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PETITIONER: ASSOCIATED TANNERS VIZIANAGRAM, A.P.

       Vs.

RESPONDENT: COMMERCIAL TAX OFFICER, VIZIANAGRAM, ANDHRA PRADESH & ORS.

DATE OF JUDGMENT18/03/1986

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) PATHAK, R.S.

CITATION:  1987 AIR 1922            1986 SCR  (1) 969  1986 SCC  (2) 479  CITATOR INFO :  RF         1990 SC 820  (37)

ACT:      Andhra Pradesh General Sales Tax Act, 1957 Item 9(b) of Third Schedule whether unconstitutional and void and offends Articles 14  and 304(a)  of  the  Constitution  of  India  - Whether Central  Sales Tax  Act could  be levied or leviable under the  Central Sales Tax Act on the inter-State Sales of tanned hides which have already suffered tax at the untanned stage.

HEADNOTE:      Under item  9(b) of  the third  Schedule to  the Andhra Pradesh General  Sales Tax Act, 1957 tanned hides and skins, (which were  not subjected  to tax  as  untanned  hides  and skins), when purchased by a manufacturer in the State at the point of  purchase e  by the  manufacturer and  in all other cases at  the point  of purchase by the last dealer who buys them in  the State,  sales tax on the turnover calculated at the rate  of 2 paise in the rupee was payable. In respect of the interstate  sales Sales  Tax under the Central Sales Tax was also leviable  under the Central Sales Tax Act.      The appellant  purchases raw  hides and  skins  in  the State of  A.P., tan  the same  and mostly  used to sell such tanned hides  in the  course of inter-State trade. The first Respondent  by  his  order  dated  30th  January,  1969  had assessed the  appellants’ inter-State  sales turnover at Rs. 16,23,194.29 and  levied a  tax of  Rs. 48,695.82  under the Central Act.  The local  purchase turnover  of raw hides was assessed at Rs. 7,92,585 and a tax of Rs. 23,777.66 was also levied. The  appellant, therefore, filed a Writ Petition No. 3464/71 in the A.P. High Court for declaring (i) that no tax could be  levied or was leviable under the Central Sales Tax Act on  the inter-State  sales of  tanned hides  which  have already suffered  tax at  the untanned stage. The High Court having dismissed  the Writ  Petition, the appellant has come in appeal by Special Leave.      Dismissing the appeal, the Court, 970 ^      HELD : 1.1 When a taxing statute was not imposing rates of tax  on imported  goods different  from rates  of tax  on

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goods  manufactured   or  produced,   article  304  h  d  no application. So  long as  the rate was the same, article 304 was satisfied.  When the  rate is  applied the resulting tax might be  somewhat higher  but that   did not contravene the equality  clause   contemplated  by   article  304   of  the Constitution. In the instant case, the tax being at the same rate, article 304(a) is not offended.[975 G-H]      Rattam Lal & Co. and Anr. v. The  Assessing Authority & Anr.,[1969] 2 S.C.R. 544 discussed and applied.      1.2 The levy by the State Act is in consonance with the scheme of  Central Act.  By sub-section  (2) of section 8 of the Central  Act, the  tax payable  by any  dealer  on  high turnover in  so far  as the  turnover of  any  part  thereof relates to  the sale  of goods  in the course of inter-State trade or  commerce not  falling under sub-section (1), shall be at  the rate  specified in  subsection (2)  of section 8. These goods do not fall in subsection (1) of section 8. [976 C-D]      The  effect   of  an   imposition  of  tax  might  work differently upon  different dealers  namely, those  who  use imported tanned  goods and  those who purchase these locally and tan these  locally and then sell in the course of inter- State sales.  Put that  effect cannot be said  to be arising directly, or as an immediate effect of the imposition of the tax. Therefore  there cannot be any question of violation of article 304(a) of the Constitution.[1977 C-E]      1.3 The imposition, in this case, was in implementation of the  central Act.  There is  no prohibition under Article 304 of  the Constitution of the Parliament for imposition of any tax.  The embargo  that was placed by Article 304 of the Constitution was on the Legislature of a state. [977 E-F]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION :  Civil Appeal  No, 1345 (NT) of 1974.      From the  Judgement and Order dated 14th December, 1972 of the  Andhra Pradesh  High Court in Writ Petition No. 3464 of 1971. 971      D.P. Mukharjee and G.S. Chatterjee for the Appellant.       K. Ram Kumar for Respondent Nos. 1 and 2.      Anil Dev Singh, Ms Halida Khatun and C.V. Subba Rao for Respondent No. 3. B      The Judgment of the Court was delivered by      SABYASCHI MUKHARJI,  J. This  appeal by  special  leave arises from the judgment and order dated 14th December, 1972 of a  Bench decision  of the High Court of Andhra Pradesh in Writ Petition No. 3464 of 1971. C      The Division  Bench  dismissed  the  application  under article 226  of the Constitution filed by the appellant. m e appellant was  a tanner  who had  his tannery at Vizianagram and was  at the  material time a dealer under Andhra Pradesh General Sales  Tax Act,  1957 as  well as  the Central Sales Tax, 1956,  hereinafter  called  the  ’State  Act’  and  the ’Central Act’  respectively.  The  appellant  purchases  raw hides and  skins in  the State of Andhra Pradesh and tan the same. m e appellant used mostly to sell such tanned hides in the course of interstate trade.      The first  respondent i.e.  the Commercial Tax Officer, Vizianagram, by  his order  dated  30th  January,  1969  had assesed  the   appellant’s  inter-State  sales  turnover  at Rs.16,23,194.29 and  levied a  tax of Rs.48,695.82 under the Central Act.  The local  purchase turnover  of raw hides was

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assessed at  Rs.7,92,585 and  a tax of Rs.23,777.66 was also levied.      The  appellant   had  filed  previously  writ  petition No.3436 of  1969 challenging  the validity  of  the  Central Sales Tax  Amendment Act,  1969. That petition, however, was withdrawn in view of the judgment of the Andhra Pradesh High Court in  January, 1971.  The appellant thereafter filed the present  petition  out  of  which  this  appeal  arises  for declaring item  9(b) of  Schedule III  of the  State Act  as unconstitutional and  void and further declaring that no tax could be  levied or was leviable under the Central Sales Tax Act on  the inter-State  sales of  tanned hides  which  have already suffered tax at the 972 untanned stage.  Further declaration  was sought prohibiting the respondents  who are  the  sales  tax  authorities  from enforcing the  order dated  30th January, 1969 and directing the respondents to refund the amount already collected.      In order  to appreciate  the contention it is necessary to refer to item 9(b) of Schedule III of the State Act as it stood at the relevant time which read as follows :                       "THIRD SCHEDULE           (Declared goods in respect of which a single point           tax only is leviable under section 6). ------------------------------------------------------- Description of goods     Point of levy     Rate of tax      (1)                      (2)                 (3) -------------------------------------------------------      xxx                      xxx                 xxx      9.(b) Tanned hides and   When purchased       skins (which were  by a manufacturer not subjected to    in the State at                      tax as untanned    the point of                        hides and skins)    purchase by the  2 paise      manufacturer and in the in all other case rupee".                               at the point of                          purchase by the                     last dealer who                buys them in           the State. -------------------------------------------------------      The submission  urged on behalf of the dealer/appellant was that  item  9(b)  of  Schedule  III  of  the  State  Act discriminated between  hides and skins imported from outside the State  and those  manufactured or produced in the State. me contention was that item 9(b) provides for levy of tax on the sale  of hides  and skins brought from outside the State and tanned  inside the  State whereas if raw hides and skins were locally purchased and tanned, there was no tax leviable on the 973 tanned hides  and skins  as the  untanned hides and skins in such cases alone were taxed. It was urged that the result of the taxation  scheme was that a dealer who brought raw hides and skins  from outside  the State  and tanned these locally was taxed on the amount of the sale of such tanned hides and skins, whereas the locally purchased raw hides and skins and tanned were  taxed on  the amount of the purchase of the raw hides and  skins and  tanned were taxed on the amount of the purchase of  the raw  hides and  skins the  price  of  which compared to  the price  of tanned  hides and  skins would be very insignificant.  It was  submitted  that  such  taxation scheme, therefore,  descriminated against  the import of raw hides and  skins for  bringing them inside the State. It was

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submitted  that   this  offended   Article  304(a)   of  the Constitution inasmuch  as the goods manufactured or produced locally got  a  more  favorable  treatment  than  the  goods imported from other States.      After considering  the decisions  of this Court in Firm A.T.B. Mehtap  Majid & Co. v. State of Madras & Anr.. [1963] 2 Suppl.  S.C.R. 435  = 14 S.T.C. 355; A Hajee Abdul Shakoor and Company  v. State  of Madras, [1964] 8 S.C.R. 217; State of Madras  v. N.K. Natraja Mudaliar, [1968] 3 S.C.R. 829 and Rattan Lal  & Co.   Anr.  v. The Assessing Authority & Anr., [1969] 2  S.C.R. 544;  the High  Court was  of the view that every tax  did not  interfere  with  the  freedom  of  trade guaranteed under  Article 301 of the Constitution. There was interference only  in  case  the  legislation  directly  and immediately restricted  or hampered  the free flow of trade, commerce  or   intercourse.  It  was  highlighted  that  the discrimination must  be direct  and arise  out of the taxing provisions themselves. Any discrimination arising out of any indirect effect was not within the purview of article 304(a) of the Constitution. It was emphasised that a State law with respect to  taxation could  not  be  said  to  infringe  the Constitution merely  because it  operated unequally  in  the different States  not from  anything done  by the law making authority but  on account  of the  inequality of  conditions obtaining in  the respective States. Thus, if a general rule levying the  rate of tax was made applicable to the imported as well  as local  goods alike  but which  operated or might operate unequally  and with  different  results  in  several States  it   did   not   offend   the   provisions   against discriminating taxation. 974      The High  Court was of the view that if the rate of tax was the same, article 304 would be satisfied. The High Court was of  the view  that it was to the rate of tax to which we must look  and not  the operation  of the tax in practice in any particular State.      In the  instant case, the rate of tax was the same both for the  goods brought  from outside  as well as local goods and lt  cannot  be  said  that  taxation  did  directly  and immediately restrict  or hamper  the  free  flow  of  trade, commerce or inter course ant it offended article 304(a). The effect or  the result  of the  operation of  such tax cannot make out a cause for discrimination. It was pointed out that the last  two decisions  of this Court displaced the earlier two decisions of this Court and item 9(b) of Schedule III of the said  State Act  tit not  offend article  304(a) of  the Constitution. Being  aggrieved by  the  said  decision,  the dealer/appellant has come up in appeal before this Court.      The point  involved in  this case,  it appears,  is  no longer res-integra.  The effect  of the Central Act, and the different rates  of tax  in different States under section 8 of the  Act was  considered exhaustively  by a decision of a bench of  five learned  judges of  this Court  in  State  of Madras v. e  N.R.   Nataraja  Mudaliar   (supra)  where  the respondent had  claim ed  before the Commercial Tax Officer, Madras that  some of  his goods had been sent from Madras to his depot in Andhra Pradesh and that the sale of those goods were intra-State sales in Andhra Pradesh where they had been taxed as  such. The  commercial Tax  Officer, however,  held that the goods had been moved from the State of Madras under contracts of  sale and were therefore taxable as inter-State sales under the Central Act.      The respondent thereupon filed a petition under article 226 of  the Constitution.  The High  Court  held  that  sub- section(2), (2A)  and (5) of section 8 of the Central Act as

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these stood  at the relevant time, imposed or authorised the imposition of  varying rates  of tax  in different States on similar   inter-State   transactions   and   the   resultant inequality in  the burden of tax affected and impeded inter- State trade,  commerce and  intercourse and thereby offended article 301  and 303(1) of the Constitution. The application of section  9(3) of the Act was also considered. Against the said decision  there was an appeal to this Court. This Court noted that the view taken by 975 the High Court was influenced by two decisions of this Court on the  interpretation of  article 304(a);  namely  in  Firm A.T.B. Mehtab  Majid and  Co. v. State of Madras and Another (supra) and  A. Hajee  Abdul Shakoor and Company v. State of Madras (supra). This Court was of the view that in the above two mentioned  cases, the differential treatment was held to have violated  article 304(a)  of  the  Constitution,  which authorised  the   Legislative  of  a  State  notwithstanding anything in  articles 301  and 303 by law to impose on goods imported from  other States or the Union Territories any tax to which  similar goods  manufactured or  produced  in  that State were  subject, so,  however, as  not  to  discriminate between goods  so imported  and  goods  so  manufactured  or produced. This  Court was  of the  view that  imposition  of differential rates  of  tax  by  the  same  State  on  goods manufactured or  produced in  the State  and  similar  goods imported in  the State  was prohibited  by that  clause. But where the  taxing State  was not  imposing rates  of tax  on imported  goods   different  from  rates  of  tax  on  goods manufactured or produced, article 304(a) has no application. Article 303  prohibited the  making of  law which  gave,  or authorised the  giving of,  any preference to one State over another,  or   made,  or   authorised  the  making  of,  and discrimination between  one State and another. Prevalence of different rates  of sales  tax in  the State which have been adopted by the Central Sales Tax Act for the purpose of levy of tax  under that  Act was, not determinative of the giving of preference  or making  a discrimination.. The view of the High Court was therefore not upheld. Bachawat, J. was of the view that  on principle  there was  no distinction between a tax on  inter-State and  a tax  on  inter-State  sales.  The learned judge  was further of the view that the provision of the Central Sales Tax Act were intra-vires.      In Rattan  Lal &  Co. Anr. v. The Assessing Authority & Anr. (supra),  a bench  of five learned judges of this Court observed dealing  with the Punjab General Sales Tax Act that when a  taxing State  was  not  imposing  rates  of  tax  on imported  goods   different  from  rates  of  tax  on  goods manufactured or produced, article 304 had no application. So long as the rate was the same, article 304 was satisfied. In the instant  appeal before  us the tax was at the same rate. It cannot be said to be higher in respect of imported goods. When the rate is applied the resulting tax might be somewhat higher but that H 976 did not  contravence the  equality  clause  contemplated  by article 304 of the Constitution.      In that view of the matter and as these cases have been specifically dealt with, it is no longer necessary for us to discuss in detail the decision in the cases of firm A.T.B. Mehtab Majid  and Co. v. State of Madras and Another (supra) and A.  Hajee Abdul  Shakoor and Company v. State of Madras, upon which  reliance was  placed on  before of the appellant before us.  On a plain reading of article 304 along with the provisions  of   the  Central  Act,  we  are  in  respectful

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agreement with  the view  expressed by  this Court in Rattan Lal & Co. & Anr. v. The Assessing Authority & Anr. (supra).      It further appears to us that there is another aspect. The lvy by the State Act is in consonance with the scheme of Central Act.  By sub-section (2) of section 8 of the Central Act, 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  under   sub-section  (1),  shall  be  at  the  rate specified in  sub-section (2)  of section  8. It  is  common ground that  these goods  do not  fall in sub-section (1) of section 8.      Section 8(2),  in so  far as  it was  material  at  the relevant time was as follows :           (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  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 seven           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 977           any such  calculation any  such  dealer  shall  be           deemed to  be a dealer liable to pay tax under the           sales  tax   law   of   the   appropriate   State,           notwithstanding that  he, in  fact, may  not be so           liable under that law."      Section 14 of the Central Sales Tax Act deals with what are the  goods considered  as goods of special importance in the course of inter-State sales. It is also common case that by clause  (iii) of section 14 hides and skins, whether in a raw or  dressed state  are goods  of special  importance  in inter-State trade or commerce. Section 15 of the Central Act imposes certain  restrictions on  the State as to the amount of tax  to be  imposed. This  is also  not material  for our present purpose  because it  is common case that embargo has not been violated by the imposition itself.      The  effect   of  an   imposition  of  tax  might  work differently upon  different dealers  namely, those  who  use imported tanned  goods and  those who purchase these locally and tan  these locally and then sell in the course of inter- State sales.  But that  effect cannot  be said to be arising directly, or as an immediate effect of the imposition of the tax. Therefore  there cannot be any question of violation of article 304(a) of the Constitution.      There is  another aspect  of the matter. The imposition in this case was in implementation of the Central Act and it was submitted  on behalf of the respondent that there was no prohibition under  article 304  of the  Constitution on  the Parliament for  imposition of  any tax.  me embargo that was placed by  article  304  of  the  Constitution  was  on  the Legislature of a State.      Sub-article (a)  of article  304  of  the  Constitution reads as follows :-           "304.  Restrictions   on   trade,   commerce   and           intercourse  among   States.   -   notwithstanding           anything  in  Article  301  or  Article  303,  the

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         Legislature of a State may by law -           (a) impose on goods imported from other States or 978           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. " Therefore the  prohibition was not on the Parliament. But in the view we have taken on the first aspect of the matter and in view  of the decisions of this Court in the case of State of Madras v. N.K. Nataraja Mudaliar (supra) and Rattan Lal & Co. &  Anr. v. The Assessing Authority & Anr. (supra), it is not necessary for us to discuss this aspect any further.      The High  Court was  therefore right  in dismissing the writ petition.  The appeal  therefore fails and is dismissed with costs. S.R.                               Appeal dismissed. 979