SHRI DIGVIJAY CEMENT CO. ETC. versus STATE OF RAJASTHAN AND ORS. ETC.

Citation: [1997] 3 S.C.R. 184 · Decided: 21-03-1997 · Supreme Court of India · Bench: A.M. AHMADI · Disposal: Leave Granted & Allowed

Cited by 1 judgment(s) · cites 3 · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
SHRI DIGVIJAY CEMENT .CO. ETC. 
v. 
STATE OF RAJASTHAN AND ORS. ETC. 
MARCH Ll, 1997 
[A. M. AHMADI, 0. AND G.T. NANAVATI AND 
S.P. KURDUKAR, JJ.) 
Central Sales Tax Act, 1956/Central Sales Tax (Registration and Tum-
ove1) Rule;~ 1957/Section 8 (5)-Ru/e 12 (1}-Exercise of power in "Public 
C Interest''-Scope of-Notifications dated 8.1.1990, 27.6.1990 and 7.3.1994 
reducing rates of tax on inters(ate sales of cement as well as dispensing with 
fumishing of declaration in Fann C-Held : Illegal-Not issued in public 
interest-Facilitating evasion of P.ayment of t~Adversely affecting free flow 
of trade, increasing dispatch of cement from Rajasthan to Gujarat and 
D decreasing local sales of cement manufactured in Gujarat-Cannot be sus-
tained merely on account of increase in Rajasthan State Revenue. 
E 
F 
Rajasthan Sales Tax Rules, 1955--Rule 62 (c), Fann ST 18 C-Re-
quirement of fumishing declaration-Not applicable-Cement being " notified 
goods" exempted from fumishing any f onn of declaration. 
Constitution of India, 1950-Articles 301, 304--Notification having 
adverse effect 011 free flow of trade-Violative of Co11stitutional provisio11s. 
The appellants were manufacturers of cement in Gujarat. They 
challenged before the High Court the notification dated 8.1.90, 27.6.90 and 
7.3.94 issued by the State of Rajasthan under Section 8 (5) of the Central 
Sales Tax Act, 1956, reducing the rates of tax on interstate sales of cement 
from 16% to 7% and then to 4% as well as dispensing with the requirement 
of furnishing declaration in Form 'C'. The appellants contended that due 
to reduction of the rate of sales tax by the impugned notifications, the 
cement from Rajasthan was being sold on a larger scale in Gujarat at a 
G cheaper rate and thereby the interest of the cement manufacturers in 
Gujarat was prejudicially affected. The notifications were also challenged 
on the ground that lowering of the rate of tax was not in 'public interest' 
as contemplated under section 8 (5) of the Central Sales Tax Act, 1956 and 
they were also violative of Articles 301 and 303 of the Constitution of India 
H as they had the effect of giving preference to cement manufactured in 
184 
DIGVIJAYCEMENTCO. v. STATE 
185 
Rajasthan and discriminate against the cement manufactured in Gujarat. A 
The High Court dismissed the writ petitions holding that the petitioners 
failed to establish that the effect of the impugned notification was to 
impede or adversely affect the free flow of inter-state trade and commerce; 
Hence these appeals. 
Allowing the appeals, this Court 
HELD :1.1. The impugned notifications were illegal as they were not 
issued in public interest which is a condition precedent for exercise of 
power under Section 8 (5) of the Central Sales Tax Act, 1956. Section 8 (5) 
B 
of the Act which is in the nature of an exception permits the State C 
Government to do what it otherwise could not have done, but only if it is 
likely to subserve public interest. Therefore, when exercise of such power 
was challenged before the High Court, it was for the State to justify the 
same by explaining how it had become necessary to subject all inter-state 
sales of cement to any person or dealer to payment of tax at 4% only and 
also to explain how it had become necessary for it to dispense with the D 
requirement of furnishing declaration in Form 'C' contemplated by sub-
section ( 4) of Section 8 of the Act to the prescribed authority in the 
prescribed manner. No such attempt was made by the State before the 
High Court as to how the impugned notifications were necessary to be 
issued in public interest. [194-F-H] 
E 
1.2. Public interest in Section 8 (5) of the Act has to be interpreted 
in the context of the Act and Articles 301-304 of the Constitution of India, 
aiming at prevention of evasion of tax and prevention of adverse effect on 
the free flow of inter-State trade and commerce respectively. The State 
failed to justify the notification under these grounds. The only justification F 
advanced by the State was that as a result of the impugned notification 
reducing the rate of tax in respect of inter-State sales of cement, the State 
revenue had increased and the increased revenue could be utilised for the 
public of the State and therefore the same could be said to be in 'public 
interest'. This cannot be regarded as sufficient and valid justification as G 
the said notifications had the effect of creating a preference to sale of

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