WEST BENGAL HOSIERY ASSOCIATION & ORS.versusSTATE OF BIHAR & ANR.

          WEST BENGAL HOSIERY ASSOCIATION & ORS.
                            v.
                  STATE OF BIHAR & ANR.

                               AUGUST 11, 1988

B               [R.S. PATHAK, CJ AND M.H. KANIA, J.)

          Constitution of India, 1950: Articles 30 I and 304-Levy of sales-
    tax by State-Discrimination between goods imported from other States
    and goods manufactured and sold in that State-Validity of.

         Bihar Finance A ct, 1981: Levy of sales-tax on hosiery goods-
c   Exempting hosiery goods manufactured and sold in that State from such
    levy-Whether discriminatory and violative of Articles 301 and 304 of
    the Constitution.

          The Bihar Government imposed sales-tax at 5% ad valorem on all
D   hosiery goods sold within the State irrespective of the place of
    manufacture of such goods, effective from October l, 1983. However,
    by virtue of a notification dated August l, 1984, it exempted from such
    levy, the hosiery goods manufactured by hosiery industries in Bihar.
    This exemption was sought to be given as an incentive to hosiery
    industries in Bihar.
E
          The petitioners have approached this Court by way of a writ
    petition, contending that there has been discrimination between hosiery
    goods imported into the State of Bihar and hosiery goods manufactured
    in that State in the levy of sales-tax. They prayed for the issue of a writ
    of mandamus to the Respondents to rescind the notification dated
F   August 1, 1984, and for a direction to the Respondents to forebear
    from levying or collecting sales-tax on sale of hosiery goods imported
    into the State of Bihar from other States, and for refund of the sales-tax
    already levied and collected. The petitioners contended that such dis·
    crimination violated Art. 30 l of the Constitution of India, and that such
    discrimination could never be made by a notification.
G
           Allowing the writ petition and quashing the notification in ques-
    tion, this Court

         HELD: 1.1. A perusal of the Notifications would show that
    prima facie a clear discrimination is made against hosiery goods
H   manufactured outside the State of Bihar and sold in the State of Bihar
                                        378
            W. BENGAL HOSIERY ASSN. v. STATE OF BIHAR                    379

as the sales of such goods are subjected to the levy of sales-tax at the rate   A
of 5 per cent whereas the sales of similar goods manufactured by
hosiery industries in the State of Bihar are exempted from sales tax.
From a commercial or .normal point of view, such a discriminatory levy
of sales-tax is bound to affect the free flow of hosiery goods from outside
States into the State of Bihar and would, therefore, amount to hamper-
ing the free flow of trade and commerce. The State of Bihar did not             B
file any counter to the petition to justify this discriminatory levy as a
regulatory measure or as a compensatory tax. The result is that the
discrimination made must be regarded as violating the provisions of
Article 301 read with Article 304(b) of the Constitution. [382H; 383A-CI

      I.2. The general rate of sales-tax on hosiery goods was 5 per cent
and it was the exemption for locally manufactured hosiery goods,
                                                                                c
granted by the said Notification dated August 1, 1984 which constituted
the departure. It is, therefore, really this Notification which is dis-
criminatory and which must be struck down. [384A, Bl

      H. Anraj etc. v. Government of Tamil Nadu etc. [1985] Suppl. 3 D
5CR 342; Firm A. T.B. Mehtab Majid & Co. v. State of Madras & Anr.,
[1963] Suppl. 2 SCR 435; The Indian Cement & Ors. v. The State
of Andhra Pradesh & Ors., [1988] 1 SCC 743; Weston Electroniks and
Anr. v. State of Gujarat & Ors., [1988] 2 SCC 568, referred
to.
                                                                        E
       [This Court directed that since there might be undue hardship to
the dealers in the State of Bihar who might have sold locally
manufactured goods without taking into consideration the liability to
sales-tax in view of the exemption granted by the notification dated
August 1, 1984, the arrears of sales-tax payable by them should not be
collected.]                                                             F

     CIViL ORIGINAL JURISDICTION: Writ Petition (Civil) No.
611of1986:

      (Under Article 32 of the Constitution of India).
                                                                                G
      H.K. Puri for the Petitioners.

      M.P. Jha for the Respondents.

      The Judgment of the Court was delivered by
                                                                                H
    380         SUPREME COURT REPORTS                [1988] Supp. 2 S.C.R.

          KANIA, J. This writ petition is filed under Article 32 of the
A
    Constitution of India by the West Bengal Hosiery Association and
    certain Hosiery manufacturers and dealers in tlie State of West Bengal
    against the State of Bihar and the Commissioner of Commercial
    Taxes-cum-Special Secretary, Bihar praying for a direction to the
    Respondents to forebear from levying or imposing or collecting any
B   sales tax on the sale of hosiery goods imported into, the State of Bihar
    from other States for sale during the tenure of Circular No. SO 934
    dated 1st August, 1984, exempting from such tax, sales of hosiery goods
    manufactured or produced in, the State of Bihar and to refund the
    amount of sales tax levied and collected on the sale of hosiery goods
    imported into the State of Bihar from other States in India from !st
    August, 1984. The Petitioners have also prayed for a writ of man-
c   damus commanding the Respondents to cancel, withdraw or rescind
    Notification No. SO. 934 dated August I, 1984 by which exemption
    was granted to hosiery industries of Bihar from the levy of sales tax as
    set out earlier and the Petitioners have also prayed that the Respon-
    dents should be directed to refrain from making any discrimination
D   between hosiery goods imported into the State of Bihar and hosiery
    goods manufactured in the State of Bihar in the levy of Bihar Sales
    Tax. The writ petition can be very shortly disposed of because the
    point raised in the writ petition is directly covered by decisions of this
    Court.

E         By a notification dated 30th September, 1983, on and from
    October 1, 1983, Bihar Sales Tax at the rate of 5 per cent ad valorem
    was imposed on all hosiery goods sold within the State of Bihar irrespec-
    tive of the place whether the hosiery goods were manufactured. On
    August 1, 1984, a Notification bearing no. SO 934 was issued whereby
    the hosiery goods manufactured by hosiery industries in Bihar were
F   exempted from the levy of sales tax. The said Notification stated that it
    would remain valid for a period of five years. The reason given for this
    exemption was the grant of incentives to hosiery industries in Bihar.

          The contention raised before us by Mr. Sorabji, learned Counsel
    for the Petitioners, is that by reason of the said Notification all the
G   sales of hosiery goods in Bihar manufactured by hosiery industries
    outside the State of Bihar are subjected to the levy of sales tax at the
    rate of 5 per cent whereas the sales of hosiery goods m3.llpfactured by
    hosiery industries in Bihar are exempted froin such levy and thus the
    hosiery industries outside the State of Bihar are clearly discriminated
    against. It is submitted by learned Counsel that this discrimination
H   violates the provisions of Article 301 of the Constitution oflndia.
 W. BENGAL HOSIERY ASSN. v. STATE OF BIHAR [KANIA, J.J               381

       The relevant Articles to consider in order to appreciate the con-    A
tent ion of the Petitioners are Articles 301 & 304 of the Constitution of
India. The said Articles run as follows:

            "301. Subject to the other provisions of this Part, trade,
            commerce and intercourse throughout the territory of
            India shall be free.                                            B

                  304. Notwithstanding anything in article 301 or article
            303, theLegislature of a State may by law~

                 (a) impose on goods imported from other States or
                 the Union territories any tax to which similar goods       C
                 manufactured or produced in that State are 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 free-      J)
                  <lorn of trade, commerce or intercourse with or within
                  that State as may be required in the publidnterest:
                 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       E
                 of the President."
      A plain reading of these Articles would show that it is not open
to any State to levy any tax on goods imported from other States or
Union territories so as to discriminate between goods so imported and
goods manufactured and produced in that State subject to the limita-
tions contained in clause (b). In the present case, clause (b) has no       F
application whatsoever because the exemption granted to the sales of
hosiery goods manufactured in the State of Bihar has not been.granted
by any law passed by the legislature of the State of Bihar but by a
Notification. We find that the contention urged on behalf of the
Petitioners has been accepted in several decisions of this Court.
                                                                            G
     In H. Anraj etc. v. Government of Tamil Nadu etc., [1985] Supp.
3 S.C.R. 342 a Division Bench of this Court comprising Tulzapurkar
and Sabyasachi Mukharji, JJ., was called upon to consider whether an
amendment made to the Tamil Nadu General Saiex tax Act, 1959 and'
the Orders and Notification jssued thereunder whereby, in effect,
exemption from the payment of sales tax was granted to lottery tickets      H
    382         SUPREME COURT REPORTS                [1988] Supp. 2 S.C.R.

A issued by the Government of Tamil Nadu but the lottery tickets issued
  by other Government and sold within the State of Tamil Nadu were
  subjected to sales-tax, was violative of Article 301 read with Article'
  3M of the Constitution. A similar challenge was also made to the
  validity of the West Bengal Taxation Laws (Second Amendment) Act,
  1984 and Notification No. 1020 FT dated March 29, 1984 issued by the
B State of West Bengal. The Court took the view for the purposes of
  questions raised in that case lottery tickets could be regarded as
  "goods''. The Court held that laws imposing taxes can amount to
  restrictions on trade, commerce and intercourse, if they hampered the
  free flow of trade and they are not what can be termed to be com-
  pensatory taxes on regulatory measures. It was held that the sales tax
  of the kind in question before the Division Bench could not be said to
c be a measure regulating any trade or a compensatory tax levied for the
  use of trading facilities. Sales tax which had the effect of discriminating
  between goods of one State and goods of another might affect the free
  flow of trade and would offend against Article 301 and would be valid
  only if it came within the terms of Article 304(a). The real question to
D be considered was whether the direct and immediate result of the
  impugned Notification was to impose an unfavourable and discrimina-
  tory tax burden on the imported goods which in that case were lottery
  tickets of other State when they were sold within the State of Tamil
  Nadu and the State of West Bengal as against indigenous goods and
  that this question had to be considered from the normal business or
E commercial point of view. If the question was so considered, it could
  be seen that the impugned Notifications would have to be regarded as
  directly and immediately hampering the free flow of trade, commerce
  and intercourse. This view was taken after considering several deci-
  sions of this Court and following the decision of this Court in Firm
  A. T.B. Mehtab Majid and Co. v. State of Madras & Anr., [1963]
F Suppl. 2 S.C.R. 435. A similar view has been taken by a Division
  Bench of this Court comprising Ranganath Misra & M.M. Dutt, JJ., in
  a judgment delivered as recently as January 12, 1988 in The Indian
  Cement & Ors. v. The State of Andhra Pradesh & Ors., [1988] 1 S.C.C.
  743 where it has been observed (p. 759) as follows:

G               "Variation of the rate of inter-State sales tax does affect
                free trade and commerce and creates a local preference
                which is contrary to the scheme of Part XIII of the
                Constitution.''

        In the present case, a perusal of the Notifications referred to
H earlier show that prima facie a clear discrimination is made against
      W. BENGAL HOSIERY ASSN. v. STATE OF BIHAR [KANIA, J.J             383

    hosiery goods manufactured outside the State of Bihar and sold in the
                                                                               A
    State of Bihar as the sales of such goods ate subjected to the levy of
    sales tax at the rate of 5 per cent whereas the sales of similar goods
    manufactured by hosiery industries in the State of Bihar are exempted
    from sales tax. From a commercial or normal point of view, such a
    discriminatory levy of sales tax is bound to affect the free flow of
    hosiery goods from outside States into the State of Bihar and would,       B
    therefore, amount to hampering the free flow of trade and commerce.
    The State of Bihar has not chosen to file any counter to the petition or
    to justify this discriminatory levy as a regulatory measure or a com-
    pensatory tax. The result is that the discrimination made must be
    regarded as violating the provisions of Article 301 read with Article
    304(b) of the Constitution.

J          This brings us to the question as to the relief to which the
     Petitioners are entitled. This Court in Weston Electroniks and Anr v.
     State of Gujarat & Ors., [1988] 2 S.C.C. 568 dealt with a situation like
                                                                               c


     the one in the case before us. In that case the facts were that Section 7
    of the Gujarat Sales Tax Act, 1969 provides for the levy of sales tax on D
     the turnover of sales of goods specified in Part A Schedule II of the
     said Act. Entry 80-A(a) of Part A of Schedule II specifies the rate of
     tax applicable to the turnover of television sets. That rate was 15 per
     cent originally an<\ upto 1981; and the entry applied to all television
    sets, whether manufactured and sold within the Stat.e of Gujarat or
    imported from outside the State. In 1981, while the rate of tax on E
     electronic goods entering the State for sale therein was maintained at
     15 per cent, the rate in respect of locally manufactured goods was
     reduced to 6 per cent. By a Notification dated March 29, 1986, issued
     under sub-section (2) of Section 49 of the said Act which empowered
    the State Government to exempt in part or whole, in p~blic interest,
    any specified class of sales from the payment of the whole or any part F
    of the tax payable under that Act, in 1986, the rate of sales tax in
    respect of television sets imported from outside the State was reduced
    from 15 per cent to 10 per cent and for goods manufactured within the
    State, the rate of sales tax was reduced to 1 per cent. The Petitioners
    before this Court submitted that the Notification specifying a lower
    rate for local manufactures should be quashed. It was held that the G
    rate prescribed under Section 7 of the Gujarat Sales Tax Act, 1969 is
    the rate applied generally and it represents the normal standard of ·
    levy. The lower rate applied to local manufacturers represents a
    departure from or exception to the general norm. In such a case the
    Court should, when granting relief, choose the alternative which
    would give effect to the statutory intention; and, following this princi- H
    384        SUPREME COURT REPORTS                [1988] Supp. 2 S.C.R.

A   pie, it was held that the impugned Notifications reserving a lower rate
    of tax for local manufacturers must be quashed. In the case before us
    we find that the general rate of sales tax on hosiery goods was 5 per
    cent and it was the exemption for locally manufactured hosiery goods,
    granted by the said Notification No. SO 934 dated August l, 1984,
    which constituted the departure. It is, therefore, really this Notifica-
B
    tion which is discriminatory and which must be struck down.

          We find that the said Notification No. SO 934 dated August I,
    1984 is void for the reasons set out earlier and we quash the same. We
    realise that quashing of this Notification on the ground that it was void
    ab initio might lead to undue hardship for the dealers in the State of
c
                                                                                [
    Bihar who might have sold locally manufactured hosiery goods without
    taking into consideration any amount on account of the liability to
    sales tax in view of the exemption granted by the said Notification
    dated August 1, 1984. In order to obviate this hardship, we direct that
    the arrears of sales tax which would become payable by the dealers in
    the State of Bihar in respect of sales of local hosiery goods made
D
    during the period when the said Notification was in operation should
    not be collected.

          Rule is made absolute to the extent aforestated. However. taking
    into account the facts and circumstances of the case, we direct that
    there shall be no order as to costs.
E
    G.N.