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PETITIONER: SRI DOKI CHINA GURUVULU SON & CO. AND ANR.

       Vs.

RESPONDENT: GOVT. OF ANDHRA PRADESH AND ANR.

DATE OF JUDGMENT07/12/1989

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RAY, B.C. (J)

CITATION:  1989 SCR  Supl. (2) 422  1990 SCC  (1) 221  JT 1989  Supl.    373    1989 SCALE  (2)1249

ACT:     Andhra Pradesh Sales Tax Act, 1957 (As amended by Act 19 of  1986):  First  Schedule Item  170/Second  Schedule  Item 14--Tamarind  obtained  from  outside  the   State--Taxation of--At  a  stage  different from tamarind  produced  in  the State--Whether results in double taxation-Whether  discrimi- natory  and violative of Articles 304(a) and 14 of the  Con- stitution.     Constitution of India, 1950: Articles 14 and 304:  State sales  tax law---Taxing commodity obtained from outside  the State  at a stage different from commodity produced  in  the State--Whether discriminatory and unconstitutional.

HEADNOTE:     Under  item 14 of Second Schedule to the Andhra  Pradesh General Sales Tax Act, 1957 tamarind was subjected to  sales tax at the point of first purchase in the State irrespective of whether it was purchased within the State or outside  the State. However, by virtue of an amendment to the Act by  Act 19 of 1986 tamarind which is purchased within the State  was retained  in Second Schedule, while tamarind purchased  out- side  the  State was transferred to First Schedule  as  item 170,  making  it taxable at the same rate at  the  point  of first sale in the State.      The appellants had purchased tamarind from the State of Orissa paying tax there and incurred expenditure in bringing it  to  Andhra Pradesh for sale. They  challenged  the  said amendment modifying the point of taxability as discriminato- ry between tamarind produced and purchased within the  State and  the tamarind produced and purchased outside  the  State and  as  such, violative of Articles 304(a) and  14  of  the Constitution.  The  submission was  that  imported  tamarind which had suffered tax at the first sale point will again be taxed at the purchase point when purchased within the State, which would amount to double taxation, and that tax in  case of  imported tamarind would be more because its  price  will include freight charges and other State taxes. The High Court found that there was no discrimination. Dismissing the appeal by special leave, the Court, 423     HELD:  When a taxing State is not imposing rates of  tax on  imported  goods  different from rates of  tax  on  goods

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manufactured  or produced, Article 304 of  the  Constitution has  no  application.  In the instant  case,  both  tamarind purchased within, and outside, the State was taxed  uniform- ly.  There  was. therefore, no infraction of clause  (a)  of Article 304 of the Constitution. [429D-E; 426A; 425G-H]     Rattan  Lal  & Co. & Anr. v. The Assessing  Authority  & Anr., [1969] 2 SCR 544, applied.     Firm  A.T.B. Mehtao Majid & Co. v. The State of  Madras, 14 STC 355 and Indian Cement Ltd. & Ors. v. State of  Andhra Pradesh & Ors., 69 STC 305, distinguished.     It  may be that when the rate is applied  the  resulting tax  in respect of imported tamarind may be somewhat  higher because  its  price will include freight charges  and  other State  taxes.  But that cannot be said to be the  effect  of what law has amended. Tamarind will be imported only when it can be sold in the market at the same price as the  tamarind produced within the State. Only when after bearing the other State  taxes and freight charges, if it is able  to  compete with  the  locally  produced tamarind it  will  normally  be imported from outside the State. If there is any  difference in  prices because of market conditions and  other  factors, that  cannot be said to be due to discrimination  prohibited by clause (a) of Article 304. [429E; 427D-E]     M/s  Associated Tanners, Vizianagaram, A.P.  v.  C.T.O., Vizianagaram, A.P. & Ors., [1986] 2 SCC 479, referred to.     Weston  Electroniks & Anr. v. State of Gujarat  &  Ant., [1988] 3 SCR 768, distinguished.     Once  the imported tamarind is taxed at the  first  sale point  under  the First Schedule there is  no  occasion  for taxing  it  over again at the sale point  under  the  Second Schedule.  The idea of both the Schedules is to tax only  at one  point, though the point of taxability is  different  in both  the  cases. In case of tamarind purchased  within  the State, i.e., produced within the State, the tax is levied at the  point of first purchase under the Second Schedule,  and in  case  of imported tamarind i.e., purchased  outside  the State,  the tax is levied at the point of first sale in  the State  under the First Schedule. It could not therefore,  be said that taxing the imported tamarind at the point of first sale  in the State would amount to double  taxation.  [427H; 428A; 427B-C; 427G] 424     In  the facts and circumstances of the case, there  was, therefore, no ground to complain about the breach of Article 14 of the Constitution [429E-F]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 4879  of 1989.     From  the  Judgment and Order dated  12.11.1986  of  the Andhra Pradesh High Court in W.P. No. 16535 of 1986 P. Rama Reddy and A.V.V. Nair for the Appellants.     C.  Sitaramaiah,  Jagan Rao, D.R.K. Reddy  and  T.V.S.N. Chari for the Respondents. The Judgment of the Court was delivered by SABYASACHI MUKHARJI, J. Leave granted.     This  is  an appeal from the judgment and order  of  the High Court of Andhra Pradesh dated 12th November, 1986.  The appellants  challenged the validity of an amendment  to  the Schedule  to the Andhra Pradesh General Sales Tax Act,  1957 (hereinafter  called ’the Act’). The appellants are  dealers in  tamarind  in  Parvathipuram in  Srikakulam  district,  a border district in Andhra Pradesh. They had purchased  tama-

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rind from the State of Orissa paying tax there and incurring expenditure in bringing the said goods to Andhra Pradesh for the purpose of sale. Under the Act, tamarind was item 14  of Second Schedule and was subjected to sales tax at the  point of  first purchase in the State irrespective of  whether  it was  purchased  within the State or outside the  State.  The subject-matter  of challenge in this application under  Art. 226  of  the  Constitution before the  Andhra  Pradesh  High Court,  was the validity of an amendment to the Schedule  to the  Act  modifying the point of taxability of  tamarind  in question.  Prior  to the amendment tamarind was  taxable  as mentioned  hereinbefore at the first purchase  point,  being item  No.  14 in Schedule II to the Act. The  entry  therein read as follows: "Description of         Point of levy        Rate of tax the goods 14.  Tamarind (2014)     At the point of       4 paise in                          first purchase        the rupee.                          in the State." 425     By virtue of the amendment, the said entry was  amended. Tamarind  which is purchased within the State, was  retained in IInd Schedule while tamarind purchased outside the  State was  transferred to 1st Schedule. After the amendment,  item No.  14 in Schedule II and item 170 in Schedule I  stood  as follows: "SECOND SCHEDULE S. No. Description of goods   Point of levy      Rate of tax 14.   Tamarind when put-      At the point of  4 paise in       chased within the       first purchase   the rupee.       State.                  in the State. FIRST SCHEDULE S. No.  Description of Goods  Point of levy      Rate of tax 170   Tamarind when           At the point      4 paise in       obtained from out-      of first sale     the rupee.       side the State.         in the State."     It  appears  that the result of the said  amendment  was that  tamarind purchased outside the State, was  taxable  at the  point  of  first sale in the State.  It  was  contended before the High Court that the said amendment brought  about a discrimination between tamarind purchased within the State i.e.  one produced within the State, and the  tamarind  pur- chased outside the State i.e. produced in other States;  and that the incidence of tax was more on the tamarind purchased outside the State. It was contended that it violated  clause (a) of Art. 304 as also Art. 14 of the Constitution.     Clause  (a)  of  Art. 304  states  that  notwithstanding anything contained in Art. 301 or Art. 303, the  legislature of  State  may by law impose on goods  imported  from  other States  or  the Union Territories any tax to  which  similar goods manufactured or produced in the State are subject, so, however,  as not to discriminate between goods  so  imported and  goods  so  manufactured or produced.  The  question  is whether  as a result of the said amendment, there  has  been any  infraction of clause (a) of Art. 304 of  the  Constitu- tion. We are unable to 426 accept  the contention that there was any  such  discrimina- tion.  The  High Court in the judgment under appeal  has  so held.  We are of the opinion that the High Court was  right. Both  the tamarind purchased within, and outside, the  State is taxed uniformly.     On behalf of the appellants, reliance was placed on Firm A.T.B.  Mehtao Majid and Co. v. The State of Madras, 14  STC 355,  wherein on an analysis of the relevant  provisions  it

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was  held  that the provisions of rule 16(2) of  the  Madras General  Sales  Tax [Turnover and  Assessment]  Rules,  1939 (substituted in the place of the old rule w.e.f. 1st  April, 1955)  discriminate  between hides and skins  imported  from outside the State and those manufactured or produced  inside the  State  and as such contravened the provisions  of  Art. 304(a)  of the Constitution, and therefore were invalid.  It was  reiterated  by this Court that taxing laws can  be  re- strictions  on  trade,  commerce and  intercourse,  if  they hamper  the flow of trade and if these are not  compensatory taxes or regulatory measures. It was further held that sales tax  on  hides and skins imposed under  the  Madras  General Sales  Tax Act, 1939 and the rules framed  thereunder  could not be said to be a measure regulating any trade or  compen- satory  tax  levied for the use of trading  facilities.  The similarity  contemplated by Art. 304(a) is in the nature  of the  quality and kind of the goods and not with  respect  to whether  they were already the subject of tax or not.  There this  Court was dealing with rule 16 of the relevant  Madras rules.  Sub-rule  (a) of rule 16 provides that  in  case  of untanned  (raw) hides and/or skins, the tax u/s 3(1) of  the Act  was to be levied from the dealer who is the  last  pur- chaser  in the State. Sub-rule (2) which was in  two  parts, dealt  with tanned hides and skins. Clause (i)  of  sub-rule (2) provided that in case of hides and skins tanned  outside the  State, tax shall be levied upon the dealer who  in  the State is the first dealer. Clause (ii) provided that in case of tanned hides and skins which have been tanned within  the State, the tax u/s 3(1) shall be levied upon a person who is the first dealer in such hides or skins. The proviso, howev- er,  declared that if the dealer proved that he had  already been  taxed  under sub-rule (1) on the  untanned  hides  and skins, he shall not be subjected to tax under sub-rule  (2). It was held by this Court that this rule inevitably  brought about  a discrimination in the quantum of tax because  while the tanned hides and skins which were imported from  outside the  State and were sold within the State, were taxed  at  a higher rate, the hides and skins tanned within the State and sold  within the State, are taxed at a lower rate by  virtue of  the  proviso.  It was, indeed, found that  there  was  a substantial  variation  between  the prices  of  tanned  and untanned goods. This Court pointed out that by virtue of the proviso, the tax on 427 the  latter category was, in fact, on the purchase price  of the untanned hides and skins--though ostensibly the rate  of tax  under sub-rule (2) was the same Hence, the mischief  of discrimination  was brought about by the proviso which  said that  if hides and skins are taxed within the State  at  raw (untanned)  stage,  they  shall not be taxed  again  at  the tanned  stage.  But  in view of the facts  involved  in  the instant case, we are unable to accept that the principles of the said decision have any scope of application to the facts of instant case. In the instant case the tamarind  purchased within  the  State and outside the State, are taxed  at  the same rate. But the point of taxability has necessarily to be different  in both the cases. In case of tamarind  purchased within the State i.e. produced within the State, the tax  is levied  at the point of first purchase, and in case  of  im- ported tamarind i.e. purchased outside the State, the tax is levied at the point of first sale in the State.     It was contended by Mr. P. Rama Reddy, learned  advocate for  the appellants, that tax in case of  imported  tamarind would be more because its price will include freight  charge and  other  State taxes. Hence, it was  submitted  that  the

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sales tax will also be more. That may be so but it cannot be said to be the effect of what law has amended. Tamarind will be  imported only when it can be sold in the market here  at the  same price as the tamarind produced within  the  State. Only  when  after bearing the other’ State tax  and  freight charges, if it is able to compete with the locally  produced tamarind,  it  will normally be imported  from  outside  the State.  If  there  is any difference in  prices  because  of market conditions and other factors, that cannot be said  to be  due to discrimination prohibited by clause (a)  of  Art. 304  of the Constitution. In order to ensure this, it  would be  necessary that imported goods must always be taxed at  a lower  rate  than the corresponding goods within  the  State because of freight and other charges. That cannot be so. The High Court observed that tamarind is an agricultural produce and  that is why it was put in Second Schedule i.e. to  say, purchase  point, but where it was imported and  sold  within the State, there was no reason to tax it at the sale  point. We are of the opinion that the. High Court was ’right.     It was contended on behalf of the appellants before  the High Court that imported tamarind which had suffered tax  at the  first sale point, will again be taxed at  the  purchase point when purchased within the State, which would amount to double taxation. Once the imported tamarind is taxed at  the first  sale  point  under the First Schedule,  there  is  no occasion  for taxing it over again at the sale  point  under the  Second Schedule. The idea of both the Schedules  is  to tax only at one point 428 though  the point of taxability may be different under  dif- ferent Schedules.     Our attention was drawn on behalf of the appellants to a decision of this Court in Indian Cement Ltd. & Ors. v. State of  Andhra Pradesh & Ors., 69 STC 305. There this Court  was concerned  with  Andhra Pradesh General Sales  Tax  Act.  It appears that in exercise of its powers u/s 9(1) of the  Act, the  State Government had passed a notification  on  January 27,  1987 reducing the rate of sales tax on sale  of  cement from  13.75%  to  4% in respect of  cement  manufactured  by cement factories situated in the State and sold to  manufac- turing  units situated within the State for the  purpose  of manufacture of cement products such as cement sheets, asbes- tos  sheets, cement flooring stones, cement concrete  pipes, cement  water and sanitary fittings, concrete poles etc.  On the same day the State Govt. had passed another notification u/s  8(5)  of the Central Sales Tax Act, 1956  reducing  the rate  of  tax on inter-State sale of cement to  2%  with  or without Form C. On February 28, 1987 the State of  Karnataka passed  a similar notification reducing the rate of  tax  on inter-State sale of cement from 15% to 2%. The  petitioners, of  whom  some  were manufacturers of  cement  having  their manufacturing units in Tamil Nadu and others, were stockists having places of business in the States of Karnataka, Kerala and  Tamil  Nadu,  filed writ petitions  before  this  Court challenging  the  validity  of these  notifications  on  the ground  that these created trade barriers and  directly  im- pinged  upon the freedom of trade, commerce and  intercourse provided  for in Art. 301 of the Constitution of  India.  It was  held  that  the variations in the rates  of  local  and inter-State  sales tax affected free trade and commerce  and created a local preference, which was contrary to the scheme of  Part XIII of the Constitution of India; and as such  the notification were bad.     This decision was rendered in the peculiar facts of that case.  While  the principle enunciated by the Court  in  the

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said  decision there can be no dispute that taxation  was  a deterrent in some cases, against free flow of trade, and  as a  result of favourable or unfavourable treatment by way  of taxation, the course of flow of trade gets regulated  either adversely or favourably, and that if the scheme of Part XIII guarantees has to be preserved in the national interest,  it is  imperative  that  the provisions of  Art.  301  must  be strictly complied with, we are of the opinion that the ratio of the said decision in the facts and circumstances of  this case  would not be relevant. In our opinion, the  provisions of  the  Constitution should be strictly complied  with  not only  with the letter but also with their spirit. Part  XIII of the Constitution has to 429 be dealt with the other provisions of the Constitution.  Our attention was drawn to the observations of this Court in M/s Associated Tanners, Vizianagaram, A.P. v. C.T.O., Vizianaga- ram. A.P. & Ors., [1986] 2 SCC 479. It was reiterated  there that the effect of an imposition of tax may work differently upon  different dealers, namely, those who import goods  and those who purchase the goods locally. That effect cannot  be said  to  arise directly or as an immediate  effect  of  the imposition  of  tax. It cannot be said that  there  was  any violation of clause (a) of Art. 304 of the Constitution.     We  are  of  the opinion that in the  instant  case  the difference, in rates, if any, between the imported  tamarind and  locally  produced tamarind is not as  an  immediate  or direct result of the imposition of tax. The decision of this Court  in  Weston Electronics & Anr. v. State of  Gujarat  & Anr.,  [1988] 3 SCR 768 dealt, in our opinion, with  an  en- tirely  different situation and for the purpose of  the  in- stant controversy, cannot be of any assistance.     Mr.  C. Sitaramiah, appearing for the respondents,  drew our  attention to Rattan Lal & Co. & Anr. v.  The  Assessing Authority  & Anr., [1969] 2 SCR 544 wherein this  Court  had reiterated that when a taxing State is not imposing rates of tax  on imported goods different from rates of tax on  goods manufactured  or produced, Art. 304 has no  application.  So long  as the rate is the same Art. 304 is satisfied. In  the instant  case  the tax is at the same rate and,  hence,  tax cannot  be said to be higher in the case of imported  goods. When  the rate is applied the resulting tax may be  somewhat higher but that does not contravene the equality contemplat- ed  by  Art. 304 of the Constitution. In the facts  and  the circumstances  of the case, there is no ground  to  complain about the breach of Art. 14 of the Constitution.     In  the  aforesaid  view of the matter, we  are  of  the opinion  that the High Court was right in the view  it  took and  this appeal must fail. The appeal is  accordingly  dis- missed.  In  the facts and the circumstances  of  the  case, however, we make no order as to costs. P.S.S.                                                Appeal dismissed. 430