# r v. STATE OF PUNJAB & ANR. ETC. ETC

- **Citation:** [1989] Supp. 2 S.C.R. 731
- **Court:** Supreme Court of India
- **Decided:** 1989-12-22
- **Case number:** Writ Petition No. 665 of 1988
- **Bench:** Sabyasachi Mukharji, S. Ranganathan, B J.S. Verma
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/r-v-state-of-punjab-anr-etc-etc-10637
- **Pages:** 28

## Headnote

U.P. Sales Tax Act, 1948-Sections 4A, 5A and 48 and Notificalion dated January 29, 1985 and December 26, 1985-Constitutional
..
validity of Manufacturers of goods in stat,,__No liability to pay tax-
~
Dealers selling goods imported from outside stat,,__liable to pay tax- c
whether discriminatory, legal and permissible.
Constitution of India 195~Articles 14, 19, 38, 39, 301 and 304--
Sales Tax Law-Manufacturers of goods in the state exempted from
Sales Tax-Non-manufacturer of same goods importing goods and
selling-Liable to sales tax-Whether valid, legal and constitutional.
D
A common question of law having arisen for determination in
these petitions flied under Article 32 of the Constitution, they are
-7
disposed of by a Common Judgment, though the petitionerr-dealers
are different and carry on their business in different states and have
challenged the respective provisions of law by which their cases are
E
governed.
The petitioners in WP 803/88 carry on the business of selling
cinematographic films and other equipments like projector, sound
recording and reproducing equipments, X-Ray films etc. in the State of
U.P. and in Delhi. The petitioners receive these goods from their F
manufacturers outside the State of U .P. In U .P. there is a single point
levy of Sales Tax.
. The State of Uttar Pradesh issued two notifications under section
4A of the Uttar Pradesh Sales Tax Act and under Section 8(5) of the
Central Sales Tax Act exempting new units of manufacturers as defined G
in the Act in respect of the various goods for different periods ranging
from 3 to 7 years, from payment qf Sales Tax. The petitioners by these
petitions challenge the constitutional validity of these Notifications.
They have also challenged the constitutional validity of section 4A of the
Uttar Pradesh Sales Tax Act and sections 8(5) of the Central Sales Tax
Act, and the proceedings taken by the Ri>spondent under section SA of H
:--.
731
732
SUPREME COURT REPORTS
[ 1989] Supp. 2 S.C.R.
A the said Act. The case of the petitioners is that they are discriminated on
account of these notifications as the manufacturers covered by these
Notifications are entitled to sell the articles manufactured by them without liability to pay sales-tax while the manufacturers in other states and
non-manufacturers of the same article selling the same goods in the
State are liable to pay sales tax under the local Sales Tax Act as well as
B under the Central Sales Tax Act. Their contenton, therefore, is that
they became subject to gross discrimination and their business was
crippled. In these premises the petitioners challenge the provisions as
ultra vires the constitution being violative of the provisions of Articles
301 to 305 of part III of the Constitution as also Articles 14 and 19 of the
Constitution.
c
The Respondents counter the assertion of the petitioners. According to them the contention put forward by the petitioners ignores the
basic features of the Constitution and also the fact that the concept of
economic unity may not necessarily be the same as it was at the time of
the Constitution making; the state which was technically and economiD cally weak in 1950 cannot be allowed to remain in the same state of
affairs. The state has to give subsidy and grant exemptions/conscessions
for the economic development of the state to new industries. It was
urged that if all the states are economically strong or developed then
only can economic unity as a whole be assured or strengthened.
E
Dismissing the petitions, this Court,
HELD: Sales Tax Laws in all the States provide for exemption.
Power to grant exemption is inherent in all taxing Legislations.
Economic unity is a desired goal. Development on parity is one of the
F
commitments of the Constitution. Directive Principles enshrined in
Articles 38 and 39 mmt be hannonNld with economic unity as well as econ<>-
mic development of developed and under-developed areas. [756H; 757 A-BI
Taxes may sometime amount to restrictions but it

## Text

_Characters 0–39,855 of 74,700. This is a partial read: ask again with offset=39855 for what follows._

VIDEO ELECTRONICS PVT. LTD. AND ANR. ETC. ETC.
A
:r
v.
STATE OF PUNJAB & ANR. ETC. ETC .
. DECEMBER 22, 1989
[SABYASACHI MUKHARJI, CJ., S. RANGANATHAN AND
B
J.S. VERMA, JJ.]
U.P. Sales Tax Act, 1948-Sections 4A, 5A and 48 and Notificalion dated January 29, 1985 and December 26, 1985-Constitutional
..
validity of Manufacturers of goods in stat,,__No liability to pay tax-
~
Dealers selling goods imported from outside stat,,__liable to pay tax- c
whether discriminatory, legal and permissible.
Constitution of India 195~Articles 14, 19, 38, 39, 301 and 304--
Sales Tax Law-Manufacturers of goods in the state exempted from
Sales Tax-Non-manufacturer of same goods importing goods and
selling-Liable to sales tax-Whether valid, legal and constitutional.
D
A common question of law having arisen for determination in
these petitions flied under Article 32 of the Constitution, they are
-7
disposed of by a Common Judgment, though the petitionerr-dealers
are different and carry on their business in different states and have
challenged the respective provisions of law by which their cases are
E
governed.
The petitioners in WP 803/88 carry on the business of selling
cinematographic films and other equipments like projector, sound
recording and reproducing equipments, X-Ray films etc. in the State of
U.P. and in Delhi. The petitioners receive these goods from their F
manufacturers outside the State of U .P. In U .P. there is a single point
levy of Sales Tax.
. The State of Uttar Pradesh issued two notifications under section
4A of the Uttar Pradesh Sales Tax Act and under Section 8(5) of the
Central Sales Tax Act exempting new units of manufacturers as defined G
in the Act in respect of the various goods for different periods ranging
from 3 to 7 years, from payment qf Sales Tax. The petitioners by these
petitions challenge the constitutional validity of these Notifications.
They have also challenged the constitutional validity of section 4A of the
Uttar Pradesh Sales Tax Act and sections 8(5) of the Central Sales Tax
Act, and the proceedings taken by the Ri>spondent under section SA of H
:--.
731
732
SUPREME COURT REPORTS
[ 1989] Supp. 2 S.C.R.
A the said Act. The case of the petitioners is that they are discriminated on
account of these notifications as the manufacturers covered by these
Notifications are entitled to sell the articles manufactured by them without liability to pay sales-tax while the manufacturers in other states and
non-manufacturers of the same article selling the same goods in the
State are liable to pay sales tax under the local Sales Tax Act as well as
B under the Central Sales Tax Act. Their contenton, therefore, is that
they became subject to gross discrimination and their business was
crippled. In these premises the petitioners challenge the provisions as
ultra vires the constitution being violative of the provisions of Articles
301 to 305 of part III of the Constitution as also Articles 14 and 19 of the
Constitution.
c
The Respondents counter the assertion of the petitioners. According to them the contention put forward by the petitioners ignores the
basic features of the Constitution and also the fact that the concept of
economic unity may not necessarily be the same as it was at the time of
the Constitution making; the state which was technically and economiD cally weak in 1950 cannot be allowed to remain in the same state of
affairs. The state has to give subsidy and grant exemptions/conscessions
for the economic development of the state to new industries. It was
urged that if all the states are economically strong or developed then
only can economic unity as a whole be assured or strengthened.
E
Dismissing the petitions, this Court,
HELD: Sales Tax Laws in all the States provide for exemption.
Power to grant exemption is inherent in all taxing Legislations.
Economic unity is a desired goal. Development on parity is one of the
F
commitments of the Constitution. Directive Principles enshrined in
Articles 38 and 39 mmt be hannonNld with economic unity as well as econ<>-
mic development of developed and under-developed areas. [756H; 757 A-BI
Taxes may sometime amount to restrictions but it is only such taxes
as directly and immediately restrict trade that would fall within the
G
mischief of Art. 301. [740E]
See Atiabari Tea Co. Ltd. v. The State of Assam & Ors., [1961] 1
SCR 809 and Automobile Transport (Rajasthan) Ltd. v. The State of
Rajasthan & Ors., [1963] 1SCR491.
H
The taxes which do not directly and immediately restrict or
VIDEO ELECTRONICS v. STATE OF PUNJAB
733
~ interefere with trade, commerce and intercourse throughout the territory of India would therefore be excluded from the ambit of Art. 301 of
A
the Constitution. It has to be borne in mind that sales tax has only an
indirect effect on t.rade and commerce. [747F]
In the instant case, the general rate applicable to locally made
goods is the same as that on imported goods. Even supposing without
B
admitting that Sales Tax is covered by Art. 301 as a tax directly and
immediately, hampering the free flow of trade, it does not follow that it
falls within the exemption of Art. 304 and it would be hit by Art. 30 I.
~
Still the general rate of tax which is to be compared under Art. 304(a) is
at par, and the same qua the locally made goods and the imported
goods. [751G-H]
c
Concept of economic barrier must be adopted in a dynamic sense
with changing conditions. What constitutes an economic barrier at one
point of time often ceased to be so at another point of time. It will be
wrong to denude the people of the state of the right to grant exemptions
which flow from the plenary powers of le2islative heads in List III of the
D
7th Schedule of the Constitution. [752A-B]
-
Basically the concept of equality embodied in Articles 304(a) and
16 are the same. Article 14 enjoins upon the state to treat every person
equal before the law while Article 304(a) enjoins upon the state not to
discriminate with respect to imposition of tax on imported goods and
E
the locally made goods. [753C]
It is not that with changing times the meaning changes but changing times illustrate and illuminate the meaning of the expressions used.
The connotation of the expressions used takes its shape and colour in
~
evolving dynamic situations. [757B-C]
James v. Commonwealth of Australia, [1936] AC 578 at 613;
F
Firm A. T.B. Mehtab Majid & Co. v. State of Madras & Anr., [1963] 2
Suppl. SCR 435; A. Hajee Abdul Shakoor & Co. v. State of Madras,
[1964] 8 SCR 217 at 225; State of Madras v. N.K. Nataraja Mudaliar,
[1968] 3 SCR 829 at 847; Andhra Sugars Ltd. & Anr. etc v. State of G
Andhra Pradesh & Ors., [1968] 1 SCR 705; Bengal Immunity Co. Ltd.
v. State of Bihar, [1955] 2 SCR 603 at 754; State of Madhya Pradesh v.
Bhailal Bhai & Ors., [1964] 6 SCR 261 at 268-9; Rattan Lal & Co. &
Anr. v. The Assessing Authority & Anr., [1969) 2 SCR 544 at 557; In,dia
Cement & Ors. v. State of Andhra Pradesh & Ors., [1988] 1 SCC 743;
..
Weston Electroniks & Anr. v. State of Gujarat & Ors:, [1988] 2 SCC
H
A
B
734
SUPREME COURT REPORTS
[ 1989} Supp. 2 S.C.R.
568 at 571; C.A.F. Seeling Inc. v. Charles H. Baldwin, 79 L.Ed. 2d 1033
at 1038; Smt. Ujjam Bai v. State of U.P., [1963] l SCR 778 at 851;
Coffee Board, Bangalore v. Joint Commercial Tax Officer, Madras &
Anr., [1970} 3 SCR 147 at 156; V. Guruviah Naidu & Sons v. State of
Tamil Nadu & Anr., [1977} 1 SCR 1065 at 1070; Kathi Raning Rawat
v. The State of Saurashtra, [1952} SCR 435; Kalyani Stores v. The State
of Orissa & Ors., [1966] l SCR 865; Bharat General & Textiles Industries Ltd. v. State of Maharashtra, 72 STC 354; Ii. Anraj v. Government of Tamil Nadu, [1986] l SCC 414; West Bengal Hosiery Assn. &
Ors. v. State of Bihar & Anr., [1988} 4 SCC 134; State of U.P. & Ors. v.
Babu Ram Upadhya, [1961} 2 SCR 679 at 702; State of Tamil Nadu, v.
Hind Stone etc., [1981] 2 SCR 742 at 757; State of Mysore v. H. Sane
jeeviah, [1967] 2 SCR 361; Kai/ash Nath & Anr. v. State of U.P. &
Ors., AIR 1957 SC 790 at 791; State of U.P. & Ors. v. Renusagar
Power Co. & Ors., [1988} 4 SCC 59 at 100; M/s Narinder Chand Hem
Raj & Ors. v. Lt. Governor, Administrator, U. T., Himachal Pradesh
& Ors., [1971] 2 SCC 747 at 751 and Associated Tanners Vizianagram
A.P. v. C. T.O., Vizianagram, Andhra Pradesh & Ors., [1986} 1 SCR
D
969, reffered to.
ORIGINAL JURISDICTION: Writ Petition No. 665 of 1988
etc.
E
(Under Article 32 of the Constitution oflndia).
Sanjay Parikh, M.L. Sachdev, C.S. Vaidyanathan, S.R. Bhat,
S.R. Setia, S.C. Dhanda, H.K. Puri, Harish N. Salve, Rajiv Dutta,
Anil Kumar and Sultan Singh for the Petitioners.
F
Raja Ram Agarwal, S.C. Manchanda, G.L. Sanghi, A.S. Namb1
iar, Ashok K. Srivastava, R.S. Rana, P.G. Gokhale, B.R. Agarwala,
•
G
R.B. Hathikhanawala, C.M. Nayar, P.K. Manohar, P.N. Misra, Ms.
Halida Khatoon and Santhanam for the Respondents.
G.L. Sanghi, Ms. Vrinda Grover, Miss Seita Vaidialingam,
Kailash Vasudev and A.C. Gulathi for the Intervenor.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, CJ. In these several writ petitions, we are concerned with the question of harmonising the power of
H
different States in the Union of India to legislate llnd/or give ..
VIDEO ELECTRONICS v. STATE OF PUNJAB [MUKHARJl, CJ.) 735
appropriate directions within the parameters of the subjects in list II of
the 7th Schedule of the Constitution with the principle of economic
unity envisaged in Part XIII of the Constitution of India. We are also
concerned with the provisions of exemption, encouragement/incentives given by different States to boost up or help economic growth and
development in those States, and in so doing the attempt of the States
to give preferrential treatment to the goods manufactured or produced
in those States. The question essentially is the same in all the matters
but the question has to be appreciated in the context of the provisions
and the fact situation of the different States involved in these writ
petitions. It would, therefore, be appropriate to first deal with writ
petition No. 803/88 (Niksin Marketing Associate & Ors. v. Union of
India & Anr.) which is under article 32 of the Constitution by four
petitioners.
Petitioner No. I in W.P. No. 803/88 is a partnership firm carryA
B
c
ing on business in New Delhi. Petitioner No. 2 is its partner and
petitioner No. 3 is another partnership business carrying on business at
Kanpur i11 U.P. consisting·of petitioner No. 4 and other partners. The
D
petition challenges the constitutional validity of notification No. ST-II7558/X-9(208)-1981 U.P. Act XV-48 order 85 dated 26th December,
1985 issued by Utiar Pradesh Govt u/s 4A of the Uttar Pradesh Sales
Tax Act, 1948. A prior notification No. ST-Il/604-X-9(208)-1981 U.P.
Act XV-48-0rder 85 dt. 29th January, 1985 was superseded by the
aforesaid notification dt. 26th December, 1985. It also challenges the
E
constitutional validity of notification No. ST-II/8202/X-9(208)-1981
issued by Uttar Pradesh Govt. u/s 8(5) of the Central Sales Tax Act,
1956 which superseded a previous notification. It also challenges the
constitutional validity of s. 4A of the Uttar Pradesh Sales Tax Act,
1948 as substituted by U.P. Act 22 of 1984 and also s. 8(5) of the
Central Sales Tax Act, 1956 and consequentially all actions and proF
ceedings taken by the respondent u/s 5A of the said Act. The respondents to this application are the State of Uttar Pradesh, the Union of
India, and the Commissioner of Sales Tax, Uttar Pradesh.
It is stated that the petitioners carry on the business of selling
cinematographic films and other equipments like projectors, sound
G
recording and reproducing equipment, industrial X-ray films, graphic
art films, Photo films etc. in the State of Uttar Pradesh and in Delhi.
The petitioners sell the goods upon receiving these from the
manufacturers from outside the State of U.P. They are dealers on
. behalf of those manufacturers. The petitioners are dealers of Hindus-
,
tan Photo Films Mfg. Co. Ltd., a Government of India undertaking. In
H
736
SUPREME COURT REPORTS
[ 1989] Supp. 2 S.C.R.
U.P. there is a single point levy of sales tax. The State 0f U.P. had
A issued two notifications u/s 4A of the U .P. Sales Tax Act and u/s 8(5)
of the Central Sales Tax Act exempting new units of manufacturers as
defined in the Act in respect of the various goods for different periods
ranging from 3 to 7 years as the case may be, from payment of any
sales tax. These notifications are annexed and terms thereof are set out
B in annexures A-1 & B-1 to the writ petition.
c
D
The notification dated 26th December, 1985 stated, inter alia:
"The Governor is pleased to direct that in respect of any
goods manufactured in an industrial unit, which is a new
unit as defined in the aforesaid Act of 1948 established in
the areas mentioned in column 2 of the Table given below,
the date of starting production whereof falls on or after the
first day of October, 1982 but not later than 31st March,
1990, no tax under the aforesaid Act of 1956 shall be payable by the manufacturer thereof on the turnover of sales
on such goods for the period specified in column 3 against
each, which shall be reckoned from the date of first sale if
such sale takes place not later than 6 months from the date
of starting production subject to certain conditions
mentioned."
E
It is not necessary to set out the conditions. In the annexure
several districts have been mentioned. In column 2 categories have
been made for exemption and have been divided in 2 categories, one in
case of units with capital investment not exceeding 3 lakhs of rupees
and another in cases of the units with capital investment exceeding 3
lakhs of rupees. For one the period of exemption is 5 years while for
F the latter it is 7 years. Period of exemption various from 3 to 7 years in
different districts. More or less similar were the terms of notification
dated 29th January 1985.
The case of the petitioners is that they did not initially feel the
adverse effects or discrimination on account of these notifications.
G
Petitioners point out that the manufacturers covered by the said notification are entitled to sell the articles manufactured by them without
liability to pay sales tax while the manufacturers in other States and
non-manufacturers of the same article selling the same goods in the
State are liable to pay sales tax under the local Sales Tax Act as well as
under the Central Sales Tax Act. The petitioners found that they had
H become liable to pay sales tax on their sales at 12 % + 10% surcharge
.,
... _
VIDEO ELECfRONICS v. STATE OF PUNJAB [MUKHARJI, CJ.] 737
":'
(13.2%) under the U.P. Sales Tax Act on photographic and graphic
A
arts material and @ 8% + 10% surcharge (8.8%) on medical x-ray
films and chemicals arid a minimum of 10% on their inter-State
turnover whereas the manufacturers in the State of U .P. and their
dealers had no tax liability by virtue of the exemption granted under
the empugned notifications. Thus the petitioners contend that the
goods sold by them became costlier by 8.8% to 13.2% depending on
B
the item sold compared to the goods of manufacturers in the State of
U. P. They had given a chart illustrating the position. They, hence,
contended that they became subject to gross discrimination and their
business was crippled and wanted to sustain the said contention by
referring to a chart showng gross sale prices of the products in diverse
States. ln the premises the petitioners challenge these provisions as c
ultra vires of the Constitution of India, the rights guaranteed under
part XIII as also under articles 14 & 19( l)(g) of the Constitution.
The question is, are· these notifications valid, proper and sustainable in the light of part XIII of the Constitution of India judged in the
background of the said articles. Appearing in support of the petition,
D
Mr. San jay Parikh in writ petitions Nos. 790, 665 and 1939-40/88, Mr.
C.S. Vaidynathan and Mr. S.C. Dhanda in writ petition No. 761/88,
Mr. Harish N. Salve for the petitioners in writ petition No. 803/88.
Miss Seita Vaidialingam, Mr. G.L. Sanghi, Kailash Vasudev for the
intervenors. Mr. Raja Ram Agarwal, Mr. G.L. Sanghi and Mr.
Nambiar for the State of U.P. and respondents have made their
E
elaborate submissions. These petitions have been heard together.
Apart from the submission that the provisions impugned violate
articles 19(1)(g) and 14 of the Constitution, and are in violation of
the principles of natural justice, the main challenge to these provisions
by Mr. Salve was that they violated the provisions of articles 30 I to 305
F
of Part XIII of the Constitution of India. The contention of the
petitioners was that, subject to other provisions of Part XIII, trade,
commerce and intercourse throughout the territory of India was enjoined to be free. Article 302 of the Constitution empowers the Parliament by law to impose such restrictions on the freedom .of trade,
commerce or intercourse between one State and another or within any
G
part of the ·territory of India as may be required in the public interest.
Article 303 indicates the restrictions on the legislative powers of the
Union and the States with regard to trade and commerce, anq stipulates that, notwithstanding anything contained in article 302, neither
It
Parliament nor the legislature of the· States shall have power to make
any law giving or authorising the giving of any preference to one State
H
~
738
SUPREME COURT REPORTS
[1989] Supp. 2 S.C.R.
A over another or making or authorising the making of any discrimination between one State and another by virtue of any entry relating to
trade and commerce in any list of the 7th Schedule. Sub-clause (2) of
article 303 enjoins that nothing in clause (1) shall prevent Parliament
from making any law giving, or authorising the giving of, any preference or making, or authorising the making of, any discrimination ifit
B
is declared by such law that it is necessary to do so for the purpose of
dealing with a situation arising from scarcity of goods in any part of
the territory of India. Article 304 deals with restrictions on trade,
commerce and intercourse among States, which is as follows:
c
D
E
F
"304. Restrictions on trade, commerce and intercourse
among States.-
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."
Article 305 saves certain existing laws and laws providing for
State monopolies.
Our attention was drawn to the decision of this Court in Atiabari
G
Tea Co. Ltd. v. The State of Assam & Ors., [1961] 1 SCR 809. There
this Court was concerned with the Assam Taxation (on goods carried
by Roads and Inland Waterways) Act, 1954 which was passed under
entry 56 of list II of the 7th Schedule to the Constitution. The
appellants therein contended that the Act had violated the freedom of
trade guaranteed by article 301 of the Constitution and as it was not
H passed after obtaining the previous sanction of the President as
VIDEO ELECTRONICS v. STATE OF PUNJAB [MUKHARJI, CJ.] 739
~
~
required by art. 304{b), it was ultqi. vires. The respondent therein had
A
urged that taxing Jaws governed only by Part XII and not Part XIII
(which contained articles 301 & 304) and in the alternative that the
provisions of Part XIII applied only to such legislative entries in the
7th Schedule as dealt specifically with trade, commerce and intercourse. Gajendragadkar, Wanchoo and Das Gupta, JJ. held that the
Act violated art. 301 and since it did not comply with the provisions of
B
art. 304{b) it was ultra vires and void. On the contrary, Chief Justice
Sinha held that the Assam Act did not contravene art. 301 and was not
ultra vires. According to the learned Chief Justice, neither the one
extreme position that art. 301 included freedom from all taxation nor
the other that taxation was wholly outside the purview of art. 301 was
correct; and that the freedom conferred by art. 301 did not mean c
freedom from taxation simpliciter but only from the erection of trade
barriers, tariff walls and imposts which had a deleterious effect on the
free flow of trade, commerce and intercourse. Justice Shah on the
other hand expressed the view that the Assam Act infringed the
guarantee of freedom of trade and commerce under art. 301 and as the
Bill was not moved with the previous sanction of the President as
D
required by art. 304{b) nor was it validated by the assent of the Presi-
. ,
dent under art. 255(c), it was ultra vires and void .
In construing the provisions with which we are concerned herein,
in our opinion, it is instructive to remind ourselves, as was said in
James v. Commonwealth of Australia, (1936] AC 578 at 613, that the
E
relevant provision of the Constitution. has to be read not in vacuo but
as occurring in a single complex instrument in which one part may
throw light on another, and therefore, Gajendragadkar, J. as the
learned Chief Justice then was, at p. 860 of the said report, rightly in
our opinion, posed the problem as follows:
F
"In construing Art. 301 we must, therefore, have regard to
the general scheme of our Constitution as well as the
particular provisions in regard to taxing laws. The construetion of Art. 301 should not be determined on a purely
academic or doctrinaire considerations; in construing the
said Article we must adopt a realistic approach and bear in
G
mind the essential features of the separation of powers on
which our Constitution rests. It is a federal constitution
which we are interpreting, and so the impact of Art. 301
must be judged accordingly. Besides, it is not irrelevant to
~·
remember in this connection that the Article 23 are conF
struing imposes a constitutional limitation on the power of
H
~
740
SUPREME COURT REPORTS
[1989] Supp. 2 S.C.R.
~
A
the Parliament and State Legislatures to levy taxes, and
generally, but for such limitation, the power of taxation
would be presumed to be for public good and would not be
subject to judicial revie'IV or scrutiny. Thus considered we
think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301,
B
would be such restrictions as directly arid immediately
restrict or impede the free flow or movement of trade.
Taxes may and do amount to restrictions; but it is only such
taxes as directly and immediately restrict trade that would
v
fall within the purview of Art. 30 I. The argument that all
taxes should be governed by Art. 301 whether or not their
c
impact on trade is immediate or mediate, direct or remote,
adopts, in our opinion, an extreme approach which cannot
be upheld. If the said argument is accepted it would mean,
for instance, that even a legislative enactment prescribing
the minimum wages to industrial employees may fall under
Part XIII because in an economic sense an additional wage
D
bill may indirectly affect trade or commerce. We are,
therefore, satisfied that in determining the limits of the
width and amplitude of the freedom guaranteed by Art.
, -
30 I a rational and workable test to apply would be: Does the
impugned restriction. operate directly or immediately on
trade or its movement?"
E
It is in that light we must examine the impugned provision. It is
necessary to bear in mind that taxes may and sometimes do amount to
restrictions but it is only such taxes as directly and immediately restrict
trade that would fall within the mischief of art. 301. Mr. Salve, however, rightly reminded us that regulatory measures or measures imposF ing compensatory taxes for using trading facilities do not come within
I
the purview of restrictions contemplated under art. 301. Here, it is
necessary to refer to the decision of this Court in the Automobile
Transport (Rajasthan) Ltd. v. The State of Rajasthan & Ors., [1963] I
SCR 491 which was a decision of a bench of this Court consisting of 7
learned Judges, and was concerned with the Rajasthan Motor Vehicles
G Taxation Act, 1951. Sub-section (I) of s. 4 of that Act provided that no
motor vehicle shall be used in any public place or kept for use in
Rajasthan unless the owner thereof had paid in respect of it, a tax at
the appropriate rate specified in the schedules to that Act within -tb.e
time allowed. The appellants therein were carrying on the business of
plying stage carriages in the State of Ajmer. They held permits and
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H plied their buses on diverse routes. There was one route which lay
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VIDEO ELECTRONICS v. STATE OF PUNJAB [MUKHARJI, CJ.] 741
mainly in A jmer State but it crossed narrow strips of the territory of
the State of Rajasthan. Another route, Ajmer to Kishangarh, was
substantially in the Ajmer State, but a third of it was in Rajasthan.
Formerly, there.was an agreement between the Ajmer State and the
former State of Kishangarh, by which neither State charged any tax or
fees on vehicles registered in Ajmeror Kishangarh. Later, Kishangarh
became a part of Rajasthan. On the passing of the Rajasthan Motor
Vehicles Taxation Act, 1951, and the promulgation of the rules made
thereunder, the Motor Vehicles Taxation Officer, Jaipur, demanded
of the appellants payment of the tax due on their motor vehicles for
the period from April 1, 1951 to March 31, 1954. The appellants
challenged the legality of the demand on the grounds that s. 4 of the
Act read with the Schedules constituted a direct and immediate restriction on the movement of trade and commerce with and within
Rajasthan inasmuch as motor vehicles which carried passenger and
goods within or through Rajasthan had to pay tax which imposed a
pecuniary burden on commercial activity and was therefore hit by art.
301 of the Constitution and was not saved by Art. 304(b) inasmuch as
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the proviso to Art. 304(b) was not complied with, nor was the Act
o
assented to by the President within the meaning of art. 255 of the
Constitution. It was held by Das, Kapur, Sarkar and Subba Rao, JJ. as
the learned Judges then were, that the Rajasthan Motor Vehicles
Taxation Act, 1951 did not violate the provisions of art. 301 of the
Constitution of India and that the taxes imposed under the Act were
compensatory or regulatory taxes which did not hinder the freedom or
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trade, commerce and intercourse assured by that article. Das, Kapur
and Sarkar, JJ. held that the concept of freedom of trade, commerce
and intercourse postulated by art. 301 must be understood in the context of an ordinary society and as part of a Constitution which envisaged a distribution of powers between the States and the Union,
and if so understood, the concept must recognise the need and legitiF
macy of some degree of regulatory control, whether by the Union or
the States. Mr. Justice Subba Rao, as the learned Chief Justice then
was, observed that the freedom declared under art. 301 referred to the
right of free movement of trade without any obstructions by way of
barriers, inter-State or intra-State, or other impediments operating as
such barriers; and the said freedom was not impeded, but on the other
G
hand, promoted, by regulations creating conditions for the free movement of trade, such
as, police regulations, provisions for services,
maintenance of roads., provision for aerodromes, wharfs etc., with or
without compensation. Parliament may be law impose restrictions, it
was stated, on such freedom in the public interest, and the States also,
in exercise of their legislative-power, may impose similar restrictions,
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SUPREME COURT REPORTS
[1989] Supp. 2 S.C.R.
subject to the proviso mentioned therein. Laws of taxation were not
outside the freedom enshrined either in Art. 19 or 301. Mr. Justice
Hidayatullah, as the learned Chief Justice then was, and Rajagopala
Ayyangar and Mudholkar, JJ. held thats. 4(1) of the Rajasthan Motor
Vehicles Taxation act, 1951 offended art. 301 of the Constitution, and
as resort to the procedure prescribed by art. 304(b) was not taken it
was ultra vires the Constitution. The pith and substance of the Act was
the levy of tax on motor vehicles in Rajasthan or their use in that State
irrespective of where the vehicles came from and not legislation in
respect of inter-State trade or commerce. A tax which is made the
condition precedent of the right to enter upon and carry on business is
a restriction on the right to carry on trade and commerce within art.
301 of the Constitution. The tax levied under the Act was not truly a
fafr recompense for wear and tear of roads but a restriction which art.
301 forbade. The act was not, in its true character, regulatory. In
judging the situation it would be instructive to bear in mind the observations of Mr. Justice Das at p. 512 of the report, where he observed
that in evolving an integrated policy on this subject our Constitutonmakers seem to have kept in mind three main considerations which
may be broadly stated thus: first, in the larger 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. At p. 523 of the report, it was reiterated that
for the t:ix to become a prohibited tax it has to be a direct tax the effect
of which is to hinder the movement part of trade. Dealing with wide
interpretation Justice Das observed at p. 523-5 of the said report as
follows:
"The widest view proceeds on the footing that Art. 301
imposes a general restriction on legislative power and
grants a freedom of trade, commerce and intercourse in all
its series of operations, from all barriers, from all restrictions, from all regulation, and the only qualification that is
to be found in the article is the opening clause, namely,
subject to the other provisions of Part XIII. This in actual
practice will mean that if the State Legislature wishes to
control or regulate trade, commerce and intercourse in
such a way as to facilitate its free movement, it must yet
proceed to make a law under Art. 304(b) and no such bill
can be introduced or moved in the Legislature of a State
without the previous sanction of the; President. The practi-
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VIDEO ELECl'RONICS v. STATE OF PUNJAB IMUKHARJI, CJ.] 743
cal effect would be to stop or delay effective legislation
which may be urgently necessary. Take, for example, a
case where in the interests of publiic health, it is necessary
to introduce urgently legislation stopping trade in goods
which are deleterious to health, like the trade in diseased
potatoes in Australia. If the State Legislature wishes to
introduce such a bill, it must have the sanction of the President. Even such legislation as imposes traffic regulations
would require the sanction of the President. Such an interpretation would, in our opinion, seriously affect the
legislative power of the State Legislatures which power has
been held to be plenary with regard to subjects in list II."
Mr. Justice Subba Rao, as the learned Chief Justice then was, at
page 550 of the report, observed that if a law directly and immediately
imposes a tax for general revenue purposes on the movement of trade,
it would be violating the freedom. The learned Judge reiterated that
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the Court will have to ascertain whether the impugned law in a given
case affects directly the said movement or indirectly and remotely D
affects it.
Mr. Salve, however, sought to contend that as regards the local
sales tax, there were broadly two well accepted propositions, namely,
sales tax was a tax levied for the purpose of general revenue. Secondly,
it was neither a compensatory tax nor a measure regulating any trade.
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Reliance was placed on. the observations of Mr. Justice Raghubar
Dayal, J. in Finn A.T.B. Mehtab Majid & Co. v. State.of Madras &
Anr., [ 1963] 2 Suppl. SCR 435 but the context in which the said observations were made has to be examined. That case dealt with a·petition
under art. 32 of the Constitution. The petitioners therein were dealers
in hides and skins in the State of Madras. The impugned sales tax
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assessment related to turnover of sales of tanned hides and skins which
had been obtained from outside the State of Madras. The main contention was that the tanned hides and skins imported from outside and
sold inside the State were, under r. 16 of the Madras General Sales Tax
Rules, subject to a higher rate of tax than the tax imposed on hides and
skins tanned and sold within the State and this discriminatory taxation G
offended art. 304 of the Constitution. The contentions of the respondents therein were that sales tax did not come within the purview of art.
304(a) as it was not a tax on the import of goods at the point of entry,
that the impugned rule was not a law made by the State legislature,
that the impugned rule by itself did not impose the tax but fixed the
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single point at which the tax was imposed by ss. 3 & 5 of the Act was to
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be levied; and that the impugned rule was not made with an eye on the
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place of origin of the goods. It was held that taxing laws can be
restrictions on trade, commerce and intercourse, if they hamper the
flow of trade and if they are not what can be termed to be compensatory taxes or regulating measures.
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Reliance was also placed by Mr. Salve on the observations of
Justice Raghubar Dayal in A. Hajee Abdul Shakoor & Co. v. State of
Madras, [1964] 8 SCR 217 at 225. See also the observations in State of
Madras v. N.K. Nataraja Mudaliar, [1968] 3 SCR 829 at 847 and
Andhra Sugars Ltd. & Anr. etc. v. State of Andhra Pradesh & Ors.,
..
[ 1968] 1 SCR 705 where at p. 718 of the report it was reiterated that a
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sale tax which discriminates against goods imported from other States
may impede the free flow of trade and is then invalid unless protected
by art. 304(a). It is, however, necessary to bear in mind that in N.K.N.
Mudaliar's, case (supra) at p. 850 Mr. Justice Bachawat after referring
to several cases observed as follows:
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"But, there can be no doubt that a tax on such sales would
not normally offend Article 301. That Article makes no
distinction between movement from one part of the State
to another part of the same State and movement from one
State to another. Now, if a tax on intra-State sale does not
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offend Article 301, logically, I do not see how a tax on
inter-State sale can do so. Neither tax operates directly or
immediately on the free flow of trade or the free movement
of the transport of goods from the part of the country to the
other. The tax is on the sale. The movement is incidental to
and a consequence of the sale."
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There was a reference in the said judgment to the observations of
Jagannathadas, J. in The Bengal Immunity Co. Ltd. v. State of Bihar,
[ 1955] 2 SCR 603 at 754 wherein it was stated:
"Now it is not disputed that a tax on a purely internal sale
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which occurs as a result of the transportation of goods from
a manufacturing centre within the State to a purchasing
market within the same State is clearly permissible and not
hit by anything in the Constitution. If a sale in that kin_d of
trade can bear the tax and is not a burden on the freedom
of trade, it is difficult to see why a single point tax on the
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same kind of sale where a State boundary intervenes bet-
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VIDEO ELECTRONICS v. STATE OF PUNJAB (MUKHARJI, CJ.] 745
ween the manufacturing centre and the consuming centres
need be treated as a burden, especially where that tax is
ultimately to come out of the residents of the very State by
which such sale is taxable. Freedom of trade and commerce
applies as much within a State as outside it. It appears to
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me again, with great respect, that there is no warrant for
treating such a tax as in any way contrary either to the B
letter or the spirit of the freedom of trade, commerce and
. intercourse provided under Article 301."
It was contended that the Central Sales Tax Act ex-hypothesi
violates art. 301 of the Constitution since it is a tax on inter-State
movement of goods. Shah, J. in Mudaliar's case (supra) at p. 841 of the
report observed that tax under the Central Sales Tax Act on interC
State sales, it must be noticed, is in its essence a tax which encumbers
movement of trade or commerce, if it-(a) occasions the movement of
goods from one State to another; (b) is effected by a transfer of documents of title to the goods during their movement from one State Jo
another. It was contended by Mr. Salve that by exempting the local D
manufacturers from both local and central sales tax, the State Govt.
has clearly made the imposi~on of both local and central sales tax
discriminatory and prejudicial IQ._ outside goods. The goods of the local
manufacturer, when sold by him, do not bear any tax whereas the
goods imported from outside the State have to bear the burden of sales
tax. It was also contended that similarly, the goods crf a ·local E
manufacturer, when exported from the State of U.P. do not have to
. bear tax, while goods brought into the State of U.P. and further exported in competition with the local goods have to bear the tax, so
there is clear discrimination against goods produced by manufacturers
situated outside the State. The discrimination within the meaning of
art. 301 read with art. 304 arises where there is a difference in the rates
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of sales .tax levied, it was sought to be emphasised by Mr. Sanjay
Parikh for some of the petitioners. This proposition has been reiterated
by this Court in a large number of cases; according to counsel, and we
were referred t.Q the observations in State of Madhya Pradesh v. Bhailal Bhai & Ors., (1964] 6 SCR 261at268-9 and Mudaliar's case (supra)
where at p. 847 Shah, J. reiterated that imposition of differential rates
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of tax by the same State on goods manufactured or produced in the
State and sii:nllar goods imported in the State is prohibited under art.
304(a). It was also reiterated by this Court in Rattan Lal & Co. & Anr.
v. The Assessing Authority & Anr., (1969] 2 SCR 544 at 557 dealing
with the Pun jab General Sales Tax Act that when a taxing State was
not imposing rates of tax on imported goods different from the rates of
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tax on goods manufactured or produced, art. 304 had no application.
So long as the rate was the same, art. 304 was satisfied. Reference was
made to India Cement & Ors. v. State of Andhra Pradesh & Ors.,
11988] l SCC 743, whereas at p. 759 this Court observed that variation
of the rate of inter-state sales tax did affect free trade and commerce
and created. a local preference which was contrary to the scheme of
Part XIII of the Constitution. To similar effect are the observations to
which Mr. San jay Parikh has referred us in Weston Electronics & Anr.
v, State of Gujarat & Ors., [ 1988] 2 SCC 568 at 571. Mr. Salve strongly
relied on the observations of Justice Cardozo in C.A.F. Seeling Inc. v.
Charles H. Baldwin, 79 L. Ed. 2d 1033 at 1038 where the learned
Judge observed while he was dealing with Art. (1) s. 8, clause (3) of
the American Constitution which is known as the 'Commerce
Clause'-"This part of the Constitution was framed under the dominion of a political philosophy less parochial in range.