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PETITIONER: WEST BENGAL HOSIERY ASSOCIATION AND ORS.

       Vs.

RESPONDENT: STATE OF BIHAR AND ANR.

DATE OF JUDGMENT11/08/1988

BENCH: KANIA, M.H. BENCH: KANIA, M.H. PATHAK, R.S. (CJ)

CITATION:  1988 AIR 1814            1988 SCR  Supl. (2) 378  1988 SCC  (4) 134        JT 1988 (3)   347  1988 SCALE  (2)280  CITATOR INFO :  D          1990 SC 820  (30,35)

ACT:     Constitution of India, 1950: Article 301 and 304 Levy of sales  tax  by State-Discrimination between  goods  imported from  other States and goods manufactured and sold  in  that State - Validity of. %     Bihar  Finance Act, 1981; Levy of sales-tax  on  hosiery goods-Exempting hosiery goods manufactured and sold in  that State from such levy-Whether discriminatory and violative of Articles 301 and 304 of the Constitution.

HEADNOTE:     The Bihar Government imposed sale-tax at 5 ad valorem on all hosiery goods sold within the State irrespective of  the place of manufacture of such goods, effective  from  October 1.  l983. However, by virtue of a notification dated  August 1,1984  ,  it  exempted from such levy,  the  hosiery  goods manufactured by hosiery industries in Bihar. This  exemption was sought to be given as an incentive to hosiery industries in Bihar.     The  petitioners have approached his Court by way  of  a writ petition, contending that there has been discrimination between  hosiery goods imported into the State of Bihar  and hosiery  goods  manufactured in that State in  the  levy  of sales-tax.  They prayed for the issue of a writ of  mandamus to the Respondents to rescind the notification dated  August 1, 1984, and for a direction to the Respondents to  forebear from  levying  or collecting sales-tax on  sale  of  hosiery goods  imported into the State of Bihar from  other  States, and   for  refund  of  the  sales-tax  already  levied   and collected.     The   petitioners   contended    that    such discrimination  violated  Art. 301 of  the  Constitution  of India, and that such discrimination could never be made by a notification.     Allowing the writ petition and quashing the notification in question, this Court     HELD:  1.1.  A perusal of the Notifications  would  show that  prima  facie a clear discrimination  is  made  against hosiery  goods manufactured outside the State of  Bihar  and

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sold in the State of Bihar                                                   PG NO 378                                                   PG NO 379 as  the  sales of such goods are subjected to  the  levy  of sales-tax  at  the rate of 5 per cent whereas the  sales  of similar  goods  manufactured by hosiery  industries  in  the State  of  Bihar  are  exempted  from  sales  tax.  From   a commercial  or normal point of view, such  a  discriminatory levy  of  sales-tax  is bound to affect  the  free  flow  of hosiery  goods from outside States into the State  of  Bihar and  would, therefore, amount to hampering the free flow  of trade  and  commerce. The State of Bihar did  not  file  any counter to the petition to justify this discriminatory  levy as a regulatory measure or as a compensatory tax. The result is  that  the  discrimination  made  must  be  regarded   as violating  the provisions of Article 301 read  with  Article 304(b) of the Constitution. [382H; 383A-C]      1.2. The general rate of sales-tax on hosiery goods was 5 per cent and it was the exemption for locally manufactured hosiery goods, granted by the said Notification dated August 1,  1984 which constituted the departure. It is,  therefore, really  this Notification which is discriminatory and  which must be struck down. [384A,B]     H.  Anraj etc. v. Government of Tamil Nadu  etc.  [1985] Suppl.  3  SCR  342; Firm A.T.B. Mehtab & Co.  v.  State  of Madras & Anr., [1963] Suppl. 2 SCR 435; The Indian Cement  & Ors.  v.  The State of Andhra Pradesh & Ors., [1988]  1  SCC 743; Weston Electroniks and Anr. v. State of Gujarat & Ors., [1988] 2 SCR 568, referred to.     [This  Court  directed that since there might  be  undue hardship to the dealers in the State of Bihar who might have sold   locally  manufactured  goods  without   taking   into consideration  the  liability  to sales-tax in view  of  the exemption granted by the notification dated August 1,  1984, the  arrears  of  sales-tax payable by them  should  not  be collected.]

JUDGMENT:     CIVIL  ORIGINAL JURISDICTION: Writ Petition (Civil)  No. 611 of 1986.     (Under Article 32 of the Constitution of India).     H.K. Puri for the Petitioners.     M.P. Jha for the Respondents.     The Judgment of the Court was delivered by                                                   PG NO 380     KANIA,  J. This writ petition is filed under Article  32 of  the  Constitution of lndia by the  West  Bengal  Hosiery Association and certain Hosiery manufacturers and dealers in the State of West Bengal against the State of Bihar and  the Commissioner  of  Commercial  Taxes-cum-Special   Secretary, Bihar praying for a direction to the Respondents to forebear from levying or imposing or collecting any sales tax on  the sale of hosiery goods imported into the State of Bihar  from other  States for sale during the tenure of Circular No.  So 934  dated 1st August, 1984, exempting from such tax,  sales of  hosiery goods manufactured or produced in the  State  of Bihar  and  to  refund the amount of sales  tax  levied  and collected  on  the sale of hosiery goods imported  into  the State  of Bihar from other States in India from 1st  August, 1984.  The  Petitioners  have  also prayed  for  a  writ  of mandamus  commanding the Respondents to cancel, withdraw  or rescind  Notification No. SO. 934 dated August  1,  1984  by which  exemption was granted to hosiery industries of  Bihar

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from  the  levy  of sales tax as set  out  earlier  and  the Petitioners have also prayed that the Respondents should  be directed  to refrain from making any discrimination  between hosiery  goods imported into the State of Bihar and  hosiery goods  manufactured  in the State of Bihar in  the  levy  of Bihar  Sales  Tax.  The writ petition can  be  very  shortly disposed of because the point raised in the writ petition is directly covered by decisions of this Court.     By  a  notification dated 30th September, 1983,  on  and from  October 1, 1983, Bihar Sales Tax at the rate of 5  per cent ad valorem was imposed on all hosiery goods sold within the  State  of Bihar irrespective of the place  whether  the hosiery  goods  were  manufactured. On  August  1,  1984,  a Notification  bearing  no.  SO 934 was  issued  whereby  the hosiery  goods manufactured by hosiery industries  in  Bihar were  exempted  from  the  levy  of  sales  tax.  The   said Notification stated that it would remain valid for a  period of  five years. The reason given for this exemption was  the grant of incentives to hosiery industries in Bihar.     The contention raised before us by Mr. Sorabji,  learned Counsel for the Petitioners, is that by reason of the   said Notification  all  the  sales  of  hosiery  goods  in  Bihar manufactured  by  hosiery industries outside  the  State  of Bihar are subjected to the levy of sales tax at the rate  of 5  per cent whereas the sales of hosiery goods  manufactured by  hosiery industries in Bihar are exempted from such  levy and  thus the hosiery industries outside the State of  Bihar are  clearly  discriminated  against.  It  is  submitted  by learned  Counsel  that  this  discrimination  violates   the provisions of Article 301 of the Constitution of lndia.                                                   PG NO 381     The relevant Articles to consider in order to appreciate the contention of the Petitioners are Articles 301 & 304  of the Constitution of India. The said Articles run as follows:     301.  Subject  to  the other provisions  of  this  Part, trade, commerce and intercourse throughout the territory  of lndia shall be free.     304. 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."     A plain reading of these Articles would show that it  is not open to any State to levy any tax on goods imported from other  States  or Union territories so  as  to  discriminate between  goods  so  imported  and  goods  manufactured   and produced in that State subject to the limitations  contained in  clause  (b).  In the present case,  clause  (b)  has  no application whatsoever because the exemption granted to  the sales  of hosiery goods manufactured in the State  of  Bihar has not been granted by any law passed by the legislature of the  State of Bihar but by a Notification. We find that  the contention  urged  on  behalf of the  Petitioners  has  been accepted in several decisions of this Court.     In H. Anraj etc. v. Government of Tamil Nadu etc. [1985] Supp. 3 S.C.R. 342 a Division Bench of this Court comprising Tulzapurkar and Sabyasachi Mukharji, JJ., was called upon to

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consider whether an amendment made to the Tamil Nadu General Sales  Tax Act, 1959 and the Orders and Notification  issued thereunder whereby, in effect, exemption from the payment of sales  tax  was  granted to lottery tickets  issued  by  the                                                   PG NO 382 Government  of Tamil Nadu but the lottery tickets issued  by other  Government and sold within the  State of  Tamil  Nadu were  subjected to sales-tax, was violative of  Article  301 read  with  Article  304  of  the  Constitution.  A  similar challenge  was also made to the validity of the West  Bengal Taxation Laws (Second Amendment) Act, 1984 and  Notification No. 1020 FT dated March 29, 1984 issued by the State of West Bengal.  The  Court  took  the  view  for  the  purposes  of questions  raised  in  that case lottery  tickets  could  be regarded as "goods". The Court held that laws imposing taxes can   amount   to  restrictions  on  trade,   commerce   and intercourse,  if  they hampered the free flow of  trade  and they are not what can be termed to be compensatory taxes  on regulatory  measures. It was held that the sales tax of  the kind in question before the Division Bench could not be said to  be a measure regulating any trade or a compensatory  tax levied  for the use of trading facilities. Sales  tax  which had the effect of discriminating between goods of one  State and goods of another might affect the free flow of trade and would offend against Article 301 and would be valid only  if it  came  within  the  terms of  Article  304(a).  The  real question  to  be  considered  was  whether  the  direct  and immediate result of the impugned Notification was to  impose an  unfavourable  and  discriminatory  tax  burden  on   the imported  goods which in that case were lottery  tickets  of other  State when they were sold within the State  of  Tamil Nadu  and  the State of West Bengal  as  against  indigenous goods  and that this question had to be considered from  the normal business or commercial point of view. If the question was  so  considered,  it could be  seen  that  the  impugned Notifications  would  have to be regarded  as  directly  and immediately  hampering the free flow of trade, commerce  and intercourse.  This view was taken after considering  several decisions  of this Court and following the decision of  this Court in Firm A.T.B. Mehtab Majid and Co. v. State of Madras & Anr., [1963] Suppl. 2 S.C.R. 435. A similar view has  been taken by a Division Bench of this Court comprising Ranganath Misra & M.M. Dutt, JJ., in a judgment delivered as  recently as January 12, 1988 in The Indian Cement & Ors. v. The State of  Andhra Pradesh & Ors., [1988] 1 S.C.C. 743 where it  has been observed (p. 759) as follows:     "Variation  of  the rate of inter-State sales  tax  does affect   free  trade  and  commerce  and  creates  a   local preference  which is contrary to the scheme of Part Xlll  of the Constitution."     In  the  present case, a perusal  of  the  Notifications referred   to  earlier  show  that  prima  facie   a   clear discrimination  is made against hosiery  goods  manufactured                                                   PG NO 383 outside the State of Bihar and sold in the State of Bihar as the  sales of such goods are subjected to the levy of  sales tax  at the rate of 5 per cent whereas the sales of  similar goods  manufactured  by hosiery industries in the  State  of Bihar  are  exempted from sales tax. From  a  commercial  or normal  point of view, such a discriminatory levy  of  sales tax  is bound to affect the free flow of hosiery goods  from outside States into the State of Bihar and would, therefore, amount to hampering the free flow of trade and commerce. The State  of  Bihar has not chosen to file any counter  to  the petition  or  to  justify  this  discriminatory  levy  as  a

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regulatory measure or a compensatory tax. The result is that the  discrimination made must be regarded as  violating  the provisions  of Article 301 read with Article 304(b)  of  the Constitution.     This brings us to the question as to the relief to which the   Petitioners  are  entitled.  This  Court   in   Weston Electroniks  and  Anr v. State of Gujarat & Ors.,  [1988]  3 S.C.C.  568 dealt with a situation like the one in the  case before us. In that case the facts were that Section 7 of the Gujarat  Sales Tax Act, 1969 provides for the levy of  sales tax  on the turnover of sales of goods specified in  Part  A Schedule  II  of  the  said Act. Entry 80-A  of  Part  A  of Schedule  II  specifies the rate of tax  applicable  to  the turnover  of television sets. That rate was 15  per  percent originally  and  upto  1981; and the entry  applied  to  all television  sets, whether manufactured and sold  within  the State  of  Gujarat or imported from outside  the  State.  In 1981, while the rate of tax on electronic goods entering the State  for sale therein was maintained at 15 per  cent,  the rate in respect of locally manufactured goods was reduced to 6  per cent. By a Notification dated March 29, 1986,  issued under  sub-section (2) of Section 49 of the said  Act  which empowered the State Government to exempt in part r whole, in public  interest,  any  specified class of  sales  from  the payment  of the whole or any part of the tax  payable  under that  Act,  in 1986, the rate of sales tax  in  respect   of television sets imported from outside the State was  reduced from  15 per cent to 10 per cent and for goods  manufactured within the State, the rate of sales tax was reduced to 1 per cent.  The Petitioners before this Court submitted that  the Notification specifying a lower rate for local  manufactures should  be  quashed. It was held that  the  rate  prescribed under  Section 7 of the Gujarat Sales Tax Act, 1969  is  the rate applied generally and it represents the normal standard of  levy.  The  lower rate applied  to  local  manufacturers represents  a  departure from or exception  to  the  general norm. In such a case the Court should, when granting relief, choose  the  alternative  which would  give  effect  to  the statutory  intention; and, following this principle, it  was                                                   PG NO 384 held that the impugned Notifications reserving a lower  rate of tax for local manufacturers must be quashed. In the  case before  us  we find that the general rate of  sates  tax  on hosiery  goods was 5 per cent and it was the  exemption  for locally  manufactured  hosiery goods, granted  by  the  said Notification  No.  SO  934  dated  August  1,  1984,   which constituted  the  departure. It is, therefore,  really  this Notification  which  is  discriminatory and  which  must  be struck down.     We  find  that the said Notification No.  SO  934  dated August  1, 1984 is void for the reasons set out earlier  and we  quash  the  same.  We  realise  that  quashing  of  this Notification on the ground that it was void ab initio  might lead to undue hardship for the dealers in the State of Bihar who  might  have  sold locally  manufactured  hosiery  goods without  taking into consideration any amount on account  of the liability to sales tax in view of the exemption  granted by  the said Notification dated August 1, 1984. In order  to obviate  this hardship, we direct that the arrears of  sales tax  which would become payable by the dealers in the  State of  Bihar  in respect of sales of local hosiery  goods  made during  the  period  when  the  said  Notification  was   in operation should not be collected.     Rule is made absolute to the extent aforesaid.  However, taking into account the facts and circumstances of the case,

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we direct that there shall be no order as to costs. G.N.