1. T. C. No. 90 of 1963 arises out of the sales tax assessment for the year 1953-54. The petitioners are dealers in hides and skins carrying on their dealings as agents of both resident and non-resident principals. A turnover of Rs. 7,54,421 covered by sales on behalf of non-resident principals and non-licensees and partly not covered by licence, was taxed at 3 pies in the rupee. In respect of a turnover of Rs. 18,94,000 and odd, covered by licence for part of the period, a licence fee alone was levied. This assessment was taken up in appeal. Ultimately, before the Sales Tax Appellate Tribunal, the petitioners contended that as no licence was issued under Section 5 of the Act, the entire turnover was not assessable according to a decision of this Court in W.P. No. 13 of 1954. This decision was later reversed by the Supreme Court, and following upon that, there was a remand of the case to the Tribunal. Before the Tribunal, various contentions were advanced. It was urged that the assessment is wholly invalid as the petitioners, being non-licensees, had effected sales to licensed dealers, and that unless both the seller and the purchaser are licensed dealers, the relevant taxing provision will not apply. It was also contended that the petitioners had applied for licences both under Section 5 and Section 8, and having satisfied all the requisite conditions, they should not be taxed, though their applications had not been complied with. The third contention was that in so far as the resident principals are concerned, they were all licensees who had paid the tax and, therefore, the petitioners, though non-licensees, could not be taxed once again in respect of the same transactions. These contentions failed before the Tribunal. The petitioners have now filed this revision petition challenging the order of the Tribunal. The contention advanced here in this regard is that Rule 16 cannot be applied to this case. Reliance was principally placed upon the fact that Rule 16(2)(ii) of the Turnover and Assessment Rules, as amended in 1955, had been struck down as invalid by the Supreme Court, and it is claimed that an assessment made under Rule 16 as it stood even prior to the amendment is equally invalid. It is further alleged that the petitioners should in fact be regarded as operating under cover of a licence issued under Section 5 for their applications had been duly made and the benefit arising from such licence should have been extended to them.

2. T.C. Nos. 48 of 1963 and 89 of 1963 relate to the assessment year 1954-55. Though the petitioners are different, the points raised are identical. In T.C. No. 48 of 1963, the petitioner had no licence of any kind, whether under Section 5 or under Section 8 of the Madras Sales Tax Act. In T.C. No. 89 of 1963, the petitioner had under Section 8 licence for the whole year. The contentions in these petitions are more or less similar to those advanced in the other petition. In the course of the arguments, however, the contentions took a somewhat different form. They raised the invalidity of the taxing provision in the light of Article 304 of the Constitution ; that is to say, in general, it was the reliance upon the discriminatory treatment in the matter of taxation of sales of goods brought from outside the State that formed the burden of the arguments by the learned counsel.

3. Under the Madras General Sales Tax Act, every dealer in goods is liable to pay tax on his total turnover for the year. The definition of turnover need not detain us. During the relevant years under Section 5 of the Act, the sales of hides and skins were made liable to tax only at such single point in the series of sales by successive dealers as may be prescribed. The rules relating to turnover and assessment provided that in the case of untanned hides and skins bought by a licensed dealer in the State, the gross turnover shall be the amount for which the goods were bought by the dealer, and in the case of untanned hides and skins exported outside the State by a licensed dealer in hides and skins, it shall also be the amount for which the goods were bought by the dealer. These were the rules as they stood during the years of assessment. Rule 16(1) provided that in the case of hides and skins the tax payable under Section 3(1) shall be levied in accordance with the provisions of that rule. Under Sub-rule (2), no tax was leviable on the sale of untanned hides and skins by a licensed dealer except at the stage where such hides and skins are sold to a tanner in the State, or are sold for export outside the State. The subsequent parts of the rule specified the person liable to tax in the case of either of those transactions and the amount on which the tax is to be levied. In the case of sales by licensed dealers of hides and skins which had been tanned within the State, their sales were made exempt from taxation provided the hides and skins had been tanned in a tannery which had paid the tax leviable under the Act, that is to say, on the amount for which they had been bought by the tanner. In the case of sales of hides and skins which had been tanned outside the State or had been tanned in a tannery which is exempt under Section 3(3) such sales were exempt from tax except at the stage of sale by the dealer who is the first dealer who sells them within the State, and in such an event the tax was made leviable on the amount for which he sells such hides and skins. These goods were also governed by the general exemption, that is to say, no dealer whose turnover was not above a particular figure was liable to pay tax. It would be noticed from the above set of rules that while sales of untanned hides and skins were liable to tax on their purchase value, when the skins were tanned within the State, the tannery being made liable to pay the tax on such purchase value, in the case of hides and skins which were not so tanned inside the State, the tax could not be levied from the tannery, and accordingly the relevant rule provided that the tax shall be on the sale value of the tanned hides and skins by the first dealer in the State not exempt by reason of the upper limit of the turnover. This rule was amended with effect from 1st April, 1955, but substantially the same result, that is to say, the liability to tax on the sale value of the tanned hides and skins in the case of hides and skins which had been tanned outside the State, was maintained by the amended rule.

4. We shall briefly refer to the changes which the relevant rule has undergone in order to appreciate the point in controversy and the applicability of the decisions bearing on the point. Rule 16 of the Turnover and Assessment Rules provided for the manner of taxation of hides and skins, that is to say, the computation of tax leviable under Section 3(1) of the Act. The broad basis of taxation has been set out above. Sub-rule (5) originally made the sales of hides and skins by dealers other than licensed dealers liable to taxation on each occasion of sale. The question arose whether this sub-rule was inconsistent with Section 5(vi) of the Act, which provided that the sale of hides and skins, whether tanned or untanned, shall be liable to tax only at such single point in the series of sales by successive dealers as may be prescribed. In V. M. Syed Mohammad and Company v. State of Madras [1952] 3 S.T.C. 367, this sub-rule was held to be ultra vires of the Act. The actual decision in that case was approved by the Supreme Court in V. M. Syed Mohammad and Company v. State of Andhra [1954] 5 S.T.C. 108, but their Lordships of the Supreme Court pointed out that in that decision the repugnancy of the rule was not in controversy before them and that the Court did not pronounce its opinion upon the merits of the case. That decision was explained by the Supreme Court in State of Madras v. Noor Mohammed and Company [1960] 11 S.T.C. 570. On the consideration of the relevant provisions and the rules, their Lordships pointed out that the general rule is taxation at multiple points on the total turnover of a dealer, but in the case of certain specified articles, a departure has been made and tax at a single point is leviable, provided certain conditions and restrictions as to licences, which are envisaged in Section 5 and laid down in the rules, are complied with, and that Rule 16(5) of the Turnover and Assessment Rules is not ultra vires of the Act. But, before this Sub-rule (5) was rehabilitated by this decision, the State of Madras had deleted that sub-rule by G.O. No. 450, Revenue, dated 26th February, 1954. The remaining sub-rules were also amended by G.O. No. 2733, Revenue, dated 3rd September, 1955, and these rules came into force on the 1st April, 1955. For the assessment years which we are concerned with in these cases, the effect of the relevant rule was that in the case of hides and skins which were not tanned within the State, the tax not being leviable from the tanner who purchased them, the sale of the tanned hides was made taxable by the first dealer in the State not exempt from taxation under Section 3(3).

5. It is common ground that the relevant rule of the Madras General Sales Tax Rules made it compulsory on all dealers in hides and skins to take out licences with effect from 1st April, 1955. But that rule will not apply for the assessment years in question which are prior to the amendment of that rule. The question, therefore, is whether the liability to tax on the sale value of the tanned hides and skins when the hides and skins are not tanned within the State is repugnant to Article 304.

6. The question came to be considered in Abdul Subhan and Company v. State of Madras [1960] 11 S.T.C. 173. It was contended that there is a discrimination in the matter of the sale of tanned hides and skins between the goods that are tanned within the State and those that are tanned outside the State and brought into the State, the tax on the former being less than on the latter. It was argued that since a tanned skin costs more than an untanned skin, in respect of skins tanned in the State, a dealer would be liable to tax only on the basis of the purchase price of the raw skins, while in regard to skins tanned outside the State and brought into and sold within the State, a dealer would be bound to pay tax on the sale value of the tanned goods, which would be 70 per cent, more than the price in its raw condition. It was also pointed out that even with regard to skins tanned in the State, there would be a difference in the tax between a case where the raw skin is purchased inside the State, and where it is purchased outside the State : while in the former case, the tax would be on the purchase price, in the latter, since no tax was paid on the raw skins at the time of the purchase, the liability would be on the sale of tanned skins,which would be higher. The contention was advanced that this was repugnant to Article 304 of the Constitution. This Court held that having regard to the object of Articles 301 and 304, the State could have no discriminatory power of taxation ; nevertheless, Rule 16 was based on the principle of a single point levy of tax on tanned and untanned skins, which constitute only one class of goods, and prescribes the points for the levy according to the circumstances in which the sale may take place in the State ; but as the difference in the mode of taxation was not on any principle relevant to the origin of the goods, the contention that the rule infringed upon the freedom guaranteed by Article 304 had no force.

7. This decision was not however accepted by the Supreme Court in Firm A. T.B. Mehtab Majid & Co. v. The State of Madras [1963] 14 S.T.C. 355. Their Lordships considered the previous decisions bearing on the scope of Articles 301 and 304 and made particular reference to Atiabari Tea Company Limited v. State of Assam [1961] 1 S.C.R. 809 and Automobile Transport (Rajasthan) v. State of Rajasthan A.I.R. 1962 S.C. 1406. They drew a distinction between regulatory measures and compensatory taxes which do not impede the freedom of trade, commerce and intercourse, on the one hand, and taxes which have the effect of discriminating between goods of one State and goods of another, on the other. They observe at page 36O (14 S.T.C. 355) :

Article 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 produced 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 (2) of Rule 16 of the Rules, then the tax is discriminatory and unconstitutional and must be struck down.

Later they say at pages 361 and 362 :

Clause (i) of Sub-rule (2) provides for the levying of tax on the sale of hides and skins which had been tanned outside the State. The tax is levied from the dealer who, in the State, is the first seller of such hides or skins. The result is that a dealer in hides or skins which have been tanned outside the State has to pay the tax on the amount for which such hides or skins are sold by him. Clause (ii) of this sub-rule is in identical terms with respect to the sale of tanned hides or skins which have been tanned within the State. The tax is to be levied from the person who is the first dealer in such hides or skins and is levied on the amount for which they are sold. The discrimination, it is argued, comes in on account of the proviso to this Sub-clause (ii). 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 there fore 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 Sub-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.

It was accordingly held that such a provision as indicated above was discriminatory in its nature and contravened Article 304(a) of the Constitution. Their Lordships also repelled the further contention of the State that hides and skins which had been tanned within the State and on which tax had been paid earlier in their raw condition should be regarded as goods different from hides and skins which had been tanned outside the State. They point out that at the time of the sale of those hides and skins, there was no difference between them as goods, and that the similarity contemplated by Article 304(a) is in the nature of the quality and kind of goods and not with respect to whether they had been subject to a tax already or not.

8. Considerable reliance has been placed upon this decision by Mr. Abdul Kareem, learned counsel for the assessees. Another decision referred to by the learned counsel is one of the Madhya Bharat High Court in Mohammed Siddiq v. Madhya Bharat State A.I.R 1956 M.B. 214. In this case, the petitioners carried on the business of sale and purchase of pugris at Indore. These pugris had been manufactured outside the State. The State of Madhya Bharat had exempted similar goods manufactured on handlooms in Madhya Bharat from sales tax by a notification. In the case of sales of pugris manufactured outside the State, the Sales Tax Officer held such sales to be liable under the sales tax law. The contention advanced was that in view of the exemption referred to, pugris manufactured by a similar process, though outside the State cannot be subjected to tax, as that would be in violation of Article 304. Now, it appears that the notification granting exemption covered all hand-loom cloth manufactured in certain districts of Madhya Bharat, and it was urged before the learned Judges that since the goods manufactured by similar process in other districts of the State were subject to tax, it could not be said that imported goods alone were discriminated against. This contention was not however accepted. The learned Judges took the view that there was discrimination against the goods imported from outside the State. They observed that the taxing power of the State is only valid so long as it does not work discrimination against similar goods coming from other States and that the moment it begins to work discrimination, the taxing power is rendered invalid to the extent of the discrimination. They discounted the further argument that, if at all, it was the exemption that was invalid and not the law imposing sales tax.

9. All of these decisions were again considered in The State of Madhya Pradesh v. Bhailal Bhai [1964] 15 S.T.C. 450. In that case, the Madhya Bharat Government by a notification subjected to tax tobacco of different varieties at a certain rate at the point of sale by the importer in Madhya Bharat. This notification was challenged as unconstitutional and the High Court upheld that contention. On appeal by the State, their Lordships of the Supreme Court pointed out that though the tax was laid on the incidence of sale in Madhya Bharat and not on the import itself, imported tobacco was subjected to a tax while the local tobacco was free of it; the trade and commerce between Madhya Bharat and the other parts of India was directly impeded by the tax and it was, therefore, in contravention of Article 304(a). It is not necessary to refer to the further details of that decision.

10. Mr. Ramanujam, for the department, argues that since the petitioners in these cases are unlicensed dealers, the taxation in their cases is not under the rule but is the direct result of Section 3 of the Act read with Rule 4 of the Turnover and Assessment Rules. Section 3 is the general charging section. It has already been pointed out that the liability to tax on an unlicensed dealer at more than one point even in respect of goods for which a single point has been specified is dependent upon the compliance with certain conditions, one of such conditions being the taking out of a licence under Section 5 of the Act. The Supreme Court in the decision referred to earlier, State of Madras v. Noor Mohammad and Company [1960] 11 S.T.C. 570, has held that the single point taxation cannot be availed of by a dealer who does not comply with the conditions and that taxation in such cases at multiple points is not repugnant to the law. Basing himself upon this decision, Mr. Ramanujam urges that in the present case, the taxation is under the general charging section, which makes no distinction between the goods liable to tax at single point and those liable to tax at multiple points. His further contention is that under Rule 4 of the Turnover and Assessment Rules, it is only untanned hides and skins bought by a licensed dealer in the State which are taxable on the amount for which the goods were bought. If the dealer is not a licensed dealer, then Rule 4(1) states that the gross turnover of a dealer shall be the amount for which the goods are sold by the dealer. In the case of a dealer who imports raw hides and skins from outside the State and tans them inside the State and who is also not a licensed dealer, the result would be that the turnover would be only the sale value of the goods, that is, the sale value of the tanned hides and skins. On this reasoning he contends that the tax imposed in these cases of unlicensed dealers is not on the basis of Rule 16 at all but directly on the application of Section 3. We are however unable to agree that the matter can be looked at in that manner. There is no doubt that though Section 3 is the general charging section, it requires the tax to be imposed on the total turnover, which itself has to be computed in accordance with the prescribed rules. It is impossible to levy the tax except by reference to Rule 16. Though an unlicensed dealer might be subject to multiple taxation, and he cannot complain against being taxed more than once, the point in issue in the present case is different, namely, whether the levy of tax on the sale value of the goods has the effect of discriminating against goods which have been imported into this State and for that reason offends another principle of the Constitution. Mr. Ramanujam also concedes that the rule being a pre-Constitution measure will have to conform to Section 297 of the Government of India Act, 1935, which contains substantially the same bar against discrimination as Article 304, and looked at in this manner, Mr. Ramanujam is unable to contend successfully that the taint of discrimination is not attracted in these cases.

11. Mr. Ramanujam, for the State, refers to the State of Madhya Pradesh v. Abdeali [1962] 13 S.T.C. 931, and suggests that the Madhya Bharat decision referred to cannot be said to have been rightly decided, in the light of the observations of the Supreme Court in the above decision. In this case, a dealer who carried on the business of importing and selling different types of footwear in the State of Madhya Pradesh was assessed to sales tax. Under the relevant provisions of the State's tax law, the State granted an exemption in respect of certain sales of footwear, that is to say, in the case of sale by the manufacturer or any member of his family, the sale being of shoes, chappals, country shoes and footwear which were hand-made and which were not manufactured on power machine and whose sale price did not exceed Rs. 12-8-0. It would be noticed that the notification made no distinction between locally manufactured goods or goods imported from outside the State and the dealer relied upon this notification in exemption of his sales. The High Court quashed the assessment on the ground that the notification had to be read in consonance with the provisions of Article 304, and if so read, the exemption applied equally to handmade shoes, chappals, etc., whether made within or outside the State, if the other conditions mentioned in the notification were satisfied. The matter went to the Supreme Court on appeal by the State. Their Lordships observed that three conditions were required for the grant of the exemption. One was, the article should have been handmade, the second that the sale price should not exceed a particular figure, and the third that the sale must be by the manufacturer or any member of his family. The notification made it clear that the taxable event was the sale by the importer or the manufacturer in that State. They observed that the notification could not have reference to a sale outside the State. They disagreed with the High Court that it made no difference whether the sale was by the manufacturer within the State directly to the purchaser, or whether the sale was by the manufacturer outside the State to the importer, who then sold the shoes to the purchaser in the State. On the merits, therefore, they found that the interpretation placed upon the notification by the High Court was not correct. They also observed that the notification did not make any such discrimination between footwear manufactured or produced in the State and footwear imported from other States as is prohibited by Article 304(a). They based this conclusion on the fact that three conditions had to be fulfilled before the exemption could be granted, and that all the three conditions apply equally to the footwear manufactured or produced in the State and footwear imported from other States. In so far as the exemption by itself did not create any discrimination, it was held that there was no violation of the relevant article of the Constitution.

12. That however is decidedly not the case in the matter of taxation of tanned hides and skins, which has been amply dealt with by the Supreme Court in Firm A.T.B. Mehtab Majid Company v. State of Madras [1963] 14 S.T.C. 355.

13. Another decision of the Supreme Court in W.P. Nos. 201 to 203 of 1963, Haji Abdul Shukoor and Company v. State of Madras Since reported at [1964] 15 S.T.C. 719, may be usefully referred to. In that case, the petitioner purchased raw hides and skins from outside the State and tanned them within the State, and tax was imposed upon him on the sale value of the tanned hides and skins at the rates which were prevalent during the three assessment years in question, 1955-56, 1956-57, and 1958-59. In that case also, the validity of Rule 16 in so far as it contravened Article 304 of the Constitution was challenged. It would appear that following the decision of the Supreme Court in Firm A.T.B. Mehtab Majid and Company v. State of Madras 1, the Government of Madras promulgated an Ordinance, No. III of 1963. In due course, this Ordinance was followed by Act XI of 1963. Section 2(1) of the Act laid down that in respect of the sale of dressed hides and skins during the period 1st April, 1955, and 31st March, 1959, which were not subjected to tax as raw hides and skins, the tax shall be levied from the dealer, who in the State is the first dealer in such hides and skins at the rate of 2 per cent, on the amount for which such skins were last purchased in the untanned condition. The contention was that persons who had purchased raw hides and skins in 1955-56 and 1956-57 paid tax at 3 pies per rupee and paid no further tax when those hides and skins after being tanned were sold. Those who purchased raw hides and skins from outside the State did not pay tax at that rate on the purchase price, but were liable to pay tax at 2 per cent, on the amount for which the hides and skins were last purchased in an untanned condition. There was thus a difference in the rate of tax which worked to 7/1600th of a rupee. This was considered by their Lordships to operate discriminatively and to offend Article 304.

14. We are unable to agree with Mr. Ramanujam that any principle derived from this decision would assist the department's contentions in the present cases. It is true that different classes of goods can be taxed differently by the State, but the feature that vitiates the taxation in the present cases is that tanned hides and skins as one category has been taxed differently in the hands of the local tanner and in the hands of a person who imports them, either dressed or undressed, tans, and sells them. That that is discriminatory has been clearly laid down in Firm A.T.B. Mehtab Majid and Company v. State of Madras [1963] 14 S.T.C. 355 and re-affirmed in W.P. Nos. 201 to 203 of 1963, Since reported as Haji Abdul Shukoor & Co. v. State of Madras [1964] 15 S.T.C. 719.

15. It follows that the basis of taxation of the petitioners in regard to the sales of imported hides and skins being invalid, the assessments have to be set aside to that extent.

16. Mr. Kareem did not press his contentions with respect to the licences under Sections 5 and 8 of the Act.

17. The revisions are allowed to the extent indicated above. There will be no order as to costs.