Conditional tax concession upheld: breach-based penalty treated as anti-evasion measure, not a trade barrier or second tax.

A concessional tax scheme for raw material was treated as conditional on use in manufacture and sale of the finished goods within Rajasthan or in inter-State trade. A penalty for breach of those conditions was held to be an incidental anti-evasion measure, not a direct restriction on trade under Article 301, and the provision was upheld. The special penalty under section 5C(2) was applied instead of the general wrong-declaration provision because the statute specifically governed breach of the concessional conditions. The levy was also held not to be a second tax under section 15 of the Central Sales Tax Act, as it was punitive and compensatory in character.

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Issues: (i) whether section 5C of the Rajasthan Sales Tax Act, 1954, granting concessional tax on raw material and imposing penalty for breach of its conditions, was ultra vires Article 301 of the Constitution of India; (ii) whether penalty could be levied only under section 16(1)(k) of the Rajasthan Sales Tax Act, 1954, and not under section 5C; and (iii) whether the levy under section 5C(2) amounted to a second tax contrary to section 15 of the Central Sales Tax Act, 1956.

Issue (i): whether section 5C of the Rajasthan Sales Tax Act, 1954, granting concessional tax on raw material and imposing penalty for breach of its conditions, was ultra vires Article 301 of the Constitution of India.

Analysis: The concessional rate under section 5C(1) applied only where raw material was used for manufacture in the State and the manufactured goods were sold within the State or in the course of inter-State trade or commerce. The penalty in section 5C(2) operated only where those conditions were not fulfilled. The impugned levy did not directly or immediately restrict the movement of goods, nor did it create discrimination or preference between States. A provision imposing a sanction for breach of conditions attached to a tax concession was treated as an incidental measure to prevent misuse and evasion, not as a direct restraint on trade.

Conclusion: section 5C was not ultra vires Article 301 and was valid.

Issue (ii): whether penalty could be levied only under section 16(1)(k) of the Rajasthan Sales Tax Act, 1954, and not under section 5C.

Analysis: Section 16(1)(k) was treated as a general provision dealing with wrong declarations, whereas section 5C(2) was a special provision governing breach of the specific conditions attached to the concessional rate for raw material. Where a special provision exists for a special situation, recourse to the general provision is unnecessary. The facts also showed breach of the conditions of section 5C(1) because the manufactured yarn was sold outside Rajasthan through the petitioner's branches and agencies.

Conclusion: penalty was rightly attracted under section 5C(2), and section 16(1)(k) did not exclude its application.

Issue (iii): whether the levy under section 5C(2) amounted to a second tax contrary to section 15 of the Central Sales Tax Act, 1956.

Analysis: The amount levied under section 5C(2) was not a second tax on sale or purchase of goods. It was a penalty for contravention of the conditions attached to the concessional tax already availed of under section 5C(1). Since the levy was punitive and compensatory in character, it did not offend the restriction against multiple taxation of declared goods.

Conclusion: the levy did not violate section 15 of the Central Sales Tax Act, 1956.

Final Conclusion: the writ petitions failed on all substantial grounds, and the impugned penalty and notices were upheld.

Ratio Decidendi: a statutory concession in tax may validly be conditioned on specified use and sale requirements, and a penalty for breach of those conditions is an incidental anti-evasion measure that does not by itself violate Article 301 or amount to a second tax.

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