TMI Blog1998 (6) TMI 556X X X X Extracts X X X X X X X X Extracts X X X X ..... factured out of the country is subject to tax, whereas silk manufactured in India is not subjected to tax. 3.. The learned counsel for the petitioner has relied on the decision in Atiabari Tea Co. Ltd. v. State of Assam AIR 1961 SC 232 more particularly the following observations: "It is in the background of these facts and circumstances that we have to determine the ambit of the freedom contemplated by article 301. That article envisages freedom of trade and commerce with reference to different parts of India as also freedom of movement of individuals in relation to their trade and other activities. Hence, article 301 has reference not only to trade and commerce, as ordinarily understood in common parlance, but also in relation to individuals who have to move with their goods and commodities throughout the length and breadth of the country." It was further observed: "The provision contained in article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude, or the expression of a pious hope of a declaratory character; it is not also a mere statement of a directive principle of State policy; it embodies and enshrines a prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty is essential to the very existence of the Government, and may be legitimately exercised on the objects to which it is applicable to the utmost extent to which the Government may choose to carry it. The only security against the abuse of this power is found in the structure of the Government itself." Basing himself on this character of the taxing power of the State the learned Attorney-General has asked us to hold that Part XIII can have no application to any statute imposing a tax. In our opinion this contention is not well founded. The statement of the law on which reliance has been placed is itself expressed to be subject to the relevant provisions of the Constitution; for instance, the same author has observed: 'It is also believed that that provision in the Constitution of the United States which declares that the citizens of each State shall be entitled to all the privileges and immunities of the citizens of the several States will preclude any State from imposing upon the property which citizens of other States may own, or the business which they may carry on within its limits, any higher burdens by way of taxation than are imposed upon corresponding property or busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II; this position appears to us to be inescapable." Following observations of para 43 are also relied on: "That takes us to the question as to whether article 301 operates only in respect of the entries relating to trade and commerce already specified. Before answering this question it would be necessary to examine the scheme of Part XIII, and construe the relevant articles in it. It is clear that article 301 applies not only to inter-State trade, commerce and intercourse but also intra-State trade, commerce and intercourse. The words 'throughout the territory of India' clearly indicate that trade and commerce whose freedom is guaranteed has to move freely also from one place to another in the same State. This conclusion is further supported by articles 302 and 304(b) as we will presently point out. There is no doubt that the sweep of the concept of trade, commerce and intercourse is very wide; but in the present case we are concerned with trade, and so we will leave out of consideration commerce and intercourse. Even as to trade it is really not necessary to discuss or determine what trade exactly means; for it is common ground that the activity carried on by the appellants amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amplitude of the freedom guaranteed by article 301 a rational and workable test to apply would be: Does the impugned restriction operate directly or immediately on trade or its movement? It is in the light of this test that we propose to examine the validity of the Act under scrutiny in the present proceedings." Reliance is also placed on the following observations: The Supreme Court (a Constitution Bench) in the case of Firm A.T.B. Mehtab Majid Co. v. State of Madras [1963] 14 STC 355; AIR 1963 SC 928 while dealing with articles 301 and 304(a) of the Constitution of India observed: "It is well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not what can be termed to be compensatory taxes or regulatory measures. Sales tax on the import of tanned or untanned hides or skins cannot be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free-flow of trade and it will then offend against article 301 and will be valid only if it com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rate is the same under section 3(1)(b) of the Act. If the dealer has purchased the raw hide or skin in the State, he does not pay on the sale price of the tanned hides or skins; he pays on the purchase price only. If the dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins. He too will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside, and having not therefore paid any tax under sub-rule (1). The mere circumstance of a tax having been paid on the sale of such hides or skins in their raw condition does not justify their forming goods of a different kind from the tanned hides or skins which had been imported from outside. At the time of sale of those hides or skins in the tanned state, there is no difference between them as goods and the hides or skins tanned outside the State as goods. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty at the enhanced rate is purely a fiscal measure and cannot be said to be a reasonable restriction on the freedom of trade in the public interest. Article 301 has declared freedom of trade, commerce and intercourse throughout the territory of India, and restriction on that freedom may only be justified if it falls within article 304. Reasonableness of the restriction would have to be adjudged in the light of the purpose for which the restriction is imposed, that is, 'as may be required in the public interest'. Without entering upon an exhaustive categorization of what may be deemed 'required in the public interest', it may be said that restrictions which may validly be imposed under article 304(b) are those which seek to protect public health, safety, morals and property within the territory. Exercise of the power under article 304(a) can only be effective if the tax or duty imposed on goods imported from other States and the tax or duty imposed on similar goods manufactured or produced in that State are such that there is no discrimination against imported goods. As no foreign liquor is produced or manufactured in the State of Orissa the power to legislate given by article 304 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an individual citizen's rights to trade but it cannot be denied that their impact on individual rights if often very direct..........' It appears that if the imposition of this tax, which affects the movement of goods in the course of inter-State or intra-State commerce, on three items of goods and in a specifically defined local area' constitutes-as indeed it has been held to-a restriction on the freedom of trade and commerce from the special point of view of article 301, then, logically, the imposition of the tax in other areas not originally defined and on a number of new and different items would constitute additional restrictions also within the special meaning of article 301. '...........It is only an additional "restriction" from the special point of view of article 304(b) which requires Presidential sanction', (vide para 24). The Schedule to the principal Act did not contain a residuary entry, to the effect the State could bring to tax such other goods as it may from time to time notify. In regard to the 'local area' also the principal Act did not confer power on the State Government to extend the provisions of the law to such other local areas as the Government m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the law or the equal protection of laws within the territory of India. It may be observed that differential treatment per se is not violative of article 14 if there is a reasonable basis for differentiation. The provisions of article 14 are applicable to taxation law as well. The only thing which has to be seen whether there is a reasonable basis for such a classification or that the Act of the State to cause such a discrimination is with a deliberate intention causing discrimination. Greater latitude has to be given to the Legislature in the matter of classification. The statute may divide the object of tax into groups or categories so that equality and unity is retained in each of such group. Even in the matter of exemption or the rate of tax, the policy could be there to make different classification in a group. The Legislature is free with regard to the choice of articles which are to be taxed or the rate of tax or in granting the exemption to different categories of persons, transactions or object. The wide discretion for classification for tax purposes is the prerogative of the Legislature. The tax which is to be levied on raw silk and silk yam which is imported from ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eated. Imported raw silk and silk yarn have been considered to be a separate category than the indigenous manufactured raw silk and silk yam. There is no notification prohibiting the movement of the goods. The tax which has been levied on the imported material cannot be considered as affecting the free-flow of trade or the guarantee which has been given in the Constitution of India for free movement from one place to other in the same State or in inter-State trade or commerce; it does not directly and immediately restrict or impede the free-flow or movement of trade. The levy, therefore, cannot be considered as violative of article 301 of the Constitution of India for even requiring the assent of the President of India for such legislation. (3) The main argument which is being raised is that the levy of tax on the imported raw silk and silk yam is violative of article 304 of the Constitution of India. Article 304 has placed restrictions on the power of Legislature of a State not to impose on goods imported from other State or the Union territories any tax which similar goods manufactured or produced in that State are subject, so however as not to discriminate between the goods so ..... 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