1988 (8) TMI 370 - SC - VAT and Sales Tax

Whether the direct and immediate result of the impugned notification No. S.O. 934 dated August 1 1984 was to impose an unfavourable and discriminatory tax burden on the imported goods? Held that - The general rate of sales tax on hosiery goods was 5 per cent and it was the exemption for locally manufactured hosiery goods granted by the said Notification No. S.O. 934 dated August 1 1984 which constituted the departure. It is therefore really this notification which is discriminatory and which must be struck down. We find that the said Notification No. S.O. 934 dated August 1 1984 is void and we quash the same. As quashing of this notification on the ground that it was void ab initio might lead to undue hardship for the dealers in the State of Bihar who might have sold locally manufactured hosiery goods without taking into consideration any amount on account of the liability to sales tax in view of the exemption granted by the said notification dated August 1 1984.In order to obviate this hardship we direct that the arrears of sales tax which would become payable by the dealers in the State of Bihar in respect of sales of local hosiery goods made during the period when the said notification was in operation should not be collected.

Summary

Issues:
Challenge to imposition of sales tax on hosiery goods in Bihar, Discriminatory levy of sales tax, Violation of Article 301 and 304 of the Constitution, Relief sought by petitioners.

Analysis:
The Supreme Court of India heard a writ petition challenging the imposition of sales tax on hosiery goods in Bihar. The petitioners, hosiery manufacturers and dealers, contended that the exemption granted to locally manufactured hosiery goods discriminated against hosiery goods manufactured outside Bihar, violating Article 301 of the Constitution. The Court examined Articles 301 and 304 of the Constitution, which prohibit discriminatory taxation on goods imported from other states. The exemption through a notification, not a law, was found to be discriminatory, as seen in previous court decisions such as H. Anraj v. Government of Tamil Nadu and Indian Cement Ltd. v. State of Andhra Pradesh.

The Court emphasized that discriminatory sales tax could hinder the free flow of trade and commerce, contravening constitutional provisions. Citing Weston Electroniks v. State of Gujarat, where a similar discriminatory tax was struck down, the Court held that the notification exempting locally manufactured hosiery goods was discriminatory and void ab initio. To prevent undue hardship to dealers who relied on the exemption, the Court directed that arrears of sales tax on local hosiery goods sold during the notification's validity should not be collected.

In conclusion, the Court ruled in favor of the petitioners, quashing the discriminatory notification and preventing the collection of arrears of sales tax on locally manufactured hosiery goods. Despite the ruling, no costs were awarded considering the circumstances of the case.