Appeal Nos 1577 and 1579 of 1971
Appeal from the judgment and Orders dated 23 3 1971 and 22 4 1971 of the Madras High Court in Writ Petitions Nos
108870 and 131671
K Srinivasan I Subramaniam and Mrs section Gopalakrish nan for the Appellants
K Purasaran Advocate General for the State of Tamil Nadu A V Rangam and Miss A Subhashini for the Respond ents
The Judgment of the Court was delivered by KHANNA J
These appeals by special leave are against the judgment of Madras High Court whereby that court re pelled the challenge to the validity of items 7a and 7b of the Second Schedule to the Madras General Sales Tax Act 1959 hereinafter referred to as the State Act
The appellants are dealers in hides and skins
The appellants purchase raw hides and skins locally as well as in the course of interState trade and commerce
The raw hides and skins are converted into dressed hides and skins and are sold either locally or
in the course of export
The matter relates to the assessment year 1968 69 and the dispute between the parties arises because of the inclusion in the turnover of the sale and purchase price of some of the above goods
The appellants by means of writ petitions challenged the validity of items 7a and 7b of the Second Schedule to the State Act
The High Court as already mentioned repelled the attack on the validity of those items and dismissed the
writ petitions
Before dealing with the contentions advanced it may be appropriate to refer to the relevant provisions
Section 4 of the State Act is the charging section in respect of declared goods and reads thus Tax in respect of declared goods
Notwithstanding anything contained in section 3 the tax under this Act shall be payable by a dealer on the sale or purchase inside the State of declared goods at the rate and only at the point specified against each in the second schedule of the turnover in such goods in each year whatever the quantum of turnover in that year
 1067 It may be mentioned that raw hides and skins as well as dressed hides and skins are declared goods under section 14if of the hereinafter referred to as the Central Act
Section 14iii of the Central Act reads as under  It is hereby declared that the following goods are of special importance in inter State trade or commerce             iii hides and skins whether in a raw or dressed state
 Items 7a and 7b of the Second Schedule to the State Act and read as under Items 7a and 7b of the Second Schedule to the State Act read as under  section No Description of goods Point of levy Rate of tax 1 2 3 4 7a Raw hides and skins At the point of 3 last chase in the State
7b Dressed hides and At the point of 1 12 skins which were 1st sale in the not subjected to State
tax under this Act as raw hides and skins  So far as validity of item 7a of the Second Schedule is concerned the argument of the learned counsel for the appellant is that this would cover also inter State sales and as such is beyond the competence of the State legisla ture
We are unable to accede to this contention as we are of the view that item 7a relates only to interState sales and not to inter State sales
This is clear from the lan guage used in the item especially the words purchase in the State
Assuming that the language of item 7a is ambiguous it should be so construed as would sustain the constitutional validity of the said item
Considered in this light the occasion
for the levy of tax under the above item would arise only when there is intra State sale and not inter State sale
Regarding from 7b the learned counsel for the appel lants has contended that it is violative of clause a article 304 of the Constitution
The said clause reads as under 304
Notwithstanding anything in article 301 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 foods manufactured or pro duced in that State are subject so however as not to discriminate between goods 18 1338sci76 1068 so imported and goods so manufactured or produced and b    
According to the learned counsel there can be three types of sale transactions in respect of dressed hides and skins 1  Dressed hides and skins imported from outside the State of Tamil Nadu
Tanning of the aforesaid 2 Import of raw hides and skins from out side the State of Tamil Nadu and sold within that State raw hides and skins within the State of Tamil Nadu and the sale of the same within that State as dressed hides and skins and 3 Purchase of raw hides and skins within the State of Tamil Nadu and sale of the same within that State as dressed hides and skins after tanning those hides and skins
It is urged that in respect of hides and skins covered by the third category the local sales of dressed hides and skins will not be liable to tax under State Act as the purchase of the raw hides and skins has already been sub jected to tax under item 7a
Regarding hides and skins mentioned at 1 and 2 above the local sales of dressed hides and skins would be subjected to tax at the rate of 1 12 per cent under item 7b as there was no levy of tax under the State Act in respect of those hides and skins
Learned counsel accordingly concludes from the above that imported hides and skins are subject to tax when sold as dressed hides and skins at the rate of 112 per cent whereas hides and skins purchased in raw form locally and dressed thereafter are not subject to tax under the State Act when sold as dressed hides and skins
The contention mother words is that whereas dressed hides and skins sold locally but which have been made out of imported raw hides and skins are subject to tax similar sales of dressed hides and skins made out of raw hides and skins which have suffered tax at purchase stage are not subject to tax under item 7b of the Second Schedule of the State Act
Item 7b is therefore stated to be discriminatory and violative of article 304a
Reliance in this connection is placed upon two decisions of this Court in the cases of Firm ATB Mehtab Majid  Co vs The State of Madras  Anr
1 and A Hajee Abdul Shukoor  Co vs The State of Madras2 In the case of Mehtab this Court held that the provi sions of rule 16 of the Madras General Sales Tax Turnover and Assessment Rules 1939 discriminate between hides and skins imported from outside the State and those manufac tured or produced inside the State and therefore they con travene the provisions of article 304a of the Constitu tion
Perusal of the facts of that case goes to show that the real grievance of the appellant in that case was that though there was a substantial disparity in the price of raw hides and skins and the price of dressed hides and skins the same rate of tax was levied 1 14 STC 355
2 15 STC 719
1069 in respect of both types of hides and skins under section 31 b of the State Act
This is clear from the following observations in that case The grievance arises on account of the amount of tax levied being different on ac count of the existence of a substantial dis parity 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 under section 31 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 tane them within the State he will be liable to pay sales tax o the sale price of the tanned hides or skins
 In the case of Hajee Abdul Shukoor this Court held that Subsection 1 of section 2 of the Madras General Sales Tax Special Provisions Act 1963 discriminates against imported hides and skins which were sold up to August 1 1957
The rate of tax on the sale of tanned hides and skins as would appear from that judgment was 2 per cent 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 Court in this context referred to Mehtab s case and observed In the earlier case discrimination was brought about on account of sale price of tanned hides and skins to be higher than the sale price of untanned hides and skins though the rate of tax was the same while in the present case the discrimination does not arise on account of difference of the price on which the tax is levied as the tax on the tanned hides and skins is levied on the amount for which those hides and skins were last purchased in the untanned condition but on account of the fact that the rate of tax the sale of tanned hides and skins is higher than that on the sale of untanned hides and skins
The rate of tax on the sale of tanned hides and skins is 2 on the purchase price of these hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins on the State during 1955 to 1957 is 3 pies per rupee
The difference in tax works out to 71600th of a rupee ie a little less than 12 naya paise per rupee
Such a discrimination would affect the taxation up to the 1st of August 1957 when the rate of tax on the sale of raw hides and skins was raised to 2 of the sale price
 None of the circumstances which led this Court to strike down the relevant provisions in the above mentioned two cases exists in the present case
In Mehtab s case discrimi nation was found to exist because of the fact that tax was being levied at the same rate in respect of both raw hides and skins  as well as dressed hides and skins even though 1070 the price of dressed hides and skins was much higher
The position was worse in the vase of Hajee Abdul Shukoor be cause in that case the sales tax was found to have been charged at a higher fate in respect of dressed hides and skins than that on the sale of raw hides and skins in spite of the fact that the price of dressed hides and skins was higher than that of raw hides and skins
The position in the present case is materially different for here the rate of sales tax for raw hides and skins is 3 per cent while that for dressed hides and skins is 112 r cent
It is plain that the lower rate of tax in the case of dressed hides and skins has been prescribed with a view to offset the difference between the higher price of dressed hides and skins and lower price of raw hides and skins
No mate rial has been brought on the record to show that despite the lower rate of sales tax for dressed_ hides and skins the imported hides and skins are being subjected to discrimina tion
The onus to show that there would be discrimination between the hides and skins which were purchased locally in the raw form and thereafter tanned and the hides and skins which were imported from other States was upon the appel lant
The appellant we find has failed to discharge such onus
Article 304a does not prevent levy of tax on goods what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State
The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the differ ence between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free flow of inter State trade and commerce
The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied
The scheme of items 7a and 7b of the Second Schedule to the State Act is that in case of raw hides and skins which are purchased locally in the State the levy of tax would be at the rate of 3 per cent at the point of last purchase in the State
When those locally purchased raw hides and skins are tanned and are sold locally as dressed hides and skins no levy would be made on such sales as those hides and skins have already been subjected to local tax at the fate of 3 per cent when they were purchased in raw form
As against that in the case of hides and skins which have been import ed from other States in raw form and are thereafter tanned and then sold inside the State as dressed hides and skins the levy of tax is at the rate of 1 12 per cent at the point of first sale in the State of the dressed hides and skins
This levy cannot be considered to be discriminatory as it takes into account the higher price of dressed hides and skins compared to the price of raw hides and skins
It also further takes note of the fact that no tax under the State Act has been paid in respect of those hides and skins
The Legislature it seems calculated the price of hides and skins in dressed condition to be double the price of such hides and skins in raw state To obviate and prevent any discrimination or differential treatment in the matter of levy of tax the Legislature therefore prescribed a rate of tax for sale of dressed hides and skins which was half of that levied under item 7a in respect of raw hides and skins
1071 Lastly it has been argued that dressed hides and skins are a commodity distinct and separate from raw hides and skins and that item 7b of the Second Schedule makes a discrimination between the sales of locally processed dressed hides and skins and those imported from other States
In this respect we find that it is not the case of the appellants that they import dressed hides and skins from other States and sell them as such in Tamil Nadu
On the contrary the case of the appellants is that what they _import from other States are only raw hides and skins which are thereafter tanned and sold as dressed hides and skins
In the circumstances it is not clear as to what grievance the appellants can have on the score that there is discrimi nation between imported dresed hides and skins and the dressed hides and skins produced and manufactured within the State
Apart that it seems to us that even though dressed hides and skins have been treated as separate commodity there is a clear nexus between hides and skins in raw form and those in dressed form
So far as the Central Act is concerned both the raw as well as the dressed hides and skins are specified together in clause iii of section 14
It has to be borne in mind that it is raw hides and skins which after being subjected to processing or tanning take the shape of dressed hides and skins
Dressed hides and skins cannot therefore be considered in isolation and we find no infirm ity in a legislative provision which while levying tax on the sale of dressed hides and skins takes into account the levy of tax in respect of the purchase of raw hides and skins
Looked at in this light there appears to be no warrant for the proposition that preferential treatment has been shown to dressed hides and skins prepared from locally purchased raw hides and skins compared to the treatment accorded to imported hides and skins
We are therefore of the view that the attack on the validity of item 7b of the Second Schedule to the State Act is not well founded
We accordingly dismiss the ap peals but in the circumstances without costs
VPS Appeal dismissed


Summary:
Raw as well as dressed hides and skins are declared goods under 
Section 4 of the Madras General Sales Tax Act 1959 provides that the tax shall be payable by a dealer on the sale or purchase of declared goods inside the State at the rate and only at the point specified in the Second Schedule to the Act on the turnover in such goods
Item 7a of the Schedule provides that with respect to raw hides and skins the rate of tax shall be at 3 and the point of levy shall be at the point of last purchase in the State
Item 7b provides that with respect to dressed hides and skins which were not subjected to tax under the Act as raw hides and skins the rate of tax shall be 1 12 and the point of levy shall be at the point of first sale in the State
The appellants are dealers in hides and skins
They purchase raw hides and skins locally as well as in the course of inter state trade and commerce convert them into dressed hides and skins and sell them either locally or in the course of export
The appellants challenged the validi ty of items 7a and 7b
The challenge to item 7a was that the item would also cover inter state sales and as such was beyond the competence of the State Legislature and the challenge to item 7b was that it was violative of article 304 a of the Constitution on the ground that whereas dressed hides and skins sold locally but which have been made out of imported raw hides and skins are subject to tax under the item similar sale of dressed hides and skins made out of raw hides and skins which have been subjected to tax at the purchase stage are not subject to tax under the item
HELD 1 Item 7a relates only to intra state sales and not to inter state sales
This is clear from the lan guage used in the item especially the words purchase in the State
Assuming the language is ambiguous it should be so construed as would sustain its constitutional validity
1067 F 2 Article 304a does not prevent levy of tax on goods what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other states and similar goods manufactured or produced within the State
The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a fiscal barrier and thus impede the free flow of inter state trade and commerce
The scheme of items 7a and b is that in the case of raw hides and skins which are purchased locally in the State the levy of tax would be at the rate of 3
When such locally purchased raw hides and skins are tanned and sold locally as dressed hides and skins no levy would be made on such sales as those hides and skins have already been subjected to tax at 3 when purchased in the raw form
On the other hand in the case of hides and skins imported from other States in the raw form thereafter tanned and then sold inside the State as dressed hides and skins the levy of tax is at 112
This levy however cannot be considered discriminatory because the Legislature while prescribing the rate in item 7b at half that levied under item 7a took into account the higher price of dressed hides and skins nearly double as compared to the price of raw hides and skins and the fact that no tax under the State Act has been paid in respect of imported raw hides and skins
Even though dressed hides and skins are treated as a separate commodity there is a clear nexus between hides 1066 and skins in the raw form and those in the dressed form and hence there is no infirmity in the legislative provision which while levying tax on the sale of dressed hides and skins takes into account the levy in respect of raw hides and skins
1070 D H 
The onus of showing that there would be discrimination between raw hides and skins purchased local ly and then tanned and raw hides and skins imported and then tanned is on the appellant and the appellant has not discharged the onus
1070 C Firm A T B Mehtab Majid  Co vs The State of Madras  Anr
14 STC 355 and 4
Hajee Abdul Shukoor  Co vs The State of Madras 15 STC 719 explained and distin guished