TaxTMI 
TaxTMI 
1988 (7) TMI 390
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....assed at the hearing and the controversy falls and can be resolved entirely on the common pattern, it is obviously justified and appropriate to dispose of all these three petitions by the common judgment. Writ Petitions Nos. 2114 of 1983 and 2644 of 1984 were filed on the original side of this Court while other petition was filed on the appellate side. By appropriate order the said two petitions from the original side have been transferred for hearing to this Court and that is how all the three petitions are clubbed and are heard together. 3.. Since the factual aspect is not very much under controversy whereas the main attack relates to the various provisions of the said Act, it would become unnecessary to have a detailed reference to all features on facts and as such only a few landmarks can well be indicated. 4.. Writ Petition No. 2114 of 1983 is filed by the Wipro Products Limited, a company incorporated under the Companies Act having its registered office at Bombay. The said company manufactures and deals in vanaspati, refined oil and soaps. They have their factory at Amalner in Jalgaon district in the State of Maharashtra. The company, however, has established the....
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....roducts Limited, a company incorporated under the Companies Act, having their registered office at Dhule are the first petitioner while the second petitioner is the shareholder and director of the said company. The said company manufactures and deals in assorted items like vanaspati, refined oil and soaps. They have their factory located at Dhule in the State of Maharashtra and they have their marketing depots at Indore in Madhya Pradesh and the commission agents in other States. The second respondent whose order is being impugned is the Sales Tax Officer having jurisdiction over the area of Dhule city. The company is registered under section 22 of the said Act and holds a certificate of registration in addition to which it also holds a recognition certificate under section 25 of the said Act. 7.. This company also purchases VNE oil and vanaspati is manufactured out of the said oil, which constitutes about 80 per cent of raw material. They also purchase VNE oil from the State Trading Corporation of India, who are the canalising agents for import of the said oil and thus are major suppliers of the said oil to all manufacturers of vanaspati. The bulk of their requirement is being ....
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.... also manufactured in their factory located at Haji Bander, Sewree in the State of Maharashtra. Since they have wide net of distribution of their product all over India they have appointed about 40 clearing and forwarding agents in the country. The company despatches the goods so manufactured from its factory to the clearing and forwarding agents and upon receipt of orders from the redistribution stockists located in different places in the country, despatches the goods from appropriate clearing agents to the concerned redistribution stockists. Thus after the manufacture of goods in the said factory at Sewree, Bombay, possible sale is estimated as likely to take place within the State of Maharashtra and retaining that quantity the balance is despatched outside the State of Maharashtra for sale. They were also required to pay sales tax at the time of purchase of the said raw material initially at 3 per cent and thereafter at 4 per cent and by virtue of the amended provisions of section 13AA of the said Act they were directed by the second respondent to pay an additional purchase tax at 2 per cent over the raw material, which was purchased at the initial stage before it was used in t....
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....ion in the authority as also competence in the State Legislature. In other words, it is contended that since it squarely gets a label as consignment tax or a tax on despatch or consignment it would fall under entry No. 92-B of the Union List and thus it would not fall under entry No. 54 of the State List with the resultant consequence that enactment of this provision of section 13AA under which this additional purchase tax is sought to be levied is beyond the legislative competence. The other plank of challenge is in the context of articles 301, 304 and article 14 of the Constitution. 11.. The learned Advocate-General, who appears on behalf of the respondents, in all the three petitions countered all these contentions, equally vigorously. According to him, there is an apparent fallacy in this argument advanced on behalf of the petitioners since the reality is sought to be distorted at this stage to anyhow bring the item within the purview of entry No. 92-B of the Union List. According to him, the fallacy basically lies on an assumption that it is a tax on despatch or consignment tax. On the contrary it is really the purchase tax on the raw material itself which was purchased ear....
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....ate of Maharashtra is undisputed and it is equally undisputed that at the time of initial purchase of raw material the purchase tax is paid, which does not go beyond 4 per cent at all, while the additional tax charged is 2 per cent in the event of happening of the competency as indicated earlier. The merits of the rival contentions, therefore, can be assessed on the anvil of these admitted features and facts. 13.. To appreciate the thrust of the controversy it would not be inappropriate to consider some of the provisions of the Act as also relevant entries in the two Lists of the Seventh Schedule to the Constitution. 14.. The Bombay Sales Tax Act, 1959 is enacted to consolidate and amend the law relating to levy of tax on the sale or purchase of certain goods in the State of Bombay. Section 2 contains some definitions. Section 24 deals with authorisation, turnover and sales of registered dealer of the goods, which are either exported or despatched outside the State or are sold to authorised dealer or exporter, and the dealer can then apply for authorisation to the Commissioner and the Commissioner in turn issue him an authorisation. An authorised dealer covers the case....
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....15.. Section 3 deals with incidence of tax giving various features of taxation, while section 4 deals with the liability of dealer registered under the Act for payment of tax. Section 6 deals with the tax payable by dealer who is liable to pay tax under this Act leviable in accordance with the provisions of this Act. Section 7 deals with the single point levy of sales tax on declared goods specified in Schedule B while section 8 deals with similar items regarding Schedule C. Section 8A deals with the power to specify points of sale at which goods may be taxed. 16.. Some of the succeeding provisions are quite relevant. Thus section 11 relates to tax payable at reduced rates on certain sales and prescribes that where a dealer liable to pay tax under this Act sells any taxable goods to an authorised dealer who certifies in the prescribed declaration form that the goods will be despatched in the same form in which they were purchased without doing anything to them which might result in manufacture or will be used for packing of the goods which will be so despatched within six months from the date of purchase to his own place of business outside the State for sale or for use for pack....
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.... in the course of inter-State trade or commerce or would be sold or resold within nine months, etc. Clause (d) is also on the same pattern, when the commission agent has to certify in the prescribed declaration form that the goods are purchased on behalf of the principal, who is a recognised dealer, that the goods are covered by Part II of Schedule C and that the principal will use the goods within the State in the manufacture of taxable goods for sale which will in fact be so used and sold by him or in the packing of the goods so manufactured. Clause (e) deals with the commission agent certifying in the prescribed declaration form on the similar pattern that the goods are purchased by him from the principal for complying with the agreement or order of sale, etc. Section 12A deals with a category where there shall be no deduction from the turnover or certain sales except on a certificate suggesting that there shall not be deducted from the turnover or sale, resale of goods purchased by the dealer from a registered dealer unless the dealer claiming deduction produces a bill or cash memorandum containing a certificate. 18.. Sections 13 and 13A then play a relevant part in the wake....
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....ce of the goods so used in the manufacture, and accordingly the dealer shall include purchase price of such goods in his turnover of purchases in his return under section 32, which he is to furnish next thereafter." 21.. The last of the relevant provisions is contained in section 14 relating to liability to purchase tax for contravention of terms of declaration. It is split up into two sub-clauses, which themselves have their further split up in different clauses. Under sub-clause (1) which prescribes that where any dealer or commission agent has purchased any taxable goods either before or after the notified day under a certificate or declaration under section 8A, 11 or 12 and the conditions, recitals and undertakings of such certificate or declaration are not complied with then such dealer shall be liable to pay purchase tax on the purchase price of such goods and the purchase tax shall be levied at the rate set out against each of such goods in column 4 of Schedules B and C, and accordingly he shall include the purchase price thereof in his turnover of purchases in his return. It carves out a proviso suggesting that where a recognised dealer, who has purchased the goods menti....
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....rial. Item No. 35 of Part I deals with vegetable non-essential oil other than hydrogenated vegetable oil and those to which entry No. 67 of Part II of the Schedule applies. It is also not seriously disputed that vegetable non-essential oil in question would squarely fall as raw material in this item No. 35 and in Part I of Schedule C. It may be observed at this juncture itself that column 3 of the said Schedule in both the parts deals with rate of sales tax while column 4 deals with purchase tax and it is significant to note that Part I in both the columns the rate ranges between 2 paise in a rupee to 4 paise in a rupee, meaning thereby that it does not go beyond 4 paise at all. This is in contrast with the corresponding rates in columns 3 and 4 in Part II of Schedule C, which range between 6 per cent to 15 per cent. This will have some relevance in the context of the controversy. 23.. On the parallel track it is necessary to examine the two lists of the Seventh Schedule of the Constitution and this is essentially under article 246, dealing under the heading as the subject-matter of laws made by the Parliament and State Legislature suggesting that Parliament has exclusive power ....
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....e specified in Part I of Schedule C meaning thereby that those are the goods which are catalogued in that part of the Schedule and which are essentially used as raw material; that these goods which are so purchased are used in the manufacture of goods which themselves are taxable and lastly those manufactured goods are despatched outside the State. Thus three different phases have to come into existence, the first being the initial purchase of such raw material, the second is user or consumption of those goods in the manufacture of taxable goods and in the last phase the manufactured goods are required to be despatched outside the State. This is expressly provided for in the said section itself as is apparent from the phraseology used therein, and more in particular the user of words "such goods" in the context of the purchase which makes the situation further clear, making the event relatable to the purchase of these goods itself. It is only after the purchase of these goods that the further contingencies are capable of being brought into existence and getting tangible form inasmuch as it is only after the purchase of such raw material which are the goods mentioned in Part I of Sc....
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....e and under the same declaration the purchaser is also informed that the said limited liability will exhaust itself transforming into an additional liability of paying further tax the moment it is established that the said raw material is used in the manufacture of certain finished goods which themselves are taxable and those goods are despatched outside the State. Therefore, the condition is formulated at the inception though its happening is contingent on those events. This cannot be confused to mean that this is imposed for the first time after happening of those events. The imposition is very much there but its effective execution becomes permissible only after the happening of the said contingencies. In the same vein the argument contains a fallacy which is canvassed on behalf of the petitioners that, therefore this is not a purchase tax or tax on purchase of goods but this is merely a tax on the despatch of goods after their user and therefore it can legitimately get a label of user tax or consignment tax as according to the learned counsel, the process of despatch and consignment is synonymous. As already discussed the very premise of this entire argument is not only vulnera....
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....gation to pay additional tax of 2 per cent more if he was to use those goods for the manufacture of other goods which are taxable and takes the manufactured goods outside the State. This is the clear mandate of the law which is very much in existence at the initial transaction of sale or purchase itself and it is so clearly understood between the seller and buyer under which though the tax at concessional rate is paid the obligation to pay the additional tax on the happening of certain events is undertaken by the purchaser. These two conditions, therefore, activate the tax, which is already levied under section 13AA at the time of the purchase and the said levy is thus at the time of the purchase itself. At the cost of repetition it can well be highlighted that it is only dormant and is attracted only if the buyers were to use those taxable goods for the manufacture of other goods and were to despatch the newly manufactured goods outside the State, clearly meaning thereby that the tax is not attracted by the said newly manufactured goods or even by the event of despatch of those newly goods outside the State. It is very much attracted by the original goods, though the said two cond....
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....ng of the goods so manufactured. It is probably on this count that the legislature thought it fit to prescribe low rates of sales tax and purchase tax on the raw material attributable to the goods in Part I of Schedule C because it was further intended to make it a concessional rate which concession appears to have been founded on the assumption and expectation that the manufactured goods are to be sold within the State so as to invite further tax on sale and this expectation has been transformed into a condition in that behalf, and also to obviate the necessity of claiming set-off under rule 41-A of the Rules to the extent of the tax exceeding 4 per cent. It is, therefore, rightly submitted by the learned Advocate-General that the rates referred to earlier applicable to the rules in Part I of Schedule C are obviously concessional in comparison to the rates prescribed under Part II of the said Schedule. Implicit therein is a condition precedent that to avail of this concession the goods are required to be sold within the State after those are used in the manufacture of other taxable goods. This logically justified the stipulation or prescription that the moment there is a breach of....
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....dy indicated and in the case of latter the rate is prescribed in Part I of Schedule C itself. There is also no question of any discrimination and as such the transferring of raw material by themselves and transferring of manufactured goods cannot be compared since it has been classified in two categories like raw material goods and manufactured goods separately which obviously is reasonable classification. One of the condition attached to form No. 15 is that the goods so purchased are meant for use in the manufacture of taxable goods for sale within the State of Maharashtra. If any of the conditions is not fulfilled by the purchaser on the strength of the declaration form No. 15 then he is liable to pay purchase tax under section 14 of the Act and the said purchase tax becomes payable at full rate under that provision. Therefore, the goods so purchased against the declaration in form No. 15 cannot be transferred to his own place outside the State of Maharashtra for manufacture or otherwise. In the same manner the goods so purchased and manufactured in the Maharashtra State cannot be transferred to the place outside the State. If, however, the manufactured goods purchased against th....
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.... the three cases becomes 6 per cent meaning thereby that the rate in this third variety does not go over and above the rate in other cases. To expand the illustration it would appear that the rate of sales tax in cases of purchase against form No. 15 and on purchase of VNE oil is practically the same being 4 per cent. Parallel to that it would equally appear that the liability of manufacturer who despatches the manufactured goods to his own place outside the State of Maharashtra is also the same, i.e., 6 per cent where the goods are manufactured out of form No. 15 purchases or relating to the goods in Part I of Schedule C or even otherwise. It is, therefore, rightly submitted that the provisions of section 13AA on the contrary very much rationally tend to wipe out any discrimination or disparity and liability of all such manufacturers who manufacture goods and despatch the goods outside the State are put on par at the rate of 6 per cent. 30.. It is also clear that the purchase tax leviable under section 13AA is on the purchase value of VNE oil used in the manufacture and transfer to the branches and not on the value of the manufactured goods so transferred to the branches. There....
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....3AA is on the goods already purchased by the dealer which goods as are specified in Part I of Schedule C while taxing event is the purchase of goods by the dealer and is payable in respect of the same goods upon the same event whereas the effect of the said two conditions only activate the levy of the purchase tax, which makes it further clear that the tax is not attracted by newly manufactured goods or by the event of its despatch but it is attracted by the same event in respect of purchase of such goods and as such as already discussed the said two conditions merely activate the levy which has been postponed so far and becomes effective upon the event as mentioned under section 13AA but the levy remains on the same event of purchase itself. 32.. This conclusion which really is apparent on the plain reading of the provisions gets reinforced by some of the ratios of the judicial pronouncements. Both sides placed reliance on various decisions though it would be worthwhile to refer to only a few ones which are most relevant in the context of the controversy. 33.. This aspect has been fully discussed by the Kerala High Court in Malabar Fruit Products Company v. Sales Tax Officer....
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....ler if they are not available for such taxation. " The judgment then proceeds to observe as: "..........In the scheme of the section purchase by the dealer who is taxed under that section becomes taxable in his hands only if the goods are consumed or disposed of in any manner other than by way of sale or despatch outside.....These are all subsequent events and, therefore, the time at which the tax is imposed is postponed to the happening of subsequent events, but by the very fact of purchase the dealer becomes liable to pay tax on the purchase. It depends upon the subsequent contingencies and the tax becomes payable when the event mentioned in the section happens. The main attack against the validity of section is based upon the legislative competence of the State to tax the purchases on the happening of such future contingencies. The contention is that the Legislature of the State was not competent to impose a tax which does not arise on the occasion of sale but is made to depend upon the subsequent consumption or use or dealing with the goods and therefore renders it a tax other than a sales tax, possibly a tax on consumption or use, the imposition of which is beyond the....
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....o bearing on the question as to when such a tax could be imposed." In the ultimate analysis the challenge on the ground of absence of legislative competence and thus same not falling under entry No. 54 of the State List was negatived when it was expressly held that it is certainly not the consumption or despatch tax but it remains very much as the tax on the initial purchase which is brought on the forefront only on account of the happening of this event. 36.. This decision of the Kerala High Court in Malabar Fruit Products [1972] 30 STC 537 which was by the learned single judge, was endorsed and affirmed by the Division Bench of the same High Court in appeal in Yusuf Shabeer v. State of Kerala reported in [1973] 32 STC 359 and we would presently point out that this very view was affirmed by the Supreme Court in subsequent decisions. In view of this, therefore, really speaking there hardly remains any scope for debate. The Division Bench of the Kerala High Court dealt with all features canvassed before it on the same lines which were agitated before the learned single judge and which are on the same pattern as in the instant case. A reference was made to several other decisio....
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.... some reason no tax is payable and the High Court felt that it was in contradictory terms. As regards the other commodity, viz., butter, the purchase tax was levied on the purchase of butter on the ground that butter was consumed in the manufacture of ghee while similar tax has also been levied on the purchase turnover of ghee involved in consignment sales with the other sales. The said High Court held that such purchase tax could not be levied under section 7-A mainly because the butter was taxable to multi-point tax and is levied at the purchase point or sale. On this and other observation the challenge was upheld. 38.. The State of Tamil Nadu carried this decision in appeal in Supreme Court in State of Tamil Nadu v. M.K. Kandaswami [1975] 36 STC 191; AIR 1975 SC 1871 when the State completely succeeded and the observations and conclusions of the Madras High Court were upset. In the course of judgment after reproducing requirement and ingredient of section 7-A when the said provision was analysed and split up into different clauses it was held that section 7-A can be invoked if the said ingredients are cumulatively satisfied. As indicated earlier the provisions of section 7-A ....
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.... 24 STC 343; AIR 1969 SC 1276 where section 7 of the Madhya Pradesh General Sales Tax Act was under scrutiny and certain observations from that are extracted. However, what is of more relevance is that the Supreme Court in this case in terms considered the ratio in Malabar Fruit Products case as decided by the Kerala High Court [1972] 30 STC 537 in the context of challenge to the validity of section 5A of the Kerala General Sales Tax Act mainly on the ground of legislative competency and the judgment makes it abundantly clear that not only the observations but the entire ratio and conclusions reached by the Kerala High Court have been endorsed and affirmed and we may, to recapitulate, indicate that as discussed earlier the said provision under section 5A offers comparable analogy to the provision of section 13AA of the Bombay Sales Tax Act and what is of more importance is that almost identical arguments were advanced as has been done on this forum on behalf of the petitioners with reference to the legislative competence. Entry No. 54 of the State List and the nature of tax which was sought to be labelled as consumption or consignment tax and not the tax on purchase and all these c....
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....ints that are also now being canvassed on behalf of the petitioners and those are negatived more or less on the same reasons which we have assigned and which have been canvassed by the learned Advocate-General, whereas contrary contentions which are sought to be raised on behalf of the petitioners by Shri Ashok Desai, the learned counsel, have been expressly negatived therein also. Those observations, conclusions and ratio have been fully endorsed by the Supreme Court in M.K. Kandaswami's case [1975] 36 STC 191; AIR 1975 SC 1871 whereas contrary view as indicated by the Madras High Court in the same case was negatived. It would thus follow that the Supreme Court has really concluded the matter in that field which is very much against the petitioners and those lend considerable support to the conclusions reached and the reasons assigned by us. 41.. Initially at some stage much reliance was sought to be placed by Shri Ashok Desai, the learned counsel, on the decision of the Punjab and Haryana High Court in Bata India Limited v. State of Haryana [1983] 54 STC 226. Section 9(1)(b) of the Haryana General Sales Tax Act as amended by the Haryana General Sales Tax (Amendment and Validat....
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....ase tax is levied compositely on the manufacture plus mere despatch of goods then taxable event would still remain the despatch of the goods. It is on the basis of this conclusion that the said provision was struck down essentially on the basis of lack of legislative competence of the State Legislature. 42.. With respect this judgment does not deal with several aspects of controversy which were canvassed before us on behalf of the respondents by the learned Advocate-General and which in our opinion logically flow from various provisions of the Act. With respect the same fallacy giving wrong label to the transaction of levying tax as consignment tax has crept in which unfortunately has resulted in erroneous conclusion. Since this is in direct conflict with the decision of the Supreme Court in M.K. Kandaswami's case [1975] 36 STC 191; AIR 1975 SC 1871 which upheld the ratio of the Kerala High Court in Malabar Fruit Products Company's case [1972] 30 STC 537, the endeavour to distinguish the ratio of these two cases in this judgment of the Haryana High Court is with respect rather difficult to appreciate. We are thus in respectful disagreement with this ratio and the reasons therefo....
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....se of such goods at such rate not exceeding the rates specified in section 5(1). The commodity contained raw cotton which was ginned and crushed and oil-seeds were crushed into oil and manufactured oilcakes which were sent outside the State while in some cases it was pig-iron which was purchased and used in the manufacture of agricultural implements and other steel articles and those were sold out of the State. Practically identical contentions were raised, which are being canvassed in this proceeding and which have been expressly negatived by the said. Full Bench though some of those were accepted by the Division Bench in Bata India's case [1983] 54 STC 226 (P & H), which was expressly overruled by the Full Bench. 45.. The Full Bench took survey of several ratios available in that field including the ratio in Malabar Fruit Products [1972] 30 STC 537 (Ker) and M.K. Kandaswami [1975] 36 STC 191 (SC); AIR 1975 SC 1871. Reference to some of the observations in Kandaswami's case [1975] 36 STC 191 (SC); AIR 1975 SC 1871 was made as also to those in Ganesh Prasad Dixit v. Commissioner of Sales Tax [1969] 24 STC 343 (SC), which were referred to in Kandaswami's case [1975] 36 STC 191 (S....
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....ed and held that once the taxing event was identified to be the act of purchase or sale or tax was held to be a purchase tax or sales tax, as the case might be, then it becomes manifest that the State Legislature was admittedly competent to legislate about the said tax. It was ultimately observed as: "When thus viewed, the impugned provision of section 9(1) of the Haryana Act admittedly related to a topic of taxation which was covered by entry 54 of List II of the Seventh Schedule to the Constitution of India, and therefore, the Haryana and Punjab States' Legislatures were within their legislative right to enact the given provisions. In view of the conclusion reached by us that section 9(1) envisages imposition of purchase tax and not a tax on despatch of goods or consignment of goods outside the State otherwise than in the course of interState trade or commerce, it is not necessary to examine the entry No. 92-B and the reasons that led to its addition........." The court then concluded as: "In view of the aforesaid conclusion, we hold that the Division Bench's decision in Bata India's case [1983] 54 STC 226 (P & H) does not lay down the correct law and we, therefore, overrul....
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....the State or despatches the goods to a place outside the State would be required to pay tax on the turnover related to the said purchase. Almost an identical contention was raised that the said provision is in substance a levy on the act of user or consumption and hence cannot be reasonably construed as a tax on sale or purchase and, therefore, it was beyond the legislative competence. The commodity purchased there is milk which was converted into preparation like Horlicks and the converted commodity is sold. The Andhra Pradesh High Court considered various ratios in that behalf some of which we have already referred and expressly negatived the said contention on behalf of the petitioners when it was expressly observed that it is clear that the said commodity like milk purchased and later used or utilised for the manufacture of a commodity which though later is made exigible to tax will nevertheless be liable to tax as an imposition of tax is on the event of purchase. It was also indicated as to how and when its character is changed by virtue of its being processed in the manufacture of some other commodity is of no consequence and ultimately it was held as: "Hence section 6A of....
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....General and which we are inclined to accept as already discussed. 49.. It is not necessary to multiply the ratios since the major landmarks in that field have been referred to and discussed in the context of the controversy. The thrust of all those ratios indicating a consistent view which has been taken in that behalf supports the view that we are inclined to take in this matter. In many of the Acts referred to earlier the phraseology can furnish a good analogy and comparison while in some cases though the phraseology is not identical but foundation is common, whereas in some cases a distinction is sought to be made that the goods are initially not liable to be taxed has been clarified by the Supreme Court, which is already discussed. There is thus a common undercurrent in all those ratios harmoniously highlighting the foundation that in such eventuality the tax really gets proper label as purchase tax and it would be a fallacy to style it as "use or consignment tax". 50.. Shri Kothari, the learned counsel appearing on behalf of the petitioners in one petition, tried to distinguish the ratio of the Full Bench of the Punjab and Haryana High Court in Des Raj Pushap's case [198....
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....ing the Ordinance and ultimately enacting the statute by adding the provision of section 13AA in the Act. It is well-accepted that the Statement of Objects and Reasons falls in a restricted field and for a limited purpose and that too only at a particular point of time. However, there is some reference in the return filed on behalf of the respondent to this aspect. Shri Desai, therefore, contended having regard to the said Statement of Objects and Reasons that in the first instance there is no concession qua the items mentioned in Part I of Schedule C and secondly it is indicated that the proposed amendment was necessary with a view to avoid the unintended loss. Reference was also made by Shri Desai, the learned counsel, to the occurrence of Part II of Schedule C predominantly in the said statement. Observations to the effect that certain concessions are provided to the manufacturers in the State though it is noticed that such concessions in actual operation result in unintended loss of revenue and with a view to avoid such loss certain amendments are necessary only to serve almost as a preamble in general terms. Direct consideration is however, reflected further while dealing with....
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....ct is boldly reflected in that statement. Consequently, therefore, the said statement on the contrary serves a pointer in favour of the validity of the said Act and the view that we have taken in the matter. 52.. Careful assessment of this main plank of contentions raised on behalf of the petitioners entails into the most obvious conclusion that it has absolutely no substance, which gets substantial support from various provisions of the Act as also different ratios as discussed earlier, making it manifestly clear that the levy of tax as prescribed under section 13AA falls squarely and exclusively in entry No. 54 of the State List and is not even remotely attracted by entry No. 92-B of the Union List. Thus the challenge on the ground of legislative competence fails. 53.. This opens the next line of attack which is essentially based on article 301 of the Constitution. In substance the foundation of argument is that the sales tax sought to be levied under section 13AA is in breach or violation of article 301 of the Constitution, because it impedes free trade flow. Article 301 is placed in Part XIII under the heading "Trade, commerce and intercourse within the territory of India....
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....w of trade at all and, therefore, so goes the argument, that the very basic foundation of the argument advanced on behalf of the petitioners in that behalf contains a fallacy. The learned Advocate-General also contended with equal justification that in each case in the face of such a normal rule, there must be allegation which is to be substantiated by evidence and material to show as to how free flow of trade has been affected by this additional rate of tax and in the instant case this is blissfully missing in all these petitions. 54.. Both sides placed reliance on certain decisions in this field and the learned Advocate-General has also brought to our notice several ratios which tend to support the propositions, which he has enunciated and which we have indicated while narrating his line of argument in the context of the controversy. Reference to only a few out of these decisions would suffice the purpose making it unnecessary to refer to all other decisions. 55.. In Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 the observations of the Supreme Court in majority view furnish substantial guidelines in construing the true import of article 301, which guidelines have ....
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....ilities do not come within the purview of the restrictions contemplated by article 301 The concept of freedom of trade, commerce and intercourse postulated by article 301 must be understood in the context of an orderly society as a part of the Constitution which envisages a distribution of powers between the States and Union and if so understood the concept must recognise the need and the legitimacy of some degree of regulatory control, whether by the Union or State. This is irrespective of the restrictions imposed by other articles in Part XIII of the Constitution For the tax to become a prohibited tax it has to be a direct tax the effect of which is to hinder the movement part of trade........." In the ultimate analysis it was concluded that the said Act does not violate the provisions of article 301 and the taxes imposed do not hinder the freedom of trade, commerce and intercourse and, therefore, those taxes were legal. 57.. In Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); AIR 1968 SC 599 to which we have already made reference earlier in other context also deals with this aspect. Section 21 of the Andhra Pradesh Sugarcane (Regulation of Supp....
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....ssa Excise Act was under consideration and the petitioners therein had challenged the imposition of duty of excise on foreign liquor imported into the State initially levelled at Rs. 40 per L.P. gallon, which was enhanced to Rs. 70 under that provision. It is this enhancement of duty which was predominantly challenged on the ground that since the foreign liquor was not manufactured in the State and no duty of excise as such could be levied on the locally manufactured liquor, a countervailing duty could not be charged on foreign liquor brought from outside the State. Though initially the challenge was against the entire amount of duty still it ultimately was restricted only to the enhanced amount. A concept of countervailing duty in entry No. 51, List II of the Seventh Schedule to the Constitution was examined when it was indicated that such duty could only be levied if similar goods are actually produced or manufactured in the State on which excise duty could be levied. Articles 301 and 304 were considered in a composite manner also to find out whether the restrictions could be said to be reasonable. It was essentially on the count that no foreign liquor was manufactured or produce....
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.... or immediately impede free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301. A tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. Every case must be judged on its own facts and its own setting of time and circumstance Unless the court first comes to the finding on the available material whether or not there is an infringement of the guarantee under article 301 the further question as to whether the statute is saved under article 304(b) does not arise and the principle laid down by the Supreme Court in Kalyani Stores' case AIR 1966 SC 1686 cannot be invoked........" 61.. Elaborating the observations of the Supreme Court in Kalyani Stores' case AIR 1966 SC 1686 and examining those in the context of the facts therein, the Supreme Court observed as: "........ As no liquor was manufactured within the State, the protection under article 304 was not available. The decision was based on the assumption that notification enhancing the duty on foreign liquor infringed the guarantee under article 301 and may be saved if it fell within the exceptions contained in articl....
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....ax had the effect of discriminating between the goods of one State and the goods of another State thereby affecting free flow of trade and thus offending article 301 of the Constitution. It was also contended that the sales tax on the imported hides or skins tanned outside the State was on their sale price while the tax on hides and skins tanned within the State was really on the sale price of those hides and skins when they are purchased in raw condition, which is substantially less and further the hides and skins imported from outside after purchase in their raw condition and then tanned inside the State are also subjected to higher taxation than those purchased in raw condition in the State. Such discrimination, so was argued, in taxation also offended article 304 as also it offended article 301 because it affected free flow of trade. For obvious reasons it was so decided on the facts of that case, which does not serve any analogy to the facts of the instant case. As observed by the Supreme Court in Abdul Kadir's case AIR 1970 SC 1912 that the imposition of duty or tax in every case would not be tantamount per se to an infringement of article 301 and every case must be judged on....
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....e then Honourable Minister for Finance to the Secretary to the Maharashtra Legislative Assembly incorporating the said facts. A copy of the said letter is annexed to that affidavit. The said letter clearly mentions that it was proposed to introduce the said Bill in the Assembly and copy of the Bill with the Statement of Objects and Reasons and the Governor's recommendation under article 207(1) of the Constitution for consideration of the Bill by the Assembly was attached. It was also indicated that as required under the proviso to article 304, sub-clause (b) of the Constitution, the President of India has accorded his previous sanction to the introduction of the above Bill in the State Legislature. This aspect is not controverted or disputed on behalf of the petitioners and this, therefore, puts a stamp of finality on the procedural part about the validity of the said amended provision. Not only that but it also takes care of compliance of the provisions of article 304, sub-clause (b) of the Constitution, which are to be read in the context of the challenge based on article 301 of the Constitution. This, therefore, is an additional factor to negative the petitioners' contention in ....
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.... C against form No. 15 would be the same as in respect of goods in Part I and thus the rates can be said to be on par on both the transactions, since in one case it would be under the section itself while in another it is prescribed in Part I. Therefore, there is no question of any discrimination. It is also rightly submitted by the learned Advocate-General and as discussed earlier, the transferring of raw material by themselves and transferring of manufactured goods cannot be compared since it has been classified in two categories separately like raw material and manufactured goods, which is obviously a reasonable classification. We have also demonstrated as to how the position of liability in the three different cases would remain the same relating to the manufacturer who purchases goods in Part II, those purchase in Part I and others who purchase under form No. 15 and in fact the ultimate liability of tax leviable would be 6 per cent thereby on par with each other and consequently this provision really eliminates disparity between different manufacturers. The provision thus examined properly, therefore, would on the contrary strongly indicate that it tends to wipe out any discri....
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....e from registered dealers and the persons other than the registered dealers, having no rational nexus with the object, and also on the ground of differential treatment in the matter of incidence of tax. While repelling the contention it was indicated that such a classification if any is rational and the attraction of tax on any of the three conditions is equally distinct. It was further observed that subject to certain limitations and adhering to fundamental principles of doctrine of economy, the courts admit a larger play of legislative discrimination in the matter of classification in regard to tax legislation so that the legislature may select the persons, properties, transactions and objects and different method and even different rate of tax if the legislature does it reasonably. It was also indicated that the courts would not strike down the Act as denying equal protection of law merely because other objects could have been taxed by the legislature and the statute is not therefore, open to attack on the ground that it taxes some persons and objects and not others. It was indicated that it is only when within the range of its selection the law operates unequally and if that op....