P ABDUL SUBHAN AND COMPANY Vs. STATE OF MADRAS

JUDGEMENT

(1.) THIS petition is filed under Article 226 of the constitution for the issue of a writ of certiorari or other appropriate writ, calling for the records and quashing the order, dated 23rd November, 1956, in a-4-3774-55/56, on the file of the Deputy Commercial Tax Officer, Gudiyatham.

(2.) THE petitioner-firm is a licensed dealer in hides and skins. In the course of its business, raw skins from places within and outside the State are purchased, tanned and the tanned skins exported to foreign countries. For the year 1955-56, the 2nd respondent, the Deputy Commercial Tax officer, Gudiyatham, made an assessment on the petitioner on the basis of the re-enacted rule 16 of the Turnover and Assessment Rules, under the Madras general Sales Tax Act of 1939, on a turnover of Rs. 8, 23, 513-14-0. THE legality of the assessment is challenged in this petition by impugning the constitutional validity of rule 16 of the Turnover and Assessment Rules. Section 3 (1) of the Madras General Sales Tax Act makes it obligatory on every dealer to pay a tax for each year on the total turnover (which is to be determined in accordance with rules prescribed in that behalf)at the rate specified in the section. THE term "turnover" as defined in the Act is the aggregate amount, for which goods are bought or sold. Section 3 (1) would, if unrestricted, enable a levy of sales tax on as many occasions as there are sales by dealers of particular goods, resulting in what is called a multi-point levy. Section 3 (3) exempts a dealer whose turnover is less than Rs. 10, 000 in any year from payment of sales tax for that year. THEre are also exemptions and reductions in respect of the taxes leviable on certain goods. Section 5 enumerates them. In two cases there is a total exemption, and in four others a multi-point levy was avoided by prescribing a single point in the series of sale transactions which the goods may undergo within the State. Section 5 (vi) relates to the levy of tax on the sale of hides and skins, modifying the otherwise multi-point liability into a single point one, the point in the series of sales being left to be prescribed by the rules. Section 19 confers powers on the State Government to make rules prescribing the determination of the turnover and fixation of the point of levy in regard to cases of single point levy. Accordingly the State Government framed the turnover and Assessment Rules of 1939, which came into force on 1st October, 1939. Those rules have been amended, repealed and re-enacted from time to time,rule 16 of the Turnover and Assessment Rules framed in 1939 provided for the levy of taxes on tanned and untanned skins by licensed and unlicensed dealers. Since then in three decisions of this Court certain defects in rule 16 were brought to light. Rule 16 (5) which did not give the benefit of single point levy to unlicensed dealers, was declared invalid as contrary to section 5 (vi), the assessable turnover was held not to include purchases from unlicensed dealers, and the transactions by unlicensed dealers were held not taxable as no point of levy was fixed. THE result was that under the rules the unlicensed dealer escaped taxation while the licensed dealer had to pay it.

(3.) THE Government of India Act, 1935, did not contain a guarantee of free trade like Article 301 under the Constitution. THE prohibition imposed by section 297 (1) (b) limited only the powers of legislature etc. of the provinces and not of the Centre. That section prohibited discriminatory tax by a Province as against the goods produced or manufactured in other Provinces, and such prohibition was not confined to import taxes alone. In Bharat automobiles v. State of Assam, the validity of a provision in the Assam Sales tax Act, 1947, namely section 29, arose for consideration. Under that section, a dealer, who would not be liable to tax on the sale of goods if he had obtained the same within the Province, was made liable to tax in respect of the goods obtained outside the Province. THE learned Judges held that that provision contravened section 297 of the Government of India Act, and observed at page 547 :- "the tax, therefore, which purports to be levied on the dealer who sells goods obtained from outside the State, under section 29 of the Act is, in substance, a tax on those goods, and directly attracts the inhibitions prescribed by section 297 of the Government of India Act, 1935, or article 304 of the present Constitution, because of its discriminatory character in favour of goods produced or manufactured in the State. I am, therefore, constrained to hold that section 29 of the Act is ultra vires. " *