TaxTMI 
TaxTMI 
1990 (3) TMI 315
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....ons of the assessee that the goods sold were manufactured out of tax-suffered iron scrap, the Commercial Tax Officer exempted the sales turnover of the manufactured goods. The Deputy Commissioner of Commercial Taxes in exercise of his powers under section 21 of the Act restricted the exemptions but otherwise confirmed the assessment order by his order dated May 11, 1979. The respondent, Commissioner of Commercial Taxes, Bangalore, initiated proceedings under section 22-A of the Act for revising the order of the Deputy Commissioner on the ground that the assessee had been allowed exemption in respect of the turnover of manufactured goods without verifying as to whether the inputs, iron scrap, had suffered taxes and whether explanation II to the Fourth Schedule of the Act was applicable or not. The appellant filed the writ petition praying for the issue of a writ of certiorari to quash the show cause notice issued by the respondent under section 22-A of the Act and challenging the constitutional validity of section 5(4) of the Act in so far as it pertains to item 2 of the Fourth Schedule to the Act read with explanation II thereof in respect of its application for the period prior to....
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....imported raw material is taxed but the sale of finished goods manufactured out of locally purchased raw material is not taxed and that amounts to hostile discrimination in the rate of tax or quantum of tax. Section 5(4) of the Act is the charging section in respect of declared goods and the relevant portion reads as follows: "(4) Notwithstanding anything contained in sub-section (1) or section 5-B or section 5-C a tax under this Act shall be levied in respect of the sale or purchase of any of the declared goods mentioned in column (2) of the Fourth Schedule at the rate and only at the point specified in the corresponding entries of columns (3) and (4) of said Schedule on the dealer liable to tax under this Act on his taxable turnover of sales or purchases in each year relating to such goods: Provided that where tax has been paid in respect of the sale or purchase of any of the declared goods under this sub-section and such goods are subsequently sold in the course of inter-State trade or commerce, and tax has been paid under the Central Sales Tax Act, 1956 (Central Act 74 of 1956), in respect of the sale of such goods in the course of inter-State trade or commerce, the tax pa....
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....ax under this shapes and sizes); Act. (iii) skelp bars, tin bars, sheet bars, hoebars and sleeper bars; (iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths); (v) steel structurals (angles, joists, 4 per cent channels, tees, sheet piling sections, Z sections or any other rolled sections); (vi) sheets, hoops, strips and skelp, both black and galvanised, hot and cold rolled, plain and corrugated, in all qualities, in straight lengths and in coil form, as rolled and in riveted condition; (vii) plates both plain and chequered 3 per cent in all qualities; (viii) discs, rings, forgings and steel castings; (ix) tool, alloy and special steels of any of the above categories; (x) steel melting scrap in all forms including steel skull, turnings and borings; (xi) steel tubes, both welded and seamless of all diameters and lengths, including tube fittings; (xii) tin-plates, both hot dipped and electrolytic and tinfree plates; (xiii) fish plate bars, bearing plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, rails-heavy ....
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....ant's sale of ingots manufactured out of locally purchased scrap will not be subjected to tax, the appellant's sale of ingots manufactured out of scrap purchased from outside the State of Karnataka would be subjected to tax. In Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 STC 355 (SC); [1963] Supp 2 SCR 435, this Court considered the constitutional validity of rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules. Rule 16 of the Rules which was impugned in the case read as follows: "16.(1) In the case of untanned hides and/or skins the tax under section 3(1) shall be levied from the dealer who is the last purchaser in the State not exempt from taxation under section 3(3) on the amount for which they are bought by him. (2)(i) In the case of hides or skins which have been tanned outside the State the tax under section 3(1) shall be levied from the dealer who in the State is the first dealer in such hides or skins not exempt from taxation under section 3(3) on the amount for which they are sold by him. (ii) In the case of tanned hides or skins which have been tanned within the State, the tax under section 3(1) shall be levied from a, pers....
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....his Court held that rule 16(2) discriminated against the imported hides or skins which had been purchased or tanned outside the State and that, therefore, they contravene the provisions of article 304(a) of the Constitution. The next ground on which this Court invalidated the rule was that the mere circumstance of a tax having been paid on the sale of such hides or-skins in their raw condition did not justify their forming goods of a different kind from the tanned hides or skins which had been imported from outside. At the time of sale of those hides or skins in the tanned state, there was no difference between them as goods and the hides or skins tanned outside the State as goods. The similarity contemplated by article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not. On the ground that the decision of this Court in A.T.B. Mehtab's case [1963] 14 STC 355; [1963] Supp 2 SCR 435, will result in claims for refund of tax being preferred by dealers in hides and skins already assessed under the impugned rule thereby resulting in huge loss of revenue and will also result in administrative complicatio....
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....is levied as the tax on the tanned hides and skins is levied on the amount for which those hides and skins were last purchased in the untanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on the sale of untanned hides and skins. The rate of tax on the sale of tanned hides and skins is 2.per cent on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee. The difference in tax works out to 7/1600th of a rupee, i.e., a little less than 1/2 naya paisa per rupee. Such a discrimination would affect the taxation up to the 1st of August, 1957, when the rate of tax on the sale of raw hides and skins was raised to 2 per cent of the sale price." Prima facie the ratio of these two decisions applies to the facts of the present case. However, it was contended by the learned counsel for the Revenue before the High Court that this Court has struck a new or different note in the cases of State of Madras v. N.K. Nataraja Mudaliar [19681 22 STC 376 (SC); [1968] 3 SCR 829, Rattan Lal & Co. v. Assessing Au....
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.... that a sale or purchase in the course of inter-State sale, trade or commerce could not be taxed by any State until by law it was otherwise provided by Parliament. This led to the amendment of the Constitution by the Constitution (Sixth Amendment) Act, 1956. By that amendment article 286 was amended, entry 92-A was added in the Union List and entry 54 in State List was also suitably amended. The Parliament then enacted the Central Sales Tax Act, 1956. In respect of the certain transactions which were held by the assessing authorities as inter-State sales the assessee moved the High Court of Madras under article 226 seeking a writ of certiorari quashing the order of assessment on the ground that the provisions of the Central Sales Tax Act which permitted levy of tax at varying rates in different States on similar inter-State transactions and thereby resulting in inequality in the burden of tax, affected and impeded inter-State trade, commerce and intercourse which are prohibited under articles 301 and 303(1) of the Constitution. The tax under the Central Sales Tax Act is payable by the seller. The State from which the movement of goods commences in the course of inter- State sale....
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....o far as the turnover or any part thereof relates to the sale of such goods shall be nil, or as the case may be, shall be calculated at the lower rate. There is a slight inconsistency between section 8(2) and section 8(2A). If the rate of tax under the State law is less than two per cent, by virtue of section 8(2A), even in respect of turnover falling within section 8(2)(b), the rate of tax will not exceed the State rate; if the State rate exceeds two per cent, tax at the rate of seven per cent, or of the State, whichever is higher, shall prevail. But that has no bearing on the question under discussion." The main contention in Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829, was 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 violating the provisions of articles 301 and 303(1) of the Constitution. After noting the decisions that every imposition of tax does not amount to restriction or impediment o....
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....he movement of goods commences to levy on transactions of sale Central sales tax, at rates prevailing in the State, subject to the limitation already set out, in our judgment, no discrimination can be deemed to be practised." As may be seen from the above discussion the decision in Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829, related to a levy of sales tax on inter-State sale under the Central Sales Tax Act by a State in which the movement of goods commenced subject to certain exceptions and limitations. If the rate of tax on inter-State sale was the same as that for intrastate sale no discrimination can be said to arise. After referring to the decisions in A.T.B. Mehtab's case [1963] 14 STC 355 (SC); [1963] Supp 2 SCR 435 and Hajee Abdul Shukoor's case [1964] 15 STC 719 (SC); [1964] 8 SCR 217 and distinguishing the same this Court further observed: "In the two cases the differential treatment violated article 304(a) of the Constitution, which authorises the Legislature of a State notwithstanding anything in articles 301 and 303 by law to 'impose on goods imported from other States or the Union territories any tax to which similar goods manufactured o....
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.... to pay tax under this Act;" The argument was that there is a discrimination between the first purchase in the case of imported goods and last sale in the case of local goods. Since the imported goods might be more expensive by reason of freight, etc. or intermediary sales having taken place, it was said, that the burden of tax will be heavier and, therefore, this will offend against the equality clause and article 304 of the Constitution. Overruling this objection this Court held: "The rate of tax is the same in every case. In State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376; [1968] 3 SCR 829, this Court stated that the essence of articles 301 and 303 is to enable the State by a law to 'impose on goods imported from other States or the Union territories 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'. It was pointed out by this Court that 'imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State is prohibited by that clause. But where the taxin....
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....ion relying on the Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829 and Rattan Lal & Co.'s case [1969] 25 STC 136 (SC); [1969] 2 SCR 544. The assessee preferred an appeal by special leave. This Court was of the view that the point involved in the case was no longer res integra and it is covered by the decision in Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829 and held that since "the rate of tax was the same, both for the goods brought from outside as well as local goods and it cannot be said that the taxation did directly and immediately restrict or hamper the free flow of trade, commerce, or intercourse and it offended article 304(a)". But it is pertinent to point out the further passages appearing in the judgment which actually show the ratio of the judgment. The learned judges observed: "It further appears to us that there is another aspect. The levy by the State Act is in consonance with the scheme of the Central Act. By sub-section (2) of section 8 of the Central Act, the tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not ....
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....te law imposing taxes with reference to local as well as in respect of the imported goods. As we have already noticed the States have no legislative power to tax inter-State sales and it is only the Parliament that could make law. The Central Act is the law relating to tax on inter- State sales made by the Parliament. The State from which the movement of goods commences in the course of inter-State sale collects the tax as an agent of the Central Government. On sale of declared goods tax was to be levied and collected at the rate applicable to the sale or purchase of such goods inside the appropriate State subject to the maximum prescribed under section 15 and the restriction relating to taxing it at single point. This is also further subjected to the rates prevailing for local sales. It is with respect to these provisions, in the three decisions in Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829, Rattan Lal & Co.'s case [1970] 25 STC 136 (SC); [1969] 2 SCR 544 and Associated Tanners' case [1986] 62 STC 1 (SC), this Court held that so long the rates applicable are in accordance with the section 8 no discrimination would arise and none of the provisions of Part ....