V. K. SINGHAL, J. ( 1 ) THE petitioner is a dealer registered under the provisions of the Karnataka Sales Tax Act and is a proprietory concern of Basappa Bannappa Tumbag. He is dealing in iron and steel including steel ingots, steel bars etc. The item sold by the petitioner are declared goods falling under section 14 of the Central Sales Tax Act 1956. Iron and Steel are taxable at single point. e. , the first point. The grievance of the petitioner is that the proviso to Explanation-ll appended to the 4th Schedule inserted by Act No. 5/96 is discriminatory. Discrimination is alleged in respect of dealing of goods which are manufactured by the new exempted unit and those manufactured by old unit or such new unit to which the benefit of deferment is given under Section 19-C of the act. ( 2 ) IN order to appreciate the contentions of the learned Counsel for the parties, the provisions of section 5 (4) of the Act which is a charging Section are reproduced hereunder: " (4) Notwithstanding anything contained in Sub-section (1) of 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 Schedule at the rate and only at the point specified in the corresponding entries of columns (5) and (3) of the said schedule on the dealer liable to pay tax under this Act on his taxable turnover of sales or purchase in each year relating to such goods. " ( 3 ) IT is not in dispute between the parties that iron and steel is taxable at single point which is first point and 4% rate of tax is specified under entry-2 of 4th Schedule of the Act. Since 1-4-1978 if iron and steel in any form is used for manufacture of" iron and steel in other form and sold in Karnataka, the tax paid on the raw material was to be reduced from the liability on the sale of finished product. ( 4 ) THE disputed amendment is by Act No. 5/96 with effect from 1. 4. Since 1-4-1978 if iron and steel in any form is used for manufacture of" iron and steel in other form and sold in Karnataka, the tax paid on the raw material was to be reduced from the liability on the sale of finished product. ( 4 ) THE disputed amendment is by Act No. 5/96 with effect from 1. 4. 1996, which is as under: "explanation-II - Where tax has been levied under this Act on goods specified in any item of serial number 2 and out of such goods, different goods specified in any other item of serial number 2 are manufactured, the tax leviable on sales of such manufactured goods shall be at the rate of two per cent. " provided that nothing in this explanation shall apply where the input goods used in the manufacture are exempt from tax by any notification issued under Section 8-A or Section 19-C" ( 5 ) ACCORDING to the petitioner the purchase of iron and steel are made from different sources. The new units have been exempted under Section 8-A of the KST Act. Subsequently 19-C was added by Act No. 18/94 conferring power on the State Government to notify exemption of tax or defer payment of tax for new industries. Levy of tax at higher rate of 4% on the finished product sold by the manufacturer, if the purchase of raw material is from goods which are exempted under Section 8a or 19-C has affected the business of the petitioner while iron and steel which is manufactured by the new unit, but having the benefit of deferred payment of tax or purchased from old units, or dealers who are second or subsequent dealers are liable to tax at 3%. The plea of discrimination violating the provisions of Articles 14 and 19 (1) (g) of the Constitution of India is alleged. ( 6 ) ON behalf of the respondent statement of objection has been filed and it is stated that the proviso to explanation-ll was inserted with-an intention to advance the object and cause of section 14 of the Central Sales Tax Act wherein declared goods are liable to tax at a rate not exceeding 4%. ( 6 ) ON behalf of the respondent statement of objection has been filed and it is stated that the proviso to explanation-ll was inserted with-an intention to advance the object and cause of section 14 of the Central Sales Tax Act wherein declared goods are liable to tax at a rate not exceeding 4%. It is submitted that raw material and finished product constitute different commodities and therefore the State has jurisdiction to levy tax on finished products as well as raw material and the only restriction under Section 14 of the KST Act is that liability of tax should not exceed 4%. It is submitted that it is only in respect of goods which have already suffered levy of tax under the Act on the raw material, the finished product thereof is liable to tax at 2%, while in other cases it is liable to tax at 4%. The reason given for that is that the unit enjoys the benefit of tax exemption on the goods manufactured and sold, therefore no liability of tax is attracted on such products. The manufacture of iron and steel from that product is a different commodity on which liability of tax at 4% has been fixed. The new product is entirely different and distinct and the two cannot be clubbed together for the purpose of over all limit of 4% tax. It is also stated that the proviso has not classified the same class of dealers or same class of goods differently. Nowhere the tax liability is fixed on such new unit or on the purchaser which purchases the input goods from the new unit. Like dealers or like goods are not discriminated and placed in different classes for the purpose of taxation. The benefit of tax exemption under Section 8-A comes to an end when the manufactured product is sold and treating the commodities subsequently in a different manner would not amount taking away the benefit which has been given to the new industrial unit. It is submitted that tax exempted new units are still capable of competing with others since the total tax burden on the commodity subsequently manufactured and sold by using the input goods which have already suffered tax levy is 6%, whereas the total burden of tax on the manufactured commodities where inputs goods used in such manufacture were exempt from tax is only 4%. The tax exemption granted under the notification issued under Section 8a or 19-C is not illusory. The proviso does not affect the dealer enjoying the benefit of deferment. No restriction has been placed on the freedom of trade, commerce and there is no discrimination between the goods imported from other states and the local goods purchased from a tax exempt source. ( 7 ) I have considered over the matter. From the history of the amendment in respect of item No. 2 of 4th Schedule, it is not in dispute that iron and steel have been subjected to tax at single point, which is the first point now. If the iron and steel is manufactured by a new unit then by virtue of the exemption granted under Section 8a or 19-C no tax is leviable on the manufacturer. The second dealer is also not liable to pay tax because the tax is payable only at the first point which is already exhausted in the hands of the manufacturer. The controversy has arisen because dealers in iron and steel, if are purchasing iron and steel in raw material form from different sources different treatment is given in the hands of the subsequent manufacturer who purchase the raw material from the petitioner or the like affecting the sale price of such raw material. Take the example of ingots which may be manufactured by one unit which is exempt from tax and is sold by such unit to another registered dealer, then such second dealer is not liable to pay tax though the manufacturer is exempted. Such raw material may pass in the hands of different persons and may even be mixed with other similar goods obtained from other registered dealers and when such raw material is ultimately purchased by a manufacturing unit, it may not be possible to know its origin and therefore, uncertainty is created. It may not be possible for the dealer or manufacturer to establish the origin of raw material after it has passed in different hands. Once the first point is exhausted then at a second or subsequent point no liability can be fastened on such goods on the basis of its origin. If the second or subsequent dealer has sold the exempted goods he is not supposed to demarcate them separately in the bill as there being no liability on second or subsequent point. Once the first point is exhausted then at a second or subsequent point no liability can be fastened on such goods on the basis of its origin. If the second or subsequent dealer has sold the exempted goods he is not supposed to demarcate them separately in the bill as there being no liability on second or subsequent point. Such product can eventually be sold in the State or may be transferred outside the State. Both product. e. ingots manufactured by new exempted unit or deferred unit being the same are sold at same rate but if they are treated differently in respect of rate on the finished product manufactured there from, the price is bound to be effected as no person would purchase the commodity at the same rate if there is ultimately higher burden of tax. ( 8 ) IN GOVIND SARAN GANGA SARAN v. COMMISSIONER OF SALES TAX AND ORS. , 60 STC page 1 it was observed by the Appex Court as under: "the components which enter into the concept of a tax are well known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity. " ( 9 ) FROM the above observations of the Apex Court, it has to be seen whether there is any uncertainty or vagueness in any of the elements for valid levy of tax. In the present case goods. e. raw material purchased from a new unit may have passed in the hands of different persons. It may be difficult to state as to from which source the goods have come. In the present case goods. e. raw material purchased from a new unit may have passed in the hands of different persons. It may be difficult to state as to from which source the goods have come. In the case of exempted goods the tax is sought to be levied at higher rate on the finished product on the basis of origin of such raw material for which the dealers like petitioner are under no obligation to keep a separate account under the Act, Rules or any notification issued thereunder. Since the tax is payable at first point there is no liability on second or subsequent point even if the goods are exempt as held by larger Bench of Rajasthan High Court in CYCLE HAAT v. BOARD OF REVENUE, 1979-44 STC 48. The clear indication of the person on whom the levy is imposed according to the above judgment is the first point dealer, but after passing goods in the hands of different dealers, the source of origin has increased the liability of manufacturer, and he is made liable to pay tax on finished product at 4% instead of 2% which is the rate applicable in respect of purchase of raw material from old units or new units availing benefit to deferred payment of tax. It is the manufactured item therefrom which has differently been treated, but an uncertainty or vagueness in the scheme has arisen. Sale by exempted Unit may have the word exempted in the bill but second or subsequent dealers are under no obligation under law to write any thing on the bill. The last dealer effecting sale to manufacturer may even not know the source of origin. Thus the liability of high rate of tax on manufacturer of finished product has created an uncertainty. Under Section 6-A (2) also there is no burden on the second/subsequent dealer. ( 10 ) IN KHANDIGE SHAM BHAT AND ORS. v. AGRICULTURAL INCOME TAX OFFICER, kasargod AND ANR. , AIR 1963 SC 591 . it was observed: "though a law ex facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. v. AGRICULTURAL INCOME TAX OFFICER, kasargod AND ANR. , AIR 1963 SC 591 . it was observed: "though a law ex facie appears to treat all that fall within a class alike, if in effect it operates unevenly on persons or property similarly situated, it may be said that the law offends the equality clause. It will then be the duty of the court to scrutinise the effect of the law carefully to ascertain its real impact on the persons or property similarly situated. Conversely, a law may treat persons who appear to be similarly situate differently, but on investigation they may be found not be similarly situate. To state it differently it is not the phraseology of a statute that governs the situation but the effect of the law that is decisive. " ( 11 ) IN the case of KUNNATHAT THATHUNNI MOOPIL NAIR ETC v. STATE OF KERALA and ANR. , AIR1961 SC 552 , [1961 ]3 SCR77. while considering scope of Article 14 of the Constitution it was held : ". . . If the legislature has classified persons or properties into different categories, which are subjected to different rates of taxation with reference to income or property, such a classification would not be open to the attack of inequality on the ground that the total burden resulting from such a classification is unequal. Similarly, different kinds of property may be subjected to different rates of taxation, but so long as there is a rational basis for the classification, Article 14 will not be in the way of such classification resulting in unequal burdens on different classes of properties. But if the same class of property similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating an inequality amongst holders of the same kind of property. It must, therefore, be held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14, though the Courts are not concerned with the policy under tying a taxing statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable. The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution. The Act has, therefore, to be examined with reference to the attack based on Article 14 of the Constitution. " Thus it has to be seen whether same class of property similarly situated is subjected to an incidence of taxation which results in inequality. Effect or impact of law is required to be seen. ( 12 ) IN FIRM. A. T. B. MEHTAB MAJID AND CO. v. STATE OF MADRAS AND ANR. , AIR1963 SC 928 , [1963 ]supp2 SCR435 , [1963 ]14 STC355 (SC ). it was observed thus : ". . . . we do not consider that the mere circumstance of a tax having been paid on the sale of such hides or skins in their raw condition justifies their forming goods or skins which had been imported 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 goods and not with respect to whether they were subject to a tax already or not. " (emphasis given) these observations were made in the context of Article 304 (a) of the Constitution of India, but the purpose of discrimination under Article 14 of the Constitution similarity have to be considered in the nature of quality and kind of goods and not with respect to their origin in the state or whether they were subject to tax or not. The goods manufactured by new unit which is completely exempt and which have the benefit of deferred payment of tax are the same and for the finished product manufactured therefrom it cannot be examined whether the raw material was subject to tax already or not. ( 13 ) IN P. M. ASHWATHANARAYANA SHETTY AND ORS. v. STATE OF KARNATAKA and ORS. , AIR1989 SC 100 , JT1988 (4 )SC 640 , 1988 (2 )SCALE844 , 1989 Supp (1 ) SCC696 , [1988 ]supp3 SCR155. where the proceedings for grant of probate and letters of administration were excluded for the purpose of upper limit of court fee, it was observed that the discrimination brought about by the statute, fails to pass the constitutional muster as rightly pointed out by the High Court. where the proceedings for grant of probate and letters of administration were excluded for the purpose of upper limit of court fee, it was observed that the discrimination brought about by the statute, fails to pass the constitutional muster as rightly pointed out by the High Court. The High Court, in this case, held : "there is no answer to this contention except that the legislature has not thought it fit to grant relief to the seekers of probates, whereas plaintiffs in civil suits were though deserving of such an upper limit. The discrimination is a piece of class legislation prohibited by the guarantee of equal protection of laws embodied in Article 14 of the Constitution. " ( 14 ) IN ARYA VAIDYA PHARMACY v. STATE OF TAMIL NADU, 1989-73 STC 346 it was observed that it is open to legislature to select different rates of tax for different commodity. But where the commodities belong to the same class or category, there must be a rational basis for discrimination between one commodity and other for the purpose of imposing tax. ( 15 ) IT may be observed that taxation laws are not an exception to the doctrine of equal protection. The only thing which has to be seen is as to whether there is reasonable basis behind the classification. If the basis could be considered reasonable, then it will be within the power of the legislature or the delegated authority to treat the commodity differently. But, if there is no reasonable basis for such classification, then it has to be struck down. ( 16 ) IN VIRUPAKSHA ENTERPRISES AND ORS. , W. R 17812/1989 and other connected cases dd 6. 9. 1989. v. C. T. O. the dispute was about the interpretation of Notification dated 28th March, 1987 which required production of proof of payment of tax on the sale of oil manufactured and sold within the State or in the course of inter-State trade and commerce for claiming exemption of tax liability on purchase of ground-nut. The units were exempted under the Notification issued under Section 8a and admittedly no tax was paid on the sale by such exempted unit. After taking into consideration the exemption the word 'paid' was considered to mean as 'contracted to be paid'. The exemption was held applicable even to those units which have not paid tax being exempt. The units were exempted under the Notification issued under Section 8a and admittedly no tax was paid on the sale by such exempted unit. After taking into consideration the exemption the word 'paid' was considered to mean as 'contracted to be paid'. The exemption was held applicable even to those units which have not paid tax being exempt. Writ Appeals 2137 to 2145/89 filed against these decisions were dismissed by Division bench and the Apex Court has also not interfered in Special Leave Petition filed on the ground that only 9 tiny sector industries were involved. On the basis of this decision the product of exempted unit cannot be treated differently than other unit. When a provision is made in the context of a law providing for concessional rate of tax for the purpose of encouraging industrial activity liberal construction should be put upon the language of statute as held in STRAW BOARD MFG. CO. LTD. , 1989-177 ITR 431. ( 17 ) IN COMMERCIAL TAX OFFICER-IV CIRCLE, DAVANGERE, CHITRADURGA district v. HALLUR HALlppa AND CO. DAVANGERE, CHITRADURGA DISTRICT, 1996 (41) Kar. L. J. 503 a Division Bench of this Court observed that exemption from tax on paddy purchased by new rice mills for manufacture of rice has to be read in the manner which would make incentive real and not illusory. The normal benefit cannot be defined to new industries availing incentive and where normal rate of tax is 4% it has to be reduced by tax paid on paddy and when new industries are made to pay full tax on rice with no reduction therefrom as paddy used by them has not suffered tax, there is no difference between new industries and ordinary manufacturers and incentive becomes illusory. ( 18 ) IN the case of N. B. SANJANA v. THE ELPHINSTONE SPINNING AND WEAVING mills CO. LTD. , AIR1971 SC 2039 , 1973 ECR6 (NULL ), 1978 (2 )ELT399 (SC ), (1971 ) 1 SCC337 , [1971 ]3 SCR506. the Supreme Court has laid down two propositions: 1) Expression "paid" in the context of a particular statute may mean "ought to have been paid" and 2) Nil assessment may mean "assessed to duty". It has referred to a judgment of the Court of Appeal in the case of ALLEN v. THORN electrical INDUSTRIES LTD. , 1968) IQ-B-487-7. the Supreme Court has laid down two propositions: 1) Expression "paid" in the context of a particular statute may mean "ought to have been paid" and 2) Nil assessment may mean "assessed to duty". It has referred to a judgment of the Court of Appeal in the case of ALLEN v. THORN electrical INDUSTRIES LTD. , 1968) IQ-B-487-7. and has held : "the literal meaning of the expression 'paid' as actually paid in cash has again not been adopted by the court of Appeal in the case of ALLEN v. THORN ELECTRICAL INDUSTRIES LTD. (1968) 1 QB 487. Having regard to the context in which the said expression appeared in the particular provision which came up for interpretation, the Court of Appeal construed the said expression to mean "contracted to be paid". ( 19 ) THE Supreme Court in the case of ASSISTANT COLLECTOR OF CENTRAL EXCISE, calcutta v. NATIONAL TOBACCO CO. OF INDIA LTD. , AIR1972 SC 2563 , 1978 (2 ) ELT416 (SC ), (1972 )2 SCC560 , [1973 ]1 SCR822. observed: "the term 'levy' appears to us to be wider in its import than the term 'assessment'. It may include both 'imposition' or a tax as well as assessment. The term 'imposition' is generally used for the levy of a tax or duty by legislative provisions indicating the subject matter of the tax and the rates at which it has to be taxed. The term "assessment" on the other hand is generally used in this country for the actual procedure adopted in fixing the liability to pay a tax on account of particulars goods or property or whatever may be the subject of the tax in particular case and determining its amount. The Division Bench appeared to equate 'levy' with an 'assessment' as well as with the collection of a tax when it held that 'when the payment of tax is enforced, there is a levy'. We think that, although the connotation of the term 'levy' seems wider than of 'assessment' which it includes, yet, it does not seem to us to extend to 'collection'. Article 265 of the Constitution makes a distinction between 'levy' and 'collection. We also find that in N. B. SANJANA v. THE ELPHINSTONE SPINNING AND WEAVING mills CO. LTD. We think that, although the connotation of the term 'levy' seems wider than of 'assessment' which it includes, yet, it does not seem to us to extend to 'collection'. Article 265 of the Constitution makes a distinction between 'levy' and 'collection. We also find that in N. B. SANJANA v. THE ELPHINSTONE SPINNING AND WEAVING mills CO. LTD. AIR1971 SC 2039 , 1973 ECR6 (NULL ), 1978 (2 )ELT399 (SC ), (1971 )1 SCC337 , [1971 ]3 SCR506 , this Court made a distinction between 'levy' and 'collection' as used in the Act and the Rules before us. " We are not inclined to accept the contention of Dr. Syed Mohammed that the expression 'levy' in rule 10 means actual collection of some amount. The charging provisions of Section 3 (1) specifically says, "there shall be levied and collected in such a manner as may be prescribed the duty of excise. . . . . ". It is to be noted that Sub-section (1) uses both the expressions "levied" and "collected" and that clearly shows that the expression "levy" has not been used in the Act or the rules as meaning actual collection. " the word levied' refers to the liability for levy and not actual collection of tax. ( 20 ) KEEPING in view the broader principles of Article 14 of the Constitution and the interpretation of law as given above, I feel that the proviso to Explanation-ll has not given any reasonable basis for treating the same goods manufactured by different units differently. Therefore, the proviso to Expianation-ll is liable to be struck down for the following reasons independent of each other: 1) That at the time when exemption was granted to the new units in order to attract enterprenueurs in the State of Karnataka they were given exemption for a fixed period. Now if their products are treated differently or finished product there from is sought to be taxed, at higher rate then it would amount to taking away the benefit of exemption given under the Act as the product of the exempted Unit will be sold in the market at lesser rate. The proviso is also unreasonable in the sense that new unit which have the benefit of tax exemption on the sale of raw material would not be interested to come in the State of Karnataka. The proviso is also unreasonable in the sense that new unit which have the benefit of tax exemption on the sale of raw material would not be interested to come in the State of Karnataka. 2) The point of tax under Section 5 (4) is the first point and if the point has already exhausted in the hand of some earlier dealer then there is no liability of tax on subsequent points. Since there is no obligation to keep separate account by record of subsequent dealers, the finished product manufactured therefore cannot be treated differently. 3) The raw material manufactured by different units. e. new unit, having the benefit of deferred payment of tax and new unit having the benefit of exemption of tax cannot be considered differently as similarity is to be examined in the nature of the quality and kind of goods and not with respect to whether the raw material was subjected to tax or not. There is hostile discrimination in the product of two types of new units. Thus there is discrimination inter se as the produce manufactured are the same. 4) The object of the Government to collect tax on the raw material was that the Government should receive 4% tax in total as pointed out by the learned High Court Government Pleader. If the cost of raw material is taken to be 50% of the finished product then by levying tax at 4% on the cost of raw material, 2% tax would be considered to have been received on the value of finished product and 2% is separately realised. In case of a composite unit which manufacture ingot from scrap and finished product from ingot if it is new unit, no tax is leviable as such the contention that Government should get 4% tax is not correct. Thus discrimination is caused between composite unit and units manufacturing intermediatory products. In the case of deferred payment of tax though payment is not received and it is after the specified period that the tax is paid still at the time of effecting the sale tax is presumed to have been received. Thus discrimination is caused between composite unit and units manufacturing intermediatory products. In the case of deferred payment of tax though payment is not received and it is after the specified period that the tax is paid still at the time of effecting the sale tax is presumed to have been received. The period of exemption is lesser for exempted unit than the deferred new units and thus availing the benefit of not making payment of tax by the deferred unit for a longer period or total exemption to new unit was the option of the enterpreneur to avail benefit under either of the schemes. Grant of exemption will become illusory if the product manufactured by exempted units are treated differently at subsequent stage. 5. In the case of VIRUPAKASH enterprise (WA. 2137 to 2145/89 dt. 05. 07. 90) where the dispute was regarding submission of proof for payment of tax in respect of new unit which were exempted from tax, it was considered that the Notification of exemption itself must be considered as proof of payment of tax and thus the Division Bench came to the conclusion that the tax by the new unit has already been paid. In CTO v. HALLUR HALAPPA AND CO. referred to above also exemption is granted. Though different phraseology is used by these notifications, in the Explanation-ll the word levied is used which is equivalent to tax already paid cannot be interpreted to exclude the sale of product by the new exempted unit because on such unit the tax is leviable under the charging section but because of exemption granted, tax is not collected. The word 'tax already paid' or 'suffered of the tax' is not used and as such where the tax is levialbe under the charging section but exempted, it will be considered that the tax was leviable and such goods cannot be treated differently. Exclusion by the proviso have created a class in the class. If in order to encourage industrialisation statute exemption is given, it cannot be made illusory subsequently. 6) An uncertainty and vagueness is created with regard to the point of tax, because if there is no liability on second or subsequent point, then the ultimate manufacturer of finished product cannot be asked to prove the source of origin of such goods which have passed in the hands of number of registered dealers. 6) An uncertainty and vagueness is created with regard to the point of tax, because if there is no liability on second or subsequent point, then the ultimate manufacturer of finished product cannot be asked to prove the source of origin of such goods which have passed in the hands of number of registered dealers. 7) The raw material manufactured by the new unit which is exempt and which is availing benefit of deferment of tax belong to the same class, subsequent treatment of the product result in inequality and the effect/impact of such inequality is directly on the business of the petitioner and the like. The discrimination in the rate of tax on similar goods is violative of Article 14 of the constitution. The basis cannot be considered reasonable. ( 21 ) IN view of the above, the proviso to Explanation-ll as inserted by Karnataka Act 5/96 is declared discriminatory and therefore struck down as violative of Article 14 of the Constitution.