AI Structured Summary
Not yet generated for this judgment
Judgment
Entry No : 71 of Schedule B of SRO No. 80 dated 1231982 issued under subsec. (1) of Sec. 4 of the J&K GST Act. 'here in after ailed the Act',
is sought to be quashed on the ground of being ultravires of the provisions of Article 14, 301 and 304 (a) of the Constitution of India in so far as it
gives exemption to locally purchased second hand clothes and imposes tax on old clothes brought from outside the State. It is further prayed that
the imposition of ax at the rate of 8% on second hand clothes be held ultravires and demand created by respondent No : 2 directing the payment
of the tax imposed under the aforesaid entry be quashed.
The petitioner who is carrying on the business of second hand clothes imported from other States was imposed tax by the respondent No : 2 vide
his order dated : 28th Aug. 1986 who issued demand notice for Rs. 7641.32 for the accounting period 198485. It is alleged that the second hand
clothes were exempted from the sale tax in the State upto 31st March, 1982 vide entry 62 of Schedule II of SRO 157 dated 1551965. However
vide the entry impugned the second hand clothes imported from outside the State were subjected to tax but such clothes which were not imported
from outside the State were exempted from payment of tax. It is submitted that the impugned entry puts restriction on the free flow of trade,
commerce and intercourse in contravention of the provisions of Art. 301 of the Fedral constitution. The imposition of tax of second hand clothes
imported from outside the State is stated to be discriminatory and also violative of Articles 14, and 304 (a) of the Constitution, in as much as by
the impugned entry the burden of sale tax and surcharge is imposed only on second hand clothes imported from outside the State and exempting
such clothes locally purchased. The sale of second hand clothes imported from outside the State is stated to have been put at a dis advadtage
against the sale of second hand clothes purchased locally. It is submitted that ""the second hand clothes are covered by entries 3 and 4 of Schedule
AVIII and are liable to tax at the rate of 3% only.
The demand of interest for nonpayment of the tax is alleged to be illegal and it is submitted that no interest can be demanded from the petitioner by
the assessing authority.
Neither any counter affidavit has been filed nor any one appeared for the respondents.
I have heard the learned counsel for the petitioner and perused the record.
SRO No : 80 has been issued by the respondentState in exercise of the powers conferred by subsec. (1) of Sec. 4 of the Act directing that the tax
on the taxable turnover shall be at the rates specified in the Schedules annexed thereto. It is further provided that the goods, persons and classes of
persons as specified in class B shall be exempted from payment of tax leviable under the said Act in terms of Sec. 5 of the Act. From the
averments made in the petition supported by an affidavit and not controverted by the respondents it is proved that the second hand clothes and
second hand footwear were exempted from payment of the tax under the Act vide entry No : 62 Schedule II SRO 157 dated 15565 the aforesaid
SRO was superseded by SRO 80 referred to hereinabove. Entry 71 of the Schedule B reads as under :
Second hand clothes other than those imported from outside the State and second hand footwear"".
A clear distinction is made between second hand clothes imported from outside and those locally Purchased. It is settled preposition of law that the
State is entitled to make discrimination provided the same is reasonable and has some nexus to the object sought to be achieved. The
respondentState has chosen not to justify the discrimination made wide the impugned entry between the second hand clothes from imported
outside the State and those purchased locally. The respondents were under an obligation to justify the classification made and show the relation of
such discrimination to the object or purpose sought to be achieved.
The person dealing with the business of second hand clothes purchased locally and those imported from outside the State have exfacie been
discriminated vide the Act of the respondent by issuance of the impugned entry. The constitutional framers had provided sufficient safeguards to
ensure that the economic unity of the country is not broken by internal barriers. The regulations, licencing, charging for maintenance of roads, price
control, economic and social planning, prescribing minimum wages and regulating taxation do not hamper trade in all circumstances unless it is
shown that they are colourable measures to restrict the flow of trade, commerce and intercourse. Tax cannot be imposed in such a manner to put a
particular trade to disadvantageous position in comparison to similar trade carried on by other persons. Any executive action which takes away the
freedum conferred by Art. 301 of the Constitution can be challanged in a petition under Art. 226 of the constitution irrespective of the fact that
such violation is not a violation of a fundamental right. The State has also the power to impose on goods imported from other States or the Union
territories any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods
so imported and goods so manufactured or produced. If a particular class of good in a State are exempted from any tax, that tax cannot be levied
upon imported goods from other States and if imposed has to be held to be invalid. The tests which are applicable to determine the reasonableness
under part III of the Constitution are also applicable to, determine reasonableness under Act. 304 of the Constitution. In weston Electronics and
Anr. Vs. State of Gujarat and Anr. AIR 1988 SC 2C38 it was held that the discrimination effected by applying different rates of sales tax between
electronic goods imported into the state of Gujarat and goods manufactured within that state was unreasonable, unconstitutional and violative of the
provisions of fundamental rights and the constitutional guarantees. While dealing with the scope of Articles 301, 303 and 304 of the Constitution of
India, the Supreme Court held;
Art. 301 of the constitution declares that subject to the provisions of part XIII"" trade, commerce and intercourse throughout the territory of India
shall be free'. Clause (1) of Art. 303 prohibits ""the legislature of a State from making any law giving or authorising the giving of, any preference to
one State of another, or making, or authorising the making of, any discrimination between one State and another, by virtue of any entry relating to
trade and commerce in any of the lists in the Seventh Schedule"". The terms of the prohibition are subject to Art. 304, which provides : ""Not with
standing anything in Art. 301 or Art. 303. Legislature of a State may be law
(a) impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State are
subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and (b) impose such reasonable
restriction on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest :
Provided that no Bill or amendment for the purpose of Clause (b) shall be introduced or moved in the legislature or a State without the previous
sanction of the president.
It appears that while a State Legislature may enact a law imposing a tax on goods imported from other States as is levied on similar goods
manufactured in that State the imposition must not be such as to discriminate between goods so imported and goods so manufactured. In the Firm
A.T.B. Mehtab Majid and Co, Vs. State of Madras, 1963 Suppl. (2) SGR 435; (AIR 1963 SC 928) this court was called upon to consider the
validity of R. 16 of the Madras General Sales Tax Rules under which tanned hides and skins imported from outside the State of Madras were
subject to a higher rate of tax than the tax imposed on hides and skins tanned and sold within the State. Referring to its earlier decision in ' Atiabari
Tea Co. Ltd. Vs. State of Assam, (1961) 1 SCR 809 (AIR 1961 SC 232) and Automobile Transport (Rajasthan)Ltd. Vs. State of Rajasthan
(1963) 1 SCR 491, (AIR 1962 SC 1406), where the scope and significance of Art. 301 were explained, it proceeded to observe :
'It is therefore, now well settled that taxing law can be restrictions on trade commerce and intercourse, if they hamper the flow of trade and if they
are not what can be termed to be compensatory taxes or regulatory measures Sales tax of the kind under consideration here, cannot be said to be
a measure regulating any trade or a compensatory tax levied for the use of trading facilities. Sales tax, which has the effect of discriminating goods
of one State and goods of another, may affect the free flow of trade and it will then offend against Art. 301 and will be valid only if it comes within
the terms of Art. 304 (a)"".
Art. 304 (1) enables the Legislature of a State to make laws affecting the trade, commerce and intercourse. It enables the imposition of taxes on
goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate between the goods manufactured or
produced in that State and the goods which are imported from other States. This means that if the effect of the salestax on tanned hides or skins
imported outsides is that the latter becomes subject to a higher tax by the application of the proviso to subrule (2) of R.16 of the Rules, then the tax
is discriminatory and unconstitutional and must be struck down.
Sales tax imposed on the sale of lottery tickets and exemption granted to the State Lottery issued by the Government of Tamil Nadu was
considered by the Supreme Court in H. Anraj Vs. Govt. of Tamil Nadu : AIR 1986 SC : 63 and held :
These aspects cannot obliterate the glaring fact that because of the Notification imported goods are at a disadvantage as compared to indigenous
goods, both being of identical type. The real question is whether the direct and immediate result of the impugned Notification is to impose an
unfavourable and discriminatory tax burden on the imported goods (here lottery tickets of other State) when they are sold within the State of Tamil
Nadu as against indigenous goods (Tamil Nadu Government lottery tickets) when these are sold within the State from the point of view of the
purchaser and this question has to be considered from the normal business or commercial point of view and indisputably if the question is so
considered the impugned Notification will have to be regarded as directly and immediately hampering free flow of trade, commerce and
intercourse. Discriminatory treatment in the matter of levying the sales tax on imported lottery tickets which are similar to the ones issued by the
State Govt. so as to hamper free flow of trade, commerce and intercourse is writ large on the face of the impugned Notification and in my view the
same is clearly violative of Art. 301 read with Art. 304 (a) of the Constitution"".
In the instant case the imposition of sale tax upon the second ban' clothes imported from outside the State of J&K. makes the discrimination and
puts the persons dealing in trade to a disadvantage as compared to those dealing with such clothes not imported from outside the State. There
being no nexus between any object sought to be achieved, the entry No. 71 cannot be held to be made on the basis of reasonable classification.
Entry No. 71 of Schedule B of SRO 80 dated 1231982 in so far as it makes discrimination between two types of dealers is unconstitional being
contrary to provisions of Articles 14,19,301 and 304 of the constitution and cannot be sustained, The entry No. 71 which has been held to be ?n
act of executive discremination by the respondent State is, therefore, held unconstitutional and declared void not affecting the rights of the
petitioner.
In view of the fact that entry No. 71 of Schedule B of SRO 80 dated 1231982 has been held to be discriminatory and unconstitional, the second
hand clothes and footwear are to be treated at par for the purposes of taxation under the Act. The assessment of the petitioner made on the basis
of entry No. 71 of Schedule B of SRO 80 dated 1231982 is therefore set aside and the petitioner held not liable to pay the amount demanded
under the entry which has been declared unconstitutional and discriminatory. This would not howevre debar the respondents from imposing the tax
upon deaers dealing in the trade or second hand clothes whether imported from outside or locally purchased. Under the circumstances the parties
are leet to bear their own costs. The interim order of the court dated 8121986 shall stand vacated and CMP No : 2489/1986 disposed off.