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Indian Cement v State of Andhra Pradesh


Authored by Shubhangi Sahu


Keywords: Article 301, Part XIII, Constitution, Impugned notifications, Free flow, Interstate trade and commerce, Andhra Pradesh, Karnataka


Indian Cement v State of Andhra Pradesh: Case Analysis

Citation: 1988 (1) SCC 743: 1988 SCC (Tax) 170

Case No. Writ Petition (Civil) No. 422 of 1987

Coram: Ranganath Mishra and M.M. Dutt, JJ.

Parties: Indian Cement and Others (Petitioners) and State of Andhra Pradesh and Others (Respondents)

Date of Judgement: 12 January, 1988

Subject: Constitution of India, Part XIII, Article 301 – Limits of Restrictions of trade, commerce and intercourse to be strictly complied with Article 301


Abstract:

This case deals with the Part XIII of the Constitution which ensures free flow of interstate trade and commerce. The notifications issued by the States of Andhra Pradesh and Karnataka reduced the rate of tax payable in sale of cement which acted as impediment for the trade. The court quashed all three notifications calling it bad in law.


Introduction:

The Part XIII of the constitution provides for the freedom trade and commerce throughout the territory of the country. Article 301 ensures free flow of interstate trade and commerce which is the subject matter of this case. The petitioners of the case are cement manufacturers selling cement in Tamil Nadu along with Kerala and Karnataka. The state of Andhra Pradesh and Karnataka issued impugned notifications reducing tax payable at very arbitrary and disproportionate manner which is being challenged by the petitioners, as it is ultra vires to the Article 301 of the Constitution as it acts as a barrier to the free flow of the interstate trade and commerce.


Facts:

Indian Cement Ltd and other petitioners are manufacturers of cement with a registered office located in the state of Tamil Nadu also selling their cements in states of Karnataka and Kerala and for which they have place of business within those states.

The State of Andhra Pradesh made an order dated 27-1-1987 under Section 9(1) of the Andhra Pradesh General Sales Act, 1957 directing that the tax leviable on sale of cement by cement manufacturers within the State to the manufacturing units of cement in the state to be reduced to 4 paise in the rupee. And another order issued by the state under Section 8(5) of Central Sales Tax Act reducing the rate of tax payable under the Act on sale of cement during the course of interstate trade to be at a lower rate of two per cent. Both the orders were implemented with an effect from 1-1-1987.


On 28-2-1987, State of Karnataka also issued an order under the Section 8(5) of Central Sales Tax Act reducing the tax payable on sale of cement in course of interstate trade from 15 per cent to 2 per cent.


Arguments:

Petitioners: -

The petitioners challenged the Section 8(5) Central Sales Tax Act of 1955, two notifications issued by State of Andhra Pradesh and a lone notification issued by the State of Karnataka. However, at the time of hearing counsel gave up the challenge on Central Sales Tax Act and thus the petition has to be confined to the abovementioned notifications only. The main argument by the counsel for petitioners is that these notifications are ultra vires to Part XIII of the Constitution as it provides for the free trade, commerce and intercourse throughout the territory and these notifications create barriers and impedes the freedom of trade, commerce and intercourse provided under the Article 301 of the Constitution.


Respondents: -

On the behalf of State of Andhra Pradesh, it was argued that the state has surplus production, in the year 1986-87 total production was around six million tonnes out of which local consumption was only around 3 million tonnes. Since the local consumption was estimated to be 40 per cent, the 60 per cent of cement has to be therefore marketed out. Along with it, the bulk consumers found cement from other states cheaper than due to high local sates thus in the public interest, taxes were reduced. The classification of cement manufacturers from the state and from other states was also justified and said to be in compliance of Article 14. It was stated that the notifications were issued in the public interest and in the interest of State Revenue.

The counsel for the State of Karnataka contended that the notification did not affect provisions in Part XIII of the Constitution.


Judgement:

The bench referred to all the relevant articles of the constitution to check whether these notifications comply with the provisions of the Constitution. The bench referred to the Atiabari tea case[i], where court has talked about Article 301 giving a special emphasis to ‘shall be free’ and stated that this freedom is not absolute and Central and State legislatures have power to legislate in respect to trade, commerce and intercourse but such actions or legislations should not act as impediments to the free flow of trade and commerce throughout the territory of the country.


The legislatures of state may impose certain restrictions in trade and commerce for the interest of the state but such are subject to the condition that those restrictions should be reasonable.[ii] In another case[iii], where tax has been defined and the powers of legislature both state as well as centre to impose restrictions on trade and commerce through taxation has been prescribed, it has been clearly mentioned that any restriction can be imposed only in the public interest. The two reasons specified by the State of Andhra Pradesh are that the notifications are in the public interest and would help in increasing state revenue to which the State has failed to demonstrate that how the reduction of sales tax will help in state revenue and the second reason i.e. protecting local manufacturers is not within the ambit of provisions of Part XIII.


Taking a look at second notification, bench referred to two cases; in Gwalior Rayon case[iv] it has been said that the fixation of taxes is a legislative function, however it has been stated in both of the cases that if the prevention of evasion of tax is in a public interest, there is no doubt that Parliament is competent enough to make a provision for that purpose even if it imposes a restriction on interstate trade and commerce. [v] [vi] Karnataka notification which is similar to the second notification of Andhra Pradesh also suffers from the same vie and is thus, bad in law.


Referring to all the relevant provisions of the Constitution and all afore-mentioned judgements it can was concluded by the bench that all the three notifications are bad in law and thus, ultra vires to the Constitution. All the three impugned notifications are quashed, writ petition be allowed with the costs and hearing costs of Rs. 5000 to be shared equally by the states of Andhra Pradesh and Karnataka.


Analysis:

The present case has been dealt by the judges with the utmost care considering all relevant articles and variety of decisions which has helped to reach at a good judgement. The judgement has to be considered as a good judgement as it has analysed all the three notifications very carefully and reached a conclusion terming them bad in law as these notifications were ultra vires, the authorities have used the power beyond which they are entitled for and violated the provisions of Constitution under Part XIII and also disturbed the free flow of interstate trade and commerce by ordering these notification which acted as impediments in the free flow of trade and commerce throughout the territory of the country which has been constitutionally guaranteed.


Conclusion:

This case can be concluded by emphasising the importance and powerful place which the Constitution of India enjoys. The bench has assured through these case that the Constitution is Suprema Lex and no authority can act beyond the power as prescribed in the constitution. This case has also emphasized on economic unity and it is important for the growth and welfare of the nation thus, should not be harmed or affected by any forces and the protection to this is ensured by the Constitution.


Foot Notes:

[i] In Ataibari Tea Co. Ltd. v. The State of Assam & Ors., [1961] I SCR 609 [ii] The Automobile Transport (Rajasthan) Limited v. The State of Rajasthan & ors., [1963] SCR 491 [iii] State of Madras v. N.K. Nataraja Mudaliar, [1968] 3 SCR 829 [iv] Gwalior Rayon Silk Mfg. (Wvg) Co. Ltd. v. The Assistant Commissioner of Sales Tax & ors., [ 1974] 2 SCR 879 [v] State of Tamil Nadu etc. v. Sitalakshmi Mills etc.,[1974]1 1 SCR 1 [vi] Id at iv References: 1. SCC Online 2. Indian Kanoon

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