Discriminatory sales tax on imported goods held invalid where similar locally manufactured goods received lower taxation.

Differential sales tax notifications granting a lower rate to television sets and components manufactured in Karnataka, while taxing similar goods imported from outside the State at a higher rate, were held to discriminate on the basis of place of manufacture. The court applied the constitutional principle protecting free trade and non-discrimination in inter-State commerce, and found that a State may tax imported goods only where similar local goods are taxed on comparable terms. The notifications were therefore unconstitutional and quashed.

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Issues: Whether the notifications granting a lower rate of sales tax to television sets and components manufactured within Karnataka, while subjecting similar goods imported from outside the State to a higher rate, were violative of the constitutional guarantee of free trade and non-discrimination.

Analysis: The impugned notifications created a differential tax burden between similar goods on the basis of place of manufacture. Such differential treatment affected the free flow of inter-State trade and commerce and constituted discrimination between goods imported into the State and goods manufactured within the State. The governing principle, drawn from the earlier Supreme Court decision relied upon, is that a State may levy tax on imported goods only if similar local goods are subjected to similar taxation and the levy does not discriminate against out-of-State goods.

Conclusion: The notifications were unconstitutional and were quashed.

Ratio Decidendi: A State sales tax measure that imposes a higher tax burden on goods imported from outside the State than on similar goods manufactured within the State is discriminatory and invalid under the constitutional scheme protecting inter-State trade and commerce.

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