STATE OF MADHYA PRADESH versus ABDEALT

S.K.Das, J.-This is an appeal by special leave from the judgment and order of the High Court of Madhya Pradesh dated December 14:, 1959, by which the said High Cou_rt quashed an assessment of sales tax made against the respondent for the assessment year 1956-57. The appellant before us are the State of the Madhya Pradesh, the Commissioner of Sales Tdx, Madhya Pradesh and the Sales Tax Officer, Circle No.2, Indore. ·

p. 705

We may first state the circumstances under wl:iic4 the resrondent was a~3~3:rnd to sales tax: anq the reasons for which the High Court quashed the said assessment. The respondent carried on the business of importing and selling different types of footwear in the State of Madhya Pradesh under the name and style of Mun war 8hoe Company, Indore. During the assessment year 1956-57 the taxable turnover of the goods sold by the respondent was determined to be little over Rs. 60,000/-, and he was assessed to sales tax on his taxable turnovor in accordance with item 32Sob.3 of the notificatir>n dated October 24, 1953 i88ued under s. 5 of the Madhya Bharat Sales Tax Act, 1950 (Act 30 of 1950) (hereinafter referred to as the Act). Section 3 of the Act is the charging section which imposes the tax. Section 4(3) empowers the Government to grnnt exemption by means of a notification in respect of the sale of any goods or class of goods. Section 5 of the Act fixes the rate of tax and states that the tax payable by a dealer under the Act shall be a single point. It permits the State Government to notify the goods and the point of their sale at which the tax is payable. Item 32 of Sch. 3 of the notification referred to above was in theae terms. S.No. · Name of goods Point of sale in_ Madhya Bharat at which tax is

pp. 705–706

payable 32 All leather goods Sale by importer and all shoes, or manufacturer. ohappals (footweer)

p. 706

eto. Though the item in question made all leather goJdi and all shoes, chappal etc. liable to sales tax at the point o~ sale by-the importer or mfanufa~turer, an exempt10n was granted in respect o certam sales of footwear b;v meaµs ofnotifioa.tio~ issued ~nder a. (3} of the Act. We may now refer to these notifications. The first notification was dated May 27, 1955 and was in these terms:·

pp. 706–707

"In exercise of the powers conferred by section 4(3) of Madhya Bharat Sales Tax Act, Samvat 2007 the Rajpramukh has passed order exempting from the payment of sales tax, all such shoes, the selling price of which does not exceed rupees ten per pair an<l such country shoes which are prepared by the manufacturer himseif and for the production of which power is not used in any stage if the same are sold by the manufacturer himself or any mem-

p. 707

ber of his family." This notification was later superseded by another notification dated January 28, 1956, which read as follows:

p. 707

"In exercise of the powers conferred by section 4, sub-section(3) of the-Madhya Bharat Sales Tax Act, Samvat 2007 the Rajpramukh in supersession of the notification No. 59( c )(t) P.R. 412-54, dated 27-5-1955 of this department has exempted from the payment of sales tax, in case of sale by the manufBi_cturer or any member of his family, tbs sale of all such · shoes,ohappals, country shoes and footwears which are hand-made and which are not manufactured on power machine and whose sale

p. 707

price does not exceed Rs. 12/8/-." . The respondent qontended before the Sale Tax Officer that he was not liable to pay any sales tax on the sale of hand-made shoes, ohappal and other type of footwear whose sale price did not exceed Rs. 12/8/- per pair on the ground that such footwear was exempt from tax by reason of the notification dated January 28, 1956. The Sales Tax Officer nega.ved this contention. He ~ointed out in )lis order dated March 25, 1958 that the condition laid down in the notification to the effect that the sale must be by the manufacturer or any member of his family was not fulfilled, and as the respondent was an importer and dealer of footwear and not the manufacturer or ·a member of the family of the manufacturer, he was not entitled to claim any exemption under the notification. Consequently the Sales Tax Officer passed an order asst"ssing sales tax on the total turnover of the respondent.

pp. 707–708

The respondent then moved the High Court of Madhya Prad~sh by means of a petition under Art. 2:l6 of the Constituthn and in that petitiGm the respondent said that the notification dated January 28, 1956, exempted from tax all sales of footwear which fulfilled the following to conditions, viz., (a} such footwear was hand-made and not manufactured on power machine, ·and (b} the sale price whereof did not exceed Rs. 12/81- per pair. The respondent further averred that if the exemption were held to be in. favour of sales by a manufacturer or a member of his family and not sales by an importer, then the notification would be discriminatory in nature and would contravene the provisions of Art. 304 (a} of !he Constitution. On these grounds the respondent prayed that the assessment order dated March 25, 1958, be quashed and the Sales Tax Officer be directed to exempt from tax such sales by the respondent as were cqvered by the exemption granted by the notification dated January 28, 1956. In their reply to the writ petition the appellants pointed out that the notification dated January 28, 1956 did ilot in any way discriminate between footwear manufactured or produced in the State of Madhya Pradesh and footwear imported from outside, because the conditions laid down in the notification were equally .applicable to both types of S,Oods anq o~e of tqese oo~qitjo~s was that ~he ·sale which was to be exempted from tax must be by the· manufacturer or a member of his· family.

pp. 708–709

The High Court accepted the petition of the. respondent and held that the respondent's contention that hand-made shoes, chappals and footwear purchased by him directly from the manufacturer outside the State and imported by him for sale were entitled to exemption under the notification dated Janu11ry 28, 1956, must prevail. The High Court said:

p. 709

"What that notification does is to exempt . from sales tax the sale of hand-made chappals shoes, footwear and country shoes if the price of the article sold does not exceed Rs. 12-8/- and if it is sold by the manufacturer or any member of his family. It makes no difference whether the sale is by the manufacturer within the State directly to the purchaser or whether it is by the manufacturer outside the :state to the importer who then sells it to the purchaser. The notification is, no doubt, not dearly worded. x x x x x x The notifieation has to be read in consonance with the provisions of Article !304 of the Constitution. So read, it must be held that the exemption applies to hand-made shoes, chappals etc .. whether made within or outside the State if the other conditions mentioned in the notification are satisfied."

p. 709

_Accordingly, the High Court quashed the assessment dated March 25, 1958, and directed the Sales Tax Officer to make a fresh assessment in the light of the decision of the 'lHigh Court.

p. 709

On behalf of the appellant!:! it has been contended before .us that.the interpretation which the High Court p11t on the notification dated January 28, 1956, is not correct. We think that this contention is right and must be accepted, The notificatiJn clearly lays down three conditions for the grant of exemption: one of the conditions is that the sale must be of such shoes, chappals, country .shoes and footwear as are hand-made and not manufactured on power machine; the second condition is· that the sale price must not exceed Rs. 12/8/-; and the third condition is that the sale must be by the manufacturer or any member of his family. The notification when it uses the expression ''in case of sale" must refer to the sale which is being exempted from tax in thf' State; in other words, it has reference to tbe taxable event in the State as per ::>oh. 3 of the notification dated October 24, 1953. That notification makes it clear that the tax is a single point tax, and the taxable event is the sale by the importer or manufacturer in the State. Therefore, the expression "in case of sale" in the exemption notification can have no reference to a sale outside the State. The High Court was in error when it said that, it made no difference whether tbe 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 i::ltate. When a manufacturer sells shoes outside the State to an importer and the importer again sells shoes in the State, there are really two sales, one outside the State and one inside it. The sales outside the State are not taxable under the Act and the notification of January 28, 1956, has no reference to such sales. When the notification uses the expression "in case of sale by the manufacturer or a member of his family';, it has reference to such sales as would come but for the exemption within item 32 of Sch. 3 of the notification dated October 24, 1953. If the interpretation put· by the High Court is correct, then the practical effect will be to obliterate one of the conditions laid down in the notification, namely, that the sale, which is the taxable event, must be by the manufacturer or any member of his family .. We do not think that the notification is capable of such an interpretation. All the three conditions laid down in the notification must be fulfilled before the exemption referred to therein can be claimed and we cannot, by interpretation, delete one of the conditions.

pp. 709–711

On the question whether the notification contravenes Art. 304(a) of the Constitution learned· counsel for the appellants has canvassed before us the larger question that Art. 304(a) has no reference to sales tax legislation. He has contended that Art. 304(a) refers to a tax on goods meaning thereby a tax on the goods themselves, e.g. excise duty or contervailing duty on goods, and it has no reference to a tax on transactions· of sale.

p. 711

In view of the alternative submissions which learned counsel for the appellants has made and to which we shall presently refer, it is unnessary for us to deal with the aforesaid larger question in this appeal. The alternative submissions made by learned counsel for the appellants are these. Firstly, learned counsel for the appellants had argued that on the assumption that sales tax legislation is contemplated by Art. 304:(a), the notification in question does not in any way contravene that provisions of the said Article. He has rmbmitted thdt the three conditions laid down by the notification apply equally to both types of footwear, footwear manufactured or produced in the State ond footwear imported from other States. Secondly, he has submitted that if the notification in question is bad on the ground that it contravenes the provisions of Art. ::lO(ut) of the Constitution, then the result will be that the notification dated January 28, 1956, will be voic!. This will not, however, affect the validity of the notification of October 24, 1953, made under s. 5 of the Act, by which all, leather goods and all footw<'ar are made liable to a tax at the point of salo in the State by an importer or manufacturer. Learned counsel has submitted that the respondent is an importer who sells footwear in the State, and he will be liable to tax on all footwear sold by him and will not be entitled to claim any exemption if the exemption notification is bad; in other words, the assessment will be the same as has been found by the Sales Tax Officer by his order dated March 25, 1958, and in that view also, the . order of the High Court quashing the assessment will be erroneous.

pp. 711–712

We now proceed to consider these alternati~e submissions of learned counsel for the appellants. We do not think that the notification dated January 28, 1956 makes any such discrimination between footwear manufactuued or produced in the State of Madhya Pradesh and footwear imported from other States as is prohibited by Art. 3U4(a) of of the Constitution. We have already pointed out that the exemption granted by the notification in question depends on the fulfilmAnt of three conditions and all the three conditions are equally applicable to footwear manufactured or produced in the State and footwear imported from other States. It is obvious that the exemption is for the protection and benefit of small manufacturers Who make handmade shoes of small value and who may be unable to compete with large-scale manufacturers of footwear made on machines. t:luch a classification in the interests of small manufacturers has often been made and upheld by this Court. (See Orient W raving Jllills (P) Ltd. v. The Union of India (1): and The British India Corporation Ltd. v. The Collector of Central Exeise, .Allahabad ( supp. s.c.R. s s.c.a.

p. 712

In the course of his arguments learned counsel for respondent has firsh supported the, interpretation put on the notification by the High Court. That question we have already dealt with earlier in this judgment. Learned counsel for the respondent has then submitted that the discrimination ariseri ·in the following way. He points out that a small manufacturer outside the State has to travel into the State and sell hand-made shoes there in order ·to get the benefit of the exemption whereas a small manufacturer in the ·State has not to travel any- . where in order to get the benefit of the exemption. This, learned counsel haq submitted, results in such discrimination aR is forbidden by Art. 304(a) of the Constitution. We do not agree. The argument of learned ·counsel for the respondent is really an , argument of inconvenience. The exemption by ;itself creat!IS no discrimination between footwear ;manufactured or produced in the State and imported from outside. Even a small manufacturer in the State must fulfil the conditions laid down by , the notifi,.ation in question before he oan claim exemption from tax; in other words, he or a mem- . her of his family· must also sell the hand-made shoes before he can claim the exemption. So must a. small manufacturer outside the State if he wants to claim the benefit of the exemption. Unless he has travelled and brought the 1zoods into another St&te, Art, 304(a) does not apply ; hence he cannot complain under that Article that he has to travel. It is worthy of note that the exemption relates to sales in the State and that is why a small munufacturer outside the State can olaim no benefit of the exemption with regard to sales out side the . State ·which are not taxable under the· Act. It is necessary here to refer to one other point which has been urged by learned counsel for the respondent. Learned counsel has pointed out that. the word 'himself' used in the earlier notification of May 27, 1955, in connection with the word 'manufacturer' has been omitted from the later notification January 28, 1956, and he has contented that by reason of the omission of the word 'himself' the benefit of the later notification may be avaliable to a servant or an agent of the manufacturer. We do not think that this question falls for decision in the present appeal. The respondent in the present case is neithter a servant nor an agent of the manufacturer. It is admitted that he is merely an importer and in hie case nothing turns upon the omission of the word 'himself' from the later notification.

pp. 713–714

We also-agree with the alternative submission of learned counsel for the appellants t4at if the notification dated January 28, 1956 is bad, then the respondent sta.nds to gain nothing. If the exemption notification is struck down as invalid, that will not affect the validity of the notifica.tion of October 24, 1953, pa.rtioularly of item 32 of Sch. 3 thereof. Learned counsel for the respondant has submitted that the two notifications must be read together and if the exemption goes, the notification of October 24, 1953, issued under s. 5 of the Act must also go. We are unable to agree. The notification of October 24, 1953. fixe1 the point of sale at which the tax is to be imposed. The rate of tax is fixed by s. 5 of the Act. There is no reason why the notification dated October 24, 1953, should fall with the notification dated January 28, 1956 .which was issued under s. 4(3) of the Act. The principle laid down by this Court in M/s Ram Narain Sons of Ltd. v. Assistant Oommisstoner of Sales Tux (1) that where an assessment consists of a single undivided sum in respect of the . totality of the property treated as assessable, the wrongful inclusion in it of certain items of property which by virtue of a. provision of law were . expressly exempted from taxation, renders the assessment invalid in toto, will not apply in the. present t1ase for.· the simple reason that there is no wrongful inclusion of any item in the assessment order. If the exemption goes, then the respondent has been rightly assessed on his total turnover. It is only when the respondent is entitled to the . exemption claimed that he can say that the assessment is bad and must be qua.shed. The resdondent oa.n claim the exemption only if the interpretation put by the High Court on the notification dated January 28, 1956, is accepted as correct, If that interpretation . is not correct, then this appeal must be allowed even if the notification is baa· by reason of the provisions of Art. 304(a) of the Constitution.

pp. 714–715

For the reasons given above, we would allow the appeal, set· aside the judgment and order of the High Court dated December 14, 1949 and dismiss the writ petition. The appellants will be entitled to their costs throughout.

p. 715

Appeal allowed .

p. 715