judgement:
Civil Appeal No. 167274(NT) of 1990.
From the Judgment and Order dated 10.6.1988 of the Karnataka High Court in W.P. Nos. 14255 to 14257 of 1983.
B. Sen, H. Raghvendra Rao and Vineet Kumar for the Appellant.
P.R. Ramasesh for the Respondent.
The Judgment of the Court was delivered by V. RAMASWAMI, J.
Special leave granted.
The appellant is a registered dealer under the Karnataka Sales Tax Act (hereinafter called 'the Act ').
The appellant (hereinafter referred to 'the assessee ') purchases iron scrap from dealers inside and outside the State of Karnataka for the purpose of manufacturing iron ingots, steel rounds and tot steel.
These manufactured goods were 254 sold mostly within the State.
In respect of the Assessment Years 1972 73 to 1974 75, accepting the contentions of the assessee that the goods sold were manufactured out of tax suffered iron scrap, the Commercial Tax Officer exempted the sales turn over of the manufactured goods.
The Deputy Com missioner of Commercial Taxes in exercise of his powers under section 21 of the Act restricted the exemptions but otherwise confirmed the assessment order by his order dated 11.5.
The respondent Commissioner of Commercial Taxes, Bangalore initiated proceedings under section 22(A) of the Act for revising the order of the Deputy Commissioner on the ground that the assessee had been allowed exemption in respect of the turn over of manufactured goods without verifying as to whether the inputs iron scrap nag suffered taxes and that Explanation II to Schedule IV of the Act was applicable or not.
The appellant filed the writ petition praying for the issue of a writ certiorari to quash the show cause notice issued by the respondent under section 22(A) of the Act challenging the constitutional validity of section 5(4) of the Act in so far as it pertains to item 2 of Sched ule IV to the Act read with Explanation II thereof in re spect of its application for the period prior to 1.4.
1978 as violative of Article 304(a) of the Constitution.
It may be pointed out at this stage that in Mangalore Metal House vs State of Karnataka, [1986] 63 STC 482 the High Court upheld the Explanation II to Schedule IV of the Act which is differently worded in its application for the period subse quent to 1.4.1978.
It may also be mentioned that the High Court had confined itself only to the challenge of the constitutional validity of the provision and left open the other question on merits including the validity of the notices to be agitated after exhausting the appellant 's remedy before the Sales Tax authorities.
The High Court was of the view that the provision pro viding for not levying tax, if at an earlier stage tax has been paid, is only in the nature of exemption and the exemp tion arises only on proof that the tax has been paid at an earlier stage on the goods out of which the goods in ques tion were manufactured, that there is nexus between the finished goods and the raw material used for manufacturing the same that it is not correct to state that the tax is not payable on the finished goods manufactured out of local raw material but the discrimination if at all would arise only in the quantum of tax payable, for the tax on finished goods will be definitely higher than on the raw material.
The High Court was of the further view that there is no discrimina tion in the rate of tax between the imported items and the local items of finished goods of iron steel as such and that the variation in the quantum of tax is on account of the scheme of taxation working diffe 255 rently on different dealers, those who import raw material and manufacture and those who locally purchase and manufac ture and hence such an effect is only indirect result and not having direct or immediate impact.
In that view the High Court dismissed the writ petition and gave liberty to the appellant to file objections before the Commissioner of Commercial Taxes for dealing with questions on merits.
This appeal has been filed against the said judgment of the High Court.
The main point that was urged in this appeal was that section 5(4) of the Act in so far as it pertains to item 2 in the IV Schedule read with the Explanation II is violative of Article 304(a) of the Constitution as under that provi sion the sale of finished goods manufactured out of imported raw material is taxed but the sale of finished goods manu factured out of locally purchased raw material is not taxed and that amounts to hostile discrimination in the rate of tax or quantum of tax.
Section 5(4) of the Act is the charging section in respect of declared goods and the relevant portion reads as follows: "(4) Notwithstanding anything contained in sub section (1) (or section 5 B or section 5 C) a tax under this Act shall be levied in respect of the sale or purchase of any of the declared goods mentioned in column (2) of the Fourth Sched ule at the rate and only at the point specified in the corresponding entries of columns (4) and (3) of the said Schedule on the dealer liable to tax under this Act on his taxable turnover of sales or purchases in each year relating to such goods: Provided that where tax has been paid in respect of the sale or purchase of any of the declared goods under this sub section and such goods are subsequently sold in the course of inter state trade or commerce, and tax has been paid under the (Central Act 74 of 1956) in respect of the sale of such goods in the course of inter state trade or commerce, the tax paid under this Act shall be reimbursed to the person making such sale in the course of inter state trade or commerce in such manner and subject to such condition as may be prescribed.
Provided further that in respect of the sale of cereals 256 mentioned in serial number 9 of the Fourth Schedule, made by any person to a procurement agent appointed by the Govern ment of Karnataka or to any sub agent of such procurement agent in pursuance of the Karnataka Rice Procurement (Levy) Order, 1981 or any other foodgrains.
procurement (Levy) Order of the Government of Karnataka for the time being in force, such sale shall not be deemed to be, but the subse quent sale by the said procurement agent or sub agent shah be and shah be deemed to be the point at which the tax under this Act shah be levied.
Provided also that where tax has been paid under this sub section on the purchase of paddy and such paddy is either subsequently sold to or is hulled and the resultant rice is sold to a procurement agent appointed by the Govern ment of Karnataka or to any sub agent of such procurement agent in pursuance of the Karnataka Rice Procurement (Levy) Order, 1984 or any other Foodgrains Procurement (Levy) Order of the Government of Karnataka for the time being in force, the tax paid under this Act on the purchase of such paddy shah be reimbursed to the person making such sale to such procurement agent or his sub agent, as the case may be, in such manner and subject to such conditions as may be pre scribed.
" The IV Schedule to the Act contains a list of declared goods specifying the point of levy and the rate of tax.
Item 2 of this Schedule relates to iron steel since the interpretation of this item is in question the relevant portion of item 2 may be extracted and reads as follows: "FOURTH SCHEDULE S1.
Description of the goods Point of Rate of No. levy tax 1. 2.
(i) pig iron and cast iron including Sale by the first ingot moulds, bottom plates, iron or earliest succes scrap, cast iron scrap runner sive dealer in the scrap and iron skull scrap.
state, liable to tax under this Act.
257 (ii) steelsemis (ingots, slabs, blooms and billets of all qualifies, shapes and sizes).
(iii) skelp bars, tin bars, sheet bars, hoebars and sleeper bars.
(iv) Steel bars (rounds, rods, squares 4 percent fiats, octagons and hexagons, plain and ribbed or twisted, in coil form as well as straight lengths).
(v) Steel structurals (angles, joists, channels tees, sheet piling sections or any other rolled sections) (vi) sheets, hoops, strips and skelp, both black and galva nised, hot and cold robed, plain and corrugated, in all qualifies, in straight lengths and in coil from as rolled and in revitted condition.
(vii) plates both plain and cheque red in qualities.
(viii) discs, rings forgings and steel 3 percent castings.
(ix) tool, alloy and special steels of any of the above categories.
(x) steel melting scrap in all forms including steel skulls, turnings and borings.
(xi) steel tubes, both welded and seamless of all diameters and lengths, including tube fittings.
(xii) tin plates, both not dipped and electrolytic and tin free plates.
258 (xiii) fish plate bars, beating plate bars, crossing sleeper bars, fish plates, bearing plates, crossing sleepers and pressed steel sleepers, railsheavy and light crane rails.
(xiv) wheels, tyres axles and wheel sets.
(xv) wire rods and wires rolled, drawn, galvanised, alumi nised, tinned or coated such as by Copper.
(xvi) defectives, rejects, cuttings or end pieces of any of the above categories.
By Karnataka act 13 of 1982 Explanation II was added to item 2 of the IV Schedule with retrospective effect from 1.10. 1957 and to be effective tilt 31.3.
1978 and that Explana tion reads as follows: "Explanation 11: Where tax has been paid in respect of the sale or purchase of: (i) iron scrap, cast iron scrap, runner scrap and iron skull scrap referred to in entry (i) of serial number 2 or in respect of steel melting scrap in all forms including steel skull turnings and borings referred to in entry (x) of serial number 2 and out of the said scrap, steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes) referred to.
m ' entry (ii) of serial number 2 are manufactured and sold; or (ii) steel semis (ingots, slabs, blooms and billets of all qualities, shapes and sizes) referred to in entry (ii) of serial number 2 and out of the said steel semis any re rolled products of iron and steel referred to in anyone or more of the entries at (iii), (v), (vii) and (xv) serial No. 2 are manufactured and sold, no tax shall be leviable on the sale of the said steel semis or the re rolled products as the case may be.
Provided that the dealer claiming exemption of tax under this explanation furnished before the assessing au thority concerned proof of levy and payment of tax by 259 the previous or earliest of successive dealers on the said scrap or steel semis used in the manufacture of the steel semis re rolled products, as the case may be.
Provided further that in respect of the said steel semis or the said re rolled products of iron and steel, no amount was collected by the dealer from his customers by way of tax or purporting to be by way of tax." As already stated the appellant purchases iron scrap both from local registered dealers and also from the dealers outside the State of Karnataka and manufactures ingots and sells the same mostly within the State of Karnataka.
The constitutional validity of the above said provision is challenged on the ground that while the appellant 's sale of ingots manufactured out of locally purchased scrap will not be subjected to tax, the appellant 's sale of ingots manufac tured out of scrap purchased from outside the State of Karnataka would be subjected to tax.
In the Firm A.T.B. Mehtab Majid and Co. vs State of Madras and Anr., [1963] (Suppl.) 2 SCR 435 this Court con sidered the constitutional validity of Rule 16 of the Madras General Sales Tax Rules.
Rule 16 of the Rules which was impugned in the case read as follows: "16.(1) In the case of untanned hides and/or skins the tax under section 3(1) shall be levied from the dealer who is the last purchaser in the State not exempt from taxation under section 3(3) on the amount for which they are brought by him.
(2)(i) In the case of hides or skins which have been tanned outside the State the tax under section 3(1) shall be levied from the dealer who in the State is the first dealer in such hides or skins not exempt from taxation under section 3(3) on the amount for which they are sold by him.
(ii) In the case of tanned hides or skins which have been tanned within the State, the tax under section 3(1) shall be levied from a person who is the first dealer in such hides or skins not exempt from taxation under section 3(3) on the amount for which they are sold by him: Provided that, if he proves that the tax has already 260 been levied under sub rule (1) on the untanned hides and skins out of which the tanned hides and skins had been produced, he shall not be so liable.
(3) The burden of proving that a transaction is not liable to taxation under this rule shall be on the dealer.
" It was contended for the petitioner in that case that the effect of this rule was that tanned hides or skins imported from outside the State and sold within the State are subject to a higher rate of tax than the tax imposed on hides or skins tanned and sold within the State, inasmuch as sales tax on the imported hides or skins tanned outside the State is on their sale price while the tax on hides or skins tanned within the State, though ostensibly on their sale price, is, in view of the proviso to Clause (ii) of sub rule (2) of rule 16, really on the sale price of these hides or skins when they are purchased in the raw condition and which is substantially less than the sale price of tanned hides or skins.
It was further contended for similar reasons, hides or skins imported from outside the State after purchase in their raw condition and then tanned inside the State are also subject to higher taxation that hides or skins pur chased in the raw condition in the State and tanned within the State, as the tax on the former is on the sale price of the tanned hides or skins and on the latter is on the sale price of the raw hides or skins.
Such a discriminatory taxation was said to offend the provisions of Article 304(a) of the Constitution.
This Court pointed out that if the dealer has purchased the raw hide or skin in the State, he does not pay tax on the sale price of the tanned hides or skins.
He pays on the purchase price of untanned hides or skins, only.
If on the other hand, dealer purchases raw hides or skins from outside the State and tans them within the State, he will be liable to pay sales tax on the sale price of the tanned hides or skins.
He will have to pay more for tax even though the hides and skins are tanned within the State, merely on account of his having imported the hides and skins from outside and having not paid any tax under subrule (1).
This is one of the reasons on which this Court held that rule 16(2) discriminated against the imported hides or skins which had been purchased or tanned outside the State and that therefore they contravene the provisions of Article 304(a) of *,he Constitution.
The next ground on which this Court invalidated the Rule was that mere circumstance Of a tax having been paid on the sale of such hides or skins in the raw condition did not justify their forming goods of a different kind from the tanned hides or skins which had been imported 261 from outside.
At the time of sale of those hides or skins in the tanned state, there was no difference between them as goods and the hides or skins tanned outside the State as goods.
The similarity contemplated by Article 304(a) is in the nature of the quality and kind of the good and not with respect to whether they were subject of a tax already or not.
On the ground that the decision of this Court in A.T.B. Mehtab 's case (supra) will result in claims for refund of tax being preferred by dealers in hides and skins already assessed under the impugned Rule thereby resulting in huge loss of revenue and will also result in administrative complications, the Madras General Sales Tax (Special Provi sions) Act, 1963 was made.
That Act provides that: "(1) Notwithstanding anything contained in Madras General Sales Tax Act, 1939 (Madras Act IX of 1939) (hereinafter referred to as the said Act), or in the rules made thereun der (hereinafter referred to as the said rules), during the period commencing on the 1st April, 1955 and ending on the 31st March, 1959, in respect of sale of dressed hides and skins (which were not subjected to tax under the said Act as raw hides and skins), the tax under the said Act shall be levied from the dealer who in the State is the first seller in such hides and skins not exempt from taxation under sub section (3) of section 3 of the said Act at the rate of two per cent of the amount for which such hides and skins were last purchased in the untanned condition.
" This was challenged in this Court by way of petition under Article 32 of the Constitution in A. Majee Abdul Shakoor and Company vs State of Madras, 17 on the ground that the persons who had purchased raw hides and skins in the State of Madras in the relevant period paid sales tax at 3 pies per rupee and paid no further tax with those hides after being tanned were not sold whereas the petitioners having purchased raw hides and skins from out side the State did not at the time paid tax at that rate on the purchase price of the raw hides and skins but were not now liable under the impugned provision to pay tax at the rate of 2 per cent of the amount for which such hides and skins were last purchased in untanned condition.
Thus the contention was that the petitioners would pay a higher tax than what was paid by the seller of dressed hide and skins purchased in the State in raw condition and then tanned and sold and that, therefore, the impugned provisions set out above discriminate against imported untanned hides 262 and skins.
Accepting this contention after referring to the decision in A.T.B. Mehtab 's case (supra) this Court ob served: "In the earlier case, discrimination was brought about on account of sale price of the tanned hides and skins to be higher than the sale price of untanned hides and skins, though the rate of tax was the same, while in the present case, the discrimination does not arise on account of dif ference of the price on which the tax is levied as the tax on the tanned hides and ' skins is levied on the amount for which those hides and skins were last purchased in the untanned condition, but on account of the fact that the rate of tax on the sale of tanned hides and skins is higher than that on the sale of untamed hides and skins.
The rate of tax on the sale of tanned hides and skins is 2 per cent on the purchase price of those hides and skins in the untanned condition while the rate of tax on the sale of raw hides and skins in the State during 1955 to 1957 is 3 pies per ,rupee.
The difference in tax works out to 7/16 paise of a rupee, i.e., a little less than 1/2 naye paise per rupee.
Such a discrimination would affect the taxation upto the 1st of August 1957 when the rate of tax on the sale of raw hides and skins was raised to 2 per cent of the sale price.
" Prima facie the ratio of these two decisions applies to the facts of the present case.
However, it was contended by the learned counsel for the Revenue before the High Court that this Court has struck a new or different note in the cases of State of Madras vs N.K. Nataraja Mudaliar, ; ; Rattan.
Lal & Co. vs Assessing Authority, ; and Associated Tanners vs Commercial Tax Officer Vizianagaram, and Others, [19861 62 STC 1 and this argument was accepted and the impugned provisions were held valid by the High Court in the decision under appeal.
The point that was raised in the State of Madras vs N.K. Nataraja Mudaliar (supra), was that Section 8(2)(2A) and (5) of the Central Sales Tax which permitted levy of tax on inter State sale at varying rates in different States were invalid.
In order to understand the exact ratio of the judgment which was noticed in the judgment itself, we have to note the development of the law relating to imposition of tax on interState sale.
In exercise of the powers conferred under Entry 58 List 11 of the Seventh Schedule in Government of India Act and the corresponding Entry 54 of List 2 of the Seventh Schedule to the Constitution 263 which enable the State to legislature on taxes on the sale or purchase of goods other than newspaper various States enacted sales tax laws for the respective States acting on the principle of territorial nexus and picked out one or more ingredients constituting a sale and made it or them the basis of imposing liability for sales tax.
This led to the imposition of multiple taxation on a single inter State transaction by different States, each State relying upon some territorial nexus between the State and the sale.
The constitutional validity of these provisions were questioned on the basis of the restriction placed on the legislative power under the Constitution.
In the State of Bombay vs United Motors (India) Ltd.; , this Court held that importing State is competent to levy tax on transac tions of sale in the course of inter State sale or commerce on persons who are resident outside the territory, provided that the goods were delivered in the importing State for the purpose of consumption therein.
Thus the delivery for con sumption within the State was considered to be a point at which the tax can be levied on inter State sale.
But this decision made the dealer carrying on business in the export ing State amenable to the sales tax law of the importing State.
The question was again considered by this Court in Bengal Immunity Company Ltd. vs State of Bihar, This Court held in that case that a sale or purchase in the course of inter State sale, trade or commerce could not be taxed by any State until by law it was provided otherwise by Parliament.
This led to the amendment of the Constitution by the Constitution (Sixth Amendment) Act, 1956.
By that amendment Article 286 was amended.
Entry 92A was added to the Union List and Entry 54 was also suitably amended.
The Parliament then enacted the .
In respect of the certain transactions which were held by the assessing authorities as inter State sales the assessee moved the High Court of Madras under Article 226 seeking a writ of certiorari quashing the order of assessment on the ground that the provisions of the which permitted levy of tax at varying rates in different States on similar inter State transactions and thereby resulting in inequality in burden of tax, affected and impeded inter State trade, commerce and intercourse which are prohibited under Article 301 and 303(1) of the Constitu tion.
The tax under the Central Sales Tax is payable by the seller.
The State from which the movement of goods commences in the course of inter State sale collects the tax as agent of the Central Government but section 9(4) provides that the tax collected under the Act in any State on behalf of the Government of India are to be assigned to that State.
The scheme of the has been neatly summa rised if we 264 may say so with respect, in State of Madras vs
N.K. Nataraja Mudaliar (supra) and no apology, is needed to quote that passage in extenso, which reads as follows: "The scheme of the Act was first to devise definitions of 'inter State sales ' and 'sales outside the State ', and then to declare inter State sales subject to tax, and to 'set up machinery for levying and collecting tax on those sales.
Transactions in goods which were made subject to tax in the course of inter State trade or commerce were classified into three broad categories (1) transactions falling within section 8(1) i.e. all sales to Government, and sales to a registered dealer other than the Government of goods referred to in sub s (3) of section 8(2) transactions falling within section 8(2)(a) i.e., sales in respect of declared goods; and (3) transac tions falling within section 8(2)(b) i.e. sales not falling within (1) in respect of goods other than declared goods.
Sales of goods in category (1) were declared liable at the relevant time to pay a tax of two per cent, on the turnover.
On sales of declared goods tax was to be calculated at the rate applicable to the sale or purchase of such goods inside the appropriate State.
But by section 15 the tax payable under a State law in respect of any sale or purchase of declared goods inside the State was not to exceed two per cent of the sale or purchase price thereof, and was not leviable at more than one stage.
On turnover from sale of goods not falling within categories (1) & (2) the rate was seven per cent, or the rate applicable to the sale or purchase of such goods inside the appropriate State, whichever was higher.
But by sub section
(2A) of section 2 it was provided that notwithstanding anything contained in sub section
(1) or sub section
(2), if under the sales tax law of the appropriate State the sale or purchase, as the case may be, of any goods by a dealer is exempt from tax generally or is subject to tax generally at a rate which is lower than two per cent.
the tax payable under the Act on the turnover insofar as the turnover or any part therefore relates to the sale of such goods shall be nil, or as the case may be shall be calculated at the lower rate.
There is a slight inconsistency between section 8(2) and section 8(2A).
if the rate of tax under the State law is less than two per cent by virtue of section 8(2A), even in respect of turnover falling within section 8(2)(b), the rate of tax will not exceed the State rate; if the State rate exceeds two per cent, tax at the rate of seven 265 per cent or of the State, whichever is higher, shall pre vail.
But that has no beating on the question under discus sion.
" The main contention in Nataraja Mudaliar 's case was that the liability to pay tax on inter State transaction depend ing upon the rate of tax prevailing in the exporting State, hampers trade and commerce by giving or authorising the giving of preference to one State over another or by making or authorising the making of discrimination between one State and another violating the provisions of Articles 30 1 and 303(1) of the Constitution.
After noting the decisions that every imposition of tax does not amount to restriction or impediment of the free flow of trade or commence but that levy which directly and immediately impede or hampering the free flow of trade or commerce only will fail within the provisions imposed by Articles 301, this Court considered the question whether tax imposed under sub sections (2)(2A) and (5) of section 8 of the on inter State sales do no amount to law giving or authorising the giving of any preference to one State over the other on the ground of varying rates of tax prevailing in different States.
It was argued in that case that the rates of tax on the sale of the same or similar commodity by different States by itself was discriminatory since it authorised the placing of unequal burden on inter State trade or commerce affecting its free flow between the States.
It was further contended that since the rates of tax prevailing in differ ent States on transactions of sale were not uniform the impugned provisions affected the free movement or flow of goods in inter State trade.
Rejecting this contention this Court held that: "The flow of trade does not necessarily depend upon the rates of sales tax: it depends upon a variety of factors, such as the source of supply, place of consumption.
exist ence of trade channels, the rates of freight, trading facil ities, availability of efficient .transport and other facil ities for carrying on trade.
Instances can easily be imag ined of cases in which notwithstanding the lower rate of tax in a particular part of the country goods may be purchased from another part where a higher rate of tax prevails.
Supposing in a particular State in respect of a particular commodity, the rate of tax is 2% but if the benefit of that low rate is offset by the freight which a merchant in anoth er State may have to pay for carrying that commodity over a long distance, the merchant would be willing to purchase the goods from a nearer State, even though the rate of tax in that State may be higher.
Existence of long standing busi ness 266 relations, availability of communications, credit facilities and a host of other factors natural and business enter into the maintenance of trade relations and the free flow of trade cannot necessarily be deemed to have been obstructed merely because in a particular State the rate of tax on sales is higher than the rates prevailing in other States." and that "by authorising the State from which the movement of goods commences to levy on transactions of sale Central Sales Tax at rates prevailing in the State subject to the limitations already set out, in our judgment no discrimination can be deemed to be practiced.
" As may be seen from the above discussion the decision in Nataraja Mudaliar 's case (supra) related to a levy of sales tax on interState sale under the by a State in which the movement of goods commenced subject to certain exceptions and limitations.
If the rate of tax on inter State sale was the same as that for inter State sale no discrimination can be said to arise.
After referring to the decisions in Nataraja Mudaliar 's case (supra) and Hajee Abdul Shakoor 's case (supra) and distinguishing the same this Court further observed: "In the two cases the differential treatment violated article 304(a) of the Constitution, which authorises the Legislature of a State notwithstanding anything in articles 30 1 and 303 by law to "impose on goods imported from other States or the Union territories any tax to which similar goods manufac tured or produced in that State are subject, so however, as not to discriminate between goods so imported and goods so manufactured or produced.".
Imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State is prohibited by that clause.
But where the taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, article 304(a) has no application.
Article 303 prohibits the making of law which gives, or authorises the giving of, any preference to one State over another, or makes, or authorises the making of, and dis 267 crimination between one State and another.
Prevalence of different rates of sales tax in the State which have been adopted by the for the purpose of levy of tax under that Act is, as already mentioned, not, deter minative of the giving of preference or making a discrimina tion.
" What is relevant is that A.T.B. Mehtab 's case (supra) and Hajee Abdul Shakoor 's case (supra) are concerned with hides and skins tanned inside the State but by reason of the raw material having suffered the tax, the goods tanned out such raw material was exempted from tax which in effect means not taxable goods or the tax is nil.
That is how the discrimination arose in those two cases.
We may also mention that Nataraja Mudaliar 's case (supra) did not dissent from the ratio of the judgment in Mehtab Majid & Co 's case (supra) or Hajee Adbul Shakoor 's case (supra).
In Rattan Lal & Co. & Anr.
vs The Assessing Authority & Anr.
(supra) the discrimination pleaded was that in fixing the stage of tax for declared goods section 5(3) of the Act made a discrimination between imported goods and local goods.
That provision reads as follows: "(3) Notwithstanding anything contained in this Act (a) in respect of declared goods tax shall be levied at one stage and that stage shall be (i) in the case of goods liable to sales tax, the stage of sale of such goods by the last dealer liable to pay tax under this Act; (ii) in the case of goods liable to purchase tax, the stage of purchase of such goods by the last dealer liable to pay tax under this Act; The argument was that there is a discrimination between the first purchase in the case of imported goods and last sale in the case of local goods.
Since the imported goods might be more expensive by reason of freight etc.
or inter mediary sales having taken place, it was said, that the burden of tax will be heavier and, therefore, this will offend against the equality clause under Article 304 of the Constitution.
Overruling this objection this Court held: 268 "The rate of tax is same in every case.
In State of Madras vs N.K Nataraja Mudaliar, [1969] 1 SCR, this Court stated that the essence of articles 30 1 and 303 is to enable the State by a law "to impose on goods imported from other States or the Union territories any tax to which similar goods manufactured or produced in the State and subject, so, however as not to discriminate between goods so imported and goods so manufactured or produced.
" It was pointed out by this Court that "imposition of differential rates of tax by the same State on goods manufactured or produced in the State and similar goods imported in the State is prohibited by that clause.
But where the taxing State is not imposing rates of tax on imported goods different from rates of tax on goods manufactured or produced, article 304 has no application.
Here also the tax is at the same rate and there fore the tax cannot be said to be higher in the case of imported goods.
It may be that when the rate is applied the resulting tax is somewhat higher but that does not offend against the equality contemplated by article 304.
That is the consequence of ad valorem tax being levied at a particular rate.
So long as the rate is the same article 304 is satisfied.
Even in the case of local manufactures if their cost of production varies, the net tax collected will be more or less in some cases but that does not create any inequality because inequality is not the result of the tax but results from the cost of production of the goods or the cost of their importation.
This ground, therefore, has also no substance.
In Associated Tannerse vs Commercial Tax Officer Vizi anagaram & Ors.
(supra) the facts were these.
The assessee was a tanner who had a tannery at Vizianagaram and was at the material time a dealer under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter called the 'State Act ') as well as the (hereinafter called the 'Central Act ').
The assessee purchased raw hides and skins in the State of Andhra Pradesh and tanned the same.
He was selling mostly the tanned hides and skins in the course of inter State trade.
The assessing officer assessed the assessee 's interState sales under the Central Act.
The assessee filed a writ petition in the High Court questioning the constitutional validity of item 9(b) of Schedule III of the Andhra Pradesh General Sales Tax Act as unconstitutional and void and for a further declaration that no tax could be 269 levied or was leviable under the on inter State sales of tanned hides which had already suffered tax at the untanned stage.
Thus the question for considera tion was whether tanned hides and skins which has already suffered tax at the untanned stage when sold in inter State sale was liable for levy of tax under the Central Act.
This was raised in this form because tanned hides and skins which were not subjected to tax as untanned hides and skins alone was liable for the levy under items 9(b) of Schedule III of the State Act.
The High Court dismissed the writ petition relying on the Nataraja Mudaliar case (supra) and Rattan Lal & Co. case (supra).
The assessee preferred an appeal by special leave.
This Court was of the view that the point involved in the case was no longer res integra and it is covered by the decision in Nataraja Mudaliar case and held since "the rate of tax was the same, both for the goods brought from outside as well as local goods and it cannot be said that the taxation did directly and immediately restrict or hamper the free flow of trade, commerce, or intercourse and it offended Article 304 (a).
" But it is pertinent to point out the further passages appearing in the judgment which actually show the ratio of the judgment.
The learned Judges observed: "It further appears to us that there is another aspect.
The levy by the State Act is in consonance with the scheme of the Central Act.
By sub section (2) of section 8 of the Central Act, the tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter State trade or commerce not falling under sub section (1), shall be at the rate specified in sub section (2) of section 8." and this Court further observed: "The effect of an imposition of tax might work differently upon different dealers, namely, those who use imported tanned goods and those who purchase these locally and tan these locally and then sell in the course of inter State sales.
But that effect cannot be said to be arising direct ly, or as an immediate effect of the imposition of the tax.
Therefore there cannot be any question of violation of article 304(a) of the Constitution.
There is another aspect of the matter.
The imposition in this case was in implementation of the Central Act and it was submitted on behalf of the respondent that there was 270 no prohibition under article 304 of the Constitution on the Parliament for imposition of any law.
The embargo that was placed by article 304 of the Constitution was on the Legis lature of a State.
Sub article (a) of article 304 of the Constitution reads as follows: "304.
Restrictions on trade, commerce and intercourse among States.
Notwithstanding anything in article 30 1 or article 303, the Legislature of a State may by law (a) impose on goods imported from other States or the Union Territories any tax to which similar goods manufactured or produced in that State was subject, so, however, as not to discriminate between goods so imported and goods so manufac tured or produced.
" Therefore the prohibition was not on the Parlia ment.
But in the view we have taken on the first aspect of the matter and in view of the decisions of this Court in the cases of State of Madras vs
N.K. Nataraja Mudaliar, [1968] 22 STC 376 (SC); ; and Rattan Lal & Co. vs Assessing Authority, [1970] 25 STC 136 (SC): ; , it is not necessary for us to discuss this aspect any further. ' ' It may be seen from these passages cited that the ratio of the decision as in the case of Nataraja Mudaliar, case (supra) was that in the case of inter State sale the levy of tax is under the Central Sales Tax only though for the purposes of rates of tax that rate which is applicable to local sales is adopted subject to the maximum mentioned in section 8(2) of the Central Act and these decisions have no application to a case where the discrimination pleaded with reference to a provision in State law imposing taxes with reference to local as well as in respect of the imported goods.
As we have already noticed the States have no legis lative power to tax inter State sales and it is only the Parliament that could make law.
The Central Act is the law relating to tax on inter State sales made by Parliament.
The State from which the movement of goods commences in the course of inter State sale collects the tax as agent of the Central Government.
On sale of declared goods tax was to be levied and collected at the rate applicable to the sale or purchase of such goods inside the appropriate State subject to the maximum prescribed under section 15 and the restric tion relating to 271 taxing it at single point.
This is also further subjected to the rates prevailing for local sales.
It is with respect to these provisions, in the three decisions in Nataraja Mudali ar case, Rattan Lal & Co. case and Associated Tanner case this Court held that so long the rates applicable are in accordance with section 8 no discrimination would arise and none of the provisions of part XIII of the Constitution could be said to have been offended.
But the case on hand is not one arising out of Central Act.
The tax was levied under the State Act in respect of steel semis.
The State Act exempted steel semis which have been manufactured out of iron scrap which have suffered tax but not the other catego ries where the scrap had not suffered tax at that stage.
This is directly covered by the decision in A.T.B. Mehtab 's case (supra) and that decision has not been dissented in Nataraja Mudaliar case (supra) or Rattan Lal & Co 's case (supra).
The decision in A.T.B. Mehtab 's case (supra) is by a Constitution Bench and had not been dissented so far in any case.
The ratio of the judgment being fully applicable, the judgment of the High Court under appeal is not accept able.
We accordingly hold that the provision which is impugned in this case is ultra vires and accordingly set aside the judgment of the High Court and allow the writ petition filed by the assessee in the High Court.
There will be no order as to costs.
T.N.A. Appeals allowed.

dataset_name: IN-Abs

summary/full:
The appellant, a registered dealer under the Karnataka Sales Tax Act, 1957, was purchasing iron scraps from dealers inside and outside the State of Karnataka for the purpose of manufacturing iron ingots, steel rounds and for steel.
He filed a writ petition in the High Court challenging the Constitutional validity of Section 5(4) of the Act in so far as it pertains to item 2 of Schedule IV to the Act read with Explanation II thereof in respect of its application prior to 1.4.78 as violative of Article 304(a) of the Constitution on the ground that it discriminates in respect of sale of steel ingots manufactured out of raw material purchased from outside the State which was subject to tax while sale of similar goods manufactured out of locally purchased raw material was not subjected to tax.
The High Court dismissed the writ petition upholding the constitutional validity of the impugned provisions.
Hence this appeal by special leave.
Setting aside the judgment of the High Court and allow ing the appeal, this Court, 253 HELD: 1.
The similarity contemplated by Article 304(a) is in the nature of the quality and kind of the goods and not with respect to whether they were subject to a tax already or not.
[262A] 2.
Section 5(4) of the Act in so far it pertains to item 2 of Schedule IV to the Act read with Explanation II thereof in respect of its application for the period prior to 1.4.1978 is violative of Article 304(a) of the Constitution.
[255C D; 272D] Firm A.T.B. Mehtab Majid and Co. vs State of Madras andAnr., [1963] Suppl.
2 SCR 435 and A. Hajee Abdul Skakoor and Co. vs State of Madras, ; , followed.
State of Madras vs
N.K. Nataraja Mudaliar, [19681 3 SCR 829; Rattan Lal & Co. vs Assessing Authority, ; and Associated Tanners vs Commercial Tax Officer, Vizi anagaram and Ors., [1986] 62 STC 1, explained.
Mangalore Metal House vs State of Karnataka, [1986] 63 STC 482; State of Bombay vs United Motors (India) Ltd., ; and Bengal Immunity Company Ltd. vs State of Bihar, , referred to.


judgement:
vil Appeal Nos.
2270 73 of 1987 & 17 13/1990.
From the Judgment & Order dated the 11.8.1978 of the Karnataka High Court in Writ Petition No. 4609/76, 4610/76 & 4611 of 1976.
P.P. Rao and S.R. Bhatt for the Appellants.
M. Veerappa for the Respondents.
The Judgment of the Court was delivered by SINGH, J.
Special leave granted.
These appeals are directed against the judgment of a Division Bench of the High Court of Karnataka dated August 11, 1978 dismissing the appellants ' writ petition under Article 226 of the Constitution of India challenging validi ty of the revised select list prepared by the Karnataka Public Service Commission for appointment to the posts of Tehsildars.
In the State of Karnataka recruitment to the posts of Tehsildars is regulated by the Karnataka Administrative Services (Tehsildars) Recruitment (Special) Rules 1975 (hereinafter referred to as 1975 Rules).
The Karnataka Public Service Commission (hereinafter referred to as the Commission) issued a Notification on May 23, 1975 (published on May 29, 1975) inviting applications from in service candidates for recruitment to 50 posts of Tehsildars.
Para graph 3 of the Notification specified details of the posts reserved for candidates belonging to Scheduled Castes, Scheduled Tribes and other Backward classes including 10% of posts set apart for Ex Military Personnel.
According to the figures specified, therein, out of 50 posts of 243 Tehsildars, 5 posts were reserved for Ex Military Personnel, 7 posts for Schedule Castes, 1 post for Schedule Tribes and 13 posts for other Backward classes.
Paragraph 3 of the advertisement stated that in the event of non availability of sufficient number of candidates belonging to Scheduled Castes.
Scheduled Tribes and other Backward classes or Ex Military personnel, for filing to the reserved vacancies, such vacancies shall be filled up as per Rules in force.
The Notification further gave details of the written and viva voce examinations.
Para 14 of the Notification stated that the provisions of 1975 Rules and Rules 7 to 14 of the Karna taka Recruitment of Gazetted Probationers (Class I and II posts Appointment by Competitive Examination) Rules 1966 (hereinafter referred to as 1966 Rules), shall mutatis mutandis apply to the conduct of the competitive examination and the provisions of the Karnataka State Civil Services (General Recruitment) Rules 1957 (hereinafter referred to as 1957 Rules) shall apply in respect of matters for which no provision is made in the Rules.
Pursuant to the advertisement, the appellants who were in service of the State Government applied for their selection and appointment to the posts of Tehsildars.
After the written examination and viva voce test the Commission finalised the list of successful candidates and published the same in the Karnata ka Gazette dated March 18, 1976.
The Commission also noti fied in additional list of successful candidates for ap pointment to the posts of Tehsildars in accordance with 1975 Rules, which included the names of the appellants.
In pre paring the select list and making reservation to the various categories, the Commission followed the directions and the procedure as contained in the Government Order dated 6th September 1969.
The State Government refused to approve the list prepared by the Commission as in its opinion the reser vation for the Scheduled Castes, Scheduled Tribes and other Backward classes should have been made in accordance with the directions and procedure contained in the Government Order dated 9th July 1975.
The State Government by its order dated 23rd April 1976 directed the Commission to prepare a fresh list of successful candidates by making reservations in accordance with the procedure contained in the Government order dated 9th July 1975.
Pursuant to the directions of the State Government the Commission prepared the select list afresh, after making reservations in accordance with the procedure prescribed by the Government Order dated 9th July 1975, and published the same on 27th May 1976.
The appel lants ' names did not figure in the revised list of candi dates.
The appellants challenged validity of the Government Order dated 23rd April 1976 as well as the revised list prepared by the Commission and also the validity of the Government Order dated 9th July 1975, by means of writ petitions before the High Court 244 on a number of grounds.
A Division Bench of the High Court by its order dated 11th August 1978 dismissed the petitions.
Hence these appeals.
The appellants had challenged validity of the Government Order dated 9th July 1975, prescribing mode for preparing the select list by, making reservation for Scheduled Castes, Scheduled Tribes and other Backward classes, on the ground that the same was inconsistent with the statutory Rule 10 of 1966 Rules and further on the ground that the directions contained therein were violative of Articles 16(1) and 16(4) of the Constitution Of India.
The High Court rejected both the contentions holding that the directions contained in the Government Order dated 9th July 1975 were not violative of Rule 10(2) and there was no violation of Article 16 of the Constitution.
The High Court upheld the Government Order dated 23rd April 1976 directing the Commission to prepare the select list afresh in accordance with the mode pre scribed under the Government Order dated 9th July 1975.
Learned counsel for the appellants did not pursue the chal lenge relating to the validity of the Government Order dated 9th July 1975 before us instead he assailed the validity of the State Government 's Order dated 23rd April 1976 directing the Commission to prepare a revised list in accordance with the Government Order dated 9th July 1975, on the ground the Government Order was not applicable to the selection. 'Learned counsel for the appellants urged that the Commission had rightly prepared the list of successful candidates published on 18th May 1976 in accordance with the directions contained in the Government Order dated 6th September 1969 by making reservation of posts of Scheduled Castes, Scheduled Tribes and other Backward classes but the State Government wrongly refused to approve the said list.
He urged that the mode of selection and procedure for making reservation as prescribed by the Government Order dated 9th July 1975 was not applicable to the selection as advertise ment had been issued in May 1975, and the process of selec tion had already commenced prior to the issue of the Govern ment Order dated 9th July 1975.
The revised list of success ful candidates prepared by the Commission pursuant to the Government 's directions dated 23rd April 1976 was illegal and contrary to the Rules.
Learned counsel for the respond ents submitted that the Government Order dated 9th July 1975 prescribed mode of selection and it also prescribed proce dure for making reservations for Scheduled Castes, Scheduled Tribes and other Backward classes in supersession of the earlier Government Order including the Government Order dated 6th September 1969 therefore the Commission was 245 found to follow the procedure as prescribed in the aforesaid order in preparing the select list.
Since the list of suc cessful candidates had not been prepared in accordance with the Government Order dated 9th July 1975 the State Govern ment was justified in insisting upon the Commission to prepare the list afresh in accordance with the directions contained in the aforesaid Government Order.
The question which requires determination is, which of the two Government Orders, namely, 6th September 1969 and 9th July 1975, the Commission was required to be followed in preparing the select list for appointment to the posts of Tehsildars as both the Government Orders contained direc tions for making reservations in preparing the select list.
In order to determine the question, it would be necessary to refer to the directions contained in the two Government Orders.
There is no dispute that the recruitment of in service candidates for the 50 posts of Tehsildars in dis pute, was regulated by the 1975 Rules framed under Article 309 of the Constitution as published in the Gazette on 20th March 1975.
Rule 5 laid down that the provisions of Rules 7 to 14 of 1966 Rules shall mutatis mutandis apply to conduct of competitive examination and the provisions of Karnataka State Civil Services (General Recruitment) Rules 1957 shall apply in respect of matters for which no provi sion is made in the Rules.
The aforesaid Rules do not pre scribe any procedure for preparation of select list or for making reservations but in view of Rule 5 the provisions of other Rules are made applicable.
Rule 10 of the Karnataka Rules 1966 which provides for reservations for Scheduled Castes, Scheduled Tribes and other Backward classes was applicable in view of Rule 5 of 1975 Rules.
Rule 10 of 1966 Rules is as under: "10.
Reservation for Scheduled Castes, Scheduled Tribes and other backward classes (1) There shall be reservation of vacancies for candidates belonging to Scheduled Castes, Scheduled Tribes and other Backward Classes to the extent provided for by the Government by any general or special orders.
(2) In filling the vacancies to reserved, candi dates who are members of the Scheduled Castes and Scheduled Tribes and other Backward Classes shall be considered for appointment in the order of merit in which their names appear in the list of successful candidates irrespective of their relative rank as compared with other candidates and to services according to the reservation made for them in such services.
246 (3) If a sufficient number of candidates who are members of the Scheduled Castes, Scheduled Tribes and other backward classes are not available for filling up the vacan cies reserved for them, such vacancies shall be filled up by the appointment of other candidates in the list.
" Pursuant to Clause (1) of Rule 10 of the State Government has been providing for reservation of vacancies in favour of candidates belonging to Scheduled Castes, Scheduled Tribes and other Backward classes by means of executive orders issued from time to time.
The Government Order dated 6th September 1969, was issued under Rule 10(1) which provided that reservations for appointment to post in the State Civil Service shall continue to be made in favour of Scheduled Tribes, Scheduled Castes and other Backward classes to the extent of 3%, 15% and 30% respectively, where the posts are filled up by direct recruitment.
Para 5 of the Government Order directed that the Commission and other recruiting authorities shall follow the procedure prescribed in Annex ure 2 to the Government Order in making reservations and preparing list of selected candidates.
There is no dispute that the Commission had prepared the select list which was published on 18th March 1976 in accordance with the proce dure laid down in Annexure 2 to the Government Order dated 6th September 1969.
During the pendency of selection, the State Government issued the order dated 9th July 1975 revising the extent of reservation and also prescribing a different mode of selec tion.
Para 4 of that Government Order laid down that while making appointment to the State Civil Services, reservation in favour of Scheduled Castes, Scheduled Tribes, Backward Tribes and other Backward classes shall be made to the extent of 15%, 3%, 3% and 28% respectively, in case of direct recruitment.
Para 6 of the Order further directed that in case of direct recruitment where the selection is made by the Public Service Commission or any other recruit ing authority, the procedure as prescribed in Annexure 2 to the Order shall be followed in preparing the list of select ed candidates.
Annexure "to the Order prescribed mode of selection, which is quite different than that contained in Annexure 2 to the Government Order dated 6th September 1969.
It is not necessary to go into the details of the two modes as there is no dispute that the Commission had followed the procedure as prescribed under Annexure .? to the Government.
Order dated 6th September 1969 and the list, so prepared was not approved by the State Government as it was of the opin ion that the Commission should have followed the mode of selection as contained in Annexure 2 to the Government Order dated 247 9th July 1975 in preparing the select list.
It appears that the Commission insisted before the State Government that in view of Para II of the Government Order dated 9th July 1975 reservations made in favour of Scheduled Castes, Scheduled Tribes and other Backward classes already notified before the issue of Government Order dated 9th July 1975 remain unchanged therefore the provisions of the Gov ernment Order dated 6th September 1969 had to be followed both in regard to reservations and the mode of selection.
The State Government by its Order dated 23rd April 1976 refused to accept the Commission 's plea and it directed the Commission to prepare a revised list in accordance with the provisions of Government Order dated 9th July 1975.
The State Government while rejecting the Commission 's plea and issuing the aforesaid direction made observations as under: "Para 11 of the G.O. dated 9th July 1975 supersedes a11 the previous Government Orders cited in the preamble to that order, including the G.O. dated 6th September 1969.
The same para states that the order, came into force with immediate effect, but makes only one exception i.e. in the matter of reservations already made in the cases of posts and serv ices, for which advertisement had been issued prior to the coming into force of the G.O. dated 9th July 1975.
This means that except in the matter of reservations made in posts for which applications had already been called for, in all other matters the provisions of the G.O. dated 9th July 1975 would apply.
The words are clear that the intention is also clearly spelt out.
Hence so far as the mode of selec tion is concerned, the one prescribed in Annexure II to the G.O. dated 9th July 1975 will have to be followed in respect of all selections made after that date either a literal construction or a harmonious construction of the various clauses of the G.O. dated 9th July 1975 leads to the above conclusion.
For these reasons the Commission 's view that in respect of posts already advertised prior to the issue of the Government Order dated 9th July 1975, the mode of selec tion prescribed in the earlier Government Orders and to be followed is not acceptable to Government.
" In our opinion the State Government 's view was contrary to the directions contained in para 11 of its Order dated 9th July 1975, which is as under: 248 1.
This Government Order supersedes the Government Order cited in the preamble and shall come into force with immediate effect, subject to the provision that the reserva tion already made for any category of posts or service and advertised before the issue of this Government Order shall remain unchanged and shall be deemed to have been validly made.
All official memoranda, Circulars and instructions issued in pursuance of the Government Orders superseded by this Government Order shall also be deemed to have been superseded if such instructions are contrary to the provi sions of this Government Order." (emphasis supplied).
Indisputably the aforesaid Government Order superseded all earlier Government Orders on the subject including the Government Order dated 6th September 1969 but while super seding those orders provision was made in para 11 to save the selection which was pending.
Para 11 clearly stated that though earlier Government Orders laying down percentage of reservation required to be made in favour of Scheduled Castes, Scheduled Tribes and other Backward classes includ ing the mode of selection in preparing the select list, stood superseded, but it saved the reservations made for any category of post or service in respect of which advertise ment had already been issued before the issue of the Govern ment Order dated 9th July 1975.
This follows from the ex pression "reservations already made for any category of posts or service and advertised before the issue of this Government Order shall be deemed to have been validly made".
These directions stipulated that where reservations were already made and advertisement had been issued, and the selection was pending on 9th July 1975, the same shall remain unaffected and the selection shall be made in accord ance with the earlier Government Orders, and the same shall be treated to have been made validly.
Para 11 is in the nature of a saving clause, its object and purpose, was to save the selections in respect of which proceedings had already been initiated by issuing advertisement.
In view of the Government 's own directions, as contained in para 11 of its Order the amended mode of selection was not applicable therefore the Commission rightly followed the mode of the selection prescribed under the Government Order dated 6th September 1969 as admittedly the said Order was in force prior to 9th July 1975.
The State Government 's interpretation of para 11 of its Order dated 9th July 1975 was incorrect and wrong.
It failed to appreciate that in the instant case reservations.
had already been made and 249 notified under the advertisement published on 18th May 1975.
Therefore the conditions precedent contemplated in para 11 were fully satisfied.
In this view the selection made by the commission by following the reservations and the mode of selection as prescribed under the provisions of the Govern ment Order dated 6th September 1969 were deemed to have been made validly in accordance with the provisions of para 11 of the Government Order.
It is relevant to point out that the Government Orders dated 6th September 1969 and 9th July 1975 both had been issued by the Government in exercise of its statutory power under Rule 10 of 1975 Rules, making provi sions for reservations and prescribing mode of selection.
A Government Order issued in exercise of statutory powers acquires statutory force, therefore, the provisions con tained in the aforesaid Government Orders including the provisions of para 11 of the Government Order dated 9th July 1975 also acquired statutory character.
Though para 11 superseded earlier Government Orders but it expressly saved the pending selections where reservations were already made and advertisement had been issued.
Para 11 being statutory in nature was binding on the Government and the Government had no authority to direct the Commission by means of Admin istrative Order to revise the Select List in accordance with the amended mode of selection as prescribed under the Gov ernment 's Order dated 9th July 1975.
In our opinion the State Government was bound to give full effect to the provi sions of Para 11 of the Government Order dated 9th July 1975 and therefore directions contained in its order dated 23rd April 1976 were illegal.
There is yet another aspect of the question.
Where advertisement is issued inviting applications for direct recruitment to a category of posts, and the advertisement expressly states that selection shall be made in accordance with the existing Rules or Government Orders, and if it further indicates the extent of reservations in favour of various categories, the selection of candidates in such a case must be made in accordance with the then existing Rules and Government Orders.
Candidates who apply, and undergo written or viva voce test acquire vested right for being considered for selections in accordance with the terms and conditions contained in the advertisement, unless the adver tisement itself indicates a contrary intention.
Generally, a candidate has right to be considered in accordance with the terms and conditions set out in the advertisement as his right crystalises on the date of publication of advertise ment, however he has no absolute right in the matter.
If the recruitment Rules are amended retrospectively during the pendency of selection, in that event selection must be held in accordance with the amended Rules.
Whether the Rules have 238 retrospective effect or not, primarily depends upon the language of the Rules and its construction to ascertain the legislative intent.
The legislative intent is ascertained either by express provision or by necessary implication, if the amended Rules are not retrospective in nature the selec tion must be regulated in accordance with the Rules and orders which were in force on the date of advertisement.
Determination of this question largely depends on the facts of each case having regard to the terms and conditions set out in the advertisement and the relevant Rules and orders.
Lest there be any confusion, we would like to make it clear that a candidate on making application for a post pursuant to an advertisement does not acquire any vested right for selection, but if he is eligible and is otherwise qualified in accordance with the relevant Rules and the terms con tained in the advertisement, he does acquire a vested right for being considered for selection in accordance with the Rules as they existed on the date of advertisement.
He cannot be deprived of that limited right on the amendment of Rules during the pendency of selection unless the amended Rules are retrospective in nature.
In B.N. Nagarajan & Ors.
vs State of Mysore & Ors.
, , the dispute related to the validity of appointment of Assistant Engineers.
The Public Service Commission invited applications by issuing Notifications for appointment to the post of Assistant Engineers in October 1958, May 1959 and April 1960.
The Commission made selec tion, interviewed the candidates and sent the select list to the Government in October/November 1960.
But before the appointment could be made the Mysore Public Works, Engineer ing Department Services (Recruitment) Rules 1960 came into force which prescribed different provisions than those prescribed in the earlier Notifications in pursuance whereof the Public Service Commission had made the selections.
The validity of the appointment made by the Government on the basis of the selection made by the Commission was chal lenged.
The High Court quashed the selection and appoint ments made in pursuance thereof.
On appeal before this Court, validity of the appointment were assailed on the ground that since the appointments had been made after the amendment of the Rules the appointments should have been made in accordance with the amended Rules.
A Constitution Bench of this Court rejected the contention holding that since the whole procedure of issuing advertisement, holding interviews and recommending the names having been followed in accordance with the then existing Rules prior to the enforcement of the amended Rules the appointments made on the basis of the recommendation made by the Public Service Commission could not be rendered invalid.
250 In Y.V. Rangaiah
J. Sreenivasa Rao, similar Question arose relating to recruitment by promotion.
The question was whether promotion should be made in accord ance with the Rules, in force on the date the vacancies occurred or in accordance with the amended Rules.
The Court observed as under: "The vacancies which occurred prior to the amended rules would be governed by the old rules and not by the amended rules.
It is admitted by counsel for both the parties that henceforth promotion to the post of Sub Registrar Grade II will be according to the new rules on the zonal basis and not on the Statewise basis and, therefore, there was no question of challenging the new rules.
But the question is of filling the vacancies that occurred prior to the amended rules.
We have not the slightest doubt that the posts which fell vacant prior to the amended rules would be governed by the old rules and not by the new rules.
" The same view was taken in P. Ganeshwar Rao & Ors.
vs State of Andhra Pradesh & Ors., [1988] Supp.
SCC 740.
Similar view was taken in A.A. Calton vs Director of Education & Ors., [ 1983] 3SCC 33.
It is a well accepted principle of construc tion that a statutory rule or Government Order is prospec tive in nature unless it is expressly or by necessary impli cation made to have retrospective effect.
Where proceedings are initiated for selection by issuing advertisement, the selection should normally be regulated by the then existing rules and Government Orders and any amendment of the rules or the Government Order pending the selection should not affect the validity of the selection made by the selecting authority or the Public Service Commission unless the amend ed rules or the amended Government orders issued in exercise of its statutory power either by express provision or by necessary intendment indicate that amended Rules shall be applicable to the pending selections.
See P. Mahendra & Ors.
vs State of Karnataka & Ors.
, [1989] 4 Judgment Today SC 459.
In the instant case, para 11 of the Government Order dated 9th July 1975 made the Government 's intention clear that the revised directions which were contained in that Government Order would not apply to the selections in re spect of which advertisement had already been issued, there fore the mode of selection as contained in Annexure 2 to the Government Order dated 9th July 1975 was not applicable to the selection for filling the 50 posts of Tehsildars pending before the Public Service Commission.
We are, therefore, of the opinion that the 251 select list including the additional list as prepared by the commission and published in March 1976 was legal and valid and though Government wrongly refused to approve the same.
The State Government 's Order dated 23rd April 1976 directing the Commission to prepare fresh list in accordance with the mode of selection as contained in Annexure 2 to the Govern ment Order dated 9th July 1975 was illegal consequently the select list prepared afresh by the Commission pursuant to the directions of the State Government is not sustainable in law.
Since the additional list prepared by the Commission contained the names of the appellants, they were entitled to appointment to posts of Tehsildars.
We accordingly allow the appeals set aside the order of the High Court and direct the State Government to appoint the appellants to the posts of Tehsildars, on the basis of additional list published by the Commission on 18th March 1976.
During the pendency of the writ petition before the High Court, appointments were made to the posts of Tehsildars on the basis of the revised list prepared by the Commission in accordance with the directions of the State Government dated 23rd April 1976.
Pursuant to the interim direction of the High Court the appointment orders contained a specific term that the appointments would be subject to the result of the writ petition filed by the appellants.
Since the appellants have succeeded, the respondents ' appointment is liable to be set aside.
The respondents have been working for a period of about 14 years, it would cause great hardship to them if their appointment is quashed, and they are directed to vacate the office which they have been holding during all these years.
At the same time the appellants have been wrongly denied their right to the posts of Tehsildars.
Having regard to these facts and circumstances, we are of the opinion that it would be expedient in the interest of justice not to interfere with the respondents ' appointment but at the same time steps should be taken to enforce the appellants ' right to the posts of Tehsildars.
In this view, we direct the State Government to appoint the appellants on the posts of Tehsildars with retrospective effect, but if no vacancies are available the State Government will create supernumerary posts of Tehsildars for appointing the appel lants against those posts.
We further direct that for pur pose of seniority the appellants should be placed below the last candidate appointed in 1976, but they will not be entitled to any back wages.
The appellants will be entitled to promotion if otherwise found suitable.
In the circumstances of the ,case, parties shall bear their own costs.
S.B. Appeals allowed.

summary/full:
The Karnataka Public Service Commission issued a notifi cation on 23rd May 1975 inviting applications from in serv ice candidates for recruitment to 50 posts of Tehsildars.
In para 14 of the notification it was stated that provisions of 1975 Rules, and Rules 7 to 14 of the Karnataka Recruitment of Gazetted Probationers (Class I & 11 posts Appointment by Competitive Examination) Rules, 1966 shall mutatis mutandis apply to the conduct of the competitive Examination and the provisions of the Karnataka State Civil Services (General Recruitment) Rules, 1957 shall apply in respect of matters for which no provision is made in the Rules.
In preparing the select list and making reservations to the various categories, the Commission followed the direc tions and the procedure as contained in Government Order dated 6th September 1969.
The State Government refused to approve the list and directed the Commission on 23.4.76 to prepare the list afresh following the Government Order dated 7th July 1975.
The Commission thereupon prepared the list afresh as per Government Order of 7th July 1975.
In the revised list, the appellants names did not figure.
The appellants challenged the validity of the Government Order dated 23rd April 1976 as well as the revised list and the validity of the Government Order dated 9th July 1975 by means of writ petitions before the High Court on a number of grounds.
The appellants contended that the Government Order dated 7th July 1975 prescribing mode of preparing the select list by making reservations for various categories was inconsistent with the statutory Rule 10 of 1966 Rules, and further the directions contained therein were violative of Articles 16(1) and 16(4) of the Constitution of India.
240 The High Court rejected both the contentions holding that the directions contained in Government Order of 9th July 1975 were not violative of Rule 10(2) and there was no violation of Article 16 of the Constitution.
The High Court also upheld the Government Order dated 23.4.76 directing the Commission to prepare the select list afresh in accordance with the mode prescribed vide Government Order of 9th July 1975.
In this Court, the appellants did not pursue their challenge to the validity of the Government Order dated 9.7.75 but they assailed the validity of Government Order dated 23.4.76 wherein the Government directed the Commission to prepare a revised list in accordance with the Government Order dated 9.7.75 on the ground that the Government Order was not applicable to the pending selection.
The appellants also urged that the mode of selection and procedure for making reservations as prescribed by Govern ment Order of 9th July 1975 was not applicable to the selec tion as advertisement had been issued in May 1975 and the process of selection had already commenced prior to the issue of Government Order dated 9th July 1975, and that the revised list of successful candidates prepared by the com mission as per Government directions of 23.4.76 was illegal and contrary to the Rules.
On behalf of the Respondents it was submitted that the list of successful candidates had been prepared in accord ance with Government Order dated 9th July 1975, the State Government was justified in insisting upon the Commission to prepare the list afresh in accordance with the directions contained in the aforesaid order.
Allowing the Appeals and setting aside the Order of the High Court, HELD: (1) Where advertisement is issued inviting appli cations for direct recruitment to a category of posts and the advertisement expressly states that selection shall be made in accordance with the existing rules or Government Orders and if it further indicated the extent of reserva tions in favour of various categories, the selection of candidates in such a case must be made in accordance with the then existing Rules and Government Orders if any.
(2) Whether the Rules have retrospective effect or not primarily depends upon the language of the Rules and its construction to ascertain the legislative intent.
241 (3) Indisputably the Government Order of 9th July 1975 superseded all earlier Government Orders including that of 6th September 1969 but in para II it saved the selection which was pending i.e. it saved the reservations already made for any category of post or service in respect of which advertisement had already been issued before the issue of Government Order dated 9th July 1975.
Para II was in the nature of a saving clause, and the Commission rightly fol lowed the mode of selection prescribed under the Government Order in force prior to Government Order of 9th July 1975.
The State Government was bound to give full effect to the provisions of para II of Government Order dated 9th July 1975.
therefore directions contained in its order dated 23.4.76 were illegal [248C E; 249E] 4.
Another aspect of the instant case is that where advertisement is issued for direct recruitment to a category of posts expressly stating that selection shall be made in accordance with the existing rules or Government Orders and also indicates the extent of reservations in favour of various categories, the selection of candidates must be made in accordance with these rules and Government Order.
The candidates who applied for selection in pursuance of the advertisement, acquired vested right for being considered for selection in accordance with the terms and conditions of the advertisement.
[249E G] 5.
In case the recruitment Rules are amended retrospec tively during the pendency of the selection then selection has to be made in accordance with the amended rules.
Whether rules have retrospective effect or not primarily depends upon the language of the Rules and its construction to ascertain the legislative intent, either by express provi sion or by necessary implication.
If the amended Rules are not retrospective in nature the selection must be regulated in accordance with the existing Rules and orders in force at the time of advertisement.
[249H; 250A B] (6) It is a well accepted principle of construction that Statutory Rule or Government Order is prospective in nature unless it is expressly or by necessary implication made to have retrospective effect.
[251 D] (7) In the instant case, para II of the Government Order dated 9th July 1975 made the Governments intention clear that the revised directions which are contained in the said Government Order would not apply to the selection in respect of which advertisement had already been issued.
Therefore the mode of selection as contained in Annexure to the Gov ernment Order dated 9th July 1975 was not applicable to the selection for filling 50 posts of Tehsildars pending before the Public Service Commission.
[251G H] 242 8.
Having regard to the facts the circumstances of the case.
it would be expedient in the interest of justice not to interfere with the respondents ' appointment but the State Government is directed to appoint I the appellants on the posts of Tehsildars with retrospective effect.
If no vacan cies are available the State Government is directed to create supernumerary posts of Tehsildars for appointing the appellants against those posts.
For purposes, of seniority the appellants should be placed below the last candidate appointed in 1976 but they will not be entitled to any back wages.
[252F G]


judgement:
it Petition No. 1147 of 1988.
(Under Article 32 of the Constitution of India) WITH Civil Appeal No. 1782 of 1990.
330 From the Judgment and Order dated 5.6.1987 of the Punjab and Haryana High Court in C.W.P. No. 13 13 of 1986 R. Venkataramani, Mahabir Singh, M.S. Ganesh and C.M. Nayar for the Appearing Parties.
The Judgment of the Court was delivered by SABYASACHI MUKHARJI, CJ.
The petitioners are law graduates.
They state that they belong to scheduled castes and sched uled tribes segments of the community.
They are seeking enforcement of the right to equality of opportunity in the matter of appointment to posts in the subordinate judiciary in the State of Haryana.
The State of Haryana has reserved 20% of the posts in the Haryana Civil Service (Judicial Branch) for the scheduled castes and scheduled tribes.
It is the case of petitioners that though 20% of the posts in the Haryana Civil Service (Judicial Branch) have been reserved for scheduled castes and scheduled tribes, the strength of the appointments made since 1969 onwards reveals that hardly 8% of the total posts i.e., 40 to 45% only of the cadre strength have been allotted to the scheduled castes and scheduled tribes.
The petitioners contend that in other States of India different percentages of marks have been prescribed for scheduled castes, scheduled tribes and gener al candidates for determining their suitability and/or eligibility for appointment.
But in Haryana, they contend, minimum marks have been prescribed as 55% for all categories of candidates, namely, scheduled castes, scheduled tribes and general candidates.
In this connection, it may be appropriate to refer to the fact that under the Punjab Civil Services (Judicial Branch) Rules framed in exercise of powers conferred by Article 234 read with proviso to Article 309 of the Consti tution of India, rules have been framed and are prevalent.
Part 'C ' of the rules deals with the rules and instructions for the examination of the candidates for admission to the judicial branch of the Haryana Civil Service.
Part 'C ' of the said rules was brought into force by the Haryana Adapta tion Laws (State and concurrent subjects) Order, 1968.
Rules 7 and 8 of the said rules, inter alia, provides as follows: "7.
No candidate shall be called for the viva voce test unless he obtains at least 45% of marks in the aggregate in all the written papers and 33% marks in the language paper, Hindi (in Devanagri script).
331 8.
No candidate shall be considered to have qualified in the examination unless he obtains at least 55 per cent marks in the aggregate of all papers including the viva voce test.
" It is the case of the petitioners that fixation of the ,standard of marks which the petitioners describe as high standard, has resulted in denial of opportunity to the scheduled castes and ' scheduled tribes thus amounting to denial of equality of opportunity in the jobs which, the petitioners contend, the State otherwise sought to achieve and ought to achieve in favour of scheduled castes and scheduled tribes.
We are of the opinion that equality of opportunity should be striven for and ensured in public employment.
Steps should be taken to see where unequals are competing, conditions must be created by relaxation or otherwise so that unequals compete in terms of equality with others in respect of jobs and employments of the State.
Our Constitu tion so enjoins it.
Article 38 of the Constitution read with Articles 14, 15 and 16 so mandates it.
In order, therefore, to give those who are unequals, and it is accepted that scheduled castes and scheduled tribes for reasons historical or otherwise, are unequal with the general members of the community in respect of ability and qualification for public employment.
Hence, in order to make the unequals compete on conditions of equality certain relaxations and other factors ensuring equality are imperative.
Those groups or segments of society which are by reasons of history or otherwise unable to compete in terms of absolute equality with the members of other communities or groups in the society, should be ensured and assured chances of competing in terms of equality.
They must be helped to compete equally but it is important to emphasise that equality of opportunity is sought to be achieved for the public services or employment.
The efficacy and efficiency of that service is of prime consideration. ' Equality must be there for all to compete for the public services.
Public services and public employ ment do not exist for providing jobs in terms of equality or otherwise to all.
Only public services and public employment must serve public purpose and nothing that hampers or im pairs the efficiency or efficacy of public services cannot and should not be permitted in ensuring conditions of con stitutional equality.
These should be done objectively, rationally and reasonably.
As is often said, it may be that need to ensure equality for scheduled castes and scheduled tribes should not be surrendered on the facile and value based perception of efficiency.
Yet efficiency must be ensured.
Real equality must be accorded.
332 As mentioned hereinbefore, the contention of the peti tioners is that 55% marks in aggregate in all papers includ ing viva voce test constitute rather a high standard for qualification and eligibility.
They contend that for most of the scheduled caste and scheduled tribe aspirants for the job it is difficult to achieve that standard.
It is said that in other parts of this vast land of ours the standard is not as high as that.
Sri Venkatramani, advocate for the petitioners, contended that in other States on an all India basis such a high standard of marks is not envisaged.
Sri Mahabir Singh, learned advocate appearing for the State of Haryana and Sri C.M. Nayar, learned advocate for the Public Service Commission contend that it must be presumed that the minimum percentage desirable for the purpose of efficiency has been prescribed.
It was further submitted by Sri Nayar that in respect of candidates other than scheduled castes and scheduled tribes, normally those obtaining far higher than 55% marks become eligible for consideration.
That may or may not be so but what is required is that we must ensure efficiency in administration.
We must, therefore, objective ly, rationally and by a conscious process conscious in the sense by application of mind to the relevant factors arrive at a percentage which should be considered to be a minimum one in order to ensure the efficiency of the administration.
We are conscious that high efficiency is required because the recruitment is in the judicial branch, that is to say, for prospective judicial officers who will be in charge of administration of justice in the country.
But at the same time, if possible, in order to ensure that there is equality of opportunity, a percentage should be fixed which without, in any way, compromising with the efficiency required for the job which will be attainable by backward communities, that is to say, scheduled castes and scheduled tribes.
Unless such a percentage is fixed on the aforesaid basis and a percentage is fixed for qualification which would normally be unattainable by the scheduled castes and scheduled tribes determined on an objective basis, it would not be possible to ensure equality of opportunity.
Both S/Sri Mahabir Singh and Nayar have urged that the minimum must be presumed to have been so fixed in the Haryana Service.
However, that fact is not apparent and there is nothing on record to indicate that this percentage was fixed deliberately on an analysis and careful examination and determination on the lines and the principles indicated above.
In that view of the matter, in our opinion, in the interest of justice and our constitutional mandates and in the light of the efficiency of the services and with a view to create a sense of justice, it is necessary for the Gov ernment concerned to consider this question as 333 to what should be the minimum percentage of marks necessary for the administration.
We direct that the Government will make a conscious decision objectively before the next selec tions for the post in Haryana Judicial Service take place, and determine a minimum percentage of marks consistent with efficiency and the need for ensuring equality of opportunity to scheduled castes and scheduled tribes.
It was also contended by Sri Venkataramani that some of the candidates belonging to the scheduled castes and sched uled tribes have become overaged, therefore, the Government should also consider whether further relaxation in age in favour of scheduled castes and scheduled tribes can be made; and if so, to what extent without hampering efficiency of the administration.
This should also be considered before the next selections for appointment to the post are made.
In the aforesaid light, special leave is granted in civil appeal No. 15,000/88 and the judgment and order of the High Court of Punjab & Haryana, dated 5th June, 1987 are modified to the extent indicated above.
The writ petition and the appeals are disposed of accordingly without any order as to costs.
P.S.S. Petition disposed of.

summary/full:
Rule 8 of the Punjab Civil Services (Judicial Branch Rules, 1951, as adapted by the State of Haryana, lays down that no candidate shall be considered to have qualified in the examination unless he obtains at least 55% marks in the aggregate of all papers, including the viva voce test.
The petitioners assailed the said provision on the ground that fixation of 55% marks has resulted in denial of equality of opportunity to the scheduled castes and sched uled tribes segments of the community vis a vis general candidates for determining their suitability and/or eligi bility for appointment in the judicial branch of the Haryana Civil Services in the absence of lower percentage having been prescribed for them as in other States.
Disposing of the writ petition and the appeal, the Court, HELD: 1.
Public services and public employment do not exist for providing jobs in terms of equality or otherwise to all.
Only public services and public employment must serve public purpose and nothing that hampers or impairs the efficiency or efficacy of public services should be permit ted in ensuring conditions of constitutional equality.
These should be done objectively, rationally and reasonably.
329 2.
Scheduled castes and scheduled tribes for reasons historical or otherwise, are unequal with the general mem bers of the community in respect of ability and qualifica tion for public employment.
They are unable to compete in terms of absolute equality with the members of other commu nities or groups in the society.
Hence, in order to make them compete on conditions of equality with others in re spect of jobs and employments of the State certain relaxa tions and other factors ensuring equality are imperative.
Our Constitution so enjoins it.
Article 38 of the Constitu tion read with Article 14, 15 and 16 so mandates it.
[332D E; C] 3.
In the instant case, high efficiency is required because the recruitment is in the judicial branch, that is to say, for prospective judicial officers who will be in charge of administration of justice in the country.
But at the same time, if possible, in order to ensure that there is equality of opportunity, a percentage should be fixed which without, in any way, compromising with the efficiency re quired for the job which will be attainable by backward communities, that is to say, scheduled castes and scheduled tribes.
Unless such a percentage is fixed on the aforesaid basis and a percentage is fixed for qualification which would normally be unattainable by the scheduled castes and scheduled tribes determined on an objective basis, it would not be possible to ensure equality of opportunity.
[333D F] 4.1 The Government is directed to make a conscious decision objectively before the next selections take place, and determine a minimum percentage of marks consistent with efficiency and the need for ensuring equality of opportunity to scheduled castes and scheduled tribes.
[334B] 4.2 The Government should also consider whether further relaxation in age in favour of scheduled castes and sched uled tribes can be made; and if so, to what extent without hampering efficiency of the administration.
This should also be considered before the next selections for appointment to the post are made.
[334C]