TaxTMI 
TaxTMI 
2007 (8) TMI 833
X X X X Extracts X X X X
X X X X Extracts X X X X
....n shall be for such goods manufactured by the dealer who commenced commercial production in the State by 31.12.2006; and (iii) that the exemption shall be available upto 23.1.2010. 2. Sub-clauses (ii) and (iii) of this Notification are impugned in the writ petition. The principal contention is that these sub-clauses are violative of Article 304(a) of the Constitution of India as by granting exemption to the manufacture of asbestos cement sheets and bricks having contents of fly ash twenty five percent or more by weight in the State of Rajasthan, the discrimination is being done to the import of that product from other states. 3. The counsel for the petitioner submitted that prior to the present writ petition, the petitioner filed writ petition No. 7987/2006 challenging the Sub-clauses (ii) and (iii) of the Notification dated July 5, 2006; the Sub-clauses (ii) and (iii) of the Notification dated July 5, 2006 are identical to Sub-clauses (ii) and (iii) of the Notification dated 9th March, 2007 and that writ petition has been admitted and the interim order granted. To buttress his argument that Sub-clauses (ii) and (iii) of the Notification dated 9th March, 2007 are vio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te of Rajasthan and Ors. 117 (2000) STC 395. 5. In the case of Firm A.T.B. Mehtab Majid and Company, the Supreme Court was concerned with the question of the validity of Rule 16 of the Madras General Sales Tax (Turn Over and Assessment) Rules 1939. The said Rule was attacked on the ground of discriminatory taxation offending the provision of Article 304(a) of the Constitution. The Supreme Court in paragraphs 10, 11 and 12 of the report held thus: (10) 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 trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and it will then offend against Article 301 and will be valid only if it comes within the terms of Article 304 (a). (11) Article 304(a) enables the Legislature of a State to make laws affecting trad....
X X X X Extracts X X X X
X X X X Extracts X X X X
....only with discrimination by means of taxation; it prohibits it. The prohibition cannot be extended beyond the power of taxation. It means in the immediate context that States are free to encourage and promote the establishment and growth of industries within their States by all such means as they think proper but they cannot, in that process, subject the goods imported from other States to a discriminatory rate of taxation, i.e., a higher rate of sales tax vis-a-vis similar goods manufactured/produced within that State and sold within that State. Prohibition is against discriminatory taxation by the State. It matters not how this discrimination is brought about. A limited exception has no doubt been carved out in video Electronics but, as indicated hereinbefore, that exception cannot be enlarged lest it eat up the main provision. So far as the present case is concerned, it does not fall within the limited exception aforesaid; it falls within the ratio of A.T.B. Mehtab Majid and the other cases following it. It must be held that by exempting unconditionally the edible oil produced within the State of Jammu and Kashmir altogether from sales tax, even if it is for a period of ten year....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id aspect in view, we invoke our power under Article 142 of the Constitution and mould the relief to suit the exigencies of the situation. 7. In the case of State of U.P. and Anr. v. Laxmi Paper Mart and Ors. (supra), the Supreme Court held that the exemption of exercise books produced in the State of U.P. and subjecting the exercise books produced outside the State but sold in Uttar Pradesh to sales tax @ 5% was discriminatory and violative of Clause (a) of Article 304. 8. The issue concerning exemption of the sales tax on re-rolled finished products by the Andhra Pradesh State Government under A.P. General Sales Tax Act, 1957 manufactured by Steel Re-rollers out of State and sold in State and manufactured within the State of Andhra Pradesh came up for consideration before the Supreme Court in the case of Lohara Steel Industries. It was held that the Notification dated 1st April, 1976 was violative of Article 304(a) of the Constitution of India. This is what the Supreme Court said in paragraphs 7 and 8 of the report: 7. Article 304 thus enables the Legislature of a State to impose tax on goods manufactured within the State as also goods imported from other States in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Immunity Company Limited v. State of Bihar [1955] 2 SCR 603, Kailash Nath v. State of U.P. AIR 1957 SC 790, Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809, State of U.P. v. Babu Ram Upadhya 1961 CriLJ 773, Smt. Ujjam Bai v. State of U.P. AIR 1962 SC 1621 Automobile Transport (Rajasthan) Limited v. State of Rajasthan [1963] 1 SCR 491, Firm ATB Mehtab Majid & Co. v. State of Madras AIR 1963 SC 928, A Hajee Abdul Shakoor & Co. v. State of Madras AIR 1964 SC C 1729, State of Madhya Pradesh v. Bhailal Bhai [1964] 6 SCR 261, Kalyani Stores v. State of Orissa [1966] 1 SCR 865, State of Mysore v. H. Sanjeeviah [1967] 2 SCR 673, Andhra Sugar Ltd. v. State of A.P. [1968] 1 SCR 705, State of Madras v. N.K. Nataraja Mudaliar AIR 1969 SC 147, Rattan Lal & Company v. The Assessing Officer [1969] 2 SCR 544, Narinder Chand Hem Raj v. Lt. Governor, Administrator, U.T., Himachal Pradesh [1972] 1 SCR 940, Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras [1970] 3 SCR 147, V. Guruviah Naidu & Sons v. State of Tamil Nadu [1977] 1 SCR 1065, State of Tamil Nadu v. Hind Stone [1981] 2 SCR 742, H. Anraj v. Govt. of Tamil Nadu AIR 1986 SC 63, Associated Tanners vizianagram, A.P. v. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....evolving society, economically, politically and socially. The meaning of the expressions used there must, therefore, be so interpreted that it attempts to solve the present problem of distribution of power and rights of the different State in the Union of India, and anticipate the future contingencies that might arise in a developing organism. Constitution must be able to comprehend the present at the relevant time and anticipate the future which is natural and necessary corollary for a growing and living organism. That must be part of the constitutional adjudication. Hence, the economic development of States to bring these into equality with all other States and thereby develop the economic unity of India is one of the major commitments or goals of the constitutional aspirations of this land. For working of an orderly society economic equality of all the State is as much vital as economic unity. 21. The taxes which do not directly or immediately restrict or interfere with trade, commerce and intercourse throughout the territory of India, would therefore be excluded from the ambit of Article 301 of the Constitution. It has to be borne in mind that sales tax has only an ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t come into picture at all. See the observations in Nataraja Mudaliar's case [1968] 3 SCR 829 (supra) of the report. It has to be borne in mind that there may be differentiations based on consideration of natural or business factors which are more or less in force in different localities. A State might be allowed to impose a higher rate of tax on a commodity either when it is not consumed at all within the State or if it is felt that the burden falling on consumers within the State, will be more than that and large benefit is derived by the revenue. The imposition of a rates of sales tax is influenced by various political, economic and social factors. Prevalence of differential rate 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. Under the Constitution originally framed revenue from sales tax was reserved for the States. 25. Where the general rate applicable to the goods locally made and on those imported from other States is the same nothing more normally and generally is to be shown by the State to dispel the argument of discrimination under Article 304(a), even though....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would necessarily include the power to grant exemption or to reduce the rate of tax in special cases for achieving the industrial development or to provide tax incentives to attain economic equality in growth and development. When all the States have such provisions to exempt or reduce rates the question of economic war between the States inter se or economic disintegration of the country as such does not arise. It is not open to any party to say that this should be done and this should not be done by either one way or the other. It cannot be disputed that it is open to the States to realise tax and thereafter remit the same or pay back to the local manufacturers in the shape of subsidies and that would neither discriminate nor be hit by Article 304(a) of the Constitution. In this case and as in all constitutional adjudications the substance of the matter has to be looked into to find out whether there is any discrimination in violation of the constitutional mandate. 13. The Constitution bench of the Supreme Court in the case of Shree Digvijay Cement Company Limited and Ors. v. State of Rajasthan and Ors. was concerned with the Notification dated March 12, 1997 issued by the St....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e unable to agree with the contention of the learned Counsel for the petitioners that the impugned notification had the effect of preventing or hindering the free movement of goods from one State to another. As far as the State of Rajasthan is concerned, it had the opposite effect. Merely because local rate of tax in the State of Gujarat on the sale of cement was higher than the inter-State sales tax on the cement sold from Rajasthan cannot lad to the conclusion that the impugned notification prevented or hindered the free movement of goods from one State to another. In fact the impugned notification had the opposite effect, namely, it increased the movement of cement from Rajasthan to other States. It is not as if the impugned notification created a barrier which may have had the effect of hindering free movement of goods but on the other hand, the sales tax barrier was lowered resulting in increased volume of inter- State trade. 14. The decision on the question whether there has been discrimination between the imported and the local goods depends on diverse factors including and the item of goods. Inter-alia, the legal position that emerges from the authorities considered abov....