# STATE OF U.P. AND ORS v. JAIPRAKASH ASSOCIATES LTD

- **Citation:** [2013] 11 S.C.R. 943
- **Court:** Supreme Court of India
- **Decided:** 2013-10-18
- **Case number:** Civil Appeal No.3026 of 2004
- **Bench:** H.L. Dattu, Sudhansu. Jyoti Mukhopadhaya
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-u-p-and-ors-v-jaiprakash-associates-ltd-28709
- **Pages:** 48

## Headnote

Constitution of India, 1950:
Articles 301 and 304(a) -
Inter-State Trade and
Commerce -
Tax rebate - Granted by State Government
(State.of U.P.) by Notification-, To cement manufacturing units
- The first condition for getting benefit of the rebate was that
A
B
c
the units were established in the districts of that State and the
D
second condition was that the units were manufacturing
cement by using fly-ash purchased from that State - The
Notification whether in violation of Arts. 301 and 304(a) -
Held: The Notification is violative of Arts. 301 and 304(a) - It
discriminated between imported goods and similar locally
E
manufactured goods (i.e. cement manufactured by using flyash procured from the State of U. P.) -
Object of the
Government was to grant rebate to provide incentive to the
manufacturing units using fly-ash - Thus the first condition
was discriminatory - If the first condition is severed from the
Notification, it would not frustrate the object of the notification
F
- Therefore, using doctrine of severabi/ity, condition No. 1 is
severed from the Notification - Uttar Pradesh Trade Tax Act,
1948- s. 5.
Art. 304(a) - Nature and scope of- Held: Article 304(a)
G
is an exemption to Art .. 301 - It does not prevent levy of tax
on goods - But such levy of tax is prohibited, which would
result in goods imported from other Sta,tes and similar goods
produced or manufactured within the State.
943
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944
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[2013) 11 S.C.R.
A
Art. 304 :- Powers under - Extent and Scope of - Held:
The powers given to State Legislatures are not unrestricted,
and are bound to function within limitations stipulated u!Art.
304(a) - The power u!Art. 304(a), though an exception to Art.
301, but is not a blanket power intended to be conferred to
B the State Legislature - Powers u/Art. 304(b) also are to be
exercised sparingly.
Arts. 302 and 304(a) - Powers under - Distinction
between.
C
Taxation - 'Rebate of tax' - Held: It is such a device or
D
weapon of taxation used by the Government, validity where
of is tested on the touchstone of Article 304(a), in the
circumstances under which they are used - Exemption or
rebate of tax is within the puNiew of taxation.
Constitutionalism - Test of constitutional validity of a
statute - Held: Machinery provisions cannot be used. to test
the constitutional validity of a statute - Issue of territoriality
should a/so not be a factor to determine the constitutional
E validity of a notification.
F
Doctrine - Doctrine of severability - Applicability of -
Discussed.
Words and Phrases:
'Discrimination' - Meaning of, in the context of taxation
and in the context of Art. 304(a) of the Constitution of India,
1950.
'Rebate' - Meaning of - Explained in the context of
G Taxation.
H
'Rebate of tax' and 'incentive' - Distinction between: ·
'Tax' and 'Taxation''- Meaning of, in the context of Article
304(a) of the Constitution of India, 1950.
STATE OF U.P. AND ORS. v. JAIPRAKASH
945
ASSOCIATES LTD.
The State of Uttar Pradesh, to encourage A
manufacturers of cement using fly-ash in manufacturing
of their products, in exercise of its power u/s. 5 of Uttar
Pradesh Trade Tax Act, 1948, issued Notification dated
27.2.1998. The State imposed certain conditions on the
manufacturers in order to take benefit of the rebate
B
provided in the Notification. The first condition was that
the· goods should be manufactured in a unit established
in the State of Uttar Pradesh. The second condition was
that such goods shall be manufactured using fly-ash
purchased from the thermal power stations· situated in the c
districts of the State of Uttar Pradesh. The respondentcement industries situated in neighbouring States who
were manufacturing cement in the State of Madhya
Pradesh after procuring fly-ash from the State of Uttar
Pradesh, filed writ petition, seeking quashing of the D
Notification in so far as first condition of the Notification
was concerned.
High Court held that grant of rebate of tax by the
State Government discriminate

## Text

_Characters 0–39,506 of 88,942. This is a partial read: ask again with offset=39506 for what follows._

[2013] 11 S.C.R. 943
STATE OF U.P. AND ORS.
v.
JAIPRAKASH ASSOCIATES LTD.
(Civil Appeal No.3026 of 2004 )
OCTOBER 18, 2013,
[H.L. DATTU AND SUDHANSU. JYOTI
MUKHOPADHAYA, JJ.]
Constitution of India, 1950:
Articles 301 and 304(a) -
Inter-State Trade and
Commerce -
Tax rebate - Granted by State Government
(State.of U.P.) by Notification-, To cement manufacturing units
- The first condition for getting benefit of the rebate was that
A
B
c
the units were established in the districts of that State and the
D
second condition was that the units were manufacturing
cement by using fly-ash purchased from that State - The
Notification whether in violation of Arts. 301 and 304(a) -
Held: The Notification is violative of Arts. 301 and 304(a) - It
discriminated between imported goods and similar locally
E
manufactured goods (i.e. cement manufactured by using flyash procured from the State of U. P.) -
Object of the
Government was to grant rebate to provide incentive to the
manufacturing units using fly-ash - Thus the first condition
was discriminatory - If the first condition is severed from the
Notification, it would not frustrate the object of the notification
F
- Therefore, using doctrine of severabi/ity, condition No. 1 is
severed from the Notification - Uttar Pradesh Trade Tax Act,
1948- s. 5.
Art. 304(a) - Nature and scope of- Held: Article 304(a)
G
is an exemption to Art .. 301 - It does not prevent levy of tax
on goods - But such levy of tax is prohibited, which would
result in goods imported from other Sta,tes and similar goods
produced or manufactured within the State.
943
H
944
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A
Art. 304 :- Powers under - Extent and Scope of - Held:
The powers given to State Legislatures are not unrestricted,
and are bound to function within limitations stipulated u!Art.
304(a) - The power u!Art. 304(a), though an exception to Art.
301, but is not a blanket power intended to be conferred to
B the State Legislature - Powers u/Art. 304(b) also are to be
exercised sparingly.
Arts. 302 and 304(a) - Powers under - Distinction
between.
C
Taxation - 'Rebate of tax' - Held: It is such a device or
D
weapon of taxation used by the Government, validity where
of is tested on the touchstone of Article 304(a), in the
circumstances under which they are used - Exemption or
rebate of tax is within the puNiew of taxation.
Constitutionalism - Test of constitutional validity of a
statute - Held: Machinery provisions cannot be used. to test
the constitutional validity of a statute - Issue of territoriality
should a/so not be a factor to determine the constitutional
E validity of a notification.
F
Doctrine - Doctrine of severability - Applicability of -
Discussed.
Words and Phrases:
'Discrimination' - Meaning of, in the context of taxation
and in the context of Art. 304(a) of the Constitution of India,
1950.
'Rebate' - Meaning of - Explained in the context of
G Taxation.
H
'Rebate of tax' and 'incentive' - Distinction between: ·
'Tax' and 'Taxation''- Meaning of, in the context of Article
304(a) of the Constitution of India, 1950.
STATE OF U.P. AND ORS. v. JAIPRAKASH
945
ASSOCIATES LTD.
The State of Uttar Pradesh, to encourage A
manufacturers of cement using fly-ash in manufacturing
of their products, in exercise of its power u/s. 5 of Uttar
Pradesh Trade Tax Act, 1948, issued Notification dated
27.2.1998. The State imposed certain conditions on the
manufacturers in order to take benefit of the rebate
B
provided in the Notification. The first condition was that
the· goods should be manufactured in a unit established
in the State of Uttar Pradesh. The second condition was
that such goods shall be manufactured using fly-ash
purchased from the thermal power stations· situated in the c
districts of the State of Uttar Pradesh. The respondentcement industries situated in neighbouring States who
were manufacturing cement in the State of Madhya
Pradesh after procuring fly-ash from the State of Uttar
Pradesh, filed writ petition, seeking quashing of the D
Notification in so far as first condition of the Notification
was concerned.
High Court held that grant of rebate of tax by the
State Government discriminated between the imported
goods and the goods manufactured in Uttar Pradesh
E
restricting the free movement of goods from one State to
the other and therefore impinges articles 301 and 304(a)
cf the Constitution. The Court further applying doctrine·
severability declared the first condition of the Notification
as illegal, arbitrary and discriminatory and accordingly F
quashed the same and granted rebate to the respondentmanufacturers. Hence the present appeal by the State.
The questions for consideration before this Court
were; whether the grant of rebate of tax is hit by G
constitutional limitation on the State legislature under
article 304(a) read with article 301 of the Constitution of
India, as and when it discriminates between the imported
goods and the goods manufactured and produced
outside the State; whether the grant of rebate, directly or H
946
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[2013] 11 S.C.R.
A indirectly restrict the free flow of trade, commerce and
intercourse among States by assuming the effects of an
exemption/ concession which is nothing but a concept
within the scope of taxation; and whether the first
condition of the notification be severed, if it is found to
B be violative of article 304(a) of the Constitution without
striking down the whole of the notification.
Disposing of the appeals, the Court
HELD:1.1. Article 304(a) of the Constitution is an
C exception to article 301 of the Constitution. Article 304(a)
does not prevent levy of tax on goods; what is prohibited
is such levy of tax on goods as would result in
discrimination between goods imported from other
States and similar goods manufactured or produced
D within the State. The object is to prevent imported goods
being discriminated against, by imposing a higher tax
thereon than on local goods. What Article 304(a) demands
is that the rate of taxation on local as well as imported
goods must be the same. This is designed to discourage
E States from creating State barriers or fiscal barriers at the..
boundaries. Article 304(a) of the Constitution empowers
the State to levy tax, with an intent that Part XIII of the
Constitution does not affect the power of taxation given
under Part XII of the Constitution. It is to preserve and
F protect the broad object of Article 301 of the Constitution.
Article 304(a) only limits the power of the State legislature
from imposing such taxes that would discriminate
between imported goods and domestic goods and
restrict free movement of goods between States. [Para 27]
G [975-B-F]
Atiabari Tea Co. Ltd. vs. The State of Assam and Ors AIR
(1961) SC 232: 1961 SCR 809 - relied on.
1.2. Article 304(a} of the Constitution admits two
H exception in favour of the State legislature to the rule that
STATE OF U.P. AND ORS. v. JAIPRAKASH
947
ASSOCIATES LTD.
trade, commerce, and intercourse throughout the territory
A
of India shall be free. Clause(b) to article 304(a) is an
exception which enables a State legislature to impose
such "reasonable restrictions" on the freedom of trade,
commerce and intercourse as may be required in the
"publ1': interest". But no bill or amendment for the
8
purpose of clause(b) shall be introduced or moved in the
legislature of a State without the previous sanction of the
President. [Para 29] [976-F-H]
· .1.3. The Principle of 'non- Discriminatory tax' as
provided in Article 304(a) of the Constitution of India is a C
sine-qua-non to free movement of goods between
nations/States in several jurisdictions and also in
international trade and policy. Discrimination as explained
under World Trade Organization ("WTO") jurisprudence
is spoken of in terms of effect and intention behind such
D
discrimination. Intent is referred to as 'aim' or 'motive' or
'purpose' of such discrimination and the other factor
. commonly associated with discrimination is 'effect' that
is whether a measure has a discriminatory effect (also
known as the disparate impact) against imports. WTO
E
members are free to choose any system of taxation they
deem appropriate, provided that they do not impose on
foreign products taxes in excess of those imposed on
like products. The effect of tax should not be such that
two like goods are given discriminatory treatment. [Para
F
30] [977 -A-D]
1.4. At the same time, it cannot be doubted that rising
of protective walls may be justified in international trade.
The Government can and has been providing such .
protectionist measures to encourage the growth and
G
establishment of industries in the country and to protect
them from competition from foreign manufacturers. But
unlike the international trade policies and the commerce
clause in United States Constitution, the Constitution of
India provides_Jor regulating inter-State trade and
H
948
SUPREME COURT REPORTS
[2013) 11 S.C.R.
A commerce. The Parliament can take all protective
measures under Article 302 of the Constitution of India as
may be required in public interest. But there are certain
obvious differences between the powers conferred to the
Parliament under Article 302 and State legislature under
8 Article 304(a) of the Constitution. The powers given to the
State legislature are not unrestricted and are bound to
function within limitations stipulated under Article 304(a)
of the Constitution of India. The powers even under Article
304(b) are to be exercised sparingly and after fulfilling all
C the conditions of Article 304 of the Constitution of India.
The power conferred under Article 304(a) although an
exception to Article 301 of the Constitution, but is not a
blanket power intended to be conferred to the State
legislature. [Para 31) [977-E-H; 978-A]
D
1.5. Article 304(a) ensures only equal rate of tax for
E
incoming goods. So if such goods are taxed at a higher
rate or where they are taxed at any rate when indigenous
goods enjoy concessional rate of tax, Article 304(a) is
attracted. [Para 33) [979-C]
1.6. Article 304(a) is a provision that deals with
taxation. It places goods imported from sister States on
a par with similar goods manufactured or produced
within the State in regard to State taxation in the allocated
F field. The object of Article 304(a) was to limit the power
of taxation by States so as to prevent discrimination
against imported goods by imposing taxes on such
goods at a higher rate than is borne by indigenous
goods. The tax referred to in Article 304(a) is a 'tax on
goods'. The word "tax" and "taxation" is all sorts of
G exaction which swell the public funds. Taxation in its
broadest and most general sense, includes every charge
. or burden imposed by the sovereign power upon
persons, property or property right, for the use and
support of the Government and to enable it to discharge
H
STATE OF U.P. AND ORS. v. JAIPRAKASH
949
ASSOCIATES LTD.
its appropriate functions, and in that broad definition A
there is included a proportionate levy upon persons or
property and various other methods or devices by which
revenue is extracted from 'persons and property. The
term 'tax' is to be read in all-embracing and sweeping
sense. Such methods or device used by the Government
B
from time to time are not ordinarily open to serious
questions but their scope and application vary according
to the nature of the subject under discussion and the
circumstances under which they are used. [Para 38] (981 •
D-H; 982-A]
C
State v. Chicago & N. W R. Co., 128 Wis 449, 108 N.
W. - referred to
2.1. The legislature has the power to exempt from
taxation according to its views of public policy provided D
no constitutional provisions are violated. The United
States Constitution under the Equality and Uniformity
clause mandates that where the Constitution requires
taxation to be equal and uniform, it is held in most States
that the legislature must tax all such persons or property
E
and cannot grant any exemptions unless the power to
exempt is expressly conferred by the Constitution. In
some states, however, the contrary is held but even in
such states it is held that exemptions are not valid unless
including all property and persons of the same class
F
whether such person as subject to such exemption is
inside the State or situated outside the State. [Para 39]
(983-A-C]
Jefferson Branch Bank v. Skelly; 66 U.S. 436 - referred
to.
Congressional Budget and Fiscal Operations, 2
U.S.C.A.§ 622 - referred to.
G
2.2. Exemption has two-fold impact. First, H
950
SUPREME COURT REPORTS
[2013] 11 S.C.R.
A
exemptions/ concessional rate of tax affect consumer
choice by impacting relative pricing and, thus, materially
altering the economic balance. It is because
consumption will tend to shift towards untaxed items, the
prices of those items and the items used to produce them
B
will increase while the prices of taxed items will decrease
relatively. Second, such exemptions unfairly burden
some businesses either within the same industry or in
other competing industries. [Para 40] (983-D-E]
2.3. Rebate is another such device used by the
C
Government which when given on the rate of tax to the
full amount of tax levied, it gives favourable treatment to
one class of dealers situated within the state barring the
dealers similarly placed outside the State manufacturing
goods using the same raw material. The grant of such
D
rebate has the colour of exemption/ concessional rate of
tax along with the same deleterious effects of an
exemption. [Para 41] (983-F-G]
2.4. Rebate means abatement, discount, credit,
E
refund, or any other kind of repayment. Rebates have
been normally used as justifiable incentives given by the
Government to stimulate small industries or newly
established industries. But to understand Rebate of tax
as rebate per se would be a misnomer. Rebate of tax is
F
the rebate on rate of tax and is essentially the arithmetic
of rate. The term 'rate' is often used in the sense of
standard or measure. It is the tax imposed at a certain
measure or standard on the total turnover of the goods.
Rate, in other words is the relation between the taxable
G turnover and the tax charged. Rebate of tax or exemption
is distinguished from non-imposition or non-liability.
[Para 46] (986-0-G]
Estate of Bernard H. Stauffer, Bonnie H. Stauffer,
Executrix, v. Commissioner of Internal Revenue, 48 U.S. T.C.
H 277 - referred to.
STATE OF U.P. AND ORS. v. JAIPRAKASH
951
ASSOCIATES LTD.
2.5. In rebate of tax, the sales or purchases would
A
have to be included in the gross turnover of the dealer
because they are prima facie liable to tax and the only
thing which 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. On the
B
other hand, in the case of non-imposition or non-liablity,
the sales or purchases are exempted from taxation
altogether. The Legislature cannot enact a law imposing
or authorizing the imposition of a tax thereupon as they
are not liable to any such imposition of tax. If they are c
thus not liable to tax, no tax can be levied or imposed on
them and they do not come within the purview of the Act
at all. The very fact of their non-liability to tax is sufficient
to exclude them from the calculation of the gross
turnover as well as the net turnover on which sales tax
D
can be levied or imposed. [Para 46] [986-G-H; 987-A-C]
A. V. Fernandez v. The State of Kera/a; AIR 1957 SC 657
- referred to.
Firm A. T. B Mehta Masjid & Co v. State of Madras and
E
Anr. AIR 1963 SC 928; WB. Hosiery Association and others
v. State of Bihar (1988) 4 SCC 134; H. Anraj v Government
of Tamil Nadu (1986) 1 SCC 414; Western Electronics and
Another v. State of Gujarat and others 1988 2 SCC 568;
Loham Steel Industries v. State of Andhra Pradesh (1997) 2
F
sec 37; State of U.P. and another v. Laxmi Paper Mart and
others AIR 1997 SC 950; Lakshman v. State of Madhya
Pradesh 1983 SCR 3124 - relied on.
2.6. The concept of rebate of tax in the instant case
is akin to concessional/ reduced rate of tax. Rebate is
G
though ex-hypothesi in the nature of subsidy and other
incentives given by the Government but conceptually
rebate of tax and incentives are different and it needs to
be explained in reference to the purpose and nature of
such rebate of tax introduced by the legislature. The
H
952
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[2013] 11 S.C.R.
A legislation in respect of a rebate has taken different
forms; one of them is a partial rebate in the tax, where the
deduction is given partially on the gross amount and the
other is the power reserved for the Government to permit
rebate in respect of any goods to the full amount of the
B tax levied at any point in the series of sales of such
goods. A dealer who is entitled to a rebate under any
notification will collect the tax from the consumers at the
point of purchase and then have to pay the full amount
of sales tax due on his turnover in that quarter; and claim
c rebate in terms of the notification in accordance with the
provision in the rules. However, the claim for rebate need
not necessarily be handed back to the payer after he has
paid the stipulated sum, it can also be paid in advance
of payment. It is nothing but a remission or a payment
0 back or it is sometimes spoken of as a discount or a
drawback. It cannot be disputed that it is the discretion
of the State Government, through its legislature, to grant
rebate to the full amount of sales tax, unless its power of
taxation is limited by Constitutional provisions. [Para 36)
E [979-B-G]
2. 7. In the facts of the present case, the legislature
authorizes the State Government under Section 5 of the
Act to issue notification in the public interest to grant
rebate up to the full amount of the tax levied on any
F specific point in the series of sales/ purchase of such
goods. Such rebate is only extended to the districts in
State of Uttar Pradesh. The Government of Uttar Pradesh
has the power to refund or discount to the full amount
of rate of sales tax levied on a dealer, provided the power
G to discount does not overall has effects of a weapon of
taxation that would discriminate between the goods
imported and manufactured in Uttar Pradesh as laid
down in Article 304(a) of the Constitution. [Para 36) [979G-H; 980-A-B]
H
Shree Mahavir Oils and Anr. vs. State of Jammu and
STATE OF U.P. AND ORS. v. JAIPRAKASH
953
ASSOCIATES LTD.
Kashmir (1996) 11 SCC 39: 1996 (9) Suppl. SCR 356; A
Video Electronics Ltd. v. State of Punjab 1990 (3) SCC
87:1989 SCR Supp.(2) 731 - relied on.
2.8. 'Rebate of tax' in the instant case is such a device
or weapon of taxation used by the Government from time
to time which is though not in question in all situations 8
but their validity is tested in the touchstone of Article
304(a) of the Constitution in the circumstance under
which they are used. If the rebate of tax by way of
repayment to the full amount of tax levied qualifies within . C
the same meaning as that of exemption, then such
discount would a fortori mean discrimination on the rate
of tax by repaying by way of a rebate to one class of local
dealers the whole amount of sales tax paid and on the
other hand the outside dealers are taxed higher in
absence of the benefit of rebate. This situation squarely D
falls within the meaning of 'discrimination' as
contemplated under Article 304(a) of the Constitution of
India. [Para 38) (982-A-C]
2.9. The exemption or rebate of tax is therefore within
the purview of taxation. In the instant case, if the grant E
of rebate of tax by the State Government under Section
5 of the Act is to the full amount of tax levied, then for the
dealers manufacturing cement using fly-ash outside the
State of Uttar Pradesh but selling it in Uttar Pradesh,
though the State Government contends that the rate of F
tax is same for the dealers inside Uttar Pradesh and
outside Uttar Pradesh, but the overall effect is that there
is no tax levied on the net turnover after deductions being
made from the gross turnover but, on the other hand, the
dealers manufacturing or producing cement using flyG
ash outside Uttar Pradesh are taxed at the rate of 12.5%.
Therefore, it can be said that the rebate of tax is in the
nature of exemption and the blanket exemption without
reasons are discriminatory and violating article 304(a) of
the Constitution of India. [Para 47) (987-D-F]
H
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A
2.10. Therefore, the test to be applied to determine
whether rebate is within the realm of tax defined in Article
304(a) of the Constitution of India so as to say that it
discriminates between the two class of goods: locally
manufactured goods and the imported goods when both
B the class of dealers meet the conditions required to
qualify for the grant of rebate i.e. the use of fly-ash, is the
overall effect or impact of such rebate on the
manufacturer. [Para 42] [983-H; 984-A]
3.1. Doctrine of severability provides that if an
'C
enactment cannot be saved by construing it consistent
with its constitutionality, it may be seen whether it can be
partly saved. "When a statute is in part void, it will be
enforced as against the rest, if that is severable from what
is invalid". Seven propositions of severability, out of
D which, one of them provided that if the valid and the
invalid portions are distinct and separate that after
striking out what is in-valid, what retn~ins is in itself a
complete code independent of the rest,'t~en it will be
upheld notwithstanding that the rest hils become
E
unenforceable. What the Court has to see is, whether the
omission of the impugned portions of the Act will
"change the nature or the structure or the object of the
legislation". In the facts of the present case, striking down
Clause (1) of the notification alone does not change the
F
object of the legislation. It is a notification passed in
public interest and therefore even if Clause (1) of the
notification is expunged, leaving behind the rest of the
notification intact, the purpose of the Government to
grant rebate to provide incentive to the manufacturing
G units using fly-ash is not lost. [Para 48] [987-H; 988-A-E]
H
D.S. Nakara vs. Union of India 1983 2 SCR 165; RMD
Chamarbaugwala vs. Union Of India AIR 1957 SC 628: 1957
SCR 930; A. K. Gopalan vs. State of Madras AIR 1950 SC
27: 1950 SCR 88 - relied on
STATE OF U.P. AND ORS. v. JAIPRAKASH
955
ASSOCIATES LTD.
3.2. Thus the condition No. 1 is discriminatory and
A
violates article 304(a) of the Constitution of India and
therefore needs to be severed from the rest of the
notification which can operate independently without
altering the purpose and the object of the notification.
[Para 50] [989-C]
B
3.3. It is not correct to say that since the assessing
authorities would not be in a position to verify the claim
for grant of rebate of tax by manufacturers of cement
using fly-ash outside the State of Uttar Pradesh, the
C
benefit under the notification cannot be extended to
them. The explanation appended to the notification
authorises the assessing authorities to verify the claim
thatmay be made by the manufacturers including the fact
whether an assessee(s) satisfy the conditions prescribed
in the notification. If they do not fall within the parameters
D
of the notification the assessing authority can always
reject the claim of the manufacturers. The machinery
provisions cannot be used to test the constitutional
validity of a statute because the liability is always created
through substantive provisions. Issue of territoriality
E
should not be a factor to determine the constitutional
validity of the notification. [Paras 51 and 52] [989-D-F;
990-A-B]
G.B. Prabharkar Rao v. State of Andhra Pradesh, 1985
F
Supp. sec 432 - relied on.
3.4. Therefore, 'rebate of tax' granted by the State
Government to cement manufacturing units using fly-ash
as raw material in a unit established in the districts of
State of Uttar Pradesh alone, is violative of the provisions
G
contained in articles 301 and 304(a) of the Constitution
of India. It is further declared that the notification would
also apply to respondent(s)- cement manufacturing units.
[Para 53] [990-C]
H
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(2013] 11 S.C.R.
A
Case Law Reference:
1961 SCR 809
relied on
Para 27
1996 (9) Suppl. SCR 356
relied on
Para 37
B
1989 SCR Supp.(2) 731
relied on
Para 37
128 Wis 449
referred to
Para 38
66 U.S. 436
referred to
Para 39
1963 Suppl; SCR 435
relied on
Para 42
c
1988 (2) Suppl. SCR 378
relied on
Para 43
1985 (3) Suppl. SCR 342
relied on
Para 43
1988 (3) SCR 768
relied on
Para 44
D
1996 (10) Suppl. SCR 898
relied on
Para 44
1997 (1) SCR 914
relied on
Para 45
1983 SCR 3124
relied on
Para 45
E
48 U.S. T.C. 277
referred to
Para 46
AIR 1957 SC 657
referred to
Para 46
1957 SCR 837
relied on
Para 46
F
1957 SCR 930
relied on
Para 48
1950 SCR 88
relied on
Para 48
1983 2 SCR 165
relied on
Para 49
1985 Suppl. SCR 573
relied on
Para 52
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3026 of 2004.
From the Judgment & Order dated 29.01.2004 of the High
Court of Judicature at Allahabad in Civil Misc. Writ Petition No.
H 957 of 1999.
STATE OF U.P. AND ORS. v. JAIPRAKASH
ASSOCIATES LTD.
WITH
957
C.A. Nos. 3025, 5567, 7190 of 2004, 333 of 2006, 9187 of
2013 & 9185-9186 of 2013.
A
Sunil Gupta, Ashok Desai, R.S. Suri, S.S. Upadhyay,
Dhruv Agarwal, Vivek Vishnoi, Ravi P. Mehrotra, Abhniav
8
Kumar Malik, Vinay Garg, Pawan Upadhyay, Sharmila
Upadhyay, Pawan Kishore Singh, Praveen Kumar, Sunaina
Kumar, Swetank Sailakwal, Vanita Bhargava, Nitin Mishra,
Gauri Rishi (for .Khaitan & Co.), Amar Dave, Nikhil Goel for the
appearing parties.
C
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. Leave granted.
2. The substantial question of law that requires to be
D
considered and decided in these appeals is, whether grant of
rebate of tax by the State Government by issuing a notification
in exercise of its powers under Section 5 of Uttar Pradesh
Trade Tax Act, 1948 ("the Acf', for short) discriminates between
the goods imported from neighbouring States and goods
E
manufactured and produced in the State of Uttar Pradesh and
therefore contravenes the Constitutional Provisions viz.; articles
301 and 304(a) of the Constitution of India.
3. The lead case is Civil Appeal No. 3026 of 2004. The
F
appellants are public limited companies, manufacturing cement
in their manufacturing units in Rewa district situate in the State
of Madhya Pradesh after procuring fly-ash from the thermal
power stations in the State of Uttar Pradesh and thereafter
selling the manufactured product viz. Cement in the districts of G
State of Uttar Pradesh.
4. The fly-ash is produced from coal combustion and
normally dispersed into the atmosphere which contains toxic
chemicals that can cause environmental pollution and hazards.
H
958
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[2013] 11 S.C.R.
A
Therefore for utilization of fly-ash and to control pollution, cement
projects were set up to make use of the fly-ash generated from
the power plants.
5. To encourage manufacturers using fly-ash in
8
manufacturing of their products, the Government of Uttar
Pradesh in exercise of its powers under Section 5 of the Act,
had issued notification dated 18.06.1997, granting"rebate of
tax" to the dealers in the State of Uttar Pradesh excluding all
other dealers manufacturing cement outside the State of Uttar
C Pradesh using fly-ash purchased in the State of Uttar Pradesh.
Annexure appended to the notification provided for name of the
districts and the period for which the rebate will be allowed. The
notification prior to its rescinding only specified the percentage
of rebate of tax to be granted depending on the content of flyD ash used by the dealers in the manufacturing of cement.
6. On a finding by the Government of Uttar Pradesh on a
later date that the notification is vaguely worded, has rescinded
the earlier notification dated 18.06.1997, and has issued fresh
notification dated 27.02.1998, in exercise of its powers under
E Section 5 of the Act. Apart from others the notification provides
certain conditions which requires to be fulfilled if the
manufacturing units intend to take benefit of the notification. The
condition No. 1 of the notification specifies that to avail the
benefit of rebate, the goods should be manufactured in a unit
F established in the State of Uttar Pradesh and secondly, such
goods shall be manufactured using fly-ash purchased from the
thermal power stations situated in the State of Uttar Pradesh.
The notification specifically enlists the areas in Uttar Pradesh
districts alone for the purpose of the grant of rebate of tax by
G · the Government and therefore restricted the benefit of rebate
only to the units manufacturing and producing cement using flyash in Uttar Pradesh. The notifications require to be extracted.
They are as follows:
H
STATE OF U.P. AND ORS. v. JAIPRAKASH
ASSOCIATES LTD. [H.L. DATTU, J.]
"[S. No. 1263]
959
Notification No. T.T.-2-1885/Xl-9(226)94-U.P, Act-15-480rder-97, dated 18-6-1997
[Published in U.P. Gazette, dated 18.06.1997]
In exercise of the powerunder section 5 of the Uttar
Pradesh Trade Tax Act, 1948 (U.P. Act No. XV of 1948)
the Governor is pleased:-
A
B
(a)
to declare the goods having fly-ash contents of 10 c
per cent of more by weight to be notified goods for
the purposes of this section;
(b)
to grant a rebate of tax of twenty five percent on
goods having fly-ash contents between ten to thirty
per cent by weight and a rebate of tax of fifty per
D
cent on the goods having fly-ash contents
exceeding thirty percent by weight on the tax levied
under the Act in the district mentioned in column-2
Annexure given below for the period mentioned in
column-3 of the said Annexure:-
E
ANNEXURE
Serial
Name of District
Number
1
2
1.
Banda, Hamipur, Jalaun,
Mahoba, Jhansi, Lalitpur and
Shahuji Nagar
2.
Almora, Chamoli, Dehradun,
Fatehpur, Jaunpur, Kanpur
Period for
which the
F
rebate of tax
will be allowed
3
Twelve Years
G
Twelve Years
H
A
B
c
,D
E
F
G
H
960
SUPREME COURT REPORTS
[2013] 11 S.C.R.
3.
(Dehat), Nanital, Fauri Garhwal,
Pithoragarh, Sultanpur,
Champawat, Tehri Garhwal,
Udham Singh Nagar, Uttar
Kashi and Growth Centre.
(i) The Districts of Azamgarh,
Ten Years
Ambedkar-Nagar, Bahraich,
Ballia, Barabanki, Deoria,
Etah, Etawah, Faizabad,
Farrukhabad, Ghazipur,
Gonda, Hardoi, Mainpuri, ·
Mathura, Mau, Moradabad,
Padrauna, Pillibhit, Pratapgarh,
Raibareili, Rampur,
Shahjahanpur, Sidharth Nagar,
Sitapur, Unnao, Kaushambi,
Jyotibaphule Nagar, Mahamaya
Nagar and Shravasti
(ii) The area of Allahabad District Ten Years
in South of the river Jamuna
·
and confluent Ganga (Excluding
the area included under Municipal
Corporation Allahabad)
(iii) The Taj Trapezium Area
(IV) Greater Noida Industrial
Development area
The Districts of Agra (excluding
Taj Trapezium area), Aligarh
(excluding Tax Trapezium Area),
Allahabad (excluding the area in
south of rivers Jamuna and
confluent Ganga but including the
area included under Municipal
Ten Years
Ten Years
STATE OF U.P. AND ORS. v. JAIPRAKASH
ASSOCIATES LTD. [H.L. DATTU, J.]
Corporation Allahabad), Bareilly,
Bhadohl, Bijnor, Firozabad
(excluding Taj Trapezium area),
Ghaziabad (excluding Greater
NOIDA Industrial Development
Area), Gorakhpur, Haridwar,
Kanpur (Nagar), Lakhimpur
Kheri, Lucknow, Maharajganj,
Meerut, Muzaffarnagar, Saharanpur,
Varanasi, Gautam Budh Nagar,
Chandauli, Mirzapur and Sonbhadra.
961
7. The second notification, dated 27.02.1998 issued by the
Government of Uttar Pradesh is extracted and reads as under:-
"[S. No. 1289]
Notification No. T.T.-2-592/Xl-9(226)94-U.P. Act-15-48
Order-98, dated 27-2-1998
A
B
c
D
Whereas, the State Government is satisfied that it
is expedient in the public interest so to do:
E
Now, therefore, in exercise of the powers under
section 5 of.the Uttar Pradesh Trade Tax Act, 1948 (U.P.
Act No. XV of 1948), read with Section 21 of the Uttar
Pradesh General Clauses Act, 1904 (U.P. Act No. 1 of
F
1904), the Governor, with effect from March 1, 1998 is
pleased:-
/
(a)
to rescind the Notification No. T.T.-2-1885/Xl9(226)94-U.P. Act-15-48 Order-97, dated June 18,
G
1997;
(b)
to grant a .rebate of tax of twenty five percent on
goods having fly-ash contents between ten to thirty
per cent by weight and a rebate of tax of fifty per
H
A
B
· 962
SUPREME COURT REPORTS
[2013) 11 S.C.R.
cent on the goods having fly-ash contents
exceeding thirty percent by weight on the tax levied
under the Act in the districts mentioned in column2 Annexure given below for the period mentioned
in column-3 of the said Annexure subject to the
following condition:-
CONDITIONS
(i)
Such goods shall be manufactured in a unit
established in the area mentioned in column-2 of
C
the Annexure:
D
E
F
G
H
(ii)
Such goods shall be manufactured using fly-ash,
purchase or received from the thermal power
stations situated in Uttar Pradesh;
(iii)
the dealer claiming rebate of tax under this
notification shall keep records in which following
information will be shown:
(a)
date;
(b) ·name of thermal power stations from which
fly-ash is purchased or received;
·
(c)
weight of fly-ash;
(d)
name of manufactured goods;
(e)
weight of manufactured goods
(f)
weight of fly-ash used in manufacturing of
such goods
(g)
weight of other goods used in manufacture
of such goods;
(iv)
the total weight of manufactured goods and
percentage of fly-ash used, should be mentioned
STATE OF U.P. AND ORS. v. JAIPRAKASH
963
ASSOCIATES LTD. [H.L. DATTU, J.]
on goods of packing of such goods as far as A
possible.
ANNEXURE (Supra)
Explanation:- The verification of percentage of fly-ash
8
used by fly-ash based industries shall be made on
the basis of Government orders issued in this
behalf from time to time."
8. To complete the narration, it is apropos to state that the
aforesaid notification is rescinded· by the State Government with C
effect from 14. ~ 0.2004 by issuing notification dated
14.10.2004.
'
9. The cement industries situated in the neighbouring
States aggrieved by the notification of the Government of Uttar · D
Pradesh, dated 27 .02.1998 had approached the High Court by
filing Writ Petitions. In that they had sought for quashing of the
notification, dated 27 .02.1998 insofar as Condition No. 1 (as
extracted above) of the notification and other consequential
reliefs.
E
10. The High Court has come to a finding on two broad
issues; firstly, whether Condition No. 1 of the notification i.e. the
grant of rebate of tax on the sale of cement in the Districts of
Uttar Prade~h alone contravenes articles 301 and 304(a) of the
Constitution of India. On the aforesaid issue, the Court has
F
concluded that the grant of rebate of tax by the State
Government discriminated between the imported goods and
the goods manufactured in Uttar Pradesh restricting. the free
movement of goods from one State to the other and therefore
impinges articles 301 and 304(a) of the Constitution of India.
G
11. The Second question that is considered and decided
by the High Court, is, whether doctrine of severability will apply
and therefore if Condition No. 1 in the notification violates
articles 301 and 304(a) of the Constitution of India; should the
H
964
SUPREME COURT REPORTS
[2013] 11 S.C.R.
A
notification be struck down in its entirety or merely the impinging
condition in the notification. The High Court has relied on the
decision of this Court in Loham Steel Industries v. State of
Andhra Pradesh, (1997) 2 SCC 37, and has come to the
conclusion that if certain conditions in the notification violate
B
freedom of trlilde and commerce, then that portion of the
notification restricting rebate of tax to the districts in State of
Uttar Pradesh alone is severable. Therefore, the High Court.for
the reasons stated above has declared the Condition No.1 of
the notification as illegal, arbitrary and discriminatory,
c accordingly has quashed the Condition No.1 of the notification
and also granted consequential relief in the form of rebate to
the respondents-herein and further has directed that deposits
mad~ by the respondents in excess of what was payable was
D
to be refunded with an interest of 10% per annum.
12. Being aggrieved, the Revenue calls in question the
correctness or otherwise of the common judgment and order
passed by the High Court in a batch of Writ Petitions dated
29.01.2004.
E
13. Shri Sunil Gupta, learned senior counsel appearing for
the appellants contended that the notification issued by the
Government provides for grant of rebate to an industry which
manufactures cement by using fly-ash as a raw material. The
rebate is granted by the Government to encourage industries
F
in removing and re-using fly-ash. Since the notification only
provides for rebate, it would not fall within the meaning ascribed
to 'any tax' under article 304(a) of the Constitution and would
therefore does not contravene the Constitutional Provisions. In
aid of his submission, the counsel would heavily rely on the
G decision of this Court in the case of Video Electronics Pvt. Ltd.
v. State of Punjab, (1990) 3 sec 87. The learned counsel
would further argue that rebate and imposition/ exemption are
two differentconcepts. Exemption is an antithesis of 'imposition'
and it belongs to the realm of imposition of tax and therefore
H exemption simpliciter without reason is barred by article 304(a)
STATE OF U.P. AND ORS. v. JAIPRAKASH
965
ASSOCIATES LTD. [H.L. DATTU, J.]
of the Constitution of India. Rebate, on the other hand, is
A
repayment or refund of an amount and therefore it may not be
a subsidy but it is in the form of an incentive or a grant. He
further would point out that imposition of tax is di.fferent from
collection or repayment of tax. In other words, he would submit
that there are two different stages:- one would be the imposition
B
and levy of taxes and the other is collection and repayment of
taxes. Rebate of tax as such is a repayment of taxes and is
certainly not a part of levy or imposition of taxes. He would
further submit that for rebate of tax as against non-imposition
or exemption at point of tax being common, Part XIII of the
C
Constitution will not apply.
14. In the second limb oftheargument, the learned counsel
would submit that there are two crutches in the notification, if
one of them is taken away the other. cannot function
D
independently. Therefore, he would submit that because the
respondents have not challenged Clause(2) and have only
challenged Clause(1) of the notification, then while granting
relief if one of the condition is declared invalid then both the
clauses of the notification are to be struck down.
E
15. Thirdly, the learned counsel would contend that the
State of Uttar Pradesh has no territorial jurisdiction over the
industrial units situate outside the State of Uttar Pradesh and
therefore, the notification also inherently does not and cannot
give the Uttar Pradesh Authorities any extra territorial
F
jurisdiction. Therefore, it is nigh impossible for the accessing
authorities to effectively enforce machinery and procedural
provisions. This aspect of the matter is not taken note of is the
submission of the learned counsel. Finally concludes, that,
rebate is outside the scope of Part XIII and article 304(a) of G
the Constitution of India, and Section 5 of the Act is a beneficial
legislation passed in public interest by the State Government
and therefore a liberal approach requires to be adopted by this
Court.
H
966
SUPREME COURT REPORTS
[2013] 11 S.C.R
A
16.