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2013 (12) TMI 385 - SC - VAT and Sales TaxRebate of tax to cement manufacturing units using flyash as raw material - Violation of Art. 301 and 304(a) of the Constitution of India - Restriction on trade and commerce - Validity of Notification No. T.T.-2-592/XI-9(226)94- U.P. Act-15-48 - Whether doctrine of severability will apply and therefore if Condition No. 1 in the notification violates articles 301 and 304(a) of the Constitution of India; should the notification be struck down in its entirety or merely the impinging condition in the notification - Held that:- State Government has issued notification dated 27.02.1998 reducing the tax liability of the dealers by twenty five per cent on goods having fly-ash contents between 10 to 30 per cent weight and has reduced the tax liability of the dealer by fifty per cent on goods having fly-ash contents exceeding thirty per cent by weight - The immediate effect of such rebate or tax cut decreases the real revenue of the Government and an increase in the real income of those whose tax rate has been lowered. Article 304(a) of the Constitution is an exception to article 301 of the Constitution of India. Article 304(a) does not prevent levy of tax on goods; what is prohibited 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 State. The object is to prevent imported goods being discriminated against by imposing a higher tax thereon than on local goods. What article 304(a) demands is that the rate of taxation on local as well as imported goods must be the same. This is designed to discourage States from creating State barriers or fiscal barriers at the boundaries. Article 304(a) ensures only equal rate of tax for incoming goods. So if such goods are taxed at a higher rate or where they are taxed at any rate when indigenous goods enjoy concessional rate of tax, article 304(a) is attracted. They are simple cases of hostile discrimination - The concept of rebate of tax in the instant case is akin to concessional/ reduced rate of tax. Rebate is though ex-hypothesi in the nature of subsidy and other incentives given by the Government but conceptually rebate of tax and incentives are different and it needs to be explained in reference to the purpose and nature of such rebate of tax introduced by the legislature. The legislation in respect of a rebate has taken different forms, one of them is a partial rebate in the tax, where the deduction is given partially on the gross amount and the other is the power reserved for the Government to permit rebate in respect of any goods to the full amount of the tax levied at any point in the series of sales of such goods. A dealer who is entitled to a rebate under any notification will collect the tax from the consumers at the point of purchase and then have to pay the full amount of sales tax due on his turnover in that quarter; and claim rebate in terms of the notification in accordance with the provision in the rules. However, the claim for rebate need not necessarily be handed back to the payer after he has paid the stipulated sum, it can also be paid in advance of payment. It is nothing but a remission or a payment back or it is sometimes spoken of as a discount or a drawback. It is the discretion of the State Government, through its legislature, to grant rebate to the full amount of sales tax, unless its power of taxation is limited by Constitutional provisions. In the facts of the present case, the legislature authorizes the State Government under Section 5 of the Act to issue notification in the public interest to grant rebate up to the full amount of the tax levied on any specific point in the series of sales/ purchase of such goods. Such rebate is only extended to the districts in State of Uttar Pradesh. The Government of Uttar Pradesh has the power to refund or discount to the full amount of rate of sales tax levied on a dealer, provided the power to discount does not overall has effects of a weapon of taxation that would discriminate between the goods imported and manufactured in Uttar Pradesh as laid down in article 304(a) of the Constitution. If the grant of rebate of tax by the State Government under Section 5 of the Act is to the full amount of tax levied, then for the dealers manufacturing cement using fly-ash outside the State of Uttar Pradesh but selling it in Uttar Pradesh, though the State Government contends that the rate of tax is same for the dealers inside Uttar Pradesh and outside Uttar Pradesh, but the overall effect is that there is no tax levied on the net turnover after deductions being made from the gross turnover but, on the other hand, the dealers manufacturing or producing cement using fly-ash outside Uttar Pradesh are taxed at the rate of 12.5%. Therefore, it can be said that the rebate of tax is in the nature of exemption and the instant case can be decided on the basis of catena of decisions of this Court where blanket exemption without reasons are said to be discriminatory and violating article 304(a) of the Constitution of India. Condition No. 1 is discriminatory and violates article 304(a) of the Constitution of India and therefore needs to be severed from the rest of the notification which can operate independently without altering the purpose and the object of the notification - ‘rebate of tax’ granted by the State Government to cement manufacturing units using flyash as raw material in a unit established in the districts of State of Uttar Pradesh alone is violative of the provisions contained in articles 301 and 304(a) of the Constitution of India - Decided against Appellant.
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