9911796707
TMI Blog1972 (12) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent by his order dated 30th January, 1969, assessed the petitioner's inter-State sales turnover at Rs. 16,23,194.29 and levied a tax of Rs. 48,695.82 under the Central Sales Tax (Amendment) Act, 1969, hereinafter called "the Central Act". The local purchase turnover of raw hides was assessed on a turnover of Rs. 7,92,585 and a tax of Rs. 23,777.66 was also levied. The petitioner filed W.P. No. 3236 of 1969 challenging the validity of the Central Sales Tax (Amendment) Act of 1969. The petition, however, was withdrawn in view of the judgment in a batch of writ petitions of this court given in January, 1971. The petitioner now has filed this writ petition in which the validity of the Amendment Act is not challenged. He, however, contends that he is not liable to tax under the Central Amendment Act. The principal contention, which this petitioner raises, is whether item 9(b) of the Third Schedule of the State Act discriminates between hides and skins imported from outside the State and those manufactured or produced in the State. The contention was that item 9(b) provides for the levy of tax on the sale of hides and skins brought from outside the State and tanned inside the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be subjected to the tax under item 9(a). If the same untanned hides and skins are tanned by him, then the tanner is not required to pay a further tax under item 9(b) because of the express exclusion provided in that provision as well as because of section 15 of the Central Act read with section 6 of the State Act. The case in regard to untanned hides and skins (sic) purchased by a local tanner from outside the State and tanned within the State are taxed on the tanned hides and skins. Although the rate of tax in both the cases is the same, the quantum of tax paid would very much differ. The quantum of tax on the locally purchased untanned hides and skins and then tanned would be only on the purchase price of raw hides and skins which would be comparatively very much less than the price of tanned hides and skins made out of untanned hides and skins purchased from outside the State. The resulting discrimination in levying the tax is not because of the rate of tax but because of the enormous difference between the turnovers of the two commodities taxed as above. It cannot, therefore, be doubted that locally tanned hides and skins made out of locally purchased raw material in the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution. The learned Judges concluded thus: "While, therefore, the two commodities are distinct and different, viewed as declared goods and because of the restriction on the local Legislature forged by section 15 of the Central Act, it cannot be said that there is any discrimination such as inhibited by article 304(a)." Firm A.T.B. Mehtab Majid Co. v. The State of Madras[1963] 14 S.T.C. 355 (S.C.). was relied upon by the petitioner. The following observation in the said judgment alone was referred to and that too in support of the contention that the two commodities are different: "We do not consider that the mere circumstance of a tax having been paid on the sale of such hides or skins in their raw condition justifies their forming goods of a different kind from the tanned hides or skins which had been imported from outside." It was further observed in the abovesaid Madras High Court case: "It does not appear that the impact of sections 14 and 15 of the Central Act on the scheme of local taxation of declared goods was brought to the notice of the Supreme Court. With due respect, we are inclined to think, in that case, the Supreme Court was looking at the matter from a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore stripped the States of ability to advance their own commercial interest at the expense of the nation. It seems to put an end to the economic autarchy of the States. If there were no provisions like article 304, each State could shut out the products of other States or admit them only on conditions. But this is precisely the sort of balkanization of the economy that the Constitution sought to end. It is not for the States, in pursuit of their local interests, to decide what products from without may cross their boundaries or to admit products on condition that they satisfy local economic policy. While the States may impose permissible tax but they lack power to retard, burden or counteract the flow of commerce for their economic advantage. The Constitution in the apt words of Cardozo, J., "was framed upon the theory that the peoples of the several States must sink or swim together, and that in the long run prosperity and salvation are in union and not division". The basic principle is that the States are not separable economic units, which may place themselves in positions of economic isolation. The State therefore cannot legislate inimically to the national commerce. The provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t section 15 of the Central Act either authorises or gives consent to the State Legislature to enact a law in the face of article 304(a) without it being challenged as inconsistent with article 304(a). The result is that even if the State Legislature can be said to have been forced to make a law of the kind of item 9(b) of the Third Schedule of the State Act because of section 15 of the Central Act, even then the validity of such provision can be challenged under article 304(a). It may satisfy the requirement of section 15 of the Central Act, but, if it fails to stand to the test of article 304(a), it has to be struck down as an unconstitutional piece of legislation. We are, therefore, not inclined to accept the contention that since item 9(b) of the Third Schedule has been enacted because of section 15 of the Central Act, it is immune from the attack under article 304(a) of the Constitution. We have then to consider the principal contention of the counsel for the petitioner referred to above. The Supreme Court in Firm A.T.B. Mehtab Majid Co. v. State of Madras[1963] 14 S.T.C. 355 (S.C.). was concerned with a similar question as is posed by this case. Rule 16(2) of the Madr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce such effects. In other words, the basic goal of those provisions was considered to be to place inter-State and local commerce, so far as possible, upon a plane of tax equality. It was intended to prevent an inter-State transaction from being saddled with an aggregate tax burden higher than it would have been if it had taken place in the same volume and even the same distance within a single one of the pertinent States. It is under this approach that the tax levied by the Madras Sales Tax Act which when levied by the State was found to have been more heavy upon inter-State commerce than upon the local commerce. In other words, in determining the question whether the tax is discriminatory within the meaning of article 304(a), the Supreme Court took into account the "effect" of the tax on the flow of the goods from outside the taxing State. If this decision had remained unaffected by subsequent decisions, we would have had no difficulty whatsoever in holding, in view of the similarity of the provisions, that the said Supreme Court decision completely governs the instant case and, therefore, we could have declared item 9(b) of the Third Schedule as discriminatory and unconstitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed: "The flow of trade does not necessarily depend upon the rates of sales tax: it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade." The Supreme Court then said: "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." Since the High Court had placed reliance on two decisions interpreting article 304(a), the Supreme Court considered them. It is these two decisions that were relied upon by the counsel for the petitioner before us also. The first case considered by the Supreme Court was Firm A.T.B. Mehtab Majid and Company v. State of Madras and Another[1963] 14 S.T.C. 355 (S.C.).The Supreme Court referred to the contention of the taxpayer in that case and observed as follows: "The taxpayer contended in Firm A.T.B. Mehtab Majid's case(3) that the tanned hides and skins imported from outside and sold inside the State were under rule 16 of the Madras General S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied the resulting tax is somewhat higher but that does not offend against the equality contemplated by article 304. That is the consequence of ad valorem tax being levied at a particular rate. So long as the rate is the same, article 304 is satisfied. Even in the case of local manufacturers if their cost of production varies, the net tax collected will be more or less in some cases but that does not create any inequality because inequality is not the result of the tax but results from the cost of production of the goods or the cost of their importation. This ground, therefore, has also no substance." Two conclusions flow from the abovesaid two decisions of the Supreme Court. First: every tax does not interfere with the freedom of trade guaranteed by article 301; it does so only if it "directly and immediately" restricts or hampers the free flow of trade, commerce or intercourse. The discrimination must be direct and arise out of the taxing provisions themselves. Any discrimination arising out of any indirect effect is not within the purview of article 304(a). In other words, a State law with respect to taxation cannot be said to infringe the Constitution merely because it ope ..... X X X X Extracts X X X X X X X X Extracts X X X X
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