A HAJEE ABDUL SHUKOOR AND COMPANY Vs. SPECIAL DEPUTY COMMISSIONER TAX OFFICER HIDES AND SKINS II VELLORE

JUDGEMENT

(1.) THE substantial question in this batch of writ petitions is as to the validity of section 2 of the Madras General Sales Tax (Special Provisions) Act, 1964. THEre are also certain other grounds raised for the assessees, who are the petitioners which, in most part, torn on the construction of that Act. All these petitions cover two periods, the one between 1st April 1955, and 31st March, 1957, and the other between 1st April 1957, to 31st March, 1959. In each of these cases the assessee concerned, a resident dealer in hides and skins, purchased raw hides outside the State of Madras which he imported into this State and after tanning, sold the dressed hides and skins to local dealers. By G.O. Press No. 2733, Revenue, dated 3rd September, 1955, rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939, was substituted by a new Rule which specified the single point at which purchases and sales of raw hides or dressed hides as the case may be, were chargeable to tax under section 3 read with section 5-A(iv) of the Madras General Sales Tax Act, 1939. Under sub-rule (1) raw hides and skins were taxable at the point of the last purchase in the State on the amount for which the said purchases were made. Hides and skins dressed outside the State were by sub-rule (2)(i) charged at the point of first sale in the State on the sale amount. THE point of charge was the same for sale of hides and skins dressed in the State but there would be no liability on the first dealer if he proved that the raw hides and skins before they were dressed had suffered tax at the point of the last purchase. THE liability to tax in any of these cases was of course subject to the exemption under section 3(3). THE assessees were all charged to tax under sub-rule (2)(ii) for the relevant years. On 22nd November, 1962, the Supreme Court in Firm A. T. B. Mehtab Majid & Co. v. State of Madras struck down sub-rule (2) as invalid on the ground that it discriminated between hides and skins imported from outside the State and those manufactured or produced inside the State in contravention of Article 304(a) of the Constitution. THE discrimination sprang from the amount of tax levied being different on account of the existence of a substantial disparity in the price of the raw hides or skins and of those hides or skins after they had been tanned, though the rate was the same. Said the Supreme Court "If the dealer has purchased the raw hides or skins 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 tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins. He too will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside, and having not therefore paid any tax under sub-rule (i)."

(2.) THE sub-rule made a difference between imported and local raw hides and skins and imposed in effect the same rate hut on the higher local sales turnover of the former in dressed condition and on the lower local purchase turnover of the latter. That accounted for the discriminatory nature of the tax, the Supreme Court in that case being of the view that the mere circumstance of a tax having been paid on the sale of hides and skins in their raw condition did not justify their forming goods of a different kind from the tanned hides or skins which had been imported from outside. It held : "THE similarity contemplated by Article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not. We are therefore of the opinion that the provisions of rule 16(2) discriminate against imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of Article 304(a) of the Constitution" This decision led to the promulgation of the Madras General Sales Tax (Special Provisions) Ordinance, 1963, which later stood repealed by the Madras General Sales Tax (Special Provisions) Act, 1963.Section 2(1) provided that for the period between 1st April 1955, to 31st March, 1959, notwithstanding anything contained in the original Act, tax should be levied from the dealer who in the State was the first seller in dressed hides and skins not subject to tax at their raw stage It the rate of two per cent of the amount for which such hides and skins were last purchased in the untanned condition. This section again was the subject-matter of attack in Hajee Abdul Shukoor & Co. v. State of Madras THE Supreme Court held that the sub-section was invalid as violating Article 304(a) this time on the ground that the rate of tax on the sale of tanned hides and skins was higher than that on the sale of intoned hides and skins. Persons who had purchased raw hides and skins during the period in the Madras State were subjected to tax at three pies per rupee hut persons who had purchased raw hides and skins from outside the State and were liable to tax on the first sales of dressed hides and skins paid a higher rate of two per cent on their purchase turnover of the corresponding raw hides. THE difference in rate was thus held to be discriminatory and violative of Article 304 of the Constitution.