Industrial tax incentive upheld for backward-area manufacturers; differential treatment against outside-State dealers did not violate equality.

A sales tax exemption for ceramic tiles manufactured in notified industrially backward areas was challenged as ultra vires section 8A of the Karnataka Sales Tax Act and discriminatory under article 14 because outside-State dealers did not receive the benefit. The HC upheld the notification as a valid industrial incentive, treating the concession as a permissible classification within the taxing power. It held that differential treatment between local manufacturers in backward areas and outside-State dealers did not amount to hostile discrimination, and the exemption was not beyond the statutory power. The writ petitions therefore failed, leaving the petitioners liable for the tax difference under the interim orders.

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Issues: Whether the notification exempting sales tax on ceramic tiles manufactured in units located in notified industrially backward areas of Karnataka was beyond the power conferred by section 8A of the Karnataka Sales Tax Act, 1957 or violated article 14 of the Constitution of India by creating discriminatory treatment between local manufacturers and outside-State dealers.

Analysis: The notification granted exemption to sales of ceramic tiles manufactured in specified backward areas for a limited period as an industrial incentive. The petitioners, who dealt in tiles manufactured outside the State, were required to pay tax on their turnover, but the Court held that this differential treatment did not amount to unconstitutional discrimination. Relying on the principles affirmed in the Supreme Court decisions dealing with tax concessions for local industrial units, the Court treated the exemption as a valid executive policy aimed at encouraging local manufacturing in backward areas. The concession was viewed as a permissible classification within the taxing power and not as hostile discrimination against outside-State goods.

Conclusion: The notification was upheld as a valid exercise of power and no violation of article 14 was made out.

Final Conclusion: The writ petitions failed because the tax exemption for units in industrially backward areas was sustained as a permissible incentive scheme, leaving the petitioners liable to pay the tax difference under the interim orders.

Ratio Decidendi: A tax concession granted to local manufacturing units in notified backward areas as an industrial incentive constitutes a permissible classification and does not offend article 14 merely because outside-State dealers do not receive the same benefit.

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