State of Madhya Pradesh Vs. Abdeali
[1962] INSC 236 (24 August 1962)
DAS, S.K.
DAS, S.K.
KAPUR, J.L.
SARKAR, A.K.
HIDAYATULLAH, M.
DAYAL, RAGHUBAR
CITATION: 1963 AIR 1237 1963 SCR Supl. (3)
704
ACT:
Inter-State Trade-Discrimination-Sales
Tax-Exemption-Sales of hand-made footwear by manufacturer-Madhya Bharat Sales
Tax Act, 195O (M. B. 30 of 1950), ss. 4(3)Constitution of India, Art. 304(a).
HEADNOTE:
The respondent, a dealer in imported
hand-made shoes and chappals, claimed exemption in respect of his sales turn:
over on the basis of the notification issued
under s. 5 of the Madhya Bharat Sales Tax Act which exempted hand-made shoes
and chappals the sale price of which did not exceed Rs. 12/8/in case of sale by
the manufacturer or by a member of his family. The claim for exemption was
rejected by the Sales Tax Officer and the respondent was assessed on the total
turnover. The respondent challenged the assessment by a petition under Art. 226
before the Madhya Bharat High Court which allowed the petition on the view that
the exemption granted by the notification applied to sales of hand-made shoes,
chappals, etc., whether made within or outside the State and held that any
other interpretation of the notification would bring it into conflict with Art.
304(a) of the Constitution.
Held, that the notification lays down three
conditions for the grant of exemption : (1) that the sale must be of such
shoes, chappals etc., as are hand-made and not manufactured on power machine
(2) that the sale price must not exceed Rs. 12-8-0 per pair and (3) that the
sale must be by the manufacturer or any member of his family. The notification
when it uses the expression "in case of sale" has reference to the
taxable event in the State ; in other words, it refers to a sale in the State
and not outside it. Therefore the notification has reference to such sales as
would come but for the exemption within item 32 of Schedule 3 of the
notification. The interpretation pat by the High Court would obliterate one of
the conditions and is not correct.
Held, further, that the exemption granted by
the notification is for the protection and benefit of small manufacturers who
make handmade shoes and chappals of small 705 value and are unable to compete
with large-scale manufacturers of footwear made on machines. Such a
classification in the interests of small manufacturers is valid.
Orient Weawing Mills (P) Ltd. v, Union of
India, [1962] Supp. 3 S.C.R, 481 and British India Corporation Ltd, v. The
Collector of Central Excise, Allahabad,[1963] 3 S.C.R.
642 referred, The exemption creates no
discrimination between footwear manufactured or produced in the State and those
imported from outside and is not therefore hit by Art.304(a) of the
Constitution.
M/s. Ram Narain Sons Ltd, v. Assistant
Commissioner of Sales Tax, (19551 2 S.C.R. 483, held inapplicable.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 373 of 1961.
Appeal by special leave from the judgment and
order dated December 14, 1959, of the Madhya Pradesh High Court in Misc. Petition
No. 274 of 1958.
B. Sen and I. N. Shroff, for the appellants.
W. S. Barlingay and A. G. Ratnapakhi, for the
respondents.
1962. August 24. The Judgment of the Court
was delivered by S.K.DAS, J.-This is an appeal by special leave from the
judgment and order of the High Court of Madhya Pradesh dated December 14, 1959,
by which the said High Court quashed an assessment of sales tax made against
the respondent for the assessment year 1956-57. The appellant before us are the
State of the Madhya Pradesh, the Commissioner of Sales Tax, Madhya Pradesh.
'and the Sales Tax Officer, Circle No.2, Indore.
We may first state the circumstances under
which the respondent was assessed to sales tax and 706 the reasons for which
the High Court quashed the, said assessment. The respondent carried on the
business of importing and selling different types of footwear in the State of
Madhya Pradesh under the name and style of Munwar Shoe Company, Indore. During
the assessment year 1956-57 the taxable turnover of the goods sold by the
respondent was determined to be a little over Rs. 60,000/-, and he was assessed
to sales tax on his taxable turnover in accordance with item 32 Sch.3 of the
notification dated October 24, 1953 issued under s. 5 of the Madhya Bharat Sales
Tax Act, 1950 (Act 30 of 1950) "hereinafter referred to as the Act).
Section 3 of the Act is the charging section
which imposes the tax. Section 4(3) empowers the Government to grant exemption
by means of a notification in respect of the sale of any goods or class of
goods. Section 5 of the Act fixes the rate of tax and states that the tax
payable by a dealer under the Act shall be a single point. It permits the State
Government to notify the goods and the point of their sale at which the tax is
payable. Item 32 of Sch. 3 of the notification referred to above was in these
terms.
S.No. Name of goods Point of sale in Madhya
Bharat at which tax it;
payable 32 All leather goods Sale by importer
and all shoes, or manufacturer.
chappals (footweer) etc.
Though the item in question made all leather
goods and all shoes, chappal etc. liable to sales tax at the point of sale by
the importer or manufacturer, an exemption was granted in respect of certain
sales of footwear by means of notification issued under s. 4 707 (3) of the
Act. We may now refer to these notifications.
The first notification was dated May 27, 1955
and was in these terms:
"In exercise of the powers conferred by
section 4(3) of Madhya Bharat Sales Tax Act, Samvat 2007 the Rajpramukh has passed
order exempting from the payment of sales tax, all such shoes, the selling
price of which does not exceed rupees te per pair and such country shoes which
are prepared by the manufacturer himself and for the production of which power
is not used in any stage if the same are sold by the Manufacturer himself or
any member of his family." This notification was later superseded by
another notification dated January 28, 1956, which read as follows:
"In exercise of the powers conferred by
section 4, sub-section(3) of the Madhya Bharat Sales Tax Act, Samvat 2007 the
Rajpramukh in supersession of the notification No. 59(c)(t) P.R. 412-54, dated
27-5-1955 of this department has exempted from the payment of sales tax, in
case of sale by the manufacturer or any member of his family, the sale of all
such shoes, chappals, country shoes and foot wears which are hand-made and
which are not manufactured on power machine and whose sale price does not
exceed Rs. 12/8/-." The respondent contended before the Sale Tax Officer
that he was not liable to pay any sales tax on the sale of hand-made shoes,
chappal and other type of footwear whose sale price did not exceed Rs. 12/8/per
pair on the ground that such footwear was exempt from tax by reason of the
notification dated January 28, 1956. The Sales Tax Officer negative this
contention. He pointed out in his order 708 dated March 25, 1958 that the
condition laid down in the notification to the effect that the sale must be by
the manufacturer or any member of his family was not fulfilled, and as the
respondent was an importer and dealer of footwear and not the manufacturer or a
member of the family of the manufacturer, he was not entitled to claim any
exemption under the notification. Consequently the Sales Tax Officer passed an
order assessing sales tax on the total turnover of the respondent.
The respondent then moved the High Court of
Madhya Pradesh by means of a petition under Art. 226 of the Constitution and in
that petition the respondent said that the notification dated January 28, 1956,
exempted from tax all sales of footwear which fulfilled the following to
conditions, viz., (a) such footwear was hand-made and not manufactured on power
machine, and (b) the sale price whereof did not exceed Rs. 12/8/per pair. The
respondent further averred that if the exemption were held to be in favour of
sales by a manufacturer or a member of his family and not sales by an importer,
then the notification would be discriminatory in nature and would contravene
the provisions of Art. 304(a) of the Constitution. On these grounds the
respondent prayed that the assessment order dated March 25, 1958, be quashed
and the Sales Tax Officer be directed to 'exempt from tax such sales by the
respondent as were covered by the exemption granted by the notification dated
January 28, 1956. In their reply to the writ petition the appellants pointed
'out that the notification dated January 28, 1956 did not in any way
discriminate between footwear manufactured or produced in the State of Madhya
Pradesh and footwear imported from outside, because the conditions laid down in
the notification were enqually applicable to both types of goods and one of
these conditions was that the sale 709 which was to be exempted from tax must
be by the manufacturer or a member of his family.
The High Court accepted the petition of the
respondent and held that the respondent's contention that hand-made shoes,
chappals and footwear purchased by him directly from the manufacturer outside
the State and imported by him for sale were entitled to exemption under the
notification dated January 28, 1956, must prevail. The High Court said:
"What that notification does is to
exempt from sales tax the sale of hand-made chappals shoes, footwear 'and
country shoes if the price of the article sold does not exceed Rs. 12/8/and if
it is sold by the manufacturer or any member of his family. It makes no
difference whether the sale is by the manufacturer within the State directly to
the purchaser or whether it is by the manufacturer outside the state to the
importer who then sells it to the purchaser. The notification is, no doubt, not
clearly worded. x x x x x x The notification has to be read in consonance with
the provisions of Article 301 of the Constitution. So read, it must be held
that the exemption applies to hand-made shoes, chappalso etc., whether made
within or outside the State if the other conditions mentioned in the
notification are satisfied." Accordingly, the High Court quashed the
assessment dated March 25, 1958, and directed the Sales Tax Officer to make a
fresh assessment in the light of the decision of the High Court.
On behalf of the appellants it has been
contended before us that the interpretation which the 710 High Court put on the
notification dated January 28, 1956, is not correct. We think that this
contention is right and must be accepted. The notification clearly lays down
three conditions for the grant of exemption: one of the conditions is that the
sale must be of such shoes, chappals, country shoes and footwear as are
hand-made and not manufactured on power machine; the second condition is that
the sale price must not exceed Rs. 1218/-; and the third condition is that the
sale mast be by the manufacturer or any member of his family. The notification
when it uses the expression "in case of sale" must refer to the sale
which is being exempted from tax in the State; in other words, it has reference
to the taxable event in the State as per Soh. 3 of the notification dated
October 24, 1953. That notification makes it clear that the tax is a single
point tax, and the taxable event is the sale by the importer or manufacturer in
the State. Therefore, the expression ",in case of sale" in the
exemption notification can have no reference to 'a sale outside the State,. The
High Court was in error when it said that, it made no difference whether the
sale was by the manufacturer within the State directly to the purchaser or
whether the sale was by the manufacturer outside the State to the importer who
then sold the shoes to the 'purchaser in the State. When a manufacturer sells
shoes outside the State to an importer And the importer again sells shoes in
the State, there are really two sales, one outside the State and one inside it.
The sales outside the State are not taxable under the Act and the notification
of January 28, 1956, has no reference to such sales. When the notification uses
the expression ",in case of sale by the manufacturer or a member of his
family", it has reference to such sales as would come but for the exemption
within item 32 of Sch. 3 of the notification dated October 24, 1953. If the
interpretation put by the High 711 Court is correct, then the practical effect
will be to obliterate one of the conditions laid down in the notification,
namely, that the sale, which is the taxable event, must be by the manufacturer
or any member of his family. We do not think that the notification is capable
of such an interpretation. All the three conditions laid down in the
notification must be fulfilled before the exemption referred to therein can be
claimed and we cannot, by inter pretention, delete one of the conditions.
On the question whether the notification
contravenes Art.
304(a) of the Constitution learned counsel
for the appellants has, canvassed before us the larger question that Art.
304(a) has no reference to sales tax legislation. He has contended that Art.
304(a) refers to a tax on goods meaning thereby a tax on the goods themselves,
e.g. excise duty or countervailing duty on goods, and it has no reference to a
tax on transactions of sale.
In view of the alternative submissions which
learned counsel for the appellants has made and to which we shall presently
refer, it is unnecessary for us to deal with the aforesaid larger question in
this appeal. The alternative submissions made by learned counsel for the
appellants are these.
Firstly, learned counsel for the appellants
bad argued that on the assumption 'that sales tax legislation is contemplated
by Art. 304(a), the notification in question does not in any way contravene
that provisions of the said Article. He has submitted that the three conditions
laid down by the notification apply equally to both types of footwear, footwear
manufactured or produced in the State and footwear imported from other States.
Secondly, he has submitted that. if the notification in question is bad on the
ground that it contravenes the provisions of Art. 30(4a) of the Constitution,
then the 712 result will be that the notification dated January 28, 1956, will
be void. This will not, however, affect the validity of the notification of
October 24, 1953, made under s. .5 of the Act, by which all, leather goods and
all footwear are made liable to a tax at the point of sale in the State by an
importer or manufacturer. Learned counsel has submitted that the respondent is
an importer who sells footwear in the State, and he will be liable to tax on
all footwear sold by him and will not be entitled to claim any exemption if the
exemption notification is bad; in other words, the assessment will be the same
as has been found by the Sales Tax Officer by his order dated March 25, 1958,
and in that view also, the order of the High Court quashing the assessment will
be erroneous.
We now proceed to, consider these alternative
submissions of learned counsel for the appellants. We do not think that the
notification dated January 28, 1956 makes any such discrimination between
footwear re manufactured or produced in the State of Madhya Pradesh and
footwear imported from other States as is prohibited by Art. 304(a) of of the
Constitution. We have already pointed out that the exemption granted by the
notification in question depends on the fulfillment of three conditions and all
the three conditions are equally applicable to footwear manufactured or produced
in the State and footwear imported from other States. It is obvious that the
exemption is for the protection and benefit of small manufacturers who make
handmade shoes of small value and who may be unable to compete with large-scale
manufacturers of footwear made on machines.
Such a classification in the interests of
small manufacturers has often been made and upheld by this Court.
(See Orient Weaving Mills (P) Ltd. v. The
Union of India (1): and The British India Corporation Ltd. v. The Collector of
Central Exeise, Allahabad (2) (1) (1962) Supp. 3 S.C.R. 481. (2) (1969) 3
S.C.R. 642.
713 In the course of his arguments learned
counsel for respondent has first supported the interpretation put on the
notification by the High Court. That question we have already dealt with
earlier in this judgment. Learned counsel for, the respondent has then
submitted that the discrimination arises in the following way. He points out
that a small manufacturer outside the State has to travel into the State and
sell hand-made shoes there in order to get the benefit of the exemption whereas
a small manufacturer in the State has not to travel anywhere in order to get
the benefit of the exemption. This, learned counsel bag submitted, results in
such discrimination as is forbidden by Art. 304(a) of the Constitution. We do
not agree. The argument of learned counsel for the respondent is really an
argument of inconvenience. The exemption by itself creates no discrimination
between footwear manufactured or produced in the State and imported from
outside. Even a small manufacturer in the State must fulfill the conditions
laid down by the notification in question before he can claim exemption from
tax; in other words, he or a member of his family must also sell the hand-made
shoes before he can claim the exemption. So must a small manufacturer outside
the State if he wants to claim the benefit of the exemption. Unless he has
travelled and brought the goods into another State, Art, 304(a) does not apply
; hence be cannot complain under that Article that he has to travel. It is
worthy of note that the exemption relates to sales in the State and that is why
a small manufacturer outside the State can claim no benefit of the exemption
with regard to sales outside the State which are not taxable under the Act,. It
is necessary here to refer to one other point which has been urged by learned
counsel for the respondent. Learned counsel has pointed out that the word
'himself' used in the earlier notification of 714 May 27, 1955, in connection
with the word manufacturer' has been omitted from the later notification
January 28, 1956, and he has contended that by reason of the omission of the
word 'himself' the benefit of the later notification may be available to a
servant or an agent of the manufacturer. We do not think that this question
falls for decision in the present appeal. The respondent in the present case is
neither a servant nor an agent of the manufacturer. It is admitted that he is
merely an importer and in his case nothing turns upon the omission of the word
himself 'from the later notification.
We also agree with the alternative submission
of learned counsel for the appellants that if the notification dated January
28, 1956 is bad, then the respondent stands to gain nothing. If the exemption
notification is struck down as invalid, that will not affect the validity of
the notification of October 24, 1953, particularly of item 32 of Sch. 3
thereof. Learned counsel for the respondent has submitted that the two
notifications must be read together and if the exemption goes, the notification
of October 24, 1953, issued under a. 5 of the Act must also go. We are unable
to agree, The notification of October 24, 1953. fixes the point of sale at
which the tax is to be imposed. The rate of tax is fixed by s. 5 of the Act.
There is no reason why the notification dated October 24, 1953, should fall
with the notification dated January 28, 1956 which was issued under s.. 4 (3)
of the Act. The principle laid down by this Court in M/s Ram. Narain Sons of
Ltd. v. Assistant Commissioner of Sales Tax (1) that where an assessment
consists of a single undivided sum in respect of the totality of the property
treated as assessable, the wrongful inclusion in it of certain items of
property which (1) [1955] 2. S. C. R. 483.
715 by virtue of a provision' of law were
expressly exempted from taxation, renders the assessment invalid in to, will
not a 'ply in the present case for the simple reason that there is no wrongful
inclusion of any item in the amusement order. If the exemption goes, then the
respondent has been rightly assessed on his total turnover. It is only when the
respondent is entitled to the exemption claimed that he can say that the
assessment is bad and must be quashed. The respondent can claim the exemption
only if the interpretation put by the High Court on the notification dated
January 28, 1956 is accepted as correct. If that interpretation is not correct,
then this appeal must be allowed even if the notification is bad by reason of
the provisions of Art. 304(a) of the Constitution.
For the reasons given above, we would allow
the appeal, set aside the judgment and order of the High Court dated December
14, 1949 and dismiss the writ petition. The appellants will be entitled to
their costs throughout.
Appeal allowed.
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