* IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on ; September 29,2006. % Date of Decision : October 19, 2006 + Writ Petition (C) No. 8313/2002 # SAREE SANSAR ..Petitioner ! Through Mr. Harish Malhotra, Senior Advocate with Mr. Nitin Aggarwal, Advocate. versus $ GOVT. OF NCT OF DELHI Respondent ^ Through Mr. H.L. Taneja with Mr. J.R. Goel, Advocates for R-1 & 2, CORAM HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE DR. JUSTICE S. MURALIDHAR 1. Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not? 3. Whether the judgment should be reported in Digest? : Dr. S. Muralidhar, J. By the common judgment passed today in Writ Petition (C) No. 3750/2000 titled & Textiles Mercantile Traders Assn. v. Govt. of NCT of Delhi & Ors." and four other petitions, this writ petition has been dismissed. Registry is directed to place a copy of the said judgment passed on the record of this writ petition. S. Muralidhar, J. h Vikramajit Sen, J. October 19, 2006 rk Digitally Signed By:AMULYA Signing Date:02.08.2023 17:36 Certify the the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified If'r' ' • M '• r.' ii- f-r iii? TO ^. I te- I- t I'. '•V "'•• 1 fe< IN THEHIGHCOURTOF DELHIAT NEW DELHI % + L # Reservedon : September29, 2006. DateofDecision : October19, 2006 Writ Petition (C) No. 3750/2000 SILK&TEXTILESMERCANTILETRADERSASSN. Petitioners ThroughMr. HarishMalhotra,SeniorAdvocatewith Mr. NitinAggarwal,Advocate. versus GOVT.OFNCTOFDELHI&Ors. .....Respondents ThroughMr. J.R. Goel, Advocatesfor R-1 &2. + 2. WritPetition(C) No. 6204/2002 DEV TEXTILES .. ThroughMr. HarishMalhotra,SeniorAdvocatewith Mr. NitinAggarwal,Advocate. versus + 3. UnionofIndia &Ors Respondents ThroughMr. H.L. Tanejawith Mr. J.R. Goel,Advocatesfor R-1 & 2. Writ Petition (C) No. 8313/2002 SAREESANSAR ThroughMr. HarishMalhotra,SeniorAdvocatewith Mr. NitinAggarwal,Advocate. versus GOVT.OFNCTOFDELHI Respondent ThroughMr.J.R.Goel,Advocatesfor R-1 &2. WP(C) 3750/2000 page no 1 of 25 '.I '(y.: r / i' y \ •f; lh:i •i 'iV' •' A. j . < i'"' + 4. Writ Petition (C) No. 6206/2002 <rvi| + 5. SAREESANSAR .. petitioner ThroughMr. HarishMalhotra,SeniorAdvocatewith Mr. Nitin Aggarwal, Advocate. versus Union of India &Ors Respondents ThroughMr. J.R. Goel, Advocatesfor R-1 &2. Writ Petition (C) No. 6209/2002 MEHRA SAREE .. Petitioner ThroughMr. HarishMalhotra,SeniorAdvocatewith Mr. NitinAggarwal,Advocate. versus Union of India & Ors Respondents ThroughMr. H.L. Tanejawith Mr. J.R. Goel, Advocates for R-1 & 2. CORAM HON'BLEMR.JUSTICEVIKRAMAJITSEN HON'BLEDR. JUSTICfeS. MURALIDHAR 1. WhetherReportersoflocalpapersmay be allowed to see the judgment? 2. To be referredto the Reporteror not? 3. Whetherthejudgmentshouldbe reportedin Digest?^ ; Dr. S. Muralidhar. J. 1. Thesefive writ petitionsfiled by an associationof silk and textiles WP(C) 3750/2000 page no 2 of 25 •... •V/ I . -'I i traders in Delhi and its memberschallengethe constitutionalvalidityof the following notifications: (i) NotificationNo. F.4 (i)/99-Fin(g)dated 31.3.1999issued by the Lt. Governorof the National CapitalTerritoryof Delhi (GNCTD),FinanceGeneralDepartmentspecifyingthe rateof local sales tax payableunder the Delhi Sales Tax Act, 1975, as amendedby DelhiSalesTax (Amendment)Act, 1997,as 3 paisein a rupeeinrespectofsilkfabric. ^ (ii) Notification Nos. F.4(52)/99/Fin(G)/(I) and (II) dated 15.1.2000issued by the Sales Tax Department,GNCTD, includingsilkfabricsin the FirstScheduleto the DelhiSales Tax Act 1975 and levyingsales tax @12 paise in the mpee onsilkfabricsand garmentsmadeofsilkthereof. (iii) Notification No.F.4(75)/99-Fin(G)/2095dated 31.3.2000 issuedunderSection4(1) of the Delhi Sales Tax Act, 1975, as amended by the Delhi Sales Tax (Amendment) Act,' 1997 read with the Delhi Sales Tax (Amendment) Ordinance, 2000 deleting 'silk fabrics' from the First j ^ Scheduleand introducingit at SerialNo.62 in the Second ^ ^ Scheduleto the DelhiSalesTax Act, 1975 thus levyingsales tax @4 paisein the rupeeonsilkfabrics. g; The CSTAct In short, the challengeis to the levy of local sales tax in Delhi on silk fabricsfor the period1.4.1999till31.3.2001. 7^' •y . . 2. Abriefrecountingof the backgroundfacts leadingto the filing of the writ petitionsmay be useful to understandthe issues that arise for deterrmnation.In 1957, the Central Sales Tax Act ('CST Act') was WP(C)3750/2000 _ page no 3 of 25 1^ I •fc' Is: •i' fii" t'-'' i3 p fe. a> I I enactedby the Parliamentpursuantto the legislativepower traceableto Article286 (3) ofthe ConstitutionofIndiawhichreads as under: "286(3)Any law ofaStateshall,in so far as it imposes, or authorizesthe impositionof, - (a) a law on the sale or purchaseof goods declaredby Parliamentby law to be of special importancein inter- State trade or commerce;or (b) atax on the sale or purchaseof goods,beingatax of the naturereferredto in sub-clause(b), sub-clause(c) or sub-clause(d) ofclause(29A)ofarticle366, be subjectto such restrictionsand conditionsin regardto the systemof levy, rates and otherincidentsof the tax as Parliamentmay by law specify." 3. The CST Act receivedthe assent of the Presidenton 24.12.1956. Section14 of the CST Act declaresthat the goodslistedin thatprovision "are of special importancein inter-statetrade or commerce".These are referredto as 'declaredgoods'.In respectof such 'declaredgoods' there ' I is arestrictionprovidedin Section15 CST Act on the poweroftheStates i to levy local sales tax on the intra-saleof such goods i.e., when they are sold withinthe State.Section13 stipulatesthat the rate of local sales tax on such declaredgoodsshallnot exceed4% of the sale or purchaseprice of such goods.Section14 as it originallystood specifiedcoal,Cotton,oil seedsetc. as declaredgoods. 'Silkfabrics'was introducedintoSection14 WP(C) 3750/2000 page no 4 of 25 ' 4 • .. r \\'r I: ?}-.;• r-T . '••i' •! I .. J' ' r\ ,• •. '.I , • .: ^ h v: as entry (xi) by the FinanceAct 1961.The definitionof 'silkfabrics'was, 1 by reference,the same as its definitionin item20 of the FirstScheduleto the CentralExcisesand Saltact, 1944 (CE Act). 4. Sincethe Statesstoodto lose revenueby the virtueofthe provisionsof Section15 CST Act insofaras the salesofdeclaredgoodswithinthe State were concerned,the Parliamentdecided to compensatethe States to the extentofloss ofsuchrevenueby enactingthe AdditionalDutiesofExcise (GoodsofSpecialImportance)Act, 1957 (ADEAct). The ADE Act 5. The StatementofObjectsand Reasons (SOR) ofthe ADE Act read as under: "The object of this legislationis to impose additionalduties of excisein replacementofthe sales tax levied by the Union and the Stateson sugar,tobaccoand mill made textilesand to distributethe net proceeds of these taxes, except the proceeds attributableto UnionTerritories,to the States.The distributionofthe proceedsof the additionaldutiesbroadlyfollowedthe patternrecommendedby the Second FinanceCommission. Provisionhas been made that the States which levy a tax on the sale or purchase of these commodities after V April, 1958 do not participate in the distribution of the net proceeds. Provision is made in the'Act for includingthese goods in the categoryof goods declaredto be of specialimportantin inter-statetradeor commerceso that following the imposition of unifomi duties of excise on them, the rates of sales tax, if leviedby the State are subjectfrom T' April, 1958 to therestrictionsin Section15 oftheCentralSalesTaxAct, 1956." WP(C) 3750/2000 page no 5 of 25 h''" ' .V '•I' •V r >1 'I, i: ir' '.L Mi., fef'' ) ••••,. '! -r i/? '-'i iVJ'i 0'" Y'b- , A iv» -k Vt • i n fny r.%' « nP n} 6. S. 3(1)ofthe ADE Act, whichis the chargingsection,statesthatthere shall be levied and collected an additional duty of excise on goods describedin Column 3 of the FirstScheduleof the ADE Act at the rate specifiedin Column4thereof.Thesedescriptionsofgoodscorrespondto the CE Act. When the CST Act was amended in 1961 to include 'silk fabrics'as entry(xi) in Section14, asimultaneousamendmentwas made to the ADE Act by including'silkfabrics'in the definitionclause2(c), S. 3(1) and the FirstScheduleofthe ADE Act. By Act No.7 of 1986further changes were made to the First Schedule to bring it in line with the Central Excise Tariff Act 1985. As of today, Column 3 of the First - . '• Scheduleto the ADE Act has an entryconcerning'WovenFabricsofSilk or SilkWaste'and the rateofduty specifiedin Column4is 'Nil'. 7. S.4 ADE Act states that "Duringeach financial year, there shall be paid out of the ConsolidatedFund of India to the States in accordance with the Second Schedule such sums, representinga part of the net proceedsofthe additionaldutiesleviedand collectedduringthatfinancial year, as are specifiedin that Schedule."Clause4 ofthe SecondSchedule to the ADE Act sets out, in a table appended thereto, the precise percentage,of the distributionamong the States the ADE collected in respectof 'Fabrics'describedin Column 3 of the pirst Scheduleto the t WP(C)3750/2000 page no 6 of 25 i'-'f '• !• yrs/i;. ••^ it'- if I fll !V''• "rr^i • fe - «' ! • Pv •3' it; r Iv ADE Act. The provisoto Clause4stipulatesthat ifany State levies and collectslocal sales tax on the goods specifiedunderS. 3(I) of the ADE Act, then "no sums shall be payableto that Stateunderthis paragraphin respectof that financialyear, unless the CentralGovernmentby special order directs otherwise."In other words, the consequenceof a State levyingand collectinglocalsalestax on the saleof declaredgoodsis that It might entail, subject to the Central Governmentdirectingotherwise, such state losing its share of the ADE collectedin that financial year. Significantly,Delhiis notone ofthe Statesmentionedtherein. 8. With effectfrom 1.3.1965mill-madesilk fabrics was totallyexempt from both exciseduty under the CE Act as well as from additionalduty underthe ADE Act. In 1968 it was decidedto take silkfabricsoutsidethe purviewofSection14 CST Act on accountofthe fact thatthe States were not going to be compensatedby additionaldutiesof excisein lelationto ll Silk fabrics.Accordinglyin the FinanceAct, 1968 the followingchange was proposed: ''ProvisionRelationto CentralSalesTax All itemson whichadditionaldutiesofexciseare being leviedin lieu of salestax have been includedin Section 14 ofthe CentralSalesAct, whichread with Section14 imposes a restrictionon the levy of locM sales tax. Mill-made silk fabrics was also included with effect from 1.3.1961,due to the replacementof sales tax by WP(C) 3750/2000 page no 7 of 25 '4 V additional excise duties. As basic as well as additional excise duties have been totally exempted on mill-made fabrics with effect from 1.3.1965, it has been decided to delete item (xi) from section 14 of the Central Sales Tax Act, thereby lifting the restrictions imposed on the States to levy sales tax under their local laws on silk fabrics, [clause 43]. r IIkV' " (emphasissupplied) bj=fc -I . • ^ 9. As aresult,with effectfrom 11.5.1968,'silkfabrics' was dropped from Section 14 CST Act. Consequent upon the above change, the restrictionon levy of local sales tax as stipulatedby Section 15 of the CST Act did not apply. However,silk fabricscontinuedto featurein the First Schedule to the ADE Act. ' I i- 0'k f-' >i, (h:- •<•;•: • ( fi: \ The DST Act • ^ 10. Priorto its becomingaState,DelhiwasaUnionTerritoryin respect of which the Parliamentexercisedlegislativepowers. Accordingly,in \ respectof Delhi, Parliamentwas competentto enactalaw imposingtax on the sale and purchaseof goods other than newspapers,under Article 245 of the Constitutionof India read with Item No. 54 in List II of ScheduleVII thereof.Thus the DelhiSales Tax Act 1975 (DSTAct) was enactedby Parliamentprovidingfor salestax to be leviedon salestaking placewithinthe UnionTerritoryof Delhi. Underthe DST Act, sales tax WP(C)3750/2000 ' o ^ page no 8 of 25 • 4 • V- |i • |;V ^ -i' !'' • •/. :. X '1 r-c,^ ri V •' $•.: • •• . n:- i' sSv-ii:' I': '•• I.- V o St -i V., • .£.V f -' :k V was levied on silk fabrics till its withdrawalwith effect from 1.4.1998 upon representationsmade by the petitioner,an associationof silk and textiles traders. At this stage the question of the applicabilityof the restrictionunder S.15 CST Act did not arise as Delhi was still a Union Territory. 11. Afterthe 69 Amendmentin the Constitution,effective21.12.1991, Delhi was given the status of aState and called the National Capital Territory of Delhi(NCTD). The legislative assembly of the NCTDn empoweredto makelawson all the mattersin ListII ofSchedule7except those mentionedin EntriesNo. 1, 2and"18 of the StateList and Entries 64, 65 and 66 so far as it relatedto Entries1,2 and 18. In otherwords,the legislativecompetenceof the Delhi State Legislativeassembly to levy localsalestax on silkfabricsremainedunchanged. 12. What IS importantto note is that although 'silkfabrics'continuedto feature in the First Schedule to the ADE Act, it did not mean that the legislativeassembly of the NCTD could not make alaw levying local ^sales tax on such goods. What it meant was that if NCTD chose to levy sales tax on silk fabricsin any financialyear, then, subjectto the central govemment.dir^tingotherwise,NCTD might stand to lose its share of the ADE for that financialyear. As far as the rate of local sales tax was WP(C) 3750/2000 page no 9 of 25 / M : 'i : s I" concerned, since the restrictionunder Section 15 CST stood removed with effectfrom 11.5.1968,the local sales tax on silk fabrics under the DSTcould be higherthan 4%. Facts ofthe present case 13. The presentpetitionschallengethe impugnednotificationslevying localsalestax on silkfabricsand issuedunderthe DST Act. The firstis a notification issued on 31.3.1999 by the Lt. Governor GNCTD, RespondentNo.2 herein, imposing sales tax on silk fabrics with effect from 1.4.1999 at the rate of 3paise in the rupee. This was initially challengedby the petitionerassociationin WritPetition(C) 3173/1999in this Court. Rule DB was issued and the matter was listed for final disposal. Accordingto the petitioners,during the pendencyof this writ petitionthe FinanceMinistergave an assuranceto adelegationofthe silk tradersthat the sales tax would be withdrawn.Acting on this assurance, thepetitioneron 10.1.2000withdrewthe saidwritpetition. 14. Accordingto thepetitioners,insteadofwithdrawingthe salestax as - assured.RespondentNo.2 issuedtwo notificationson 15.1.2000.By the first notification, 'silk fabrics' was inserted as Entry 34 in the First Scheduleto the DST Act. By the secondnotification,the rate ofsales tax was increasedto 12paiseinarupeeon silkfabrics. Thiswas followedby WP(C) 3750/2000 page no 10 of 25 \1 •A --' •H I'"- . I • | , afurthernotificationdated 31.3.2000whereby 'silkfabrics'was deleted from the First Schedule of the DST Act and added to the Second Schedule.As a result, the rate of sales tax on silk fabrics was reduced from 12 paiseto 4paisein the rupee. 15. Thereafter,the present writ petitions were filed challengingthe notificationsas mentioned in para 1 hereinabove. On 14.7.2000this Courtdirectednoticeto issuein the writpetitionsand rule DB was issued on 18.5.2001. Meanwhileby aNotificationdated 31.3.2001'silkfabrics' was deletedfrom the SecondScheduleto the DST Act and includedin the $-• Schedulethereofwhich meantthat underSection7DST Act it was • \ fully exempt from sales tax. With effect from 3.7.2003, 'silk and ^ garmentsmadeofsilk but not includingsareesmadeofsilk'was included in the FirstSchedule(subjectto tax @12 paisein the rupee)and 'Sarees u made of silk' was includedin the Second Schedule(subjectto tax @4 paisemthe rupee).^Silkfabrics'continuedin the ThirdScheduleand was totallyexemptfrom salestax. The resultantpositionis thatsince1.4.2001 ^ thereis no localsalestax on silkfabrics. 16. Therefore,the issuein the presentpetitionsconcernsthe validityof the impositionof localsales tax on silkfabricsunderthe DST Act at the I followingratesfor the followingperiods: WP(C) 3750/2000 ¥ i'y/ page no 11 of 25 i ••• -I t- - • m,, r'-i ' %'-i ' '• If:)-' ^ V •r (i) At the rateof3paisein the rupeefor the periodfrom 31.3.1999till 15.1.2000 (ii) At the rate of 12 paise in the rupee for the periodfrom 16.1.2000 till 31.3.2000 (iii) At the rate of4 paise in the rupee for the periodfrom 1.4.2000till 31.3.2001 p:^ •' t&k'i • I tei'!. f-S-'v • f|:;' iv •• i-ji- 'i. S!: fr f-, J, 17. On 1.8.2002the followinginterimorderwas passedby this Courton an applicationfor stay (CM No 1128/2002)filed by the petitioners: "Beforewe take up this applicationfor orders,let the membersof the petitionerassociationfile affidavitsstating as to what amount they had collectedas sales tax on silk fabrics for the period 15 Ii. January to 31 March, 2000 and when was the same deposited withinthe Sales Tax Department. The requisiteaffidavitsshallbe filed withintwo weeks with advancecopies to learnedcounselfor the respondents,who will have instructionsthereonbeforethe next date. If any further informationis required by the Department, learnedcounselfor them may have the samecollectedfrom learned counsel for the petitioner." ' 18. Pursuantto the aforesaidorder,membersof the petitionerassociation have filedindividualaffidavitsin this Court.Whilethe proprietorofM/s. SareeSansMhas filed an affidavitindicatingthat he has chargedonly3% sales tax on silk fabrics for the for the period 15 Januaryto 31 March, 2000 all'theothershave said that they have charged,for this period, 12% WP(C)3750/2000 pageno 12of 25^ \d .V- ' U • ^i">. '/ / •' -A r p, {.• ^.1' )•' If Si ' ^>. . , sales tax. Submissionsof Counsel 19. Mr. Harish Malhotra, learned senior counsel appearing for the petitionerssubmits that since silk fabricscontinueto figure as goods of special importancein the First Scheduleto the ADE Act, the GNCTD was precludedfrom levyinglocal salestax on those goods.Relyingon a letter dated 5.10.19998 written by the Additional Secretary in the Ministryof Finance,Governmentof India, he submittedthat as long as the GNCTD was partakingof the share of the proceedsunder the ADE Act, it could not levy local sales tax on silk fabrics. Accordinglythe notificationsimposing sales tax at the rate of 3%, 12% and 4% were invalid.Alternatively,he submittedthat even if one were to assumethat local sales tax could be levied on silk fabrics,it could not in any event exceed4% as long as it was listed in the ADE Act as goods of special ' importance.In support of this submission,Mr.Malhotraplaced leliance upon the judgmentof the Hon'bleSupremeCourt in StateofKerala v. .M/s. Attesee (Agro IndustrialTradingCorporation)AIR 1989 SC 222 and mparticularthe observationscontainedin para6ofthejudgmentto thefollowingeffect: The fact that 'cottonfabrics'though listed asjtem 12 in the WP(C) 3750/2000 page no 13 of 25,, A;, j:. i Ki •• '- S v;'-' ^ 1.-< ' r ir •H 111. • •^ r. -, b'' ft t •• . • •' if P t 'I 'f ' i ¥ fSJ' • -4, Schedule to the 1944 Act was not brought into the list in Section 14 till 1.10.1958 or that 'silk fabrics' was dropped from the list in Section14 with effectfrom 11.6.1968though it continuesin the Scheduleto the 1944 Act does not alterthe position that these three Acts are inter-connectedand that certain goods taken out from the Schedule to the 1944 Act were to be subjectedto the special treatmentoutlinedin the CST Act and the 1957 Act." It is submitted that by virtue of the above declarationof the law, it becomesclearthat 'declaredgoods' whichcontinueto featurein the First Scheduleto the ADE Act, cannotbe subjectto localsalestax in excessof what is stipulatedin Section15 of the CST Act, notwithstandingthe fact thatthe goodsno longerfeaturein Section14 ofthe CSTAct. 20. In reply, Mr. H.L. Taneja and Mr, J.R. Goel, learned counsel appearingfor the Respondents1 and 2, submitted that the decision in Attesee (supra) is distinguishablein its applicationto the facts of the present case. They further submit that State is not precluded from levyingsales tax on silk fabricsat the rate of4paisein the rupee or any higher rate notwithstandingthe fact that the rate of ADE in relation to these goods under the ADE Act is 'Nil'. Mr. Goel furthersubmittedthe I mere fact that an item figuredin the First Scheduleto the ADE Act did I - ~ I not affectthe legislativecompetenceof the State to enactalaw levying WP(C) 3750/2000 page no 14 of 25 fi li ' 9^ ">1 local sales tax under Entry 54 of List II of Schedule VII to the Constitution, Thelegalpositionon theinter-connectednessofthe CST, CEandADEActs 21. The legalpositionthat emergesfrom the above discussionin paras2 to 12 on the inter-connectednessof the CST, CE and ADE Acts may be summarized thus: (a) From 29.4.1961till 11.5.1968'silkfabrics' featuredas ^goods of special importance' (declared goods) in Section 14 CST Act. During this period, by virtue of the restrictionin Section 15 (a) CST Act, the localsales tax on silkfabricsin the Statesincluding Delhicouldnotbehigherthan 4%. (b) The ADE was enactedwithaview to compensatingthe Statesfor the loss ofrevenueon accountofthe restrictionon theirpowersto \ levy localsales tax on declaredgoods higherthan 4% (whichwas the maximumpermissibleCST in relationto such goods).In other words declaredgoods within the meaningof Section14 CST Act would be amenableto the levy of ADE and the ensuingrevenue collected would be shared between the States on an agreed revenuesharingbasisas speltout in ScheduleII to the ADE. (c) Silk fabrics continuedto figurein the Scheduleto the ADE from I WP(C) 3750/2000 page no 15 of 25 fe ' , 1961 onwardsbut the rate of duty of ADE was 'Nil' with effect I from 1.3.1965. What this meant was that with effect from 1.3.1965,Delhi (or for that matterany State)was not in fact being ( compensatedwiththe revenuecollectedas ADE on 'silkfabrics'. H-"' Acknowledgingthis anomaly, the Finance Act, 1968 removed 'silkfabrics' from the purviewof Section 14 CST Act with effect ii from 11.5.1968.This was done to enable the states to levy local sales tax on silk fabrics at a rate higherthan 4%. However, 'silk V m I; H 3.'' '--t f, •< I '0:' fabrics'continuedto featurein the FirstScheduleto the ADE Act • •, I' with 'nil' rate ofduty. S' • •, (e) Although 'silkfabrics' continuedto featurein the First Schedule \ f ADE Act, it did not mean that the legislativeassemblyof the NCTD could not make a law levyinglocal sales tax on such P' goods. What it only m^ant was that if NCTD chose to levy sales i ' • ' I-:i: ' tax on silkfabricsin any financialyear, then, subjectto the central governmentdirecting otherwise, NCTD might stand to lose its shareofthe ADE for thatfinancialyear. "V' i I',"' 22. At the time when the impugnednotificationsWere made, the above positionprevailed.In otherwords,by virtueofthe removalof silkfabrics WP(C)3750/2000 pageno 16of 25 W p:.: •V I K'. from the purviewofSection 14 CST there was no restrictionon the levy of local sales tax on silk fabrics at a rate higherthan 4%. Even assuming j that silkfabricscontinuedto remainas declaredgoods for the purposeof Section14 CST Act, that only meant that the local sales tax in respectof such goods could not be higherthan 4% by virtueofSection 15 (a) CST ^ Act. Therefore,in any view of the matterthe challengeto the validityof" ® the impugnednotificationsto the extentthey seek to levy local sales tax on silkfabrics at the rate of 3% and later4% cannotbe sustained. The Supreme Court's decision in Attesee 23.Theonly questionthat remainsis whetherthere was any restrictionon ' \ \ the state charginglocal sales tax higher than 4% on accountof the fact ^ fabrics continuedto figure in the ADE Act as goods of special importance. In other words are the impugned notifications dated 15.1.2000by which sales tax was leviedat the rate of 12% on silkfabrics from 16.1.2000till 31.3.2000invalidon this score. Considerablereliance has been placed by the petitionerson the observationsof the Hon'ble SupremeCourtin Attesee(supra).Therefore,we proposeto examinethis judgment in some detail. , 24. The goods involved in the said case was 'P.V.C. Cloth' which was ' ' I • • • . ' I coveredby!the definitionof 'cottonfabrics' under the First Scheduleto h.: mC) 375012000] pagenol7of25 f:; li..- ••f .. f, I'l'. f- '! 6 l|0 the CE Act after its amendmentin 1969. However,PVC Cloth was not covered by the original definition of 'cotton fabrics' as on 1.4.1963. Underthe KeralaGeneralSalesTax, 1963 (KeralaAct), Item No. 7 ofthe Third Schedule exempted mill-made textile as specified in the First Schedule to the CE Act from local sales tax. The Kerala Act was [ amendedwith effectfrom 1.9.1967by takingaway the exemptionfor silk j fabrics and retainingit only for "cottonfabrics","woollenfabrics"and II "artificialsilk fabrics". The Hon'ble Supreme Court formulated the questionarising in the case in para 1ofthe judgmentthus: "whetherin ®4.' 3V'i P.T -v. • V I v aspect of assessmentyears 1971-72 and 1972-73, with which we are ' concerned,the exemptiongiven to 'cotton fabrics' under item 7 above ,. shouldbe restrictedto 'cottonfabrics'as definedin the CE Act as itstood ' £ irf ' 1.4.1963or whetherit would also cover goods falling underthe said II • |;r definitionafterits amendmentin 1969." The SupremeCourtappliedthe ic' doctrineof 'legislationby referenceand legislationby incorporation'and I concludedthat the subsequentaniendmentsto the CE Act wouldapplyto the definitionof'cottonfabrics'underthe KeralaAct as well. 25. In para,6 of its judgment,the Hon'ble SupremeCourt observed(as extractedin para 18 hereinabove)that there was an interconnectionin the three enactments,viz., the CE Act, the CST Act and the ADE Act. It ^ . I WP(C>37SW2m pag,ncIS.f2S !•'' L>' Hv -•hr- 4- « ! -V thereafternoticed the submissionof the learnedcounselfor the State i this context as under: '7. This may be so, says Sri Potti, but thereis no justificationto bring the 1963 Act into this group. His short point is that the Statelegislatureis completelyfree within its domain. Its power to levy sales tax includes a power to levy a tax on sales of declaredgoods as well. Nor is such powerinhibitedby the levy of an additional excise duty on certain goods. The 1957 amendmentto the 1125 Act made no referenceeven to the 1944 Act. The 1963 Actmakesno referenceeitherto the CST Act or to the 1957 Act. Sri Potti emphasizes,pointingout to the practical effectsofthe two legislations(the 1963 Act and the 1957 Act) to whichattentionhas beeninvitedalready,thatit was notthepolicy of the,Kerala State legislatureto exempt from sales tax goods whichsufferedadditionalexciseduty. The salestax exemptionis conferredon atotallyindependentbasis. It is not linkedto the fluctuationsin, or variationof, the treatmentunder the CST Act and the 1957 Act. The descriptionof items 5,7 and 8, by simply incorporatingthe definitionsthen readily availablein the 1944 Act (notthe CST Act or the 1957 Act),was not intendedto bring out the resultthat these definitionsshouldbe read in the lightof the changesthat they may undergofor the purposesof the 1944 Act. The SupremeCourtdisposedofthissubmissionas under: '8. Sn Pottiis certainlycorrectin sayingthatthe wordingsofthe Actsdo not showan exactcorrelationbetweenthe