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TMI Blog1968 (4) TMI 61X X X X Extracts X X X X X X X X Extracts X X X X ..... enior Advocate (A.V. Rangam with him), for the appellant. M.R.M. Abdul Karim, K. Rajendra Choudhury and K.R. Choudhury, for the respondent. R. Thiagarajan, for intervener No. 1. B. Sen, Senior Advocate (G.S. Chatterjee for P.K. Bose with him), for intervener No. 5. B.R.L. Iyengar, Senior Advocate (R.N. Sachthey and S.P. Nayyar with him), for intervener No. 4. A.N. Singh and D.N. Gupta, for intervener No. 3. -------------------------------------------------- The judgment Of SHAH, MITTER and VAIDIALINGAM, JJ., was delivered by SHAH, J. BACHAWAT, J., and HEGDE, J., delivered two separate judgments. SHAH, J.- In a proceeding for assessment of tax for 1963-64 under the Central Sales Tax Act, 1956, the Deputy Commercial Tax Officer rejected the contention of the assessee that a part of the turnover of his business in matches arose out of intra- State sale transactions at the assessee's depot at Ongole (in the State of Andhra Pradesh) to which depot the goods were despatched by him from his place of business in the State of Madras. The Deputy Commercial Tax Officer held that the goods were moved from "the godown stock" of the assessee in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Constitution inter alia for the regulation of inter-State sale transactions. This Court in The State of Bombay v. United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133., held that under the Bombay Sales Tax Act (24 of 1952) sales effected in Bombay in respect of goods exported from the State were not taxable by the State of Bombay, but the importing State was competent to levy tax on transactions of sale in the course of inter-State trade or commerce on persons who were resident outside its territory, provided that the goods were delivered in the importing State for the purpose of consumption therein. This decision made the dealer carrying on business in the exporting State amenable to the sales tax law of the importing State. The question was reconsidered by this Court in Bengal Immunity Company Ltd. v. State of Bihar [1955] 2 S.C.R. 603; 6 S.T.C. 446. The Court held that the sales or purchases made by an assessee which actually took place in the course of inter-State trade or commerce could not be taxed by any State until by law it was otherwise provided by Parliament. The judgment in Bengal Immunity Co.'s case [1955] 2 S.C.R. 603; 6 S.T.C. 446., removed, by making inter- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (2). By clause (3) it was enacted that: "Parliament may by law formulate principles for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce." In exercise of authority conferred by the Constitution (Sixth Amendment) Act, 1956, the Parliament enacted on December 21, 1956, the Central Sales Tax Act, 1956, with a view to formulate principles; (a) for determining when a sale or purchase of goods takes place in the course of inter-State trade or commerce or outside a State or in the course of import into or export from India; (b) providing for the levy, collection and distribution of taxes on sales of goods in the course of inter-State trade or commerce; (c) declaring certain goods to be of special importance in inter-State trade or commerce and specifying the restrictions and conditions to which State laws imposing taxes on the sale or purchase of such goods of special importance shall be subject. By section 3 of the Act a definition of sale or purchase of goods said to take place in the course of inter-State trade or commerce was devised. By section 4 conditions in which a sale or purchase of goods was to be deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale or purchase of goods shall not be deemed to be exempt from tax generally under the sales tax law of the appropriate State if under that law it is exempt only in specified circumstances or under specified conditions or in relation to which the tax is levied at specified stages or otherwise than with reference to the turnover of the goods. (3) * * * (4) * * * (5) Notwithstanding anything contained in this section, the State Government may, if it is satisfied that it is necessary so to do in the public interest, by notification in the Official Gazette, direct that in respect of such goods or classes of goods as may be mentioned in the notification and subject to such conditions as it may think fit to impose, no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sale by him from any such place of business of any such goods in the course of inter-State trade or commerce or that the tax on such sales shall be calculated at such lower rates than those specified in sub-section (1) or sub-section (2) as may be mentioned in the notification." By section 9 a machinery was set up for levy and collection of tax and penalti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, the tax so levied shall be refunded to such person in such manner and subject to such conditions as may be provided in any law in force in that State." The scheme of the Act was first to devise definitions of "inter- State sales" and "sales outside the State", and then to declare inter-State sales subject to tax, and to set up machinery for levying and collecting tax on those sales. Transactions in goods which were made subject to tax in the course of inter-State trade or commerce were classified into three broad categories- (1) transactions falling within section 8(1), i. e., all sales to Government, and sales to a registered dealer other than the Government of goods referred to in sub-section (3) of section 8; (2) transactions falling within section 8(2)(a), i. e., sales in respect of declared goods; and (3) transactions falling within section 8(2)(b), i. e., sales [not falling within (1)] in respect of goods other than declared goods. Sales of goods in category (1) were declared liable at the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a single inter-State transaction by different States, each State relying upon some territorial nexus between the State and the sale. The tax though collected by the State under the Central Sales Tax Act was as an agent of the Central Government; it was, by sub-section (4) of section 9, enacted in implementation of the principle of assignment of tax set out in clause (2) of Article 269, assigned to the State which collected it. This somewhat tortuous scheme of levying tax on inter-State transactions and making it available to the State which levied it, in effect countenances levy of different rates of tax on inter-State transactions in similar goods. It is upon the prevalence of different rates of tax which, subject to adjustments, and incorporated in the Central Sales Tax Act, that the argument of the assessee is largely founded. He contends-and his contention has found favour with the High Court-that the liability to pay tax on inter-State transactions, depending upon the rate of tax prevailing in the exporting State, hampers trade and commerce, by giving or authorising the giving of preference to one State over another or by making or authorising the making of discrimination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on hampering trade is imposed. In Atiabari Tea Company's case, Gajendragadkar, J., observed: "Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the pur- view of Article 301. The argument that all taxes should be governed by Article 301 whether or not their impact on trade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld." In a recent judgment of this Court in The Andhra Sugars Ltd. and Another v. The State of Andhra Pradesh and Others, Bachawat, J., speaking for the Court, after referring to the observations made by Gajendragadkar, J., in Atiabari Tea Company's case observed: "This interpretation of Article 301 was not dissented from in Auto- mobile Transport (Rajasthan) Ltd. v. State of Rajasthan. Normally, a tax on sale of goods does not directly impede the free movement or transport of goods. Section 21 is no exception. It does not impede the free movement or transport of goods and is not violative of Article 301." Section 21 of the Andhra Pradesh Sugar Cane (Regulation of Supply and Purchase) Act which was referred to in the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the power of the Parliament which it otherwise possesses in the public interest to impose restrictions on the freedom of trade, commerce or intercourse, operative only as between one State and another as two entities. There is also no doubt that exercise of the power to tax may normally be presumed to be in the public interest. Article 303 provides by the first clause: "Notwithstanding anything in Article 302, neither Parliament nor the Legislature of a State, shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to trade and commerce in any of the Lists in the Seventh Schedule." Having conferred by Article 302 power upon the Parliament to impose restrictions upon freedom of trade, commerce or intercourse, the Constitution proceeds to impose certain restrictions upon the power so conferred. Reference to the power of the State Legislatures in Article 303(1) creates a complication which we are not called upon in the present case to resolve. It is expressly declared that the Parliament shall not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether for the purpose of Article 303 entries relating to tax on sale or purchase of goods, i. e., entry 92A of List 1, and entry 54 of List 11, are entries relating to trade and commerce, for, in our opinion, an Act which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State is not a law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, merely because varying rates of tax prevail in different States. It was urged that the High Court was right in holding that rates of tax on the sale of the same or similar commodity by different States by itself was discriminatory, since it authorised placing of an unequal burden on inter-State trade and commerce, affecting its free flow between the States. The rates of tax prevailing in different States on transactions of sale in the diverse commodities are undoubtedly not uniform. According to the High Court such a scheme was "obviously quite discriminatory and considerably affected the freedom of trade, commerce and intercourse", the differential rates or exemptions in va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less force in different localities. And there is nothing, in my opinion, to prevent the Australian Parliament, charged with the welfare of the people as a whole from doing what every State in the Common- wealth has power to do for its own citizens, that is to say, from basing its taxation measures on considerations of fairness and justice, always observing the constitutional injunction not to prefer States or parts of States." In W. R. Moran Proprietary Ltd. v. The Deputy Federal Commissioner of Taxation (N. S. W.) and Others [1940] 63 C.L.R. 338., the Judicial Committee of the Privy Council recorded its approval to that exposition. It is true that the Judicial Committee was interpreting section 51(ii) of the Australian Constitution. It also appears from the provisions of the Australian Constitution that by virtue of section 96 of the Constitution there is to be a uniform imposition of customs duties. But the observations made by Isaacs, J., in King v. Barger [1908] 6 C.L.R. 41. and approved by the Judicial Committee are useful in the determination of the true principle applicable in the present case, that, it is where differentiation is based on considerations not dependent upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y framed, revenue from sales tax was reserved to the States. But since the power of taxation could be exercised in a manner prejudicial to the larger public interests by the States, it was found necessary to restrict the power of taxation in respect of transactions which had an inter-State content. Amendment of Article 286 and the enactment of the Sales Tax Laws Validation Act, 1956, and the Central Sales Tax Act, 1956, were all intended to serve a dual purpose: to maintain the source of revenue from sales tax to the States and at the same time to prevent the States from subjecting transactions in the course of inter-State trade so as to obstruct the free flow of trade by making commodities unduly expensive. The effect of the Constitutional provisions achieved in a somewhat devious manner is still clear, viz., to reserve sales tax as a source of revenue for the States. The Central Sales Tax Act is enacted under the authority of the Union Parliament, but the tax is collected through the agency of the States and is levied ultimately for the benefit of the States and is statutorily assigned to the States. That is clear from the amendments made by the Constitution (Sixth Amendment) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d skins tanned and sold within the State and this discriminatory system of taxation offended Article 304(a) of the Constitution. This Court accepted the contention and held that rule 16(2) discriminated against imported hides or skins which had been purchased or tanned outside and therefore it contravened Article 304(a) of the Constitution. Similarly in A. Hajee Abdul Shukoor and Co. v. State of Madras [1964] 8 S.C.R. 217; 15 S.T.C. 719., the assessees who were dealers in skins in the State of Madras, purchased raw skins from places both within and outside the State of Madras. They were assessed to sales tax in accordance with the provisions of the Madras General Sales Tax (Turnover and Assessment) Rules, on the turnover of hides and skins purchased in the untanned condition outside the State and tanned within the State with respect to the assessment years 1955-56, 1956-57 and 1957-58. The tax was assessed at 3 pies per rupee on the price of tanned bides and skins for the years 1955-56 and 1956-57 and at the rate of 2 per cent on the turnover for the year 1957-58. In petitions filed by the assessees in this Court under Article 32 of the Constitution it was held that section 2(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able turnover under the Central Act unlike under the Madras General Sales Tax Act, there is discrimination ..... between one State and another". They observed that: "In the matter of non-deductibility of excise duty from the turnover of inter-State sales, the Central Act has equal application and makes no discrimination. The Central Act does not say that excise duty will be deductible in one State and not in another. It is not deductible from the turnover of the inter-State sales and this rule is uniformly applied to all inter-State sales. There is, therefore, no question of inequality or discrimination forbidden by Article 303(1) and there is no question of contravention of Article 301 either." But in dealing with the case of the assessee in the last paragraph of the judgment, the High Court observed that since no provision had been made for deduction of the excise duty from the turnover of inter-State sales or purchases under the Central Act with the result that unequal burden will fall on differences in the quantum of turnover because of allowance in the one case and disallowance in another, of deduction of excise duty. This in the view of the High Court would impede the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a group of petitions filed before the High Court. Against orders passed in favour of the other assessees the State has not preferred appeals. The amount involved in the claim is small. The State apparently has approached this Court with a view to obtain a final determination of the important question which was raised in the petitions filed before the High Court. We therefore direct that there will be no order as to costs in this Court and in the High Court. BACHAWAT, L- I have read the draft judgment prepared by our learned brother Justice Shah. He has said that tax under the Central Sales Tax Act on inter-State sales is in its essence a tax hampering movement of trade or commerce, since by the definition in section 3 of the Act a sale or purchase of goods is deemed to take place in the course of inter-State trade or commerce, if it (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. He is of the view that the tax falls within the prohibition imposed under Article 301 of the Constitution. In Atiabari Tea Co. Ltd. v. The State of Assam [1961] 1 S.C.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es would not normally offend Article 301. That Article makes no distinction between movement from one part of the State to another part of the same State and movement from one State to another. Now, if a tax on intra-State sale does not offend Article 301, logically, I do not see how a tax on inter-State sale can do so. Neither tax operates directly or immediately on the free flow of trade or the free movement of the transport of goods from one part of the country to the other. The tax is on the sale. The movement is incidental to and a consequence of the sale. In Bengal Immunity Company Ltd. v. State of Bihar [1955] 2 S.C.R. 603 at p. 754; 6 S.T.C. 446., Jagannadhadas, J., after referring to Article 301, said: "Now it is not disputed that a tax on a purely internal sale which occurs as a result of the transportation of goods from a manufacturing centre within the State to a purchasing market within the same State is clearly permissible and not hit by anything in the Constitution. If a sale- in that kind of trade can bear the tax and is not a burden on the freedom of trade, it is difficult to see why a single point tax on the same kind of sale where a State boundary intervenes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpowers Parliament by law to impose such restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India, as may be required in the public interest. The power conferred on Parliament is extremely wide and the only limitation placed on that power by Article 302 is that the law in question must be required in the public interest. Primarily it is for Parliament to determine the requirements of public interest. The decision of Parliament in this regard is not easy to challenge. Parliament is presumed to know the needs of the. people, the requirements of the time and the economic and political interests of the country as a whole. By its very composition it is unlikely that Parliament would have regional bias or would adopt a parochial approach. In addition, there is the presumption of the constitutionality of a statute. Therefore the State undoubtedly starts with an advantage. But once it is shown that a measure prima facie gives preference to the residents of one State over another State or it makes discrimination between the residents of a State and that of another because of the adoption of different rates of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a manner which is likely to be prejudicial to the free flow of trade and commerce in the country. Constitutional amendments referred to in the judgment of Shah, J., have an important purpose behind them. Same is the case as regards the provisions in the Act. Before Articles 269 and 286 were amended and the Act enacted, a Committee known as Taxation Enquiry Committee had gone into the various aspects of inter-State trade and commerce and made recommendations to the Union Government on that subject. It was largely on the basis of those recommendations that Articles 269 and 286 of the Constitution were amended and the Act enacted. Therefore, it is clear that the Act is not a haphazard legislation ; it is the product of deep think- ing and clear analysis of the various aspects of the matter. This Court will be slow to hold such a measure as being either not in public interest or is violative of Article 303(1). The question of giving preference or making discrimination depends on various facts and circumstances, the tax rate being only one of them. The views of an expert committee on a subject so complicated as tax on inter-State sales is entitled to great weight. In the very nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a large portion of the goods sold in inter-State trade. The incidence of taxation on those goods is such that it could not have had any serious repercussion in inter-State trade. Section 8(1)(b) regulates the sales tax leviable on sales to registered dealers in the course of inter-State sales. The maximum rate fixed at the relevant time was two percentum of the turnover. All that the registered dealer has to do is to get included in his certificate of registration goods of the class or classes which he proposes to purchase as being intended for resale by him or for use by him in the manufacture or processing of goods for sale or in the mining or in the generation or distribution of electricity or any other form of power. Here again the incidence of taxation is so low as ordinarily not to affect the free flow of trade. This takes us to the remaining sales in the course of inter-State trade or commerce. By and large these sales are made to unregistered dealers. Here again, so far as the declared goods are concerned, tax has to be levied at the rate applicable to local sales, as provided in section 8(2)(a). Then we come to clause (b) of section 8(2), which deals with goods other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nged. It must be remembered that under the present conditions the power to tax is not merely used for the purpose of collecting revenue; it is a powerful social instrument, in particular, an instrument which can be effectively used for correcting economic maladjustments. While the Legislature must provide in the law for all reasonably foreseeable contingencies, still some discretionary power has to be given to the executive to meet unexpected situations. If we bear in mind the fact that sales tax on inter-State sales is levied for the benefit of the States and the further fact that each one of the State Governments in its own interest is bound to create the best possible condition for the growth of industry and commerce in that State, it is reasonable to assume that they will not be blind to economic forces. All that one has to guard against is to see that they do not, by having recourse to their taxation power, obstruct the flow of trade into their States. In the normal course they will be interested in seeing that goods produced in their States are sold outside. Reasonably sufficient safe- guards against the free flow of trade into a State have been provided by the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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