JUDGMENT M. Katju, J.
1. Both the above writ petitions are being disposed of by a common judgment.
2. Heard Sri Shanti Bhushan, learned Senior Advocate, Sri Bharat Ji Agrawal, learned Senior Advocate, Sri Piyush Agrawal and Sri Sanjay Pathak appearing for the petitioners and learned Additional Advocate-General and Standing Counsel for the respondents.
3. These writ petitions have been filed for quashing the impugned notification dated February 27, 1998 (vide annexure 1 to the writ petition) insofar as the condition No. 1 in the said notification is concerned.
4. The petitioners are public limited companies incorporated under the Indian Companies Act having their manufacturing units in Rewa in the State of Madhya Pradesh where the petitioners are carrying on the business of manufacturing of cement which is sold in several States.
5. In para 5 of the petition it is stated that for the manufacture of cement in its factory at Rewa in Madhya Pradesh, the petitioners procure fly ash from the Thermal Power Station, Unchahar and Panki Power Station, Kanpur, in the State of U.P. A true copy of the statement of fly ash procured by the petitioner from Unchahar Thermal Power Station and Panki Power Station during the assessment year 1998-99 is annexure 3 to the petition.
6. Section 5 of the U.P. Trade Tax Act, 1948, empowers the State Government to grant rebate on the sale and purchase of any goods. Section 5 states as follows :
"(1) Where the State Government is satisfied that it is expedient in the public interest so to do, it may by notification and subject to such conditions and restrictions as may be specified therein, allow a rebate up to the full amount of tax levied on any specified point on,--
(a) the sale or purchase of any goods, or,
(b) the sale or purchase of such goods, by such person or class of persons as may be specified in the said notification.
(2) The rebate under sub-section (1) may be allowed with effect from a date prior to the date of the notification."
7. By the impugned notification dated February 27, 1998 (annexure 1 to the petition) rebate of 25 per cent on goods having fly ash contents between 10 and 30 per cent by weight and a rebate of 50 per cent on the goods having fly ash content exceeding 30 per cent by weight on the tax levied under the Act has been granted. However, the said rebate has been restricted to the units established in the areas mentioned in column (2) of the said notification. These areas are all in the State of U.P. Hence the rebate has been granted only to units established in U.P. and not to those which have been established outside U.P.
8. The short submission of Sri Shanti Bhushan, learned counsel for the petitioners is that condition No. 1 in the impugned notification dated February 27, 1998 is violative of Articles 301 and 304(a) of the Constitution. The aforesaid condition in the said notification states :--
"Such goods shall be manufactured in a unit established in the areas mentioned in column (2) of the annexure."
9. In column (2) all the areas are in the State of Uttar Pradesh at the time when the said notification was issued (subsequently some areas have gone to the State of Uttaranchal).
10. Learned counsel for the petitioner has submitted that there cannot be discrimination between the goods produced within U.P. and similar goods produced outside U.P.
11. We entirely agree with this submission. In fact we have discussed this matter in great length in our judgment in Indian Oil Corporation Ltd. v. State of U.P. (Writ Petition No. 251 of 2003 decided on January 27, 2004 reported in [2004] 137 STC 399 supra). That decision has referred to several Supreme Court rulings which we need not reiterate here. In that decision we have discussed in detail the historical and economic background of Article 301 of the Constitution.
12. However, we are referring to the additional rulings cited by Sri Shanti Bhushan. Sri Bhushan has relied on the decision of the Constitution Bench of the Supreme Court in Firm A.T.B. Mehtab Majid & Co. v. State of Madras [1963] 14 STC 355 (SC) where it was observed :
"Taxing laws can be restrictions on trade, commerce and intercourse, if they hamper the flow of trade and if they are not compensatory taxes or regulatory measures............ Sales tax, which has the effect of discriminating between goods of one State and goods of another, may affect the free-flow of trade and it will then offend against Article 301 of the Constitution of India and will be valid only if it comes within the terms of Article 304(a)."
In the aforesaid decision of the Supreme Court also observed :
"Article 304(a) enables the Legislature of a State to make laws affecting trade, commerce and inter-course. It enables the imposition of taxes on goods from other States if similar goods in the State are subjected to similar taxes, so as not to discriminate between the goods manufactured or produced in that State and the goods which are imported from other States."
13. Sri Shanti Bhushan then relied on the Supreme Court decision in Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 where the Supreme Court has explained its earlier judgment in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82.
14. The decision in Video Electronics Pvt. Ltd. [1990] 77 STC 82 (SC), only carves out a very limited exception to the main rule of non-discrimination in respect of new units, and that too for a limited period established in a specified area.
15. Under Section 4-A of the U.P. Trade Tax Act, 1948 provision has been made for granting tax holiday for a certain period to new industries, and similar provisions exist in almost all State enactments dealing with sales tax. These provisions have been made to encourage industrialisation of the State, but they are only for new units and for a limited period. The condition No. 1 in the impugned notification is not limited to new units, and hence in our opinion it does not come within the exception carved out by Video Electronics Pvt. Ltd.'s case [1990] 77 STC 82 CSC).
16. In Loharn Steel Industries Ltd. v. State of Andhra Pradesh [1997] 105 STC 30, the Supreme Court observed "Confining exemption only to products manufactured in the State violates freedom of trade and commerce".
17. Similar view has been taken by the Supreme Court in State of Uttar Pradesh v. Laxmi Paper Mart [1997] 105 STC 1.
18. As regards the decision of the Supreme Court in Shree Digvijay Cement Co. Ltd. v. State of Rajasthan [2000] 117 STC 395 Shri Shanti Bhushan submitted that that was issued under Section 8(5) of the Central Sales Tax Act which is a Parliamentary Statement. Sri Bhushan submitted that there is difference between a law made by the State Legislature and a law made by Parliament.
19. Sri Shanti Bhushan submitted that so far as a law made by the Parliament is concerned it is governed by Article 302 of the Constitution. Article 304(a) is a restriction on laws made by the State Legislature and not on laws made by Parliament. Hence the scheme of the Constitution shows that there is a difference between Parliamentary laws and laws made by the State Legislature so far as Part XIII of the Constitution is concerned. Greater latitude is given to laws made by Parliament in this respect as compared to the laws made by State Legislature.
20. On the strength of the above authorities Sri Shanti Bhushan submitted that condition No. 1 in the impugned notification is violative of Articles 301 and 304(a) of the Constitution. He submitted that this condition is severable from the other part of the notification.
21. Learned Additional Advocate-General submitted that the doctrine of severability will not apply, and hence even if the impugned condition in the notification violates Articles 301 and 304 the entire notification will have to be struck down in its entirety. In other words, he has submitted that even if condition No. 1 in the notification is unconstitutional it is not severable from the rest of the notification. Hence we have to decide whether all the goods whether made within the State of U.P. or outside will have to be denied or will get the rebate. He has relied on the decisions of the Supreme Court in Jain Exports Pvt. Ltd. v. Union of India (vide para 11) (1996) 86 ELT 478, Sri Sathya Sai Inst. High Medical Sciences v. Union of India (2003) 158 ELT 675 (vide para 3) and Indian Aluminium Co. v. Thane Municipal Corporation AIR 1992 SC 53 (vide para 5).
22. On the other hand Sri Shanti Bhushan has relied on the decision in Loharn Steel Industries Ltd. [1997] 105 STC 30, where the Supreme Court held that confining the exemption only to products manufactured in the State violates freedom of trade and commerce, and that portion of the notification restricting the exemption to manufacture within the State alone is severable.
23. Para 11 of the judgment of the Supreme Court in Loharn Steel Industries Limited v. State of Andhra Pradesh [1997] 105 STC 30 states :
"It was, however, contended before us by the department that the exemption notification must be read as a whole and, therefore, if we find the exemption notification to be violative of Article 304(a) the entire exemption notification will have to be struck down and not just a portion of it which is discriminatory as contended by the appellants. This question in relation to a taxing statute has been considered by this Court as far back as in 1953 in the case of State of Bombay v. United Motors (India) Ltd. [1953J 4 STC 133 (SC) ; [1953] SCR 1069 at 1097. If the taxing statute imposes tax on subjects which are divisible in their nature and if the covered subjects which are exempted by the Constitution are wrongly taxed, the entire taxing statute need not be declared as ultra vires because it is feasible to separate taxes levied on authorised subjects from those levied on exempt subjects and to exclude the latter in the assessment to tax. In such cases this Court has said the statute itself should be allowed to stand. The taxing authority can be prevented by injunction from imposing the tax on subjects exempted by the Constitution. In the present case the exemption notification as it originally stood exempted all re-rolled finished products sold in the State of Andhra Pradesh from tax provided tax had been paid in the State of Andhra Pradesh on the raw material. This exemption is still available to re-rolled products which are manufactured within the State. No exception can be taken to this part of the notification. Only the portion of the exemption notification which discriminates against goods manufactured outside the State violates the provisions of Article 304(a). In fact the words denying this exemption to goods manufactured outside the State were expressly and specifically added to the original exemption notification by the amending G.O. Ms. No. 1373 of 28th August, 1981. It is this amendment alone, which is clearly severable, that offends Article 304(a). It can, therefore, be struck down. The subsequent notification of 20th March, 1984 proceeds on the same basis. There is no need, therefore, to strike down the entire tax exemption which is granted to all re-rolled steel products sold in the State of Andhra Pradesh and manufactured out of tax-paid raw material purchased in the State of Andhra Pradesh. The discriminatory provision is clearly severable and can be struck down."
24. Sri Shanti Bhushan submitted that the question of severability depends on the intention of the Government, that is, whether, had it been known that this differentiation was not permissible, it would yet have granted the rebate or not. For this proposition he has relied on the decisions of the Supreme Court in R.M.D. Chamarbaugwalla v. Union of India AIR 1957 SC 628, Sawai Bhawani Singh v. State of Rajasthan (1996) 3 SCC 105, DPP v. Hutchinson (1990) 2 All ER 836 (845) (HL) and Commissioner of Police v. Davis (1993) 4 All ER 476 P. 487 (PC), etc.
25. To us it appears from the earlier notification dated June 18, 1997 vide annexure 4 to the writ petition (in which there was no such restriction of the rebate to goods manufactured in U.P.) that the intention was to grant the rebate to all the goods having fly ash contents as specified.
26. This view gets support from the fact that fly ash is a waste product produced in the thermal power generation plants, when coal is utilised for production of electrical energy. As alleged in para 10 of the petition, a huge quantity of fly ash had got stacked in the power plants, and there was acute storage problem. Earlier, fly ash had no utility and was pure waste, but later on research work was done and it was found that it could be used in the manufacture of cement. As alleged in para 13 of the petition, the rebate was granted to provide incentive to the manufacturing units using fly ash in their manufacturing process, so that the fly ash may be consumed, instead of lying waste and creating storage problems. Hence it appears to us that the Government's intention would have been to grant the rebate (to avoid pollution and storage problems), even if it knew that the differentiation between units within U.P and those outside U.P. was not permissible, as that would be incentive to utilise the fly ash.
27. Hence it is obvious to us that the intention of the Government was to grant relief on fly ash produced by manufacturers. Hence we are of the opinion that the decision of the Supreme Court in Loharn Steel Industries Ltd. [1997J 105 STC 30, squarely applies in this case.
28. For the reasons given above the condition No. 1 in notification dated February 27, 1998 is declared illegal and is hereby quashed. Consequential relief in the form of rebate shall be granted to the petitioners within two months. The bank guarantee given by the petitioners shall stand released. Any amount deposited by the petitioners in excess of what was payable by it shall be refunded to it within two months, with interest at 10 per cent per annum.