Article 14 classification upheld for tax incentives to new industrial units, with rational nexus to industrial promotion.

Section 5CC of the Rajasthan Sales Tax Act, 1954 created a valid classification between existing industries and new industrial units commissioned on or after 1 March 1970. The provision was upheld because the distinction served a legitimate policy of encouraging new industrial undertakings by giving limited tax relief during their initial stage, and the classification had an intelligible differentia with a rational nexus to that object. The Court distinguished arbitrary cut-off dates based on irrelevant considerations and treated sections 5C and 5CC as part of a coherent incentive scheme for industrial growth and employment. The constitutional challenge under article 14 failed.

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Issues: Whether section 5CC of the Rajasthan Sales Tax Act, 1954, which extended tax exemption to new industrial units commissioned on or after 1 March 1970, was violative of article 14 of the Constitution of India as creating an arbitrary and discriminatory classification between old and new industries.

Analysis: The provision was enacted as part of a policy to encourage the setting up of new industrial undertakings in the State by granting relief from tax on raw materials for a limited period during the infancy of such units. The Court applied the settled test of permissible classification under article 14, namely, that the classification must rest on an intelligible differentia and must bear a rational relation to the object sought to be achieved. The distinction between existing industries and new units was held to be founded on a legitimate legislative object, unlike cases where a date was fixed on wholly irrelevant or capricious considerations. Section 5C, which gave only a concessional rate to all units, and section 5CC, which gave a fuller incentive to new units, were treated as part of a rational scheme to promote industrial growth and employment.

Conclusion: Section 5CC was held to be constitutionally valid and not violative of article 14; the challenge failed.

Ratio Decidendi: A statutory classification based on the commissioning date of industrial units is valid under article 14 if it is directed to a legitimate incentive policy and has a rational nexus with the object of encouraging new /industrial undertakings.

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