Discriminatory sales tax threshold for out-of-State dealers violates free trade protections; offending classification severed, uniform exemption restored.

An amended additional sales tax provision that denied the higher turnover threshold to dealers whose principals, agents, head offices, or branches were outside the State was found to create discriminatory taxation and a fiscal barrier to trade, offending Articles 301, 303 and 304(a). The Article 14 challenge failed because taxation classifications enjoy wider legislative latitude and the separate treatment of casual traders and non-resident dealers was treated as rational on the material noted. The discriminatory denial of the exemption threshold was severed, and the benefit was directed to operate uniformly for all dealers while the rest of the levy remained intact.

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Issues: (i) Whether the amended levy of additional sales tax, which denied the higher turnover threshold to dealers whose principals or head offices were outside the State, violated Articles 301, 303 and 304(a) of the Constitution of India. (ii) Whether the impugned classification offended Article 14 of the Constitution of India. (iii) Whether the discriminatory part of the enactment was severable so that relief could be moulded by extending the exemption uniformly.

Issue (i): Whether the amended levy of additional sales tax, which denied the higher turnover threshold to dealers whose principals or head offices were outside the State, violated Articles 301, 303 and 304(a) of the Constitution of India.

Analysis: The amended provision raised the additional sales tax threshold to a high turnover limit for ordinary dealers, but retained the earlier burden for casual traders, agents of non-resident dealers, and local branches of firms or companies situated outside the State. The result was that similarly placed goods sold within the State were subjected to different tax burdens depending on the situs of the dealer's head office or principal. Such a distinction operated as a fiscal barrier and had a direct and immediate discriminatory effect on the free flow of trade and commerce.

Conclusion: The impugned levy was held to be violative of Articles 301, 303 and 304(a) of the Constitution of India and invalid against the assessee.

Issue (ii): Whether the impugned classification offended Article 14 of the Constitution of India.

Analysis: In taxation, a wider latitude is available to the Legislature in making classifications, and a class may be separately treated if the distinction bears a rational nexus to the object of the levy. Casual traders and agents of non-resident dealers were treated as a separate class for tax administration and assessment purposes, and the Court found no arbitrariness in that classification on the material before it.

Conclusion: The challenge based on Article 14 failed and the enactment was not struck down on that ground.

Issue (iii): Whether the discriminatory part of the enactment was severable so that relief could be moulded by extending the exemption uniformly.

Analysis: The invalidity arose only from the discriminatory denial of the higher threshold to dealers outside the State. The rest of the levy could stand if the offending words were removed, thereby restoring equality in the application of the exemption and preserving the legislative scheme to the extent possible.

Conclusion: The discriminatory words were severed and the exemption threshold was directed to operate uniformly for all dealers.

Final Conclusion: The petitions succeeded because the amendment created unconstitutional discrimination in the levy of additional sales tax, and the relief was moulded by deleting the offending classification while leaving the remaining scheme intact.

Ratio Decidendi: A sales tax measure that grants a favourable turnover threshold to local dealers while denying the same benefit to similarly situated dealers outside the State amounts to discriminatory taxation that directly impedes the free flow of trade and commerce, and the offending classification may be severed if the remainder of the levy can operate uniformly.

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