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1997(5) Supreme 165
SUPREME COURT OF INDIA
A.M. Ahmadi, C.J.I., G.T. Nanavati and S.P. Kurdukar, JJ.
Shri Digvijay Cement Co., etc. -Appellants
versus
State of Rajasthan & Ors., etc. -Respondents
Civil Appeal No. 2145 of 1997
(Arising out of SLP (C) No. 4733 of 1995)
with
Civil Appeal Nos. 2146 to 2149 of 1997
(Arising out of SLP (C) Nos. 4734, 5036, 5070 and 8087 of 1995)
Decided on 21-3-1997
Counsel for the Parties :
For the Appellants : Soli J. Sorabjee, Sr. Advocate, P.S. Sarin, Amit Prabhat, R.K. Sanghi, S. Atreya, Advocates.
For the Respondents : Aruneshwar Gupta, M.K. Das, S.N. Nath, K.S. Bhati, Advocates.
For the Intervenors : D.A. Dave, Sr. Advocate, U.A. Rana, Rajiv Tyagi, S. Tripathi, Advocates.
For the State of Gujarat : Yashank Adhyaru, Advocate for Ms. H. Wahi, Advocate.
Held : Sub-section (5) of Section 8 which is in a nature of an exception, permits the State Government to do that which it otherwise could not have done, but only if it is in public interest. Therefore, when exercise of such powers was challenged it was for the State to justify the same by explaining how it had become necessary to subject all inter-State sales to any person or dealer to payment of tax at 4 only and also to explain how it had become necessary for it to dispense with the furnishing of the declaration contemplated by sub-section (4) of Section 8 to the prescribed authority in the prescribed manner. (Para 13)
The only reason or justification given by the State of Rajasthan for making the differentiation between the rate of tax on intra-State sales and inter-State sales of cement was that the said reduction was likely to lead and had led to increase in sales of cement and increase in revenue earnings. So the question to be considered is whether those considerations alone can be regarded as sufficient to make the impugned Notifications immune from the challenge of hostile discrimination. In the case of Indian Cement v. State of A.P., 1988(1) SCC 743 this Court has held that the plea that reduction in the rate of sales tax is beneficial to the State Revenue cannot be regarded as sufficient justification for making the discrimination and it would not amount to a reasonable restriction contemplated by Article 304. (Para 21)
Further held : We are also of the view that the justification advanced by the State of Rajasthan that as a result of the impugned notifications the State Revenue had increased and thus they were beneficial to the State Revenue, is not valid as the said notifications had the effect of creating a preference to cement manufactured and sold in Rajasthan and disadvantage for the sale of cement manufactured and sold in Gujarat and thus had the direct and immediate adverse effect on the free flow of trade. The said notifications, by dispensing with the requirement of furnishing declaration in C Form, had the effect of facilitating evasion of payment of tax and were, therefore, also violative of the scheme of the constitutional provisions contained in Chapter XIII. A 5-Judge Bench of this Court in Firm A.T.B. Mehtab v. State of Madras, 1963 Supp. SCR 485 has also held that sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free flow of trade and would be violative of Article 301 . (Para 22)
The facts and figures were sufficient to show, prima facie, that despatches of cement from the State of Rajasthan to State of Gujarat had increased considerably and that cement produced in the State of Gujarat was placed in a disadvantageous position. It was not proper for the High Court to brush aside that material. (Para 17)
JUDGMENT
Nanavati, J.-Leave granted.
2. The appellants in these appeals are manufacturers of cement and they have their manufacturing units/factories in the State of Gujarat. The cement manufactured by them is sold throughout India through a network of stockists and dealers. They filed Civil Writ Petition Nos. 656, 788, 803, 2644 and 2645 of 1994 in the High Court of Rajasthan challenging the notifications dated 8.1.1990, 27.6.1990 and 7.3.1994 issued by the State of Rajasthan under Section 8(5) of the Central Sales Tax Act (for short CST Act ). The High Court dismissed those writ petitions. Therefore, the appellants have filed these appeals.
3. Prior to the issuance of the impugned Notifications the rate of tax payable under Section 5 of the Rajasthan Sales Tax Act on sales of cement was 16 . Even in respect of the inter-State sales of cement to unregistered dealers the rate of tax was 16 . By the Notification dated 8.1.90 the State of Rajasthan in exercise of the powers conferred by sub-section (5) of Section 8 of the CST Act directed that the tax payable under sub-sections (1) and (2) of Section 8 by any dealer having his place of business in the State, in respect of the sale by him, from any such place of business in the course of inter-State trade and commerce, of cement, to any Central or State Government undertaking or Corporation or an autonomous body under the Government shall be calculated at the rate of 7 . By the second Notification dated 27.6.90 the State of Rajasthan directed that the tax payable by any such dealer to any/all dealers or any person situated outside the State of Rajasthan shall be taxed at the rate of 7 , if the conditions specified therein were satisfied. The said conditions were :
"(i) The selling dealer shall submit the certificate appended hereto duly filled in and signed by him to his assessing authority within 10 days from the date of delivery of such cement to the carrier.
(ii) The selling dealer shall also enclose with the said certificate, the attested photostat copy of the Railway receipt/Goods receipt, as the case may be.
(iii) In case the goods are being carried through road transport, a copy of the said certificate shall also be handed over at the exit check-post of the State of Rajasthan.
CERTIFICATE
I/We ................. (name of the firm/ company/other status) having Registration No. (RST Act/CST Act) ............... under the jurisdiction of the Assessing Authority ............ certify that ............ bags of cement amounting to Rs. .............. covered by the Challan/cash memo(s) No. and the date ........... have been manufactured by me/us and are despatched in the course of inter-state trade and commerce vide RR/GR No. ...... (Specify the number with date) ..... to Shri/M/S ..... (full address of the purchaser) Signature ...... Name ....... Designation ........ Seal ........ Dated ........"
4. By the third Notification dated 7.3.94 the State of Rajasthan superseded the earlier Notification dated 27.6.90 and directed that in respect of inter-State sales of cement made by such dealers tax payable shall be calculated at the rate of 4 without furnishing of declaration in form C or certificate in form D on fulfilment of the following conditions :
"(i) that the dealer shall record the name and full and complete address of the purchaser in the bill or each memorandum for such inter-State sale to be issued by him;
(ii) that the burden to prove that the transaction was in the nature of inter-State sale, shall be on the dealer; and
(iii) that the dealer making inter-State sales under this notification shall not be eligible to claim benefit provided for by the notification No. F. 4(72) FD/Gr. IV/81-8, dated 6.5.86, as amended from time to time."
5. The appellants challenged the said Notifications on the ground that they created artificial barriers and had the effect of giving preference
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