D. P. GUPTA, J. - (1.) THESE three writ petitions raise common questions of fact and law and as such it would be convenient to dispose them off by a common order.
(2.) ALL the three petitioners were whole-sale dealers in lanced poppy-heads in the town of Bhawanimandi, District Jhalawar, in the State of Rajasthan, during the year 1965-66 and they held licences issued under the provisions of the Indian Opium Act and the Rajasthan Opium Lanced Poppy Heads Rules, 1960. The petitioners' case is that they were exporting lanced poppy heads to persons out side the State of Rajasthan. According to the provisions of sec. 3 of the Rajasthan Sales Tax Act, 1954 (hereinafter referred to as "the Act") a dealer was liable to pay tax on their taxable turnover in respect of sale of goods at such rates, as may be prescribed by the State Government from time to time. Sec. 4 (1) of the Act provides for exemption on sale of certain items of goods mentioned in the Schedule annexed to the Act. Sub-sec. (2) of sec. 4 further authorises the State Government to grant exemption from payment of sales tax on such goods as it considers proper. Sec. 5 of the Act authorises the State Government to prescribe the rate of tax by notification in the Official Gazette. Thus, the provisions of sub-sec. (1) of sec. 4 of the Act, read with item No. 11 of the Schedule attached to the Act, provided for exemption from payment of sales tax on the sale of goods on which duty is or may be levied under the Rajasthan Excise Act, 1950 or the Indian Opium Act, as applied to Rajasthan. The case of the petitioners' is that as they were paying the duty under the Indian Opium Act, in accordance with the rules framed thereunder, they were not liable to make payment of sales tax on the sale of lanced poppy heads. However, by an amendment introduced in the Act by sec. 26 of the Rajasthan Taxation Laws (Amendment) Act, 1964 (Act No. 13 of 1964) a change was brought about in the Schedule annexed to the Act and the entry against item No. 11 of the Schedule was omitted with the result that the exemption earlier provided for from payment of Sales Tax in respect of opium and excisable articles was withdrawn. Thereafter, by a Notification dated March 6, 1965 sales tax was imposed on sale of opium at the rate of 10 per cent. By a subsequent Notification dated November 2, 1965, the sales tax chargeable on opium was maintained at 10 per cent. Thus, the exemption, which was so far enjoyed by the petitioners in respect of the sale of poppy heads, was no longer available after the Notification dated March 6, 1965 was published, as a consequence of the enactment of sec. 26 of the Amending Act No. 13 of 1964. The contention of the learned counsel for the petitioners is that although the Rajasthan Sales Tax Act, 1954 received the assent of the President of India on December 22, 1954, yet, the Rajasthan Taxation Laws (Amendment) Act, 1964 was not reserved for the assent of the President nor it received the assent of the President, nor the Bill in respect thereof was introduced in the Legislative Assembly after obtaining the previous sanction of the President and as such, the provisions of sec. 26 thereof were void, as they imposed restrictions on the freedom of trade, commerce and intercourse, within the meaning of Art. 301 of the Constitution of India. In order to fully appreciate the controversy raised in these writ petitions it is necessary to mention that taxes on sale of goods is covered by entry 54 of list II (State List) of Schedule VII of the Constitution. As such, the State Legislature is authorised to make laws providing for imposition of taxes on the sale of goods. However, Art. 301 of the Constitution provides that trade, commerce and inter-course through-out the territory of India shall be free, subject to other provisions of Part XIII of the Constitution. Art. 304 authorises the imposition of reasonable restrictions on the freedom of trade, commerce and inter-course, with or within the State, as embodied in Art. 301, to the extent the same may be required in the public interest and subject to the condition that no Bill imposing such restrictions on the freedom of trade shall be introduced or moved in the Legislature of a State without the previous sanction of the President. Thus, there are three conditions which must be satisfied before an Act placing restrictions on the freedom of trade, commerce and inter-course with or within the State could be validly enacted, under Art. 304 (b) of the Constitution, namely, that the previous sanction of the President must be obtained, the Legislation must be in public interest and it must impose only such restrictions which are reasonable. If, however, the previous sanction of the President is not obtained, that infirmity can be cured by reserving the Act for the assent of the President and obtaining such assent, as has been provided in Art. 255 of the Constitution. The question as to whether the provisions of Art. 301 of the Constitution are applicable to tax legislation or statutes imposing duties on goods was considered by their Lordships of the Supreme Court in Atiabari Tea Co. Ltd. vs. The State of Assam (1), and it was held that the imposition of Taxes may impede the free flow of trade, commerce and inter-course and that a tax can be levied by a State Legislature on goods, manufactured or produced or imported in the State and thereby reasonable restrictions can be placed on the freedom of trade, either with another State or in different areas of the same State, subject to the compliance with the provisions of Art. 304 of the Constitution. Therefore, tax legislation should be deemed to be covered by the provisions of Art. 301 of the Constitution. The following observations of their Lordships may be usefully reproduced : - "thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Art. 301. The argument that all taxes should be governed by Art. 301 whether or not their impact on trade is immediate or medicate, direct or remote, adopts in our opinion, an extreme approach which cannot be upheld. If the said argument is accepted it would mean, for instance, that even a Legislative enactment prescribing the minimum wages to industrial employees may fall under Part XIII because in an economic sense an additional wage Bill may indirectly affect trade or commerce. We are, therefore, satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Art. 301 a rational and workable test to apply would be : Does the impugned restriction operate directly or immediately on trade or its movement ?"
(3.) IT was held in the aforesaid case that if the purpose or object of the Act is to collect tax on goods, solely on the ground that they are carried by road or by inland water ways within the area of the State, then it was certainly a restriction placed on the free movement of goods, which attracted the applicability of provisions of Art. 301 and could only be done by satisfying the requirements of Art. 304 (b) of the Constitution. The aforesaid decision of the Supreme Court in Atiabari Tea Company's case (1) is a land-mark in the history of freedom of trade, commerce and inter-course in this country. A larger Bench of the Supreme Court, consisting of 7 Judges, later considered the matter again in Automobile Transport (Rajasthan) Ltd. vs. State of Rajasthan (2) and a majority of the Court accepted the interpretation placed on Arts. 301 and 304 (b) of the Constitution by the majority in Atiabari Tea Company's case, subject to one clarification that regulatory measures or measures imposing compensatory taxes for the use of trading facilities do not come within the purview of the restrictions contemplated by Art. 301 and such regulatory and compensatory measures need not comply with the requirements of the proviso to Art. 304 (b) of the Constitution. It was held in the aforesaid case that imposition of tax may amount to restrictions on the freedom of trade and commerce, but what in reality facilitates trade and commerce is not a restriction and that which in reality hampers and burdens trade and commerce is a restriction. Then, in Firm A. T. B. Mehtab Majid & Co. vs. State of Madras (3), it was held that imposition of sales tax on inter State sales may amount to putting restrictions on the free flow of trade and would offend Art. 301 of the Constitution and can only be held to be valid, if the conditions laid down in Art. 304 (b) are satisfied It was observed by their Lordships of the Supreme Court in the aforesaid case as under : - "it is therefore now well settled that taxing laws can be restrictions on trade, commerce and inter-course, 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 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 ). " ;