C.W.P.No.46 of 2008 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH (1) C.W.P. No. 46 of 2008 Date of decision: 13.8.2008 Nand Kishore & Company, Railway Road, Khanna. .. Petitioner Versus The State of Punjab and another. .. Respondents (2) C.W.P. No. 53 of 2008 Jindal Brothers, Jagraon Mandi, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (3) C.W.P. No. 54 of 2008 Devi Dayal Gauri Shanker Samana Mandi, District Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (4) C.W.P. No. 55 of 2008 Gaurav Traders, Tripuri Town, Patiala .. Petitioner Versus The State of Punjab and another. .. Respondents (5) C.W.P. No. 59 of 2008 Pooja Trading Company, Old Grain Market, Jagraon. .. Petitioner Versus The State of Punjab and another. .. Respondents C.W.P.No.46 of 2008 [2] (6) C.W.P. No. 67 of 2008 Luxmi Trading Co., Daulat Market, Saban Bazar, Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (7) C.W.P. No. 68 of 2008 Shree Shree Sham Traders, Old Bus Stand, Samana, District Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (8) C.W.P. No. 69 of 2008 Mukand Lal & Co., Jagraon. .. Petitioner Versus The State of Punjab and another. .. Respondents (9) C.W.P. No. 70 of 2008 Punjab Trading Co., Kohara Road, Sahnewal, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (10) C.W.P. No. 85 of 2008 M/s Saraswati Traders, Kharar, District Mohali. .. Petitioner Versus The State of Punjab and another. .. Respondents C.W.P.No.46 of 2008 [3] (11) C.W.P. No. 88 of 2008 M/s Ruldu & Sons, Landran Road, Kharar, District Mohali. .. Petitioner Versus The State of Punjab and another. .. Respondents (12) C.W.P. No. 124 of 2008 Patiala Trading Co., Dhani Ram Bazar, Samana, District Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (13) C.W.P. No. 125 of 2008 Hira Lal Kapoor Chand Jain, Jagraon Mandi. .. Petitioner Versus The State of Punjab and another. .. Respondents (14) C.W.P. No. 126 of 2008 Om Parkash Kimat Rai, Jagraon Mandi, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (15) C.W.P. No. 127 of 2008 Kamal Enterprises, Anaj Mandi, Samrala, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents C.W.P.No.46 of 2008 [4] (16) C.W.P. No. 128 of 2008 Adarsh Trading Co., Samana Mandi, District Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (17) C.W.P. No. 135 of 2008 Madan Lal & Sons, Dhak Bazar, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (18) C.W.P. No. 139 of 2008 M/s Vijay Sugar Company, Railway Road, Doraha, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (19) C.W.P. No. 140of 2008 Tulsi Ram Moti Ram, Gur Mandi, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (20) C.W.P. No. 142 of 2008 M/s Mohan Lal Rajinder Kumar, Landran Road, Kharar, District Mohali. .. Petitioner Versus The State of Punjab and another. .. Respondents (21) C.W.P. No. 146 of 2008 Ved Parkash Arun Kumar, Gur Mandi, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents C.W.P.No.46 of 2008 [5] (22) C.W.P. No. 153 of 2008 Ganpat Rai Surinder Kumar, Gur Mandi, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (23) C.W.P. No. 155 of 2008 M/s Aggarwal & Company, New Anaj Mandi, Kurali, District Mohali. .. Petitioner Versus The State of Punjab and another. .. Respondents (24) C.W.P. No. 159 of 2008 Muni Lal Prem Nath, Jagraon Mandi, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (25) C.W.P. No. 160 of 2008 Asa Ram Ved Parkash, Patran-147105, District Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (26) C.W.P. No. 161 of 2008 M/s Mohan Lal Gupta & Sons, NewAnaj Mandi, Kharar, District Mohali. .. Petitioner Versus The State of Punjab and another. .. Respondents (27) C.W.P. No. 165 of 2008 Sat Pal Surinder Pal, Jagraon Mandi, District Ludhiana. .. Petitioner C.W.P.No.46 of 2008 [6] Versus The State of Punjab and another. .. Respondents (28) C.W.P. No. 184 of 2008 Gauri Shanker Varinder Kumar, Sadar Bazar, Samana Mandi, District Patiala .. Petitioner Versus The State of Punjab and another. .. Respondents (29) C.W.P. No. 215 of 2008 M/s Surinder Paul Vijay Kumar, Railway Road, Doraha, District Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (30) C.W.P. No. 219 of 2008 Luxmi Traders, Lahori Gate, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (31) C.W.P. No. 220 of 2008 Shree Ambey Trading Company, Gur Mandi, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (32) C.W.P. No. 555 of 2008 Mukand Lal Pyare Lal, Grain Market, Jagraon Mandi. .. Petitioner Versus The State of Punjab and another. .. Respondents C.W.P.No.46 of 2008 [7] (33) C.W.P. No. 602 of 2008 M/s Mohan Singh Avtar Singh, # 17, Gaushala Market, Patiala. .. Petitioner Versus The State of Punjab and another. .. Respondents (34) C.W.P. No. 603 of 2008 Sugar & Vanaspati Traders Association, B-7/503, Kesar Ganj, Ludhiana. .. Petitioner Versus The State of Punjab and another. .. Respondents (35) C.W.P. No. 1130 of 2008 Prem Kumar Pawan Kumar, Wholesale Gur, Sugar,Merchant & Commission Agents, Mansa. .. Petitioner Versus The State of Punjab and another. .. Respondents (36) C.W.P. No. 1457 of 2008 M/s Manga Ram Mehar Chand, Old Grain Market, Sunam-148028. .. Petitioner Versus The State of Punjab and another. .. Respondents (37) C.W.P. No. 1458 of 2008 M/s Rajinder Kumar Surinder Kumar, Lehragaga-148031, District Sangrur. .. Petitioner Versus The State of Punjab and another. .. Respondents C.W.P.No.46 of 2008 [8] CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MR. JUSTICE RAJESH BINDAL Present: Mr. K. L. Goyal and Mr. Sandeep Goyal, Advocates for the petitioners. Mr. P. K. Jain, Additional Advocate General, Punjab for the respondents. .. Rajesh Bindal J. 1. This order will dispose of the bunch of 37 writ petitions bearing Nos. 46, 53, 54, 55, 59, 67, 68, 69, 70, 85, 88, 124, 125, 126, 127, 128, 135, 139, 140, 142, 146, 153, 155, 159, 160, 161, 165, 184, 215, 219, 220, 555, 602, 603, 1130, 1457 and 1458 of 2008. 2. The facts are extracted from C.W.P. No. 46 of 2008. 3. The challenge in the bunch of petitions is to notification No. S.O.52/P.A. 8/2005/S.8/2007 dated 5.11.2007 (Annexure P.1), issued by the Department of Excise and Taxation, Punjab carrying out amendment in Schedule `A', whereby entry “49” has been substituted and notification No. S.O.53/P.A. 8/2005/S.8/2007 dated 5.11.2007 (Annexure P.2), whereby new entry “152” has been added in Schedule `B' to the Punjab Value Added Tax Act, 2005 (for short, `the VAT Act'). 4. Briefly, the facts are that the petitioner is a proprietary concern carrying on the business of purchase and sale of sugar and allied goods. He is registered under the provisions of the VAT Act. The controversy giving rise to the cause of action to the petitioner to file the present petition arose with the issuance of the impugned notification by the respondents on 5.11.2007, whereby entry 49 in Schedule `A' was substituted and new entry 152 in Schedule `B' was added. In some and substance, the effect of the entries was that the sugar which was imported from outside the State of Punjab except levy sugar was leviable to tax under the Act, whereas the sugar manufactured in the State of Punjab was exempted from taxation. 5. Learned counsel for the petitioner submitted that Article 301 of the Constitution provides that trade, commerce and intercourse throughout the territory of India shall be free. It is only the Parliament which has been C.W.P.No.46 of 2008 [9] authorised in law to impose restrictions on the freedom of trade, commerce or intercourse between one State and another, as may be required in public interest, in terms of Article 302 of the Constitution of India. Article 303 of the Constitution provides that neither the Parliament nor the Legislature of a State shall have any power to make any law giving, or authorising the giving of, 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. Notwithstanding anything contained in Articles 301 or 303 of the Constitution of India, the State Legislature is authorised to impose on goods imported from other State or the Union Territory any tax to which similar goods manufactured or produced in that State are subject. However, there cannot be any discrimination regarding taxation between the goods so imported and goods so manufactured or so produced. The submission is that effect of impugned notifications is that tax at the rate of 4% has been levied only on the sugar imported from outside the State of Punjab, whereas the sugar which is manufactured in the State of Punjab is not subjected to any tax, as the same has been put in Schedule `A' containing tax free goods. Concluding the arguments, learned counsel submitted that the impugned notifications are clearly violative of the constitutional mandate contained in Part XIII of the Constitution of India and are liable to be set aside. Reliance has been placed upon Firm A. T. B. Mehtab Majid and Co. v. State of Madras and another, AIR 1963 SC 928; State of Madhya Pradesh another v. Bhailal Bhai and others, AIR 1964 SC 1006; A. Hajee Abdul Shukoor and Co. v. The State of Madras, AIR 1964 SC 1729; West Bengal Hosiery Association and others v. State of Bihar and another, AIR 1988 SC 1814; Weston Electronics and another v. State of Gujarat and another, AIR 1988 SC 2038; State of Uttar Pradesh and another v. M/s Laxmi Paper Mart and others, AIR 1997 SC 950 and Shree Mahavir Oil Mills and another v. State of Jammu and Kashmir and others, (1997) 104 STC 148. 6. Defending the impugned notifications issued by the State, learned Additional Advocate General submitted that the impugned notifications are in no way unreasonable or illegal. The discrimination in C.W.P.No.46 of 2008 [10] taxation on the imported sugar, as is sought to be pointed out by the petitioner, is not there as in the case of sugar manufactured in the State of Punjab, the sugarcane used in the manufacture thereof is already taxed. As the State of Punjab gets tax on the sugarcane, the sugar was made tax free, whereas in the case of imported sugar, the State would get tax on the sale of sugar in the State. The action on the part of the State will not hamper free flow of trade and commerce at the boundaries of the State or at any other points inside the State and is not hit by Article 301 of the Constitution of India. It is further submitted that a similar tax has been levied under the Punjab Tax on Entry of Goods into Local Areas Act, 2000 (for short, `the Entry Tax Act') vide notification dated 15.11.2007 and as the petitioner is not aggrieved against the notification issued under the Entry Tax Act, it cannot possibly have any grievance against the notifications issued under the VAT Act. 7. In response to the contention of learned counsel for the State regarding non-challenge to the notification issued under the Entry Tax Act, learned counsel for the petitioner submitted that Entry Tax Act itself is under challenge in a number of petitions filed by various parties before this Court and in any case, non-challenge to a notification under a different statute cannot be considered as a bar on the right of the petitioner to challenge a notification issued under the VAT Act. 8. Heard learned counsel for the parties and perused the paper book. 9. To appreciate the contentions raised by learned counsel for the parties, it would be necessary to extract relevant provisions of the Constitution of India and also the VAT Act. The same are extracted below: “ Articles 301 and 304 of the Constitution of India 301. Freedom of trade, commerce and intercourse.- Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free. .... ..... ...... 304. Restrictions on trade, commerce and intercourse among States.- Notwithstanding anything in Article 301 or Article, 303, the Legislature of a State may by law- C.W.P.No.46 of 2008 [11] (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 freeom 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 purposes of clause (b) shall be introduced or moved in the Legislature of a State without the previous sanction of the President. ..... ..... ...... Section 16 of the VAT Act 16. Tax-free Goods No tax shall be payable on the sale of goods specified in Schedule A and no person including a taxable person or a registered person shall charge tax on the sale of goods which are declared tax-free goods under this section.” 10. The entry in Schedule `A', as existing upto 5.11.2007, is reproduced below: “ SCHEDULE `A' (upto 5.11.2007) S.No. Name of Commodities 49 Sugar and Khandsari” 11. After the amendment, vide notification dated 5.11.2007, entry 49 in Schedule `A' is reproduced below: “ SCHEDULE `A' S. No. Name of Commodities 49 Sugar manufactured in the State of Punjab, levy sugar and Khandsari.” 12. On the same date, entry 152 was added in Schedule `B' providing for levy of tax at the rate of 4%, which is as under: “ SCHEDULE `B' S. No. Name of Commodities C.W.P.No.46 of 2008 [12] 152 Sugar imported from outside the State of Punjab except levy sugar.” 13. Article 301 of the Constitution of India provides that trade, commerce and intercourse throughout India shall be free. However, the same is subject to other provisions of Part XIII of the Constitution of India. Hon'ble the Supreme Court considered the import of Article 301 of the Constitution of India in a Constitution Bench judgment in Atiabari Tea Co. Ltd. v. State of Assam, AIR 1961 SC 232 and in Automobile Transport (Rajasthan) Ltd. v. State of Rajasthan, AIR 1962 SC 1406. In Atiabari Tea Co. Ltd.'s case (supra), Hon'ble the Supreme Court opined as under: “....Thus considered we think it would be reasonable and proper to hold that restrictions freedom from which is guaranteed by Art. 301, would be such restrictions as directly and immediately restrict or impede the free flow or movement of trade. Taxes may and do amount to restrictions; but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Art. 301......... We are therefore satisfied that in determining the limits of the width and amplitude of the freedom guaranteed by Art.301 a rational and workable test to apply would be:” Does the impugned restriction operates directly or immediately on trade or its movement?....... ......Our conclusion therefore is that when Art. 301 provides that trade shall be free throughout the territory of India it means that the flow of trade shall run smooth and unhampered by any restriction either at the boundaries of the States or at any other points inside the States themselves. It is the free movement or the transport of goods from one part of the country to the other that is intended to be saved, and if any Act imposes any direct restrictions on the very movement of such goods it attracts the provisions of Art. 301, and its validity can be sustained only if it satisfies the requirements of Art. 302 or Art. 304 of Part XIII....” 14. Considering an issue where Rule 16 of the Madras General C.W.P.No.46 of 2008 [13] Sales Tax (Turnover and Assessment) Rules, 1939 providing for levy of discriminatory tax on tanned hides or skins imported from outside the State as against those manufactured within the State, a Constitution Bench of Hon'ble the Supreme Court in Firm A. T. B. Mehtab Majid and Co.'s case (supra) opined as under: “It is therefore now well settled that taxing laws 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 between 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). Article 304(a) enables the Legislature of a State to make laws affecting 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 sales-tax on tanned hides or skins imported from outside is that the latter becomes subject to a higher tax by the application of the proviso to sub-r. (2) of R. 16 of the Rules, then the tax is discriminatory and unconstitutional and must be struck down. We do not agree with the contentions for the respondents. The contention that Art. 304(a) is attracted only when the impost is at the border, i.e., when the goods enter the State on crossing the border of the State, is not sound. Art. 304(a) allows the Legislature of a State to impose taxes on goods imported from other States and does not support the contention that the imposition must be at the point of entry only. C.W.P.No.46 of 2008 [14] .... .... .... It is urged for the respondent State that to consider discrimination between the imported goods and goods produced or manufactured in the State, circumstances and situations at the taxable point must be similar and that the circumstance of hides or skins tanned within the State and on which tax had been paid earlier at the time of their purchase in the raw condition is sufficient to consider such hides or skins to be different from the hides or skins which had been tanned outside the State. We do not consider that the mere circumstance of a tax having been paid on the sale of such hides or skins in their raw condition justifies their forming goods of a different kind from the tanned hides or skins which had been imported from outside. At the time of sale of those hides or skins in the tanned state, there was no difference between them as goods and the hides or skins tanned outside the State as goods. The similarity contemplated by Art. 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject of a tax already or not. We are therefore of opinion that the provisions of R. 16(2) discriminate against the imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of Art. 304(a) of the Constitution.” 15. Another Constitution Bench of Hon'ble the Supreme Court in State of Madhya Pradesh and another v. Bhailal Bhai (supra) considered the issue, whereby discriminatory tax was imposed on tobacoo imported from outside the State as against the tobacoo grown within the State. Relevant paragraph thereof is extracted below: “There can therefore be no escape from the conclusion that similar goods manufactured or produced in the State of Madhya Bharat have not been subjected to the tax which tobacco leaves, manufactured tobacco and tobacco used for C.W.P.No.46 of 2008 [15] Bidi manufacturing, imported from other States have to pay on sale by the importer. This tax is therefore not within the saving provisions of Art. 304(a). As already pointed out it contravenes the provisions of Art. 301 of the Constitution. The tax, has therefore been rightly held by the High Court to be invalid. It is clear that the assessment of tax under these notifications was thus invalid in law.” 16. To the similar effect is another Constitution Bench judgment in A. Hajee Abdul Shukoor and Co.'s case (supra). 17. In Weston Electronics and another v. State of Gujarat and another (supra), again the issue for consideration before Hon'ble the Supreme Court was regarding levy of discriminatory tax on electronic goods which were imported from outside the State as against the goods manufactured within the State. The discriminatory tax was sought to be defended by the State on the plea that the same was meant to provide incentive for encouraging local manufacturing unit. However, such a plea was not accepted by Hon'ble the Supreme Court. While accepting the plea set up by the appellant before the Supreme Court, the notification providing for lower rate of tax on the sale of goods manufactured within the State was struck down. 18. In The Indian Cement v. State of Andhra Pradesh, AIR 1988 SC 567, Hon'ble the Supreme Court observed as under: “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.” 19. The issue again came up for consideration before Hon'ble the Supreme Court in West Bengal Hosiery Association's case (supra), where the goods manufactured outside the State of Bihar and sold in the State of Bihar were subjected to levy of sales tax at the rate of 5%, whereas the sale of similar goods manufactured in the State of Bihar were exempted from tax. Considering the law on the subject, Hon'ble the Supreme Court opined that from a commercial or normal point of view, such a discriminatory levy of sale tax is bound to affect free flow of hosiery goods from outside States into the State of Bihar and would, therefore, amount to hampering the free C.W.P.No.46 of 2008 [16] flow of trade and commerce, hence, violative of Article 301 of the Constitution of India. 20. In Shree Mahavir Oil Mills' case (supra), Hon'ble the Supreme Court, considering a similar issue, opined that though clause (a) of Article 304 of the Constitution of India is worded in a positive language but has a negative aspect. It is, in truth, a provision prohibiting discrimination against the imported goods. It provides that levy of tax on both imported as well as locally manufactured goods ought to be at the same rate so that artificial fiscal barriers are not created. Relevant passage therefrom is extracted below: “....Article 304 contains two clauses. Clause (a) states that “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”. The wording of this clause is of crucial significance. The first half of the clause would make it appear at first flush that it merely states the obvious: one may indeed say that the power to levy tax on goods imported from other States or Union territories flows from article 246 read with Lists II and III in