LOHARA STEEL INDUSTRIES LTD. AND ANOTHER ETC.versusTHE STATE OF ANDHRA PRADESH AND ANOTHER

A       LOHARA STEEL INDUSTRIES LTD. AND ANOTHER ETC.
                                         v.
            THE STATE OF ANDHRA PRADESH AND ANOTHER

                               DECEMBER 20, 1996
B
            [AM. AHMADI, CJ. AND SUJATA V. MANOHAR, J.)

            Constitution of India, 1950 : A1ticle 304 (a)-Imposition of tax on
     goods-Notificatiolt-Goods impolted from other state not subject to same
     tax as similar goods manufactured in the State-Whether violative being dis-
.C   criminatory--Held, yes-However, only that p01tion of notification which dis-
     criminates against goods manufactured outside the State is struck
     down-Doctrine of severability.

           Appellant No. 1, a registered dealer in iron and steel under the
D Andhra Pradesh General Sales Tax Act, 1957, purchased iron and steel
     scrap and ingots in the state of Andhra Pradesh, and sent them to its
     re-rolling mill in the State of Karnataka. There they were re-rolled into
     rounds and flats and the re-rolled products were brought back to Andhra
     Pradesh to be sold there.

E        The iron and steel scrap aud ingots purchased by the appellants are
  subject to tax in the State of Andhra Pradesh under an exemption notifica-
  tion, the re-rollt:d finished products of steel sold in Andhr.a Pradesh were
  made exempt from tax provided tax had already been levied on the sale or
  purchase of any of the materials specified in Item 2 of Schedule III to the
F said  Act which included the raw-material purchased by the assessee. By
  G.O. MS No. 1373 of 28.8.1981 the original exemption notification G.O.
  MS. No. 88 was amended. By the amendment the words denying the
  exemption to goods manufactured outside the State were expressly and
  specifically added. The result was that exemption under original exemption
  notification became available only to those re-rolled finished products of
G steel re-rollers which were situated in the State of Andhra Pradesh. Since
  the appellant mills were situated outside Andhra Pradesh the re-rolled
  products of the appellants became ineligible for this exemption which was
  made available to local products. Thereafter, another notification bearirig
  G.O. MS. No. 498, dated 203.1984 was issued which proceeded on the same
H basis. The appellants have challenged these notifications as being violative
                                         898
                   LOI-IARA STEEL INDS. LTD. v. STATE                       899

 of Article 304(a) of the Constitution of India.                                   A
        In appeal to this Court, the appellants contended that there is a clear
  discrimination in the levy of tax between the goods which have been
  manufactured in the State and goods which have been manufactured
  outside the State. It was further contended by appellants that the exemp-
  tion notification must be read as a whole and if the exemption notification      B
. is found to be violative of Article 304 (a) the entire exemption notification
  will have to be struck d~wn and not just a portion of it which is dis-
  criminatory.

       Allowing the appeals, this Court
                                                                                   c
      HELD : 1.1. Article 304 of the Constitution enables the legislature to
 impose tax on goods manufactured within the State as also goods imported
 from other States .into the State. But in doing so the State cannot dis-
 criminate between goods so imported and goods manufactured or
 produced locally. [902-F]                                                         D
        1.2. In the p:resent case the appellants have purchased the raw
  material in the State of Andhra Pradesh and tax has been paid under the
· Andhra Pradesh General Sales Tax Act on this ra.w material. There is no
  reason why the finished products from the re-rolled mills which are sold
  in Andhra Pradesh should be subjectd to discrimination on the ground             E
  that these products have been manufactured outside the State and not
  inside the State. There is a clear violation of Article 304 (a) in the present
  case. [903-E]

      A. T.B. Mehtab Majid and Co. v. State of Madras and Anr., [1963]
 Supp. 2 SCR 435 and Andhra Steel Corporation v. Commissioner of Com-              F
 mercial Taxes in Kamataka, [1990] Supp. SCC 617, relied on.

       State of Madras v. N.K Nataraja Mudaliar, [1968] 3 SCR 829 and
 Rattan/al and Co. and Anr. v. The Assessing Aurhority and Anr., [1969] 2
 SCR 544, cited.
                                                                                   G
       2. In the present case the exemption notification as it originally
 stood, exempted all re-rolled finished products sold in the State of Andhra
 Pradesh from tax, provided tax had been paid in the State of Andhra
 Pradesh on the raw material. This exemption is still available to re-rolled
 products which are manufactured within the State. No exception can be             H
    900                   SUPREME COURT REPORTS(1996] SUPP.10 S.C.R.

A taken to this part of the notification. Only the portion of exemption
    notification which discriminates against goods manufactured outside the.
    State violates the provisions of Article 304 (a). In fact the words denying
  · this to goods manufactured outside the State were expressly and specifi·
    cally added to the original exemption notification hy the amending
B G.O.MS. No. 1373 of 28.8.1981. It is this amendment alone which is clearly
    severable, that offends Article 304 (a). It can, therefor~ be struck down.
    The subseqent notification of 20.3.1984 proceeds on the same basis. There
    is no need, therefore , to strike down the entire tax exemption which is
    granted to all re-rolled steel products sold in the State of Andhra
    Pradesh and manufactured out of tax paid raw material purchased in the
C State of Andhra Pradesh. The discriminatory provision is clearly
    severable and can be struck down. [904-B-E]

          State of Bombay andAnr. v. The United Motors (India) Ltd. and Ors.,
    [1953] SCR 1069, relied on.

D        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 827 of
    1992 Etc.

         From the Judgment and Order dated 27.11.90 of the Andhra Pradesh
    High Court in W.P. No. 8584 of 1985.
E
          V.K. Mohta and AS. Bhasme for the Appellants.

          K. Ramkumar for the Respondents.

          The Judgment of the Court was delivered by
F
         MRS. SUJATA V. MANOHAR, J. Leave granted in S.L.P. (C) No.
    14547 of 1992.

           Appellant No. 1 is a registered dealer under the Andhra Pradesh
    General Sales Tax Act, 1957. The appellant is a dealer in iron and steel. It
G   purchases iron and steel scrap and ingots in the State of Andhra Pradesh.
    Iron and steel scrap and ingots are sent by the first appellant to the its
    re-rolling mill which is situated in the State of Karnataka. The raw material
    is re-rolled into rounds and flats in the re-rolling mills of the appellant.
    The re-rolled products are brought back to Andhra Pradesh and are sold
H   in Andhra Pradesh.
          LOHARA SIEELINDS. LID. v. STAIB (MRS. SUJATA V. MANOHAR, J.]         901
t


             The iron and steel scrap and ingots which are purchased by the A
    . appellants are subject to tax in the State of Andhra Pradesh under the
      Andhra Pradesh General Sales Tax Act, 1957. Under an exemption
      notification issued under the Andhra Pradesh General Sales Tax Act, 1957
      bearing G.0.Ms. No. 88 Revenue, dated 28.1.1977 which came into effect
      from 1st of April, 1976 ·re- rolled finished products of steel sold in Andhra B
      Pradesh were made exempt from tax payable under the Andhra Pradesh
      General Sales Tax Act provided tax had already been levied under the said
      Act on the sale or purchase of any of the materials specified in Item 2 of
      Schedule III to the said Act which included the raw material purchased by
      the assessee. The relevant text of the exemption notification as amended
      by G.O.Ms. No. 2458 Revenue, dated 3.6.1980 and in force retrospectively C
      from 1st of April, 1976 is as follows :-

             "In exercise of the powers conferred by sub-section {1) of 9 of
             A.P.G.S.T. Act, 1957 {Act VI of 1957) the Governor of Andhra
             Pradesh hereby makes an exemption with affect from 1st of April,         D
             1976, the re-rolled finished products of steel re-rollers from the
             tax payable under the said Act, subject to the condition that the
             tax has been levied under the said Act on the sale or purchase of
             any of the material specified in Item 2 of Schedule III to the said
             Act."                                                        .
                                                                                      E
            By G.O.Ms. No. 1373 Revenue, dated 28.8.1981 the
     above G.O.Ms. No. 88 was amended. By the amendment, after the words
     're-rolled finished products of the steel re-rollers' the following words were
     added to G.0.Ms. No. 88:-

              "Situated within the Andhra Pradesh State".                             F

           The result was that exemption under G.O.Ms. No. 88 became avail-
     able only to those re-rolled finished products of steel re-rollers which were
     situated in the State of Andhra Pradesh. Since the appellants' re-roller
     mills were situated outside Andhra Pradesh the re-rolled products of the G
     appellants became ineligible for this exemption which was made available
     to local products.

           The amended G.O.Ms. No. 88 was cancelled with effect from
     4.2.1982. Thereafter, another notification bearing G.O.Ms. No. 498
     Revenue, dated 20.3.1984 has been issued under which once again exemp- H
    902                           SUPREME COURT REPORTS(1996] SUPP. 10 S.C.R.

A tion from tax leviable under Section 6 of the Andhra Pradesh General Sales
    Tax Act, 1957, on ingots or billets or re- rolled finished products manufac-
    tured from iron and steel scrap on which tax has been paid under the said
    Act is granted only to those re-rolled finished products which are manufac-
    tured from steel plants-cum-re-rollers situated within the State of Andhra
B   Pradesh and sold inside the State. The appellants have challenged both
    these notification as being violative of Article 304 (a) of the Constitution
    of India.

          The appellants contend that in the impugned notifications there is a
    clear discrimination between the goods which have been manufactured in
C   the State and goods which have been manufactured outside the State in
    levying tax under the Andhra Pradesh General Sales Tax Act of 1957.
    Article 304 of the Constitution is as follows :-

            "304. Restrictions on trade, commerce and intercourse among States-
            Notwithstanding anything in Article 301 or Article 303, the Legis-
D           lature 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 dis-
             criminate between goods so imported and goods so manufactured
E
             or produced; and

             (b) ........................................................................................."

        Article 304 thus enables the Legislature of a State to impose tax on
p goods manufactured within the State as also goods imported from other
  States into the State. But in doing so the State cannot discriminate between
  goods so imported and goods manufactured or producted locally. This
  Article came up for consideration before this Court in the case of Fimi
  A.T.B. Mehtab Majid and Co. v. State of Madras andAnr., [1963] Supp. 2
  SCR 435. The Court said that sales tax which has the effect of discriminat-
G ing between goods of one State and goods of another, may affect the free
  flow of trade and it will then offend against Article 301 and will be valid
  only if it comes within the terms of Article 304 (a). In the above case by
  virtue of Rule 16 which had been framed under the Madras General Sales
  Tax (Turnover and assessment) Rules 1939, tanned hides and skins im-
H ported from outside the State and sold within the State were subject to a
      LOHARA SfEEL INDS. LTD. v. SfATE [MRS. SUJATA V. MANOHAR, J.)      903

 higher rate of tax than hides or skins tanned and sold within the State. This A
 Court upheld the contention of the appellant that such an imposition
 would violate Article 304(a) of the Constitution and would be bad in law.

        This decision has been re-affirmed by this Court in the case
  of Andhra Steel Corporation v. Commissioner of Commercial Taxes in            B
  Karnataka, [1990) Supp. SCC 617. In this case the appellant who was a
  registered dealer under the Karnataka Sales Tax Act purchased iron scrap
 ·from dealers inside the and outside the State of Karnataka for the purpose
  of manufacturing iron ingots, steel rounds and tor-steel. These manufac-
  tured goods were sold mostly within the State. A provision in Section 5(4)
  of the Karnataka Sales Tax Act which granted exemption to sales of            C
  finished goods manufactured out of locally purchased raw material while
  denying it to the sale of finished goods manufactured out of imported raw
  material was held to be unconstitutional and contrary to Article 304(a) of
· the Constitution. This Court distinguished the decisions in State of Madras
  v. N.K. Nataraja Mudaliar, ([1%8) 3 SCR 829 and Rattan Lal & Co. and          D
  Anr. v. The Assessing Authority and Anr., [1969) 2 SCR 544 and re-affirmed
  its decision inA.T.B. Mehtab's case (supra).

       In the present case the appellants have purchased the raw material
 in the State of Andhra Pradesh and tax has been paid under the Andhra
 Pradesh General Sales Tax on this raw material. We do not see any              E
 reason why the finished products from the re-rolled mills which are sold
 in Andhra Pradesh should be subjected to discrimination on the ground
 that these products have been manufactured outside the State and not
 inside the State. There is clear violation of Article 304(a) in the present
 case.                                                                          F
        It was, however, contended before us by the department that the
 exemption notification must be read as a whole and, therefore, if we find
 the exemption notification to be violative of Article 304(a) the entire
 exemption notification will have to be struck down and not just a portion
 of it which is discriminatory as contended by the appellants. This question G
 in relation to a taxing statute has been considered by this Court as far back
 as in 1953 in the case of The State of Bombay andAnr. v. The United Motors
 (India) Ltd. and Ors. (1953) SCR 1069 at 1097. If the taxing statute imposes
 tax on subjects which are divisible in their nature and if the covered
 subjects which are exempted by the Constitution are wrongly taxed, the H
     904                  SUPREME COURT REPORTS[1996] SUPP. 10 S.C.R.

' A entire taxing statute need not be declared as ultra vires because it is
     feasible to separate taxes levied on authorised subjects from those levied
     on exempt subjects and to exclude the latter in the assessment to tax. In
     such cases this Court has said the statute itself should be allowed to stand.
     The taxing authority can be prevented by injunction from imposing the tax
 B   on subjects exempted by the Constitution. In the present case the exemp-
     tion notification as it originally stood exempted all re-rolled finished
     products sold in the State of Andhra Pradesh from tax provided tax had
     been paid in the State of Andhra Pradesh on the raw material. This
     exemption is still available to re-rolled products which are manufactured
     within the State. No exception can be taken to this part of the notification.
 C   Only the portion of exemption notification which discriminates against
     goods manufactured outsides the State violates the provisions of Articles
     304(a). In fact the words denying this exemption to goods manufa~ed
     outsides the State were expressly and specifically added to the origmal
     exemption notification by the amending G.O.Ms. No. 1373 of 28.3.1981. It .,.
 D   is this amendment alone, which is clearly severable, that offends Article·
     304(a). It can, therefore, be struck down. The subsequent notification of
     20.3.1984 proceeds on the same basis. There is no need, therefore, to
     strike down the entire tax exemption which is granted to all re-rolled steel
     products sold in the State of Andhra Pradesh and manufactured out of tax
     paid raw material purchased in the State of Andhra Pradesh. The dis-
 E   criminatory provision is clearly severably and can be struck down. _

           The appeals are, therefore, allowed and the judgments and orders
     of the High Court and of the Sales Tax Appellate Tribunal in Civil Appeal
     No. 16901 of 1996 Arising out of S.L.P. (C) No. 14547 of 1992 are set
     aside. The respondents shall pay to the appellants costs of the appeals.

     S.S.                                                    Appeals allowed.