JUDGMENT
V. Rengasamy, J. (Vice Chairman)
1. This original petition is for the declaration that portion of the notification, namely, “the dealer does not have any branch transfer or consignment transfer during the year” in G.O. Ms. No. 73, C.T. & R.E, dated March 5, 1997 and subsequent Notification No. 108, C.T. & R.E. dated April 7, 1998 is wrong, illegal, unconstitutional and is violative of Articles 301 and 304(a) of the Constitution of India. The petitioner is a manufacturer of staple fibre and polyester cone yarn in his units “A” and “B” of which unit “A” produces staple fibre yarn whereas unit “B” produces staple fibre yarn and also polyester cone yarn. G.O. Ms. No. 73, CT & RE, dated March 5, 1997 and the subsequent G.O. Ms. No. 108, CT & RE, dated April 7, 1998 provides concessional rate of sales tax at 2 per cent on the sales of staple fibre yarn provided the dealer does not have any branch transfer or consignment transfer during the year and the petitioner also paid tax only at 2 per cent on the sales of staple fibre yarn provided the dealer does not have any branch transfer or consignment transfer during the year and the petitioner also paid tax only at 2 per cent for the sales of staple fibre yarn, but from their “B” unit, there was stock transfer of polyester cone yarn and for that reason, the second respondent, Commercial Tax Officer has issued the notice for payment of the difference in the normal rate which is at 8 per cent alleging that the petitioner had effected stock transfer from unit “B” and they are not eligible for the concessional rate of tax provided under the abovesaid Government order. In view of this notice for the payment of the difference in tax which is at 6 per cent, the petitioner has come forward with this original petition contending that the condition, namely, that the dealer shall not make any branch transfer or consignment transfer during the year is violative of Articles 301 and 304(a) and therefore, such condition should be struck down.
2. The Government of Tamil Nadu, by virtue of the powers under Section 17(1) of the Tamil Nadu General Sales Tax Act, 1959 had issued the Notification G.O. Ms. No. 73, CT & RE, dated March 5, 1997 making a reduction of sales tax on all varieties of goods (a) man-made staple fibres, fibre yarn, filament yarn and waste of any of them, (b) jari of all kinds including metallic yarn, metallic jari yarn, polyester film and radiant yarn at 2 per cent subject to the condition that the dealer does not have any branch transfer or consignment transfer during the year. Subsequently, G.O. Ms. No. 95, CT & RE dated March 27, 1998 was issued omitting the concessional rate of tax for the first category of goods, namely, man-made staple fibres, fibre yarn, filament yarn and waste of any of them. However, the Government of Tamil Nadu felt that the omission of the goods, namely, man-made fibre yarn, etc., from the first Government order No. 73, dated March 5, 1997 was not proper and restored the concessional rate of tax even for those goods, namely, staple fibre, fibre yarn and issued G.O. Ms. No. 108, CT & RE, dated April 7, 1998 providing concession for man-made staple fibre, fibre yarn, filament yarn and waste of any of them also subject to the condition that the dealer shall not have any branch transfer or consignment transfer to outside the State during the year. This last G.O. dated April 1, 1998 restores the first G.O. Ms. No. 73, CT & RE, dated March 5, 1997 in full. Therefore, this petitioner availed benefit of concessional rate of tax for the staple fibre manufactured by them.
3. Even though in this original petition, the validity of the condition, namely, the dealer shall not have any branch transfer or consignment transfer during the year is challenged, in the affidavit, it is stated that the petitioner effected consignment transfer of only the polyester cone yarn manufactured in the “B” unit and this will not amount to violation of the condition mentioned in the Government order, as the restriction was only for the commodity, namely, staple fibre yarn for which the concessional rate of tax was given. It is the next ground of attack that the very condition in these Government orders is violative of articles of the Constitution. Before we proceed to consider the validity of the Government order, the factual position also requires proper consideration, because in the affidavit, the petitioner has questioned the propriety of the notice dated August 9, 1999 which calls upon the petitioner to pay the difference in the sales tax. On a reading of this notice, it reveals that the petitioner had despatched polyester staple fibre yarn by way of branch transfer and the check-post records of delivery prove that the staple fibre yarn to the value of Rs. 336.61 lakhs was despatched by branch transfer. Even though in the affidavit, the petitioner would contend that the staple fibre yarn was not despatched by branch transfer but only the polyester yarn was despatched, in this original petition, a roving enquiry cannot be made as to the nature of the goods despatched by the petitioner by consignment transfer. As the notice reads that from the check-post records of delivery note, the petitioner had made branch transfer of staple fibre yarn, that fact cannot be disputed in this original petition and as the branch transfer of staple fibre yarn is said to have been effected, it was violation and for the breach of the condition mentioned in the Government order for availing the concessional rate of tax at 2 per cent, naturally, the revenue is entitled to proceed to recover the difference in the tax. Therefore, on that ground alone, the respondent is entitled to recover the difference in the rate of tax.
4. The learned counsel for the petitioner Thiru K.J. Chandran contended that the condition in the Government orders, namely, the restriction of branch transfer and consignment transfer, is only in respect of the commodity to which concessional rate of tax was given but not with regard to the commodity manufactured by the assessee. He also has produced the clarification issued by the Commissioner of Commercial Taxes under Section 28-A of the TNGST Act in Acts Cell-II/D. Dis/69336/99 dated October 21, 1999, clarifying that the restriction of stock transfer or consignment sale of cotton yarn outside the State mentioned in G.O. Ms. No. 108, CT & RE, dated April 7, 1998 is applicable only to the man-made staple fibre yarn outside the State during the year, The Commissioner has interpreted the above Government order in such a way that for availing the concession, the manufacturer should not make stock transfer or consignment sale of staple fibre yarn outside the State during the year. But this interpretation made by the Commissioner in his clarification issued, is unacceptable and erroneous because the Government order specifically reads that the dealer who does not have any branch transfer or consignment transfer outside the State alone is entitled to the concessional rate of tax at 2 per cent. We are reproducing the Government order in full :
“In exercise of the powers conferred by Sub-section (1) of Section 17 of the Tamil Nadu General Sales Tax Act, 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu hereby makes a reduction in rate to two per cent in respect of the tax payable under the said Act on the sale of man-made staple fibres, fibre yarn, filament yarn and waste of any of them by any dealer who does not have any branch transfer or consignment transfer to outside the State during the year.”
The words “any dealer who does not have any branch transfer” are very emphatic that the reduction was not for the sake of the commodity but for the sake of the person who did not have branch transfer. Therefore, the Government order is very clear that a dealer who did not have any branch transfer or consignment transfer to outside the State alone was eligible to claim the concessional rate of tax at 2 per cent for the sale of the staple fibre, fibre yarn, filament yarn and waste of any of them, etc. As a matter of fact, even the heading for G.O. Ms. No. 108, CT & RE, dated April 7, 1998 reads that the reduction of tax payable on sale of man-made staple fibre, etc., to certain dealer under TNGST Act. Therefore, the Government order was intended only to certain kind of dealers against whom conditions have been imposed from making branch transfer or consignment transfer of any commodity. In this case, in the affidavit itself, the petitioner has admitted that the polyester cone yarn were sent outside the State by consignment transfer. Therefore, on that ground also, the second respondent-assessing authority is entitled to direct the petitioner to pay the difference in the rate of tax.
5. Finally, we come to the vires of the restriction to make branch transfer or consignment transfer outside the State. The learned Mr. K.J. Chandran argued that Article 401 of the Constitution enables any trader to carry on trade and commerce throughout the territory of India freely and Article 404(a) also enables for the free movement of the goods from one State to the other without discrimination between the goods so imported or manufactured, but in the case of the petitioner, the Government has imposed restriction for branch transfer or consignment sale, and this will operate as a clog on the free movement of the goods guaranteed under Articles 301 and 304(a) of the Constitution. He also contended that when the same goods produced and sold within the State it is taxed only at 2 per cent, but when it is transferred outside the State on consignment sale, the rate of tax is raised to 8 per cent and the State cannot make discrimination in the rate of tax for the same goods between one State and another State and such a condition is wholly discriminatory and fetters on the free movement of the goods in violation of the freedom of trade guaranteed under the articles. Article 404 of the Constitution is as follows :
“Article 404 : Notwithstanding anything in Article 401 or Article 403, the 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 manufactured or produced ; and
(b) impose such reasonable restrictions on the freedom of trade, commerce or inter-course with or within that State as may be required in the public interest.”
Even though under Sub-article (a) to Article 404, the discrimination between the goods imported and manufactured or produced in the State is prohibited, Sub-article (b) authorises the State to impose such reasonable restrictions on the freedom of trade in the public interests. Mr. K.J. Chandran has cited a series of decisions to show that the restriction as to the free trade or any discrimination in making different rates of tax for the same commodity will amount to violation of Article 404(a) of the Constitution. Following are the decisions relied upon by him :
1. [1986] 61 STC 165 (SC) (H. Anraj v. State of Tamil Nadu).
2. [1988] 70 STC 52 (SC) (Weston Electronics v. State of Gujarat).
3. [1988] 70 STC 57 (SC) (Weston Electronics v. State of Maharashtra).
4. [1988] 71 STC 305 (SC) (Hi-Beam Electronics Pvt. Ltd. v. State of Andhra Pradesh).
5. [1990] 78 STC 243 (SC) (Andhra Steel Corporation v. Commissioner of Commercial Taxes in Karnataka).
6. [1997] 105 STC 30 (SC) (Loharn Steel Industries Ltd. v. State of Andhra Pradesh).
In all these decisions, rate of tax was different for the goods manufactured within the State and the similar goods imported from outside the State. In Weston Electronics v. State of Gujarat [1988] 70 STC 52 (SC), the rate of tax for the television sets manufactured within the Gujarat State was lower than the television sets imported from outside the State. In the same way, State of Maharashtra and also Andhra Pradesh issued notifications for the products manufactured within the State giving concession for those goods. In [1990] 78 STC 243 (SC) (Andhra Steel Corporation v. Commissioner of Commercial Taxes in Karnataka), the discrimination was made between the goods manufactured out of the raw materials locally purchased and the goods manufactured from imported raw materials. Therefore, in all these cases, there was difference in the rate of tax for the goods manufactured within the State or manufactured with the raw materials purchased within the State and those of the goods imported from outside or raw materials from outside. Therefore, this discrimination was found to be violative of Article 404(a) of the Constitution. The learned counsel also referred to [1968] 22 STC 376 (SC) (State of Madras v. Nataraja Mudaliar) wherein it is mentioned that the prohibition on preference between the goods need not be between one State and another and for the different rates of sales tax for the goods manufactured within the State and intra-State discrimination is also violative. But, in the case on hand, there is no such discrimination and the reduction in the rate of tax has been given for the sale of staple fibre with the restriction that the manufacturer must make his manufactured goods available within the State for levy of tax. The rate of tax for staple fibre yarn is 8 per cent, but concessional rate of tax at 2 per cent is given to the manufacturer who does not effect branch transfers or consignment sales. The State is not bound to give concession in the rate of tax but when such concession is given to a manufacturer, naturally, there will be revenue loss to the State. In this case, when the normal rate of tax for the staple fibre is 8 per cent whereas the State had given concession to certain manufacturers at 2 per cent, there is loss of tax at 6 per cent which is to be compensated by the State in some form or the other. If the goods manufactured are sold within the State, the State will get the sales tax on the goods so that the loss could be compensated by the State. Even if inter-State sales were made, the State also will get a share under the Central Sales Tax Act. On the other hand, if branch transfer or consignment transfer is made, neither the State from where the goods manufactured nor the Central Government, is able to recover anything by way of tax for those goods and therefore, the loss remains unrepleted. This is the principle laid down in [1993] 88 STC 98 (SC) (Hotel Balaji v. State of Andhra Pradesh). Therefore, only for the purpose of realising the sales tax within the State, the Government of Tamil Nadu has restricted the branch transfer and consignment transfer for those who wanted to avail the concessional rate of tax at 2 per cent and for others who make branch transfer and consignment transfer to pay the tax at 8 per cent. Therefore, it cannot be stated that the Government of Tamil Nadu has made any discrimination in the levy of tax or restricted the free movement of goods in violation of the freedom given under Article 404(a) of the Constitution. When the goods manufactured within the State are moved outside the State, the State incurs heavy loss and therefore, the consignment transfer or branch transfer is permitted on payment of full rate of tax at 8 per cent. So, the difference in the rate of tax is not discriminative but reasonable in the interests of the State. The apex Court, in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 ; AIR 1990 SC 820, has observed that if the differentiation is on justifiable and rational reasons, there is no discrimination. The apex Court while upholding the concessional rate of tax for the goods manufactured in the backward areas, has observed :
“A backward State or a disturbed State cannot with parity engage in competition with advanced or developed States. Even within a State, there are often backward areas which can be developed only if some special incentives are granted. If the incentives in the form of subsidies or grant are given to any part of unit of a State so that it may come out of its limping or infancy to compete as equals with others, that, in our opinion, does not and cannot contravene the spirit and the letter of Part XIII of the Constitution. However, this is permissible only if there is a valid reason, that is to say, if there are justifiable and rational reasons for differentiation. If there is none, it will amount to hostile discrimination.”
In [1989] 72 STC 354 (SC) (Bharat General and Textile Industries Ltd. v. State of Maharashtra) when concession was given to edible oil industry and when this was questioned by non-edible oil industry, it was held that the State Government could validly classify new units producing edible oil as distinct and separate from other units and validly withdraw the exemption in relation to such units only. In [1990] 76 STC 427 (Mad.) (K. Damodarasamy Naidu and Bros. v. State of Tamil Nadu), the Madras High Court has upheld the classification of the dealers on the basis of their respective turnovers for the purpose of graded imposition of the tax and it was held in that case that so long as it is based on differential criteria relevant to the legislative object, it is not unconstitutional and a legislative classification making the burden of the tax heavier in proportion to the increase in the turnover, would be reasonable.
6. Analysing all these factors and the position of law as the restriction to make branch transfer or consignment transfer is intended only to avoid the loss of revenue by way of concession, as the goods disappear from the State with concessional rate, the restriction is not only justifiable but also reasonable. Under these circumstances, it cannot be stated that the portion of the impugned Government order is offending Article 404(a) of the Constitution. For the foregoing reasons, the relief sought for in this original petition cannot be granted and the same is dismissed.
And this Tribunal doth further order that this order on being produced be punctually observed and carried into execution by all concerned.
Issued under my hand and the seal of this Tribunal on the llth day of July, 2000.