Public interest tax concessions under inter-State sales law fail when they create State preference, discrimination, or evasion risks.

A tax concession under section 8(5) of the Central Sales Tax Act is valid only when it is genuinely issued in public interest and remains consistent with the statutory scheme and Part XIII of the Constitution. The text explains that a reduction in tax on inter-State sales of cement cannot be justified merely by revenue considerations or local trade advantage, especially where the measure dispenses with C forms and weakens safeguards against evasion. It also notes that differential treatment favouring Rajasthan goods and disadvantaging Gujarat goods offends the constitutional prohibition on State preference and discrimination in inter-State trade.

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Issues: (i) Whether the notifications reducing the tax rate on inter-State sales of cement were issued in public interest within the meaning of section 8(5) of the Central Sales Tax Act, 1956. (ii) Whether the notifications were invalid for creating preference to goods manufactured and sold in Rajasthan and discrimination against goods manufactured and sold in Gujarat in violation of articles 301 and 303 of the Constitution of India.

Issue (i): Whether the notifications reducing the tax rate on inter-State sales of cement were issued in public interest within the meaning of section 8(5) of the Central Sales Tax Act, 1956.

Analysis: The power under section 8(5) is an exception and can be exercised only when the State is satisfied that the concession is necessary in public interest. Public interest has to be understood in the context of the Central Sales Tax Act, 1956 and Part XIII of the Constitution of India. A reduction in tax rate that merely increases State revenue or favours local trade, without showing consistency with the statutory scheme and the policy of preventing evasion through inter-State trade, does not satisfy the requirement. The dispensation with C form and the absence of an effective mechanism to check evasion reinforced the conclusion that the notifications did not serve the requisite public interest.

Conclusion: The notifications were not justified as being issued in public interest and were invalid under section 8(5) of the Central Sales Tax Act, 1956.

Issue (ii): Whether the notifications were invalid for creating preference to goods manufactured and sold in Rajasthan and discrimination against goods manufactured and sold in Gujarat in violation of articles 301 and 303 of the Constitution of India.

Analysis: Differential taxation may be permissible where it is based on natural or business factors and does not directly and immediately impede the movement of goods. Here, the reduction in tax on inter-State sales of cement had the effect of giving a competitive preference to Rajasthan goods and placing Gujarat goods at a disadvantage. The record showed a prima facie increase in despatches to Gujarat and the State failed to justify the differentiation on any constitutionally valid ground. The relaxation also weakened the safeguard against tax evasion, making the measure inconsistent with the freedom of trade and the prohibition against State preference and discrimination in Part XIII of the Constitution of India.

Conclusion: The notifications were violative of articles 301 and 303 of the Constitution of India and were void.

Final Conclusion: The impugned notifications could not be sustained either under the statutory power in section 8(5) of the Central Sales Tax Act, 1956 or under the constitutional scheme governing free inter-State trade, and the assessee succeeded in having them struck down.

Ratio Decidendi: A tax concession under section 8(5) of the Central Sales Tax Act, 1956 is valid only if it is truly in public interest and consistent with the scheme of the Act and Part XIII of the Constitution of India; a concession that creates State preference, causes hostile discrimination, or facilitates evasion is void.

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