1987 (9) TMI 389 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Discrimination in Taxation
2. Violation of Articles 14, 301, and 304(a) of the Constitution
3. Interpretation of Part XIII of the Constitution
4. Validity of Entry 24(a) of the First Schedule to the Andhra Pradesh General Sales Tax Act

Issue-wise Detailed Analysis:

1. Discrimination in Taxation:
The primary issue in this case was whether the taxation of imported refined oil at 6 1/2 paise per rupee, while locally produced refined oil from groundnuts that had already met sales tax was taxed at 2 1/2 paise per rupee, constituted discrimination. The petitioners argued that this differential treatment violated the principle of equality and impeded the free flow of trade and commerce.

2. Violation of Articles 14, 301, and 304(a) of the Constitution:
The petitioners contended that the differential tax rates violated Articles 14 (Right to Equality), 301 (Freedom of Trade, Commerce, and Intercourse), and 304(a) (Non-Discrimination in Taxation) of the Constitution. They argued that the higher tax rate on imported refined oil was discriminatory and impeded the free flow of trade, commerce, and intercourse as guaranteed under Part XIII of the Constitution.

3. Interpretation of Part XIII of the Constitution:
The court discussed the complexity and historical context of interpreting Part XIII of the Constitution, which includes Articles 301 to 306. The Supreme Court had previously noted that these articles were "defectively" conceived and "badly drafted," leading to various interpretative challenges. The court referred to several landmark cases, including the Atiabari case (AIR 1961 SC 232) and the Automobile case (AIR 1962 SC 1406), to understand the principles governing the free flow of trade and commerce.

4. Validity of Entry 24(a) of the First Schedule to the Andhra Pradesh General Sales Tax Act:
The petitioners challenged the vires of Entry 24(a) of the First Schedule, which imposed a higher tax rate on imported refined oil. The court examined whether this entry was discriminatory and violated constitutional provisions. The court also considered the State's argument that the tax did not impede the movement of goods and was uniformly applied to both imported and locally processed refined oil.

Comprehensive Analysis:

Discrimination in Taxation:
The court acknowledged the petitioners' argument that the tax rate of 6 1/2 paise per rupee on imported refined oil was discriminatory compared to the 2 1/2 paise per rupee tax on locally produced refined oil from groundnuts that had already met sales tax. The court noted that the State did not provide a satisfactory reason for this differential treatment, thereby overlooking the "cutting edge of the issue."

Violation of Articles 14, 301, and 304(a) of the Constitution:
The court referred to the Supreme Court's judgment in the "lottery tickets" case (H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC); AIR 1986 SC 63), where it was held that discriminatory tax treatment on imported goods hampers the free flow of trade, commerce, and intercourse, thereby violating Articles 301 and 304(a). Applying this principle, the court found that the higher tax rate on imported refined oil was discriminatory and violated the constitutional guarantees.

Interpretation of Part XIII of the Constitution:
The court discussed the historical context and interpretative challenges of Part XIII of the Constitution, referring to landmark cases like Atiabari and Automobile. The court noted that the Supreme Court had clarified that not all taxes impede the free flow of trade, but only those that directly and immediately restrict or hamper it. The court concluded that the differential tax rates on refined oil did impede the free flow of trade and commerce.

Validity of Entry 24(a) of the First Schedule to the Andhra Pradesh General Sales Tax Act:
The court held that Entry 24(a) was discriminatory and violated Articles 301 and 304(a) of the Constitution. However, instead of striking down the provision, the court directed that when refined oil sold in Andhra Pradesh is shown to have been extracted from groundnuts that met tax outside the State, the tax rate should be 2 1/2 paise per rupee, not 6 1/2 paise per rupee. The Commercial Tax Officer was directed to ascertain whether the groundnuts of the turnover met tax in Karnataka and pass orders accordingly.

Separate Judgments:
- Raghuvir, J.: Held that Entry 24(a) was discriminatory and violated constitutional guarantees but did not strike down the provision. Directed the Commercial Tax Officer to ascertain the tax status of groundnuts in Karnataka and apply the lower tax rate if applicable.
- Amareswari, J.: Held that Entry 24(a) was not discriminatory and did not offend any constitutional provisions. Dismissed the writ petition.
- Jayachandra Reddy, J.: Agreed with Amareswari, J., and held that Entry 24(a) was not violative of the Constitution. Dismissed the writ petition.

Final Order:
In view of the majority judgment, the writ petition was dismissed. No costs were awarded, and the advocate's fee was set at Rs. 250.