TaxTMI 
TaxTMI 
2008 (8) TMI 812
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....the petitioner is a proprietary concern carrying on the business of purchase and sale of sugar and allied goods. He is registered under the provisions of the VAT Act. The controversy giving rise to the cause of action to the petitioner to file the present petition arose with the issuance of the impugned notification by the respondents on November 5, 2007, whereby entry 49 in Schedule "A" was substituted and new entry 152 in Schedule "B" was added. In sum and substance, the effect of the entries was that the sugar which was imported from outside the State of Punjab except levy sugar was liable to tax under the Act, whereas the sugar manufactured in the State of Punjab was exempted from taxation. The learned counsel for the petitioner submitted that article 301 of the Constitution provides that trade, commerce and intercourse throughout the territory of India shall be free. It is only the Parliament which has been authorised in law to impose restrictions on the freedom of trade, commerce or intercourse between one State and another, as may be required in public interest, in terms of article 302 of the Constitution of India. Article 303 of the Constitution provides that neither the P....
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.... sugarcane, the sugar was made tax-free, whereas in the case of imported sugar, the State would get tax on the sale of sugar in the State. The action on the part of the State will not hamper free-flow of trade and commerce at the boundaries of the State or at any other points inside the State and is not hit by article 301 of the Constitution of India. It is further submitted that a similar tax has been levied under the Punjab Tax on Entry of Goods into Local Areas Act, 2000 (for short, "the Entry Tax Act") vide notification dated November 15, 2007 and as the petitioner is not aggrieved against the notification issued under the Entry Tax Act, it cannot possibly have any grievance against the notifications issued under the VAT Act. In response to the contention of learned counsel for the State regarding non-challenge to the notification issued under the Entry Tax Act, learned counsel for the petitioner submitted that the Entry Tax Act itself is under challenge in a number of petitions filed by various parties before this court and in any case, non-challenge to a notification under a different statute cannot be considered as a bar on the right of the petitioner to challenge a notific....
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..... However, the same is subject to other provisions of Part XIII of the Constitution of India. The honourable Supreme Court considered the import of article 301 of the Constitution of India in a Constitution Bench judgment in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 and in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan AIR 1962 SC 1406. In Atiabari Tea Co. Ltd.'s case AIR 1961 SC 232, the honourable Supreme Court opined as under: ". . . Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free-flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of article 301 . . . We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by article 301 a rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement? . . . . . . Our conclusion, therefore, is that whe....
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....ons for the respondents. The contention that article 304(a) is attracted only when the impost is at the border, i.e., when the goods enter the State on crossing the border of the State, is not sound. Article 304(a) allows the Legislature of a State to impose taxes on goods imported from other States and does not support the contention that the imposition must be at the point of entry only. . . . It is urged for the respondent-State that to consider discrimination between the imported goods and goods produced or manufactured in the State, circumstances and situations at the taxable point must be similar and that the circumstance of hides or skins tanned within the State and on which tax had been paid earlier at the time of their purchase in the raw condition is sufficient to consider such hides or skins to be different from the hides or skins which had been tanned outside the State. We do not consider that the mere circumstance of a tax having been paid on the sale of such hides or skins in their raw condition justifies 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 tan....
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....tate was struck down. In Indian Cement v. State of Andhra Pradesh [1988] 69 STC 305; AIR 1988 SC 567, the honourable Supreme Court observed as under (page 319 of STC): "Variation of the rate of inter-State sales tax does affect free trade and commerce and creates a local preference which is contrary to the Scheme of Part XIII of the Constitution . . ." The issue again came up for consideration before the honourable Supreme Court in West Bengal Hosiery Association's case [1988] 71 STC 298; AIR 1988 SC 1814, where the goods manufactured outside the State of Bihar and sold in the State of Bihar were subjected to levy of sales tax at the rate of five per cent, whereas the sale of similar goods manufactured in the State of Bihar were exempted from tax. Considering the law on the subject, the honourable Supreme Court opined that from a commercial or normal point of view, such a discriminatory levy of sales tax is bound to affect free-flow of hosiery goods from outside States into the State of Bihar and would, therefore, amount to hampering the free-flow of trade and commerce, and hence, violative of article 301 of the Constitution of India. In Shree Mahavir Oil Mills' c....
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....t or along their boundaries in the interest of freedom of trade, commerce and intercourse throughout the territory of India, guaranteed by article 301. As we shall presently point out, this clause does not prevent in any manner the State from encouraging or promoting the local industries in such manner as they think fit so long as they do not use the weapon of taxation to discriminate against the imported goods vis-a-vis the locally manufactured goods. To repeat, the clause bars the State from creating tax barriers-or fiscal barriers, as they can be called-around themselves and/or insulate themselves from the remaining territories of India by erecting such 'tariff walls'. Part XIII is premised upon the assumption that so long as a State taxes its residents and the residents of other States uniformly, there is no infringement of the freedom guaranteed by article 301; no State would tax its people at a higher level merely with a view to tax the people of other States at that level. And it is this clause which has a crucial bearing on this case . . . The freedom guaranteed, it is worthy of notice, is 'throughout the territory of India' and not merely between the State....
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....limitation', we have the doctrine of 'direct and immediate effect' of the operation of the impugned law on the freedom of trade and commerce in article 301 as enunciated in Atiabari Tea Co. AIR 1961 SC 232. Article 301 is, therefore, not only an authorisation to enact laws for the protection and encouragement of trade and commerce amongst the States but by its own force creates an area of trade free from interference by the State and, therefore, article 301 per se constitutes limitation on the power of the State. Article 301 is, however, subject to the other provisions of articles 302, 303 and 304. It states that subject to other provisions of Part XIII, trade, commerce and intercourse throughout India shall be free. Article 301 is binding upon the Union Legislature and the State Legislatures, but Parliament can get rid of the limitation imposed by article 301 by enacting a law under article 302. Similarly, a law made by the State Legislature in compliance with the conditions imposed by article 304 shall not be hit by article 301. Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and....
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....State Legislature to levy tax on goods imported from other State or Union Territories, but levy of such tax should not discriminate between the goods so imported and similar goods manufactured or produced within the State. Clause (a) of article 304 of the Constitution of India though worded in a positive language has a negative aspect. It is, in truth, a provision prohibiting discrimination against the imported goods vis-a-vis the goods manufactured or produced within the State. The basic object of the provision is to check the State from creating what may be called "tax barriers" or "fiscal barriers" with the object to ensure enjoyment of right guaranteed under article 301 of the Constitution of India to the freedom of trade, commerce and intercourse throughout the territory of India. The object is to emphasise upon oneness of the territory of India. If the facts of the present case are considered in the light of the enunciation of law consistently laid down by the honourable Supreme Court, the inescapable conclusion is that the action on the part of the respondents in levying sales tax on sale of sugar imported from outside the State of Punjab except levy sugar is clearly viola....