STATE OF UTTAR PRADESH AND ANR.versusM/S. LAXMI PAPER MART AND ORS.

                                                                                   -~-

A                STATE OF UTTAR PRADESH AND ANR.
                                  v.
                   MIS. LAXMI PAPER MART AND ORS.

                               FEBRUARY 4, 1997

B          [B.P. JEEVAN REDDY AND K.S.PARIPOORNAN, JJ.]

          Constitution of India, 1950: Articles 301 and 304(a).

         Sales Tax-Inter-State sale-Purchase of raw material-Within or
C without the State-Discrimination between-Exemption of tax on exercise
    books made from paper purchased within the State while subjecting other
    exercise books to tax-Validity of Held: Levy of such tax on exercise books
    made outside the State but brought and sold in the State ultra vires Art.
    304(a), although the rate of tax on paper was same-Price stntcture of the
    imported goodS vis- a-vis locally manufactured goods or the economics of the
D   importer, need not be gone i11to-However, validity of such tax on exercise
    books made in the State but out of paper purchased from outside the State,
    not considered.

        The appellant-State issued two notifications the effect of which was
E that exercise books made from paper purchased within the State was
  exempt from sales tax whereas all other kinds of exercise books were liable
  to sales tax @ 5%. The respondent- dealer filed a writ petition before the
  High Court challenging the validity of the aforesaid notifications. The High
  Court dealt with three categories of cases, (1) exercise books made from
  paper purchased within the State. (Sale of paper within the State attracted
F sales tax @ 5%), (2) exercise books made outside the State and brought '
  into and sold in the State and (3) exercise books made in the State but out
  of the paper purchased from outside the State. The High Court had held
  that insofar as the second category was concerned, it was hit by Article 301
  read with Article 304(a) of the Constitution. So far as the third category
G was concerned, the High Court did not find fault with it. Being aggrieved
  by the judgment of the High Court the appellant preferred the present
  appeal.

          Dismissing the appeal, this Court

H         HELD: 1.1. The High Court was right in holding that exempting the
                                     914
         STATEv. LAXMIPAPERMART[B.P.JEEVANREDDY,J.]                     915

exercise books produced in the State and subjecting the exercise books         A
produced outside the State but sold within the State to sales tax @5% was
discriminatory. Once the discrimination is made out, the enquiry by court
ends. The price structure of the imported goods vis-a-vis the locally
manufactured goods or the economics of the importer need not be gone
into. [916-D, 917-F]
                                                                               B
    Finn A. T.M. Mehtab Majid & Co. v. State of Madras, [1963) Suppl. 2
SCR 435 and Shree Mahavir Oil Mills & Anr. v. State of Jammu & Kashmir,
JT (1996) 10 SC 837, relied on.

       1.2. Since there is no appeal by the dealer the question whether the    C
decision of the High Court with respect to the third category viz., exercise
books made in the State but out of the paper purchased from outside the
state, is correct or not need not be considered. [916-8)

        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1833 of
1977.                                                                          D
     From the Judgment and Order dated 21.8.74 of the Allahabad High
Court in W.P. No. 1165 of 1974.

        R.C. Verma and R.B. Misra for the Appellants.
                                                                               E
  . V. Adhiyarujina, Solicitor General and Subrat Birla for the Union of
India.

        H. K. Puri for the Respondent.

        The Judgment of the Court was delivered by                             F

       B.PJEEVAN REDDY, J. A simple measure by the State of Uttar
Pradesh has invited the wrath of Article 301 read with 304(a) of the
Constitution of India. Two notifications were issued by the Government of
Uttar Pradesh on December 1, 1973. The effect of these two notifications
was that exercise books made from paper purchased within Uttar Pradesh G
were exempt from sales tax whereas all other kinds of exercise books were
liable to sales tax @ 5%. The High Court dealt with three categories of
cases, (1) exercise books made from paper purchased within Uttar
Pradesh. (Sale of paper within Uttar Pradesh attracted sales tax @ 5%.)
(2) exercise books made outside the State of Uttar Pradesh and brought H
    916                   SUPREME COURT REPORTS                    [1997) 1 S.C.R.

A into and sold in Uttar Pradesh and (3) exercise books made in Uttar
    Pradesh but out of the paper purchased from outside the State of Uttar
    Pradesh. The High Court has held that insofar as the second category is
    concerned, it is hit by Article 301 read with Article 304(a). So far as the
    third category is concerned, the High Court did not find fault with it. It
B   declared that "Notification No. 6624 insofar as it imposes sales tax on the
    import of exercise books is violative of Article 301 of the Constitution and
    is unenforceable". Since there is no appeal by the dealer, we need not
    consider the question whether the decision of the High Court with respect
    to third category is correct or not. We confine our attention only to
    Category (2), i.e., exercise books made outside the State of Uttar Pradesh
C   and brought into and sold in Uttar Pradesh.


        In our .opinion, the High Court was right in holding that exempting
  the exercise books produced in the State and subjecting the exercise books
  p~oduced outside the State but sold in Uttar Pradesh to sales tax @ 5% is·
D discriminatory and, therefore, offends clause (a) of Article 304. The
  decision of this Court in Finn A. T.M. Mehtab Majid & Co. v. State of
  Madras, [1963] SuppL (2) S.C.R. 435 clearly governs the issue. The said
  decision considered a situation where the State of Madras subjected the
  tanned hides and skins imported from outside the State of Madras and sold
  within the State of Madras to a higher rate of tax than the tax imposed on
E hides or skins tanned and sold within the State. (It had also subjected the
  hides or skills imported from outside the State after purchase in their raw
  condition and then tanned inside the State to' a higher rate of tax than the
  hides or skins purchased in raw condition in the State and tanned in the
  State) The following holding in the said decision is relevant:
F
             "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 con-
G            sideration 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
H            comes within the terms of Art.304(a).
               STATEv. LAXMIPAPERMART[B.P.JEEVANREDDY,J.]                   917

                    Article 304(a) enables the Legislature of a State to make laws A
                affecting trade, commerce or 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
                                                                                    B
                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-rule of r.16 of the· Rules, then the tax is
                discriminatory and unconstitutional and must be struck down."

           Clause (a) of Article 304 has recently been considered in Shree         c
     Mahavir Oil Mills &Anr. v. State of Jammu & Kashmir, JT (1996) 10 S.C.837
     wherein it was pointed out that clause (a) of Article 304 "though worded
     in positive language has a negative aspect. It is, in truth, a provision
     prohibiting discrimination against the imported goods. In the matter of levy
     of tax - and this is important to bear in mind · the clause tells the State
     Legislatures: 'tax you may the goods imported from other States/Union D
     Territories, but do not, in that process, discriminate against them vis-a-vis
     goods manufactured locally. In short, the clause says: levy of tax on both
     ought to be at the same rate. This was and is a ringing declaration against
     the States creating what may be called 'tax barriers' • or 'fiscal barriers', as
     they may be called - at or along their boundaries, in the interest of freedom
     of trade, commerce and intercourse throughout the territory of India
     guaranteed by Article 301." Once the discrimination is made out, the
     enquiry by court ends. The price structure of the imported goods _vis-a-vis
     the locally manufactured goods or the economics of the importer need not
     be gone into;
                                                                                   F
              The appeal is accordingly dismissed. No order as to costs.

     V.S.S.                                                    Appeal dismissed.




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