1998 (11) TMI 646 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to levy of tax on biscuits manufactured within Kerala at 4%, grant of concessional rate of sales tax on biscuits manufactured by SSI units in Kerala, violation of articles 14, 301, and 304(a) of the Constitution.

Analysis:
The first original petition sought a declaration that the levy of tax on biscuits manufactured within Kerala at 4% was illegal, while the second original petition aimed to quash the notification granting a concessional rate of sales tax at 4% on biscuits manufactured by SSI units in Kerala, arguing that the concessional rate should be available to all small-scale industrial units manufacturing biscuits outside Kerala. The notifications were subsequently amended to restrict the concessional rate to small-scale industrial units within the State. The petitioners contended that this discriminatory treatment was unconstitutional and violated various articles of the Constitution.

The Government justified the concession as a means to promote SSI units in Kerala in the public interest, emphasizing that the exemption was granted to a specific class within the State for a limited period with specific conditions. The petitioner's argument mirrored a similar case where the Supreme Court held that granting exemptions only to local manufacturers violated constitutional provisions. The Supreme Court's precedent highlighted the importance of preventing discrimination between goods imported from other states and locally manufactured goods to facilitate free-flow of inter-State trade and commerce.

The court found no valid grounds for granting exemption exclusively to small-scale industrial units within Kerala, emphasizing that all SSI units, regardless of their location, should receive equal treatment. The denial of the same tax rate to SSI units with factories outside Kerala was deemed discriminatory and in violation of constitutional provisions. Consequently, the court quashed the notification granting a concessional rate of sales tax on biscuits manufactured by SSI units in Kerala alone, declaring that the concessional rate should be available to all SSI units manufacturing biscuits outside Kerala. The declaration of invalidity took effect immediately, with no entitlement for the petitioner to claim refunds.

In conclusion, the original petitions were allowed to the extent of quashing the discriminatory notification, ensuring equal treatment for all SSI units manufacturing biscuits, and upholding the principles of non-discrimination in taxation.