1996 (12) TMI 328 - SC - VAT and Sales Tax

Whether the exemption notification must be read as a whole & therefore, if find the exemption notification to be violative of article 304(a) the entire exemption notification will have to be struck down and not just a portion of it which is discriminatory as contended by the appellants. Held that - Appeal allowed. In the present case the exemption notification as it originally stood exempted all re-rolled finished products sold in the State of Andhra Pradesh from tax provided tax had been paid in the State of Andhra Pradesh on the raw material. This exemption is still available to re-rolled products which are manufactured within the State. No exception can be taken to this part of the notification. Only the portion of exemption notification which discriminates against goods manufactured outside the State violates the provisions of article 304(a). In fact the words denying this exemption to goods manufactured outside the State were expressly and specifically added to the original exemption notification by the amending G.O. Ms. No. 1373 of 28th August, 1981. It is this amendment alone, which is clearly severable, that offends article 304(a). It can, therefore, be struck down. The subsequent notification of 20th March, 1984 proceeds on the same basis. There is no need, therefore, to strike down the entire tax exemption which is granted to all re-rolled steel products sold in the State of Andhra Pradesh and manufactured out of tax-paid raw material purchased in the State of Andhra Pradesh. The discriminatory provision is clearly severable and can be struck down.

Summary

Issues:
Challenge to notifications under Andhra Pradesh General Sales Tax Act, 1957 as violative of Article 304(a) of the Constitution of India.

Detailed Analysis:

1. Background and Facts: Appellant is a registered dealer under the Andhra Pradesh General Sales Tax Act, 1957, dealing in iron and steel. Raw materials are purchased in Andhra Pradesh, processed in Karnataka, and sold back in Andhra Pradesh. Notifications G.O. Ms. No. 88 and G.O. Ms. No. 498 imposed conditions on tax exemptions for re-rolled steel products based on the location of re-rolling mills.

2. Constitutional Provisions: Article 304(a) of the Constitution allows states to impose taxes on goods but prohibits discrimination between goods imported and goods manufactured locally. The issue of discrimination based on the origin of goods was central to the case.

3. Legal Precedents: The judgment referred to previous cases where discriminatory tax provisions were struck down as unconstitutional under Article 304(a). The court emphasized the importance of non-discrimination in taxation between locally produced and imported goods.

4. Analysis of Notifications: The court found the notifications discriminatory as they differentiated between products manufactured within Andhra Pradesh and those produced outside the state. The exemption provisions were held to violate Article 304(a) by creating an unjustifiable distinction based on the location of manufacturing.

5. Severability Doctrine: The court applied the doctrine of severability to the notifications. It held that while the discriminatory provisions could be struck down, the rest of the exemption notification, which was not discriminatory, could remain valid. The court emphasized that only the discriminatory part of the notification was being invalidated.

6. Judgment: The appeals were allowed, setting aside the judgments of the High Court and Sales Tax Appellate Tribunal. The respondents were directed to pay the costs of the appeals. The court upheld the principle of non-discrimination in taxation under Article 304(a) and emphasized the importance of fair treatment for goods irrespective of their origin.

7. Conclusion: The judgment clarified the constitutional principles governing taxation under Article 304(a) and highlighted the need to avoid discriminatory practices in tax laws. It provided a nuanced analysis of the notifications in question, ensuring that only the discriminatory provisions were struck down while upholding the validity of the rest of the exemption notification.