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TMI Blog2014 (12) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... f dealers that shall not be entitled to whole or partial tax credit and the same shall be within the exclusive domain of the State Government for which there need not be any specific guidelines - when it is the policy decision of the State Government to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit and the Act itself confers the power upon the State Government by notification published in the Official Gazette specifying any goods or the class of dealers that shall not be entitled to whole or partial tax credit and more particularly when the tax credit provided under Section 11(1)(a) shall be subject to the provisions of subsection (2) to subsection (12) of section 11, it cannot be said that subsection (6) of section 11 is unconstitutional or violative of Article 14 of the Constitution of India on the ground that subsection (6) of section 11 gives unbridled power to the executives, as contended and/or submitted by the petitioners. The same is with a view to consolidate and amend the laws relating to levy and collection of tax on value added basis in respect of the sales or purchases of the goods in the State of Gujarat - There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of 2% on the eventuality as mentioned in the said notifications i.e. if the goods are sold outside the State, in exercise of powers under Section 11(6) of the VAT Act - as such for sale from State to a destination outside the State, it is governed by the CST Act and by impugned notifications the State Government has not touched the said sales tax - Under the circumstances, it cannot be said that the impugned notifications are violative of Article 286(3) of the Constitution of India. The notifications are issued reducing the input tax credit to the extent of 2% on the goods supplied outside State of Gujarat in the larger public interest and to ensure adequate funds in the development programme of the State - Reduction of the rate of central sales tax from 4% to 3% with effect from 01.04.2007 and from 3% to 2% with effect from 01.06.2008 and the failure on the part of the Central Government to compensate the State for the losses on account of the aforesaid reduction can be said to be one of the cause and/or reason - as the State has suffered loss of thousands of crores of revenue due to the said reduction and the Central Government failed to compensate the said losses and it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the VAT Act and are holding certificate of registration granted under VAT Act and are entitled to tax credit on their respective purchases on taxable goods which are sold/resold in the course of interstate trade and commerce. It is the case on behalf of the petitioners that in view of the policy of the Central Act and introduction VAT Act, the petitioners who are the registered dealers are entitled to tax credit under the VAT Act. [3.2] That the respondent No.2 by notification dated 31.03.2006 specified the goods mentioned in the Schedule appended thereto which shall not be entitled to any tax credit. It is the case on behalf of the petitioners that therefore the petitioners are entitled to tax credit on taxable turnover of purchases within the State and interstate trade and commerce. [3.3] It is the case on behalf of the petitioners that despite the fact that the State has been compensated for the loss of revenue generated in view of the introduction of the VAT Act, the Finance Minister in the speech given on the budget presented for the year 201011 proposed to reduce the tax credit to the extent of 2% on purchase of goods made from within the State and used in inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interState trade and commerce or if they are used as input including raw material in the manufacture of goods sold in the course of interState trade and commerce. It is submitted that in other words the State Government has effectively specified the class of transactions for which the input tax credit is to be restricted. It is submitted that therefore such specification is beyond the scope of section 11(6) of the VAT Act and therefore, Entry No.2 of the impugned notifications is ultra vires the parent provision of the VAT Act. [4.1] It is further submitted by Shri Mihir Joshi, learned Counsel appearing for the petitioners that section 11(6) of the VAT Act is ultra vires and violative of Article 14 of the Constitution of India. It is submitted that section 11(6) of the VAT Act gives unbridled power to the executive and therefore, violates Article 14 of the Constitution of India. [4.2] It is submitted that it is a well settled law that if the legislature grants discretion to the executive then it is necessary that the legislature also must give guidelines to the executive for the exercise of such power. Relying upon the decision of the Hon ble Supreme Court in the case of K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value added tax payable for a period shall be determined after adjustment of tax credit in the manner as may be prescribed. It is submitted that Section 11(6) of the VAT Act thus empowers the Government to provide for an exception to the General Scheme of VAT Act and therefore, such powers can be exercised only in a just and reasonable manner and if the circumstances so warrant. It is submitted that however curtailment of input tax credit by the impugned notifications has been contemplated with the sole objective of augmentation of revenue and not for any other purpose. It is submitted that as such the Finance Minister in the budget speech delivered prior to the issuance of the notification admitted that since the Central Government is yet to compensate the State Government for the loss of revenue because of reduction in rate of central sales tax, the State Government has decided to curtail input tax credit by 2% in case of interState transactions. [4.5] It is submitted that therefore the impugned notifications, by curtailing input tax credit in interState transactions, vitiates the fundamental rationale behind introduction of the VAT Act which is to levy tax on value added basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the VAT Act. Therefore, they are arbitrary, discriminatory and violative of Article 14 of the Constitution of India. [4.9] It is further submitted by the learned Counsel appearing on behalf of the respective petitioners that the Parliament and the State legislation are empowered by various provisions of the Constitution to levy tax on citizens of the country and augment revenue. It is submitted that for example the State legislature derives the power to levy tax from Entry 54 of List II of the Constitution of India. It is submitted that augmentation of revenue is thus a legislative and not an executive function and therefore the power conferred upon the State Government under Section 11(6) of the VAT Act cannot be used as a tool for augmentation of revenue as has been done by the impugned notifications. [4.10] It is further submitted by the learned Counsel appearing for the respective petitioners that as such input tax credit under section 11 of the VAT Act is a statutory right given by the legislature and not an executive exemption. It is submitted that section 11 of the VAT Act entitles registered dealers to avail input tax credit inter alia of tax paid on purchases from re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, it violates Article 301 of the Constitution of India. It is submitted that Article 301 of the Constitution of India mandates the trade, commerce and intercourse throughout the territory of India shall be free. It is submitted that Article 304(b) of the Constitution allows the State Legislatures to impose reasonable restrictions on the freedom of trade, commerce or intercourse with or within the State as may be required in public interest. It is submitted that levy of tax is a restriction on the flow of trade and commerce and therefore, as such levy cannot be tested with reference to Article 304(b) of the Constitution of India so as to ascertain whether it is a reasonable restriction or not. [4.15] It is submitted that the Hon ble Supreme Court recently in the case of State of U.P. Ors. v. Jaiprakash Associates Ltd. in Civil Appeal No.3026 of 2004 decided on 18.10.2013 has held that rebate of tax is also within the purview of taxation and therefore, grant or nongrant can also by held to be discriminatory and violating Article 304 of the Constitution of India. It is submitted that thus reduction of input tax credit can also be examined with reference to Article 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 15 of the Central Act. It is submitted that on considering section 15 of the Central Act it imposes restrictions and conditions on the power of the State to impose tax on sales or purchases of declared goods taking place within the State. [4.18] It is further submitted that an analysis of section 15(b) of the Central Act reveals the following: (i) On sale or purchase of declared goods tax must have been levied under the State law. (ii) The goods so purchased must have been resold in the course of inter-State trade and commerce. (iii) On interState sale tax must have been paid under the Central Act. (iv) In such eventuality, the tax levied under the State law on the earlier transaction of sale or purchase of goods will be reimbursed to the dealer making the interState sale. (v) The reimbursement of tax paid under the State law will be done in the manner and subject to such conditions as may be provided in the State law. It is further submitted that thus a mandatory condition has been imposed under section 15(b) of the Central Act upon the States that they should refund to the dealers the tax paid on local sales and purchases of declared goods if those go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake into account the sale tax paid by it. While taking this decision, the Hon ble Supreme Court also relied upon the subsequent amendment whereby the term refunded was substituted by reimbursement as is the provision which is currently in force and it has observed as under on page 18: The amended provisions makes it plain beyond any pale of controversy that the tax levied under the State Act in respect of declared goods has to be reimbursed to the person making sale of those goods in the course of interState trade and commerce in such manner and subject to such conditions as may be provided in the law in force in that State. According to the notes appended to the statement of objects and reasons of the Bill, which emerged as the amending Act, the amendment made in clause (b) makes it clear that local sales tax would be reimbursed to the person making the sale in the course of interState trade and commerce. [4.19] Learned Counsel appearing on behalf of the respective petitioners have heavily relied upon the decision of the Hon ble Supreme Court in the case of State of Mysore and Ors. v. Mallick Hashim and Co. reported in 31 STC 358 (SC). It is submitted that in the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers which may be specified in a notification issued in exercise of powers conferred under section 11(6) of the VAT Act, whereas section 11(5) of the VAT Act enumerates 22 instances, which do not classify for any tax credit, at all. [5.2] It is submitted that section 11(6) of the VAT Act as such does not suffer from the vice of excessive delegation and the same does not confer unbridled powers on the State to be exercised at its absolute discretion without laying down any guidelines as sought to be contended on behalf of the petitioners. [5.3] It is submitted that the preamble of the VAT Act, objective behind the enactment of the VAT Act, its various provisions and section 11 of the VAT Act itself provide sufficient guidelines for providing benefit of the tax credit. Learned AG has relied upon the decision of the Hon ble Supreme Court in the case of Consumer Action Group v. State of T.N. reported in (2000)7 SCC 425 (Paras 5, 18 to 21 and 41). It is submitted by Shri Trivedi, learned AG that in the aforesaid decision the Hon ble Supreme Court has clearly held that section 113 of the Tamil Nadu Town Planning Country Planning Act, 1971 does not suffer from the vice of exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India Ltd. v. Union of India reported in 2008 (227) ELT 192, the Madras High Court while dealing with the challenge against the validity of the Rule 57A as well as the notification issued thereunder and by upholding the same has observed that, ....the Rule, which is generally an extension of statutory provisions can be questioned only if the Rule is overedged the substantive Act or repugnant to the substantive statutory provisions. In the absence of anything to attribute that the rule which has been framed is repugnant to attribute that the rule which has been framed is repugnant to the main statutory provision, the assessee cannot have any legal right to put in issue a beneficial notification, which confers certain benefit under the Modvat credit scheme in respect of certain category of inputs... It is submitted that therefore in view of the above, section 11(6) of the VAT Act is absolutely valid and constitutional. [5.7] Now, so far as the challenge to notification issued under Section 11(6) of the VAT Act is concerned, it is submitted that the said notifications under challenge and issued under section 11(6) of the VAT Act do not run counter to sections 11(1) and 11(3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traders outside the State of Gujarat, is also not sustainable in law. It is submitted that in the case of State of Madras v. N.K. Nataraja reported in AIR 1969(8) SC 147 (Paras 14 17), it is categorically held that prevalence of tax on sales of the same commodity cannot be regarded in isolation as determinative of the objects discriminated between one State and another. [5.11] Now, so far as the reliance placed upon the CST Act and the contention that the impugned notifications are violative of Article 286 of the Constitution is concerned, it is submitted by learned Trivedi, learned AG that there would not be any reimbursement of tax in the instant case since the petitioners have manufactured and sold, new and different goods, since the vital condition for reimbursement under Section 15 is that the purchase as well as sold goods both should be Declared Goods . [5.12] Shri Kamal Trivedi, learned AG has also relied upon the decision of the Hon ble Supreme Court in the case of Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh Ors. reported in (1980)1 SCC 223 (Paras 40, 42 and 50) and has submitted that in the said decision the Hon ble Supreme Court has observed and hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be said that there is absolutely a vested right in favour of the petitioners to get the tax credit. [5.16] Shri Trivedi, learned AG appearing on behalf of the State has further submitted that paramount reason for which the respondent No.2 has issued the impugned notification is the public interest and by way of a government policy and this Court may not like to interfere with the same since the same is done with utmost bonafide intention as the State Government has been facing major revenue loss due to lowering the rate of central tax for interState trade and commerce under the CST Act, which is reduced by the Central Government to 2% with effect from 01.06.2008. It is submitted that State Government has acted, remaining within four corners of the provisions of section 11 of the VAT Act and in view of the rate of tax for interState trade and commerce fixed under the CST Act, which is 2%. It is submitted that the registered dealers who purchase taxable goods from within the Gujarat State would be entitled to claim tax credit as per the statutory provisions contained in section 11 of the VAT Act. It is submitted that as such reduction in tax credit by 2% would have no bearing or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India. It is submitted that it may generally be true that in a taxing statute the Government as a delegatee can exercise greater flexibility with regard to fixation of rates of tax, grant of exemption, etc. However, at the same time the same is not true for a provision such as Section 11(6) of the VAT Act which empowers the Government to provide for an exception to the very policy of the VAT Act which is to levy tax on value added basis. It is submitted that the Government in the present case while simply reducing the input tax credit at the rate of 2% in excess of or interState transactions vide the impugned notifications as acted in a cavalier manner without taking into consideration the rationale behind the grant of input tax credit under the VAT Act. It is submitted that therefore such reduction not being in furtherance of any purpose of the VAT Act, the Government should not be allowed to take shelter behind the general theory that State executives are given greater leverage under taxing statutes. [6.1] Now, so far as the reliance placed upon section 11(5) of the VAT Act by the State Government is concerned, it is submitted that as such section 11(5) of the VAT Act is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire notifications needs to be viewed in its entirety. It is submitted that column No.2 of the notification cannot be read in isolation but it has to be read along with column 4. It is submitted that the notification as a whole is clearly qua transaction and not qua goods and therefore it is submitted that it is beyond the scope of Section 11(6) of the VAT Act. [6.4] Now, so far as the submissions of learned Advocate General that the impugned notifications would not be applicable to declare goods on a case to case basis and therefore, this Court need not strike down the impugned notifications, it is submitted that it is important to note that while some of the declared goods have been expressly excluded, others have not been excluded. It is submitted that because of the notification as it stands now on the statute book, it will not be legally permissible for the administrative authorities to give full input tax credit in respect of declared goods which are not expressly excluded from the purview of the notification. It is submitted that therefore once it has been conceded by the State that the input tax credit cannot be reduced insofar as declared goods are concerned, the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arly when without any guidelines / guidance and therefore, the same is violative of Article 14 of the Constitution of India. [7.2] While considering the challenge to section 11(6) of the VAT Act, first of all the entire section 11 of the VAT Act, which is as under, is required to be considered. 11. Tax Credit (1) (a) A registered dealer who has purchased the taxable goods (hereinafter referred to as the purchasing dealer ) shall be entitled to claim tax credit equal to the amount of,- (i) tax collected from him, by a registered dealer who has sold such goods to him or the tax payable by him to a registered dealer who has sold such goods to him during the tax period, or (ii) tax paid by him during the tax period under [subsection (1), (2), (5) or (6)] of [section 9, or]]. (iii) Tax paid by the purchasing dealer under the Gujarat Tax on Entry of Specified Goods into Local Areas Act, 2001. (b) The tax credit to be so claimed under this subsection shall be subject to the provisions of subsections (2) to (12); and the tax credit shall be calculated in such manner as may be prescribed. (2) The registered dealer who intends to claim the tax credit shall maintai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod in which he receives from a registered dealer from whom he has purchased taxable goods, a tax invoice (in original) Containing Particulars as may be prescribed under Subsection (1) of Section 60 evidencing the amount of tax. (5) Notwithstanding anything contained in this Act, tax credit shall not be allowed for purchases( a) made from any person other than a registered dealer under this Act; (b) made from a dealer who is not liable to pay tax under this Act; (c) made from a registered dealer who has been permitted under section 14 to pay lump sum amount of tax in lieu of tax.; (d) made prior to the relevant date of liability to pay tax as provided in subsection (3) of section 3; [(dd) made prior to the date of registration;] (e) made in the course of interState trade and commerce; (f) of the goods (not being taxable goods dispatched outside the State in the course of branch transfer or consignment) which are disposed of otherwise than in sale, resale or manufacture; (g) of the goods specified in the Schedule I or the goods exempt from whole of tax by a notification under subsection (2) of section 5; (h) of the goods which are used in manufacture of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o conditions as may be prescribed, a registered dealer shall be allowed to claim tax credit for the taxable goods held in stock on the date of registration which are purchased after 1st April, 2008 and during the period of one year ending on the date of registration. [(III)] Notwithstanding anything contained in clause (nn) in this subsection and subject to conditions as may be prescribed, a registered dealer, whose permission to pay lump sum tax under section 14,- (a) is no longer valid on account of total turnover exceeding rupees fifty lakhs, or (b) is cancelled on request by such dealer, and becomes liable to pay tax under section 7, shall be allowed to claim tax credit for the taxable goods held in stock which are purchased after 1st April 2008 and during the period of one year ending on the date of liability to pay tax under section 7.]. (6) The State Government may, by notification in the Official Gazette, specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit. (7) Where a registered dealer without entering into a transaction of sale, issues to another registered dealer tax invoice, retail invoice, bill or cash memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en issued with a credit note or debit note in terms of section 61 or if he returns or rejects goods purchased, as a consequence of which the tax credit availed by him in any period in respect of which the purchase of goods relates, becomes either short or excess, he shall compensate such short or excess by adjusting the amount of tax credit allowed to him in respect of the tax period in which the credit note or debit note has been issued or goods are returned, subject to such conditions as may be prescribed. (11) A registered dealer shall apply fair and reasonable method to determine, for the purpose of this section, the extent to which the goods are sold, used, consumed or supplied, or intended to be sold, used, consumed or supplied. The Commissioner may, after giving the dealer an opportunity of being heard and for the reasons to be recorded in writing, reject the method adopted by the dealer and calculate the amount of tax credit as he deems fit. (12) Subject to the exceptions as may be prescribed by the rules, any dealer including the Commission agent shall not be permitted to transfer his tax credit to any other dealer or as the case may be, the principal. Explanation.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the State Government to specify the goods or the class of dealers that shall not be entitled to whole or partial tax credit and it can be said to be the policy decision of the State Government to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit and the same shall be within the exclusive domain of the State Government for which there need not be any specific guidelines. Therefore, when it is the policy decision of the State Government to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit and the Act itself confers the power upon the State Government by notification published in the Official Gazette specifying any goods or the class of dealers that shall not be entitled to whole or partial tax credit and more particularly when the tax credit provided under Section 11(1)(a) shall be subject to the provisions of subsection (2) to subsection (12) of section 11, it cannot be said that subsection (6) of section 11 is unconstitutional or violative of Article 14 of the Constitution of India on the ground that subsection (6) of section 11 gives unbridled power to the executives, as contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any part of the duty of customs leviable thereon and when the exemption notification issued in exercise of powers under Section 25(1) of the Customs Act came to be challenged, in paras 21 to 23, the Hon ble Supreme Court has observed and held as under: 21. The above analysis of subsection (1) shows inter alia that an exemption granted may be an absolute one or subject to such conditions, as may be specified in the notification and further that the conditions specified may relate to a stage before the clearance of goods or to a stage subsequent to the clearance of goods. Section 25(1) is a part of the enactment and must be construed harmoniously with the other provisions of the Act. The power of exemption is variously described as conditional legislation [see Jalan Trading Co. Pvt. Ltd. v. Mill Mazdoor Sabha4 and Hamdard Dawakhana v. Union of India5] and also as a species of delegated legislation. Whether it is one or the other, it is a power given to the Central Government to be exercised in public interest. Such a provision has become a standard feature in several enactments and in particular, taxing enactments. It is equally well settled by now that the power of taxation ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsection (3)explains the words form or method occurring in the subsection. It says that the form or method in relation to the rate or duty of customs means the basis of duty viz., valuation, weight, number, length, area, volume or other measure with reference to which duty is leviable. 23. We are equally unable to agree that a legal fiction can be created only by a legislature and not by the executive. Here the Central Government is exercising a power conferred upon it by the Parliament. The provision conferring such power does contemplate and empower the Central Government to create such a fiction, as explained hereinabove. Subsection (1) as well as subsection (3) place the matter beyond any doubt. To repeat, the nature of power under Section 25 is conditional legislation or a species of delegated legislation; in exemption notification under Section 25 is not an executive act. No decision has been brought to our notice in support of the said contention which is raised only in the written submissions. 24. For the above reasons, we see no reason to hold that the said notification travels beyond the four comers of Section 25. [7.4] In the case of Premium Granites Anr. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions in the Mineral Concession Rules from time to time either by incorporating a particular rule or amending the same according to its perception of the exigencies, it will not be correct to hold that in each and every occasion when such perception requires a change in the matter of policy of quarrying a minor mineral in the State, particular provision of the Mineral Concession Rules is got to be amended. On the contrary, if a suitable provision empowering exemption or relaxation of other provisions in the Mineral Concession Rules is made by confining its exercise in an objective manner consistent with the MMRD Act and in furtherance of the cause of mineral development and in public interest, by giving proper guidelines, such provision containing relaxation or exemption cannot be held to be unjustified or untenable on the score of violating the other provisions of the Mineral Concession Rules. [7.5] In the case of Palivar Electricals (P) Ltd. (Supra) dealing with the power of exemption in the hands of the Central Government, in paras 9 to 11, the Hon ble Supreme Court has observed and held as under: 9. Though Rule 8 does not use the expression public interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the following observations made by a Constitution Bench of this Court in R. K. Garg v. Union of India: (SCC pp. 69091, para 8) Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person that Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straightjacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J. said in his inimitable style : 'In the utilities tax and economic regulation cases, there are good reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues. 11. The same principle should hold good in the matter of Exemption Notifications as well, for the said power is part and parcel of the enactment and is supposed to be employed to further the objects of enactmentsubject, of course, to the condition that the Notification is not ultra vires the Act, and/or Article 14 of the Constitution of India. (See P. J. Irani v. State of Madras. [7.6] In the case of Orient Weaving Mills (P) Ltd. and Anr. (Supra), while considering constitutional validity of Rule 8(1) of the Central Excise Rules, 1994 which confers upon the Central Government the power to exempt partly or wholly any excisable goods and the constitutional validity of the same was challenged on the ground that it suffers from the vice of excessive delegation of power to exempt, the Hon ble Supreme Court in para 8 has observed and held as under: 8. The petition is substantially based upon the contention that R. 8 suffers from the vice of excessive delegation of powers to the Central Government to exempt partly or wholly any excisab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otection of petty producers of cotton fabrics not owning more than four power looms from unreasonable competition by big producers, like the petitioner Company. The State has therefore, made a valid classification between goods produced in big establishments and similar goods produced by small powerloom weavers in the mofussil who are usually ignorant, illiterate and poor and suffer from handicaps to which big establishments like the petitioner Company are not subject. It has also been pointed out that the exemption was available to individual weavers, who employed not more than five looms on their own account. The fact that they have banded together in a cooperative effort to increase their efficiency and to take advantage of State aid should not count against them. It must therefore, be held that there is no room for the contention that there has been excessive delegation of power to exempt. [7.7] In the case of Kasinka Trading and Anr. (Supra), in paras 23 and 24 the Hon ble Supreme Court has observed and held as under: 23.The appellants appear to be under the impression that even if, in the altered market conditions the continuance of the exemption may not have been jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of societal interest. [7.8] In the case of M/s. East India Tobacco Co. v. State of Andhra Pradesh reported in AIR 1962 SC 1733, the Hon ble Supreme Court has observed that though the taxation law must also pass the test of Article 14, but in deciding whether a taxation law is discriminatory or not, it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax and that a statute is not open to attack on the ground that it taxes some person or objects and not others. It is observed that it is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14. [7.9] In the case of Gujarat Ambuja Cements Ltd. and Anr. v. Union of India and Anr. reported in (2005)4 SCC 214, the Hon ble Supreme Court has observed that because of the inherent complexity of fiscal adjustment of diverse elements in the field of taxation, the legislature is permitted a large discretion in the matter of classification to determine not only what should be taxed but also the manner in which the tax may be imposed. It is observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 11(6) of the VAT Act is unconstitutional on the ground of excessive delegation of powers and/or violative of Article 14 of the Constitution of India. [8.0] Now, so far as the challenge to the impugned notification/s is concerned, it is required to be noted that as such section 11(6) of the VAT Act can be said to be an independent provision, which authorizes and/or permits the State Government vide notification in the Official Gazette, to specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit. As held hereinabove section 11(6) of the VAT Act is neither unconstitutional nor violative of Article 14 of the Constitution of India. Under the circumstances and more particularly when the input tax credit under Section 11(1) of the VAT Act is subject to the provisions of section 11(2) to section 11(12) of the VAT Act, the impugned notification/s cannot be said to be dehors the provisions of VAT Act. [8.1] Now, so far as the contention on behalf of the petitioners that reduction of input tax credit to the extent of 2% by the impugned notifications is violative of Article 286(3) of the Constitution is concerned, the same has no substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ya Pradesh but also as compared with the rate of tax in the neighbouring Sates, and that there was no reasonable basis for making a distinction between tendu leaves and other raw materials inasmuch as the only use to which tendu leaves were put was as a raw material in the manufacture of bidis. As pointed out by Lord Greene delivering the opinion of the Judicial Committee of the Privy Council in Mohanlal Hargovind of Jubbulpore v. Commr. of Incometax, C.P. and Berar, Nagpur (194849) 76 Ind App 235, 237; AIR 1949 PC 311, bidies are countrymade cigarettes composed of tobacco contained or rolled in leaves of a tree, known as tendu leaves, which fulfil a corresponding function in the finished cigarette to that played by a cigarette paper. Thus, without the use of tendu leaves bidis cannot be manufactured. Until the amendment to section 8 made by the 1968 Act, for the purpose of levying tax on the sales and purchases of tendu leaves the State of Madhya Pradesh had throughout treated tendu leaves in the same manner as other raw materials. From this, however, it does not follow that there was any constitutional or legal obligation upon the State to continue doing so for all time. The stru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st (List I in the Seventh Schedule to the Constitution) conferring exclusive power upon Parliament to make laws with respect thereto, while matters which they felt were of local concern and may require laws to be made having regard to the particular needs and peculiar problems of each State have been assigned to the State Legislatures by placing them in List II of the Seventh Schedule, that is, the State List. InterState trade and commerce is a matter which affects all the States in India and thus the whole country. It is for this reason that in the Seventh Schedule to the Constitution the subject of taxes on the sale or purchase of goods taking place in the course of interState trade or commerce has been put in List I and made a Union subject. Taxes on the sale or purchase of goods taking place within the State affect only those. who carry on the business of buying and selling goods within the State and, therefore. this subject has been put in List II of the Seventh Schedule, namely, the State List. Sales tax is the biggest source of revenue for a State and it is for the State to decide how and in what manner it will raise this revenue and to determine which particular transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery and palm jaggery were commercially different commodities. In Jaipur Hosiery Mills (P) Ltd., Jaipur v. State of Rajasthan (1971) 1 SCR 386: (AIR 1971 SC 1330) a notification issued under the Rajasthan Sales Tax Act, 1950, which exempted from tax the sale of any garment the value of which did not exceed four rupees but excluded hosiery products and hats of all kinds from this exemption, was challenged under Article 14. Repelling this challenge, this Court held (at pages 3978)( of SCR) : (at pp. 133031 of AIR) : It is well settled that although a taxing statute can be challenged on the ground of infringement of Art. 14 but in deciding whether the law challenged is discriminatory it has to be borne in mind that in matters of taxation the legislature possesses the large freedom in the matter of classification. Thus wide discretion can be exercised in selecting persons or objects which will be taxed and the statute is not open to attack on the mere ground that it taxes some persons or objects and not others. It is only when within the range of its selection the law operates unequally and cannot be justified on the basis of a valid classification that there would be a violation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me.We are unable to understand what difference this makes. By section 8 tendu leaves are expressly excluded from the concessional rate of tax in respect of other raw materials. Clause (1) of section 2 defines the term raw material .This cannot, however, prevent the State from taxing different classes of raw materials at different rates. If this contention of the Appellants was to be accepted, it would lead to the absurd result that as goods are defined in clause (g) of section 2 to mean all kinds of movable property excluding certain specific articles mentioned therein,section 6 and Schedule II to the M.P. Sales Tax Act which provide for different rates of tax on different classes of goods are also bad in law. This contention is thus wholly without any substance. 17.Turning now to the challenge under Article 286(3) to the validity of the impugned amendments, we find this challenge to be as hollow and untenable as the challenge under Article 14. Clause (3) of Article 286, after its amendment by the Constitution (Sixth Amendment) Act, 1956, provided as follows : (3) Any law of a State shall, in so far as it imposes, or authorises the imposition of, a tax on the sale or purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... territory of India. Article 301 provides as follows : 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. Under clause (b) of Article 304 of the Constitution, the Legislature of a State may. by law 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. The Bill or any amendment of an Act for the purposes of clause (b) is, however, not to be introduced or moved in the legislature of a State without the previous sanction of the President. It may be mentioned. that the M.P. Sales Tax Act had received the assent of the President on February 27, 1959, but neither the 1968 Act not the 1971, Act was submitted to the President for his sanction and the question, therefore, of either of these Acts receiving the sanction of the President, cannot arise. 20.The only question, therefore, is whether taxing the sales and purchases of tendu leaves at a higher rate than in the neighbouring States violates Article 301 by impeding the free trade and commerce in tendu lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .3026 of 2004 relied upon by Shri Mihir Joshi, learned Counsel appearing on behalf of some of the petitioners in support of his submission that the impugned notifications are in violation of Article 304(1) of the Constitution of India is concerned, it is required to be noted that in the case before the Hon ble Supreme Court it was found that grant of rebate tax by the State Government discriminates between imported goods and the goods manufactured in the Uttar Pradesh restricting the free movement of goods from one State to other and therefore, infringes Articles 301 and 304(a) of the Constitution of India. Under the circumstances, the said decision as such shall not be applicable to the facts of the case on hand. [9.0] Now, so far as the contention on behalf of the petitioners that on the basis of the speech made by the Finance Minister on the floor of the house that as the Central Government reduced the rate of central sales tax and the Central Government though agreed has failed to compensate the said losses on account of reduction in the central sales tax, it has necessitated to reduce the input tax credit to the extent of 2% on sale of goods outside State of Gujarat and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit to the extent of 2% on purchases of goods made from within the State and used in interstate sales. This proposal will be implemented with effect from 1/7/2010 and will be considered by the State Government in case the Central Government decides to compensate for the losses of the Central Sales Tax (CST) revenue for the year 20102011. This proposal will not result in any additional tax burden on the people of the State. From the aforesaid it appears that the impugned notifications are issued reducing the input tax credit to the extent of 2% on the goods supplied outside State of Gujarat in the larger public interest and to ensure adequate funds in the development programme of the State. Reduction of the rate of central sales tax from 4% to 3% with effect from 01.04.2007 and from 3% to 2% with effect from 01.06.2008 and the failure on the part of the Central Government to compensate the State for the losses on account of the aforesaid reduction can be said to be one of the cause and/or reason. It appears that as the State has suffered loss of thousands of crores of revenue due to the said reduction and the Central Government failed to compensate the said losses and it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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