Bihar Finance Act, 1981-Sub-ss. (1) and (3) of s. 5-Levy of surcharge on sales tax and prohibition from passing on liability thereof to purchasers- Whether void in terms of opening words of Art. 246(3) for being in conflict with Paragraph 21 of Drugs (Price Control) Order, 1979 issued under 3. 3(1) of Essential Commodities Act?-Whether violative of Arts. 14 and 19(1) (g)?- Whether it is an essential characteristic of Sales Tax that the seller must have right to pass it on to consumer?-Whether classification of dealers on the basis of 'gross turnover' as defined in s. 2(J) invalid?

Constitution of India-Art. 246-State Legislature's Power to make law with respect to matters enumerated in List II-Whether subject to Parliament's power to make law in respect of matters enumerated in List 1117-Doctrine of 'pith and substance' and the principle of Federal Supremacy".

Constitution of India-Art. 254(1)-Can repugnancy between a State law and a law made by Parliament arise outside the Concurrent field?

Constitution of India-Arts. 200 and 201-Governor's decision to refer a Bill to President-Whether subject to Court's scrutiny? Assent of President-- Whether justiciable?

Sub-section (1) of s. 5 of the Bihar Finance Act, 1981 provides for the levy of a surcharge in addition to the tax payable, on every dealer whose gross turnover during a year exceeds Rs. 5 lakhs and, sub-s. (3) thereof prohibits such a dealer from collecting amount of surcharge payable by him from the purchasers. In exercise of the power conferred by this section, the State Government fixed the rate of surcharge at 10 per cent of the total amount of tax payable by a dealer.

Two of the appellants in this batch of appeals were companies engaged in the manufacture and sale of the medicines throughout India whose branches/ sales depots in Bihar were registered as dealers. Their products were sold through wholesale distributors/stockists appointed in almost all the districts of the State and their gross turnover within the State during the relevant period ran into crores of rupees. Most of the medicines and drugs sold by them were covered by the Drugs (Frice Control) Cider, 1979 issued under sub-s. (1) of s. 3 of the Essential Commodities Act in terms of which they were expressly prohibited from selling those medicines and drugs in excess of the controlled price fixed by the Central Government from time to time but were allowed to pass on the liability to the consumer. During the assessment years 1980-81 and 1981-82 they had to pay the surcharge under s. 5(1) of the Bihar Finance Act, 1981 at 10 per cent of the tax payable by them.

The appellants challenged the Constitutional validity of sub-s. (3) of s. 5 but the same was repelled by the High Court relying on the decision in S. Kodar v. State of Kerala, [1979] 1 S.C.R. 121.

It was contended on behalf of the appellants: (i) that sub-s. (3) of s. 5 of the Act which is a State law relatable to Entry 54 of List II of the Seventh Schedule to the Constitution and which provides that no dealer shall be entitled to collect the surcharge levied on him is void in terms of the opening words of Art. 246(3) of the Constitution as it is in direct conflict with para- graph 21 of the Drugs (Price Control) order, 1979, issued under sub-s. (1) of s. 3 of the Essential Commodities Act, 1955 which is a Union Law relatable to Entry 33 of List III and which enables the manufacturer or producer of drugs to pass on the liability to pay sales tax to the consumer; (ii) that the words "a law made by Parliament which Parliament is competent to enact" contained in Art. 254(1) 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 also to include a law made by Parliament with respect to any of the matters enumerated in the Union List and therefore sub-s. (3) of s. 5 of the Act being repugnant to Paragraph 21 of the Control Order is void under Art. 254; (iii) that it both sub-s. (1) and sub-s. (3) of s. 5 were relatable to Entry 54 of List II, there was no need for the Governor to have referred the Bihar Finance Bill, 1981 to the President for his assent and that the President's assent is justiciable; (iv) that dealers of essential commodities who cannot raise their sale prices beyond the controlled price cannot be equated with other dealers who can raise their sale prices and absorb the surcharge and since sub-s. (3) of s. 5 treats "unequals as equals" it is arbitrary and irrational and therefore violative of Art. 14 of the Constitution: (v) that sales tax being essentially an indirect tax, the legislature was not competent to make a provision prohibiting the dealer from collecting the amount of surcharge and that the true nature and character of surcharge being virtually a tax on income, sub-s. (3) of s. 5 is unconstitutional as it imposes an unreasonable restriction upon the freedom of trade guaranteed under Art. 19(1)(g); (vi) that sub-s. (3) of s. 5 of the Act which is a State law being repugnant to paragraph 21 of the Drugs (Price Control) Order which is issued under a Union law, the latter must prevail in view of the non obstant: clause in s. 6 of the Essential Commodities Act and the former which is inconsistent therewith should be by-passed in terms of the decision in Hari Shankar Bagla and Anr. v. State of Madhya Pradesh, [1955] 1 S.C.R. 380; and (vii) that in view of the decision in A.V. Fernandez v. State of Kerala, [1957] S.C.R. 837, sub-s. (1) of s. 5 of the Act which makes the "gross turnover" as defined in s. 2(j) of the Act which includes transactions taking place in the course of inter-state or International Commerce to be the basis for the levy of surcharge is ultra vires the State Legislature,