Sales tax exemption for a Government-controlled co-operative was upheld as a reasonable classification and valid exemption notification.

A sales tax exemption for a co-operative federation's baby milk food was analysed as a reasonable classification because the federation was Government-controlled and operated on a no-profit no-loss basis, unlike a private manufacturer. The exemption was treated as a concession intended to support a newly introduced product, so the hostile classification challenge failed. The notification was also held to fit within section 9(1) of the Andhra Pradesh General Sales Tax Act because the power to exempt a class of persons may validly be linked to the goods forming their exempt turnover. The challenge that the notification was ultra vires therefore failed, and the exemption was upheld.

---

---

Issues: (i) Whether the sales tax exemption granted in favour of the co-operative federation's baby milk food was discriminatory and invalid for hostile classification; (ii) Whether the exemption notification was inconsistent with section 9(1) of the Andhra Pradesh General Sales Tax Act and therefore ultra vires.

Issue (i): Whether the sales tax exemption granted in favour of the co-operative federation's baby milk food was discriminatory and invalid for hostile classification.

Analysis: The petitioner and the federation were held not to be similarly situated. The federation was a Government-controlled co-operative body functioning on a no-profit no-loss basis and was treated as a distinct class from a private manufacturer. The exemption was viewed as a concession or subsidy intended to support a newly introduced product and to enable it to compete in the market. The earlier decision upholding a similar exemption in favour of another Government-owned manufacturer was applied as supporting authority for the view that such differential treatment did not amount to unconstitutional discrimination.

Conclusion: The exemption was not discriminatory and the challenge on the ground of hostile classification failed.

Issue (ii): Whether the exemption notification was inconsistent with section 9(1) of the Andhra Pradesh General Sales Tax Act and therefore ultra vires.

Analysis: Section 9(1) empowers the Government to grant exemptions or reductions either in respect of a specified class of goods or in respect of a specified class of persons. The notification was held to fall under clause (ii), because a class of persons may be identified by the goods in relation to which their turnover is exempted. The power of exemption was treated as conditional legislation, and it was held that there was no legal prohibition against a notification identifying both the person and the goods for the limited purpose of exemption. The contention that the words of clause (i) restricted the power to goods alone was rejected.

Conclusion: The notification was held to be within the scope of section 9(1) and not ultra vires.

Final Conclusion: The exemption notification was upheld, and the writ petition challenging it was rejected.

Ratio Decidendi: A tax exemption granted to a Government-controlled or otherwise distinct class of persons may validly be sustained where the classification is reasonable, and a notification under a provision empowering exemptions for specified classes of persons can validly refer to the goods forming the basis of that class's exempt turnover.

---