# V. GURUVIAH NAIDU AND SONS ETC. • v. STATE OF TAMIL NADU AND ANR. ETC

- **Citation:** [1977] 1 S.C.R. 1065
- **Court:** Supreme Court of India
- **Decided:** 1976-11-02
- **Case number:** Civil Appeal Nos. 1577 ·~nd 1579 of 1971
- **Bench:** H. R. Khanna, V. R. Krishna Iyer
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/v-guruviah-naidu-and-sons-etc-v-state-of-tamil-nadu-and-anr-etc-6891
- **Pages:** 7

## Headnote

Madras General Sales Tax Act, 1959, Schedule ll, items 7(a) and (b)-lf
ultra vires.
'!taw as well as dressed hides and skins are declared goods under Central
Sales Tax Act, 1956.
Section 4 of the Madras General Sales Tax Act,
1959,
provides that the tax shall be payable by a dealer, on the sale or purchase of
declare! goods inside the State, at the rate and only at the point specified in the
Second Schedule to the Act, on the turnover in such goods.
Item 7 (a) of the
Schedule provides that with respect to raw hides and skins, the rate of tax shall
be at 3 % and the point of levy shall be at the point of last purchase in the
State.
Item 7 (b) provides that with respect to dressed hides and skins (which
were not subjected to tax under the Act as raw hides and skins), the rate of tax
shall be B % and the point of lev)I shall be at the point of first sale in the State.
The appellants are dealers in hides and skins.
They purchase raw hides and
skins locally as well as in the course of inter-state trade and commerce, convert
them into dressed hides and skins and sell them either locally or in the course
of export.
Th~ appellants challenged the validity of items 7(a) and 7(b). The
challenge to item 7 (a) Wl!_S that the item would also cover inter-state sales and
as such was beyond the competence of the State Legislature; and the challenge
to item 7(b) was that it was violative of Art. 304 (a) of the Constitution on
the ground that whereas dressed hides and skins sold locally, but which
have
been made out of imported raw hides and skins, are subject to tax under the
item similar sale of dressed hides and skins made out of raw hides and skins
which have been subjected to tax at the purchase stage are not subject to tax
under the item .
HELD : (1) Item 7(a) relates only to intra state sales and not to inter-state
sales.
This is clear from the language used in the item, especially the words
"purchase in the State"'.
Assuming the language is ambiguous it should be so
construed as would sustain its constitutional validity. [1067 Fl
(2) Article 304(a) does not prevent levy of tax on goods : what it prohibits
is such levy of tax on goods as would result in discrimination between goods
imported from other states and similar goods manufactured or produced within
the State.
The object is to prevent discrimination against imported goods by
imposing tax on such goods at a rate higher than that borne by local
goods
since the difference between !ibe two rates would constitute a fiscal barrier and
thus impede the free llow of inter-state trade and commerce. The scheme of
items 7(a) and (b)eis that in the case of raw hides and skins which are purchased locally in the State, the levy of tax would be at the rate of 3 % . When
such locally purchased raw hides and skins are tanned and sold locally as
dressed hides and skins no levy would be made on such sales, as those hides and
skins have already been subjected to tax at 3% when purchased in
the raw
form.
On the other hand, in the case of hides and skins imported from other
States in the raw form, thereafter tanned, and then sold inside the
State as
dressed hides and skins, the levy of tax is at 1 t%. This levy however, cannot
be considered discriminatory because the Legislature, while prescribing the rate
in item 7(b) at half that levied und~r item 7(a) took into account the higher
price o! dressed hides and skins (nearly double) as compared to the price of
raw hides and skins, and the fact that no tax under the State Act has been paid
in respect of imported raw hides and skins. Even though dressed hides
and
skins are treated as ~ .. separate commodity there is a clear nexus between hides
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[ 1977] 1 S.C.R.
and skins in the raw form and those in the dressed form; and hence, there is no
infirmity i.n the legislative provision, which, while levying tax on the · sale
of
dressed hides and skins takes into account the levy in respect of r<Av hides and

## Text

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1065
V. GURUVIAH NAIDU AND SONS ETC.
•
v.
STATE OF TAMIL NADU AND ANR. ETC.
November 2, 1976
[H. R. KHANNA AND V. R. KRISHNA IYER, JJ.]
Madras General Sales Tax Act, 1959, Schedule ll, items 7(a) and (b)-lf
ultra vires.
'!taw as well as dressed hides and skins are declared goods under Central
Sales Tax Act, 1956.
Section 4 of the Madras General Sales Tax Act,
1959,
provides that the tax shall be payable by a dealer, on the sale or purchase of
declare! goods inside the State, at the rate and only at the point specified in the
Second Schedule to the Act, on the turnover in such goods.
Item 7 (a) of the
Schedule provides that with respect to raw hides and skins, the rate of tax shall
be at 3 % and the point of levy shall be at the point of last purchase in the
State.
Item 7 (b) provides that with respect to dressed hides and skins (which
were not subjected to tax under the Act as raw hides and skins), the rate of tax
shall be B % and the point of lev)I shall be at the point of first sale in the State.
The appellants are dealers in hides and skins.
They purchase raw hides and
skins locally as well as in the course of inter-state trade and commerce, convert
them into dressed hides and skins and sell them either locally or in the course
of export.
Th~ appellants challenged the validity of items 7(a) and 7(b). The
challenge to item 7 (a) Wl!_S that the item would also cover inter-state sales and
as such was beyond the competence of the State Legislature; and the challenge
to item 7(b) was that it was violative of Art. 304 (a) of the Constitution on
the ground that whereas dressed hides and skins sold locally, but which
have
been made out of imported raw hides and skins, are subject to tax under the
item similar sale of dressed hides and skins made out of raw hides and skins
which have been subjected to tax at the purchase stage are not subject to tax
under the item .
HELD : (1) Item 7(a) relates only to intra state sales and not to inter-state
sales.
This is clear from the language used in the item, especially the words
"purchase in the State"'.
Assuming the language is ambiguous it should be so
construed as would sustain its constitutional validity. [1067 Fl
(2) Article 304(a) does not prevent levy of tax on goods : what it prohibits
is such levy of tax on goods as would result in discrimination between goods
imported from other states and similar goods manufactured or produced within
the State.
The object is to prevent discrimination against imported goods by
imposing tax on such goods at a rate higher than that borne by local
goods
since the difference between !ibe two rates would constitute a fiscal barrier and
thus impede the free llow of inter-state trade and commerce. The scheme of
items 7(a) and (b)eis that in the case of raw hides and skins which are purchased locally in the State, the levy of tax would be at the rate of 3 % . When
such locally purchased raw hides and skins are tanned and sold locally as
dressed hides and skins no levy would be made on such sales, as those hides and
skins have already been subjected to tax at 3% when purchased in
the raw
form.
On the other hand, in the case of hides and skins imported from other
States in the raw form, thereafter tanned, and then sold inside the
State as
dressed hides and skins, the levy of tax is at 1 t%. This levy however, cannot
be considered discriminatory because the Legislature, while prescribing the rate
in item 7(b) at half that levied und~r item 7(a) took into account the higher
price o! dressed hides and skins (nearly double) as compared to the price of
raw hides and skins, and the fact that no tax under the State Act has been paid
in respect of imported raw hides and skins. Even though dressed hides
and
skins are treated as ~ .. separate commodity there is a clear nexus between hides
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[ 1977] 1 S.C.R.
and skins in the raw form and those in the dressed form; and hence, there is no
infirmity i.n the legislative provision, which, while levying tax on the · sale
of
dressed hides and skins takes into account the levy in respect of r<Av hides and
skins. [1070 D_HJ
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The onus of showing that there would be discrimination between raw hides
and skins purchased locally and then tanned, and raw hides and skins imported
and then tannoo is on the appellant, and the appellant has not discharged the
onus. [1070 CJ
Firm A. T. /J. Meluab Maiid & Co. v. The State of Madras & Anr. 14 S.T.C.
355 and A. Hajee Abdul Shukoor & Co. v. The State of Madras 15 S.T.C. 719,
explained and distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1577 ·~nd
1579 of 1971.
Appeal from the judgment and
Ord!!rS dated 23-3-197t and
22-4-1971 of the Madras High Court in Writ Petitions Nos. 1088/70
and 1316/71.
K. Srinivasan, I. Subramaniam and (Mrs.) S. Gopalakrishnan for
the Appellants.
K. Purasaran, Advocate General for the State of
Tamil
Nadu,
A. V. Rangam and (Miss) A. Subhashini for the Respondents.
The Judgment of the Court was delivered by
KHANNA, J.
These appeals by special leave are against the judgment of Madras High Court whereby that court repelled the challenge
to the validity of items 7 (a)' and 7 (b) of the Second Schedule
to
the Madras General Sales Tax Act, 1959 (hereinafter referred to as
the State Act).
The appellants are dealers in hides and skins.
The appellants
purchase raw hides and skins locally as well as in the course of interstate trade and commerce.
The raw hides and skins are converted
into dressed 'hides and skins and are sold either locally
or in the
course of export.
The matter relates to the assessment year 1968-69
F ·and the dispute between the parties arises because of the inclusion in
the turnover of the sale and purchase price of some of the above
goods.
The appellants by means of writ petitions
challenged the
validity of items 7 (a) and 7 (b) of the Second Schedule to the State
Act.
The High Court, as already mentioned, repelled the attack on
the ·;aUdity of those items and dismissed the writ petitions .
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Before dealing with the contentions advanced, it may be appropriate to ref er to the relevant provisions.
Section 4 of the State Act
is the charging section in respect of declared goods and reads thus :
"Tax in respect of declared
goods.-Notwithstanding
anything contained
in
section 3, the tax under this Act
shall be payable by a dealer on the sale or purchase inside
the State of declared goods at the rate and only at the point
specified against each in the second schedule of the turnover
in such goods in each year, whatever the. quantum of turnover in that year."
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v. GURUVIAH NAIDU v. TAMIL NADU (Khanna, J.)
10 67
It may be mentioned that raw hides and skins as well
as dressed
A
hides and stins are declared goods under section 14 (iii) of the Central Sales Tax Act, 1956 (hereinafter referred to as the Central Act).
Section 14(iii) of the Central Act reads as under :
"It is hereby declared that the following goods are of
special importance in inter-State trade or commerce :
(iii) hides and skins, whether in a raw
or
dressed
• ~tate."
Items 7 (a) and 7 (b) of the Second Schedule to the State Act and
read as. under :
Items 7(a) and 7(b) of the Second Schedule to the State Act read as
under:-
"S. No.
Description of goods
Point of levy
Rate of
tax
2
3
4
7(a)
Raw hides and skins
At the point of last pur3
chase in the State.
7(b)
Dc~»ed hides and skins (which At the point of 1st sale
1-1/2
were not subjected to tax under
in the State.
this Act as raw hides and skins)
"
So far as validity of item 7 (a) of the Second Schedule is concerned, the argument of the learned counsel for the appellant is that
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this would cover also inter-State sales and as such is beyond the competence of the State legislature.
We are unable to accede to
this
contention as we are of the view that item 7 (a) relates only to interstate sales and not to inter-State sales.
This is clear from the languF
age used in the item, especially the words "purchase in the State".
Assuming that the language of item 7 (a) is ambiguous, it should he
so construed as would sustain the constitutional validity of the said
item.
Considered in this li&ht the occasion for the levy of tax under
the above item would arise only when there is intra-State sale and
not inter-State sale .•
Regarding from 7(b), the learned counsel for the appellants has
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contended that it is violative of clause (a) article 304 of the Constitution.
The said clause reads as under :
"304. Notwithstanding anything in article 301 or article
303, the Legislature of a State may by law-
( a) impose on goods imported from
other States or
the Union Territories any tax to which similar goods
manufactured or produced in that State are subject,
so, however, as not to discriminate between goods
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so imported and goods so manufactured or produced; and
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(h)
According to the learned counsel, there can be three types of sale
transac1 ions in respect of dressed hides and skins :
( J ) Dressed hides and skins imported from outside the
State of Tamil Nadu.
Tanning
of the
aforesaid
(2) Import of raw
hides and skin£ from
outside the
State of Tamil Nadu
and sold within that State;
raw hides and skins within the State of Tamil Nadu
and the sale of the same within that State as dress!!
hides and skins; and
(3) Purchase of raw hides and skins within the State
of Tamil Nadu and sale of the same within that State
as dressed hides and skins after tanning those hides
and skins.
It is urg1xl that in respect of hides and skins
covered by the third
category, th1: local sales of dressed hides and skins will not be liable
to tax under State Act as the purchase of the raw hides and skins has
already been subjected to tax under item 7 (a).
Regarding
hides
and skins mentioned at (l) and (2) above, the local sales of dressed
hides and skins would be subjected to tax at the rate of l} per cent
under item 7 (b) as there was no levy of tax under the State Act in
respect of those hides and skins.
Learned counsel accordingly concludes from the above that imported hides and skins are subject to
tax when sold as dressed hides and skins at the rate of 1t per cent,
whereas bioes and skins purchased in raw form locally and dress.,;;::
thereafter arc not subject to tax under the State Act when sold as
dressed lmlcs and skins.
The contention, m other
words, is that
whereas dressed hides and skins sold locally
but which have been
made out of imported raw hides and skins are subject to tax, similar
sales or dressed hides and skins made out of raw hides and skins
which have suffered tax at purchase stage are not subject to tax under
item 7 (b) of the Second Schedule of the State Act.
Item 7 (b)
is
therefore stated to be discriminatory and violative of article 304 (a).
Reliance in this connection is placed upon two decisions of this Court
in the cases of Firm A.T.B. Mehtab Majid & Co. v. The
State of
Madras & Anr. (') and A. Hajee Abdul S1iukoor & Co. v. The State of
Madras.(2)
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In the case of Mehtab this Court held that the provisions of rule
16 of the Madras General Sales Tax (Turnover and Assessment)
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Rules, 1939 discriminate between hides and skins
imported from
outside the State and those manufactured or produced inside the State
and therefore they contravene the provisions of article 304(a)
of
the Constitution.
Perusal of the facts of that case goes to show that
the real grievance of the appellant in that case was that though there
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was a sub5tantial disparity in the price of raw hides and skins and
the price of dressed hides and skins, the same rate of tax was levied
(l) 14 S.T.C. 355.
. (2) 15 S.T.C. 719.
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v. GURUVIAH NAIDU v. TAMIL NADU (Khanna, J.)
1069
in respect of both types of hides and skins under section 3 ( 1) (b)
of the State Act.
This is clear from the following observations in
that case•:
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·'The grievance arises on account of the amount of tax
lnied 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 skin in the State,
he does not pay on the sale price of the tanned hides or
skins he pays on the purchase
price only. If the dealer
purchases raw hides or skins from outside
the State and
tane them within the State, he will be liable to pay sales
~ax ou the sale price of the tanned hides or skins."
In the case of Hajee Abdul Shukoor this Court held that Subsection ( 1) of section Z nf the Madras General Sales Tax (Special
Provisions) Act, 1963
discriminates against imported hides and
skins which were sold up to August 1, 1957.
The rate of tax on the
sale of tanned hides and skins, as would appear from that judgment,
was "2 per cent on the purchase price of those hides and skins in the
untanned condition, while the rate of tax on the sale of raw hides and
skins in the State during 1-955 to 1957 is 3 pies -per rupee.,_
The
Court in this context referred to Mehtab's case and observed :
"In the earlier case, discrimination was brought about
on account of sale price of tanned hides and skins to be
higher than the sale price of untanned
hides
and skinJs,
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 1skins were last purchased in the untanned
condition, but on account of the fact that the rate of tax
the sale of tanned hides and skins is higher than that on
the sale of untanned hides and skins.
The rate of tax on
the sale of tanned hides and skins is 2 % on the pure.base
price of thise hides and
skins in the untanned condition
while the rate of tax on the -sale of raw hides and skins on
the State during 19°55 to 1957 is 3 pies per rupee.
The
difference ilil tax works out to 7 I l 600th 9f a rupee, i.e.,
a little less than t naya paise per rupee.
Such a discrimination would affect the taxation up to the 1st of August,
1957, when the rate of tax on the sale of raw hides and
skins was raised to 2% of the sale price."
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None of the circumstances which led this Court to strike down the
relevant provisions in the above mentioned two cases exists in the preH
sent case. In Mehtab's case discrimination was found to exist because of
the fact that tax wars. being levied at the same rate in respect of both
raw_ hides and skins as well as dressed hides and skins, even though
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the price of dressed hides and skins was much higher.
The position
was worse in the case of Hajee Abdul Shukoor because in that case
the sales tax was found to have been charged at a higher r~te in respect of dressed hides and 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 t 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 skinJs
aNd lower price of raw hides and skins.
No material has
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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 wo1ild 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 onus.
Article 304(a) does not prevent levy of tax on goods; what it
prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods
manufactured or produced within· the State.
The object is to prevent discrimination against imported goods by imposing tax on such
goods at a rate higher than that borne by local goods
since the
difference between the two rates would constitute a tariff wall or fiscal
barrier and thus impede the free flow of inter-State trade and commerce.
The question as to when the levy of tax would constitute
discrimination would depend upon a variety of factors including the
rate of tax and the item of goods in respect of the sale of which it is
levied.
The scheme of items 7 (a) and 7 (b) of the Second Schedu}e
to the State Act is that in case of raw hides and skins which are purchased locally in the State, the levy of tax would be at the rate of 3
per cent at the point of last purchase in the State.
When those
locally purchased raw hides and skins are tanned and are sold locally
as dressed hides and skins, no levy would be made on such sales as
those hides and skins have already been subjected to local tax at the
rate of 3 per cent when they were purchased in
raw form.
As
against that, in the case of hides and skins which have been imported
· from other States in raw form and are thereafter tanned and then sold
inside the State as dressed hides and skin~ the levy of tax is at the
rate 'ff 1 t per cent at the point of first sale in the State of the dressed
hides and skins.
This levy cannot be considered tcf be discriminatory
as it takes into account the higher price of dressed hides and skins
compared to the price of raw hides and skins.
It also further takes
note of the fact that no tax under the State Act has been paid in respect of those hides and skins.
The Legislature, it seems, calculated
the price of hides and skins in dressed condition to be dClUble the
price of such hides and skins in taw state.
To obviate and prevent
any discrimination or differential treatment in the matter of levy of
tax, the Legislature therefore prescribed a rate of tax for
sale of
dressed hides and skins which was half of that levied under item 7(a)
in respect of raw hides and skins.
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v. GURUVIAH NAIDU v. TAMIL NADU (Khanna, J.)
10 71
Last!~ it has been argued that dressed hides and skins are a comA
modity distinct and separate from raw hides and skins and that item
7 (b) of the Second Schedule makes a discrimination between the
sales of locally processed dressed hides and skins and those imported
from other States.
In this respect we find that it is not the case of
the appellants that they import dressed hides and skins from other
States and sell them as such in Tamil Nadu.
On the contrary, the
case of the appellants is that what they import from other States n
are only raw hides and skins which are thereafter tanned and sold
as dressed hides and skins.
In the circumstances, it is not clear as
t~ ~hat grievance the appellants can have on the score that there is
discrimination between imported dresed hides
and
skins and the
dressed hides and skins produced and manufactured within the State .
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Apart that it seems to us that even though dressed hides and skins c
. have been treated as separate commodity, there is a clear nexus between hides and skins in raw form and those in dressed form.
So far
as the Central Act is concerned, both ,the raw as well as the dressed
hides and skins are specified together in .clause (iii) of section 14.
It has to be borne in mind that it is raw hides and skins which after
being subjected to processing or tanning take the shape of dressed
hides and skins.
Dressed hides and skins cannot, therefore, be conn
sidered in isolation and we find no infirmity in a legislative provision
which while levying tax on the sale of dressed hides and skins takes into
account the levy of tax in respect of the purchase of raw hides and
~kins. Looked at in this light there appears to be no warrant for
the proposition that preferential treatment has been shown to dressed
hides and skins prepared from locally purchased raw hides and skins
compared to the treatment accorded to imported hides and skins.
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We are therefore, of the view that the attack on the validity of
item 7 (b) of the Second Schedule to the State Act is not well founded.
We accordingly dismiss the appeals, but in the circumstances
without costs.
V.P.S.
Appeal dismissed.
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