TMI Blog1990 (3) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... d tax at that stage. - Civil Appeal No. 1672, 1673, 1674(NT) of 1990 - - - Dated:- 30-3-1990 - SABYASACHI MUKHARJI, MADAN MOHAN PUNCHHI AND RAMASWAMI V. JJ. P.R. Ramasesh, Advocate, for the respondent. B. Sen, Senior Advocate (H. Raghvendra Rao and Vineet Kumar, Advocates with him), for the appellant. -------------------------------------------------- The judgment of the Court was delivered by V. RAMASWAMI, J.- Special leave granted. The appellant is a registered dealer under the Karnataka Sales Tax Act (hereinafter called "the Act'). The appellant (hereinafter referred to as "the assessee") purchases iron scrap from dealers inside and outside the State of Karnataka for the purpose of manufacturing iron ingots, steel rounds and tor-steel. These manufactured goods were sold mostly within the State. In respect of the assessment years 1972-73 to 1974-75, accepting the contentions of the assessee that the goods sold were manufactured out of tax-suffered iron scrap, the Commercial Tax Officer exempted the sales turnover of the manufactured goods. The Deputy Commissioner of Commercial Taxes in exercise of his powers under section 21 of the Act restrict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local items of finished goods of iron and steel as such and that the variation in the quantum of tax is on account of the scheme of taxation working differently on different dealers, those who import raw material and manufacture and those who locally purchase and manufacture and hence such an effect is only indirect result and not having direct or immediate impact. In that view the High Court dismissed the writ petition and gave liberty to the appellant to file objections before the Commissioner of Commercial Taxes for dealing with questions on merits. This appeal has been filed against the said judgment of the High Court. The main point that was urged in this appeal was that section 5(4) of the Act in so far as it pertains to item 2 in the Fourth Schedule read with the explanation II is violative of article 304(a) of the Constitution as under that provision the sale of finished goods manufactured out of imported raw material is taxed but the sale of finished goods manufactured out of locally purchased raw material is not taxed and that amounts to hostile discrimination in the rate of tax or quantum of tax. Section 5(4) of the Act is the charging section in respect of declared go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions as may be prescribed." The Fourth Schedule to the Act contains a list of declared goods specifying the point of levy and the rate of tax. Item 2 of this Schedule relates to iron and steel. Since the interpretation of this item is in question the relevant portion of item 2 may be extracted. The item reads as follows: "FOURTH SCHEDULE Declared goods in respect of which a single point tax is leviable under section 5(4). Sl. No. Description of the goods Point of levy Rate of tax 1 2 3 4 1 .................... 2 Iron and steel, that is to say,- (i) pig iron and cast iron including Sale by the ingot moulds, bottom plates, first or earliest iron scrap, cast iron scrap, runner of successive scrap and iron skull scrap; dealers in the (ii) steel semis (ingots, slabs, State liable to blooms and billets of all qualities, tax under this shapes and sizes); Act. (iii) skelp bars, tin bars, sheet bars, hoebars and sleeper bars; (iv) steel bars (rounds, rods, squares, flats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said steel semis or the rerolled products as the case may be: Provided that the dealer claiming exemption of tax under this explanation furnishes before the assessing authority concerned proof of levy and payment of tax by the previous or earliest of successive dealers on the said scrap or steel semis used in the manufacture of the steel semis rerolled products, as the case may be: Provided further that in respect of the said steel semis or the said rerolled products of iron and steel, no amount was collected by the dealer from his customers by way of tax or purporting to be by way of tax." As already stated the appellant purchases iron scrap both from local registered dealers and also from the dealers outside the State of Karnataka and manufactures ingots and sells the same mostly within the State of Karnataka. The constitutional validity of the above said provision is challenged on the ground that while the appellant's sale of ingots manufactured out of locally purchased scrap will not be subjected to tax, the appellant's sale of ingots manufactured out of scrap purchased from outside the State of Karnataka would be subjected to tax. In Firm A.T.B. Mehtab Majid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the State, as the tax on the former is on the sale price of the tanned hides or skins and on the latter is on the sale price of the raw hides or skins. Such a discriminatory taxation was said to offend the provisions of article 304(a) of the Constitution. This Court pointed out that if the dealer has purchased the raw hide or skin in the State, he does not pay tax on the sale price of the tanned hides or skins. He pays on the purchase price of untanned hides or skins only. If on the other hand, the dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins. He will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside, and having not paid any tax under sub-rule (1). This is one of the reasons on which this Court held that rule 16(2) discriminated against the imported hides or skins which had been purchased or tanned outside the State and that, therefore, they contravene the provisions of article 304(a) of the Constitution. The next ground on which this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the impugned provision to pay tax at the rate of 2 per cent of the amount for which such hides and skins were last purchased in untanned condition. Thus the contention was that the petitioners would pay a higher tax than what was paid by the seller of dressed hides and skins purchased in the State in the raw condition and then tanned and sold and that, therefore, the impugned provisions set out above discriminate against imported untanned hides and skins. Accepting this contention after referring to the decision in A.T.B. Mehtab's case [1963] 14 STC 355 (SC); [1963] Supp 2 SCR 435, this Court observed: "In the earlier case, discrimination was brought about on account of sale price of tanned hides and skins to be higher than the sale price of untanned hides and skins, though the rate of tax was the same, while in the present case, the discrimination does not arise on account of difference of the price on which the tax is levied as the tax on the tanned hides and skins is levied on the amount for which those hides and skins were last purchased in the untanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional validity of these provisions were questioned on the basis of the restriction placed on the legislative power under the Constitution. In State of Bombay v. United Motors (India) Ltd. [1953] 4 STC 133; [1953] SCR 1069, this Court held that importing State is competent to levy tax on transactions of sale in the course of inter- State trade or commerce on persons who are residents outside the territory, provided that the goods were delivered in the importing State for the purpose of consumption therein. Thus the delivery for consumption within the State was considered to be a point at which the tax can be levied on inter- State sale. But this decision made the dealer carrying on business in the exporting State amenable to the sales tax law of the importing State. The question was again considered by this Court in Bengal Immunity Co. Ltd. v. State of Bihar [1955] 6 STC 446; [1955] 2 SCR 603. This Court held in that case that a sale or purchase in the course of inter-State sale, trade or commerce could not be taxed by any State until by law it was otherwise provided by Parliament. This led to the amendment of the Constitution by the Constitution (Sixth Amendment) Act, 1956. By that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sale or purchase of such goods inside the appropriate State. But by section 15 the tax payable under a State law in respect of any sale or purchase of declared goods inside the State was not to exceed two per cent of the sale or purchase price thereof, and was not leviable at more than one stage. On turnover from sales of goods not falling within categories (1) and (2) the rate was seven per cent, or the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever was higher. But by sub-section (2A) of section 8 it was provided that notwithstanding anything contained in sub-section (1) or sub-section (2), if under the sales tax law of the appropriate State the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally at a rate which is lower than two per cent, the tax payable under the Act on the turnover in so far as the turnover or any part thereof relates to the sale of such goods shall be nil, or as the case may be, shall be calculated at the lower rate. There is a slight inconsistency between section 8(2) and section 8(2A). If the rate of tax under the State law is less t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular part of the country goods may be purchased from another part, where a higher rate of tax prevails. Supposing in a particular State in respect of a commodity, the rate of tax is 2 per cent, but if the benefit of that low rate is offset by the freight which a merchant in another State may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State, even though the rate of tax in that State may be higher. Existence of long-standing business relations, availability of communications, credit facilities and a host of other factors-natural and business-enter into the maintenance of trade relations, and the free flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States." and that "by authorising the State from' which the movement of goods commences to levy on transactions of sale Central sales tax, at rates prevailing in the State, subject to the limitation already set out, in our judgment, no discrimination can be deemed to be practised." As may be seen from the above discussion the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 STC 376 (SC); [1968] 3 SCR 829, did not dissent from the ratio of the judgment in Mehtab Majid Co.'s case [1963] 14 STC 355 (SC); [1963] Supp 2 SCR 435 or Hajee Abdul Shukoor's case [1964] 15 STC 719 (SC); [1964] 8 SCR 217. In Rattan Lal and Co. v. Assessing Authority [1970] 25 STC 136 (SC); [1969] 2 SCR 544, the discrimination pleaded was that in fixing the stage of tax for declared goods section 5(3) of the Act made a discrimination between imported goods and local goods. That provision reads as follows: "(3) Notwithstanding anything contained in this Act,- (a) in respect of declared goods, tax shall be levied at one stage and that stage shall be- (i) in the case of goods liable to sales tax, the stage of sale of such goods by the last dealer liable to pay tax under this Act; (ii) in the case of goods liable to purchase tax, the stage of purchase of such goods by the last dealer liable to pay tax under this Act;" The argument was that there is a discrimination between the first purchase in the case of imported goods and last sale in the case of local goods. Since the imported goods might be more expensive by reason of freight, etc. or intermediary sales having t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed the assessee's inter-State sales under the Central Act. The assessee filed a writ petition in the High Court questioning the constitutional validity of item 9(b) of the Third Schedule to the Andhra Pradesh General Sales Tax Act as unconstitutional and void and for a further declaration that no tax could be levied or was leviable under the Central Sales Tax Act on inter-State sales of tanned hides which had already suffered tax at the untanned stage. Thus the question for consideration was whether tanned hides and skins which has already suffered tax at the untanned stage when sold in inter-State sale was liable for levy of tax under the Central Act. This was raised in this form because tanned hides and skins which were not subjected to tax as untanned hides and skins alone was liable for the levy under item 9(b) of the Third Schedule to the State Act. The High Court dismissed the writ petition relying on the Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829 and Rattan Lal Co.'s case [1969] 25 STC 136 (SC); [1969] 2 SCR 544. The assessee preferred an appeal by special leave. This Court was of the view that the point involved in the case was no longer res i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. But in the view we have taken on the first aspect of the matter and in view of the decisions of this Court in the cases of State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 (SC); [1968] 3 SCR 829 and Rattan Lal Co. v. Assessing Authority [1970] 25 STC 136 (SC); [1969] 2 SCR 544, it is not necessary for us to discuss this aspect any further." It may be seen from these passages cited that the ratio of the decision as in the case of Nataraja Mudaliar's case [1968] 22 STC 376 (SC); [1968] 3 SCR 829, was that in the case of inter-State sale the levy of tax is under the Central Sales Tax Act only though for the purposes of rates of tax that rate which is applicable to local sales is adopted subject to the maximum mentioned in section 8(2) of the Central Act and these decisions have no application to a case where the discrimination pleaded with reference to a provision in State law imposing taxes with reference to local as well as in respect of the imported goods. As we have already noticed the States have no legislative power to tax inter-State sales and it is only the Parliament that could make law. The Central Act is the law relating to tax on inter- State sales m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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