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PETITIONER: VIDEO ELECTRONICS PVT. LTD. AND ANR. ETC. ETC.

       Vs.

RESPONDENT: STATE OF PUNJAB & ANR. ETC. ETC.

DATE OF JUDGMENT22/12/1989

BENCH: MUKHARJI, SABYASACHI (CJ) BENCH: MUKHARJI, SABYASACHI (CJ) RANGNATHAN, S. VERMA, JAGDISH SARAN (J)

CITATION:  1990 AIR  820            1989 SCR  Supl. (2) 731  1990 SCC  (3)  87        JT 1989  Supl.    457  1989 SCALE  (2)1483

ACT:     U.P.  Sales  Tax Act, 1948--Sections 4A, 5A and  48  and Notification  dated  January  29,  1985  and  December   26, 1985--Constitutional  validity of Manufacturers of goods  in state--No liability to pay tax-Dealers selling goods import- ed from outside state---liable to pay tax-whether  discrimi- natory, legal and permissible.     Constitution of India 1950--Articles 14, 19, 38, 39, 301 and  304-Sales Tax Law--Manufacturers of goods in the  state exempted  from  Sales Tax--Non-manufacturer  of  same  goods importing  goods and selling--Liable to  sales  tax--Whether valid, legal and constitutional.

HEADNOTE:     A common question of law having arisen for determination in  these petitions filed under Article 32 of the  Constitu- tion, they are disposed of by a Common Judgment, though  the petitioners--dealers are different and carry on their  busi- ness in different states and have challenged the  respective provisions of law by which their cases are governed.     The  petitioners in WP 803/88 carry on the  business  of selling  cinematographic  Idms  and  other  equipments  like projector, sound recording and reproducing equipments, X-Ray films etc. in the State of U.P. and in Delhi. The  petition- ers receive these goods from their manufacturers outside the State of U.P. In U.P. there is a single point levy of  Sales Tax.     The  State  of Uttar Pradesh  issued  two  notifications under  section  4A of the Uttar Pradesh Sales  Tax  Act  and under  Section 8(5) of the Central Sales Tax  Act  exempting new units of manufacturers as defined in the Act in  respect of the various goods for different periods ranging from 3 to 7 years, from payment of Sales Tax. The petitioners by these petitions  challenge  the constitutional validity  of  these Notifications. They have also challenged the  constitutional validity  of section 4A of the Uttar Pradesh Sales  Tax  Act and  sections  8(5) of the Central Sales Tax  Act,  and  the proceedings taken by the Respondent under section 5A of 732 the  said Act. The case of the petitioners is that they  are

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discriminated  on  account  of these  notifications  as  the manufacturers covered by these Notifications are entitled to sell the articles manufactured by them without liability  to pay  sales-tax while the manufacturers in other  states  and non-manufacturers of the same article selling the same goods in  the  State are liable to pay sales tax under  the  local Sales  Tax Act as well as under the Central Sales  Tax  Act. Their contention, therefore, is that they became subject  to gross  discrimination  and their business was  crippled.  In these  premises the petitioners challenge the provisions  as ultra  vires the constitution being violative of the  provi- sions of Articles 301 to 305 of part III of the Constitution as also Articles 14 and 19 of the Constitution.     The  Respondents counter the assertion of the  petition- ers.  According  to them the contention put forward  by  the petitioners  ignores the basic features of the  Constitution and also the fact that the concept of economic unity may not necessarily be the same as it was at the time of the Consti- tution making; the state which was technically and  economi- cally  weak in 1950 cannot be allowed to remain in the  same state  of affairs. The state has to give subsidy  and  grant exemptions/concessions  for the economic development of  the state to new industries. It was urged that if all the states are economically strong or developed then only can  economic unity as a whole be assured or strengthened. Dismissing the petitions, this Court, HELD:  Sales Tax Laws in all the States provide  for  exemp- tion.     Power  to  grant  exemption is inherent  in  all  taxing Legislations. Economic unity is a desired goal.  Development on  parity  is one of the commitments of  the  Constitution. Directive Principles enshrined in Articles 38 and 39 must be harmonised with economic unity as well as economic  develop- ment of developed and under-developed area. [756H; 757A-B]     Taxes may sometime amount to restrictions but it is only such  taxes as directly and immediately restrict trade  that would fail within the mischief of Art. 301. [740E]     See Atiabari Tea Co. Ltd. v. The State of Assam &  Ors., [1961]  1 SCR 809 and Automobile Transport (Rajasthan)  Ltd. v. The State of Rajasthan & Ors., [1963] 1 SCR 491. The taxes which do not directly and immediately restrict or 733 interfere  with trade, commerce and  intercourse  throughout the territory of India would therefore be excluded from  the ambit  of Art. 30 1 of the Constitution. It has to be  borne in mind that sales tax has only an indirect effect on  trade and commerce. [747F]     In  the  instant case, the general  rate  applicable  to locally  made goods is the same as that on  imported  goods. Even  supposing without admitting that Sales Tax is  covered by Art. 301 as a tax directly and immediately, hampering the free flow of trade, it does not follow that it fails  within the exemption of Art. 304 and it would be hit by Art. 30  1. Still the general rate of tax which is to be compared  under Art.  304(a)  is at par, and the same qua the  locally  made goods and the imported goods. [751G-H]     Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What constitutes an economic barrier at one point of time often ceased to be so at anoth- er  point of time. It will be wrong to denude the people  of the  state of the right to grant exemptions which flow  from the  plenary powers of legislative heads in List III of  the 7th Schedule of the Constitution. [752A-B]     Basically  the concept of equality embodied in  Articles 304(a)  and  16 are the same. Article 14  enjoins  upon  the

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state  to  treat  every person equal before  the  law  while Article  304(a) enjoins upon the state not  to  discriminate with respect to imposition of tax on imported goods and  the locally made goods. [753C]     It  is not that with changing times the meaning  changes but changing times illustrate and illuminate the meaning  of the  expressions  used. The connotation of  the  expressions used  takes its shape and colour in evolving dynamic  situa- tions. [757B-C]     James  v.  Commonwealth of Australia, [1936] AC  578  at 613;  Firm  A.T.B. Mehtab Majid & Co. v. State of  Madras  & Anr., [1963] 2 Suppl. SCR 435; A. Hajee Abdul Shakoor &  Co. v. State of Madras, [1964] 8 SCR 217 at 225; State of Madras v.  N.K. Nataraja Mudaliar, [1968] 3 SCR 829 at 847;  Andhra Sugars  Ltd. & Anr. etc v. State of Andhra Pradesh  &  Ors., [1968]  1  SCR  705; Bengal Immunity Co. Ltd.  v.  State  of Bihar,  [1955] 2 SCR 603 at 754; State of Madhya Pradesh  v. Bhailal Bhai & Ors., [1964] 6 SCR 261 at 268-9; Rattan Lal & Co.  & Anr. v. The Assessing Authority & Anr., [1969] 2  SCR 544 at 557; India Cement & Ors. v. State of Andhra Pradesh & Ors.,  [1988] 1 SCC 743; Weston Electroniks & Anr. v.  State of Gujarat & Ors., [1988] 2 SCC 734 568  at 571; C.A.F. Seeling Inc. v. Charles H.  Baldwin,  79 L.Ed.  2d  1033 at 1038; Smt. Ujjam Bai v.  State  of  U.P., [1963]  1 SCR 778 at 851; Coffee Board, Bangalore  v.  Joint Commercial  Tax Officer, Madras & Anr., [1970] 3 SCR 147  at 156; V. Guruviah Naidu & Sons v. State of Tamil Nadu & Anr., [1977]  1 SCR 1065 at 1070; Kathi Raning Rawat v. The  State of  Saurashtra, [1952] SCR 435; Kalyani Stores v. The  State of  Orissa & Ors., [1966] 1 SCR 865; Bharat General  &  Tex- tiles  Industries Ltd. v. State of Maharashtra, 72 STC  354; H. Anraj v. Government of Tamil Nadu, [1986] 1 SCC 414; West Bengal Hosiery Assn. & Ors. v. State of Bihar & Anr., [1988] 4 SCC 134; State of U. P. & Ors. v. Babu Ram Upadhya, [1961] 2  SCR 679 at 702; State of Tamil Nadu, v. Hind Stone  etc., [1981]  2 SCR 742 at 757; State of Mysore v. H.  Sanjeeviah, [1967]  2  SCR 361; Kailash Nath & Anr. v. State of  U.P.  & Ors., AIR 1957 SC 790 at 791; State of U.P. & Ors. v.  Renu- sagar Power Co. & Ors., [1988] 4 SCC 59 at 100; M/s Narinder Chand  Hem Raj & Ors. v. Lt. Governor, Administrator,  U.T., Himachal Pradesh & Ors., [1971] 2 SCC 747 at 751 and Associ- ated  Tanners Vizianagram A.P.v.C.T.O., Vizianagram,  Andhra Pradesh & Ors., [1986] 1 SCR 969, reffered to.

JUDGMENT: ORIGINAL JURISDICTION: Writ Petition No. 665 of 1988 (Under Article 32 of the Constitution of India).     Sanjay  Parikh,  M.L. Sachdev, C.S.  Vaidyanathan,  S.R. Bhat,  S.R. Setia, S.C. Dhanda, H.K. Puri, Harish N.  Salve, Rajiv  Dutta, Anil Kumar and Sultan Singh for the  Petition- ers.     Raja  Ram  Agarwal, S.C. Manchanda,  G.L.  Sanghi,  A.S. Nambiar, Ashok K. Srivastava, R.S. Rana, P.G. Gokhale,  B.R. Agarwala,  R.B.  Hathikhanawala, C.M. Nayar,  P.K.  Manohar, P.N.  Misra,  Ms. Halida Khatoon and Santhanam for  the  Re- spondents.     G.L. Sanghi, Ms. Vrinda Grover, Miss Seita Vaidialingam, Kailash Vasudev and A.C. Gulathi for the Intervenor. The Judgment of the Court was delivered by     SABYASACHI  MUKHARJI,  CJ. In these several  writ  peti- tions, we are concerned with the question of harmonising the power of different States in the Union of India to legislate

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and/or give 735 appropriate directions within the parameters of the subjects in list II of the 7th Schedule of the Constitution with  the principle  of economic unity envisaged in Part XIII  of  the Constitution of India. We are also concerned with the provi- sions  of exemption, encouragement/incentives given by  dif- ferent States to boost up or help economic growth and devel- opment  in those States, and in so doing the attempt of  the States to give preferential treatment to the goods  manufac- tured or produced in those States. The question  essentially is  the same in all the matters but the question has  to  be appreciated  in the context of the provisions and  the  fact situation  of  the different States involved in  these  writ petitions. It would, therefore, be appropriate to first deal with writ petition No. 803/88 (Niksin Marketing Associate  & Ors. v. Union of India & Anr.) which is under article 32  of the Constitution by four petitioners.     Petitioner  No. 1 in W’.P. No. 803/88 is  a  partnership firm carrying on business in New Delhi. Petitioner No. 2  is its  partner  and petitioner No. 3  is  another  partnership business  carrying on business at Kanpur in U.P.  consisting of  petitioner No. 4 and other partners. The petition  chal- lenges  the constitutional validity of notification No.  ST- II7558/X-9(208)-1981  U.P.  Act XV-48 order  85  dated  26th December,  1985 issued by Uttar Pradesh Govt. u/s 4A of  the Uttar Pradesh Sales Tax Act, 1948. A prior notification  No. ST-II/604-X-9(208)-198  1 U.P. Act XV-48-Order 85  dt.  29th January,  1985 was superseded by the aforesaid  notification dt.  26th December, 1985. It also challenges  the  constitu- tional validity of notification No. ST-II/8202/X-9(208)-1981 issued by Uttar Pradesh Govt. u/s 8(5) of the Central  Sales Tax  Act, 1956 which superseded a previous notification.  It also challenges the constitutional validity of s. 4A of  the Uttar Pradesh Sales Tax Act, 1948 as substituted by U.P. Act 22  of 1984 and also s. 8(5) of the Central Sales  Tax  Act, 1956  and consequentially all actions and proceedings  taken by the respondent u/s 5A of the said Act. The respondents to this  application are the State of Uttar Pradesh, the  Union of India, and the Commissioner of Sales Tax, Uttar Pradesh.     It is stated that the petitioners carry on the  business of  selling cinematographic films and other equipments  like projectors,  sound  recording  and  reproducing   equipment, industrial X-ray films, graphic art films, Photo films  etc. in the State of Uttar Pradesh and in Delhi. The  petitioners sell  the goods upon receiving these from the  manufacturers from outside the State of U.P. They are dealers on behalf of those  manufacturers. The petitioners are dealers of  Hindu- stan Photo Films Mfg. Co. Ltd., a Government of India under- taking. In 736 U.P. there is a single point levy of sales taX. The State of U.P.  had issued two notifications u/s 4A of the U.P.  Sales Tax Act and u/s 8(5) of the Central Sales Tax Act  exempting new units of manufacturers as defined in the Act in  respect of the various goods for different periods ranging from 3 to 7  years as the case may be, from payment of any sales  tax. These  notifications are annexed and terms thereof  are  set out in annexures A- 1 & B- 1 to the writ petition. The  notification  dated 26th December, 1985  stated,  inter alia:               "The  Governor  is pleased to direct  that  in               respect of any goods manufactured in an indus-               trial unit, which is a new unit as defined  in               the  aforesaid Act of 1948 established in  the

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             areas mentioned in column 2 of the Table given               below, the date of starting production whereof               falls  on or after the first day  of  October,               1982  but not later than 31st March, 1990,  no               tax  under the aforesaid Act of 1956 shall  be               payable  by  the manufacturer thereof  on  the               turnover of sales on such goods for the period               specified  in  column 3  against  each,  which               shall be reckoned from the date of first  sale               if  such  sale takes place not  later  than  6               months  from the date of  starting  production               subject to certain conditions mentioned."     It  is not necessary to set out the conditions.  In  the annexure several districts have been mentioned. In column  2 categories have been made for exemption and have been divid- ed  in 2 categories, one in case of units with  capital  in- vestment  not  exceeding 3 lakhs of rupees  and  another  in cases of the units with capital investment exceeding 3 lakhs of rupees. For one the period of exemption is 5 years  while for  the latter it is 7 years. Period of  exemption  various from  3  to  7 years in different districts.  More  or  less similar  were the terms of notification dated  29th  January 1985.     The  case of the petitioners is that they did  not  ini- tially feel the adverse effects or discrimination on account of  these  notifications.  Petitioners point  out  that  the manufacturers covered by the said notification are  entitled to sell the articles manufactured by them without  liability to pay sales tax while the manufacturers in other States and non-manufacturers of the same article selling the same goods in  the  State are liable to pay sales tax under  the  local Sales  Tax Act as well as under the Central Sales  Tax  Act. The  petitioners  found that they had become liable  to  pay sales tax on their sales at 12% + 10% surcharge 737 (13.2%)  under  the U.P. Sales Tax Act on  photographic  and graphic  arts  material and @ 8% + 10% surcharge  (8.8%)  on medical  x-ray films and chemicals and a minimum of  10%  on their inter-State turnover whereas the manufacturers in  the State  of  U.P. and their dealers had no  tax  liability  by virtue of the exemption granted under the impugned notifica- tions.  Thus the petitioners contend that the goods sold  by them became costlier by 8.8% to 13.2% depending on the  item sold compared to the goods of manufacturers in the State  of U.P. They had given a chart illustrating the position. They, hence, contended that they became subject to gross discrimi- nation and their business was crippled and wanted to sustain the  said contention by referring to a chart  showing  gross sale prices of the products in diverse States. In the  prem- ises  the  petitioners challenge these provisions  as  ultra vires  of the Constitution of India, the  rights  guaranteed under part XIII as also under articles 14 & 19(l)(g) of  the Constitution.     The  question is, are these notifications valid,  proper and  sustainable in the light of part XIII of the  Constitu- tion of India judged in the background of the said articles. Appearing  in support of the petition, Mr. Sanjay Parikh  in writ petitions Nos. 790,665 and 1939-40/88, Mr. C.S.  Vaidy- nathan and Mr. S.C. Dhanda in writ petition No. 761/88,  Mr. Harish  N.  Salve for the petitioners in writ  petition  No. 803/88.  Miss Seita Vaidialingam, Mr. G.L.  Sanghi,  Kailash Vasudev for the intervenors. Mr. Raja Ram Agarwal, Mr.  G.L. Sanghi and Mr. Nambiar for the State of U.P. and respondents have made their elaborate submissions. These petitions  have been heard together.

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   Apart  from the submission that the provisions  impugned violate  articles 19(l)(g) and 14 of the  Constitution,  and are  in violation of the principles of natural justice,  the main  challenge  to these provisions by Mr. Salve  was  that they violated the provisions of articles 301 to 305 of  Part XIII  of  the Constitution of India. The contention  of  the petitioners  was that, subject to other provisions  of  Part XIII, trade, commerce and intercourse throughout the  terri- tory  of India was enjoined to be free. Article 302  of  the Constitution  empowers the Parliament by law to impose  such restrictions  on  the freedom of trade, commerce  or  inter- course  between one State and another or within any part  of the  territory  of India as may be required  in  the  public interest.  Article  303 indicates the  restrictions  on  the legislative  powers of the Union and the States with  regard to trade and commerce, and stipulates that,  notwithstanding anything  contained in article 302, neither  Parliament  nor the  legislature of the States shall have power to make  any law  giving or authorising the giving of any  preference  to one State 738 over  another  or making or authorising the  making  of  any discrimination  between one State and another by  virtue  of any entry relating to trade and commerce in any list of  the 7th  Schedule.  Sub-clause (2) of article 303  enjoins  that nothing  in clause (1) shall prevent Parliament from  making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any  discrimination if it is declared by such law that it is necessary to do  so for  the  purpose of dealing with a situation  arising  from scarcity  of  goods in any part of the territory  of  India. Article  304 deals with restrictions on trade, commerce  and intercourse among States, which 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) impose such reasonable restrictions on the               freedom of trade, commerce or intercourse with               or within that State as may be required in the               public interest;               Provided  that  no Bill or amendment  for  the               purposes of clause (b) shall be introduced  or               moved  in the Legislature of a  State  without               the previous sanction of the President."     Article 305 saves certain existing laws and laws provid- ing for State monopolies.     Our attention was drawn to the decision of this Court in Atiabari Tea Co. Ltd. v. The State of Assam & Ors., [1961] 1 SCR  809.  There  this Court was concerned  with  the  Assam Taxation  (on goods carried by Roads and  Inland  Waterways) Act, 1954 which was passed under entry 56 of list II of  the 7th  Schedule  to the Constitution. The  appellants  therein contended  that  the Act had violated the freedom  of  trade guaranteed by article 301 of the Constitution and as it  was not  passed  after obtaining the previous  sanction  of  the President as 739

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required by art. 304(b), it was ultra vires. The  respondent therein had urged that taxing laws governed only by Part XII and  not Part XIII (which contained articles 301 & 304)  and in the alternative that the provisions of Part XIII  applied only  to  such legislative entries in the  7th  Schedule  as dealt  specifically  with trade, commerce  and  intercourse. Gajendragadkar, Wanchoo and Das Gupta, JJ. held that the Act violated  art.  301  and since it did not  comply  with  the provisions  of art. 304(b) it was ultra vires and  void.  On the  contrary, Chief Justice Sinha held that the  Assam  Act did not contravene art. 301 and was not ultra vires. Accord- ing  to the learned Chief Justice, neither the  one  extreme position  that art. 301 included freedom from  all  taxation nor  the other that taxation was wholly outside the  purview of  art. 301 was correct; and that the freedom conferred  by art. 301 did not mean freedom from taxation simpliciter  but only  from the erection of trade barriers, tariff walls  and imposts  which had a deleterious effect on the free flow  of trade,  commerce and intercourse. Justice Shah on the  other hand  expressed  the view that the Assam Act  infringed  the guarantee  of freedom of trade and commerce under  art.  301 and as the Bill was not moved with the previous sanction  of the President as required by art. 304(b) nor was it validat- ed by the assent of the President under art. 255(c), it  was ultra vires and void.     In construing the provisions with which we are concerned herein,  in  our opinion, it is instructive to  remind  our- selves,  as was said in James v. Commonwealth of  Australia, [19361  AC  578 at 613, that the relevant provision  of  the Constitution has to be read not in vacuo but as occurring in a  single  complex instrument in which one  part  may  throw light  on another, and therefore, Gajendragadkar, J. as  the learned  Chief Justice then was, at p. 860 of the  said  re- port, rightly in our opinion. posed the problem as follows:               "In  construing Art. 301 we  must,  therefore,               have  regard  to  the general  scheme  of  our               Constitution as well as the particular  provi-               sions in regard to taxing laws. The  construc-               tion of Art. 301 should not be determined on a               purely academic or doctrinaire considerations;               in construing the said Article we must adopt a               realistic approach and bear in mind the essen-               tial  features of the separation of powers  on               which our Constitution rests. It is a  federal               constitution which we are interpreting, and so               the impact of Art. 30 1 must be judged accord-               ingly. Besides, it is not irrelevant to remem-               ber in this connection that the Article 23 are               construing imposes a constitutional limitation               on the power of               740               the Parliament and State Legislatures to  levy               taxes, and generally, but for such limitation,               the power of taxation would be presumed to ,be               for  public good and would not be  subject  to               judicial  review or scrutiny. Thus  considered               we think it would be reasonable and proper  to               hold  that restrictions freedom from which  is               guaranteed by Art. 301, would be such restric-               tions as directly and immediately restrict  or               impede  the  free flow or movement  of  trade.               Taxes  may and do amount to restrictions;  but               it is only such taxes as directly and  immedi-               ately  restrict trade that would  fall  within               the  purview of Art. 30 1. The  argument  that

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             all  taxes  should  be governed  by  Art.  301               whether or not their impact on trade is  imme-               diate or mediate, direct or remote, adopts, in               our opinion, an extreme approach which  cannot               be upheld. If the said argument is accepted it               would mean, for instance, that even a legisla-               tive  enactment prescribing the minimum  wages               to  industrial employees may fall  under  Part               XIII because in an economic sense an addition-               al  wage bill may indirectly affect  trade  or               commerce. We are, therefore, satisfied that in               determining the limits of the width and ampli-               tude  of the freedom guaranteed by Art. 301  a               rational and workable test to apply would  be:               Does the impugned restriction operate directly               or immediately on trade or its movement?"     It is in that light we must examine the impugned  provi- sion.  It  is necessary to bear in mind that taxes  may  and sometimes  do  amount to restrictions but it  is  only  such taxes as directly and immediately restrict trade that  would fall  within the mischief of art. 301. Mr.  Salve,  however, rightly  reminded  us that regulatory measures  or  measures imposing compensatory taxes for using trading facilities  do not  come  within the purview of  restrictions  contemplated under art. 301. Here, it is necessary to refer to the  deci- sion  of this Court in the Automobile Transport  (Rajasthan) Ltd.  v.  The State of Rajasthan & Ors., [1963]  1  SCR  491 which was a decision of a bench of this Court consisting  of 7 learned Judges, and was concerned with the Rajasthan Motor Vehicles Taxation Act, 1951. Sub-section (1) of s. 4 of that Act  provided  that no motor vehicle shall be  used  in  any public  place or kept for use in Rajasthan unless the  owner thereof had paid in respect of it, a tax at the  appropriate rate specified in the schedules to that Act within the  time allowed.  The appellants therein were carrying on the  busi- ness  of plying stage carriages in the State of Ajmer.  They held permits and plied their buses on diverse routes.  There was one route which lay 741 mainly  in Ajmer State but it crossed narrow strips  of  the territory of the State of Rajasthan. Another route, Ajmer to Kishangarh,  was  substantially in the Ajmer  State,  but  a third of it was in Rajasthan. Formerly, there was an  agree- ment between the Ajmer State and the former State of Kishan- garh,  by  which neither State charged any tax  or  fees  on vehicles  registered in Ajmer or Kishangarh. Later,  Kishan- garh  became  a  part of Rajasthan. On the  passing  of  the Rajasthan Motor Vehicles Taxation Act, 1951, and the promul- gation  of  the rules made thereunder,  the  Motor  Vehicles Taxation Officer, Jaipur, demanded of the appellants payment of  the tax due on their motor vehicles for the period  from April  1, 1951 to March 31, 1954. The appellants  challenged the  legality of the demand on the grounds that s. 4 of  the Act read with the Schedules constituted a direct and immedi- ate  restriction on the movement of trade and commerce  with and  within Rajasthan inasmuch as motor vehicles which  car- ried passenger and goods within or through Rajasthan had  to pay  tax  which  imposed a pecuniary  burden  on  commercial activity and was therefore hit by art. 301 of the  Constitu- tion and was not saved by Art. 304(b) inasmuch as the provi- so  to  Art. 304(b) was not complied with, nor was  the  Act assented to by the President within the meaning of art.  255 of  the Constitution. It was held by Das, Kapur, Sarkar  and Subba  Rao,  JJ. as the learned Judges then were,  that  the Rajasthan Motor Vehicles Taxation Act, 1951 did not  violate

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the provisions of art. 301 of the Constitution of India  and that  the taxes imposed under the Act were  compensatory  or regulatory taxes which did not hinder the freedom or  trade, commerce and intercourse assured by that article. Das, Kapur and  Sarkar, JJ. held that the concept of freedom of  trade, commerce  and  intercourse postulated by art.  301  must  be understood in the context of an ordinary society and as part of  a Constitution which envisaged a distribution of  powers between the States and the Union, and if so understood,  the concept  must  recognise  the need and  legitimacy  of  some degree  of regulatory control, whether by the Union  or  the States. Mr. Justice Subba Rao, as the learned Chief  Justice then was, observed that the freedom declared under art. 30 1 referred to the right of free movement of trade without  any obstructions by way of barriers, inter-State or intra-State, or  other  impediments operating as such barriers;  and  the said freedom was not impeded, but on the other hand, promot- ed, by regulations creating conditions for the free movement of  trade,  such   as, police  regulations,  provisions  for services,  maintenance of roads, provision  for  aerodromes, wharfs etc., with or without compensation. Parliament may be law  impose restrictions, it was stated, on such freedom  in the  public  interest, and the States also, in  exercise  of their legislative power, may impose similar restrictions, 742 subject  to the proviso mentioned therein. Laws of  taxation were not outside the freedom enshrined either in Art. 19  or 301. Mr. Justice Hidayatullah, as the learned Chief  Justice then  was, and Rajagopala Ayyangar and Mudholkar,  JJ.  held that  s. 4(1) of the Rajasthan Motor Vehicles Taxation  act, 195  1 offended art. 301 of the Constitution, and as  resort to the procedure prescribed by art. 304(b) was not taken  it was ultra vires the Constitution. The pith and substance  of the  Act was the levy of tax on motor vehicles in  Rajasthan or  their use in that State irrespective of where the  vehi- cles came from and not legislation in respect of inter-State trade or commerce. A tax which is made the condition  prece- dent  of the right to enter upon and carry on business is  a restriction  on  the right to carry on  trade  and  commerce within  art. 30 1 of the Constitution. The tax levied  under the Act was not truly a fair recompense for wear and tear of roads but a restriction which art. 30 1 forbade. The act was not,  in  its  true character, regulatory.  In  judging  the situation it would be instructive to bear in mind the obser- vations  of Mr. Justice Das at p. 5 12 of the report,  where he  observed that in evolving an integrated policy  on  this subject  our Constitution makers seem to have kept  in  mind three main considerations which may be broadly stated  thus: first,  in the larger interests of India there must be  free flow  of trade, commerce and intercourse,  both  inter-State and intra-State; second, the regional interests must not  be ignored  altogether;  and third, there must be  a  power  of intervention by the Union in any case of crisis to deal with particular problems that may arise in any part of India.  At p. 523 of the report, it was reiterated that for the tax  to become a prohibited tax it has to be a direct tax the effect of  which is to hinder the movement part of  trade.  Dealing with wide interpretation Justice Das observed at p. 523-5 of the said report as follows:               "The widest view proceeds on the footing  that               Art.  301  imposes a  general  restriction  on               legislative  power  and grants  a  freedom  of               trade,  commerce  and intercourse in  all  its               series of operations, from all barriers,  from               all restrictions, from all regulation, and the

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             only qualification that is to be found in  the               article is the opening clause, namely,               subject to the other provisions of Part  XIII.               This in actual practice will mean that if  the               State  Legislature wishes to control or  regu-               late trade, commerce and intercourse in such a               way  as  to facilitate its free  movement,  it               must  yet  proceed to make a  law  under  Art.               304(b)  and no such bill can be introduced  or               moved  in the Legislature of a  State  without               the  previous sanction of the  President.  The               practi-               743               cal effect would be to stop or delay effective               legislation  which may be urgently  necessary.               Take, for example, a case where in the  inter-               ests  of  public health, it  is  necessary  to               introduce urgently legislation stopping  trade               in goods which are deleterious to health, like               the  trade in diseased potatoes in  Australia.               If  the State Legislature wishes to  introduce               such a bill, it must have the sanction of  the               President.  Even such legislation  as  imposes               traffic regulations would require the sanction               of  the  President.  Such  an   interpretation               would,  in our opinion, seriously  affect  the               legislative  power of the  State  Legislatures               which  power has been held to be plenary  with               regard to subjects in list II."     Mr. Justice Subba Rao, as the learned Chief Justice then was,  at  page  550 of the report, observed that  if  a  law directly  and immediately imposes a tax for general  revenue purposes on the movement of trade, it would be violating the freedom.  The learned Judge reiterated that the  Court  will have  to ascertain whether the impugned law in a given  case affects directly the said movement or indirectly and remote- ly affects it.     Mr.  Salve, however, sought to contend that  as  regards the  local sales tax, there were broadly two  well  accepted propositions,  namely,  sales tax was a tax levied  for  the purpose  of  general  revenue. Secondly, it  was  neither  a compensatory  tax nor a measure regulating any trade.  Reli- ance was placed on the observations of Mr. Justice  Raghubar Dayal,  J.  in Firm A.T.B. Mehtab Majid & Co.  v.  State  of Madras  & Anr., [1963] 2 Suppl. SCR 435 but the  context  in which  the said observations were made has to  be  examined. That case dealt with a petition under art. 32 of the Consti- tution.  The petitioners therein were dealers in  hides  and skins in the State of Madras. The impugned sales tax assess- ment related to turnover sales tanned hides and skins  which had been obtained from outside the State of Madras. The main contention was that the tanned hides and skins imported from outside  and sold inside the State were, under r. 16 of  the Madras General Sales Tax Rules, subject to a higher rate  of tax than the tax imposed on hides and skins tanned and  sold within  the State and this discriminatory taxation  offended art.  304  of the Constitution. The contentions of  the  re- spondents  therein were that sales tax did not  come  within the  purview of art. 304(a) as it was not a tax on  the  im- port. of goods at the point of entry, that the impugned rule was  not a law made by the State legislature, that  the  im- pugned  rule by itself did not impose the tax but fixed  the single  point at which the tax was imposed by ss. 3 &  5  of the Act was to 744

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be  levied; and that the impugned rule was not made with  an eye  on the place of origin of the goods. It was  held  that taxing  laws  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 regulating measures.     Reliance  was also placed by Mr. Salve on  the  observa- tions of Justice Raghubar Dayal in A. Hajee Abdul Shakoor  & Co.  v. State of Madras, [1964] 8 SCR 2 17 at 225. See  also the observations in State of Madras v. N.K. Nataraja Mudali- ar,  [1968] 3 SCR 829 at 847 and Andhra Sugars Ltd.  &  Anr. etc.  v.  State of Andhra Pradesh & Ors., [1968] 1  SCR  705 where at p. 7 18 of the report it was reiterated that a sale tax  which discriminates against goods imported  from  other States may impede the free flow of trade and is then invalid unless  protected by art. 304(a). It is, however,  necessary to  bear in mind that in N.K.N. Mudaliar’s, case (supra)  at p. 850 Mr. Justice Bachawat after referring to several cases observed as follows:               "But, there can be no doubt that a tax on such               sales  would not normally offend Article  301.               That  Article  makes  no  distinction  between               movement from one part of the State to another               part  of the same State and movement from  one               State to another. Now, if a tax on intra-State               sale does not offend Article 301, logically, I               do  not see how a tax on inter-State sale  can               do so. Neither tax operates directly or  imme-               diately on the free flow of trade or the  free               movement  of the transport of goods  from  the               part  of the country to the other. The tax  is               on the sale. The movement is incidental to and               a consequence of the sale."     There was a reference in the said judgment to the obser- vations of Jagannathadas, J. in The Bengal Immunity Co. Ltd. v.  State of Bihar, [1955] 2 SCR 603 at 754 wherein  it  was stated:               "Now it is not disputed that a tax on a purely               internal sale which occurs as a result of  the               transportation  of goods from a  manufacturing               centre within the State to a purchasing market               within  the same State is clearly  permissible               and  not hit by anything in the  Constitution.               If  a sale in that kind of trade can bear  the               tax  and  is not a burden on  the  freedom  of               trade,  it  is difficult to see why  a  single               point  tax  on the same kind of sale  where  a               State boundary intervenes bet-               745               ween the manufacturing centre and the  consum-               ing  centres  need  be treated  as  a  burden,               especially  where  that tax is  ultimately  to               come out of the residents of the very State by               which  such sale is taxable. Freedom of  trade               and commerce applies as much within a State as               outside it. It appears to me again, with great               respect, that there is no warrant for treating               such  a tax as in any way contrary  either  to               the  letter  or the spirit of the  freedom  of               trade,  commerce  and’  intercourse   provided               under Article 301."     It  was  contended that the Central Sales  Tax  Act  ex- hypothesi violates art. 301 of the Constitution since it  is a tax on inter-State movement of goods. Shah, J. in  Mudali- ar’s case (supra) at p. 84 1 of the report observed that tax

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under the Central Sales Tax Act on interState sales, it must be noticed, is in its essence a tax which encumbers movement of  trade or commerce, if it--(a) occasions the movement  of goods from one State to another; (b) is effected by a trans- fer of documents of title to the goods during their movement from  one  State to another. It was contended by  Mr.  Salve that  by exempting the local manufacturers from  both  local and central sales tax, the State Govt. has clearly made  the imposition of both local and central sales tax discriminato- ry and prejudicial to outside goods. The goods of the  local manufacturer, when sold by him, do not bear any tax  whereas the  goods imported from outside the State have to bear  the burden  of sales tax. It was also contended that  similarly, the  goods of a ’local manufacturer, when exported from  the State  of U.P. do not have to bear tax, while goods  brought into the State of U.P. and further ex- , ported in  competi- tion with the local goods have to bear the tax, so there  is clear discrimination against goods produced by manufacturers situated  outside the State. The discrimination  within  the meaning of art. 301 read with art. 304 arises where there is a difference in the rates of sales tax levied, it was sought to be emphasised by Mr. Sanjay Parikh for some of the  peti- tioners. This proposition has been reiterated by this  Court in  a  large number of cases, according to counsel,  and  we were referred to the observations in State of Madhya Pradesh v. Bhailal Bhai & Ors., [1964] 6 SCR 261 at 268-9 and Mudal- iar’s case (supra) where at p. 847 Shah, J. reiterated  that imposition of differential rates of tax by the same State on goods  manufactured  or produced in the  State  and  similar goods imported in the State is prohibited under art. 304(a). It  was also reiterated by this Court in Rattan Lal & Co.  & Anr. v. The Assessing Authority & Anr., [1969] 2 SCR 544  at 557 dealing with the Punjab General Sales Tax Act that  when a  taxing  State was not imposing rates of tax  on  imported goods different from the rates of 746 tax  on  goods  manufactured or produced, art.  304  had  no application. So long as the rate was the same, art. 304  was satisfied.  Reference  was made to India Cement  &  Ors.  v. State of Andhra Pradesh & Ors., [1988] 1 SCC 743, whereas at p.  759  this Court observed that variation of the  rate  of inter-state sales tax did affect free trade and commerce and created a local preference which was contrary to the scheme- of Part XIII of the Constitution. To similar effect are  the observations  to which Mr. Sanjay Parikh has referred us  in Weston  Electronics  &  Anr. v. State  of  Gujarat  &  Ors., [1988]  2 SCC 568 at 571. Mr. Salve strongly relied  on  the observations  of Justice Cardozo in C.A.F. Seeling  Inc.  v. Charles  H.  Baldwin, 79 L. Ed. 2d 1033 at  1038  where  the learned Judge observed while he was dealing with Art. (1) s. 8, clause (3) of the American Constitution which is known as the  ’Commerce Clause’--"This part of the  Constitution  was framed  under  the dominion of a political  philosophy  less parochial  in range. It was framed upon the theory that  the peoples of the several States must sink or swim together and that  in the long run prosperity and salvation are in  union and not division". This passage has been cited with approval in this Court in Atiabari’s case (supra) by  Gajendragadkar, J. as aforesaid.     We  were  referred to the observations  of  Firm  A.T.B. Mehtab Majid & Co.s case [1963] 2 Suppl. SCR 435 at 445.  It was  contended that the acceptance of the petitioner’s  case would  not conflict with the plenary power of the  State  to grant exemptions under the Act because statutory powers have to  yield  to  constitutional  inhibitions  and,  therefore,

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article  304(a) & (b) being envisaged to safeguard the  eco- nomic  unity of the country, these must have precedence.  It was  also contended that the petitions under art.  301  read with 304(a) are clearly maintainable.     Reliance was placed in Smt. Ujjam Bai v. Stale of  U.P., [1963]  1  SCR 778 at 85 1 and Coffee  Board,  Bangalore  v. Joint  Commercial Tax Officer, Madras & Anr., [1970]  3  SCR 147  at  156.  In light of these, it was  contended  by  the petitioners  that  the  petition under art.  32  is  clearly maintainable.     The  question  as we see is, how to harmonise  the  con- struction of the several provisions of the Constitution.  It is  true that if a particular provision being taxing  provi- sion  or otherwise impedes directly or immediately the  free flow  of  trade within the Union of India then  it  will  be violative of art. 301 of the Constitution. It has further to be borne in mind that art. 301 enjoins that trade,  commerce and 747 intercourse throughout the territory of India shall be free. The  first question, therefore, which one has to examine  in this  case is, whether the sales tax  provisions  (exemption etc.)  in these cases directly and immediately restrict  the free  flow of trade and commerce within the meaning of  art. 30  1  of the Constitution. We have examined the  scheme  of art.  30  1 of the Constitution read with art. 304  and  the observations  of  this  Court in  Atiabari’s  case  (supra), as,also  the observations made by this Court  in  Automobile Transport,  Rajasthan’s case (supra). In our  opinion,  Part XIII of the Constitution cannot be read in isolation. It  is part and parcel of a single constitutional instrument envis- aging a federal scheme and containing general scheme confer- ring  legislative powers in respect of the matters  relating to list II of the 7th Schedule on the State. It also confers plenary  powers on States to raise revenue for its  purposes and  does  not require that every legislation of  the  State must  obtain assent of the President. Constitution of  India is  an  organic document. It must be so  construed  that  it lives and adapts itself to the exigencies of the  situation, in a growing and evolving society, economically, politically and  socially.  The meaning of the  expressions  used  there must, therefore, be so interpreted that it attempts to solve the  present problem of distribution of power and rights  of the  different States in the Union of India, and  anticipate the  future contingencies that might arise in  a  developing organism.  Constitution  must  be  able  to  comprehend  the present at the relevant time and anticipate the future which is natural and necessary corollary for a growing and  living organism. That must be part of the constitutional  adjudica- tion.  Hence,  the economic development of States  to  bring these into equality with all other States and thereby devel- op  the economic unity of India is one of the major  commit- ments  or  goals of the constitutional aspirations  of  this land. For working of an orderly society economic equality of all the States is as much vital as economic unity.     The taxes which do not directly or immediately  restrict or interfere with trade, commerce and intercourse throughout the territory of India, would therefore be excluded from the ambit of art. 301 of the Constitution. It has to be borne in mind that sales tax has only an indirect effect on trade and commerce.     Reference may be made to the Constitution bench judgment of this Court in Andhra Sugar Ltd. & Anr. v. State of A.  P. &  Ors.,  [1968] 1 SCR 705 where this  Court  observed  that normally a tax on sale of goods does not directly impede the

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free  movement  of transport. See also the  observations  in Mudaliar’s case (supra) where at p. 851 it was observed that a tax on sale would not normally offend art. 301. That 748 article  made nO distinction between movement from one  part of State to another part of the same State and movement from one State to another. In this connection, reference may also be  made  to  the observations  in  Bengal  Immunity’s  case (supra). Both the preceding cases clearly establish that  if a  taxing provision in respect of intra-State sale does  not offend art. 30 1, logically it would not affect the  freedom of trade in respect of free flow and movement of goods  from one part of the country to the other under art. 301 as well.     It has to be examined whether difference in rates per se discriminates  so as to come within articles 301 and  304(a) of the Constitution. It is manifest that free flow of  trade between two States does not necessarily or generally  depend upon the rate of tax alone. Many factors including the  cost of  goods  play an important role in the movement  of  goods from one State to another. Hence the mere fact that there is a  difference in the rate of tax on goods  locally  manufac- tured  and those imported would not amount to  hampering  of trade between the two States within the meaning of art.  301 of  the Constitution. As in manifest, art. 304 is an  excep- tion  to art. 30 1 of the Constitution..The need  or  taking resort  to exception will arise only if the tax impugned  is hit  by articles 301 and 303 of the Constitution. If  it  is not  then  art. 304 of the Constitution will not  come  into picture at all. See the observations in Nataraja  Mudaliar’s case (supra) at pp. 843-6 of the report. It has to be  borne in mind that there may be differentiations based on  consid- eration  of  natural or business factors which are  more  or 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 at all within the State or if it  is felt that the burden falling on consumers within the  State, will  be more than that and large benefit is derived by  the revenue. The imposition of rates of sales tax is  influenced by  various political, economic and social  factors.  Preva- lence  of  differential  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. Under the Constitution originally flamed revenue from  sales tax was reserved for the States.     In  V. Guruviah Naidu & Sons. v. State of Tamil  Nadu  & Anr.,  [1977]  1  SCR 1065 at 1070 this  Court  observed  as follows:               "Article  304(a) does not prevent levy of  tax               on  goods; what it prohibits is such  levy  of               tax on goods as would result in discrimination               between  goods imported from other States  and               similar goods manufactured or produced  within               the               749               State. The object is to prevent discrimination               against imported goods by imposing tax on such               goods  at  a rate higher than  that  borne  by               local  goods since the difference between  the               two  rates would constitute a tariff  wall  or               fiscal  barrier and thus impede the free  flow               of  inter-State trade and commerce. The  ques-               tion as to when the ’levy of tax would consti-               tute discrimination would depend upon a varie-               ty  of factors including the rate of  tax  and               the  item of goods in respect of the  sale  of

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             which  it is levied. The scheme of items  7(a)               and  7(b) of the Second Schedule to the  State               Act  is  that in case of raw hides  and  skins               which are purchased locally in the State,  the               levy of tax would be at the rate of 3 per cent               at  the point of last purchase in  the  State.               When  those  locally purchased raw  hides  and               skins  are  tanned  and are  sold  locally  as               dressed hides and skins, no levy would be made               on  such sales as those hides and  skins  have               already  been  subjected to local tax  at  the               rate of 3 per cent when they were purchased in               raw  form.  As against that, in  the  case  of               hides and skins which have been imported  from               other  States in raw form and  are  thereafter               tanned  and  then  sold inside  the  State  as               dressed hides and skins, the levy of tax is at               the  rate  of 1-1/2 per cent at the  point  of               first  sale in the State of the dressed  hides               and  skins. This levy cannot be considered  to               be discriminatory as it takes into account the               higher  price of dressed hides and skins  com-               pared to the price of raw hides and skins.  It               also  further takes note of the fact  that  no               tax  under  the  State Act has  been  paid  in               respect of those hides and skins. The Legisla-               ture, it seems, calculated the price of  hides               and  skins in dressed condition to  be  double               the  price  of  such hides and  skins  in  raw               state. To obviate and prevent any  discrimina-               tion  of differential treatment in the  matter               of  levy  of tax,  the  Legislature  therefore               prescribed  a rate of tax for sale of  dressed               hides and skins which was half of that  levied               under  item 7(a) in respect of raw  hides  and               skins."     The  object  is to prevent  discrimination  against  the imported  goods  by  imposing tax on such goods  at  a  rate higher  than that borne by local goods. The question  as  to when  the levy of tax would constitute discrimination  would depend  upon a variety of factors including the rate of  tax and the item of goods in respect of the sale on which it  is levied.  Every  differentiation is not  discrimination.  The word ’discrimination’ is not used in art. 14 but is used  in articles 16, 303 & 304(a). 750 When  used in art. 304(a), it involves an element of  inten- tional  and  purposeful  differentiation  thereby   creating economic  barrier and involves an element of an  unfavorable bias.  Discrimination  implies  an  unfair   classification. Reference  may be made to the observations of this Court  in Kathi  Raning Rawat v. The State Of Saurashtra,  [1952]  SCR 435  where  Chief Justice Shastri at p. 442  of  the  report reiterated  that  all  legislative  differentiation  is  not necessarily discriminatory. At p. 448 of the report, Justice Fazal  Ali noticed the distinction  between  ’discrimination without reason’ and ’discrimination with reason’. The  whole doctrine  of  classification  is based on this  and  on  the well-known  fact that the circumstances covering one set  of provisions  or  objects may not necessarily be the  same  as these covering another set of provisions and objects so that the question of unequal treatment does not arise as  between the provisions covered by different sets of circumstances.     Where  the general rate applicable to the goods  locally made  and  on those imported from other States is  the  same

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nothing  more normally and generally is to be shown  by  the State  to dispel the argument of discrimination  under  art. 304(a),  even  though the resultant tax amount  on  imported goods may be different. Here, reference may be made to Ratan Lal’s  case  (supra). In the instant writ petition,  in  the State  of U.P. those producers or manufacturers who  do  not come  within the ambit of notifications, have to pay tax  on their  goods at the general rate described and there  is  no differentiation  or discrimination qua the  imported  goods. The  question  naturally arises whether the power  to  grant exemption to specified class of manufacturers for a  limited period  on  certain conditions as provided by s. 4A  of  the U.P.  Sales  Tax  Act is violative of art.  304(a).  It  was contended by the petitioners that Part XIII of the Constitu- tion  was envisaged for preserving the unity of India as  an economic  unit and, hence, it guarantees free flow of  trade and  commerce throughout India including between  State  and State  and as such art. 304(a), even though an exception  to art.  301, yet applies where an exemption is granted by  one State  to  a special class of manufacturers  for  a  limited period  on  certain  conditions. It was  so  submitted  that either a State should grant exemption to all goods irrespec- tive of the fact that the goods are locally manufactured  or imported  from other States, else it would be  violative  of art. 304 and 304(a).     It was submitted by the respondents that this is not the correct position. This argument ignores the basic feature of the  Constitution  and  also the fact that  the  concept  of economic unity may not necessa- 751 rily  be  the  same as it was at the  time  of  Constitution making.  The result of the same would be acceptance  of  the view  that  a State which was technically  and  economically weak in 1950 due to various factors, must always remain  the same and cannot be helped to develop economically by  grant- ing  concessions/exemptions or allowing subsidies etc.  for -establishing  new industries so as to be  economically  de- veloped.  It  was also submitted that if all  the  parts  of India i.e. to say all the States are economically strong  or developed then only can economic unity as a whole be assured and  strengthened. Hence, the concept of economic  unity  is ever changing with very wide horizons and cannot and  should not  be  imprisoned in a strait-jacket of  the  concept  and notion  as  advocated by the petitioner. Economic  unity  of India is one of the constitutional aspirations of India  and safeguarding  the attainment and maintenance of  that  unity are  objectives  of  the Indian Constitution.  It  would  be wrong,  however, to assume that India as a whole is  already an economic unit. Economic unity can only be achieved if all parts  of whole of Union of India develop equally,  economi- cally.  Indeed,  in  the affidavits  of  opposition  various grounds  have  been indicated on behalf of  the  respondents suggesting the need for incentives and exemptions, and these were  suggested  to  be absolutely  necessary  for  economic viability and survival for these industries in these States. These  were  based  on cogent and  intelligible  reasons  of economic encouragement and growth. There was a rationale  in these which is discernible. The power to grant exemption  is always   inherent   in   all   taxing   Statutes.   If   the suggestions/submissions  as advanced by the petitioners  are accepted,  it was averted, and in our opinion rightly,  that it  will  destroy completely or make  nugatory  the  plenary powers  of the States. If the exemption is based on  natural and  business factors and does not involve  any  intentional bias,  the  impugned notifications to  grant  exemption  for

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limited period on certain specific conditions cannot be held to  be bad. Judged by that yardstick, the present  notifica- tions  cannot be held to be violative of the  constitutional provisions. An examination of art. 304(a) would reveal  that what is being prohibited by this article which is really  an exception  to art. 30 1 will not apply if art. 301 does  not apply.      In  the  instant case the general  rate  applicable  to locally  made goods is the same as that on  imported  goods. Even  supposing without admitting that sales tax is  covered by art. 301 as a tax directly and immediately hampering  the free flow of trade, it does not follow that it falls  within the  exemption of art. 304 and it would be hit by art.  301. Still the general rate of tax which is to be compared  under art.  304(a)  is at par and the same qua  the  locally  made goods and the imported goods. 752     Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What constitutes an economic barrier at one point of time often cease to be so at another point of time. It will be wrong to denude the people of  the State  of the right to grant exemptions which flow from  the plenary  powers of legislative heads in list II of  the  7th Schedule  of the Constitution. In a federal polity, all  the States  having powers to grant exemption to specified  class for  limited  period, such granting of exemption  cannot  be held  to be contrary to the concept of economic  unity.  The contents  of  economic unity by the people  of  India  would necessarily  include  the  power to grant  exemption  or  to reduce  the rate of tax in special cases for  achieving  the industrial  development  or  to provide  tax  incentives  to attain economic equality in growth and development. When all the  States have such provisions to exempt or  reduce  rates the question of economic war between the States inter se  or economic  disintegration  of the country as  such  does  not arise.  It is not open to any party to say that this  should be done and this should not be done by either one way or the other.  It cannot be disputed that it is open to the  States to realise tax and thereafter remit the same or pay back  to the  local manufacturers in the shape of subsidies and  that would neither discriminate nor be hit by art. 304(a) of  the Constitution.  In  this case and as  in  all  constitutional adjudications  the substance of the matter has to be  looked into  to  find out whether there is  any  discrimination  in violation of the constitutional mandate.     In Kalyani Stores v. The State of Orissa & Ors.,  [1966] 1 SCR 865, Shah, J. (as the learned Chief Justice then was), speaking  for himself and on behalf of Chief Justice  Gajen- dragadkar,  Wanchoo,  J.  and Sikri, J.  observed  that  the restriction  on  the freedom of trade, commerce  and  inter- course throughout the territory of India declared by Article 301 of the Constitution cannot be justified unless it  falls within Art. 304. Exercise of power under art. 304(a) can  be effective  only  if the tax or duty on goods  imported  from other  States and the tax or duty imposed on  similar  goods manufactured or produced in that State is such that there is no  discrimination.  Hidayatullah, J. as the  learned  Chief Justice  then was, observed, at p. 883 of the  report,  that art.  304(a)  imposes no ban but lifts the  ban  imposed  by articles  30 1 & 303 subject to one condition. That  article is enabling and prospective.     Counsel for the respondents drew out attention to  arti- cles  38  &  39 of the Constitution. The  striving  for  the attainment  of  the objects enshrined in these  Articles  is enjoined. For achieving these objects the States have neces-

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sarily to develop themselves economically so as to 753 secure  economic unity and to minimise the inequalities  and imbalances between State and State and region and region. If the power to grant exemption has been conferred for  achiev- ing these objects on all, it is not possible to assail these as  violative  of art. 304 as the latter article has  to  be interpreted in conjunction with others and not in isolation. Reference  may be made to the observations of this Court  in Bharat General & Textiles Industries Ltd. v. State of  Maha- rashtra,  72  STC 354 where it was held that s.  41  of  the Bombay Sales Tax Act, did not contravene articles 14 & 19 of the Constitution of India and the State Govt. could  validly classify  new  units producing edible oil  as  distinct  and separate from other units and validly withdraw the exemption in  relation to such units only. It is true that the  afore- said  observations were made in the context  different  from art.  304(a) but basically the concept of equality  embodied in  articles 304(a) & 16 are the same. Art. 14 enjoins  upon the  State to treat every person equal before the law  while art. 304(a) enjoins upon the State not to discriminate  with respect  to  imposition  of tax on imported  goods  and  the locally made goods. The petitioners made reference to sever- al  decisions of this Court, namely, H. Anraj v.  Government of  Tamil  Nadu, [1986] 1 SCC 414; Indian Cement &  Ors.  v. State of Andhra Pradesh & Ors., (supra); Weston  Electronics v. State of Gujarat, (supra) and West Bengal Hosiery Assn. & Ors.  v. State of Bihar & Anr., [1988] 4 SCC 134 wherein  it has been reiterated that difference in rate of sales tax  is hit  by  articles 301 & 304 but the  said  conclusions  were arrived  at  in  the context of a  controversy  not  in  the present  form and the question of exemption as such did  not arise  in these cases, as explained later. These cases  were not at all concerned with granting of exemption to a special class  for a limited period on specific conditions of  main- taining the general rate of tax on the goods manufactured by all those producers in the State who do not fall within  the exempted category at par with the rate applicable to import- ed  goods  as we have read these cases. Hence,  it  was  not necessary in those decisions to consider the problem in  its present aspect. If, however, the said power is exercised  in a  colourable  manner intentionally or purposely  to  create unfavorable  bias  by prescribing a general  lower  rate  on locally  manufactured goods either in the shape  of  general exemption  to locally manufactured goods or in the shape  of lower  rate of tax, such an exercise of power can always  be struck down by the courts. That is not the situation in  the instant  cases. The aforesaid decisions, therefore, are  not authorities  for the general proposition that  while,  main- taining  the general rate at par, special rates for  certain industries  for a limited period could not be prescribed  by the States. 754     There  was another subsidiary question in these  matters as  to whether the legislation in the shape of  notification is  law within the meaning of art. 304 of the  Constitution. The  phrase  used  in the opening part of  art.  304  should necessarily  mean  any  law enacted  either  by  legislature itself  or  by its delegate. Here it may be  instructive  to refer  to  clause 10 of art. 366 of the  Constitution  which defines existing law and even though the word ’Notification’ is  not to be found, yet in Kalyani Stores v. The  State  of Orissa  &  Ors.,  (supra) it has been held that  it  was  an existing law. In The State of U.P. & Ors. v. Babu Ram  Upad- hya, [196] 12 SCR 679 at 702 this Court relied on a  passage

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from  Maxwell "On the Interpretation of Statutes"  and  held that a rule framed in the absence of any specific  provision in  the Act shall be deemed to be a part of the Act  itself. In the State of Tamil Nadu v. Hind Stone etc., [1981] 2  SCR 742  at 757 this Court relied upon the aforesaid  dictum  in the case of Babu Ram Upadhya, (supra) and distinguished  the decision  in State of Mysore v. H. Sanjeeviah, [1967] 2  SCR 361 cited on behalf of the petitioner. This Court in Kailash Nath & Anr. v. State of U. P. & Ors., AIR 1957 SC 790 at 791 has  held that the notification having been made in  accord- ance  with the power conferred by the Statute has  statutory force  and validity and, therefore, exemption is as if  con- tained in the Act itself. The U.P. Sales Tax Act by s. 24(4) confers rule making powers on the State Government.  Section 25 confers powers on the State Government to issue notifica- tions with retrospective effect. Hence, it cannot be disput- ed  that the exemption notification is the exercise  of  the legislative  power.  This Court in State of U.P. &  Ors.  v. Renusagar Power Co. & Ors., [1988] 4 SCC 59 at 100 has  held that  the power to grant exemption is quasi legislative.  In M/s Narinder Chand Hem Raj & Ors. v. Lt. Governor,  Adminis- trator,  U.T., Himachal Pradesh & Ors., [1971] 2 SCC 747  at 751  it was held that the exercise of the power is  legisla- tive whether it is by the legislature or by the delegate.     In  respect of the decisions aforesaid relied on  behalf of  the  petitioner, on examination of the  observations  in India Cement’s case (supra) to the contrary to which  stated hereinbefore on this aspect must be confined to the facts of that  case  alone as the said decision had  no  occasion  to consider it in the full light. In the aforesaid view of  the matter  the  challenge in these petitions to  the  aforesaid exemptions  cannot,  in  our opinion, be  upheld.  The  writ petitions dealing with the U.P. matters on the same  conten- tions, therefore, fail.     Writ  petition  No. 665/88 being M/s  Video  Electronics Pvt.  Ltd. & Anr. v. State of Punjab & Anr., deals with  the notification issued by 755 the  Punjab Government whereby two different rates of  taxes are provided. By that notification the State Government  has differentiated  between  the  manufacturers  of  electronics goods outside the State and within the State. Under  section 5 of the Punjab General Sales Tax Act (hereinafter  referred to  as  ’the Act’), the State of Punjab  had  been  imposing sales  tax  @ 10% + 2% surcharge on electronics  goods  sold within  the  State irrespective of  their  manufacture.  The State Govt. in pursuance of the powers conferred on it u/s 5 of  the Act issued the notification date 11.12.1986  stating that the rate of sales tax payable by an electronic manufac- turing unit existing in Punjab in cases of electronic  goods specified  in  Annexure-A of the petition within  the  State will be 1%. Thus the rate of sales tax was brought down from 10% (+ 2% surcharge) to 1% while for similar goods  manufac- tured  outside  the State and sold  within  the  respondent- State, the rate of sales tax remained 10% (+ 2%  surcharge). It was contended that there was differentiation. In  support of  this contention the petitioners reiterate more  or  less the  same submissions, as indicated before. It is true  that there  was difference in rate yet there was reason for  this differentiation. The State Government in its counter affida- vit  has stated that a lower rate of tax i.e. to say  1%  in the  case of new units and 2% in the case of existing  units has  been  levied  to boost this industry and  to  stop  the existing  industry shifting to neighboring States. The  pre- vailing  peculiar  circumstances of Punjab were one  of  the

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factors  indicated  for  the same. The lower  rate,  it  was reiterated,  was  imposed in view of  the  peculiar  circum- stances  and  also to attract new entrepreneurs  from  other States and from within the State. It was contended that  the said  notification was issued in public interest in view  of the peculiar position; and that while the States of  Gujarat and  Maharashtra  are fully developed States, on  the  other hand, Punjab is comparatively a backward State in  industry. Unless some incentives are given, the industries which  have already shifted to other States, will have further deterring effects.  Hence, in view of the situation  the  concessional rate was introduced and was not discriminatory.     As mentioned hereinbefore, reliance was placed mainly on H. Anraj v. Govt. of Tamil Nadu, (supra) to which one of  us was a party. That was a decision dealing with lottery  tick- ets,  and  dealt with the question whether  lottery  tickets amounted to movable property so as to be within the  purview of  the Sale of Goods Act. But in relation to  the  question relevant  to the present purpose it was reiterated that  the real question is, whether direct and immediate result of the impugned  notification  was to impose  an  unfavourable  and discriminatory  tax burden on the imported goods  (in  those cases lottery tickets of other 756 States) when they are sold within the State of Tamil Nadu as against  indigenous  goods (Tamil  Nadu  Government  lottery tickets)  when  these are sold within the  State,  from  the point  of view of the purchaser and this question had to  be considered  from the normal business of commercial point  of view.  It has to be reiterated that more or less all  States used  to issue and sell lottery tickets, hence, the  lottery tickets  from other States were  specifically  discriminated against in the sense that there was differentiation  without any  valid or justifiable reason. That would certainly  work as deterrent. Trade, commerce and intercourse throughout the territory  of India, come within art. 301 of  the  Constitu- tion.  It  prevents imposing on goods  imported  from  other States  a  tax to which similar goods in the State  are  not subject so as to discriminate between the goods so  imported and  goods produced locally. In that light the  decision  in Anraj’s case has to be understood.     The  cases  of India Cement & Ors. v.  State  of  Andhra Pradesh  &  Ors., (supra); Weston Electronics  v.  State  of Gujarat & Ors., (supra) and West Bengal Hosiery Assn. & Ors. v. State of Bihar & Anr., (supra) were cases where there was a naked blanket preference in favour of locally manufactured goods as against goods coming from outside the State.  These cases,  as we read these, dealt with a conferment of  exemp- tion  without any reason or concession in favour of  indige- nous  manufactured goods which was not available in  respect of the goods imported into that State. In case, however,  of U.P. as well as State of Punjab the provisions which we have examined, proceeded on a different basis. In these cases, it cannot be suggested, in our opinion, that there is discrimi- nation against goods manufactured outside the State. In case of  Punjab an Overwhelmingly large number of local  manufac- turers of similar goods are subject to sales tax and, there- fore,  the general statement that the  manufacturers  within the State are favoured against the manufacturers outside the State,  is  incorrect. Under the notifications  in  case  of Punjab,  only newly set up units are eligible to  claim  the benefits thereunder for a limited period of 5 years and that also only if they strictly comply with the terms and  condi- tions set out in the notification.     It  has to be reiterated that sales tax laws in all  the

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States  provide for exemption. It is well-settled  that  the different entries in lists I, II and III of the 7th Schedule deal  with  the fields of legislation, and these  should  be construed  widely,  liberally and  harmoniously.  And  these entries have been construed to include ancillary or inciden- tal  power.  Power  to grant exemption is  inherent  in  all taxing  legislations.  Economic  unity is  a  desired  goal, economic equilibrium and prosperity 757 is  also the goal. Development on parity is one of the  com- mitments of the Constitution. Directive principles enshrined in  articles 38 & 39 must be harmonised with economic  unity as  well  as economic development of  developed  and  under- developed  areas. In that light on art. 14 of the  Constitu- tion,  it is necessary that the prohibition in art. 301  and the  scope  of art. 304(a) & (b) should  be  understood  and construed. Constitution is a living organism and the  latent meaning of the expressions used can be given effect to  only if a particular situation arises. It is not that with chang- ing times the meaning changes but changing times  illustrate and  illuminate  the meaning of the  expressions  used.  The connotation  of  the expressions used takes  its  shape  and colour in evolving dynamic situations. A backward State or a disturbed  State  cannot with parity engage  in  competition with  advanced  or developed States. Even  within  a  State, there  are often backward areas which can be developed  only if some special recentives are granted. If the incentives in the  form  of subsidies or grant are given to  any  part  of units  of a State so that it may come out of its limping  or infancy  to  compete  as equals with others,  that,  in  our opinion,  does not and cannot contravene the spirit and  the letter  of Part XIII of the Constitution. However,  this  is permissible only if there is a valid reason, that is to say, if there are justifiable and rational reasons for  differen- tiation.  If there is none, it will amount to  hostile  dis- crimination. Judge in this light, despite the submissions of Mr.  Sanjay  Parikh and Mr. Vaidyanathan, we are  unable  to accept  the contentions that the petitioners sought to  urge in this application.     The next petition is W.P. No. 1124/88--Computer Graphics (P)  Ltd. & Anr. v. Union of India & Ors., which  challenges the concession given in favour of manufacturers in U.P.  and Goa.  The same contentions were reiterated for  the  reasons discussed  hereinbefore. We are unable to accept this  peti- tion.  It  may be relevant to refer  to  Associated  Tanners Vizianagram, A. P. v. C.T. 0., Vizianagram, Andhra Pradesh & Ors.,  [1986]  1  SCR 969 where it was stated  that  when  a taxing  statute  was not imposing rates of tax  on  imported goods  different  from rates of tax  on  goods  manufactured locally,  art. 304 had no application. In case an  exemption was  granted applying the same rate the resulting tax  might be somewhat higher but that did not contravene the  equality clause contemplated by art. 304.     In the instant writ petition in view of the terms of the notification  impugned and the facts and  the  circumstances stated  in the affidavit of the State Government as well  as the  interveners, Goa and Pondicherry,  being  comparatively under-developed in electronic industry, in 758 our  opinion, it cannot be said that there was violation  of either  Part XIII of the Constitution or Article 14  of  the Constitution. This application must also, therefore, fail.     Writ petition No. 70/89--Spartek Ceramics India Ltd.  v. Union  of  India & Ors., under art. 32 also  challenges  the notification  under the Central Sales Tax Act and  the  U.P.

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Act  as  mentioned hereinbefore. In the state  of  facts  as appearing, this petition also fails. We have considered  the submissions  and the statements made by the  interveners  in these matters. Writ Petition No. 761/89--Weston  Electronics Ltd.  &  Anr. v. State of Punjab & Anr.,  dealing  with  the notifications  issued  by the State of  Karnataka  and  writ petition  No. 1140/88--M/s Survo Udyog Pvt. Ltd. &  Anr.  v. State  of Bihar & Anr., deal with the same  controversy  and with  similar  notification. In view of the  averments  made which we have examined in detail on behalf of the  concerned State  Governments  in the light of the principles  we  have reiterated before, we are of the opinion that the  notifica- tions impugned cannot be challenged and the petition  cannot succeed.     We have also considered writ petition No. 10  16/88--M/s Disco Electronics Ltd. & Anr. v. State of U.P. & Others, and in  light of the facts and the circumstances and  the  aver- ments  made in the background of the principles  reiterated, we  are  unable  to sustain the challenge  to  the  impugned notifications.  In  these matters we had  the  advantage  of having  the views of the interveners and we have  considered the submissions made on their behalf.     In the aforesaid light the intervention applications are allowed,  submissions  considered  and  the  aforesaid  writ petitions  are  dismissed but in the facts and  the  circum- stances of the case, there will be no order as to costs. Y.   Lal                                           Petitions dismissed. 759