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(xi), Input Tax Credit may be allowed in respect of transaction falling under item/clause (ix)* under sub-Section 6 of Section 10 of the TVAT Act, on the tax paid in excess of 4% on the raw materials used directly in the manufacture of the finished products.

[7] According to the petitioner-company, a reading of sub section 10(1) and Clause (ix) of Section 10(6) of TVAT Act provides that the purpose of the said provisions are that the State should at least get tax on the goods purchased in the State of Tripura at the applicable rate of CST even if the said goods are sent on stock/consignment transfer after purchasing the same in the State of Tripura. That is the reason why it has been provided that in case of inputs used in taxable goods sent on stock/consignment transfer the tax paid in excess of 4% or the existing rate of CST, such input is to be credited. The rate of tax under TVAT Act on rubber including latex is 5%. In case such goods after purchase in the State of Tripura are sent on stock/consignment transfer the dealer within the meaning of TVAT Act shall be entitled to the credit of the tax in excess of 4% or the existing CST. Since the rate of CST in case of sale made in the course of inter-state trade and commerce to the registered dealer is 2% such dealer shall be entitled to an Input Tax Credit of 3% [5% VAT - 2% CST]. If there is no tax liability, such dealer can claim refund of 3% tax by way of Input Tax Credit remaining unadjusted. As stated earlier, that Section 10(3), Clauses (a) and [* It is, according to the petitioner-company an error in drafting as it was meant to be a proviso to sub-clause XI] 7(b) put a restriction on claim of Input Tax Credit by a dealer in case of sale or resale made by him of the goods purchased in the State of Tripura or of the finished products in the course of interstate trade and commerce. Benefit of Input Tax Credit has been thus limited only to the extent of sale or resale made by a dealer within the State of Tripura. Therefore, if a dealer instead of sending goods/consignment transfer outside the State of Tripura which incidence provides entitlement for them to an Input Tax Credit in excess of 4% or the existing CST, causes sales of the same in the course of interstate trade and commerce from the State of Tripura, such dealer shall not only be disentitled to claim the Input Tax Credit in respect of VAT paid on the purchase of such goods within the State of Tripura. The said dealer shall also be liable to pay CST on the interstate sale of such goods effected by them. The petitioner-company, therefore, contends that the restriction put under Clauses (a) and (b) of Section 10(3) denying Input Tax Credit to a dealer who causes sale in the course of interstate trade and commerce creates an unreasonable classification in respect of sales of goods sent on stock/consignment transfer and sales made in the course of interstate trade and commerce and that does not have any reasonable nexus with the object sought to be achieved by the TVAT Act. The said severed part, according to the petitioner- company, is hit by Article 14 of the Constitution of India and as such, is liable to be struck down.

(c) of the TVAT Act. Mr. Gulati, learned senior counsel has referred to Section 10(6), Clauses (IX) and (XII) of the TVAT Act for contending that the opening part of Section 10(6) of the TVAT Act provides that no Input Tax Credit under sub-section (1) shall be claimed or be allowed to a registered dealer who stock- transfers goods, other than by way of a sale outside the State of Tripura on raw materials used in the manufacture or processing of goods-where the finished products are dispatched other than by way of sale. The proviso below Section 10(6) of the TVAT Act postulates further that in cases of items falling under Clause IX, Input Tax Credit may be allowed on tax paid in excess of 4% on raw materials used directly in the manufacture of finished goods. It is submitted further by Mr. Gulati, learned senior counsel that 'Clause-IX' appearing in the proviso, obviously seems to be an error in drafting as it was always meant to be Clause XI. This is because this proviso states of Input Tax Credit on raw materials used directly in the manufacture of finished goods. The language of the proviso therefore corresponds to Clause XI which is in respect of raw materials in the manufacture of finished goods. Mr. Gulati, learned senior counsel has refreshed us the statement made by Mr. B.C. Das, learned Advocate General that both in case of exports and stock-transfer outside the state, the benefit of Input Tax Credit are available. Mr. Gulati, learned senior counsel has conceded to such interpretation given by learned Advocate General. Further Mr. Gulati, learned senior counsel has submitted that it is clear that the State Government grants the benefit of Input Tax Credit in two situations viz. (i) where goods are transferred out of state by way of exports and (ii) where their stock is transferred outside the State of Tripura to other states. In both the categories of transactions, the State Government does not earn any revenue by means of tax as it is disabled by virtue of Article 286 of the Constitution of India levying tax on transactions which are not sales such as stock-transfers and in case of exports made outside the country. Mr. Gulati, learned senior counsel has emphatically contended that without any intelligible basis and in exercise of sheer arbitrariness, the State Government by virtue of Section 10(3) (a) and Section 10(3) (b) of the TVAT Act has picked up those dealers who undertake their inter-state sale i.e. make sales of interstate character commencing from the State of Tripura, for denying the benefit of Input Tax Credit. If a dealer were to make a sale of finished products outside the State of Tripura or use raw materials to manufacture finished goods which are not sold in Tripura but are sold outside the State as interstate sale their input tax is not credited in terms of Section 10(1) of the TVAT Act. Mr. Gulati, learned senior counsel has referred the provisions of Article 269 of the Constitution of India in this regard. Article 269(1) provides inter alia that taxes on the sales or purchase of goods shall be levied and collected by Government of India but shall be deemed to have been assigned to the State Governments whereas Article 269(2) provides that such taxes collected shall not form part of the consolidated fund of India but shall be assigned to the States. Article 269(3) provides that the Parliament would formulate principles for determining when a sale or purchase takes place in the course of another state trade or commerce. The Central Sales Tax Act, 1956 [CST] has been framed in consonance to the provisions of Article 269 of the Constitution of India. Section 9(1) of the CST Act provides that any tax levied by Government of India on the sale of goods shall be collected by the Government in accordance with the provisions of sub-section 2 of Section 9 of CST Act, in the state from which the movement of goods commenced. Section 9(3) of the CST Act provides that the proceeds of tax collected by the State Government on behalf of the Government of India shall be retained by the state government for its own use. It is apparent from the said constitutional and statutory arrangement, according to Mr. Gulati, learned senior counsel, that from interstate sales made from the state of Tripura it is the state of Tripura alone which would be entitled to levy and collect taxes on this interstate transaction and the tax so collected would be retained by the State Government. Thus, it is only on the interstate sale made from the State of Tripura, the State Government earns revenue by way of CST. It is the only class of transaction which has been picked up for discriminatory treatment and therefore, it violates the Article 14 of the Constitution of India. However, Mr. Gulati, learned senior counsel has clearly acceded to the position of law that under the present constitution scheme, the State Governments have the power to pick of certain persons or certain types of transaction for the purpose of taxation while leaving out certain other types of transaction from the net of taxation. This absolute power available with the State Government is however subject to certain well defined restrictions. Repeatedly, the apex court has held that tax laws are subject to the rigours of Article 14 of the Constitution of India. While the State Government has the power to classify, such classification must bear a nexus with the object sought to be achieved. If no basis is indicated by the State Government for such a classification or the classification is based on no intelligible differentia, the provision would be struck down as arbitrary. Further, assuming that the classification is based on some intelligible differentia, however, it has no nexus with the object sought to be achieved. In that event, also the provisions would violate the Article 14 of the Constitution of India. The apex court has held on numerous occasions that even though there is presumption in favour of the constitutionality but when a petition is able to show ex-facie that the differentia or classification does not advance the cause of object sought to be achieved, the burden would be on the State Government to show the reason for classification and how the object was being achieved by making such classification. Having referred to this case, Mr. Gulati, learned senior counsel has dilated his submission further to contend that the State Government allows the benefit of Input Tax Credit in case of exporters under Section 10(1)(b) and Section 10(3)(c) of the TVAT Act and in favour of the persons who stock- transfers the finished goods under Sections 10(1)(d) and 10(6)