1997 (2) TMI 447 - SC - VAT and Sales Tax

Sales tax on exercise books - Held that - Appeal dismissed. The High Court was right in holding that exempting the exercise books produced in the State and subjecting the exercise books produced outside the State but sold in Uttar Pradesh to sales tax at 5 per cent is discriminatory and, therefore, offends clause (a) of article 304.

Summary

Issues:
- Interpretation of Article 301 and Article 304(a) of the Constitution of India in relation to a state measure imposing sales tax on exercise books.
- Discriminatory nature of the state measure in exempting exercise books made within the state from sales tax while imposing a tax on exercise books produced outside the state but sold within the state.
- Application of precedent from Firm A.T.B. Mehtab Majid & Co. v. State of Madras regarding discriminatory taxation on goods produced outside the state.
- Analysis of the High Court's decision on the constitutionality of the state measure in light of Article 301 and Article 304(a).
- Examination of the constitutional validity of the state measure under Article 304(a) based on the principles outlined in Shree Mahavir Oil Mills v. State of Jammu and Kashmir.

Detailed Analysis:

The Supreme Court examined a state measure by the Government of Uttar Pradesh that exempted exercise books made from paper purchased within the state from sales tax, while imposing a 5% sales tax on exercise books made outside the state but sold within Uttar Pradesh. The High Court categorized cases involving exercise books based on their production and sale locations. It found the imposition of sales tax on exercise books produced outside the state and sold within Uttar Pradesh to be in violation of Article 301 read with Article 304(a) of the Constitution. The Court focused on this category for its analysis.

The Court upheld the High Court's decision, citing the precedent set in Firm A.T.B. Mehtab Majid & Co. v. State of Madras. It emphasized that discriminatory taxation on goods produced outside the state, as seen in the present case, hampers the free flow of trade and commerce, contravening Article 301. The Court highlighted that sales tax must not discriminate between goods of one state and goods of another to avoid impeding trade. It explained that Article 304(a) allows states to levy taxes on goods from other states as long as similar goods within the state are subject to similar taxes, ensuring no discrimination against imported goods.

The Court referenced the recent case of Shree Mahavir Oil Mills v. State of Jammu and Kashmir to further elaborate on the non-discriminatory aspect of Article 304(a). It clarified that the clause prohibits discrimination against imported goods in tax levies, emphasizing equal taxation rates for locally manufactured and imported goods. Once discrimination is established, the Court noted that further inquiries into price structures or importer economics are unnecessary.

Ultimately, the Court dismissed the appeal, affirming the High Court's decision that the state measure imposing sales tax on exercise books produced outside Uttar Pradesh and sold within the state was discriminatory and unconstitutional under Article 301 and Article 304(a). The judgment concluded with the dismissal of the appeal without costs.