TaxTMI 
TaxTMI 
1988 (1) TMI 353
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....., Chettinad Cement Corporation, Dalmia Cement (Bharat) Ltd. and Tamil Nadu Cement Corporation Ltd. being petitioners Nos. 1, 6, 9 and 12 in this application under article 32 of the Constitution are manufacturers of cement, each of them having its manufacturing unit as also registered offices located within the State of Tamil Nadu; petitioners Nos. 2, 7 and 10 are shareholders of petitioners Nos. 1, 6 and 9 respectively and are citizens of India, while the remaining petitioners are authorised stockists of the different manufacturers having their places of business at different places located in the States of Karnataka, Kerala and Tamil Nadu. Manufacturer-petitioners have been selling their cement in the States of Karnataka and Kerala and for such purpose they have places of business within those States. The State of Andhra Pradesh in exercise of powers conferred under sub- section (1) of section 9 of the Andhra Pradesh General Sales Tax Act, 1957 made an order on January 27, 1987 (annexure-A) reducing the rate of tax on sale of cement made to the manufacturing units of cement products in the State of Andhra Pradesh. That order runs thus: "In exercise of the powers conferred by sub....
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....en issued to the Union of India and learned Attorney- General. Notice was also directed to all the States. Pursuant to the notice, the States of Madhya Pradesh and Sikkim have filed their affidavits with reference to the challenge against section 8(5) of the Act. At the hearing of the writ petition, however, learned counsel for the petitioners gave up that challenge. In that view of the matter, reference to the counteraffidavits of the States of Madhya Pradesh and Sikkim become irrelevant and the petition has to be confined to the challenge against the two notifications of the State of Andhra Pradesh and the lone notification of the State of Karnataka. The return to the rule nisi on behalf of the State of Andhra Pradesh is made by the Commercial Tax Officer, Company Circle II, Hyderabad. He has stated that the State of Andhra Pradesh has surplus production of cement. In 1986-87, the production of cement was around six million tonnes out of which local consumption was to the tune of about three million tonnes. In 1987-88 and 1988-89, production was likely to go up by 1.5 million tonnes and three million tonnes respectively and the local consumption was estimated to be within the ra....
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....titution which ensures certain fundamental rights to the common man." The State of Karnataka chose not to make any return to the rule nisi but its counsel joined at the hearing and contended that the order made by the Karnataka State did not affect the provisions in Part XIII of the Constitution. In view of the fact that counsel for the petitioners gave up the challenge to the vires of section 8(5) of the Central Sales Tax Act, learned Attorney- General confined his submissions to the scope of Part XIII of the Constitution and the effect of the notifications on the scheme contained in that Part. In case the notifications operate against the provisions of article 301 of the Constitution, they have got to satisfy the requirements contained in that Part. We shall now refer to the relevant articles and to several decisions of this Court which are binding precedents. The title for Part XIII is "Trade, commerce and intercourse within the territory of India." The relevant articles in that Part are 301, 302, 303 and 304. We may now reproduce them: "301. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. 302.. ....
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....by this article is not an absolute freedom from all legislation. As already indicated, the several entries in the three Lists would suggest that both Parliament and State Legislatures have been given the power to legislate in respect of trade, commerce and intercourse, but it is equally clear that legislation should not have the effect of putting impediments in the way of free flow of trade and commerce. In my opinion, it is equally clear that the freedom envisaged by the article is not an absolute freedom from the incidence of taxation in respect of trade, commerce and intercourse, as shown by entries 89 and 92A in List I, entries 52, 54 and 56 to 60 in List II and entry 35 in List III. All these entries in terms speak of taxation in relation to different aspects of trade, commerce and intercourse. The Union and State Legislature, therefore, have the power to legislate by way of taxation in respect of trade, commerce and intercourse, so as not to erect trade barriers, tariff walls or imposts, which have a deleterious effect on the free flow of trade, commerce and intercourse. That freedom has further been circumscribed by the power vested in Parliament or in the Legislature of a S....
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.... fears or apprehensions raised by local or regional problems may persuade the State Legislatures to adopt remedial measures intended solely for the protection of the regional interests without due regard to their effect on the economy of the nation as a whole. The object of Part XIII was to avoid such a possibility. Free movement and exchange of goods throughout the territory of India is essential for the economy of the nation and for sustaining and improving living standards of the country. The provision contained in article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a declaratory character; it is not also a mere statement of a directive principle of State policy; it embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country..." Then came the case of Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan [1963] 1 SCR 491. Das, J., who spoke for the Constitution Bench referred to the views expressed in Atiabari Tea Co.&#....
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....n placed by article 303(1) on the powers of Parliament by providing that nothing in article 303(1) shall prevent Parliament from making any law giving preference to one State over another or discriminating between one State and another, if it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. This exception applies only to Parliament and not to the State Legislatures. Article 304 comprises two clauses and each clause operates as a proviso to articles 301 and 303. Clause (a) of that article provides that the Legislature of a State may 'impose on goods imported from other States any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced'. This clause, therefore, permits the levy on goods imported from sister States any tax which similar goods manufactured or produced in that State are subject to under its taxing laws. In other words, goods imported from sister States are placed on a par with similar goods manufactured or produced inside the State in regard to State tax....
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....9. Shah, J., as he then was, referred to Part XIII of the Constitution at page 839 of the reports. On page 841 of the reports (386 of STC), the learned judge proceeded to say: "Tax under the Central Sales Tax Act on inter-State sales, it must be noticed, is in its essence a tax which encumbers 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; (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. The question which then falls to be determined is whether the tax imposed in the present case is saved by the operation of the other provisions of Part XIII. Article 302 of the Constitution provides that Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. Thereby the Parliament is, notwithstanding the protection conferred by article 301, authorised to impose restrictions on the....
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....provided for in article 301 can within the ambit be limited by law made by the Parliament and the State Legislature. No power is vested in the executive authority to act in any manner which affects or hinders the very essence and thesis contained in the scheme of Part XIII of the Constitution. It is equally clear that the declaration contained in Part XIII of the Constitution is against creation of economic barriers and/or pockets which would stand against the free flow of trade, commerce and intercourse. There can be no dispute that taxation is a deterrent against free flow. As a result of favourable or unfavourable treatment by way of taxation, the course of flow of trade gets regulated either adversely or favourably. If the scheme which Part XIII guarantees has to be preserved in national interest, it is necessary that the provisions in the article must be strictly complied with. One has to recall the far-sighted observations of Gajendragadkar, J., in Atiabari Tea Co.'s case [1961] 1 SCR 809 and the observations then made obviously apply to cases of the type which is now before us. The two notifications of the Andhra Pradesh Government may now be referred to. Under the f....
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.... the Act has plainly been enacted with a view to prevent evasion of the payment of the Central sales tax. The Act prescribes a low rate of tax of 3 per cent in the case of inter-State sales only if the goods are sold to the Government or to a registered dealer other than the Government. In the case of such a registered dealer, it is essential that the goods should be of the description mentioned in sub-section (3) of section 8 of the Act. In order, however, to avail of the benefit of such a low rate of tax under section 8(1) of the Act, it is also essential that the dealer selling the goods should furnish to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer, to whom the goods are sold, containing the prescribed particulars in the prescribed form obtained from the prescribed authority, or if the goods are sold to the Government not being a registered dealer, a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government. In cases not falling under sub-section (1), the tax payable by any dealer in respect of inter-State sale of declared goods is the rate applicable to the sale o....
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....r-State sales would facilitate evasion of tax. It is also not possible to fix the maximum rate under section 8(2)(b) because the rate of local sales tax varies from State to State. The rate of local sales tax can also be changed by the State Legislatures from time to time. It is not within the competence of the Parliament to fix the maximum rate of local sales tax. The fixation of the rate of local sales tax is essentially a matter for the State Legislatures and the Parliament does not have any control in the matter. The Parliament has therefore necessarily, if it wants to prevent evasion of payment of Central sales tax, to tack the rate of such tax with that of local sales tax, in case the rate of such local sales tax exceeds a particular limit." Reference may also be made to another decision of the Constitution Bench in the case of State of Tamil Nadu v. Sitalakshmi Mills [1974] 33 STC 200 (SC); [1974] 3 SCR 1. At page 6 of the reports (205 of STC), Mathew, J., stated: "As already stated, section 8(2)(b) deals with sale of goods other than declared goods and it is confined to inter-State sale of goods to persons other than registered dealers or Governments. The rate of tax pres....