TMI Blog1989 (12) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... stava, R.S. Rana, P.G. Gokhale, B.R. Agarwala, R.B. Hathikhanawala, C.M. Nayar, P.K. Manohar, P.N. Misra, Ms. Halida Khatoon and Santhanam, Advocates, with them), for the respondents. G.L. Sanghi, Senior Advocate (Ms. Vrinda Grover, Miss. Seita Vaidialingam, Kailash Vasudev and A.C. Gulathi, Advocates, with him), for the intervenor. -------------------------------------------------- The judgment of the Court was delivered by SABYASACHI MUKHARJI, C.J.I.- In these several writ petitions, we are concerned with the question of harmonising the power of different States in the Union of India to legislate and/or give appropriate directions within the parameters of the subjects in List II of the Seventh Schedule to the Constitution with the principle of economic unity envisaged in Part XIII of the Constitution of India. We are also concerned with the provisions of exemption, encouragement/incentives given by different States to boost up or help economic growth and development in those States, and in so doing the attempt of the States to give preferential treatment to the goods manufactured or produced in those States. The question essentially is the same in all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 4-A of the U.P. Sales Tax Act and under section 8(5) of the Central Sales Tax Act, exempting new units of manufacturers as defined in the Act in respect of the various goods for different periods ranging from 3 to 7 years as the case may be, from payment of any sales tax. These notifications are annexed and the terms thereof are set out in annexures A-1 and B-1 to the writ petition. The Notification dated 26th December, 1985, stated, inter alia: "The Governor is pleased to direct that in respect of any goods manufactured in an industrial unit, which is a new unit as defined in the aforesaid Act of 1948, established in the areas mentioned in column 2 of the Table given below, the date of starting production whereof falls on or after the first day of October, 1982, but not later than 31st March, 1990, no tax under the aforesaid Act of 1956 shall be payable by the manufacturer thereof on the turnover of sales on such goods for the period specified in column 3 against each, which shall be reckoned from the date of first sale if such sale takes place not later than 6 months from the date of starting production subject to certain conditions mentioned." It is not necessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution of India judged in the background of the said articles. Appearing in support of the petition, Mr. Sanjay Parikh in Writ Petitions Nos. 790, 665, 1016 and 1140 of 1988, Mr. C.S. Vaidyanathan and Mr. S.C. Dhanda in Writ Petition No. 761 of 1988, Mr. Harish N. Salve for the petitioners in Writ Petition No. 803 of 1988, Miss Seita Vaidialingam, Mr. G.L. Sanghi, Kailash Vasudev for the intervenor, Mr. Raja Ram Agarwal, Mr. G.L. Sanghi and Mr. Nambiar for the State of U.P. and respondents have made their elaborate submissions. These petitions have been heard together. Apart from the submission that the provisions impugned, violate articles 19(1)(g) and 14 of the Constitution, and are in violation of the principles of natural justice, the main challenge to these provisions by Mr. Salve was that they violated the provisions of articles 301 to 305 of Part XIII of the Constitution of India. The contention of the petitioners was that, subject to other provisions of Part XIII, trade, commerce and intercourse throughout the territory of India was enjoined to be free. Article 302 of the Constitution empowers the Parliament by law to impose such restrictions on the freedom of tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Act had violated the freedom of trade guaranteed by article 301 of the Constitution and as it was not passed after obtaining the previous sanction of the President as required by article 304(b), it was ultra vires. The respondent therein had urged that taxing laws were governed only by Part XII and not Part XIII (which contained articles 301 and 304) and in the alternative that the provisions of Part XIII applied only to such legislative entries in the Seventh Schedule as dealt specifically with trade, commerce and intercourse. Gajendragadkar, Wanchoo and Das Gupta, JJ., held that the Act violated article 301 and since it did not comply with the provisions of article 304(b) it was ultra vires and void. On the contrary, Chief justice Sinha held that the Assam Act did not contravene article 301 and was not ultra vires. According to the learned Chief justice, neither the one extreme position that article 301 included freedom from all taxation nor the other that taxation was wholly outside the purview of article 301 was correct; and that the freedom conferred by article 301 did not mean freedom from taxation simpliciter but only from the erection of trade barriers, tariff wal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade is immediate or mediate, direct or remote, adopts, in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage bill may indirectly affect trade or commerce. We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by article 301 a rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement." It is in that light we must examine the impugned provision. It is necessary to bear in mind that taxes may and sometimes do amount to restrictions but it is only such taxes as directly and immediately restrict trade that would fall within the mischief of article 301. Mr. Salve, however, rightly reminded us that regulatory measures or measures imposing compensatory taxes for using trading facilities do not come within the purview of restrictions contemplated under article 301. Here, it is necessary to refer to the decision of this Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... freedom of trade, commerce and intercourse assured by that article. Das, Kapur and Sarkar, JJ., held that the concept of freedom of trade, commerce and intercourse postulated by article 301 must be understood in the context of an orderly society and as part of a Constitution which envisaged a distribution of powers between the States and the Union, and if so understood, the concept must recognise the need and legitimacy of some degree of regulatory control, whether by the Union or the States. Mr. Justice Subba Rao, as the learned Chief justice then was, observed that the freedom declared under article 301 referred to the right of free movement of trade without any obstructions by way of barriers, inter- State or intrastate, or other impediments operating as such barriers! and the said freedom was not impeded, but on the other hand, promoted, by regulations creating conditions for the free movement of trade, such as, police regulations, provisions for services, maintenance of roads, provision for aerodromes, wharfs, etc., with or without compensation. Parliament may by law impose restrictions, it was stated, on such freedom in the public interest, and the States also, in exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and from all regulations, and the only qualification that is to be found in the article is the opening clause, namely, subject to the other provisions of Part XIII. This, in actual practice, will mean that if the State Legislature wishes to control or regulate trade, commerce and intercourse in such a way as to facilitate its free movement, it must yet proceed to make a law under article 304(b) and no such Bill can be introduced or moved in the legislature of a State without the previous sanction of the President. The practical effect would be to stop or delay effective legislation which may be urgently necessary. Take, for example, a case where in the interests of public health, it is necessary to introduce urgently legislation stopping trade in goods which are deleterious to health, like the trade in diseased potatoes in Australia. If the State Legislature wishes to introduce such a Bill, it must have the sanction of the President. Even such legislation as imposes traffic regulations would require the sanction of the President. Such an interpretation would, in our opinion, seriously affect the legislative power of the State Legislatures which power has been held to be plenary w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Mr. Justice Raghubar Dayal in A. Hajee Abdul Shukoor and Co. v. State of Madras [1964] 15 STC 719 (SC) at 726; [1964] 8 SCR 217 at 225. See also the observations in State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC) at 392; [1968] 3 SCR 829 at 847 and Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); [1968] 1 SCR 705 where at page 225 of STC; (718 of SCR) it was reiterated that a sales tax which has the effect of discriminating against goods imported from other States may impede the free-flow of trade and is then invalid unless protected by article 304(a). It is, however, necessary to bear in mind that in N.K.N. Mudaliar's case [1968] 22 STC 376 (SC) at 395; [1968] 3 SCR 829 at 850, Mr. Justice Bachawat, after referring to several cases observed as follows: "But, there can be no doubt that a tax on such sales would not normally offend article 301. That article makes no distinction between movement from one part of the State to another part of the same State and movement from one State to another. Now, if a tax on intra- State sale does not offend article 301, logically, I do not see how a tax on inter-State sale can do so. Neither tax operates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o outside goods. The goods of the local manufacturer, when sold by him, do not bear any tax whereas the goods imported from outside the State have to bear the burden of sales tax. It was also contended that similarly, the goods of a local manufacturer, when exported from the State of U.P. do not have to bear tax, while goods brought into the State of U.P. and further exported in competition with the local goods have to bear the tax, so there is clear discrimination against goods produced by manufacturers situated outside the State. The discrimination within the meaning of article 301 read with article 304 arises where there is a difference in the rates of sales tax levied, it was sought to be emphasised by Mr. Sanjay Parikh for some of the petitioners. This proposition has been reiterated by this Court in a large number of cases, according to counsel, and we were referred to the observations in State of Madhya Pradesh v. Bhailal Bhai [1964] 15 STC 450 (SC) at 455; [1964] 6 SCR 261 at 268-269 and Mudaliar's case [1968] 22 STC 376; [1968] 3 SCR 829 where at page 392 of STC (page 847 of SCR) Shah, J., reiterated that imposition of differential rates of tax by the same State on goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd v. Joint Commercial Tax Officer [1970] 25 STC 528 (SC) at 538; [1970] 3 SCR 147 at 156. In light of these, it was contended by the petitioners that the petition under article 32 is clearly maintainable. The question as we see is, how to harmonise the construction of the several provisions of the Constitution. It is true that if a particular provision being a taxing provision or otherwise impedes directly or immediately the free-flow of trade within the Union of India, then it will be violative of article 301 of the Constitution. It has further to be borne in mind that article 301 enjoins that trade, commerce and intercourse throughout the territory of India shall be free. The first question, therefore, which one has to examine in this case is, whether the sales tax provisions (exemption, etc.) in these cases directly and immediately restrict the free-flow of trade and commerce within the meaning of article 301 of the Constitution. We have examined the scheme of article 301 of the Constitution read with article 304 and the observations of this Court in Atiabari's case [1961] 1 SCR 809, as also the observations made by this Court in Automobile Transport (Rajasthan) Ltd.'s case [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion between movement from one part of the State to another part of the same State and movement from one State to another. In this connection, reference may also be made to the observations in Bengal Immunity's case [1955] 6 STC 446 (SC); [1955] 2 SCR 603. Both the preceding cases clearly establish that if a taxing provision in respect of intrastate sale does not offend article 301, logically it would not affect the freedom of trade in respect of free-flow and movement of goods from one part of the country to the other under article 301 as well. It has to be examined whether difference in rates per se discriminates so as to come within articles 301 and 304(a) of the Constitution. It is manifest that free-flow of trade between two States does not necessarily or generally depend upon the rate of tax alone. Many factors including the cost of goods play an important role in the movement of goods from one State to another. Hence the mere fact that there. is a difference in the rate of tax on goods locally manufactured and those imported would not amount to hampering of trade between the two States within the meaning of article 301 of the Constitution. As is manifest, article 304 is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... locally as dressed hides and skins, no levy would be made on such sales as those hides and skins have already been subjected to local tax at the rate of 3 per cent when they were purchased in raw form. As against that, in the case of hides and skins which have been imported from other States in raw form and are thereafter tanned and then sold inside the State as dressed hides and skins, the levy of tax is at the rate of 1 1/2 per cent at the point of first sale in the State of the dressed hides and skins. This levy cannot be considered to be discriminatory as it takes into account the higher price of dressed hides and skins compared to the price of raw hides and skins. It also further takes note of the fact that no tax under the State Act has been paid in respect of those hides and skins. The legislature, it seems, calculated the price of hides and skins in dressed condition to be double the price of such hides and skins in raw state. To obviate and prevent any discrimination or differential treatment in the matter of levy of tax, the legislature therefore prescribed a rate of tax for sale of dressed hides and skins which was half of that levied under item 7(a) in respect of raw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a). It was contended by the petitioners that Part XIII of the Constitution was envisaged for preserving the unity of India as an economic unit and, hence, it guarantees free-flow of trade and commerce throughout India including between State and State and as such article 304(a), even though an exception to article 301, yet applies where an exemption is granted by one State to a special class of manufacturers for a limited period on certain conditions. It was so submitted that either a State should grant exemption to all goods irrespective of the fact that the goods are locally manufactured or imported from other States, else it would be violative of articles 304 and 304(a). It was submitted by the respondents that this is not the correct position. This argument ignores the basic feature of the Constitution and also the fact that the concept of economic unity may not necessarily be the same as it was at the time of Constitution making. The result of the same would be acceptance of the view that a State which was technically and economically weak in 1950, due to various factors, must always remain the same and cannot be helped to develop economically by granting concessions/exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 304 and it would be hit by article 301. Still the general rate of tax which is to be compared under article 304(a) is at par and the same qua the locally made goods and the imported goods. Concept of economic barrier must be adopted in a dynamic sense with changing conditions. What constitutes an economic barrier at one point of time often ceases to be so at another point of time. It will be wrong to denude the people of the State of the right to grant exemptions which flow from the plenary powers of legislative heads in List II of the Seventh Schedule to the Constitution. In a federal polity, all the States having powers to grant exemption to specified class for a limited period, such granting of exemption cannot be held to be contrary to the concept of economic unity. The contents of economic unity by the people of India would necessarily include the power to grant exemption or to reduce the rate of tax in special cases for achieving the industrial development or to provide tax incentives to attain economic equality in growth and development. When all the States have such provisions to exempt or reduce rates the question of economic war between the States inter se or econo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articles 14 and 19 of the Constitution of India and the State Government could validly classify new units producing edible oil as distinct and separate from other units and validly withdraw the exemption in relation to such units only. It is true that the aforesaid observations were made in the context different from article 304(a) but basically the concept of equality embodied in articles 304(a) and 14 are the same. Article 14 enjoins upon the State to treat every person equal before the law while article 304(a) enjoins upon the State not to discriminate with respect to imposition of tax on imported goods and the locally made goods. The petitioners made reference to several decisions of this Court, namely, H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165, Indian Cement v. State of Andhra Pradesh [1988] 69 STC 305, Weston Electroniks v. State of Gujarat [1988] 70 STC 52, West Bengal Hosiery Association v. State of Bihar [1988] 71 STC 298, wherein it has been reiterated that difference in rate of sales tax is hit by articles 301 and 304 but the said conclusions were arrived at in the context of a controversy not in the present form and the question of exemption as such did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in accordance with the power conferred by the statute has statutory force and validity and, therefore, exemption is as if contained in the Act itself. The U.P. Sales Tax Act by section 24(4) confers rule making powers on the State Government. Section 25 confers powers on the State Government to issue notifications with retrospective effect. Hence, it cannot be disputed that the exemption notification is the exercise of the legislative power. This Court in State of U.P. v. Renusagar Power Co. [1988] 4 SCC 59 at 100, has held that the power to grant exemption is quasi-legislative. In Narinder Chand Hem Raj v. Lt. Governor, Administrator, U.T., Himachal Pradesh [1972] 29 STC 169 at 174; [1971] 2 SCC 747 at 751, it was held that the exercise of the power is legislative whether it is by the legislature or by the delegate. In respect of the decisions aforesaid relied on behalf of the petitioners, on examination of the observations in Indian Cement's case [1988] 69 STC 305 (SC), to the contrary to which stated hereinbefore on this aspect, must be confined to the facts of that case alone as the said decision had no occasion to consider it in the full light. In the aforesaid vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eveloped States, on the other hand, Punjab is comparatively a backward State in industry. Unless some incentives are given, the industries which have already shifted to other States, will have further deterring effects. Hence, in view of the situation the concessional rate was introduced and was not discriminatory. As mentioned hereinbefore, reliance was placed mainly on H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC), to which one of us was a party. That was a decision dealing with lottery tickets, and dealt with the question whether lottery tickets amounted to movable property so as to be within the purview of the Sale of Goods Act. But in relation to the question relevant to the present purpose it was reiterated that the real question is, whether direct and immediate result of the impugned notification was to impose an unfavourable and discriminatory tax burden on the imported goods (in those cases lottery tickets of other States) when they are sold within the State of Tamil Nadu as against indigenous goods (Tamil Nadu Government lottery tickets) when these are sold within the State, from the point of view of the purchaser and this question had to be considered fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been construed to include ancillary or incidental power. Power to grant exemption is inherent in all taxing legislations. Economic unity is a desired goal, economic equilibrium and prosperity is also the goal. Development on parity is one of the commitments of the Constitution. Directive principles enshrined in articles 38 and 39 must be harmonised with economic unity as well as economic development of developed and under-developed areas. In that light on article 14 of the Constitution, it is necessary that the prohibitions in article 301 and the scope of article 304(a) and (b) should be understood and construed. Constitution is a living organism and the latent meaning of the expressions used can be given effect to only if a particular situation arises. It is not that with changing times the meaning changes but changing times illustrate and illuminate the meaning of the expressions used. The connotation of the expressions used takes its shape and colour in evolving dynamic situations. A backward State or a disturbed State cannot with parity engage in competition with advanced or developed States. Even within a State, there are often backward areas which can be developed only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Punjab and Another), dealing with the notifications issued by the State of Karnataka and Writ Petition No. 1140 of 1988 (Survo Udyog Pvt. Ltd. and Another v. State of Bihar and Another), deal with the same controversy and with similar notification. In view of the averments made which we have examined in detail on behalf of the concerned State Governments in the light of the principles we have reiterated before, we are of the opinion that the notifications impugned cannot be challenged and the petition cannot succeed. We have also considered Writ Petition No. 1016 of 1988 (Disco Electronics Ltd. and Another v. State of U.P. and Another) and in light of the facts and the circumstances and the averments made in the background of the principles reiterated, we are unable to sustain the challenge to the impugned notifications. In these matters we had the advantage of having the views of the intervenors and we have considered the submissions made on their behalf. In the aforesaid light, the intervention applications are allowed, submissions considered and the aforesaid writ petitions are dismissed but in the facts and the circumstances of the case, there will be no order as to costs. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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