KHANNA, J. - (1.) THESE appeals by special leave are against the judgment of Madras High Court whereby that Court repelled the challenge to the validity of Items 7 (a) and 7 (b) of the Second Schedule to the Madras General Sales Tax Act, 1959 (hereinafter referred to as the State Act).
(2.) THE appellants are dealers in hides and skins. THE appellants purchase raw hides and skins locally as well as in the course of inter-State trade and commerce. THE raw hides and skins are converted into dressed hides and skins and are sold either locally or in the course of export. THE matter relates to the assessment year 1968-69 and the dispute between the parties arises because of the inclusion in the turnover of the sale and purchase price of some of the above goods. THE appellants by means of writ petitions challenged the validity of Items 7 (A) and 7 (b) of the Second Schedule to the State Act. THE High Court, as already mentioned, repelled the attack on the validity of those items and dismissed the writ petitions. Before dealing with the contentions advanced, it may be appropriate to refer to the relevant provisions. Section 4 of the State Act is the charging section in respect of declared goods and reads thus : "Tax in respect of declared goods.- Notwithstanding anything contained in S. 3, the tax under this Act shall be payable by a dealer on the sale or purchase inside the State of declared goods at the rate and only at the point specified against each in the second schedule of the turnover in such goods in each year whatever the quantum of turnover in that year." It may be mentioned that raw hides and skins as well as dressed hides and skins are declared goods under Section 14 (iii) of the Central Sales Tax Act, 1956 (hereinafter referred to as the Central Act). Section 14 (iii) of the Central Act reads as under : "It is hereby declared that the following goods are of special importance in inter-State trade or commerce : ......... ......... (iii) hides and skins, whether in a raw or dressed state." Items 7 (a) and 7 (b) of the Second Schedule to the State Act read as under : JUDGEMENT_234_1_1977Html1.htm So far as the validity of Item 7 (a) of the Second Schedule is concerned, the argument of the learned counsel for the appellant is that this would cover also inter-State sales and as such is beyond the competence of the State legislature. We are unable to accede to this contention as we are of the view that, Item 7 (a) relates only to intra-State sales and not to inter-State sales. This is clear from the language used in the item, especially the words "purchase in the State". Assuming that the language of Item 7 (a) is ambiguous, it should be so construed as would sustain the constitutional validity of the said item. Considered in this light the occasion for the levy of tax under the above item would arise only when there is intra-State sale and not inter-State sale. Regarding Item 7 (b) the learned counsel for the appellants has contended that it is violative of clause (a) of Article 304 of the Constitution. The said clause reads as under: "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) ... ... ... ... According to the learned counsel, there can be three types of sale transactions in respect of dressed hides and skins: (1) Dressed hides and skins imported from outside the State of Tamil Nadu and sold within that State; (2) Import of raw hides and skins from outside the State of Tamil Nadu. Tanning of the aforesaid raw hides and skins within the State of Tamil Nadu and the sale of the same within that State as dressed hides and skins and (3) Purchase of raw hides and skins within the State of Tamil Nadu and sale of the same within that State as dressed hides and skins after tanning those hides and skins. It is urged that in respect of hides and skins covered by the third category, the local sales of dressed hides and skins will not be liable to tax under the State Act as the purchase of the raw hides and skins has already been subjected to tax under Item 7 (a). Regarding hides and skins mentioned at (1) and (2) above, the local sales of dressed hides and skins would be subject to tax at the rate of 11/2 per cent under Item 7 (b) as there was no levy of tax under the State Act in respect of those hides and skins. Learned counsel accordingly concludes from the above that imported hides and skins are subject to tax when sold as dressed hides and skins at the rate of 11/2 per cent, whereas hides and skins purchased in raw form locally and dressed thereafter are not subject to tax under the State act when sold as dressed hides and skins. The contention, in other words, is that whereas 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 purchase stage are not subject to tax under Item 7 (b) of the Second Schedule of the State act. Item 7 (b) is therefore stated to be discriminatory and violative of Article 304 (a). Reliance in this connection is placed upon two decisions of this Court in the case of Firm Mehtab Majid and Co. v. State of Madras, 14 STC 355 = ( AIR 1963 SC 928) and A. Hajee Abdul Shukoor and Co. v. State of Madras, 15 STC 719 = (AIR 1964 SC 1729).
(3.) IN the case of Mehtab this Court held that the provisions of Rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939 discriminate between hides and skins imported from outside the State and those manufactured or produced inside the State and therefore they contravene the provisions of Article 304 (a) of the Constitution. Perusal of the facts of that case goes to show that the real grievance of the appellant in that case 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 under Section 3 (1) (b) of the State Act. This is clear from the following observations in that case : "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 hide or skin in the State, he does not pay on the sale price of the tanned hide 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." In the case of Hajee Abdul Shukoor. (AIR 1964 SC 1729) this Court held that sub-section (1) of Section 2 of the Madras General Sales Tax (Special Provisions) Act, 1953 discriminate against imported hides and skins which were sold up to 1/08/1957. 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 ( 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 though the rate of tax was the same, while in the present case, the discrimination does not arise on account of difference of the price on which the tax is levied as the tax on the tanned hides and skins is levied on the amount for which those hides and skins were last purchased in the untanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on the sale of untanned hides and skins. The rate of tax on the sale of tanned hides and skins is 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 difference in tax works out to 7/1600th of a rupee, i.e., a little less than 1/2 naya paisa per rupee. Such a discrimination would affect the taxation up to the 1st of August, 1957, when the rate of tax on the sale of raw hides and skins was raised to 2 Per Cent of the sale price." ;