TaxTMI 
TaxTMI 
1997 (4) TMI 480
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....spect to W.A. No. 260 of 1996. 2.. W.A. No. 260 of 1996 was filed against the judgment in O.P. No. 2482 of 1993. The petitioner in the original petition is Associated Cement Companies Ltd. It is a public limited company having its registered office at Bombay and a warehouse-cum-sales depot at Thalasserry in the State of Kerala and the company is engaged in the manufacture and sale of cement. For the manufacture of cement, the petitioner-company is having factories outside the State of Kerala in different States. Cement manufactured outside the State of Kerala is despatched to the State of Kerala on consignment and/or by way of branch transfer from the petitioner's factories or establishments in other States. Thus the cement brought from outside the State of Kerala is sold within the State of Kerala. The petitioner is a registered dealer under the Kerala General Sales Tax Act, 1963 and also under the Central Sales Tax Act, 1956 on the files of the Assistant Commissioner (Assessment), Sales Tax Special Circle, Kannur. 3.. The State of Kerala levied a new tax called "turnover tax" by the Kerala Finance Act, 1987. A new section 5(2A) was incorporated in the Kerala General ....
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....r relating to goods received on consignment, and/or branch transfer." As per exhibit P1, the Government of Kerala made an exemption in respect of the turnover by dealers coming under sub-clause (g) of clause (i) to sub-section (2A) of section 5 of the Kerala General Sales Tax Act, 1963 except on the turnover relating to goods received on consignment and/or branch transfer. This notification is dated October 27, 1992. The constitutional validity of the above notification was challenged in the original petition. 5.. According to the petitioner-respondent herein, by denying the exemption from the liability of turnover tax as envisaged by section 5(2A) of the Act, the Government has singled out the respondent and similarly situated persons subjecting them to tax liability as against the dealers manufacturing and selling the same or similar goods within the State of Kerala. There is absolutely no rational basis or intelligible differentia for such classification or differentiation of persons like the petitioner from dealers who produce or manufacture similar goods within the State of Kerala and sell the same within the State of Kerala. Such classification is totally unreaso....
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....3, article 304 of the Constitution will not come into picture at all." It is relevant to note that the turnover tax was abolished by the Finance Act, 1993. Exhibit P1 was issued on October 27, 1992. Thus for the period from October 27, 1992 to March 31, 1993, the persons like the petitioner-respondent were made liable to pay turnover tax, while exempting the major dealers from the purview of the tax. 7.. The learned single Judge held that by exhibit P1 notification goods manufactured and sold within the State of Kerala were exempted from turnover tax, while the goods which were imported from outside the State and sold within the State through branch or consignment were subject to turnover tax. This was held to be violation of articles 301 and 304 of the Constitution of India and hence the learned single Judge quashed that portion of exhibit P1 notification reading "except on the turnover relating to goods received on consignment and/or branch transfer". 8.. Learned Government Pleader who appeared for the appellants contended that under section 10 of the Kerala General Sales Tax Act, 1963 the Government has got power to give exemption with regard to payment of tax or to red....
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....n enhancement in the rate of sales tax when the turnover of a dealer exceeds Rs. 10 lakhs a year. The mere fact that the dealer is not able to pass on the tax to the customer is not a ground to invalidate the legislation as the primary liability for payment of tax is on the dealer himself." The additional tax was a tax upon sales of goods and not upon the income of a dealer. Thus, the turnover tax was also a tax on the sale of goods. 11.. The notification issued by the Government is said to be in violation of articles 301 and 304 of the Constitution of India. We shall now refer to the same. Article 301 of the Constitution of India states as follows: "301. Freedom of trade, commerce and intercourse.-Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free." Article 304 of the Constitution of India states as follows: "304. Restrictions on trade, commerce and intercourse among States.Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produ....
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....rate of tax than the tax imposed on hides or skins tanned and sold within the State. Further, hides or skins imported from outside the State after purchase in their raw condition and then tanned inside the State were also subject to a higher rate of tax than hides or skins purchased in the raw condition in the State and tanned within the State. The distinction was attacked as violative of articles 301 and 304(a) of the Constitution of India. It was urged in that case that the sales tax does not come within the purview of article 304(a) of the Constitution of India as it is not a tax on the imported goods at the point of entry. Dealing with this contention, relying on the earlier decisions in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406 the Supreme Court held as follows: "It is therefore now well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax, of the kind under consideration here, cannot be said to be a measure regulating any t....
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....of this case was that the lottery tickets belonging to the State of Tamil Nadu were sold without passing on the sales tax while this exemption was not available for the lottery tickets issued by the other States. The notification in that case was as follows: "The Government accordingly direct that all the Tamil Nadu raffle tickets (whether ordinary or bumper draws) shall be sold at their respective face values only which will include sales tax, surcharge and additional surcharge as applicable and that no agent or seller of the raffle tickets shall collect the tax, etc., over the face value or increase the face value on any account." The arrangement under the notification was that the raffle department of the Government of Tamil Nadu pays the tax to the Commercial Taxes Department of the Government of Tamil Nadu and the tax is not passed on to the purchaser; in other words, effectively exemption from payment of sales tax is granted to the purchaser. In substance, lottery tickets issued by the Government of Tamil Nadu do not suffer any tax while on the other hand the lottery tickets issued by other Governments and sold within the State of Tamil Nadu are subject to tax. ....
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....ration before the Supreme Court was a notification issued under section 7 of the Gujarat Sales Tax Act, 1970 by which the rate of sales tax in respect of television sets imported from outside the State was reduced from 15 per cent to 10 per cent, while for goods manufactured within the State, the sales tax was reduced to 1 per cent. This was challenged as violative of articles 301 and 304 of the Constitution. Chief Justice Pathak, speaking for the court held that the imposition of different rates of tax was discriminatory and violative of articles 301 and 304 of the Constitution and placed reliance on the decisions rendered in the case of Firm A.T.B. Mehtab Majid & Co. v. State of Madras [1963] 14 STC 355 (SC) and H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC). 15.. In the case of West Bengal Hosiery Association v. State of Bihar [1988] 71 STC 298 (SC) by a notification under the Bihar Sales Tax Act, 1959 the sales tax at the rate of 5 per cent ad valorem was imposed on all hosiery goods sold within the State of Bihar. But subsequently, by a notification, the hosiery goods manufactured by hosiery industries in Bihar were exempted from the levy of sales tax fo....
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....of India and also the earlier decisions of the court and finally held as follows: "The granting of exemption from tax by a State to a special class for a limited period on specific conditions, while maintaining the general rate of tax on goods manufactured by all the producers in the State who do not fall within the exempted category at par with the rate applicable to imported goods, does not interfere with the freedom of trade and commerce by article 301. If the power of granting exemption from tax is exercised in a colourable manner intentionally or purposely to create unfavourable bias by prescribing a general lower rate on locally manufactured goods either in the shape of general exemption to locally manufactured goods or in the shape of a lower rate of tax, such an exercise would be struck down by the courts." 17.. The matter again came up for consideration before the Supreme Court in the case of Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148. In that case, the State of Jammu and Kashmir, with a view to protect the local edible oil industry, issued a notification under section 5 of the Jammu and Kashmir General Sales Tax Act, 1962 that....
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....SC); (1990) 3 SCC 87 does not help the State herein for the reason that exemption concerned herein is neither confined to 'new industries', nor is circumscribed by other conditions of the nature stipulated in the Uttar Pradesh notification. It is not possible to go on extending the limited exception created in the said judgment, by stages, which would have the effect of robbing the salutory principle underlying Part XIII of its substance....... Suffice it to say that the limited exception carved out therein cannot be widened or expanded to cover cases of a different kind. It must be held that the total exemption granted in favour of small-scale industries in Jammu and Kashmir producing edible oil (there are no large scale industries in that State producing edible oil) is not sustainable in law." Regarding the ratio of the decisions of the Supreme Court under article 304(a) of the Constitution of India, the court observed: "Now, what is the ratio of the decisions of this Court so far as clause (a) of article 304 is concerned? In our opinion, it is this: the States are certainly free to exercise the power to levy taxes on goods imported from other States/ Union territories but ....