WESTON ELECTRONIKS & ANR.versusSTATE OF GUJARAT & ANR.

                      WESTON ELECTRONIKS & ANR.
 A
                                          v.
                        STATE OF GUJARAT & ANR.

                                  APRIL 29, 1988

 B         [R.S. PATHAK, C.J. AND RANGANATH MISRA, J.J

             Gujarat Sales Tax Act, 1969-S. 49(2)-Read with Arts. 30 I,
      303( I) and 304(a)-Jmposition of tax must not be such as to discrimi-
      nate between goods imported from other States and similar goods
      manufactured within the State--Discrimination cannot be supported by
      reference to Art. 39(b) and (c)-The proper course to be followed by the
 c    Court while striking down such discriminatory measures to give effect to
      the statutory intention.

             By availing nf its powers under sub-s. (2) of s. 49 of the Gujarat
      Sales Tax Act, 1969 to exempt, in the public interest, any specified class
' D   of sales from payment of the whole or any part of the tax payable under
      the Act, the Government of Gujarat issued two notifications prescribing
      l) lower rate of tax for goods manufactured within the State as com-
      pared to similar goods imported from outside the State. The petitioners,
      who are manufacturing electronic goods, including television sets etc.,
      in factories located outside the State, challenged the validity of these
 E    notifications as ·violative of Art. 301 of the Constitution. The State
      Government contended that the rate of tax was reduced in order to
      provide as incentive for encouraging local manufacturing units and
      sought to draw support for its action from clauses (b) and (c) of Art. 39.

            Allowing the Petition and quashing the notifications aforesaid,
 F
         HELD: Art. 301 declares that subject to the provisions of Part-
   XIII, trade, commerce and intercourse throughout the territory of
   India shall be free. Clause (I) of Art. 303 prohibits the legislature of a
   State from making any law giving, or authorising the giving of, any
   preference to one State or another, or making, or authorising the
 G making of, any liliscrimination between one State and another. The
   terms of the prohibition are subject to Art. 304. Clause (a) of Art. 304
   provides that the legislature of a State may, by law, impose on goods
   imported from other States any tax to which similar goods manu-
   factured or produced in that State are subject so, however, as not to
   discriminate between goods so imported and goods so manufactured or
 H produced. It is apparent that while a State Legislature may enact a law
                                         768
             WESTON ELECTRONIKS v. STATE OF GUJARAT                     769

imposing a tax on goods imported from other States, as is levied on
                                                                               A
similar good• manufactured in that State, the imposition must not be
such as to discriminate between goods so imported and goods so
manufactured. We do not think any support can be derived from the
two clauses of Art. 39 to justify the reduction in the rate of tax in the
case of goods manufactured locally. Clause (a) of Art. 304 is clear in
meaning. An exception to the mandate declared in Art. 301 and the              B
prohibition contained in cl. (1) of Art. 303 can be sustained on the basis
of cl. (a) of Art. 304 only if the conditions contained in the latter provi-
sion are satisfied. [770H; 771A-B, 772F·G I

      Firm A. T.B. Mehtab Majid & Co. v. State of Madras & Anr.,
[1963] Suppl. 2 S.C.R. 435; Atiabari Tea Co. Ltd. v. The State of
Assam and Ors., I1961] 1 S.C.R. 809; The Automobile Transport C
(Rajasthan) Ltd. v. The State of Rajasthan & Ors., [1963] l s;c.R. 491
and H. Anraj etc. v. .Government of Tamil Nadu etc., I1986] l S.C.C.
414, relied on.
      (ii) The next question is whether, for the purpose of ensuring the
same rate of tax between the petitioners and the local manufacturers, 0
the levy of the higher rate of tax suffered by the petitioners should be
quashed and they be held entitled to the levy of the lower rate applied to
the local manufacturers, or, should the higher rate imposed on the
petitioners be maintained and the notifications imposing the lower rate
on local manufacturers be quashed. The grievance of the petitioners has
arisen only because the local manufacturers have been favoured by a E
lower rate of tax. The rate levied on the petitioners is the rate
prescribed under s. 7 of the Act. That is the rate applied generally. It
represents the normal standard of levy. The lower rate applied to local
manufacturers has been applied by invoking sub-s. (2) of s. 49 of the
Act. It represents a departure from, or exception to, the general
norm. In cases such as this, the Court should, when granting relief, F
choose the alternative which would give effect to the statutory intention.
And, therefore, in this case what is called for is the quashing of the
impugned notifications reserving it lower rate of tax for local manu-
facturers. [772H; 773A-E]

      CIVIL ORIGINAL JURISDICTION: Writ Petition No. 1032 G
of 1986.

      (Under Article 32 of the Constitution of India).

     Soli J. Sorabjee, Ms. S. Ralhan, S.C. Dhande and Ms. Rekha
                                                                               H
Pandey for the petitioners.
    770                   SUPREME COURT REPORTS              119881 3 S.C.R.

A
          V.S. Desai, A.S. Bhasme and Khanwilkar for the respondents.

          The Judgment of the Court was delivered by

          PATHAK, C.J. The petitioners manufacture electronic goods,
    including television sets. television cameras and television monitors.
B   The factories are located at Delhi, and the goods are sold through sales      ~
    organisations spread all over India, including the State of Gujarat.

          Section 7 of the Gujarat Sales Tax, Act, 1%9 provides for the levy of
    sales tax on the turnover of sales of goods specified in Part A Sch. U
    appended to the Act. Entry 80A(a) of Part A of Sch. II specifies the
C   rate of tax applicable to the turnover of television sets. The rate was
    15% originally upto 1981, the Entry applied to all television sets,
    whether manufactured and sold within the State of Gujarat or
    imported from outside the State. No distinction was made between the
    goods on the basis of the place of manufacture.

D         Sub-s. (2) of s. 49 of the Act empowers the State Government to
    exempt, in the public interest, any specified class of sales from
    payment of the whole or any part of the tax payable under the Act. In
    1981, while the rate for electronic goods entering the State for sale
    therein was maintained at 15%, the rate in respect of locally
    manufactured goods was reduced to 6% by Notification No. (GHN-
E   51) GST 1081 (S. 49)(109) TH issued under sub-s. (2) of s. 49 of the
    Act. The Notification introduced a new entry in the Schedule dealing
    specifically with electronic goods manufactured in the State of
    Gujarat. Thereafter in 1986 the rate of sales tax in respect of television
    sets imported from outside the State was reduced from 15% to 10%
    and for goods manufactured within the State of sales tax was reduced
F   to 1% by Notification No. (GHN 22) GST 1086/(S. 49)(173)-TH dated
    29 March, 1986. The petitioner contends that by lowering the rate of
    tax in respect of goods manufactured within the State, the State
    Government has created an invidious discrimination which is adver-
    sely affecting the free flow of inter-state Trade and commerce, result-
    ing in a contravention of Article 301 of the Constitution. It is pointed
G   out that a purchaser buying a television set manufactured within the
    State of Gujarat pays about Rs.250 to 300 less for a black and white
    model and Rs. 750 to Rs.1,000 for a colour model. It is said that the
    sales of electronic goods manufactured by the petitioner have been
    prejudicially affected within the State of Gujarat.

H         Art. 301 of the Constitution declares that subject to the provi-
       WESTON ELECTRONIKS v. STATE OF GUJARAT·[PATHAK,C.J.I                771
')-.
       sions of Part XIII "trade, commerce and intercourse throughout the
                                                                                  A
       territory of India shall be free". Clause (1) of Art. 303 prohibits "the
       legislature of a State from making any law giving, or authorising the
       giving of, any preference to one State or another, or making, or
       authorising the making of, any discrimination between one State and
       another, by virtue of any entry relating to trade and commerce in any of
       the Lists in the Seventh Schedule". The terms of the prohibition are       B
       subject to Art. 304, which provides: "Notwithstanding anything in
       Art. 301 or Art. 303, 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 subject, so, however, as not to
                 discriminate between goods so imported and goods so manu-        c
                 factured or produced; and

             (b) impose such reasonable restrictions on the freedom of trade,
                 commerce or intercourse with or within that State as may be
                 required in the public interest:         ·                       D

                  Provided that 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."

       It is apparent that while a State Legislature may enact a law imposing a E
       tax on goods imported from other States as is levied on similar goods
       manufactured in that State the imposition must not be such as to
       discriminate between goods so imported and goods so manufactured.
       In the Firm A. T.B. Mehtab Majid & Co. v. State of Madras & Anr.,
       [1963] Suppl. 2 S.C.R. 435 this Court was called upon to consider the
       validity of Rule 16 of the Madras General Sales Tax Rules under which F
       tanned hides and skin imported from outside the State of Madras were
       subject to a higher rate of tax then the tax imposed on hides and skins
       tanned and sold within the State. Referring to its earlier decisions in
       Atiabari Tea Co. Ltd. v. The State of Assam and Ors., [1961] 1 S.C.R.
       809 and The Automobile Transport (Rajasthan) Ltd. v. The State of
       Rajasthan & Ors., [1963] 1 S.C.R. 491 where the scope and signifi- G
       cance of Art. 301 were explained, it proceeded to observe:

                  "It is therefore now well settled that taxing laws can be
                  restrictions on trade, commerce and intercourse, if they
                  hamper the flow of trade and if they are not what can be
                  termed to be compensatory taxes or regulatory measures.         H
    772                   SUPREME COURT REPORTS              [1988] 3 S.C.R.

               Sales tax, of the kind under consideration here, cannot be
A
               said to be a measure regulating any trade or a compen-
               satory tax. levied for the use of trading facilities. Sales tax,
               which has the effect of discriminating between goods of one
               State and goods of another, may affect the free flow of
               trade and it will then offend against Art. 301 and will be
B              valid only if it comes within the terms of Art. 304(a).

                     Art. 304(a) enables the Legislature of a State to make
               laws affecting trade, commerce and intercourse. It enables
               the imposition of taxes on goods from other States if similar
               goods in the State are subjected to similar taxes, so as not
               to discriminate between the goods manufactured or pro-
c              duced in that State and the goods which are imported from
               other States. This means that if the effect of the sales-tax
               on tanned hides or skins imported from outside is that the
               latter becomes subject to a higher tax by the application of
               the proviso to sub-rule of r. 16 of the Rules, then the tax is
D              discriminatory and unconstitutional and must he struck
                down.''

         So also in H. Anraj v. Government of Tamil Nadu and Dipak
    Dhar & Ors. v. State of West Bengal & Anr., [1986] 1 S.C.R. 414 this
    Court struck down the levy of tax imposed by the State of Tamil Nadu
E   on lottery tickets issued by other States and sold within the State of
    Tamil Nadu while exempting from such levy lottery tickets issued by
    the Government of Tamil Nadu.

          In answer to the writ petition, the respondents point out that the
    rate of tax was reduced in the case of goods manufactured locally in
F   order to provide an incentive for encouraging local manufacturing
    units. Reference is made to cl.(b) and (c) of Art. 39 of the Constitu-
    tion. We do not think that any support can be derived from the two
    clauses of Art. 39. Cl. (a) of Art. 304 is clear in meaning. An exception
    to the mandate declared in Art. 301 and the prohibition contained in
    Cl. (1) of Art. 303 can be sustained on the basis of cl. (a) of Art. 304
G   only if the conditions contained in the latter provision are satisfied.

           In the result, the discrimination effected by applying different
     rates of tax between goods imported into the State of Gujarat and
     goods manufactured within that State must be struck down.

H         The next question is whether, for the purpose of ensuring the
WESTON ELECTRONIKS v. STATE OF GUJARAT [PATHAK, C.J.]                 773

 same rate of tax between the petitioners and the local manufacturers,       A
 the levy of the higher rate of tax suffered by !he petitioners should be
quashed and they be held entitled to the levy of the lower rate applied
to the local manufacturers or should the higher rate imposed on the
petitioners be maintained and the notifications imposing the lower rate
on local manufacturers be quashed. A perusal of the record shows that
                                                                             B
the grievance of the petitioners has arisen only because the local
manufacturers have been favoured by a lower rate of tax. So long as
the higher rate of tax imposed on the petitioners was also suffered by
the local manufacturers, no complaint was voiced by the petitioners. It
is the levy of the lower rate on local manufacturers that constitutes the
substance of the grievance. That is borne out by the terms of the relief
specifically claimed by the petitioners, that the notifications specifying   c
a lower rate for local manufacturers should be quashed. Moreover, the
rate levied on the petitioners is the rate prescribed under s. 7 of the
Act. That is the rate applied generally. It represents the normal
standard of levy. The lower rate applied to local manufacturers has
been applied by invoking sub-s. (2) of s. 49 of the Act. It represents a
                                                                             D
departure from, or exception to, the general norm. In cases such as
this, the Court should, when granting relief, choose the alternative
which would give effect to the statutory intention. And, therefore, in
this case what is called for is the quashing of the impugned notifica-
tions reserving a lower rate of tax for local manufacturers.

      Accordingly, the writ petition is allowed and the Notifications        E
No. (GHN-51) GST 1081 (S. 49)(109) TH dated 23 July, 1981 and
No. (GHN-22) GST. 1086/(S.49)(173) TH dated 29 March, 1986
prescribing a lower rate of tax for local manufacturers in respect of
television sets and other electronic goods are quashed. The petitioners
are entitled to their costs.
                                                                             F
H.L.C.                                                  Petition allowed.