TMI Blog1959 (12) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Rules. Section 3(1) of the Madras General Sales Tax Act makes it obligatory on every dealer to pay a tax for each year on the total turnover (which is to be determined in accordance with rules prescribed in that behalf) at the rate specified in the section. The term "turnover" as defined in the Act is the aggregate amount, for which goods are bought or sold. Section 3(1) would, if unrestricted, enable a levy of sales tax on as many occasions as there are sales by dealers of particular goods, resulting in what is called a multi-point levy. Section 3(3) exempts a dealer whose turnover is less than Rs. 10,000 in any year from payment of sales tax for that year. There are also exemptions and reductions in respect of the taxes leviable on certain goods. Section 5 enumerates them. In two cases there is a total exemption, and in four others a multi-point levy was avoided by prescribing a single point in the series of sale transactions which the goods may undergo within the State. Section 5(vi) relates to the levy of tax on the sale of hides and skins, modifying the otherwise multi-point liability into a single point one, the point in the series of sales being left to be prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... den of proving that a transaction is not liable to taxation under this rule shall be on the dealer". A comparative study of the old and the new rules shows that essentially there has been no change in the system of taxation since 1939 in respect of hides and skins. They have been treated as one commodity, whether tanned or untanned. The rules proceed to fix only the point at which the tax has to be levied; under the present rule tax is levied at the point of the last purchase of the untanned skins in the State or on the first sale of tanned skins in the State, with an exemption in case tax was paid on the skins, while they were in untanned condition. The new rules have remedied the defects noticed in the old, and as dealers in hides and skins are now obliged to take out licenses the anomaly of a licensed dealer paying the tax while an unlicensed dealer escaped it is avoided. It is the validity of the new rule that is impugned in this petition. Mr. M.K. Nambiyar, the learned Advocate for the petitioner, contended that the new rule would be invalid as the operation of it would result in discriminatory taxation. Two cases in which it was alleged there would be discrimination are: (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the learned AdvocateGeneral, appearing for the respondents, contended thus: Article 304 did not affect taxation in respect of sale of goods within a State, in respect of which the State Legislature had plenary powers under Article 246(3) read with List II to the Seventh Schedule of the Constitution. A sales tax which is levied on the occasion of a sale within a State could not be conceived in any sense as a tax on the goods of another State, and even if there be any discrimination in the levy of a sales tax with respect to sales in a State, it could not properly come within the ban imposed by Article 304(a). Article 304(a) could only relate to taxes imposed on goods when they are imported from other States or by reason of importation, but once that stage is past, the goods become the goods in the taxing State and there would be no limitation on the powers of the State Legislature to tax sale of those goods. Article 304(a) does not by itself authorise a taxation for which authority has to be found only in Article 246. Reliance was placed on the observation of Venkatarama Iyer, J., in Sundararamier Co. v. State of Andhra Pradesh[1958] S.C.R. 142; 9 S.T.C. 298., who while conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as between goods manufactured or produced in the Province and similar goods not so manufactured or produced, discriminates in favour of the former, or which, in the case of goods manufactured or produced outside the Province discriminates between goods manufactured or produced in one locality and similar goods manufactured or produced in another locality." The Government of India Act, 1935, did not contain a guarantee of free trade like Article 301 under the Constitution. The prohibition imposed by section 297(1)(b) limited only the powers of legislature etc. of the Provinces and not of the Center. That section prohibited discriminatory tax by a Province as against the goods produced or manufactured in other Provinces, and such prohibition was not confined to import taxes alone. In Bharat Automobiles v. State of Assam[1957] 8 S.T.C. 537., the validity of a provision in the Assam Sales Tax Act, 1947, namely section 29, arose for consideration. Under that section, a dealer, who would not be liable to tax on the sale of goods if he had obtained the same within the Province, was made liable to a tax in respect of the goods obtained outside the Province. The learned Judges held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore be taken to mean only excise duties. If that were so, there would be no necessity for Article 304(a) at all as Article 246 read with Schedule VII, List II, entry 51, would itself enable a State Legislature only to impose countervailing duties on goods imported from other States at rates not exceeding those levied on similar goods manufactured or produced in that State. Independent of item 51 there are other entries in that list which would authorise a taxation by the State, e.g., 52 to 58. Independent of entry 51 it is possible to conceive of a State being anxious to levy a higher tax on goods from other States. It would be a reasonable construction of the Article 304(1) to hold that it contemplated a ban on all heads where discriminatory taxation was possible, as such a construction would advance the object and prevent the mischief sought to be prohibited by Article 301. Article 301 deals with the freedom of inter-State trade. Its undoubted purpose is to preserve the economic integrity of India by facilitating and providing for free flow of trade and commerce between the states. In the State of Bombay v. R.M.D. ChamarbaugwalaA.I.R. 1957 S.C. 699., S.R. Das, C.J., observed: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States. Indirect barriers can also be created by taxation. Article 303 relates to the former category, while Article 304 would relate to the latter. In The State of Bombay v. The United Motors (India) Ltd.[1953] S.C.R. 1069; 4 S.T.C. 133., Patanjali Sastri, C.J., observed at page 1081. "It will be seen that the principle of freedom of inter-State trade and commerce declared in Article 301 is expressly subordinated to the State's power of taxing goods imported from sister States, provided only no discrimination is made in favour of similar goods of local origin. Thus the States in India have full power of imposing what in American State legislation is called the use tax, gross receipts tax etc., not to speak of the familiar property tax, subject only to the condition that such tax is imposed on all goods of the same kind produced or manufactured in the taxing State, although such taxation is undoubtedly calculated to fetter inter-State trade and commerce. In other words, the commercial unity of India is made to give way before the Statepower of imposing 'any' non-discriminatory tax on goods imported from sister States." Again at page 1087 the learned Chief Justice of India obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax goods which are brought into it from outside. In State of Bombay v. The United Motors (India) Ltd. [1953] S.C.R. 1069; 4 S.T.C. 133., it is observed: "Does the principle of freedom of inter-State commerce require that a State should foster such commerce to the detriment of domestic trade? It is one thing to avoid impeding inter-State commerce by imposing discriminatory burdens upon it which internal trade does not have to bear, but quite another to place local products and local business at a disadvantage in competition with outside goods and dealers. It would be a curious perversion of the principle of freedom of inter-State commerce to drive local custom across the border to outside dealers, and that, in our opinion, could not have been contemplated." But that power should be limited in the wider interests of the country and its unity. Article 304(a) is, therefore, intended to safeguard the right of a State to tax goods coming into it from other States. But, at the same time, in conformity with the declaration made in Article 301, it states that the tax levied on goods brought into it from other States shall not be higher than what the State imposes on the goods, either manu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if tax has already been paid on an earlier transaction when those skins were untanned; thus in substance the points of levy on transactions in untanned skins and tanned skins are mutually exclusive. The points fixed are not with respect to the origin of the goods, but with respect to a single point available to the State in the circumstances of a case. That no exemption would be available where the goods were tanned outside the State is due to the fact that the goods were not in existence in the State at an earlier stage and no tax could be levied while there was a sale in its raw state. Further, the tax on the sale of tanned hides and skins is not only on those imported from other States. Even in regard to hides and skins produced in this State, if no tax was levied or leviable in their raw state, the assessment will be made only on the basis of its sale after being tanned. By way of illustration, let us take for instance a case where a dealer is not liable to assessment by reason of the turnover in raw hides and skins bought within the State being less than Rs. 10,000; if he tans them and the tanned goods are sold and the turnover therein exceeds Rs. 10,000 he would be liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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