TMI Blog1987 (9) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, is liable to pay 2 1/2 paise in the rupee under clause (b), not 6 1/2 paise under clause (a) of item 24 of the First Schedule of the Act. Clause (b) of the item recites refined oil obtained from groundnut that has met tax under item 6 of the Third Schedule is liable to be taxed at the rate of 2 1/2 paise in the rupee. Whereas, even when it is shown groundnuts met the sales tax outside the State, such imported refined oil is taxed at 6 1/2 paise in the rupee. This is the rub in the case. The firm contends such a measure of taxation of imported oil is violation of articles 14, 301 and 304(a) of the Constitution. The firm complains of discrimination. Besides, such a course of action by the taxing authorities, the firm avers, violates free flow of trade and commerce guaranteed in Part XIII of the Constitution. The State Government traversed the allegations and in the counter the State averred imported refined oil from Karnataka or any other State, is not discriminated. It is shown groundnuts are taxed at the rate of 4 paise in the rupee under entry 6 of the Third Schedule. Inter-State trade and commerce, it is asserted, is not thwarted or obstructed. Free flow of refined oi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case. Therefore, in the Automobile case AIR 1962 SC 1406 "a clarification" was grafted. The clarification today is accepted on all hands traverses far beyond the reasoning of the majority in Atiabari's case AIR 1961 SC 232. The minority view in the two cases (Atiabari AIR 1961 SC 232 and Automobile AIR 1962 SC 1406) suffered similar tremors. The jurists, if they can be divided in two categories-text-book writers and other jurists. The text-book writers hold the interpretation in the minority of two cases (Automobile AIR 1962 SC 1406 and Atiabari AIR 1961 SC 232 cases) is correct; whereas other jurists hold the reasoning in the minority in the two cases cannot be supported. Few of the Judges in the State High Courts hold the conclusion of jurists is not wrong. Such is the spectrum of conflict and well-nigh it is impossible for any judge of the High Court to rearrange the articles in Part XIII for they cannot traverse beyond what is laid by the Supreme Court. This is another difficulty peculiar to judges in the High Court. Notwithstanding cases are to be decided. Conflicts have to be resolved. This is recounted in brief to avoid a full scale discussion on Part XIII of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 paise in the rupee. This is to overlook the cutting edge of the issue. Now relevant cases of the Supreme Court be considered. In the last of the cases known as "lottery tickets" case [H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC); AIR 1986 SC 63] the facts show: The State of Tamil Nadu organised a raffle scheme of lottery tickets. Sales tax is levied at 20 per cent by the statute on the first point of sale in the State. The vendor in the first point was the State itself. By issuing appropriate notifications tax was exempted on Tamil Nadu lottery tickets. The purchaser of the State lottery tickets was exempted to pay sales tax. The purchaser of one rupee ticket had to pay a rupee only and no sales tax was payable if it was Tamil Nadu ticket of lottery. Whereas, a dealer of lottery tickets of Bhutan and Assam (who was the contestant in the case) the purchaser of the tickets of the two States had to pay Re. 1-20 (20 paise was sales tax) for the face value of one rupee ticket. This was complained as violative of articles 14, 301 and 304(a) of the Constitution. The defence of the Government was the State of Tamil Nadu was the first seller and as a first seller it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skins which had been obtained from outside the State of Madras on the ground that there was discriminatory taxation which offended article 304(a) of the Constitution. The respondents contended (a) that sales tax did not come within the purview of article 304(a) as it was not a tax on the import of goods at the point of entry, (b) that the impugned rule was not a law made by the State Legislature, (c) that the impugned rule by itself did not impose the tax but fixed the single point at which the tax was imposed by sections 3 and 5 of the Act, and (d) that the impugned rule was not made with an eye on the place of origins of the goods. Negativing all the contentions of the respondents this court held that it was well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hampered free flow of trade and if they are not what can be termed to be compensatory tax or regulatory measure; that sales tax of the kind under consideration could not be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities; that the sales tax which had the effect of discriminating between goods of one State and goods of another m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax --------------------------------------------------------------------------- (1) (2) (3) (4) --------------------------------------------------------------------------- 24 Groundnut oil or refined oil: (1024) (a) Groundnut oil or refined At the point of first 6 1/2 paise in oil not covered by subsale in the State. the rupee. item (b) below. (b) Groundnut oil or refined At the point of first 2 1/2 paise in oil obtained from groundnut sale in the State. the rupee. that has met tax under the Act. --------------------------------------------------------------------------- At this stage it is relevant to notice another entry and it is entry 6 of the Third Schedule which relates to declared goods. ---------------------------------------------------------------------------- S. No. Description of goods Point of levy Rate of tax ----------------------------------------------------------------------------- (1) (2) (3) (4) ----------------------------------------------------------------------------- 6 Groundnut or peanut (Arachis When purchased by 4 paise in hypogaea) (3006) a miller other than a the rupee. decorticating miller in the State, at the point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Andhra Pradesh and sale of the oil produced and obtained from out of it. It is urged that in respect of oil covered by the third category, the local sales are liable to be taxed under the State Act at the rate of 2 1/2 paise in the rupee as the groundnut has already been subjected to tax under entry 6 of the Third Schedule. Regarding oil mentioned at (1) and (2) above, the local sales will be subject to tax at the rate of 61 paise under entry 24(a) as there was no levy of tax in respect of the groundnuts. From the above, the learned counsel urges that oil imported from outside the State is subject to a higher tax than oil obtained from groundnut which has suffered tax under the State Act. In other words, the contention is oil sold locally but which has been imported from outside is subjected to higher tax than oil made out of groundnut which has suffered tax at the purchase stage is subjected to a lesser tax. It is, therefore, contended that entry 24(a) is discriminatory and violative of article 304(a) of the Constitution. The learned counsel placed reliance on two decisions of the Supreme Court in Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 STC 355; AIR 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude the tax which has the effect of blocking or impeding it. The State tax in that case was held to produce such effects. In other words, in determining the question whether the tax is discriminatory within the meaning of article 304(a) the Supreme Court took into account the "effect" of the tax on the flow of the goods from outside the taxing State. In the case of Hajee Abdul Shukoor [1964] 15 STC 719; AIR 1964 SC 1729 the Supreme Court held that sub-section (1) of section 2 of the Madras General Sales Tax (Special Provisions) Act, 1963 discriminates against imported hides and skins which were sold up to August 1, 1957. The rate of tax on the sale of tanned hides and skins as would appear from that judgment was "2 per cent on the purchase price of those hides and skins in the untanned condition, while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee". The court in this context referred to Mehtab's case [1963] 14 STC 355 (SC); AIR 1963 SC 928 and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which directly and immediately impede or hamper the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301 and subject to the other provisions of the Constitution they may be regarded as void." The argument was then advanced that by imposing tax on sales no restriction hampering trade is imposed. Referring to the passage in Atiabari Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809 and a passage from the opinion of Bachawat, J., in Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 the Supreme Court observed: "It must, therefore, be regarded as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so." The Supreme Court further observed: "The flow of trade does not necessarily depend upon the rates of sales tax: it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade." The Supreme Court then said: "Prevalence of differential rates of tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Madras v. N.K. Nataraja Mudaliar [1968] 22 STC 376 and Rattan Lal Co. v. Assessing Authority [1970] 25 STC 136. In V.G. Naidu Sons v. State of Tamil Nadu [1976] 38 STC 565 (SC) AIR 1977 SC 548 the validity of item 7(b) was challenged as violative of article 304 of the Constitution of India. Under item 7(a) of the Madras General Sales Tax Act, raw hides and skins were liable for tax at the rate of 3 paise at the point of last purchase in the State and under item 7(b) dressed hides and skins which were not subjected to tax under raw hides and skins were liable to be taxed at a different rate at the point of first sale. It was contended that item 7(b) is discriminatory inasmuch as imported dressed hides and skins sold locally but which have been made out of imported raw hides and skins are subject to tax similar sales of dressed hides and skins made out of raw hides and skins which have suffered tax at the purchase stage are not subjected to tax under item 7(b) of the Act. The Supreme Court rejected the contention and held as follows: "Article 304(a) does not prevent levy of tax on goods: what it prohibits is such levy of tax on goods as would result in discrimination ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount the levy of tax in respect of the purchase of raw hides and skins. " In the present case, there are no circumstances to hold that item 24(a) makes a hostile discrimination between oil imported from outside the State and oil obtained from groundnut which suffered tax in the State. Both are taxable at the point of first sale in the State. Under entry 6 of the Third Schedule, tax is levied at the rate of 4 paise in a rupee on groundnuts at the point of purchase by the last dealer. Groundnut is the material from which groundnut oil is obtained. It is in respect of oil obtained from groundnut that suffered the tax, entry 24(b) prescribes a rate of 2 paise in the rupee on the first sale. Otherwise, groundnut oil whether imported or made from groundnut locally tax is leviable at the rate of 6 paise in the rupee. Take for instance a dealer who sells oil which had been obtained from groundnut which has not suffered tax, he having not purchased the groundnut at all as it was from his own field or grown by him. Such sales are also liable to be taxed at the rate of 6 paise in the rupee. The discrimination if at all is because of entry 24(b). Since the groundnut from which the oil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in addition to face value the Tamil Nadu Government issued a notification bringing into force an arrangement whereby retaining the sale price of the ticket at its face value, the tax was not passed on to the licensed dealer or to purchaser. In effect, the notification grants an exemption from payment of sales tax to the purchaser. Thus in substance lottery tickets by the Government of Tamil Nadu do not suffer any tax, while on the other hand, the lottery tickets by the other Governments sold within the State of Tamil Nadu are subjected to tax. The net result was that sale of lottery tickets of other States are at a great disadvantage as compared by the sale of Tamil Nadu Government lottery tickets inasmuch as a Tamil Nadu lottery ticket of the face value of Re. 1 is available to the purchaser at Re. 1, but the lottery tickets of the other Governments will have to be purchased by the purchaser at Re. 1-20. On these facts, the Supreme Court held that the direct and immediate result of the notification was to impose an unfavourable tax burden on the imported goods and the impugned notification directly and immediately hampered free flow of trade, commerce and intercourse and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m which the petitioner-firm extracted oil, has met tax in Karnataka, in which case the tax at the rate of 2 paise in the rupee should be levied. Amareswari, J., however took a different view and held that the entry does not suffer from any infirmity and does not offend any of the articles of the Constitution. Because of the difference of opinion, the matter has come up before me. The petitioner-firm filed a return for the assessment year 1977-78 showing a turnover of refined oil to the tune of Rs. 14,76,567.25. The firm represented that the oil was imported from Karnataka and that the groundnut out of which the oil was extracted met sales tax in Karnataka and therefore the tax should be at the rate of 2 paise in the rupee and not 6 paise in the rupee. This plea was rejected and the firm has finally filed this writ petition. Entry 24 of the First Schedule reads thus: ---------------------------------------------------------------------------- S. No. Description of goods Point of levy Rate of tax (1) (2) (3) (4) ---------------------------------------------------------------------------- 24 Groundnut oil or refined oil: (1024). (a) Groundnut oil or refined At the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of the sales of oil imported from other States which is 6 paise in the rupee. Ex facie it may appear to be discriminatory. The learned counsel, therefore, relying on some of the decisions of the Supreme Court, contends that the entry is ultra vires. At this juncture it becomes necessary to refer to some of the oft-cited decisions of the Supreme Court. In Firm A.T.B. Mehtab Majid Co. v. State of Madras [1963] 14 STC 355 (SC); AIR 1963 SC 928 the grievance of the appellant was that though there was a substantial disparity in the price of raw hides and skins and the price of dressed hides and skins, the same rate of tax was levied in respect of both types of hides and skins and therefore it was discriminatory and violative of article 304(a) of the Constitution. The Supreme Court held: "The similarity contemplated by article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not." From the facts in that case it appears the real grievance of the appellant therein was that the rate of tax was not proportionate to the price of the two types of skin. The Supreme Court also observed that if the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse fall within the prohibition imposed by article 301 and subject to the other provisions of the Constitution they may be regarded as void". It is also further held that "it must, therefore, be regarded as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so". The next important case to be noted is H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 (SC); AIR 1986 SC 63, popularly known as "lottery tickets case". In this case a raffle scheme was promulgated by the State Government and an exemption was granted from payment of sales tax, and under an arrangement whereby retaining the sale price of the ticket at its face value, the tax was not passed on to the licensed dealer or to purchaser. The sale of lottery tickets of other States were at a great disadvantage as compared by the sale of Tamil Nadu Government lottery tickets. The question was whether such an exemption from payment of tax is discriminatory because of the tax burden on the sale of lottery tickets of other States (imported goods) when they are sold within the State of Tamil Nadu as against the lottery tickets of T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that does not mean that the oil manufactured in the State is taxed at a lower rate. Already the tax at the rate of 4 paise is levied and the sale of oil extracted from the groundnut as provided under entry 24(b) is taxed at 21 paise. The groundnut and oil cannot be considered in isolation for the purpose of levy of total tax. Taking these factors into account, the legislature has fixed a lesser rate under entry 24(b). While fixing 61 paise in the rupee under entry 24(a), the legislature also kept in view that the groundnut from which the oil is extracted has not suffered any tax in the State and therefore the rate of tax could be at 61 paise in the rupee. From the ultimate rates of tax that are levied on the sale of these two types of oils, it can be seen that the rate of tax is the same and the quantum of tax both on the groundnut and the oil put together also would be the same so far as this State is concerned. The levy of tax under entry 24(a) is not in any manner opposed to the principles laid down in Mehtab Majid's case [1963] 14 STC 355 (SC); AIR 1963 SC 928, Nataraja Mudaliar's case [1968] 22 STC 376 (SC); AIR 1969 SC 147 and H. Anraj's case [1986] 61 STC 165 (SC); AIR 1986 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were taxed on the amount of the purchase of the raw hides and skins the price of which compared to the price of tanned hides and skins would be very insignificant, and such taxation scheme, therefore, discriminated against the import of raw hides and skins for bringing them inside the State. Their Lordships of the Supreme Court referred to Nataraja Mudaliar's case [1968] 22 STC 376 (SC); AIR 1969 SC 147, Mehtab Majid's case [1963] 14 STC 355 (SC); AIR 1963 SC 928 and Hajee Abdul Shukoor's case [1964] 15 STC 719 (SC); AIR 1964 SC 1729 and observed that when the rate is applied the resulting tax might be somewhat higher but that did not contravene the equality clause contemplated by article 304 of the Constitution. What, therefore, emerges is that levy of every tax did not interfere with the freedom of trade guaranteed under article 301 of the Constitution. It can be said that there is interference only in a case where the legislation directly and immediately restricted and hampered the free flow of trade, commerce and intercourse and the discrimination must be direct and arise out of the taxing provisions themselves. Therefore, if a general rule levying the rate of tax was made a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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