http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3  

PETITIONER: STATE OF UTTAR PRADESH & ANR.

       Vs.

RESPONDENT: M/S. LAXMI PAPER MART & ORS.

DATE OF JUDGMENT:       04/02/1997

BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                THE 4TH DAY OF FEBRUARY, 1997 Present :            Hon‘ble Mr. Justice B.P. Jeevan Reddy            Hon‘ble Mr. Justice K.S. Paripoornan R.C. Verma and R.B. Mishra, Advs. for the appellants V. Adhiyarujina,  Solicitor General  and Subrat  Birla, Adv. with him for the Union of India H.K. Puri, Adv. for the Respondent                       J U D G M E N T      The following judgment of the Court was delivered :                       J U D G M E N T B.P.JEEVAN REDDY, J.      A simple  measure by  the State  of Utter  Pradesh  has invited the  wrath of  Article 301  read with 304 (a) of the Constitution of  India. Tow notifications were issued by the Government of  Utter Pradesh on December 1, 1973. The effect of these two notifications was that exercise books made from paper purchased  within Uttar Pradesh were exempt from sales tax whereas all other kinds of exercise books were liable to sales tax  @ 5%.  The High Court dealt with three categories of cases,  (1) exercise  books  made  from  paper  purchased within Uttar  Pradesh. [Sale  of paper  within Uttar Pradesh attracted sale  tax @  5%.], (2) exercise books made outside the   State of  Uttar Pradesh  and brought  into and sold in Uttar Pradesh  and (3)  exercise books made in Uttar Pradesh but out  of the  paper purchased  from outside  the State of Uttar Pradesh.  The High  Court has held that insofar as the second category  is concerned, it is hit by Article 301 read with Article  304 (a).  So for  as  the  third  category  is concerned the  High Court  did not  find fault  with it.  It declared that  "Notification No.  6624 insofar as it imposes sales tax  on the  import of  exercise books is violative of Article 301 of the Constitution and is unenforceable". Since There is  no appeal  by the dealer, we need nor consider the question whether the decision of the High Court with respect to  third  category  is  correct  or  not.  We  confine  out attention only  to Category  (2), i.e.,  exercise books made outside the State of Utter Pradesh and brought into and sold in Uttar Pradesh.      In our  opinion, the  High Court  was right  in holding

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3  

that exempting  the exercise books produced in the State and subjecting the exercise books produced outside the State but sold in  Uttar Pradesh  to Sales  tax @ 5% is discriminatory and, therefore,  offends clause  (a)  of  Article  304.  The decision of  this Court in Firm A.T.M. Mehtab Majid & Co. V. State of Madras [1963 suppl. (2) S.C.R. 435] clearly governs the issue.  The said  decision considered  a situation where the State  of madras  subjected the  Tanned Hides  and skins imported from  outside the  state of  Madras and sold within the State  of madras  to a  Higher rate  of Tax than the tax imposed on  hides or  skins tanned and sod within the State. [It had  also subjected  the hides  or skins  imported  from outside the  State after purchase in their raw condition and then tanned  inside the  State to  a higher rate of Tax than the hides  or skins  purchased in raw condition in the State and tanned  in the  State] the following holding in the said decision is relevant:      "It is  therefore now  well settled      that taxing law can be restrictions      on trade, commerce and intercourse,      if they  hamper the  flow of  trade      and if  they are  not what  can  be      termed to  be compensatory taxes or      regulatory measures.  Sales tax, of      the kind  under consideration hare,      cannot be  said  to  be  a  measure      regulating   any    trade   or    a      compensatory tax levied for the use      of trading  facilities.  Sale  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  Art.      301 and  will be  valid only  if it      comes within  the terms of Art. 304      (a).           Article 304  (a)  enables  the      Legislature of a State to make laws      affecting   trade,    commerce   or      intercourse.    It    enable    the      imposition of  taxes on  good  from      other States  if similar  goods  in      the State are subjected to similiar      taxes, so  as not  to  discriminate      between the  goods manufactured  or      produced  in  that  State  and  the      goods which are imported from other      States.  This  means  that  if  the      effect of  the sale-tax  on  tanned      hides  or   skins   imported   from      outside is  that the latter becomes      subject to  a  higher  tax  by  the      application of  the proviso to sub-      rule of  r. 16  of the  Rules, then      the  tax   is  discriminatory   and      unconstitutional and must be struck      down."      Clause (a)  of Article 304 has recently been considered in Shree  Mahavir Oil  Mills &  Anr. V.  state  of  Jammu  & Kashmir [JT.  (1996) 10 S.C. 837] wherein it was pointed out that clause  (a) of  Article 304  "though worded in positive language has a negative aspect. It is, in truth, a provision prohibiting discrimination  against the  imported goods.  In the Matter  of levy of tax- and this is important to bear in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3  

mind - the clause tells the State Legislatures: ’tax you may the goods  imported from other States/Union Territories, but do not, in that process, discriminate against them vis-a-vis goods manufactured locally’. In short, the clause says: levy of tax on both ought to be at the same rate. This was and is a ringing  declaration against  the States creating what may be called "tax barriers’ - or ’fiscal barriers’, as they may be called - at or along their boundaries, in the interest of freedom of  trade, commerce  and intercourse  throughout the territory of  India guaranteed  by Article  301."  Once  the discrimination is  made out,  the enquiry by court ends. The price structure  of the  imported good vis-a-vis the locally manufactured goods or the economics of the importer need not be gone into.      The appeal  is accordingly  dismissed. No  order as  to costs.