Lohara Steel Industries Ltd. & Anr Vs. The
State of Andhra Pradesh & Anr [1996] INSC 1656 (20 December 1996)
A.M. Ahmadi, Sujata V. Manohar Mrs.Sujata V.Manohar.J.
ACT:
HEAD NOTE:
(With Civil Appeal No 16901/1996 [arising out of
S.L.P.(C) No. 14547 of 1992][)
Leave granted in S.L.P.(C) No.14547 of 1992.
Appellant No.1 is a registered dealer under the
Andhra Pradesh General Sales Tax Act, 1951. The appellant is a dealer in iron
and steel. It purchases Iron and steel scrap and ingots in the State of Andhra Pradesh. Iron and steel scrap
and ingots are sent by the first appellant to the its re-rolling mill which is
situated in the State of Karnataka.
The raw material is re-rolled into rounds and
flats in the re-rolling mills of the appellant. The re-rolled products are
brought back to Andhra Pradesh and are sold in Andhra Pradesh.
The iron and steel scrap and ingots which are
purchased by the appellants are subject to tax in the State of Andhra Pradesh under the Andhra
Pradesh General Sales Tax Act, 1957. Under an exemption notification issued
under the Andhra Pradesh General Sales Tax Act, 1957 bearing G.O.Ms.No.88
Revenue, dated 28.1.1977 which came into effect from 1st of April, 1976
re-rolled finished products of steel sold in Andhra Pradesh were made exempt
from tax payable under the Andhra Pradesh General Sales Tax Act provided tax
had already been levied under the said Act on the sale or purchase of any of
the materials specified in Item 2 of Schedule III to the said Act which
included the raw material purchased by the assessee. The relevant text of the
exemption notification as amended by G.O.Ms.No.2458 Revenue, dated 3.6.1980 and
in force retrospectively from 1st of April, 1976 is as follows :- "In
exercise of the powers conferred by sub-section (1) of 9 of A.P.G.S.T. Act,
1957 (Act Vl of 1957) the Governor of Andhra Pradesh hereby makes an exemption
with effect from 1st of April, 1976, the re-rolled finished products of steel rerollers
from the tax payable under the said Act, subject to the condition that the tax
has been levied under the said Act on the sale or purchase of any of the
material specified in Item 2 of Schedule III to the said Act." By
G.O.Ms.No.1373 Revenue, dated 28.8.1981 the above G.O.Ms.No.88 was amended. By
the amendment, after the words 're-rolled finished products of the steel
re-rollers' the following words were added to G.O.Ms. No.88 :- "Situated
within the Andhra Pradesh State" The result was
that exemption under G.O.Ms. No.88 became available only to those re-rolled
finished products of steel re-rollers which were situated in the State of Andhra Pradesh. Since the appellants
re-roller mills were situated outside Andhra Pradesh the re-rolled products of
the appellants became ineligible for this exemption which was made available to
local products.
The amended G.O.Ms.No.88 was cancelled with
effect from 4.2.1982. Thereafter, another notification bearing G.O.Ms.No.498
Revenue, dated 20.3.1984 has been issued under which once again exemption from
tax leviable under Section 6 of the Andhra Pradesh General Sales Tax Act, 1957,
on ingots or billets or re-rolled finished products manufactured from iron and
steel scrap on which tax has been paid under the said Act is granted only to
those re-rolled finished products which are manufactured from steel
plants-cum-re rollers situated within the State of Andhra Pradesh and sold
inside the State. The appellants have challenged both these notifications as
being violative of Article 304(a) of the Constitution of India.
The appellants contend that in the impugned
notifications there is a clear discrimination between the goods which have been
manufactured in the State and goods which have been manufactured outside the
State in levying tax under the Andhra Pradesh, General Sales Tax Act of 1957.
Article 304 of the Constitution is as follows:-
"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)
............................." Article 304 thus enables the Legislature of
a State to impose tax on goods manufactured within the State as also goods
imported from other States into the State. But in doing so the State cannot
discriminate between goods so imported and goods manufactured or produced
locally. This article came up for consideration before this Court in the case
of Firm A.T.B. Mehtab Majid and Co. v. State of Madras and Anr. ([1963] Supp. 2
SCR 435). The Court said that 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 Article 301 and will be valid only if it
comes within the terms of Article 304(a). In the above case by virtue of Rule
16 which had been framed under the Madras General Sales Tax (Turnover and
assessment) Rules 1939, tanned hides and skins imported from outside the State
and sold within the State were subject to a higher rate of tax than hides or
skins tanned and sold within the State. This Court upheld the contention of the
appellant that such an imposition would violate Article 304(a) of the
Constitution and would be bad in law.
This decision has been re-affirmed by this Court
in the case of Andhra Steel Corporation v. Commissioner of Commercial Taxes in
Karnataka (1990 Supp. SCC 617). In this case the appellant who was a registered
dealer under the Karnataka Sales Tax Act purchased iron scrap from dealers
inside the and outside the State of Karnataka for the purpose of manufacturing
iron ingots, steel rounds and tor- steel, These manufactured goods were sold
mostly within the State. A provision in Section 5(4) of the Karnataka Sales Tax
Act which granted exemption to sales of finished goods manufactured out of
locally purchased raw material while denying it to the sale of finished goods
manufactured out of imported raw material was held to be unconstitutional and
contrary to Article 304(a) of the Constitution. This Court distinguished the
decisions in State of Madras v. N.K. Nataraja Mudaliar ([1968] 3 SCR 829) and
Rattan Lal & Co. and Anr. v. The Assessing Authority and Anr. ([1969] 2 SCR
544) and re-affirmed its decision in A.T.B. Mehtab's case (supra).
In the present case the appellants have
purchased the raw material in the State of Andhra Pradesh and tax has been paid
under the Andhra Pradesh General Sales Tax on this raw material. We do not see
any reason why the finished products from the re-rolled mills which are sold in
Andhra Pradesh should be subjected to discrimination on the ground that these
products have been manufactured outside the State and not inside the State.
There is clear violation of Article 304(a) in the present case.
It was, however, contended before us by the
department that the exemption notification must be read as a whole and,
therefore, if we find the exemption notification to be violative of Article
304(a) the entire exemption notification will have to be struck down and not
just a portion of it which is discriminatory as contended by the appellants.
This question in relation to a taking statute has been considered by this Court
as far back as in 1953 in the case of The State of Bombay and Anr. v. The
United Motors (India) Ltd. and Ors. ([1953] SCR 1069 at 1097). If the taxing
statute imposes tax on subjects which are divisible in their nature and if the
covered subjects which are exempted by the Constitution are wrongly taxed, the
entire taxing statute need not be declared as ultra vires because it is
feasible to separate taxes levied on authorised subjects from those levied on
exempt subjects and to exclude the latter in the assessment to tax. In such
cases this Court has said the statute itself should be allowed to stand. The
taxing authority can be prevented by injunction from imposing the tax on
subject exempted by the Constitution. In the present case the exemption
notification as it originally stood exempted all re-rolled finished products
sold in the State of Andhra Pradesh from tax provided tax had been paid in the
State of Andhra Pradesh on the raw material. This exemption is still available
to re- rolled products which are manufactured within the State. No exception
can be taken to this part of the notification.
Only the portion of exemption notification which
discriminates against goods manufactured outside the State violates the
provisions of Article 304(a). In fact the words denying this exemption to goods
manufactured outside the State were expressly and specifically added to the
original exemption notification by the amending G.O.Ms.No.1373 of 28.8.1981. It
is this amendment alone, which is clearly severable, that offends Article
304(a). It can, therefore, be struck down. The subsequent notification of
20.3.1984 proceeds on the same basis. There is no need, therefore. to strike
down the entire tax exemption which is granted to all re-rolled steel products
sold in there State of Andhra Pradesh and manufactured out of tax paid raw
material purchased in the state of Andhra Pradesh. The discriminatory provision
is clearly severably and can be struck down.
The appeals are, therefore, allowed and the
judgments and orders of the High Court and of the Sales Tax Appellate Tribunal
in Civil Appeal No. 16901 of 1996 (Arising out of S.L.P.(C) No.14547 of 1992)
are set aside. The respondents shall pay to the appellants costs of the
appeals.
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