1955 (8) TMI 32 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to the validity of section 4 of the U.P. Sales Tax Act granting power to State Government to exempt goods from sales tax and imposition of sales tax on khandsari sugar.

Analysis:
The petitioners, cultivators and sugar producers, challenged the imposition of a sales tax on khandsari sugar by the State Government under section 4 of the U.P. Sales Tax Act. The petitioners argued that the power given to the State Government to exempt goods from sales tax was arbitrary and discriminatory against the sugar industry. The court examined whether the power under section 4 was unreasonable and found that it was not a power to impose a disability but to exempt certain articles from tax. Even if the power was held invalid, it would not benefit the petitioners as the exempted articles would then be liable for sales tax. The court noted that both khandsari sugar and sugar produced by vacuum pan factories were subject to the same tax rate, indicating no discrimination between the two. Therefore, the court ruled that the petitioners were not entitled to a declaration of invalidity under the Constitution.

The petitioners also argued that the exemption of certain articles from sales tax showed discrimination against khandsari sugar. However, the court found that the exempted articles were different and consumed by a different segment of society compared to sugar. The court highlighted that the considerations for exempting those articles may not apply to khandsari sugar. The court rejected the argument of discrimination based on the exemption of other articles.

Regarding the policy of encouraging cottage industries, the court acknowledged the existence of such a policy but emphasized that not all cottage industries need to be exempt from sales tax. The court reasoned that the producers of sugar might still make profits despite the tax imposition. The court found no evidence of improper discrimination by the State Government in imposing sales tax on khandsari sugar. Consequently, the petition challenging the tax imposition was dismissed by the court with costs.