2004 (1) TMI 643 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to impugned notification dated February 27, 1998 regarding condition No. 1 in the notification.

Analysis:
The petitioners, public limited companies manufacturing cement in Madhya Pradesh, challenged the notification granting rebates on goods with fly ash content, limited to units established in Uttar Pradesh. The petitioners argued that this condition violated articles 301 and 304(a) of the Constitution by discriminating against goods produced outside Uttar Pradesh. The court agreed with the petitioners, citing various Supreme Court judgments emphasizing non-discrimination in trade and commerce. The court discussed the historical background of article 301 and referred to cases like Firm A.T.B. Mehtab Majid & Co. v. State of Madras [1963] 14 STC 355 (SC) and Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 to support its decision.

The court noted that while tax holidays are granted to new units for a limited period to encourage industrialization, the impugned condition did not limit the rebate to new units. Referring to cases like Loharn Steel Industries Ltd. v. State of Andhra Pradesh [1997] 105 STC 30, the court highlighted that restricting exemptions to products manufactured within the state violates freedom of trade and commerce. The court also discussed the difference between laws made by State Legislatures and Parliament under articles 302 and 304(a) of the Constitution.

The court considered the doctrine of severability, analyzing whether the unconstitutional condition in the notification could be separated from the rest of the notification. Citing precedents like State of Bombay v. United Motors (India) Ltd. [1953] 4 STC 133 (SC), the court held that the discriminatory provision was severable and could be struck down. The court examined the intention behind the notification, emphasizing the government's aim to incentivize the use of fly ash in manufacturing to address pollution and storage issues.

Ultimately, the court declared condition No. 1 in the notification as illegal and quashed it, directing the grant of consequential relief to the petitioners within two months. The court ordered the release of the bank guarantee and the refund of any excess amount deposited by the petitioners with interest. The petitions were allowed, granting relief to the petitioners.