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(2001) 1 J & K LAW REPORTER393 1. M/s
SHAKTI TRADERS
Appellant ... LPA Nos. 633/99,
634/99, 607/99, 606/99, 554/99, 116/2000, 742/99, 259/2000 & OWP Nos. 595-A/98,
896/2000, decided on 14.3.2001.
Levy of Tolls Act, Svt. 1995 (1938 AD) - Levy of additional toll at the rate of 4
per cent by the State of Jammu and Kashmir on the edible oil imported into the State for
resale in the State without similar levy on the edible oil manufactured in the State
– Whether violates articles 301 and 304(a) of the Constitution of India- Held : Yes.
There is no
dispute about the fact that the additional toll on the edible oil imported by the
appellants is tax on imported edible oil and not a fee. Obviously, it is not
a regulatory or compensatory measure. It directly and immediately impedes the free flow or
movement of trade. It therefore violates the
freedom of trade under article 301 of the Constitution. The only question is whether it is
saved by article 304. The answer obviously has to be in the negative. Imposition of tax at
the rate of 4 percent by way of additional toll on the edible oil imported from outside
the State by the impugned SRO, without similar levy on the edible oil manufactured or
produced in the State, is clear discrimination against the imported edible oil. The levy
is patently discriminatory. The Supreme Court, in Shree
Mahavir Oil Mills has declared identical
discriminatory treatment of imported edible oil by levy of sales tax at the rate of eight
percent on such edible oil, while unconditionally exempting the locally manufactured
edible oil, by the State of Jammu and Kashmir as illegal and unconstitutional. The
position of the levy of additional toll at the rate of 4 percent on the imported edible
oil is in no way different. What is different
is the nomenclature, which is not relevant in deciding the nature and validity of the
levy. In course of argument before us, the learned Advocate General tried to justify the
levy of additional toll on imported oil without similar levy on locally produced edible
oil on the ground that the oil manufacturers in the State were not in a position to
compete with the outside manufacturers in view of the difficult situation in the State and
as such a different treatment to them was not discriminatory. We don’t find any merit
in this contention because, as observed by the Supreme Court in Shree Mahavir Oil Mills , 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
tax vis-à-vis similar goods manufactured/produced within that State. The prohibition is
against discriminatory taxation by the States. It matters not how the discrimination is
brought about. In other words, the States have the power to levy tax on goods imported
from other States but that power cannot be so exercised as to discriminate against the
imported goods vis-à-vis similar goods manufactured locally. Article 304, in effect,
prohibits discrimination against imported goods. The State Government can levy tax on both
imported and the locally manufactured goods at the same rate. The States cannot, however,
use taxation as a tool to discriminate against the imported goods even with a view to
protecting the local manufacturers from competition from outside manufacturers. The States
cannot create tax barriers around themselves. In
the instant case, the State of Jammu and Kashmir has perpetuated the discrimination
against imported edible oil despite the quashing of similar levy by the Supreme Court, by
mere change of description of the levy. The net effect remains the same- discrimination
against imported edible oil vis-a-vis locally manufactured similar oil. Discrimination is
writ large on the face of the impugned SRO. We, therefore, hold that the levy of
additional toll on the edible oil imported in the State for the purpose of resale by the
impugned SRO without similar levy or imposition on the locally manufactured edible oil is
violative of articles 301 and 304(a) of the Constitution.
[Para 14]
Constitution of
India , Articles 301 & 304( a ) - Levy of additional toll under the Levy of
Tolls Act at the rate of 4 per cent by
the State of Jammu and Kashmir on the edible
oil imported into the State for resale in the State without similar levy on the edible oil
manufactured in the State – Whether discriminatory
and violative of articles 301 and 304(a) of
the Constitution of India- Held :Yes. Though
the States are free to encourage and promote the establishment and growth of industries
within their States by all such means as they think proper,
they cannot, in that process, subject the goods imported from other States
to a discriminatory rate of taxation, i.e., a higher rate of tax vis-à-vis similar goods
manufactured/produced within that State. The prohibition is against discriminatory
taxation by the States. It matters not how the discrimination is brought about. In other
words, though the States have the power to levy tax on goods imported from other States
but that power cannot be so exercised as to discriminate against the imported goods
vis-à-vis similar goods manufactured locally. Article 304, in effect, prohibits
discrimination against imported goods. The State Government can levy tax on both imported
and the locally manufactured goods at the same rate. The States cannot, however, use
taxation as a tool to discriminate against the imported goods even with a view to
protecting the local manufacturers from competition from outside manufacturers. The States
cannot create tax barriers around themselves. In
the instant case, the State of Jammu and Kashmir has perpetuated the discrimination
against imported edible oil despite the quashing of similar levy by the Supreme Court, by
mere change of description of the levy. The net effect remains the same- discrimination
against imported edible oil vis-a-vis locally manufactured similar oil. Discrimination is
writ large on the face of the impugned SRO. We, therefore, hold that the levy of
additional toll on the edible oil imported in the State for the purpose of resale by the
impugned SRO without similar levy or imposition on the locally manufactured edible oil is
violative of articles 301 and 304(a) of the Constitution .
[Para
14]
Levy of Tolls Act, Svt. 1995 - SRO 184 dated
30th May, 1997- Levy of additional toll at the rate of 4 per cent by the State of Jammu and Kashmir on the edible oil imported into the State for
resale in the State - Whether a tax or a fee – Held : It is a tax .
There is no
dispute at the Bar about the fact that the additional toll under the Levy of Tolls Act is
a tax and not a fee and that this issue is no more res
integra in view of the Full Bench decisions of this Court in Girdhari Lal Saraf
and Mehta
Foods. The learned Advocate General, in course of arguments, also fairly stated
that in view of the above Full Bench decisions of this Court, it is not open to the State
to contend before this Court that additional toll under the Levy of Tolls Act is not a
tax. Otherwise also, we find that the State has nowhere made out a case to justify the
levy of additional toll as a fee by placing relevant materials before this Court.
[Para
8]
Resale- SRO 184 dated 30th May,1997- Levy
of additional toll at the rate of 4 per
cent by the State of Jammu and Kashmir on the edible oil imported into the State for
“resale in the State”- Meaning of resale-
“Resale” means sale of a thing previously bought. It is a sale by a
person who has purchased the same from some one else. According to Blacks Law Dictionary,
the term “resale” refers to act of a retailer who purchases goods from the
manufacturer or whole-seller for purposes of selling such goods in normal course of
business. “Resale” visualises a prior purchase of the goods by the seller from
some one else. Though every resale is a sale, the reverse is not true. Every
“sale” cannot be termed as “resale”. In that view of the matter, we
are of the clear opinion that the additional toll under the impugned SRO is leviable only
on edible oil imported from outside into the State for purposes of “resale” in
the State.
[Para
16]
Words and phrases.- “Resale” - Meaning of.
[Para
16]
Advocates
who appeared in this case : M/s
Sunil Hali, Rahul Panth, M.M. Gupta and Subhash Dutt, Advocates, for
appellants/petitioners. and Mr. Z. A. Shah, Advocate, for appellant in LPA 554/99. Advocate
General, Mr. M. A. Goni and M/s S. K.
Shukla and M. A. Bhat, Advocates for the respondents Cases referred : Chronological Judgment
And Order
Per
Dr. B. P. Saraf, Chief Justice
All
these eight appeals under clause 12 of the Letters Patent are directed against the common
judgment and order dated 30.9.1999 of the learned Single Judge by which he dismissed the
writ petitions of the appellants challenging the constitutional validity of the levy of
additional toll at the rate of 4 per cent by the State of Jammu and Kashmir
(“State”) on the edible oil imported into the State for re-sale with effect from
30th May, 1997 vide SRO 184 dated 30.9.1999.The
two writ petitions also involve the challenge to the same levy and the decision in these
appeals will govern those writ petitions as well. Those two writ petitions are, therefore,
clubbed with these appeals for final hearing and disposal.
2. The material facts are
as follows. All the appellants and writ petitioners, except appellant Nos. 4 and 6,
namely, M/s Daya Chand Jain (LPA No.606/99) and M/s S. K. Enterprises (LPA 116/2000) and
writ petitioner, M/s Pawan Traders (OWP 595-A/98), are engaged in the business of
manufacture of edible oil in different States, viz. Punjab, Haryana, Gujarat and Madhya
Pradesh and sale thereof, inter alia, in the State of Jammu and Kashmir. Appellants 4 and
6 and writ petitioner in OWP 595-A/98 are dealers and distributors engaged in the business
of sale of edible oil imported in the State. All the appellants and the writ petitioners
are aggrieved by the levy of additional toll at the rate of 4 per cent on the value of
edible oils imported in the State with effect from 30th
May, 1997 vide SRO 184. According to them, the levy of additional toll at the rate of 4
per cent by the above SRO on the oil imported from outside the State into the State
violates article 301 of the Constitution of India. The appellants challenged the above
levy by filing writ petitions. The case of the appellants was that the levy of additional
toll on the edible oils imported into the State for resale in the State was violative of
articles 301 and 304(a) of the Constitution of India. It was contended that the impugned
levy was discriminatory in nature because by the said levy edible oils imported from
outside the State for the purpose of re-sale in the State were discriminated. It was also
contended that the said levy was not saved by article 304(b) of the Constitution of India.
In support of this contention reliance was placed on the decision of Supreme Court in Shree Mahavir Oil Mills v State of J & K (1996)
11 SCC 39. The further contention of the appellants before the learned Single Judge was
that the oil imported by them being for the purpose of “sale” and not “for
re-sale”, SRO 184 was not applicable and on that count also the levy of additional
toll on the oil imported by them was illegal. The learned Single Judge dismissed the writ
petitions of the appellants as he was of the opinion that the levy of additional toll tax
on the edible oil imported into the State for re-sale in the State being under a different
statute, namely, the Levy of Tolls Act, (“Tolls Act”) was sustainable and the
decision of the Supreme Court in Shree Mahavir Oil
Mills (supra), which was a case of challenge to the levy of sales tax, was not
applicable. The learned Single Judge also rejected the contention of the appellants that
the goods having been imported for the purpose of sale and not “for the purpose of
re-sale”, no additional toll could be levied under the impugned SRO because,
according to him, once the goods enter the State for the purpose of sale, the levy was
attracted. The appellants have challenged the above order of the learned Single Judge by
way of these appeals. Similar challenge is in the two writ petitions. 3. We have heard M/s Z.
A. Shah, Sunil Hali, M. M. Gupta, Subhash Dutt and Rahul Panth, learned counsel for the
appellants/writ petitioners, who submit that the levy of additional toll vide SRO 184 of
1997 is illegal and unconstitutional, the same being violative of articles 301 and 304(a)
of the Constitution of India. Before we deal with the arguments of the learned counsel for
the appellants/writ petitioners (hereinafter, for the sake of brevity, referred to as
“appellants”), it will be expedient to set out SRO 184. SRO 184 of 1997 reads as
below: “GOVERNMENT
OF JAMMU AND KASHMIR FINANCE
DEPARTMENT Notification, Dated, Srinagar
the 30th May, 1997 SRO
184 – In exercise of the powers conferred by Sub-section (5) of section (3) of the
Levy of Tolls Act, Samvat 1995, the Government hereby notifies that additional toll on the
edible oil imported into the State for re-sale in the State shall be levied at the rate of
4% on the value of such goods with immediate effect. By
order of the Government of Jammu & Kashmir.
Sd/-
(Dr. R.K.Kotru)
Director Finance”. From
a plain reading of the above SRO, it is clear that additional toll has been levied on the
edible oil imported into the State for re-sale in the State at the rate of 4 per cent with
effect from 30th May, 1997. 4. This levy of
additional toll on edible oil imported into the State has a chequered history. Originally
under schedule ‘D” to the Jammu and Kashmir General Sales Tax Act, 1962, edible
oils were liable to sales tax at the rate of 4 per cent. The rate of tax was later raised
to 8 per cent with effect from 27th May, 1994.
With a view to protecting the interest of the local oil industry, which was facing a stiff
competition from the edible oil manufacturers from outside the State, the Government of
Jammu and Kashmir issued SRO 93 of 1991 on 7th
March, 1991 under section 5 of the General Sales-tax Act, 1962 (Sales-tax Act) directing
that the goods manufactured by a dealer operating as a small-scale industrial unit in the
State and registered with the Director of Industries and Commerce, Handicrafts or Handloom
Development, subject to the conditions specified therein, shall be exempted from payment
of tax to the extent and for the period specified therein. At the material time, all the
units manufacturing edible oil in the State were small-scale industrial units as defined
by the Jammu and Kashmir Government. The exemption was thus total. The period of exemption
was 5 years – which was later extended by another 5 years. The result of the
aforementioned orders was that while the manufacturers of edible oil in other States were
obliged to pay sales tax on the sales effected by them in the State of Jammu and Kashmir
at the rate of 4 per cent, the local manufacturers were totally exempted therefrom. As
stated above, in May 1994, the rate of tax was raised from 4 per cent to 8 per cent, With
the raising of the rate of sales tax to 8 percent, the outside manufacturers were obliged
to pay 8 per cent tax while the local producers of edible oils were exempt fully. It is at
that stage that some of the outside manufacturers approached this Court by way of writ
petitions, which were dismissed by a learned Single Judge. The Letters Patent appeals
against the order of the learned Single Judge were also dismissed by the Division Bench
relying upon the decision of the Supreme Court in Video
Electronics (P) Ltd v. State of Punjab (1990) 3 SCC 87. The outside manufacturers
appealed to the Supreme Court. The Supreme Court held that by exempting unconditionally
the edible oil produced within the State of Jammu and Kashmir altogether from sales tax
while subjecting the edible oil produced in other States to sales tax at 8 per cent, the
State of Jammu and Kashmir had brought about discrimination by taxation which was
prohibited by article 304(a) of the Constitution of India and the said levy was invalid
and unconstitutional (Shree Mahavir Oil Mills v
State of J&K (1996) 11 SCC 39). However, keeping in view the fact that the
exemption in question was to promote the interest of the disturbed and economically and
industrially undeveloped State of Jammu and Kashmir, the Supreme Court moulded the relief
in exercise of powers under article 142 of the Constitution of India and directed that the
appellants (outside manufacturers) would not be entitled to claim any amount by way of
refund or otherwise by virtue of, or as a consequence of, the declaration of non-validity
contained in the judgement and that the declaration of non-validity of the impugned
notification would take effect on and from Ist April, 1997. Till that date, i.e., upto and
inclusive of 31.3.1997, the impugned notification was allowed to continue to be effective
and operative. In other words, though the Supreme Court declared the exemption granted by
the State Government vide notification No.93 of 1991 to local manufacturers/producers of
edible oils violative of the provisions of articles 301 and 304(a) of the Constitution of
India, in view of the special circumstances of the State of Jammu and Kashmir, it gave
effect to the same prospectively with effect from Ist April, 1997. 5. It appears that the
State Government failed to appreciate the true import of the judgement of the Supreme
Court wherein the Supreme Court held in unequivocal terms that by exempting
unconditionally the edible oil produced within the State of Jammu and Kashmir altogether
from sales tax, while subjecting the edible oil produced in other States to sales tax at 8
per cent, the State had brought about discrimination by taxation prohibited by article
304(a) of the Constitution and declared the exemption to be invalid. Obviously, the State
Government misunderstood and misconstrued the indulgence given by the Supreme Court by
declaring the levy invalid and unconstitutional with prospective effect and sought to do
the very same thing and achieve the very same result by levying, in place of sales tax at
the rate of 8 per cent under the Sales- tax Act which had been declared invalid in Shree Mahavir Oil Mills (supra) by the Supreme
Court, additional toll at the rate of 4 per cent on edible oils imported into the State
for re-sale in the State under another enactment, namely, Levy of Tolls Act. . That is
evident from the budget speech dated 20th March,
1997 of the Finance Minister for the Budget Session 1997-98, wherein he said in
unequivocal terms (in para 93): “93. The
exemption given to small scale industrial units on the sale of edible oil manufactured by
them in the State is proposed to be withdrawn in the light of the judgement of the
Honourable Supreme Court ( Shree Mahavir Oil
Mills vs. State of J&K). But I, however, propose to levy entry tax at the rate of 4%
on the edible oil which is imported from outside the State for resale in the State.” 6. This statement of the
Finance Minister in the Budget Speech was followed by the impugned SRO by which additional
toll was levied at the rate of 4 per cent under the Levy of Tolls Act on edible oil
imported into the State for resale in the State. It is this SRO which was challenged by
the appellants before the learned Single Judge on the ground that the State Government had
committed the same illegality and brought about the same discrimination by taxation
prohibited by article 304(a) of the Constitution of India which was declared illegal and
invalid by the Supreme Court in Shree Mahavir Oil Mills v State of J&K (supra). The
learned Single Judge dismissed the writ petitions. Aggrieved by the order of the learned
Single Judge, the appellants have filed these Letters Patent appeals. 7. The case of the
appellants is that the impugned levy is in total disregard to the clear mandate of the
Supreme Court in Shree Mahavir Oil Mills (supra). It is contended that the State
Government has merely changed the nomenclature of the levy and, in fact, done the very
same thing that was declared illegal by the Supreme Court. Learned counsel submit that
article 304(a) of the Constitution of India clearly prohibits the State from
discriminating by taxation the goods imported from outside the State and the State
Government, in the instant case, despite the clear mandate of the Supreme Court, has done
the same. It is further submitted that while the position prior to the impugned SRO was
that locally produced edible oil was exempted from tax but the edible oil manufactured in
other States and imported into the State was subjected to sales tax at the rate of 8 per
cent, the position under the impugned SRO is that tax by way of additional toll under the
provisions of Levy of Tolls Act at the rate of 4 per cent is levied on the edible oils
imported into the State from outside for resale in the State leaving the locally
manufactured edible oil outside the tax net. The net result, according to the appellants,
is the same - levy of tax by way of additional toll on the imported edible oil without
identical levy on the locally manufactured oil resulting in gross discrimination against
the imported edible oil. The further contention of the appellants is that the additional
toll under the Levy of Tolls Act is not a fee but a tax and that issue is no more res integra in view of the Full Bench decision of
this Court in Girdharilal Anand Saraf v State of J
& K AIR 1969 J & K 113 (which has been followed in another Full Bench Decision
in M/s Mehta Food Pvt Ltd v State of J&K
(Writ Petition No.660/82 decided on 23.8.1999) wherein it has been held that the levy of
toll under the said Act is not a fee but a tax. Learned counsel for the appellants submit
that the present case is squarely covered by the decision of the Supreme Court in Shree Mahavir Oil Mills
(supra) and the levy of additional toll at the rate of 4 per cent on the
imported edible oil by the State Government
is in gross violation not only of the constitutional mandate of articles 301 and 304(a) but
also in blatant disregard to the decision of the Supreme
Court in the above case and hence the impugned SRO is liable to be set-aside and quashed.
Another contention of the learned counsel for the appellants is that though the levy under
SRO 184 is on the edible oil imported into the State for resale in the State, the
authorities are levying tax on oil imported by the manufacturers for first sale in the
State and not “resale”. We have also heard Mr. M. A. Goni, learned Advocate
General, for the State who supports the judgement of the learned Single Judge. 8. We have carefully
perused the impugned SRO and considered the rival contentions of the parties. There is no
dispute at the Bar about the fact that the additional toll under the Levy of Tolls Act is
a tax and not a fee and that this issue is no more res
integra in view of the Full Bench decisions of this Court in Girdhari Lal Saraf
(supra) and Mehta Foods
(supra). The learned Advocate General, in course of arguments, also fairly stated that
in view of the above Full Bench decisions of this Court, it is not open to the State to
contend before this Court that additional toll under the Levy of Tolls Act is not a tax.
Otherwise also, we find that the State has nowhere made out a case to justify the levy of
additional toll as a fee by placing relevant materials before this Court. However, in view of the Full Bench decisions of
this Court holding the toll of the type levied in this case under the Levy of Tolls Act as
a tax, we would examine the validity of the levy of additional toll under the Levy of
Tolls Act on the edible oils imported from outside the State by the impugned SRO 184 as
levy of tax on imported edible oil without identical levy on the locally manufactured
edible oil. 9. The real question that
arises for consideration is whether the levy of additional toll at the rate of 4 per cent
on the edible oil imported into the State for resale in the State amounts to
discrimination against the goods manufactured or produced outside the State of Jammu and
Kashmir which is prohibited by articles 301 and 304 of the Constitution of India. Article
301 provides that subject to other provisions of Part XIII, trade, commerce and
intercourse throughout the territory of India shall be free. Article 304 empowers the
Legislature of a State to impose certain restrictions on trade, commerce and intercourse.
It reads: “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) impose such
reasonable restrictions on the freedom of trade, commerce or intercourse with or within
that State as may be required in the public interest; Provided that no
Bill or amendment for the purpose of clause (b) shall be introduced or moved in the
Legislature of a State without the previous sanction of the President.” 10. It is well settled by now 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 as compensatory taxes or regulatory
measures (A.T.B. Mehtab Majid & Co. v. State of
Madras AIR 1963 SC 928; Atiabari Tea Co. v
State of Assam, AIR 1961 SC 232; Automobile
Transport ( Rajasthan ) Ltd. v State of Rajasthan AIR 1962 SC 1406 ). Article 304 (a)
enables the legislature of a State to make laws effecting trade, commerce and intercourse.
It enables the imposition of tax 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
in that State and goods which are imported from other States (A.T. B. Mehtab Majid v. State of Madras, supra).
This means that if the effect of the tax on goods imported from outside the State is that
the latter becomes subject to higher tax, then the tax is discriminatory and
unconstitutional. 11. Dealing with the scope and ambit
of article 304(a), in Shree Mahavir Oil Mills (supra),
the Supreme Court observed: “…Article 304
deals with the power of the State Legislatures. It begins with a non obstante clause;
‘Notwithstanding anything in Article 301 or Article 303.’ Article 303 was also
referred to in this non obstante clause evidently for the reason that clause (1) of
Article 303 refers to ‘the legislature of a State’ besides referring to
Parliament. Article 304 contains two clauses. Clause (a) states that ‘ 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’. (Emphasis
supplied). The wording of this clause is of crucial significance. The first half of the
clause would make it appear at the first blush that it merely states the obvious: one may
indeed say that the power to levy tax on goods imported from other States or Union
Territories flows from Article 246 read with Lists II and III in the Seventh Schedule and
not from this clause. That is of course so, but then there is a meaning and a very
significant principle underlying the clause, if one reads it in its entirety. The idea was
not really to empower the State Legislatures to levy tax on goods imported from other
States and Union Territories – that they are already empowered by other provisions in
the Constitution – but to declare that that power shall not be so exercised as to
discriminate against the imported goods vis-a vis locally manufactured goods. The clause,
though worded in positive language has a negative aspect. It is, in truth, a provision
prohibiting discrimination against the imported goods. In the matter of levy of tax – and this is
important to bear in mind – the clause tells the State Legislatures – ‘tax
you may the goods imported from other States/Union Territories but do not, in that
process, discriminate against them vis-à-vis goods manufactured locally’. In short,
the clause says: levy of tax on both ought to be at the same rate. This was and is a
ringing declaration against the States creating what may be called ‘tax
barriers’ – or ‘fiscal barriers’, as they may be called – at or
along with boundaries in the interest of freedom of trade, commerce and intercourse
through the territory of India, guaranteed by Article 301… [T]his clause does not
prevent in any manner the States from encouraging or promoting the local industries in
such manner as they think fit so long as they do
not use the weapon of taxation to discriminate against the imported goods vis-à-vis the
locally manufactured goods. To repeat, the clause bars the States from creating tax
barriers – or fiscal barriers, as they can be called – around themselves and/or
insulate themselves from the remaining territories of India by erecting such ‘tariff
walls’. Part XIII is premised upon the assumption that so long as a State taxes its
residents and the residents of other States uniformly, there is no infringement of the
freedom guaranteed by Article 301; no State would tax its people at a higher level merely
with a view to tax the people of other States at that level.” 12. Articles 301 and 304(a) had come
up for consideration before the Supreme Court in Atiabari
Tea Co. Ltd. v State of Assam AIR 1961 SC 809; Automobile
Transport (Rajasthan) Ltd v State of Rajasthan AIR 1962 SC 1406; A. T. B. Mehtab Majid & Co. v State of Madras AIR
1963 SC 928; H. Anraj v Govt. of T. N. (1986) 1
SCC 414; Indian Cement v State of A. P. AIR 1988
SC 567; Weston Electroniks v. State of Gujarat (1988)
2 SCC 268; Video Electronics (P) Ltd v State of
Punjab AIR 1990 SC 820; State of Mysore v H.
Sanjeeviah AIR 1967 SC 1189; Kalyani Stores v
State of Orissa AIR 1966 SC 1686 and a large number of cases. The ratio of the
decisions, so far as article 304(a) is concerned, was summed up by the Supreme Court in Shree Mahavir Oil Mills (supra) as under: “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-à-vis similar goods manufactured/produced within that State and sold within
that State. Prohibition is against discriminatory taxation by the States. It matters not how this discrimination is brought
about. A limited exception has no doubt been carved out in Video Electronics but, as
indicated hereinabove, that exception cannot be enlarged lest it eat up the main
provision.”
(Emphasis added) 13. Dealing with the validity of
exemption of edible oil produced within the State of Jammu and Kashmir from sales tax
while subjecting the edible oil produced in other States to such tax at the rate of 8 per
cent, which was the subject matter of challenge before the Supreme court in that case, it
was held: “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.”
(Emphasis supplied) 14. We may now examine the
constitutional validity of the levy of additional toll at the rate of 4 percent on the
edible oil imported in the State from outside the State for the purpose of resale in the
State by the impugned SRO 184 dated 30th May,
1997 on the touch stone of article 304(a) of the Constitution of India in the light of the
decision of the Supreme Court in Shree Mahavir Oil
Mills Ltd. (supra). There is no dispute about the fact that the additional toll on the
edible oil imported by the appellants is tax on imported edible oil and not a fee.
Obviously, it is not a regulatory or compensatory measure. It directly and immediately
impedes the free flow or movement of trade. It
therefore violates the freedom of trade under article 301 of the Constitution. The only
question is whether it is saved by article 304. The answer obviously has to be in the
negative. Imposition of tax at the rate of 4 percent by way of additional toll on the
edible oil imported from outside the State by the impugned SRO, without similar levy on
the edible oil manufactured or produced in the State, is clear discrimination against the
imported edible oil. The levy is patently discriminatory. The Supreme Court, in Shree Mahavir Oil Mills (supra), has declared
identical discriminatory treatment of imported edible oil by levy of sales tax at the rate
of eight percent on such edible oil, while unconditionally exempting the locally
manufactured edible oil, by the State of Jammu and Kashmir as illegal and
unconstitutional. The position of the levy of additional toll at the rate of 4 percent on
the imported edible oil is in no way different. What is different is the nomenclature,
which is not relevant in deciding the nature and validity of the levy. In course of
argument before us, the learned Advocate General tried to justify the levy of additional
toll on imported oil without similar levy on locally produced edible oil on the ground
that the oil manufacturers in the State were not in a position to compete with the outside
manufacturers in view of the difficult situation in the State and as such a different
treatment to them was not discriminatory. We don’t find any merit in this contention
because, as observed by the Supreme Court in Shree
Mahavir Oil Mills (supra), though the 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 tax vis-à-vis similar goods
manufactured/produced within that State. The prohibition is against discriminatory
taxation by the States. It matters not how the discrimination is brought about. In other
words, the States have the power to levy tax on goods imported from other States but that
power cannot be so exercised as to discriminate against the imported goods vis-à-vis
similar goods manufactured locally. Article 304, in effect, prohibits discrimination
against imported goods. The State Government can levy tax on both imported and the locally
manufactured goods at the same rate. The States cannot, however, use taxation as a tool to
discriminate against the imported goods even with a view to protecting the local
manufacturers from competition from outside manufacturers. The States cannot create tax
barriers around themselves. In the
instant case, the State of Jammu and Kashmir has perpetuated the discrimination against
imported edible oil despite the quashing of similar levy by the Supreme Court, by mere
change of description of the levy. The net effect remains the same- discrimination against
imported edible oil vis-a-vis locally manufactured similar oil. Discrimination is writ
large on the face of the impugned SRO. We, therefore, hold that the levy of additional
toll on the edible oil imported in the State for the purpose of resale by the impugned SRO
without similar levy or imposition on the locally manufactured edible oil is violative of
articles 301 and 304(a) of the Constitution. We declare accordingly and set aside and
quash the same. 15. Before parting with the case, we deem it
expedient to deal with the alternate submission made on behalf of the appellants who are
importing edible oil manufactured by them outside the State for sale in the State that the
additional toll levied by the impugned SRO is not applicable to them because they import
edible oil for sale in the State and not for “resale” which attracts the levy.
The submission, in other words, is that while determining the liability under the impugned
SRO, the distinction between “sale” and “ resale” must be kept in mind
by the assessing authorities and the levy should be confined only to edible oil imported
for “resale”. It is contended that the manufacturers who import the edible oil
manufactured by them in the State for the sale cannot be subjected to the additional toll
under the impugned SRO, even if it is held to be valid, because the import is not for
resale. 16. We have carefully considered the
above submission. There is no dispute about the fact that additional toll under the
impugned SRO is leviable on edible oil imported in the State for “resale” in the
State. “Resale” means sale of a thing previously bought. It is a sale by a
person who has purchased the same from some one else. According to Blacks Law Dictionary,
the term “resale” refers to act of a retailer who purchases goods from the
manufacturer or whole-seller for purposes of selling such goods in normal course of
business. “Resale” visualises a prior purchase of the goods by the seller from
some one else. Though every resale is a sale, the reverse is not true. Every
“sale” cannot be termed as “resale”. In that view of the matter, we
are of the clear opinion that the additional toll under the impugned SRO is leviable only
on edible oil imported from outside into the State for purposes of “resale” in
the State. This controversy, however, has become academic in view of the impugned
notification itself having been declared by us as illegal and inoperative, the same being ultra vires articles 301 and 304 of the
Constitution. 17. In the result all these Letters
Patent Appeals are allowed. The impugned SRO No.184 dated 30th May, 1997 is declared
illegal and inoperative, the same being violative of articles 301 and 304 of the
Constitution of India. The two writ petitions are also allowed in the same terms. All the
appeals and writ petitions are disposed of accordingly with no order as to costs. ......... |