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TMI Blog1999 (4) TMI 583X X X X Extracts X X X X X X X X Extracts X X X X ..... that the imported goods are covered by custom tariff heading in chapter 6001.12 and while importing the goods countervailing duties (CVD) equivalent to excise and additional duties of excise have been paid. In the A-1 return filed for the year 1997-98, the petitioner claimed exemption on second sale of artificial fur for Rs. 21,04,140. The assessing authority proposed to disallow the claim by observing as follows in the notice dated December 15, 1998: Exemption: Second sales Rs. 21,04,140.00 The dealers have claimed exemption on this turnover as second sales of artificial fur. From the statement filed by them, it is found that they clear from the details furnished by the dealers, artificial fur is made of what. If it is human hair or goat hair it would be liable to tax at 4 per cent. As the above material has been imported it is proposed to assess at 11 per cent on Rs. 21,04,140.00, disallowing their claim for exemption. 3.. Aggrieved by this notice, the petitioner sought clarification from the Commissioner of Commercial Taxes under section 28-A of the Act and in the application dated December 29, 1998 stated as follows: We are of the strong belief that the product markete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Referring to the decision of the Supreme Court in Indian Cement Ltd. v. State of Andhra Pradesh [1988] 69 STC 305 it was contended that the plea of Andhra Pradesh Government that reduction in rate of tax in respect of sales made by indigenous cement manufacturers to manufacturers of cement products would be beneficial to the State revenue was rejected by the Supreme Court and therefore revenue alone should not be the criterion while imposing tax on imported foreign goods vis-a-vis indigenously manufactured goods and such a classification is discriminatory. In Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC) it was observed at page 151 that only Government of India can raise protective walls against foreign manufacturers to protect indigenous manufacturers. Therefore, the State Government cannot achieve this objective by creating barrier by imposing tax. 6.. In Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346 (SC), the following passage in the headnote was referred to: It is open to the Legislature, or the State Government if it is authorised in that behalf by the Legislature, to select different rates of tax for different commoditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that fabrics imported from foreign countries should be treated as goods of special importance in the inter-State trade or commerce as contemplated in section 14, clause (vii) of the Central Sales Tax Act and therefore any taxation of such declared goods should be subject to conditions and restrictions as provided under section 15 of the Central Sales Tax Act and therefore in any event the maximum tax rate on such local sales should not exceed 4 per cent. Referring to the decision in Mehta Brothers (Labella), Surat v. State of Gujarat [1979] 43 STC 208 (Guj) it was argued that the requirement of manufacture of goods in India which might be relevant for the Excise Act is not material for the purposes of sales tax law and therefore exemption is to be allowed for similar imported fabrics from abroad. 10.. In State of Andhra Pradesh v. Feno Plast Private Limited [1995] 97 STC 316 (AP) the Andhra Pradesh General Sales Tax Act was considered. In this connection the following observations at page 328 of [1995] 97 STC 316 (State of Andhra Pradesh v. Feno Plast Private Limited) are relevant: It has already been held that rexine falls within the meaning of the expression co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axing the declared goods in question in the Second Schedule to the Act, no tax could be levied at all. Therefore entry 22-A of Part E of the First Schedule to the Act and entry 67 of Part D of the First Schedule of the Act which cover foreign textile fabrics should be held as ultra vires and on that basis the notice dated December 15, 1998 of the assessing authority should be quashed. 13.. Thiru G. Balraj, learned Government Advocate, contended that there is no discrimination and hence no violation of article 14 of the Constitution of India and the levy of tax as contemplated in the First Schedule to the Act in respect of foreign textiles is in order. 14.. We have considered the rival contentions. The main contention of the petitioner is that the sale of synthetic fabric of artificial fur imported from foreign country is also eligible for exemption from sales tax under section 8 of the Act. Section 8 relating to exemption from tax reads as follows: Subject to such restrictions and conditions as may be prescribed, a dealer who deals in the goods specified in the Third Schedule shall not be liable to pay any tax under this Act in respect of such goods . The rules which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in Mehta Brothers v. State of Gujarat [1979] 43 STC 208 wherein a similar issue was considered. Referring to that case the Madras High Court at pages 41-42 of [1984] 55 STC 39 (Tirunagar Co-operative Stores Limited v. State of Tamil Nadu) observed as follows: In that case, the Gujarat High Court had to decide whether the sale or purchase of imported artificial silk fabrics are exempt from sales tax as falling within the scope of the expression rayon or artificial silk fabrics as defined in item No. 22 of the First Schedule to the Central Excises and Salt Act, 1944 . The court held that even imported fabrics were included within this exempted category. The court observed that a reference to item 22 of the First Schedule to the Central Excises and Salt Act, 1944, showed that the only stipulation in that Schedule was that the artificial silk fabrics must have been manufactured . The court proceeded to observe that the Schedule to the Central Excises Act did not carry a further stipulation that the fabrics in question must have been manufactured in India. The learned Judges expressed the view that for the strict purpose of construing the nature of the exempted goods under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpted items are, the rules specifying what the conditions and restrictions, if any, which qualify the exemption. The entries in the Third Schedule are thus reduced to position of a mere catalogue of goods specified as exempt; they cannot be read as imposing any conditions or restrictions for granting exemption, any more than the rules can be construed as adding to the number of exempted items specified in the Third Schedule. The mistake of the Tribunal, and of the departmental authorities, in this case lies on their mixing up the two different things; specification of the exempted goods, on the one hand, and the imposition of the terms and conditions of exemption on those goods, on the other. They overlooked that under the scheme of the exemption provision in section 8, the function of the entries in the Third Schedule is not to lay down any condition or restriction whatsoever on the scope of the exemption. The only function was to specify which are the goods whose sales or purchases would be exempt under section 8. On this approach to the construction of entry 4 of the Third Schedule, we are satisfied that any cotton, woollen, rayon or other artificial silk fabrics, whether ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nufactured in India. 18.. The next contention of the petitioner that there is discrimination in taxing imported goods from abroad while exempting locally manufactured goods and therefore it is violative of article 14 of the Constitution of India has no merit. The apex Court in East India Tobacco Company v. State of Andhra Pradesh [1962] 13 STC 529, after quoting the celebrated passage from Willis on Constitu tional Law at page 587 that, a State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably ....... sustained Act 14 of 1955 enacted by the State of Andhra under which sales of virginia tobacco were brought to tax, but sales of country tobacco were exempted. The plea of violation of article 14 of the Constitution on the ground of discrimination was rejected on the basis that differences exist between the virginia tobacco and country tobacco and those differences were sufficient to treat virginia tobacco as forming a class by itself for the purpose of taxation. The differences as found by the High Court and sustained by the Supreme Court are taste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the High Court on several grounds. Counsel submitted that the orders of the Government of Jammu and Kashmir exempting all the edible oil industries in the State from payment of sales tax unconditionally amounts to discriminating against the out-State manufacturers which is prohibited by articles 301 and 304 of the Constitution. Counsel submitted that Part XIII of the Constitution prohibits raising of fiscal barriers by the States, for such barriers are bound to interfere with the free movement of trade and commerce throughout the territory of India. Raising of protective walls may be justified in international trade. The Government of India can and has been providing several such protectionist measures all these years to encourage the growth and establishment of industries in the country and to protect them from competition from foreign manufacturers. But similar measures cannot be provided by the State Governments internally, i.e., within the country. The Parliament can, no doubt, provide such measures but not the State Governments and certainly not without the prior sanction/assent of the President of India. This passage has no relevance in the context of State s power t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Second Schedule it is made clear that if during any financial year there is levied and collected in any State a tax on the sale or purchase of any of the articles which are subjected to excise duty under that Act, no amount will be payable to the State under section 4 of that Act, unless the Central Government by order otherwise directs. Thus the Central Act itself provides as to what is to happen if the State starts levying sales tax on the goods which are covered by the said Act. It says that if and when the State chooses to levy sales tax on the goods which are subjected to additional excise duty under the Central Act, it will lose the benefit of contribution from the Consolidated Fund of India, viz., sums representing a part of the net proceeds of the additional duties levied. Thus the Central Act 58 of 1957 does not prevent a State Government from levying sales tax on the goods covered by that Act but it merely says that if any State Government levies sales tax it will lose the benefit which it would otherwise get under section 4 of the Act read with the Second Schedule to the Act. Therefore, it is clear that Act 58 of 1957 instead of taking away the power of the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduct; and (ii) which is specified in relation to any such goods in section or chapter Notes of the Schedule to Central Excise Tariff Act, 1985 as amounting to manufacture and the word manufacturer shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacturer of excisable goods, but also any person who engages in their production or manufacture on his own account......... 27.. Thus, manufacture of goods referred to in various headings of the Schedule to the Central Excise Tariff Act, 1985 refers to manufacture of excisable goods. Excisable goods are those goods produced or manufactured in India. Therefore, it is obvious that the goods manufactured in India which are excisable and are covered by the heading Nos. relating to man-made fabrics in section 14(vii) of the Central Sales Tax Act alone are to be considered as declared goods under section 14 of the Central Sales Tax Act. Therefore, imported fur fabrics from abroad falling under the heading man-made fabrics which did not suffer excise duty or additional duties of excise but only custom duties cannot be classified as declared goods under section 14 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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