Shree Mahavir Oil Mills v. State of Jammu & Kashmir [(1996) 11 SCC 39]

Introduction

The Indian tax system is plagued with an overabundance of tax issues that are pending in civil courts. Because any jurisdiction’s tax system and policy (which is the result of a variety of conflicting considerations) inevitably involves some ambiguity, certain disagreements are inescapable. However, the emergence of conflicting tax jurisprudence is responsible for a considerable quantity of wasteful tax litigation.

For this case The Supreme Court nullified the burden of 8% deals charged by the State of Jammu and Kashmir on the edible oil imported from different states from which the Edible Oil created within  J&K was absolved. The Court dismissed the State’s supplication that such plans were important to support the State oil industry and to finance significant expense of oil creation inside the State. By excluding genuinely the palatable oil created inside the State of J&K out and out from deals charge while oppressing the consumable oil delivered in different States to deals charge at 8%, the State of J&K has achieved segregation by tax collection prohibited by Article 304(a) of the Constitution.

Under Jammu and Kashmir General Sales Tax Act the State government provided notices expressing that as the expense of creation of palatable oil in the State of Jammu and Kashmir was higher than the cost of production of edible oil in the connecting states the makers of edible oil in the State of Jammu and Kashmir will be absolved from paying deals taxon edible oil. Be that as it may, the makers/makers of edible oil from different States were obligated to pay a charge at the pace of 8%.[1]

Legal Issues

Citing the video electronics case, the Supreme Court determined that a limited exemption created in this case cannot be expanded to consume the main provision of Article 30(a) that completely prohibits discriminatory taxes by a state. [2]By unconditionally exempting edible oil produced in the state of Jammu and Kashmir from sales tax, the state caused discrimination through a tax prohibited by section 30(a).

A challenge has been made to the expense risk made by the State vide SRO 80 of 2000 given on first April 2000. This is a warning given in the activity of force presented to the State Government Under Section 3(5) of the Jammu and Kashmir Levy of Tolls Act Samvat 1995. For office of reference, this warning is being replicated underneath :

“In exercise of powers presented by subsection (5) of Section 3 of the Jammu and Kashmir Levy of Tolls Act Samvat 1995 (XIII of 1995) and in supersession of notice SRO 184 dated 30.05.1997 the Government thus direct that extra cost for the accompanying merchandise brought into and removed from the State will be imposed on advaloram at the pace of 4% on the products specifically :

1. Edible oils
2. Cigarettes & Tobacco
3. This notification supersedes earlier notification SRO 184 of 1997.
4. The challenge to the legitimacy of warning reproved is that this contradicts Articles 301 and 304 (a) of the Constitution of India in as much as by virtue of implementation of the notice, there would be an unmistakable separation between the things which are now in the State of Jammu and Kashmir and the things which are imported and which things have been shown in the notice, alluded to above. It is presented that before, the State government made an endeavor to collect comparative expense and legitimacy of that warning, for example SRO 184/97 was tested. This warning, it is submitted, was announced violative of Articles 301 and 304 of the Constitution.[3] Reference in such manner is settled on to a choice given on account of M/s Shakti Traders versus Province of J&K and others, 2000 Srinagar Law Journal 108. In the previously mentioned case the Division Bench arrived at the resolution that the warning being referred to is oppressive in that as much as 4% extra cost charge is being charged on things which are brought inside the [4]State and are sold. It was seen that to the extent palatable oil made in the State is concerned, when it is sold, there is no toll of assessment @ 4 % however by virtue of warning SRO 184, there would be extra duty of expense on edible oils imported in the State.
5. Thus it was accordingly held that there is a different treatment being given to the edible oil manufactured in the State and the edible oils which are imported in the State, it was on this basis, the notification in question was set aside. Petitioners submit that what was said by the Division Bench would apply to the facts of this case also. It is accordingly submitted by the petitioners;
   1. That what is being levied by way of notification impugned is the toll tax;
   2. That there can be no discrimination between the goods which are imported and those which are manufactured;
   3. Even though the Divisional Bench was dealing with SRO 184/97, which dealt with the case of resale, nevertheless, what was said in para 15 of the judgement would cover the case of sale also.

Summary of Arguments

So as to ensure the nearby edible oil industry, the Government of Jammu and Kashmir gave S.R.O.93 of 1991 on March 7, l991 under Section 5 of the Jammu and Kashmir Sales Tax Acts, 1962 coordinating that “the merchandise produced by a seller working as a limited scale modern unit in the State and enlisted with Director of Industries and Commerce, Handicrafts or Handloom Development, dependent upon the conditions determined belows will be absolved from installment of expense to the degree and for the period indicated in the Schedule shaping Annexure-A”. Every one of the units producing edible oil in the State are limited scale modern units as characterized by the Jammu and Kashmir Government. (Apparently at first the cutoff was a venture of Rupees ten lakhs as per which one unit in the State didn’t qualify as a limited scale modern unit. Along these lines, it is expressed that the restriction of speculation was raised to Rupees thirty lakhs, because of which the said unit likewise fell under the meaning of limited scope unit). The exception was absolute and the time of exclusion was five years-which has later been reached out by an additional five years.

The consequence of the orders previously mentioned was that while until December, 1993/May, 1994, the makers of edible oil in different States were obliged to pay deals charge on the deals affected by them in the State of Jammu and Kashmir at the pace of four percent, the nearby producers were completely absolved in this manner. In December, 1993/May. In 1994, the pace of expense was raised from four percent to eight percent, as expressed previously. [5]With the raising of the pace of deals expense to eight percent, the external makers were obliged to pay at eight percent while the neighborhood producers were excluded completely. It is then neighborhood producers were excluded completely It is then that a portion of the external makers including the appellants thus, moved toward the Jammu and Kashmir High Court via writ petitions which were excused by a learned Single Judge. The Letters Patent Appeals preferred by the appellants have likewise been excused by the Division Bench depending primarily upon the choice of this Court in Video Electronics Private Limited [190 (3) S.C.C.87].

Sri Harish Salve, learned direction for the appellants, pounced upon the rightness of the judgment of the High Count on a few grounds. Advice presented that the sets of the Government of Jammu and Kashmir absolving all the palatable oil businesses in the State from installment of deals charge unequivocally sums to victimizing the out-State makers which is precluded by Articles 301 and 304 of the Constitution. Guidance presented that Part-XIII of the Constitution restricts raising of monetary hindrances by the States, for such obstructions will undoubtedly meddle with the free development of exchange and trade all through the region of India. Raising of defensive dividers might be advocated in global exchange. The Government of India can and has been giving a few such protectionist estimates this load of years to support the development and foundation of enterprises in the nation and to shield them from competition from unfamiliar producers. In any case, comparative measures can’t be given by the State legislatures inside, i.e., inside the country. The Parliament can, presumably, be such measures however not the State Government, and positively not without the earlier approval/consent of the President of India. Learned insight presented that the choice in Video Electronics has not been effectively perceived by the High Court and that it doesn’t indicate to help the upbraided measure. Student counsel depended upon a few choices delivered by this Court under Part-XIII on the side of his entries.

The above judgement was also taken note of by the Division Bench in the case of M/s Shakti Traders (Supra). What was observed at page 7 of the judgement is being reproduced below:

“The further conflict of the appellants is that the extra cost under the Levy of Tolls Act is anything but a free however a duty and that the issue is no more res Integra taking into account the Full Bench choice of this Court in Girdhari Lal Anand Saraf versus Territory of J&K AIR 1969 J&K 113 (which has been continued in one more Full Bench choice in M/s Mehta Food Pvt. Ltd. versus Province of J&K (Writ appeal No. 660/82 settled on 23.08.1999) wherein has been held that the duty of cost under the said Act is definitely not a free however an expense.[6] Learned insight for the appellants presents that the current case is unequivocally covered by the choice of the Supreme Court in Shree Mahavir Oil Mills (supra) and the duty of extra cost at the pace of 4% on the imported palatable oil by the State Government is in gross infringement not just of the protected order of Articles 301 and 304 (a) yet in addition in obtrusive negligence to the choice of the Supreme Court in the above case and subsequently the criticized SRO is responsible to be saved and suppressed. One more dispute of the learned insight for the appellants is that however the duty under SRO 184 is on the edible oil brought into the State for resale in the State, the specialists are exacting expense on oil imported by the makers for first deal in the State and not resale.”

Interpretation of Law

The inquiry which was considered was concerning whether informed discriminatory is discriminatory and hit by the proportion of different choices given by the Supreme Court. These choices have been seen in para 12 of the judgment. This para is additionally being imitated beneath:

“Articles 301 and 304 (a) had come up for thought under the watchful eye of the Supreme Court in Atiabari Tea Co. Ltd. versus Province of Assam AIR 1961 SC 809; Automobile Transport (Rajasthan) Ltd. versus Province of Rajasthan AIR 1962 SC 1406 ; A.T.B. Mehtab Majid and Co. versus State of Madras, AIR 1963 SC 928 ; H. Anraj versus, Govt. of T.N. (1986) 1 SCC 414 ; Indian Cement versus State of A.P. AIR 1988 SC 567 ; Weston Electronics versus Province of Gujarat (1998) 2 SCC 268 ; Video Electronics (P) Ltd. versus State of Punjab, AIR 1990 SC 820 ; State of Mysore versus H. Sanjeevaiah AIR 1967 SC 1189 ; Kalyani Stores versus Province of Orissa AIR 1996 SC 1686 and countless cases.[7] The proportion of the choices, so particularly far as Article 304 (a) is concerned, was summarized by the Supreme Court in Shree Mahavir Oil Mills (supra) as under:

“Presently, what is the proportion of the choices of this court so particularly as far as proviso (a) of Article 304 is concerned? As we would see it, it is … the Slates are positively allowed to practice the ability to require charges on products imported from different States/Union Territories however this opportunity, or force, will not be so practiced as to achieve a separation between the imported merchandise and the comparative merchandise fabricated or delivered in the State. The proviso manages segregation through tax collection; it denies it. The preclusion can’t be reached out past the force of tax collection. It implies in the quick setting that States are allowed to energize and advance the foundation and development of ventures inside their states by all such means as they might suspect legitimate purchase they can’t, in that cycle, subject the products imported from different States to a biased pace of tax assessment, for example a higher pace of deals charge visavis comparative products fabricated/created inside the State and sold inside that State. Preclusion is against unfair tax collection by the States. It matters not how this segregation is achieved. A restricted special case has almost certainly been cut out in Video Electronics in any case, as shown thus over, that exemption can’t be extended until it gobbles up the principle arrangement.”

Summary of Judgements

A condition if there should be an occurrence of Shree Mahavir Oil Mills versus Territory of J&K (1996) 11 SCC 39 , which was observed by the Division Bench in the event that M/s. Shakti Traders on which dependence has been put by the applicants, makes it obvious that the instance of segregation would emerge when the duty structure bargains distinctively between imported merchandise and comparable products fabricated or delivered in that State. So exceptionally far as the judgment in M/s. Shakti Traders (Supra) is concerned, that separation, as per the Division Bench was writ huge in light of the fact that when the consumable oils produced in the State were sold, there was no duty of 4 % charge ad valorem as was tried to be forced on account of imported edible oil.[8] It was this factor, which prompted the subduing of notice in the above case.

As of now, that voice stands dispensed with. The palatable oil which is imported in the State needs to bear an additional expense charge @ 4% whether it is accessible to be bought or resale.

The other argument which has been raised is that when expense is required on the deal, and still, at the end of the day, this would be in struggle with Article 301 and 304 (a) of the constitution of India. For this, as shown above, dependence is put on the judgment on account of M/s. Shakti Traders (Supra).

Similar view has been communicated at this point in one more choice revealed as 1995 Supp (1) SCC 673, M/s Bhagat Ram Rajeev Kumar versus Official of Sales Tax. M.P. Furthermore, others. The test in the above case was made to demand passage charges on merchandise, for example, sugar under Section 3(1) (a) of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976. The contention raised was that this assessment is in the form of procurement charge. This contention was repulsed. It was seen that assessment on passage of products is compensatory in nature. Information exchanged in section 8 of the judgment is being replicated beneath:

“Indeed, even the accommodation on Article 301 of the Constitution isn’t all around established. The article came up for translation by this Court in Atiabari Tea Co, Ltd. versus State of Assam, AIR 1961 SC 232 and Automobile Transport (Rajasthan) Ltd. versus Territory of Rajasthan. AIR 1962 SC 1406 . A consolidated perusing of the two choices demonstrate that insofar as an expense is administrative and compensatory it isn’t inside the naughtiness of Article 301. In the counter affirmation documented for the State which was not questioned the idea of toll has been exhibited to be compensatory. [9]The appellants didn’t debate the figure outfitted by the State. It is settled at this point that assuming the assessment is compensatory, it is insusceptible from challenge under Article 301(See Khyerbari) Tea Co. Ltd, versus State of Assam. AIR 1964 SC 925 and State of Karnataka versus Hansa Corporation, (1980) 4 SCC 697. The accommodation of Shri. Ashok Sen, learned Senior Counsel that remuneration is what works with the exchange just doesn’t have all the earmarks of being sound. The idea of compensatory nature of expense has been enlarged and in case there is significant or even some connection between the duty and offices stretched out to such sellers straightforwardly or by implication the toll can’t be decried as invalid. The remain of the Stale that the income acquired is being made over to the neighborhood bodies to remunerate them for the misfortune caused, makes the impost compensatory in nature, as expansion of their money would empower them to offer city types of assistance all the more effectively, which would help or simplicity free progression of exchange and trade, in light of which the impost must be viewed as compensatory in nature, impost must be viewed as compensatory in nature, considering what has been expressed in the previously mentioned choices, all the more especially in Hansa Corpn. case.”

Conclusion

It is this, in our opinion: States are free to collect taxes on products imported from other States/Union Territories, but this freedom, or authority, shall not be utilised in such a way as to discriminate between imported goods and identical commodities created or produced locally.

The previously mentioned two judgements plainly set out that if a specific tax at a sale or Consumption is made, that tax is compensatory in nature and this would be secured by Article 301 of the constitution. The judgment given in Bhagat Rams case supra is a judgment given by three Members Bench and I am of the assessment that as demonstrated over, the proportion of two choices seen above completely covers the issue associated with these petitions. As shown over, the Full Bench in Mehta Foods case, alluded to above, had mentioned an observable fact that under the duty, the cost charge is being utilized for keeping up with State expressways and giving different offices, legal note can likewise be taken of the way that there is no octroi in the State of Jammu and Kashmir and the assortment which is being made at the boundaries is to support nearby units too. [10]

 In view of the detailed discussions above, the notification in question is held to be intra vires of Article 301 of the Constitution of India. These petitions are accordingly found to be without merit and are dismissed.[11]

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References:

[1] https://www.lawyerservices.in/Shree-Mahavir-Oil-Mills-and-Another-Versus-State-of-Jammu-and-Kashmir-and-Others-1996-11-29

[2] https://www.yumpu.com/en/document/view/42284016/sumit-nema-rs-goyal-associates

[3] https://india.lawi.asia/shree-mahavir-oil-mills-and-anr-v-state-of-jammu-and-kashmir-and-ors/

[4] https://main.sci.gov.in/jonew/judis/20359.pdf

[5] https://www.cambridge.org/core/books/abs/practising-selfgovernment/kashmir-the-vanishing-autonomy/C4ADA01E0A062DDAF96D1CF432912A5D#

[6] https://books.google.co.in/books?id=rY9fAAAAQBAJ&pg=PT269&lpg=PT269&dq=SHREE+MAHAVIR+OIL+MILLS+Vs.+STATE+OF+JAMMU+%26+KASHMIR+(1996)+11+SCC+39.&source=bl&ots=nFCxiSCfwT&sig=ACfU3U2uwAPIaqw6SwMvwGwpqhuDHlpCVg&hl=en&sa=X&ved=2ahUKEwj5kIqb8I73AhVky4sBHR7NDiQQ6AF6BAgeEAM#v=onepage&q=SHREE%20MAHAVIR%20OIL%20MILLS%20Vs.%20STATE%20OF%20JAMMU%20%26%20KASHMIR%20(1996)%2011%20SCC%2039.&f=false

[7] https://www.dnb.com/business-directory/company-profiles.shree_mahavir_oil_and_general_mills.04b303e785698a8f30623e341fc898ce.html

[8] https://web.odishatax.gov.in/COURTORDER/SC/SC_ENTRY_TAX-9_JUDGEMENT_34532002.pdf

[9] https://indiankanoon.org/doc/98905366/

[10] https://www.taxmanagementindia.com/web/tmi_blog_details.asp?id=339513

[11] https://prezi.com/p/q_iq5vt77wfy/presentation-3-constitution-group-3/

Other Sources:

1. Satish Kumar vs. Union Territory on 6th May, 2009.
2. Darshan Lal vs. State of Haryana on 30th April, 2009.
3. Ramjan Mohammad vs. Unknown on 19th May, 2009.
4. Makhan Lal vs. State of Haryana o  26th May, 2009
5. Balbir Singh vs Unknown on 5 December, 2011.
6. Narinder Kumar vs State Of Haryana on 25 February, 2008.