Shree Mahavir Oil Mills v. State of J. & K.||Case Summary||1996 (11) SCC 39||

Shree Mahavir Oil Mills v. State of J. & K.

1996 (11) SCC 39

Case Summary

(Trade, Commerce and Intercourse within the territory of India)

FACTS:

The State of Jammu and Kashmir enacted a scheme to protect its local edible oil industry. This scheme provided a complete exemption from sales tax to local manufacturers of edible oil. However, out-of-state manufacturers were subject to a sales tax of 8%. The appellants, out-of-state manufacturers of edible oil, challenged this exemption as discriminatory and violative of their constitutional rights. They argued that the exemption scheme created an unfair advantage for local manufacturers, hindering interstate trade and commerce.

ISSUES RAISED:

1. Does the exemption scheme provided by the State of Jammu and Kashmir to local edible oil manufacturers, while imposing a sales tax on out-of-state manufacturers, constitute discrimination against out-of-state manufacturers in violation of Article 301 of the Constitution?

2. Does the exemption scheme impose an unreasonable restriction on the free flow of interstate trade and commerce, thereby infringing upon Article 301 of the Constitution?

3. Can a State, under Article 304 of the Constitution, impose restrictions on interstate trade to protect local industries, even if such restrictions are discriminatory and hinder the free flow of commerce?

RELEVANT PROVISIONS:

1. Article 301: Guarantees the freedom of trade, commerce, and intercourse throughout the territory of India.

2. Article 304: Empowers State Legislatures to impose reasonable restrictions on the freedom of trade, commerce, or intercourse within the State in the public interest.

JUDGEMENT:

The Supreme Court held that the exemption scheme was unconstitutional and violated Article 301 of the Constitution. The Court reasoned that the scheme created an artificial barrier to interstate trade by favoring local manufacturers over out-of-state ones. The Court emphasized that while States have the power to promote local industries, this power is subject to constitutional limitations. Any discriminatory measure that hampers interstate trade is impermissible.

The Court further clarified that the power to protect local industries under Article 304 must be exercised reasonably and should not unduly restrict interstate trade. The exemption scheme in this case was deemed to be excessive and disproportionate, as it completely exempted local manufacturers from sales tax while imposing a significant burden on out-of-state manufacturers.