State tax concession based on intra-State input purchases held discriminatory; refund refused because tax burden was passed on.

A concessional sales tax scheme for exercise books that depended on paper being purchased from registered dealers within Madhya Pradesh was held discriminatory and inconsistent with Articles 301 and 304(a) because it favoured goods made with intra-State inputs over similar goods made with out-of-State inputs. The Court treated exercise books as commercially distinct from paper and rejected the justification that the concession merely avoided double taxation on raw material. The constitutional challenge succeeded, but refund of tax already collected was refused because the burden had been passed on to consumers, and repayment would have resulted in unjust enrichment.

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Issues: (i) Whether the amendment to section 30 of the Madhya Pradesh General Sales Tax Act, 1958 and the related notification, which granted concessional treatment to exercise books only when manufactured from paper purchased from registered dealers in the State, was violative of Articles 301 and 304(a) of the Constitution. (ii) Whether refund of tax collected on exercise books could be granted.

Issue (i): Whether the amendment to section 30 of the Madhya Pradesh General Sales Tax Act, 1958 and the related notification, which granted concessional treatment to exercise books only when manufactured from paper purchased from registered dealers in the State, was violative of Articles 301 and 304(a) of the Constitution.

Analysis: The concessional scheme created a distinction between exercise books manufactured from paper purchased within the State and those manufactured from paper purchased outside the State. The Court held that exercise books are commercially distinct from paper and that the exemption was not supportable on the premise of avoiding double taxation on raw material. A tax preference based on intra-State purchase of inputs, when it disadvantages similar goods manufactured with out-of-State inputs, amounts to discriminatory taxation and hampers the free flow of trade.

Conclusion: The impugned amendment was unconstitutional and void as being contrary to Articles 301 and 304(a) of the Constitution, in favour of the petitioners.

Issue (ii): Whether refund of tax collected on exercise books could be granted.

Analysis: Although the concessional provision was invalidated, the Court declined to order refund because the tax burden had already passed on to consumers. Granting refund in such circumstances would result in unjust enrichment.

Conclusion: The claim for refund was rejected, against the petitioners.

Final Conclusion: The constitutional challenge succeeded, but the consequential monetary relief was refused; the petitions were disposed of with only declaratory relief.

Ratio Decidendi: A State tax concession that discriminates between similar goods on the basis of whether the raw material was purchased from within or outside the State offends Article 304(a), and refund will not be ordered where the tax burden has already been passed on.

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