Case: Firm A.T.B. Mehtab Majid &amp; Co Vs. State of Madras &amp; Another

produced in the State.17. Sub-rule (1) of the rule deals with the sale of raw hides and skins. The tax is levied from the dealer who is the last purchaser in the State. Its vires is not challenged. Clause (i) of sub-R. (2) provides for the levying of tax on the sale of hides and skins which had been tanned outside the State. The tax is levied form the dealer who, in the State, is the first seller of such hides or skins. The result is that a dealer in hides or skins which have been tanned outside the State has to pay the tax on the amount for which such hides or skins are sold by him. Clause (ii) of this sub-rule is in identical terms with respect to the sale of tanned hides or skins which have been tanned within the State. The tax is to be levied from the person who is the first dealer in such hides or skins and is levied on the amount for which they are sold. The discrimination, it is argued, comes in on account of the proviso to this sub-cl.(ii).The proviso is to the effect that if the dealer of hides or skins which had been tanned within the State proves that tax had already been levied on those hides or skins in their raw condition, in accordance with sub-R. (1), he will not be liable to the tax under sub-cl. (ii) of sub-R. (2). the result therefore is that the sale of hides or skins which had been purchased in the State and then tanned within the State is not subject to any further tax. Hides and skins tanned within the State are mostly those which had been purchased in their raw condition in the State and therefore on which tax had already been levied on the price paid by the purchaser at the time of their sale in the raw condition. If the quantum of tax had been the same, there might have been no case for grievance by the dealer of the tanned hides and skins which had been tanned outside the State. The grievance arises on account of the amount of tax levied being different on account of the existence of a substantial disparity in the price of the raw hides or skins and of those hides or skins after they had been tanned, though the rate is the same under S.3 (1) (b) of the Act. If the dealer has purchased the raw hide or skin in the State, he does not pay on the sale price of the tanned hides or skins; he pays on the purchase price only. If the dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales-tax on the sale price of the tanned hides or skins. He too will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside, and having not therefore paid any tax under sub-rule (1). It is true that dealers, though few, selling hides and skins which had been tanned within the State will also have to pay similar tax if no tax had been paid previously, they having not purchased the raw hides and skins at all as they were from the carcases of animals owned by them; but this does not affect the discriminatory nature of the tax as already indicated.18. 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 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.19.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.20. It has been urged for the respondent that if the impugned rule be held to be invalid, old R. 16 gets revived and that the tax assessed on the petitioner will be good. We do not agree once the old rule has been substituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid.21. Lastly, we may refer to the preliminary objection raised on behalf of the respondent to the maintainability of this petition, in view of the decision of this Court in Ujjam Bai v. State of Uttar Pradesh, AIR 1962 SC 1621 . This petition does not come within that decision. This is not a case in which the tax has been levied by The Deputy Commercial Tax officer by misconstruing certain. provisions of a valid Act, but is a case where the taxing officer had no jurisdiction to assess the tax on account of the invalidity of the rule under which the tax was assessed.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]10.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).11. 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.12. 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 holder, 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.13. Section 5 (vi) provides that the sale of hides or skins, whether tanned or untanned, shall be liable to tax under S. 3 (1) only at such single point in the series of sales by successive dealers as may be prescribed. Prescribed means prescribed by rules made under the Act. Rule 16 prescribes such single point. This rule was made by the Governor in the exercise of power conferred on him under S. 19 of the Act and would therefore have statutory force, in fact sub-s. (5) of S. (i) provides that the rules shall have effect as if enacted in the Act. We therefore do not agree that R. 16 is not a law which would fall within a law made by the State Legislature.14. It is true that the impugned rule, by itself, does not impose the tax, but fixes the single point at which the tax imposed by Ss. 3 and 5 is to be levied. What the rule provides is a step necessary for the imposition of the tax, and in view of Ss. 3 and 5 therefore the impugned rule is a part of the enactment which imposes the tax.15. The fact that the impugned rule was made in order to prescribe the single point in the series of sales by successive dealers at which the tax on sale of hides or skins was to be levied, in view of Ss. 3 and 5 of the Act, does not justify the making of such a rule which discriminates between the tax imposed on goods imported from outside the State and the goods produced or manufactured in thedo not consider that the mere circumstance of a tax having been paid on 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 orare 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 thedo not agree once the old rule has been substituted by the new rule, it ceases to exist and it does not automatically get revived when the new rule is held to be invalid.21. Lastly, we may refer to the preliminary objection raised on behalf of the respondent to the maintainability of this petition, in view of the decision of this Court in Ujjam Bai v. State of Uttar Pradesh, AIR 1962 SC 1621  . This petition does not come within that decision. This is not a case in which the tax has been levied by The Deputy Commercial Tax officer by misconstruing certain. provisions of a valid Act, but is a case where the taxing officer had no jurisdiction to assess the tax on account of the invalidity of the rule under which the tax was assessed.