Holding

A notification under Section 8(5) of the Central Sales Tax Act reducing inter‑state sales tax on cement to 4% and dispensing with Form‑C/Form‑D is intra‑vires, does not violate Articles 301/303, and is valid when exercised in public interest.

Summary

The petitioners, cement manufacturers in Gujarat, challenged a Rajasthan notification under Section 8(5) of the Central Sales Tax Act that reduced the inter‑state sales tax on cement to 4% and dispensed with the Form‑C/Form‑D requirement. They argued that the reduction created a local preference, hindered free trade under Articles 301 and 303 of the Constitution, and facilitated tax evasion. The State contended that the notification was exercised in public interest to boost revenue, employment and inter‑state trade. The Court examined the constitutional validity of Section 8(5), the public‑interest test, and whether the dispensation of Forms C/D impeded trade or encouraged evasion. Relying on earlier judgments upholding the power of states to vary inter‑state tax rates under Section 8(5) and finding no evidence of discrimination or evasion, the Court held the notification constitutional. Consequently, the petition was dismissed and the notification upheld.

Issues considered

The validity of the Rajasthan notification issued under Section 8(5) of the Central Sales Tax Act.
Whether dispensing with the Form‑C/Form‑D requirement facilitates tax evasion.
Whether the reduction of inter‑state sales tax rate to 4% creates a local preference violating Articles 301 and 303 of the Constitution.
Whether the notification satisfies the public‑interest requirement under Section 8(5).

Legislation cited

Central Sales Tax Act, 1956s. 8(1), s. 8(2), s. 8(2A), s. 8(4), s. 8(5)

Subjects

Central Sales TaxSection 8(5)inter‑state sales taxfree tradeArticles 301Articles 303public interesttax exemptioncement industry

Judgment

A SHREE DIGVIJA Y CEMENT CO. LTD. AND ORS.
v.
STATE OF RAJASTHAN AND ORS.

DECEMBER 17, 1999

B [S.P. BHARUCHA, B.N. KIRPAL, V.N. KHARE, D.P .. MOHAPATRA,
N. SANTOSH HEGDE, JJ.]

Central Sales Tax Act, 1956-Section 8(5)-Notification dated March
12, 1997 issued by State of Rajasthan-Reduction in the rate of Sales Tax
C on inter-state sale of cement by ariy dealer in Rajasthan to 4%-Dispen8ing
with the requirement offurnishing of declaration in Form C or certificate in
Form D as provided in Section 8(4) of the Act-Held, valid legal and
constitutional.

D Constitution of India, 1950-Artic/es 30-1 and 303-Reduction of Sales 1

Tax rate to 4% on inter-state sale of cement and dispensing with fur;nishing
of Form C declaration and Form D certificate-Constitutional validity-
Held, valued and constitutional.

Petitioners l and 3 were cement companies, having their manufacturing
E units in the State of Gujarat. The cement manufactured by them were sold
in Gujarat and elsewhere.

The State of Rajasthan issued, under Section 8(5) of the Central Sales
Tax Act, 1956, Notification dated 8th Ja~uary.1990 and 27th January 1990,
which had the effect of reducing tax on inter-state sale of cement by dealers
F from Rajasthan to 7% even though in respect of local sales the tax was
16%. These notifications were challenged by the aforesaid companies in a
writ petition in the Rajasthan High Court During the pendency of this writ
petition another notification dated 7th March 1994 was issued by th.e State
of Rajasthan reducing the rate of tax on inter-state sale of cement to 4%,
and also dispensing with the furnishing of Form C declaration or Form D
G certificate by the dealers in Rajasthan who had effected the inter-state sale.
The aforesaid writ petition was amended, and Notification of March 7, 1994
was also challenged.

The grievance of the petitioners was that consequent to such reduction ·
H of sales tax, cement from Rajasthan became much cheaper in the neighbouring
428
SHREE DIGVIJA Y CEMENT CO.LTD. v. STATE 429

States like Gujarat, and this affected the local sale of cement manufactured A
by the petitioners in Gujarat on account of the higher rate of sale tax on local
sales in Gujarat. It was further submitted that such reduction in rate of tax

- was contrary to the scheme contained in part XIII of the Constitution and was
therefore, liable to be struck down.

The writ petition having been dismissed by the Rajasthan High Court B
the petitioners filed special leave petition which was heard and judgment was
reserved on 5th March 1997.

On 12th March 1997, the State of Rajasthan issued yet another
Notification under Section 8(5) which was similar to the earlier notification c
whereby it reduced the rate of sales tax on inter-state sale of cement by any
dealer from that State to 4% and did away with the requirement of Form C
.. declaration or Form D certificate required by Section 8(4).

This Court on 21st March 1997 allowed the petitioners' Civil Appeal
and quashed the earlier Notification dated 8th January 1990, 27th January D
1990 and 7th March 1994. The Court held in Shri Digvijay Cement Co. and
Anr. v. State of·Rajasthan, [1994) 5 SCC 406 that reducing the rate of tax
from 16% to 4% had the effect of increasing despatch of cement from
Rajasthan to Gujarat and reduction of local sale of cement manufactured in
Gujarat, and consequently had direct and immediate adverse effect on free
flow of trade. The Court further held that the notifications dispensing with E
the requirement of furnishing of Form C declaration had the effect of
. facilitating evasion of payment of tax and were therefore, violative of the
constitutional scheme contained in Chapter XIII.

The petitioners' writ petition was heard by a Three Judge Bench on F
26th November, 1998, and it observed that similar earlier notifi.cations had
been struck down by the Court's decision on 21st March 1997 as violative
of Articles 301 and 303, and that this judgment required to be considered
by a larger Bench.

Consequently the matter came up before the Constitutional Bench for G
disposal.
'
It was submitted on behalf of the petitioners that

(i) That impugned notification under Section 8(5) was inconsistent with
..._ the legislative policy contained in the Central Sales Tax Act and was H
430 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A impermissible:
(ii) The dispensation of the requirement of furnishing Form C
declaration or Form D certificate was violative of Articles 301 and 303 of
the Constitution as it prevented or hindered the free movement of goods from
one State to another:
B
(iii) This facilitated tax evasion and this was not permissible and

(iv) This could not be regarded in public interest as contemplatea by
Section 8(5).

C The respondents contested the writ petition by submitting that the
impugned notification was issued in public interest, the same was not violative
of Part XIII of the Constitution, and that this Court's earlier decision dated
March 21, 1997 does not lay down the correct law and needs to be
reconsidered.

D Dismissing the Writ Petition, the Court

HELD: I. The decision in N.K. Nataraja Mudaliar has not only upheld
the validity of section 8(2), (2A) and (5) of Central Sales Tax Act but also
observed that sub-section (5) of Section 8 authorised the State Government
to waive or lower the rate of tax in public interest, notwithstanding anything
E contained in Section 8. There can, therefore, be no challenge to the exercise
of power under Section 8(5) except on the ground that such power has not
been exercised in public interest. [444-D)

State of Madras v. N.K. Nataraja Muda/iar, [1968) 3 SCR 829, relied
on.
F
2. Section 8(5) has been held to be valid and its ambit explained in
earlier decision by this Court, provides that in respect of inter-state sale of
certain types of goods by any dealer having its place of business in the State,
no tax shall be payable or tax shall be calculated at lower rates than those
G speci!ied in sub-section (1) or sub-section (2). [446-C)

State of Tamil Nadu & Ors. v. Sitalakshmi Mills & Ors., [1974) 4 SCC
408; Gwalior Rayon Silk Mfg. & Wvg. Co. Ltd v. Asst. Commissioner ofSales
Tax, [1974) 4 SCC 98 and Video Electronics (P) Ltd. v. State of Punjab &
Anr., [19901 3 SCC 87, relied on.

H 3. The power of exempting or reducing the rate of inter-state Sales Tax
SHREE DIGVIJA Y CEMENT CO.LTD. v. STA TE 431

on certain types of goods, like cement in the instant case, has to be exercised A
when the State Government is satisfied that it is necessary so to do in public
interest. [446-D)

4. The high rate of tax on inter-state sale which had been prevalent had
resulted in manufacturing units resorting to branch transfer of cement from
one State to another without paying any tax in the State of Rajasthan. B
[446-G)

5. With the demand of cement within the State of Rajasthan being
limited, it became imperative to encourage inter-state sales of cement from
the State of Rajasthan. Reducing the rate of inter-state Sales Tax facilitated C
in the higher tax return and in the industry continuing to function. This
clearly shows that the issuance of the said notification was in public interest
as envisaged by Section 8(5) of the Act. [447-A-B)

6. Merely because local rate of tax in the State of Gujarat on the sale
of cement was higher than the inter-state Sales Tax on cement sold from D
Rajasthan cannot lead to the conclusion that the impugned notification ·
prevented or hindered free movement of goods from one state to another. In
fact, the impugned notification had the opposite effect, viz. it increased the
movement of cement from Rajasthan to other states. It is not as if the impugned
notification created a barrier which may have had the effect of hindering free
movement of goods but on the other hand, the Sales Tax barrier was lowered E
resulting in increased volume on inter-state trade. [444-C-D)

7. A notification issued under Section 8(5) can have an over-riding
effect in view of the non-obstante clause. Form C and Form D are regarded
as proof of inter-state sale being made by dealers from Rajasthan to a
registered dealer or to a Government Department outside Rajasthan. The F
impugned notification requires the seller to r:ecord the name and address of
the purchaser in the bill or cash inemo which he is required to issue in
relation to an inter-state sale and the dealer is required to prove that the
transaction was in the nature of inter-state sale. The substitution of the
requirement of furnishing Form C and Form D by making it obligatory for G
the dealer to record the name and address of the purchaser in the bill or cash
memo would not have the effect of facilitating tax evasion. The experience of
the State of Rajasthan has been that with the issuance of such notifications
its tax revenue in inter-state sale of cement had increased. 1447-E-G)

8. Variation in the rate of inter-state Sales Tax is clearly permitted by H
432 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R.

A Section 8(5) whose validity has been expressly upheld. This being so the
conclusion that variation of the rate of inter-state sales tax, which creates
a local preference is contrary to the scheme in Part XIII of the Constitution,
is not correct. On the other hand the power to grant exemption has been
upheld provided it was not misused. [448-D-E; 448-H; 449-A)

B 9. Prior to 1957, Section 8(5) gave power to the Central Government
to, interalia, reduce the rate of Sales Tax if it was necessary so to do in the
public interest with the Central Sales Tax (Amendment) Act 1957, Parliament
conferred this power on the State Governments instead of the Central
Government In this historical backdrop the public interest as referred to in
C Section 8(5) of the Act, will certainly include the public interest of the state
concerned. If reduction of the rate of tax results in increase in the industry
as well as in the mining of limestone, it cannot be said that the notification
was not issued in public interest. (449-D-F)

10. In the instant case, the condition for availing the benefit of the
D notification is that in the bill or cash memo the name and complete address
of the purchaser has to be stated and consequently the burden to prove that
the transaction was in the nature of inter-state sales is on the dealer. At the
time of assessment, therefore, the dealer who seeks to get the benefit of the
said notification will have to establish the identity of the purchaser outside
the state and also, in turn, prove that an inter-state sale has taken place. The
E tax which is collected is allocated to the state from where the movement of
goods starts. Therefore, the question whether there is evasion of tax has to
be seen with relevance to that State. If reduced tax results in increase in
collection of tax by encouraging more people to pay tax to that State then it
cannot be urged that Article 301 is violated. (450-A-C)

F 11. The view that the notification dispensing with the requirement of
furnishing declaration in Form C had the effect of facilitating evasion of
payment of tax and was violative of the scheme of the constitutional provisions
contained in Chapter XIII cannot be subscribed to. The mere fact that the
local sale of cement in Gujarat may have been adversely affected cannot
G result in impugned notification being regarded as affecting the free flow of
trade and being violative of Article 301. The said provision is concerned with
the movement of goods from one State to the other and as far as the instant
case is concerned, with the lowering of tax, the movement has increased
rather decreasing. The validity of the notification dated 12th March 1997
issued by the State of Rajasthan is accordingly upheld.
H [434-F; 450-G; 451-B)
SHREE DIGVIJA Y CEMENT CO.LTD. v. STATE [KIRPAL, J.] 433
CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 366/1997 A
(Under Article 32 of the Constitution of India.)

For Petitioners in W.P.(C) No. 366/97 Shanti Bhushan, Sunil Gupta, R.P.
Sanghi, Puneet Tyagi, Narendra Sharma and R.P. Singh.
B
For Respondents State of Rajasthan B. Sen, Sushi! Kumar Jain, A.
Mishra, Ms. Madhurima Tatia and Aruneshwar Gupta.

Respondent No. 4 in W.P. (C) No. 366/97 R.F. Nariman, Pradeep Aggarwal,
M.L. Patodi and Ms. Pratibha Jain.

Respondent No. 5 in W.P. (C) No. 366/97 P.radeep Aggarwal and
c
Ms. Pratibha Jain.

The Judgment of the Court was delivered by

KIRP AL, J. The challenge in this writ petition is to the notification D
dated 12th March, 1997 issued by the State of Rajasthan under Section 8(5)
of the Central Sales Tax Act [for short 'the Act'] whereby it reduced the rate
of sales tax on inter-state sale of cement by any dealer from that State to 4%
and did away with the requirement of furnishing of declaration in Form-C or
certificate in Form-D contemplated by Section 8(4) of the Act.
E
Shri Digvijay Cement Co. Ltd. and Mis Gujarat Ambuja Cemenis Ltd.,
petitioners no.1 and 3 herein, manufacture cement and have their manufacturing
units in the State of Gujarat. The cement manufactured by them is sold in
Gujarat and elsewhere. The State of Rajasthan had issued under Section 8(5)
notifications dated 8th January, 1990 and 27th June, 1990, which had the effect F
of reducing tax on inter-state sale effected by dealers from Rajasthan to 7%
even though in respect of local sales the tax was 16%. These notifications
were challenged by the petitioners by their filing a writ petition in the Rajasthan
High Court in February 1994. During the pendency of this petition the State
of Rajasthan issued under Section 8(5) of the Act another notification dated
7th March, 1994 reducing the rate of tax on inter-state sale of cement to 4% G
and without the requirement of furnishing of declaration in Form-C or certificate
in Form-D by dealers in Rajasthan who may have effected the inter-state sale.
By amending the aforesaid writ petition this notification of 7th March, 1994
was also challenged.

The grievance of the petitioners in the aforesaid petition was that as H
434 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A a consequence of such reduction of sales tax, cement from Rajasthan became
much cheaper in the neighbouring States like Gujarat and that adversely
affected the local sale of cement manufactured by the petitioners in Gujarat
by reason of higher rate of sales tax on the local sales within that State. Such
reduction of the rate of tax, it was contended, was contrary to the scheme
contained in Part XIII of the Constitution and was liable to be struck down.
B
The Rajasthan High Court dismissed the writ petition. Thereupon a
special leave petition was filed in this Court. Leave was granted and the Civil
Appeal No. 2145 of 1997 was heard and on 5th March, 1997 the judgment was
reserved. It is thereafter that on 12th March, 1997 the State of Rajasthan
C issued the impugned notification under Section 8(5) which was similar to the
earlier notifications and continued the rate of tax on inter-state sale of cement
at the reduced rate of 4%. This notification of 12th March, 1997 wa5 to remain
in force upto 31st March, 1998.

On 21st March, 1997 the appeal filed by the petitioners was allowed
D and the earlier notifications dated 8th January, 1990, 27th June, 1990 and 7th
March, 1994 were quashed. In the said decision, reported as Shri Digvijay
Cement Co. and Anr. v. State of Rajasthan and Ors., [ 1994) 5 SCC 406, It was
held that reducing the rate of tax from 16% to 4% had the effect of increasing
the dispatch of cement from Rajasthan to Gujarat and in reduction of the local
sale of cement manufactured in Gujarat and the said notifications, therefore, ·
E were held to be bad for having direct and immediate adverse effect on free
flow of trade. It was also held that the notifications dispensing with the
requirement of furnishing declaration in Form-C had the effect of facilitating
evasion of payment of tax and were, therefore, violative of the scheme of the
constitutional provisions contained in Chapter XIII.
F In the present writ petition the challenge is to the notification of 12th
March, 1997, which was not the subject matter in the earlier appeal, on the
grounds which found favour with this Court in its aforesaid decision of 21st
March, 1997.

On 26th November, 1998 this petition was heard by a Bench of Three
G
Judges. It was noticed that similar earlier notifications had been struck down
in Shri Digvijay Cement Company's case (supra) on the ground that they
were violative of Articles 301 and 303 of the Constitution. The Bench observed
that the aforesaid judgment required to be considered by a larger bench
particularly in regard to the applicability of Articles 30 I and 303 to the said
H notification. This is how this petition has come to be heard by this. Bench.
SHREE DIGVIJAY CEMENT CO. LTD. v. STATE [KJRPAL. J.] 435
Section 8 of the Act, in so far as it is relevant for the purpose of this A
case, is as follows:

'8. Rates of tax on sales in the course of inter-state trade or
commerce:-{ l) Every dealer, who in the course of inter-state trade or
commerce-
B
(a) sells to the Government any goods; or

(b) sells to a registered dealer other than the Government goods of
the description referred to in sub-section (3);

shall be liable to pay tax under this Act, which shall be [four per
cent] of his turnover. C
(2) The tax payable by any dealer on his turnover in so far as the
turnover or any part thereof relates to the sale of goods in the course
of inter-state trade or commerce not falling within sub-section (l )--

(a) in the case of declared goods, shall be calculated (at twice the D
rate) applicable to the sale or purchase of such goods inside the
appropriate State; and

(b) in the case of goods other than declared goods, shall be
calculated at the rate of ten per cent or at the rate applicable to
the sale or purchase of such goods inside the appropriate State, E
whichever is higher;

and for the purpose of making any such calculation any such dealer
shall be deemed to be a dealer liable to pay tax under the sales tax
law or the appropriate State, notwithstanding that he, in fact, may not
be so liable under that law. F
(2-A) Notwithstanding anything contained in sub-section {I-A) of
Section 6 or in sub-section ( 1) or clause (b) of sub-section (2) of this
section the tax payable under this Act by a dealer on his turnover in
so far as the turnover or any part thereof relates to the sale of any
goods the sale or, as the case may be, the purchase of which is, under G
the sales tax law of the apor.opriate State, exempt from tax generally
... or subject to tax generally at a rate which is lower than( four per cent)
(whether called a tax or fee or by any other name), shall be nil or, as
the case may be, shall be calculated at the lower rate.

Explanation--For the purposes of this sub-section a sale or purchase H
436 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R .

. A of any goods shall not be deemed to be exempt from tax generally
under the sales tax law of the appropriate State if under that law the
sale or purchase of such goods is exempt only in specified
circumstances or under specified conditions or the tax is levied on the
sale or purchase of such goods at specified stage or otherwise than
with reference to the turnover of the goods.
B
(3) The goods referred to in clause (b) of sub-section (l) -
(a) Omitted

(b) ****are goods of the class or classes specified in the certificate
of registration of the registered dealer, purchasing the goods as
c being intended for resale by him or subject to any rules made
by the Central Government in this behalf, for use by him in the
manufacture or processing of goods for sale or in mining or in
the generation or distribution of electricity or any other form of
power;
D (c) ' are containers or, other materials specified in. the certificate or
registration of the registered "dealer purchasing the goods, being
containers or materials intended for being used for the packing
of goods for sale;

(d) are containers or other materials used for the packing of any
E
goods or classes of goods specified in the certificate of
registration referred to in ***clause (b) or for the packing of any
containers or other materials specified in the certificate of
registration referred to in clause (c).

(4) The provisions of sub-section (I) shall not apply to any sale in
F
the course of inter-state trade or commerce unless the dealer selling
the goods furnishes to the prescribed· authority in the prescribed
manner-
(a) a declaration duly filled and signed by the registered dealer to
whom the goods are sold containing the prescribed particulars
G
in a prescribed form obtained from the prescribed authority; or
(b) if the goods are sold to the Government, not being a registered
dealer, a certificate in the prescribed form duly filled and signed
by a duly authorised officer of the Government;
provided that the declaration referred to in clause (a) is furnished
SHREE DIGVIJA Y CEMENT CO. L.TD. v. STATE [KIRPAL, J.) 437
within the prescribed time or within such further time as that A
authority may, for sufficient cause, permit.

(5) Notwithstanding anything contained in this section, the State
Government may, if it is satisfied that it is necessary so to do in the
public interest, by notification in the Official Gazette, and subject to
such conditions as may be specified therein, direct,- B
(a) that no tax under this Act shall be payable by any dealer having
his place of business in the State in respect of the sales by him,
in the course of inter-state trade or commerce, from any such
place of business of any such goods or classes of goods as may
be specified in the notification, or that the tax on such sales shall C
be calculated at such lower rates than those specified in sub-
section (I) or sub-section (2) as may be mentioned in the
notification;
(b) that in respect of all sales of goods or sales of such classes of
goods as may be specified in the notifications which are made, D
in the course of inter-state trade or commerce, by any dealer
having his place of business in the State or by any class of such.
dealers as may be specified in the notification to any person or
to such class of persons as may be specified in the notification,
no tax under this Act shall be payable or the tax on such sales
shall be calculated at such lower rates than those specified in E
sub-section (I) or sub-section (2) as may be mentioned in the
notification."

The impugned notification has been issued under sub-section (5) of Section.
This sub-section when originally enacted was as under:
F
"(5) Notwithstanding anything contained in this section, the Central
Government may, if it is satisfied that it is necessary so to do in the
public interest by notification in the Official Gazette, direct that in
respect of such goods or classes of goods as may be mentioned in
the notification and subject to such conditions as it may think fit to G
impose, no tax under this Act shall be payable by any dealer having
his place of business in any Union territory in respect of the sale by
him from any such place of business of any such goods in the course
of inter-state trade or commerce or that the tax on such sales shall be
calculated at such lower rates than those specified in sub-section ( 1)
or sub-section (2) as may be mentioned in the notification". H
438 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A In sub-section (5) the words 'the State Government' .and 'the State' were
substituted for the words 'the Central Government' and 'any Union Territory'
respectively, by Section 2 of Central Sales Tax (Amendment) f\ct, I 957 (Act
No.16 of 1957). The amendment thus enabled a State Government (in place
of the Central Government under the amended provisions), if it so desired, to
B exempt any goods or class of good~ from Central Sales Tax, or to prescribe
a lower rate of tax therefor.

Clause 4 of the Statement of Objects and Reasons to the Amendment
Bill of 1957 reads as under:

"Incidentally, section 8(5) is sought to be amended so as to enable
c a State Government, if it so desires, to exempt any goods or class of
goods from inter-state sales tax".

Sub-section (5) in its present form has been substituted by Section 5(c)
of the Central Sales Tax (Amendment) Act, 1972 (Act No.61 of 1972) with
D effect from I st April, 1973. Und~r the 1958 substituted sub-section, the State
Government could grant exemption from tax or reduction in the rate of tax with
reference to any class or classes of goods only, the newly substituted sub-
section provides for such exemption or reduction being granted with reference
to persons also. The Notes on clause 5(c) reads as under: ,-

"2. Sub-clause 9(c) of clause 5 of the Bill seeks to substitute a new
E section for existing sub-section (5) of Section 8 of principal Act for
the purpose of enabling State Governments to grant exemption from
or reduction in rate.of tax only with reference to any goods or classes
of goods as at present but also with reference to persons. The
exemption from tax or reduction in rate of tax may be granted only if
F the State Government is satisfied that it is necessary to do so in
public interest. As "it is not possible to visualise in advance the cases
in which such exemptions or reductions may be necessary and as the
exemptions and reductions can be granted only in public interest, the
delegation of power to grant exemptions or reductions is of a normal
character."
G
The impugned notification dated 12th March, 1997 issued urider Section
8(5) of the Act is as follows:

"S.O. 320-In exercise of the powers conferred by sub-section (5) of
Section 8 of Central Sales Tax Act, 1956 and in supersession of this
H Department Notification No.f-4(8)/FQ/Gr.IV /94-70 dated 7th March,

~-
SHREE DIGVIJA Y CEMENT CO.LTD. v. STATE [KIRPAL, J.] 439

1994 (as amended from time to time), the State Government being A.
satisifed that it is that the tax payable under sub-section (1) and (2)
of the said Section, by any dealer having his place of business in the
State, in respect of the sales of cement made by him from any such
place in the course of inter-state trade and commerce shall be calculated
at the rate of 4% subject to the following conditions:-
B
(1) That the dealer shall record the name and complete address of
the purchaser in the bill or cash memo for such inter-state sale
to be issued by him;

(2) that the burderi to prove that the transaction was in the nature
of inter-state sale, shall be on the dealer; and C
(3) that the dealer making inter-state sales under this Notification
shall not be eligible to .claim benefit provided for by the
Notification No.F- 4(72)/FD/Gr.IV/81-18 dated 6.5.86 as amended
from time to time.
This Notification shall remain in force upto 31st March, 1998."
D

On behalf of the petitioners, Sh. Shanti Bhushan, learned senior counsel,
submitted that the impugned notification issued under Section 8(5) was
inconsistent with the legislative policy contained in the Central Sales Tax Act
inasmuch as the rate of tax on inter-state sales has been made lower than the E
rate of tax ·on the said goods when sold within the State and furthermore the
requirement of furnishing declaration in Form-C or a certificate in Fonn-D, as
contemplated by Section 8(4) has also been done away with. He further
submitted that this notification was violative of Articles 301 and 303 of the
Constitution inasmuch as it prevented or hindered the free movement of
goods from one State to the other. In support of this contention reliance was F
placed by him in the case of Indian Cement and Ors. v. State of Andhra
Pradesh and Ors., [1988] 1 SCC 743 and in the petitioner's own case that of
Shri Digvijay Cement Co. and Ors. v. State of Rajasthan and Ors., [1997] 5
SCC 406. He also invited our attention to the judgment of Hegde, J. in the
case of State of Madras v. N.K Nataraja Mudaliar, [1968] 3·SCR 829 and G
submitted that lowering the rate of tax on inter-state sales in the manner it
has been done was not permissible. He lastly urged that the.nature of public
intere~t contemplated by Section 8(5) of the Act was not the kind on the basis
· of which the impugned notification has been issued by the Government of
Rajasthan. He also submitted that by doing away with the requirement of
furnishing Forms-C and D the State of Rajasthan had in. fact encouraged or H
440 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R .

. A facilitated tax evasion and this was not permissible and could not be regarded
as being in public interest as contemplated by Section 8(5) of the Act.

Learned counsel for the respondents contended that the impugned

B
notification was issued in public interest and the same was not violative of
Part XIII of the Constitution. It was also their submission that the decisions
of this Court in Indian G~ment (supra) and Shri Digvijay Cement Co. (supra)
do not lay down the correct law and need to be reconsidered. It was alsQ their
-
......

contention that the petitioner who was a dealer in the State of Gujarat had
no locus standi to challenge· the impugned notification issued by the State
of Rajasthan .
.c For the view which we are taking, we do not intend to decide this
question of locus standi and we proceed to examine the issues rais.ed in this
case on the assumption that the writ petition filed by the petitioners is
maintainable.

D Reading of Section 8 indicates that the Scheme for the levy of the
Central Sales Tax Act, 1956, relating to inter-state sales falls under the following
five categories:

(I) Inter-state sales by a dealer to the Government or to a registered
dealer, of the description of goods referred to in Section 8(3)
E shall be at 4 per cent provided the conditions prescribed in
Section 8(4) are satisfied (Section 8( I)).

(ID Tax .payable by a dealer on his turnover of inter-state sales, not
falling under Section 8( I) of "declared goods" shall be twice the
rate applicable to the sale or purchase of such goods inside the
F appropriate State (Section 8(2)(a)).

(III) Tax payable relating to inter-state sale of other than declared
goods and not falling under Section 8( I) shall be at _ten per cent,
or at the rate applicable for sales inside the appropriate State
whichever is higher (Section 8(2)(b)).
G
(IV) Notwithstanding anything contained in Section 8(1) or 8(2)(b) if
the goods are sold inter-state, the sale or purchase of which is, .
under the sales tax law of the appropriate State exempt from tax
·generally or subject to tax generally at a rate lower than 4 per
cent, it shall be either ex~mpt from tax or the tax under the
H Central Sales Tax Act shall be levied at the lower rate as it is
SHREE DIGV!JAY CEMENT CO.LTD. v. STATE [KIRPAL. J.] 441
obtained in the 'State' (Section 8 (2A)). A
M Notwithstanding anything contained in Sections 8(1) to 8(4) of
the Act, the State Government may, in public interest and subject
to such conditions as may be specified by it, exempt any person
from payment of tax regarding the inter-state sales, or levy a rate
lower than that specified in Section 8(1) or 8(2) (Section 8(5)). B
Section 8(5) empowers the State Government, in public interest
to dispense with the requirement of Section 8(4)."'

The validity of sub-sections (2), (2A) and (5) of Section 8 came up for
consideration before this Court in State of Madras v. N. K. Nataraja Muda/iar,
[ 1968] 3 SCR 829. The respondent in that case had successfully contended C
before the High Court that sub-sections (2), (2A) and (5) of Section 8 imposed
or authorised the imposition of varying rates of tax in different States on
similar inter-state transactions and the resulting inequality in the burden of
tax affected and impeded inter-state trade, commerce and inter-course thereby
offended Articles 30 I and 303 (I) of the Constitution.
D
Shah. J., as he then was, speaking for the majority after referring to the
earlier decision of this Court in Atiabari .Tea Co. Ltd. v. State of Assam and
Ors., [1961] lSCR 809, Firm ATB Mehtah Majid and Co. v. State of Madras
and Anr., [1963] Supp. 2 SCR 435; Automobile Transport (Rajasthan) Ltd. v.
Stateo/RajasthanandOrs., [1963] I SCR491,pertainingtoArticles301 and E
303, observed that it was settled law that a tax may in certain cases restrict
or hamper the flow of trade but every imposition of tax does not do so. Tax
under the Central Sales Tax Act on inter-state sales was in its essence a tax
which may encumber movement ()f trade and commerce, but Article 302
expressly provided that on the freedom of trade restrictions may be imposed
not only in one State but also within any part of the territory of India. Dealing F
with the contention, which had found favour with the High Court that rates
of tax on the sale of same or similar commodity by different States was by
itself discriminatory since it authorised placing of a burden on inter-state
trade and commerce and affected its free flow between the States, Shah, J.
further observed at page 843 as under: G
"We are unable to accept the view propounded by the High Court.
The flow of trade does not necessarily depend upon the rates of sales
tax: it depends upon a variety of factors, such as the source of supply,
place of consumption, existence of trade channels, the rates of freight,
trading facilities, availability of efficient transport and other facilities H
442 SUPREME COURT REPORTS (1999) SUPP. 5 S.C.R.

A for carrying on trade. Instances can easily be imagined of cases in
which notwithstanding the lower rate of tax in a particular part of the
country goods may be purchased from another part, where a higher

B
rate of tax prevails. Supposing in a particular State in respect of a
particular commodity, the rate of tax is 2% but if the benefit of that
low rate is offset by the freight which a merchant in another State may
have to pay for carrying that commodity over a long distance the
merchant would be willing to purchase the goods from a nearer State,
even though the rate of tax in that State may be higher. Existence of
-
long-standing business relations, availability of communications, credit
facilities and a host of other factors-natural and business-enter into
c the maintenance of trade relations and the free flow of trade cannot
necessarily be deemed to ~ave been obstructed merely because in a
particular. State the rate of tax on sales is higher than the rates
prevailing in other States."

Again at page 845 it was observed as under:
D
"The rate which a State Legislature imposes in respec;:t of inter-
state transactions in a particular commodity must depend upon a
variety of factors. A State may be led to impose a high rate of tax on
a commodity either when it is not consumed at all within the State,
or if it feels that the burden which is falling on consumers within the
E
State will be more than offset by the gain in revenue ultimately
derived from outside consumers. The imposition of rates of sales tax
is normally influenced by factors political and economic. If the rate is
so high as to drive away prospective traders from purchasing a
commodity and to resort to other sources of supply, in its own
F interest the State will adjust the rate to attract purchasers ...............Again,
in a democratic constitution political forces would operate against the
ievy of an unduly high rate of tax. The rate of tax on sales of a
commodity may not ordinarily be based on arbitrary considerations
but in the light of the facility of trade in a particular commodity, the
market conditions-internal and external-and the likelihood of consumers
G
not being scared away .by the price which includes a high rate of tax.
Attention must also be directed to sub-section (5) of Section 8 which
authorises the State Government, notwithstanding anything contained
in Section 8, in the public interest to Wfiive tax or impose tax on sales
at a lower rate on inter-state trade or commerce. It is clear that the
H legislature has contemplated that elasticity of rates consistent with
SHREE DIGVIJAY CEMENT CO. LTD. v. STATE [KIRPAL, J.) 443

economic forces may be maintained." A
The Court accordingly upheld the validity of Section 8(2), 8(2A) and 8(5) and
held at page 846 as under:

... "The Central Sales Tax Act is enacted under the authority of the
Union Parliament, but the ta.x is collected through the agency of the B
State and is levied ultimately for the benefit of the States and is
statutorily assigned to the States. That is clear from the amendments
made by the Constitution. (Sixth Amendment) Act, 1956, in Art.269,
and the enactment of els. (1) and (4) of Section 9 of the Central Sales
Tax Act. The Central Sales tax thoµgh levied for and collected in the
name of the Central Government is a part of the sales-tax levy imposed C
for the benefit of the States. By leaving it to the States to levy sales-
tax in respect of a commqdity on inter-state transactions no
discrimination is practised: and by authorising the State from which
the movement of goods commences to levy on transactions of sale
Central sales-tax, at rates prevailing in ~he State, subject to the limitation D
already set out, in our judgment, no discrimination can be deemed to
be practised."

Hegde, J. delivered a separate judgment agreeing with the conclusion
reached by Shah, J. to the effect that the aforesaid sub-sections of Section
8 were intra-vires to the Constitution, but his reasons for coming to that E
conclusion were, however, not the same which had prevailed with the majority.
Hegde, J. observed that once it is shown that a measure prima facie gives
preference to the residents of one State over another State or it makes
discrimination between the residents of a State and that of another because
of the adoption of different rates of tax in different States, then the matter F
assumes a different complexion in view of Article 303(1). After referring to the
Taxation Enquiry Committee Report, he observed at page 853 that "Therefore,
it is clear that the Act is not a haphazard legislation; it is the product of
deep thinking and clea.r analysis of the various aspects of the matter. This
Court will be slow to hold such a measure as being either not in 'public
interest or is violative of Article 303(1) ". The learned Judge then analysed G
the provisions of different sub-sections of Section 8 which were impugned
and came to the conclusion that they were intra-virus and held at page 856
as under:

"If we bear in mind the fact that sales tax on inter-State sales is
lev!ed for the benefit of the States and the further fact that each one H
444 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R.

A of the State Governments in its own interest is bound to create the
best possible condition for the growth of industry and commerce in
that State, it is reasonable to assume that they will not be blind to
economic forces. All that one has to guard against is to see that they

B
do not, by having recourse to their taxation power, obstruct the flow
of trade into their State. In the normal course they will be interested
in seeing that goods produced in their States are sold outside.
Reasonably sufficient safeguards against the free flow of trade into
-
a State have been provided by the provisions of the Act, firstly, by
providing for the levy of sales tax in ~he State in which the goods
are produced, and, secondly, by placing various restrictions on the
c power of the States in fixing the rates. None of the impugned
provisions, in my opinion, has direct or immediate impact on inter-
State trade or commerce. "

The aforesaid decision in N.K. Nataraja Mudaliar 's case (supra) not
only upheld the validity of Section 8(2)(2A) and (5) but also observed that
D sub-section (5) of Section 8 authorised the State Government to waive or
lower the rate of tax in the public interest, notwithstanding anything contained
in Section 8. There can, therefore, be no challenge to the exercise of power
under Section 8€5) except on the ground that such power has not been
exercised in public interest..

E In State of Tamil Nadu and Ors. v. Sitalakshmi Mills and Ors., [1974]
4 SCC 408, the validity of Section 8(2)(b) of the Act was once again considered
by a Constitution Bench of this Court in the light of Articles 301 and 303 of
the Constitution. While upholding the validity of Section 8(2)(b) and by
following the decision in the case of N.K. Nataraja Mudaliar (supra), this
F Court at page 414 observed as under:

"As regards the contention that Section 8(2)(b) is violative of Article
303( I) in that there will be varying rates of tax on inter-State sales in
different States depending upon their rates of sales tax for inter-State
sales and that that. will lead to the imposition of dissimilar tax on the
·o sale of same or similar commodities, it is enough to state that this
question has been considered by this Court in State of Madras v. N.K.
Nataraja Mudaliar (supra) and the Court has rejected the contention.
The Court said that the existence of different rates of tax on the sale
of the same or similar commodity in different States by itself would
not be discriminatory as the flow of trade does not necessarily depend
H upon the rates of sales tax; it depends, according to the Court, upon
SHREE DIGVIJA Y CEMENT CO.LTD. v. STATE [KIRPAL, J.] 445

a variety of factors such as the source of supply, place of consumption, A
existence of trade channels, the rates of freight, trading facilities,
availability of efficient transport and other facilities for carrying on the
trade".

The validity of Section 8(2)(b) of the Act, on the ground that it suffers from
the vice of excessive delegation, was also considered by a Constitution B
Bench of this Court in Gwalior Rayon Silk MFG. (WVG.) Co. Ltd v. The
Assistant Commissioner of Sales Tax and Ors., [1974] 4 SCC 98 and it was
held that Parliament had not abdicated its legislative function by enacting
Section 8(2)((b) of the Act.

In Video Electronics Pvt. Ltd. And Another v. State of Punjab and C
Another, [1990] 3 SCC 87, the challenge was to notifications issued by the
State of U.P. under Section 4-A of the U.P. Sales Tax Act and Section 8(5) of
the Central Sales Tax Act exempting new units of manufacturers in respect of
the goods specified therein from payment of any sales tax for different period
ranging from 3 to 7 years. The petitioners therein, who were not new D
manufacturers and were not entitled to claim the benefit of the said notifications,
had contended that Part XIII of the Constitution had envisaged the preserving
of the unity of India as an economic unit and hence had guaranteed free flow
of trade and commerce throughout India and, therefore, either a State should
grant exemption to all goods irrespective of the fact that the goods are locally
manufactured or imported from other States, otherwise it would be violative E
of Articles 304 and 304(a) of the Constitution. Repelling this contention, it
... was held that while maintaining the general rate at par, special rates for certain
industries for a limited period can be prescribed by the States without offending
the provisions of Articles 30 l and 304(a) of the Constitution. In coming to
this conclusion it was observed at page 108 as follows:
F
"Concept of economic barrier must be adopted in a dynamic sense
with changing conditions. What constitutes an economic barrier at
one point of time often ceases to be so at another point of time. It
will be wrong to denude the people of the State of the right to grant
exemptions which flow from the plenary powers of legislative heads G
in List II of the Seventh Schedule of the Constitution. In a federal
polity, all the States having powers to grant exemption to specified
class for limited period, such granting of exemption cannot be held to
be contrary to the concept of economic unity. The contents (sic
concept) o_f economic unity by the people of India would necessarily
include the power to grant exem})tion or to reduce t~e rate of tax in H
446 SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R.

A special cases for achieving the industrial development or to provide
tax incentives to attain economic equality in growth and development.
When all the States have such provisions to exempt or reduce rates
the question of economic war between the States inter se or economic

B'
disintegration of the country as such does not arise. It is not. open
to any party to say that this should be done and this should not be
done by either one way or the other. It cannot be disputed that it is
open to the States to realise tax. {lnd:thereafte/ renfit the same or pay
-
back to the local manufacturers in t~e shap/_?f subsidies and that
1

would neither discriminate nor be hit: by Articl,e 304(a) of the

c
Constitution. In this case and as in all constitutional
.
substance of the matter has to be looked into to find out whether
.
adjudications the

there is any discrimination in violation of the constitutional mandate."

Section 8(5)"of the Act, which has been held to be valid and whose
ainbit has been explained in th~ afore-said decisions, provides that in respect
of inter-state sale of certain types of goods by any dealer having its place
D of business in the State, no tax shall be payable or tax shall be calculated at
lower rates than those specified in sub-section (1) or sub-section (2). This
power. of exempting or reducing the rate of inter-state sales tax on certain
types of goods, like cement in the present case, has of course to be exercised ··
when the State Government is satisfied that it is. necessary to do so in public
E interest. The respondents have clearly stated that as a result of re~uction of
tax to 7% vide Notification dated 8th January, 1990, it had got additional
revenue of lakhs of rupees in the last quarter of that financial year. It is als9
stated in the affidavit in reply that unless incentives are given to the industries
in the State of Rajasthan, further economic, industrial and social development
of the State would be hampered. The production of cement in the State was
F far in excess than the consumption. The surplus available with the cement
manufacturers had to be sold outside the State and unless it was advantageous
for the cement manufacturing units to sell their cement outside the State, the
cement industry within the Sta~e would be crippled which would have an
adverse industrial, social and economic impact on the State of Rajasthan and
G would consequently be detrimental to public interest. The high rate of tax on
inter-state sale which had been prevalent had resulted in manufacturing units
resorting to branch transfer of cement from one State to another without
paying any tax in the State of Rajasthan and lowering of the inter-state sales
tax had the effect of increasing the tax collection. There were 33 units in
Rajasthan which were engaged in manufacturing of cement which are stated ·
H to be providing direct employment to 10475 personnel. In addition thereto,
-
SHREE DIGVIJA Y CEMENT CO.LTD. v. STATE [KIRPAL, J.] 447
25000 workers were stated to be engaged in mining industry and more than A
50000 workers were engageq in allied activities i.e. transportation, loading,
unloading and marketing etc. With the demand of cement within the State of
Rajasthan being limited, it .thus became imperative to encourage inter-State
sales of cement from the State of Rajasthan. Reducing the rate of inter-State
sales tax facilitated in the higher tax return and in the industry continuing to B
function. This would clearly show that the issuance of the said notification
was in public interest as envisaged by sub-section (5) of Section 8 of the Act.

We are unable to agree with the contention of the learned counsel for
the pethioners that the impugned notification had the effect of preventing or
hindering the free movement of goods from one State to another. As far as C
the State of Rajasthan is concerned, it had the opposite effect. Merely because
local rate of tax in the State of Gujarat on the sale of cement was higher than
the inter-State sales tax on the cement sold from Rajasthan cannot lead to the
conclusion that the impugned notification prevented or hindered the free
movement of goods from one State to another. In fact the impugned notification
had the opposite effect, namely, it increased the movement of cement from D
Rajasthan to other States. It is not as if the impugned notification created a
barrier which may have had the effect of hindering free movement of goods
but on the other hand, the sales tax barrier was lowered resulting in increased
volume of inter-state trade.

It is no doubt true that Section 8 of the Act contemplates the furnishing E
of Form-C and Form-D where inter-State sale is made to registered dealer or
to the Government Department outside the State. But a Notification which is
issued under sub- section (5) of Section 8 can have an overriding effect in
view of the non-obstante clause. Form-C and Form-Dare regarded as proof
of inter-State sale being made by dealers from Rajasthan to a registered dealer F
or to a Government Department outside Rajasthan. The impugned notification
requires the seller to record the name and address of the purchaser on the
bill or cash memo which he is required to issue in relation to an inter-State
sale and the dealer is required to prove that the transaction was in the nature
of inter-State sale. We are unable to agree that the substitution of the
requirement of furnishing Form-C and Form-D by making it obligatory on the G
dealer to record the name and address of the purchaser in the bill or cash
memo would have the effect of facilitating tax evasion. The experience of the
State of Rajasthan has been that with the issuance of such notifications, its
tax revenue on inter-State sale of cement had increased.

Shri Shanti Bhushan had placed strong reliance on the decision of this H
448 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R.

A Court in the case of Indian Cement (supra). This Court was dealing with the
case where the State of Andhra Pradesh had issued a notification under
Section 8(5) of the Act reducing the rate of tax in respect of sale made in the
course of inter-Sta~ trade or commerce from that State. After referring to the
decisions of this Court in Atiabari Tea Co. Ltd., N.K. Nataraja Mudaliar,
B Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. And Sitalakshmi Mills
(supra), this Court at page 759 observed as follows:

"Variation of the rate of inter-State sales tax does not affect free trade
and commerce and creates a local preference which is contrary to the
scheme of Part XIII of the Constitution. The notification extends the
benefit even to unregistered dealers and the observations of Hegde,
c J. on this aspect of the matter are relevant. Both the notifications of
the Andhra Pradesh Government are, therefore, bad and are hit by the
provisions of Part XIII of the Constitution. They cannot be sustained
in law."
The aforesaid conclusion, with respect, does not flow from the decisions of
D the Constitution Benches of this Court to which reference has been made
earlier. Variation in the rate of inter-State sales tax is clearly permitted by
Section 8(5) of the Act whose validity has been expressly upheld in N.K.
Natarja Mudaliar case (supra). This being so the conclusion in Indian
Cement case (supra) that variation of the rate of inter-State sales tax, which
E creates a local preference, is contrary to the scheme of Part XIII of the
Constitution, is not correct. In Indian Cement case (supra) there is reference
to the observations of Hegde, J. which were to the following effect.
"Sub-Section (5) of Section 8 provides for giving individual exemptions
in public interest. Such a power is there in all taxation measures. It is
F to provide for unforeseen contingencies. Take for example, when there
was famine in Bihar, if a dealer in Punjab had undertaken to sell goods
to a charitable society in that State at a reasonable price for distribution·
to those who were starving, it would have been in public interest if
the Punjab Government had exempted that dealer from paying sales
tax. Such a power cannot immediately or directly affect the free flow
G of trade. The power in question cannot be said to be bad. If there is
any misuse of that power, the same can be challenged."
We do not find these observations of Hegde, J. in N.K. Nataraja
Mudaliar case (supra) in any way indicating that in public interest the rate
of inter-State sales tax could not be reduced even if it meant benefit being
-~
H given to un-registered dealer. On the other hand the power to grant exemption
SHREE DIGVIJAY CEMENT CO.LTD. v. STATE [KIRPAL, J.] 449
was upheld provided it was not misused. We accordingly hold that Indian A
Cement Case (supra) has not been correctly decided and is, accordingly,
overruled.

In Shri Digvijay Cement Co. case (supra), it was contended on behalf
of the State of Rajasthan that the public interest contemplated by Section 8(5)
of the Act, insofar as the State of Rajasthan is concerned, would mean B
interest of the public of Rajasthan and as the increased revenue could be
used for the benefit of the people of Rajasthan, the impugned exercise of
power must be regarded as being in public interest. This contention was not
,... accepted and it was observed that public interest has to be interpreted in the
context of the Central Sales Tax Act and Articles 301 & 304 of the Constitution.
It was further held that increase in revenue and its utilisation for the public
c
of the State can generally be regarded to be in public interest but, that by
... itself, could not be regarded as sufficient, if it had the effect of going against
the policy of the Act and object of the constitutional provisions. It appears
to us that Section 8(5) of the Act clearly enables the State Governments to
reduce the rate of inter-State sales tax if it is satisfied that it is necessary to D
do so in the public interest. Prior to 1957, sub-section (5) of Section 8 gave
power to the Central Government to, inter a/ia, reduce the rate of sales tax
if it was necessary so to do in the public interest. With the Central Sales Tax
Amendment Act, 1957, the Parliament conferred this power on the State
Governments instead of the Central Government. In this historical backdrop
E
the public interest; as referred to in sub-section (5) of Section 8 of the Act,
will certainly include the public interest of the State concerned. If the reduction
of the rate of tax results in increase of revenue and of industrial activities,
providing employment in the industry as well as in the mining of limestone,
it cannot be said that the notification was not issued in public interest.
F
In the aforesaid judgment in Shri Digvijay Cement case (supra) it was
also observed, while dealing with dispensing with the requirement of furnishing
declaration in Form-C, that it was difficult to appreciate how the State of
Rajasthan could have effectively checked or prevented evasion of payment
of tax or inter-State sale of cement. Under Section 8(5) of the Act, the State
Government can exercise power notwithstanding anything contained in the G
,
said Section. Therefore, notwith~tanding the requirement of sub-section (4)
of Section 8 in relation to the furnishing of Form-C and Form-D, the State
Government could, while lowering the rate of tax, impose conditions which
may not be in conformity with sub-section (4) of Section 8 of the Act. When
the purpose of furnishing Form~C and Form-Dis only to ensure that sales are H
450 SUPREME COURT REPORTS [1999) SUPP. 5 S.C.R.
.
-·
A made in the course of inter-State sales, the State Government may provide for
a different mode or manner in which this object can be achieved. In the instant
case, the condition for availing the benefit of the notification is that in the
bill or cash memo the name and complete address of the purchaser has to be
stated and, consequently, the burden to prove that the transaction was in the
B nature of inter-State sales is on the dealer. At the time of assessment, therefore,
the dealer who seeks to get the benefit of the said notification will have to
establish the identity of the purchaser outside the State and also, in turn,
prove that an inter-State sale has taken place. The tax which is collected is
allocated to the State from where the movement of goods starts. Therefore,
the question whether there is evasion of tax has to be seen with relevance -;_
C to that State. If reducing tax results in increase in collection of tax by
encouraging more people to pay tax to that State then it cannot be urged that
Article 301 is violated.

We cannot subscribe to the view that the said Notification by dispensing
with the requirement of furnishing declaration in Form-C had the effect of
D facilitating evasion of payment of tax and was violative of the scheme of the
Constitutional provisions contained in Chapter XIII.

In Shri Digvijay Cement Company's case (supra), it was observed that:

"We are also of the view that the justification advarn;:ed by the State
E of Rajasthan that as a result of the impugned notifications th~ State
revenue had increased and thus they were beneficial to the State
revenue, is not valid as the said notifications had the effect of creating
a preference to cement manufactured and sold in Rajasthan and
disadvantage for the sale of cement manufactured and sold in Gujarat
and thus had the direct and immediate adverse effect on the free flow
F of trade."

Lowering of rate of tax by the State of Rajasthan, as we have already noticed,
liad the direct effect of increasing the flow of trade. The' mere fact that the
local sale of cement in Gujarat may have been adversely affected cannot result
G in the impugned notification being regarded as affecting the free flow of trade
and being violative of Article 30 i of the Constitution. The said provision is
concerned with the movement of goods from orie State to the another and as
far as the present case is concerned, with the lowering of tax, the movement
has increased rather than decreasing.

H The decision of Three Judge Bench in Shr.i Digvijay Cement Co. case
SHREE DIGVIJAY CEMENT CO. LTD. l•. STATE [KIRPAL, J.) 451

(supra) does not, in our opinion, lay down the correct law and the same is A
accordingly over-ruled.

For the afore-said reasons we uphold the validity of the impugned
notification dated 12th March, 1997 issued by the State ofRajasthan with the
result that this writ petition is dismissed. There shall be no order as to costs.
B
P.K.S. Petition dismissed.