SHREE DIGVIJAY CEMENT CO. LTD. AND ORS. versus STATE OF RAJASTHAN AND ORS.

Citation: [1999] SUPP. 5 S.C.R. 428 · Decided: 17-12-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Dismissed

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Judgment (excerpt)

A 
SHREE DIGVIJA Y CEMENT CO. LTD. AND ORS. 
v. 
STATE OF RAJASTHAN AND ORS. 
DECEMBER 17, 1999 
B 
[S.P. BHARUCHA, B.N. KIRPAL, V.N. KHARE, D.P .. MOHAPATRA, 
N. SANTOSH HEGDE, JJ.] 
Central Sales Tax Act, 1956-Section 8(5)-Notification dated March 
12, 1997 issued by State of Rajasthan-Reduction in the rate of Sales Tax 
C on inter-state sale of cement by ariy dealer in Rajasthan to 4%-Dispen8ing 
with the requirement of furnishing of declaration in Form C or certificate in 
Form D as provided in Section 8(4) of the Act-Held, valid legal and 
constitutional. 
D 
Constitution of India, 1950-Artic/es 30-1 and 303-Reduction of Sales 
1 
Tax rate to 4% on inter-state sale of cement and dispensing with fur;nishing 
of Form C declaration and Form D certificate-Constitutional validity-
Held, valued and constitutional. 
Petitioners l and 3 were cement companies, having their manufacturing 
E units in the State of Gujarat. The cement manufactured by them were sold 
in Gujarat and elsewhere. 
The State of Rajasthan issued, under Section 8(5) of the Central Sales 
Tax Act, 1956, Notification dated 8th Ja~uary.1990 and 27th January 1990, 
which had the effect of reducing tax on inter-state sale of cement by dealers 
F from Rajasthan to 7% even though in respect of local sales the tax was 
16%. These notifications were challenged by the aforesaid companies in a 
writ petition in the Rajasthan High Court During the pendency of this writ 
petition another notification dated 7th March 1994 was issued by th.e State 
of Rajasthan reducing the rate of tax on inter-state sale of cement to 4%, 
and also dispensing with the furnishing of Form C declaration or Form D 
G certificate by the dealers in Rajasthan who had effected the inter-state sale. 
The aforesaid writ petition was amended, and Notification of March 7, 1994 
was also challenged. 
The grievance of the petitioners was that consequent to such reduction · 
H of sales tax, cement from Rajasthan became much cheaper in the neighbouring 
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SHREE DIGVIJA Y CEMENT CO.LTD. v. STATE 
429 
States like Gujarat, and this affected the local sale of cement manufactured A 
by the petitioners in Gujarat on account of the higher rate of sale tax on local 
sales in Gujarat. It was further submitted that such reduction in rate of tax 
was contrary to the scheme contained in part XIII of the Constitution and was 
therefore, liable to be struck down. 
The writ petition having been dismissed by the Rajasthan High Court B 
the petitioners filed special leave petition which was heard and judgment was 
reserved on 5th March 1997. 
On 12th March 1997, the State of Rajasthan issued yet another 
Notification under Section 8(5) which was similar to the earlier notification c 
whereby it reduced the rate of sales tax on inter-state sale of cement by any 
dealer from that State to 4% and did away with the requirement of Form C 
declaration or Form D certificate required by Section 8(4) . 
This Court on 21st March 1997 allowed the petitioners' Civil Appeal 
and quashed the earlier Notification dated 8th January 1990, 27th January D 
1990 and 7th March 1994. The Court held in Shri Digvijay Cement Co. and 
Anr. v. State of·Rajasthan, [1994) 5 SCC 406 that reducing the rate of tax 
from 16% to 4% had the effect of increasing despatch of cement from 
Rajasthan to Gujarat and reduction of local sale of cement manufactured in 
Gujarat, and consequently had direct and immediate adverse effect on free E 
flow of trade. The Court further held that the notifications dispensing with 
the requirement of furnishing of Form C declaration had the effect of 
facilitating evasion of payment of tax and were therefore, violative of the 
constitutional scheme contained in Chapter XIII. 
The petitioners' writ petition was heard by a Three Judge Bench on F 
26th November, 1998, and it observed that similar earlier notifi.cations had 
been struck down by the Court's decision on 21st March 1997 as violative 
of Articles 301 and 303, and that this judgment required to be considered 
by a larger Bench. 
Consequently the matter came up before the Constitutional Bench for G 
disposal. 
It was submitted on behalf of the petitioners that 
(i) That impugned notification under Section 8(5) was inconsistent with 
the legislative policy contained in the Central Sales Tax Act and was H 
430 
SUPREME COURT REPORTS [1999] SUPP. 5 S.C.R. 
A impermissible: 
B 
(ii) The dispensation of the requirement of furnishing Form C 

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