Exemption and deferment conditions upheld where incentive ceiling was computed by reference to goods diverted outside the State.

A statutory exemption or deferment scheme may validly prescribe conditions for computing the incentive ceiling, including reduction of the available benefit by reference to the revenue loss from goods diverted outside the State. Such a condition does not levy tax on out-of-State sales, does not deem them intra-State sales, and does not offend Article 286 where it merely fixes the manner of working out the concession. The challenge under Articles 14 and 19(1)(g) failed because the measure was part of a fiscal policy protecting State revenue. The impugned conditions were therefore upheld as within the State's legislative power.

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Issues: Whether the conditions in paragraph 13(iii) of Annexure I to Entry 175 of the notification issued under section 49(2) of the Gujarat Sales Tax Act, 1969, and paragraph 8(iii) of the Government resolution dated 16 June 1987, which take into account the sale price of goods transported outside the State for computing the exemption/deferment limit, are unconstitutional or beyond the State's legislative competence.

Analysis: The exemption and deferment schemes operated as concessions and not as vested rights. The statutory notification under section 49(2) and the connected resolution were framed to fix the monetary ceiling and duration of the incentive, and the impugned clauses only laid down the manner of working out that ceiling. The condition did not levy tax on sales made outside the State, did not treat such sales as deemed intra-State sales, and did not authorise collection of tax contrary to article 286. It merely reduced the incentive limit by the minimum revenue loss attributable to diversion of goods outside Gujarat, thereby curtailing the concession available under the scheme. The challenge based on article 14 and article 19(1)(g) also failed because the condition formed part of a valid fiscal policy designed to protect State revenue. The reliance on the Bombay decision was rejected because that case involved a deeming fiction converting branch transfers into taxable sales, whereas the present clauses only prescribed a method of computing the upper limit of exemption/deferment.

Conclusion: The impugned conditions are valid and within the State's power; they do not amount to indirect taxation of out-of-State sales and are not unconstitutional.

Ratio Decidendi: A statutory exemption or deferment scheme may lawfully include conditions that reduce the available incentive by reference to revenue loss from diversion of goods outside the State, provided the condition does not itself impose tax on transactions beyond the State's taxing power.

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