Judgment:
Raghuvir, J.
1. The firm of M/s. Anand Commercial Agencies is a dealer in edible oils. For the assessment year 1977-78, under the Andhra Pradesh General Sales Tax Act (6 of 1957), the firm in their return showed their turnover of oils was Rs. 31,35,995.53. In that refined oil component was of Rs. 14,76,567.25. The refined oil, the firm represented, was imported from Karnataka. The groundnuts, out of which the imported refined oil was extracted, met sales tax in Karnataka. Therefore, the turnover of Rs. 14,76,567,25, the firm claimed, be taxed at 2 1/2 paise in the rupee (not 621 paise) under the Act. This plea in a short shrift, was rejected by the Commercial Tax Officer. The appeal proved not successful. It was held plea of the firm was beyond the competence of the authorities. The firm finally filed the instant writ petition.
2. The firm in the petition contends refined oil imported by them, since groundnuts met sales tax in Karnataka, therefore, is liable to pay 2 1/2 paise in the rupee under clause (b), not 6 1/2 paise under clause (a) of item 24 of the First Schedule of the Act. Clause (b) of the item recites refined oil obtained from groundnut that has met tax under item 6 of the Third Schedule is liable to be taxed at the rate of 2 1/2 paise in the rupee. Whereas, even when it is shown groundnuts met the sales tax outside the State, such imported refined oil is taxed at 6 1/2 paise in the rupee. This is the rub in the case. The firm contends such a measure of taxation of imported oil is violation of articles 14, 301 and 304(a) of the Constitution. The firm complains of discrimination. Besides, such a course of action by the taxing authorities, the firm avers, violates free flow of trade and commerce guaranteed in Part XIII of the Constitution.
3. The State Government traversed the allegations and in the counter the State averred imported refined oil from Karnataka or any other State, is not discriminated. It is shown groundnuts are taxed at the rate of 4 paise in the rupee under entry 6 of the Third Schedule. Inter-State trade and commerce, it is asserted, is not thwarted or obstructed. Free flow of refined oil from the neighbouring States in the State, it is urged, is not impeded by any of the provisions of Act 6 of 1957. These are the facts in the case.
4. From the above facts - a dealer sells imported refined oil within the State, to repeat the controversy and when groundnut is shown of that oil to have been taxed outside the State, tax at the rate of 6 1/2 paise is levied, is accepted. Therefore, the issue in the case is in doing so whether there is discrimination - whether the facility of 2 1/2 paise rate is liable to be extended to imported oil in Andhra Pradesh. This is the perspective of the issue. In the range of controversy at the debate seven articles (14, 301 - 306) forming Part XIII of the Constitution were covered.
5. Thus two aspects are at issue of the Constitution - one is with respect to article 14, the other touches articles 301 - 306 of Part XIII of the Constitution. There is considerable difficulty for the State High Courts to decide the question relevant to Part XIII of the Constitution. The difficulty emerges mainly out of the decided cases. There are by now eight cases decided by the Supreme Court relevant to the seven articles.
6. The Supreme Court considered at length the articles of Part XIII of the Constitution in the first two cases. The seven articles in the two cases, it was observed, were 'defectively' conceived. They were 'badly drafted'. The language employed; the phrases used in the articles were not 'proper'. The arrangement of the articles provoked 'baffling' problems. There was a 'mix up' of ideas thematically in the articles. One 'exception upon exception' is set out in this chapter of the Constitution. It was hoped in deciding the Automobile case 0065/1962 : [1963]1SCR491 the second of the cases, some time in future articles in this Part will be rearranged. True meaning will be then culled out. This was said ago a quarter of a century and hoped in Atiabari case : [1961]1SCR809 the first case, when the structure of Part XIII was considered. There was a serious division of opinion (4 : 1) in deciding the case. This was reconsidered in the Automobile case 0065/1962 : [1963]1SCR491 . Again there was an acute division (4 : 3) among the Judges. The majority of four in the Automobile case 0065/1962 : [1963]1SCR491 agreed with the majority of four in the Atiabari case : [1961]1SCR809 . The agreement touched was of mere conclusion. There was no agreement on the reasoning of the case. Therefore, in the Automobile case 0065/1962 : [1963]1SCR491 'a clarification' was grafted. The clarification today is accepted on all hands traverses far beyond the reasoning of the majority in Atiabari's case : [1961]1SCR809 .
7. The minority view in the two cases (Atiabari : [1961]1SCR809 and Automobile 0065/1962 : [1963]1SCR491 ) suffered similar tremors. The jurists, if they can be divided in two categories - text-book writers and other jurists. The text-book writers hold the interpretation in the minority of two cases (Automobile 0065/1962 : [1963]1SCR491 and Atiabari : [1961]1SCR809 cases) is correct; whereas other jurists hold the reasoning in the minority in the two cases cannot be supported. Few of the Judges in the State High Courts hold the conclusion of jurists is not wrong. Such is the spectrum of conflict audwell-nigh it is impossible for any Judge of the High Court to rearrange the articles in Part XIII for they cannot traverse beyond what is laid by the Supreme Court. This is another difficulty peculiar to Judges in the High Court. Notwithstanding cases are to be decided. Conflicts have to be resolved. This is recounted in brief to avoid a full scale discussion on Part XIII of the Constitution. Article 14 of the Constitution, however, can be considered in a horizon not blurred or fudged by Part XIII of the Constitution.
8. Earlier it was said Part XIII of the Constitution was considered in eight tax cases by the Supreme Court. But two types of taxes (one is tax compensatory', the other is tax 'regulatory') it was decided as not affected by Part XIII of the Constitution. The incidence of the two taxes is found elaborated in the Automobile case 0065/1962 : [1963]1SCR491 . There is another aspect for purposes of this case which has to be taken note of. In Andhra Sugar's case : [1968]1SCR705 it was held sales tax was not a compensatory tax or a regulatory tax. This was reiterated in Nataraja Mudaliar's case : [1968]3SCR829 . The theme was expressed in negative parlance in V. G. Naidu's case : [1977]1SCR1065 . These positions are recounted to crystallise the issue in the instant case - whether the impugned clause (a) of item 24 obstructs the imported refined oil. The issue is thus entrenched in the history of seven articles. In this background it is not for this Court to unravel the skein. The application of the ratio of the cases alone is the work of this Court. This in one sense is over-simplification of the determination process of the issue. But true it is the methodology adopted by the State High Courts and by the Supreme Court in deciding the cases. Now the contentions in the case be adverted to.
9. It is argued on behalf of the State that sales tax does not impede the movement of goods. This is the first limb of the argument. It is next argued refined oil is uniformly taxed in the State at 6 1/2 paise in the rupee, whether imported or processed in the State from groundnuts. Therefore, it is contended there is no discrimination. It is on this premise it is urged articles 14, 301 and 304 of the constitution are not violated.
10. The simple fact of the case is refined oil in the State is not taxed at 6 1/2 paise when it is shown groundnuts of such oil met sales tax. The tax levied is 2 1/2 paise. How is it imported refined oil is taxed at 6 1/2 paise even when groundnuts of such oil is shown to have met sales tax. Why What is the reason The question is not answered. It is no answer to argue the refined oil processed in the State or outside the State the sales tax is 6 1/2 paise in the rupee. This is to overlook the cutting edge of the issue.
11. Now relevant cases of the Supreme court be considered. In the last of the cases known as 'lottery tickets' case [H. Anraj v. Government of Tamil Nadu : AIR1986SC63 ] the facts show : The State of Tamil Nadu organised a raffle scheme of lottery tickets. Sales tax is levied at 20 per cent. by the statute on the first point of sale in the State. The vendor in the first point was the State itself. By issuing appropriate notifications tax was exempted on Tamil Nadu lottery tickets. The purchaser of the State lottery tickets was exempted to pay sales tax. The purchaser of one rupee ticket had to pay a rupee only and no sales tax was payable if it was Tamil Nadu ticket of lottery. Whereas, a dealer of lottery tickets of Bhutan and Assam (who was the contestant in the case) the purchaser of the tickets of the two States had to pay Re. 1-20 (20 paise was sales tax) for the face value of one rupee ticket. This was complained as violative of articles 14, 301 and 304(a) of the Constitution.
12. The defence of the Government was the State of Tamil Nadu was the first seller and as a first seller it was open to them either to pass on the tax or not to collect the tax from the buyer. The enabling notifications, it was argued, do not put the buyer at a disadvantage. This contention was rejected by the Supreme Court. In para 38 of the judgment it is held : 'The real question is whether the direct and immediate result of the impugned notification is to impose an unfavourable and discriminatory tax burden on the imported goods (here lottery tickets of other States) when they are sold within the State of Tamil Nadu as against indigenous goods (Tamil Nadu Government lottery tickets) when these are sold within the State from the point of view of the purchaser and this question has to be considered from the normal business or commercial point of view and indisputably if the question is so considered the impugned notification will have to be regarded as directly and immediately hampering free flow of trade, commerce and intercourse. Discriminatory treatment in the matter of levying the sales tax on imported lottery tickets which are similar to the ones issued by the State Government so as to hamper free flow of trade, commerce and intercourse is writ large on the face of the impugned notification and in my view the same is clearly violative of article 301 read with article 304(a) of the Constitution.'
13. In Considering the lottery tickets case, Mehtab Majid's case : AIR1963SC928 was relied on. (Mehtab Majid case : AIR1963SC928 was followed in Abdul & Co. case : [1964]8SCR217 : 'The present rule is therefore discriminatory and invalid for the same reasons which led this court to hold sub-rule (2) of rule 16 invalid in Mehtab Majid's case : AIR1963SC928 . There is no escape from this conclusion.' (para 10)
14. In Mehtab Majid's case : AIR1963SC928 the petitioner was a dealer in hides and skins. 'It used to sell hides and skins tanned outside the State of Madras as well as those tanned inside the State Under rule 16 of the Madras General Sales Tax Rules tanned hides and skins imported from outside and sold inside the State were subjected to higher rates of tax than the tax imposed on hides and skins tanned and sold within the State and the petitioner-firm challenged the sales tax assessment made in relation to the turnover of sales of tanned hides and skins which had been obtained from outside the State of Madras on the ground that there was discriminatory taxation which offended article 304(a) of the Constitution. The respondents contended (a) that sales tax did not come within the purview of article 304(a) as it was not a tax on the import of goods at the point of entry, (b) that the impugned rule was not a law made by the State Legislature, (c) that the impugned rule by itself did not impose the tax but fixed the single point at which the tax was imposed by sections 3 and 5 of the Act, and (d) that the impugned rule was not made with an eye on the place of origins of the goods. Negativing all the contentions of the respondents this court held that it was well-settled that taxing laws can be restrictions on trade, commerce and intercourse, if they hampered free flow of trade and if they are not what can be termed to be compensatory tax or regulatory measure; that sales tax of the kind under consideration could not be said to be a measure regulating any trade or a compensatory tax levied for the use of trading facilities; that the sales tax which had 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 article 301 but will be valid only if it comes within the terms of article 304(a). The court finally held the impugned rule 16(2) invalid. The instant case is on all fours of this decision.'
15. Now the test in the lottery tickets case can be applied to the instant case. Refined oil, if it is shown that in the State of Andhra Pradesh groundnuts have met sales tax, is taxed at 2 1/2 paise in the rupee; whereas the refined oil imported, when groundnuts in similar circumstances met sales tax outside the State, whether levy of 6 1/2 paise in the rupee is legal and is not violative of the constitutional guarantees of articles 301, 304 and 14 of the Constitution. It is no answer to say the refined oil in Andhra Pradesh is taxed at 6 1/2 paise if the groundnuts have not met sales tax. The guarantees under Part III and Part XIII of the Constitution cannot be used as cloaks. In fact the lottery tickets case was considered from the 'normal business or commercial point of view'. Looked at from the normal business and commercial point of view, the discrimination is writ large and free flow of trade, commerce and intercourse is hampered. Article 301 read with article 304(a) of the Constitution is violated.
16. Finally, what is the relief to be ordered in the case. Entry 24(a) or 24(b) of the First Schedule cannot be held ultra vires of the Constitution and struck down. All that can be done is to read down clause (a) of entry 24 to declare : When refined oil sold in Andhra Pradesh is shown, the groundnut out of which the oil is extracted met tax outside the State, tax of 2 1/2 paise in the rupee be levied and not 6 1/2 paise in the rupee. The Commercial Tax Officer, therefore, is directed to ascertain whether the groundnuts of the turnover of Rs. 14,76,567.25 met tax in Karnataka and pass orders in the light of the above discussion.
17. The writ petition is allowed with the declaration indicated above. No costs. Advocate's fee Rs. 250.
Amareswari, J.
18. The question arises under the Andhra Pradesh General Sales Tax Act (hereinafter called 'the Act'). The petitioners challenge the vires of entry 24(a) of the First Schedule to the Act. Entry 24 of the First Schedule is as follows :
---------------------------------------------------------------------- S.No. Description of goods Point of levy Rate of tax ---------------------------------------------------------------------- (1) (2) (3) (4) ---------------------------------------------------------------------- 24 Groundnut oil or refined oil : (1024) (a) Groundnut oil or refined At the point of first 6 1/2 paiseoil not covered by sale in the State. in the sub-item (b) below.rupee. (b) Groundnut oil or refined At the point of first 2 1/2 paiseoil obtained fromsale in the State. in the groundnut that has met rupee. tax under the Act. ------------------------------------------------------------------------ At this stage it is relevant to notice another entry and it is entry 6 of the Third Schedule which relates to declared goods. ------------------------------------------------------------------------ S. No. Description of goods Point of levy Rate of tax -------------------------------------------------------------------------- (1) (2) (3) (4) -------------------------------------------------------------------------- 6 Groundnut or peanut (Arachis When purchased by 4 paise inhypogaea) (3006) a miller other the rupee.than a decorticatingmiller in the State, atthe point of purchase by such miller and inall other cases at thepoint of purchase by thelast dealer who buys inthe State. --------------------------------------------------------------------------
19. It is plain from these entries that in the case of groundnut oil or refined oil, goods are liable to be taxed at the rate of 6 1/2 paise in the rupee at the point of first sale in the State and under entry 24(b), it is liable to be taxed at the rate of 2 1/2 paise in the rupee if the oil is obtained from groundnut which has already suffered tax under the Act. Under entry 6 groundnut is liable to be taxed at the point of purchase by the last dealer in the State at the rate of 4 paise in the rupee.
20. The petitioners are dealers in groundnut and refined oil processed within the State. They also import groundnut oil from the State of Karnataka. The ground of attack is in respect of oil imported from outside. The matter relates to the assessment year 1977-78.
21. On behalf of the petitioners it is contended that in respect of oil obtained from groundnut purchased locally the rate of tax on local sales is 2 1/2 paise in the rupee whereas in the case of oil imported from other States, the rate of tax on local sales is higher, namely, 6 1/2 paise in the rupee. Entry 24(a) is therefore discriminatory and violative of article 304 of the Constitution of India. The said article is as follows :
'304. Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law -
(a) impose on goods iluported 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 purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.'
22. The learned counsel submits that there can be three types of sale transactions :-
(1) Groundnut oil imported from outside the State of Andhra Pradesh;
(2) Groundnut imported from outside the State of Andhra Pradesh and oil obtained from the same; and
(3) Purchase of groundnuts within the State of Andhra Pradesh and sale of the oil produced and obtained from out of it.
23. It is urged that in respect of oil covered by the third category, the local sales are liable to be taxed under the State Act at the rate of 2 1/2 paise in the rupee as the groundnut has already been subjected to tax under entry 6 of the Third Schedule. Regarding oil mentioned at (1) and (2) above, the local sales will be subject to tax at the rate of 6 1/2 paise under entry 24(a) as there was no levy of tax in respect of the groundnuts. From the above, the learned counsel urges that oil imported from outside the State is subject to a higher tax than oil obtained from groundout which has suffered tax under the State Act. In other words, the contention is oil sold locally but which has been imported from outside is subjected to higher tax than oil made out of groundout which has suffered tax at the purchase stage is subjected to a lesser tax. It is, therefore, contended that entry 24(a) is discriminatory and violative of article 304(a) of the Constitution.
24. The learned counsel placed reliance on two decisions of the Supreme court in Firm A. T. J. Mehtab Majid and Co. v. State of Madras : AIR1963SC928 and A. Hajee Abdul Shuhoor & Co. v. State of Madras [1964] 15 STC 719; AIR 1964 SC 1729.
25. In Mehtab's case : AIR1963SC928 , the Supreme court held that the provisions of rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939 discriminate between hides and skins imported from outside the State and those manufactured or produced inside the State and therefore they contravene the provisions of article 304(a) of the Constitution. A reading of the facts of that case goes to show that the real grievance of the appellant in that case was that though there was a substantial disparity in the price of raw hides and skins and the price of dressed hides and skins, the same rate of tax was levied in respect of both types of hides and skins under section 3(1)(b) of the State Act. This is clear from the following observations in that case :
'The grievance arises on account of the amount of tax levied being different on account of the existence of a substantial disparity in the price of the raw hides or skins and of those hides or skins after they had been tanned, though the rate is the same under section 3(1)(b) of the Act. If the dealer has purchased the raw hides or skins in the State, he does not pay on the sale price of the tanned hides or skins; he pays on the purchase price only. If the dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins.'
26. Observing that if the quantum of tax had been the same, there might have been no case for grievance by the dealers of the tanned hides and skins, which had been tanned by bringing the raw materials from outside the State, the Supreme Court opined that 'the provisions of rule 16(2) discriminate against the imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of article 304(a) of the Constitution'.
27. Thus the test applied was the quantum of tax which is required to be paid in the two situations which would make it discriminatory although the rate of tax may be the same.
28. The underlying principle of the said Supreme Court decision seems to me to be that Part XIII was not only designed or intended to outlaw a State tax bearing directly on inter-State commerce but it is also designed to exclude the tax which has the effect of blocking or impeding it. The State tax in that case was held to produce such effects. In other words, in determining the question whether the tax is discriminatory within the meaning of article 304(a) the Supreme Court took into account the 'effect' of the tax on the flow of the goods from outside the taxing State.
29. In the case of Hajee Abdul Shuhoor : [1964]8SCR217 the Supreme Court held that sub-section (1) of section 2 of the Madras General Sales Tax (Special Provisions) Act, 1963 discriminates against imported hides and skins which were sold up to August 1, 1957. The rate of tax on the sale of tanned hides and skins as would appear from that judgment was '2 per cent. on the purchase price of those hides and skins in the untanned condition, while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee'. The court in this context referred to Mehtab's case : AIR1963SC928 and observed :
'In the earlier case, discrimination was brought about on account of sale price of tanned hides and skins to be higher than the sale price of untanned hides and skins, though the rate of tax was the same, while in the present case, the discrimination does not arise on account of difference of the price on which the tax is levied as the tax on the tanned hides and skins is levied on the amount for which those hides and skins were last purchased in the untanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on the sale of untanned hides and skins. The rate of tax on the sale of tanned hides and skins is 2 per cent. on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee. The difference in tax works out to 7/1600th of a rupee, i.e., a little less than 1/2 naya paisa per rupee. Such a discrimination would affect the taxation up to the 1st of August, 1957, when the rate of tax on the sale of raw hides and skins was raised to 2 per cent. of the sale price.'
30. The ratio of Mehtab's case : AIR1963SC928 is to a large extent whittled down by at least three subsequent decisions of the Supreme Court, which though not expressly discard the test applied by the said Supreme Court decision, but after explaining it away they applied altogether a different test which in effect disapproves and negatives the test applied in the said case. These decisions, which I shall consider immediately, apply the test of the similarity in the rate of tax rather than the 'quantum' of tax which is required ultimately to be paid on the transactions in the two situations.
31. In State of Madras v. N. K. Nataraja Mudaliar : [1968]3SCR829 the Supreme Court observed that the somewhat tortuous scheme of levying tax on inter-State transactions and making it available to the State which levied it, in effect countenances levy of different rates of tax on inter-State transactions in similar goods. It is upon the prevalence of different rates of tax which, subject to adjustments, and incorporated in the Central Sales Tax Act, that the argument of the assessee was considered. Referring to Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan 0065/1962 : [1963]1SCR491 and Firm A. T. B. Mehtab Majid and Company v. State of Madras : AIR1963SC928 , the Supreme Court said :
'It must be taken as settled law that the restrictions or impediments which directly and immediately impede or hamper the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301 and subject to the other provisions of the Constitution they may be regarded as void.'
32. The argument was then advanced that by imposing tax on sales no restriction hampering trade is imposed. Referring to the passage in Atiabari Tea Co. Ltd. v. State of Assam : [1961]1SCR809 and a passage from the opinion of Bachawat, J., in Andhra Sugars Ltd. v. State of Andhra Pradesh : [1968]1SCR705 the Supreme Court observed :
'It must, therefore, be regarded as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so.'
The Supreme Court further observed :
'The flow of trade does not necessarily depend upon the rates of sales tax : it depends upon a variety of factors, such as the source of supply, place of consumption, existence of trade channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade.'
The Supreme Court then said :
'Prevalence of differential rates of tax on sales of the same commodity cannot be regarded in isolation as determinative of the object to discriminate between one State and another.'
33. The Supreme Court referred to Firm A. T. B. Mehtab Majid and Co. v. State of Madras : AIR1963SC928 and A. Hajee Abdul Shukoor & Co. v. State of Madras : [1964]8SCR217 which was decided almost on the same lines as Mehtab's case : AIR1963SC928 and observed as follows :
'Imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State is prohibited by that clause. But where the taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, article 304(a) has no application.'
34. In Rattan Lal & Co. v. Assessing Authority : [1969]2SCR544 the Supreme Court reiterated that 'where the rate of sales tax is the same for imported goods and local goods, article 304 of the Constitution is not violated. Because imported goods might be more expensive by reason of freight, etc., or intermediate sales having taken place and the burden of tax will consequently be heavier is not inequality caused as a result of the tax but of their importation.'
35. In Associated Tanners v. Commercial Tax Officer [1974] 33 STC 588 a Division Bench of this Court held that since sales tax is imposed on the transaction of sale of goods and not on their movement, normally it does not directly impede the free movement of goods and would not offend article 301 and by reason of articles 303(1) and 304(a), a sales tax, whether imposed by the Union or by a State, cannot discriminate between one State and another. If the rate of tax is the same for imported as well as local goods, as the taxation does not directly and immediately restrict or hamper the free flow of trade, commerce or intercourse, it will not offend article 304(a) and since the same rate of tax was applicable to both the imported and locally purchased hides and skins, item 9(b) of the Third Schedule of the Act was not discriminatory and did not offend article 304(a) of the Constitution.
36. A similar view was taken in Abdul Samad Saheb v. Commercial Tax Officer [1976] 38 STC 571 (AP). The learned Judges observed that the view of the Supreme Court in Mehtab's case : AIR1963SC928 was whittled down in the later decisions of the Supreme Court in State of Madras v. N. K. Nataraja Mudaliar : [1968]3SCR829 and Rattan Lal & Co. v. Assessing Authority [1970] 25 STC 136.
37. In V. G. Naidu & Sons v. State of Tamil Nadu : [1977]1SCR1065 the validity of item 7(b) was challenged as violative of article 304 of the Constitution of India. Under item 7(a) of the Madras General Sales Tax Act, raw hides and skins were liable for tax at the rate of 3 paise at the point of last purchase in the State and under item 7(b) dressed hides and skins which were not subjected to tax under raw hides and skins were liable to be taxed at a different rate at the point of first sale. It was contended that item 7(b) is discriminatory inasmuch as imported dressed hides and skins sold locally but which have been made out of imported raw hides and skins are subject to tax similar sales of dressed hides and skins made out of raw hides and skins which have suffered tax at the purchase stage are not subjected to tax under item 7(b) of the Act. The Supreme Court rejected the contention and held as follows :
'Article 304(a) does not prevent levy of tax on goods : what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied. The scheme of items 7(a) and 7(b) of the Second Schedule to the State Act is that in the case of raw hides and skins which are purchased locally in the State, the levy of tax would be at the rate of 3 per cent. at the point of last purchase in the State. When those locally purchased raw hides and skins are tanned and are sold locally as dressed hides and skins, no levy would be made on such sales as those hides and skins have already been subjected to local tax at the rate of 3 per cent. when they were purchased in raw form. As against that, in the case of hides and skins which have been imported from other States in raw form and are thereafter tanned and then sold inside the State as dressed hides and skins, the levy of tax is at the rate of 1 1/2 per cent. at the point of first sale in the State of the dressed hides and skins. This levy cannot be considered to be discriminatory as it takes into account the higher price of dressed hides and skins compared to the price of raw hides and skins. It also further takes note of the fact that no tax under the State Act has been paid in respect of those hides and skins. The legislature, it seems, calculated the price of hides and skins in dressed condition to be double the price of such hides and skins in raw state. To obviate and prevent any discrimination or differential treatment in the matter of levy of tax, the legislature therefore prescribed a rate of tax for sale of dressed hides and skins which was half of that levied under item 7(a) in respect of raw hides and skins.'
38. In para 10, the Supreme Court further held that :
'Dressed hides and skins cannot, therefore, be considered in isolation and there is no infirmity in a legislative provision which while levying tax on the sale of dressed hides and skins takes into account the levy of tax in respect of the purchase of raw hides and skins.'
39. In the present case, there are no circumstances to hold that item 24(a) makes a hostile discrimination between oil imported from outside the State and oil obtained from groundnut which suffered tax in the State. Both are taxable at the point of first sale in the State. Under entry 6 of the Third Schedule, tax is levied at the rate of 4 paise in a rupee on groundnuts at the point of purchase by the last dealer. Groundnut is the material from which groundnut oil is obtained. It is in respect of oil obtained from groundnut that suffered the tax, entry 24(b) prescribes a rate of 2 1/2 paise in the rupee on the first sale. Otherwise, groundnut oil whether imported or made from groundnut locally tax is leviable at the rate of 6 1/2 paise in the rupee. Take for instance a dealer who sells oil which had been obtained from groundnut which has not suffered tax, he having not purchased the groundnut at all as it was from his own field or grown by him. Such sales are also liable to be taxed at the rate of 6 1/2 paise in the rupee. The discrimination if at all is because of entry 24(b). Since the groundnut from which the oil is obtained had already suffered tax in the State at the rate of 4 paise in the rupee which is the maximum that can be levied under the Central Sales Tax Act at the purchase point by the last dealer, it is subjected to lesser rate. Though groundnut oil is to be treated as a separate commodity from groundnuts there is a clear nexus between groundnuts and groundnut oil. It is only from ground-nuts the oil is obtained after the manufacturing operations. Therefore, groundnut oil cannot be considered in isolation. The tax burden would be heavy if the groundnut oil is taxed at the rate of 6 1/2 paise even in case where it is obtained from groundnut which is the main component of groundnut oil is already subject to tax under the Act. For that reason, a lesser rate is prescribed under entry 24(b). If at all it is entry 24(b) that can be said to be discriminatory. But in my opinion neither 24(a) nor 24(b) suffer from any legal infirmity. The legislature has taken into account the tax in respect of the purchase of the raw material, namely, the groundnuts, while levying tax on the sale of groundnut oil. I do not find any warrant for the proposition that preferential treatment has been show to groundnut oil prepared from locally purchased groundnuts compared to the treatment accorded to imported oil. It is not the case of the petitioners that they purchased groundnut in another State and extracted oil in this State. Even then it makes no difference, but in any event that is not the case. While prescribing 6 1/2 paise in the rupee, the legislature has also taken note of the fact that no tax within the State has been paid in respect of the groundnut.
40. The learned counsel then placed considerable reliance on H. Anraj v. Government of Tamil Nadu : AIR1986SC63 . In this case, the question was whether a notification of the Government of Tamil Nadu granting exemption from payment of sales tax is discriminatory. Under a raffle scheme promulgated by the State Government of Tamil Nadu, the first sale of lottery tickets issued therein by the State Government to various wholesalers and the State Government became liable to pay sales tax as the first dealer. Such levy had the effect of increasing the face value of the ticket to the extent of sales tax, surcharge, etc. With a view to reduce the burden of tax on Tamil Nadu raffles which was being passed on to buyers in addition to face value the Tamil Nadu Government issued a notification bringing into force an arrangement whereby retaining the sale price of the ticket at its face value, the tax was not passed on to the licensed dealer or to purchaser. In effect, the notification grants an exemption from payment of sales tax to the purchaser. Thus in substance lottery tickets by the Government of Tamil Nadu do not suffer any tax, while on the other hand, the lottery tickets by the other Governments sold within the State of Tamil Nadu are subjected to tax. The net result was that sale of lottery tickets of other States are at a great disadvantage as compared by the sale of Tamil Nadu Government lottery tickets inasmuch as a Tamil Nadu lottery ticket of the face value of Re. 1 is available to the purchaser at Re. 1, but the lottery tickets of the other Governments will have to be purchased by the purchaser at Re. 1-20. On these facts, the Supreme Court held that the direct and immediate result of the notification was to impose an unfavourable tax burden on the imported goods and the impugned notification directly and immediately hampered free flow of trade, commerce and intercourse and that such discriminatory treatment so as to hamper free flow of trade, commerce and intercourse is writ large on the face of the notification.
41. Thus the facts are entirely different in this case. The Tamil Nadu Government lottery tickets of Re. 1 are sold at Re. 1 whereas the lottery tickets issued by the other Governments are sold at Re. 1-20 though the ticket on the face value is only Re. 1. The discrimination is writ large and it has a direct effect on the lottery tickets issued by the other States. I find no such circumstances exist in the present case. Every tax does not interfere with the freedom of trade guaranteed by article 301 of the constitution and it does so only if it directly and immediately restricts or hampers the free flow of trade, commerce or intercourse. Any discrimination arising out of any indirect effect is not within the purview of article 304(1) of the Constitution. In my view, entry 24(a) does not suffer from any such infirmity and it does not offend any of the provisions of the Constitution. I accordingly hold that entry 24(a) of the First Schedule of the Andhra Pradesh General Sales Tax Act is not discriminatory and does not offend article 304(a) of the Constitution of India.
42. In the result, the writ petition is dismissed. Nocosts. Advocate's fee Rs. 500.
43. As there is a difference of opinion, the papers may be placed before my Lord the Chief Justice for necessary orders of posting the matter before a third Judge to state as to what relief is to be granted in the writ petition.
Jayachandra Reddy, J.
44. The petitioner, a firm dealing in edible oils, challenges the vires of entry 24(a) of the First Schedule to the Andhra Pradesh General Sales Tax Act, hereinafter referred to as 'the Act', on the ground that the entry is discriminatory and violative of article 304 of the Constitution of India inasmuch as the rate of tax in respect of oil imported from other States is 6 1/2 paise, whereas the rate of tax in respect of the oil obtained from the groundnut purchased locally is only 2 1/2 paise.
45. The writ petition came up for hearing before the Division Bench consisting of Raghuvir, J., and Amareswari, J. Raghuvir, J., held that the entry is discriminatory and that article 301 read with article 304(a) of the Constitution is violated. He however did not strike down the provision, but directed to ascertain whether the groundnuts from which the petitioner-firm extracted oil, has met tax in Karnataka, in which case the tax at the rate of 2 1/2 paise in the rupee should be levied. Amareswari, J., however took a different view and held that the entry does not suffer from any infirmity and does not offend any of the articles of the Constitution. Because of the difference of opinion, the matter has come up before me.
46. The petitioner-firm filed a return for the assessment year 1977-78 showing a turnover of refined oil to the tune of Rs. 14,76,567.25. The firm represented that the oil was imported from Karnataka and that the groundnut out of which the oil was extracted met sales tax in Karnataka and therefore the tax should be at the rate of 2 1/2 paise in the rupee and not 6 1/2 paise in the rupee. This plea was rejected and the firm has finally filed this writ petition.
47. Entry 24 of the First Schedule reads thus :
-------------------------------------------------------------------------- S.No. Description of goods Point of levy Rate of tax (1) (2) (3) (4)-------------------------------------------------------------------------- 24 Groundnut oil or refined oil : (1024).(a) Groundnut oil or At the point of first 6 1/2 paiserefined in oil not coveredsale in the State. the rupee. by sub-item (b) below. (b) Groundnut oil or At the point of first 2 1/2 paiserefined in oil obtainedsale in the State. the rupee. from groundnut that hasmet tax under the Act. --------------------------------------------------------------------------
48. As per this entry the groundnut oil or refined oil not obtained from the groundnut that has met tax under the Act is liable to be taxed at the rate of 6 1/2 paise in the rupee. It may be mentioned here that as per entry 6 of the Third Schedule which relates to declared goods, the groundnut when purchased by a miller other than a decorticating miller in the State, at the point of purchase, shall be taxed at the rate of 4 paise in the rupee.
49. It is contended on behalf of the petitioner that the different rates of tax on the groundnut oil or refined oil on the local sales as per entry 24(a) and (b) would lead to the conclusion that the groundnut oil brought from the other States and sold is subjected to higher rate of tax than that produced in the State and the entry is, therefore, discriminatory and impedes the freedom of trade, commerce and intercourse and is violative of article 301 read with article 304 of the Constitution. Article 301 reads thus :
'301. Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.'
Article 304 reads thus :
'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 purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President.'
50. A plain reading of the entry no doubt shows that the sale of oil produced and obtained from the groundnut that has met the tax within the State under the Act is taxed at a lower rate of 2 1/2 paise in the rupee when compared to the rate of tax in respect of the sales of oil imported from other States which is 6 1/2 paise in the rupee. Ex facie it may appear to be discriminatory. The learned counsel, therefore, relying on some of the decisions of the Supreme Court, contends that the entry is ultra vires. At this juncture it becomes necessary to refer to some of the oft-cited decisions of the Supreme Court.
51. In Firm A. T. B. Mehtab Majid & Co. v. State of Madras : AIR1963SC928 the grievance of the appellant was that though there was a substantial disparity in the price of raw hides and skins and the price of dressed hides and skins, the same rate of tax was levied in respect of both types of hides and skins and therefore it was discriminatory and violative of article 304(a) of the Constitution. The Supreme Court held :
'The similarity contemplated by article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not.'
52. From the facts in that case it appears the real grievance of the appellant therein was that the rate of tax was not proportionate to the price of the two types of skin. The Supreme Court also observed that if the quantum of tax had been the same, there might have been no case for grievance by the dealers of the tanned hides and skins; and in that view of the matter it held :
'The provisions of rule 16(2) discriminate against the imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of article 304(a) of the Constitution.'
53. The Supreme Court further held that because the quantum of tax in both the cases is fixed to be the same, though there is a disparity in the price of the two types of hides, the rule became discriminatory although the rate of tax may be the same.
54. In A. Hajee Abdul Shuhoor & Co. v. State of Madras : [1964]8SCR217 the Supreme Court held thus :
'We therefore hold that sub-section (1) of section 2 of the Act discriminates against imported hides and skins which were sold up to the 1st of August, 1957, up to which date the tax on sale of raw hides and skins was at the rate of 3 pies per rupee or 19/16th per cent. This however does not mean that the sub-section is valid with respect to the sales which took place subsequent to August 1, 1957. The sub-section being void in its provisions with respect to a certain initial period, we cannot change the provision with respect to the period as enacted to the period for which it could be valid as that would be rewriting the enactment. We have therefore to hold sub-section (1) of section 2 void, and accordingly hold so.'
55. In this case the rate of tax on the sale of tanned hides and skins was 2 per cent. on the purchase price of untanned hides and skins, while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 paise per rupee. Their Lordships, after referring to Mehtab Majid's case : AIR1963SC928 laid emphasis on the similarity in the rate of tax, rather than the 'quantum' of tax which is required ultimately to be paid on the transactions in the two situations. In State of Madras v. Nataraja Mudaliar [1968] 22 STC 376; AIR 1969 SC 147, after referring to Mehtab Majid's case : AIR1963SC928 and Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan 0065/1962 : [1963]1SCR491 the Supreme Court held that 'restrictions or impediments which directly and immediately impede or hamper the free flow of trade, commerce and intercourse fall within the prohibition imposed by article 301 and subject to the other provisions of the Constitution they may be regarded as void'. It is also further held that 'it must, therefore, be regarded as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so'.
56. The next important case to be noted is H. Anraj v. Government of Tamil Nadu : AIR1986SC63 , popularly known as 'lottery tickets case'. In this case a raffle scheme was promulgated by the State Government and an exemption was granted from payment of sales tax, and under an arrangement whereby retaining the sale price of the ticket at its face value, the tax was not passed on to the licensed dealer or to purchaser. The sale of lottery tickets of other States were at a great disadvantage as compared by the sale of Tamil Nadu Government lottery tickets. The question was whether such an exemption from payment of tax is discriminatory because of the tax burden on the sale of lottery tickets of other States (imported goods) when they are sold within the State of Tamil Nadu as against the lottery tickets of Tamil Nadu Government when these are sold within the State. Their Lordships held thus :
'This question has to be considered from the normal business or commercial point of view and indisputably if the question is so considered the impugned notification will have to be regarded as directly and immediately hampering free flow of trade, commerce and intercourse. Discriminatory treatment in the matter of levying the sales tax on imported lottery tickets which are similar to the ones issued by the State Government so as to hamper free flow of trade, commerce and intercourse is writ large on the face of the impugned notification and in my view the same is clearly violative of article 301 read with article 304(a) of the Constitution.'
57. This is a clear case where an unfavourable and discriminatory tax burden was laid on the lottery tickets from other States as against the State owned lottery tickets and this hampered free flow of trade, commerce and intercourse. But in the instant case one important circumstance to be noted is that when the groundnut is purchased within the State the tax at the rate of 4 paise in the rupee has to be levied and if the oil is extracted from such groundnut which has already met the tax then the levy of tax is only at the rate of 2 1/2 paise in the rupee as provided under entry 24(a). Therefore, the total tax on the sale of refined oil or groundnut oil extracted from such groundnut becomes 6 1/2 paise in the rupee and the oil imported from other States and sold, is also subjected to the same rate of tax. The contention however is that the groundnut from which the oil was extracted and which was sold by the petitioner has already suffered tax in the Karnataka State and therefore the levy of tax at the rate of 6 1/2 paise in the rupee amounts to laying heavy tax burden and therefore it is discriminatory. But it must be remembered that strictly speaking the rate of tax is one and the same for both the types of oil. A lesser rate is prescribed under entry 24(b) because the groundnut from which this oil is extracted in the State has already met the tax in the State under the Act and if that oil is to be taxed again at the rate of 6 1/2 paise, the tax burden would be heavy. Ultimately the fact remains, the rate of tax in respect of the sale of both the oils is kept at 6 1/2 paise in the rupee. Merely because a lesser rate is prescribed under entry 24(b) that does not mean that the oil manufactured in the State is taxed at a lower rate. Already the tax at the rate of 4 paise is levied and the sale of oil extracted from the groundnut as provided under entry 24(b) is taxed at 2 1/2 paise. The groundnut and oil cannot be considered in isolation for the purpose of levy of total tax. Taking these factors into account, the legislature has fixed a lesser rate under entry 24(b). While fixing 6 1/2 paise in the rupee under entry 24(a), the legislature also kept in view that the groundnut from which the oil is extracted has not suffered any tax in the State and therefore the rate of tax could be at 6 1/2 paise in the rupee. From the ultimate rates of tax that are levied on the the sale of these two types of oils, it can be seen that the rate of tax is the same and the quantum of tax both on the groundnut and the oil put together also would be the same so far as this State is concerned. The levy of tax under entry 24(a) is not in any manner opposed to the principles laid down in Mehtab Majid's case : AIR1963SC928 , Nataraja Mudaliar's case : [1968]3SCR829 and H. Anraj's case : AIR1986SC63 and therefore it does not offend article 301 or article 304(a).
58. At this stage, it is necessary to refer to two other cases decided by the Supreme Court. In Rattan Lal & Co. v. Assessing Authority : [1969]2SCR544 a Bench of five Judges observed thus :
'Where the taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, article 304(a) has no application.
Here also the tax is at the same rate and therefore the tax cannot be said to be higher in the case of imported goods. It may be that when the rate is applied the resulting tax is somewhat higher but that does not offend against the equality contemplated by article 304. That is the consequence of ad valorem tax being levied at a particular rate. So long as the rate is the same, article 304 is satisfied.'
59. The principle laid down in Rattan Lal & Co.'s case : [1969]2SCR544 is approved in Associated Tanners v. Commercial Tax Officer, Vizianagaram [1986] 62 STC 1 (SC). In this case the appellant was a tanner and a dealer within the meaning of the A. P. General Sales Tax Act as well as the Central Sales Tax Act. He purchases raw hides and skins and tans the same. He used to sell such tanned hides in the course of inter-State trade. A tax of Rs. 23,777.66 was levied applying entry 9(b) of the Third Schedule of the State Act. This provision was questioned as unconstitutional and void and it was contended that no tax could be levied under the Central Sales Tax Act on the inter-State sales of tanned hides which have already suffered tax at the untanned stage. It was submitted that item 9(b) of the Third Schedule discriminated between hides and skins imported from outside the State and those manufactured or produced in the State. It may be noted that item 9(b) provides for levy of tax on the sale of hides and skins brought from outside the State and tanned inside the State. It was contended that if raw hides and skins were locally purchased and tanned, there was no tax leviable on the tanned hides and skins as the untanned hides and skins in such cases alone were taxed, and that the result of the taxation scheme was that a dealer who brought raw hides and skins from outside the State and tanned them locally was taxed on the amount of the sale of such tanned hides and skins, whereas the locally purchased raw hides and skins and tanned were taxed on the amount of the purchase of the raw hides and skins the price of which compared to the price of tanned hides and skins would be very insignificant, and such taxation scheme, therefore, discriminated against the import of raw hides and skins for bringing them inside the State. Their Lordships of the Supreme Court referred to Nataraja Mudahar's case : [1968]3SCR829 , Mehtab Majid's case : AIR1963SC928 and Hajee Abdul Shukoor's case : [1964]8SCR217 and observed that when the rate is applied the resulting tax might be somewhat higher but that did not contravene the equality clause contemplated by article 304 of the Constitution.
60. What, therefore, emerges is that levy of every tax did not interfere with the freedom of trade guaranteed under article 301 of the Constitution. It can be said that there is interference only in a case where the legislation directly and immediately restricted and hampered the free flow of trade, commerce and intercourse and the discrimination must be direct and arise out of the taxing provisions themselves. Therefore, if a general rule levying the rate of tax was made applicable to the imported as well as local goods alike but which operate or might operate unequally and with different results in several States, it did not offend the provisions against discriminating taxation. What is prohibited is imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State. But where the taxing State was not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, article 304(a) has no application, and so long as the rate was the same, article 304 is not attracted.
61. If we apply these principles to the facts of the present case, as already mentioned, the rate of tax in respect of the sales of imported oil and the oil manufactured out of the groundnut that had met tax in the State, come to the same. But the resulting tax might be higher in the case of imported oils, but that will not offend article 304 of the Constitution, as held by the Supreme Court. Therefore, entry 24(b) of the First Schedule of the A. P. General Sales Tax Act is not violative of any of the provisions of the Constitution.
62. Before concluding it has to be noted that in the price fixation the Shedule Shedule Shedule Shedule interests of the manufacturer or producer alone are not material. The State takes several factors into consideration while fixing the prices. In Union of India v. Cynamide India Ltd. : [1987]2SCR841 the Supreme Court observed thus :
'The object of the rule, the reach of its application, the rights and obligations arising out of it, its intended effect on past, present and future events, its form, the manner of its promulgation are some factors which may help in drawing the line between legislative and non-legislative acts. A price fixation measure does not concern itself with the interests of an individual manufacturer or producer. It is generally in relation to a particular commodity or class of commodities or transactions. It is a direction of a general character, not directed against a particular situation. It is intended to operate in the future. It is conceived in the interests of the general consumer public .................... We do not agree with the basic premise that price fixation primarily affects manufacturers and producers. Those who are most vitally affected are the consumer public. It is for their protection that price fixation is resorted to and any increase in price affects them as seriously as any decrease does a manufacturer, if not more.'
63. It can therefore be seen that the dominant object and the purpose of the legislation was the equitable distribution and availability of commodities at fair price. However, any such fixation shall be subject to the constitutional validity as required under articles 301 and 304. The ultimate rates on tax on the sale of the two types of groundnut oil in the State of Andhra Pradesh is concerned, are the same. Therefore, it does not suffer from any vice.
64. In the result, the writ petition is liable to be dismissed, and the same may be posted for final orders before the Division Bench.
Order of the Bench (25-9-1987)
65. In view of the main judgment, this writ petition is dismissed. No costs. Advocate's fee Rs. 250.
66. Writ petition dismissed.