TMI Blog1998 (3) TMI 648X X X X Extracts X X X X X X X X Extracts X X X X ..... t ) as dealers of exercise books. They manufacture exercise books from paper purchased from dealers of paper within M.P. and also from outside the State. According to the petitioners entry No. 14 of Schedule I initially, exempted exercise books from sales tax under the Act and the said exemption was absolute, unconditional and without any exception. The said position continued till September 15, 1990. An amendment was brought into section 30 of the Act and in the column 3 of the entry 14 of Schedule I the following words were inserted: Exercise books when sold by a dealer registered under this Act and such dealer proves to the satisfaction of the assessing authority at the time of assessment that they had been manufactured out of writing or printing paper purchased from a dealer registered under this Act. After this amendment, the reduced rate of tax on exercise books at 5 per cent was only permissible if the conditions were satisfied. 3.. We have dealt with the validity of the provisions though in the meantime the M.P. General Sales Tax Act, 1958 has been repealed on coming into force M.P. Vanijyik Kar Adhiniyam, 1994. Under section 61 of the Adhiniyam the repeal sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, inter alia, that the notification was issued as a representation was made by the Merchant Association of M.P. indicating that in view of the higher rates of sales tax in M.P. on paper unscrupulous dealers are being encouraged by converting papers into the exercise books and the same is exempted from the sales tax in the State and thereby depriving the State about 75 per cent of sales tax on paper. Taking into consideration all the aspects the State Government reduced the rate of sales tax on paper and levied sales tax on exercise books . While doing so, it is averred in the return, the view expressed by the apex Court in the case of Maharaja Book Depot v. State of Gujarat AIR 1979 SC 180, where it has been held that the exercise books are nothing but paper, was kept in view. Accordingly the State Government thought it appropriate to grant partial exemption to the exercise books prepared out of paper purchased from a dealer of M.P. to avoid double taxation. It is also averred that while exempting the exercise books a condition was imposed by amending the Act that papers must be purchased from a dealer registered under the Act. It is also stated that the rate of tax was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Similarly, supply of exercise books by the Government through the co-operative societies also has a purpose because certain concession is given to the co-operative societies as a matter of policy and they would not be regarded as discriminatory. We also hasten to add that except making some bald allegations in the petition nothing has been put forth to substantiate to bring about the discrimination to attract the violation of article 14. In view of this, we do not find any force in the submission of the learned counsel for the petitioners that the impugned notification infringes the principles of equality as enjoined under article 14 of the Constitution. 9.. Learned counsel for the petitioners has strenuously urged that the notification impedes free-flow of trade and thereby violates articles 301 and 304 of the Constitution. On a perusal of the amending provision and the notification which have been brought on record we find that the State Government has reduced the rate of tax on exercise books to 5 per cent if it is sold by a dealer registered under the Act on his proving to the satisfaction of the assessing authority at the time of assessment that they have been manufactu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court held as follows: There can be no dispute that taxation is a deterrent against free-flow. As a result of favourable or unfavourable treatment by way of taxation, the course of flow of trade gets regulated either adversely or favourably. If the scheme which Part XIII guarantees has to be preserved in national interest, it is necessary that the provisions in the article must be strictly complied with. One has to recall the farsighted observations of Gajendragadkar, J., in Atiabari Tea Co. s case [1961] 1 SCR 809 and the observations then made obviously apply to cases of the type which is now before us. Their Lordships proceeded further to lay down as under: 14. Variation of the rate of inter-State sales tax does affect free trade and commerce and creates a local preference which is contrary to the scheme of Part XIII of the Constitution. In another decision rendered in the case of Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC); [1996] 11 SCC 39 their Lordships laid down as follows: 25. Now, what is the ratio of the decisions of this Court so far as clause (a) of article 304 is concerned? In our opinion, it is this: the States are certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violate article 304(a) of the Constitution and would be bad in law. 10.. At this juncture we may usefully refer to the decision rendered in the case of State of U.P. v. Laxmi Paper Mart [1997] 105 STC 1 (SC); [1997] 2 SCC 697 wherein their Lordships referred to the decision in the case of Firm A.T.B. Mehtab Majid Co. [1963] 14 STC 355 (SC); AIR 1963 SC 928. It is to be noted here that their Lordships referred to the decision of the High Court which had dealt with three categories of cases, namely, exercise books made from paper purchased within U.P.; exercise books made from outside the State of U.P. and brought into and sold in U.P., and exercise books made in U.P. but out of the paper purchased from the outside of the State of U.P. While dealing with these three categories their Lordships observed that the High Court had held that so far as the second category is concerned it is hit by article 301 read with article 304(a) of the Constitution. The High Court had not found fault with the third category, but as the dealer had not approached the apex Court their Lordships did not consider whether the decision of the High Court in respect to the third category was correct or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoided. The question that requires consideration is whether payment of tax on raw material purchased within the State would justify exemption? At this juncture we may usefully refer to the decision rendered in the case of Andhra Steel Corporation v. Commissioner of Commercial Taxes in Karnataka [1990] 78 STC 243 (SC); 1990 Supp SCC 617. In this case the dealer purchased 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. The Commercial Tax Officer exempted the sales turnover of the manufactured goods which had suffered tax on iron scraps but later on the Commissioner in exercise of power of revision issued notice to show cause prima facie observing that there had been no verification as to whether inputs had suffered taxes. At that juncture the dealer therein filed a writ application to quash the notice to show cause challenging the constitutional validity of the provisions as violative of article 304(a) of the Constitution. The apex Court noted the factual matrix and the grievance of the appellant therein in paragraph 6 of the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the judgment of the High Court under appeal is not acceptable. From the aforesaid enunciation of law it is luminously clear that the purchase of raw material inside the State to achieve the end-product cannot be a basis to justify exemption. As the facts reveal the exemption is granted on the exercise book solely on the basis of that that dealers in exercise books must have made the same out of the paper purchased inside the State of M.P. If a dealer has utilised the papers purchased from outside the State he is not entitled to exemption. Thus, in our view such grant of exemption offends conscience provisions of articles 301 and 304(a) of the Constitution. 13.. We must hasten to add that Mr. Jha, learned Deputy Advocate-General has strenuously urged that the Legislature had introduced the amendment to avoid double taxation as a dealer who purchases paper inside the State of M.P. pays tax on paper and, the exercise book being not a different and distinct commodity from paper, he has been partially exempted to pay sales tax on exercise books . To elucidate, if someone has not paid tax on paper, he is required to pay tax on exercise books and there is no unjustifiabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t seems to us that the process undertaken by the petitioners in preparing exercise and bound books out of paper is nothing but manufacturing process. 15.. In view of this foregoing analysis, we are of the considered view that the reasons in the counter-affidavit and submission canvassed by the learned Deputy Advocate-General to treat the two items, namely, paper and exercise books as one and the same do not merit consideration. There remains no iota of doubt that an exercise book is a distinct article than paper. 16.. In view of our preceding analysis, we are of the considered view that the amendment brought under section 30 of the Act whereby column 3 of entry 14 of the Schedule I of the Act was amended is ultra vires of the provisions contained in articles 301 and 304(a) of the Constitution. Because of this declaration of ours the exemption which has been allowed to the dealers under certain conditions could not have been made available. 17.. Now to the grant of relief to the petitioners. As has been noted earlier, the petitioners were not granted exemption as they had not purchased the papers from the dealers under the Act. In that event they had been taxed at the preva ..... X X X X Extracts X X X X X X X X Extracts X X X X
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