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Judgment
Veeraswami, C.J.—The assessee, who is the common respondent, was an unlicensed dealer in hides and skins assessed to sales tax on
March, 23, 1956 and his appeal therefrom had failed. Thereafter, he paid part of the tax, and, while he remained in arrears of the balance, he took
out two petitions under Article 226 of the Constitution, one in April, 1964 to forbid the Revenue from collecting the balance of the tax, and, the
other in August, 1966 to quash the order dismissing his appeal. These two petitions were allowed by this Court following Hajee Abdul Wahab &
Sons v. Govt. of Madras, (1966) 17 STC 284 (Mad). In that case Srinivasan and Venkatadri, JJ., were of the view that since by the rules framed
under the Madras General Sales Tax Act, 1939, relevant to the assessment year 1953-54, tanned hides and skins as one category had been taxed
differently in the hands of the local tanner and in the hands of the person who imported them, either dressed or undressed, tanned and sold, the
provisions, were discriminatory as offending Article 304 of the Constitution. The Revenue has come up in appeals.
When the appeals came up before another Division Bench, to which one of us was a party, it was felt that (1966) 17 STC 284 required
reconsideration, and, as a result, the appeals have been placed before us.
In order to appreciate the point at issue, it is first necessary to notice the relative statutory provisions and the rules made thereunder relevant to
charge of transactions in hides and skins during the assessment year 1953-54. Section 3 of the Madras General Sales Tax Act, 1939, was the
charging section. The scheme envisaged by sub-section (1) of that section was multi-point tax. Every dealer should pay for each year a tax on his
total turnover for the year and the tax should be calculated at the flat rate of three pies for every rupee in the turnover. The proviso to the Sub-
section was added in 1949 with which we are not concerned at this moment. The scheme of multi-point tax was of course subject to the other
provisions of the Act. Sub-section (2), before its amendment by Act 20 of 1954, charged in addition, in respect of certain goods specified therein,
a single-point tax, also specified in the sub-section. So far as hides and skins were concerned. Section 5 made a departure from the general
scheme of multi-point tax on general Roods and provided that such sales of hides and skins, whether tanned or untanned, should be liable to tax,
u/s 3(1) only at such single point in the series of sales by successive dealers as might be prescribed. Sub-section (4) of Section 3 directed that
turnover should be determined in accordance with such rules as might be prescribed. Section 6-A, which was inserted in a substituted form by the
Madras General Sales Tax (Amendment) Act, 1947, provided for cases of liability to tax of persons not observing conditions of licence. We shall
refer to this section in more detail presently. The prescription contemplated by Section 5 took the form of Rule 16 of the Turnover Rules. This rule
had, as it stood originally and during the relevant period, five clauses. The first said that in the case of hides and skins the tax would be payable u/s
3(1) in accordance with the rest of the clauses in the rule. Sub-rule (2) dealt with charge on sales of untanned hides or skins by licensed dealers in
such goods. Under this clause tax on such sales should not be levied except at the stage at which the hides or skins were sold to a tanner in the
State or sold for export outside the State. But, in the case of the former, the tax should be levied from the tanner on the amount for which the hides
or skins were bought by him, and, in the case of the latter, any such untanned hides or skins which were not sold to a tanner inside the State but
were exported outside the State, the tax should be levied from the dealer who was the last dealer not exempt from taxation u/s 3(3) who bought
them in the State on the amount for which they were bought by him. Clause (3) was concerned with taxation on sales by licensed dealers of hides
or skins which had been tanned within the State. Such sales would be exempt from taxation provided the hides or skins had been tanned in a
tannery which had paid the tax leviable under the Act. If that was not so, that is to say, if tax had not been paid at the earlier stage, the sales of
such hides or skins were made liable to tax at the stage of the first sale of such goods on the amount for which the sales hides and skins were
made.
It may be seen from what we have said of Section 5 and Rule 16(1) to (4), a scheme of single-point taxation had been introduced, but, confined
to dealings between licensed dealers in which tax was levied in the case of untanned hides or skins at the stage of their first purchase and on the
purchase value, and in the case of sales of tanned hides or skins at the stage of their sale and on the sale value, provided the goods involved in such
sales had not suffered tax at their raw stage earlier.
Sub-rule (5) of Rule 16 was to the effect that sales of hides or skins by dealers other than licensed dealers in hides or skins should, subject to
the provisions of Section 3, be liable to tax on each occasion of sale. That meant that the consequence of not taking out a licence by a dealer hi
hides and skins was that he would not be entitled to the benefit of the single-point scheme of taxation. This sub-rule was but stating the true legal
position of failure to take out a licence, and, the position would have been the eame even without Sub-rule (5). This is especially so because of the
specific provisions of Section 6-A. According to this section, if any restrictions, or conditions prescribed u/s 5 were contravened or not observed
by a dealer, or if a licence was not taken out or renewed, the sales of the dealer would be subject to charge as if Section 5 did not apply to the
sales by such dealers.
In passing we may mention that In V.M. Syed Mohammad and Company Vs. The State of Andhra, it had been conceded for the Revenue that
Sub-rule (5) of Rule 16 of the Turnover Rules was inconsistent with the scheme of single point taxation and was therefore, ultra vires. But the
validity of this concession, which was the basis for invalidating the sub-rule in that case, was contested by the Revenue eventually in The State of
Madras and Another Vs. M.A. Noor Mohammed and Co., before the Supreme Court and successfully. The Supreme Court held that there was
no inconsistency between Rule 16(5) and Section 5(vi) of the Act and that Section 5(vi) was but a concessional provision for making the sales of
hides and skins liable to taxation at a single point, but that was subject to the restrictions and conditions prescribed in the rules, and, one of these
was taking out a licence. It was therefore, pointed out by the Supreme Court that all that Rule 16(5) did was to emphasise the consequences of
non-observance of the condition which Sections 5 (vi) and 6-A had in clear terms prescribed. It should be taken as, therefore, well settled that as
the Act and the Rules stood during the assessment year 1953-54, the consequence of not taking out a licence by a dealer In hides and skins was
that he would not be entitled to the benefit of the single point scheme of taxation and would be exposed to multi-point charges. Rule 16(2) to (4)
were amended subsequently, but, in ubstance, the scheme of single-point taxation remained the same. With reference to the amended Turnover
Rule 16 its validity, in the context of Article 301 of the Constitution read with Article 304(a) was contested with the result that in Firm A.T.B.
Mehtab Majid and Co. Vs. State of Madras and Another, , the Supreme Court ruled that the provisions of Rule 16(2) discriminated between
hides and skins imported from outside the State and those manufactured or produced inside the State and therefore, contravened the provisions of
Article 304(a) of the Constitution of India and were invalid. The reasoning for the decision is to be found in the following observation:
The grievance arises on account of the amount of tax levied being different on account of the existence of substantial disparity in the price of the
raw hides or skins and of those hides or skins after they had been tanned, though the rate is the same u/s 3(1) (b) of the Act. If the dealer has
purchased the raw hides or skin in the State, he does not pay on the sale price of the tanned hides or skins; he pays on the purchase price only. If
the dealer purchases raw hides or skins from outside the State and tans them Within the State, he will be liable to pay sales tax on the sale price of
the tanned hides or skins. He too will have to pay more for even though the hides and skins are tanned within the State, merely on account of his
having imported the hides and skins from outside, and having not therefore, paid any tax under Sub-rule (1).
The discrimination thus found flowed from the nature of the single point scheme of taxation relating to hides and skins and on the differential
quantum of turnover to which the same rate was applied, the difference arising by the accident of tanned hides and skins being imported and
suffering tax on the sale turnover and sales of locally tanned goods not suffering such tax because the corresponding untanned hides or skins
constituting a lesser turnover having suffered tax.
In Hajee Abdul Shakoor & Co. v. State of Madras, (1964) 15 STC 719 : AIR 1964 SC 1729 the discrimination resulted from the differential
in rate applied, though there was the same quantum of turnover, in the case of sales of imported and local tanned goods. This is what the Supreme
Court stated:
The rate of tax on the sale of tanned hides and skins is 2% on the purchase price of those hides and skins in the untanned condition while the rate
of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per rupee. The difference in tax works out to 7/1600th of a
rupee, i.e. a little less than 1/2 naya paise per rupee.
That was the discrimination which offended Article 304(a) of the Constitution.
Mainly on the strength of Firm A.T.B. Mehtab Majid and Co. Vs. State of Madras and Another, the assessee, who is the respondent, contends
that the benefit of the two decisions should be extended to his case too though he was an unlicensed dealer. The argument is that in the context of
Article 301 the restrictions on trade, commerce and intercourse among States envisaged by Article 304(a) are related to the goods without
reference to anything else and that therefore, irrespective of whether a dealer in hides and skins is licensed or not, if on a survey of the generality of
the flow of trade and commerce locally and in the context of inter-State transactions there is a difference in the incidence of taxation, that would
suffice to invalidate the relative charging provisions as violating Article 304(a). We are unable to accept this contention in that broad form. It is no
doubt true that Article 304(a) speaks of goods imported vis-a-vis similar goods in the taxing State. But the Article does not stop there. It
contemplates countervailing duties being permissible in respect of imported and similar local goods provided they do not result in discrimination.
Tax on imported goods by Article 304(a) is permitted if similar goods manufactured or produced in the taxing State are subjected to similar tax.
The implication necessarily is that not only the article is concerned with imported and similar local goods but also the incidence of taxation which
would have to be ascertained with reference to the relative statutory provisions. Firm A.T.B. Mehtab Majid and Co. Vs. State of Madras and
Another, were decided in the context of Turnover Rule 16 and of the Single point scheme of taxation applicable to transactions in hides and skins,
dressed or undressed, imported or local. It is only in that scheme of taxation would there be any occasion for a classification between tax on
purchase value and exemption at the sale point relatable to the same goods, first in the raw stage and in the second stage of sale of dressed hides
and skins. It is this aspect engendered by the structure of turnover Rule 16 that gave rise to a differential in the turnover of purchase of untanned
hides and skins and sale of dressed hides and skins made out of them, vis-a-vis, the turnover of Imported hides and skins that were sold and, on
an equalisation, after Firm A.T.B. Mehtab Majid and Co. Vs. State of Madras and Another, of the turnovers and removal of the differential in the
quantum of turnover brought to charge, there remained, by reason of the language of the rule, a differential in rates which brought about a
discrimination, as held in (1964) 15 STC 719 : AIR 1964 SC 1729 between imported tanned hides and skins and locally made hides and skins,
on their sale, the discrimination in either case, entirely dependant, on, as we said, a scheme of single point taxation relating to hides and skins, as
noticed by us supra.
So far as the assessee in these appeals is concerned, on account of the fact that he was an unlicensed dealer during the assessment year in
question, he would not in accordance with The State of Madras and Another Vs. M.A. Noor Mohammed and Co., be entitled to the benefit of the
single point taxation and that would mean that his sales of hides and skins, which he imported, tanned and told, would attract tax u/s 3(1) itself
without reference to Section 5 and the corresponding Turnover Rule 16. That being the case, we are of opinion that he cannot press into service
the differential treatment in taxation arising out of Rule 16 and contend that, by that yard-stick, his assessments on the basis of multi-point scheme
of taxatioa should be quashed. In such a scheme of taxation, there will be no room whatever for discrimination, as contemplated by Article 304(a),
because of charge being levied at the point of every transaction, not merely at any prescribed stage or point. To illustrate, supposing A sold raw
hides and skins to B for Rs 100/-and C. tanned them and sold them at the value of Rs. 150/-. Suppose also that C, another dealer, who is like A
or B unlicensed, imported similar quantity of un-tanned hides or skins, tanned them locally and sold for Rs. 150/-. In every one of these cases,
under the multi-point scheme of taxation, the turnover in each case would be liable to charge. There will then be no discrimination between B and
C, for, in either case, the turnover would only be Rs. 150/- and the same rate would be applied. There can be no complaint also that A suffers
lesser tax on a lesser turnover while B, on a higher turnover, did at the same rate. Each of A, B, and C had been equally treated and no differential
is evident neither in the quantum or in the rate applied thereto. That is the result of applying the statutory provisions relating to unlicensed dealers.
We do not think that the assessee, as an unlicensed dealer, can invoke the position, u/s 5 read with Rule 16 and then plead discrimination because,
in actual point of tax, the charge in respect of his turnover was under the multi-point scheme of taxation.
On that view, of the matter, we are, with due respect, unable to concur on that question with the view in (1966) 17 STC 284 . The appeals are
therefore allowed but with no costs.