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TMI Blog1999 (3) TMI 603X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners was treated as taxable goods and sales tax was levied. Though the petitioners had objected for the levy of tax on cardamom, as cardamom, is the agricultural product, the authorities referred to section 2(r) of the Act which gives exemption only for the agricultural produces grown within the State and, therefore, the petitioners were told that they were not eligible to claim exemption on the turnover relating to the sale of cardamom and taxes have been levied for the years 1983-84 to 1988-89. It is only under this background, the petitioners have come forward with these petitions under article 226 of the Constitution, challenging the validity of the words "within the State" found in section 2(r) of the Act and consequentially the assessment orders starting from 1983-84 to 1988-89 are questioned. Therefore, the question is whether the words "within the State" occurring in section 2(r) of the Act have to be struck down as violative of the Constitution. 2.. Before we enter into the controversy in these petitions, we have to understand the impugned provision section 2(r) of the Act, which is as follows: "Section 2(r): 'Turnover' means the aggregate amount for which goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces of Tamil Nadu are exempted from tax under section 2(r) when they were produced by the owner of the land or in the land in which he has interest as usufructuary mortgagee or tenant or otherwise, such benefit given to the producer in Tamil Nadu cannot be denied to similar agricultural producers of other States, on the ground of territorial exclusion, which is against the principles adumberated in the Constitution and, therefore, discriminating the cardamom from Kerala for the purpose of levy of tax is offending the Constitution and, therefore, the offending words have to be struck down. Articles 301 and 304 of the Constitution are as follows: "Article 301: Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free." "Article 304: Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law- (a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coal is an industrial product, as some operation is required to bring it up to the surface and make it marketable or usable and as this process is expensive, the product has come to market by human activity and it is to be treated as a commodity produced by human being. Therefore, though cardamom is the nature's gift, it is produced only by the human efforts and, therefore, it is an agricultural product of the human being. 4.. The learned Government Advocate-Thiru R. Mahadevan contends that article 303 empowers the State to impose any reasonable restriction, making discrimination between one State and another, by virtue of entry relating to trade and commerce in any of the Lists in the Seventh Schedule and to encourage the agriculturists in Tamil Nadu and also to improve and induce the production in the field of agriculture, the agricultural products in Tamil Nadu are excluded from the turnover on the basis of which tax is not levied and the beneficial interests of the agriculturists in Tamil Nadu cannot be a discrimination of the agriculturists in Kerala and, therefore, applying the parameters of article 303, the impugned words in section 2(r) cannot be said to be violative of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for industrialization of and creating employment opportunities in the backward areas, has a sound economic and public policy underlying it and therefore, exemption to new units which would constitute a specific class by themselves was valid. Another decision cited by the learned Government Advocate-Thiru R. Mahadevan [1990] 77 STC 82 (SC)-Video Electronics Pvt. Ltd. v. State of Punjab-also deals with the exemption given to specific goods manufactured in the State for limited period, subject to certain conditions. In a notification under section 4-A of the U.P. Sales Tax Act, 1948 and also section 8(5) of the Central Sales Tax Act, 1956 exemption was given to new units of manufacturers in respect of various goods for different period ranging from three to seven years from payment of sales tax. It was challenged by the persons who were selling the goods upon receiving from the manufacturers outside the State of Uttar Pradesh contending that the notification would amount to discrimination in the field of trade and commerce. The Supreme Court had observed that every differentiation is not discrimination and the mere fact that there is a difference in the rate of tax on goods locally ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estrictions on the freedom of trade, commerce or intercourse with or without that State as may be required in the public interest. But no Bill or amendment for the purpose of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Clause (a) therefore, only enables the Legislature of a State to impose nondiscriminatory taxes on goods imported from other States or the Union territories. The non obstante clause vis-a-vis article 304(a) may have some relevance so far as article 301 is concerned, for it enables the Legislature of a State to impose an impediment on the free movement of trade in spite of the freedom declared under article 301. But it has no relevance to article 303, which only prohibits the State Legislature from making a discriminatory law and it does not in any way prohibit the State Legislature from imposing a non-discriminatory tax permitted under article 304(a). But, with reference to article 304(b), the non obstante clause has significance and meaning even in regard to article 303, as clause (b) lifts the ban imposed by article 303, subject to the limitations mentioned therein. Therefore, the non obstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Bench of the Kerala High Court, in the abovesaid decision, has held that as the constitutional provision is not to discriminate the goods produced in the State and the goods imported, the provision 2(i) therein had exceeded the constitutional limits, and therefore, the levy of tax on the sales of rubber produced from the lands outside the Madras State was discriminatory and void and would not be liable to tax. In a recent decision, Shree Mahavir Oil Mills v. State of Jammu and Kashmir, reported in [1997] 104 STC 148, the apex Court has thoroughly considered the restrictions imposed on the goods coming from other States. That was a case in which the Jammu and Kashmir Government, with a view of encouraging and promoting industries of the State, especially in edible oil industry, and also with a view to sell the edible oil manufactured in Jammu and Kashmir at a lower price than the edible oils in the adjoining States, had exempted sales tax totally on sale of edible oil products manufactured within Jammu and Kashmir, whereas edible oils coming from other States were taxed at 8 per cent rate. Originally the tax was only 4 per cent; then it was raised to 8 per cent. The out-State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not prevent in any manner the States from encouraging or promoting the local industries in such manner as they think fit so long as they do not use the weapon of taxation to discriminate against the imported goods vis-a-vis the locally manufactured goods. To repeat, the clause bars the States from creating tax barriers-or fiscal barriers, as they can be called-around themselves and/or insulate themselves from the remaining territories of India by erecting such 'tariff walls'. Part XIII is premised upon the assumption that so long as a State taxes its residents and the residents of other States uniformly, there is no infringement of the freedom guaranteed by article 301; no State would tax its people at a higher level merely with a view to tax the people of other States at that level. And it is this clause which has a crucial bearing on this case." It further observes at page 162: "......The States are certainly free to exercise the power to levy taxes on goods imported from other States/Union territories but this freedom, or power, shall not be so exercised as to bring about a discrimination between the imported goods and the similar goods manufactured or produced in that State. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. State of Tamil Nadu [1998] 110 STC 313 relating to the additional sales tax under section 2(i)(a) of the Tamil Nadu Additional Sales Tax Act (Act No. 14 of 1970). The additional sales tax prescribes an exemption limit of Rs. 100 crores for the dealers in Tamil Nadu whereas such exemption is only up to Rs. 10 lakhs for the non-resident dealer. When this was challenged before this Tribunal on the constitutional validity, the Full Bench of this Tribunal, mainly relying upon Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148, has held that when the restriction imposed on free movement of trade hampers the flow of trade, the restriction is to be invalidated, and applying the ratio in Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 (SC), this Tribunal has held that the difference in the exemption limit for the payment of additional sales tax between the local dealer and non-resident dealer is clearly violative of articles 301 and 304(a) of the Constitution of India. 7. Analysing the various decisions, full exemption given to the agricultural products from the State of Tamil Nadu whereas denial of such exemption to similar other agric ..... X X X X Extracts X X X X X X X X Extracts X X X X
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