TMI Blog1986 (1) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... ny manufacture these vehicles and compete with each other. The second respondent-company has recently established a plant in Zaheerabad, Medak District in Andhra Pradesh, for the manufacture of light commercial vehicles and the said company was formed and promoted by Hyderabad Allwyn Limited which is an undertaking managed by the Andhra Pradesh State Government, and the said Hyderabad Allwyn Company has invested six crores in the equity shares of the second respondent-company and thus the first respondent is interested in the second respondent-company. Under the notification published on 22nd April, 1985, the first respondent-State, in exercise of its powers under section 9(1) of the A.P.G.S.T. Act (6 of 1957), directed that the tax leviable under clause (a) to sub-section (2) of section 5 read with item No. I in the First Schedule to the said Act shall in respect of the sales of the light commercial vehicles manufactured by the second respondent-company, be at the reduced rate of 4 paise in a rupee during the period 1st April, 1985, to 31st March, 1987. A similar concession was given in the rate of tax payable by the second respondent under the Central Sales Tax Act (74 of 1956) i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners, did not press the validity of the notification issued under the Central Sales Tax Act and the question of mala fides also was not urged. Broadly stated, he urged the following three questions in this writ petition: (1) The notification dated 22nd April, 1985, is ultra vires the powers of the State Government as it falls outside the purview of section 9 of the A.P.G.S.T. Act. (2) The notification is hit by article 14 as there is no valid classification much less any nexus. (3) The notification is also violative of article 304(a) of the Constitution of India. Sri T. Anantha Babu, the learned counsel for the second respondent, pointed out how the doctrine of equality is applicable in respect of taxation and emphasised to a great extent on the question that the goods of the first petitioner and the second respondent are dissimilar and the exemption is in the nature of a subsidy. Sri A. Venkata Ramana, the learned Government Pleader, pointed out that the notification in question is a special exemption and the second respondent is a class by itself and took us through the several special exemptions granted by the State under the A.P.G.S.T. Act. We shall examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich bind them together to form a kind of unit readily and definitely ascertainable. In that case the forfeiture of a sum of Rs. 2,000 under the provisions of the above Act was challenged by an editor of a daily. The charge against him was that by an article published in his daily he created hatred between Bengalies and nonBengalies. It was held that Bengalies clearly form a class because they do possess common attributes but a non-Bengali might be a Hindu or a Mohammedan or even an European and a non-Bengali cannot be described as a class and hence the published article cannot be objectionable and cannot fall under the above provision of the Act. The object of definition of a class is to ascertain without any difficulty for an easy identification. The words "specified class " occurring in section 9(1) qualify the word "goods" and do not operate as words of limitation on the power of the Government to notify the exemption under section 9(1). When we look to the charging section 5(2) of the A.P.G.S.T. Act, it is clear that besides liability to pay tax on the turnover, the dealer has to pay tax in respect of each category of goods mentioned in the Schedules appended to the Act. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied under section 9(1) clearly shows that the object is to identify the goods notified. The identity is the criteria for operating such exemption whatever phraseology is used in the notification. It is the goods that ultimately gets the benefit and brings the notification outside the purview of the charging section. It may use the names of manufacturer or the patent name or the locality-the object being the identity. The respondents' counsel supplied a list of exemptions notified by the State Government. We find them at page 2 of the material papers. We also find a list of notifications neatly collected by S. Krishna Murthy in his publication "A.P. General Sales Tax Act, 1957, Origin and Growth up to April, 1984". At page 421 of this publication we find exemptions granted for sales effected in the Administrative Staff College of India in the canteen, the mess or the bar run by it. At page 422 animal feeds prepared at Food Mixing Plants at Buddavaram, Gudlavalleru and Bhonagiri were exempted. At page 423 sales of raw materials, machinery and equipment to any industrial unit set up in scheduled areas were exempted from tax. At page 432 a list of exemptions granted to building mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufactured by the second respondent-company. The second limb of the argument of the learned counsel is that the purpose of the A.P.G.S.T. Act is to raise revenue. If a statutory power is exercised for the purpose other than the purpose of the Act, however laudable the purpose might be, it constitutes a colourable exercise of the power and the same is ultra vires. It is true that the statutory power cannot be used for collateral purpose, but it is incorrect to assume that taxing statutes are intended to raise revenue only. It is enough if we note the dicta of Mathew, J., in S. Kodar v. State of Kerala [1974] 34 STC 73 (SC); 1974 SCD 645. While upholding the validity of a graded rate of taxation in terms of capacity to pay under the Tamil Nadu Additional Sales Tax Act, 1970, it was observed that "the object of a tax is not only to raise revenue but also to regulate the economic life of the society". Similarly in Malwa Bus Service (Pvt.) Ltd. v. State of Punjab AIR 1983 SC 634, it was observed at page 642 that "it is one of the duties of a modern legislature to utilise the measures of taxation introduced by it for the Purpose of achieving maximum social good and one has to trust t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be affected by it or none at all. If the classification is rational, the legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject to different classes of property to tax in different ways and adopt different modes of assessment." In Ganga Sugar Corporation Ltd. v. State of U.P. [1980] 45 STC 36 (SC) AIR 1980 SC 286 Krishna Iyer, J., observed that taxing statutes have enjoyed more judicial indulgence and held "a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the court will be reluctant and perhaps ill-equipped to investigate". The concession shown to the second respondent-company is sought to be justified on the ground that the second respondent-company constitutes a class by itself. Three reasons are urged in support of that ground. (i) The second respondent-company is a Government company. (ii) It is situated in a backward area notified by the Central Government for providing employment opportunities to the residents of that area. (iii) The company is a new entrant and a small unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a Government company and even the commercial activities carried on by the State by itself or by a corporation owned and controlled by it was given a separate status as per the Constitutional First Amendment Act, 1951, amending clause (6) of article 19 of the Constitution. Hence the classification in favour of a State or in favour of a corporation owned and controlled by the State can validly constitute a class by itself as opposed to the individual traders or the manufacturers in the same field. We must mention in this connection a minor submission made by the learned counsel for the petitioner. According to him the second respondent-company is not a Government company except by virtue of the fiction enacted under section 617 of the Companies Act (1 of 1956). He also referred to the definition of "holding company" and "subsidiary company" given under section 4 of the said Act. The learned counsel urged that the fiction enacted under section 617 must be confined to the Companies Act and treating the second respondent as a Government company amounts to raising double fiction. He relied on authorities for those propositions. It is enough if we notice the dicta of Lord Asquith wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect to the well-established principle that there must be a great deal of flexibility in the incidence of taxation of a particular kind. It must vary from time to time, as also in respect of goods produced by different processes and different agencies............ The State naturally is interested in raising all the revenue necessary for public purposes, without sacrificing the legitimate interests of persons and groups, who deserve special treatment at the hands of the State for reasons, which the State may determine, entitling them to be placed in a special class" and the classification is sustained with reference to the directive principles embodied under article 43 of the Constitution of India. Again the decision in Ram Bux Chaturbhuj v. State of Rajasthan [1961] 12 STC 330 (SC); AIR 1963 SC 351 sustained the exemption granted to the betel leaves as opposed to the persons selling vegetables. A notification excluding hosiery products from exemption from sales tax while giving exemption to sale of garments of the same value, was upheld: vide Jaipur Hosiery Mills (P.) Ltd. v. State of Rajasthan [1970] 26 STC 341 (SC); AIR 1971 SC 1330. It is observed: "It is well-settled tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the petitioner in this State are not comparable with the sales made by the second respondent and they altogether belong to a different class and hence a clear classification between the sales effected by the second respondent and the sales effected by the dealers of the first petitioner is established. Apart from that, we are of the opinion taking into account that the second respondent is a Government company, and, it is established in a centrally notified backward area, and it provides employment opportunities to those people in that area and it is a new entrant in the field, the concession shown to the second respondent is clearly sustainable as the second respondent unit constitutes a class by itself and the classification so made in its favour is justified with the object in view as stated above. The next question is violation of article 304(a). While examining this question we shall bear in mind the entire scheme in Part XIII of the Constitution. Article 301 is the pivot of that Part as the said article declares subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. The Atiabari AIR 1961 SC 232 and Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat restrictions freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade". The same was reiterated in Automobile case (Automobile Transport Ltd. v. State of Rajasthan AIR 1962 SC 1406). This view was affirmed in State of Madras v. Nataraja Mudaliar [1968] 22 STC 376 (SC); AIR 1969 SC 147 at 161 stating that, "it is settled by the decisions of this court in Atiabari's case AIR 1961 SC 232 and Automobile case AIR 1962 SC 1406 that a taxing statute is not outside the scope of article 301 of the Constitution. But before a taxing statute is held to be violative of that article, it must be shown that it has a direct or immediate impact on the freedom of trade, commerce and intercourse within the country. In other words, a mere remote or incidental impact is insufficient to hold that article 301 has been contravened". Further, while examining the violation of this mandate in article 301 it is also necessary to bear in mind the three-fold purposes of that article as emphasised in Automobile case (Automobile Transport Ltd. v. State of Rajasthan AIR 1962 SC 1406) by Das, J., wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to bear in mind the meaning of "discrimination" in this context. In New York v. United States 326 US 572 it was defined to mean "singling out another government and specifically legislating about it". The definition is accepted by Latham, C. J., in Melbourne Corporation v. Common Wealth 74 CLR 31 at 61. A similar prohibition against discrimination between States inter se is contained in article 303. The Supreme Court in Kathi Raning v. State of Saurashtra [1952] SCR 435 stated the meaning and its import in the following words: "Discrimination thus involves an element of unfavourable bias." Thus it is seen that the impugned proceedings must be directed against the petitioner as importer of goods into the State of A.P. If the object or the effect of the notification is not singling out the imported goods no discrimination arises as contemplated under this article. Let us examine the other element of "similar goods". The word "similar" in Webster Encyclopaedic Dictionary was defined to mean "Like; resembling; having a like form or appearance; like in quality". In Firm A.T.B. Mehtab Majid Co. v. State of Madras [1963] 14 STC 355 (SC); AIR 1963 SC 928 the Supreme Court expressed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernandez v. State of Kerala [1957] 8 STC 561 (SC); AIR 1957 SC 657 wherein Bhagwati, J., observed: "There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax." Section 38 of the A.P.G.S.T. Act enacts a provision with regard to nonliability of the tax in respect of export sales, import sales and sales in the course of inter-State trade or commerce. This distinction we brought out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re he can claim the exemption." No doubt this is a general exemption applicable to all. But the point to be noted is the exemption itself must create the discrimination against the importer and in the absence of such discrimination no complaint can be made on the ground of violation of article 304(a). Firm Mehtab Majid Co. v. State of Madras [1963] 14 STC 355 (SC); AIR 1963 SC 928 illustrates a direct interference by impost with the free flow of trade and commerce. The Supreme Court has struck down rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which imposed a tax on untanned hides and skins in the event when goods are brought into the State and when they are exported outside the State. The operation of the rule in its working was noticed by the Supreme Court like this: "The grievance arises on account of the amount of tax levied being different on account of the existence of a substantial disparity in the price of the raw hides or skins and of those hides or skins after they had been tanned, though the rate is the same under section 3(1)(b) of the Act. If the dealer has purchased the raw hides or skins in the State, he does not pay on the sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price of the goods also would play a role was pointed out. Referring to the above two cases it was stated: "None of the circumstances which led this court to strike down the relevant provisions in the above-mentioned two cases exists in the present case. In Mehtab's case [1963] 14 STC 355 (SC); AIR 1963 SC 928 discrimination was found to exist because of the fact that tax was being levied at the same rate in respect of both raw hides and skins as well as dressed hides and skins, even though the price of dressed hides and skins was much higher. The position was worse in the case of Hajee Abdul Shukoor [1964] 15 STC 719 (SC); AIR 1964 SC 1729 because in that case the sales tax was found to have been charged at a higher rate in respect of dressed hids skins than that on the sale of raw hides and skins in spite of the fact that the price of dressed hides and skins was higher than that of raw hides and skins. The position in the present case is materially different, for here the rate of sales tax for raw hides and skins is 3 per cent, while that for dressed hides and skins is 1 per cent. It is plain that the lower rate of tax in the case of dressed hides and skins has been prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act is uniform and no discrimination is made. The exemption granted under the notification is not an impost within the meaning of article 304(a). It is a kind of rebate granted to the second respondent. The notification has not singled out the importer or the imported goods. In fact the petitioner could not make out a case of discrimination of the goods imported by him as a manufacturer to this State. It is admitted that his sales to the consumers in this State direct, or to the dealers are of inter-State transactions and he has to pay only 4 per cent tax under the Central Sales Tax Act and that was why we held that no discrimination arises when we compare the sales effected by him as a manufacturer with the sales effected by the second respondent as manufacturer. If we compare those two sales the petitioner is in advantageous position. It is admitted that the vehicles sold by the first petitioner-company to its dealers in Andhra Pradesh are sold by them to their customers and such sales are local sales and not sales in the course of inter-State trade or commerce. However, the contention of the petitioner is that the sales made by the dealers of the petitioner are discriminated as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecommended, because adequate machinery has not been evolved to grant subsidies........................(later portion omitted) (By order and in the name of the Governor of Andhra Pradesh) Shravan Kumar Principal Secretary to Government." This exemption is for a particular period of two years. This exemption was not granted to other manufacturers or traders of light commercial vehicles. If a new manufacturer starts an industry in the Andhra Pradesh, he will not get this benefit and hence the notification in its application is general and it is not directed against the importer as such. It is true that the record discloses that the second respondent could not stand the competition in the general market and so he should be given protection for a limited period. It is agreed by the learned counsel for the petitioners very rightly that if the State makes a grant of handsome amount to a newly started industry as a subsidy no question of violation of article 304(a) arises. We see no valid reason to refuse to consider these concessional rates conferred on second respondent being in the nature of a subsidy when in particular the above G.O. embodies such principle. The State need not coll ..... X X X X Extracts X X X X X X X X Extracts X X X X
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