Shree Mahavir Oil Mills v. State of J. & K., AIR 1996 11 SCC 39

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INTRODUCTION

The state of Jammu and Kashmir had a higher price for domestic Edible Oil production than other neighboring states. Due to this uneven pricing, the out-state industrialists were able to sell edible oil at comparatively lower prices than the in-state industrialists. In order to regulate this situation, the state government of Jammu and Kashmir (state of j. & k. in short) the state government made the in-state production of edible oil free from sales tax for frequent sales of their products, so that they could compete with out-state industrialists. This gave rise to a writ petition filled in the High Court of Jammu and Kashmir, which was dismissed by the court and subsequently, the appellant filed a case in the Supreme Court, seeking justice by unveiling this one-sided help to the local manufacturers as it was disrupting the market value of the products.

FACTS OF THE CASE

The state of J. and K. has the Jammu and Kashmir General Sales Tax Act, under which the price of every product is mentioned. On 20^th December 1993, edible oil was shifted from Schedule D to Schedule C, which mentioned the price of tax at 8% (previously priced as 4%). This shift in schedules stated that the SRO 213 of 1993 issued on 13^th December 1993 shifting edible oils was revoked within a week but reissued as SRO 124 of 1994 on 25^th May 1994.

Intending to protect the local edible oil industry, the Government of Jammu & Kashmir issued SRO 93 of 1991 on 7^th March l991 under Section 5 of the Jammu & Kashmir Sales Tax Acts, 1962 directing that the small-scale industries registered with the Director of Industries and Commerce, Handicrafts or Hand-loom Development, are exempted from payment of the tax as mentioned in Annexure-A. The limit of investment was Ten Lakh but it was later raised to Thirty Lakh for a period of 5 years, which was also extended to 10 years. Hence, this new criteria sidelined the small-scale manufacturers of the state from paying the tax, which included approximately all of the industrialists of the state, and levied a 4% sales tax on the out-state manufacturers, which was later raised to 8%.

Due to this biased decision of the Jammu and Kashmir state government, a writ petition was filed by the out-state manufacturers that were led by Shree Mahavir Oils Ltd. and other industrialists in the High Court of Jammu and Kashmir. But this writ petition was dismissed by a single learned judge, moreover, the Division Bench’s decision relied on the verdict of the case Video Electronics Private Limited [190 (3) S.C.C.87]. Thereby, the case reached the doorsteps of The Supreme Court of India.

ISSUES RAISED

Whether the government of J&K exercises there power to levy the tax on imported goods under Article 302 of the Constitution?
Does the decision to exempt the in-state manufacturers from paying the tax fall under the “Exceptions” as mentioned in the Video Electronics Pvt. Ltd. Case?

CONTENTIONS OF THE APPELLANT

The appellant’s counsel disapproved the correctness of the decision by the State of J&K under Articles 301 and 304 of the Constitution.
The counsel argued that the raising of the protective walls would be justified in International Trade but in the case of domestic trade, it is merely discrimination among the manufacturers.
The counsel finally submitted that the decision of the High Court, according to the verdict of the Video Electronics case, was misunderstood and hence pleaded for the right decision to the Supreme Court.

CONTENTIONS OF THE RESPONDENT

The respondent’s counsel denied the charges by the appellant counsel of disapproving the decision based on Articles 301 and 304 of the Constitution.
The council said that the facts of the Video Electronics case clearly matched the facts of this case and hence it favors the decision of the High Court of Jammu and Kashmir.
The counsel also pointed out that the out-of-state manufacturers never appealed when the tax imposed was 4%, but when it was increased to 8%, they suddenly filled the writ petition. Hence, this act of industrialists displays nothing but their greedy nature.

JUDGEMENT

The Supreme Court gave the verdict in favor of Shree Mahavir Oils and Ors. as the decision of the State Government was against Articles 301 and 304 of the Constitution. The Article 301 of the Constitution states that there must be “Freedom of trade, commerce, and intercourse Subject to the other provisions of this Part, trade, commerce, and intercourse throughout the territory of India shall be free”, but this biased relief of Sales Tax as given to the small scale manufacturers of the State of Jammu and Kashmir ceased a few out-state manufactures from freely trading their goods in the state.

The court then referred to the case of Video Electronics Pvt. Ltd. Vs. State of Punjab (1990 (3) S.C.C.87] and said that the facts of the case don’t match with the major aspects of the current case, as the amount and proposed percentage of increasing the tax doesn’t fit the criteria of “exceptions” as mentioned in the referred case. The case was between a private electronics company and the states of Punjab and Uttar Pradesh. The states released a notification of dropping the tax from 12% to 1% in between the specific dates as mentioned in Annexure-A. This decision of both the states wasn’t a violation under Article 301 and 304(A) of the Constitution as it was an “exception”, according to the court, as the state imposed this for a specific period and for new small-scale manufacturers, it fell under the ethics of the Articles. But in the current case, the facts don’t fall under the criteria of the mentioned “exceptions” of the Articles as they depict the discriminatory taxation by the state.

The case actually had a few common facts with the case A.T.M. Mehtab Majid Vs. State Of Madras 1963 Suppl. (2) S.C.R.435. It must be held that by exempting unconditionally the edible oil produced within the State of Jammu & Kashmir altogether from sales tax, even if it is for ten years, while subjecting the edible oil produced in other States to sales tax at eight percent the State of Jammu s Kashmir has brought about discrimination by taxation prohibited by Article 304(A) of the Constitution. Article 14 speaks of equality; Article 301 speaks of freedom and Article 304(A) speaks of uniform taxation of both the imported goods and the locally produced goods by the States and according to the facts of our case, none of them are respectfully followed by the state of J&K.

Hence, the court declared that the exemption granted under SRO 93 of 1991 to local manufacturers of edible oil violates Sections 301 and 304(A). Thereby, ruled the verdict of declaring the invalidity of the notification, which must take effect from April 1, 1997, and till 31 March 1997, the revoked notification shall continue to be effective and operative. The appellant also refrained from claiming any amount by way of refund or by declaration of such decision.

CONCLUSION

The case concluded that Article 14, 301, and 304 of the Constitution forms the basis of free and unbiased taxation levied upon the nation and it cannot be revoked by the discriminatory taxation policies of any state.

REFERENCE

This article is written by Ansh Mishra, a student of Maharaja Agrasen Institute of Management Science (MAIMS), GGSIPU; an intern at Legal Vidhiya.