Sales tax exemption on carbon black: uniform post-date relief upheld, but local-only exemption struck down for trade discrimination.

A sales tax exemption for carbon black beginning after a specified date was upheld because it was uniformly available to manufacturers inside and outside the State, served as limited protection for new industrial units, and did not discriminate against out-of-State goods or amount to a colourable exercise of power. By contrast, the exemption confined to carbon black manufactured within the State and sold for intra-State tyre manufacture was held to confer a fiscal advantage on local goods, create discrimination against identical out-of-State goods, and violate the constitutional freedom of trade; that notification was struck down to that extent.

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Issues: (i) Whether the exemption notification relating to carbon black manufactured after a specified date was violative of Articles 301 and 304(a) of the Constitution of India or amounted to a colourable exercise of power under Section 10 of the Kerala General Sales Tax Act, 1963; (ii) Whether the notification exempting carbon black manufactured within the State and sold for use in tyre manufacture within the State was contrary to Article 301 of the Constitution of India.

Issue (i): Whether the exemption notification relating to carbon black manufactured after a specified date was violative of Articles 301 and 304(a) of the Constitution of India or amounted to a colourable exercise of power under Section 10 of the Kerala General Sales Tax Act, 1963.

Analysis: The exemption was available to all manufacturers of carbon black, whether inside or outside the State, if production had commenced on or after the date specified in the notification. It was designed to give limited protection to new industrial units and was not confined to the local manufacturer alleged to have been specially benefited. As the exemption operated uniformly for a limited period and did not discriminate against out-of-State manufacturers, it did not infringe the constitutional freedom of trade or the non-discrimination principle. The plea of colourable exercise of power also failed because the benefit was not exclusive to any one unit.

Conclusion: The challenge to the notification was rejected; it was held not to violate Articles 301 and 304(a), and not to be a colourable exercise of power.

Issue (ii): Whether the notification exempting carbon black manufactured within the State and sold for use in tyre manufacture within the State was contrary to Article 301 of the Constitution of India.

Analysis: The exemption was confined to goods manufactured within the State and therefore conferred a fiscal advantage on local goods as against identical goods manufactured outside the State. Such differential treatment was not protected by Article 304(a) because it was not a countervailing duty or a permissible compensatory levy. The notification created discrimination in favour of local manufacture and was inconsistent with the constitutional guarantee of free trade.

Conclusion: The notification was held violative of Article 301 and was quashed to the extent it exempted carbon black manufactured within the State and sold for use in tyre manufacture within the State.

Final Conclusion: The petitions succeeded only in respect of the notification granting exemption to carbon black manufactured within the State, while the challenge to the later exemption notifications failed.

Ratio Decidendi: A sales tax exemption that is uniformly available to all manufacturers who begin production after a specified date is not discriminatory, but a notification granting tax advantage only to goods manufactured within the State and sold for a specified intra-State use infringes the constitutional freedom of trade.

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