SATISH CHANDRA, J. - (1.) THIS petition has been filed by six firms of Agra. Each one of them buys and sells paper as well as exercise books made from it. They challenge the validity of he notifications issued by the State Government under sections 4 and 3-A(2-A) of the U.P. Sales Tax Act on 1st December, 1973, under which exercise books are liable to sales tax of 5 per cent except those made from paper purchased within Uttar Pradesh. The petitioners' grievance is that these notifications violate article 301 of the Constitution and are not saved by article 304. It is also pleaded that the impugned notifications violate article 14 of the Constitution. Each of the petitioners buys and sells paper manufactured inside as well as outside Uttar Pradesh. The petitioners import paper from outside Uttar Pradesh in the course of their business. They manufacture and sell exercise books made out of paper purchased inside Uttar Pradesh as well as imported from outside the State. The petitioners also import exercise books manufactured outside the State of Uttar Pradesh and sell them inside this State. By virtue of the notification dated 10th May, 1956, issued under section 4 of the U.P. Sales Tax Act the sale of exercise books was totally exempt from sales tax in this State. On 1st December, 1973, the State Government issued two notifications, Nos. ST-II-6623/X - 1012-1972 and ST-II-6624/X - 1012-1972. Notification No. 6623 was issued under section 4 of the U.P. Sales Tax Act. It stated that no tax under the U.P. Sales Tax Act shall be payable on the turnover in respect of exercise books if made from paper purchased within Uttar Pradesh, provided proof thereof is furnished by the dealer to the satisfaction of the assessing authority. The second Notification No. 6624 was issued on the same date under the first proviso to sub-section (2-A) of section 3-A of the U.P. Sales Tax Act, 1948. It provided that the turnover in respect of goods mentioned in column II of the list shall be liable to tax at the point of sale by the manufacturer or importer thereof at the reduced rate specified in column III of the list. Serial No. 4 of the list referred to exercise books other than those referred to in Notification No. 6623 aforesaid. The mentioned rate was 5 per cent.
(2.) AS a result of these two notifications the position was that exercise books made from paper purchased within Uttar Pradesh were exempt from sales tax. The sale of all other kinds of exercise books was liable to sales tax at 5 per cent. Article 301 of the Constitution provides that subject to the other provisions of that part, trade, commerce and intercourse throughout the territory of India shall be free. Article 304 provides : "304. Restrictions on trade, commerce and intercourse among States. - 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 ......." These provisions have come up for consideration before the Supreme Court in several decisions. After considering the decisions in Atiabari Tea Co. Ltd. v. State of Assam (A.I.R. 1961 S.C. 232.) and in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan (A.I.R. 1962 S.C. 1406.), the Supreme Court in Firm A. T. B. Mehtab Majid and Co. v. State of Madras ([1963] 14 S.T.C. 355 (S.C.).), laid down the following propositions : "(a) Article 301 of the Constitution declares a right of free movement of trade without any observations by way of barriers, inter-State or intra-State, or other impediments operating as such barriers. (b) The said freedom is not impeded, but is, on the other hand, promoted by regulatory measures or measures imposing compensatory taxes for trading facilities, and such measures like police regulations, provision for services, maintenance of roads, provision for aerodromes, wharfs, etc., do not hamper free flow of trade and are outside the purview of article 301. (c) Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that fall within the purview of article 301. (d) Sales Tax, which has the effect of discriminating between goods of one State and goods of another State may affect the free flow of trade, and it will then offend against article 301, and will be valid only if it comes within the ambit of article 304(a). (e) Article 304(a) enables he imposition of tax on goods from other States if similar goods in the State are subjected to similar tax, so as not to discriminate between goods manufactured or produced in that State and goods which are imported from other States. If the effect of the sales tax on goods imported from outside is that they become subject to a higher tax, then the tax is discriminatory and unconstitutional."
(3.) THESE principles were reiterated in the State of Madras v. N. K. Nataraja Mudaliar ([1968] 22 S.T.C. 376 (S.C.); A.I.R. 1969 S.C. 147.). The imposition of tax on sale of goods coming from other States will be valid if similar goods manufactured and produced inside the State are also taxed in the same measure and manner. Exercise books are goods which are commercially different from paper which is a commercially known article by itself. An exercise book made from paper purchased within Uttar Pradesh would be an article of the same kind as an exercise book made from paper purchased outside the State. The fact that paper, which is only an ingredient of the exercise book, has been purchased within or outside the State will not render the product, namely, the exercise book, any different. In both cases the article is the same, namely, exercise book. Imposition of tax on the sale of exercise books which have come from outside the State would be valid if similar exercise books manufactured within the State are subjected to similar tax.;