| SooperKanoon Citation | sooperkanoon.com/426048 |
| Subject | Sales Tax |
| Court | Andhra Pradesh High Court |
| Decided On | Jan-23-1986 |
| Case Number | Writ Petition No. 7626 of 1985 and Oral S.C.L.P. |
| Judge | P. Kodandaramayya and ;Y.V. Anjaneyulu, JJ. |
| Reported in | [1986]63STC274(AP) |
| Acts | Andhra Pradesh General Sales Tax Act, 1957 - Sections 5, 5(2), 9, 9(1) and 38 |
| Appellant | Mahindra and Mahindra Limited and anr. |
| Respondent | State of Andhra Pradesh and anr. |
| Appellant Advocate | A. Setalwad, Adv. for ;G.S.R. Anjaneyulu, Adv. |
| Respondent Advocate | Government Pleader for Panchayat Raj and ;T. Anantha Babu, Adv. |
P. Kodandaramayya, J.
1. The first petitioner in the above writ petition is a public limited company incorporated under Indian Companies Act, 1913, having its registered office at Bombay. It is a manufacture of light commercial vehicles. The second petitioner is the shareholder of the first petitioner-company.
2. In this writ petition, two notifications issued by the first respondent, State of Andhra Pradesh, under the Andhra Pradesh General Sales Tax Act, 1957, and the Central Sales Tax Act, 1956, granting a concession of levy of lesser rate of tax under those Acts payable by the second respondent-company are challenged.
3. It is averred in the affidavit that in the motor vehicles market, light commercial vehicles form a distinct class being vehicles of a load carrying a capacity of three metic tonnes and several manufacturers in India including the first petitioner-company and the second respondent-company manufacture these vehicles and compete with each order. The second respondent-company has recently established a plant is Zaheerabad, Medak District in Andhra Pradesh, for the manufacture of light commercial vehicles and the said company was formed and promoted by Hyderabad Allwyn Limited which is an undertaking managed by the Andhra Pradesh State Government, and the said Hyderabad Allwyn Company has invested six crores in the equity shares of the second respondent-company and thus the first respondent is interested in the second respondent-company. Under the notification published on 22nd April, 1985, the first respondent-State, in exercise of its powers under section 9(1) of the A.P.G.S.T. Act (6 of 1957), directed that the tax leviable under clause (a) to sub-section (2) of section 5 red with item No. 1 in the First Schedule to the said Act shall, in respect of the sales of the light commercial vehicles manufactured by the second respondent-company, be at the reduced rate of 4 paise in a rupee during the period 1st April, 1985, to 31st March, 1987. A similar concession was given in the rate of tax payable by the second respondent under the Central Sales Tax Act (74 of 1956) issued on the same day. It is further averred that these two concessions given to the second respondent-company granting individual exemptions are illegal and ultra vires the powers of the State Government, and it constitutes an invidious discrimination in favour of individual manufacturer and consequently a hostile discrimination against other manufacturers including the petitioner. It is stated that there is no reasonable classification much less any nexus for making such classification in favour of the individual manufacturer and the second respondent was singled out for undue favourable treatment in order to promote the sales of products of the company and hence those notifications are hit by articles 14, 301 and 304(a) of the Constitution of India. It is also averred that the issuing of these notifications is a mala fide act.
4. The State Government and the company filed separate counter-affidavits refuting these allegations. It is enough if was state broadly their contentions as their defence is common. It is stated that the second respondent-company was floated by the Hyderabad Allwyn Limited which is a Government company and also the Nissan Motor Company of Japan and the company set up a factory at Zaheerabad in Medak District which is a backward area notified by the Central Government, providing considerable employment opportunities to that area and the notifications were issued to enable this public sector undertaking to market this class of light vehicles manufactured by them without having disadvantage to bear the additional tax burden as the other manufacturers of neighbouring States are enjoying tax concession under the Central Sales Tax Act. It is also averred that the light commercial vehicles manufactured by the second respondent-company has a special technology and a different trade name and they are not similar goods compared with that of the petitioner-company and hence the impugned notifications are well within their jurisdiction and that the second respondent-company falls under a separate class by itself being a company of the public sector and located in a centrally notified backward area and, in particular, taking into account its initial start of the industry. Hence the violation of articles 14, 301 and 304(a) of the Constitution is denied. The allegations of mala fides are also denied.
5. Sri A. Setalwad, the learned counsel for the petitioners, did not press the validity of the notification issued under the Central Sales Tax Act and the question of mala fides also was not urged.
6. Broadly stated, he urged the following three questions in this writ petition :
(1) The notification dated 22nd April, 1985, is ultra vires the powers of the State Government as it falls outside the purview of section 9 of the A.P.G.S.T. Act.
(2) the notification is his by article 14 as there is no valid classification India.
(3) The notification is also violative of article 304(a) of the Constitution of India.
7. Sri T. Anantha Babu, the learned counsel for the second respondent, pointed out how the doctrine of equality is applicable in respect of taxation and emphasised to a great extent on the question that the goods of the first petitioner and the second respondent are dissimilar and the exemption is in the nature of a subsidy.
8. Sri A. Venkata Ramana, the learned Government Pleader, pointed out that the notification in question is a special exemption and the second respondent is a class by itself and took us through the several special exemptions granted by the State under the A.P.G.S.T. Act.
9. We shall examine these questions in seriatim. It is necessary to look to the notification and section 9(1) of A.P.G.S.T. Act under which the notification was issued.
'Notification : In exercise of the powers conferred by sub-section (1) of section 9 of the Andhra Pradesh General Sales Tax Act, 1957 (Andhra Pradesh Act VI of 1957), the Governor of Andhra Pradesh hereby directs that the tax leviable under clause (a) of sub-section (2) of section 5 read with item 1 in the First Schedule to the said Act, shall, in respect of the sales of the light commercial vehicles manufactured by M/s. Allwyn Nissan Limited be at the reduced rate of four paise in the rupee during the period from the 1st April, 1985, to the 31st March, 1987.'
'Section 9. Power of State of Government to notify exemptions and reductions of tax. - (1) The State Government may, by notification in the Andhra Pradesh Gazette, make an exemption or reduction in rate, in respect of any tax payable under this Act -
(i) on the sale or purchase of any specified class of goods, at all points or at any specified point or points in the series of sales or purchases by successive dealers; or
(ii) by any specified class of persons, in regard to the whole or any part of their turnover.
(2) Any exemption from tax, or reduction in the rate of tax, notified under sub-section (1) -
(a) may extend to the whole of the State or to any specified area or areas therein;
(b) May be subject to such restrictions and conditions as may be specified in the notification, including conditions as to licences and licence fees.'
10. The contention of the learned counsel is that clause (i) and (ii) of sub-section (1) of section 9 empower the State Government to exempt any specified class of goods or specified class of persons and it is not permissible for the Government to exempt the goods of a single individual unless such goods or persons form a class by themselves. He drew our attention to the meaning of the word 'class' given in the Concise Oxford Dictionary which means, 'a homogeneous ascertainable group having common characteristics'. He also relied on a case of Paschim Banga Patrika ILR (1951) 1 Cal 235 wherein the court construed the word 'class' occurring in section 4(1)(h) of the Indian Press (Emergency Powers) Act (23 of 1931) holding that in order that a person should form a class there must be a number of common attributes which bind them together to form a kind of unit readily and definitely ascertainable. In that case the forfeiture of a sum of Rs. 2,000 under the provisions of the above Act was challenged by an editor of a daily. The charge against him was that by an article published in his daily he created hatred between Bengalies and non-Bengalies. It was held that Bengalies clearly form a class because they do possess common attributes but a non-Bengali might be a Hindu or a Mohammedan or even an European and a non-Bengali cannot be described as a class and hence the published article cannot be objectionable and cannot fall under the above provision of the Act.
11. The object of definition of a class is to ascertain without any difficulty for an easy identification. The words 'specified class' occurring in section 9(1) qualify the word 'goods' and do not operate as words of limitation on the power of the Government to notify the exemption under section 9(1). When we look to the charging section 5(2) of the A.P.G.S.T. Act, it is clear that besides liability to pay tax on the turnover, the dealer has to pay tax in respect of each category of goods mentioned in the Schedules appended to the Act. The levy is on the goods and the even is the sale which may include purchase also. Hence the exemption is for goods. The State Government can exempt the goods generally or exempt a class of goods, or a specified class of goods. These words enable the Government to classify the goods and specify them in respect of which category, the exemption should operate. In the absence of those words, a doubt may arise whether the Government can further classify among the same category of goods. For instance, the general goods like rice can be exempted. If the word 'goods' alone occur in the section it will be difficult to exempt particular type of rice. Suppose, the State Government wants to notify a particular type of rice for export which should be the best quality in the State. Then, it must choose the place of such growth, the variety and also the seasonable growth of the said crop like abi or tabi. Abi is first crop. Tabi is second crop. The notification may state the abi nolakolukulu rice grown in Nellore District are exempted from tax. The illustration now justifies the class of goods being malakolukulu, the specified class being first crop grown in Nellore District. Thus the words 'specified class of goods' occurring in section 9(1) far from operating as an embargo, facilitates the State to classify any goods and grant exemption only to particular class or category of goods. Further the notification does not suffer from any infirmity by the mere fact that the name of the manufacturer is mentioned. The notification may facilitate the identification with reference to the manufacturer. If the goods obtain their patent or trade name it is enough if those names are mentioned. In fact G.O. No. 676, Revenue, dated 21st June, 1976, issued under section 9(1) giving concessional rates mentioned motor cars by their names Premier, Ambassador and Standard. Strictly, the names of the manufacturers must be given, but these goods have a trade name or even a popular name and hence it is enough if they are notified by their trade name. It is necessary to bear in mind while examining this argument we are not concerned with the infirmity of the notification due to any constitutional grounds, which is wholly irrelevant. We have to see whether there is any limitation on the power to notify any type of goods as contemplated by sub-section (1). A perusal of the list of exemptions notified under section 9(1) clearly shows that the object is to identify the goods notified. The identity is the criteria for operating such exemption whatever phraseology is used in the notification. It is the goods that ultimately gets the benefit and brings the notification outside the preview of the charging section. It may use the names of manufacturer or the patent name or the locality - the object being the identity.
12. The respondents' counsel supplied a list of exemptions notified by the State Government. We find them at page 2 of the material papers. We also find a list of notifications neatly collected by S. Krishna Murthy in his publication 'A.P. General Sales Tax Act, 1957, Origin and Growth up to April, 1984'. At page 421 of this publication we find exemptions granted for sales effected in the Administrative Staff College of India in the canteen, the mess or the bar run by it. At page 422 animal feeds prepared at Food Mixing Plants at Buddavaram, Gudlavalleru and Bhonagiri were exempted. At page 423 sales of raw materials, machinery and equipment to any industrial unit set up in scheduled areas were exempted from tax. At page 432 a list of exemptions granted to building materials when they are sold in cyclone affected areas in the State is given. Some charitable institutions like Sarvodaya Seva Sangh and Sri Ramakrishna Mutt or their Vivekananda Health Centres and Charitable Dispensaries are also included in the list of institutions. At page 491 we find concessional rates given to different types of motor vehicles like Matador vans, jeeps and auto-rickshaws. At page 509 we find tax exemption in respect of sales effected by some religious institutions. At page 511 we find consideration shown to musicians in respect of sales of L.P. records rendered by Smt. M. S. Subbulakshmi and we do not want to multiply the examples and this date is sufficient to show that mentioning the name of the manufacturer or particular person is not fatal for the notification falling under the purview of section 9(1). The notification may cover goods or persons generally or may specify them if necessary.
13. A similar contention was negatived in Orient Weaving Mills (P.) Ltd. v. Union of India : 1978(2)ELT311(SC) where a question was raised stating that a notification granting exemption to the co-operative society issued under rule 8 of the Central Excise Rules, 1944, is bad in so far as it exempts a class of persons but not class of goods from excise duty. The Central Excise Act, 1944, empowers the Government to exempt any goods whole or any part of the duty imposed by the Act. Rule 8 empowers the Central Government to exempt from duty any specified goods. The notification states that the Central Government shall exempt cotton fabrics produced by the society and the contention was that the notification is bad in so far as it exempts certain class of persons and not certain class of goods from excise duty. B. P. Sinha, C.J., describes this argument as fallacious and held :
'The tax is on the production of any goods, but it is payable by persons producing such goods. The exemption also is with reference to such goods as come within the description of excisable goods. The respondent No. 5 has been exempted from payment of excise duty in respect of goods produced by the weavers. It has not been exempted from the payment of a personal tax, like income-tax. The exemption must, therefore, have reference to the same kind of tax which would otherwise have been leviable but for the exemption.'
14. Thus we see no infirmity in the notification by simply describing the goods manufactured by the second respondent-company.
15. The second limb of the argument of the learned counsel is that the purpose of the A.P.G.S.T. Act is to raise revenue. If a statutory power is exercised for the purpose other than the purpose of the Act, however laudable the purpose might be, it constitutes a colourable exercise of the power and the same is ultra vires. It is true that the statutory power cannot be used for collateral purpose, but it is incorrect to assume that taxing statutes are intended to raise revenue only. It is enough if we note the dicta of Mathew, J., in S. Kodar v. State of Kerala : [1975]1SCR121 . While upholding the validity of a graded rate of taxation in terms of capacity to pay under the Tamil Nadu Additional Sales Tax Act, 1970, it was observed that 'the object of a tax is not only to raise revenue but also to regulate the economic life of the society'. Similarly in Malwa Bus Service (Pvt.) Ltd. v. State of Punjab : [1983]2SCR1009 , it was observed at page 642 that 'it is one of the duties of a modern legislature to utilise the measures of taxation introduced by it for the purpose of achieving maximum social good and one has to trust the wisdom of the legislature in this regard' and hence we reject this contention that the notification is outside the purview of section 9(1) of the Act.
16. The next submission is that the notification is hit by article 14. It is necessary to keep the distinction between the violation complained under this ground with the violation complained under article 304(a) of the Constitution of India as different considerations would apply and we want to examine this question separately though the debate proceeded on the basis that the common criteria apply. So far as the violation of article 14 is concerned, it is well-settled that the classification must be founded on intelligible differentia which distinguish persons or things that are grouped together from others left out of the group and the differentia must have a rational relation to the object sought to be achieved by the statute in question. It is necessary to bear in mind the applicability of this dicta so far as the taxation law is concerned. In Khandige Sham Bhat v. Agricultural Income-tax Officer AIR 1963 SC 591 it was held :
'Taxation law is not an exception to this doctrine. But in the application of the principles, the courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine.'
17. Similarly in Khyerbari Tea Co. Ltd. v. State of Assam : [1964]5SCR975 when the Assam Taxation (on Goods Carried by Road or on Inland Waterways) Act (10 of 1961), was questioned as being violative of article 14, 19 and 301 of the Constitution of India, it was observed that :
'The power conferred on this court to strike down a taxing statute if it contravenes the provisions of article 14, 19 or 301 has to be exercised with circumspection, bearing in mind that the power of the State to levy taxes for the purpose of governance and for carrying out its welfare activities is a necessary attribute of sovereignty and in that sense it is a power of paramount character.'
18. We shall note two more cases on this line of authority. In V. V. R. Verma Rajah v. Union of India : [1969]74ITR49(SC) it was observed :
'It is not a condition of the guarantee of equal protection that all transactions, properties, objects or persons of the same genus must be affected by it or none at all. If the classification is rational, the legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject to different classes of property to tax in different ways and adopt different modes of assessment.'
19. In Ganga Sugar Corporation Ltd. v. State of U.P. : [1980]1SCR769 Krishna Iyer, J., observed that taxing statutes have enjoyed more judicial indulgence and held 'a large latitude is allowed to the State for classification upon a reasonable basis and what is reasonable is a question of practical details and a variety of factors which the court will be reluctant and perhaps ill-equipped to investigate'.
20. The concession shown to the second respondent-company is sought to be justified on the ground that the second respondent-company constituted a class by itself. Three reasons are urged in support of that ground. (i) The second respondent-company is a Government company. (ii) It is situated in a backward area notified by the Central Government for providing employment opportunities to the residents of that area. (iii) The company is a new entrant and a small unit which requires protection. We must see whether these elements can furnish a reasonable classification. It is well-established that a classification between small manufacturers and big manufacturers is justified not being violative of article 14. In British India Corporation Ltd. v. Collector of Central Excise : 1978(2)ELT307(SC) , a concession in the rate of excise duty shown to small manufacturers of footwear as opposed to big manufactures producing such goods in factories was questioned and it was held that :
'It is well-known that the bigger manufacturers are able to effect economies in their manufacturing process and their out-turn being both large and rapid they are able to undersell small manufacturers. If this were not so mass production would lose all its advantages ......... there was a definite to make an exemption in favour of the small manufacturer who is unable to pay the duty as easily, if at all as the big manufacturer. Such a classification in the interests of co-operative societies, cottage industries and small manufacturers has often to the made to give an impetus to them and save them from annihilation in competition with large industry. It has never been successfully assailed on the ground of discrimination.'
21. Similarly, we have already noticed that the graded rate of tax in terms of the capacity to pay is justified in S. Kodar v. State of Kerala : [1975]1SCR121 wherein it was observed that :
'The large dealer occupies a position of economic superiority by reason of his greater volume of business. And, to make his tax heavier, both absolutely and relatively, is not arbitrary discrimination, but an attempt to proportion the payment to capacity to pay and thus to arrive in the end at a more genuine equality. The economic wisdom of a tax is within the exclusive province of the legislature. The only question for the court to consider is whether there is rationality in the belief of the legislature that capacity to pay the tax increases, by any large, with an increase of receipts.'
22. We think that this dicta which justifies the classification between two units of bigger and smaller would clearly support the classification of old and new units and the new being the fresh entrant, weak, and needy, and the old being well-established, heavy and superior in its economic growth.
23. Further the second respondent is a Government company and even the commercial activities carries on by the State by itself or by a corporation owned and controlled by it was given a separate status as per the Constitutional First Amendment Act, 1951, amending clause (6) of article 19 of the Constitution. Hence the classification in favour of a State or in favour of a corporation owned and controlled by the State can validly constitute a class by itself as opposed to the individual traders or the manufacturers in the same filed. We must mention in this connection a minor submission made by the learned counsel for the petitioner. According to him the second respondent-company is not a Government company except by virtue of the fiction enacted under section 617 of the Companies Act (1 of 1956). He also referred to the definition of 'holding company' and 'subsidiary company' given under section 4 of the said Act. The learned counsel urged that the fiction enacted under section 617 must be confined to the Companies Act and treating the second respondent as a Government company amounts to praising double fiction. He relied on authorities for those propositions. It is enough if we notice the dicta of Lord Asquith who observed in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 :
'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which if the putative, state of affairs had in fact existed, must inevitably have flowed from a accompanied it ........... The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'
24. This dicta is accepted by the Supreme Court in the earliest case in State of Bombay v. Pandurang : 1953CriLJ1049 and it held that the fiction must be given full effect and must be carried on to the logical conclusion. We are not extending the fiction beyond legitimate filed when we take its special feature as opposed to other companies in judging the question raised before us.
25. We have got yet another element in support of this classification, viz., that this industry is established in a backward area in Medak District and it is averred in the counter-affidavit that this unit provides considerable employment opportunities in the backward area of that district. As per the directive principles embodied in article 38(2) of the Constitution of India, promotion of an industry in a backward area and providing employment opportunity to a section of such local public clearly constitutes a valid basis for classification and it is an important element to be taken into account while examining the classification and its nexus.
26. A provision empowering the executive to exempt a particular goods from taxation was interpreted under the same norm of flexibility applicable in the matter of taxation. Courts had an occasion to examine the rule of equality in the case of exemption granted by the State. In East India Tobacco Co. v. State of Andhra Pradesh : [1963]1SCR404 the power of the State Government to impose tax on sales of Virginia tobacco while exempting country tobacco from taxation was upheld. A notification exempting cotton fabrics produced by the co-operative societies was upheld as not being violative of article 14 in Orient Weaving Mills (P.) Ltd. v. Union of India : 1978(2)ELT311(SC) holding that :
'The Act recognises and only given effect to the well-established principle that there must be a great deal of flexibility in the incidence of taxation of a particular kind. It must vary from time to time, as also in respect of goods produced by different processes and different agencies ........ The State naturally is interested in raising all the revenue necessary for public purposes, without sacrificing the legitimate interests of persons and groups, who deserve special treatment at the hands of the State for reasons, which the State may determine, entitling them to be placed in a special class'
and the classification is sustained with reference to the directive principles embodied under article 43 of the Constitution of India. Again the decision in Ram Bux Chaturbhuj v. State of Rajasthan [1961] 12 STC 330 (SC); AIR 1963 SC 351 sustained the exemption granted to the betel leaves as opposed to the persons selling vegetables. A notification excluding hosiery products from exemption from sales tax while giving exemption to sale of garments of the same value, was upheld : vide Jaipur Hosiery Mills (P.) Ltd. v. State of Rajasthan : [1997]1SCR396 . It is observed :
'It is well-settled that although a taxing statute can be challenged on the ground of infringement of article 14 but in deciding whether the law challenged is discriminatory it has to be borne in mind that in matters of taxation the legislature possesses large freedom in the matter of classification. Thus wide discretion can be exercised in selecting persons or objects which will be taxed and the statute is not open to attack on the mere ground that it taxes some persons or objects and not others.'
27. We have seen the terms of the notification. It has reduced the rate by 4 paise in a rupee and that too for a particular period of two years from 1st April, 1985, to 31st March, 1987. It is pertinent to note that the petitioner-company, while selling the goods direct to the consumer in this State or to his dealers, earns the concession given by Maharashtra Government under notification dated 25th January, 1985, and liable to pay only 4 per cent. of tax under the Central Sales Tax Act whereas the second respondent who is manufacturing the goods within the State has to pay a basic rate of 12 per cent. as he is manufacturing and selling goods in Andhra Pradesh. In the counter-affidavit it is stated that in view of this circumstances the impugned notification was issued to reduce the disparity in payment of tax by the petitioner in the interests of industrialisation and economic development of backward areas. Thus we see the petitioner qua manufacturers when he sells the goods direct to the consumers in this State or to his dealers, he has to pay only 4 per cent. tax under the Central Sales Tax Act, whereas the second respondent has to pay 5.21 per cent. total tax even after the concession given to him under the impugned notification. Hence it is clear that the notification does not hurt him, but the contention of the petitioner is the sale of his product by his dealers which is the second sale is discriminated and his dealer has to pay 6.44 per cent. and compared that rate with the second respondent, the discrimination operates. We must say that comparing the petitioner and the second respondent as manufacturers as a class no discrimination operated against the petitioner. So far as the sales by his dealers in this State are concerned, they are second sales and those sales do not belong to the same class as that of the second respondent as manufacturer. Hence the sales effected by the dealers of the petitioner in this State are not comparable with the sales made by the second respondent and they altogether belong to a different class and hence a clear classification between the sales effected by the second respondent and the sales effected by the dealers of the first petitioner is established. Apart from that, we are of the opinion taking into account that the second respondent is a Government company, and, it is established in a centrally notified backward area, and it provides employment opportunities to those people in that area and it is a new entrant in the filed, the concession shown to the second respondent is clearly sustainable as the second respondent unit constitutes a class by itself and the classification so made in its favour is justified with the object in view as stated above.
28. The next question is violation of article 304(a). While examining this question we shall bear in mind the entire scheme in Part XIII of the Constitution. Article 301 is the pivot of that Part as the said article declares subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. The Atiabari AIR 1961 SC 2332 and Automobile 0065/1962 : [1963]1SCR491 cases decided by the Supreme Court have fairly indicated the norms underlying the scheme of Part XIII. It is necessary to bear in mind that as observed by Gajendragadkar, J., in Atiabari Tea Company Ltd. v. State of Assam : [1961]1SCR809 , 'in drafting the relevant articles of Part XIII the makes of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal polity which had been a adopted by the Constitution for the governance of the country'. While article 301 declares that trade, commerce and intercourse shall be free throughout the territory of India, the other provisions in this Part limitations on such absolute right. Article 302 gives power to the Parliament to impose such restrictions on the freedom of guarantee under article 301 as may be required in public interest. Article 303, on the other hand, prohibits both the Parliament and legislature from giving any preference and discrimination in favour of any State except in a situation arising from scarcity of goods in any part of the territory of India. Article 304 recognises the power of the State Legislature to levy non-discriminatory tax and impose restrictions in respect of goods imported from sister States. The new article 305, as amended by the Constitution (Fourth Amendment) Act, 1955, brings the article in conformity with article 19(6) of the Constitution creating monopoly in favour of State in respect of a trade or business carried on by itself or by a corporation owned or controlled by it. Article 306 ralating to Part B States was repealed by the Constitution (Seventh Amendment) Act, 1956. Article 307 empowers the Parliament to establish an authority similar to the Inter-State Commerce Commission of the U.S.A.
29. It is seen that article 304 is an exception to article 301 and hence it is ruled by the Supreme Court in State of Kerala v. Abdul Kadir : [1970]1SCR700 that 'unless the court first comes to the finding on the available material whether or not there is infringement of the guaranteed under article 301, the further question as to whether the statute is saved under article 304(b) does not arise'. Hence we must bear in mind the entire sweep of article 301. In Atiabari Tea Co. Ltd. v. State of Assam : [1961]1SCR809 it was observed, 'we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by article 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade'. The same was reiterated in Automobile case (Automobile Transport Ltd. v. State of Rajasthan 0065/1962 : [1963]1SCR491 . This view was affirmed in State of Madras v. Nataraja Mudaliar : [1968]3SCR829 stating that, 'it is settled by the decisions of this court in Atiabari's case : [1961]1SCR809 and Automobile case 0065/1962 : [1963]1SCR491 that a taxing statute is not outside the scope of article 301 of the Constitution. But before a taxing statute is held to be violative of that article, it must be shown that it has a direct or immediate impact on the freedom of trade, commerce and intercourse within the country. In other words, a mere remote or incidental impact is insufficient to hold that article 301 has been contravened'. Further, while examining the violation of this mandate in article 301 it is also necessary to bear in mind the three-fold purposes of that article as emphasised in Automobile case (Automobile Transport Ltd. v. State of Rajasthan 0065/1962 : [1963]1SCR491 by Das, J., wherein it was observed : 'First, in the large interests of India there must be free flow of trade, commerce and intercourse, both inter-State and intra-State; second, the regional interests must not be ignored altogether; and third, there must be a power of intervention by the Union in any case of crisis to deal with particular problems that may arise in any part of India.' With reference to the tax on sale of goods we find a specific dicta of the Supreme Court that such tax does not normally impede the free flow of trade and commerce : vide Andhra Sugars Ltd. v. State of A.P. : [1968]1SCR705 . In the above case Bachawat, J., speaking for the court after referring to the observations made by Gajendragadkar, J., in Atiabari Tea Company's case : [1961]1SCR809 held that normally, a tax on sale of goods does not directly impede the free movement or transport of goods and accordingly section 21 of the A.P. Sugarcane (Regulation of supply and Purchase) Act (45 of 1961) was upheld and it was ruled that the said section does not impede the free movement or transport of goods and is not violative of article 301. This view was reiterated in State of Madras v. Nataraja Mudaliar : [1968]3SCR829 and the provisions of the Central Sales Tax Act were upheld.
30. Now with this background we must look to the terms of article 304 of the Constitution of India to notice the violation complained of.
'Article 304. (a) Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law - (a) impose on goods imported from other States 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'.
31. We are nor concerned with clause (b). We have already noticed that it must be initially established that the impugned proceedings have the direct and immediate effect on the free movement of trade. Now the terms of article 304 further require to show (i) There is an impost on goods imported; (ii) Such goods are similar with the goods manufactured in the State; and (iii) There is discrimination inter se between such goods. Let us examine these elements in the reverse order.
32. Unlike article 14 the word 'discrimination' specifically occurs in this article as in the case of article 15 and 16. It is necessary to bear in mind the meaning of 'discrimination' in this context. In New York v. United States 326 US 572 it was defined to mean 'singling out another government and specifically legislating about it'. The definition is accepted by Latham, C.J., in Melbourne Corporation v. Common Wealth 74 CLR 31 at 61. A similar prohibition against discrimination between States inter se is contained in article 303. The Supreme Court in Kathi Raning v. State of Saurashtra [1952] SCR 435 stated the meaning and its import in the following words : 'Discrimination thus involves an element of unfavourable bias.' Thus it is seen that the impugned proceedings must be directed against the petitioner as importer of goods into the State of A.P. If the object or the effect of the notification is not singling out the imported goods no discrimination arises as contemplated under this article.
33. Let us examine the other element of 'similar goods'. The word 'similar' in Webster Encyclopaedic Dictionary was defined to mean 'Like; resembling; having a like form or appearance; like in quality'. In firm A.T.B. Mehtab Majid & Co. v. State of Madras : AIR1963SC928 the Supreme Court expressed the meaning of the said words thus : '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.' Thus it is seen the quality and the kind of the goods clearly go to show the similarity of goods. However, with reference to the price of the goods also they will become dissimilar and discrimination may arise. Discrimination may arise if the prices of goods are different even though rate of tax was same. Such situation was noticed by the Supreme Court in A. Hajee Abdul Shukoor v. State of Madras : [1964]8SCR217 . It is true that the similarity contemplated under article 304 is the commercial similarity and if there are similar goods the prohibition under the article comes into play. The power of the State to make artificial classifications for the purpose of the taxation may not be available in respect of similar goods and that is the vital distinction between this article and article 14, but the petitioner should show that the goods are factually similar. The similarity may disappear if there is difference either in quality or in kind or in price. It is also true that the name of the goods in the commercial world may not be decisive to show that they are similar goods. A Parker pen valued at Rs. 100 and a Pilot pen locally prepared priced at Rs. 2 may not be similar goods but both of them are known as pens. Similarly the different motor vehicles though compendiously called motor vehicles cannot constitute similar goods. It is indisputable that a lorry, a light vehicle, a jeep and a Matadar van are different goods. Even in the same type of goods, if they acquire a special commercial value because of their trade name and make, they can be terms as different goods such as Premier, Ambassador and Standard cars. It is true that the State cannot arbitrarily classify similar goods into different classes and defeat the constitutional mandate.
34. Finally the article speaks of the impost on goods imported from other States. If the impost is common no discrimination arises. In this context it is necessary to bear in mind the difference between the exemption of a tax already imposed and the non-liability of the tax which is outside the purview of the taxing provision. This distinction was made out by the Supreme Court in A. V. Fernandez v. State of Kerala : [1957]1SCR837 wherein Bhagwati, J., observed :
'There is a board distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax.'
35. Section 38 of the A.P.G.S.T. Act enacts a provision with regard to non-liability of the tax in respect of export sales, import sales and sales in the course of inter-State trade or commerce. This distinction we brought out to show that there is no impost of any tax in the present case which operated discriminately between the goods imported and the goods manufactured in the State. We are quite alive of the fact that this constitutional prohibition should not be circumvented indirectly by granting exemption though there is no impost as such in the Act. But the court should examine that, bearing in mind, whether the offending provision is a provision of impost or an exemption and whether it impedes directly or indirectly the free flow of trade and commerce within the meaning of article 301 and whether its effect and operation is against all other goods in general, or directed only against imported goods only.
36. The courts had occasion to examine in number of cases how the notification granting exemptions operated discriminately both under article 14, article 301 and article 304. We have already noticed some of them while considering the violation of article 14. In State of Madhya Pradesh v. Abdeali : [1963]3SCR704 a notification granting some exemption to small manufacturers was questioned as being offending article 304(a) by one importer of the goods into the State of Madhya Bharat. The High Court accepted the said contention and quashed the assessment order. On appeal by the State, the Supreme Court allowed the appeal and said that the conditions of notification were not satisfied by the importer of the goods and hence he cannot claim an exemption and the notification is not violative of article 304(a). The violation complained of by the importer arises this way. It is pointed out that a small manufacturer outside the State has to travel into the State and sell hand-made shoes there, in order to get the benefit of the exemption, whereas the small manufacturer in the State need not travel anywhere in order to get the benefit of the exemption and this results in discrimination. Their Lordships held :
'The argument of the learned counsel for the respondent is really an argument of inconvenience. The exemption by itself creates no discrimination between footwear manufactured or produced in the State and imported from outside. Even a small manufacturer in the State must fulfil the conditions laid down by the notification in question before he can claim exemption from tax; in other words, he or a member of his family must also sell the hand-made shoes before he can claim the exemption.'
37. No doubt this is a general exemption applicable to all. But the point to be noted is the exemption itself must create the discrimination against the importer and in the absence of such discrimination no complaint can be made on the ground of violation of article 304(a). Firm Mehtab Majid & Co. v. State of Madras : AIR1963SC928 illustrates a direct interference by impost with the free flow of trade and commerce. The Supreme Court has struck down rule 16(2) of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, which imposed a tax on untanned hides and skins in the event when goods are brought into the State and when they are exported outside the State. The operation of the rule in its working was noticed by the Supreme Court like this : '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 sales 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. He too will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside, and having not therefore paid any tax under sub-rule (1).'
38. This rule was amended and the amended rule was again challenged before the Supreme Court in A. Hajee Abdul Shukoor & Co. v. State of Madras : [1964]8SCR217 . This new rule also purported to make the levy on the last purchaser in the State in the case of raw hides and skins and the first seller in the case of dressed hides and skins. Raghubar Dayal, J., who happened to deliver both the judgments pointed out the change in the rule and its operation in these words :
'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.'
39. These two judgments illustrate cases where a direct impost on the imported goods and its operation, and it also points out how even same rate of tax on different priced goods brings out discrimination. These two cases were noticed in V. Guruviah Naidu & Sons v. State of Tamil Nadu : [1977]1SCR1065 and it was pointed out that the question when a levy of tax would constitute the discrimination would depend upon a variety of factors including the rate of tax and the items of goods in respect of the sale on which it is levied. The Madras General Sales Tax Act (1 of 1959) this time did not refer to the import or export of the goods and it simply purported to levy raw hides and skins and dressed hides and skins. On the question of violation of article 304(a) how the price of the goods also would play a role was pointed out. Referring to the above two cases it was stated.
'Now of the circumstances which led this court to strike down the relevant provisions in the above-mentioned two cases exists in the present case. In Mehtab's case : AIR1963SC928 discrimination was found to exist because of the fact that tax was being levied at the case rate in respect of both raw hides and skins as well as dressed hides and skins, even though the price of dressed hides and skins was much higher. The position was worse in the case of Hajee Abdul Shukoor : [1964]8SCR217 because in that case the sales tax was found to have been charged at a higher rate in respect of dressed hids skins than that on the sale of raw hides and skins in spite of the fact that the price of dressed hides and skins was higher than that of raw hides and skins. The position in the present case is materially different, for here the rate of sales tax for raw hides and skins is 3 per cent., while that for dressed hides and skins is 1 1/2 per cent. It is plain that the lower rate of tax in the case of dressed hides and skins has been prescribed with a view to offset the difference between the higher price of dressed hides and skins and the lower price of raw hides and skins. No material has been brought on the record to show that despite the lower rate of sales tax for dressed hides and skins, the imported hides and skins are being subjected to discrimination. The onus to show that there would be discrimination between the hides and skins which were purchased locally in the raw form and thereafter tanned and the hides and skins which were imported from other States was upon the appellant. The appellant, we find, has failed to discharge such on us.'
40. Thus we see a substantial disparity in the price of goods may also be an element to be taken into account whether discrimination operates or not in respect of different trades and the State is entitled to take into account the price of the goods and the incidence of the tax in respect of those goods.
41. Further the notification in question is in the nature of a special notification. The discrimination is inherent in the special notification as all the persons of similar class are denied such benefit. In the case of special notifications in favour of an individual institution the residents of the State also are discriminated, but it is justified on the ground that such institution constitutes a class by itself. It is fairly established that a single individual may constitute a class. If the residents of the State cannot complain discrimination, the importer of the goods also cannot complain, as such discriminatory notification is not directed against him alone. It operates against all. It favoured only one individual.
42. Some Supreme Court judgments of United States of America were cited at the Bar. We are not inclined to examine the principles decided in those cases firstly on the ground that the constitutional provision in America on the question of freedom of trade embodied in Article I, section 8(3), is fundamentally different with the provisions embodied in Part XIII of our Constitution and secondly that we find enough norms in the decided cases of judgments of the Supreme Court to decide the question on hand.
43. Let us apply this legal position to the facts of this case. The provisions of the Act were not discriminatory in its operation. In fact section 9 under which the notification was issued was not challenged. So the impost in question under the Act is uniform and no discrimination is made. The exemption granted under the notification is not an impost within the meaning of article 304(a). It is a kind of rebate granted to the second respondent. The notification has not singled out the importer or the imported goods. In fact the petitioner could not make out a case discrimination of the goods imported by him as a manufacturer to this State. It is admitted that his sales to the consumers in this State direct, or to the dealers are of inter-State transactions and he has to pay only 4 per cent. tax under the Central Sales Tax Act and that was why we held that no discrimination arises when we compare the sales effected by him as a manufacturer with the sales effected by the second respondent as manufacturer. If we compare those two sales the petitioner is in advantageous position. It is admitted that the vehicles sold by the first petitioner-company to its dealers in Andhra Pradesh are sold by them to their customers and such sales are local sales and not sales in the course of inter-State trade or commerce. However, the contention of the petitioner is that the sales made by the dealers of the petitioner are discriminated as the dealers have to pay higher tax compared with the tax payable by the second respondent. It is difficult to visualise that the sales made by the dealers of the petitioner can still be called the imported sales. Once the title has passed to the dealers of the petitioner they become part of intercourse of the trade in this State and the goods so imported by the petitioner cannot be still treated as imported goods unless a special rule is made for making an impost identifying these goods as such. No data is placed before us to show whether the dealers are bound to sell at the same rate at which the goods were sold by the petitioner. We cannot assume such dealing as the dealers are free to make their sales providing for their trade concessions as the title has passed to them. Hence, the petitioner qua manufacturer or importer of the goods cannot complain of any discrimination of his goods as the goods sold to the dealers no longer retain its character of imported goods. Hence we are of the opinion that the further sales made by the dealers of the petitioner which is a second sale cannot be treated as imported sales claiming benefit of non-discriminatory tax under article 304.
44. Apart from that, we see the notification is in the nature of a benefit conferred upon the second respondent by way of subsidy or a rebate. The policy embodied in granting the concession to the several institutions under section 9 contemplates such notifications to operate as a grant of subsidies to institutions. G.O.Rt. No. 1241, Revenue, dated 22nd July, 1982, found in the work of Sri S. Krishna Murthy referred to above states :
'The Government are receiving number of representations for grant of exemptions from payment of sales tax on various grounds. The Government have examined the general issue regarding grant of exemption under the Act, taking into account, the recommendations of the Bhootalingam Committee that tax exemption should be confined to :
(i) items and transactions covered by inter-State and international treaty obligations.
(ii) articles taxed under other enactments.
(iii) items and transactions where it is administratively difficult to levy the tax.
The above recommendations were discussed in the Sales Tax Advisory Committee meeting and were accepted by Government. However Government have to grant exemptions even in cases which will not fall under any of the three groups recommended, because adequate machinery has not been evolved to grant subsidies .......... (later portion omitted)
(By order and in the name of the Government of Andhra Pradesh)
Shravan Kumar
Principal Secretary to Government.'
45. This exemption is for a particular period of two years. This exemption was not granted to other manufacturers or traders of light commercial vehicles. If a new manufacturer starts an industry in the Andhra Pradesh, he will not get this benefit and hence the notification in its application is general and it is not directed against the importer as such.
46. It is true that the record discloses that the second respondent could not stand the competition in the general market and so he should be given protection for a limited period. It is agreed by the learned counsel for the petitioners very rightly that if the State makes a grant of handsome amount to a newly started industry as a subsidy no question of violation of article 304(a) arises. We see no valid reason to refuse to consider these concessional rates conferred on second respondent being in the nature of a subsidy when in particular the above G.O. embodies such principle. The State need not collect tax with right hand and give away the bounty with left hand. The machinery under the A.P.G.S.T. Act is used to make a grant in favour of needy institutions.
47. Further when we see the nature of the goods we are satisfied that they are dissimilar in quality, kind and price. We are fortified in this finding on the material agreed upon between the parties regarding the monetary advantage obtained by the second respondent under the notification, and also as per the comparative chart supplied by the respondent in respect of specifications of light commercial vehicles. We see in the comparative specifications of light commercial vehicles, the Allwyn Nissan Cabstar stands as a type by itself considering the model of the vehicle, pay load, engine type, capacity C.C. and number of rear wheels. The chart discloses as many as 44 various differences. These differences really bring out the quality and the kind between the production of the petitioner and the second respondent. Regarding price it is indisputable there is really much gap the difference of the price excluding the tax payable in respect of the manufactured rate itself comes to Rs. 34,132. Even after payment of the tax at the concessional rate the petitioner enjoys a greater margin as he has to sell his vehicle at Rs. 1,07,637 whereas the second respondent has to sell at Rs. 1,45,324.54. A big gap in price is still left between the prices of those two vehicles and each can build up their market in the commercial community. Considering the above elements it is difficult to classify the goods of the petitioner and that of the respondent as similar goods.
48. To sum up, the goods of the second respondent-company are not similar. The notification has not discriminated against the importers as such and it is in the nature of a subsidy granted by the State to the second respondent and it is not in the nature of an impost which is discriminatory in character and this exemption in question which is in the nature of a subsidy or a rebate has no immediate or direct effect on free flow of trade and commerce within the State of Andhra Pradesh and the impugned notification is not vitiated as being violative of article 304(a) of the Constitution of India.
49. In the result, all the contentions fail and the writ petition is dismissed. No costs. Advocate's fee Rs. 250.
50. The learned counsel for the petitioners seeks leave to appeal to the Supreme Court. We do not think that this is a fit case where we can grant leave, as in our opinion, no substantial question of law arises which requires to be considered by the Supreme Court within the meaning of article 133 of the Constitution of India. Hence the oral leave sought is rejected.
51. Writ petition dismissed.