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Report No. 61

4.23. Observations of Supreme Court in N.K. Nataraja Mudaliar's case.-

It may be noted in State of Madras v. N.K. Nataraja Mudaliar, AIR 1970 SC 1742. the question mooted was as to whether, in the face of Articles 301 and 393 of the Constitution providing for freedom of trade, commerce and intercourse and for prohibition against preference of one State over another or discrimination between one State and another, the adoption by the Central Act of varying rates of sales tax in force in various States under the State laws was constitutionally valid. The Supreme Court observed as follows:-

"An Act, which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State does not amount to a law giving, or authorising the giving of, any preference to one State over another, merely because varying rates of tax prevail in different States. 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. It is where differentiation is based on considerations not dependent upon natural or business factors which operate with more or less force in different localities that Parliament is prohibited from making a discrimination. Prevalence rates of tax on sales of the same commodity cannot be regarded in isolation as discriminative of the subject to discriminate between one State and another."

4.24 and 4.25. This case thus related to rates. But the reasoning in this case could perhaps be adopted to support the validity of section 9(2), against an attack on the ground of inequality. The position, however, cannot be treated as being beyond doubt.



Certain Problems connected with Powers of the States to Levy a Tax on the Sale of Goods and with the Central Sales Tax Act, 1956 Back




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