1994 (8) TMI 231 - SC - VAT and Sales Tax

Whether the classification made between the Khadi Ashram, Panipat, and its units and the other co-operative societies is discriminatory and violative of article 14 of the Constitution of India? Held that - Appeal dismissed. The principles for determining the validity of classification in taxing statutes are well-settled and so also the limits of judicial review in. testing the validity thereof on the touchstone of equality under article 14. The test applicable for striking down a taxing provision on this ground is one of palpable arbitrariness in the context. It has also been held that a classification is permissible in a taxing statute of dealers on the basis of different turnovers for levying varying rates of sales tax.

Summary

Issues: Discriminatory classification under Article 14 of the Constitution of India

The Supreme Court examined the challenge to a notification granting exemption from sales tax to a Khadi Ashram and its units while limiting the exemption for other co-operative societies. The main issue was whether this classification was discriminatory and violated Article 14 of the Constitution of India.

The appellants argued that the limit imposed on other co-operative societies was discriminatory, especially in the case of M/s. Swastic Hand-made Papers Production Co-operative Industries Societies Limited. On the other hand, the respondents contended that the government had the authority to classify industries for exemption under the Act, citing the promotion of khadi as a valid basis for the classification. They also pointed out that no other khadi unit had challenged this classification.

The State of Haryana provided reasons in a counter-affidavit to justify the classification, highlighting the unique features of the Khadi Ashram, Panipat, such as audited accounts and effective monitoring of activities compared to other khadi units.

The Court applied the principle of palpable arbitrariness in testing the validity of the classification under Article 14. It noted that a classification based on turnover, along with other distinguishing features of the Khadi Ashram, Panipat, justified placing them in a distinct class for total exemption from sales tax, especially since no other khadi unit had objected to this classification.

The Court concluded that the classification based on turnover and other features of the Khadi Ashram, Panipat, was valid and justified, dismissing the appeals. The judgment emphasized that the reasoning for the classification alone was sufficient to uphold its validity.