Tax exemption classification must rest on real distinctions; artificial exclusion of dealer-manufacturers from relief was invalid.

A Karnataka sales tax exemption notification under section 8-A, granting relief from tax under section 6-B for medicinal and pharmaceutical preparations, was examined for equality compliance. The classification denied the exemption to manufacturers and their agents who were also dealers, but the notification did not draw any real distinction relevant to the levy, the commodity, or the stage of taxation. As manufacturers' agents stood in the same position as other dealers for the purpose of the levy, the selective exclusion had no rational basis and created an artificial distinction. The notification was therefore invalid to the extent of that exclusion and was quashed in part.

---

---

Issues: Whether the notification granting exemption from tax under section 6-B of the Karnataka Sales Tax Act, 1957 to dealers in medicinal and pharmaceutical preparations, while excluding manufacturers or their agents who are also dealers, was discriminatory and liable to be quashed under Article 14 of the Constitution of India.

Analysis: The exemption was issued under section 8-A of the Karnataka Sales Tax Act, 1957, but the classification drawn by the notification was not based on any real distinction relevant to the levy under section 6-B. The notification did not classify the commodity, the stage of taxation, or any rational basis connected with the object of reducing tax burden. A manufacturer or his agent who is also a dealer stood on the same footing as any other dealer for the purpose of the levy, and no discernible difference justified selective exclusion from the exemption. Since the notification created an artificial distinction unrelated to the tax burden sought to be regulated, it offended the guarantee of equality.

Conclusion: The notification was invalid to the extent it excluded manufacturers or their agents from the exemption, and was quashed in that part.

---