Weston
Electroniks & Anr Vs. State of Gujarat & Anr [1988] INSC 124 (29 April 1988)
Pathak,
R.S. (Cj) Pathak, R.S. (Cj) Misra Rangnath
CITATION:
1989 AIR 621 1988 SCR (3) 768 1988 SCC (2) 568 JT 1988 (2) 251 1988 SCALE
(1)902
ACT:
Gujarat Sales Tax Act, 1969-49(2)-Read with
Arts. 301, 303(1) and 304(a)-Imposition of tax must not be such as to
discriminate between goods imported from other States and similar goods
manufactured within the State-Discrimination cannot be supported by reference
to Art. 39(b) and (c)-The proper course to be followed by the Court while
striking down such discriminatory measures to give effect to the statutory
intention.
HEAD NOTE:
By
availing of its powers under sub-s. (2) of s. 49 of the Gujarat Sales Tax Act,
1969 to exempt, in the public interest, any specified class of sales from
payment of the whole or any part of the tax payable under the Act, the
Government of Gujarat issued two notifications prescribing a lower rate of tax
for goods manufactured within the State as compared to similar goods imported
from outside the State.
The
petitioners, who are manufacturing electronic goods, including television sets
etc., in factories located outside the State, challenged the validity of these
notifications as violative of Art. 301 of the Constitution. The State
Government contended that the rate of tax was reduced in order to provide as
incentive for encouraging local manufacturing units and sought to draw support
for its action from clauses (b) and (c) of Art. 39.
Allowing
the Petition and quashing the notifications aforesaid, ^
HELD:
Art. 301 declares that subject to the provisions of Part XIII, trade, commerce
and intercourse throughout the territory of India shall be free. Clause (1) of Art.
303 prohibits the legislature of a State from making any law giving, or authorising
the giving of, any preference to one State or another, or making, or authorising
the making of, any discrimination between one State and another. The terms of
the prohibition are subject to Art. 304. Clause (a) of Art. 304 provides that
the legislature of a State may, by law, impose on goods imported from other
States 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. It is apparent that while a State
Legislature may enact a law 769 imposing a tax on goods imported from other
States, as is levied on similar goods manufactured in that State, the
imposition must not be such as to discriminate between goods so imported and
goods so manufactured. We do not think any support can be derived from the two
clauses of Art. 39 to justify the reduction in the rate of tax in the case of
goods manufactured locally. Clause (a) of Art. 304 is clear in meaning. An
exception to the mandate declared in Art. 301 and the prohibition contained in cl.
(1) of Art. 303 can be sustained on the basis of cl. (a) of Art. 304 only if
the conditions contained in the latter provision are satisfied.
[770H;771A-B,772F-G]
Firm A.T.B. Mehtab Majid & Co. v. State of Madras & Anr., [1963] Suppl.
2 S.C.R. 435; Atiabari Tea Co. Ltd. v. The State of Assam and Ors., [1961] 1 S.C.R. 809; The
Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan & Ors.,
[1963] 1 S.C.R. 491 and H. Anraj etc. v. Government of Tamil Nadu etc., [1986]
1 S.C.C. 414, relied on.
(ii)
The next question is whether, for the purpose of ensuring the same rate of tax
between the petitioners and the local manufacturers, the levy of the higher rate
of tax suffered by the petitioners should be quashed and they be held entitled
to the levy of the lower rate applied to the local manufacturers, or, should
the higher rate imposed on the petitioners be maintained and the notifications
imposing the lower rate on local manufacturers be quashed. The grievance of the
petitioners has arisen only because the local manufacturers have been favoured
by a lower rate of tax. The rate levied on the petitioners is the rate
prescribed under s. 7 of the Act. That is the rate applied generally. It
represents the normal standard of levy. The lower rate applied to local
manufacturers has been applied by invoking sub-s. (2) of s. 49 of the Act. It
represents a departure from, or exception to, the general norm. In cases such
as this, the Court should, when granting relief, choose the alternative which
would give effect to the statutory intention. And, therefore, in this case what
is called for is the quashing of the impugned notifications reserving a lower
rate of tax for local manufacturers. [772H; 773A-E]
CIVIL
ORIGINAL JURISDICTION: Writ Petition No. 1032 of 1986.
(Under
Article 32 of the Constitution of India).
Soli
J. Sorabjee, Ms. S. Ralhan, S.C. Dhande and Ms. Rekha Pandey for the
petitioners.
770
V.S. Desai, A.S. Bhasme and Khanwilkar for the respondents.
The
Judgment of the Court was delivered by PATHAK, C.J. The petitioners manufacture
electronic goods, including television sets, television cameras and television
monitors. The factories are located at Delhi, and the goods are sold through sales organisations spread all over India, including the State of Gujarat.
Section
7 of the Gujarat Sales Tax, Act, 1969 provides for the levy of sales tax on the
turnover of sales of goods specified in Part A Sch. II appended to the Act.
Entry 80A(a) of Part A of Sch. II specifies the rate of tax applicable to the
turnover of television sets. The rate was 15% originally upto 1981, the Entry
applied to all television sets, whether manufactured and sold within the State
of Gujarat or imported from outside the State. No distinction was made between
the goods on the basis of the place of manufacture.
Sub-s.
(2) of s. 49 of the Act empowers the State Government to exempt, in the public
interest, any specified class of sales from payment of the whole or any part of
the tax payable under the Act. In 1981, while the rate for electronic goods
entering the State for sale therein was maintained at 15%, the rate in respect
of locally manufactured goods was reduced to 6% by Notification No. (GHN-51)
GST 1081 (S. 49)(109) TH issued under sub-s. (2) of s. 49 of the Act. The
Notification introduced a new entry in the Schedule dealing specifically with
electronic goods manufactured in the State of Gujarat. Thereafter in 1986 the rate of sales tax in respect of
television sets imported from outside the State was reduced from 15% to 10% and
for goods manufactured within the State of sales tax was reduced to 1% by
Notification No. (GHN 22) GST 1086/(S. 49)(173)-TH dated 29 March, 1986. The petitioner contends that by
lowering the rate of tax in respect of goods manufactured within the State, the
State Government has created an invidious discrimination which is adversely
affecting the free flow of inter-state Trade and commerce, resulting in a
contravention of Article 301 of the Constitution. It is pointed out that a
purchaser buying a television set manufactured within the State of Gujarat pays about Rs.250 to 300 less for a
black and white model and Rs.750 to Rs.1,000 for a colour model. It is said that
the sales of electronic goods manufactured by the petitioner have been
prejudicially affected within the State of Gujarat.
Art.
301 of the Constitution declares that subject to the provi- 771 sions of Part
XIII "trade, commerce and intercourse throughout the territory of India shall be free". Clause (1) of Art. 303 prohibits
"the legislature of a State from making any law giving, or authorising the
giving of, any preference to one State or 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".
The
terms of the prohibition are subject to Art. 304, which provides:
"Notwithstanding anything in Art. 301 or Art. 303, 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 the purpose of clause (b) shall be introduced or
moved in the Legislature of a State without the previous sanction of the
President." It is apparent that while a State Legislature may enact a law
imposing a tax on goods imported from other States as is levied on similar goods
manufactured in that State the imposition must not be such as to discriminate
between goods so imported and goods so manufactured.
In the
Firm A.T.B. Mehtab Majid & Co. v. State of Madras & Anr., [1963] Suppl.
2 S.C.R. 435 this Court was called upon to consider the validity of Rule 16 of
the Madras General Sales Tax Rules under which tanned hides and skin imported
from outside the State of Madras were subject to a higher rate of tax then the
tax imposed on hides and skins tanned and sold within the State. Referring to
its earlier decisions in Atiabari Tea Co. Ltd. v. The State of Assam and Ors.,[1961] 1 S.C.R. 809 and
The Automobile Transport (Rajasthan) Ltd. v. The State of Rajasthan & Ors.,
[1963] 1 S.C.R. 491 where the scope and significance of Art. 301 were
explained, it proceeded to observe:
"It
is therefore now well settled that taxing laws can be restrictions on trade,
commerce and intercourse, if they hamper the flow of trade and if they are not
what can be termed to be compensatory taxes or regulatory measures.
772
Sales tax, of the kind under consideration here, cannot be said to be a measure
regulating any trade or a compensatory tax levied for the use of trading
facilities. Sales tax, which has the effect of discriminating between goods of
one State and goods of another, may affect the free flow of trade and it will
then offend against Art. 301 and will be valid only if it comes within the
terms of Art. 304(a).
Art.
304(a) enables the Legislature of a State to make laws affecting trade, commerce
and intercourse. It enables the imposition of taxes on goods from other States
if similar goods in the State are subjected to similar taxes, so as not to
discriminate between the goods manufactured or produced in that State and the
goods which are imported from other States. This means that if the effect of
the sales-tax on tanned hides or skins imported from outside is that the latter
becomes subject to a higher tax by the application of the proviso to sub-rule
of r. 16 of the Rules, then the tax is discriminatory and unconstitutional and
must be struck down." So also in H. Anraj v. Government of Tamil Nadu and Dipak
Dhar & Ors. v. State of West Bengal & Anr., [1986] 1 S.C.R. 414 this
Court struck down the levy of tax imposed by the State of Tamil Nadu on lottery
tickets issued by other States and sold within the State of Tamil Nadu while
exempting from such levy lottery tickets issued by the Government of Tamil Nadu.
In
answer to the writ petition, the respondents point out that the rate of tax was
reduced in the case of goods manufactured locally in order to provide an
incentive for encouraging local manufacturing units. Reference is made to cl.(b)
and (c) of Art. 39 of the Constitution. We do not think that any support can be
derived from the two clauses of Art. 39. Cl. (a) of Art. 304 is clear in
meaning. An exception to the mandate declared in Art. 301 and the prohibition
contained in Cl. (1) of Art. 303 can be sustained on the basis of cl. (a) of
Art. 304 only if the conditions contained in the latter provision are
satisfied.
In the
result, the discrimination effected by applying different rates of tax between
goods imported into the State of Gujarat and goods manufactured within that State must be struck down.
The
next question is whether, for the purpose of ensuring the 773 same rate of tax
between the petitioners and the local manufacturers, the levy of the higher
rate of tax suffered by the petitioners should be quashed and they be held
entitled to the levy of the lower rate applied to the local manufacturers or
should the higher rate imposed on the petitioners be maintained and the
notifications imposing the lower rate on local manufacturers be quashed. A
perusal of the record shows that the grievance of the petitioners has arisen
only because the local manufacturers have been favoured by a lower rate of tax.
So long as the higher rate of tax imposed on the petitioners was also suffered
by the local manufacturers, no complaint was voiced by the petitioners. It is
the levy of the lower rate on local manufacturers that constitutes the
substance of the grievance. That is borne out by the terms of the relief
specifically claimed by the petitioners, that the notifications specifying a
lower rate for local manufacturers should be quashed. Moreover, the rate levied
on the petitioners is the rate prescribed under s. 7 of the Act. That is the
rate applied generally. It represents the normal standard of levy. The lower
rate applied to local manufacturers has been applied by invoking sub-s. (2) of
s. 49 of the Act. It represents a departure from, or exception to, the general
norm. In cases such as this, the Court should, when granting relief, choose the
alternative which would give effect to the statutory intention. And, therefore,
in this case what is called for is the quashing of the impugned notifications
reserving a lower rate of tax for local manufacturers.
Accordingly,
the writ petition is allowed and the Notifications No. (GHN-51) GST 1081 (S. 49)(109)
TH dated 23 July, 1981 and No. (GHN-22) GST 1086/(S.49)(173) TH dated 29 March,
1986 prescribing a lower rate of tax for local manufacturers in respect of
television sets and other electronic goods are quashed. The petitioners are
entitled to their costs.
H.L.C.
Petition allowed.
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