1986 (1) TMI 361 - HC - VAT and Sales Tax

Issues Involved:

1. Ultra vires of the notification under Section 9 of the A.P.G.S.T. Act.
2. Violation of Article 14 of the Constitution of India.
3. Violation of Article 304(a) of the Constitution of India.

Detailed Analysis:

1. Ultra Vires of the Notification under Section 9 of the A.P.G.S.T. Act:

The petitioners argued that the notification dated 22nd April 1985, issued under Section 9 of the Andhra Pradesh General Sales Tax Act (A.P.G.S.T. Act), was ultra vires as it fell outside the purview of Section 9. They contended that the State Government could not exempt the goods of a single individual unless such goods or persons formed a class by themselves. The court examined Section 9(1) of the A.P.G.S.T. Act, which empowers the State Government to make an exemption or reduction in the rate of tax on the sale or purchase of any specified class of goods or by any specified class of persons. The court held that the words "specified class of goods" facilitate the State to classify any goods and grant exemptions to particular classes or categories of goods, and the notification does not suffer from any infirmity by mentioning the name of the manufacturer. The court referred to past instances where specific exemptions were granted to certain manufacturers or products, supporting the view that such notifications are within the purview of Section 9(1). Therefore, the contention that the notification was ultra vires was rejected.

2. Violation of Article 14 of the Constitution of India:

The petitioners argued that the notification violated Article 14 as it resulted in invidious discrimination without a valid classification or nexus. The court reiterated the principle that taxation laws are not an exception to the doctrine of equality but permit a larger discretion to the legislature in matters of classification. The court justified the classification in favor of the second respondent-company on three grounds: (i) it is a Government company, (ii) it is situated in a backward area providing employment opportunities, and (iii) it is a new entrant requiring protection. The court cited precedents where classifications between small and big manufacturers or between new and old units were upheld. The court held that the second respondent, being a Government company established in a backward area and providing employment, constitutes a class by itself, and the classification is rational and has a nexus with the object sought to be achieved. Therefore, the notification does not violate Article 14.

3. Violation of Article 304(a) of the Constitution of India:

The petitioners contended that the notification was violative of Article 304(a) as it discriminated against goods imported from other States. The court examined the entire scheme of Part XIII of the Constitution, emphasizing that Article 301 guarantees the freedom of trade, commerce, and intercourse throughout India, subject to other provisions in the Part. Article 304(a) allows State Legislatures to impose non-discriminatory taxes on goods imported from other States, provided similar goods manufactured in the State are subject to the same tax. The court noted that the petitioners failed to show that the goods were factually similar in quality, kind, or price. The court found that the vehicles manufactured by the second respondent had distinct specifications and a substantial price difference compared to those of the petitioner. The court also emphasized that the notification was in the nature of a subsidy or rebate, not an impost, and did not directly or immediately impede the free flow of trade and commerce. Therefore, the notification does not violate Article 304(a).

Conclusion:

The court dismissed the writ petition, holding that the notification was neither ultra vires nor violative of Articles 14 and 304(a) of the Constitution. The petitioners' request for leave to appeal to the Supreme Court was also rejected as no substantial question of law was found to warrant such an appeal.

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