1974 (8) TMI 97 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to validity of notifications under U.P. Sales Tax Act regarding taxation on exercise books, violation of Article 301 and Article 304 of the Constitution, violation of Article 14 of the Constitution.

Detailed Analysis:
The petitioners, six firms from Agra, challenged notifications issued by the State Government under the U.P. Sales Tax Act, imposing a 5% sales tax on exercise books, except those made from paper purchased within Uttar Pradesh. The petitioners contended that these notifications contravened Article 301 and were not saved by Article 304, also alleging a violation of Article 14 of the Constitution. The notifications exempted exercise books made from paper purchased within the State from sales tax, while imposing a 5% tax on exercise books made from imported paper, thereby affecting the free movement of trade.

The Supreme Court's interpretations in various cases emphasized the importance of non-discrimination in taxing goods from other states compared to goods produced within the state. The Court held that the imposition of sales tax on imported exercise books while exempting locally manufactured ones directly hindered trade movement and violated Article 301. The notifications did not ensure similar taxation on similar goods, thus not meeting the requirements of Article 304(a) to validate the tax imposition.

The judgment highlighted that the practical implications of the tax imposition on exercise books made from imported paper were not feasible for businesses due to increased costs and lack of competitiveness. It was emphasized that the tax burden on imported exercise books was discriminatory and unconstitutional under Article 301.

The Court analyzed the tax implications on exercise books manufactured from imported paper compared to those made from locally purchased paper. While there were differences in tax treatment, the Court concluded that the notifications discriminated against importers of exercise books, leading to a violation of Article 301. The judgment quashed the portion of the notification imposing sales tax on imported exercise books and directed the authorities not to demand tax deposits based on that portion.

In conclusion, the Court allowed the petition, considering the discriminatory nature of the tax imposition on imported exercise books, and emphasized the importance of non-discrimination in taxation to uphold the free movement of trade as enshrined in the Constitution.