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TMI Blog1973 (12) TMI 75X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------------------- The judgment of the court was delivered by MATHEW, J.-Before the High Court of Madras, the respondents claimed that they were not liable to be taxed at the higher rate prescribed in section 8(2)(b) of the Central Sales Tax Act, 1956 (hereinafter called the Act), on the turnover of their sales in the course of inter-State trade to Government or unregistered dealers even though they had not obtained C or D forms, as the case may be, for the reason that section 8(2)(b) is violative of articles 301 and 303(1) of the Constitution and was, therefore, bad. The High Court accepted the claims by a common judgment. These appeals are preferred against the judgment on the basis of certificates granted by the High Court and they raise the common question, namely, whether section 8(2)(b) of the Act is bad for the reason that the provisions thereof offend articles 301 and 303(1) of the Constitution. In Larsen and Toubro Ltd. v. Joint Commercial Tax Officer [1967] 20 S.T.C. 150., the High Court of Madras held that sub-sections (2), (2A) and (5) of section 8 of the Act were bad for the reason that they violated the provisions of articles 301 and 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein and that the effect of the explanation thereto was to convert inter- State transactions into intra-State transactions and to remove them from the operation of clause (2). This interpretation of article 286 was not accepted by a larger Bench of this Court which heard and decided Bengal Immunity Company Limited v. The State of Bihar and Others [1955] 6 S.T.C. 446 (S.C.); [1955] 2 S.C.R. 603. That case held that the bans imposed by article 286 of the Constitution on the taxing powers of the States were independent and separate and each one of them had to be got over before a State Legislature could impose tax on transactions of sale or purchase of goods. The case further held that the explanation to article 286(1)(a) determined by the legal fiction created therein the situs of the sale in the case of transactions coming within that category and that once it is determined by the application of the explanation that a transaction is outside the State, it followed that the State, with reference to which the transaction can thus be predicated to be outside it, can never tax the transaction. The Constitution was thereafter amended, explanation of article 286(1) was deleted and clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate applicable to the sale or purchase of such goods inside the appropriate State and (b) in the case of goods other than declared goods, shall be calculated at the rate of ten per cent or at the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever is higher; and for the purpose of making any such calculation any such dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law." Thus, the transactions in goods which were made subject to tax in the course of inter-State trade or commerce fall into three broad classes: (1) transactions falling within section 8(1), i.e., all sales to Government and sales to a registered dealer other than the Government of goods referred to in sub-section (3) of section 8; (2) transactions falling within section 8(2)(a), i.e., sales in respect of declared goods; and (3) transactions falling within section 8(2)(b), i.e., sales [not falling within (1)] in respect of goods other than declared goods. Sales of goods in category (1) were declared exigible to a tax of 3 per cent on the turnover. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Madras v. N.K. Nataraja Mudaliar [1968] 22 S.T.C. 376 (S.C.); [1968] 3 S.C.R. 829., proceeds on the basis that tax under the Central Sales Tax Act is in its essence a tax which encumbers movement of trade and commerce, but the tax imposed in the case in question was saved by the other provisions of Part XIII. The court then said that the exercise of the power to tax would normally be presumed to be in the public interest and as Parliament is competent under article 302 to impose restrictions on the freedom of trade, commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest, the tax was saved. Bachawat, J., in his judgment in the case said that if a tax on intra-State sales does not offend article 301, logically, a tax on inter-State sales also cannot do so, that a tax does not operate directly or immediately on the free flow of trade or the free movement or transport of goods from one part of the country to the other, that the tax is on the sale, and that the movement is incidental and a consequence of the sale. He observed further that even assuming that the Central sales tax is within the misc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade or commerce. But quite apart from this, the majority judgment in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 S.T.C. 376 (S.C.); [1968] 3 S.C.R. 829., has categorically stated that "the exercise of the power to tax may normally be presumed to be in the public interest". We do not think it necessary to go into the question whether it is open to the court to conduct an enquiry whether the levy of a tax is the imposition of a restriction on the freedom of trade and commerce in the public interest. It cannot be presumed, because the rate of tax was 10 per cent at the material time on this class of transaction or the rate fixed by the appropriate State in respect of intra-State sales, whichever was higher, the imposition of this rate was not in the public interest. Therefore, in any view of the matter, Parliament was competent to enact section 8(2)(b) of the Act. In other words, even if it be assumed that the tax at the higher rate imposed under section 8(2)(b) places restrictions on the freedom of trade and commerce throughout the territory of India, as Parliament is competent to impose restrictions on that freedom in the public interest and as the imposition of a tax is n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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