ition Civil No 422 of 1987
Under Article 32 of the Constitution of India
Dr YS Chitale KJ John Atul Chitale and Miss Naina for the Petitioners
577 K Parasaran Attorney General TS Krishnamoorthy Iyer GA Shah V Jagannatha Rao Advocate General BB Ahuja Miss A Subhashini TVSN Chari Miss Vrinda Grover Badri Nath Dr NM Ghatate M Veerappa AM Khanwilkar AS Bhasme R Mohan R Ayyam Perumal A Subha Rao MN Shroff JR Das DK Sinha SN Khare TC Sharma SK Bhattacharya Kailash Vasudev and Probir Choudhary for the Respondents
The Judgment of the Court was delivered by RANGANATH MISRA J
The India Cement Limited Chettinad Cement Corporation Dalmia Cement Bharat Limited and Tamil Nadu Cement Corporation Limited being petitioners 1 6 9 and 12 in this application under Article 32 of the Constitution are manufacturers of cement each of them having its manufacturing unit as also registered offices located within the State of Tamil Nadu petitioners 2 7 and 10 are shareholders of petitioners 1 6 and 9 respectively and are citizens of India while the remaining petitioners are authorised stockists of the different manufacturers having their places of business at different places located in the States of Karnataka Kerala and Tamil Nadu
Manufacturer petitioners have been selling their cement in the States of Karnataka and Kerala and for such purpose they have places of business within those States
The State of Andhra Pradesh in exercise of powers conferred under sub section  1 of Section 9 of the Andhra Pradesh General Sales Tax Act 1957 made an order on January 27 1987 Annexure A reducing the rate of tax on sale of cement made to the manufacturing units of cement products in the State of Andhra Pradesh
That order runs thus In exercise of the powers conferred by sub section  1 of Section 9 of the Andhra Pradesh General Sales Tax Act 1957 Andhra Pradesh Act No VI of 1957 the Governor of Andhra Pradesh hereby directs that the tax leviable under clause a of sub section 2 of Section 5 read with Item 18 in the First Schedule to the said Act shall in respect of Cement manufactured by Cement Factories situated in the State and sold to the manufacturing units situated within the State for the purpose of manufacture of Cement products such as Cement sheets Asbestos Sheets Cement flooring stones Cement concrete pipes hume pipes Cement water and sanitary fitting concrete poles and other Cement products be at the reduced rate of four paise in the rupee at the point of first sale in the State with effect on 578 and from the Ist January 1987
 On the same day another order was made to the following effect In exercise of the powers conferred by sub section 5 of Section 8 of the Central Act 74 of 1956 Governor of Andhra Pradesh hereby directs that the tax leviable under the said Act shall in respect of the sales of cement in the course of inter State trade or commerce be at a lower rate of two per cent with or without C  Form with effect from 1st January 1987
 The State of Karnataka issued the following notification on 2821987 In exercise of the powers conferred by sub section 5 of Section 8 of the Central Act 74 of 1956 the Government of Karnataka being satisfied that it is necessary so to do in public interest hereby reduces with immediate effect the rate of tax payable under the said Act on the sale of cement made in the course of inter State trade or commerce from 15 to 2
 Petitioners in this application challenge the vires of Section 85 of the Central Act 74 of 1956 and the notifications referred to above as ultra vires the provisions contained in Part XIII of the Constitution providing that trade commerce and inter course throughout the territory of India shall be free
According to the petitioners the three orders referred to above create trade barriers and directly impinge upon the freedom of trade commerce and inter course provided for in Article 301 of the Constitution
Since the vires of Section 85 of the Central Act 74 of 1956 had been assailed notice had been issued to the Union of India and learned Attorney General
Notice was also directed to all the States
Pursuant to the notice the State of Madhya Pradesh and Sikkim have filed their affidavits with reference to the challenge against Section 85 of the Act
At the hearing of the writ petition however learned counsel for the petitioners gave up that challenge
In that view of the matter reference to the counter affidavits of the States of Madhya Pradesh and Sikkim becomes irrelevant and the petition has to be con fined to the challenge against the two notifications of the State of T 579 Andhra Pradesh and the lone notification of the State of Karnataka
The return to the rule nisi on behalf of the State of Andhra Pradesh is made by the Commercial Tax officer Company Circle 11 Hyderabad
He has stated that the State of Andhra Pradesh has surplus production of cement
In 1986 87 the production of cement was around six million tonnes out of which local consumption was to the tune of about three million tonnes
In 1987 88 and 1988 89 production was likely to go up by 15 million tonnes and three million tonnes respectively and the local consumption was estimated to be within the range of 40 of the production
60 of the manufactured cement had therefore to be marketed out
Within the State there were certain bulk consumers of cement who use the commodity as raw material for manufacturing Cement sheets Asbestos sheets hume pipes Cement bricks tiles etc
Such bulk consumers found products of cement from outside the State to be cheaper in view of the higher incidence of local State tax
In this background Government considered it necessary to reduce the tax rate under the Andhra Pradesh General Sales Tax Act to help the Cement Industries in easing out their marketing difficulty
Keeping in view the fact that marketing of indigenous cement had to be inside the State Government decided to reduce the rate of tax under the Andhra Pradesh General Sales Tax Act to 4
That is how the first notification was made reducing the rate of tax in respect of sale of cement to local manufacturers as aforesaid
Government by the second notification reduced the rate of tax leviable under the in course of inter State trade or commerce to 2 with or without C  Form with effect from 111987
In another place of the same affidavit it has been pleaded  The classification of the manufacturers and dealers in cement of Andhra Pradesh vis a vis the other States is a reasonable classification and it is not violative of Articles 14 and 191g
The concession in the rate of tax extended by the State of Andhra Pradesh to the manufacturers and dealers of Andhra Pradesh is well within the statutory powers of the State
It does not effect the business interest of the manufacturers and dealers of other States
It is the policy of the State of Andhra Pradesh to help the cement Industries to organise the marketability of their full production to improve the overall industrial activity of the country
Hence this contention tenable
580 As already mentioned earlier the notifications were issued in public interest and in the interest of State revenue
Yet at another place in the return
it has been stated The contention that the policy of the Legislature is to promote sales only through registered dealers is not based on correct appreciation of the law
Any law to that effect would impose a restriction on the rights of the common man and would result in the violation of the provisions of the Constitution which ensures certain fundamental rights to the common man   The State of Karnataka chose not to make any return to the rule nisi but its counsel joined at the hearing and contended that the order made by the Karnataka State did not affect the provisions in Part XIII of the Constitution
In view of the fact that counsel for petitioners gave up the challenge to the vires of Section 85 of the  learned Attorney General confined his submissions to the scope of of the Constitution and the effect of the notifications on the scheme contained in that part
In case the notifications operate against the provisions of Article 3o1 of the Constitution they have got to satisfy the requirements contained in that Part
We shall now refer to the relevant Articles and to several decisions of this Court which are binding precedents
The title for Part XIII is Trade Commerce and Inter course within the Territory of India
 The relevant Articles in that Part are 30 1 302 303 and 304
We may now reproduce them 3o1
Subject to the other provisions of this part trade commerce and intercourse throughout the territory of India shall be free
Parliament may by law impose such restrictions on the freedom of trade commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest underlining is ours 303 
 1 Notwithstanding anything in Article 302 581 neither Parliament nor the legislature of a State shall have power to make any law giving or authorising the giving or any preference to one State over 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
2 Nothing in clause 1 shall prevent Parliament from making any law giving or authorising the giving of
any preference or making or authorising the making of
any discrimination if it is declared by such law that it is necessary to do so for the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India
Notwithstanding anything in Article 30 1 or Article 303 the Legislature of a State may by 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 restrictions 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 of a State without the previous sanction of the President  Judicial authority in regard to interpretation of this Part of the Constitution is abundant
We shall presently refer to some of the decisions of this Court 
In Ataibari Tea Co Ltd vs The State of Assam  Ors 1961 I SCR 609 a Constitution Bench of this Court was testing the validity of the provisions of the Assam Taxation on goods carried by Roads and Inland Waterways Act 1954 by applying the provisions of this Part of the Constitution
At page 830 of the Reports
Sinha CJ stated Article 301with which part III commencescon 582 tains the crucial words shall be free and provides the key to the solution of the problems posed by the whole Part
The freedom declared by this Article is not an absolute freedom from all legislations
As already indicated the several entries in the three Lists would suggest that both Parliament and State Legislatures have been given the power to legislate in respect of trade commerce and intercourse but it is equally clear that legislation should not have the effect of putting impediments in the way of free flow of trade and commerce
In my opinion it is equally clear that the freedom envisaged by the Article is not an absolute freedom from the incidence of taxation in respect of trade commerce and intercourse as shown by entries 89 and 92A in the List I entries 52 54 and 56 to 6 in List II and entry 35 in List III
All these entries in terms speak of taxation in relation to different aspects of trade commerce and intercourse
The Union and State Legislature therefore have the power to legislate by way of taxation in respect of trade commerce and intercourse so as not to erect trade barriers tariff walls or imposts which have a deleterious effect on the free flow of trade commerce and intercourse
That freedom has further been circumscribed by the power vested in Parliament or in the Legislature of a State to impose restrictions in public interest
Parliament has further been authorised to legislate in the way of giving preference or making discrimination in certain strictly limited circumstances indicated in clause 2 of Article 303
Thus on a fair construction of the provisions of Part XIII the following propositions emerge 1 trade commerce and intercourse throughout the territory of India are not absolutely free but are subject to certain powers of legislation by Parliament or the Legislature of a State 2 the freedom declared by Article 301 does not mean freedom from taxation simpliciter but does not mean freedom from taxation which has the effect of directly impeding the free flow of trade commerce and intercourse 3 the freedom envisaged in Article 301 is subject to non discriminatory restrictions imposed by Parliament in public interest Article 302 4 even discriminatory or preferential legislation may be made by Parliament for the purpose of dealing with an emergency like a scarcity of goods in any part of India Article 3032 5 reasonable restrictions may be imposed by the Legislature of a State in the public interest 583 Article 304b 6 non discriminatory taxes may be imposed by the Legislature of a State on goods imported from another State or other States if similar taxes are imposed on goods produced or manufactured in that State Article 304a and lastly 7 restrictions imposed by existing laws have been continued except in so far as the President may by order otherwise direct Article 305 Gajendragadkar J as he then was at page 843 of the Reports observed In drafting the relevant Articles of Part XIII the makers of the Constitution were fully conscious that economic unity was absolutely essential for the stability and progress of the federal policy which had been adopted by the Constitution for the governance of the country
Political freedom which had been won and political unity which had been accomplished by the Constitution had to be sustained and strengthened by the bond of economic unity
It was realised that in course of time different political parties believing in different economic theories or idealogies may come in power in the several constituent units of the Union and that may conceivably give rise to local and regional pulls and pressures in economic matters
Local or regional fears or apprehensions raised by local or regional problems may persuade the State legislatures to adopt remedial measures intended solely for the protection of the regional interests without due regard to their effect on the economy of the nation as a whole
The object of Part XIII was to avoid such a possibility
Free movement and exchange of goods throughout the territory of India is essential for the economy of the nation and for sustaining and improving living standards of the country
The provision contained in Article 301 guaranting the freedom
Of trade commerce and intercourse is not a declaration of a mere platitude or the expression of a pious hope of declaratory character it is not also a mere statement of a Directive Principle of State Policy it embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country    584 Then came the case of The Automobile Transport Rajasthan Limited vs The State of Rajasthan  orS 1963 SCR 491 Das J who spoke for the Constitution Bench referred to the views expressed in Atiabari Tea Company s case supra and proceeded to say We have tried to summarise above the various stand points and views which were canvassed before us and we shall now proceed to consider which according to us is the correct interpretation of the relevant Articles in Part XIII of the Constitution
We may first take the widest view the view expressed by Shah J in the Atiabari Tea C0mpany s case a view which has been supported by the appellants and one or two of the interveners before us
This view we apprehend is based on a purely textual interpretation of the relevant Articles in Part XIII of the Constitution and this textual interpretation proceeds in the following way
Article 30 I which is in general terms and is made subject to the other provisions of Part XIII imposes a general limitation on the exercise of legislative powers whether by the Union or the States under any of the topics taxation topics as well as other topics enumerated in the three Lists of the Seventh Schedule in order to make certain trade commerce and intercourse throughout the territory of India shall be free 
Having placed a general limitation on the exercise of legislative powers by Parliament and the State Legislatures Article 302 relaxes that restriction in favour of Parliament by providing that that authority may by law impose such restrictions on the freedom of trade commerce and intercourse between one State and another or within any part of the territory of India as may be required in the public interest 
Having relaxed the restriction in respect of Parliament under Article 302 a restriction is put up on the relaxation by Article 3031 to the effect that Parliament shall not have the power to make any law giving any preference to any one State over another or discriminate in between one State and another by virtue of any entry relating to trade and commerce in Lists I and III of the Seventh Schedule
Articles 303 1 which places a ban on Parliament against the giving of preferences to one State over another or of discriminating between one State and another also provides that the same kind of ban should be placed upon the State Legislature also legislating by virtue of any entry relating to trade and commerce in Lists II and 585 III of the Seventh Schedule
Article 3032 again carves out an exception to the restriction placed by Article 303 1 on the powers of Parliament by providing that nothing in Article 303a shall prevent Parliament from making any law giving preference to one State over another or discriminating between one State and another if it is necessary to do so tor the purpose of dealing with a situation arising from scarcity of goods in any part of the territory of India
This exception applies only to Parliament and not to the State Legislatures
Article 304 comprises two clauses and each clause operates as a proviso to Articles 301 and 303
Clause a of that Article provides that the Legislature of a State may impose on goods imported from other States and 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 
This clause therefore permits the levy on goods from sister States any tax which similar gods manufactured or produced in that State are subject to under its taxing laws
In other words goods imported from sister States are placed on par with similar goods manufactured or produced inside the State in regard to State taxation within the State allocated field
Thus the States in India have full powers of imposing what in American State Legislation is called the use tax gross receipts tax etc not to speak of the familiar property tax subject only to the condition that such tax is imposed on all goods of the same kind produced or manufactured in the taxing State although such taxation is undoubtedly calculated to fetter interstate trade and commerce 
Now clause b of Article 304 provides that notwithstanding anything in Article 301 or 303 the Legislature of a State may by law imposes such reasonable restrictions on the freedom of trade commerce or intercourse with or within that State as may be required in the public interest
The proviso to clause b says that no bill or amendment for the purpose of clause b shall be introduced or moved in the Legislature of a State without the previous sanction of the President
This provision appears to be the State analogue to the Union Parliament s authority defined by Article 302 in spite of the omission of the word reasonable  before the word restrictions  in the latter Article
Leaving aside the pre requisite of previous Presidential sanction for the validity of State 586 Legislation under clause b provided in the proviso thereto there are two important differences between Arti cles 302 and 304b which require special mention
The first is that while the power of Parliament under Article 302 is subject to the prohibition of preferences and discrimina tions decreed byArticle 3031 unless Parliament makes the declaration contained in Article 3032 the State s power contained in Article 304b is made expressly free from the prohibition contained in Article 3031 because the open ing words of Article 304 contain a non obstante clause both to Article 30 1 and Article 303
The second difference spr ings from the fact that while Parliament s to impose restricC tions under Article 302 upon freedom of commerce in the public interest is not subject to the requirement of reason ableness the power of the State to impose restrictions on the freedom of commerce in the public interest under Arti cle 304 is subject to the condition that they are reason able
The next authority to which we may now refer is the case of State of Madras vs NK Nataraja Mudaliar  Shah J as he then was referred to Part XIII of the Constitution at page 839 of the Reports
On page 841 of the Reports the learned Judge proceeded to say Tax under the on inter State sales it must be noticed is in its essence a tax which encumbers movement of trade or commerce since by the definition in section 3 of the Act a sale or purchase of goods is deemed to take place in the course of inter State trade or commerce if it a occasions the movement of goods from one State to another b is effected by a transfer of docu ments of title to the goods during their movement from one State to another
The question which then falls to be determined is whether the tax imposed in the present case is saved by the operation of the other provisions of Part XIII
Article 302 of the Constitution provides that Parlia ment may by law impose such restrictions on the freedom of trade commerce or intercourse between one State and another or within any part of the territory of India as may be required in the public interest
Thereby the Parliament is notwithstanding the protection conferred by Article 30 1 authorised to impose restrictions on the freedom of trade 587 commerce or intercourse in the public interest
The expression between one State and another  does not imply that it is only intended to confer upon the Union Parliament the power to remove the fetter upon legislative authority only so as to keep trade commerce or intercourse free between one State Government and another
It is intended to declare trade commerce and intercourse free between residents in one State and residents in another State
That is clear because Article 302 expressly provides that on the freedom of trade restrictions may be imposed not only as between one State and another but also within any part of the territory of India
As we have already observed Article 30I does not merely protect inter State trade or operate against inter State barriers all trade is protected whether it is intra State or inter State by the prohibition imposed by Article 30I and there is nothing in the language or the context for restricting the power of the Parliament which it otherwise possesses in the public interest to impose restrictions on the freedom of trade commerce or intercoursc operative only as between one State and another as two entities
There is also no doubt that exercise of the power to tax may normally be presumed to be in the public interest  
It is worthwhile to refer to tne observations made by Hegde J
At page 855 of the Reports the learned Judge observed with reference to section 85 of the as follows Sub section 5 of section 8 provides for giving individual exemptions in public interest
Such a power is there in all taxation measures
It is to provide for unforeseen contingencies
Take for example when there was famine in Bihar if a dealer in Punjab had undertaken to sell goods to a charitable society in that State at a reasonable price for distribution to those who were starving it would have been in public interest if the Punjab Government had exempted that dealer from paying sales tax
Such a power cannot immediately or directly affect the free flow of trade
The power in question cannot be said to be bad
If there is any misuse of that power the same can be challenged
 The true purpose of the provisions contained in of the Constitution
as elucidated in the different decisions of the constitution 588 Benches is that the restriction provided for in Article 30 I can within A the ambit be limited by law made by the Parliament and the State Legislature
No power is vested in the executive authority to act in any manner which affects or hinders the very essence and thesis contained in the scheme of Part XIII of the Constitution
It is equally clear that the declaration contained in Part XIII of the Constitution is against creation of economic barriers andor pockets which would stand against the free flow of trade commerce and intercourse There can be no dispute that taxation is a deterrent against free flow
As a result of favourable or unfavourable treatment by way of taxation the course of flow of trade gets regulated either adversely or favourably
If the scheme which Part XIII guarantees has to be pre served in national interest it is necessary that the provisions in theArticle must be strictly complied with
One has to recall the farsighted observations of Gajendragadkar J in Atiabari Tea Co case supra and the observations then made obviously apply to cases of the type which is now before us
The two notifications of the Andhra Pradesh Government may now be referred to
Under the first notification made under section 91 of the Andhra Pradesh General Sales Tax Act the rate of tax has been reduced to 4 per cent in respect of sales made by indigenous cement manufacturers to manufacturers of cement products
Admit tedly the Tamil Nadu producers have sales officers in Andhra Pradeshand in regard to their sale to such manufacturers of cement products the benefit of reduced rate of taxation is not applicable
The prescribed rate of tax under the Andhra Act is 1375 per cent on cement
Thus under the Andhra Notification in regard to the local tax the indigenous producers of cement have a benefit of 975 per cent
The return made to the Court admits of the position that preference has been shown to local manufacturers
Two reasons have been advanced by way of justification
One is that it is beneficial to the State revenue and secondly it protects the local manufacturers too
The counsel for the State Government has not been able to demonstrate to us how the reduction in the rate of sales tax is beneficial to the State revenue
The other justification is what provisions of Part XIII of the Constitution do not permit
The reasonable restrictions contemplated in Part XIII have to be backed by law and not by executive action provided the same are within the limitations prescribed under the scheme of Part Xlll
Coming to the second notification relating to inter state transac 589 tions the justification pleaded by the State of Andhra Pradesh has already been extracted by us
We may usefully refer to the decision of the Constitution Bench in the case of Gwalior Rayon Silk Mfg
Wvg Co Ltd vs The Assistant Commissioner of Sales Tax  orS   At page 883 of the Reports Khanna J speaking for the Court observed It has been argued on behalf of the appellants that the fixation of rate of tax is a legislative function and as the Parliament has under section 82b of the Act not fixed the rate of central sales tax but has adopted the rate applicable to the sale or purchase of goods inside the appropriate State in case such rate exceeds lO per cent the Parliament has abdicated its legislative function
The above provision is consequently stated to be constitutionally invalid because of excessive delegation of legislative power
This contention in our opinion is not well founded
Section 82b of the Act has plainly been enacted with a view to prevent evasion of the payment of the central sales tax
The Act prescribed a low rate of tax of 3 per cent in the case of inter State sales only if the goods are sold to the Government or to a registered dealer other than the Government
In the case of such a registered dealer it is essential that the goods should be of the description mentioned in subsection 3 of section 8 of the Act
In order however to avail of the benefit of such a low rate of tax under section 81 of the Act it is also essential that the dealer selling the goods should furnish to the prescribed authority in the prescribed manner a declaration duly filled and signed by the registered dealer to whom the goods are sold containing the prescribed particulars in prescribed form obtained from the prescribed authority or if the goods are sold to the Government not being a registered dealer a certificate in the prescribed form duly filled and signed by a duly authorised officer of the Government
In cases not falling under sub section 1 the tax payable by any dealer in respect of inter State sale of declared goods is the rate applicable to the sale or purchase of such goods inside the appropriate state vide section 82 of the Act
As regards the goods other than the declared goods section 82b provides that the tax payable by any dealer on the sale of such goods in the course of inter State trade or commerce shall be calculated at the rate of lO per cent or at the rate 590 applicable to the sale or purchase of such goods inside the appropriate State whichever is higher
The question with which we are concerned is whether the Parliament is not fixing the rate itself and in adopting the rate applicable to the sale or purchase of goods inside the appropriate State has not laid down any legislative pol icy and has abdicated its legislative function
In this con nection we are of the view that a clear legislative policy can be found in the provisions of section 82b of the Act
The policy of the law in this respect is that in case the rate of local sales tax be less than 10 per cent in such an event the dealer if the case does not fall within section 81 of the Act should pay central sales tax at the rate of 10 per cent
If however the rate of local sales tax for the goods con cerned be more than 10 per cent in that event the policy is that the rate of the central sales tax shall also be the same as that of the local sales tax for the said goods
The object of law thus is that the rate of the central sales tax shall in no event be less than the rate of local sales tax for the goods in question though it may exceed the local rate in case thas t rate be less than 10 per cent
For example if the local rate of tax in the appropriate State for the non declared goods be 6 per cent in such an event a dealer whose case is not covered by section 81 of the Act would have to pay cent ral sales tax at a rate of lO per cent
In case however the rate of local sales tax for such goods be 12 per cent the rate of central sales tax would also be 12 per cent because otherwise if the rate of central sales tax were only lO per cent the unregistered dealer who purchases goods in the course of inter State trade would be in a better position than an intra State purchaser and there would be no disin centive to the dealers to desist from selling goods to unre gistered purchasers in the course of inter State trade
The object of the law apparently is to deter inter State sales to unregistered dealers as such inter State sales would faciliG tate evasion of tax
It is also not possible to fix the max imum rate under section 82b because the rate of local sales tax varies from State to State
The rate of local sales tax can also be changed by the State legislatures from time to time
It is not within the competence of the Parliament to fix the maximum rate of local sales tax
The fixation of the rate of local sales tax is essentially a matter for the State 591 Legislatures and the Parliament does not have any control in the matter
The Parliament has therefore necessarily if it wants to prevent evasion of payment of central sales tax to tag the rate of such tax with that of local sales tax in case the rate of local sales tax exceeds a particular limit
 Reference may also be made to another decision of the Constitution Bench in the case of State of Tamil Nadu etc
vs Sitalakshmi Mills etc
19741 1 SCR 1
At page 6 of the Reports Mathew J stated As already stated section 82b deals with sale of goods other than declared goods and it is confined to interState sale of goods to persons other than registered dealers or Governments
The rate of tax prescribed is 10 per cent or the rate of tax imposed on sale or purchase of goods inside the appropriate State whichever is higher
The report of the Taxation Inquiry Committee would indicate that the main reason for electing the provision was to canalize inter State trade through registered dealers over whom the appropriate Government has a great deal of control and thus to prevent evasion of tax Where transactions take place between registered dealers in one State and unregistered dealers or consumers in another this low rate of levy will not be suitable as it is likely to encourage avoidance of tax on more or less the same scale as the present provisions of Article 286 have done
If this is to be prevented it is necessary that transactions of this type should be taxable at the same rates which exporting States impose on similar transactions within their own territories
The unregistered dealers and consumers in the importing States will then find themselves unable to secure any advantage over the consumers of locally purchased articles nor of course will they under this system be able to escape the taxation altogether as many of them do at present
 See Report of the Taxation Enquiry Commission 195354 Vol3 p 57 In other words it was to discourage inter State sale to unregistered dealers that Parliament provided a high rate of tax namely IO
But even that might not serve the 592 purpose if the rate applicable to intra State of such goods was more than 10
The rate of 10 would then be favour able and they would be at an advantage compared to local cosumers
It is because of this that Parliament provided as a matter of legislative policy that the rate of tax shall be 10 or the rate applicable to intra State sales whichever is higher
If prevention of evasiorl of tax is a measure in the public interest there can be no doubt that Parliament is competent to make a provision for that purpose under Article 302 even if the provision would impose restrictions on the inter State trade or commerce
Variation of the rate of inter State sales tax does affect free trade and commerce and creates a local preference which is contrary to the scheme of Part XIII of the Constitution
The notification extends the benefit even to unregistered dealers and the observations of Hegde J on this aspect of the matter are relevant
Both the notifications of the Andhra Pradesh Government are therefore bad and are hit by the provisions of Part XIII of the Constitution
They cannot be sustained in law
Now coming to
the notification of the Karnataka State we have already pointed out that no return has been made and no attempt has been made therefore to place facts and circumstances to justify the action
The notification suffers from the same vice as the second notification of the State of Andhra Pradesh suffers and no distinction can be drawn
We accordingly hold that the notification of the Karnataka Government is also bad in law
It may be pointed out that the rate of sales tax in Karnataka is 195 per centin regard to intra State sales
In view of what we have indicated above the writ petition has to succeed and the two impugned notifications of the Andhra Pradesh Government and the impugned notification of the Karnataka Government are quashed
The writ petition is accordingly allowed with costs
Hearing fees is assessed at Rs5OOO and this shall be shared equally by the States of Andhra Pradesh and Karnataka
section L Petition allowed


Summary:
 These matters involved the interpretation of section 21d of the UP Urban Buildings Regulation of Letting Rent  Eviction Act 1972 Act No 13 of 1972
The landlords of a building known as Prem Talkies had let out the building to Sunil Sharma and another and the lease to the Sharmas was a lease of the building simpliciter
The building was subject to the provisions of the Act above said
The landlords obtained delivery of vacant possession of the building on 30091984 through a suit for eviction instituted by the landlords
The revision petition filed by the Sharmas in the High Court against the order of eviction was dismissed on 1st August 1985
After the Revision Petition of the Sharmas was dismissed landlords proceeded with the renovation of the building installation of plant machinery new furniture and electrical fittings as they wished to let out the building alongwith the plant machinery furniture and apparatus installed for running a cinema theatre
On February 5 1986 an agreement of lease was executed between the landlords and the Mehrotras respondents before this Court under which the Mehrotras agreed to take the building fully equipped with projector machines fixtures and furniture for a period of five years with an option to renew
A lease deed pursuant to the agreement of the lease between the landlord and the Mehrotras was entered into on 301286 and actual possession of the building it was claimed was given to the Mehrotras on the 8th January 1987
In the meantime the appellant Satya Narain Pandey appeared to have made an application under section 16 of the Act for allotment of the building in question to him
He claimed to have filed that application on 25986 and that on the basis of that application the Additional District Magistrate had called for a report from the Rent Control  Eviction Inspector who had submitted a report dated 281086 stating that 679 the building was vacant as on that date
On the other hand the landlords claimed that the vacancy of the building had been declared on 6387 that a notification calling for applications for allotment had been issued on 9387 and the application by Pandey for allotment had been made only on 9387
They also applied to the Additional District Magistrate on 23387 requesting that a high placed official should be sent to inspect the premises and submit a report as the report of the Eviction Inspector had been obtained behind their back
The application was granted and the Sub Divisional Magistrate submitted a report on 28487 which said that as on that date the building was a full fledged building with all the equipments and was not vacant as it appeared to have been let out to the Mehrotras under the agreements of 5286 and 301286
In the meantime the Mehrotras in pursuance of the lease deed entered into by them with the landlords had applied on 8187 for the grant of a licence for running a cinema in the building in question
The application was granted by the Additional District Magistrate
Pandey who had applied for the allotment of the building to him felt aggrieved by the grant of the cinematographic licence to the Mehrotras
He filed a writ petition in the High Court challenging the grant of the licence
The High Court dismissed the writ petition
Pandey the appellant then filed in this Court Civil Appeal No 1502 of 1987 by Special Leave against the decision of the High Court
The Writ Petition of the landlords filed in the High Court against the order dated 6387 of the Additional District Magistrate declaring a vacancy of the building in question and the notice dated 9387 inviting applications for allotment of accommodation in respect thereof and a similar writ petition filed by the Mehrotras in the High Court were disposed of by the High Court by a consolidated order dated 201187 by which the High Court had accepted the contentions of the petitioners and allowed the writ petitions setting aside the order dated 6387 and the notice dated 9387 and directing the Rent Control  Eviction Inspector to proceed with the allotment of the cinema building under the Act
One of the respondents in those two writ petitions was Pandey the appellant who then also filed two petitions for special leave in this Court against the said decision of the High Court in the two writ petitions above said
Dismissing the appeals out of the two petitions for special leave wherein leave to appeal was granted and consequently the Civil Appeal No 150287 the Court 680  HELD The short question that arose for decision in these matters was whether the cinema building in question was exempt from the purview of the UP Urban Buildings Regulations of Letting Rent  Eviction Act 1972 by reason of the exemption contained in section 21d thereof
As regards the controversy regarding the grant of the cinema licence to the Mehrotras the High Court was clearly right in holding that Pandey had no locus standing in the matter
However the issue of a valid licence to Mehrotras would ultimately depend upon the outcome of their right to occupy the premises in question
If had Pandey succeeded in his contention that the building continued to be subject to the provisions of the Act then the allotment of the building on its vacation by the Sharmas would have to be made in accordance with law and the Mehrotras would not be able to occupy the building in pursuance of the lease deed and run the cinema as they would not be entitled to a licence as a condition precedent for which was the availability to the exhibitor of a building in which he had a right to exhibit cinema shows
This was clear from the provision in section 13 of the Act
If on the other hand Pandey s contention was not acceptable then the Mehrotras would be entitled to run the theatre
The Court therefore granted leave to Pandey in the two petitions for special leave and took up those appeals for consideration in the first place
686E H 687A B On a careful consideration of the scheme and language of the Act the Court was of the opinion that the judgment of the High Court should be affirmed and the appeals dismissed
690D Section 21 of the Act exempts from the operation of the Act various types of buildings set out in clauses a to f of the sub section
The initial attempt of the appellant was to suggest that the above exemptions were available only where the premises in question was of a nature specified in one or the other of those clauses as on the date of the commencement of the Act namely 15th July 1972
The Court could not accept this contention
A perusal of the various clauses makes it clear that the building should fulfil the character indicated therein on the date on which the provisions of the Act are sought to be made applicable thereto
It was clear in the opinion of the Court that even a building which might have belonged to private individuals since 1972 would automatically fall within the exemption clause a as soon as it was purchased by the Government or a local authority or a public sector corporation
It would not be correct to read the section as conferring an exemption only on the buildings which belonged to the Government etc on 15th July 1972 and not on those acquired by them thereafter
The position must be construed likewise in respect of the other clauses too
690E H 681 It was strongly urged by the appellant that the nature of the building had to be determined as on the 30th September 1984 on which date the building was vacated by the Sharmas and on that date the building was subject to the provisions of the Act
A vacancy having arisen in such a building it was the duty of the landlord to have intimated the same to the District Magistrate and then followed the procedure under the Act
Any letting out of the property by them to the Mehrotras was unlawful in view of section 13 of the Act and on the strength of an unlawful letting the landlords could not contend that the building was outside the purview of the Act
There was a plausibility about this contention but the Court could not accept it as this construction of the provisions would render the exemption section totally unworkable
690H 691 A C l Section 21 of the Act takes out of the provisions of the Act certain classes of buildings
Some of these exemptions are based on the nature of the ownership of the property and some of them on the nature of the use to which the property is either put or intended to be put
In the view of the Court even in respect of a building covered by the Act the Act would cease to be applicable if on a vacancy occurring therein the landlord intended to put it to the use specified in clauses c to f of the section and in cases covered by clauses c and d of the section also intended to let it out for such use along with the plant and apparatus therefor
The Court favoured this interpretation of an automatic exclusion of certain classes of buildings from the purview of the Act
691 D 692G H l How would the question of the applicability of the Act be determined It could certainly not be ipsi dixit of the landlord
If a landlord let out his property or otherwise dealt with it on his own and was found at fault he would not only be punishable but would also be unable to resist an allotment of the property by the District Magistrate in due course
Since the District Magistrate was empowered to deal with buildings to which the Act applied it was for the District Magistrate to satisfy himself after hearing the landlord that it was in fact a building to which the Act was applicable
It was open to the landlord to intimate the vacancy but make a claim before the District Magistrate that the Act had ceased to be applicable to his building
Where the landlord failed to do so the Magistrate might consider the issue if vacancy in respect of the building was brought to his notice
The District Magistrate could inspect the building and then decide whether the Act continued to apply or not
It was for the District Magistrate to satisfy himself that the landlord intended to let out the premises and he intended to let it out not as a mere building but with plant and apparatus
The District Magis 682 trate had to satisfy himself on the materials made available to him
But it would not be incumbent or proper for him to give notice to the proposed allottees of the property and hear them
An application for allotment merely conferred on the applicant a right to be considered for allotment of a building to which the Act was applicable and he had no right qua any property until the District Magistrate came to the conclu sion that the building was one which he could allot
694C H The Court did not accept the contention of the appellant for remanding the case to the District Magistrate for a determination after hearing the appellant also on the question whether the landlords in this case were entitled to an exemption
This determination had to be arrived at by the District Magistrate after hearing the landlord and on the basis of such inspection or enquiries as he might consider necessary
At this stage he should not permit the intervention of any other party a contrary interpretation would make the provisions almost impossible of being worked
There might be several applicants for allotment some general and some with regard to specific property
If they were con sidered as having a right to be heard on the availability of a property for allotment every one must be allowed to intervene
The landlord might have to face innumerable challenges by the various applicants at different points of time resulting in the proceedings being delayed
All this was not envisaged under the Act
Once the District Magistrate decided that a building was not one to which the Act applied there was an end of the matter
If the District Magistrate decided that the building fell within the provisions of the Act an aggrieved landlord s remedy was only by way of a writ petition where such conclusion was on the face of it erroneous or perverse or based on no material
695B E In this case the District Magistrate after registering the vacancy on 631987 came to the conclusion on the basis of the appellant s averments that the Act continued to be applicable to the premises
The landlords challenged this conclusion successfully by a writ petition
Subsequent to 631987 the District Magistrate himself had the property inspected and apparently he did not apply his mind to the terms of the report of the inspection
In normal course perhaps the Court would have sent the matter back to enable him to do this but in the present case the Court thought no useful purpose would be served by remanding the matter to the District Magistrate for a fresh consideration
The report of the Sub Divisional Magistrate the terms of the lease agreement the registered lease deed and the application for and the grant of a cinematograph licence in the name of the Mehrotras clearly showed that the landlord intended to let out the property as a fully 683 equipped cinema theatre
In the fact of this the District Msgistrate had clearly no jurisdiction to proceed with the allotment of the premises in question
695F H 696A B