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TMI Blog1997 (3) TMI 516X X X X Extracts X X X X X X X X Extracts X X X X ..... ned notifications were void and, therefore, they are hereby quashed. - C.A. Nos. 2145-2149 of 1997, W.P. Nos. 656, 788, 803, 2644, 2645 of 1994 - - - Dated:- 21-3-1997 - AHMADI A.M. NANAVATI G.T. AND KURDUKAR S.P. JJ. Yashank Adhyaru, Advocates, for Ms. H. Wahi, Advocate, for the State of Gujarat. D.A. Dave, Senior Advocate (U.A. Rana, Rajiv Tyagi and S. Tripathi, Advocates, for M/s Gagrat Co., with him), for the interveners (Associated Cement Companies of India Ltd.). Soli J. Sorabjee, Senior Advocate (P.S. Sarin, Amit Prabhat, R.K. Sanghi and S. Atreya, Advocates, with him), for the appellants. Aruneswar Gupta, M.K. Das, S.N. Rath and K.S. Bhati, Advocates, for the respondents (State of Rajasthan). -------------------------------------------------- The judgment of the Court was delivered by G.T. NANAVATI, J.- Leave granted. The appellants in these appeals are manufacturers of cement and they have their manufacturing units/factories in the State of Gujarat. The cement manufactured by them is sold throughout India through a network of stockists and dealers. They filed Civil Writ Petition Nos. 656, 788, 803, 2644 and 2645 of 1994 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e................ have been manufactured by me/us and are despatched in the course of inter-State trade or commerce vide RR/GR No........................(specify the number with date)................to Shri/M/s...................................(full address of the purchaser). Dated............... Signature............................. Name.................................... Seal: Designation........................" By the third notification dated March 7, 1994 the State of Rajasthan superseded the earlier notification dated June 27, 1990 and directed that in respect of inter- State sales of cement made by such dealers tax payable shall be calculated at the rate of 4 per cent without furnishing of declaration in form C or certificate in form D on fulfilment of the following conditions: "(i) that the dealer shall record the name and full and complete address of the purchaser in the bill or cash memorandum for such inter-State sale to be issued by him; (ii) that the burden to prove that the transaction was in the nature of inter- State sale, shall be on the dealer; and (iii) that the dealer making inter-State sales under this notification shall not be eligible t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cement in Rajasthan. The State of Rajasthan disputed the correctness of the figures given by the writ petitioners regarding increase in despatches of cement from Rajasthan to Gujarat and also disputed that the cement sold by the manufacturers and dealers in Rajasthan was available at a cheaper rate to the purchasers in the State of Gujarat. It denied that the impugned notifications violated any of the constitutional provisions or section 8(5) of the CST Act. 5.. The High Court held that the notifications dated January 8, 1990 and June 27, 1990 having been superseded they were no longer operative and the writ petitions had become infructuous to that extent and the challenge to those notifications did not survive. It, therefore, confined its consideration to the legality and validity of the last notification dated March 7, 1994. The High Court was of the view that it was for the writ petitioners to establish that because of reduction in the rate of sales tax by the impugned notifications the cement from Rajasthan was being sold in Gujarat on a larger scale and at a cheaper rate and thereby the interest of the cement manufacturers in Gujarat was being prejudicially affected. It co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m, in the course of inter-State trade or commerce, from any such place of business of any such goods or classes of goods or to any person or class of person as may be specified in the notification. He also drew our attention to the observation made by this Court in State of Tamil Nadu v. Sitalakshmi Mills Ltd. [1974] 33 STC 200 that the policy of the law is to discourage inter-State trade to unregistered dealers and that the report of the Taxation Enquiry Committee would indicate that "the main reason for enacting the provision was to canalise the inter-State trade through registered dealers, over whom the appropriate Government has a great deal of control and thus to prevent evasion of tax". He submitted that by dispensing with the requirement of furnishing declaration in form C the impugned notification dated March 7, 1994, in effect, removed an essential safeguard to check and prevent evasion of sales tax. In order to show the importance of the requirement to furnish form C he invited our attention to the decision of this Court in State of Rajasthan v. Sarvotam Vegetables Products [1996] 101 STC 547; 1996 (3) Scale 469 wherein this Court has observed that "the purpose of the C f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er whom the appropriate Government has a great deal of control and thus to prevent evasion of tax and prevention of evasion of tax is a measure in the public interest" as observed by this Court in Sitalakshmi Mills case [1974] 33 STC 200 and in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376; [1968] 3 SCR 829. In view of this correct legal position, it was no answer to say that the Revenue is the best judge of its interest. Public interest being the essential pre-requisite for exercise of power under sub-section (5) of section 8, the State can exercise it only if it is likely to subserve the public interest. 8.. It was, on the other hand, contended by Mr. Aruneshwar Gupta, learned counsel appearing for the State of Rajasthan, that when a State makes law it has to be presumed that it is made in "public interest". Moreover, it was specifically stated in the impugned notifications that the power under section 8(5) was being exercised in "public interest" and, therefore, it was for the appellants to prove that the said power was in fact not exercised in public interest. In support of his submission, the learned counsel relied upon the decision in Amrit Banaspati Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was increased to 15.32 per cent as compared to the financial year 1993-94 which was 11.52 per cent (increase of 4 per cent approximately)". In the last affidavit filed by it the public interest sought to be subserved by the impugned notifications is stated in these terms: "It is common knowledge that the material for production of cement, i.e., limestone, is available in abundance in the State of Rajasthan and in view of availability of raw material the production of cement in the State of Rajasthan is also much higher. Therefore, if the power under section 8(5) of the Central Sales Tax Act, 1956 is exercised by the State of Rajasthan by providing different rate of tax in respect of inter- State sale and such power is perfectly in public interest and would in fact achieve free-flow of trade rather than hampering it". 10.. Thus the State of Rajasthan has shifted its stand from time to time as regards the public purpose, for achieving which, the reduction in rate of tax was made. The learned counsel for the State of Rajasthan submitted that public interest contemplated by section 8(5), in so far as the State of Rajasthan is concerned, would mean interest of the public of Rajasthan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e outside the State for sale outside the State shall furnish or cause to be furnished particulars in respect of his registration certificate, and the goods so leaving the State limits in form ST 18C. What is overlooked by him is the proviso to sub-rule (1) which lays down that no such form is required to be furnished in respect of the goods notified by the State Government. Admittedly, cement is notified "goods". Therefore, rule 62C will obviously have no application. No other provision was pointed out by the learned counsel requiring a dealer of cement in Rajasthan to obtain from the purchaser or even otherwise make a declaration to the sales tax authorities in respect of the inter-State sales made by him. It is therefore difficult to appreciate how the State of Rajasthan could have effectively checked or prevented evasion of payment of tax on inter-State sales of cement. On this ground alone the impugned notifications dated June 27, 1990 and March 7, 1994 are required to be declared as bad. 12.. As regards the second contention that the impugned notifications were violative of articles 301 and 303 of the Constitution it was submitted by Mr. Sorabjee that article 301 of the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the justification offered by the State is that the notifications were issued for earning additional revenue for the State and for increasing the sale of cement manufactured in Rajasthan as it has abundance of raw material necessary for manufacturing cement and consequently production of cement in the State is much higher. He submitted that for such reasons if giving of preference or making discrimination is permitted then that would lead to trade wars or creation of barriers between different States and that would be detrimental to the economic integrity and unity of the nation. He drew our attention to the following observation made by Gajendragadkar, J. in the case of Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809: ".........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 State Legislatures to adopt remedial measures intended solely for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old that the petitioners had failed to establish that because of reduction in the rate of sales tax on inter-State sales of cement by the impugned notifications preference was created in favour of the cement manufactured and sold in Rajasthan and that the cement manufacturers in Gujarat were thus prejudicially affected and put in a disadvantageous position. The High Court had observed that the sales of cement manufactured and sold in Rajasthan might have increased because of the quality of cement, intensive publicity and such other factors. That was not even the case of the State of Rajasthan. In view of the clear and credible material placed on record by the writ petitioners it was incumbent upon the State of Rajasthan to justify that what it had done was really required in the public interest. While conceding that varying rates of tax can prevail in different States and that by itself cannot be said to be violative of article 303 he submitted that the differentiation can be justified if that is done on account of natural and business factors such as existence of long-standing business relations, availability of communications, credit facilities and such other factors. He submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82; [1989] 3 SCC 87 reviewed the previous case law and in the context of power to grant exemption from payment of sales tax, has held that the taxes which do not directly or immediately restrict or interfere with trade, commerce and intercourse throughout the territory of India are excluded from the ambit of article 301. It was held that: "It has to be borne in mind that there may be differentiations based on consideration of natural or business factors which are more or less in force in different localities. A State might be led to impose a higher rate of tax on a commodity either when it is not consumed within the State, or if it is felt that the burden falling on consumers within the State, will be more than that and large benefit is derived by the revenue. The imposition of rate of sales tax is influenced by various political, economic and social factors. Prevalence of differential rates of tax on sales of the same commodity cannot be regarded in isolation as determinative of the object to discriminate between one State and another. This Court has also held that "However the power under article 304 if found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. State of Gujarat [1988] 70 STC 52; [1988] 2 SCC 568 this Court has held that reduction in the case of goods manufactured locally in order to provide an incentive for encouraging local manufacturing units cannot be sustained if it adversely affects the free flow of inter-State trade and commerce. We are also of the view that the justification advanced by the State of Rajasthan that as a result of the impugned notifications the State revenue had increased and thus they were beneficial to the State revenue, is not valid as the said notifications had the effect of creating a preference to cement manufactured and sold in Rajasthan and disadvantage for the sale of cement manufactured and sold in Gujarat and thus had the direct and immediate adverse effect on the free flow of trade. The said notifications, by dispensing with the requirement of furnishing declaration in C form, had the effect of facilitating evasion of payment of tax and were, therefore, also violative of the scheme of the constitutional provisions contained in Chapter XIII. A 5-Judge Bench of this Court in Firm A.T.B. Mehtab Majid Co. v. State of Madras [1963] 14 STC 355; [1963] Supp 2 SCR 435 has also held that sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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