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PETITIONER: LOHARA STEEL INDUSTRIES LTD. & ANR.

       Vs.

RESPONDENT: THE STATE OF ANDHRA PRADESH & ANR.

DATE OF JUDGMENT:       20/12/1996

BENCH: A.M. AHMADI, SUJATA V. MANOHAR

ACT:

HEADNOTE:

JUDGMENT:      (With  Civil  Appeal  No  16901/1996  [arising  out  of S.L.P.(C) No. 14547 of 1992][)                       J U D G M E N T      Mrs.Sujata V.Manohar.J.      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,

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    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

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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

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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.