Shree Digvijay
Cement Co. Ltd. & Ors Vs. State of Rajasthan & Ors [1999] INSC 429 (17 December 1999)
N.S.Hegde,
D.P.Mohapatro, B.N.Kripal, S.P.Wadhwa Kirpal, J.
The
challenge in this writ petition is to the notification dated 12th March, 1997
issued by the State of Rajasthan under Section 8[5] of the Central Sales Tax
Act [for short the Act] whereby it reduced the rate of sales tax on inter-state
sale of cement by any dealer from that State to 4% and did away with the
requirement of furnishing of declaration in Form-C or certificate in Form-D
contemplated by Section 8[4] of the Act.
Shri Digvijay
Cement Co. Ltd. and M/s Gujarat Ambuja Cements Ltd., petitioners no.1 and 3
herein, manufacture cement and have their manufacturing units in the State of Gujarat. The cement manufactured by them is
sold in Gujarat and elsewhere. The State of Rajasthan had issued under Section 8[5]
notifications dated 8th
January, 1990 and 27th June, 1990, which had the effect of reducing
tax on inter-state sale effected by dealers from Rajasthan to 7% even though in
respect of local sales the tax was 16%.
These
notifications were challenged by the petitioners by their filing a writ
petition in the Rajasthan High Court in February 1994. During the pendency of
this petition the State of Rajasthan issued under Section 8[5] of the Act
another notification dated 7th March, 1994 reducing the rate of tax on
inter-state sale of cement to 4% and without the requirement of furnishing of
declaration in Form-C or certificate in Form-D by dealers in Rajasthan who may
have effected the inter-state sale. By amending the aforesaid writ petition
this notification of 7th
March, 1994 was also
challenged.
The
grievance of the petitioners in the aforesaid petition was that as a
consequence of such reduction of sales tax, cement from Rajasthan became much
cheaper in the neighbouring States like Gujarat and that adversely affected the
local sale of cement manufactured by the petitioners in Gujarat by reason of
higher rate of sales tax on the local sales within that State. Such reduction
of the rate of tax, it was contended, was contrary to the scheme contained in
Part XIII of the Constitution and was liable to be struck down.
The
Rajasthan High Court dismissed the writ petition.
Thereupon
a special leave petition was filed in this Court.
Leave
was granted and the Civil Appeal No.2145 of 1997 was heard and on 5th March, 1997 the judgment was reserved. It is
thereafter that on 12th
March, 1997 the State
of Rajasthan issued the impugned notification
under Section 8[5] which was similar to the earlier notifications and continued
the rate of tax on inter-state sale of cement at the reduced rate of 4%. This
notification of 12th
March, 1997 was to
remain in force upto 31st
March, 1998.
On 21st March, 1997 the appeal filed by the petitioners
was allowed and the earlier notifications dated 8th January, 1990, 27th
June, 1990 and 7th March, 1994 were quashed. In the said decision,
reported as Shri Digvijay [(1994) 5 SCC 406], it was held that reducing the
rate of tax from 16% to 4% had the effect of increasing the dispatch of cement
from Rajasthan to Gujarat and in reduction of the local sale of cement
manufactured in Gujarat and the said notifications, therefore, were held to be
bad for having direct and immediate adverse effect on free flow of trade.
It was
also held that the notifications dispensing with the requirement of furnishing
declaration in Form-C had the effect of facilitating evasion of payment of tax
and were, therefore, violative of the scheme of the constitutional provisions
contained in Chapter XIII.
In the
present writ petition the challenge is to the notification of 12th March, 1997, which was not the subject matter
in the earlier appeal, on the grounds which found favour with this Court in its
aforesaid decision of 21st
March, 1997.
On 26th November, 1998 this petition was heard by a Bench
of Three Judges. It was noticed that similar earlier notifications had been
struck down in Shri Digvijay Cement Companys case (supra) on the ground that
they were violative of Articles 301 and 303 of the Constitution. The Bench
observed that the aforesaid judgment required to be considered by a larger
bench particularly in regard to the applicability of Articles 301 and 303 to
the said notification. This is how this petition has come to be heard by this
Bench.
Section
8 of the Act, in so far as it is relevant for the purpose of this case, is as
follows:
8.
Rates of tax on sales in the course of inter-state trade or commerce. [1] Every
dealer, who in the course of inter-state trade or commerce [a] sells to the
Government any goods; or [b] sells to a registered dealer other than the
Government goods of the description referred to in sub-section [3];
shall
be liable to pay tax under this Act, which shall be (four per cent) of his
turnover.
[2]
The tax payable by any dealer on his turnover in so far as the turnover or any
part thereof relates to the sale of goods in the course of inter-state trade or
commerce not falling within sub-section [1] [a] in the case of declared goods,
shall be calculated (at twice the rate) applicable to the sale or purchase of
such goods inside the appropriate State; and [b] in the case of goods other
than declared goods, shall be calculated at the rate of ten per cent or at the
rate applicable to the sale or purchase of such goods inside the appropriate
State, whichever is higher;
and
for the purpose of making any such calculation any such dealer shall be deemed
to be a dealer liable to pay tax under the sales tax law or the appropriate
State, notwithstanding that he, in fact, may not be so liable under that law.
[2-A]
Notwithstanding anything contained in sub-section [1-A] of Section 6 or in
sub-section [1] or clause [b] of sub-section [2] of this section the tax
payable under this Act by a dealer on his turnover in so far as the turnover or
any part thereof relates to the sale of any goods the sale or, as the case may
be, the purchase of which is, under the sales tax law of the appropriate State,
exempt from tax generally or subject to tax generally at a rate which is lower
than( four per cent) (whether called a tax or fee or by any other name), shall
be nil or, as the case may be, shall be calculated at the lower rate.
Explanation
For the purposes of this sub-section a sale or purchase of any goods shall not
be deemed to be exempt from tax generally under the sales tax law of the
appropriate State if under that law the sale or purchase of such goods is
exempt only in specified circumstances or under specified conditions or the tax
is levied on the sale or purchase of such goods at specified stage or otherwise
than with reference to the turnover of the goods.
[3]
The goods referred to in clause [b] of sub-section [1] [a] Omitted [b] ****are
goods of the class or classes specified in the certificate of registration of
the registered dealer, purchasing the goods as being intended for resale by him
or subject to any rules made by the Central Government in this behalf, for use
by him in the manufacture or processing of goods for sale or in mining or in
the generation or distribution of electricity or any other form of power;
[c] are
containers or other materials specified in the certificate or registration of
the registered dealer purchasing the goods, being containers or materials
intended for being used for the packing of goods for sale;
[d]
are containers or other materials used for the packing of any goods or classes
of goods specified in the certificate of registration referred to in ***clause
[b] or for the packing of any containers or other materials specified in the
certificate of registration referred to in clause [c].
[4]
The provisions of sub-section [1] shall not apply to any sale in the course of
inter-state trade or commerce unless the dealer selling the goods furnishes to
the prescribed authority in the prescribed manner [a] a declaration duly filled
and signed by the registered dealer to whom the goods are sold containing the
prescribed particulars in a prescribed form obtained from the prescribed
authority; or [b] if the goods are sold to the Government, not being a
registered dealer, a certificate in the prescribed form duly filled and signed
by a duly authorised officer of the Government;
provided
that the declaration referred to in clause [a] is furnished within the
prescribed time or within such further time as that authority may, for
sufficient cause, permit.
[5]
Notwithstanding anything contained in this section, the State Government may,
if it is satisfied that it is necessary so to do in the public interest, by
notification in the Official Gazette, and subject to such conditions as may be
specified therein, direct, - [a] that no tax under this Act shall be payable by
any dealer having his place of business in the State in respect of the sales by
him, in the course of inter- state trade or commerce, from any such place of
business of any such goods or classes of goods as may be specified in the
notification, or that the tax on such sales shall be calculated at such lower
rates than those specified in sub-section [1] or sub-section [2] as may be mentioned
in the notification;
[b]
that in respect of all sales of goods or sales of such classes of goods as may
be specified in the notifications which are made, in the course of inter- state
trade or commerce, by any dealer having his place of business in the State or
by any class of such dealers as may be specified in the notification to any
person or to such class of persons as may be specified in the notification, no
tax under this Act shall be payable or the tax on such sales shall be
calculated at such lower rates than those specified in sub-section [1] or
sub-section [2] as may be mentioned in the notification.
The
impugned notification has been issued under sub-section [5] of Section. This
sub-section when originally enacted was as under:
[5]
Notwithstanding anything contained in this section, the Central Government may,
if it is satisfied that it is necessary so to do in the public interest by
notification in the Official Gazette, direct that in respect of such goods or
classes of goods as may be mentioned in the notification and subject to such
conditions as it may think fit to impose, no tax under this Act shall be
payable by any dealer having his place of business in any Union territory in
respect of the sale by him from any such place of business of any such goods in
the course of inter-state trade or commerce or that the tax on such sales shall
be calculated at such lower rates than those specified in sub-section [1] or
sub-section [2] as may be mentioned in the notification.
In
sub-section [5] the words the State Government and the State were substituted
for the words the Central Government and any Union Territory respectively, by
Section 2 of Central Sales Tax (Amendment) Act, 1957 (Act No.16 of 1957). The
amendment thus enabled a State Government (in place of the Central Government
under the amended provisions), if it so desired, to exempt any goods or class
of goods from Central Sales Tax, or to prescribe a lower rate of tax therefor.
Clause
4 of the Statement of Objects and Reasons to the Amendment Bill of 1957 reads
as under:
Incidentally,
section 8[5] is sought to be amended so as to enable a State Government, if it
so desires, to exempt any goods or class of goods from inter-state sales tax.
Sub-section
[5] in its present form has been substituted by Section 5[c] of the Central
Sales Tax (Amendment) Act, 1972 {Act No.61 of 1972) with effect from 1st April, 1973. Under the 1958 substituted
sub-section, the State Government could grant exemption from tax or reduction
in the rate of tax with reference to any class or classes of goods only, the
newly substituted sub- section provides for such excemption or reduction being
granted with reference to persons also. The Notes on clause 5[c] reads as
under:
2.
Sub-clause 9[c] of clause 5 of the Bill seeks to substitute a new section for
existing sub-section [5] of Section 8 of principal Act for the purpose of
enabling State Governments to grant exemption from or reduction in rate of tax
only with reference to any goods or classes of goods as at present but also
with reference to persons. The exemption from tax or reduction in rate of tax
may be granted only if the State Government is satisfied that it is necessary
to do so in public interest. As it is not possible to visualise in advance the
cases in which such exemptions or reductions may be necessary and as the
exemptions and reductions can be granted only in public interest, the
delegation of power to grant exemptions or reductions is of a normal character.
The
impugned notification dated 12th March, 1997
issued under Section 8(5) of the Act is as follows:
S.O.
320 In exercise of the powers conferred by sub-section [5] of Section 8 of
Central Sales Tax Act, 1956 and in supersession of this Department Notification
No.F-4(8)/FD/Gr.IV/94-70 dated 7th March, 1994 (as amended from time to time),
the State Government being satisifed that it is that the tax payable under
sub-section [1] and [2] of the said Section, by any dealer having his place of
business in the State. in respect of the sales of cement made by him from any
such place in the course of inter-state trade and commerce shall be calculated
at the rate of 4% subject to the following conditions:- [1] That the dealer
shall record the name and complete address of the purchaser in the bill or cash
memo for such inter-state sale to be issued by him;
[2] that
the burden to prove that the transaction was in the nature of inter-state sale,
shall be on the dealer;
and
[3] that the dealer making inter-state sales under this Notification shall not
be eligible to claim benefit provided for by the Notification No.F-
4(72)/FD/Gr.IV/81-18 dated 6.5.86 as amended from time to time.
This
Notification shall remain in force upto 31st March, 1998.
On
behalf of the petitioners, Sh. Shanti Bhushan, learned senior counsel, submitted
that the impugned notification issued under Section 8[5] was inconsistent with
the legislative policy contained in the Central Sales Tax Act inasmuch as the
rate of tax on inter-state sales has been made lower than the rate of tax on
the said goods when sold within the State and furthermore the requirement of
furnishing declaration in Form-C or a certificate in Form-D, as contemplated by
Section 8[4] has also been done away with. He further submitted that this
notification was violative of Articles 301 and 303 of the Constitution inasmuch
as it prevented or hindered the free movement of goods from one State to the
other. In support of this contention reliance was placed by him in the case of
Indian (1988) 1 SCC 743] and in the petitioners own case that of and Ors. [ (1997)
5 SCC 406]. He also invited our attention to the judgment of Hegde,J. in the
case of State and submitted that lowering the rate of tax on inter-state sales
in the manner it has been done was not permissible.
He
lastly urged that the nature of public interest contemplated by Section 8[5] of
the Act was not the kind on the basis of which the impugned notification has
been issued by the Government of Rajasthan. He also submitted that by doing
away with the requirement of furnishing Forms-C and D the State of Rajasthan
had in fact encouraged or facilitated tax evasion and this was not permissible
and could not be regarded as being in public interest as contemplated by
Section 8[5] of the Act.
Learned
counsel for the respondents contended that the impugned notification was issued
in public interest and the same was not violative of Part XIII of the
Constitution. It was also their submission that the decisions of this Court in
Indian Cement (supra) and Shri Digvijay Cement Co.
(supra)
do not lay down the correct law and need to be reconsidered. It was also their
contention that the petitioner who was a dealer in the State of Gujarat had no locus standi to challenge
the impugned notification issued by the State of Rajasthan.
For
the view which we are taking, we do not intend to decide this question of locus
standi and we proceed to examine the issues raised in this case on the
assumption that the writ petition filed by the petitioners is maintainable.
Reading
of Section 8 indicates that the Scheme for the levy of the Central Sales Tax
Act, 1956, relating to inter-state sales falls under the following five
categories:
I]
Inter-state sales by a dealer to the Government or to a registered dealer, of
the description of goods referred to in Section 8[3] shall be at 4 per cent
provided the conditions prescribed in Section 8[4] are satisfied (Section
8[1]).
II]
Tax payable by a dealer on his turnover of inter-state sales, not falling under
Section 8[1] of declared goods shall be twice the rate applicable to the sale
or purchase of such goods inside the appropriate State (Section 8[2][a]).
III]
Tax payable relating to inter-state sale of other than declared goods and not
falling under Section 8[1] shall be at ten per cent, or at the rate applicable
for sales inside the appropriate State whichever is higher (Section 8(2)(b).
IV]
Notwithstanding anything contained in Section 8[1] or 8[2][b] if the goods are
sold inter-state, the sale or purchase of which is, under the sales tax law of
the appropriate State exempt from tax generally or subject to tax generally at
a rate lower than 4 per cent, it shall be either exempt from tax or the tax
under the Central Sales Tax Act shall be levied at the lower rate as it is
obtained in the State (Section 8 [2A]).
V]
Notwithstanding anything contained in Sections 8[1] to 8[4] of the Act, the
State Government may, in public interest and subject to such conditions as may
be specified by it, exempt any person from payment of tax regarding the
inter-state sales, or levy a rate lower than that specified in Section 8[1] or
8[2] (Section 8[5]). Section 8[5] empowers the State Government, in public
interest to dispense with the requirement of Section 8[4].
The
validity of sub-sections [2], [2A] and [5] of Section 8 came up for consideration
before this Court in 829]. The respondent in that case had successfully
contended before the High Court that sub-sections [2], [2A] and [5] of Section
8 imposed or authorised the imposition of varying rates of tax in different
States on similar inter-state transactions and the resulting inequality in the
burden of tax affected and impeded inter-state trade, commerce and inter-
course thereby offended Articles 301 and 303 [1] of the Constitution.
Shah,J.,
as he then was, speaking for the majority after referring to the earlier
decision of this Court in of Madras and Anr.
[ (1963) Supp.2 SCR 435], Automobile [ (1963) 1 SCR 491], pertaining to
Articles 301 and 303, observed that it was settled law that a tax may in
certain cases restrict or hamper the flow of trade but every imposition of tax
does not do so. Tax under the Central Sales Tax Act on inter-state sales was in
its essence a tax which may encumber movement of trade and commerce, but
Article 302 expressly provided that on the freedom of trade restrictions may be
imposed not only in one State but also within any part of the territory of India. Dealing with the contention, which had found favour with
the High Court that rates of tax on the sale of same or similar commodity by
different States was by itself discriminatory since it authorised placing of a
burden on inter-state trade and commerce and affected its free flow between the
States, Shah, J. further observed at page 843 as under:
We are
unable to accept the view propounded by the High Court. The flow of trade does
not necessarily depend upon the rates of sales tax: it depends upon a variety
of factors, such as the source of supply, place of consumption, existence of
trade channels, the rates of freight, trading facilities, availability of efficient
transport and other facilities for carrying on trade. Instances can easily be
imagined of cases in which notwithstanding the lower rate of tax in a
particular part of the country goods may be purchased from another part, where
a higher rate of tax prevails. Supposing in a particular State in respect of a
particular commodity, the rate of tax is 2% but if the benefit of that low rate
is offset by the freight which a merchant in another State may have to pay for
carrying that commodity over a long distance the merchant would be willing to
purchase the goods from a nearer State, even though the rate of tax in that
State may be higher. Existence of long-standing business relations,
availability of communications, credit facilities and a host of other factors-natural
and business-enter into the maintenance of trade relations and the free flow of
trade cannot necessarily be deemed to have been obstructed merely because in a
particular State the rate of tax on sales is higher than the rates prevailing
in other States.
Again
at page 845 it was observed as under:
The
rate which a State Legislature imposes in respect of inter-state transactions
in a particular commodity must depend upon a variety of factors. A State may be
led to impose a high rate of tax on a commodity either when it is not consumed
at all within the State, or if it feels that the burden which is falling on
consumers within the State will be more than offset by the gain in revenue
ultimately derived from outside consumers. The imposition of rates of sales tax
is normally influenced by factors political and economic. If the rate is so
high as to drive away prospective traders from purchasing a commodity and to
resort to other sources of supply, in its own interest the State will adjust
the rate to attract purchasers.Again, in a democratic constitution political
forces would operate against the levy of an unduly high rate of tax. The rate
of tax on sales of a commodity may not ordinarily be based on arbitrary
considerations but in the light of the facility of trade in a particular
commodity, the market conditions-internal and external- and the likelihood of
consumers not being scared away by the price which includes a high rate of tax.
Attention must also be directed to sub-s [5] of s.8 which authorises the State
Government, notwithstanding anything contained in s.8, in the public interest
to waive tax or impose tax on sales at a lower rate on inter-state trade or
commerce. It is clear that the legislature has contemplated that elasticity of
rates consistent with economic forces may be maintained.
The
Court accordingly upheld the validity of Section 8[2], 8[2A] and 8[5] and held
at page 846 as under:
The
Central Sales Tax Act is enacted under the authority of the Union Parliament,
but the tax is collected through the agency of the State and is levied
ultimately for the benefit of the States and is statutorily assigned to the
States. That is clear from the amendments made by the Constitution. [Sixth
Amendment] Act, 1956, in Art.269, and the enactment of cls. [1] & [4] of
Section 9 of the Central Sales Tax Act. The Central Sales tax though levied for
and collected in the name of the Central Government is a part of the sales-tax
levy imposed for the benefit of the States.
By
leaving it to the States to levy sales-tax in respect of a commodity on
inter-state transactions no discrimination is practised: and by authorising the
State from which the movement of goods commences to levy on transactions of
sale Central sales-tax, at rates prevailing in the State, subject to the
limitation already set out, in our judgment, no discrimination can be deemed to
be practised.
Hegde,J.
delivered a separate judgment agreeing with the conclusion reached by Shah,J.
to the effect that the aforesaid sub- sections of Section 8 were intra-vires to
the Constitution, but his reasons for coming to that conclusion were, however,
not the same which had prevailed with the majority. Hegde,J. observed that once
it is shown that a measure prima facie gives preference to the residents of one
State over another State or it makes discrimination between the residents of a
State and that of another because of the adoption of different rates of tax in
different States, then the matter assumes a different complexion in view of
Article 303(1). After referring to the Taxation Enquiry Committee Report, he
observed at page 853 that Therefore, it is clear that the Act is not a
haphazard legislation; it is the product of deep thinking and clear analysis of
the various aspects of the matter. This Court will be slow to hold such a
measure as being either not in public interest or is violative of Article
303(1). The learned Judge then analysed the provisions of different
sub-sections of Section 8 which were impugned and came to the conclusion that
they were intra-virus and held at page 856 as under:
If we
bear in mind the fact that sales tax on inter- State sales is levied for the
benefit of the States and the further fact that each one of the State
Governments in its own interest is bound to create the best possible condition
for the growth of industry and commerce in that State, it is reasonable to
assume that they will not be blind to economic forces. All that one has to
guard against is to see that they do not, by having recourse to their taxation
power, obstruct the flow of trade into their State. In the normal course they
will be interested in seeing that goods produced in their States are sold
outside. Reasonably sufficient safeguards against the free flow of trade into a
State have been provided by the provisions of the Act, firstly, by providing
for the levy of sales tax in the State in which the goods are produced, and,
secondly, by placing various restrictions on the power of the States in fixing
the rates.
None
of the impugned provisions, in my opinion, has direct or immediate impact on
inter- State trade or commerce..
The
aforesaid decision in N.K. Nataraja Mudaliars case (supra) not only upheld the
validity of Section 8(2)(2A) and (5) but also observed that sub-section (5) of
Section 8 authorised the State Government to waive or lower the rate of tax in
the public interest, notwithstanding anything contained in Section 8. There
can, therefore, be no challenge to the exercise of power under Section 8(5)
except on the ground that such power has not been exercised in public interest..
&
Others, [ (1974] 4 SCC 408], the validity of Section 8(2)(b) of the Act was
once again considered by a Constitution Bench of this Court in the light of
Articles 301 and 303 of the Constitution. While upholding the validity of
Section 8(2)(b) and by following the decision in the case of N.K. Nataraja Mudaliar
(supra), this Court at page 414 observed as under:
As
regards the contention that Section 8(2)(b) is violative of Article 303(1) in
that there will be varying rates of tax on inter-State sales in different
States depending upon their rates of sales tax for inter-State sales and that
that will lead to the imposition of dissimilar tax on the sale of same or
similar commodities, it is enough to state that this question has been
considered Mudaliar (supra) and the Court has rejected the contention.
The
Court said that the existence of different rates of tax on the sale of the same
or similar commodity in different States by itself would not be discriminatory
as the flow of trade does not necessarily depend upon the rates of sales tax;
it depends, according to the Court, upon a variety of factors such as the
source of supply, place of consumption, existence of trade channels, the rates
of freight, trading facilities, availability of efficient transport and other
facilities for carrying on the trade.
The
validity of Section 8(2)(b) of the Act, on the ground that it suffers from the
vice of excessive delegation, was also considered by a Constitution Bench of
The Assistant Commissioner of Sales Tax and others, [(1974) 4 SCC 98] and it
was held that Parliament had not abdicated its legislative function by enacting
Section 8(2)((b) of the Act.
State
of Punjab and Another [(1990) 3 SCC 87], the challenge was to notifications
issued by the State of U.P. under Section 4-A of the U.P. Sales Tax Act and
Section 8(5) of the Central Sales Tax Act exempting new units of manufacturers
in respect of the goods specified therein from payment of any sales tax for
different period ranging from 3 to 7 years. The petitioners therein, who were
not new manufacturers and were not entitled to claim the benefit of the said
notifications, had contended that Part XIII of the Constitution had envisaged
the preserving of the unity of India as an economic unit and hence had
guaranteed free flow of trade and commerce throughout India and, therefore,
either a State should grant exemption to all goods irrespective of the fact
that the goods are locally manufactured or imported from other States,
otherwise it would be violative of Articles 304 and 304(a) of the Constitution.
Repelling this contention, it was held that while maintaining the general rate
at par, special rates for certain industries for a limited period can be
prescribed by the States without offending the provisions of Articles 301 and
304(a) of the Constitution. In coming to this conclusion it was observed at
page 108 as follows:
Concept
of economic barrier must be adopted in a dynamic sense with changing
conditions. What constitutes an economic barrier at one point of time often
ceases to be so at another point of time. It will be wrong to denude the people
of the State of the right to grant exemptions which flow from the plenary
powers of legislative heads in List II of the Seventh Schedule of the Constitution.
In a federal polity, all the States having powers to grant exemption to
specified class for limited period, such granting of exemption cannot be held
to be contrary to the concept of economic unity. The contents (sic concept) of
economic unity by the people of India would necessarily include the power to grant exemption or to reduce the
rate of tax in special cases for achieving the industrial development or to
provide tax incentives to attain economic equality in growth and development.
When all the States have such provisions to exempt or reduce rates the question
of economic war between the States inter se or economic disintegration of the
country as such does not arise. It is not open to any party to say that this
should be done and this should not be done by either one way or the other. It
cannot be disputed that it is open to the States to realise tax and thereafter
remit the same or pay back to the local manufacturers in the shape of subsidies
and that would neither discriminate nor be hit by Article 304(a) of the
Constitution. In this case and as in all constitutional adjudications the
substance of the matter has to be looked into to find out whether there is any
discrimination in violation of the constitutional mandate.
Section
8(5) of the Act, which has been held to be valid and whose ambit has been
explained in the afore-said decisions, provides that in respect of inter-state
sale of certain types of goods by any dealer having its place of business in
the State, no tax shall be payable or tax shall be calculated at lower rates
than those specified in sub-section (1) or sub-section (2). This power of
exempting or reducing the rate of inter-state sales tax on certain types of
goods, like cement in the present case, has of course to be exercised when the
State Government is satisfied that it is necessary to do so in public interest.
The
respondents have clearly stated that as a result of reduction of tax to 7% vide
Notification dated 8th January, 1990, it had got additional revenue of lakhs of
rupees in the last quarter of that financial year. It is also stated in the
affidavit in reply that unless incentives are given to the industries in the
State of Rajasthan, further economic, industrial and
social development of the State would be hampered. The production of cement in
the State was far in excess than the consumption. The surplus available with
the cement manufacturers had to be sold outside the State and unless it was
advantageous for the cement manufacturing units to sell their cement outside
the State, the cement industry within the State would be crippled which would
have an adverse industrial, social and economic impact on the State of
Rajasthan and would consequently be detrimental to public interest. The high
rate of tax on inter-state sale which had been prevalent had resulted in
manufacturing units resorting to branch transfer of cement from one State to
another without paying any tax in the State of Rajasthan and lowering of the
inter-state sales tax had the effect of increasing the tax collection.
There
were 33 units in Rajasthan which were engaged in manufacturing of cement which
are stated to be providing direct employment to 10475 personnel. In addition
thereto, 25000 workers were stated to be engaged in mining industry and more
than 50000 workers were engaged in allied activities i.e. transportation,
loading, unloading and marketing etc. With the demand of cement within the
State of Rajasthan being limited, it thus became
imperative to encourage inter-State sales of cement from the State of Rajasthan. Reducing the rate of inter-State
sales tax facilitated in the higher tax return and in the industry continuing
to function. This would clearly show that the issuance of the said notification
was in public interest as envisaged by sub-section (5) of Section 8 of the Act.
We are
unable to agree with the contention of the learned counsel for the petitioners
that the impugned notification had the effect of preventing or hindering the
free movement of goods from one State to another. As far as the State of
Rajasthan is concerned, it had the opposite effect. Merely because local rate
of tax in the State of Gujarat on the sale of cement was higher than the
inter-State sales tax on the cement sold from Rajasthan cannot lead to the
conclusion that the impugned notification prevented or hindered the free
movement of goods from one State to another. In fact the impugned notification
had the opposite effect, namely, it increased the movement of cement from
Rajasthan to other States. It is not as if the impugned notification created a
barrier which may have had the effect of hindering free movement of goods but
on the other hand, the sales tax barrier was lowered resulting in increased
volume of inter-state trade.
It is
no doubt true that Section 8 of the Act contemplates the furnishing of Form-C
and Form-D where inter-State sale is made to registered dealer or to the
Government Department outside the State. But a Notification which is issued
under sub- section (5) of Section 8 can have a overriding effect in view of the
non-obstante clause.
Form-C
and Form- D are regarded as proof of inter-State sale being made by dealers
from Rajasthan to a registered dealer or to a Government Department outside
Rajasthan. The impugned notification requires the seller to record the name and
address of the purchaser on the bill or cash memo which he is required to issue
in relation to an inter-State sale and the dealer is required to prove that the
transaction was in the nature of inter-State sale. We are unable to agree that
the substitution of the requirement of furnishing Form-C and Form-D by making
it obligatory on the dealer to record the name and address of the purchaser in
the bill or cash memo would have the effect of facilitating tax evasion.
The
experience of the State of Rajasthan has been that with the issuance of such
notifications, its tax revenue on inter-State sale of cement had increased.
Shri Shanti
Bhushan had placed strong reliance on the decision of this Court in the case of
Indian Cement (supra).
This Court
was dealing with the case where the State of Andhra Pradesh had issued a
notification under Section 8(5) of the Act reducing the rate of tax in respect
of sale made in the course of inter-State trade or commerce from that State. After
referring to the decisions of this Court in Atiabari Tea Co. Ltd., N.K. Nataraja
Mudaliar, Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. And Sitalakshmi
Mills (supra), this Court at page 759 observed as follows:
Variation
of the rate of inter-State sales tax does not affect free trade and commerce
and creates a local preference which is contrary to the scheme of Part XIII of
the Constitution. The notification extends the benefit even to unregistered
dealers and the observations of Hegde,J. on this aspect of the matter are
relevant. Both the notifications of the Andhra Pradesh Government are,
therefore, bad and are hit by the provisions of Part XIII of the Constitution.
They cannot be sustained in law.
The
aforesaid conclusion, with respect, does not flow from the decisions of the
Constitution Benches of this Court to which reference has been made earlier. Variation
in the rate of inter- State sales tax is clearly permitted by Section 8(5) of
the Act whose validity has been expressly upheld in N.K. Natarja Mudaliar case
(supra). This being so the conclusion in Indian Cement case (supra) that
variation of the rate of inter-State sales tax, which creates a local
preference, is contrary to the scheme of Part XIII of the Constitution, is not
correct. In Indian Cement case (supra) there is reference to the observations
of Hegde,J. which were to the following effect.
Sub-Section
(5) of Section 8 provides for giving individual exemptions in public interest.
Such a power is there in all taxation measures. It is to provide for unforeseen
contingencies. Take for example, when there was famine in Bihar, if a dealer in
Punjab had undertaken to sell goods to a charitable society in that State at a
reasonable price for distribution to those who were starving, it would have
been in public interest if the Punjab Government had exempted that dealer from
paying sales tax. Such a power cannot immediately or directly affect the free
flow of trade. The power in question cannot be said to be bad. If there is any
misuse of that power, the same can be challenged.
We do
not find these observations of Hegde,J. in N.K.
Nataraja
Mudaliar case (supra) in any way indicating that in public interest the rate of
inter-State sales tax could not be reduced even if it meant benefit being given
to un-registered dealer. On the other hand the power to grant exemption was
upheld provided it was not misused. We accordingly hold that Indian Cement Case
(supra) has not been correctly decided and is, accordingly, overruled.
In Shri
Digvijay Cement Co. case (supra), it was contended on behalf of the State of
Rajasthan that the public interest contemplated by Section 8(5) of the Act,
insofar as the State of Rajasthan is concerned, would mean interest of the
public of Rajasthan and as the increased revenue could be used for the benefit
of the people of Rajasthan, the impugned exercise of power must be regarded as
being in public interest. This contention was not accepted and it was observed
that public interest has to be interpreted in the context of the Central Sales
Tax Act and Articles 301 & 304 of the Constitution. It was further held
that increase in revenue and its utilisation for the public of the State can
generally be regarded to be in public interest but, that by itself, could not
be regarded as sufficient, if it had the effect of going against the policy of
the Act and object of the constitutional provisions. It appears to us that
Section 8(5) of the Act clearly enables the State Governments to reduce the
rate of inter-State sales tax if it is satisfied that it is necessary to do so
in the public interest. Prior to 1957, sub-section (5) of Section 8 gave power
to the Central Government to, inter alia, reduce the rate of sales tax if it
was necessary so to do in the public interest. With the Central Sales Tax
Amendment Act, 1957, the Parliament conferred this power on the State
Governments instead of the Central Government. In this historical backdrop the
public interest, as referred to in sub-section (5) of Section 8 of the Act,
will certainly include the public interest of the State concerned. If the
reduction of the rate of tax results in increase of revenue and of industrial
activities, providing employment in the industry as well as in the mining of
limestone, it cannot be said that the notification was not issued in public
interest.
In the
aforesaid judgment in Shri Digvijay Cement case (supra) it was also observed,
while dealing with dispensing with the requirement of furnishing declaration in
Form-C, that it was difficult to appreciate how the State of Rajasthan could have effectively checked or
prevented evasion of payment of tax or inter-State sale of cement.
Under
Section 8(5) of the Act, the State Government can exercise power
notwithstanding anything contained in the said Section. Therefore,
notwithstanding the requirement of sub-section (4) of Section 8 in relation to
the furnishing of Form-C and Form-D, the State Government could, while lowering
the rate of tax, impose conditions which may not be in conformity with
sub-section (4) of Section 8 of the Act.
When
the purpose of furnishing Form-C and Form-D is only to ensure that sales are
made in the course of inter-State sales, the State Government may provide for a
different mode or manner in which this object can be achieved. In the instant
case, the condition for availing the benefit of the notification is that in the
bill or cash memo the name and complete address of the purchaser has to be
stated and, consequently, the burden to prove that the transaction was in the
nature of inter-State sales is on the dealer. At the time of assessment,
therefore, the dealer who seeks to get the benefit of the said notification
will have to establish the identity of the purchaser outside the State and
also, in turn, prove that an inter- State sale has taken place. The tax which
is collected is allocated to the State from where the movement of goods starts.
Therefore, the question whether there is evasion of tax has to be seen with
relevance to that State. If reducing tax results in increase in collection of
tax by encouraging more people to pay tax to that State then it cannot be urged
that Article 301 is violated.
We
cannot subscribe to the view that the said Notification by dispensing with the
requirement of furnishing declaration in Form-C had the effect of facilitating
evasion of payment of tax and was violative of the scheme of the Constitutional
provisions contained in Chapter XIII.
In Shri
Digvijay Cement Companys case (supra), it was observed that:
We are
also of the view that the justification advanced by the State of Rajasthan that
as a result of the impugned notifications the State revenue had increased and
thus they were beneficial to the State revenue, is not valid as the said
notifications had the effect of creating a preference to cement manufactured
and sold in Rajasthan and disadvantage for the sale of cement manufactured and
sold in Gujarat and thus had the direct and immediate adverse effect on the
free flow of trade.
Lowering
of rate of tax by the State of Rajasthan, as we have already noticed, had the
direct effect of increasing the flow of trade. The mere fact that the local
sale of cement in Gujarat may have been adversely affected cannot result in the
impugned notification being regarded as affecting the free flow of trade and
being violative of Article 301 of the Constitution. The said provision is
concerned with the movement of goods from one State to the another and as far
as the present case is concerned, with the lowering of tax, the movement has
increased rather than decreasing.
The
decision of Three Judge Bench in Shri Disgvijay Cement Co. case (supra) does
not, in our opinion, lay down the correct law and the same is accordingly
over-ruled.
For
the afore-said reasons we uphold the validity of the impugned notification
dated 12th March, 1997 issued by the State of Rajasthan with the result that
this writ petition is dismissed. There shall be no order as to costs.
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