TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1602
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....onics: 43 Shree Mahavir Oil Mills 51 Loharn Steel Industries Ltd. 57 Laxmi Paper Mart: 58 Digvijay Cements: 59 Jaiprakash Associates: 61 Jindal Stainless Ltd 67 Discussion from Overseas Case Law 83 Application of the Analysis to the Present Case: 87 Since these Civil Appeals involve common questions of facts and law, they have been heard and are disposed of by this common judgment. 2. The instant appeals have been preferred by the appellants-assessees against the following three separate orders of the High Court of Judicature for Rajasthan at Jaipur: i) Order dated 02.08.2007 No. 3580/2007; in D.B. Civil Writ Petition ii) Order dated 23.08.2007 No. 2222/2007; and in D.B. Civil Writ Petition iii) Order dated 05.09.2012 in D.B. Civil Writ Petition No. 4447/2011. 2.1 All the three Writ Petitions were dismissed on the basis of reasons given in judgment and order dated 02.08.2007 in D.B. Civil Writ Petition No.3506/2007 titled M/s. Hyderabad Industries Ltd. vs. State of Rajasthan and Ors. ("Hyderabad Industries") passed by the High Court of Judicature for Rajasthan. Aggrieved by the orders of di....
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....ourse of the determination, this Court is also required to examine the applicability of the judgment of this Court in Video Electronics Pvt. Ltd. vs. State of Punjab, (1989) Supp. 2 SCR 731 ("Video Electronics") to the facts of this case, especially in light of the nine-Judge Constitution Bench judgment of this Court in Jindal Stainless Ltd. vs. State of Haryana, (2017) 12 SCC 1 ("Jindal Stainless Ltd."). Factual Background: 4. The facts emanating from all the three appeals are similar. The appellants herein are engaged in the business of manufacture and sale of fly ash based asbestos cement products. They do not have their manufacturing units in the State of Rajasthan, but have their sales depots in the State. These sales depots are duly registered with the Commercial Tax Department under Central and local State Tax Acts. 4.1 Initially, the State of Rajasthan issued a notification dated 24.01.2000 under the erstwhile Section 15 of the Rajasthan Sales Tax Act, 1994 (hereinafter "1994 Act") in the form of exemption from sales tax, to encourage industries of asbestos cement sheets and bricks manufactured in the State by an industrial unit having fly ash as its main raw mater....
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...., namely M/s. U.P. Asbestos Ltd., filed a writ petition being D.B. Civil Writ Petition No. 4447/2011 challenging the notification dated 28.10.2010. The said writ petition was also dismissed by way of impugned order dated 05.09.2012. 4.7 As the High Court dismissed all the three writ petitions by the impugned orders based on the judgment of that Court in Hyderabad Industries, it is necessary to dilate the reasoning provided therein. 4.8 The High Court in Hyderabad Industries first discussed the judgments of this Court in Firm A.T.B. Mehtab Majid and Co. vs. State of Madras, (1963) Supp. 2 SCR 435 ("Firm Mehtab Majid"); Shree Mahavir Oil Mills vs. State of J&K, (1996) Supp.9 SCR 356 ("Shree Mahavir Oil Mills"); State of U.P. vs. M/s Laxmi Paper Mart, (1997) 1 SCR 914 ("Laxmi Paper Mart"); Loharn Steel Industries Ltd. vs. State of Andhra Pradesh, (1996) Supp. 10 SCR 898 ("Loharn Steel Industries Ltd."); Video Electronics and Shree Digvijay Cement Co. Ltd. vs. State of Rajasthan, (1999) Supp. 5 SCR 428 ("Digvijay Cements"). 4.9 Based on a reading of the above judgments, the High Court opined that the decision on the question whether, there has been discrimination between the i....
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....he appellant M/s U.P. Asbestos Ltd. and Smt. Kavita Jha appearing for appellant M/s. Everest Industries Ltd., strenuously argued that the impugned notification was unconstitutional and violated Article 304(a) of the Constitution of India. To substantiate, the following submissions were put forth: 5.1 That the impugned notification is discriminatory in nature and falls foul of Article 304(a) of the Constitution of India as it did not provide for any reason for the blanket exemption from payment of tax provided to locally manufactured goods in the State of Rajasthan as compared to goods imported from outside the State. In this regard, they relied on Shree Mahavir Oil Mills, Laxmi Paper Mart, and Anand Commercial Agencies vs. Commercial Tax Officer VI Circle, Hyderabad, (1998) 1 SCC 101. 5.2 Referring to the text of the impugned notification, it was contended that it does not require the industries within the State to only manufacture or procure fly ash from within the State. That the lack of such a requirement ex-facie falsifies the justification of the State that the exemption provided for in the impugned notification was to encourage industries to utilise the excess fly ash f....
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....y before the High Court, they contended that the only justification put forth by them was that it was empowered to grant exemption to a class of industries to boost industrialisation within its State. The learned senior counsel questioned this rationale by submitting that if the same was accepted as a general proposition justifying discrimination between two States while applying a tax regime, such proposition would practically nullify the entire Chapter XIII of the Constitution. That every State would then exempt local manufacturers from tax simply by saying that it wants to boost industrial growth. They submitted that Article 301 of the Constitution cannot be stretched to its unnatural limits to justify such a vague rationale. 6. In response to the above submissions, learned senior counsel Dr. Manish Singhvi made the following submissions: 6.1 Highlighting the implications of the Constitution Bench judgment in Jindal Stainless Ltd., it was contended that the plenary power to tax under Articles 245 and 246 of the Constitution read in conjunction with the Entries in the Seventh Schedule to the Constitution is per se not subject to Article 301 of the Constitution. That the ple....
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....and hence the exemption as provided in the impugned notification was envisaged. That additionally, having contents of fly ash twenty five percent or more in asbestos sheets by weight also improves the environment which was another laudable objective. 6.6 Learned senior counsel also submitted that if such an exemption was not granted, then no asbestos sheet industry would have come to the State of Rajasthan and the fly ash in the State would go unutilised/unused, considering huge transportation costs associated with transporting fly ash. That the economics of transportation itself would repel any argument that the notifications did not specifically require the manufacturers to utilise the fly ash generated in the State. He also submitted that, it was not the case of the appellants herein that they would use the fly ash manufactured in the State of Rajasthan, despite having manufacturing units elsewhere. 6.7 For the above reasons, Dr. Manish Singhvi emphasised that the exemption provided for in the notification qualifies as 'differentiation', rather than discrimination and is saved as per Article 304(a) of the Constitution. 6.8 To our query that the reasons for the notificat....
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..... Power of Parliament to impose restrictions on trade, commerce and intercourse.-Parliament may by law impose such restrictions on the freedom of trade, commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest. 303. Restrictions on the legislative powers of the Union and of the States with regard to trade and commerce.-(1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. (2) Nothing in clause (1) shall prevent Parliament from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India. 304. Restric....
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....tion of non-discriminatory taxes by a State Legislature; and (ii) relating to imposition of reasonable restrictions, thus showing that imposition of taxes is a class apart from imposition of reasonable restrictions on freedom of trade, commerce and intercourse. 10.1.2 It was further observed that if a law is passed by the Legislature imposing a tax which in its true nature and effect is meant to impose an impediment to the free flow of trade, commerce and intercourse, for example, by imposing a high tariff wall, or by preventing imports into or exports out of a State, such a law is outside the significance of taxation, as such, but assumes the character of a trade barrier which it was the intention of the Constitution-makers to abolish by Part XIII, but taxation on movement of goods and passengers is not necessarily an impediment. Article 304, while recognising the power of a State Legislature to tax goods imported inter-State, insists that a similar tax is imposed on goods manufactured or produced within the State. The Article thus brings out the clear distinction between taxation as such for the purpose of revenue and taxation for purposes of making discrimination or ....
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.... 14 of the Constitution. It was also held that the power to levy tax would ultimately be based on Article 245 which deals with the extent of laws made by Parliament and by the Legislatures of States, as it begins with the words "Subject to the provisions of the Constitution". Therefore, the power of Parliament and the Legislatures of the States to make laws including laws imposing taxes is subject to the provisions of the Constitution and therefore, the application of Part XIII also. However, Article 301 which is in Part XIII is not subject to the other provisions of the Constitution but is made subject only to other provisions of only Part XIII. Therefore, once the width and amplitude of the freedom enshrined in Article 301 are determined, they cannot be controlled by any provision outside Part XIII. The freedom guaranteed under Article 301 is made subject to the exceptions provided by the other Articles in Part XIII and is not limited by any other provisions of the Constitution outside Part XIII. It was also observed that the legislative competence of the Legislature in question would have to be judged in light of the relevant Articles of Part XIII. Hence, it was observed that th....
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.... declared to be void. 10.1.12 In the said case, Shah, J. in his opinion observed that the power of taxation is essentially an attribute of the sovereignty of the State and is not exercised in consideration of the protection it affords or the benefit that it confers upon citizens and aliens. Its content is not measured by the apparent need of the amounts sought to be collected and its incidence does not depend upon the ability of the citizens to meet the demand. But it is still not an unrestricted power. By Article 265 of the Constitution, the power to tax can be exercised by authority of law alone. The power of taxation has therefore to be exercised by the Legislature strictly within the limits prescribed by the Constitution and any alleged transgression either by Parliament or the State Legislature of the limits imposed by the Constitution is justiciable. 10.1.13 Discussing on the guarantee of freedom of trade and commerce, it was observed by Shah, J. that the guarantee is not addressed merely against prohibitions, complete or partial; it is addressed to tariffs, licensing, marketing regulations, price-control, nationalisation, economic or social planning, discriminatory tar....
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....dom of trade, commerce and intercourse assured by Article 301 and hence, the Act did not violate the provisions of that Article. This was because regulatory measures imposing taxation for use of trading facilities do not come within the purview of the restrictions contemplated under Article 301 and such measures need not comply with the requirements of the proviso to Article 304(b) of the Constitution. 10.2.1 While analysing the issues raised in the said case, it was observed that those which facilitate trade and commerce are not a restriction, and those which in reality hampers or burdens trade and commerce are a restriction. That, it is the substance of the matter that has to be considered and it is not possible a priori to draw a dividing line between that which would really be a charge for a facility provided and that which would really be a deterrent to a trade; but the distinction is real and clear. 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. So long as a tax remains compensatory or regulatory, it cannot operate as a hindrance. A working test for deciding whether a tax is compensatory or no....
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....f this Court, speaking through Raghubar Dayal, J. noted the contention of the petitioner therein to the effect that under the impugned rule, tanned hides or skins imported from outside the State and sold within the State were subject to a higher rate of tax than the tax imposed on hides or skins tanned and sold within the State, inasmuch as sales tax on the imported hides or skins tanned outside the State is on their sale price while the tax on hides or skins tanned within the State, though ostensibly on their sale price, was, in view of the proviso to clause (ii) of sub-rule (2) of rule 16, really on the sale price of these hides or skins when they were purchased in the raw condition and which was substantially less than the sale price of tanned hides or skins. Further, for similar reasons, hides or skins imported from outside the State after purchase in their raw condition and then tanned inside the State were also subject to higher taxation than hides or skins purchased in the raw condition in the State and tanned within the State, as the tax on the former was on the sale price of the tanned hides or skins and, on the latter, was on the sale price of the raw hides or skins. Such....
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....ount of tax levied being different on account of the existence of a substantial disparity in the price of the raw hides or skins and of those hides or skins after they had been tanned, though the rate was the same. It was explained that if the dealer has purchased the raw hide or skin in the State, he would have had to pay on the purchase price only. But if the dealer purchased raw hides or skins from outside the State and tanned them within the State, he would be liable to pay sales tax on the sale price of the tanned hides or skins. He too would have had to pay more tax even though the hides and skins were tanned within the State, merely on account of his having imported the hides and skins from outside and having not therefore paid any tax under sub-rule (1). Thus, there was discriminatory nature of tax imposed. As a result, Rule 16(2) was held to discriminate against the imported hides or skins which had been purchased or tanned outside the State and therefore it contravened the provisions of Article 304(a) of the Constitution. Hence, the petition was allowed and the State was directed to refund of tax illegally collected from the petitioner. Kalyani Stores: 10.4 In Kalya....
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....tive list. Therefore, it was held that the notification issued in the year 1961 under Section 27 was valid and the new notification did not run against any constitutional provision. Therefore, he dismissed the appeal. However, the majority partially allowed the appeal. Weston Electronics: 10.5 The case in Weston Electronics vs. State of Gujarat, (1988) 2 SCC 568 ("Weston Electronics") concerned manufacturers of electronic goods, including television sets, television cameras and television monitors at factories located at Delhi and the goods sold through sales organisations spread all over India, including the State of Gujarat. The petitioners therein filed a writ petition before this Court questioning the Notification dated 29.03.1986 under 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, and for goods manufactured within the State the sales tax was reduced to 1 per cent. It was contended that there was an invidious discrimination which adversely affected the free flow of inter-State trade and commerce, resulting in a contravention of Article 301 of the Constitution. It was contended that th....
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....goods in the State who were liable to pay sales tax under the local Sales Tax Act. They contended that they were subjected to gross discrimination and their business was crippled on account of the said fact and therefore, they challenged the vires of the said notification under Articles 14 and 19(1)(g) of the Constitution. However, this Court opined that the main question was, whether, the said notifications were valid in light of Part XIII of the Constitution. 10.6.2 This Court speaking through Sabyasachi Mukharji, J. (as he then was) made a detailed discussion of the judgment rendered in Atiabari Tea Co. Ltd. and also the decision of this Court in Automobile Transport Ltd. This was also in the context of whether regulatory measures or measures imposing compensatory taxes for using trading facilities did not come within the purview of restrictions contemplated under Article 301. 10.6.3 Reference was made to the case of A. Hajee Abdul Shakoor & Co. vs. State of Madras, AIR 1964 SC 1729 and to the observations of this Court in State of Madras vs. N.K. Nataraja, AIR 1969 SC 147 as well as in Andhra Sugars Ltd. vs. State of Andhra Pradesh, AIR 1968 SC 599, wherein it was reitera....
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....ved that Article 304(a) does not prevent levy of tax on goods; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. That any discrimination in that regard would constitute a tariff wall or fiscal barrier and would thus impede the free flow of inter-State trade and commerce. 10.6.5 This Court further noted that the question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied. The object is to prevent discrimination against the imported goods by imposing tax on such goods at a rate higher than that borne by local goods. It was observed that every differentiation is not discrimination. This was because the expression 'discrimination' in Article 304(a) involves an element of intentional and purposeful differentiation thereby creating economic barrier and involves an element of an unfavourable bias. That discrimination implies an unfair classification. When the general rate applicable to the goods locally made a....
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....ification issued by the Punjab Government whereby two different rates of taxes were provided, were also considered. There was a differentiation in the rate of tax between the manufacturers of electronic goods outside the State and those within the State of Punjab. It was reasoned that the lower rate of tax on those electronic goods manufactured in the State of Punjab was due to the prevailing peculiar circumstances of Punjab. It was to attract new entrepreneurs from other States and within the State to manufacture within the State of Punjab. Therefore, incentive was provided for growth of industry in Punjab which had already shifted to other States. 10.6.8 In view of the above, the concessional rate of tax introduced was held to be non-discriminatory. Taking note of the situation in the State of Punjab, it was observed that a backward State or a disturbed State cannot with parity engage in competition with advanced or developed States. Even within a State, there are often backward areas which can be developed only if some special incentives are granted. If the incentives in the form of subsidies or grant are given to any part of a State so that it may come out of its limping or ....
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....r States/Union Territories but in the process ought not to discriminate against them vis-à-vis goods manufactured locally. Therefore, there could not be tax barriers or fiscal barriers, in the interest of freedom of trade, commerce and intercourse throughout the territory of India, guaranteed by Article 301. In other words, for the purpose of encouraging or promoting the local industries, the weapon of taxation cannot be used to discriminate against the imported goods vis-à-vis the locally manufactured goods. That, Part XIII of the Constitution would indicate that no State would tax its people at a higher level merely with a view to tax the people of other States at that level. But conversely, there cannot be "tariff walls" or fiscal barriers in so far as goods manufactured outside a State and imported into the State is concerned. 10.7.2 It was further observed that the freedom guaranteed in Article 301 was "throughout the territory of India" and not merely between the States as such; the emphasis is upon the oneness of the territory of India. That, Article 301 was a general provision and Article 304(a) was not really an exception to Article 301, despite the use of....
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....n cannot be extended beyond the power of taxation. This means that the 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-à-vis similar goods manufactured/produced within that State and sold within that State. The prohibition is against discriminatory taxation by the States and it matters not how this discrimination is brought about. The limited exception carved out in Video Electronics cannot be enlarged, lest it would eat up the main provision. Placing reliance on Firm Mehtab Majid and the other cases, it was held that the exemption from payment of sales tax altogether was discriminatory and prohibited under Article 304(a) of the Constitution. 10.7.5 Another contention which was urged by the State of Jammu and Kashmir was to the effect that when the rate of tax was four percent there was no challenge to the sale but when the rate of tax climbed to eight per cent there was a challenge and hence a principle of acquiescence applied....
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....Paper Mart. Referring to Firm Mehtab Majid and Shree Mahavir Oil Mills, it was observed that the exemption from payment of tax on locally manufactured goods vis-à-vis imported goods from other States was discriminatory as it created a fiscal barrier on the free flow of trade and commerce and hence, the exemption was struck down as offending Article 301 of the Constitution. Digvijay Cements: 10.10 In Digvijay Cements, the challenge was to notification dated 12.03.1997 issued by the State of Rajasthan under Section 8(5) of the Central Sales Tax Act whereby it reduced the rate of sales tax on inter-state sale of cement by any dealer from that State to 4%. The grievance of the petitioner therein was that as a consequence of such reduction of sales tax, cement from Rajasthan became much cheaper in the neighbouring States like Gujarat and that adversely affected the local sale of cement manufactured by the petitioners therein in Gujarat by reason of higher rate of sales tax on the local sales within that State. Such reduction of the rate of tax, it was contended, was contrary to the scheme contained in Part XIII of the Constitution and was liable to be struck down. The Const....
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....goods imported from neighbouring States and goods manufactured and produced in the State of Uttar Pradesh contravened the constitutional provisions of Articles 301 and 304(a) of the Constitution of India. 10.11.1 The appellants therein were public limited companies, manufacturing cement in their manufacturing units in Rewa District situated in the State of Madhya Pradesh after procuring fly ash from the thermal power stations in the State of Uttar Pradesh and thereafter selling the manufactured product, namely, cement, in the districts of the State of Uttar Pradesh. Utilisation of fly ash so as to control its pollution led to cement projects being set up to make use of the fly ash generated from the power plants. To encourage manufacturers using fly ash in manufacturing of their products, the Government of Uttar Pradesh by Notification dated 18.06.1997, granted "rebate of tax" to the dealers in the State of Uttar Pradesh excluding all other dealers manufacturing cement outside the State of Uttar Pradesh using fly ash purchased in the State of Uttar Pradesh. The said notification provided the names of the districts and the period for which the rebate was allowed. The second Notif....
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....l impact on the trade, commerce and intercourse, it was observed that a rebate is a "discount", i.e., to allow a deduction from a gross amount. It is a discount repaid to the payer. A rebate of tax can also be akin to concessional / reduced rate of tax. That in the said case, the controversy concerned the grant of rebate up to the full amount of the tax levied on any specific point in the series of sales/purchase of goods. Such rebate was only extended to the districts in the State of Uttar Pradesh. The question was, whether, this was a weapon of taxation that was discriminatory between the goods imported and manufactured in Uttar Pradesh as laid down in Article 304(a) of the Constitution. While observing that this Court in Shree Mahavir Oil Mills clarified the exception carved out by the three-judge bench in Video Electronics, it was held necessary to ascertain whether the particular exemption granted by the State affected Articles 301 and 304. This Court noted that Article 304(a) is a provision that deals with taxation to limit the power of taxation by the State so as to prevent discrimination against imported goods by imposing taxes on such goods at a higher rate than is borne b....
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.... observed that the rebate of tax being in the nature of an exemption in the instant case was discriminatory and violative of Article 304(a) of the Constitution of India. Jindal Stainless Ltd.: 10.12 Jindal Stainless Ltd. is a nine-Judge Bench decision of this Court wherein by a majority, this Court, inter alia, observed as under: "1159.1. Taxes simpliciter are not within the contemplation of Part XIII of the Constitution of India. The word "free" used in Article 301 does not mean "free from taxation". 1159.2. Only such taxes as are discriminatory in nature are prohibited by Article 304(a). It follows that levy of a non-discriminatory tax would not constitute an infraction of Article 301. 1159.3. Clauses (a) and (b) of Article 304 have to be read disjunctively. 1159.4. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied. 1159.5. The Compensatory Tax Theory evolved in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, AIR 1962 SC 1406 : (1963) 1 SCR 491 and subsequently modified in Jindal Stainless Ltd. (2) v. State of Haryana, (2006) 7 SCC 24....
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....titutional limitation in a federal system like in India where the Union as well as the States have the power to make laws including laws that levy taxes, duties and fees, however, within the extent permissible under the Constitution. 10.12.3 These constitutional limitations on the power of the State Legislatures to levy taxes or for that matter enact laws are mentioned by way of relevant Entries of Lists II and III of the Seventh Schedule (there being no taxation in Entry of List III). Further, there are other provisions which provide for the constitutional limitations in the matter of taxation to be levied by the Union or the State which is not necessary to advert to in the present case. 10.12.4 After analysing other Articles in Part XIII of the Constitution, the Court dealt with Article 304 that deals with restrictions on trade, commerce and intercourse among States which could be made by the Legislature of a State. It was observed that Article 304(a) does not treat tax as a restriction so that any such levy may fall foul of Article 301. In fact, Article 304(a) recognises the State Legislature's competence to impose a tax on goods imported from other States or the Union Ter....
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....art XIII except in cases where the same are discriminatory in nature. In paragraph 76, the discussion was summarised as under: "76. The sum total of what we have said above regarding Articles 301, 302, 303 and 304 may be summarised as under: 76.1. Freedom of trade, commerce and intercourse in terms of Article 301 is not absolute but is subject to the provisions of Part XIII. 76.2. Article 302 which appears in Part XIII empowers Parliament to impose restrictions on trade, commerce and intercourse in public interest. 76.3. The restrictions which Parliament may impose in terms of Article 302 cannot however give any preference to one State over another by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule. 76.4. The restriction that Parliament may impose in terms of Article 302 may extend to giving of preference or permitting discrimination between one State over another only if Parliament by law declares that a situation arising out of scarcity of goods warrants such discrimination or preference. 76.5. Article 304(a) recognises the availability of the power to impose taxes on goods import....
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....l foul of Article 304(a) and may tantamount to discrimination. Conversely, if the Court were to find that there is no such element of intentional bias favouring the locally produced goods as against those from outside, it must go further and see whether the differentiation would be supported by valid reasons. This is because discrimination without reason would be unconstitutional whereas discrimination with reason may be legally acceptable. 10.12.8 Regarding the decision in Video Electronics, it was observed that the differentiation made was supported by reasons. It was observed that power to grant exemption is a part of the sovereign power to levy taxes which cannot be taken away from the States that are otherwise competent to impose taxes and duties. It was further observed that Video Electronics, therefore, correctly states the legal position as regards the approach to be adopted by the courts while examining the validity of levies. So long as the differentiation made by the States is not intended to create an unfavourable bias and so long as the differentiation is intended to benefit a distinct class of industries and the life of the benefit is limited in terms of period, th....
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....he then was), firstly stated that a discriminatory tax is prohibited under Article 304(a) in the context of exemptions and incentives as held in the judgments of this Court in Video Electronics and Shree Mahavir Oil Mills. It was observed that in Video Electronics, this Court considered the validity of the notifications issued under the Uttar Pradesh Sales Tax Act, 1948, as well as under the Punjab General Sales Tax Act. Under the notification issued under the Uttar Pradesh legislation, an exemption from the payment of sales tax was granted for goods manufactured in new industrial units, where the date of commencement of production fell between two stipulated dates. The exemption was for a stipulated period reckoned from the date of first sale if such sale took place not later than six months from the commencement of production. The period of exemption was confined for a specified period of three to seven years. Insofar as the State of Punjab was concerned, sales tax at the rate of 12% was provided on electronic goods sold within the State irrespective of their manufacture. In pursuance of a notification issued under the Sales Tax law, the rate of sales tax payable by electronic ma....
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....ndustrial units; (ii) Applicability of a reduced rate of sales tax to producers of certain specified goods, such as electronic goods; (iii) Limitation of the period during which the reduced rate of tax could operate; and (iv) Applicability of the general rate of sales tax to an overwhelmingly large number of local manufacturers, on a par with imported goods." 10.12.14 Thus, Dr. Chandrachud J. (as he then was) opined that the judgment in Shree Mahavir Oil Mills left open the correctness of the view in Video Electronics. Shree Mahavir Oil Mills is a judgment rendered by a two-Judge Bench comprising B.P. Jeevan Reddy, J. and S.C. Sen, J. while Video Electronics was a judgment of three Judges of this Court. The decision in Video Electronics was distinguished on the ground that it related to a case not involving a blanket preference. 10.12.15 Ashok Bhushan, J. in his dissenting opinion but concurring on some issues, speaking about the three-Judge Bench decision of this Court in Video Electronics, observed that the exemption therein was upheld as it was granted to a special class for limited period on specific conditions of maintaining the general rate of....
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.... xxx (ii) taxation; but so as not to discriminate between States or parts of States; xxx 92. Trade within the Commonwealth to be free On the imposition of uniform duties of customs, trade, commerce, and intercourse among the States, whether by means of internal carriage or ocean navigation, shall be absolutely free." (emphasis supplied) 11.1 A bare reading of the above provision would instantly draw our attention to Articles 301 and 304 of our Constitution. 11.2 It appears that the interpretation of Section 92 of the Australian Constitution, specifically as to 'what should the imposition be free from?', has been a subject matter of conflicting opinions. It was the decision of the High Court of Australia in Cole vs. Whitfield, (1988) HCA 18 that clarified its scope. The High Court of Australia, through a unanimous opinion, and relying on Australian federal movement, held that section 92 of the Australian Constitution prohibits measures that discriminate against interstate trade and commerce with the purpose or effect of protecting intrastate trade or industry against competition from other States. 11.3 The High Court specific....
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....e Court therein was called upon to interpret Section 92 of their Constitution, specifically to answer what should the imposition of uniform duties of customs, trade, commerce, and intercourse among their States be free from, the Court answered that they should be free from discrimination of a protectionist character. Their emphasis on the protectionist nature is of relevance to us, for the insertion of Part XIII in our Constitution was also to prevent the growth of sectional and local interests which are inimical to the interests of the nation as a whole. Application of the Analysis to the Present Case: 12. On a perusal of the facts of the present cases and the judicial dicta relating to Articles 301 and 304(a) of the Constitution of India, we find that the issue herein could be decided by determining if the impugned notification falls within the parameters of the exception provided for in Video Electronics. In other words, if the impugned notification could be justified as falling within the parameters of the dictum in Video Electronics, it could be upheld. Otherwise, it would have to be struck down as unconstitutional. Thus, the dictum in Video Electronics has to be juxtapo....
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....e impugned notification restricted the exemption from payment of tax to a specified class of dealers, namely, those who manufactured asbestos cement sheets and bricks having contents of fly ash 25% or more by weight. We also find that, as regards the time period, the impugned notification restricted the exemption to those dealers who commenced commercial production in the State by 31.12.2006 and the exemption was available up to 23.01.2010. 12.4 However, a combined reading of the notifications dated 24.01.2000, 16.03.2005, 05.07.2006 and 28.12.2010 suggests that, initially, the benefit was restricted to dealers who commenced commercial production in the State of Rajasthan by 31.12.2001 and the benefit was upto 23.01.2010. Later, it was extended to those who commenced production by 31.12.2006. While initially the benefit was upto 23.01.2010, by notification dated 28.12.2010, the benefit was made available for ten years from the date of commencement of first commercial production, but with an outer cut-off date of 23.1.2016. There is nothing on record to suggest that the exemption was granted thereafter as well. 12.5 As far as duration is concerned, it can be observed that the ....
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.... the object for which the particular legislation is undertaken. This must be based on some reasonable distinction between the cases differentially treated. When differential treatment is not reasonably explained and justified the treatment is discriminatory. If different subjects are equally treated there must be some basis on which the differences have been equalised otherwise discrimination will be found. To be able to succeed in the charge of discrimination, a person must establish conclusively that persons equally circumstanced have been treated unequally and vice versa." (underlining by us) 12.10 In Vijay Lakshmi vs. Punjab University, (2003) 8 SCC 440, this Court discussed the earlier judgment in State of J&K vs. Triloki Nath Khosa, (1974) 1 SCC 19 and observed that discrimination is the essence of classification and does violence to the constitutional guarantee of equality only if it rests on an unreasonable basis. 12.11 Further, in Video Electronics, this Court noted that the word 'discrimination' is not used in Article 14 but is used in Articles 16, 303 and 304(a). That in the context of Article 304(a), it involves an element of intentional and purposeful di....
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.... was issued pursuant to, say, an industrial policy or otherwise. During the course of submissions, we had asked the learned senior counsel for the respondent State if there are any policies of the State as regards setting up of asbestos sheet or cement industry, pursuant to which the notifications were issued, the learned senior counsel could not take us to any such background policy, but submitted that the reasons for the notification can be discerned from the counter affidavit filed before the High Court. In light of the dictum of this Court in Mohinder Singh Gill, we are not able to accept the contention of the learned senior counsel for the State of Rajasthan that the reasons for the notification can be discerned from the counter affidavit filed before the High Court. 12.16 Keeping aside the dictum in Mohinder Singh Gill, even otherwise, the counter affidavit filed before the High Court attempts to provide reasons as to why the notification dated 24.01.2000 was issued. The reason stated was to promote the use of fly ash as a raw material from the production of asbestos cement sheets and bricks with the intention of utilization of fly ash coming out of thermal power plant and....
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..... The asbestos products could be manufactured in the State of Rajasthan with fly ash obtained from outside the State and sold within the State. If the object of the exemption was to utilise the fly ash available in the State of Rajasthan itself, it should have been so spelt out in the impugned notification. Otherwise, we find a discrimination between asbestos products manufactured in the State of Rajasthan and manufactured outside, having content of fly ash to an extent of 25% when sold in the State of Rajasthan. On the other hand, if the notification had prescribed a condition that fly ash sourced from State of Rajasthan and products sold in the State, irrespective of their place of manufacture would have the benefit such exemption, there would not have been any discrimination between products manufactured outside the State of Rajasthan sold within the said State and those manufactured within the State, both having the benefit of exemption as both categories of products would have utilised fly ash available in the State of Rajasthan. This approach would have also met the objective of utilising the available fly ash in the State of Rajasthan. But, that is not so in the present case....
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....aken. 12.18.2 In Firm Mehtab Majid, referring to the aforesaid decisions, it was held that sales tax which has the effect of discriminating between goods of one State and goods of another State may affect the free flow of trade which offends Article 301 and will be valid if it comes within the terms of Article 304(a). Thus, Article 304(a) enables the Legislature of a State to make laws by imposition of taxes on goods from other States if similar goods in the State are also subjected to similar taxes, so as not to discriminate between the goods manufactured or produced in that State and the goods which are imported from other States. In the said case, the writ petition was allowed as the sales tax was held to be discriminatory in nature and the State was directed to refund the tax illegally collected from the petitioner therein. 12.18.3 Similarly, in Weston Electronics, the reduction on the rate of sales tax on television sets manufactured within the State to 1% whereas television sets imported from outside the State of Gujarat being at 10% was held to be discriminatory in nature and therefore, struck down. 12.18.4 The judgment in Video Electronics by a three-Judge Bench of....
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....ted goods vis-à-vis the locally manufactured goods. 12.18.6 Referring to Video Electronics, on which strong reliance was placed by State of Jammu and Kashmir in the aforesaid case, this Court made a distinction by observing that the said judgment created a limited exception and that it was not possible to go on extending the limited exception created in the said judgment, by stages which would have the effect of robbing the salutary principle underlying Part XIII of its substance. That States can also encourage growth of industries by all such means that are just and proper provided goods imported from other States are not discriminated against by a higher rate of sales tax being imposed. That the limited exception carved out in Video Electronics cannot be enlarged, "lest it would eat up the main provision". Placing reliance on Firm Mehtab Majid, this Court ruled in favour of the petitioners therein. Loharn Steel Industries Ltd., Laxmi Paper Mart have followed Shree Mahavir Oil Mills. 12.18.7 In Jaiprakash Associates, while considering the question whether rebate is within the realm of tax defined under Article 304(a) so as to say that it discriminates between the two ....