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TMI Blog1988 (1) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... is also bad in law. It may be pointed out that the rate of sales tax in Karnataka is 19.5 per cent in regard to intra-State sales. - Writ Petition (Civil) No. 422 of 1987 - - - Dated:- 12-1-1988 - RANGANATH MISRA AND MURARI MOHAN DUTT JJ. Dr. Y.S. Chitale, Senior Advocate (K.J. John, Atul Chitale and Miss Naina, Advocates, with him), for the petitioners. T.S. Krishnamoorthy Iyer and G.A. Shah, Senior Advocates, and V. Jagannadha Rao, Advocate-General for A.P. (B.B. Ahuja, Miss A. Subhasini, T.V.S.N. Chari, Miss Vrinda Grover, Badri Nath, Dr. N.M. Ghatate, M. Veerappa, A.M. Khanwilkar, A.S. Bhasme, R. Mohan, R. Ayyam Perumal, A. Subba Rao, M.N. Shroff, J.R. Das, D.K. Sinha, S.N. Khare, T.C. Sharma, S.K. Battacharya, Kailash Vasudev and Probir Choudhary, Advocates, with them), for the respondents. K. Parasaran, Attorney-General for India. -------------------------------------------------- The judgment of the Court was delivered by RANGANATH MISRA, J.- The India Cement Ltd., Chettinad Cement Corporation, Dalmia Cement (Bharat) Ltd. and Tamil Nadu Cement Corporation Ltd. being petitioners Nos. 1, 6, 9 and 12 in this application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n exercise of the powers conferred by sub-section (5) of section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), the Government of Karnataka, being satisfied that it is necessary so to do in public interest, hereby reduces with immediate effect the rate of tax payable under the said Act on the sale of cement made in the course of inter-State trade or commerce from 15 per cent to 2 per cent. Petitioners in this application challenge the vires of section 8(5) of the Central Sales Tax Act, 1956 (Central Act 74 of 1956) and the notifications referred to above as ultra vires the provisions contained in Part XIII of the Constitution providing that trade, commerce and intercourse throughout the territory of India shall be free. According to the petitioners the three orders referred to above create trade barriers and directly impinge upon the freedom of trade, commerce and intercourse provided for in article 301 of the Constitution. Since the vires of section 8(5) of the Central Act 74 of 1956 had been assailed, notice had been issued to the Union of India and learned Attorney- General. Notice was also directed to all the States. Pursuant to the notice, the States of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other States is a reasonable classification and it is not violative of articles 14 and 19(1)(g). The concession in the rate of tax extended by the State of Andhra Pradesh to the manufacturers and dealers of Andhra Pradesh is well within the statutory powers of the State. It does not affect the business interest of the manufacturers and dealers of other States. It is the policy of the State of Andhra Pradesh to help the cement industries to organise the marketability of their full production to improve the overall industrial activity of the country. Hence this contention tenable. As already mentioned earlier, the notifications were issued in Public interest and in the interest of State revenue. Yet at another place in the return, it has been stated: The contention that the policy of the legislature is to promote sales only through registered dealers is not based on correct appreciation of the law. Any law to that effect would impose a restriction on the rights of the common man and would result in the violation of the provisions of the Constitution which ensures certain fundamental rights to the common man. The State of Karnataka chose not to make any return to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest: Provided that no Bill or amendment for the purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Judicial authority in regard to interpretation of this Part of the Constitution is abundant. We shall presently refer to some of the decisions of this Court. In Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809 a Constitution Bench of this Court was testing the validity of the provisions of the Assam Taxation (on Goods Carried by Roads or Inland Waterways) Act, 1954, by applying the provisions of this Part of the Constitution. At page 830 of the reports, Sinha, C.J., stated: Article 301, with which Part XIII commences, contains the crucial words 'shall be free' and provides the key to the solution of the problems posed by the whole Part. The freedom declared by this article is not an absolute freedom from all legislation. As already indicated, the several en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nother State or other States, if similar taxes are imposed on goods produced or manufactured in that State [article 304(a)]; and lastly (7) restrictions imposed by existing laws have been continued, except in so far as the President may by order otherwise direct (article 305). Gajendragadkar, J., a s he then was, at page 843 of the reports observed: In drafting the relevant articles of Part XIII, the makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal policy which had been adopted by the Constitution for the governance of the country. Political freedom which had been won, and political unity which had been accomplished by the Constitution, had to be sustained and strengthened by the bond of economic unity. It was realised that in course of time, different political parties believing in different economic theories or ideologies may come in power in the several constituent units of the Union, and that may conceivably give rise to local and regional pulls and pressures in economic matters. Local or regional fears or apprehensions raised by local or regional problems may persuade the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 302 relaxes that restriction in favour of Parliament by providing that that authority 'may by law 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'. Having relaxed the restriction in respect of Parliament under article 302, a restriction is put up on the relaxation by article 303(1) to the effect that Parliament shall not have the power to make any law giving any preference to any one State over another or discriminating between one State and another by virtue of any entry relating to trade and commerce in Lists I and III of the Seventh Schedule. Article 303(1) which places a ban on Parliament against the giving of preferences to one State over another or of discriminating between one State and another, also provides that the same kind of ban should be placed upon the State Legislature also legislating by virtue of any entry relating to trade and commerce in Lists II and III of the Seventh Schedule. Article 303(2) again carves out an exception to the restriction placed by article 303(1) on the powers of Parliament by providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder clause (b) provided in the proviso thereto, there are two important differences between articles 302 and 304(b) which require special mention. The first is that while the power of Parliament under article 302 is subject to the prohibition of preferences and discriminations decreed by article 303(1) unless Parliament makes the declaration contained in article 303(2), the State's power contained in article 304(b) is made expressly free from the prohibition contained in article 303(1), because the opening words of article 304 contain a non obstante clause both to article 301 and article 303. The second difference springs from the fact that while Parliament's power to impose restrictions under article 302 upon freedom of commerce in the public interest is not subject to the requirement of reasonableness, the power of the State to impose restrictions on the freedom of commerce in the public interest under article 304 is subject to the condition that they are reasonable. The next authority to which we may now refer is the case of State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC); [1968] 3 SCR 829. Shah, J., as he then was, referred to Part XIII of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may normally be presumed to be in the public interest............. It is worthwhile to refer to the observations made by Hegde, J. At page 855 of the reports (399 of STC), the learned Judge observed with reference to section 8(5) of the Central Sales Tax Act as follows: Sub-section (5) of section 8 provides for giving individual exemptions in public interest. Such a power is there in all taxation measures. It is to provide for unforeseen contingencies. Take for example, when there was famine in Bihar, if a dealer in Punjab had undertaken to sell goods to a charitable society in that State at a reasonable price for distribution to those who were starving, it would have been in public interest if the Punjab Government had exempted that dealer from paying sales tax. Such a power cannot immediately or directly affect the free flow of trade. The power in question cannot be said to be bad. If there is any misuse of that power, the same can be challenged. The true purpose of the provisions contained in Part XIII of the Constitution, as elucidated in the different decisions of the Constitution Benches, is that the restriction provided for in article 301 can within the ambit be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by executive action provided the same are within the limitations prescribed under the scheme of Part XIII. Coming to the second notification relating to inter-State transactions, the justification pleaded by the State of Andhra Pradesh has already been extracted by us. We may usefully refer to the decision of the Constitution Bench in the case of Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. Assistant Commissioner of Sales Tax [1974] 33 STC 219 (SC); [1974] 2 SCR 879. At page 883 of the reports (237 of STC), Khanna, J., speaking for the court, observed: It has been argued on behalf of the appellants that the fixation of rate of tax is a legislative function and as the Parliament has, under section 8(2)(b) of the Act, not fixed the rate of Central sales tax but has adopted the rate applicable to the sale or purchase of goods inside the appropriate State in case such rate exceeds 10 per cent, the Parliament has abdicated its legislative function. The above provision is consequently stated to be constitutionally invalid because of excessive delegation of legislative power. This contention, in our opinion, is not well-founded. Section 8(2)(b) of the Act has plainly been enacted wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Central sales tax shall also be the same as that of the local sales tax for the said goods. The object of law thus is that the rate of the Central sales tax shall in no event be less than the rate of local sales tax for the goods in question though it may exceed the local rate in case that rate be less than 10 per cent. For example, if the local rate of tax in the appropriate State for the non-declared goods be 6 per cent, in such an event a dealer, whose case is not covered by section 8(1) of the Act, would have to pay Central sales tax at a rate of 10 per cent. In case, however, the rate of local sales tax for such goods be 12 per cent, the rate of Central sales tax would also be 12 per cent because otherwise, if the rate of Central sales tax were only 10 per cent, the unregistered dealer who purchases goods in the course of inter-State trade would be in a better position than an intra-State purchaser and there would be no disincentive to the dealers to desist from selling goods to unregistered purchasers in the course of inter-State trade. The object of the law apparently is to deter inter-State sales to unregistered dealers as such inter-State sales would facilitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Commission, 1953-54, Vol. 3, p. 57). In other words, it was to discourage inter-State sales to unregistered dealers that Parliament provided a high rate of tax, namely, 10 per cent. But even that might not serve the purpose if the rate applicable to intra- State sales of such goods was more than 10 per cent. The rate of 10 per cent would then be favourable and they would be at an advantage compared to local consumers. It is because of this that Parliament provided, as a matter of legislative policy, that the rate of tax shall be 10 per cent or the rate applicable to intra-State sales whichever is higher. If prevention of evasion of tax is a measure in the public interest, there can be no doubt that Parliament is competent to make a provision for that purpose under article 302, even if the provision would impose restrictions on the inter-State trade or commerce. Variation of the rate of inter-State sales tax does affect free trade and commerce and creates a local preference which is contrary to the scheme of Part XIII of the Constitution. The notification extends the benefit even to unregistered dealers and the observations of Hedge, J., on this aspect of the matter are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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