Trade and taxation limits under Articles 301 and 304: sales tax on imported silk goods upheld against constitutional challenge.

A Karnataka sales tax amendment imposing four per cent tax on imported raw silk and silk yarn was examined under Articles 301 and 304 of the Constitution. Article 301 was held not to be violated because the levy did not directly and immediately impede the free flow of trade, commerce and intercourse. Article 304 was also held not to be violated because the tax was not shown to be discriminatory against imported goods or otherwise constitutionally prohibited. The constitutional challenge to the amendment was therefore rejected and the writ petitions were dismissed.

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Issues: (i) Whether the amendment to entry 22 in Part S of the Second Schedule to the Karnataka Sales Tax Act, 1957, levying four per cent tax on raw silk and silk yarn imported from outside the country, violated Article 301 of the Constitution of India; (ii) whether the same amendment offended Article 304 of the Constitution of India.

Issue (i): Whether the amendment to entry 22 in Part S of the Second Schedule to the Karnataka Sales Tax Act, 1957, levying four per cent tax on raw silk and silk yarn imported from outside the country, violated Article 301 of the Constitution of India.

Analysis: The constitutional protection under Article 301 is attracted only when a fiscal measure directly and immediately restricts or impedes the free flow of trade, commerce and intercourse. A tax that does not operate in that direct and immediate manner does not fall within the prohibition. On that standard, a levy of four per cent on sale of imported raw silk and silk yarn was held not to directly impede movement of trade in India.

Conclusion: The challenge under Article 301 failed and the amendment was held not to be violative of Article 301.

Issue (ii): Whether the same amendment offended Article 304 of the Constitution of India.

Analysis: Article 304(a) prohibits discriminatory taxation on imported goods when compared with similar local goods, while Article 304(b) concerns reasonable restrictions in the public interest. The impugned levy was treated as a tax on imported goods and was not shown to impose any unconstitutional restriction or discrimination of the kind barred by Article 304.

Conclusion: The challenge under Article 304 failed and the amendment was held not to be violative of Article 304.

Final Conclusion: The constitutional challenge to the sales tax amendment was rejected in entirety and the writ petitions were dismissed.

Ratio Decidendi: A fiscal levy attracts Article 301 only if it directly and immediately restricts the free flow of trade, and Article 304 is not offended unless the tax discriminates against imported goods or otherwise falls within the constitutional prohibition.

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