Summary
The Supreme Court quashed Rajasthan's Notification S.O.377 dated 09.03.2007 under Section 8(3) of the Rajasthan VAT Act, 2003, which exempted from tax sales of asbestos cement sheets and bricks with 25% or more fly ash only if manufactured in Rajasthan, as discriminatory against goods from other States under Article 304(a). The notification gave no reason beyond 'public interest', reasons in a counter affidavit could not supply it, the exemption did not require use of Rajasthan's fly ash, and it was neither confined to new industries nor truly time-limited, so the Video Electronics exception did not apply.
Issues
- Whether the notification exempting from VAT asbestos cement sheets and bricks with 25% or more fly ash manufactured within Rajasthan discriminates against similar goods imported from other States in violation of Article 304(a).
- Whether the notification falls within the exception recognised in Video Electronics, as explained in Jindal Stainless Ltd., for incentives to a specified class for a limited period in a non-hostile manner.
- Whether the State could justify the notification by reasons set out in its counter affidavit rather than in the notification itself.
Provisions considered
- Article 304(a), Constitution of IndiaA State may tax goods imported from other States only if similar local goods are taxed and without discriminating between them; discrimination means hostile, protectionist differentiation without valid reason. The notification's exemption for locally manufactured goods alone was held discriminatory and void. (¶¶ 9, 12.1, 12.7, 12.8, 12.17.1, 12.19)
- Article 301, Constitution of IndiaRead with Article 304(a) as guaranteeing freedom of trade throughout India; following Jindal Stainless Ltd., non-discriminatory taxes do not infringe it, but discriminatory taxes impede the free flow of trade. (¶¶ 9, 10.12, 12.18.8)
- Section 8(3), Rajasthan Value Added Tax Act, 2003The source of the State's power to grant the exemption by Notification S.O.377 dated 09.03.2007, which was struck down as violating Article 304(a). (¶¶ 3, 3.2, 12.19)
Held
- Following Jindal Stainless Ltd., clauses (a) and (b) of Article 304 are read disjunctively; a tax is not discriminatory if no similar goods are produced in the State or if it is designed to equalise burdens; and incentives granted to a specified class of dealers, for a limited period, in a non-hostile fashion, with a view to developing economically backward areas, do not violate Article 304(a), though whether a measure meets these criteria is a question of fact. (¶ 12.1)
- The notification must be examined in the context of the series of notifications granting the same exemption since 2000, though the decision is confined to the validity of the impugned notification. (¶¶ 12.2, 12.4)
- Although the exemption was confined to a specified class of manufacturers, it was not restricted to any backward area but available to dealers anywhere in Rajasthan, and its non-hostile character depends on whether there are sufficient reasons to treat the difference as differentiation rather than discrimination. (¶¶ 12.3, 12.6, 12.7, 12.8)
- A public order made under statutory power must be judged by the reasons stated in it and cannot be supplemented by reasons in an affidavit; the notification stated only that it was expedient in the public interest, and no industrial policy was shown. Even the counter affidavit explained only the 2000 notification and not why the benefit was extended to later entrants, so the notification was bereft of reason or justification. (¶¶ 12.12, 12.13, 12.14, 12.15, 12.16, 12.17)
- Because the exemption turned on manufacture in Rajasthan and not on the source of the fly ash, identical products with 25% fly ash made outside the State and sold in Rajasthan were denied it; had the condition been use of Rajasthan's fly ash irrespective of place of manufacture, there would have been no discrimination. The notification therefore violates Article 304(a). (¶ 12.17.1)
- The High Court erred in treating the case as within the Video Electronics exception, since the exemption was neither for new industries nor for a limited period and lacked the special justification present there; Shree Mahavir Oil Mills and Jaiprakash Associates, which struck down local-only exemptions and fly-ash rebates, squarely apply. (¶¶ 12.17, 12.18.4, 12.18.6, 12.18.7, 12.19)
Result
Appeals allowed and Notification S.O.377 dated 09.03.2007 quashed; no costs. Appeals posted for directions to ascertain whether the differential amount deposited under the interim order was collected from customers; if not, the appellants are entitled to its refund with interest at 6% per annum from the date of deposit.