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PETITIONER: SHRI DIGVIJAY CEMENT CO., ETC.

       Vs.

RESPONDENT: STATE OF RAJASTHAN & ORS., ETC

DATE OF JUDGMENT:       21/03/1997

BENCH: CJI, G.T. NANAVATI, S.P. KURDUKAR

ACT:

HEADNOTE:

JUDGMENT: (With Civil Appeal Nos.  2146 to 2149 of 1997 arising out of SLP(C) Nos. 4734, 5036, 5070 and 8087 of 1995)                       J U D G M E N T NANAVATI, J.      Leave granted.      The appellants  in these  appeals are  manufactures  of cement and  they have their manufacturing units/factories in the State of Gujrat. The cement manufactured by them is sold throughout India through a network of stockists and dealers. They filed  Civil Writ petition Nos. 656, 788, 803, 2644 and 2644 of  1994 in  the High  Court Rajasthan  challenging the notifications dated  8.1.1990, 27.6.1990 and 7.3.1994 issued by the  State of Rajasthan under Section 8(5) of the Central Sales  Tax  Act  (for  Short  ’CST  Act’).  The  High  Court dismissed those  writ petitions.  Therefore  the  appellants have filed these appeals.      Prior to  the issuance of the impugned notifications of the rate  of tax  payable under  Section 5  of the Rajasthan Sales Tax  Act on sales of cement was 16% Even in respect of inter-State   sales of  cement to  unregistered dealers  the rate of  tax was  16%. By  the Notification dated 8.1.90 the State of  Rajasthan in  exercise of  the power  conferred by sub-section (5)  of Section  8 of  the CST Act directed that the tax  payable under sub-sections (1) and (2) of Section 8 by any  dealer having his place of business in the State, in respect of  the sale by him, from any such place of business in the  course of inter-State trade and commerce, of cement, to  any   Central  of   State  Government   undertaking   or Corporation or an autonomous body under the Government shall be calculated  at the rate of 7%. By the second Notification dated 27.6.90  the State  of Rajasthan directed that the tax payable by  any such dealer to any/all dealers or any person situated outside  the State  of Rajasthan  shall be taxed at the rate  of 7%,  if the  conditions specified  therein were satisfied. The said conditions were:      "(i)  The   selling  dealer   shall      submit  the   certificate  appended      hereto duly filled in and signed by      him  to   his  assessing  authority      within 10  days from  the  date  of

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    delivery  of  such  cement  to  the      carrier.      (ii) The selling  dealer shall also      enclose with  the said certificate,      the attested  photostat copy of the      Railway  receipt/Good  receipt,  as      the case may be.      (iii)     In  case  the  goods  are      being    carried    through    raod      transport,  a   copy  of   the  aid      certificate shall  also  be  handed      over at  the exit check-post of the      State of Rajasthan.               CERTIFICATE      I/We           (name     of     the      firm/company/other  status)  having      Registration No.  (RST Act/CST Act)      under  the   jurisdiction  of   the      Assessing  Authority  ....  certify      that ...  bags of  cement amounting      to   Rs....    Covered    by    the      Challan/cash memo  (s) No.  and the      date  ....   ..  ..     Have   been      manufactured  by   me/us  and   are      despatch in  the course  of  inter-      state trade and commerce vide RR/GR      No. ....  (Specify the  number with      date).... to Shri/M/S ........(full      addresss    of    the    purchaser)      Signature.... Name .....Designation      .....Seal ......Dated...."      By the  third notification  dated 7.3.94  the State  of Rajasthan superseded  the earlier Notification dated 27.6.90 and directed  that in respect of inter-State sales of cement made by  such dealers tax payable shall be calculated at the rate of  4% without  furnishing of  declaration in from C or certificate  in  form  D  on  fulfilment  of  the  following conditions:      "(1) that the  dealer shall  record      the  name  and  full  and  complete      address of  the  purchaser  in  the      bill or  each  memorandum  of  such      inter-State sale   to  be issued by      him;      (ii) that the  burden to prove that      the transaction  was in  the nature      of inter-State  sale, shall  be  on      the dealer; and      (iii)     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/81-8,  dated   6-5-86   as      amended from time to time."      The appellants challenged the said Notifications on the ground that  they created  artifical barriers  and  had  the effect of  giving preference  in the  matter of  inter-State trade and commerce to the manufactures and dealers of cement in the State of Rajasthan over the dealers and manufacturers of cement  in the State of Gujarat. The rate of tax on sales of cement  in Gujarat  under the Gujarat Sales Tax Act Being 16%,  as   a  result  of  the  impugned  Notifications,  the manufacturers of  cement in Gujarat including the appellants were but  to disadvantageous  position as  the purchasers in

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Gujarat could  purchase cement  in the  inter-State trade or commerce on  payment of  sales tax at a much lower rate from the dealers  in Rajasthan  wheres in  they purchased  cement from dealers  in Gujarat  they had to pay tax at the rate of 16%.  One  of  the  appellants  (M/S.  Saurashtra  Cement  & Chemical Co.  Ltd.) in  its writ  petition had given details regarding the  increase  in  despatches  from  Rajasthan  to Gujarat during  the years  192-93 and 1993-94 to support its plea. It  was  also  stated  in  its  petition  that  taking advantage of  the impugned Notifications and lowering of the rate of tax the semi-Government companies and corporation in Gujarat and  also unregistered dealers had opted to purchase or increased  their purchases  of cement from Rajasthan. The notifications were  further challenged  on the  ground  that lowering the  rate of  Tax was  not in  public  interest  as contemplated by  Section 8(5)  the CST Act and the they were also violative  of Articles  301 and 303 of the Constitution inasmuch as  they had  the effect  of giving  preference  to cement manufactured  and sold in Rajasthan and discriminated against cement  manufactured and  sold in  Gujarat. On these grounds the  writ petitioners wanted the High Court to quash the said  Notifications and  restrain the State of Rajasthan from issuing such/Similar notifications in future.      Union of India, though jointed as a party-respondent in the Writ  petitions, did  not chose  to appear. The State of Gujarat was one of the respondents in two writ petitions and it  substantially   supported  the   writ   petitioners   by contending  that   the  impugned   Notifications  created  a preference in  favour of  the  manufacturers  of  cement  in Rajasthan. The  State of  Rajasthan disputed the correctness of the  figures given  by  the  Writ  petitioners  regarding increase in  despatches of  cement from Rajasthan to Gujarat and also  disputed that the cement sold by the manufacturers and dealers  in Rajasthan was available at a cheaper rate to the purchasers  in the State of Gujarat. It defined that the impugned Notifications  violated  any  of  the  constitution provisions or section 8(5) of the CST Act.      The High Court held that the Notifications dated 8.1.90 and 27.6.90  having having  been  superseded  they  were  no longer  operative   and  the   writ  petitions   had  become infructuous to  that  extent  and  the  challenge  to  those Notifications did  not survive.  It, therefore, confined its consideration to  the legality  and  validity  of  the  last Notification dated  7.3.94. The  High Court  was of the view that it  was for  the  writ  petitioners  to  establish  the because of  reduction in  the  rate  of  sales  tax  by  the impugned Notifications  the cement  from Rajasthan was being sold in  Gujarat on  a large scale and at a cheaper rate and thereby the  interest of cement manufacturers in Gujarat was being prejudicially  affected. It  considered the  facts and figures relating  to increased  despatches  of  cement  from Rajasthan to  Gujarat and  the preference shown by the semi- Government bodies  and unregistered  dealers or  the  cement manufactures sole  in Rajasthan,,  as ipse dixit of the writ petitioners and,  therefore, not  credible and  trustworthy. Taking this  view it  held that  the  writ  petitioners  had failed  to   establish  that  the  effect  of  the  impugned Notifications was  to impede  or adversely  affect the  free flow of  inter-State trade  and  commerce.  The  high  Court distinguished the  decision of  this  Court  in  the  Indian Cement Vs.  State of A.P. 1988(1) SCC 743 on the Ground that the facts  in that  case were  altogether different from the facts of  these cases  inasmuch as  in that case the rate of Central Sales  Tax was reduced to 2% in order to augment the State revenue and to protect the local manufacturers and the

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notification which  were under challenge did not contain the conditions  which  are  imposed  by  the  Notification  date 7.3.94. It  was also  distinguished on  the ground that this Court  had  not  considered  the  effect  of  transportation charges  and   handling  charges   in  respect   of   cement manufactured in  one State  and sold in another. Taking this view, the High Court dismissed the writ petitions.      Mr. Sorabjee,  learned Senior Counsel appearing for the appellants has  raised two contentions. His first contention was that  the impugned  notifications were not legal as they were not  issued  in  public  interest  which  is  condition precedent for  exercise of  power under  Section 8(5) of the CST Act. The second contention was that the notifications by reducing the  rates of  sales tax from 16% to 7% and then to 4%  were   violative  of   Articles  301   and  303  of  the Constitution as  they had the effect of giving preference to goods manufactured  and sold  in Rajasthan  and discriminate against goods manufactured and sold in Gujarat.      We will  deal  with  the  first  contention  first.  He invited our attention to sub-section (5) of Section 8 of the CST Act  which  permits  the  State  Government,  if  it  is satisfied that  it is necessary so to do in public interest, do direct that no tax, under the CST Act shall be payable or that they  shall be  payable at  lower rates  by any  dealer having his place of business in the Sate in respect of Sales made 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  or to  any person  or class  of person  as may  be specified in the notification. He also drew our attention to the observation  made by  this court  in State of Tamil Nadu vs. Seethalakshmi  Mills that  the policy  of the  law is to discourage inter-State  trade to  unregistered  dealers  and that the  report of  the Taxation  Enquiry  committee  would indicate that  "the main  reason for  enacting the provision was to  canalise the  inter-State trade  through  registered dealers over  whom the  appropriate Government  has a  great deal of  control and  thus to  prevent evasion  of Tax".  He submitted  that   by  dispensing  with  the  requirement  of furnishing declaration  in From  C the impugned Notification dated 7.3.94,  in effect,  removed an essential safeguard to check and prevent evasion of sales tax. In order to show the importance of  the requirement to furnish From C the invited our attention  to the  decision of  this Court  in State  of Rajasthan vs.  Sarvotam Vegetables  Products (1996 (3) Scale 469) Wherein  this Court  has observed that " the purpose of the C-From is obvious: the Parliament wants to tax specified goods purchased  for specified  purpose (sub-section  (3) of Section 8)  at a  lower rate  but anyone wishing to avail of the said  lower rate  must obtain from his purchasing dealer the ’C’  form and  produce it  before his assessing officer. Thus, clause  (b) of  sub-section (1),  sub-section (3)  and sub-section (4) go together. (Similarly, Section 8(1)(a) and sub-section (4)  go together.)  The reason  why the "C’ form requires several  particulars to be stated is to ensure that the concessional  rate prescribed  by Section 8(1)(b) is not misused or  abused. With  the help  of those particulars the appropriate authority  or authorities  can verify  the truth and correctness  of the transaction. Both the selling dealer and purchasing  dealer are  under an  obligation to abide by the said  requirements of  law; otherwise  the  very  scheme under lying  the said  provision breaks  down. This  crucial significance of  the ’C’  form needs to be kept in mind." He submitted that  the conditions specified in the Notification dated 7.3.94  are not  at all  an effective substitute for C Form. Condition  No. 1  does not  cast any obligation on the

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dealer to  send the  record made  by him  to the  sales  tax authorities. Conditions  No. 2  and 3 have no bearing at all upon the  issue of  preventing or checking evasion. The High Court failed to appreciate that under the notification dated 7-3-94, cement  could be  sold by  a manufacturer/dealer  in Rajasthan to  a person  in Gujarat  who is  an  unregistered dealer or  to a consumer who is not a dealer at all. He also submitted that  this challenge  was casually rejected by the High Court  by observing  that conditions  No.1 and 2 in the Notification dated  7-3-94 were  sufficient to take due care of such  remote possibility  of tax  avoidance/evasion on  a large scale  and that  the "Revenue is the best judge of its interest". The  High Court  failed to  appreciate that  sub- section (5)  of Section  8, as  observed by  this  court  in Sarvotam Vegetable  Products case  (supra), is  an  integral part of Section * and the Act as such. The said power has to exercised in  public interest.  The power of exemption is to be guided  by and consistent with the provisions of the Act. The object  of the  relevant provisions contained in CST Act is  "to   canalize  inter-State   trade  through  registered dealers, over  whom the  appropriate Government  has a great deal of  control and  thus to  prevent evasion  of tax "and" prevention of  evasion of  tax is  a measure  in the  public interest" as  observed by  this Court in Seethalakshmi Mills case (supra)  and  in  State  of  Madras  vs.  N.K.  Nataraj Mudaliar. 1968  (3) SCR  829. In  view of this correct legal position, it  was no  answer to  say that the Revenue is the best judge  of  its  interest.  Public  interest  being  the essential Pre-requisite  to exercise  of  power  under  sub- section (5)  of Section 8, the State can exercise it only if it is likely to subserve the public interest.      It was,  on the other hand, contended by Mr. Aruneshwar Gupta, Learned  counsel appearing for the State of Rajasthan that when  a State makes law it has to be presumed hat it is made in  ’public interest’.  Moreover, it  was  specifically stated in  the impugned  notifications that  the power under Section 8(5)  was being  exercised in ’public interest’ and, therefore, it  was for  the appellant to prove that the said power was  in fact  exercised in public interest. In support of his  submission. the learned counsel relied upon of India (1995(3) SCC  335). Mr.  Adhyaru, learned  counsel  for  the State of  Gujarat, however,  is right in his submission that though such a presumption can be raised when the exercise of power is challenged on the ground that is was no exercised i public interest  it would  become necessary for the State to disclose how it is in public interest.      Before the  High court,  the State  Rajasthan does  not appear to  have stated  anything in  this behalf except that the conditions  imposed by the notification were adequate to prevent evasion  of tax.  In  the  counter  affidavit  filed before this  Court, it is stated that the said notifications being based  upon policy  decision  were  issued  in  public interest. In the additional affidavit filed on its behalf it is stated  that reduction  of rate  of sale  tax  under  the impugned notifications  was "very  much  beneficial  to  the State revenue  inasmuch as the respondent-State has increase earnings of  the additional revenue percentage of States Tax on cement  over the  previous years i.e. from 1985 to 1995". It is  further stated  that :  "it is respectfully submitted that  after  issuing  of  the  Notification  dated.  8.1.90, whereby the  rate of  tax on  sale made in inter-State sales was  reduced  and  levied  at  the  rate  of  7%  the  State Government in  the financial  year 190-91  earned revenue of Rs. 3195.33  lakhs as  compared to  the previous  year  i.e. 1989-90 which  was Rs.  2710.55 lakhs.  The State Government

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has collected additional revenue of Rs. 484.78 lakhs for the financial year  1990-91.  Keeping  in  view  the  additional revenue earned  by the  State in  the public  interest,  the State  Government   vide  Notification   dated  27.6.90,  in supersession  of  the  earlier  Notification  dated  3.1.90, further liberalized  the inter-State  sales to  cement which was earlier restricted to Central or State Government, Under taking  or   Corporation  or   Autonomous  body   under  the Government ......It  is respectfully  submitted  that  after reduction of  sales-tax on  inter-State sales  from 7% to 4% vide Notification  dated  7.3.94  the  State  had  collected revenue to  the tune  of Rs.  7000 lakhs  as compared to the previous year  i.e. 1992-93,  which was  Rs.  6069.82  lakhs thereby earned  an additional  revenue Rs.  900.18 lakhs for the year  1994-95. The  percentage of  sales-tax revenue  of cement  for   the  year  1994-95  was  increased  to  15.32% (increase of 4% approximately)." In the last affidavit filed by the  public  interest  sought  to  be  subserved  by  the impugned Notifications  is stated  in these  terms  :  "  It common knowledge  that the material for production of cement i.e. Limestone  is available  in abundance  in the  State of Rajasthan and  in view  of availability  of raw material the production of  cement in the State of Rajasthan is also much higher. Therefore,  if the  power under  Section 8(5) of the Central Sales  Tax Act,  1956 is  exercised by  the State of Rajasthan by  providing different  rate of tax in respect of inter-State sale  and such  power  is  perfectly  in  public interest and would in fact achieve free flow of trade rather than hampering it."      Thus the  State of Rajasthan has shifted its stand from time to  time as  regards the  public purpose, for achieving which, the  reduction in  rate of  tax was made. The learned counsel for  the State  of Rajasthan  submitted that  public interest contemplated  by Section  8(5), in  so far  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  in public interest. We  cannot accept  this contention  because public interest in  Section 8(5) will have to be interpreted in the context of  the CST  Act and  Articles 301  to  304  of  the Constitution  .   Though  increase   in  revenue   and   its utilisation for  the public  of the  State can  generally be regarded in  public interest,  in the context in which it is required to be considered, that by itself cannot be regarded as sufficient,  if it  has the  effect of  going against the policy of  the CST  Act and  object  of  the  constitutional provisions.      We  have   already  stated  above  the  object  of  the constitutional provisions  and the  policy of  the CST  Act. Sub-section(5)   of Section  8 which  is in  a nature  of an exception permits  the State  Government to do that which it otherwise could  not have  done, but only if it is in public interest,  Therefore,  when  exercise  of  such  powers  was challenged it  was for  the State  to justify  the  same  by explaining how it had become necessary to subject all inter- State sales  to any person of dealer to payment of tax at 4% only and  also to explain how it had become necessary for it to  dispense   with  the   furnishing  of   the  declaration contemplated  by   sub-section  (4)  of  Section  8  to  the prescribed authority  in  the  prescribed  manner.  No  such attempt was  made by  the State of Rajasthan before the High Court. Reduction of the rate of tax in respect of all inter- State sales  to any  dealer and  person  was  sought  to  be justified by  the learned counsel for the State of Rajasthan

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by submitting  that it was likely to increase the revenue of the State and as the increased revenue could be utilised for the public  of Rajasthan,  the same  can be  said to  be  in public interest.  As regards dispensing with the requirement of furnishing  declaration in C Form he submitted that apart from Condition  No. 1 contained in Notification dated 7.3.94 a selling  dealer in Rajasthan had to fill in Form St 18 and a dealer  - consigner had to submit a declaration in From St 18A. The  said forms  contain sufficient  particulars as  to prevent any evasion of payment of tax. He drew our attention to Rule  620 of the Rajasthan Sales Tax Rules which provides that a  registered dealer  by whom  any goods are despatched from within  the State  t place  outside the  State for sale outside the  State shall  furnish of  cause to  be furnished particulars in  respect of his registration certificate, and the goods  so leaving  the State limits in Form ST 18C. What is overlooked  by him  is the  proviso to sub-rule (1) which lays down  that no  such from is required to be furnished in respect of  the  goods  notified  by  the  Sate  Government. Admittedly, cement  is notified ’goods". Therefore, Rule 620 will obviously  have no  application. No other provision was pointed out  by the  learned counsel  requiring a  dealer of cement in  Rajasthan to  obtain from  the purchaser  or even otherwise make a declaration to the sales tax authorities in respect of  the inter-State    sales  made  by  him.  It  is therefore difficult to appreciate how the State of Rajasthan could have  effectively  checked  or  prevented  evasion  of payment of  tax on  inter-State sales  of  cement.  On  this ground alone  the impugned  notifications dated  27.6.90 and 7.3.94 are required to be declared as bad.      As regards  the second  contention  that  the  impugned Notifications were  violative of Articles 301 and 303 of the Constitution is  was submitted  by Mr. Sorabjee that Article 301 of  Constitution guarantees  freedom of  trade, commerce and intercourse  throughout the  territory of India. Article 302,  however,   empowers  the  parliament  to  impose  such restrictions  on   the  freedom   of  trade,   commerce   or intercourse between one State and another or within any part of the  territory of  India as may be required in the public interest.  This   power  of   the   Parliament   and   State Legislatures is  further restricted  by  Article  303  which provides that  neither of  them shall have power to make any law giving,  or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any  discrimination between  one State  and another.  He further submitted that the Notifications issued by the State Government under  Section 8(5)  of the CST Act would also be subject to  the said  limitations. He further submitted that the impugned  Notifications particularly  the  Notifications dated 27.6.90 and 7.3.94 had the effect of giving preference for good  manufactured and  sold in Rajasthan and consequent discrimination against  the goods  manufactured and  sold in Gujarat. It  was, therefore,  incumbent upon  the  State  of Rajasthan to place materials before the court to justify the cause of  reason for the said preference and discrimination. In support  of his  contention he  relied upon the following observations made  by Hegde J. in his concurring judgment in State of Madras vs. N.K. Nataraja Mudaliar 1968 (3) SCR 829:           "But once  it is  shown that a      measure    prima     facie    gives      preference to  the residence 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

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    different rates of tax in different      States, then  the matter  assumes a      different complextion  in  view  of      Article  303   (1).  It  should  be      within the  knowledge of  the Union      Government why  Parliament  adopted      different   rates    in   different      States.   I    agree   that    mere      difference  in   rates  is  neither      showing   preference   nor   making      discrimination.  But  other  things      being  equal,   the  difference  in      rates  would   result  in   showing      preference  to   some  States   and      making    discrimination    against      other.  Hence,   in  may   opinion,      difference  in  rates  is  a  prima      facie proof  of the  preference  or      discrimination complained of. It is      for  the  State  to  justify  those      differences."      He also submitted that the justification offered by the State is  that the  Notifications were  issued  for  earning additional revenue for the State and for increasing the sale of cement  manufactured in  Rajasthan as it has abundance of raw  material   necessary  for   manufacturing  cement   and consequently production  of cement  in  the  State  is  much higher. He  submitted that  for such  reasons if  giving  of preference of  making discrimination  is permitted then that would lead  to trade  wars or  creation of  barriers between different States  and  that  would  be  detrimental  to  the economic integrity  and unity  of the  nation. He  drew  out attention   to    the   following    observation   made   by Gajendragadkar, J. in the case of Atitabari Tea Co. Ltd. vs. The State of Assam & Ors. (1961) 1 SCR 809:           "It  was   realised  that   in      course of  time different political      parties  believing   in   different      economic theories or ideologies may      come  in   power  in   the  several      constituent units of the Union, and      that may  conceivably give  rise to      local  and   regional   pulls   and      pressures  in   economic   matters.      Local   or    regional   rears   or      apprehensions raised  by  local  or      regional problems  may persuade the      State   Legislatures    to    adopt      remedial measures  intended  solely      for the protections raised by local      or regional  problems may  persuade      the  State  Legislatures  to  adopt      remedial measures  intended  solely      for  the   protection  of  regional      interest  without   due  regard  to      their effect  on the economy of the      nation as  a whole.  The object  of      Part  XIII  was  to  avoid  such  a      possibility.  Free   movement   and      exchange of  goods  throughout  the      territory  of  India  is  essential      for the  economy of  the nation and      essential for  the economy  of  the      nation  and   for  sustaining   and      improving living  standards of  the

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    country. The  provisions  contained      in  Article  301  guaranteeing  the      freedom  of   trade,  commerce  and      intercourse is not a declaration of      a mere  platitude or the expression      of a  pious hope  of a  declaratory      character; it  is not  also a  mere      statement of directive principle of      State  policy,   it  embodies   and      enshrines a  principle of paramount      importance that  the economic  unit      of the  country  will  provide  the      main  sustaining   force  for   the      stability  and   progress  of   the      political and  cultural unit of the      country."      He also  invited out attention to the averments made in the  petitions,   particularly  the   petitions   filed   by Saurashtra Cement  Company and  the facts  and figures given therein. He  submitted that  the State  of Rajasthan  in its counter affidavit filed in the High Court had not denied the correctness of  those facts  and figures  and the only reply given by  it was  that they  were not  admitted and were not verifiable. The  High Court also accepted this contention of the State  of Rajasthan  and held  that the  petitioners had failed to  establish that the impugned Notifications had the effect of  impeding or  obstructing the  free flow  movement goods between  the State  in the course of inter-State trade and commerce.      We have  already observed  earlier that  the High Court has very  lightly brushed  aside the said facts and figures. Some of  the facts  and figures  were stated on the basis of the statistics  available with  the cement  manufacturers of India. Detailed  statements showing the names of the parties and quantities of cement purchased by some of them monthwise were filed  along with  writ  petition.  It  is,  therefore, difficult  to   appreciate  how  the  said  facts  were  not verifiable or could be regard as not reliable. The facts and figures  were   sufficient  to   show,  prima   facie,  that despatches of cement from the State of Rajasthan to State of Gujarat and  increased considerably and that cement produced in the State of  Rajasthan to State of Gujarat had increased considerably and that cement produced i the State of Gujarat was placed  in a disadvantageous position. It was not proper for the  High Court  to brush  aside that  material and hold that the petitioners had failed to establish that because of reduction in  the rate  of sales tax on inter-State sales of cement by  the impugned Notifications preference was created in favour of the cement manufactured and sold in Gujarat and that  the   cement  manufacturers   in  Gujarat   were  thus prejudicially affected  and put in disadvantageous position. The High  Court  had  observed  that  the  sales  of  cement manufactured and  sold in  Rajasthan  might  have  increased because of  the quality  of cement,  intensive publicity and such other  factors. That was not even the case of the State of Rajasthan.  In view  of the  clear and  credible material placed on  record by  the writ  petitioners it was incumbent upon the State of Rajasthan to justify that what it had done was really  required in the public interest. While conceding that varying  rates of  tax can  prevail in different States and that by itself cannot be said to be violative of Article 303 he  submitted that  the differentiation can be justified if that  is done one account of natural and business factors such as  existence of  along  standing  business  relations. availability of  communications, credit  facilities and such

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other factors.  He submitted  that this  court  in  Nataraja Mudaliar’s  case   (supra"  has  adopted  the  reasoning  of Australian High Court in The King vs. Barger 1908 (6) CLR 41 that if  the pervading  idea is  the preference  of locality merely because it is locality and because it is a particular part of  a particular  Sate and the preference was not based on other  considerations, which  are dependent on natural or business circumstances,  and may  operate with  more or less force in  different  localities  and  has  held  that  where differentiation is based on consideration not dependent upon natural or  business factors which operate with more or less force  in   different  localities  than  the  Parliament  is prohibited from making such discrimination.      What the  learned counsel  for the  State of  Rajasthan submitted was  that unless  it was  shown that  the impugned notifications directly  and adversely affected the free flow of trade  and business  or that  the tax  reduction  was  so prohibitive as  to become  an impediment  in the  free flow, they could  not have  been regarded as violative of Articles 301. In  support  of  his  submission  he  relied  upon  the decisions of  this Court  in Atitabar  Tea Co.  Ltd. vs. The State of Assam 1961 (1) SCR 803 and Amrit Banaspati Co. Ltd. vs. Union  of India 1995 (3) SCC 335. He also submitted that mere imposing  or reduction  of tax by the State Legislature leading to  varying rates of sales tax cannot be regarded as giving preference  or making  discrimination  prohibited  by Article 301  and 304  because the free flow of trade between different States  depends not  necessarily upon the rates of sales tax,  but upon a variety of other factors, such as the source of  supply, place  of consumption, existence of trade channels, trading facilities, rates of freight, availability of efficient  transport and  the like.  In support  of  this proposition he  cited the  decisions of this Court  in State of Madras  Vs. N.K. Nataraja Mudaliar 1968(3) SCR 829, State of Kerala  vs. A.B.  Abdul Khadir  1970(1) SCR 700, State of Tamil Nadu  vs. Sitalakshmi  Mills, etc.  1974(3) SCR  1 and video Electronics  Pvt. Ltd.  vs. State of Punjab 1989 Supp. (2) SCR 731.      The scope  and  ambit  of  the  freedom  of  trade  and commerce throughout India has been examined by this Court in many cases,  starting with Atiabari Tea Co. Ltd (supra. This Court in  Video Electronics  Pvt. Ltd.  vs. State  of Punjab 1990(3) SCC  87 reviewed  the previous  case law  and in the context of  power to  grant exemption  from payment of sales tax, has  held that  the taxes  which  do  not  directly  or immediately restrict  or interfere  with trade, commerce and intercourse throughout  the territory  of India  are exclude from the  ambit of Article 301. It was held that: "it has to be borne  in mind that there may be differentiations based o consideration of  natural or business factors which are more of less  in force  in different localities. A State might be allowed to impose a higher rate of tax on a commodity either when it  is not  consumed within the State, or if it is felt that the  burden falling on consumers with in the State will be more  than that  and large  benefit  is  derived  by  the revenue. The imposition of a rate of sales tax is influenced by various  political rate  of tax  on  sales  of  the  same commodity cannot  be regarded  in isolation as determinative of the object to discriminate between one State and another. This Court  has also  held that  "However  the  power  under Article 304  if found to have been exercised in a colourable manner intentionally  or purposely  to  create  unfavourable bias  by   prescribing  a  general  lower  rate  on  locally manufactured goods  or in  the shape  of lower  rate of tax, such an  exercise of  power can always be struck down by the

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courts."      Reiterating   that   every   differentiation   is   not discrimination   this    Court   further    held   that   if discrimination is  made without  a valid  reason, that is to say, if there are not justifiable and reasonable reasons for differentiation,  then   that  would   amount   to   hostile discrimination. Again,  in Amrit  Bansapati Co.  Ltd.’s case (supra) this  Court emphasised  that it  is  only  when  the intra-State of  inter-State movement of the persons of goods are  impeded  directly  and  immediately  as  distinct  from creating some indirect or inconsequential impediment, by any legislative or executive action, infringement of the freedom envisaged by Article 301 can arise. Without anything more, a tax law,  per se,  may not  impair the  said freedom. At the same time, it should be stated that a fiscal measures is not outside the purview of Article 301 of the Constitution.      We have,  therefore, to  examine the  validity  of  the impugned Notifications  in the context of this settled legal position. As  already pointed  out above  the only reason or justification given by the State of Rajasthan for making the differentiation between the rate of tax on intra-State sales and inter-State  sales of cement was that the said reduction was likely  to lead  and had  led to  increase in  sales  of cement and  increase in revenue earnings. So the question to be considered  is whether  those considerations alone can be regarded as sufficient to make the impugned Notification. In the case  of Indian  Cement (supra) this Court has held that the plea  that  reduction  in  the  rate  of  sales  tax  is beneficial to  the  State  Revenue  cannot  be  regarded  as sufficient justification  for making  the discrimination and it would not amount to a reasonable restriction contemplated by Article 304.      In the  case of  Indian Cement  (supra) this Court also held that  reduction in  the rate of tax in order to protect the  local   manufacturers   cannot   be   regarded   as   a justification permitted by Part XIII of the Constitution. so also in Weston Electronics vs. State of Gujarat 1988 (3) SCC 568 this  Court has held that reduction in the case of goods manufactured locally  in order  to provide  an incentive for encouraging local manufacturing units cannot be sustained if it diversely  affects the free flow of inter-State trade and commerce. 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 and, 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.  The  said  notifications,  by dispensing with the requirement of furnishing declaration in C Form,  had the   effect of facilitating evasion of payment of tax  and were, therefore, also violative of the scheme of the constitutional  provisions contained  in Chapter XIII. A 5-Judge Bench  of this Court in Firm A.T.B. Mehtab vs. State of Madras  1963 Supp.  SCR 435 has also held that sales tax, which has  the effect of discriminating between goods of one State of  another, may  affect the  free flow  of trade  and would be violative of Article 301.      We, therefore,  hold that  the  impugned  notifications were void  and, therefore,  they are  hereby quashed.  These appeals are  accordingly allowed.  In view  of the facts and circumstances of  the case  there shall  be no  order as  to costs.

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