Retrospective tax exemption withdrawal and arbitrary fiscal classification cannot stand where statute and Article 14 impose clear limits.

Section 25 of the U.P. Trade Tax Act permits retrospective notifications only within statutory limits, and the proviso bars retrospective withdrawal of an exemption where it increases a dealer's tax liability; the later notification purporting to withdraw exemption from NPK 23:23:0 for the past period was therefore invalid. The exclusion of NPK 23:23:0 from exemption granted to other NPK fertilizers was also held to lack a rational basis, because fiscal classification must rest on an intelligible differentia with a nexus to the exemption's object; the differential treatment was treated as arbitrary and unconstitutional under Article 14. The impugned notifications could not be sustained.

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Issues: (i) Whether the exemption earlier granted to NPK 23:23:0 could be withdrawn retrospectively by the notification dated 10 April 1995 in view of the proviso to section 25 of the U.P. Trade Tax Act, 1948. (ii) Whether the exclusion of NPK 23:23:0 from the exemption granted to other NPK fertilizers by the notification dated 15 May 1995 was discriminatory and violative of Article 14 of the Constitution of India.

Issue (i): Whether the exemption earlier granted to NPK 23:23:0 could be withdrawn retrospectively by the notification dated 10 April 1995 in view of the proviso to section 25 of the U.P. Trade Tax Act, 1948.

Analysis: Section 25 permits retrospective notifications only within the statutory limits, and the proviso bars any retrospective notification that increases the tax liability of a dealer. The earlier notification had granted exemption to the respondent's product for the relevant period, and the later notification sought to withdraw that benefit retrospectively. Such withdrawal increased the tax burden for the past period and therefore fell within the prohibition contained in the proviso.

Conclusion: The retrospective withdrawal of exemption was invalid and illegal, and the issue was decided in favour of the respondent.

Issue (ii): Whether the exclusion of NPK 23:23:0 from the exemption granted to other NPK fertilizers by the notification dated 15 May 1995 was discriminatory and violative of Article 14 of the Constitution of India.

Analysis: The notifications granted exemption to other fertilizers within the same NPK class while excluding NPK 23:23:0, though the commodities belonged to the same broad category and there was no rational basis for the differential treatment. Fiscal classification is permissible only when it rests on an intelligible and reasonable basis having a nexus with the object of the exemption. The exclusion of the respondent's product lacked such rational foundation and amounted to arbitrary discrimination.

Conclusion: The exclusion of NPK 23:23:0 was discriminatory and unconstitutional, and the issue was decided in favour of the respondent.

Final Conclusion: The impugned notifications could not be sustained either on the ground of retrospective withdrawal of exemption or on the ground of unequal treatment within the same fertilizer class, and the appeal failed.

Ratio Decidendi: A retrospective notification cannot withdraw a tax exemption so as to increase a dealer's liability where the governing statute prohibits retrospective enhancement of tax burden, and classification in fiscal exemptions must rest on a rational basis with a real nexus to the object of the exemption.

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