Discriminatory sales tax levy on imported hides and skins was struck down under Article 304(a) despite statutory authority.

A State sales tax rule that fixed the point of levy differently for tanned hides and skins processed outside the State and those processed within the State was held discriminatory under Article 304(a) because the relevant comparison is the goods' nature and kind, not whether tax was already paid at an earlier stage. The rule's statutory source did not save it, since a provision made under enabling power remains unconstitutional if its practical operation discriminates against imported goods. The substituted rule also did not revive the earlier rule once the old rule had ceased to exist. The impugned rule was therefore invalid and could not sustain the assessment.

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Issues: (i) Whether rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which fixed the point of levy for tanned hides and skins differently for goods tanned outside the State and goods tanned within the State, was discriminatory and violative of Article 304(a) of the Constitution; (ii) whether the impugned rule, being made under the Act to prescribe the single point of taxation, could nevertheless be treated as valid notwithstanding the challenge under Part XIII of the Constitution; and (iii) whether, upon invalidation of the new rule, the old rule revived so as to sustain the assessment.

Issue (i): Whether rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which fixed the point of levy for tanned hides and skins differently for goods tanned outside the State and goods tanned within the State, was discriminatory and violative of Article 304(a) of the Constitution.

Analysis: Article 301 was held to protect the free flow of trade, and taxes that directly and immediately impede trade can fall within its prohibition unless saved by Articles 302 or 304. Article 304(a) permits a State to impose taxes on goods imported from other States only if similar goods produced in the State are not subjected to discrimination. Although the rule purported to select a single point of levy under the statutory scheme, its practical operation was that hides and skins tanned outside the State were taxed on their sale price, while hides and skins tanned within the State, when raw hides had already borne tax, escaped further tax on the enhanced tanned value. The Court held that the relevant comparison under Article 304(a) is the nature and kind of the goods, not whether tax had previously been paid at an earlier stage.

Conclusion: Rule 16(2) was discriminatory against imported hides and skins and was unconstitutional under Article 304(a).

Issue (ii): Whether the impugned rule, being made under the Act to prescribe the single point of taxation, could nevertheless be treated as valid notwithstanding the challenge under Part XIII of the Constitution.

Analysis: Rule 16 had statutory force because it was made under the enabling power in Section 19 of the Madras General Sales Tax Act, 1939, and operated as part of the machinery for levy under Sections 3 and 5(vi). However, the existence of statutory authority for making the rule did not protect it from constitutional invalidity if its effect was discriminatory. The rule was not treated as a compensatory or regulatory measure, and the fact that it merely fixed the point of levy did not cure the unconstitutional discrimination in its operation.

Conclusion: The rule could not be upheld merely because it was made under statutory authority; its discriminatory effect rendered it invalid.

Issue (iii): Whether, upon invalidation of the new rule, the old rule revived so as to sustain the assessment.

Analysis: Once the old rule was substituted, it ceased to exist. The invalidity of the substituted rule did not automatically revive the earlier rule. Accordingly, the assessment could not be supported on that basis.

Conclusion: The old rule did not revive.

Final Conclusion: The constitutional challenge succeeded, the impugned rule was struck down, and the taxing authorities were directed not to enforce rule 16(2) and to refund the tax collected under it.

Ratio Decidendi: A State sales tax rule is invalid under Article 304(a) if, in operation, it discriminates between imported goods and similar goods produced in the State, even though the rule is made under statutory authority and merely fixes the single point of levy.

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