1988 (9) TMI 312 - SC - VAT and Sales Tax

Constitutional validity of section 41 of the Bombay Sales Tax Act challenged on the ground it confers arbitrary powers of exemption on the State Government so as to exempt all types of new units from the payment of purchase tax, sales tax and Central sales tax under the Package Scheme of Incentives, 1979 - Held that - Appeal dismissed. As this assessment exercise falls purely within the domain of the executive and it is not for the court to see whether other edible units also derive huge benefits and as such Government ought to have revoked the tax exemption benefit in their cases as well. As already stated the classification between units engaged in producing edible oils and non-edible oils is on an intelligible and sustainable basis and as such the court cannot hold that the Government should treat both kinds of units alike and direct the withdrawal of the tax exemption benefit in the case of non-edible oil producing units also. For all these reasons we hold that section 41 of the Bombay Sales Tax Act is not violative of articles 14, 19 and 21 of the Constitution as alleged by the petitioner.

Summary

Issues Involved:
1. Constitutional validity of Section 41 of the Bombay Sales Tax Act.
2. Classification of washed cotton seed oil as edible oil.
3. Discrimination between new and old industrial units in backward areas.
4. Justification for tax exemptions to new units in backward areas.
5. Distinction between edible and non-edible oils for tax exemption purposes.

Detailed Analysis:

1. Constitutional Validity of Section 41 of the Bombay Sales Tax Act:
The petition challenged the constitutional validity of Section 41 of the Bombay Sales Tax Act, which grants the State Government the power to exempt certain sales or purchases from tax. The petitioners argued that this section conferred arbitrary powers on the State Government. However, the court held that Section 41 has been a part of the statute since its inception and is intended to allow the government to act in public interest by granting tax exemptions. The court found that the power conferred by Section 41 is not arbitrary as it is exercised to promote public interest, and the section has withstood the test of time.

2. Classification of Washed Cotton Seed Oil as Edible Oil:
The petitioners contended that washed cotton seed oil should be classified as edible oil, thereby making new units producing it ineligible for tax exemptions. The court rejected this argument, stating that washed cotton seed oil requires further processing to be fit for human consumption and thus does not fall under the category of edible oil. The government's classification was upheld as it was based on the fact that washed cotton seed oil is not directly consumable.

3. Discrimination Between New and Old Industrial Units in Backward Areas:
The petitioners argued that the tax exemption should not be limited to new units but should also be extended to old units in backward areas. The court dismissed this contention, noting that the policy of granting tax exemptions to new units is aimed at encouraging industrial development, dispersing industries across the state, and creating employment opportunities in backward areas. The court found this classification reasonable and in the larger public interest.

4. Justification for Tax Exemptions to New Units in Backward Areas:
The court examined the government's policy of providing tax exemptions to new units in backward areas, which was intended to promote industrialization and create employment. The court upheld this policy, stating that it is reasonable and not arbitrary. The court emphasized that such exemptions help new units compete with established ones, thereby fostering industrial growth in underdeveloped regions.

5. Distinction Between Edible and Non-Edible Oils for Tax Exemption Purposes:
The petitioners argued that the government's decision to withdraw tax exemptions only for units producing edible oils, while continuing them for non-edible oil units, was unjustified. The court found this distinction to be valid, noting that edible and non-edible oils constitute separate categories capable of distinct classification. The government's decision to limit the withdrawal of tax exemptions to edible oil units was based on an assessment that these units had derived undue advantage from the exemptions, unlike those producing non-edible oils.

Conclusion:
The court concluded that Section 41 of the Bombay Sales Tax Act is not violative of Articles 14, 19, and 21 of the Constitution. The petition was dismissed, and the court upheld the government's policy of granting tax exemptions to new units in backward areas while distinguishing between edible and non-edible oils for the purpose of tax exemptions. The decision emphasized that the classification and policy decisions made by the government were reasonable, in public interest, and within the domain of executive discretion.