http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3

PETITIONER:

STATE OF UTTAR PRADESH & ANR.

Vs.

RESPONDENT:

M/S. LAXMI PAPER MART & ORS.

DATE OF JUDGMENT: 04/02/1997

BENCH:

B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:

THE 4TH DAY OF FEBRUARY, 1997

Present :

Hon`ble Mr. Justice B.P. Jeevan Reddy

Hon`ble Mr. Justice K.S. Paripoornan

R.C. Verma and R.B. Mishra, Advs. for the appellants

V. Adhiyarujina, Solicitor General and Subrat Birla, Adv.

with him for the Union of India

H.K. Puri, Adv. for the Respondent

J U D G M E N T

The following judgment of the Court was delivered :

J U D G M E N T

B.P.JEEVAN REDDY, J.

A simple measure by the State of Utter Pradesh has

invited the wrath of Article 301 read with 304 (a) of the

Constitution of India. Tow notifications were issued by the

Government of Utter Pradesh on December 1, 1973. The effect

of these two notifications was that exercise books made from

paper purchased within Uttar Pradesh were exempt from sales

tax whereas all other kinds of exercise books were liable to

sales tax @ 5%. The High Court dealt with three categories

of cases, (1) exercise books made from paper purchased

within Uttar Pradesh. [Sale of paper within Uttar Pradesh

attracted sale tax @ 5%.], (2) exercise books made outside

the State of Uttar Pradesh and brought into and sold in

Uttar Pradesh and (3) exercise books made in Uttar Pradesh

but out of the paper purchased from outside the State of

Uttar Pradesh. The High Court has held that insofar as the

second category is concerned, it is hit by Article 301 read

with Article 304 (a). So for as the third category is

concerned the High Court did not find fault with it. It

declared that "Notification No. 6624 insofar as it imposes

sales tax on the import of exercise books is violative of

Article 301 of the Constitution and is unenforceable". Since

There is no appeal by the dealer, we need nor consider the

question whether the decision of the High Court with respect

to third category is correct or not. We confine out

attention only to Category (2), i.e., exercise books made

outside the State of Utter Pradesh and brought into and sold

in Uttar Pradesh.

In our opinion, the High Court was right in holding

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3

that exempting the exercise books produced in the State and

subjecting the exercise books produced outside the State but

sold in Uttar Pradesh to Sales tax @ 5% is discriminatory

and, therefore, offends clause (a) of Article 304. The

decision of this Court in Firm A.T.M. Mehtab Majid & Co. V.

State of Madras [1963 suppl. (2) S.C.R. 435] clearly governs

the issue. The said decision considered a situation where

the State of madras subjected the Tanned Hides and skins

imported from outside the state of Madras and sold within

the State of madras to a Higher rate of Tax than the tax

imposed on hides or skins tanned and sod within the State.

[It had also subjected the hides or skins imported from

outside the State after purchase in their raw condition and

then tanned inside the State to a higher rate of Tax than

the hides or skins purchased in raw condition in the State

and tanned in the State] the following holding in the said

decision is relevant:

"It is therefore now well settled

that taxing law 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. Sales tax, of

the kind under consideration hare,

cannot be said to be a measure

regulating any trade or a

compensatory tax levied for the use

of trading facilities. Sale 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 valid only if it

comes within the terms of Art. 304

(a).

Article 304 (a) enables the

Legislature of a State to make laws

affecting trade, commerce or

intercourse. It enable the

imposition of taxes on good from

other States if similar goods in

the State are subjected to similiar

taxes, so as not to discriminate

between the goods manufactured or

produced in that State and the

goods which are imported from other

States. This means that if the

effect of the sale-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 discriminatory and

unconstitutional and must be struck

down."

Clause (a) of Article 304 has recently been considered

in Shree Mahavir Oil Mills & Anr. V. state of Jammu &

Kashmir [JT. (1996) 10 S.C. 837] wherein it was pointed out

that clause (a) of Article 304 "though worded in positive

language has a negative aspect. It is, in truth, a provision

prohibiting discrimination against the imported goods. In

the Matter of levy of tax- and this is important to bear in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3

mind - the clause tells the State Legislatures: 'tax you may

the goods imported from other States/Union Territories, but

do not, in that process, discriminate against them vis-a-vis

goods manufactured locally'. In short, the clause says: levy

of tax on both ought to be at the same rate. This was and is

a ringing declaration against the States creating what may

be called "tax barriers' - or 'fiscal barriers', as they may

be called - at or along their boundaries, in the interest of

freedom of trade, commerce and intercourse throughout the

territory of India guaranteed by Article 301." Once the

discrimination is made out, the enquiry by court ends. The

price structure of the imported good vis-a-vis the locally

manufactured goods or the economics of the importer need not

be gone into.

The appeal is accordingly dismissed. No order as to

costs.