative competence of a legislature with
regard to a particular enactment is challenged with reference to the entries in the various lists i.e. a law
dealing with the subject in one list is also touching on a subject in another list. In such a case, what has to
be ascertained is the pith and substance of the enactment. On a scrutiny of the Act in question, if found,
that the legislation is in substance one on a matter assigned to the legislature enacting that statute, then
that Act as a whole must be held to be valid notwithstanding any incidental trenching upon matters
beyond its competence i.e. on a matter included in the list belonging to the other legislature. To say
differently, incidental encroachment is not altogether forbidden.

61. Lord Porter speaking for the Judicial Committee of the Privy Council in Prafulla Kumar Mukherjee v.
Bank of Commerce Ltd., Khulna6 quoted with approval the observations of Sir Maurice Gwyer, C.J. in 10
(1971) 2 SCC 779: (1972) 2 SCR 33 11 (1983) 1 SCC 51 : (1983) 1 SCR 729 12 (1985) 3 SCC 620: 1985 SCC
(Tax) 466: 1985 Supp 1 SCR 750,775 13 (1990) 1 SCC 109: 1989 Supp 1 SCR 623 14 (1990) 1 SCC 12: 1989
Supp 1 SCR 692 6 AIR 1947 PC 60: 74 IA 23: 51 CWN 599 Subrahmanyan Chettiar v. Muttuswami
Goundan15 to the effect: (IA at p. 43)

"It must inevitably happen from time to time that legislation though purporting to deal with a
subject in one list, touches also upon a subject in another list, and the different provisions of the
enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation
would result in a large number of statutes being declared invalid because the Legislature enacting
them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved
by the Judicial Committee, whereby the impugned statute is examined to ascertain its pith and
substance or its true nature and character for the purpose of determining whether it is legislation
with respect to matters in this list or in that."

Thereafter, their Lordship of the Privy Council held: (IA at p. 43)

"Subjects must still overlap and where they do the question must be asked what in pith and
substance is the effect of the enactment of which complaint is made and in what list is its true
nature and character to be found. If these questions could not be asked, much beneficent
legislation would be stifled at birth, and many of the subjects entrusted to Provincial Legislation
could never effectively be dealt with.

Thirdly, the extent of the invasion by the Provinces into subjects enumerated in the Federal List has
to be considered. No doubt it is an important matter, not, as their Lordships think, because the
validity of an Act can be determined by discriminating between degrees of invasion, but for the
purpose of determining what is the pith an d substance of the impugned Act. Its provisions may
advance so far into federal territory as to show that its true nature is not concerned with provincial
matters, but the question is not, has it trespassed more or less, but is the trespass, whatever it be,
such as to show that the pith and substance of the impugned Act is not money-lending but
promissory notes or banking? Once that question is determined the Act falls on one or the other
side of the line and can be seen as valid or invalid according to its true content."

 ‘Public Order’

62. Reference may now be made to the relevant entries, namely Entries 1 and 64 of State List which are as
under
 " 1. Public order (but not including the use of any naval, military or air force or any other armed
force of the Union or of any other force subject to the control of the Union or of any contingent or
unit thereof in aid of the civil power).

64. Offenses against laws with respect to any of the matters in this List."

63. Under the Government of India Act, 1935, the Provincial Legislature had been conferred the power to
enact laws in respect of matters enumerated in the Provincial List and Item I of the Provincial List covered
the field of " public order (but not including the use of His Majesty's naval, military or air forces in aid of
the civil power)".

64. In Lakhi Narayan Das v. Province of Bihar2 the expression "public order" has been described as a 'most
comprehensive term' and it has been held that "maintenance of public order within a province is primarily
the concern of that province". It has also been further observed that if the legislature has not exceeded its
powers, it is not for the courts to criticise the wisdom or policy of the legislature. In Romesh Thappar v.
State of Madras3 while holding that "public order" is an expression of wide connotation and signifies that
state of tranquility which prevails among the members of a political society as a result of the internal
regulations enforced by the Government which they have established, the Court has drawn a distinction
between "public order" and security of a State. After referring to Entry 3 of the Concurrent List, the Court
has observed:

"The Constitution thus requires a line to be drawn in the field of public order or tranquility marking
off, may be, roughly, the boundary between those serious and aggravated forms of public disorder
which are calculated to endanger the security of the State and the relatively minor breaches of the
peace of a purely local significance, treating for this purpose differences in degree as if they were
differences in kind."

65. In Ram Manohar Lohia (Dr) v. State of Bihar' 9, Hidayatullah, J. (as the leaned Chief Justice then was)
has brought out the distinction between "law and order", "public order" and "security of the State" in the
following observation:

"It will thus appear that just as 'public order' in the rulings of this Court (earlier cited) was said to
comprehend disorders of less gravity than those affecting "security of State", "law and order" also
comprehends disorders of less gravity than those affecting "public order". One has to imagine three
concentric circles. Law and order represents the largest circle within which is the next circle
representing public order and the smallest circle represents security of State. It is then easy to see
that an act may affect law and order but not public order just as an act may affect public order but
not security of the State."

Security
of State
Public
Order
Law &
Order

66. Having regard to the limitation placed by Article 245(1) on the legislative power of the Legislature of
the State in the matter of enactment of laws having application within the territorial limits of the State
only, the ambit of the field of legislation with respect to "public order" under Entry 1 in the State List has to
be confined to disorders of lesser gravity having an impact within the boundaries of the State. Activities of
a more serious nature which threaten the security and integrity of the country as a whole would not be
within the legislative field assigned to the States under Entry 1 of the State List but would fall within the
ambit of Entry 1 of the Union List relating to defence of India and in any event under the residuary power
conferred on Parliament under Article 248 read with Entry 97 of the Union List. The petitioners can
succeed in their challenge to the validity of the Act with regard to the legislative competence of
Parliament, only if it can be said that the Act deals with activities relating to public order which are
confined to the territories of a particular State.

 How to ascertain the ‘pith & substance’ of the impugned act?

67. In order to ascertain the pith and substance of the impugned enactments, the preamble, Statement of
Objects and Reasons, the legal significance and the intendment of the provisions of these Acts, their scope
and the nexus with the object that these Acts seek to subserve must be objectively examined in the
background of the totality of the series of events due to the unleashing of terrorism, waves after waves,
leading to the series of bomb blasts causing extensive damage to the properties, killing of hundreds of
people, the blood-curdling incidents during which the blood of the sons of the soil had been spilled over
the soil of their motherland itself, the ruthless massacre of the defenseless and innocent people especially
of poor as if they were all 'marked for death' or for 'human sacrifice' and the sudden outbreak of violence,
mass killing of army personnel, jawans of Border Security Force, government officials, politicians,
statesmen, heads of religious sects by using bombs and sophisticated lethal weapons thereby injecting a
sense of insecurity in the minds of the people, with the intention of destabilizing the sovereignty or
overthrowing the Government as established by law. The way in which the alleged violent crimes is shown
to have been perpetrated, the manner in which they have been cruelly executed, the vulnerable territorial
frontiers which form part of the scene of unprecedented and unprovoked occurrences, lead to an
inescapable illation and conclusion that the activities of the terrorists and disruptionists pose a serious
challenge to the very existence of sovereignty as well as to the security of India notwithstanding the fact
whether such threats or challenges come by way of external aggression or internal disturbance.

e. TADA

68. The terrorism, the Act (TADA) contemplates, cannot be classified as mere disturbance of 'public order'
disturbing the "even tempo of the life of community of any specified locality" in the words of Hidayatullah,
C.J. in Arun Ghosh v. State of W.B.20 but it is much more, rather a grave emergent situation created either
by external forces particularly at the frontiers of this country or by anti-nationals throwing a challenge to
the very existence and sovereignty of the country in its democratic polity.

69. The above view gets strengthened from the very definition of the expression 'terrorist act' as defined in
Section 2(1)(h) of the Act 28 of 1987 stating that the said expression "has the meaning assigned to it in sub-
section (1) of Section 3" according to which the intention to commit any offence or offenses specified
therein should be for one or more clearly defined objectives as expressly mentioned in Section 3(1)
reading:

"3. (1) Whoever with intent to overawe the Government as by law established or to strike terror in
the people or any section of the people or to alienate any section of the people or to adversely
affect the harmon y amongst different sections of the people does any act or thing......

70. Similarly, the expression 'disruptive activity' as defined under Section 2(1)(d) has the meaning assigned
to it in Section 4. Section 4(1) prescribes only the quantum of punishment for disruptive activities. Section
4(2) gives the meaning of that expression thus:

"4. (2) For the purposes of sub-section (1), 'disruptive activity' means any action taken, whether by
act or by speech or through any other media or in any other manner whatsoever,-
(i) which questions, disrupts or is intended to disrupt, whether directly or indirectly, the sovereignty
and territorial integrity of India; or
 (ii) which is intended to bring about or supports any claim, whether directly or indirectly, for the
cession of any part of India or the secession of any part of India from the Union.
Explanation.- For this purposes of this sub- section,-
(a) 'cession' includes the admission of any claim of any foreign country to any part of India, and
(b) 'secession' includes the assertion of any claim to determine whether a part of India will remain
within the Union."

71. The above definitions, would themselves make it clear that the expression "Terrorist and Disruptive
Activities" deployed in the preamble of the Act (28 of 1987 TADA) contemplates the commission of any
specified offence or offenses with a specific intention one of which being "to overawe the Government as
by law established" [vide Section 3(1)] and "any action taken, whether by act or by speech or through any
other media or in any other manner whatsoever, which questions, disrupts or is intended to disrupt,
whether directly or indirectly, the sovereignty and territorial integrity of India; or which is intended to
bring about or supports any claim, whether directly or indirectly, for the cession of any part of India or the
secession of any part of India from the Union". [Vide Section 4(2).]

72. Therefore, the submission made by Mr Jethmalani that the preamble of the Act gives a clue that the
terrorist and disruptive activities only mean a virulent form of the disruption of public order is
inconceivable and unacceptable.

f. Verdict

73. In our view, the impugned legislation does not fall under Entry 1 of List II, namely, 'Public order'. No
other Entry of List II has been invoked. The impugned Act, therefore, falls within the legislative competence
of Parliament in view of Article 248 read with Entry 97 of List I and it is not necessary to consider whether it
falls under any of the entries in List I or List III. We are, however, of the opinion that the impugned Act
could fall within the ambit of Entry 1 of List I, namely, 'Defence of India'.

75. In Act 61 of 1984, the expression 'terrorist affected area' is defined in Section 2(1)(i) as meaning an area
declared as a terrorist affected area under Section 3. Section 3(1) reads thus:

"3. (1) If the Central Government is of the opinion that offenses of the nature specified in the
Schedule are being committed in any area by terrorists on such a scale and in such a manner that it
is expedient for the purpose of coping with the activities of such terrorists to have recourse to the
provisions of this Act, it may, by notification,-
(a)declare such area to be a terrorist affected area; and (b)......

76. The word 'terrorist' is defined in Section 2(1)(h) as follows:

"2. (1)(h) 'terrorist' means a person who indulges in wanton killing of persons or in violence or in
the disruption of services or means of communications essential to the community or in damaging
property with a view to-
(i) putting the public or any section of the public in fear; or
(ii) affecting adversely the harmony between different religious, racial, language or regional groups
or castes or communities; or
(iii) coercing or overawing the Government established by law; or
(iv) endangering the sovereignty and integrity of India."

77. The above definition also requires more or less the intention as required under Section 3(1) of TADA
Act, namely, Act 28 of 1987, and also the motive for commission of the terrorist acts is akin to that of
Section 4 of 19 (1966) 1 SCR 709: AIR 1966 SC 740: 1966 Cri LJ 608 the TADA Act of 1987, i.e., one of the
motives being to endanger the sovereignty and integrity of India. In short, the definition of the expressions
'terrorist act' and 'disruptive activity' under Section 2(1)(h) and (d) of Act 28 of 1987 (TADA) respectively
are conjointly brought under the definition of the word 'terrorist act' in Act 61 of 1984. Therefore, the Act
of 1984 also cannot be said to have contemplated only 'Public order' but envisages a more grave situation
threatening the sovereignty and integrity of India.

78. For all the reasons stated above, we hold that the contention that the Acts 61 of 1984, 31 of 1985 and
28 of 1987 are ultra vires on the ground of suffering from lack of legislative competence and as such the
entire Acts are liable to be struck down, is to be rejected and accordingly that contention is rejected as
devoid of any merit.