- Bookmark
- Share
- CaseIQ
M. Abdul Samad Saheb... v. Commercial Tax Offic...
Factual and Procedural Background
The petitioners are dealers in hides and skins who challenged the vires of entry 9(b) of Schedule III of the Andhra Pradesh General Sales Tax Act. Their contention was that entry 9(b) discriminates between hides and skins imported from other States and similar goods manufactured or produced in Andhra Pradesh, thereby contravening Article 304(a) of the Constitution. The statutory framework referenced in the opinion includes: (i) the Central Sales Tax Act definition of "declared goods" (Section 2(c)) and Section 14(iii) which declares "hides and skins" as goods of special importance in inter-State trade; and (ii) Section 6 of the Andhra Pradesh General Sales Tax Act which makes sales or purchases of declared goods liable to tax at the rate and at the point of sale or purchase specified in the Third Schedule. The opinion describes how Entry 9(a) and 9(b) in the Third Schedule operate with respect to untanned and tanned hides and skins and sets out the procedural outcome: the writ petitions were dismissed.
Legal Issues Presented
- Whether entry 9(b) of Schedule III of the Andhra Pradesh General Sales Tax Act discriminates between goods imported from other States and similar goods manufactured or produced in Andhra Pradesh, thereby contravening Article 304(a) of the Constitution.
- Whether the manner of fixing the point and base of taxation (taxing untanned hides at the point of purchase within the State versus taxing tanned hides imported from outside on their tanned value) gives rise to an impermissible discrimination contrary to Article 304(a), despite the tax rate being the same.
Arguments of the Parties
Petitioners' Arguments
- Entry 9(b) results in discrimination because it taxes tanned hides and skins imported from outside the State on the higher value of tanned hides (the value after tanning), whereas hides and skins tanned within the State are effectively taxed (where applicable) on the lower value of untanned hides and skins at the relevant point.
- Because the difference in value between untanned and tanned hides and skins is substantial, the tax burden on imported tanned hides and skins is far greater in quantum, producing discriminatory treatment contrary to Article 304(a) of the Constitution.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Firm A. T. B. Mehtab Majid & Co. v. State of Madras [1963] Supp. 2 S.C.R. 435 (also reported 14 S.T.C. 355) | Struck down a Madras rule (Rule 16) as offending Article 304(a) where a proviso caused tanned hides tanned within the State to escape a second levy while imported tanned hides remained taxable — resulting in discriminatory impact despite identical statutory language and identical rates. | The court recorded that this case supported the petitioners' contention that a provision producing heavier tax impact on imported tanned hides (by taxing on tanned value rather than untanned value) could be invalid under Article 304(a). The present court noted that entry 9(b) "appears to us to offend Article 304(a) ... in the light of what was said" in this case, but ultimately treated the precedent in the context of later Supreme Court rulings. |
| State of Madras v. Nataraja Mudaliar, A.I.R. 1969 S.C. 147 | Distinguished the earlier Mehtab Majid decision; articulated the principle that Article 304(a) prohibits imposition of differential rates of tax on similar imported and local goods, but does not apply where the taxing State applies the same rate even though the resulting quantum may differ (for example, because of differences in value). | The court treated this decision as a later authoritative refinement binding on it: it stressed that where the rate is the same Article 304(a) has no application. This principle led the court to uphold entry 9(b) despite the Mehtab Majid decision. |
| Rattan Lal and Co. v. Assessing Authority [1970] 25 S.T.C. 136 (S.C.) | Reiterated the principle (quoted from Nataraja Mudaliar) that Article 304(a) is concerned with differential rates of tax; if the rate is the same, Article 304(a) is not offended merely because ad valorem application produces a higher quantum in a particular case. | The court relied on this reiteration to conclude that the same-rate principle constrained striking down entry 9(b): the tax under the Andhra Pradesh provision is at the same rate and hence, per Rattan Lal, not within Article 304(a)'s prohibition. |
| Associated Tanners v. Commercial Tax Officer [1968] 22 S.T.C. 376 (S.C.) | Considered to be influenced by the Mehtab Majid decision, but the judges noted a subsequent shift in the Supreme Court's approach in later decisions and indicated that they were bound by the later judgments. | The present court cited this case to show that courts had noted a shift in Supreme Court doctrine and that lower courts are bound by the later pronouncements; this reinforced the court's decision to follow the later line of authority upholding same-rate treatments. |
Court's Reasoning and Analysis
The court proceeded through a focused legal analysis grounded in the statutory scheme and Supreme Court precedents reproduced in the opinion:
- Statutory context: The court explained that "declared goods" under the Central Sales Tax Act include hides and skins; Section 6 of the Andhra Pradesh Act delegates tax liability for declared goods to the Third Schedule. Entry 9 of the Third Schedule distinguishes taxation points for untanned hides (entry 9(a)) and tanned hides (entry 9(b)).
- Nature of the alleged discrimination: The court accepted the petitioners' factual premise that in practical operation untanned hides (if taxed within the State at the point of purchase by a tanner) are assessed on the lower untanned value, whereas tanned hides imported into the State are taxed on the higher tanned value — producing a much larger tax quantum on imported tanned hides even though the statutory rate is identical.
- Comparison with precedent (Mehtab Majid): The court acknowledged that in Firm A.T.B. Mehtab Majid the Supreme Court struck down a Madras rule because a proviso produced discriminatory treatment between tanned hides tanned within the State and those tanned outside, concluding that Article 304(a) was offended. In that decision the Court had observed that, although the statutory rate was the same, the quantum differed significantly because of value disparity, and the proviso caused the discrimination.
- Effect of later Supreme Court decisions: The court recognized that subsequent Supreme Court authorities (notably State of Madras v. Nataraja Mudaliar and Rattan Lal and Co.) refined the test under Article 304(a), emphasizing that the clause prohibits imposition of differential rates of tax by the same State on similar local and imported goods; but where the taxing State imposes the same rate on both, Article 304(a) does not apply merely because the ad valorem application yields a higher resulting tax quantum in particular circumstances.
- Precedential hierarchy and binding effect: The court noted the shift in Supreme Court doctrine and the obligation on lower courts to follow the later authoritative pronouncements. It observed that Associated Tanners and other authorities indicated a movement in the Supreme Court's approach, and concluded that it was bound by those later decisions.
- Balancing the precedents: Although entry 9(b) "appears to us to offend Article 304(a) ... in the light of what was said by the Supreme Court in Firm A.T.B. Mehtab Majid and Co.," the court explained that the later decisions changed the controlling principle — focusing on differences in rate rather than differences in resulting quantum — and therefore compelled a different outcome.
- Conclusion driven by the rate-based principle: Because the tax rate under the Andhra Pradesh provision was the same for the relevant classes of goods, the court held that Article 304(a) did not apply to invalidate entry 9(b) in light of the later Supreme Court authority. Consequently, the court upheld the validity of entry 9(b) and dismissed the writ petitions.
Holding and Implications
Holding: The writ petitions were dismissed and entry 9(b) of the Third Schedule of the Andhra Pradesh General Sales Tax Act was upheld.
The direct consequences ordered by the court were: dismissal of the writ petitions, no costs awarded, and an advocate's fee of Rs. 100 in each petition.
Implications: The court explained that although an earlier Supreme Court decision (Firm A.T.B. Mehtab Majid & Co.) had struck down a similar provision for discriminating in effect between local and imported tanned hides, later Supreme Court authorities refined the applicable principle under Article 304(a) to focus on differential rates rather than differential quantums resulting from ad valorem application. Because the taxing rate in the Andhra Pradesh provision was the same, the court treated the later Supreme Court pronouncements as controlling and therefore upheld entry 9(b). The opinion indicates no new precedent was created by this decision and confines its effect to upholding the validity of the provision in question and dismissing the petitions without costs.
1. The petitioners are dealers in hides and skins. They question the vires of entry 9(b) of Schedule III of the Andhra Pradesh General Sales Tax Act on the ground that it has the effect of discriminating between goods imported from other States and similar goods manufactured and produced in Andhra Pradesh, thereby contravening Article 304(a) of the Constitution of India.
2. Section 2(c) of the Central Sales Tax Act defines "declared goods" as meaning "goods declared under Section 14 to be of special importance in inter-State trade or commerce". Section 14(iii) is "hides and skins, whether in a raw or dressed state". Section 6 of the Andhra Pradesh General Sales Tax Act provides that sales or purchases of declared goods shall be liable to tax at the rate and at the point of sale or purchase specified in the Third Schedule. Entry 9 of the Third Schedule is as follows :
3. In the case of untanned hides and skins purchased by a tanner in the State, under entry 9(a) goods would be liable to be taxed at the point of purchase by the tanner. If after tanning, the tanned hides and skins are purchased by a manufacturer, such tanned hides and skins would be exempt from tax under entry 9(b), since they would already be subjected to tax under entry 9(a). In the case of hides and skins tanned outside the State and imported by a manufacturer such tanned hides and skins would be liable to be taxed under entry 9(b). Thus in the case of hides and skins tanned within the State, tax liability at the relevant point would be on the value of the untanned hides and skins while in the case of hides and skins tanned outside the State and imported into the State, tax liability at the relevant point would be on the value of tanned hides and skins. The difference in value of untanned and tanned hides and skins being enormous, the difference in tax liability would also be vast. There would thus be discrimination. This was the argument of the learned counsel for the petitioners. This was precisely the argument which was accepted by the Supreme Court in Firm A. T. B. Mehtab Majid & Co. v. State of Madras [1963] Supp. 2 S.C.R. 435, There the Supreme Court considered Rule 16 of the Madras General Sales Tax (Turnover and Assessment) Rules, 1939. Rule 16(1) provided for the levy of tax on the sale of raw hides and skins from the last purchaser in the State. Rule 16(2)(i) provided for the levy of tax on the sale of hides and skins tanned outside the State. Rule 16(2)(ii) provided for the levy of tax on hides and skins tanned within the State. There was a proviso to Rule 16(2)(ii), which provided that if tax was levied under Sub-rule (1) on untanned hides and skins, the tanned hides and skins would not be liable to tax. Though Rule 16(2)(i) and 16(2)(ii) without the proviso were in identical terms and did not effect any discrimination between hides and skins tanned outside the State and hides and skins tanned within the State, the effect of the proviso was to discriminate between the two classes of tanned hides and skins. Though the rate of tax was the same, the quantum would be different since that was dependent on the value of the hides and skins. In the case of hides and skins tanned within the State, tax would be paid on the value of the untanned hides and skins, while in the case of hides and skins tanned outside the State, tax would be paid on the value of the tanned hides and skins. The Supreme Court struck down the rule as offending Article 304(a) of the Constitution. The Supreme Court noticed that while Clauses (i) and (ii) of Rule 16(2) were in identical terms, the discrimination came in on account of the proviso to Sub-clause (ii). The Supreme Court observed :
The proviso is to the effect that if the dealer of hides or skins which had been tanned within the State proves that tax had already been levied on those hides or skins in their raw condition, in accordance with Sub-rule (1), he will not be liable to the tax under Sub-clause (ii) of Sub-rule (2). The result therefore is that the sale of hides or skins which had been purchased in the State and then tanned 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 quantum of tax had been the same, there might have been no case for grievance 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 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 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 imported the hides and skins from outside, and having not therefore paid any tax under ub-rule (1). It is true that dealers, though few, selling hides and skins which had been tanned within the State, will also have to pay similar tax if no tax had been paid previously, they having not purchased the raw hides and skins at all as they were from the carcasses of animals owned by them; but this does not affect the discriminatory nature of the tax as already indicated.
4. The head-note of the case as reported in the Supreme Court Reports does not appear to have clearly brought out the point decided by the Supreme Court. The relevant portion of the head-note is as follows:
The main contention of the petitioners is that the tanned hides and skins imported from outside and sold inside the State are, under Rule 16 of the Madras General Sales Tax Rules, subject to a higher rate of tax than the tax imposed on hides and skins tanned and sold within the State and this discriminatory taxation offended Article 304(a) of the Constitution....Rule 16(2) discriminates against the imported hides or skins which bad been purchased or tanned outside and therefore it contravenes Article 304(a) of the Constitution.
5. The head-note gives the impression that the Supreme Court had declared Rule 16(2) ultra vires because hides and skins tanned outside the State and hides and skins tanned within the State were taxed at different rates, whereas the Supreme Court expressly pointed out that the rate of tax was the same though the quantum was different on account of the disparity in the price of raw hides and skins and tanned hides and skins.
6. The question became complicated by the decision of the Supreme Court in State of Madras v. Nataraja Mudaliar A.I.R. 1969 S.C. 147. In this case, the Supreme Court distinguished its earlier decision in Firm A. T. B. Mehtab Majid and Co. v. State of Madras [1963] Supp 2 S.C.R. 435, on the ground that the earlier case [1963] Supp 2 S.C.R. 435, dealt with a levy of tax on sales of tanned hides and skins imported from outside the State at a rate higher than the rate of tax on sales of hides and skins tanned and sold within the State. The Supreme Court did not appear to notice the observations in the earlier case [1963] Supp 2 S.C.R. 435, that there was no difference between Rule 16(2)(i) and Rule 16(2)(ii) and that it was the proviso that effected the discrimination. The Supreme Court also did not notice that in the earlier case [1963] Supp 2 S.C.R. 435, there was an express reference to the fact that the rates of tax were the same though the impact was heavier in one case than in the other because of the disparity in the value of tanned and untanned hides and skins. This was what the Supreme Court said in the latter case A.I.R. 1969 S.C. 147 :
The view taken by the High Court was largely influenced by two cases decided by this court on the interpretation of Article 304(a). In Firm A. T. B. Mehtab Majid and Co's case [1963] Supp 2 S.C.R. 435, this court struck down the levy of tax on sales of tanned hides and skins imported from outside the State of Madras at a rate higher than the rate of tax on sales of hides and skins tanned and sold within the State of Madras as infringing Article 304(a). By Rule 16 framed under Section 19 of the Madras General Sales Tax Act, it was provided that in the case of untanned hides and skins the tax under Section 3(1) of the Madras General Sales Tax Act shall be levied from the dealer who is the last purchaser in the State not exempt from tax under Section 3(3) on the amount for which they are bought by him. By Rule 16(2) it was provided that -- (i) in the case of hides or skins which had been tanned outside the State the tax under Section 3(1) shall be levied from the dealer who in the State is the first dealer in such hides or skins not exempt from tax under Section 3(3) on the amount for which they are sold by him; and (ii) in the case of tanned hides or skins which had been tanned within the State, the tax under Section 3(1) shall be levied from a person who is the first dealer in such hides or skins not exempt from tax under Section 3(3) on the amount for which they are sold by him. The taxpayer contended in Firm A. T. B. Mehtab Majid's case [1963] Supp 2 S.C.R. 435, that the tanned hides and skins imported from outside and sold inside the State were under Rule 16 of the Madras General Sales Tax Rules subjected to a higher rate of tax than the rate imposed on hides and skins tanned and sold within the State and this discriminatory system of taxation offended Article 304(a) ofthe Constitution. This court accepted the contention and held that Rule 16(2) discriminated against imported hides or skins which had been purchased or tanned outside and, therefore, it contravened Article 304(a) of the Constitution.
7. Later, the Supreme Court laid down the principle to be applied in the following way :
Imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State is prohibited by that clause. But where the taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, Article 304(a) has no application.
8. This principle was reiterated by the Supreme Court in Rattan Lal and Co. v. Assessing Authority [1970] 25 S.T.C. 136 (S.C.), where Hidayatullah, C. J., observed as follows :
It is also urged in this connection that there is a discrimination between the imported goods and local goods. It is said that the discrimination is also between the first purchase in the case of imported goods and last sale in the case of local goods. Since the imported goods might be more expensive by reason of freight, etc., or intermediary sales having taken place, it is said that the burden of tax will be heavier and therefore this will offend against the equality clause and Article 304 of the Constitution. In our opinion, this argument is without any substance. The rate of tax is the same in every case. In State of Madras v. N. K. Nataraja Mudaliar [1974] 33 S.T.C. 588, this court stated that the essence of Articles 301 and 303 is to enable the State by a law to 'impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in that State areject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced'. It was pointed out by this court that 'imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State is prohibited by that clause. But where the taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, Article 304(a) has no application'.
Here also the tax is at the same rate and therefore the tax cannot be said to be higher in the case of imported goods. It may be that when the rate is applied the resulting tax is somewhat higher but that does not offend against the equality contemplated by Article 304. That is the consequence of ad valorem tax being levied at a particular rate. So long as the rate is the same Article 304 is satisfied.
9. In Associated Tanners v. Commercial Tax Officer [1968] 22 S.T.C. 376 (S.C.), Gopal Rao Ekbote, C. J., and Chennakesav Reddy, J., while observing that the case appeared to be covered by the decision of the Supreme Court in Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] 14 S.T.C. 355 (S.C.), held that the Supreme Court appeared to have struck a new note in the cases of State of Madras v. Nataraja Mudaliar [1974] 33 S.T.C. 588, and Rattan Lal and Co. v. Assessing Authority [1970] 25 S.T.C. 136 (S.C.), and that they were bound to follow the later judgments of the Supreme Court. We also feel the same way. Entry 9(b) appears to us to offend Article 304(a) of the Constitution in the light of what was said by the Supreme Court in Firm A. T. B. Mehtab Majid and Co. v. State of Madras [1963] 14 S.T.C. 355 (S.C.). But, in the light of the principles laid down in the two later cases by which also we are bound, we have to uphold the validity of entry 9(b). The writ petitions are, therefore, dismissed, but in the circumstances without costs. Advocate's fee Rs. 100 in each.
Alert