STEELSWORTH LIMITED vs STATE OF ASSAM

Headnote:(A) Constitution of India - Articles 14, 19(1)(f) and 32 - State Sales Tax Act - Section 15 - Amendment deleting exemption for goods used in manufacture or production of goods for sale - Challenge to legality of amendment - Discrimination between manufacturers supplying goods against contracts and those manufacturing on own account - Whether such classification is reasonable - Held, the legislature is competent to decide which articles to tax to effectuate its policy - Provision against discrimination is applicable to persons, not articles - Imposition of tax not shown to be an unreasonable restriction on the right to carry on trade - Competition with manufacturers outside the State is a matter of policy.

(B) Article 19(1)(f) - Right to carry on trade - Imposition of tax - Not an unreasonable restriction per se - Policy decisions of the legislature regarding taxation are not subject to judicial review unless they violate fundamental rights.

Facts of the case:
A company manufacturing and selling iron and steel materials challenged an amendment to the state sales tax law. The amendment deleted an exemption previously granted for goods purchased for use in the manufacture or production of taxable goods. This made the company liable for tax on raw materials used in the manufacture of finished products, thereby increasing the cost of production.

Findings of Court:
The court held that the amendment did not violate Article 14 as the legislature has the discretion to determine which articles are taxable. The distinction between goods used for contracts and those for general sale is a matter of policy. Additionally, the imposition of the tax was not found to be an unreasonable restriction on the right to carry on trade.

Issues: The main issues were whether the amendment to the sales tax law discriminated between manufacturers in violation of Article 14, whether the tax imposed an unreasonable restriction on the right to trade under Article 19(1)(f), and whether the refusal to amend the registration certificate affected the petitioner's fundamental rights.

Ratio Decidendi: The legislature has the authority to decide which articles to tax to raise revenue. The prohibition against discrimination under Article 14 applies to persons, not to the articles being taxed. A tax that increases production costs or affects competitiveness with manufacturers outside the State is a policy decision and does not constitute an unreasonable restriction on the right to trade.

Result: Petition dismissed.

Legal Category Hierarchy

1. Challenge to the amendment of the Assam Sales Tax Act, 1947, which deleted exemptions for goods purchased by registered dealers for use in production of taxable goods. (Para 1 , 2 )

2. Amendment violates Article 14 by discriminating between manufacturers and Article 19(1)(f) by imposing excessive restrictions on the right to carry on trade. (Para 3 )

JUDGMENT

KAPUR, J. –

This is a petition under Article 32 of the Constitution challenging the legality of the amendment introduced in section 150 the Assam Sales Tax Act, 1947 (Act XVII of 1947) by section 2 of the Assam Sales Tax (Amendment) Act, 1960 (Act XIII of 1960) by which sub-section (b) of item (i) of sub-clause (b) of clause (1) was deleted and thereby sales of goods to a registered dealer intended for use in production of goods for sale became liable to sales tax.

The appellant company is a limited company carrying on in the State of Assam its business of manufacturing, selling and supplying iron and steel materials. It held a registration certificate under the Assam Sales Tax Act, as it was before the amendment of 1960. Under that Act all its purchases for use in manufacture or production of goods taxable under the Act were exempt from sales tax but after the amendment of the Act there was a deletion in the registration certificate of certain goods, e.g., cast iron, iron plates, steel bars and galvanized wire, which were used by the petitioner in the manufacture of its finished products which are also taxable in the State. Consequently it has become liable to pay tax on those goods purchased for use in the manufacture of goods and the cost of production has thereby gone up.

Three points were raised by the petitioner :-

(1) that the amendment introduced by Act XIII of 1960 is violative of Article 14 because it discriminates between manufacturers who supply goods according to orders received and others who manufacture goods on their own account and sell them;

(2) that the restriction imposed by the Amending Act is excessive and violative of Article 19(1)(f); and

(3) that the refusal to amend the registration certificate by not reinstating the articles mentioned above affects the rights of the petitioner company under Article 19(1)(f).

For the purpose of deciding these questions it is necessary to refer to the scheme of the Assam Sales Tax Act, 1947 (Act XVII of 1947). By section 2(2)(a)(b) of that Act "contract" is defined as :-

"2. In this Act, unless there is anything repugnant in the subject or context, -

(2) 'contract' means any agreement for carrying out for cash or deferred payment or other valuable consideration -

(a) the preparation, construction, fitting out, improvement or repair of any movable property or of any building, road, bridge or other immovable property, or

(b) the installation or repair of any machinery affixed to a building or other immovable property."

Section 9 of that Act provides for compulsory registration. Section 12 provides that a dealer registered under Section 9 shall be granted a certificate of registration which shall specify the class or classes of goods in which the said dealer carries on business, and such other particulars as may be prescribed. Section 15(1)(b)(i)(b) and (c) deals with exemptions. It reads :-

"15. The net turnover shall be determined, by deducting from a dealer's gross turnover during any given period -

(1) his turnover during that period on -

(a) .............................................

(b) sale to a registered dealer of -

(i) goods specified in the purchasing dealer's certificate of registration as being intended by him for -

(a) ..............................................

(b) use in manufacture or production of any goods, the sale of which is taxable under this Act,

Sub-clause (b) has now been omitted by the amending Act above referred to as a result of which "from the gross turnover of a dealer goods specified in the certificate of registration as being intended by him for use in manufacture or production of any goods for sale" has now been omitted.

The argument raised was that by the omission of sub-clause (b) discrimination was intended as between materials which were to be used for manufacture of goods and to be sold on their own account by the petitioner company and materials which were purchased f

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