1990 (10) TMI 361 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to notification reducing tax rate on television sets manufactured in Karnataka, Allegation of discrimination in tax rates between goods imported and manufactured within the State, Interpretation of articles 301, 303(1), and 304(a) of the Constitution.

Detailed Analysis:
The petitioner, a manufacturer of television sets, challenged a notification issued by the Government of Karnataka on June 20, 1986, reducing the tax rate on television sets and components manufactured in Karnataka to two per cent under section 8-A of the Karnataka Sales Tax Act, 1957. The petitioner contended that the notifications created discrimination by levying higher tax rates on television sets manufactured outside the State, violating articles 301, 303(1), and 304(a) of the Constitution, which aim to prevent discrimination in taxation between goods imported and goods manufactured within the State. The petitioner highlighted the importance of preserving the free-flow of inter-State trade and commerce as per article 301, and the restrictions imposed by articles 303(1) and 304(a) on legislative powers concerning trade and commerce.

In a similar case before the Supreme Court, the issue of discriminatory taxation was addressed in Weston Electroniks v. State of Gujarat, where the Court held that while a State can impose taxes on imported goods similar to locally manufactured goods, such imposition should not discriminate between the two categories. Referring to a previous decision in Firm A.T.B. Mehtab Majid & Co. v. State of Madras, the Supreme Court emphasized that taxing laws should not hinder trade flow and must not discriminate between goods from different states. The Court clarified that sales tax should not be discriminatory and must comply with the provisions of article 304(a) to avoid contravening article 301 of the Constitution.

Applying the principles established by the Supreme Court, the High Court of Karnataka quashed the notifications dated June 20, 1986, and March 28, 1987, which imposed differing tax rates on television sets imported into the State and those manufactured within the State. The Court found that these notifications indeed resulted in discrimination in the levy of sales tax, thereby violating the constitutional provisions aimed at maintaining equality in taxation between goods imported and goods produced within the State. Consequently, the writ petition was allowed in favor of the petitioner, highlighting the importance of non-discriminatory taxation practices in inter-State trade and commerce.