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TMI Blog2008 (8) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... tifications, whereby entry 49 in Schedule "A" was substituted, thereby providing for no tax on the sale of sugar manufactured in the State of Punjab and entry 152 was added in Schedule "B" providing for tax on the sale of sugar imported from outside the State of Punjab. From a plain reading of the two notifications, it is clearly made out that discriminatory tax was imposed on the imported sugar as against the sugar manufactured in the State of Punjab, which cannot stand scrutiny in the light of the provisions contained in articles 301 and 304(a) of the Constitution of India. Thus no hesitation in striking down Notification No. S.O. 53/P. A. 8/2005/S.8/2007 dated November 5, 2007 (annexure P-2) adding entry 152 in Schedule "B" to the VAT Act, whereby tax is sought to be levied on sale of sugar imported from outside the State of Punjab. As a necessary consequence and to correct the mischief created with the issuance of Notification No. S.O. 52/P. A. 8/2005/S.8/2007 dated November 5, 2007 (annexure P-1), we further hold that the words "manufactured in the State of Punjab" used in entry 49 in Schedule "A" as substituted vide notification (annexure P-1), to be violative of articles 301 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament nor the Legislature of a State shall have any 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. Notwithstanding anything contained in article 301 or 303 of the Constitution of India, the State Legislature is authorised to impose on goods imported from other States or the Union Territory any tax to which similar goods manufactured or produced in that State are subject. However, there cannot be any discrimination regarding taxation between the goods so imported and goods so manufactured or so produced. The submission is that effect of impugned notifications is that tax at the rate of four per cent has been levied only on the sugar imported from outside the State of Punjab, whereas the sugar which is manufactured in the State of Punjab is not subjected to any tax, as the same has been put in Schedule "A" containing tax-free goods. Concluding the arguments, learned counsel submitted that the impugned notifications are clearly viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hallenge a notification issued under the VAT Act. Heard learned counsel for the parties and perused the paper book. To appreciate the contentions raised by learned counsel for the parties, it would be necessary to extract relevant provisions of the Constitution of India and also the VAT Act. The same are extracted below: "Articles 301 and 304 of the Constitution of India: 301. Freedom of trade, commerce and intercourse. -- Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. . . . 304. Restrictions on trade, commerce and intercourse among States. -- Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law -- (a) impose on goods imported from other States (or the Union Territories) any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irectly or immediately on trade or its movement? . . . . . . Our conclusion, therefore, is that when article 301 provides that trade shall be free throughout the territory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of article 301, and its validity can be sustained only if it satisfies the requirements of article 302 or article 304 of Part XIII . . ." Considering an issue where rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939 providing for levy of discriminatory tax on tanned hides or skins imported from outside the State as against those manufactured within the State, a Constitution Bench of honourable the Supreme Court in Firm A.T.B. Mehtab Majid and Co.'s case [1963] 14 STC 355 (SC); AIR 1963 SC 928 opined as under (pages 360 and 362 of STC): "It is therefore now well-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed hides or skins which had been imported from outside. At the time of sale of those hides or skins in the tanned state, there was no difference between them as goods and the hides or skins tanned outside the State as goods. The similarity contemplated by article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not. We are therefore of opinion that the provisions of rule 16(2) discriminate against the imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of article 304(a) of the Constitution." Another Constitution Bench of the honourable Supreme Court in State of Madhya Pradesh v. Bhailal Bhai [1964] 15 STC 450; AIR 1964 SC 1006 considered the issue, whereby discriminatory tax was imposed on tobacco imported from outside the State as against the tobacco grown within the State. Relevant paragraph thereof is extracted below: (page 457 of STC) "There can therefore be no escape from the conclusion that similar goods manufactured or produced in the State of Madhya Bharat have not been subjected to the tax which tobacco le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-flow of trade and commerce, and hence, violative of article 301 of the Constitution of India. In Shree Mahavir Oil Mills' case [1997] 104 STC 148, the honourable Supreme Court considering a similar issue, opined that though clause (a) of article 304 of the Constitution of India is worded in a positive language, it has a negative aspect. It is, in truth, a provision prohibiting discrimination against the imported goods. It provides that levy of tax on both imported as well as locally manufactured goods ought to be at the same rate so that artificial fiscal barriers are not created. Relevant passage therefrom is extracted below (page 153): ". . . Article 304 contains two clauses. Clause (a) states that 'the Legislature of a State may by law--(a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced'. The wording of this clause is of crucial significance. The first half of the clause would make it appear at first flush that it merely states the obvious: one may indeed say ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case . . . The freedom guaranteed, it is worthy of notice, is 'throughout the territory of India' and not merely between the States as such; the emphasis is upon the oneness of the territory of India. Part XIII starts with this concept of oneness but then it provides exceptions to that rule, as stated above, to meet certain emerging situations. As a matter of fact, it can well be said that clause (a) of article 304 is not really an exception to article 301, notwithstanding the non obstante clause in article 304 and that it is but a re-statement of a facet of the very freedom guaranteed by article 301, viz., power of taxation by the States . . ." Summing up the enunciation of law on the subject, in the above referred case, the honourable Supreme Court while declaring the impugned notification to be violative of the provisions of articles 301 and 304-A of the Constitution of India, directed that the appellant therein shall not be entitled to claim any refund of the amount already paid. In State of Uttar Pradesh v Laxmi Paper Mart [1997] 105 STC 1; AIR 1997 SC 950, the honourable Supreme Court, while following its earlier judgment in Firm A.T.M Mehtab Majid and Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be hit by article 301. Article 301 thus provides for freedom of inter-State as well as intra-State trade and commerce subject to other provisions of Part XIII and correspondingly it imposes a general limitation on the legislative powers, which limitation is relaxed under the following circumstances: (a) Limitation is relaxed in favour of Parliament under article 302, in which case Parliament can impose restrictions in public interest. Although the fetter is limited enabling the Parliament to impose by law restrictions on the freedom of trade in public interest under article 302, nonetheless, it is clarified in clause (1) of article 303 that notwithstanding anything contained in article 302, the Parliament is not authorised even in public interest, in the making of any law, to give preference to one State over another. However, the said clarification is subject to one exemption and that too only in favour of the Parliament, where discrimination or preference is admissible to the Parliament in making of laws in case of scarcity. This is provided in clause (2) of article 303. (b) As regard the State Legislature, apart from the limitation imposed by article 301, clause (1) of artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inescapable conclusion is that the action on the part of the respondents in levying sales tax on sale of sugar imported from outside the State of Punjab except levy sugar is clearly violative of articles 301 and 304(a) of the Constitution of India. In fact, up to November 5, 2007 there was no discrimination as such in the levy of tax on the sugar manufactured in the State of Punjab or imported from outside the State of Punjab as single entry No. 49 existed in Schedule "A" to the VAT Act providing for tax-free goods. The levy of discriminatory tax came into force with the issuance of impugned notifications, whereby entry 49 in Schedule "A" was substituted, thereby providing for no tax on the sale of sugar manufactured in the State of Punjab and entry 152 was added in Schedule "B" providing for tax on the sale of sugar imported from outside the State of Punjab. From a plain reading of the two notifications, it is clearly made out that discriminatory tax was imposed on the imported sugar as against the sugar manufactured in the State of Punjab, which cannot stand scrutiny in the light of the provisions contained in articles 301 and 304(a) of the Constit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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