Supreme Court of India
STATE OF U.P. AND ORS.versusJAIPRAKASH ASSOCIATES LTD.
- Citation
- 2013 INSC 707
- Decided
- 18 October 2013
- Disposal
- Disposed off
- Bench
- H L DATTU
Holding
Condition (i) of the notification, requiring cement to be manufactured in Uttar Pradesh, is unconstitutional and is severable, leaving the rest of the notification valid.
Summary
The Uttar Pradesh Government, under Section 5 of the Uttar Pradesh Trade Tax Act, 1948, issued a notification granting a tax rebate on cement containing fly‑ash, but only to units located within Uttar Pradesh. Cement manufacturers in neighboring states, who purchased fly‑ash from Uttar Pradesh but produced cement outside the state, challenged the first condition of the notification as discriminatory. The Supreme Court held that the condition requiring local manufacture violated Articles 301 and 304(a) of the Constitution because it created a fiscal barrier to inter‑state trade. However, the Court found that striking down this condition would not defeat the notification’s purpose of encouraging fly‑ash use, and therefore applied the doctrine of severability to excise the invalid clause while leaving the remainder intact. Consequently, the notification, apart from the discriminatory condition, was upheld. The appeals were disposed of without any order as to costs.
Issues considered
- Whether the tax rebate notification under Section 5 of the Uttar Pradesh Trade Tax Act, 1948, discriminates against goods imported from other states in violation of Articles 301 and 304(a) of the Constitution.
- Whether the grant of a tax rebate, directly or indirectly, restricts the free flow of trade, commerce and intercourse among States.
- Whether the discriminatory condition of the notification can be severed without striking down the entire notification.
Legislation cited
- Constitution of Indias. Art. 301, s. Art. 304(a), s. Art. 304(b)
- Uttar Pradesh General Clauses Act, 1904s. 21
- Uttar Pradesh Trade Tax Act, 1948s. 3, s. 4, s. 4-A, s. 4-AA, s. 4-AAA, s. 5
Subjects
inter‑state tradeArticle 301Article 304(a)tax rebatediscriminationseverabilityUttar Pradesh Trade Tax Actfly ashcement industry
Judgment
[2013] 11 S.C.R. 943
STATE OF U.P. AND ORS. A
v.
JAIPRAKASH ASSOCIATES LTD.
(Civil Appeal No.3026 of 2004 )
OCTOBER 18, 2013,
B
[H.L. DATTU AND SUDHANSU. JYOTI
MUKHOPADHAYA, JJ.]
Constitution of India, 1950:
c
Articles 301 and 304(a) - Inter-State Trade and
Commerce - Tax rebate - Granted by State Government
(State.of U.P.) by Notification-, To cement manufacturing units
- The first condition for getting benefit of the rebate was that
the units were established in the districts of that State and the D
second condition was that the units were manufacturing
cement by using fly-ash purchased from that State - The
Notification whether in violation of Arts. 301 and 304(a) -
Held: The Notification is violative of Arts. 301 and 304(a) - It
discriminated between imported goods and similar locally E
manufactured goods (i.e. cement manufactured by using fly-
ash procured from the State of U. P.) - Object of the
Government was to grant rebate to provide incentive to the
manufacturing units using fly-ash - Thus the first condition
was discriminatory - If the first condition is severed from the
Notification, it would not frustrate the object of the notification F
- Therefore, using doctrine of severabi/ity, condition No. 1 is
severed from the Notification - Uttar Pradesh Trade Tax Act,
1948- s. 5.
Art. 304(a) - Nature and scope of- Held: Article 304(a) G
is an exemption to Art.. 301 - It does not prevent levy of tax
on goods - But such levy of tax is prohibited, which would
result in goods imported from other Sta,tes and similar goods
produced or manufactured within the State.
943 H
944 SUPREME COURT REPORTS [2013) 11 S.C.R.
A Art. 304 :- Powers under - Extent and Scope of - Held:
The powers given to State Legislatures are not unrestricted,
and are bound to function within limitations stipulated u!Art.
304(a) - The power u!Art. 304(a), though an exception to Art.
301, but is not a blanket power intended to be conferred to
B the State Legislature - Powers u/Art. 304(b) also are to be
exercised sparingly.
Arts. 302 and 304(a) - Powers under - Distinction
between.
C Taxation - 'Rebate of tax' - Held: It is such a device or
weapon of taxation used by the Government, validity where
of is tested on the touchstone of Article 304(a), in the
circumstances under which they are used - Exemption or
rebate of tax is within the puNiew of taxation.
D
Constitutionalism - Test of constitutional validity of a
statute - Held: Machinery provisions cannot be used. to test
the constitutional validity of a statute - Issue of territoriality
should a/so not be a factor to determine the constitutional
E validity of a notification.
Doctrine - Doctrine of severability - Applicability of -
Discussed.
Words and Phrases:
F
'Discrimination' - Meaning of, in the context of taxation
and in the context of Art. 304(a) of the Constitution of India,
1950.
'Rebate' - Meaning of - Explained in the context of
G Taxation.
'Rebate of tax' and 'incentive' - Distinction between: ·
'Tax' and 'Taxation''- Meaning of, in the context of Article
304(a) of the Constitution of India, 1950.
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 945
ASSOCIATES LTD.
The State of Uttar Pradesh, to encourage A
manufacturers of cement using fly-ash in manufacturing
of their products, in exercise of its power u/s. 5 of Uttar
Pradesh Trade Tax Act, 1948, issued Notification dated
27.2.1998. The State imposed certain conditions on the
manufacturers in order to take benefit of the rebate B
provided in the Notification. The first condition was that
the· goods should be manufactured in a unit established
in the State of Uttar Pradesh. The second condition was
that such goods shall be manufactured using fly-ash
purchased from the thermal power stations· situated in the c
districts of the State of Uttar Pradesh. The respondent-
cement industries situated in neighbouring States who
were manufacturing cement in the State of Madhya
Pradesh after procuring fly-ash from the State of Uttar
Pradesh, filed writ petition, seeking quashing of the D
Notification in so far as first condition of the Notification
was concerned.
High Court held that grant of rebate of tax by the
State Government discriminated between the imported
goods and the goods manufactured in Uttar Pradesh E
restricting the free movement of goods from one State to
the other and therefore impinges articles 301 and 304(a)
cf the Constitution. The Court further applying doctrine·
severability declared the first condition of the Notification
as illegal, arbitrary and discriminatory and accordingly F
quashed the same and granted rebate to the respondent-
manufacturers. Hence the present appeal by the State.
The questions for consideration before this Court
were; whether the grant of rebate of tax is hit by G
constitutional limitation on the State legislature under
article 304(a) read with article 301 of the Constitution of
India, as and when it discriminates between the imported
goods and the goods manufactured and produced
outside the State; whether the grant of rebate, directly or H
946 SUPREME COURT REPORTS [2013] 11 S.C.R.
A indirectly restrict the free flow of trade, commerce and
intercourse among States by assuming the effects of an
exemption/ concession which is nothing but a concept
within the scope of taxation; and whether the first
condition of the notification be severed, if it is found to
B be violative of article 304(a) of the Constitution without
striking down the whole of the notification.
Disposing of the appeals, the Court
HELD:1.1. Article 304(a) of the Constitution is an
C exception to article 301 of the Constitution. Article 304(a)
does not prevent levy of tax on goods; what is prohibited
is such levy of tax on goods as would result in
discrimination between goods imported from other
States and similar goods manufactured or produced
D within the State. The object is to prevent imported goods
being discriminated against, by imposing a higher tax
thereon than on local goods. What Article 304(a) demands
is that the rate of taxation on local as well as imported
goods must be the same. This is designed to discourage
E States from creating State barriers or fiscal barriers at the..
boundaries. Article 304(a) of the Constitution empowers
the State to levy tax, with an intent that Part XIII of the
Constitution does not affect the power of taxation given
under Part XII of the Constitution. It is to preserve and
F protect the broad object of Article 301 of the Constitution.
Article 304(a) only limits the power of the State legislature
from imposing such taxes that would discriminate
between imported goods and domestic goods and
restrict free movement of goods between States. [Para 27]
G [975-B-F]
Atiabari Tea Co. Ltd. vs. The State of Assam and Ors AIR
(1961) SC 232: 1961 SCR 809 - relied on.
1.2. Article 304(a} of the Constitution admits two
H exception in favour of the State legislature to the rule that
STATE OF U.P. AND ORS. v. JAIPRAKASH 947
ASSOCIATES LTD.
trade, commerce, and intercourse throughout the territory A
of India shall be free. Clause(b) to article 304(a) is an
exception which enables a State legislature to impose
such "reasonable restrictions" on the freedom of trade,
commerce and intercourse as may be required in the
"publ1': interest". But no bill or amendment for the 8
purpose of clause(b) shall be introduced or moved in the
legislature of a State without the previous sanction of the
President. [Para 29] [976-F-H]
· .1.3. The Principle of 'non- Discriminatory tax' as
provided in Article 304(a) of the Constitution of India is a C
sine-qua-non to free movement of goods between
nations/States in several jurisdictions and also in
international trade and policy. Discrimination as explained
under World Trade Organization ("WTO") jurisprudence
is spoken of in terms of effect and intention behind such D
discrimination. Intent is referred to as 'aim' or 'motive' or
'purpose' of such discrimination and the other factor
. commonly associated with discrimination is 'effect' that
is whether a measure has a discriminatory effect (also
known as the disparate impact) against imports. WTO E
members are free to choose any system of taxation they
deem appropriate, provided that they do not impose on
foreign products taxes in excess of those imposed on
like products. The effect of tax should not be such that
two like goods are given discriminatory treatment. [Para F
30] [977 -A-D]
1.4. At the same time, it cannot be doubted that rising
of protective walls may be justified in international trade.
The Government can and has been providing such .
protectionist measures to encourage the growth and G
establishment of industries in the country and to protect
them from competition from foreign manufacturers. But
unlike the international trade policies and the commerce
clause in United States Constitution, the Constitution of
India provides_Jor regulating inter-State trade and H
948 SUPREME COURT REPORTS [2013) 11 S.C.R.
A commerce. The Parliament can take all protective
measures under Article 302 of the Constitution of India as
may be required in public interest. But there are certain
obvious differences between the powers conferred to the
Parliament under Article 302 and State legislature under
8 Article 304(a) of the Constitution. The powers given to the
State legislature are not unrestricted and are bound to
function within limitations stipulated under Article 304(a)
of the Constitution of India. The powers even under Article
304(b) are to be exercised sparingly and after fulfilling all
C the conditions of Article 304 of the Constitution of India.
The power conferred under Article 304(a) although an
exception to Article 301 of the Constitution, but is not a
blanket power intended to be conferred to the State
legislature. [Para 31) [977-E-H; 978-A]
D 1.5. Article 304(a) ensures only equal rate of tax for
incoming goods. So if such goods are taxed at a higher
rate or where they are taxed at any rate when indigenous
goods enjoy concessional rate of tax, Article 304(a) is
attracted. [Para 33) [979-C]
E
1.6. Article 304(a) is a provision that deals with
taxation. It places goods imported from sister States on
a par with similar goods manufactured or produced
within the State in regard to State taxation in the allocated
F field. The object of Article 304(a) was to limit the power
of taxation by States so as to prevent discrimination
against imported goods by imposing taxes on such
goods at a higher rate than is borne by indigenous
goods. The tax referred to in Article 304(a) is a 'tax on
goods'. The word "tax" and "taxation" is all sorts of
G exaction which swell the public funds. Taxation in its
broadest and most general sense, includes every charge
. or burden imposed by the sovereign power upon
persons, property or property right, for the use and
support of the Government and to enable it to discharge
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 949
ASSOCIATES LTD.
its appropriate functions, and in that broad definition A
there is included a proportionate levy upon persons or
property and various other methods or devices by which
revenue is extracted from 'persons and property. The
term 'tax' is to be read in all-embracing and sweeping
sense. Such methods or device used by the Government B
from time to time are not ordinarily open to serious
questions but their scope and application vary according
to the nature of the subject under discussion and the
circumstances under which they are used. [Para 38] (981 •
D-H; 982-A] C
State v. Chicago & N. W R. Co., 128 Wis 449, 108 N.
W. - referred to
2.1. The legislature has the power to exempt from
taxation according to its views of public policy provided D
no constitutional provisions are violated. The United
States Constitution under the Equality and Uniformity
clause mandates that where the Constitution requires
taxation to be equal and uniform, it is held in most States
that the legislature must tax all such persons or property E
and cannot grant any exemptions unless the power to
exempt is expressly conferred by the Constitution. In
some states, however, the contrary is held but even in
such states it is held that exemptions are not valid unless
including all property and persons of the same class F
whether such person as subject to such exemption is
inside the State or situated outside the State. [Para 39]
(983-A-C]
Jefferson Branch Bank v. Skelly; 66 U.S. 436 - referred
to. G
Congressional Budget and Fiscal Operations, 2
U.S.C.A.§ 622 - referred to.
2.2. Exemption has two-fold impact. First, H
950 SUPREME COURT REPORTS [2013] 11 S.C.R.
A exemptions/ concessional rate of tax affect consumer
choice by impacting relative pricing and, thus, materially
altering the economic balance. It is because
consumption will tend to shift towards untaxed items, the
prices of those items and the items used to produce them
B will increase while the prices of taxed items will decrease
relatively. Second, such exemptions unfairly burden
some businesses either within the same industry or in
other competing industries. [Para 40] (983-D-E]
2.3. Rebate is another such device used by the
C Government which when given on the rate of tax to the
full amount of tax levied, it gives favourable treatment to
one class of dealers situated within the state barring the
dealers similarly placed outside the State manufacturing
goods using the same raw material. The grant of such
D rebate has the colour of exemption/ concessional rate of
tax along with the same deleterious effects of an
exemption. [Para 41] (983-F-G]
2.4. Rebate means abatement, discount, credit,
E refund, or any other kind of repayment. Rebates have
been normally used as justifiable incentives given by the
Government to stimulate small industries or newly
established industries. But to understand Rebate of tax
as rebate per se would be a misnomer. Rebate of tax is
F the rebate on rate of tax and is essentially the arithmetic
of rate. The term 'rate' is often used in the sense of
standard or measure. It is the tax imposed at a certain
measure or standard on the total turnover of the goods.
Rate, in other words is the relation between the taxable
G turnover and the tax charged. Rebate of tax or exemption
is distinguished from non-imposition or non-liability.
[Para 46] (986-0-G]
Estate of Bernard H. Stauffer, Bonnie H. Stauffer,
Executrix, v. Commissioner of Internal Revenue, 48 U.S. T.C.
H 277 - referred to.
STATE OF U.P. AND ORS. v. JAIPRAKASH 951
ASSOCIATES LTD.
2.5. In rebate of tax, the sales or purchases would A
have to be included in the gross turnover of the dealer
because they are prima facie liable to tax and the only
thing which dealer is entitled to in respect thereof is the
deduction from the gross turnover in order to arrive at the
net turnover on which the tax can be imposed. On the B
other hand, in the case of non-imposition or non-liablity,
the sales or purchases are exempted from taxation
altogether. The Legislature cannot enact a law imposing
or authorizing the imposition of a tax thereupon as they
are not liable to any such imposition of tax. If they are c
thus not liable to tax, no tax can be levied or imposed on
them and they do not come within the purview of the Act
at all. The very fact of their non-liability to tax is sufficient
to exclude them from the calculation of the gross
turnover as well as the net turnover on which sales tax D
can be levied or imposed. [Para 46] [986-G-H; 987-A-C]
A. V. Fernandez v. The State of Kera/a; AIR 1957 SC 657
- referred to.
Firm A. T. B Mehta Masjid & Co v. State of Madras and E
Anr. AIR 1963 SC 928; WB. Hosiery Association and others
v. State of Bihar (1988) 4 SCC 134; H. Anraj v Government
of Tamil Nadu (1986) 1 SCC 414; Western Electronics and
Another v. State of Gujarat and others 1988 2 SCC 568;
Loham Steel Industries v. State of Andhra Pradesh (1997) 2 F
sec 37; State of U.P. and another v. Laxmi Paper Mart and
others AIR 1997 SC 950; Lakshman v. State of Madhya
Pradesh 1983 SCR 3124 - relied on.
2.6. The concept of rebate of tax in the instant case
is akin to concessional/ reduced rate of tax. Rebate is G
though ex-hypothesi in the nature of subsidy and other
incentives given by the Government but conceptually
rebate of tax and incentives are different and it needs to
be explained in reference to the purpose and nature of
such rebate of tax introduced by the legislature. The H
952 SUPREME COURT REPORTS [2013] 11 S.C.R.
A legislation in respect of a rebate has taken different
forms; one of them is a partial rebate in the tax, where the
deduction is given partially on the gross amount and the
other is the power reserved for the Government to permit
rebate in respect of any goods to the full amount of the
B tax levied at any point in the series of sales of such
goods. A dealer who is entitled to a rebate under any
notification will collect the tax from the consumers at the
point of purchase and then have to pay the full amount
of sales tax due on his turnover in that quarter; and claim
c rebate in terms of the notification in accordance with the
provision in the rules. However, the claim for rebate need
not necessarily be handed back to the payer after he has
paid the stipulated sum, it can also be paid in advance
of payment. It is nothing but a remission or a payment
0 back or it is sometimes spoken of as a discount or a
drawback. It cannot be disputed that it is the discretion
of the State Government, through its legislature, to grant
rebate to the full amount of sales tax, unless its power of
taxation is limited by Constitutional provisions. [Para 36)
E [979-B-G]
2. 7. In the facts of the present case, the legislature
authorizes the State Government under Section 5 of the
Act to issue notification in the public interest to grant
rebate up to the full amount of the tax levied on any
F specific point in the series of sales/ purchase of such
goods. Such rebate is only extended to the districts in
State of Uttar Pradesh. The Government of Uttar Pradesh
has the power to refund or discount to the full amount
of rate of sales tax levied on a dealer, provided the power
G to discount does not overall has effects of a weapon of
taxation that would discriminate between the goods
imported and manufactured in Uttar Pradesh as laid
down in Article 304(a) of the Constitution. [Para 36) [979-
G-H; 980-A-B]
H Shree Mahavir Oils and Anr. vs. State of Jammu and
STATE OF U.P. AND ORS. v. JAIPRAKASH 953
ASSOCIATES LTD.
Kashmir (1996) 11 SCC 39: 1996 (9) Suppl. SCR 356; A
Video Electronics Ltd. v. State of Punjab 1990 (3) SCC
87:1989 SCR Supp.(2) 731 - relied on.
2.8. 'Rebate of tax' in the instant case is such a device
or weapon of taxation used by the Government from time
to time which is though not in question in all situations 8
but their validity is tested in the touchstone of Article
304(a) of the Constitution in the circumstance under
which they are used. If the rebate of tax by way of
repayment to the full amount of tax levied qualifies within . C
the same meaning as that of exemption, then such
discount would a fortori mean discrimination on the rate
of tax by repaying by way of a rebate to one class of local
dealers the whole amount of sales tax paid and on the
other hand the outside dealers are taxed higher in
absence of the benefit of rebate. This situation squarely D
falls within the meaning of 'discrimination' as
contemplated under Article 304(a) of the Constitution of
India. [Para 38) (982-A-C]
2.9. The exemption or rebate of tax is therefore within
the purview of taxation. In the instant case, if the grant E
of rebate of tax by the State Government under Section
5 of the Act is to the full amount of tax levied, then for the
dealers manufacturing cement using fly-ash outside the
State of Uttar Pradesh but selling it in Uttar Pradesh,
though the State Government contends that the rate of F
tax is same for the dealers inside Uttar Pradesh and
outside Uttar Pradesh, but the overall effect is that there
is no tax levied on the net turnover after deductions being
made from the gross turnover but, on the other hand, the
dealers manufacturing or producing cement using fly- G
ash outside Uttar Pradesh are taxed at the rate of 12.5%.
Therefore, it can be said that the rebate of tax is in the
nature of exemption and the blanket exemption without
reasons are discriminatory and violating article 304(a) of
the Constitution of India. [Para 47) (987-D-F] H
954 SUPREME COURT REPORTS [2013] 11 S.C.R.
A 2.10. Therefore, the test to be applied to determine
whether rebate is within the realm of tax defined in Article
304(a) of the Constitution of India so as to say that it
discriminates between the two class of goods: locally
manufactured goods and the imported goods when both
B the class of dealers meet the conditions required to
qualify for the grant of rebate i.e. the use of fly-ash, is the
overall effect or impact of such rebate on the
manufacturer. [Para 42] [983-H; 984-A]
3.1. Doctrine of severability provides that if an
'Cenactment cannot be saved by construing it consistent
with its constitutionality, it may be seen whether it can be
partly saved. "When a statute is in part void, it will be
enforced as against the rest, if that is severable from what
is invalid". Seven propositions of severability, out of
D which, one of them provided that if the valid and the
invalid portions are distinct and separate that after
striking out what is in-valid, what retn~ins is in itself a
complete code independent of the rest,'t~en it will be
upheld notwithstanding that the rest hils become
E unenforceable. What the Court has to see is, whether the
omission of the impugned portions of the Act will
"change the nature or the structure or the object of the
legislation". In the facts of the present case, striking down
Clause (1) of the notification alone does not change the
F object of the legislation. It is a notification passed in
public interest and therefore even if Clause (1) of the
notification is expunged, leaving behind the rest of the
notification intact, the purpose of the Government to
grant rebate to provide incentive to the manufacturing
G units using fly-ash is not lost. [Para 48] [987-H; 988-A-E]
D.S. Nakara vs. Union of India 1983 2 SCR 165; RMD
Chamarbaugwala vs. Union Of India AIR 1957 SC 628: 1957
SCR 930; A. K. Gopalan vs. State of Madras AIR 1950 SC
27: 1950 SCR 88 - relied on
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 955
ASSOCIATES LTD.
3.2. Thus the condition No. 1 is discriminatory and A
violates article 304(a) of the Constitution of India and
therefore needs to be severed from the rest of the
notification which can operate independently without
altering the purpose and the object of the notification.
[Para 50] [989-C] B
3.3. It is not correct to say that since the assessing
authorities would not be in a position to verify the claim
for grant of rebate of tax by manufacturers of cement
using fly-ash outside the State of Uttar Pradesh, the C
benefit under the notification cannot be extended to
them. The explanation appended to the notification
authorises the assessing authorities to verify the claim
thatmay be made by the manufacturers including the fact
whether an assessee(s) satisfy the conditions prescribed
in the notification. If they do not fall within the parameters D
of the notification the assessing authority can always
reject the claim of the manufacturers. The machinery
provisions cannot be used to test the constitutional
validity of a statute because the liability is always created
through substantive provisions. Issue of territoriality E
should not be a factor to determine the constitutional
validity of the notification. [Paras 51 and 52] [989-D-F;
990-A-B]
G.B. Prabharkar Rao v. State of Andhra Pradesh, 1985 F
Supp. sec 432 - relied on.
3.4. Therefore, 'rebate of tax' granted by the State
Government to cement manufacturing units using fly-ash
as raw material in a unit established in the districts of
State of Uttar Pradesh alone, is violative of the provisions G
contained in articles 301 and 304(a) of the Constitution
of India. It is further declared that the notification would
also apply to respondent(s)- cement manufacturing units.
[Para 53] [990-C]
H
956 SUPREME COURT REPORTS (2013] 11 S.C.R.
A Case Law Reference:
1961 SCR 809 relied on Para 27
1996 (9) Suppl. SCR 356 relied on Para 37
1989 SCR Supp.(2) 731 relied on Para 37
B
128 Wis 449 referred to Para 38
66 U.S. 436 referred to Para 39
1963 Suppl; SCR 435 relied on Para 42
c
1988 (2) Suppl. SCR 378 relied on Para 43
1985 (3) Suppl. SCR 342 relied on Para 43
1988 (3) SCR 768 relied on Para 44
D 1996 (10) Suppl. SCR 898 relied on Para 44
1997 (1) SCR 914 relied on Para 45
1983 SCR 3124 relied on Para 45
E 48 U.S. T.C. 277 referred to Para 46
AIR 1957 SC 657 referred to Para 46
1957 SCR 837 relied on Para 46
1957 SCR 930 relied on Para 48
F
1950 SCR 88 relied on Para 48
1983 2 SCR 165 relied on Para 49
1985 Suppl. SCR 573 relied on Para 52
G
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3026 of 2004.
From the Judgment & Order dated 29.01.2004 of the High
Court of Judicature at Allahabad in Civil Misc. Writ Petition No.
H 957 of 1999.
STATE OF U.P. AND ORS. v. JAIPRAKASH 957
ASSOCIATES LTD.
WITH A
C.A. Nos. 3025, 5567, 7190 of 2004, 333 of 2006, 9187 of
2013 & 9185-9186 of 2013.
Sunil Gupta, Ashok Desai, R.S. Suri, S.S. Upadhyay,
Dhruv Agarwal, Vivek Vishnoi, Ravi P. Mehrotra, Abhniav 8
Kumar Malik, Vinay Garg, Pawan Upadhyay, Sharmila
Upadhyay, Pawan Kishore Singh, Praveen Kumar, Sunaina
Kumar, Swetank Sailakwal, Vanita Bhargava, Nitin Mishra,
Gauri Rishi (for .Khaitan & Co.), Amar Dave, Nikhil Goel for the
appearing parties. C
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. Leave granted.
2. The substantial question of law that requires to be D
considered and decided in these appeals is, whether grant of
rebate of tax by the State Government by issuing a notification
in exercise of its powers under Section 5 of Uttar Pradesh
Trade Tax Act, 1948 ("the Acf', for short) discriminates between
the goods imported from neighbouring States and goods E
manufactured and produced in the State of Uttar Pradesh and
therefore contravenes the Constitutional Provisions viz.; articles
301 and 304(a) of the Constitution of India.
3. The lead case is Civil Appeal No. 3026 of 2004. The F
appellants are public limited companies, manufacturing cement
in their manufacturing units in Rewa district situate in the State
of Madhya Pradesh after procuring fly-ash from the thermal
power stations in the State of Uttar Pradesh and thereafter
selling the manufactured product viz. Cement in the districts of G
State of Uttar Pradesh.
4. The fly-ash is produced from coal combustion and
normally dispersed into the atmosphere which contains toxic
chemicals that can cause environmental pollution and hazards.
H
958 SUPREME COURT REPORTS [2013] 11 S.C.R.
A Therefore for utilization of fly-ash and to control pollution, cement
projects were set up to make use of the fly-ash generated from
the power plants.
5. To encourage manufacturers using fly-ash in
manufacturing of their products, the Government of Uttar
8
Pradesh in exercise of its powers under Section 5 of the Act,
had issued notification dated 18.06.1997, granting"rebate of
tax" to the dealers in the State of Uttar Pradesh excluding all
other dealers manufacturing cement outside the State of Uttar
C Pradesh using fly-ash purchased in the State of Uttar Pradesh.
Annexure appended to the notification provided for name of the
districts and the period for which the rebate will be allowed. The
notification prior to its rescinding only specified the percentage
of rebate of tax to be granted depending on the content of fly-
D ash used by the dealers in the manufacturing of cement.
6. On a finding by the Government of Uttar Pradesh on a
later date that the notification is vaguely worded, has rescinded
the earlier notification dated 18.06.1997, and has issued fresh
notification dated 27.02.1998, in exercise of its powers under
E Section 5 of the Act. Apart from others the notification provides
certain conditions which requires to be fulfilled if the
manufacturing units intend to take benefit of the notification. The
condition No. 1 of the notification specifies that to avail the
benefit of rebate, the goods should be manufactured in a unit
F established in the State of Uttar Pradesh and secondly, such
goods shall be manufactured using fly-ash purchased from the
thermal power stations situated in the State of Uttar Pradesh.
The notification specifically enlists the areas in Uttar Pradesh
districts alone for the purpose of the grant of rebate of tax by
G · the Government and therefore restricted the benefit of rebate
only to the units manufacturing and producing cement using fly-
ash in Uttar Pradesh. The notifications require to be extracted.
They are as follows:
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 959
ASSOCIATES LTD. [H.L. DATTU, J.]
"[S. No. 1263] A
Notification No. T.T.-2-1885/Xl-9(226)94-U.P, Act-15-48-
0rder-97, dated 18-6-1997
[Published in U.P. Gazette, dated 18.06.1997]
B
In exercise of the powerunder section 5 of the Uttar
Pradesh Trade Tax Act, 1948 (U.P. Act No. XV of 1948)
the Governor is pleased:-
(a) to declare the goods having fly-ash contents of 10 c
per cent of more by weight to be notified goods for
the purposes of this section;
(b) to grant a rebate of tax of twenty five percent on
goods having fly-ash contents between ten to thirty
per cent by weight and a rebate of tax of fifty per D
cent on the goods having fly-ash contents
exceeding thirty percent by weight on the tax levied
under the Act in the district mentioned in column-2
Annexure given below for the period mentioned in
column-3 of the said Annexure:- E
ANNEXURE
Serial Name of District Period for
Number which the F
rebate of tax
will be allowed
1 2 3
1. Banda, Hamipur, Jalaun, Twelve Years G
Mahoba, Jhansi, Lalitpur and
Shahuji Nagar
2. Almora, Chamoli, Dehradun, Twelve Years
Fatehpur, Jaunpur, Kanpur
H
960 SUPREME COURT REPORTS [2013] 11 S.C.R.
A (Dehat), Nanital, Fauri Garhwal,
Pithoragarh, Sultanpur,
Champawat, Tehri Garhwal,
Udham Singh Nagar, Uttar
Kashi and Growth Centre.
B
3. (i) The Districts of Azamgarh, Ten Years
Ambedkar-Nagar, Bahraich,
Ballia, Barabanki, Deoria,
Etah, Etawah, Faizabad,
c Farrukhabad, Ghazipur,
Gonda, Hardoi, Mainpuri, ·
Mathura, Mau, Moradabad,
Padrauna, Pillibhit, Pratapgarh,
Raibareili, Rampur,
,D Shahjahanpur, Sidharth Nagar,
Sitapur, Unnao, Kaushambi,
Jyotibaphule Nagar, Mahamaya
Nagar and Shravasti
(ii) The area of Allahabad District Ten Years
E in South of the river Jamuna ·
and confluent Ganga (Excluding
the area included under Municipal
Corporation Allahabad)
F (iii) The Taj Trapezium Area Ten Years
(IV) Greater Noida Industrial Ten Years
Development area
The Districts of Agra (excluding
G Taj Trapezium area), Aligarh
(excluding Tax Trapezium Area),
Allahabad (excluding the area in
south of rivers Jamuna and
confluent Ganga but including the
H area included under Municipal
STATE OF U.P. AND ORS. v. JAIPRAKASH 961
ASSOCIATES LTD. [H.L. DATTU, J.]
Corporation Allahabad), Bareilly, A
Bhadohl, Bijnor, Firozabad
(excluding Taj Trapezium area),
Ghaziabad (excluding Greater
NOIDA Industrial Development
Area), Gorakhpur, Haridwar, B
Kanpur (Nagar), Lakhimpur
Kheri, Lucknow, Maharajganj,
Meerut, Muzaffarnagar, Saharanpur,
Varanasi, Gautam Budh Nagar,
Chandauli, Mirzapur and Sonbhadra. c
7. The second notification, dated 27.02.1998 issued by the
Government of Uttar Pradesh is extracted and reads as under:-
"[S. No. 1289]
D
Notification No. T.T.-2-592/Xl-9(226)94-U.P. Act-15-48
Order-98, dated 27-2-1998
Whereas, the State Government is satisfied that it
is expedient in the public interest so to do: E
Now, therefore, in exercise of the powers under
section 5 of.the Uttar Pradesh Trade Tax Act, 1948 (U.P.
Act No. XV of 1948), read with Section 21 of the Uttar
Pradesh General Clauses Act, 1904 (U.P. Act No. 1 of F
1904), the Governor, with effect from March 1, 1998 is
pleased:- /
(a) to rescind the Notification No. T.T.-2-1885/Xl-
9(226)94-U.P. Act-15-48 Order-97, dated June 18, G
1997;
(b) to grant a .rebate of tax of twenty five percent on
goods having fly-ash contents between ten to thirty
per cent by weight and a rebate of tax of fifty per
H
· 962 SUPREME COURT REPORTS [2013) 11 S.C.R.
A cent on the goods having fly-ash contents
exceeding thirty percent by weight on the tax levied
under the Act in the districts mentioned in column-
2 Annexure given below for the period mentioned
in column-3 of the said Annexure subject to the
B following condition:-
CONDITIONS
(i) Such goods shall be manufactured in a unit
established in the area mentioned in column-2 of
C the Annexure:
(ii) Such goods shall be manufactured using fly-ash,
purchase or received from the thermal power
stations situated in Uttar Pradesh;
D (iii) the dealer claiming rebate of tax under this
notification shall keep records in which following
information will be shown:
(a) date;
E
(b) ·name of thermal power stations from which
fly-ash is purchased or received; ·
(c) weight of fly-ash;
F (d) name of manufactured goods;
(e) weight of manufactured goods
(f) weight of fly-ash used in manufacturing of
such goods
G
(g) weight of other goods used in manufacture
of such goods;
(iv) the total weight of manufactured goods and
percentage of fly-ash used, should be mentioned
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 963
ASSOCIATES LTD. [H.L. DATTU, J.]
on goods of packing of such goods as far as A
possible.
ANNEXURE (Supra)
Explanation:- The verification of percentage of fly-ash
used by fly-ash based industries shall be made on 8
the basis of Government orders issued in this
behalf from time to time."
8. To complete the narration, it is apropos to state that the
aforesaid notification is rescinded· by the State Government with C
effect from 14. ~ 0.2004 by issuing notification dated
14.10.2004. '
9. The cement industries situated in the neighbouring
States aggrieved by the notification of the Government of Uttar · D
Pradesh, dated 27 .02.1998 had approached the High Court by
filing Writ Petitions. In that they had sought for quashing of the
notification, dated 27 .02.1998 insofar as Condition No. 1 (as
extracted above) of the notification and other consequential
reliefs.
E
10. The High Court has come to a finding on two broad
issues; firstly, whether Condition No. 1 of the notification i.e. the
grant of rebate of tax on the sale of cement in the Districts of
Uttar Prade~h alone contravenes articles 301 and 304(a) of the
Constitution of India. On the aforesaid issue, the Court has F
concluded that the grant of rebate of tax by the State
Government discriminated between the imported goods and
the goods manufactured in Uttar Pradesh restricting. the free
movement of goods from one State to the other and therefore
impinges articles 301 and 304(a) of the Constitution of India. G
11. The Second question that is considered and decided
by the High Court, is, whether doctrine of severability will apply
and therefore if Condition No. 1 in the notification violates
articles 301 and 304(a) of the Constitution of India; should the H
964 SUPREME COURT REPORTS [2013] 11 S.C.R.
A notification be struck down in its entirety or merely the impinging
condition in the notification. The High Court has relied on the
decision of this Court in Loham Steel Industries v. State of
Andhra Pradesh, (1997) 2 SCC 37, and has come to the
conclusion that if certain conditions in the notification violate
B freedom of trlilde and commerce, then that portion of the
notification restricting rebate of tax to the districts in State of
Uttar Pradesh alone is severable. Therefore, the High Court.for
the reasons stated above has declared the Condition No.1 of
the notification as illegal, arbitrary and discriminatory,
c accordingly has quashed the Condition No.1 of the notification
and also granted consequential relief in the form of rebate to
the respondents-herein and further has directed that deposits
mad~ by the respondents in excess of what was payable was
to be refunded with an interest of 10% per annum.
D
12. Being aggrieved, the Revenue calls in question the
correctness or otherwise of the common judgment and order
passed by the High Court in a batch of Writ Petitions dated
29.01.2004.
E 13. Shri Sunil Gupta, learned senior counsel appearing for
the appellants contended that the notification issued by the
Government provides for grant of rebate to an industry which
manufactures cement by using fly-ash as a raw material. The
rebate is granted by the Government to encourage industries
F in removing and re-using fly-ash. Since the notification only
provides for rebate, it would not fall within the meaning ascribed
to 'any tax' under article 304(a) of the Constitution and would
therefore does not contravene the Constitutional Provisions. In
aid of his submission, the counsel would heavily rely on the
G decision of this Court in the case of Video Electronics Pvt. Ltd.
v. State of Punjab, (1990) 3 sec 87. The learned counsel
would further argue that rebate and imposition/ exemption are
two differentconcepts. Exemption is an antithesis of 'imposition'
and it belongs to the realm of imposition of tax and therefore
H exemption simpliciter without reason is barred by article 304(a)
STATE OF U.P. AND ORS. v. JAIPRAKASH 965
ASSOCIATES LTD. [H.L. DATTU, J.]
of the Constitution of India. Rebate, on the other hand, is A
repayment or refund of an amount and therefore it may not be
a subsidy but it is in the form of an incentive or a grant. He
further would point out that imposition of tax is di.fferent from
collection or repayment of tax. In other words, he would submit
that there are two different stages:- one would be the imposition B
and levy of taxes and the other is collection and repayment of
taxes. Rebate of tax as such is a repayment of taxes and is
certainly not a part of levy or imposition of taxes. He would
further submit that for rebate of tax as against non-imposition
or exemption at point of tax being common, Part XIII of the C
Constitution will not apply.
14. In the second limb oftheargument, the learned counsel
would submit that there are two crutches in the notification, if
one of them is taken away the other. cannot function D
independently. Therefore, he would submit that because the
respondents have not challenged Clause(2) and have only
challenged Clause(1) of the notification, then while granting
relief if one of the condition is declared invalid then both the
clauses of the notification are to be struck down.
E
15. Thirdly, the learned counsel would contend that the
State of Uttar Pradesh has no territorial jurisdiction over the
industrial units situate outside the State of Uttar Pradesh and
therefore, the notification also inherently does not and cannot
give the Uttar Pradesh Authorities any extra territorial F
jurisdiction. Therefore, it is nigh impossible for the accessing
authorities to effectively enforce machinery and procedural
provisions. This aspect of the matter is not taken note of is the
submission of the learned counsel. Finally concludes, that,
rebate is outside the scope of Part XIII and article 304(a) of G
the Constitution of India, and Section 5 of the Act is a beneficial
legislation passed in public interest by the State Government
and therefore a liberal approach requires to be adopted by this
Court.
H
966 SUPREME COURT REPORTS [2013] 11 S.C.R
A 16. Per Contra, Shri Dhruv Agarwal, learned senior
counsel would contend, that, by reason of the notification all the
sales of the Cement in Uttar Pradesh manufactured by cement
industries using fly ash for such manufacture outside the State
of Uttar Pradesh are subjected to levy of sales tax at the rate
B of 12.5 per cent, whereas the sales of the cement
manufactured by cement industries in Uttar Pradesh are
granted rebate of tax from such levy and thus the cement
industries outside the State of Uttar Pradesh are clearly
discriminated against. It is submitted that this discrimination
c violates the provisions of articles 301 and 304(a) of the
Constitution of India. It is further contended that article 304(a)
of the Constitution speaks of imposition of tax and rebate of
tax is nothing but a facet of imposition of tax and therefore the
provision of article 304(a) of the Constitution is attracted. He
o would further contend that article 304(a) of the Constitution is
not meant to be blanket legislation and that grant of incentives
and subsidies for backward areas given under the provisions
of the Act are different from rebate of tax given under the
notification. He would rely on Shree Mahavir Oils and another
E v. State of Jammu and Kashmir, (1996) 11 sec 39; and would
submit that the aforesaid case clarified the observations made
in the Video Electronics case (Supra), wherein it is observed
that exemption without reasons is discriminatory and would
directly hit by article 304(a) of the Constitution of India. He would
F further point out that rebate of tax would have the same effects
of an exemption because it would mean refunding the full
amount of tax collected. Therefore, rebate is. nothing but a
concessional rate of tax.
· 11. The learned counsel, would further argue on the point
G of severability that while severing, the scope of the provision
is enlarged and therefore if the invalid portion of the notification
viz. Condition No.1 of the notification can be severed from the
valid portion of the notification without changing the object of
the notification, then relying on the principles of D.S. Nakara
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 967
ASSOCIATES LTD. [H.L. DATIU, J.]
v. Union of India, 1983 2 SCR 165, the doctrine of severability A
should be made applicable. Lastly it. is submitted that the
constitutional validity of a taxing provision cannot be tested on
the touch stone of inability in enforcing machinery provision.
18. Shri Ashok H. Desai, learned senior counsel would B
argue that the primary question for consideration is whether the
rebate of tax introduced by the Government of Uttar Pradesh
creates a trade barrier/ fiscal barrier or in other words the
Government has further insulated itself by creating tariff walls,
therefore, impinging article 301 and article 304(a) of the c
Constitution of India. He would therefore make an effort to show
the legislative history and scope of article 304(a) read with
article 301 of the Constitution of India. To date back to the
historical genesis of the aforesaid articles, he would submit that
they were introduced to remove the trade blocks/barrier that D
existed between princely States prior to independence but
·subsequently to foster economic development in the whole of
India and to preserve its unity, such economic barriers were
restricted which were discriminatory in nature. He would further
submit that to understand whether any such tax introduced by E
the Government is discriminatory or not, the effect and the result
of such tax imposed is to be seen. If the overall result or such
effect restricts the free movement of goods between the· States
then it would violate articles 301 and 304(a) of the Constitution
of India.
F
· 19. He further submits that itis undoubtedly true that it is
the prerogative Of the State Government to encourage the
backward areas in its State by way of incentives but in the
instant case the State of Uttar Pradesh does not segregate
between backward and developed districts .in the State but G
have rather extended the rebate of tax to even the industrially
advanced districts in the State of Uttar Pradesh and further the
rebate of tax is in the nature·of exemption/ concessional rate
of tax and the overall effect of such rebate is that it altogether
H
968 SUPREME COURT REPORTS [2013) 11 S.C.R.
A exempts the dealer manufacturing and producing cement by
using fly-ash in Uttar Pradesh from the payment of tax and
therefore rebate qualifies as any such 'tax' imposed under
article 304(a) of the Constitution that would give a
discriminatory treatment to two different goods, one originating
B within the State and the other as the out-of-State goods.
20. The learned counsel would further contend that the
concept of rebate of tax is within the realm of taxation and
whether it is exemption or repayment by way of a rebate of tax,
c the only test is, one has to be mindful of its impact as to whether
it is a trade barrier thereby impinging article 304(a) of the
Constitution of India. He would further point his finger to Section
5 •of the Act and s.ubmit that Section 5 of the Act is couched in
a manner so as to reflect that it is a rebate of tax. Therefore,
0 the intention of the framers of article 304(a) of the Constitution
cannot be overlooked which was only to restrict trade barrier
irrespective of their nomenclature used to shield such levy or
imposition of tax. It is therefore, he would submit that it is not
the words used but the impact on the manufacturer(s). Article
E 304(a) of the Constitution is therefore a constitutional limitation
in itself that prevents a State from discrimin!Jting between the
goods so imported and the goods so manufactured or
produced by the dealers within the State unless\the State in
public interest impose reasonable restriction under article
F 304(b) of the Constitution after obtaining Presidential assent.
Shri Desai, would therefore submits that the amendment in the
notification brought by the Government further does not satisfy
the requirements of the aforesaid articles by not obtaining
Presidential assent if the legislation is made in public interest.
G 21. There are three broad issues for our consideration:
firstly, whether the grant of rebate of tax is hit by
constitutional limitation on the State legislature
under article 304(a) read with article 301 of the
H Constitution of India, as and when it discriminates
STATE OF U.P. AND ORS. v.- JAIPRAKASH 969
ASSOCIATES LTD. [H.L. DATIU, J.]
between the imported goods and the goods A
manufactured and produced outside the State.
the second issue that arises is, whether the grant
of rebate, directly or indirectly restrict the free flow
of trade, commerce and intercourse among States
8
by assuming the effects of an exemption/
concession which is nothing but a concept within the
scope of taxation.
The third issue is, can only the first condition of the
notification be severed if it is found to be violative C
of article 304(a) of the Constitution of India without
striking down the whole of the notification.
· 22. Before dealing with the respective contentions raised
before us, we shall set out the relevant Provisions of the Act. D
The dictionary clause defines 'dealer', 'manufacturer', 'tax'
'trade tax' etc. The definitions are therefore extracted and it
reads as under:
"(bb) "Trade Tax" means a tax payable under this Act on
sales or purchases of goods, as the -case may be; E
(c) "dealer' means any person who carries on in Uttar
Pradesh (whether regularly or otherwise) the business of
buying, selling, supplying or distributing goods directly or
indirectly, for cash or deferred payment or for commission, F
remuneration or other valuable consideration and includes
(i) a local authority, body, corporate, company, any
co-operative society or other society, club, firm, G
Hindu undivided family or other association of
persons which carries on such business;
(ii) a factor, broker, arhati, commission agent, de/
credere agent, or any other mercantile agent, by
H
970 SUPREME COURT REPORTS [2013] 11 S.C.R.
A whatever name called and whether of the same
description as herein before mentioned or not, who
carries on the business of buying, selling, supplying
or distributing goods belonging to any principal,
whether disclosed or not;
B
(iii) an auctioneer who carries on the business of
selling or auctioning goods· belonging to any
principal, whether disclosed or not, and whether the
offer of the intending purchaser is accepted by him
or by the principal or nominee of the principal;
c
(iv) a Government which, whether in the course of
business or otherwise, buys, sells, supplies or
distributes goods, directly or otherwise, for cash or
fo·r deferred payment or for commission,
D remuneration or other valuable consideration;
(v) every person who acts within the State as an
agent of a dealer residing outside the State, and
· buys, sells, supplies or distributes goods in the
E State or acts on behalf of such dealer as-
(a) a mercantile agent as defined in Sale of
Goods Act, 1930; or
(b) ·an agent for handling of goods or
F documents of title relating to goods; or
(c) an agent for the collection or the payment
of the sale price of goods or as a guarantor
for such collection or such payment;
G (vi) a firm or a company or other body
corporate, the principal office or
headquarters whereof is outside the State,
having a branch or office in the State, in ,
respect of purchases or sales, supplies or
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 971
ASSOCIATES LTD. [H.L. DATTU, J.]
distribution of goods through such branch or A
office;
[(vii) every person who carries on the
business of transfer of property in goods
(whether as goods or in some other form) B
involved in the execution of a works contract;
(viii) every person who carries on the
business of transfer of the right to use any
goods for any purpose (whether or not for a
specified period) for cash, deferred payment C
or other valuable consideration;
[(n) "tax" includes an additional tax and the
composition money accepted under Section 7-D];
D
[(e-1) "manufacture" means producing making , mining,
collecting, extracting, altering, ornamenting , finishing, or
otherwise processing, treating or adapting any goods; but
does not include such manufactures or manufacturing
processes as may be prescribed;] E
[(ee) 'Manufacturer' in relation to any goods means the
dealer who makes the first sale of such goods in the State
after their manufacture and includes:-
(i) a dealer who sells bicycles in completely F
knocked down form;
(ii) a dealer who makes purchases from any other
dealer not liable to tax on his sale under the Act
other than sales exempted under Sections 4, 4-A G
and 4-AAA.]
[(h) 'Sale', with its grammatical variations and cognate
expressions, means any transfer of property in goods
(otherwise than by way of a mortgage, hypothecation,
H
972 SUPREME COURT REPORTS [2013] 11 S.C.R.
A charge or pledge) for cash or deferred payment or other
valuable consideration, and includes-
{i) a transfer, otherwise than in pursuance of a contract of
property in any goods for cash, deferred payment or other
valuable consideration;
B
{ii) a transfer of property in goods {whether as goods, or
in some other form) involved in the execution of a works
contract;
c {iii) the delivery of goods on hire purchase or any system
of payment by instalments;
{iv) a transfer of the right to use any goods for any purpose
{whether or not for a specified period) for cash, deferred
payment or other valuable consideration;
D
{v) the supply of goods by any unincorporated association
or body of persons to a member thereof for cash, deferred
payment or other valuable consideration; and
E (vi) the supply, by way of or as part of any service or in
any other manner whatsoever, of goods, being food or any
other article for human consumption or any drink {whether
or not intoxicating) where such supply or service is for cash
or deferred payment or other valuable consideration;]"
F 23. Section 3 of the Act is the charging provision. Section
3-A provides for the rate of tax payable by a dealer under the
Act. Section 4 of the Act provides for grant of general
exemption for the purposes of the Act. Section 4-A of the Act
provides for grant of exemption from trade tax when the State
G Government is of the opinion that it is necessary so to do for
increasing the production of any goods or for promoting the
development of any industry in the State. Section 4-AA
provides for concession in the rate of tax to certain industrial
units not exceeding twenty-five per cent on the sale of goods
H manufactured by such industrial unit which provides
STATE OF U.P. AND ORS. v. JAIPRAKASH 973
ASSOCIATES LTD. [H.L. DATTU, J.]
employment to the persons belonging to the scheduled caste A
and scheduled· tribe, and other backward classes. Section
4AAA authorizes the State Government to grant special
concession to certain industrial undertakings in special
situations and circumstances. Section 5 of the Act authorizes
the State Government to grant rebate of tax on certain B
purchases or sales if it is satisfied that it is in the public interest
so to do by issuing a notification allow a rebate up to the full
amount of tax on the sale or purchase of any goods or the sale
or purchase of such goods by such person or class of persons
as may be specified in the notification. Section 5 is relevant C
for the purpose of this case and therefore the same is extracted: .
'Sec. 5 - Rebate of tax on certain purchases or sale:
1. Where the State Government is satisfied that it is
expedientin the public interest so to do, it may by D
notification, and subject to such conditions and restrictions
as may be specified therein, allow a rebate up to the full
amount to;
(a) the sale or purchase of any goods, E
(b) the sale or purchase of such goods by such
person or class or persons as may be
specified in the said notification.
2. The rebate under sub-Section (1) may be allowed with F
effect from a date prior to the notification.
24. Section 5 of the Act is in three parts. Firstly, it
authorizes the State Government that if it is .satisfied that grant
of rebate of tax is expedient in. the public interest it may do so G
by issuing the notification and secondly, that the notification may
allow a rebate up to the full amount of tax levied on a specified
point of sale or purchase of any goods or the sale or purchase
of such goods by such person or class of persons. Lastly, the
notification may also impose such conditions or restriction for H
974 SUPREME COURT REPORTS [2013] 11 S.C.R.
A availing the benefit under the notification.
25. In exercise of such power, as we have already noticed,
the State Government has issued notification dated 27 .02 .1998
reducing the tax liability of the dealers by twenty five per cent
8 on goods having fly-ash contents between 10 to 30 per cent
weight and has reduced the tax liability of the dealer by fifty per
cent on goods having fly-ash contents exceeding thirty per cent
by weight. Further, the notification states that such reduction is
available in the districts mentioned in the column 2 and for the
C period mentioned in the column 3 of the annexure to the
notification. A tax rebate/ tax cut is a reduction in taxes. The
immediate effect of such rebate or tax cut decreases the real
revenue of the Government and an increase in the real income
of those whose tax rate has been lowered.
D 26. To appreciate the first issue before us, it is necessary
to extract articles 301 and 304 of the Constitution of India. The
said articles are as under:-
"301. Freedom of trade, commerce and intercourse.-
E Subject to the other provisions of this Part, trade,
commerce and intercourse throughout the territory of India
shall be free.
304. Restrictions on trade, commerce and intercourse
among States - Notwithstanding anything in article 301
F
or article 303, the Legislature 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
G subject, so, however, as not to discriminate
between goods so imported and goods so
manufactured or produced; and
(b) impose such reasonable restrictions on the
H freedom of trade, commerce or intercourse with or
STATE OF U.P. AND ORS. v. JAIPRAKASH 975
ASSOCIATES LTD. [H.L. DATTU, J.]
within that State as may be required in the public A
interest:
Provided that no Bill or amendment for the purposes of
clause (b) shall be introduced or moved in the Legislature
of a State without the previous sanction of the President." B
27. Article 304(a) of the Constitution is an exception to
article 301 of the Constitution of India. Article 304(a) does not
prevent levy of tax on goods; what is prohibited is such levy of
tax on goods as would result in discrimination between goods
imported from other States and similar goods manufactured or C
produced within the State. The object is to prevent imported
goods being discriminated against by imposing a higher tax
thereon than on local goods. What article 304(a) demands is
that the rate of taxation on local as well as imported goods must
be the same. This is designed to discourage States from D
creating State barriers or fiscal barriers at the boundaries.
Article 304(a) of the Constitution empowers the State to levy
tax, with an intent that Part XI 11 of the Constitution does not affect
the power of taxation given under Part XII of the Constitution. It
is to preserve and protect the broad object of article 301 of the E
Constitution, article 304(a) only limits the power of the State
legislature from imposing such taxes that would discriminate
between imported goods and domestic goods and restrict free
movement of goods between States. The broad issue whether
article 304(a) is an exception to article 301 of the Constitution F
of India is discussed in the case of Atiabari Tea Co. Ltd. v. The
State of Assam and Ors; AIR (1961) SC 232; it was about the
Constitutionality of the Assam Taxation (on goods carried by
Roads or Inland Waterways) Act, 1954 (Act XIII of 1954) which
was challenged by the appellants from whom tax was G
demanded under the Act for carriage of tea in chests, from
Sibsagar district in Assam and from Jalpaiguri in West Bengal,
to Calcutta over the waterways of State of Assam. The
constitutional objection against the Act was that it was covered
by the inhibition implied by the freedom enunciated in article H
976 SUPREME COURT REPORTS [2013] 11 S.C.R.
A 301 and that it could be saved from being struck down only if it
satisfied the condition prescribed in article 304(b).
28. In the majority judgment, Gajendragadkar, J., as he
then was, accepted the appellant's contention that article 301
8 embraced freedom from all kinds of impediments and burdens
on commerce including those imposed by tax laws; and a tax
law also, in order to survive, must, satisfy the conditions laid
down in clause (b) of article 304. As the learned Judge pointed
out, there was ample evidence in the text of Part XIII itself to
C show that it dealt with impediments caused by taxation as well
as in other ways. Article 304(a) saved certain taxes on goods
from the operation of articles 301 and 303, implying thereby
that in the absence of the provision in article 304(a) those laws
would be hit by article 301 or 303 of the Constitution of India.
Justice Hidayatullah, in the Atiabari Case dissented and
0
observed: "Article 304(a) imposes no ban but lifts the ban
imposed by articles 301 and 303 subject to one condition." This
observation led to controversy and the use of the word 'ban'
was understood as giving enormous power to the State to
legislate overlooking the economic unity of the nation which was
E prioritized in article 301 of the Constitution of India. Therefore,
in the case of State of Kera/a v. Abdul Kadir, it was further
clarified that only on a finding that the tax offended article 301
the question whether it was saved by article 304(a) arose ..
F 29. Again, article 304(a) of the Constitution admits two
exception in favour of the State legislature to the rule that trade,
. commerce, and intercourse throughout the territory of India shall
be free. Clause(b) to article 304(a) is an exception which
enables a State legislature to impose such "reasonable·
G restrictionsi• on the freedom of trade, commerce and intercourse
as may be required in the "public interest". But no bill or.
amendment for the purpose of clause(b) shall be introduced or
moved in the legislature of a State without the previous sanction
of the President.
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 977
ASSOCIATES LTD. [H.L. DATTU, J.]
30. The Principle of 'non- Discriminatory tax' as provided A
in article 304(a) of the Constitution of India is a sine-qua-non
to free movement of goods between nations/States in several
jurisdictions and also in international trade and policy.
Discrimination as explained under World Trade Organization
("WTO", for short) jurisprudence is spoken of in terms of effect B
and intention behind such discrimination. Intent is referred to
as 'aim' or 'motive' or 'purpose' of such discrimination and the
other factor commonly associated with discrimination is 'effect'
that is whether a measure has a discriminatory effect (also
known as the disparate impact) against imports (as explained C
in the famous case of Japan v. Alcohol, panel report). WTO
members are free to choose any system of taxation they deem
appropriate provided that they· do not impose on foreign
products taxes in excess of those imposed on like products.
The effect of tax should not be such that two like goods are D
given discriminatory treatment.
31. At the same time, it cannot be doubted that rising of
protective walls may be justified in international trade. The
Government can and has been providing such protectionist E
measures all these years to encourage the growth and
establishment of industries in the country and to protect them
from competition from foreign manufacturers. But unlike the
. international trade policies and the commerce clause in United
States Constitution, our Constitution provides for regulating
F
inter-State trade and commerce. The Parliament can take all
protective measures under article 302 of the Constitution of
India as may be required in public interest. But there are certain
obvious differences between the powers conferred to the
Parliament under article 302 and State legislature under article G
304(a) of the Constitution. The powers given to the State
legislature are not unrestricted and are bound to function within
limitations stipulated under article 304(a) of the Constitution of
India. The powers even under article 304(b) are to be exercised .
sparingly and after fulfilling all the conditions of article 304 of H
978 SUPREME COURT REPORTS [2013] 11 S.C.R.
A the Constitution of India. The power conferred under article
304(a) although an exception to article 301 of the Constitution,
but is not a blanket power intended to be conferred to the State
legislature.
B 32. To decide the issue at hand, it is pertinent to discuss,
whether rebate of tax has the same effects of concessional rate
of tax.
33. Article 304(a) ensures only equal rate of tax for
incoming goods. So if such goods are taxed at a higher rate
C or where they are taxed at any rate when indigenous goods
enjoy concessional rate of tax, article 304(a) is attracted. They
are simple cases of hostile discrimination. Therefore, whether
a particular tax is discriminatory within the meaning of this
clause, the effect of the tax on the flow of goods from outside
D the taxing State has to be taken into consideration and, if the
overall effects of rebate of tax is such that they fall within the
meaning concessional rate of tax. A detailed discussion on the
effects and scope of rebate is.done in the following paragraphs
under the head Issue 2 in the judgment.
E
ISSUE 2
34. To answer the second issue we need to discuss the
concept of 'rebate of tax' and its overall impact on the trade,
F commerce and intercourse in the context of the case pleaded
by the parties.
35. 'Rebate' as defined in the New International Websters'
pocket dictionary and Bloomsbury Concise English Dictionary
is "discount", to allow as a deduction from a gross amount. It
G is a discount repaid to the payer. Rebate as defined in corpus
Juris Secundum, Vol. 52 C.J Pg. 1189 is as under:-
" The etymological or diCti'onary meaning of the term
includes any discount or deduction from a stipulated
H payment, charge, or rate not taken as in advance of
STATE OF U.P. AND ORS. v. JAIPRAKASH 979
ASSOCIATES LTD. [H.L. DATTU, J.]
payment, but handed back to the payer after he has paid A
the stipulated sum, even when such discount or deduction
is equally applied to all from whom such payment is
demandable"
36. The concept of rebate of tax in the instant case is akin B
to concessional/ reduced rate of tax. Rebate is though ex-
hypothesi in the nature of subsidy and other incentives given
by the Government but conceptually rebate of tax and incentives
are different and it needs to be explained in reference to the
purpose and nature of such rebate of tax introduced by the c
legislature. The legisli;ition in respect of a rebate has taken
different forms, one of them is a partial rebate in the tax, where
the deduction is gjven partially on the gross amount and the
other is the power '.reserved for the Government to permit rebate
in respect of any goods to the full amount of the tax levied at D
any point in the series of sales of such goods. A dealer who is
entitled to a rebate under any notification will collect the tax from
the consumers at the point of purchase and then have to pay
the full amount of sales tax due on his turnover in that quarter;
and claim rebate in terms of the notification in accordance with
E
the provision in the rules. However, the claim for rebate need
not necessarily be handed back to the payer after he has paid
the stipulated sum, it can also be paid in advance of payment.
It is nothing but a remission or a payment back or it is
sometimes spoken of as a discount or a drawback. It cannot
F
be disputed that it is the discretion of the State Government,
through its legislature, to grant rebate to the full amount of sales
tax, unless its power of taxation is limited by Constitutional
provisions. In the facts of the present case, the legislature
authorizes the State Government under Section 5 of the Act to
issue notification in the public interest to grant rebate up to the G
full amount ofthe tax levied on any specific point in the series
of sales/ purchase of such goods. Such rebate is only extended
to the districts in State of Uttar Pradesh. The Government of
Uttar Pradesh has the power to refund or discount to the full H
980 SUPREME COURT REPORTS [2013] 11 S.C.R.
A amount of rate of sales tax levied on a dealer, provided the
power to discount does not overall has effects of a weapon of
taxation that would discriminate between the goods imported
and manufactured in Uttar Pradesh as laid down in article
304(a) of the Constitution.
37. "ttie-discrimination through a weapon of taxation is
explained in the case of Shree Mahavir Oil Mills (supra). °The
case pertains to unconditional and total exemption from tax on
edible oil granted to in-State manufacturers by the State
c Government. Such an exemption was held discriminatory and
violative of articles 301 and 304(a) of the Constitution of India.
This case further clarifies the position in Video Electronics case
(supra). The Court observed that States are certainly free to
impose tax on subjects which fall under List II of the Seventh
0 Schedule of the Constitution, but power shall not be_ exercised
to bring about discrimination between the imported goods and
the similar goods manufactured in that State and concluded that
total exemption granted in favour of small-scale industries in
Jammu and Kashmir producing edible oil is not sustainable in
E law. It clarified the exception carved out by the three judges
bench in the case of Video Electronics Ltd. v. State of Punjab;
1989 SCR Supp.(2) 731, where it explained that notification
issued by two States (Punjab and Hary~na) in that case
exempting new units, established in new areas specified the
F exemption to be provided to a special class to· whom
exemption was provided for a specific period on specific
conditions and was not extended to all producers of goods and
therefore did nof offend the freedom guaranteed under articles
301 and 304 of the Constitution. Similarly in the case of Punjab
G notification, it was held that since the exemption is for certain
specific goods and also because an ove..Whelmingly large
number of local manufacturers of similar goods are subject to
a sales ta><:. it cannot be said that the local manufacturers were
favored against the outside manufacturers and further the
H exemption was granted for a limited period of five years. The
STATE OF U.P. AND ORS. v. JAIPRAKASH 981
ASSOCIATES LTD. [H.L. DATTU, J.]
above case also laid down that while judging whether a A
particular exemption granted by the State offends articles 301
. and 304, it is necessary to take into account the economic
backwardness of a State and the need for concessions and
subsidies. to such new industries for their development.
Therefore, this case clarified that the limited exception created B
in .the said judgment, if extended to all will rob the salutary
principle underlying Part XIII of the Constitution and further it is
not possible to go on extending the limited exception. It is with
this observation, this Court. in the above case, held the
exemption to be violating article 304(a) read with article 301 C
of the Constitution of India.
38. Article 304(a) is a provision that deals with taxation.
It places goods imported from sister States on a par with
similar goods manufactured or produced within the State in D
regard to State taxation in the allocated field. The object of
article 304(a) was to limit the power of taxation by States so
as to prevent discrimination against imported goods by /
imposing taxes on such goods as a higher rate than is borne
·by indigenous goods. The tax referred to in article 304(a) is a E
'tax on goods'. The word "tax'' and "taxation" as said by Justice
Weaver of the Iowa Supreme Court in the case of State v.
Chicago & N. W.R. Co., 128 Wis 449, 108 N. W. is referred
to as all sorts of exaction which swell the public funds. Taxation
in its broadest and most general sense, includes every charge F
or burden .imposed by the sovereign power upon persons,
property or property right, for the use and support of the
Government and to enable it to discharge its appropriate
functions, and in that broad definition there is included a
·proportionate levy upon persons or property and various other G
·methods or devices by which revenue is extracted from persons
and property. The term 'tax' is to be read in all-embracing and
sweeping sense .. Such methods or device used by the
Government from time to time are not ordinarily open to serious
questions but their scope and application vary according to the H
982 SUPREME COURT REPORTS [2013) 11 S.C.R.
A nature of the subject under discussion and the circumstances
under which they are used. 'Rebate of tax' in the instant case
is such a device or weapon of taxation used by the Government
from time to time which is though not in question in all situations
but their validity is tested in the touchstone of article 304(a) of
B the Constitution in the circumstance under which they are used.
If the rebate of tax by way of repayment to the full amount of
tax levied qualifies within the same meaning as that of
exemption, then such discount would a fortori mean
discrimination on the rate of tax by repaying by way of a rebate
C to one class of local dealers the whole amount of sales tax paid
and on the other hand the outside dealers are taxed higher in
absence of the benefit of rebate. This situation squarely falls
within the meaning of 'discrimination' as contemplated under
article 304(a) of the Constitution of India.
D
39. It is for the aforesaid reasons, it is pertinent to analyze
the nature and scope of concessional/ reduced rate of taxi
exemption by drawing inspiration from their understanding in
other jurisdictions and under what circumstance could a rebate
E be termed a hindrance to or as interfering with the freedom of
trade, commerce or intercourse. In appreciating the effects of
an exemption parallel to a rebate of tax, we may refer to the
observation made in Congressional Budget and Fiscal
Operations, 2 U.S.C.A.§ 622, where exemptions is understood
F to have been in the category known as "tax expenditures"
because the revenues lost by such exemptions are similar to
direct expenditures made by the government, the only
difference being that they are made through the tax system and
not the legislative appropriations process. These tax
G expenditure programmes are sometimes defined as "subsidies
provided through the taxation systems," but the broadest
definition includes all categories of "deductions, credits,
exclusions, exemptions, preferential tax rates and tax deferrals."
Justice Wayne in the case of Jefferson Branch Bank v. Skelly;
66 U.S. 436 while explaining the power of legislature where not
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 983
ASSOCIATES LTD. [H.L. DATTU, J.]
forbidden by Constitution explained, that the legislature has the A
power to exempt from taxation according to its views of public
policy provided no constitutional provisions are violated. The
United States Constitution under the Equality and uniformity
clause mandates that where the Constitution requires taxation
to be equal and uniform, it is held in most States that the B
legislature must tax all such persons or property and cannot
grant any exemptions unless the power to exempt is expressly
conferred by the Constitution. In some states, however, the
contrary is held but even in such states it is held that exemptions
are not valid unless including all property and persons of the C
same class whether such person as subject to such exemption
is inside the State or situated outside the State.
40. Exemption as we normally understand has two-fold
impact. First, exemptions/ concessional rate of tax affect D
consumer choice by impacting relative pricing and, thus,
materially altering the economic balance. It is because
consumption will tend to shift towards untaxed items, the prices
of those items and the items used to produce them will increase
while the prices of taxed items will decrease relatively. Second,
E
such exemptions unfairly burden some businesses either within
the same industry or in other competing industries.
41. Rebate is another such device used by the Government
which when given on the rate of tax to the full amount of tax
levied, it gives favourable treatment to one class of dealers F
situated within the state barring the dealers similarly placed
outside the State manufacturing goods using the same raw
material. The grant of such rebate has the colour of exemption/
concessional rate of tax along with the same deleterious effects
of an exemption. G
42. Therefore, the test to be applied to determine whether
rebate is within the realm of tax defined in article 304(a) of the
Constitution of India so as to say that it discriminates between
the two class of goods: locally manufactured goods and the H
984 SUPREME COURT REPORTS [2013] 11 S.C.R.
A imported goods when both the class of dealers meet the
conditions required to qualify for the grant of rebate i.e. the use
of fly-ash, is the overall effect or impact of such rebate on the
manufacturer. This issue is no longer res-integra and is
discussed in several cases including in the case of Firm A. T.B
B Mehta Masjid & Co v. State of Madras and Anr., AIR 1963
SC 928, where the question for consideration was whether Rule
16 of the Madras General Sale Tax Rules, 1939 subjected
tanned hides and skins outside the State, and sold within the
State to a higher rate of tax than the tax imposed on hides or
C skins tanned and sold within the state and therefore violating
article 304(a) of the Constitution. This Court observed that to
determine whether the rule was discriminatory, the effect of this
rule is to be seen. The result therefore is that the sale of hides
or skins which. had been purchased in the State and then tanned
D 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
E · quantum oftax had been the same, there might have been no
case fofgrievance 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
F of the raw hides or skins and of those hides or skins after they
had been tanned, though the rate is the same under Section
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
G 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
H imported the hides and skins from outside. Therefore, the Court
STATE OF U.P. AND ORS. v. JAIPRAKASH 985
ASSOCIATES LTD. [H.L. DATTU, J.]
held that this rule on this ground alone is discriminatory of article A
304(a) of the Constitution of India.
43. The above principle was re-iterated in the case of WB.
Hosiery Association and others v. State of Bihar; (1988) 4
sec 134 and in the case of H. Anraj v Government of Tamil s
Nadu; (1986) 1 sec 414; wherein the effect of an exemption
was discussed. The issue before the Court was that the locally
manufactured goods within the State were exempted but those
manufactured in other States and imported into the State were
subjected to a high rate of tax. The hosiery manufacturers and c
dealers in the State of West Bengal in their prayer in the writ
petition asked for a direction asking the respondents to forbear
from levying or imposing or collecting any sales tax on the sale
of hosiery goods imported into Bihar from other States. The
State Government by a notification exempted dealers from D
sales tax of hosiery goods manufactured and produced in the
State ·of Bihar whereas levied sales tax on the dealers outside
the State. This Court opined that from the commercial or normal
point of view, such a discriminatory levy of sales tax would have
an effect that would be bound to affect the free flow of hosiery E
goods from outside State into the State of Bihar and would
therefore violate article 301 read. with article 304(a) of the
Constitution of India.
44. The above decision is also followed in the case of
Western Electronits and Another v. State of Gujarat and F
others, 1988 2 sec 568; and in the case of· Laham Steel
Industries v. State of Andhra Pradesh; (1997) 2 SCC 37
wherein the impact of exemption· on the manufacturer was such
that the manufactures outside Andhra Pradesh had to pay a
higher rate of tax as compared tothe manufacturers in Andhra G
Pradesh because ofthe entire tax exemption granted to the all
re~rolled steel products sold in the Andhra Pradesh and
manufactured out of tax paid raw-material purchased in the
State of Andhra Pradesh. Therefore, the notification in this case
H
986 SUPREME COURT REPORTS [2013] 11 S.C.R.
A was considered to be violating article 304(a) of the Constitution
of India.
45. This Court in the case of State of U.P. and another v.
Laxmi Paper Mart and others, Al R 1997 SC 950 has explained
B that exempting the exercise books made from paper purchases
within Uttar Pradesh produced within the State and the levying
of the tax on the exercise books produced outside Uttar
Pradesh and sold in Uttar Pradesh at the rate of 5% is
discriminatory and offends clause(a) of article 304 of the
c Constitution of India. Again in Lakshman v. State of Madhya
Pradesh; 1983 SCR 3124, the petitioner was nomad grazier
belonging to Gujarat who wandered from place to place with
his cattle. State of Madhya Pradesh did not like this and
imposed a higher duty for out-of-State cattle owners. The levy
0 was found invalid by the Court.
46. Rebate, therefore, as it is defined in the case of Estate
of Bernard H. Stauffer, Bonnie H. Stauffer, Executrix, v.
Commissioneroflntemal Revenue, 48 U.S. T.C. 277, means
abatement, discount, credit, refund, or any other kind of
E repayment. Rebates have been normally used as justifiable
incentives given by the Government to stimulate small industries
or newly established industries. But to understand Rebate of
tax as rebate per se would be a misnomer. Rebate of tax is
the rebate on rate of tax and is essentially the arithmetic of rate.
F The term 'rate' is often used in the sense of standard or
measure. It is the tax imposed at a certain measure or standard
on the total turnover of the goods. Rate, in other words is the
relation between the taxable turnover and the tax charged.
Rebate of tax or exemption is distinguished from non-imposition
G or non-liability in the case of A. V. Fernandez v. The State of
Kera/a; AIR 1957 SC 657 wherein the Court held that in rebate
of tax, the sales or purchases would have to be included in the
gross turnover of the dealer because they are prima facie liable
to tax and the only thing which dealer is entitled to in respect
H thereof is the deduction from the gross turnover in order to
STATE OF U.P. AND ORS. v. JAIPRAKASH 987
ASSOCIATES LTD. [H.L. DATTU, J.]
arrive at the net turnover on which the tax can be imposed. On A
the other hand, in the case of non-imposition or non-liablity, the
sales or purchases are exempted from taxation altogether. The
Legislature cannot enact a law imposing or authorizing the
imposition of a tax thereupon as they are not liable to any such
imposition of tax. If they are thus not liable to tax, no tax can be B
levied or imposed on them and they do not come within the
purview of the Act at all. The very fact of their non-liability to tax
is sufficient to exclude them from the calculation of the gross
turnover as well as the net turnover on which sales tax can be
levied or imposed. ·C
47. The exemption or rebate of tax is therefore within the
purview of taxation. In the instant case, if the grant of rebate of
tax by the State Government under Section 5 of the Act is to
the full amount of tax levied, then for the dealers manufacturing 0
cement using fly-ash outside the State of Uttar Pradesh but
selling it in Uttar Pradesh, though the State Government
contends that the rate of tax is same for the dealers inside Uttar
Pradesh and outside Uttar Pradesh, but the overall effect is that
there is no tax levied on the net turnover after deductions being E
made from the gross turnover but, on the other hand, the dealers
manufacturing or producing cement using fly-ash outside Uttar
Pradesh are taxed at the rate of 12.5%. Therefore, it can be
said that the rebate of tax is in the nature of exemption and the
instant case can be decided on the basis of catena of F
decisions of this Court where blanket exemption without
reasons are said to be discriminatory and "'.iolating article
304(a) of the Constitution of India.
ISSUE 3:-
G
48. To decide the third issue, the concept of severabii.ity
needs to be noticed. Doctrine of severability provides that if an
enactment cannot be saved by construing it consistent with its
constitutionality, it may be seen whether it can be partly saved.
The doctrine of severability was considered in the case of RMD H
988 SUPREME COURT REPORTS [2013) 11 S.C.R.
A Chamarbaugwala v. Union Of India, AIR 1957 SC 628; in which
it was observed that "when a statute is in part void, it will be
enforced as against the rest, if that is severable from what is
invalid". The Co'urt also observed seven propositions of
severability, out of which, one of them provided that if the valid
B and the invalid portions are distinct and separate that after
striking out what is in-valid, what remains is in itself a complete
code independent of the rest, Jhen it will be upheld
notwithstanding that the rest has become unenforceable. The
principles of severability was also discussed in the case of A.
C K. Gopalan v. State of Madras, AIR 1950 SC 27, wherein the
Court observed that what we have to see is, whether the
omission of the impugned portions of the Act will "change the
nature or the structure or the object of the legislation". In the facts
of the present case, striking down Clause (1) of the notification
D alone does not change the object of the legislation. It is a
notification passed in public interest and therefore even if
Clause (1) of the notification is expunged, leaving behind the
rest of the notification intact, the purpose of the Government to
grant rebate to provide incentive to the manufacturing units
E using fly-ash is not lost.
49. This doctrine was also enunciated in the case of D.S.
Nakara (supra). The question that arose was whether, for the
purpose of application of the liberalized pension rules, the
Government of India eould stipulate March 31, 1979 as the date
F for dividing Government employees into two classes: one class
who had retired before March 31, 1979 who would not be
entitled to the benefits of the liberalized pension rules and the
other class who retired after March 31, 1979 who would be
entitled to such benefits. One of the questions that came up for
G consideration is whether a specified date could be severed if
it is found to be wholly irrelevant and arbitrary. This Court
observed that, if the event is certain but its occurrence at a point
of time is considered wholly irrelevant and arbitrary and having
an undesirable effect of dividing homogeneous class and of
H
STATE OF U.P. AND ORS. v. JAIPRAKASH 989
ASSOCIATES LTD. [H.L. DATTU, J.]
introducing the discrimination, the same can be easily severed A
and set aside. The Court further opined that while examining a
case under article 14 of the Constitution, the approach is
removal of arbitrariness and if that can be brought about by
severing the mischievous portion the Court ought to remove the
discriminatory part retaining the beneficial portion. The Court B
therefore concluded that severance never limits the scope of
legislation but rather enlarges it.
50. In the light of the observation made by this Court, we
are of the opinion that the condition No. 1 is discriminatory and c
violates article 304(a) of the Constitution of India and therefore
needs to be severed from the rest of the notification which can
operate independently without altering the purpose and the
object of the notification.
51. The learned counsel, Shri Gupta, would argue that D
since the assessing authorities would not be in a position to
verify the claim for grant of rebate of tax by manufacturers of
cement using fly-ash outside the State of Uttar Pradesh, the
benefit under the notification cannot be extended to them. We
do not agree. The explanation appended to the notification E
authorises the assessing authorities to verify the claim that may
be made by the manufacturers including the fact whether an
assessee(s) satisfy the conditions prescribed in the notification.
If they do not fall within the parameters of the notification the
assessing authority can always reject the claim of the F
manufacturers.
52. Further we may also refer to the submission of Shri
Dhruv Agarwal, who would rely on the observations of this Court
in the case of G.B. Prabharkar Rao v. State of Andhra G
Pradesh, 1985 Supp. SCC 432; wherein the age limit of
retirement was first raised and then reduced which created an
administrative chaos and therefore merely because it created
an administrative chaos the provision reducing the age could
not have been declared invalid. On the basis of the aforesaid H
990 SUPREME COURT REPORTS [2013] 11 S.C.R.
A submission, he would submit that the machinery provisions
cannot be used to test the constitutional validity of a statute
because the liability is always created through substantive
provisions. We agree with the submission made by, Shri Dhruv,
and are of the opinion that issue of territoriality should not be a
B factor to determine the constitutional validity of the notification.
53. In view of the aforesaid discussion, we hold 'rebate of
tax' granted by the State Government to cement manufacturing
units using fly-ash as raw material in a unit established in the
c districts of State of Uttar Pradesh alone is violative of the
provisions contained in articles 301 and 304(a) of the
Constitution of India. We further declare that the notification
would also apply to respondent(s)- cement manufacturing units.
54. With these observations and directions, all the civil
D appeals are disposed of. There shall be no order as to costs.
Ordered accordingly.
K.K.T. Appeals disposed of.
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