1989 (11) TMI 298 - HC - VAT and Sales Tax

Summary

Issues:
Violation of Article 304(a) of the Constitution by the notification reducing sales tax rate on locally manufactured goods supplied to specified undertakings.

Analysis:
The petitioners, a manufacturing company, challenged a notification issued by the Andhra Pradesh Government that reduced the sales tax rate on goods manufactured locally and supplied to specified undertakings. The petitioners argued that this notification violated Article 304(a) of the Constitution. They relied on various Supreme Court decisions, including Indian Cement Ltd. v. State of A.P., Weston Electroniks v. State of Gujarat, and Hi-Beam Electronics Pvt. Ltd. v. State of A.P., to support their claim.

In the Indian Cement Ltd. case, the Supreme Court observed that differential treatment favoring local manufacturers was not justified and violated Article 304(a) of the Constitution. The Court emphasized that any preference given to locally produced goods over imported goods is prohibited under Article 304(a). The Court also referred to the State of Madras v. Nataraja Mudaliar case, where differential rates of tax on locally produced and imported goods were deemed unconstitutional.

The Government Pleader argued that unless the difference in taxation rates affects the movement of goods or free-flow of trade, the notifications should not be invalidated. However, the Court held that Article 304(a) prohibits discriminatory treatment between locally produced and imported goods. The Court cited the Mahindra and Mahindra Limited v. State of Andhra Pradesh case and Anand Commercial Agencies v. Commercial Tax Officer case but ultimately relied on the Indian Cement Ltd. case to quash the impugned notification.

The Court concluded that the notification reducing sales tax on locally manufactured goods supplied to specified undertakings was in violation of Article 304(a) of the Constitution. As a result, the notification was quashed, and all parties were directed to pay tax at a uniform higher rate. Past transactions were not affected by this decision, and the writ petition was disposed of with no costs awarded.

This judgment underscores the importance of ensuring non-discriminatory treatment between goods produced locally and those imported, as mandated by Article 304(a) of the Constitution. The Court's decision provides clarity on the constitutional principles governing taxation and trade practices, emphasizing the need for uniformity and fairness in tax policies affecting intra-state trade.