JUDGMENT
Basi Reddy, J.
1. These Tax Revision Cases were referred to a Full Bench by a Division Bench consisting of two of us (Basi Reddy and Mohamed Mirza, JJ.) because it was contended with some plausibility that the ruling of a Division Bench of this Court composed of Chandra Reddy, C. J. and Krishna Rao, J. in Berar Oil Industries v. Deputy Commissioner of Commercial Taxes, (1959) 10 STC 199 (AP), negativing the challenge based upon Article 14 of the Constitution as to the validity of a Government notification dated November 9, 1951, –amending Rule 5 (1) (k) of the Madras General Sales Tax (Turnover and Assessment) Rules, by the addition of the words “other than refined groundnut oil” and adding Sub-rule (5) to Rule 18 of the said Rules, the effect of which was the withdrawal of the benefit of the deduction of the purchase price of groundnut or kernel which went into the manufacture of refined oil, from the sale turnover of such oil, required reconsideration, in the light of certain observations of the Supreme Court in Tungabhadra Industries Ltd v. Commercial Tax Officer (1960) 11 STC 827; (AIR 1961 SC 412). Before dealing with this point and some other points which were urged before us, we shall briefly set out the material facts, shorn of figures, which we consider unnecessary in view of the ultimate order we propose to male in these cases.
2. T. R. C. 1/62 is against the order of the Sales Tax Appellate Tribunal Appeal No. 472 of 1960; T. R. C. 2/1962 is against T. A. 299 ot 1960; T. R. C. No. 3/1962 is against T. A. 471 of 1960 and T, R. C. 4/1962 is against T. A. 470 of 1960, and they relate respectively to assessments for the years 1955-56, 1956-57, 1954-55 and 1953-54. The petitioner in all these eases is Thungabhadra Industries Limited, which has factory at Kurnool, which purchases groundnut and groundnut Kernel and manufactures amongst other things groundnut oil, refined oil and hydrogenated oil for sale within the State and outside the State of Andhra Pradesh. In the transactions with which we are concerned, the petitioner imported groundnut kernel from dealers outside the State in pursuance of a contract of sale entered into between the parties and thereafter converted the kernel into oil of three types, namely, raw groundnut oil, refined oil and hydrogenated oil. Before the Appellate Tribunal, the petitioner raised the following contentions:
(1) From the sale turnover of refined oil, the petitioner was entitled to deduct under Rule 18 read with Rule 5 (1) (k) of the Madras General Sales Tax (Turnover and Assessment) Rules (hereinafter referred to as “the Rules”), the purchase price of the groundnut kernel which went into the manufacture of the refined oil.
(2) The transactions relating to the purchase of groundnut kernel represent purchases in the course of inter-state trade and as such beyond the taxing power of the State, as enjoined by Article 286 of the Constitution.
3. As regards the first contention, the Tribunal was of the view that the petitioner was not entitled to any rebate, because the relevant Rule excludes rebate on refined oil. The Rule that the Tribunal had in mind was Sub-rule (5) which was added to Rule 18 of the Rules by a Notification dated November 9, 1951, whereby Sub-rules (1) to (4) which entitled a registered manufacturer of groundnut oil to deduct the value of the groundnut and/or kernel purchased and converted into oil and cake from his gross turnover, provided that the amount for which the, oil was sold was included in the turnover, were expressly made inapplicable to refined groundnut oil.
4. As regards the second contention, the Tribunal was of the view that the transactions were not sales in the course of inter-state trade inasmuch as there was no concluded sale before the goods were transported from an outside State into this State. In other words, the Tribunal was of the opinion that there should be in the first instance a sale of goods, and then the transportation of the goods from one State to another should take place as a direct result of such sale, but if the goods are moved across the border from one State into another without there having been a completed sale, the transaction dot’s not partake of the character of a sale in the course of inter-state trade.
5. The correctness of the view of the Tribunal on these two points was canvassed before us by the learned advocate for the petitioner, besides raising some other subsidiary points. Upon the arguments advanced before us, the following questions of law arise for our determination:
1. Does the Notification (G. O. No. 2928, Revenue dated November 9, 1951) offend Article 14 of the Constitution?
2. Was the Tribunal right in holding that the transactions in question were not interstate but were intra-state sales?
3. What is the effect of the notification said to have been issued by the Board of Revenue and published in the Andhra Gazette dated 7-l-1954 Part II, Page 8?
6. As regards the first question, the contention on behalf on the petitioner is that in excluding refined oil from the concession granted to raw oil on the one side and hydrogenated oil on the other, the rule-making authority had acted in contravention of Article 14 of the Constitution, as the discrimination is not based on a reasonable classification. This Article has come under judicial scrutiny in numerous cases. Its true content has been put in a tabloid form by S. R. Das, C. I. in Ram Krishna Dalmia v. S. R. Tendolkar, . This is what the learned Chief Justice said at page 547:
“In Budhan Chowdary v. State of Bihar, a Constitution Bench of seven Judges of this Court at pages 1048-49 (of SCR: at p. 193 of AIR) explained the true meaning and scope of Article 14 as follows:
“The provisions of Article 14 of the Constitution have come up for discussion before this Court in a number of cases namely, Charanjit Lal v. Union of India, ; State of Bombay v, F. N. Balsara, 1951 SCR 682: AIR 1951 SC 318; State of West Bengal v. Anwar Ali Sarkar, ; Kathi Railing Rawat v. State of Saurashtra, ; Lachmandas Kewalram v. State of Bombay, ; Qasim Razvi v. State of Hyderabad, and Habeeb Mohammad v. State of Hyderabad, . It is therefore, not necessary to enter upon any lengthy discussion as to the meaning, scope and effect of the article in question. It is now well established that while Article 14 forbids class legislation, it does not forbid reasonable classification for the purposes of legislation. In order, however, to pass the test of pennissible classification, two conditions must be fulfilled, namely, (i) that the classification must be founded in an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and (ii) that that differentia must have a rational relation to the object sought to be achieved by the statute in question. The classification may he founded on different basis, namely, geographical or according to object or occupations or the like. What is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. It is also well established by the decisions of this Court that Article 14 condemns discrimination not only by a substantive law but also by a law of procedure.”
7. The principle enunciated above has been consistently adopted and applied in subsequent cases. The decisions of this Court further establish-
(a) that a law may be constitutional even though it relates to a single individual if, on account of some special circumstances or reasons applicable to him and not applicable to others, that single individual may be treated as a class by himself;
(b) that there is always a presumption in favour of the constitutionality or an enactment and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles;
(c) that it must be presumed that the Legislature understands and correctly appreciates the need of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds;
(d) that the Legislature is tree to recognise degrees of harm and may confine its restrictions to those case where the need is deemed to he the clearest;
(e) that in order to sustain the presumption of constitutionality the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can he conceived existing at the time of legislation; and
(f) that while good faith and knowledge of the existing conditions on the part” of a Legislature are to be presumed, if there is nothing on the face of the law or the surrounding circumstances brought to the notice of the Court on which the classification may reasonably be regarded as based, the presumption of constitutionality cannot be carried to the extent of always holding that there must be some undisclosed and unknown reasons for subjecting individuals or corporations to hostile or discriminating legislation. The above principles will have to be constantly borne in mind by the Court when it is called upon to adjudge the constitutionality of any particular law attacked as discriminatory and violative of the equal protection of the laws.”
8. What emerges from the above analysis of Article 14 is that it ensures equality amongst equals. It is designed to protect all persons placed in similar circumstances against legislative discrimination, but if the Legislature takes care to reasonably classify persons for legislative purposes and if it deals equally with all persons belonging to a well-defined class, such action is not open to the charge of denial of equal protection on the ground that the law does not apply to all persons.
9. Now, as noticed already, a similar contention as was raised before us in these cases, namely, that in withdrawing the rebate in respect of refined oil there has been an infraction by the rule-making authority of Article 14 of the Constitution, was overruled by a Division Bench of this Court in (1959) 10 STC 199 (AP) Chandra Reddy C. J. dealt with this contention at page 205 as follows:
“Alternatively, it is contended that this cancellation contravenes the wholesome principle underlying Article 14 of the Constitution. It is said that this withdrawal is in conflict with the doctrine of equality before law and equal protection of laws contained in Article 14 of the Constitution. We do not think we can accept this argument. Either the rule granting the rebate or the one withdrawing the rebate in regard to refined oil does not disclose the reasons therefor. Perhaps the object in granting rebate is to encourage the conversion of seeds into oil and then export it instead of the groundnut being exported in the shape of kernel. This would result in the saving of cake for the country. Finding that it was no longer necessary to continue the rebate in regard to refined oil since refined oil is mostly consumed in the country, the Government might have taken the step it did in this behalf. That apart, it cannot be predicated that there is no reasonable basis for classifying the oil into crude oil and refined oil. Nor can it be said that the nexus that is essential between the reason for the division and the object of the rules is absent in a case like this. As we have already remarked, the idea of rebate might have emanated from desire to encourage the export of oil to other countries. In these circumstances, we hold that this argument also is equally untenable and is overruled.”
It was, however, contended before us that this ruling requires reconsideration in view of the observations of the Supreme Court in . We are unable to accede to this contention. There is nothing in that judgment of the Supreme Court which militates against the view taken by the Division Bench of this Court as to the applicability of Article 14. On the contrary, the observations of the Supreme Court, far from supporting the stand taken by the petitioner in these cases before us, seem to be against it. In that case the Supreme Court was dealing with the question whether hydrogenated groundnut oil is groundnut oil” within the meaning of Rule 18(2) of the Rules. Their Lordships pointed out that under the scheme of the Madras General Sales Tax Act 1939, and the Rules, while in regard to groundnut the tax is levied at the point of purchase, groundnut oil is taxed at the point of sale.
The result of this feature is that when a person purchases groundnut and converts the same into oil and sells the oil so extracted, he has to pay tax at both the points. This apparently was considered by the rule-making authority to be an unfair burden and relief was accordingly provided by Rules 5 and 18 in order to alleviate what might be considered a hardship by reason of the double levy. Their Lordships pointed out that the Notification dated November 9, 1951, by which Rule 5(1)(k) and Rule 18 were amended so as to take away refined groundnut oil from the category of groundnut oil, did not apply to the case before them, because the assessment there related to a period anterior to the Notification. What their Lordships had to consider in that case was whether the High Court was right in holding that hydrogenated oil was not groundnut oil but a product of groundnut oil manufactured out of groundnut oil and therefore not entitled to the benefit of the deduction under Rule 18(2) as it stood then. At page 832 (of STC): (at p. 415 of AIR) Rajagopala Ayyangar J. speaking for the Court, noticed the arguments advanced on behalf of the appellant therein and observed as follows:
“The arguments of Mr. Viswanatha Sastri for the appellant were briefly two: (1) The reasons behind the Rules 5(1)(k) and 18(2) which were designed to afford relief against what would amount practically to double taxation of the same assesses both when he purchased and when he sold the goods, required that the appellant’s claim should be allowed. (2) Hydrogenated groundnut oil was no less groundnut oil than either refined or even unrefined oil. The fact that the quality of the oil had been improved does not negative its continuing to be oil and the material before the departmental authorities and the Court established that it continued to be oil and was nothing more.
The argument based on the reason of the rule cannot carry the appellant far since in the present case it is an exemption from tax which he invokes and of which he seeks the benefit. If the words of the rule are insufficient to cover the case, the reason behind the rule cannot be availed of to obtain the relief. Nor could it be said to be a case of double taxation of the same goods at the purchase and salt; points which is forbidden by Section 3(5) of the Act. If the view adopted by the learned Judges of the High Court that hydrogenated groundnut oil is not “groundnut oil” but a product of groundnut oil were correct, learned counsel cannot urge that he would still be entitled to the deduction for which provision is made in Rule 18 (2).”
10. After considering the processes which raw groundnut oil underwent before it became hydrogenated oil, Rajagopala Ayyangar, J. pointed out that since refined groundnut oil was undoubtedly “groundnut oil” for the purpose of the rules, there was no reason why, when beyond the process of refining the oil, the oil is hardened by the use of certain chemical processes, it should not be regarded as groundnut oil. His Lordship pointed out that notwithstanding the processing which is merely for purposes of rendering oil more stable thus improving its keeping qualities for those who desire to consume groundnut oil, hydrogenated oil serves the same purpose as a cooking medium and has identical food value as refined groundnut oil. Consequently his Lordship held that hydrogenated oil is groundnut oil for purposes of Rule 18(2) and the assesses was entitled to the benefit of the deduction of the purchase price of kernal or ground nut which went into the manufacture of the hydrogenated oil from the sale turnover of such oil.
11. It is important to note that both the High Court and the Supreme Court were of the view that refined oil is ground nut oil; but the point upon which the Supreme Court disagreed with the High Court was as to whether hydrogenated oil is groundnut oil for purposes of Rule 5 (1) (k) and Rule 18 as they then stood. There is nothing in the judgment of the Supreme Court to indicate that when the rule-making authority withdraws the benefit of the rebate in the case of refined oil it would be acting illegally or unconstitutionally. So we are clearly of opinion that the decision in (1959) 10 STC 199 (AP) does not require reconsideration, in view of anything that was said by the Supreme Court in .
12. It was, however, argued before us that since the Supreme Court has held that both hydrogenated oil and refined oil fall under the category of groundnut oil, discrimination as between refined oil and hydrogenated oil in the matter of granting deduction is not based on a reasonable classification, but amounts to a arbitrary selection for hostile discrimination. We arc of opinion that there is no force in this contention as it overlooks the crucial fact that we are here dealing with a taxing statute. It is well recognised that a wide latitude is given to the State to pick and choose objects for purposes of taxation, and what to tax and whom to tax are matters of policy with which courts have little concern.
The constitutional position was explained by Venkatarama Aiyar J. speaking for the Court in East India Tobacco Co. v. Stale of Andhra Pradesh, . In that case the facts were that by the Andhra Act XIV of 1955, Section 5 of the Madras General Sales Tax Act, 1939, was amended with the result that exemption from sales tax which was then available to all varieties of raw tobacco, was not limited by the Andhra Act to sales of country tobacoo (Nattu tobacco); but so far as sales of Virginia tobacco were concerned, they became liable to be taxed. Before the Supreme Court, as before the High Court, the constitutionality of the Andhra Act was challenged on the ground that in taxing sales of Virginia tobacco and exempting from tax sales of other tobacco, the Act was discriminatory and in consequence was obnoxious to Article 14 of the Constitution. In repelling that contention Venkatarama Aiyar, J. observed as follows: (at page 533 of STC): (at p. 1735 of AIR):
“It is not in dispute that taxation laws must also pass the test of Article 14. That has been laid down recently by this Court in Knnnathat Thathunni Moopil Nair v. State of Kerala, . But in deciding whether a taxation law is discriminatory or not it is necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of Article 14. The following statement of the law in Willis on “Constitutional Law”, page 587, would correctly represent the position with reference to taxing statutes under our Constitution:
'A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably ....... . The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation' ". 13. In the light of these principles, we may now proceed to discuss whether the impugned Act is repugnant to Article 14 of the Constitution. The point for consideration is whether there is in fact a real distinction between Virginia tobacco and other tobacco called country tobacco (Nattu tobacco). If there is, then the Act is valid, if not it must be held to be unconstitutional. The finding of the learned Judges on this point is as follows: "Broadly, there are two types, Virginia and Nattu, differing in taste, light, colour and texture. ...... There are obvious differences between the two categories of tobacco, in the nomenclature used, in the process of growing, curing and grading, in the market facilities foreign and Inland, in the price and in the variety of uses to which they are put and also the class of customers that take to them." 14. Thus it will be seen that Virginia tobacco has features which distinguish it from country tobacco, and can he treated as a class in itself. It will therefore be within the power of the State to impose a tax on the sales of Virginia tobacco while exempting the country tobacco.
15. It is argued for the appellants that to repel the charges of discrimination in taxing only Virginia tobacco and not the country tobacco, it is not sufficient merely to show that there are differences between the varieties but that it must be further shown, as held in and , that the differentia has reasonable relation to the object of the legislation. The differences between the Virginia tobacco and the country tobacco, as found by the learned Judges are not, it is argued, germane to the levy of sales tax, and so there is no valid classification. We are unable to agree with this contention. If a State can validly pick and choose one commodity for taxation and that is not open to attack under Article 14, the same result must follow when the State picks out one category of goods and subjects it to taxation.
16. It should, in this connection, be remembered that under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and it is well settled that this burden is all the heavier when the legislation under attack is a taxing statute. “In taxation even more than in other fields”, it was observed by the Supreme Court of United States in Madden v. Kentucky, (1940) 309 US 83: 84 L. Ed 590, “Legislatures possess the greatest freedom in classification. The burden is on the one attacking the legislative arrangement to negative every conceivable basis which must support it”. How wide the powers of the Legislature are in classifying objects for purposes of taxation will be seen from the following resume of the law given by Rottschaefer, in his “Constitutional Law”, page 668:
“The federal Supreme Court has seldom held invalid any classification made in connection with the levying of property taxes. It has sustained the levy of a heavier burden of taxation upon motor vehicles using the public highways than that levied upon other forms of property, and the imposition of a heavier tax upon oil than upon other property. The equal protection clause does not prohibit the levy of tax on ores which is not imposed upon similar interests in quarries, forests and other forms of wasting asset, nor even the imposition of a tax upon anthracite that is not levied upon bituminous coal. A statute providing for the assessment of one type of intangible at its actual value while other intangibles are assessed at their face value does not deny equal protection even when both are subject to the same rate of tax. The decisions of the Supreme Court in this field have permitted a State Legislature to exercise an extremely wide discretion in classifying property for tax purposes so long as it refrained from clear and hostile discrimination against particular persons or classes.”
…………………………………………………………………………………………..
The learned Judge concluded:
“In our judgment the differences which exist between the Virginia and (Nattu) country tobucco. as found by the learned Judges, are materials on which the State could treat Virginia tobacco as forming a class by itself for purposes of taxation and the impugned legislation must be held to be not obnoxious to Article 14 of the Constitution.”
17. In the instant cases, it cannot be said that raw ground nut oil, refined oil and hydrogenated oil are all one and the same commodity, although they may answer the general description of ground nut oil. The three commodities are treated as different entities in the commercial market; the processes of their manufacture are different; the prices of the three commodities differ and the demand for each of them varies in the market. The price of refined oil is higher that that of raw oil, while the price of hydrogenated oil or “vanaspathi”, as it is popularly known, is higher than that of refined oil. There is therefore, intelligible differentia between the three commodities to form the basis of a reasonable classification for purposes of taxation. Furthermore, it is common knowledge that raw oil is crushed by small dealers, while refined oil and hydrogenated oil are manufactured by big manufactures. The manufacturers of raw oil would be hard hit if the rebate was not granted to them. Vanaspathi is in greater demand by the consuming public than refined oil and even as it is, the price of vanaspathi is higher than that of refined oil.
The rule-making authority might well have thought that while withdrawing the rebate in respect of refined oil, it should not withdraw the rebate to vanaspathi as that would result in the price going up still further and cause hardship to the consuming public. Here is a plausible nexus between the differentia and the object underlying Rule 18. Therefore, viewed from any aspect, the Notification in question which amended the relevant Rules resulting in the withdrawal of rebate to refined oil, does not suffer from the vice of unconstitutionality on the ground of its being repugnant to Article 14, the Appellate Tribunal was therefore right in refusing to allow any rebate in respect of refined ground nut oil.
18. Now we torn to the second contention of the petitioner, namely, that the Appellate Tribunal was in error in holding that the transactions in question constituted intra-state sales and not inter-state sales. On this point the Tribunal examined the terms of a specimen contract and held that as the sales were completed within the State subsequent to the delivery of the goods at the premises of the petitioner and the property in the goods passed only after weighment and various tests which were done at Kurnool, the sales in question could not be regarded as having taken place in the course of inter-state trade. We are satisfied that this view of the Tribunal is palpably erroneous and does not accord with the crucial test formulated by the Supreme Court in a catena of cases. We need only refer to a recent decision of the Supreme Court in Cement Marketing Co. of India (Private) Ltd. v. State of Mysore, in the course of which the entire case law was reviewed and the position was summed up thus at page 182 (of STC): (at p. 984 of ATR):
“Thus the tests which have been laid down to bring a sale within inter-state sales are that the transaction must involve movement of goods across the border, Mohanlal Hargovind Das v. State of Madhya Pradesh, ; (transactions are inter-state in which as a direct result of such sales the goods are actually delivered for consumption in another State: Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax, a contract of sale must involve transport of goods from one State to another under the contract of sale: Bengal Immunity Co. Ltd v. Stale of Bihar, ”
So the true test is that where under a contract of sale, there is a transport of goods front outside a State into the territory of the State, and the contract itself involve the movement of goods across the border, the transaction is stamped with the character of an inter-State sale. Nothing more is necessary, In other words, where the sale or purchase occasions the transport of goods from one State tn another, the sale or purchase would be in the course of inter-State trade. It follows that the test applied by the Appellate Tribunal in the present cases is not the correct one and consequently its conclusion that the transactions in question are not inter-State sales, is bad and unsustainable. If should be mentioned that the learned advocate appearing for the Department has fairly conceded this position and submitted that the view of the Appellate Tribunal is untenable. Since, however, the Tribunal has not examined the terms of all the contracts but has contended itself with looking into the terms of only one specimen contract, we think the proper course to take is to remit all these cases to the Appellate Tribunal with a direction to dispose of these cases according to law in the light of the opinion expressed by us.
19. There only remains one other minor point for consideration as to whether the notification issued by the Board of Revenue and published in the Andhra Gazette dated 7-1-1951, would avail the petitioner notwithstanding the Sales Tax Laws Validation Act, 1956. In the first place this notification was issued by the Board of Revenue and not by the State Government and as such it was not a notification issued under S. 6 of the Madras General Sales Tax Act, 1939, which empowers the State Government by a notification in the Gazette to make an exemption or reduction in rate in respect of any tax payable under that Act. Even otherwise, the notification in terms applies only to non-resident dealers as are liable to pay the Andhra Sales Tax; but in the instant cases, the petitioner is not a non-resident dealer and as such cannot claim the benefit of the concession granted by that notification. There is therefore, no substance in this contention.
20. In the result, these Tax Revision Cases are allowed to the extent indicated above and the appeals out of which they have arisen, are remitted to the Appellate Tribunal for disposal according to law in the light of this judgment. There will be no order as to costs in all these cases.
