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PETITIONER: WESTON ELECTRONIKS & ANR.

       Vs.

RESPONDENT: STATE OF GUJARAT & ANR.

DATE OF JUDGMENT29/04/1988

BENCH: PATHAK, R.S. (CJ) BENCH: PATHAK, R.S. (CJ) MISRA RANGNATH

CITATION:  1989 AIR  621            1988 SCR  (3) 768  1988 SCC  (2) 568        JT 1988 (2)   251  1988 SCALE  (1)902

ACT:      Gujarat Sales  Tax Act, 1969-49(2)-Read with Arts. 301, 303(1) and  304(a)-Imposition of  tax must not be such as to discriminate between  goods imported  from other  States and similar goods  manufactured within  the State-Discrimination cannot be  supported by  reference to Art. 39(b) and (c)-The proper course  to be  followed by  the Court  while striking down such  discriminatory measures  to give  effect  to  the statutory intention.

HEADNOTE:      By availing  of its powers under sub-s. (2) of s. 49 of the Gujarat  Sales Tax  Act, 1969  to exempt,  in the public interest, any  specified class  of sales from payment of the whole or  any part  of the  tax payable  under the  Act, the Government of Gujarat issued two notifications prescribing a lower rate of tax for goods manufactured within the State as compared to  similar goods  imported from outside the State. The petitioners,  who are  manufacturing  electronic  goods, including television sets etc., in factories located outside the State, challenged the validity of these notifications as violative  of  Art.  301  of  the  Constitution.  The  State Government contended  that the  rate of  tax was  reduced in order  to   provide  as   incentive  for  encouraging  local manufacturing units  and sought  to  draw  support  for  its action from clauses (b) and (c) of Art. 39.      Allowing the  Petition and  quashing the  notifications aforesaid, ^      HELD: Art.  301 declares that subject to the provisions of Part XIII, trade, commerce and intercourse throughout the territory of  India shall  be free.  Clause (1)  of Art. 303 prohibits the  legislature of  a State  from making  any law giving, or  authorising the giving of, any preference to one State or  another, or  making, or authorising the making of, any discrimination  between one State and another. The terms of the  prohibition are  subject to  Art. 304. Clause (a) of Art. 304  provides that  the legislature  of a State may, by law, impose  on goods  imported from other States any tax to which similar  goods manufactured  or produced in that State are subject  so, however,  as not  to  discriminate  between

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goods so  imported and goods so manufactured or produced. It is apparent that while a State Legislature may enact a law 769 imposing a  tax on  goods imported  from other States, as is levied on  similar goods  manufactured in  that  State,  the imposition must not be such as to discriminate between goods so imported  and goods  so manufactured. We do not think any support can  be derived  from the  two clauses of Art. 39 to justify the  reduction in  the rate  of tax  in the  case of goods manufactured  locally. Clause (a) of Art. 304 is clear in meaning. An exception to the mandate declared in Art. 301 and the  prohibition contained in cl. (1) of Art. 303 can be sustained on  the basis  of cl.  (a) of Art. 304 only if the conditions contained  in the latter provision are satisfied. [770H;771A-B,772F-G]      Firm A.T.B.  Mehtab Majid  & Co.  v. State  of Madras & Anr., [1963]  Suppl. 2  S.C.R. 435; Atiabari Tea Co. Ltd. v. The State  of Assam  and Ors.,  [1961]  1  S.C.R.  809;  The Automobile  Transport  (Rajasthan)  Ltd.  v.  The  State  of Rajasthan &  Ors., [1963]  1 S.C.R. 491 and H. Anraj etc. v. Government of  Tamil Nadu  etc., [1986] 1 S.C.C. 414, relied on.      (ii) The  next question  is whether, for the purpose of ensuring the  same rate  of tax  between the petitioners and the local  manufacturers, the levy of the higher rate of tax suffered by  the petitioners  should be  quashed and they be held entitled  to the  levy of the lower rate applied to the local manufacturers,  or, should  the higher rate imposed on the petitioners be maintained and the notifications imposing the lower  rate  on  local  manufacturers  be  quashed.  The grievance of  the petitioners  has arisen  only because  the local manufacturers  have been  favoured by  a lower rate of tax.  The  rate  levied  on  the  petitioners  is  the  rate prescribed under  s. 7  of the Act. That is the rate applied generally. It  represents the  normal standard  of levy. The lower rate  applied to  local manufacturers has been applied by invoking  sub-s. (2) of s. 49 of the Act. It represents a departure from,  or exception to, the general norm. In cases such as this, the Court should, when granting relief, choose the alternative  which would  give effect  to the  statutory intention. And,  therefore, in  this case what is called for is the  quashing of  the impugned  notifications reserving a lower rate of tax for local manufacturers. [772H; 773A-E]

JUDGMENT:      CIVIL ORIGINAL  JURISDICTION: Writ Petition No. 1032 of 1986.      (Under Article 32 of the Constitution of India).      Soli J.  Sorabjee, Ms.  S. Ralhan,  S.C. Dhande and Ms. Rekha Pandey for the petitioners. 770      V.S.  Desai,   A.S.  Bhasme   and  Khanwilkar  for  the respondents.      The Judgment of the Court was delivered by      PATHAK, C.J.  The  petitioners  manufacture  electronic goods, including  television sets,  television  cameras  and television monitors. The factories are located at Delhi, and the goods  are sold  through sales  organisations spread all over India, including the State of Gujarat.      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  Sch. II  appended to  the  Act.  Entry 80A(a) of  Part A  of Sch.  II specifies  the  rate  of  tax

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applicable to  the turnover of television sets. The rate was 15%  originally   upto  1981,   the  Entry  applied  to  all television sets,  whether manufactured  and sold  within the State of  Gujarat or  imported from  outside the  State.  No distinction was  made between  the goods on the basis of the place of manufacture.      Sub-s. (2)  of s.  49 of  the Act  empowers  the  State Government to  exempt, in the public interest, any specified class of  sales from payment of the whole or any part of the tax payable  under the  Act. In  1981, while  the  rate  for electronic goods  entering the  State for  sale therein  was maintained  at   15%,  the   rate  in   respect  of  locally manufactured goods  was reduced  to 6%  by Notification  No. (GHN-51) GST 1081 (S. 49)(109) TH issued under sub-s. (2) of s. 49 of the Act. The Notification introduced a new entry in the Schedule  dealing  specifically  with  electronic  goods manufactured in the State of Gujarat. Thereafter in 1986 the rate of  sales tax  in respect  of television  sets imported from outside  the State  was reduced from 15% to 10% and for goods manufactured within the State of sales tax was reduced to 1%  by Notification No. (GHN 22) GST 1086/(S. 49)(173)-TH dated 29  March,  1986.  The  petitioner  contends  that  by lowering the  rate of  tax in  respect of goods manufactured within the  State,  the  State  Government  has  created  an invidious discrimination  which is  adversely affecting  the free flow  of inter-state Trade and commerce, resulting in a contravention of  Article 301  of the  Constitution.  It  is pointed  out  that  a  purchaser  buying  a  television  set manufactured within  the State  of Gujarat pays about Rs.250 to 300  less for  a black  and white  model  and  Rs.750  to Rs.1,000 for  a colour  model. It  is said that the sales of electronic goods  manufactured by  the petitioner  have been prejudicially affected within the State of Gujarat.      Art. 301  of the  Constitution declares that subject to the provi- 771 sions  of   Part  XIII   "trade,  commerce  and  intercourse throughout the territory of India shall be free". Clause (1) of Art.  303 prohibits  "the legislature  of  a  State  from making any  law giving,  or authorising  the giving  of, any preference  to   one  State   or  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  of the Lists in the Seventh Schedule". The terms  of the prohibition are subject to Art. 304, which provides: "Notwithstanding anything in Art. 301 or Art. 303, 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                purpose of  clause (b) shall be introduced or                moved in  the Legislature  of a State without                the previous sanction of the President." It is  apparent that  while a  State Legislature may enact a law imposing a tax on goods imported from other States as is levied on  similar goods  manufactured  in  that  State  the imposition must not be such as to discriminate between goods

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so imported  and goods  so manufactured.  In the Firm A.T.B. Mehtab Majid  & Co. v. State of Madras & Anr., [1963] Suppl. 2 S.C.R.  435 this  Court was  called upon  to consider  the validity of  Rule 16  of the  Madras General Sales Tax Rules under which  tanned hides and skin imported from outside the State of  Madras were  subject to  a higher rate of tax then the tax  imposed on  hides and  skins tanned and sold within the State.  Referring to  its earlier  decisions in Atiabari Tea Co.  Ltd. v. The State of Assam and Ors.,[1961] 1 S.C.R. 809 and  The Automobile  Transport (Rajasthan)  Ltd. v.  The State of  Rajasthan &  Ors., [1963]  1 S.C.R.  491 where the scope and  significance  of  Art.  301  were  explained,  it proceeded to observe:           "It is therefore now well settled 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 regulatory measures. 772           Sales tax,  of the  kind under consideration here,           cannot be  said to  be a  measure  regulating  any           trade or  a compensatory tax levied for the use of           trading  facilities.  Sales  tax,  which  has  the           effect of  discriminating  between  goods  of  one           State and  goods of  another, may  affect the free           flow of trade and it will then offend against Art.           301 and  will be valid only if it comes within the           terms of Art. 304(a).                Art. 304(a)  enables  the  Legislature  of  a           State to  make laws  affecting trade, commerce and           intercourse. It enables the imposition of taxes on           goods from  other States  if similar  goods in the           State are subjected to similar taxes, so as not to           discriminate between  the  goods  manufactured  or           produced in  that State  and the  goods which  are           imported from other States. This means that if the           effect of  the sales-tax  on tanned hides or skins           imported from  outside is  that the latter becomes           subject to  a higher tax by the application of the           proviso to  sub-rule of  r. 16  of the Rules, then           the tax is discriminatory and unconstitutional and           must be struck down."      So also  in H.  Anraj v.  Government of  Tamil Nadu and Dipak Dhar  & Ors.  v. State of West Bengal & Anr., [1986] 1 S.C.R. 414 this Court struck down the levy of tax imposed by the State  of Tamil  Nadu on lottery tickets issued by other States and  sold  within  the  State  of  Tamil  Nadu  while exempting from  such levy  lottery  tickets  issued  by  the Government of Tamil Nadu.      In answer  to the  writ petition, the respondents point out that  the rate  of tax  was reduced in the case of goods manufactured locally  in order  to provide  an incentive for encouraging local  manufacturing units. Reference is made to cl.(b) and  (c) of  Art. 39  of the  Constitution. We do not think that  any support  can be derived from the two clauses of Art.  39. Cl.  (a) of  Art. 304  is clear  in meaning. An exception to  the mandate  declared  in  Art.  301  and  the prohibition  contained  in  Cl.  (1)  of  Art.  303  can  be sustained on  the basis  of cl.  (a) of Art. 304 only if the conditions contained in the latter provision are satisfied.      In the  result, the discrimination effected by applying different rates of tax between goods imported into the State of Gujarat  and goods manufactured within that State must be struck down.      The next  question  is  whether,  for  the  purpose  of

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ensuring the 773 same rate  of tax  between the  petitioners  and  the  local manufacturers, the  levy of  the higher rate of tax suffered by the  petitioners should  be  quashed  and  they  be  held entitled to  the levy of the lower rate applied to the local manufacturers or  should the  higher  rate  imposed  on  the petitioners be maintained and the notifications imposing the lower rate  on local  manufacturers be quashed. A perusal of the record  shows that  the grievance of the petitioners has arisen  only  because  the  local  manufacturers  have  been favoured by  a lower rate of tax. So long as the higher rate of tax  imposed on  the petitioners was also suffered by the local  manufacturers,   no  complaint   was  voiced  by  the petitioners. It  is the  levy of  the lower  rate  on  local manufacturers  that   constitutes  the   substance  of   the grievance. That  is borne  out by  the terms  of the  relief specifically  claimed   by   the   petitioners,   that   the notifications   specifying    a   lower   rate   for   local manufacturers should  be quashed.  Moreover, the rate levied on the  petitioners is the rate prescribed under s. 7 of the Act. That  is the  rate applied generally. It represents the normal standard  of levy.  The lower  rate applied  to local manufacturers has  been applied by invoking sub-s. (2) of s. 49 of  the Act. It represents a departure from, or exception to, the  general norm.  In cases  such as  this,  the  Court should, when  granting relief,  choose the alternative which would  give   effect  to   the  statutory   intention.  And, therefore, in  this case  what is called for is the quashing of the  impugned notifications reserving a lower rate of tax for local manufacturers.      Accordingly, the  writ  petition  is  allowed  and  the Notifications No. (GHN-51) GST 1081 (S. 49)(109) TH dated 23 July, 1981 and No. (GHN-22) GST 1086/(S.49)(173) TH dated 29 March, 1986  prescribing a  lower  rate  of  tax  for  local manufacturers  in  respect  of  television  sets  and  other electronic goods  are quashed.  The petitioners are entitled to their costs. H.L.C.                                Petition allowed. 774