Hoechst Pharmaceuticals v. State of Bihar
Article 246 • Pith & Substance • Legislative Competence
Quick Summary
The case deals with a clash that looked possible between central price control on drugs and a State surcharge on sales tax.
- Core test: Use the pith and substance rule to find the real subject of the law.
- Result: State may tax sale of goods under Entry 54, List II, even if Centre regulates prices.
- Limit: A general entry does not include an implied power to tax.
Issues
- Was the impugned State law within legislative competence under Article 246?
- How does the pith and substance test apply to decide the proper list entry?
- Did central drug price control exclude State power to levy a surcharge on sales tax?
Rules
- Pith & Substance: Identify the true nature of the law; place it in the right List entry.
- Article 246: Union, State, and Concurrent powers are allocated by Lists; competence follows the correct entry.
- No implied tax: A general entry does not carry a coincidental power to tax.
Facts (Timeline)
Business: The petitioner made and sold many life-saving medicines across India, including Bihar, through registered dealers.
Price Control (1979): Under the Drugs (Price Control) Order, 1979, most drugs had centrally fixed controlled prices; selling above that was barred.
Bihar Finance Act, 1981: Section 5(1) added a surcharge (up to 10%) for dealers with turnover > ₹5 lakh. Section 5(3) said dealers cannot collect the surcharge from buyers.
Challenge: The company filed price lists and contracts, arguing the surcharge conflicted with central price limits and hurt compliant pricing.
Procedural history: High Court upheld the law; appeal reached the Supreme Court.
Arguments
Appellant (Company)
- Central order fixes maximum prices; surcharge disturbs that scheme.
- Practical effect: surcharge cannot be passed on (Sec 5(3)), making sales unviable at controlled prices.
- Therefore, the State law collides with central control.
Respondent (State)
- Surcharge is part of the State’s tax on sale of goods (Entry 54, List II).
- Price control (Entry 33 List III) is different from taxing power.
- No direct conflict; both can operate together.
Judgment
- Legislative competence upheld: The surcharge is within State power to tax sales under Entry 54 List II.
- No implied tax power: A general entry does not carry a hidden authority to tax.
- Separate fields: Central control over production/supply/prices (Entry 33 List III) is distinct from State sales tax.
- No direct conflict: Section 5(3) of the State Act and Para 21 of the 1979 Order can co-exist.
Ratio
- Apply pith and substance to find the proper list entry.
- Article 246 divides fields; it does not “sever” or exhaust all overlap by itself.
- Taxing power must appear in a specific tax entry; it is not inferred from a general entry.
- Central price control does not, by itself, oust State sales tax.
Why It Matters
The ruling keeps a clear line between regulatory control (Centre) and taxation (State). It guides courts on how to resolve overlap using a simple test.
Key Takeaways
- Pith first: Identify the law’s real subject.
- Separate lanes: Price control ≠ sales tax.
- No hidden tax: Need a specific entry for taxation.
- Co-existence: Central price caps can operate with State surcharge rules.
Mnemonic + 3-Step Hook
Mnemonic: P-S-T-C → Pith—Specific tax—Two fields—Can co-exist
- Pith: Find the core subject of the law.
- Specific tax: Tax power needs a dedicated entry.
- Two fields: Centre regulates; State taxes sales.
- Co-exist: No conflict, both can work together.
IRAC Outline
Issue: Was Bihar’s surcharge within State competence under Article 246 despite central price control?
Rule: Use pith and substance; tax needs specific entry; central control and State tax are different fields.
Application: The surcharge targets sales tax (Entry 54 List II). Price control (Entry 33 List III) does not cover taxation.
Conclusion: State competence affirmed; no direct conflict with the central scheme.
Glossary
- Article 246
- Decides which government can make laws on which subjects (Union, State, Concurrent Lists).
- Pith & Substance
- Test to find the true nature of a law for list placement.
- Entry 54, List II
- State power to tax sale or purchase of goods.
- Drugs (Price Control) Order, 1979
- Central rules fixing maximum prices for essential medicines.
FAQs
Q1. Does central price control remove State tax power?
No. Price control and sales tax are different subjects. Both can work together.
Q2. Why can’t tax be implied from a general entry?
Because taxation affects rights strongly, the Constitution lists it specifically. Courts need a clear tax entry.
Q3. What simple step should courts take first?
Apply the pith and substance test—find the law’s real focus, then match it to the right list.
Q4. Was the Bihar surcharge collected from buyers?
No. Section 5(3) barred dealers from passing the surcharge to buyers.
Popular & Recent Post
Comment
Nothing for now