1999 Supreme(SC) 1556

1999(10) Supreme 488
Supreme Court of India
(Under Article 32 of the Constitution of India)
S.P. Bharucha, B.N. Kirpal, V.N. Khare, D.P. Mohapatra & N. Santosh Hegde, JJ.
Shree Digvijay Cement Co. Ltd. & Ors. -Petitioners
versus
State of Rajasthan & Ors. -Respondents
Writ Petition (C) No. 366 of 1997
Decided on 17-12-1999
Counsel for the Parties :
For the Petitioners in W.P. (C) No. 366/97 : Shanti Bhushan, Sr. Advocate, Sunil Gupta, R.P. Sanghi, Puneet Tyagi, Narendra Sharma, R.P. Singh, Advocates.
For the Respondents State of Rajasthan : B. Sen, Sr. Advocate, Sushil Kumar Jain, A. Mishra, Ms. Madhurima Tatia, Aruneshwar Gupta, Advocates.
For the Respondent No. 4 in W.P. (C) No. 366/97 : R.F. Nariman, Sr. Advocate, Pradeep Aggarwal, M.L. Patodi, Ms. Pratibha Jain, Advocates.
For the Respondent No. 5 in W.P. (C) No. 366/97 : Pradeep Agarwal and Ms. Pratibha Jain, Advocate.

Important Points
1. Notification u/s 8(5) of the Central Sales Tax Act, by a State Government dispensing with the requirement of declaration in Form-C and Form-D by providing alternative mode of disclosing identity of purchaser in cash memo or bill cannot be said to be violative of Article 301.
2. Notification u/s 8(5) of the Central Sales Tax Act, by a State Government reducing rate of inter-State Sales tax cannot be said to be violative of Articles 301 and 304 merely because local sales of an article in another State may have been adversely affected, as long as the notification is issued in public interest.

Headnote:Central Sales Tax Act-Sections 8(4) and 8(5)-Notification dated 12.3.1997 issued by State of Rajasthan-Constitutional validity of-Notification reduced rate of sales tax on inter-State sale of cement to 4 and did away with requirement of furnishing declaration in Form-C or certificate in Form-D-Challenge to notification on ground reduction of rate of tax adversely affected local sale of cement manufactured by petitioners in State of Gujarat by reason of higher rate of sales tax on local sales within State of Gujarat-Plea that notification violative of Part XIII of Constitution of India-Further plea that dispensing of requirement of Form-C and Form-D violative of scheme of constitutional provisions contained in Chapter XIII-Held: Section 8(5) enables State Government to reduce inter-State sales tax in public interest-Reduction of rate of tax resulted in increase of revenue and industrial activity and provided employment in industry-Notification was in public interest-Providing alternative mode of disclosing identity of purchaser in cash memo or bill, dispensing with requirement of declaration in Form-C and Form-D, not violative of Article 301-Notification could not be said to have effect of preventing and hindering free movement of goods from one to another merely because local sales in State of Gujarat may have been adversely affected-Notification valid.

       Held : Decision of Supreme Court in State of Madras v. N.K. Nataraja Mudaliar not only upheld the validity of Section 8(2)(2A) and (5) but also observed that sub-section (5) of Section 8 authorised the State Government to waive or lower the rate of tax in the public interest, notwithstanding anything contained in Section 8. There can, therefore, be no challenge to the exercise of power under Section 8(5) except on the ground that such power has not been exercised in public interest. (Para 19)

       Section 8(5) provides that in respect of inter-state sale of certain types of goods by any dealer having its place of business in the State, no tax shall be payable or tax shall be calculated at lower rates than those specified in sub-section (1) or sub-section (2). This power of exempting or reducing the rate of inter-state sales tax on certain types of goods, like cement in the present case, has of course to be exercised when the State Government is satisfied that it is necessary to do so in public interest. The respondents have clearly stated that as a result of reduction of tax to 7 vide Notification dated 8th January, 1990, it had got additional revenue of lakhs of rupees in the last quarter of that financial year. It is also stated in the affidavit in reply that unless incentives are given to the industries in the State of Rajasthan, further economic, industrial and social development of the State would be hampered. The production of cement in the State was far in excess than the consumption. The surplus available with the cement manufacturers had to be sold outside the State and unless it was advantageous for the cement manufacturing units to sell their cement outside the State, the cement industry within the State would be crippled which would have an adverse industrial, social and economic impact on the State of Rajasthan and would consequently be detrimental to public interest. The high rate of tax on inter-state sale which had been pravelent had resulted in manufacturing units resorting to branch transfer of cement from one State to another without paying any tax in the State of Rajasthan and lowering of the inter-state sales tax had the effect of increasing the tax collection. There were 33 units in Rajasthan which were engaged in manufacturing of cement which are stated to be providing direct employment to 10475 personnel. In addition thereto, 25000 workers were stated to be engaged in mining industry and more than 50000 workers were engaged in allied activities i.e. transportation, loading, unloading and marketing etc. With the demand of cement within the State of Rajasthan being limited, it thus became imperative to encourage inter-State sales of cement from the State of Rajasthan. Reducing the rate of inter-State sales tax facilitated in the higher tax return and in the industry continuing to function. This would clearly show that the issuance of the said notification was in public interest as envisaged by sub-section (5) of Section 8 of the Act. (Para 22)

       The impugned notification had the effect of preventing or hindering the free movement of goods from one State to another. As far as the State of Rajasthan is concerned, it had the opposite effect. Merely because local rate of tax in the State of Gujarat on the sale of cement was higher than the inter-State sales tax on the cement sold from Rajasthan cannot lead to the conclusion that the impugned notification prevented or hindered the free movement of goods from one State to another. In fact the impugned notification had the opposite effect, namely, it increased the movement of cement from Rajasthan to other States. It is not as if the impugned notification created a barrier which may have had the effect of hindering free movement of goods but on the other hand, the sales tax barrier was lowered resulting in increased volume of inter-state trade. (Para 23)

       It is no doubt true that Section 8 of the Act contemplates the furnishing of Form-C and Form-D where inter-State sale is made to registered dealer or to the Government Department outside the State. But a Notification which is issued under sub-section (5) of Section 8 can have a overriding effect in view of the non-obstante clause. Form-C and Form-D are regarded a proof of inter-State sale being made by dealers from Rajasthan to a registered dealer or to a Government Department outside Rajasthan. The impugned notification requires the seller to record the name and address of the purchaser on the bill or cash memo which he is required to issue in relation to an inter-State sale and the dealer is required to prove that the transaction was in the nature of inter-State sale. We are unable to agree that the substitution of the requirement of furnishing Form-C and Form-D by making it obligatory on the dealer to record the name and address of the purchaser in the bill or cash memo would have the effect of facilitating tax evasion. The experience of the State of Rajasthan has been that with the issuance of such notifications, its tax revenue on inter-State sale of cement had increased. (Para 24)

       Variation in the rate of inter-State sales tax is clearly permitted by Section 8(5) of the Act. Section 8(5) of the Act clearly enables the State Governments to reduce the rate of inter-State sales tax if it is satisfied that it is necessary to do so in the public interest. Prior to 1957, sub-section (5) of Section 8 gave power to the Central Government to, inter alia, reduce the rate of sales tax if it was necessary so to do in the public interest. With the Central Sales Tax Amendment Act, 1957, the Parliament conferred this power on the State Governments instead of the Central Government. In this historical backdrop the public interest, as referred to in sub-section (5) of Section 8 of the Act, will certainly include the public interest of the State concerned. If the reduction of the rate of tax results in increase of revenue and of industrial activities, providing employment in the industry as well as in the mining of limestone, it cannot be said that the notification was not issued in public interest. (Paras 25 & 27)

       Under Section 8(5) of the Act, the State Government can exercise power notwithstanding anything contained in the said Section. Therefore, notwithstanding the requirement of sub-section (4) of Section 8 in relation to the furnishing of Form-C and Form-D, the State Government could, while lowering the rate of tax, impose conditions which may not be in conformity with sub-section (4) of Section 8 of the Act. When the purpose of furnishing Form-C and Form-D is only to ensure that sales are made in the course of inter-State sales, the State Government may provide for a different mode or manner in which this object can be achieved. In the instant case, the condition for availing the benefit of the notification is that in the bill or cash memo the name and complete address of the purchaser has to be stated and, consequently, the burden to prove that the transaction was in the nature of inter-State sales is on the dealer. At the time of assessment, therefore, the dealer who seeks to get the benefit of the said notification will have to establish the identity of the purchaser outside the State and also, in turn, prove that an inter-State sale has taken place. The tax which is collected is allocated to the State from where the movement of goods starts. Therefore, the question whether there is evasion of tax has to be seen with relevance to that State. If reducing tax results in increase in collection of tax by encouraging more people to pay tax to that State then it cannot be urged that Article 301 is violated. We cannot subscribe to the view that the said Notification by dispensing with the requirement of furnishing declaration in Form-C had the effect of facilitating evasion of payment of tax and was violative of the scheme of the Constitutional provisions contained in Chapter-XIII. (Paras 28 & 29)

       Lowering rate of tax by the State of Rajasthan had the direct effect of increasing the flow of trade. The mere fact that the local sale of cement in Gujarat may have been adversely affected cannot result in the impugned notification being regarded as affecting the free flow of trade and being violative of Article 301 of the Constitution. The said provision is concerned with the movement of goods from one State to the another and as far as the present case is concerned, with the lowering of tax, the movement has increased rather than decreasing. The impugned notice is valid. (Paras 30 & 31)