1994 (8) TMI 237 - SC - VAT and Sales Tax

Whether the State had arbitrarily exercised its power under section 5 of the Jammu and Kashmir General Sales Tax Act, 1962 by not extending the period of exemption from sales tax enjoyed by the brick manufacturers of the State? Held that - Appeal dismissed. The Government, in exercise of its power given by section 5 of the Act, can decide to exempt any goods from taxation. The power may be exercised having regard to social, economic, administrative and fiscal considerations.

Summary

Issues:
1. Arbitrary exercise of power under section 5 of the Jammu and Kashmir General Sales Tax Act, 1962.
2. Discontinuation of exemption from sales tax for brick manufacturers.
3. Differential treatment of brick and tile industries.
4. Allegation of retrospective legislation causing undue hardship.
5. Government's promise of exemption to brick manufacturing industry.

Analysis:

1. The High Court of Jammu and Kashmir was tasked with determining if the State had arbitrarily exercised its power under section 5 of the Jammu and Kashmir General Sales Tax Act, 1962. The central issue revolved around the extension of the period of exemption from sales tax for brick manufacturers in the State. The Government's authority to exempt goods from taxation under section 5 was a key aspect of the case.

2. The Government, through notifications, had initially granted exemption to small-scale units including brick manufacturers. However, a subsequent notification ended the exemption for brick manufacturers while continuing it for tile producers. The appellants argued against this differentiation, asserting that both industries were initially granted exemption together and should be treated similarly. The Court, however, upheld the Government's discretion in deciding which goods to exempt from taxation under section 5, based on various considerations.

3. The differential treatment of brick and tile industries was justified by the State, highlighting the newness of the tile industry and the need for incentives to support its growth. In contrast, the brick industry was deemed well-established and not in need of further governmental support. The Court found no arbitrariness in the State's decision to treat the industries differently for sales tax purposes.

4. The contention of retrospective legislation causing undue hardship to the brick industry was dismissed by the Court. The exemption for brick manufacturers was granted until March 31, 1977, and the subsequent withdrawal of the exemption was not considered retrospective as it did not apply to the past period. Therefore, the argument of undue hardship due to retrospective legislation was deemed untenable.

5. Lastly, the appellants raised the issue of the Government's alleged promise to grant exemption to the brick manufacturing industry for a specific period. They argued that the industry had invested based on this promise and should not be deprived of the exemption. However, as this point was not raised in the court below with factual evidence, the Court rejected the argument, emphasizing the need for factual basis and proper pleading in legal proceedings.

In conclusion, the Supreme Court dismissed the appeals, affirming the State's authority to differentiate between industries for tax exemption purposes under section 5 of the Act. The Court found no merit in the arguments challenging the differential treatment of brick and tile industries or the alleged retrospective hardship caused to the brick manufacturers. The importance of factual basis and proper pleading in legal proceedings was underscored, leading to the dismissal of the appeals with no order as to costs.