TaxTMI 
TaxTMI 
1997 (3) TMI 516
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....ts in these appeals are manufacturers of cement and they have their manufacturing units/factories in the State of Gujarat. The cement manufactured by them is sold throughout India through a network of stockists and dealers. They filed Civil Writ Petition Nos. 656, 788, 803, 2644 and 2645 of 1994 in the High Court of Rajasthan challenging the notifications dated January 8, 1990, June 27, 1990 and March 7, 1994 issued by the State of Rajasthan under section 8(5) of the Central Sales Tax Act, 1956 (for short, "the CST Act"). The High Court dismissed those writ petitions. Therefore, the appellants have filed these appeals. 2.. Prior to the issuance of the impugned notifications the rate of tax payable under section 5 of the Rajasthan Sales Tax Act, 1954 on sales of cement was 16 per cent. Even in respect of the inter-State sales of cement to unregistered dealers the rate of tax was 16 per cent. By the notification dated January 8, 1990 the State of Rajasthan, in exercise of the powers conferred by sub-section (5) of section 8 of the CST Act directed that the tax payable under sub-sections (1) and (2) of section 8 by any dealer having his place of business in the State, in respect of....
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....e address of the purchaser in the bill or cash memorandum for such inter-State sale to be issued by him; (ii) that the burden to prove that the transaction was in the nature of inter- State sale, shall be on the dealer; and (iii) that the dealer making inter-State sales under this notification shall not be eligible to claim benefit provided for by the Notification No. F. 4(72)FD/ Gr. IV/81-8, dated May 6, 1986, as amended from time to time." 3. The appellants challenged the said notifications on the ground that they created artificial barriers and had the effect of giving preference in the matter of inter-State trade and commerce to the manufacturers and dealers of cement in the State of Rajasthan over the dealers and manufacturers of cement in the State of Gujarat. The rate of tax on sales of cement in Gujarat under the Gujarat Sales Tax Act being 16 per cent, as a result of the impugned notifications, the manufacturers of cement in Gujarat including the appellants were put to disadvantageous position as the purchasers in Gujarat could purchase cement in the inter-State trade or commerce on payment of sales tax at a much lower rate from the dealers in Rajasthan whe....
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....iew that it was for the writ petitioners to establish that because of reduction in the rate of sales tax by the impugned notifications the cement from Rajasthan was being sold in Gujarat on a larger scale and at a cheaper rate and thereby the interest of the cement manufacturers in Gujarat was being prejudicially affected. It considered the facts and figures relating to increased despatches of cement from Rajasthan to Gujarat and the preference shown by the semi-Government bodies and unregistered dealers to the cement manufactured and sold in Rajasthan, as the ipse dixit of the writ petitioners and, therefore, not credible and trustworthy. Taking this view it held that the writ petitioners had failed to establish that the effect of the impugned notifications was to impede or adversely affect the free-flow of inter-State trade and commerce. The High Court distinguished the decision of this Court in the Indian Cement Ltd. v. State of Andhra Pradesh [1988] 69 STC 305; [1988] 1 SCC 743 on the ground that the facts in that case were altogether different from the facts of these cases inasmuch as in that case the rate of Central sales tax was reduced to 2 per cent in order to augmen....
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....ntial safeguard to check and prevent evasion of sales tax. In order to show the importance of the requirement to furnish form C he invited our attention to the decision of this Court in State of Rajasthan v. Sarvotam Vegetables Products [1996] 101 STC 547; 1996 (3) Scale 469 wherein this Court has observed that "the purpose of the C form is obvious; the Parliament wants to tax specified goods purchased for specified purposes [sub-section (3) of section 8] at a lower rate but anyone wishing to avail of the said lower rate must obtain from his purchasing dealer the C form and produce it before his assessing officer. Thus, clause (b) of sub-section (1), sub-section (3) and sub-section (4) go together. [Similarly, section 8(1)(a) and sub-section (4) go together.] The reason why the C form requires several particulars to be stated is to ensure that the concessional rate prescribed by section 8(1)(b) is not misused or abused. With the help of those particulars, the appropriate authority or authorities can verify the truth and correctness of the transaction. Both the selling dealer and purchasing dealer are under an obligation to abide by the said requirements of law; otherwise the ver....
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....fically stated in the impugned notifications that the power under section 8(5) was being exercised in "public interest" and, therefore, it was for the appellants to prove that the said power was in fact not exercised in public interest. In support of his submission, the learned counsel relied upon the decision in Amrit Banaspati Co. Ltd. v. Union of India [1995] 3 SCC 335. Mr. Adhyaru, learned counsel for the State of Gujarat, however, is right in his submission that though such a presumption can be raised, when the exercise of power is challenged on the ground that it was not exercised in public interest it would become necessary for the State to disclose how it is in public interest. 9.. Before the High Court, the State of Rajasthan does not appear to have stated anything in this behalf except that the conditions imposed by the notification were adequate to prevent evasion of tax. In the counter-affidavit filed before this Court, it is stated that the said notifications being based upon policy decision were issued in public interest. In the additional affidavit filed on its behalf it is stated that reduction of rate of sales tax under the impugned notifications was "very much ....
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....jasthan has shifted its stand from time to time as regards the public purpose, for achieving which, the reduction in rate of tax was made. The learned counsel for the State of Rajasthan submitted that public interest contemplated by section 8(5), in so far as the State of Rajasthan is concerned, would mean interest of the public of Rajasthan and as the increased revenue could be used for the benefit of the people of Rajasthan, the impugned exercise of power must be regarded as in public interest. We cannot accept this contention because public interest in section 8(5) will have to be interpreted in the context of the CST Act and articles 301 to 304 of the Constitution. Though increase in revenue and its utilisation for the public of the State can generally be regarded in public interest, in the context in which it is required to be considered, that by itself cannot be regarded as sufficient, if it has the effect of going against the policy of the CST Act and object of the constitutional provisions. 11.. We have already stated above the object of the constitutional provisions and the policy of the CST Act. Sub-section (5) of section 8 which is in nature of an exception, permits t....
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....ax on inter-State sales of cement. On this ground alone the impugned notifications dated June 27, 1990 and March 7, 1994 are required to be declared as bad. 12.. As regards the second contention that the impugned notifications were violative of articles 301 and 303 of the Constitution it was submitted by Mr. Sorabjee that article 301 of the Constitution guarantees freedom of trade, commerce and intercourse throughout the territory of India. Article 302, however, empowers the Parliament to 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. This power of the Parliament and the State Legislatures is further restricted by article 303 which provides that neither of them 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. He further submitted that the notifications issued by the State Governments under section 8(5) of the CST Act would also be subject to the said limitations. He further submitt....
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....c theories or ideologies may come in power in the several constituent units of the Union, and that may conceivably give rise to local and regional pulls and pressures in economic matters. Local or regional fears or apprehensions raised by local or regional problems may persuade the State Legislatures to adopt remedial measures intended solely for the protection of 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." ....
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....ax can prevail in different States and that by itself cannot be said to be violative of article 303 he submitted that the differentiation can be justified if that is done on account of natural and business factors such as existence of long-standing business relations, availability of communications, credit facilities and such other factors. He submitted that this Court in Nataraja Mudaliar's case [1968] 22 STC 376; [1968] 3 SCR 829 has adopted the reasoning of the Australian High Court in the King v. Barger [1908] 6 CLR 41 that if the pervading idea is the preference of locality merely because it is locality, and because it is a particular part of a particular State and the preference was not based on other considerations, which are dependent on natural or business circumstances, and may operate with more or less force in different localities and has held that where differentiation is based on consideration not dependent upon natural or business factors which operate with more or less force in different localities then the Parliament is prohibited from making such discrimination. 16.. What the learned counsel for the State of Rajasthan submitted was that unless it was shown that....
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....mposition of rate of sales tax is influenced by various political, economic and social factors. Prevalence of differential rates of tax on sales of the same commodity cannot be regarded in isolation as determinative of the object to discriminate between one State and another. This Court has also held that "However the power under article 304 if found to have been exercised in a colourable manner intentionally or purposely to create unfavourable bias by prescribing a general lower rate on locally manufactured goods or in the shape of lower rate of tax, such an exercise of power can always be struck down by the courts." 18.. Reiterating that every differentiation is not discrimination this Court further held that if discrimination is made without a valid reason, that is to say, if there are not justifiable and reasonable reasons for differentiation, then that would amount to hostile discrimination. Again, in Amrit Banaspati Co. Ltd.'s case [1995] 3 SCC 335 this Court emphasised that it is only when the intra-State or inter-State movement of the persons or goods are impeded directly and immediately as distinct from creating some indirect or inconsequential impediment, by any legisl....