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PETITIONER: STATE OF MADHYA PRADESH

       Vs.

RESPONDENT: ABDEALI

DATE OF JUDGMENT: 24/08/1962

BENCH: DAS, S.K. BENCH: DAS, S.K. KAPUR, J.L. SARKAR, A.K. HIDAYATULLAH, M. DAYAL, RAGHUBAR

CITATION:  1963 AIR 1237            1963 SCR  Supl. (3) 704

ACT: Inter-State  Trade-Discrimination-Sales  Tax-Exemption-Sales of  hand-made footwear by manufacturer-Madhya  Bharat  Sales Tax  Act, 195O (M.  B. 30 of 1950), ss. 4(3)Constitution  of India, Art. 304(a).

HEADNOTE: The  respondent,  a dealer in imported hand-made  shoes  and chappals,  claimed exemption in respect of his  sales  turn: over  on the basis of the notification issued under s. 5  of the  Madhya  Bharat Sales Tax Act which  exempted  hand-made shoes  and chappals the sale price of which did  not  exceed Rs.  12/8/-  in  case of sale by the manufacturer  or  by  a member of his family.  The claim for exemption was  rejected by the Sales Tax Officer and the respondent was assessed  on the   total   turnover.   The  respondent   challenged   the assessment  by a petition under Art. 226 before  the  Madhya Bharat  High  Court which allowed the petition on  the  view that  the exemption granted by the notification  applied  to sales  of  hand-made  shoes, chappals,  etc.,  whether  made within  or  outside  the  State  and  held  that  any  other interpretation  of  the  notification would  bring  it  into conflict with Art. 304(a) of the Constitution. Held,  that the notification lays down three conditions  for the  grant of exemption : (1) that the sale must be of  such shoes, chappals etc., as are hand-made and not  manufactured on power machine (2) that the sale price must not exceed Rs. 12-8-0  per  pair  and  (3) that the sale  must  be  by  the manufacturer or any member of his family.  The  notification when it uses the expression "in case of sale" has  reference to  the  taxable  event in the State ; in  other  words,  it refers to a sale in the State and not outside it.  Therefore the  notification has reference to such sales as would  come but  for the exemption within item 32 of Schedule 3  of  the notification.   The  interpretation pat by  the  High  Court would obliterate one of the conditions and is not correct. Held,   further,   that  the  exemption   granted   by   the notification  is  for the protection and  benefit  of  small manufacturers who make hand made shoes and chappals of small

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                           705 value   and   are  unable  to   compete   with   large-scale manufacturers   of  footwear  made  on  machines.   Such   a classification  in the interests of small  manufacturers  is valid. Orient  Weawing  Mills (P) Ltd. v, Union  of  India,  [1962] Supp. 3 S.C.R, 481 and British India Corporation Ltd, v. The  Collector of Central Excise, Allahabad,[1963] 3  S.C.R. 642 referred, The  exemption  creates no discrimination  between  footwear manufactured  or  produced in the State and  those  imported from  outside and is not therefore hit by Art.304(a) of  the Constitution. M/s.   Ram  Narain Sons Ltd, v.  Assistant  Commissioner  of Sales Tax, (19551 2 S.C.R. 483, held inapplicable.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 373 of 1961. Appeal  by special leave from the judgment and  order  dated December 14, 1959, of the Madhya Pradesh High Court in Misc. Petition No. 274 of 1958. B.   Sen and I. N. Shroff, for the appellants. W.   S. Barlingay and A. G. Ratnapakhi, for the respondents. 1962.   August 24.  The Judgment of the Court was  delivered by S.K.DAS,  J.-This  is an appeal by special  leave  from  the judgment and order of the High Court of Madhya Pradesh dated December  14, 1959, by which the said High Court quashed  an assessment of sales tax made against the respondent for  the assessment  year 1956-57.  The appellant before us  are  the State of the Madhya Pradesh, the Commissioner of Sales  Tax, Madhya  Pradesh.  ’and the Sales Tax Officer,  Circle  No.2, Indore. We  may  first  state  the  circumstances  under  which  the respondent was assessed to sales tax and 706 the  reasons  for  which the High Court  quashed  the,  said assessment.   The  respondent  carried on  the  business  of importing  and  selling different types of footwear  in  the State  of Madhya Pradesh under the name and style of  Munwar Shoe  Company, Indore.  During the assessment  year  1956-57 the taxable turnover of the goods sold by the respondent was determined  to  be a little over Rs. 60,000/-,  and  he  was assessed to sales tax on his taxable turnover in  accordance with  item  32 Sch.3 of the notification dated  October  24, 1953  issued under s. 5 of the Madhya Bharat Sales Tax  Act, 1950 (Act 30 of 1950) "hereinafter referred to as the  Act). Section  3 of the Act is the charging section which  imposes the  tax.   Section 4(3) empowers the  Government  to  grant exemption by means of a notification in respect of the  sale of any goods or class of goods.  Section 5 of the Act  fixes the rate of tax and states that the tax payable by a  dealer under the Act shall be a single point.  It permits the State Government  to notify the goods and the point of their  sale at  which  the  tax is payable.  Item 32 of Sch.  3  of  the notification referred to above was in these terms. S.No.     Name of goods           Point of sale in                                    Madhya Bharat                                    at which tax it;                                    payable 32   All leather goods             Sale by importer           and all shoes,           or manufacturer.           chappals (footweer)

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         etc. Though  the item in question made all leather goods and  all shoes, chappal etc. liable to sales tax at the point of sale by the importer or manufacturer, an exemption was granted in respect   of   certain  sales  of  footwear  by   means   of notification issued under s. 4 707 (3)  of  the Act.  We may now refer to these  notifications. The  first  notification was dated May 27, 1955 and  was  in these terms:               "In  exercise  of  the  powers  conferred   by               section  4(3) of Madhya Bharat Sales Tax  Act,               Samvat  2007 the Rajpramukh has  passed  order               exempting  from the payment of sales tax,  all               such  shoes, the selling price of  which  does               not  exceed  rupees  te   per  pair  and  such               country  shoes  which  are  prepared  by   the               manufacturer himself and for the production of               which  power is not used in any stage  if  the               same  are sold by the Manufacturer himself  or               any member of his family." This   notification   was  later   superseded   by   another notification dated January 28, 1956, which read as follows:               "In  exercise  of  the  powers  conferred   by               section 4, sub-section(3) of the Madhya Bharat               Sales  Tax Act, Samvat 2007 the Rajpramukh  in               supersession of the notification No.  59(c)(t)               P.R.  412-54, dated 27-5-1955 of this  depart-               ment  has exempted from the payment  of  sales               tax,  in case of sale by the  manufacturer  or               any member of his family, the sale of all such               shoes,chappals,  country shoes  and  footwears               which  are hand-made and which are  not  manu-               factured on power machine and whose sale price               does not exceed Rs. 12/8/-." The respondent contended before the Sale Tax Officer that he was not liable to pay any sales tax on the sale of hand-made shoes,  chappal and other type of footwear whose sale  price did  not exceed Rs. 12/8/- per pair on the ground that  such footwear  was exempt from tax by reason of the  notification dated  January  28, 1956.  The Sales Tax  Officer  negatived this contention.  He pointed out in his order 708 dated  March  25, 1958 that the condition laid down  in  the notification  to  the effect that the sale must  be  by  the manufacturer or any member of his family was not  fulfilled, and as the respondent was an importer and dealer of footwear and  not the manufacturer or a member of the family  of  the manufacturer,  he  was not entitled to claim  any  exemption under the notification.  Consequently the Sales Tax  Officer passed an order assessing sales tax on the total turnover of the respondent. The  respondent then moved the High Court of Madhya  Pradesh by  means of a petition under Art. 226 of  the  Constitution and   in  that  petition  the  respondent  said   that   the notification  dated January 28, 1956, exempted from tax  all sales   of  footwear  which  fulfilled  the   following   to conditions,  viz., (a) such footwear was hand-made  and  not manufactured  on  power  machine, and  (b)  the  sale  price whereof did not exceed Rs. 12/8/- per pair.  The  respondent further  averred  that if the exemption were held to  be  in favour of sales by a manufacturer or a member of his  family and not sales by an importer, then the notification would be discriminatory in nature and would contravene the provisions of  Art. 304(a) of the Constitution.  On these  grounds  the

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respondent prayed that the assessment order dated March  25, 1958,  be quashed and the Sales Tax Officer be  directed  to ’exempt  from  tax  such sales by  the  respondent  as  were covered  by the exemption granted by the notification  dated January  28, 1956.  In their reply to the writ petition  the appellants pointed ’out that the notification dated  January 28,  1956 did not in any way discriminate  between  footwear manufactured or produced in the State of Madhya Pradesh  and footwear imported from outside, because the conditions  laid down  in the notification were enqually applicable  to  both types of goods and one of these conditions was that the sale 709 which   was  to  be  exempted  from  tax  must  be  by   the manufacturer or a member of his family. The  High Court accepted the petition of the respondent  and held that the respondent’s contention that hand-made  shoes, chappals  and  footwear purchased by him directly  from  the manufacturer outside the State and imported by him for  sale were  entitled  to exemption under the   notification  dated January 28, 1956, must prevail.  The High Court said:               "What that notification does is to exempt from               sales  tax  the  sale  of  hand-made  chappals               shoes,  footwear  ’and country  shoes  if  the               price of the article sold does not exceed  Rs.               12/8/-  and if it is sold by the  manufacturer               or  any  member of his family.   It  makes  no               difference  whether the sale is by  the  manu-               facturer within the State directly to the pur-               chaser  or whether it is by  the  manufacturer               outside  the  state to the importer  who  then               sells  it to the purchaser.  The  notification               is, no doubt, not clearly worded. x x x x x  x               The notification has to be read in  consonance               with the provisions of Article 301 of the Con-               stitution.  So read, it must be held that  the               exemption  applies to hand-made shoes,  chapp-               also etc., whether made within or outside  the               State if the other conditions mentioned in the               notification are satisfied." Accordingly,  the  High Court quashed the  assessment  dated March 25, 1958, and directed the Sales Tax Officer to make a fresh  assessment in the light of the decision of  the  High Court. On behalf of the appellants it has been contended before  us that the interpretation which the 710 High  Court put on the notification dated January 28,  1956, is not correct.  We think that this contention is right  and must be accepted.  The notification clearly lays down  three conditions for the grant of exemption: one of the conditions is  that the sale must be of such shoes,  chappals,  country shoes and footwear as are hand-made and not manufactured  on power  machine; the second condition is that the sale  price must not exceed Rs. 1218/-; and the third condition is  that the  sale mast be by the manufacturer or any member  of  his family.   The notification when it uses the  expression  "in case of sale" must refer to the sale which is being exempted from  tax in the State; in other words, it has reference  to the  taxable  event  in  the State as  per  Soh.  3  of  the notification  dated  October 24,  1953.   That  notification makes  it clear that the tax is a single point tax, and  the taxable event is the sale by the importer or manufacturer in the State.  Therefore, the expression ",in case of sale"  in the exemption notification can have no reference to ’a  sale outside  the  State,.  The High Court was in error  when  it

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said that, it made no difference whether the sale was by the manufacturer  within the State directly to the purchaser  or whether  the sale was by the manufacturer outside the  State to the importer who then sold the shoes to the ’purchaser in the  State.   When a manufacturer sells  shoes  outside  the State  to an importer And the importer again sells shoes  in the State, there are really two sales, one outside the State and  one  inside it.  The sales outside the  State  are  not taxable  under the Act and the notification of  January  28, 1956, has no reference to such sales.  When the notification uses the expression ",in case of sale by the manufacturer or a  member of his family", it has reference to such sales  as would come but for the exemption within item 32 of Sch. 3 of the   notification   dated  October  24,   1953.    If   the interpretation put by the High 711 Court  is  correct,  then the practical effect  will  be  to obliterate   one  of  the  conditions  laid  down   in   the notification,  namely, that the sale, which is  the  taxable event,  must  be by the manufacturer or any  member  of  his family.  We do not think that the notification is capable of such an interpretation.  All the three conditions laid  down in  the notification must be fulfilled before the  exemption referred to therein can be claimed and we cannot, by  inter- pretatiod, delete one of the conditions. On  the question whether the notification  contravenes  Art. 304(a)   of  the  Constitution  learned  counsel   for   the appellants has, canvassed before us the larger question that Art.  304(a) has no reference to sales tax legislation.   He has  contended  that Art. 304(a) refers to a  tax  on  goods meaning  thereby a tax on the goods themselves, e.g.  excise duty  or  countervailing  duty  on  goods,  and  it  has  no reference to a tax on transactions of sale. In view of the alternative submissions which learned counsel for the appellants has made and to which we shall  presently refer,  it is unnecessary for us to deal with the  aforesaid larger question in this appeal.  The alternative submissions made  by  learned  counsel for  the  appellants  are  these. Firstly, learned counsel for the appellants bad argued  that on   the   assumption  ’that  sales   tax   legislation   is contemplated  by Art. 304(a), the notification  in  question does  not in any way contravene that provisions of the  said Article.   He has submitted that the three  conditions  laid down  by  the notification apply equally to  both  types  of footwear, footwear manufactured or produced in the State and footwear  imported  from  other States.   Secondly,  he  has submitted  that. if the notification in question is  bad  on the ground that it contravenes the provisions of Art. 30(4a) of the Constitution, then the 712 result will be that the notification dated January 28, 1956, will  be void.  This will not, however, affect the  validity of the notification of October 24, 1953, made under s. .5 of the  Act, by which all, leather goods and all  footwear  are made liable to a tax at the point of sale in the State by an importer  or  manufacturer.  Learned counsel  has  submitted that the respondent is an importer who sells footwear in the State, and he will be liable to tax on all footwear sold  by him  and will not be entitled to claim any exemption if  the exemption   notification  is  bad;  in  other   words,   the assessment  will be the same as has been found by the  Sales Tax  Officer by his order dated March 25, 1958, and in  that view  also,  the  order  of  the  High  Court  quashing  the assessment will be erroneous. We now proceed to, consider these alternative submissions of

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learned  counsel for the appellants.  We do not  think  that the  notification  dated  January 28, 1956  makes  any  such discrimination between footwear remanaufactured or  produced in  the State of Madhya Pradesh and footwear  imported  from other  States  as  is prohibited by Art. 304(a)  of  of  the Constitution.    We  have  already  pointed  out  that   the exemption granted by the notification in question depends on the  fulfilment  of  three  conditions  and  all  the  three conditions  are equally applicable to footwear  manufactured or  produced in the State and footwear imported  from  other States.   It  is  obvious  that the  exemption  is  for  the protection and benefit of small manufacturers who make hand- made  shoes of small value and who may be unable to  compete with large-scale manufacturers of footwear made on machines. Such   a   classification   in  the   interests   of   small manufacturers has often been made and upheld by this  Court. (See  Orient  Weaving Mills (P) Ltd. v. The Union  of  India (1): and The British India Corporation Ltd. v. The Collector of Central Exeise, Allahabad (2) (1) (1962) Supp. 3 S.C.R. 481.  (2) (1969) 3 S.C.R. 642. 713 In   the  course  of  his  arguments  learned  counsel   for respondent has first supported the interpretation put on the notification  by  the  High Court.  That  question  we  have already  dealt  with  earlier  in  this  judgment.   Learned counsel  for,  the respondent has then  submitted  that  the discrimination  arises in the following way.  He points  out that  a small manufacturer outside the State has  to  travel into  the State and sell hand-made shoes there in  order  to get   the   benefit  of  the  exemption  whereas   a   small manufacturer  in  the State has not to  travel  anywhere  in order  to get the benefit of the exemption.   This,  learned counsel bag submitted, results in such discrimination as  is forbidden  by  Art. 304(a) of the Constitution.  We  do  not agree.   The argument of learned counsel for the  respondent is  really an argument of inconvenience.  The  exemption  by itself   creates   no   discrimination   between    footwear manufactured  or  produced in the State  and  imported  from outside.  Even a small manufacturer in the State must fulfil the  conditions  laid down by the notification  in  question before  he can claim exemption from tax; in other words,  he or a member of his family must also sell the hand-made shoes before  he  can  claim  the  exemption.   So  must  a  small manufacturer  outside  the State if he wants  to  claim  the benefit  of  the  exemption.  Unless he  has  travelled  and brought  the goods into another State, Art, 304(a) does  not apply ; hence be cannot complain under that Article that  he has  to  travel.  It is worthy of note  that  the  exemption relates to sales in the State and that is why a small  manu- facturer  outside  the  State can claim no  benefit  of  the exemption with regard to sales out side the State which  are not  taxable under the Act,.  It is necessary here to  refer to one other point- which has been urged by learned  counsel for  the respondent.  Learned counsel has pointed  out  that the word ’himself’ used in the earlier notification of 714 May 27, 1955, in connection with the word manufacturer’  has been  omitted from the later notification January 28,  1956, and  he has contented that by reason of the omission of  the word ’himself’ the benefit of the later notification may  be available to a servant or an agent of the manufacturer.   We do  not think that this question falls for decision  in  the present  appeal.   The  respondent in the  present  case  is neither  a servant nor an agent of the manufacturer.  It  is admitted  that  he  is merely an importer and  in  his  case

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nothing  turns upon the omission of the word  himself  ’from the later notification. We  also  agree with the alternative submission  of  learned counsel  for the appellants that if the  notification  dated January 28, 1956 is bad, then the respondent stands to  gain nothing.   If the exemption notification is struck  down  as invalid,   that  will  not  affect  the  validity   of   the notification of October 24, 1953, particularly of item 32 of Sch.  3  thereof.  Learned counsel for  the  respondent  has submitted  that the two notifications must be read  together and  if the exemption goes, the notification of October  24, 1953,  issued  under a. 5 of the Act must also go.   We  are unable to agree, The notification of October 24, 1953. fixes the  point of sale at which the tax is to be  imposed.   The rate of tax is fixed by s. 5 of the Act.  There is no reason why  the  notification dated October 24, 1953,  should  fall with  the  notification  dated January 28,  1956  which  was issued under s.. 4 (3) of the Act.  The principle laid  down by  this Court in M/s Ram. Narain Sons of Ltd. v.  Assistant Commissioner  of  Sales  Tax (1) that  where  an  assessment consists  of  a  single  undivided sum  in  respect  of  the totality of the property treated as assessable, the wrongful inclusion in it of certain items of property which (1)  [1955] 2. S. C. R. 483. 715 by  virtue  of a provision’ of law were  expressly  exempted from taxation, renders the assessment invalid in toto,  will not  a ’ply in the present case for the simple  reason  that there is no wrongful inclusion of any item in the  amusement order.  If the exemption goes, then the respondent has  been rightly assessed on his total turnover.  It is only when the respondent is entitled to the exemption claimed that he  can say  that  the assessment is bad and must be  quashed.   The respondent   can   claim   the   exemption   only   if   the interpretation  put  by the High Court on  the  notification dated  January  28, 1956 is accepted as  correct.   If  that interpretation  is  not correct, then this  appeal  must  be allowed  even  if the notification is bad by reason  of  the provisions of Art. 304(a) of the Constitution. For the reasons given above, we would allow the appeal,  set aside  the  judgment  and- order of  the  High  Court  dated December  14,  1949  and dismiss  the  writ  petition.   The appellants will be entitled to their costs throughout. Appeal allowed. 716