TaxTMI 
TaxTMI 
1968 (4) TMI 61
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....enior Advocate (R.N. Sachthey and S.P. Nayyar with him), for intervener No. 4. A.N. Singh and D.N. Gupta, for intervener No. 3. -------------------------------------------------- The judgment Of SHAH, MITTER and VAIDIALINGAM, JJ., was delivered by SHAH, J. BACHAWAT, J., and HEGDE, J., delivered two separate judgments. SHAH, J.-In a proceeding for assessment of tax for 1963-64 under the Central Sales Tax Act, 1956, the Deputy Commercial Tax Officer rejected the contention of the assessee that a part of the turnover of his business in matches arose out of intra- State sale transactions at the assessee's depot at Ongole (in the State of Andhra Pradesh) to which depot the goods were despatched by him from his place of business in the State of Madras. The Deputy Commercial Tax Officer held that the goods were moved from "the godown stock" of the assessee in execution of contracts of sale with merchants outside the State of Madras, and on that account the turnover from sales was liable to tax under the Central Sales Tax Act. The assessee moved the High Court of Madras under Article 226 of the Constitution seeking a writ of certiorari quashing th....
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....m the State were not taxable by the State of Bombay, but the importing State was competent to levy tax on transactions of sale in the course of inter-State trade or commerce on persons who were resident outside its territory, provided that the goods were delivered in the importing State for the purpose of consumption therein. This decision made the dealer carrying on business in the exporting State amenable to the sales tax law of the importing State. The question was reconsidered by this Court in Bengal Immunity Company Ltd. v. State of Bihar [1955] 2 S.C.R. 603; 6 S.T.C. 446. The Court held that the sales or purchases made by an assessee which actually took place in the course of inter-State trade or commerce could not be taxed by any State until by law it was otherwise provided by Parliament. The judgment in Bengal Immunity Co.'s case [1955] 2 S.C.R. 603; 6 S.T.C. 446., removed, by making inter-State sales immune from taxation, the difficulties till then experienced by the trading community, but the importing States, which had imposed tax on inter-State sales by non-resident dealers relying on the principle of the judgment in United Motors case [1953] S.C.R. 1069; 4 S.T.C. 133.,....
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....1956, the Parliament enacted on December 21, 1956, the Central Sales Tax Act, 1956, with a view to formulate principles; (a) for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India; (b) providing for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce; (c) declaring certain goods to be of special importance in inter-State trade or commerce and specifying the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. By section 3 of the Act a definition of sale or purchase of goods said to take place in the course of inter-State trade or commerce was devised. By section 4 conditions in which a sale or purchase of goods was to be deemed to have taken place outside a State were specified. By section 5 the conditions in which a sale or purchase of goods taking place in the course of import or export were specified. By Chapter III (sections 6 to 13) provisions were enacted for declaring a charge of tax on i....
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....d at specified stages or otherwise than with reference to the turnover of the goods. (3) * * * (4) * * * (5) Notwithstanding anything contained in this section, the State Government may, if it is satisfied that it is necessary so to do in the public interest, by notification in the Official Gazette, direct that in respect of such goods or classes of goods as may be mentioned in the notification and subject to such conditions as it may think fit to impose, no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sale by him from any such place of business of any such goods in the course of inter-State trade or commerce or that the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification." By section 9 a machinery was set up for levy and collection of tax and penalties. In so far as it is material, it provided: "(1) The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce whether such sales fall within clause (a) or clause (b) of section 3 shall be....
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....o such conditions as may be provided in any law in force in that State." The scheme of the Act was first to devise definitions of "inter- State sales" and "sales outside the State", and then to declare inter-State sales subject to tax, and to set up machinery for levying and collecting tax on those sales. Transactions in goods which were made subject to tax in the course of inter-State trade or commerce were classified into three broad categories- (1) transactions falling within section 8(1), i. e., all sales to Government, and sales to a registered dealer other than the Government of goods referred to in sub-section (3) of section 8; (2) transactions falling within section 8(2)(a), i. e., sales in respect of declared goods; and (3) transactions falling within section 8(2)(b), i. e., sales [not falling within (1)] in respect of goods other than declared goods. Sales of goods in category (1) were declared liable at the relevant time to pay a tax of two per cent on the turnover. On sales of declared goods tax was to be calculated at the rate applicable to the sale or purchase of such goods inside the appropriate State. But by section 15 the tax payable under a State la....
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....nt; it was, by sub-section (4) of section 9, enacted in implementation of the principle of assignment of tax set out in clause (2) of Article 269, assigned to the State which collected it. This somewhat tortuous scheme of levying tax on inter-State transactions and making it available to the State which levied it, in effect countenances levy of different rates of tax on inter-State transactions in similar goods. It is upon the prevalence of different rates of tax which, subject to adjustments, and incorporated in the Central Sales Tax Act, that the argument of the assessee is largely founded. He contends-and his contention has found favour with the High Court-that the liability to pay tax on inter-State transactions, depending upon the rate of tax prevailing in the exporting State, hampers trade and commerce, by giving or authorising the giving of preference to one State over another or by making or authorising the making of discrimination between one State and another, and thereby violates the guarantee of freedom of trade, commerce and intercourse declared by Part X111 of the Constitution. The assessee primarily relies upon Articles 301 and 303(1) of the Constitution in suppor....
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....e pur- view of Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld." In a recent judgment of this Court in The Andhra Sugars Ltd. and Another v. The State of Andhra Pradesh and Others, Bachawat, J., speaking for the Court, after referring to the observations made by Gajendragadkar, J., in Atiabari Tea Company's case observed: "This interpretation of Article 301 was not dissented from in Auto- mobile Transport (Rajasthan) Ltd. v. State of Rajasthan. Normally, a tax on sale of goods does not directly impede the free movement or transport of goods. Section 21 is no exception. It does not impede the free movement or transport of goods and is not violative of Article 301." Section 21 of the Andhra Pradesh Sugar Cane (Regulation of Supply and Purchase) Act which was referred to in the judgment authorised the State Government to levy a tax at such rate not exceeding five rupees per metric tonne as may be prescribed on the purchase of cane required for use, consumption or sale in a factory. It must, therefore, be ....
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....is also no doubt that exercise of the power to tax may normally be presumed to be in the public interest. Article 303 provides by the first clause: "Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State, shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule." Having conferred by Article 302 power upon the Parliament to impose restrictions upon freedom of trade, commerce or intercourse, the Constitution proceeds to impose certain restrictions upon the power so conferred. Reference to the power of the State Legislatures in Article 303(1) creates a complication which we are not called upon in the present case to resolve. It is expressly declared that the Parliament shall not have the power to make any law giving preference to one State over another, authorising the giving of any preference to one State over another, making any discrimination between one State and another, and authorising the m....
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....which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State is not a law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, merely because varying rates of tax prevail in different States. It was urged that the High Court was right in holding that rates of tax on the sale of the same or similar commodity by different States by itself was discriminatory, since it authorised placing of an unequal burden on inter-State trade and commerce, affecting its free flow between the States. The rates of tax prevailing in different States on transactions of sale in the diverse commodities are undoubtedly not uniform. According to the High Court such a scheme was "obviously quite discriminatory and considerably affected the freedom of trade, commerce and intercourse", the differential rates or exemptions in various States imposing an unequal burden on the same or similar goods which affected their free movement or flow in inter-State trade and commerce, and that a higher rate of tax in a State worked as a barrier to the fr....
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.... power to do for its own citizens, that is to say, from basing its taxation measures on considerations of fairness and justice, always observing the constitutional injunction not to prefer States or parts of States." In W. R. Moran Proprietary Ltd. v. The Deputy Federal Commissioner of Taxation (N. S. W.) and Others [1940] 63 C.L.R. 338., the Judicial Committee of the Privy Council recorded its approval to that exposition. It is true that the Judicial Committee was interpreting section 51(ii) of the Australian Constitution. It also appears from the provisions of the Australian Constitution that by virtue of section 96 of the Constitution there is to be a uniform imposition of customs duties. But the observations made by Isaacs, J., in King v. Barger [1908] 6 C.L.R. 41. and approved by the Judicial Committee are useful in the determination of the true principle applicable in the present case, that, it is where differentiation is based on considerations not dependent upon natural or business factors which operate with more or less force in different localities that the Parliament is prohibited from making a discrimination. The rates of tax in force at the date when the Central ....
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....trict the power of taxation in respect of transactions which had an inter-State content. Amendment of Article 286 and the enactment of the Sales Tax Laws Validation Act, 1956, and the Central Sales Tax Act, 1956, were all intended to serve a dual purpose: to maintain the source of revenue from sales tax to the States and at the same time to prevent the States from subjecting transactions in the course of inter-State trade so as to obstruct the free flow of trade by making commodities unduly expensive. The effect of the Constitutional provisions achieved in a somewhat devious manner is still clear, viz., to reserve sales tax as a source of revenue for the States. The Central Sales Tax Act is enacted under the authority of the Union Parliament, but the tax is collected through the agency of the States and is levied ultimately for the benefit of the States and is statutorily assigned to the States. That is clear from the amendments made by the Constitution (Sixth Amendment) Act, 1956, in Article 269, and the enactment of clauses (1) and (4) of section 9 of the Central Sales Tax Act. The Central sales tax though levied for and collected in the name of the Central Government is a par....
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....inst imported hides or skins which had been purchased or tanned outside and therefore it contravened Article 304(a) of the Constitution. Similarly in A. Hajee Abdul Shukoor and Co. v. State of Madras [1964] 8 S.C.R. 217; 15 S.T.C. 719., the assessees who were dealers in skins in the State of Madras, purchased raw skins from places both within and outside the State of Madras. They were assessed to sales tax in accordance with the provisions of the Madras General Sales Tax (Turnover and Assessment) Rules, on the turnover of hides and skins purchased in the untanned condition outside the State and tanned within the State with respect to the assessment years 1955-56, 1956-57 and 1957-58. The tax was assessed at 3 pies per rupee on the price of tanned bides and skins for the years 1955-56 and 1956-57 and at the rate of 2 per cent on the turnover for the year 1957-58. In petitions filed by the assessees in this Court under Article 32 of the Constitution it was held that section 2(1) of the Madras General Sales Tax (Special Provisions) Act, 1963, discriminated against imported hides and skins which were sold up to August 1, 1957, up to which date the tax on sale of raw hides and skins ....
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.... of excise duty from the turnover of inter-State sales, the Central Act has equal application and makes no discrimination. The Central Act does not say that excise duty will be deductible in one State and not in another. It is not deductible from the turnover of the inter-State sales and this rule is uniformly applied to all inter-State sales. There is, therefore, no question of inequality or discrimination forbidden by Article 303(1) and there is no question of contravention of Article 301 either." But in dealing with the case of the assessee in the last paragraph of the judgment, the High Court observed that since no provision had been made for deduction of the excise duty from the turnover of inter-State sales or purchases under the Central Act with the result that unequal burden will fall on differences in the quantum of turnover because of allowance in the one case and disallowance in another, of deduction of excise duty. This in the view of the High Court would impede the freedom of inter-State trade, commerce and intercourse within the meaning of Article 301 of the Constitution and was not saved by Article 303. The observations so made, somewhat blur the earlier di....
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....e apparently has approached this Court with a view to obtain a final determination of the important question which was raised in the petitions filed before the High Court. We therefore direct that there will be no order as to costs in this Court and in the High Court. BACHAWAT, L-I have read the draft judgment prepared by our learned brother Justice Shah. He has said that tax under the Central Sales Tax Act on inter-State sales is in its essence a tax hampering movement of trade or commerce, since by the definition in section 3 of the Act a sale or purchase of goods is deemed to take place in the course of inter-State trade or commerce, if it (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. He is of the view that the tax falls within the prohibition imposed under Article 301 of the Constitution. In Atiabari Tea Co. Ltd. v. The State of Assam [1961] 1 S.C.R. 809, 860-861., Gajendragadkar, J., speaking for the majority of the Court, said: "We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaran....
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....ther. Now, if a tax on intra-State sale does not offend Article 301, logically, I do not see how a tax on inter-State sale can do so. Neither tax operates directly or immediately on the free flow of trade or the free movement of the transport of goods from one part of the country to the other. The tax is on the sale. The movement is incidental to and a consequence of the sale. In Bengal Immunity Company Ltd. v. State of Bihar [1955] 2 S.C.R. 603 at p. 754; 6 S.T.C. 446., Jagannadhadas, J., after referring to Article 301, said: "Now it is not disputed that a tax on a purely internal sale which occurs as a result of the transportation of goods from a manufacturing centre within the State to a purchasing market within the same State is clearly permissible and not hit by anything in the Constitution. If a sale- in that kind of trade can bear the tax and is not a burden on the freedom of trade, it is difficult to see why a single point tax on the same kind of sale where a State boundary intervenes between the manufacturing centre and the consuming centre need be treated as a burden, especially where that tax is ultimately to come out of the residents of the very State by which suc....
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.... as may be required in the public interest. The power conferred on Parliament is extremely wide and the only limitation placed on that power by Article 302 is that the law in question must be required in the public interest. Primarily it is for Parliament to determine the requirements of public interest. The decision of Parliament in this regard is not easy to challenge. Parliament is presumed to know the needs of the. people, the requirements of the time and the economic and political interests of the country as a whole. By its very composition it is unlikely that Parliament would have regional bias or would adopt a parochial approach. In addition, there is the presumption of the constitutionality of a statute. Therefore the State undoubtedly starts with an advantage. But once it is shown that a measure prima facie gives preference to the residents of one State over another State or it makes discrimination between the residents of a State and that of another because of the adoption of different rates of tax in different States, then the matter assumes a different complexion in view of Article 303(1). It should be within the knowledge of the Union Government why Parliament adopted ....
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....mportant purpose behind them. Same is the case as regards the provisions in the Act. Before Articles 269 and 286 were amended and the Act enacted, a Committee known as Taxation Enquiry Committee had gone into the various aspects of inter-State trade and commerce and made recommendations to the Union Government on that subject. It was largely on the basis of those recommendations that Articles 269 and 286 of the Constitution were amended and the Act enacted. Therefore, it is clear that the Act is not a haphazard legislation ; it is the product of deep think- ing and clear analysis of the various aspects of the matter. This Court will be slow to hold such a measure as being either not in public interest or is violative of Article 303(1). The question of giving preference or making discrimination depends on various facts and circumstances, the tax rate being only one of them. The views of an expert committee on a subject so complicated as tax on inter-State sales is entitled to great weight. In the very nature of things, it is difficult for courts to ascertain the various factors that impede the free flow of trade or to assess their importance. This is not the same thing as saying tha....
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....ate trade. Section 8(1)(b) regulates the sales tax leviable on sales to registered dealers in the course of inter-State sales. The maximum rate fixed at the relevant time was two percentum of the turnover. All that the registered dealer has to do is to get included in his certificate of registration goods of the class or classes which he proposes to purchase as being intended for resale by him or for use by him in the manufacture or processing of goods for sale or in the mining or in the generation or distribution of electricity or any other form of power. Here again the incidence of taxation is so low as ordinarily not to affect the free flow of trade. This takes us to the remaining sales in the course of inter-State trade or commerce. By and large these sales are made to unregistered dealers. Here again, so far as the declared goods are concerned, tax has to be levied at the rate applicable to local sales, as provided in section 8(2)(a). Then we come to clause (b) of section 8(2), which deals with goods other than declared goods. Here the law at the relevant time was that the tax shall be calculated at the rate of seven percentum of the turnover or at the rate applicable to....