STATE OF MADRAS versus N. K. NATARAJA MUDALIAR

Citation: [1968] 3 S.C.R. 829 · Decided: 18-04-1968 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Appeal(s) allowed

Cited by 18 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

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STATE OF MADRAS 
v. 
N. K. NATARAJA MUDALIAR 
April 18, 1968 
[J. C, SHAH, R. S. BACHAWAT, G. K. MITTER, 
C. A. VAIDIALINGAM AND K. S. HEGDE,.JJ.J 
Central Sales Tax Act, 1956--Different rates bf tax in different States 
under s. 8 sub-els. (2), (2A) and (5)-These provisions whether void for 
contravention Arts. 301 and 303 of the 
Constitution-Computa'tion of 
turnover under s. 9(3) of Act-Mlist be in the same manner as under 
State law of sales tax-Excise Duty must be exclua•d if State law so 
provides. 
Constitution of India, Arts. 301, 302, 303 and 304-Differential rates 
of Central Sales Ta::c in diff'erent States under s. 8, sub-els. (2), (2A) and 
(5) of Central Safes Tax Act, 
1956-Freedom of trade and commerce 
whether hanzpered-Diw:rbnination between one State and another whe-
ther results. 
The respondent claimed before the Commercial Tax Officer, Madras 
that some of his goods had been sent from Madras to his depot in A.lldhra 
Pradesh and that the sales of those goods were intra-State sales in Andhra 
Pradesh where they had been taxed as such. The Commercial Tax Offi-
cer however held that the goods had been 
moved 
from 
the State of 
Madras under contracts of sale and were therefore taxable as inter-State 
sales under the Central Sales Tax Act, 1956. The respondent fil~d a peti-
tion under Art. 226 of the Constitution. 
The High Court did not deter-
mine the nature of the transactions, but held that sub-ss. (2), (2A) and 
(5) df s. 8 of the Central Sales Tax Act as they stood at the relevant 
time imposed or authorised the imposition of varying rates of tax in diffe-
rent States on similar inter-State transactions and the resultant inequality 
in the burden of tax affected and impeded inter-State trade, commerce 
and intercou'rse and thereby offended Arts. 301 and 303(1) of the Cons-
titution. The application of s. 9(3) of the Act was 
also 
considered. 
Against the High Court's jud!ll11ent the State appealed. 
HELD: (i) Restrictions or impediments which 
directly and imme-
diately impede or hamper the free flow Of trade, 
commerce and inter-
course whether inter~State or intra~State fall within the prohibition im-
posed by Art. 301 ind subject to other provisions 
may be regarded as 
void. A tax may in certain cases direct1y and ·immediately restrict or 
hamper the :flo'v of trade but every imposition of tax does not do so. 
[840 DJ 
Atiabari Tea Co. Ltd. v. State of A.rsam & Ors. [1961] I S.C.R. 809, 
Auto1nobi/e. Transport (Rajasthan) Ltd. v. State of Rajas:han 
& Ors .. 
[1963] I S.C.R. 491 and Firm A.T.B. Mehtab Majid and Co. v. State of 
Madm< & Anr. [1963] Supp. 2 S.C.R. 435, relied on. 
(ii) 'fax. under the C·entral Sales Tax: Act on inter..State sales is in its 
essence a tax: which encumbers. movement of trade and commerce, since 
hy the definition in s. 3 of the Act a sale or purchase of the goods is 
deemed lo take place in the course of inter-State trade. if it-(a) occa-
sions the: movement of goods 'from one. State to another; (b) is effected 
by a tr2 nsfer of documents of title to the goods during the movement 
from one State to anothCT. But the tax: in the present case was saved by 
the operation of Art. 302 of the Constitution whereby Parliament is, 
notwithstanding the protection conferr~d by Art. 301 authorised to impose 
I 
830 
SUPREME COURT REPORTS 
(1968) 3 S.C.R. 
restrictions on the freedom of trade, commerce or intercourse bet\veen one 
A 
Stale and another or within any part of the territory of India al.i may be 
required in the public interest. [841 C--EJ 
The expression 'between one State and another' _does not imply that 
the power under Art. 302 can be exercised only in respect of trade bet-
ween one State and another as two entities. 
The Article expressly pro• 
vides that restrictions may be imposed not only as between one State and 
another but also within any part of the territory of India. There is also 
B 
no doubt that exercise of the power to tax may normally be presumed 
to be in the public interest. [841 F-H] 
(iii) The Central Sales Tax Act does not discriminate bet"'·een one 
State and another within the meaning of Art. 303. 
An Act which is merely enacted for the purpose df imposing tax which 
is to be collected and to be retained by the State does not amount to law 
giving or authorising the giving of any preference to one State over an-
other, or making, or authorising the making of any discrimination bet· 
ween one State and anoth

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