STATE OF TAMIL NADU Vs. SITOLAKSHMI MILLS:LONDON RUBBER CO INDIA LIMITED :MULLER AND PHILIPS PRIVATE LIMITED

JUDGEMENT

(1.) Before the High Court of Madras, the respondents claimed that they were not liable to be taxe at the higher rate prescribed in Section 8 (2) (b) of the Central Sales Tax Act, 1956 (hereinafter called the Act) on the turnover of their sales in the course of inter-State trade to Government or unregistered dealers even though they had not obtained 'C' or 'D' forms, as the case may be, for the reason that Section 8 (2) (b) is violative of Articles 301 ande 303 (1) of the Constitution and was, therefore, bad. The High Court accepted the claims by a common judgment. These appeals are preferred against the judgment on the basis of certificates granted by the High Court and they raise the common question, namely, whether Section 8 (2) (b) of the Act is bad for the reason that the provisions thereof offend Articles 301 and 303(1) of the Constitution.

(2.) In Larsen and Toubro Ltd. v. Joint Commercial Tax Officer, 20 STC 150, the High Court of Madras held that sub-sections (2), (2A) and (5) of Section 8 of the Act were bad for the reason that they violated the provisions of Articles 301 and 303 (1) of the Constitution. This was on the basis that the different rates of tax and exemptions in the sales tax law of the various States placed an unequal burden on the sale of same or similar goods which impeded their free flow and movement in inter-State trade and commerce. In the appeal, preferred from the decision, this Court set aside the decision of the High Court (see State of Madras v. N. K. Nataraja Mudaliar, (1968) 3 SCR 829 . The question whether section 8 (2) (b) is violative of provisions of Article 301 or 303 (1) was not specifically considered in either the majority judgment delivered by Shah J. or in the concurring judgment of Bachawat. J. Hegde, J., however, made certain observations in his judgment that section 8 (2) (b) was enacted to check evasion of sales tax and the restriction imposed by it was in the public interest.

(3.) Sales tax has been one of the most important sources of revenue for the States. The framers of the Constitution realised that this power of taxation was being exercised by the States in a manner prejudicial to the free flow of trade and commerce throughout the country as each State, relying upon some ingredient of sale which had a territorial nexus, levied the tax which led to multiple taxation of inter-Satte sales. This multiple taxation increased the burden on the consuming public. The Constitution-makers, therefore, while retaining sales tax as a source of revenue for the States, imposed restrictions on the taxing power of the States. Article 286 of the Constitution was one of the articles enacted for that purpose. As framed the article sought to put restraints upon the legislative power of the States; but the language in which the article and particularly the Explanation was couched, instead of clarifying the intention of the Constituent Assembly, only darkened it. The scope of Article 286 was considered by this Court in the State of Bombay v. United Motors (India) Ltd., (1953) SCR 1069 in an appeal to this Court in which the validity of the provisions of the Bombay Sales Tax Act, 1952, was challenged. The majority of the Judges who heard the appeal held that Article 286 (1) (a) prohibited taxation of sales or purchases involving inter-State elements by all States except the State in which the goods were actually delivered for the purpose of consumption therein and that the effect of the Explanation thereto was to convert inter-State transactions into intra-State transactions and to remove them from the operation of Cl. 2. This interpretation of Article 286 was not accepted by a larger Bench of this Court which heard and decided the Bengal Immunity Co. Ltd. v. The State of Bihar, (1955) 2 SCR 603 . That case held that the bans imposed by Article 286 of the Constitution on the taking powers of the States were independent and separate and each one of them had to be got over before a State legislature could impose tax on transactions of sale or purchase of goods. The case further held that the Explanations of Article 286 (1) (a) determined by the legal fiction created therein the situs of the sale in the case of transactions coming within that category and that once it is determined by the application of the Explanation that a transaction is outside the State, it followed that the State, with reference to which the transaction can thus be predicated to be outside it, can never tax the transaction. The Constitution was thereafter amended, Explanation 1 of Article 286 was deleted and clauses (2) and (3) thereto were altered by the amendments. Simultaneously, item 92-A was incorporated in List I of the Seventh Schedule authorising Parliament to legislate for levying tax on the sale or purchase of goods other than newspapers, where such sale or purchase took place in the course of inter-State trade or commerce and item 54 of List II was amended to exclude taxation of inter-State sales from the competence of the State legislatures. Article 269, clause 1 (g) was also amended by cl. 3 to that article and after the amendment it reads: