TaxTMI 
TaxTMI 
1999 (12) TMI 703
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....ition is to the notification dated March 12, 1997 issued by the State of Rajasthan under section 8(5) of the Central Sales Tax Act (for short "the Act") whereby it reduced the rate of sales tax on inter-State sale of cement by any dealer from that State to 4 per cent and did away with the requirement of furnishing of declaration in form C or certificate in form D contemplated by section 8(4) of the Act. 2.. Shree Digvijay Cement Co. Ltd. and M/s. Gujarat Ambuja Cements Ltd., petitioners Nos. 1 and 3 herein, manufacture cement and have their manufacturing units in the State of Gujarat. The cement manufactured by them is sold in Gujarat and elsewhere. The State of Rajasthan had issued under section 8(5) notifications dated January 8, 1990 and June 27, 1990, which had the effect of reducing tax on inter-State sale effected by dealers from Rajasthan to 7 per cent even though in respect of local sales the tax was 16 per cent. These notifications were challenged by the petitioners by their filing a writ petition in the Rajasthan High Court in February 1994. During the pendency of this petition the State of Rajasthan issued under section 8(5) of the Act another notification dated March....
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....itutional provisions contained in Chapter XIII. 6.. In the present writ petition the challenge is to the notification of March 12, 1997, which was not the subject-matter in the earlier appeal, on the grounds which found favour with this Court in it's aforesaid decision of March 21, 1997. 7.. On November 26, 1998, this petition was heard by a Bench of three Judges. It was noticed that similar earlier notifications had been struck down in Shri Digvijay Cement Company's case [1997] 106 STC 11 (SC); (1997) 5 SCC 406, on the ground that they were violative of articles 301 and 303 of the Constitution. The Bench observed See Shree Digvijay Cement Co. Ltd. v. State of Rajasthan [1998] 112 STC 652 (SC)., that the aforesaid judgment required to be considered by a larger Bench particularly in regard to the applicability of articles 301 and 303 to the said notification. This is how this petition has come to be heard by this Bench. 8.. Section 8 of the Act, in so far as it is relevant for the purpose of this case, is as follows: "8. Rates of tax on sales in the course of inter-State trade or commerce.- (1) Every dealer, who in the course of inter-State trade or commerce.- (a) ....
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....ed for resale by him or subject to any rules made by the Central Government in this behalf, for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power; (c) are containers or other materials specified in the certificate of registration of the registered dealer purchasing the goods, being containers or materials intended for being used for the packing of goods for sale; (d) are containers or other materials used for the packing of any goods or classes of goods specified in the certificate of registration referred to in clause (b) or for the packing of any containers or other materials specified in the certificate of registration referred to in clause (c). (4) The provisions of sub-section (1) shall not apply to any sale in the course of inter-State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner- (a) a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in a prescribed form obtained from the prescribed authority; or (b) if the goods....
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....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." In sub-section (5), the words "the State Government" and "the State" were substituted for the words "the Central Government" and "any Union territory" respectively, by section 2 of the Central Sales Tax (Amendment) Act, 1957 (Act No. 16 of 1957). The amendment thus enabled a State Government (in place of the Central Government under the amended provisions), if it so desired, to exempt any goods or class of goods from Central sales tax, or to prescribe a lower rate of tax therefor. 9.. Clause 4 of the Statement of Objects and Reasons to the Amendment Bill of 1957 reads as under: "Incidentally, section 8(5) is also sought to be amended so as to enable a State Government, if it so desires, to exempt any goods or class of goods from inter-State sales tax." 10.. Sub-section (5) in its present form has been substituted by section 5(c) of the Central Sales Tax (Amendment) Act, 1972 (Act No. 61 of 1972) with effect from April 1, 1973. Under the 1958 substituted sub-section, the State Government cou....
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....hri Shanti Bhushan, learned Senior Counsel, submitted that the impugned notification issued under section 8(5) was inconsistent with the legislative policy contained in the Central Sales Tax Act inasmuch as the rate of tax on inter-State sales has been made lower than the rate of tax on the said goods when sold within the State and furthermore the requirement of furnishing declaration in form C or a certificate in form D, as contemplated by section 8(4) has also been done away with. He further submitted that this notification was violative of articles 301 and 303 of the Constitution inasmuch as it prevented or hindered the free movement of goods from one State to the other. In support of this contention reliance was placed by him in the case of Indian Cement Ltd. v. State of Andhra Pradesh [1988] 69 STC 305 (SC); (1988) 1 SCC 743, and in the petitioner's own case that of Shri Digvijay Cement Co. v. State of Rajasthan [1997] 106 STC 11 (SC); (1997) 5 SCC 406. He also invited our attention to the judgment of Hegde, J. in the case of State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC); [1968] 3 SCR 829 and submitted that lowering the rate of tax on inter-State sales in....
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....sale or purchase of which is, under the sales tax law of the appropriate State exempt from tax generally or subject to tax generally at a rate lower than 4 per cent, it shall be either exempt from tax or the tax under the Central Sales Tax Act shall be levied at the lower rate as it is obtained in the "State" [section 8(2A)]. (V) Notwithstanding anything contained in section 8(1) to 8(4) of the Act, the State Government may, in public interest and subject to such conditions as may be specified by it, exempt any person from payment of tax regarding the inter- State sales, or levy a rate lower than that specified in section 8(1) or 8(2) [section 8(5)]. Section 8(5) empowers the State Government, in public interest to dispense with the requirement of section 8(4). 16.. The validity of sub-sections (2), (2A) and (5) of section 8 came up for consideration before this Court in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376; [1968] 3 SCR 829. The respondent in that case had successfully contended before the High Court that sub-sections (2), (2A) and (5) of section 8 imposed or authorised the imposition of varying rates of tax in different States on similar inter-State t....
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.... relations, availability of communications, credit facilities and a host of other factors-natural and business-enter into the maintenance of trade relations, and the free-flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States." Again at page 389 of STC (845 of SCR) it was observed as under: "The rate which a State Legislature imposes in respect of inter-State transactions in a particular commodity must depend upon a variety of factors. A State may be led to impose a high rate of tax on a commodity either when it is not consumed at all within the State, or if it feels that the burden which is falling on consumers within the State will be more than offset by the gain in revenue ultimately derived from outside consumers. The imposition of rates of sales tax is normally influenced by factors political and economic. If the rate is so high as to drive away prospective traders from purchasing a commodity and to resort to other sources of supply, in its own interest the State will adjust the rate to attract purchasers. Again, in a democratic constitution polit....
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....f 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). After referring to the Taxation Enquiry Committee Report, he observed at page 397 of STC (853 of SCR), that "Therefore, it is clear that the Act is not a haphazard legislation; it is the product of deep thinking 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 learned Judge then analysed the provisions of different sub-sections of section 8 which were impugned and came to the conclusion that they were intra vires and held at page 399 of STC (856 of SCR) as under: "If we bear in mind the fact that sales tax on inter-State sales is levied for the benefit of the States and the further fact that each one of the State Governments in its own interest is bound to create the best possible condition for the growth of industry and commerce in that State, it is reasonable to assume that they will not be blind to economic forces. All that one has to guard against is to see that they d....
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....rates of sales tax; it depends, according to the court, upon a variety of factors such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on the trade." The validity of section 8(2)(b) of the Act, on the ground that it suffers from the vice of excessive delegation, was also considered by a Constitution Bench of this Court in Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. Assistant Commissioner of Sales Tax [1974] 33 STC 219 (SC); (1974) 4 SCC 98 and it was held that Parliament had not abdicated its legislative function by enacting section 8(2)(b) of the Act. 21.. In Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 (SC); (1990) 3 SCC 87, the challenge was to notifications issued by the State of U.P. under section 4-A of the U.P. Sales Tax Act, and section 8(5) of the Central Sales Tax Act exempting new units of manufacturers in respect of the goods specified therein from payment of any sales tax for different period ranging from 3 to 7 years. The petitioners therein, who were not new manufacturers and were not entitled to claim the....
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....is any discrimination in violation of the constitutional mandate." 22.. Section 8(5) of the Act, which has been held to be valid and whose ambit has been explained in the aforesaid decisions, provides that in respect of inter-State sale of certain types of goods by any dealer having its place of business in the State, no tax shall be payable or tax shall be calculated at lower rates than those specified in sub-section (1) or sub-section (2). This power of exempting or reducing the rate of inter-State sales tax on certain types of goods, like cement in the present case, has of course to be exercised when the State Government is satisfied that it is necessary to do so in public interest. The respondents have clearly stated that as a result of reduction of tax to 7 per cent vide Notification dated January 8, 1990, it had got additional revenue of lakhs of rupees in the last quarter of that financial year. It is also stated in the affidavit in reply that unless incentives are given to the industries in the State of Rajasthan, further economic, industrial and social development of the State would be hampered. The production of cement in the State was far in excess than the consumptio....
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....s lowered resulting in increased volume of inter-State trade. 24.. It is no doubt true that section 8 of the Act contemplates the furnishing of form C and form D where inter-State sale is made to registered dealer or to the Government department outside the State. But a notification which is issued under sub-section (5) of section 8 can have an overriding effect in view of the non obstante clause. Form C and form D are regarded as proof of inter-State sale being made by dealers from Rajasthan to a registered dealer or to a Government department outside Rajasthan. The impugned notification requires the seller to record the name and address of the purchaser on the bill or cash memo which he is required to issue in relation to an inter-State sale and the dealer is required to prove that the transaction was in the nature of inter-State sale. We are unable to agree that the substitution of the requirement of furnishing form C and form D by making it obligatory on the dealer to record the name and address of the purchaser in the bill or cash memo would have the effect of facilitating tax evasion. The experience of the State of Rajasthan has been that with the issuance of such notifica....
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....y in that State at a reasonable price for distribution to those who were starving, it would have been in public interest if the Punjab Government had exempted that dealer from paying sales tax. Such a power cannot immediately or directly affect the free-flow of trade. The power in question cannot be said to be bad. If there is any misuse of that power, the same can be challenged." 26.. We do not find these observations of Hegde, J., in N.K. Nataraja Mudaliar case [1968] 22 STC 376 (SC); [1968] 3 SCR 829, in any way indicating that in public interest the rate of inter-State sales tax could not be reduced even if it meant benefit being given to unregistered dealer. On the other hand the power to grant exemption was upheld provided it was not misused. We accordingly hold that Indian Cement case [1988] 69 STC 305 (SC); (1988) 1 SCC 743, has not been correctly decided and is, accordingly overruled. 27.. In Shri Digvijay Cement Co. case [1997] 106 STC 11 (SC); (1997) 5 SCC 406 it was contended on behalf of the State of Rajasthan that the public interest contemplated by section 8(5) of the Act, in so far as the State of Rajasthan is concerned, would mean interest of the public of Ra....
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....t. When the purpose of furnishing form C and form D is only to ensure that sales are made in the course of inter-State sales, the State Government may provide for a different mode or manner in which this object can be achieved. In the instant case, the condition for availing the benefit of the notification is that in the bill or cash memo the name and complete address of the purchaser has to be stated and, consequently, the burden to prove that the transaction was in the nature of inter-State sales is on the dealer. At the time of assessment, therefore, the dealer who seeks to get the benefit of the said notification will have to establish the identity of the purchaser outside the State and also, in turn, prove that an inter-State sale has taken place. The tax which is collected is allocated to the State from where the movement of goods starts. Therefore, the question whether there is evasion of tax has to be seen with relevance to that State. If reducing tax results in increase in collection of tax by encouraging more people to pay tax to that State then it cannot be urged that article 301 is violated. 29.. We cannot subscribe to the view that the said notification by dispensin....