SUBMISSION OF CONSTITUTIONSAL LAW II

“ Hoechest Pharmaceuticals Ltd. v. State of Bihar (1983 AIR 1019) ”

Submitted by
Rachit Jaiswal

Division -A
B.B.A.LL.B. -: (2019-24)
P.R.N. -: 19010224030

of

Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), PUNE

On

13 February, 2021

Under the guidance of

Dr. Shashi Bhushan

Symbiosis Law School, NOIDA

 CERTIFICATE

The project entitled “Hoechest Pharmaceuticals Ltd. v. State of

Bihar” Submitted to the Symbiosis Law School, NOIDA for law of
contract as part of internal assessment is based on my original work
carried out under the guidance of Dr. Shashi Bhushan.

The research work has not been submitted elsewhere for award of any
degree. The material borrowed from other sources and incorporated in
the thesis has been duly acknowledged. I understand that I myself
could be held responsible and accountable for plagiarism, if any,
detected later on.

Signature of the candidate

Date: 13/02/2021
 ACKNOWLEDGEMENT

It’s my immense pleasure to express my sincere gratitude to Dr. Shashi

Bhushan under whose supervision I took this project. It was through her
support, advice & guidance that I was able to complete this project. They
were always there with me to provide assistance and without her help I
wouldn’t have concluded so well.

I'm also very thankful to my faculty and my friends who encouraged me

and supported me enormously while making this project.

Signature of the candidate

Date:13/02/2021
FACTS IN BRIEF

“The Appellant was a company engaged in the manufacture and sale of

various medicines and life saving drugs throughout India including the
State of Bihar. It had branch or sales depot at Patna registered as a
dealer and effected sales of their manufactured products through
wholesale distributors/stockists in the districts of Bihar who in turn sold
them to retailers through whom the medicines and drugs reached the
consumers. Almost 94% of the medicines and drugs sold by them were at
the controlled price exclusive of local taxes under the Drugs (Price
Control) Order, 1979, issued by the Central Government under Section
3(1) the Essential Commodities Act and they were expressly prohibited
from selling these medicines and drugs in excess of the controlled price so
fixed by the Central Government from time to time which allows the
manufacturer or producer to pass on the tax liability to the consumer.

Sub-section (1) of Section 5 of the Bihar Finance Act. 1981 provided for
the levy of 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 the tax, and of Sub-
section (3) of Section 5 of the Act which prohibited such dealer from
collecting the amount of surcharge payable by him from the purchasers.
The Appellant challenged the constitutional validity of the said sections,
placing on record their printed price-lists of their well-known medicines
and drugs manufactured by them showing the price at which they sell to
the retailers as also the retail price, both inclusive of excise duty. It
appeared from the terms of the contract that sales tax and local taxes
would be charged wherever applicable. The High Court upheld the
constitutional validity and the same was challenged in appeal.”
ISSUES

“In this case the issue was whether there is repugnancy between Union
law (Essential Commodities Act,1955) 1and State Act (Bihar Finance Act)
2
the petitioner wanted that some provision of the state act is repugnant to
Union list which is ultra virus courts observation and decision Court held
that the to act 1 made under Union list to and other under List three
operate on two separate and distinct field and both are capable of being
overweight there is no question of any clash between the two laws and
the question of repugnancy does not come into play.
The Apex Court held that the constitutional validity of Sub-section (1) of
Section 5 of the Bihar Act3, which provided for the classification of dealers
whose gross turnover during a year exceeded Rs. 5 lakhs for the purpose
of levy of surcharge in addition to the tax payable by him, was not
assailable. So long as sales in the course of inter State trade and
commerce or sales outside the State and sales in the cause of import into,
or export out of the territory of India was not taxed, there was nothing to
prevent the State Legislature while making a law for the levy of surcharge
under entry 54 of the List II of the Seventh Schedule to take into account
the total turnover of the dealer within the State and provide, as has been
done by Sub-section (1) of Section 5 of the Act. The Court also observed
that since the liability to pay a surcharge was not or the gross turnover
including the transaction covered by Article 286 but was only on sales
within the state, and the surcharge was sought to be levied on dealers
who had a position of economic superiority. Since the definition of "gross
turnover" in the Bihar Act was adopted not for the purpose of bringing to
surcharge inter-State sales or outside sales or sales in the course of

1
https://legislative.gov.in/sites/default/files/A1955-10.pdf accessed on 30/01/2021
2
http://www.bareactslive.com/BIH/bh654.htm accessed on 31/01/2021
3
3A. Collection of tax from importers in certain cases. - (1) Notwithstanding anything
contained in the Act, every person or dealer engaged in the business of delivering or
supplying goods to any buyer or importer within the State who are not registered under
the Act, through any System of electronic commerce or otherwise shall, at the time of or
before delivery of the said Scheduled goods, recover entry tax at the prescribed rate on
the said scheduled goods from the buyer or importer of the said goods.
import into, or export of goods out of the territory of India, but was only
for the purpose of classifying dealers within the State and to identify the
class of dealers liable to pay such surcharge, it was not hit ultra vires, the
underlying object being to classify dealers into those who were
economically superior and those who were not. Also declaring that
sufficiency of territorial nexus involved a consideration of two elements,
viz, (a) the connection must be real and not illusory, and (b) the liability
sought to be imposed must be pertinent to that territorial connection, the
Court held that there was sufficient territorial nexus between the persons
sought to be charged and the State seeking to tax them.”

ANALYSIS

“According to Black's Law Dictionary, Repugnancy could be defined as an

inconsistency or contradiction between two or more parts of a legal
instrument 4(such as a statute or a contract).

The concept of Doctrine of Repugnancy is included in the Article 254 5 of

the Constitution of India. According to this Article any law made by the
State legislature on subject matter enlisted in List III would be valid only
in the absence of any contrary law passed by the Centre government.
Article 254 was included as a mechanism to resolve this repugnancy
between the powers of the Parliament and State legislatures.

The Doctrine of Repugnancy deals with the distribution of powers between

the Central and State legislatures. This doctrine reflects the quasi-federal
structure of the Constitution. It has clearly laid down the powers of the
Parliament and State legislature to avoid inconsistencies and conflicts.

Under ordinary circumstances, the Central law reigns supreme over a

State law, rendering the State law void. However, there may arise some
extraordinary circumstances in a State, under which special provisions
4
https://dictionary.thelaw.com/repugnancy/ accessed on 02/02/2021
5
https://indiankanoon.org/doc/1930681/ accessed on 11/02/2021
made by the state will be more desirable than a uniform central law. As
such Article 254(2) 6was incorporated in the Constitution to maintain an
element of flexibility and to make it possible to have a State law suitable
to local circumstances against a contrary Central law on a matter.

Article 254(2) does not operate when the two Acts operate in different
fields. An illustration of this is the case of Official Assignee, Madras v.
Inspector General of Registration, where the Central Act concerned
Insolvency under entry 9 of List III and the State Act related to Stamp
duties under entry 44 of List III. It was held that no stamp fees would be
payable on the sale deed executed by the Official Assignee. Article 254(2)
was implemented with the view of saving those state laws falling under
the Concurrent List from being superseded by central laws due to the
doctrine of repugnancy.

One of the landmark judgments concerning this doctrine is M. Karunanidhi v.

Union of India. 7In this case, a constitutional bench of the Apex court
considered the question of repugnancy between a law made by the
Parliament and a law made by the State legislature. It was observed that the
following conditions should be satisfied for the application of the doctrine of
repugnancy-A direct inconsistency between the Central Act and the State
Act, the inconsistency must be irreconcilable and the inconsistency between
the provisions of the two Acts should be of such nature as to bring the two
Acts into direct collision with each other and a situation should be reached
where it is impossible to obey the one without disobeying the other. 

The Hon’ble Court also laid down some propositions in this respect. For the
application of the doctrine of repugnancy, two enactments must contain
provisions that are so inconsistent that they cannot stand together in the
same field. Repeal by implication cannot be done unless there is a prima
facie repugnancy in the enactments. If two enactments exist in the same
field and there is a possibility for both of them to operate without colluding
with the other, then this doctrine is not attracted. When there is an absence

6
https://indiankanoon.org/doc/665535/ accessed on 11/02/2021
7
M. Karunanidhi v. Union of India 1979 AIR 898
of inconsistency but enactment in the same field creates distinct offences,
the question of repugnancy does not arise. 

Another landmark judgment is Government of Andhra Pradesh v. J.B.

Educational Society8, where the Court observed that the judiciary must
interpret legislation made by the Parliament and the State Legislature in such
a way that the question of conflict does not arise or can be circumvented.
However, if such a conflict between laws is unavoidable, then the
Parliamentary law shall prevail. Since List III gives equal competence to both
the Parliament and the State Legislatures, to enact laws, the highest scope of
a conflict exists here. Again, the Court should interpret laws to avoid the
conflict or else follow the manner of resolution iterated in Article 245. Clause
(2) of Article 254 deals with a situation where the State legislation having
been reserved and having obtained President’s assent, prevails in that State;
this again is subject to the proviso that Parliament can again bring a
legislation to override even such State legislation.  

CONCLUSION

The Article states that if a state law has been enacted on a subject in the
concurrent list and it contains provisions repugnant to the provisions of a
central law, then with respect to that particular matter, the state law will
prevail in the concerned state. The law should have been reserved for the
consideration of the president and it should have received his assent. The
result of this assent will be that, the state law would continue to operate
in that particular state and would overrule the application of the central
act in that state only. It is essential that both the laws deal with a subject
on the concurrent list.

However, the final say rests with the centre which would eventually
decide whether the central law would give way to the state law or not.
8
Government of Andhra Pradesh v. J.B. Educational Society 1998 (3) ALD 736
The state law so assented to, would prevail only to the extent of its
inconsistency with the central law. It would not override the whole of the
central law, as held by the court in Ukha Kolhe v. State of The Supreme
9
Court observed in Zaverbhai Amaidas v. State of Bombay10, the words
with respect to that matter are of great importance in the Article 254(2).
It stated that the important thing to consider was whether the Maharsthra
legislation was in respect to the same matter. If the later legislation deals
with a matter which is distinct from the subject of the earlier legislation
but is of a cognate and allied character, then Article 254(2) will have no
application.

The Apex Court declared that the doctrine of pith and substance,
employed to ascertain legislative competence, was applicable only to
legislations under List III of the Schedule VI11. Therefore the decision that
a law was repugnant to state was to be held valid only by ascertaining the
character of the legislation by reference to the Doctrine of Pith and
Substance. Explaining the effect of Article 254(2), the Supreme Court said
in the case of Hoechst Pharm Ltd. v. State of Bihar, that the result of
obtaining the assent of the president in respect to a state act which was
inconsistent with a previous union law relating to a concurrent subject
would be that, the state law would prevail in that state and it would
override the provisions of the Central act in that state only.”

9
Ukha Kolhe v. State of The Supreme 1963 AIR 1531
10
Zaverbhai Amaidas v. State of Bombay 1954 AIR 752
11
http://www.mca.gov.in/Ministry/pdf/NotificationScheduleIII_12102018.pdf accessed
on 11/02/2021