- (1.) ON 9th March, 2007, the Government of Rajasthan, in exercise of the powers conferred by sub-section (3) of Section 8 of the Rajasthan Value Added Tax Act, 2003 (for short, "Rajasthan VAT Act") issued the following notification: "S. O. 377. -In exercise of the powers conferred by sub- section (3) of section 8 of the Rajasthan Value Added Tax Act, 2003 (Rajasthan Act No. 4 of 2003), the State Government being of the opinion that it is expedient in the public interest so to do, hereby exempts from payment of tax, the sale of asbestos cement sheets and bricks manufactured in the State having contents of fly ash twenty five percent or more by weight on the following conditions, namely:- (i) that the goods shall be entered in the registration certificate of the selling dealer. (ii) that the exemption shall be for such goods manufactured by the dealer who commenced commercial production in the State by 31.12.2006; and (iii) that the exemption shall be available upto 23.1.2010."
(2.) SUB-clauses (ii) and (iii) of this Notification are impugned in the writ petition. The principal contention is that these sub- clauses are violative of Article 304 (a) of the Constitution of India as by granting exemption to the manufacture of asbestos cement sheets and bricks having contents of fly ash twenty five percent or more by weight in the State of Rajasthan, the discrimination is being done to the import of that product from other states. The counsel for the petitioner submitted that prior to the present writ petition, the petitioner filed writ petition No. 7987/2006 challenging the sub-clauses (ii) and (iii) of the Notification dated July 5, 2006; the sub-clauses (ii) and (iii) of the Notification dated July 5, 2006 are identical to sub- clauses (ii) and (iii) of the Notification dated 9th March, 2007 and that writ petition has been admitted and the interim order granted. To buttress his argument that sub-clauses (ii) and (iii) of the Notification dated 9th March, 2007 are violative of Article 304 (a) of the Constitution of India, the counsel relied upon the following judgments of the Supreme Court namely: (one) Firm A.T.B. Mehtab Majid and Company vs. State of Madras and Another (AIR 1963 SC 928); (two) Shree Mahaveer Oil Mills and Another vs. State of J. & K. (1996) 11 SCC 39); (three) State of U.P. And Another vs. Laxmi Paper Mart & Others (1997) 2 SCC 697) and (four) Lohara Steel Industries Limited and Another vs. State of Andhra Pradesh and Another (1997) 2 SCC 37). The counsel for the State Government, on the other hand, submitted that Section 8 of the Rajasthan VAT Act empowers the State in the public interest, by Notification in the Official Gazette, to exempt, prospectively or retrospectively, from tax the sale or purchase as mentioned in Schedule-II with or without condition as may be specified in the Notification. The Notification dated 9th March, 2007 has been issued in exercise of that power. He would submit that the State Government in exercise of the powers conferred under Section 15 of the Rajasthan Sales Tax Act, 1994 had already issued Notification on January 24, 2000 in the public interest exempting tax on the sale of asbestos cement sheets and bricks manufactured in the State by an industrial unit having fly ash as its main raw material on the conditions namely; (i) that such fly ash constituted 25% or more in the contents by weight and (ii) that the unit commenced commercial production by 31.12.2001. That Notification was to remain operative upto 23rd January, 2010. The time for commencement of commercial production was extended from time to time and by the Notification issued on 16th March, 2005 the State Government extended the commencement of production by 31st of December, 2006. It was, thus, submitted that the Notification dated 9th March, 2007 impugned in the present writ petition came to be issued by the State Government after coming into force of the Rajasthan VAT Act. The counsel would submit that it is always open to the State Government to grant exemption to boost industrialization in the State and that the exemption so granted is not violative of Article 304(a) of the Constitution of India. Strong reliance was placed by the counsel on the judgment of the Supreme Court in the case of M/s. Video Electronics Private Limited and Another vs. State of Punjab and Another (AIR 1990 SC 820) and Shree Digvijay Cement Company Limited and Others vs. STATE OF RAJASTHAN (117 (2000) STC page 395). In the case of Firm A.T.B. Mehtab Majid and Company, the Supreme Court was concerned with the question of the validity of Rule 16 of the Madras General Sales Tax (Turn Over and Assessment) Rules 1939. The said Rule was attacked on the ground of discriminatory taxation offending the provision of Article 304 (a) of the Constitution. The Supreme Court in paragraphs 10, 11 and 12 of the report held thus: "(10) It is therefore now 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, of the kind under consideration here, 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 Art. 301 and will be valid only if it comes within the terms of Art. 304 (a). (11) Article 304(a) enables the Legislature of a State to make laws affecting trade, commerce and intercourse. It enables the imposition of taxes on goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate between the goods manufactured or produced in that State and the goods which are imported from other States. This means that if the effect of the sales tax on tanned hides or skins imported from outside is that the latter becomes subject to a higher tax by the application of the proviso to sub-r. (2) of R. 16 of the Rules, then the tax is discriminatory and unconstitutional and must be struck down. (12) We do not agree with the contentions for the respondents. The contention that Art. 304 (a) is attracted only when the impost is at the border, i.e. when the goods enter the State on crossing the border of the State, is not sound. Art. 304 (a) allows the Legislature of a State to impose taxes on goods imported from other States and does not support the contention that the imposition must be at the point of entry only." The issue before the Supreme Court in the case of Shree Mahaveer Oil Mills (supra) related to exemption from the levy of sales tax on the manufacture of edible oil in the Jammu and Kashmir as the manufacturers of edible oil in the nearby States challenged that such exemption was violative of Article 304 (a) of the Constitution of India. The Supreme Court considered its previous decisions and held that exemption granted to local manufacturers/producers of edible oil was violative of the provisions contained in Sections 301 and 304(a) of the Constitution of India but at the same time invoking its powers under Article 142 issued direction that despite the said declaration, the appellant would not be entitled to claim any amount by way of refund and that the declaration on invalidity shall be prospective w.e.f. 1st April, 1997. This is what the Supreme Court said in paragraphs 25 and 26 of the report: "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 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. The clause deals only with discrimination by means of taxation; it prohibits it. The prohibition cannot be extended beyond the power of taxation. It means in the immediate context that States are free to encourage and promote the establishment and growth of industries within their States by all such means as they think proper but they cannot, in that process, subject the goods imported from other States to a discriminatory rate of taxation, i.e., a higher rate of sales tax vis-a-vis similar goods manufactured/produced within that State and sold within that State. Prohibition is against discriminatory taxation by the State. It matters not how this discrimination is brought about. A limited exception has no doubt been carved out in video Electronics but, as indicated hereinbefore, that exception cannot be enlarged lest it eat up the main provision. So far as the present case is concerned, it does not fall within the limited exception aforesaid; it falls within the ratio of A.T.B. Mehtab Majid and the other cases following it. It must be held that by exempting unconditionally the edible oil produced within the State of Jammu and Kashmir altogether from sales tax, even if it is for a period of ten years, while subjecting the edible oil produced in other States to sales tax at eight per cent, the State of Jammu and Kashmir has brought about discrimination by taxation prohibited by Article 304 (a) of the Constitution. 26. We are unable to see any substance in the objection raised by Shri Verma that not having attacked the exemption notification when the rate of tax was four per cent, the appellants should not be allowed to question the same when the rate of tax has climbed to eight per cent. There can be no question of any acquiescence in matters affecting constitutional rights or limitations. Similarly, the argument that the volume of trade of the appellants has not shown a downward trend in spite of the said exemption is equally immaterial apart from the fact that an explanation is offered therefor by Shri Salve. Yet another contention of Shri Verma that the principle of classification applicable under Article 14 is equally applicable under Articles 301 and 304 (a) is of little help to the respondent-State. Article 14 speaks of equality; Article 301 speaks of freedom and Article 304(a) speaks of uniform taxation of both the imported goods and the locally produced goods by the States, According to Shri Verma, edible oil produced and sold in the State of Jammu and Kashmir and the edible oil produced in other States and sold in the State of Jammu and Kashmir fall in two different classes and that the said classification is designed to achieve the objective of industrialisation of the State. We find it difficult to appreciate how can the concept of classification be read into clause (a) of Article 304 to undo the precise object and purpose underlying the clause. Shri Verma repeatedly stressed that the object underlying the impugned measure is a laudable one and that it seeks to serve and promote the interest of the State of Jammu and Kashmir which is economically and industrially an undeveloped State, besides being a disturbed State. We may agree on this score but then the measures necessary in that behalf have to be taken by the appropriate authority and in the appropriate manner. Part XIII of the Constitution itself contains adequate provisions to remedy such a situation and there is no reason why the necessary measures cannot be taken to protect the edible oil industry in the State in accordance with the provisions of the said Part. Keeping the said aspect in view, we invoke our power under Article 142 of the Constitution and mould the relief to suit the exigencies of the situation."
(3.) IN the case of State of U.P. and Another vs. Laxmi Paper Mart and Others (supra), the Supreme Court held that the exemption of exercise books produced in the State of U.P. and subjecting the exercise books produced outside the State but sold in Uttar Pradesh to sales tax @ 5% was discriminatory and violative of clause (a) of Article 304. The issue concerning exemption of the sales tax on re-rolled finished products by the Andhra Pradesh State Government under A.P. General Sales Tax Act, 1957 manufactured by Steel Re-rollers out of State and sold in State and manufactured within the State of Andhra Pradesh came up for consideration before the Supreme Court in the case of Lohara Steel Industries. It was held that the Notification dated 1st April, 1976 was violative of Article 304 (a) of the Constitution of India. This is what the Supreme Court said in paragraphs 7 and 8 of the report: "7. Article 304 thus enables the Legislature of a State to impose tax on goods manufactured within the State as also goods imported from other States into the State. But in doing so the State cannot discriminate between goods so imported and goods manufactured or produced locally. This article came up for consideration before this Court in the case of Firm A.T.B. Mehtab Majid and Co. vs. State of Madras. The Court said that 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 offend against Article 301 and will be valid only if it comes within the terms of Article 304(a). In the above case by virtue of Rule 16 which had been framed under the Madras General Sales Tax (Turnover and Assessment) Rules, 1938, tanned hides and skins imported from outside the State and sold within the State were subject to a higher rate of tax than hides or skins tanned and sold within the State. This Court upheld the contention of the appellant that such an imposition would violate Article 304 (a) of the Constitution and would be bad in law. 8. This decision has been reaffirmed by this Court in the case of Andhra Steel Corpn. vs. Commissioner of Commercial Tax. In this case the appellant who was a registered dealer under the Karnataka Sales Tax Act, 1957 (25 of 1957) purchased iron scrap from dealers inside and outside the State of Karnataka for the purpose steel rounds and tor-steel. These manufactured goods were sold mostly within the State. A provision in Section 5(4) of the Karnataka Sales Tax Act which granted exemption to sale of finished goods manufactured out of locally purchased raw material while denying it to the sale of finished goods manufactured out of imported raw material was held to be unconstitutional and contrary to Article 304(a) of the Constitution. This Court distinguished the decisions in State of Madras vs. N.K. Nataraja Mudaliar and Rattan Lal & Co. vs. Assessing Authority and reaffirmed its decision in A.T.B. Mehtab case." In the case of M/s. Video Electronics Private Limited, interalia, the Supreme Court was concerned with the provision of exemption on sales tax on the goods manufactured in the State to boost up or help economic growth and the development and thereby giving preferential treatment to the goods manufactured or produced in the State. While dealing with that issue, the Supreme Court considered plethora of its decisions namely Kathi Raning Rawat vs. State of Saurashtra (AIR 1952 SC 123), Bengal Immunity Company Limited vs. State of Bihar (AIR 1955 SC 661), Kailash Nath vs. State of U.P. (AIR 1957 SC 790), Atiabari Tea Co. Ltd. vs. State of Assam (AIR 1961 SC 232), State of U.P. vs. Babu Ram Upadhya (AIR 1961 SC 751), Smt. Ujjam Bai vs. State of U.P. (AIR 1962 SC 1621), Automobile Transport (Rajasthan) Limited vs. State of Rajasthan (AIR 1962 SC 1406), Firm ATB Mehtab Majid & Co. vs. State of Madras (AIR 1963 SC 928), A Hajee Abdul Shakoor & Co. vs. State of Madras (AIR 1964 SC Court 1729), State of Madhya Pradesh vs. Bhailal Bhai (AIR 1964 SC 1006), Kalyani Stores vs. State of Orissa (AIR 1966 SC 1686), State of Mysore vs. H. Sanjeeviah (AIR 1967 SC 1189), Andhra Sugar Ltd. vs. State of A.P. (AIR 1968 SC 599), State of Madras vs. N.K. Nataraja Mudaliar (AIR 1969 SC 147), Rattan Lal & Company vs. The Assessing Officer (AIR 1970 SC 1742, Narinder Chand Hem Raj vs. Lt. Governor, Administrator, U.T., Himachal Pradesh (AIR 1971 SC 2399), Coffee Board, Bangalore vs. Joint Commercial Tax Officer, Madras (AIR 1971 SC 870), V. Guruviah Naidu & Sons vs. State of Tamil Nadu (AIR 1977 Supreme Court 548), State of Tamil Nadu vs. Hind Stone (AIR 1981 SC 711), H. Anraj vs. Govt. of Tamil Nadu (AIR 1986 SC 63), Associated Tanners vizianagram, A.P. vs. C.T.O., Vizianagram, Andhra Pradesh (AIR 1987 Supreme Court 1922), Weston Electronics vs. State of Gujarat (AIR 1988 SC 2038), West Bengal Hosiery Assn. vs. State of Bihar (AIR 1988 SC 1814), State of U.P. vs. Renusagar Power Co. (AIR 1988 SC 1737), Indian Cement vs. State of Andhra Pradesh (AIR 1988 SC 567) and Bharat General & Textiles Industries Ltd. vs. State of Maharashtra (1989) 72 STC 354). ;