Discriminatory tax exemption on local sales struck down for burdening similar goods brought from outside the State.

A State exemption that relieved local sales from turnover tax while denying the same benefit to goods brought in from outside the State through consignment or branch transfer was discriminatory. Turnover tax was treated as sales tax, and dealers exceeding the prescribed turnover limit were otherwise liable under the Kerala General Sales Tax Act, 1963. The court held that the notification created a higher tax burden on similar imported goods than on locally produced goods, without falling within the narrow exception recognised for limited incentives to new industries. The notification was therefore unconstitutional under Article 304(a), and the assessee's challenge succeeded.

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Issues: Whether the notification exempting local sales from turnover tax but denying the exemption to goods received on consignment or branch transfer from outside the State was discriminatory and violative of Article 304(a) of the Constitution of India.

Analysis: Turnover tax was treated as a sales tax. Under section 5(2A) of the Kerala General Sales Tax Act, 1963, dealers crossing the prescribed turnover limit were generally liable to tax. The impugned notification, issued under section 10 of the Kerala General Sales Tax Act, 1963, created a complete exemption for local manufacturers and dealers selling within the State, while continuing the burden on similar goods brought from outside the State through branch transfer or consignment. The differentiation was not confined to a limited class or a short period in the manner recognised in the limited exception relating to incentives for new industries, and it resulted in a higher tax burden on imported goods as compared with similar locally produced goods.

Conclusion: The notification was held to be discriminatory and unconstitutional under Article 304(a) of the Constitution of India, and the challenge by the assessee succeeded.

Ratio Decidendi: A State exemption which grants a general tax advantage to locally produced goods while subjecting similar imported goods to the tax creates prohibited discriminatory taxation under Article 304(a).

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