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1998 Supreme(MP) 210
A.K. Mathur, Dipak Misra, JJ.
AMIT PAPER PRODUCTS
Versus
STATE OF M.P. AND OTHERS. GOYEL MANUFACTURING CO. AND OTHERS
M.P. Nos. 229 of 1992, 1972 and 4793 of 1993
Decided On: Decided On : 04-03-1998
A. G. Dhande with Yogesh Dhande, for the petitioners.
R. S. Jha, Deputy Advocate-General, for the respondents.
A State cannot discriminate between manufacturers of similar goods based on the source of the raw materials used, as this violates the principles of free trade and equality enshrined in the Constitution.
Headnote:
SALES TAX - Exercise Books - Exemption - Amendment to Act and notification reducing rate of tax on exercise books - Validity - Whether violative of articles 301 and 304(a) of the Constitution - Held, yes - Amendment and notification ultra vires.
Fact of the Case:
Petitioners, registered dealers under the M.P. General Sales Tax Act, 1958, challenged the amendment to section 30 of the Act and the notification issued thereunder, which reduced the rate of tax on exercise books to 5% only if the books were manufactured from paper purchased from a dealer registered under the Act. They argued that the amendment and notification violated articles 301 and 304(a) of the Constitution by obstructing free trade and creating restrictions on the movement of goods.
Finding of the Court:
The Court held that the amendment and notification were ultra vires of articles 301 and 304(a) of the Constitution. It found that the condition imposed by the amendment, requiring the exercise books to be manufactured from paper purchased from a dealer registered under the Act, discriminated against manufacturers who purchased paper from outside the State. This discrimination affected the free flow of trade and violated the principle of equality enshrined in article 14 of the Constitution.
Issues: 1. Whether the amendment to section 30 of the M.P. General Sales Tax Act, 1958, and the notification issued thereunder were ultra vires of articles 301 and 304(a) of the Constitution? 2. Whether the condition imposed by the amendment, requiring the exercise books to be manufactured from paper purchased from a dealer registered under the Act, was discriminatory and violated article 14 of the Constitution?
Ratio Decidendi: 1. The Court relied on the principles laid down in Firm A.T.B. Mehtab Majid & Co. v. State of Madras, Indian Cement Ltd. v. State of Andhra Pradesh, and Shri Mahavir Oil Mills v. State of Jammu and Kashmir to hold that the amendment and notification violated articles 301 and 304(a) of the Constitution. It held that the condition imposed by the amendment, requiring the exercise books to be manufactured from paper purchased from a dealer registered under the Act, discriminated against manufacturers who purchased paper from outside the State and affected the free flow of trade. 2. The Court held that the condition imposed by the amendment, requiring the exercise books to be manufactured from paper purchased from a dealer registered under the Act, was discriminatory and violated article 14 of the Constitution. It found that the condition created two classes of manufacturers: those who purchased paper from dealers registered under the Act and those who purchased paper from outside the State. The former were granted an exemption from sales tax, while the latter were not. This discrimination was not justified and violated the principle of equality enshrined in article 14 of the Constitution.
Final Decision: The Court declared the amendment to section 30 of the M.P. General Sales Tax Act, 1958, and the notification issued thereunder to be ultra vires of articles 301 and 304(a) of the Constitution. It refused to grant the petitioners' prayer for a refund of the excess tax collected, as that would amount to unjust enrichment.
DIPAK MISRA, J. - The factual background, the relief claimed and the questions of law being similar, the three writ applications, for the sake of convenience and clarity, were heard analogously and are disposed of by this common judgment.
2. The petitioners have invoked the extraordinary jurisdiction of this Court under article 226 of the Constitution of India seeking a declaration that section 30 of the Madhya Pradesh General Sales Tax (Amendment) Act, 1990 (Act 20 of 1990) whereby column 3 of entry 14 of Schedule I of the Act has been amended and the notification issued under annexure A on June 28, 1990 reducing the rate of tax on exercise books relating to entry 14 as ultra vires being violative of articles 301 and 304(a) of the Constitution. For the sake of convenience the facts in M.P. No. 229 of 1992 are adumbrated. The petitioners are registered under the M.P. General Sales Tax Act, 1958 (hereinafter referred to as "the Act") as dealers of exercise books. They manufacture exercise books from paper purchased from dealers of paper within M.P. and also from outside the State. According to the petitioners entry No. 14 of Schedule I initially, exempted "exercise books" from sales tax under the Act and the said exemption was absolute, unconditional and without any exception. The said position continued till September 15, 1990. An amendment was brought into section 30 of the Act and in the column 3 of the entry 14 of Schedule I the following words were inserted :
"Exercise books when sold by a dealer registered under this Act and such dealer proves to the satisfaction of the assessing authority at the time of assessment that they had been manufactured out of writing or printing paper purchased from a dealer registered under this Act."
After this amendment, the reduced rate of tax on "exercise books" at 5 percent was only permissible if the conditions were satisfied.
3. We have dealt with the validity of the provisions though in the meantime the M. P. General Sales Tax Act, 1958 has been repealed on coming into force M. P. Vanijyik Kar Adhiniyam, 1994. Under section 61 of the Adhiniyam the repeal shall not affect the previous operations of the Act or affect any right privilege/obligation or liability acquired. As the petitioners have prayed for refund of the tax collected on "exercise books" on the ground that the same has been prepared from the paper purchased from outside. The claim of the petitioners was required to be adjudicated and hence we have addressed ourselves to the validity of provisions which granted some exemption in the rate of tax on certain condition.
4. It is put forth in the writ application that because of the amendment of the notification a situation has emerged to the effect that when the petitioners manufacture "exercise books" out of paper purchased from dealers registered in M.P. there would be exemption of sales tax as per the notification but when paper is purchase from a dealer registered in some other States full amount of sales tax would be paid on sale of "exercise books" made from such paper. It is averred in the application that the amendment and the notification are ultra vires inasmuch as they violate articles 301 and 304(a) of the Constitution as it obstructs and affects the freedom of trade, commerce and intercourse throughout the territory of India and also creates a restriction in movement of goods. Challenge is also to the effect that the provisions come within the inhibition of articles 14 and 19(1)(g) of the Constitution. Because of what we are going to state later on, it is essential to set forth the relevant prayers made in the petition :
"(i) That section 30 of the Amendment Act and the impugned notification, annexure A, may be declared to be ultra vires and unconstitutional;
(ii) That the respondents be restrained from levying, imposing or collecting any tax under the M.P. General Sales Tax Act on 'exercise books' made from paper purchased from dealers in other States duri
