M/S. Steelworth Ltd vs State Of Assam

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 16 January 1962

Coram: B.P. Sinha, J.L. Kapur, M. Hidayatullah, J.C. Shah, J.R. Mudholkar

In this matter the Supreme Court of India considered a petition that was filed on 16 January 1962. The petition was presented by M/s Steelworth Ltd. against the State of Assam. The case was heard before a Bench consisting of Justices B.P. Sinha, J.L. Kapur, M. Hidayatullah, J.C. Shah and J.R. Mudholkar. The issue before the Court arose from a challenge to the constitutional validity of an amendment made to the Assam Sales Tax Act, 1947 (Act XVII of 1947) by the Assam Sales Tax (Amendment) Act, 1960 (Act XIII of 1960). The specific provisions under scrutiny were section 15(1)(b)(i)(b) and (c) of the original Act, which had been altered by the amendment. The petitioner argued that the amendment was inconsistent with Articles 14 and 19(1)(f) of the Constitution of India.

The petitioner’s business involved manufacturing, selling and supplying iron and steel materials within the State of Assam. Prior to the amendment of 1960, the company possessed a registration certificate that exempted all its purchases used in the manufacture or production of goods liable to sales tax under the Act. After the amendment, the registration certificate no longer exempted certain items such as cast iron, iron plates, steel bars and galvanised wire, which the petitioner used in producing its finished products, and consequently the company became liable to pay sales tax on those inputs. The petitioner contended that by deleting sub‑clause (b) the amendment introduced a discriminatory distinction between materials bought to fulfil a specific contract and those purchased for goods that the petitioner produced and sold on its own account. The petitioner maintained that this distinction lacked any intelligible differentia, was unreasonable, and therefore breached the equality principle of Article 14 and the freedom to carry on trade guaranteed by Article 19(1)(f). The Court held that the primary purpose of the amending legislation was to raise revenue for the State. It observed that the legislature possessed the authority to decide which articles should be subjected to tax and which should be exempted, and that such fiscal policy decisions lay beyond judicial scrutiny. Accordingly, the Court found that the amendment did not amount to discrimination because the anti‑discrimination provision in the Act applied to persons rather than to specific articles, and the petitioner failed to demonstrate that the tax imposition constituted an unreasonable restriction on its right to conduct trade.

The petition was filed under Article 32 of the Constitution seeking enforcement of fundamental rights. Counsel for the petitioner were C. B. Agarwala, R. L. Agarwala and P. C. Agarwala, while counsel for the respondents was Naunit Lal. The judgment was delivered on 16 January 1962 by Justice Kapur. In his delivery, Justice Kapur explained that the amendment introduced by section 2 of the Assam Sales Tax (Amendment) Act, 1960 deleted sub‑clause (b) of item (i) of sub‑clause (b) of clause (1) of section 15 of the original Act. By this deletion, sales of goods to a registered dealer that were intended for use in the production of goods for sale became taxable. The appellant, identified as a limited company, was engaged in the business of manufacturing, selling and supplying iron and steel materials within the State of Assam.

In the present case the petitioner company possessed a Registration Certificate issued under the Assam Sales Tax Act before the amendment made in 1960. Under the provisions of the original Act, every purchase that the company made for use in the manufacture or production of goods that were themselves taxable under the Act was exempt from the levy of sales tax. After the amendment, however, the Registration Certificate was altered by deleting certain categories of goods—specifically cast iron, iron plates, steel bars and galvanized wire—that the petitioner employed in the manufacture of its finished products, which were also subject to tax in the State. As a consequence of this deletion, the petitioner became liable to pay sales tax on those inputs, and the additional tax burden increased the cost of its production.

The petitioner raised three principal submissions. First, it argued that the amendment introduced by Act XIII of 1960 violated Article 14 of the Constitution because it created a discrimination between manufacturers who produce goods according to external orders and those who manufacture goods on their own account and sell them. Second, it contended that the restriction imposed by the amending legislation was excessive and therefore infringed Article 19(1)(f). Third, it submitted that the refusal to modify the Registration Certificate by reinstating the deleted items adversely affected the company’s rights under Article 19(1)(f). To evaluate these submissions, the Court considered the overall scheme of the Assam Sales Tax Act, 1947 (Act XVII of 1947).

The Act defines “contract” in section 2(2)(a)(b) as any agreement for carrying out work for cash, deferred payment or other valuable consideration, covering (a) the preparation, construction, fitting‑out, improvement or repair of any movable property or of any building, road, bridge or other immovable property, and (b) the installation or repair of any machinery affixed to a building or other immovable property. Section 9 imposes compulsory registration on dealers, while section 12 provides that a dealer who registers under section 9 shall receive a certificate of registration specifying the class or classes of goods in which the dealer carries on business and any other particulars prescribed by the law. Section 15(1)(b)(i)(b) and (c) deal with exemptions and state that the net turnover of a dealer is determined by deducting from the gross turnover the dealer’s turnover from sales to a registered dealer of (i) goods specified in the purchaser’s certificate as intended for use in the manufacture or production of any goods that are taxable under the Act, or (ii) goods used in the execution of any contract. The amending Act has now omitted sub‑clause (b), so that from the gross turnover of a dealer the value of goods specified in the certificate of registration as intended for manufacture or production is no longer deducted.

It was observed that the provision which previously exempted material that a dealer intended to use in the manufacture or production of goods for sale has now been deleted. The petitioners argued that by deleting sub‑clause (b) the amendment created discrimination between two categories of material: those bought for the petitioner’s own manufacturing and sale, and those purchased for use in performing a contract. They further contended that the purpose of amending the Sales Tax Act was to prevent the evasion of tax by manufacturing goods in the State and then sending them elsewhere, and that this purpose could be achieved by taxing only the material intended for that kind of manufacturing.

The Court noted that the amending Act forms part of the General Sales Tax Act of the State of Assam, whose primary purpose is to raise revenue for the State. It held that it is the Legislature’s prerogative to decide which articles are to be taxed and which are to be exempted, and that such a legislative decision does not, in itself, create discrimination. While the petitioners maintained that discrimination arose from differentiating material bought for contract‑related supply from material used for the petitioner’s own production, the Court found this contention unconvincing. The Legislature, having selected the articles it considered necessary to tax, cannot be said to have treated goods supplied under contract and goods manufactured and sold by the petitioner as similarly situated. Moreover, the anti‑discrimination provision applies to persons, not to articles, and no showing was made that the tax imposed an unreasonable restriction on the petitioner’s right to trade.

The petitioners also submitted that the tax would hinder their ability to compete with manufacturers outside Assam. Assuming that premise, the Court observed that purchased goods may be put to different uses, and that the Legislature’s choice to tax certain classes of goods while exempting others is a policy decision beyond judicial scrutiny. Accordingly, the Court concluded that, in the present circumstances, there is no intrinsic discrimination. The second contention was likewise found to lack merit. Consequently, the Court held that the Sales Tax Officer’s refusal to amend the registration certificate cannot stand. The petition was dismissed, the rule discharged, and the petitioner was ordered to pay the respondent’s costs.