IMPORTANT POINT
1. Barring special circumstances, State is not entitled to tax locally made goods at a lower rate while taxing similar goods manufactured in other States at a higher rate.
2. Clause (a) of Entry 24 of the First Schedule to the Andhra Pradesh General Sales Tax Act is declared violative of the provisions of Articles 301 to 304 of the Constitution in so far as it imposes a higher rate of tax on groundnut oil or refined oil which has been obtained from groundnuts that have not been taxed under the Andhra Pradesh Act.

Headnote:Constitution of India-Articles 301 to 304-Andhra Pradesh General Sales Tax Act-Entry 24(a) of First Schedule-Freedom of trade, commerce and intercourse-Restrictions on-Fiscal powers of State-Barring special circumstances, State is not entitled to tax locally made goods at a lower rate while taxing similar goods manufactured in other States at a higher rate-Levy of tax on oil imported from Karnataka into Andhra Pradesh at a rate higher than the rate at which oil manufactured in Andhra Pradesh is taxed-Challenged as discriminatory and violative of appellant s right of freedom of trade and commerce throughout India-Writ petition challenging constitutional validity of levy-Entry 24(a) of Andhra Pradesh General Sales Tax Act challenged as violative of Articles 301 and 304 of Constitution-State of Andhra Pradesh not able to make out any special case for imposing a lower rate of tax on groundnut oil produced within the State-Clause (a) of Entry 24 of the First Schedule to the Act declared violative of Articles 301 to 304.
       Held : Freedom of trade, commerce and intercourse guaranteed by Article 301 means freedom to carry on business throughout the territory of India without any obstruction and hindrance. The question whether a fiscal barrier will amount to interference with the right to carry on trade, commerce and intercourse throughout the territory of India is not an easy question to answer. Every State has a right to impose tax on subjects which fall within its jurisdiction under List-II of the Seventh Schedule to the Constitution. This includes taxes on sale or purchase of goods other than newspapers. Fiscal powers of the State can be utilised not only to collect revenue but also to regulate economic development of a State. A backward State may try to encourage development of industries within the State by grant of subsidy and also by low rate of tax on goods manufactured by local industries. If small newly set up industries in the State have to compete with big industries, small units may not survive at all. In such a case, the State is entitled to prop up the local industries by taking fiscal measures. This may be done by providing subsidies or by imposing low rate of sales tax on the goods manufactured within the State. (Para 13)
       But barring special circumstances, as stated hereinabove, the view of this Court has consistently been that a State is not entitled to tax locally made goods at a lower rate while taxing similar goods manufactured in other States at a higher rate. (Para 13)
       Further held : In the case before us, exemption has not been granted to a new industry or specially handicapped industry for any special reason for a limited period of time. Groundnut oil manufacturers within the State have been generally given the benefit of a lower rate of tax whereas the importers will have to pay sales tax at a higher rate. It is not even the case of the State that if imported oil was manufactured out of tax paid groundnut the rate of tax on imported oil would be lower. (Para 15)
       What has been done by Entry 24 of the First Schedule is to impose a lower rate of duty on groundnut oil or refined oil obtained from groundnuts that have been taxed under the A.P. Act. The contention that groundnut oil manufactured in Andhra Pradesh has not generally been charged at a lower rate of tax has not been substantiated by any fact or figure. It is not the case of the State that only a small portion of the oil manufactured by local manufacturers is produced from groundnuts purchased in Andhra Pradesh. Unless that can be established, it cannot be held that groundnut oil or refined oil within the State is generally charged at the same rate as the imported oil. The only justification that has been made out for this discrimination is that groundnut out of which the oil is manufactured locally has already borne tax. The appellant s contention, which has not been denied by the State, is that the oil manufactured in Karnataka which was imported into Andhra Pradesh was manufactured out of groundnuts which had also borne tax under the Karnataka Sales Tax Act. Therefore, it cannot be said that oil manufacturers in Andhra Pradesh are in a disadvantageous position and had to be compensated by a lower rate of tax. The State of Andhra Pradesh has not been able to make out any special case for imposing a lower rate of tax on groundnut oil produced within the State. (Para 18)
       Clause (a) of Entry 24 of the First Schedule to the Andhra Pradesh General Sales Tax Act is declared violative of the provisions of Articles 301 to 304 in so far as it imposes a higher rate of tax on groundnut oil or refined oil which has been obtained from groundnuts that have not been taxed under the Andhra Pradesh Act. It is declared that the groundnut oil imported by the appellant from Karnataka for sale in Andhra Pradesh cannot be taxed at a rate higher than the rate prescribed in clause (b) of Entry 24 of the First Schedule to the Andhra Pradesh Act. (Para 20)

JUDGMENT

Sen, J.-The appellant, M/s. Anand Commercial Agencies, is a partnership firm. It is regularly assessed under the Andhra Pradesh General Sales Tax Act. The dispute in this case arose in the course of assessment for the assessment year 1977-88. Under Entry 24(b) of the First Schedule to the Act, tax is payable on groundnut oil at the rate of 2-1/2 paise per rupee of the sale price. Under Entry 24(a), tax is payable on groundnut oil or refined oil obtained from groundnut which has not borne any tax under the A.P. Act at the rate of 6-1/2 paise per rupee of the sale price. The assessee at the relevant period had a total turnover of Rs. 31,35,000/- out of which Rs. 14,76,000/- was on account of sale of groundnut oil and refined oil obtained from groundnut which had not borne tax under the A.P. Act because the oil was imported into Andhra Pradesh from the State of Karnataka.

2. The case of the appellant is that the oil had been extracted out of groundnuts which had borne tax under the Karnataka Sales Tax Act. The levy of tax on the oil imported from Karnataka into Andhra Pradesh at a rate higher than the rate at which the oil manufactured in Andhra Pradesh is taxed is discriminatory and violative of the appellant s right of freedom of trade and commerce throughout India.

3. This contention of the assessee was rejected by the Sales Tax Officer and also by the Assistant Commissioner (C.T.), Appeals, Secunderabad.

4. The assessee thereafter challenged the decision of the Assistant Commissioner by filing a writ petition in the Andhra Pradesh High Court challenging the constitutional validity of the levy. There was a difference of opinion between the two Judges who heard the matter. The case was referred to a third Judge who was of the view that the writ petition was without any merit and should be dismissed.

5. The assessee has appealed to this Court.

6. To appreciate the controversy, it is necessary to set out Entry 24 of the First Schedule to the Andhra Pradesh General Sales Tax Act :-

Description of goods Point of levy Rate of tax

(1) (2) (3)

24. Groundnut oil or refined oil : (1024)

(a) Groundnut oil or At the point 6-1/2 paise refined oil not of first sale in the covered by sub- in the State. rupee. item (b) below.

(b) Groundnut oil At the point 2-1/2 paise or refined oil of first sale in the obtained from in the State. rupee. groundnut that has met tax under the Act.

Entry 6 of the Third Schedule which relates to declared goods:-

Description of Point of levy Rate of tax

the goods

(1) (2) (3)

6. Groundnut or When purchased 4 paise in peanut (Arachis by a miller other the rupee Hypogaea) than a decorticat- (3006) ing miller in the State, at the point of purchase by such miller and in all other cases at the point of purchase by the last dealer who buys in the State.

7. It is clear from these entries that groundnut oil or refined oil is liable to be taxed at the rate of 6-1/2 paise in the rupee at the point of first sale in the State but under Entry 24(b) it is liable to be taxed at the rate of 2-1/2 paise in the rupee if the oil is obtained from groundnut which has already suffered tax under the A.P. Ac

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1997 Supreme(SC) 1429

Cases Referred (4)