Madras High Court
H.P.Textiles Mills vs The State Of Tamil Nadu on 7 April, 2025
Author: Anita Sumanth
Bench: Anita Sumanth
2025:MHC:1086
W.P.No.34885 of 2004 etc
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 07.04.2025
CORAM :
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE C.KUMARAPPAN
W.P.Nos.34885 & 34886 of 2004, 46479, 42240 & 37807 of 2002, 24016,
20488, 17027 & 11116 of 2003, 12087 of 2008, 11682 & 18854 of 2005
& W.A.No.3615 of 2003
and
W.P.M.P.No.21291 of 2003, 20403 & 12749 of 2005, W.A.M.P.No.5902 of
2003 & W.P.M.P.No.67594 of 2002
W.P.Nos. 34885 & 34886 of 2004
H.P.Textiles Mills,
253/8, Avinashi Goundenpalayam Road,
Angeripalayam Post,
Tirupur – 641 603. .. Petitioner
vs
1.The State of Tamil Nadu
Rep. by Secretary, Commercial Taxes
Commercial Taxes Department,
Fort St.George, Chennai.
2.The Special Commissioner,
Commercial Taxes, Chepauk, Chennai.
3.The Commercial Tax Officer, (FAC)
Rural Assessment Circle, Tirupur. .. Respondents
W.P.No. 46479 of 2002
M/s Dhandapani Spinning Mills Ltd.,
Rep by its Director,
S.Lakshmipathy,
No.126, Arts College Road,
Coimbatore - 641 018. .. Petitioner
vs
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1.The State of Tamil Nadu
Rep. by its Secretary to Government,
Department of Commercial Taxes and Religious Endowments
Fort St.George, Chennai – 600 009.
2.The Commercial Tax Officer,
Trichy Road Circle,
Coimbatore- 641 018. .. Respondents
W.P.No. 42240 of 2002
Tvl. Sri ManickkaVinayagar Spinning Mills Limited,
Director : Vetrivelkannan,
163, Nethaji Road,
Madurai. .. Petitioner
vs
1.The State of Tamil Nadu,
Rep. by its Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 9.
2.The Commercial Tax Officer,
Nethaji Road Circle,
Madurai.
3.The Tamilnadu Taxation Special Tribunal,
SingaravelarMaligai,
Rajaji Salai,
Chennai. .. Respondents
W.P.No. 37807 of 2002
Tvl. Sri ManickkaVinayagar Spinning Mills Ltd.,
Rep. by Director,
163, Nethatji Road,
Madurai. .. Petitioner
vs
1.The State of Tamilnadu
Rep. by its Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 600 009.
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2.The Commercial Tax Officer,
Nethaji Road Circle,
Madurai. .. Respondents
W.P.No. 24016 of 2003
Tvl. Shri Ramalinga Mills Ltd.,
Aruppukottai. .. Petitioner
vs
1.The Commercial Tax Officer,
Aruppukottai.
2.The State of Tamil Nadu,
Rep. by its Secretary to Government,
Department of Commercial Taxes and Religious Endowments,
Fort St.George, Chennai – 600 009.
3.The Tamil Nadu Taxation Special Tribunal,
Rep. by its Registrar,
SingaravelarMaligai, Rajaji Salai,
Second Floor, Chennai – 600 001.
4.The Appellate Assistant Commissioner
(Commercial Taxes), Virudhu Nagar. .. Respondents
W.P.No. 20488 of 2003
Tvl. K.R.V.P.Overseas (P) Ltd.,
Sitalakshmi Mills Premises,
Tirunagar, Madurai – 625 006. .. Petitioner
vs
1.The State of Tamil Nadu
Rep. by its Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 600 009.
2.The Commercial Tax Officer (FAC),
TirupparankundramAssmt. Circle,
Madurai – 20.
3.The Registrar,
The Tamilnadu Taxation Special Tribunal,
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SingaravalarMaligai,
Chennai. .. Respondents
W.P.No. 17027 of 2003
M/s. SreeJeyaSoundharam Textile Mills Pvt Ltd.,
Perungudi Village,
Madugapatti, Sivaganga District. ..
Petitioner
vs
1.The Commercial Tax Officer,
Sivagangai.
2.The State of Tamil Nadu,
Rep. by its Secretary to Government
Department of Commercial Taxes and Religious Endowments,
Fort St.George,
Chennai – 600 009.
3.The Tamil Nadu Taxation Special Tribunal,
Rep. by its Registrar,
SingaravelarMaligai, Rajaji Salai,
II Floor, Chennai – 600 001. .. Respondents
W.P.No. 11116 of 2003
Tvl. Venkatesh Agencies
Rep. by its Partner M.N.Raghavan,
No.31, Srinivasa Nagar, 1st Street,
Thirunagar, Madurai. .. Petitioner
vs
1.The State of Tamil Nadu,
Rep. by its Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 9.
2.The Commercial Tax Officer (FAC)
ThirupparankundramAssmt. Circle,
Madurai – 20.
3.The Tamilnadu Taxation Special Tribunal,
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SingaravelarMaligai,
Rajaji Salai, Chennai. .. Respondents
W.P.No. 18854 of 2005
M/s. Maxwell Industries Ltd.,
Kolapalur, Gobichettipalayam. .. Petitioner
vs
1.The State of Tamil Nadu
Rep. by its Secretary to Government,
Commercial Taxes & Religious Endowments Department,
Fort St.George, Chennai.
2.The Deputy Commercial Tax Officer,
Gobichettipalayam. .. Respondents
W.P.No. 11682 of 2005
M/s. H.P.Textiles Mills
253/8, Avinashi Goundenpalayam Road,
Angeripalayam Post,
Tirupur – 641 603. .. Petitioner
vs
The Commercial Tax Officer (FAC),
Tirupur (Rural) Assessment Circle,
Tirupur. .. Respondent
W.P.No. 12087 of 2008
M/s. Sri Kalaivani Spinners (P) Ltd,
Rep. by its Executive Director,
T.Rajkumar, Myvadi Road,
Myvadi Post, Udumalpet. .. Petitioner
vs
1.Tamil Nadu Sales Tax Appellate Tribunal
(Additional Bench), Coimbatore – 641 018.
2.The Appellate Assistant Commissioner
of Commercial Taxes, Pollachi.
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3.The Commercial Tax Officer,
Udumalpet (North), Udumalpet. .. Respondents
W.A.No. 3615 of 2003
1.M/s. Sri Murugan Spinning Mills (P) Ltd.,
Rep. by its Director,
136, 1st Agraharam, Salem.
2.P.Sundaram .. Appellants
vs
1.The Union of India,
Rep. by its Secretary,
Ministry of Revenue and Finance,
New Delhi.
2.The State of Tamil Nadu,
Rep. by its Secretary,
Dept. of Commercial Taxes and Religious Endowments,
Fort St.George, Chennai – 9.
3.The Special Commissioner and Commissioner of
Commercial Taxes, Ezhilagam, Chepauk,
Chennai – 600 005.
4.The Assistant Commissioner (CT),
Salem Bazaar Division, Salem.
5.The Commercial Tax Officer,
Salem Bazaar Division, Salem. .. Respondents
Prayer in W.P.No. 34885 of 2004 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of certiorari calling for the
records of the case on the file of the third respondent in CST No.
612298/2001-2002 dated 15.06.2004 and quash the same.
Prayer in W.P.No. 34886 of 2004 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of declaration to declare
the notification in G.O.Ms.No. 273 dated 5.8.1996 declaring the portion of
the notification “the dealer who does not have any branch transfer or
consignment transfer during the year” as arbitrary, illegal and violative of
Art 14,19,301 & 304 of the Constitution of India.
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Prayer in W.P.No. 46479 of 2002 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of declaration declaring
that the words “the dealer who does not have any branch transfer or
consignment transfer during the year” occuring in Notification No.
11(1)/CTRE/22(a-6)/97 dated 5.3.1997 and the corresponding words “the
dealer who does not have any branch transfer or consignment transfer
outside the State during the year” occuring in Notification
No.11(1)/CTRE/43(d-2)/98 dated 7.4.1998 are ultra vires art.14, 19(1)(g)
of the Constitution of India insofar as the petitioner is concerned.
Prayer in W.P.No. 42240 of 2002 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of declaration declaring
the Notifications issued by the 1st respondent in G.O.Ms.No.73, CT&RE
dated 05.03.1997, notification no.II (1)/CT&RE/22(a-6)/97 and
G.O.Ms.No.108, CT&RE dated 07.04.1998 in Notification
No.II(1)/CT&RE/43(d-2)/98, the validity of the said notifications insofar as
the condition that the “dealer does not have any branch transfer or
consignment transfer during the year” confirmed by the 3rd respondent in
O.P.No. 878 of 2002 dated 30.10.2002 as wrong, illegal, unconstitutional
and violative of Articles 301, 304(a) and 304(b) of the Constitution of
India.
Prayer in W.P.No. 37807 of 2002 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of declaration declaring
that G.O.Ms.No.73, CT&RE dated 05.03.1997 in notification no.II
(1)/CT&RE/22(a-6)/97 and subsequent G.O.Ms.No.108, CT&RE dated
07.04.1998 in Notification No.II(1)/CT&RE/43(d-2)/98, insofar as it
stipulates the condition to the effect that “dealer does not have any
branch transfer or consignment transfer during the year” is violative of
Articles 301, 304(a) and 304(b) of the Constitution of India and is,
therefore, invalid and unconstitutional.
Prayer in W.P.No. 24016 of 2003 : Writ Petition filed under Article 226 of
the Constitution of India to call for the records on the file of the third
respondent in O.P.No. 788 of 2003 dated 17.07.2003 issue a writ of
certiorari and quash the same while declaring the words “the dealer who
does not have any branch transfer or consignment transfer during the
year” occuring in Notification No.II(1) CT&RE (a-6)/97 dated 09.03.1997
are ultra vires to Articles 14, 19(1)(g), 301 and 304 of the Constitution of
India.
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Prayer in W.P.No. 20488 of 2003 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of certiorarified mandamus
calling for the records on the file of the 3rd respondent in O.P.No. 518 of
2003 dated 19.06.2003, quash the same and consequently declare the
Notifications in No.II(1)/CTRE/22(a-6)/97 issued in G.O.Ms.No. 73,
CT&RE, dated 05.03.1997 and Notification No.II(1)/CTRE/43(d-2)/98
issued in G.O.Ms.No.108, CT&RE dated 07.04.1998 by the 1st respondent
insofar as the portion “the dealer does not have any branch transfer or
consignment transfer during the year” as wrong, illegal, unconstitutional
and violative of Articles 301, 304(a) and 304 (b) of the Constitution of
India.
Prayer in W.P.No. 17027 of 2003 : Writ Petition filed under Article 226 of
the Constitution of India praying to call for the records on the file of the
third respondent in O.P.No. 353/2003 dated 01.04.2003 issue a writ of
certiorari and quash the same while declaring that the words “ the dealer
who does not have any branch transfer or consignment transfer during the
year” occuring in Notification No.II(i) CT & RE 43 (d-2)/98 dt 07.04.1998
and the corresponding words “dealer who does not have any branch
transfer or consignment transfer outside the state during the year”
occuring in further extended Notification No.II(i) CT/40 (a-3)/99 dated
17.03.1999 are ultra vires to Articles 14, 19(1)(g), 301 and 304 of the
Constitution of India.
Prayer in W.P.No. 11116 of 2003 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of declaration declaring
the notification in No.II(1) CT.RE/22 (a-6)/97 issued in G.O.Ms.No.73
CT&RE dated 5.3.1997 and Notification No.II(1)/CTRE/43(d-2)/98 issued
in G.O.Ms.No. 108, CT&RE dated 07.04.1998 by the 1st respondent herein
insofar as the portion “the dealer does not have any branch transfer or
consignment transfer during the year” confirmed by the 3rd respondent in
O.P.No.306 of 2003 dated 19.03.2003 as wrong, illegal, unconstitutional
and violative of Articles 301, 304(a) and 304(b) of the Constitution of
India.
Prayer in W.P.No. 18854 of 2005 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of declaration, declring
that Notification No.II (1) / CTRE/ 84(a-2) dt. 5.8.1995 issued by the first
respondent in so far as it contains the words “by any dealer who does not
have any branch or consignment transfer during a year” is wrong, illegal,
unconstitutional and violative of Articles 301 and 304(a) of the
Constitution of India.
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Prayer in W.P.No. 11682 of 2005 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of certiorari calling for the
records of the case on the file of the respondent in CST No. 612298/2002-
2003 dated 24.12.2004 and quash the same.
Prayer in W.P.No. 12087 of 2008 : Writ Petition filed under Article 226 of
the Constitution of India praying to issue a writ of certiorari calling for the
records on the file of the 1st respondent in his order in Coimbatore
Tribunal Appeal no. 116/2000 dated 23.3.2007 quash the same.
Prayer in W.A.No. 3615 of 2003 : Appeal filed under Clause 15 of Letters
Patent against order dated 22.09.2003 made in W.P.No. 38555 of 2002.
Writ Petition / For Petitioner(s) / For Respondent(s)
Writ Appeal Appellant
Number
WP.34885 & Ms.Lakshmi Sriram Mr.Haja Nazirudeen
34886 of 2004, for Mr.T.RameshKutty AAG
11682 of 2005 assisted by
Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
WP.46479 of Mrs.R.Hemalatha Mr.Haja Nazirudeen
2002 AAG
assisted by
Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
WP.42240 of Mr.A.Chandrasekaran Mr.Haja Nazirudeen
2002, AAG
20488 of 2003 assisted by
& 11116 of 2003 Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
for R1, R2
R3 – Tribunal
WP.37807 of Mr.A.Chandrasekaran Mr.Haja Nazirudeen
2002 AAG
assisted by
Mr.Prashanth Kiran
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Writ Petition / For Petitioner(s) / For Respondent(s)
Writ Appeal Appellant
Number
Government Advocate
and Mr.P.Hari Babu
Government Advocate
WP.24016 of No appearance Mr.Haja Nazirudeen
2003 AAG
17027 of 2003/ assisted by
Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
for R1, R2 & R4
R3 – Tribunal
WP.18854 of Mr.C.Subramanian Mr.Haja Nazirudeen
2005 for Mr.K.J.Chandran AAG
assisted by
Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
WP.12087 of Mrs.R.Hemalatha R1 – Tribunal
2008 Mr.Haja Nazirudeen
AAG
assisted by
Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
for R2, R3
W.A.3615 of Mr.Rajesh R1 – No appearance
2003 for Mr.S.Sivanandan Mr.Haja Nazirudeen
AAG
assisted by
Mr.Prashanth Kiran
Government Advocate
and Mr.P.Hari Babu
Government Advocate
for R2 to R5
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COMMON ORDER
(Order of the Court was made by Dr. ANITA SUMANTH.,J)
This common order disposes 12 writ petitions and 1 writ appeal as
the issue that arises for resolution is one and the same.
2. The Writ Petitions raise the question of validity of two
Government Orders issued by the Commercial Taxes Department in
G.O.Ms.No.273 in No.II(1)/CTRE/84(a-2)/96 dated 05.08.1996 and
G.O.Ms.No.73, No.II(1)/CTRE/22(a-6) dated 05.03.1997 read with
G.O.Ms.No.108, Commercial Taxes and Religious Endowments in No.II(1),
CTRE/43(d-2) dated 07.04.1998 (collectively referred to as impugned
Government Orders).
3. The petitioners may be broadly divided into two categories,
one, dealers in hosiery garments engaged in both domestic and interstate
sales (referred to as Group I), and two, spinning mills, also engaged in
both domestic and interstate sales of yarn (referred to as Group II). G.O.
(Ms.) No.273 dated 5.8.96 touches upon those dealers dealing in hosiery
goods and G.O.(Ms).No.73 read with G.O.(Ms).No. 108 touches upon
those dealers dealing in yarn.
4. We have heard the detailed submissions of Ms.Lakshmi
Sriram for Mr.T.RameshKutty, Mrs.R.Hemalatha, Mr.A.Chandrasekaran &
Mr.C.Subramanian for the petitioners and Mr.Haja Nazirudeen, learned
Additional Advocate General, assisted by Mr.Prasanth Kiran, learned
Government Advocate and Mr.P.Hari Babu, learned Government Advocate,
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for the Commercial Taxes Department.
5. The submissions of the petitioners in one voice are as
follows. They argue that the impugned Government Orders impinge upon
their right to trade which should be free and unfettered as guaranteed
under Article 301 of the Constitution of India.
6. The dealers are offended by the condition imposed under the
impugned Government Orders to the effect that they would be extended
concessional rate of 1 % (in the case of dealers in Group I) and 2 % (in
the case of dealers in Group II) upon condition that they are not engaged
either in branch or consignment transfers. They see no logic either in fact
or in law, in the imposition of this condition.
7. They would argue that the condition imposed is
discriminatory insofar as it creates a cleavage within a class of identically
placed dealers. The dealers constitute one homogenous class, engaging in
manufacture and sales of either hosiery or yarn. However, by the
imposition of this condition, the State has carved out an unreasonable and
discriminatory restriction in respect of those dealers within the class, who
are engaged in effecting branch or consignment transfers.
8. Such branch/consignment transfers may be in respect of any
goods whatsoever as there is no elaboration on the goods that must be
the subject matter of the branch / consignment transfers in order for the
condition to operate.
9. They rely on the judgments in:-
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(i) Jindal Stainless Limited and another v State of Haryana and others1
(ii) Atiabari Tea Co., Ltd v State of Assam and others2
(iii) State of West Bengal v Kesoram Industries Ltd and others3
(iv) Minerva Talkies, Bangalore & Ors v State of Karnataka &Ors4
(v) State of Madras v V.G.Row, Union of India & State5
(vi) Mohd. Faruk v State of Madhya Pradesh6
(vii) A.Anraj v Government of Tamil Nadu7
(viii) Weston Electronics and another v State of Gujarat and another8
(ix) Hi- Beam Electronics Pvt Ltd., and another v State of Andhra Pradesh
and another9
(x) Andhra Steel Corporation v Commissioner of Commercial Taxes in
Karnataka10
(xi) Lohran Steel Industries Limited v State of Andhra Pradesh11
10. According to them the above judgments would support the
position that any condition imposed must be rational, have a reasonable
nexus with the levy sought to be imposed, and not discriminatory. Based
on the above submissions, they pray that the impugned Government
Orders insofar as they contain a restrictive condition denying concessional
rate of tax in cases of dealers engaging in branch/consignment transfers,
be quashed.
11. Per contra, learned Additional Advocate General, at the
outset, points out that it does not lie in the mouth of the assessee to claim
a concession as a matter of right. For this purpose, he would rely on the
judgment of the Supreme Court in ALD Automotive (P) Ltd v Commercial
[(2017) 12 SCC 1]
[AIR 1961 SC 232
[(2004) 10 SCC 201]
AIR 1988 SC 526]
[AIR 1952 SC 196]
[AIR 1970 SC 93]
[61 STC 165]
[70 STC 52]
[71 STC 305]
[78 STC 243]
[105 STC 30]
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Tax Officer12, particularly paragraph 36 thereof.
12. Learned Additional Advocate General takes us through the
Budget Speech of the Hon'ble Finance Minister for the year 1997-98 based
on the report of the Taxation Reforms Committee formed under the
Chairmanship of Hon’ble Justice Thangaraj13 as well as the relevant
Entries under the Act providing for the levy of tax on hosiery and yarn.
13. He submits that the rationale for the condition that has been
imposed has been properly appreciated by the Special Tribunal in the case
of Shri Ramalinga Mills Limited v Secretary to Government, Commercial
Taxes and Religious Endowments Department14. In that order, the
Tribunal has rejected an identical case filed by Shri Ramalinga Mills
noticing that the reasoning for imposition of the condition was not
discriminative but reasonable, and imposed in the interests of the Sate.
14. The decision was challenged by Shri Ramalinga Mills in writ
petition, which ultimately came to be dismissed for default. Hence the
ratio of that order would, according to him, be applicable to the present
cases as well.
15. Learned Additional Advocate General further takes us
through the judgment of nine Hon’ble Judges of the Supreme Court in the
case of Jindal15, particularly, paragraphs 123 to 127 and 130 to 136
thereof, to buttress his submission that there is a difference between the
[2018] 99 taxmann.com 202 (SC)
in short ‘Committee Report’
[(2001) 122 STC 365]
Foot note supra 1
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aspects of 'differentiation' and 'discrimination'. According to him, what has
transpired in the present case, is only the former. He maintains that the
State holds the exclusive prerogative to impose such a condition in public
interest.
16. The Budget Speech of the Hon'ble Finance Minister was
based on the report of the Committee that had made recommendations
for concessional rate in order to provide a fillip to dealers of hosiery goods
and yarn in the State. Hence, he would argue that the condition imposed
is rational and ought to be upheld.
17. We have heard all learned counsel and perused the papers
and case law. The impugned Government Orders are extracted below in
full:-
INTER-STATE SALE OF READY-MADE GARMENTS
AND HOSIERY GOODS
RATE OF TAX (TAMIL NADU)
NOTIFICATION G.O. Ms.No.273, Dated the 5th
August, 1996.
No. II (1) / CTRE/84 (a-2) /96 - In exercise of the
powers conferred by Sub-Section (5) of Section 8 of
the Central Sales Tax Act, 1956 (Central Act 74 of
1956) the Governor of Tamil Nadu, having been
satisfied that it is necessary so to do in the public
interest, hereby directs that the tax -
(1) payable by any dealer in respect of the sale
effected by him of ready-made garments including
undergarments and body supporting garments
(excluding hosiery goods) in the course of inter-
State trade or commerce shall be calculated at the
rate of 4%.
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(2) Payable by any dealer, who does not have any
branch transfer or consignment transfer during a
year, shall be calculated at the reduced rate of one
per cent in respect of the sale effected by him of
hosiery goods (other than those made of wool) in
the course of inter-State trade or commerce.
SALES OF MAN-MADE FIBRES, FIBRE YARN,
FILAMENT YARN ETC., - REDUCTION IN RATE OF
TAX (TAMIL NADU)
Notification G.O.Ms. No.73, dated the 5th March,
No. II (1) /CTRE/22(a-6) - In exercise of powers
conferred by sub-section (1) of section 17 of the
Tamilnadu General Sales Tax Act, 1959 (Tamilnadu
Act 1 of 1959) the Governor of Tamilnadu hereby
makes a reduction in rate to two per cent in respect
of the tax payable under the said Act on the sale of
the following goods by any dealer who does not
have any branch transfer or consignment transfer
during the year:
(a) Man-made stable fibre, fibreyarn, filament
yarn and waste of any of them
(b) Jari of all kinds including metallic yarn,
metallic yarn, polyester film yarn and radiant
yarn.
G.O.Ms.No.108
REDUCTION OF TAX PAYABLE ON SALE OF
MANMADE STAPLE FIERES FIBRE YARN, ETC., TO
CERTAIN DEALER UNDER TANILNADU GENERAL
SALES TAX ACT .
(G.O.Ms No. 108, Commercial Taxes and Religious
Endowments 7th April, 1998)
No. II (1) CTRE/43 (d-2) /98,
In exercise of the powers conferred by subsection
(1) section 17 of the Tamilnadu General Sales Tax
Act, 1959 (Tamilnadu Act 1 of 1959), the Governor
of Tamilnadu hereby makes a reduction in rate to
two per cent in respect of the tax payable under the
said Act on the sale of manmade staple fibre, fibre
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yarn, filament yarn and waste of any of them by
any dealer who does not have any branch transfer
or consignment transfer to outside the State during
the year.
2. This notification shall be deemed to have come
into force on the 27th day of March, 1998 and shall
remain in force upto and inclusive of the 26th
March, 1999.”
18. The genesis for the Government Orders is the report of the
Sales Tax Reforms Committee chaired by Hon'ble (Retd) Mr.Justice
Thangaraj. The remit to the Committee was to examine the avenues of
loss of commercial taxes in the State of Tamil Nadu and propose reforms
that would be in the interests of both the exchequer as well as the
economy. The narration and background as recorded by the Committee in
the context of man-made fibers reads as follows:-
“MANMADE FIBRES
Manmade Staple Fibres, Fibre Yarn, Filament
Yarn and Waste of any of them are taxable at 8%
under Entry 27 of Part-C of First Schedule to the
TNGST Act, 1959.
Jari of all kinds including Metallic Yarn,
Metallic Jari Yarn, Metallic Plastic Yarn, Plastic Yarn,
Polyester Film Yarn and Radiant Yarn are taxable at
8% under Entry 24 of Part-C of First Schedule to
the TNGST Act, 1959.
A comparison of Sales Tax on Staple Fibre,
Fibre Yarn imposed by other States in India will
show that the rate of tax in Tamil Nadu is relatively
highest.
Bihar : Nil
Madhya Pradesh : 2%
Maharashtra : 2%
West Bengal : 3%
Pondicherry : 1%
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Kerala : 2.5%
Karnataka : 2%
Andhra Pradesh : 4%
The present Central Government policy
permits multi fibre flexibility allowing the mills the
use of different fibres. This has been done to
achieve the objective of making available quality
cloth of blended varieties to the population at
reasonable prices. It is estimated that Tamil Nadu
consumes 50,000 M.Tonnes of Polyester Staple
Fibre per annum and the consumption of Viscose
Staple Fibre in Tamil Nadu is about 40,000
M.Tonnes per annum.
However, less than 10,000 M.Tonnes alone is
sold locally in view of higher levy of tax at 8% as
against lesser levy of 2% prevailing almost in all
States in India. No appreciable revenue is realised
by the State as 90% of the Staple Fibre is billed
from outside the State.
It has been estimated by the Trade that a
turnover of about Rs.650 crores both in fibre and
yarn is involved in this and reduction in the rate of
tax to 2% will yield considerable increase in the
revenue with maximum sale taking place within the
State by way of direct first sale in Tamil Nadu.”
MANMADE FIBRE YARN
It has also been represented that Tamil Nadu
Mills producing Polyester Staple Fibre Yarn, Viscose
Staple Fibre Yarn, Polyester Filament Yarn could not
sell their yarn to the consumers within the State in
view of higher incidence of taxation at 8%.
A large number of Textile Mills in Tamil Nadu
are engaged in the use of 100% Viscose Staple
Fibre Yarn. This yarn is converted into grey fabrics
in large number of powerlooms and the cloth
manufactured caters to the lower strata of the
Society. It has been stated that on a rough estimate
in Pallipalayam area alone, a total quantity of 5250
M.Tonnes of Viscose Staple Fibre Yarn is consumed,
of which 3150 M.Tonnes of Viscose Staple Fibre
Yarn is supplied by North based Mills. Consequently,
Mills in Tamil Nadu have resorted to sell their
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produces on consignment or Depot transfer basis
through Pondicherry as the incidence of Sales Tax is
only 1% resulting in loss to our State.
Hence it is represented that if the rate of tax
is reduced to 2%, all local mills will start selling
their produces within the State of Tamil Nadu which
would greatly help the local manufacturing mills to
have an edge over the North-based mills and to
compete with them and thereby increasing their
market share. Above all, it would fetch more than
Rs.6 crores per annum to the State which is
hitherto going to the other States. (The enclosed
case study of IOCL will justify the above
recommendations).”
19. The recommendations of the Committee read thus:-
“RECOMMENDATIONS:
1. The rate of tax leviable on the last purchase of
Cotton at 4% under Entry 2 of Second Schedule to
the TNGST Act, 1959 be REDUCED to 2%. The
incidence of taxation from the point of last purchase
be shifted to the point of first sale in respect of
goods purchased from outside the State and for the
rest, at the point of first purchase in the State as
exists in the case of oil seeds.
2. The rate of tax leviable at 8% on the sale of
Viscose Staple Fibre under Entry 22 of Part-C of
First Schedule be REDUCED to 2% both under the
TNGST Act, 1959 and CST Act, 1956 with or without
'C' Form.
3. The rate of tax leviable at 8% on the sale of
Polyester Staple Fibre under Entry 24 of Part-C of
First Schedule be reduced to 1% both under the
TNGST Act, 1959 and CST Act, 1956 with or without
'C' Form.
4. The rate of tax leviable at 8% on the sale of
Manmade Staple Yarn, Polyester Filament Yarn,
Radiant Yarn and Filament Yarn and Wastes of any
kind coming under Entries 22 and 24 of Part-C of
First Schedule be REDUCED to 2%.
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5. The rate of tax leviable at 4% on the sale of
Cotton Yarn (both Cone Yarn and Hank Yarn),
Manmade Fibre Yarn, Polyester Filament Yarn,
Radiant Yarn and Wastes of any kind under the CST
Act, 1956 be REDUCED to 1% with 'C' Form.”
20. It is relevant to note that there is no reference to a
restriction or condition in the Committee Report. In the Budget Speech for
the year 1997–98, the recommendations of the Hon'ble Committee have
been accepted and it is only then that a condition is imposed, that too, in
the context of man-made fibre and yarn only. The relevant portion of the
Budget Speech of the Hon'ble Finance Minister is extracted below:-
“159. I had announced a long term taxation policy
in the last year's Budget to foster a stable, clear
and friendly taxation environment for stimulating
industrial growth and commerce. Accordingly, many
reforms were undertaken in the Sales Tax structure.
Taxes were reduced in respect of several
categories. Trade and Industry have welcomed
these measures. Following this, a Sales Tax
Rationalisation Committee was constituted under
the Chairmanship of Thiru C. Thangaraju, I.A.S.
(Retd.) to make recommendations for necessary
further changes in commercial taxes. After careful
consideration of the report of this Committee it has
been decided to make the following changes in
Sales Tax. I hope these changes would provide
further impetus to the growth of agriculture,
industry and trade in our State.
...
170. Sales Tax on Hosiery goods is being reduced
from 4% to 1%.
171. Sales Tax Rationalisation Committee has now
recommended certain changes in the rates of sales
tax in order to minimise the present widespread tax
evasion in certain commodities and promote sales
within the State. The following decisions have been
taken on the basis of these recommendations:-
* Purchase tax on cotton is being reduced from 4%
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to 2%.
* Sales tax on Zari is being reduced from 8% to
2%.
* Sales tax on man-made yarn and fibre will be
reduced from 8% to 2% on the condition that there
shall not be any sale by way of branch transfer to
agents in other States or consignment transfer.”
21. In the Budget Speech, the rate of tax for hosiery goods
stands reduced from 4% to 1%, sans any condition. The rate qua man-
made fiber has been reduced from 8 % to 2% on condition that the dealer
shall not engage in branch/consignment transfer. This is further expanded
in the impugned Government Orders to hosiery as well. What is assailed
before us is the condition in relation to branch/consignment transfer in the
impugned Government Orders, particularly since there is no elaboration as
to what the branch or consignment transfer should relate to.
22. It certainly cannot be the intention of the Legislature that the
benefit of concessional rate should be denied to all dealers who engage in
branch/consignment transfers, irrespective of the goods dealt with, which
is the impact of the condition under the impugned Government Orders.
This is undoubtedly a flaw in the condition imposed.
23. To put it alternatively, while the Government Order grants
the benefit of concessional rate of rate for yarn and man-made fibre, the
condition imposed is that the dealer seeking the concession should not
engage in branch/consignment transfers of any goods or products.
24. Section 6A of the Central Sales Tax Act, 196916 which
(in short, 'CST Act')
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provides for burden of proof in cases of transfer of goods claimed
otherwise than by way of sale, enables a branch transfer as a statutory
right, upon production of the necessary forms. Hence the imposition of the
present condition would militate against the right granted under Section
6A of the CST Act. That apart, such denial qua the entire quantum of
sales, is also, in our view, disproportionate.
25. The offending condition does not figure in the Committee
Report and thus does not emanate from the recommendations of the
Committee. We clarify that, undoubtedly, an interstate sale camouflaged
as branch or consignment transfer must be enquired into and addressed
appropriately. Hence, it is certainly open for the authorities to look into
the veracity of such a transaction.
26. However such a position has not arisen in the present cases
and instead, the condition imposed under the impugned Government
Orders encompass all branch/consignment transfers, irrespective of the
goods dealt with. We agree with the petitioners that such imposition has
the adverse effect of impinging on the rights of the petitioners to engage
in free and unfettered trade as it forces the petitioners to make an
unnecessary choice between whether it engages in legitimate branch /
consignment transfers, or avail the concessional rate of tax.
27. Thus, what the State hopes to achieve by virtue of imposition
of this condition remains a mystery. While it is a settled position that the
State may impose such conditions as may be appropriate in the grant of
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concessions, such conditions cannot be arbitrary or discriminatory and
must have a sound rationale. In Shri Ramalinga Mills Ltd (supra) the
Special Tribunal has justified the condition in the following terms:-
‘Therefore, only for the purpose of realising the
sales tax within the State, the Government of Tamil
Nadu has restricted the branch transfer and
consignment transfer for those who wanted to avail
the concessional rate of tax at 2 per cent and for
others who make branch transfer and consignment
transfer to pay the tax at 8 per cent. Therefore, it
cannot be stated that the Government of Tamilnadu
has made any discrimination in the levy of tax or
restricted the free movement of goods in violation
of the freedom given under article 304(a) of the
Constitution. When the goods manufactured within
the State are moved outside the State, the State
incurs heavy loss and therefore, the consignment
transfer or branch.”
28. The Special Tribunal observes that when goods manufactured
within the State are moved outside the State, such transfers result in
heavy revenue loss. Aside from the fact that there cannot be an omnibus
bar on branch / consignment transfers without caveat whatsoever, this is
also opposed by the Appellants on facts. They submit that the quantum of
consignment sales in their cases is only a fraction of the domestic sales
and affidavits have been filed by some of the petitioners to the effect that
branch transfers are only a minuscule portion of their business. They
should hence, should not have such egregious impact on the viability of
their business. The restriction imposed is thus clearly arbitrary and
disproportionate when compared with the object avowedly sought to be
achieved, which object is itself, unclear.
29. We are also of the considered view that the condition
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imposed is discriminatory as it carves out one group of dealers from
amongst a class of dealers, all of whom are engaged in sale of yarn and
man-made fibre, for prejudicial treatment. Those assessees who deal in
yarn and man-made fibre and who do not engage in branch/consignment
transfers have been granted the concessional rate of tax whereas, those
do engage in such transfers are denied the benefit.
30. Article 301 of the Constitution guarantees the freedom of
trade, commerce and intercourse subject to the restrictions under Article
304(a). The judgment in Atiabari Tea Co. Ltd. (supra) has been discussed
minutely in the case of Jindal Stainless Steel Ltd. (supra). The conclusion
was that the non-discriminatory tax does not, per se, constitute a
restriction on the right to free trade, commerce and intercourse
guaranteed under Article 301 of the Constitution of India. Thus, the ratio
in Jindal Stainless Steel Ltd. (supra) is that a declaration to the effect that
taxes, generally, are restrictions on the freedom of trade, commerce and
intercourse, would not be liable to be granted.
31. In the present case, there is no such generality with which
we are concerned but a specific cause of action created by the offending
condition in the impugned Government Orders. In our considered view,
the condition imposed does have the consequence of making an
unjustified discrimination and not a differentiation, between the petitioners
before us and other dealers dealing with hosiery and man-made fibre as
the condition does not have a nexus with the goods that are the subject of
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the branch / consignment transfers.
32. The Committee had suggested the measure of reduction of
tax in order to provide an impetus to dealers in the hosiery and man-
made fibre in Tamil Nadu, and does not mention anywhere that a
corresponding limitation should be built into such a concession. It is only
the State which has thought it fit to impose the condition and that too
without any correlation of the goods in respect of which concessional rate
has been extended on the one hand and the branch/consignment
transfers on the other.
33. Clearly, and to this extent, there is a lacunae in the
Government Orders. The judgment of the Supreme Court in Video
Electronics P. Ltd. V. State of Punjab17, recognized the critical difference
between differentiation and discrimination holding that every
differentiation would not amount to a discrimination. This has been
amplified in Jindal Stainless Steel Ltd. (supra) to state that so long as
there was no such element of intentional and unfavourable bias evident
from the measures adopted by the State, the mere grant of exemption or
incentives aimed at supporting local industries in their growth,
development and progress do not constitute discrimination.
34. In the present case, the measures adopted by the State tip,
and in our view, unjustifiably, towards those assessees dealing in yarn and
man-made fibre who did not engage in branch/consignment transfers. We
say unfavourably, since there is no basis or rationale for such bias in their
1990 3 SCC 87
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favour. Hence, the ration of the judgements in Video Electronics P. Ltd.
(supra) and Jindal Stainless Steel Ltd. (supra) would wholly support the
conclusion that we have arrived at in these cases.
35. For the aforesaid reasons, the condition imposed under the
impugned Government Orders are quashed. Orders of assessment and
show-cause notices insofar as they relate to the present issue are also
quashed. All the Writ Petitions are allowed. No costs.
36. Writ Appeal No. 3615 of 2003 has been filed challenging
order dated 22.09.2003 passed by the writ court in W.P.No. 38555 of
2002 directing the appellant to file a reply to a show cause notice dated
13.09.2000 and finding that the writ petition was premature. In light of
the fact that the impugned Government Orders based upon which the
impugned show-cause notice was issued has been quashed, we find no
reason to relegate the appellant to statutory remedy. The Writ Appeal is
also allowed. No costs. Connected miscellaneous petitions are closed.
[A.S.M., J] [C.K., J]
07.04.2025
Index:Yes
Neutral Citation:Yes
ssm
To
1.The Secretary,
The Union of India,
Ministry of Revenue and Finance,
New Delhi.
2.The Secretary,
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Dept. of Commercial Taxes and Religious Endowments,
Fort St.George, Chennai – 9.
3.The Special Commissioner and Commissioner of
Commercial Taxes, Ezhilagam, Chepauk,
Chennai – 600 005.
4.The Assistant Commissioner (CT),
Salem Bazaar Division, Salem.
5.The Commercial Tax Officer,
Salem Bazaar Division, Salem.
6.The Tamil Nadu Sales Tax Appellate Tribunal
(Additional Bench), Coimbatore – 641 018.
7.The Appellate Assistant Commissioner
of Commercial Taxes, Pollachi.
8.The Commercial Tax Officer,
Udumalpet (North), Udumalpet.
9.The Commercial Tax Officer (FAC),
Tirupur (Rural) Assessment Circle,
Tirupur.
10.The Secretary to Government,
Commercial Taxes & Religious Endowments Department,
Fort St.George, Chennai.
11.The Deputy Commercial Tax Officer,
Gobichettipalayam.
12.The Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 9.
13.The Commercial Tax Officer (FAC)
Thirupparankundram Assmt. Circle,
Madurai – 20.
14.The Tamilnadu Taxation Special Tribunal,
Singaravelar Maligai,
Rajaji Salai, Chennai.
15.The Commercial Tax Officer,
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Sivagangai.
16.The Tamil Nadu Taxation Special Tribunal,
Rep. by its Registrar,
Singaravelar Maligai, Rajaji Salai,
II Floor, Chennai – 600 001.
18.The Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 600 009.
19.The Commercial Tax Officer (FAC),
Tirupparankundram Assmt. Circle,
Madurai – 20.
20.The Registrar,
The Tamilnadu Taxation Special Tribunal,
Singaravalar Maligai,
Chennai.
21.The Secretary to Government,
Commercial Taxes Department,
Fort St.George, Chennai – 600 009.
22.The Commercial Tax Officer,
Nethaji Road Circle,
Madurai.
23.The State of Tamil Nadu
Rep. by Secretary, Commercial Taxes
Commercial Taxes Department,
Fort St.George, Chennai.
24.The Special Commissioner,
Commercial Taxes, Chepauk, Chennai.
25.The Commercial Tax Officer, (FAC)
Rural Assessment Circle, Tirupr.
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DR. ANITA SUMANTH.,J.
and
C.KUMARAPPAN.,J.
ssm
W.P.No.34885 of 2004 etc
07.04.2025
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