Article 304(a) discrimination in state tax exemption struck down, while the valid exemption survived through severability.

An exemption under the Andhra Pradesh General Sales Tax Act was held discriminatory because an amendment confined relief to re-rolled steel products manufactured by units within Andhra Pradesh, while denying the same benefit to identical goods made outside the State and sold within it from tax-paid raw material. That distinction was found to offend Article 304(a), which prohibits discriminatory tax treatment between imported goods and similar local goods. The offending restriction was also held severable: only the words introducing the territorial limitation were liable to be struck down, while the underlying exemption for qualifying products continued to operate.

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Issues: (i) Whether the amended exemption notifications under the Andhra Pradesh General Sales Tax Act, 1957 discriminated against goods manufactured outside the State and thereby offended Article 304(a) of the Constitution of India; (ii) whether the discriminatory portion of the exemption notification was severable and liable to be struck down without disturbing the otherwise valid exemption.

Issue (i): Whether the amended exemption notifications under the Andhra Pradesh General Sales Tax Act, 1957 discriminated against goods manufactured outside the State and thereby offended Article 304(a) of the Constitution of India.

Analysis: The exemption originally extended to re-rolled finished steel products sold in Andhra Pradesh if tax had been paid on the raw material in the State. The later amendment confined the benefit to products manufactured by re-rollers situated within Andhra Pradesh, thereby denying the exemption to identical products manufactured outside the State though sold within Andhra Pradesh and made from tax-paid raw material. Such a distinction resulted in unequal treatment between locally manufactured goods and goods brought in from outside the State. The constitutional prohibition in Article 304(a) bars a State from imposing tax or granting tax relief in a manner that discriminates between imported goods and similar locally manufactured goods.

Conclusion: The amended notifications were discriminatory and violated Article 304(a) of the Constitution of India.

Issue (ii): Whether the discriminatory portion of the exemption notification was severable and liable to be struck down without disturbing the otherwise valid exemption.

Analysis: The exemption scheme, as originally framed, validly covered all re-rolled finished steel products sold in the State when the raw material had suffered tax in the State. Only the later words limiting the benefit to units situated within Andhra Pradesh introduced the unconstitutional discrimination. That offending addition was capable of being separated from the remainder of the exemption because the valid part of the notification continued to operate independently and did not depend on the discriminatory restriction. The principle of severability permitted the invalid portion alone to be excised.

Conclusion: The discriminatory amendment alone was severable and could be struck down, while the remaining exemption was sustained.

Final Conclusion: The assessees succeeded in challenging only the discriminatory restriction in the exemption regime, and the valid part of the tax exemption remained intact.

Ratio Decidendi: A State tax exemption or concession that confers a benefit on locally manufactured goods while denying the same benefit to identical goods manufactured outside the State is discriminatory under Article 304(a); if the offending restriction is severable, only that part is invalidated and the rest of the exemption survives.

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