Hostile tax discrimination in exemption notifications was struck down for favouring local inputs over imported ingredients.

A sales tax exemption that confined relief to poultry feed made from ingredients already taxed or exempt within the State, while excluding feed made from ingredients imported from other States, was held to create an unjustified distinction under Part XIII of the Constitution. The Court applied the principle that tax differentiation affecting inter-State trade must rest on a valid, rational and disclosed basis, and found no justification for preferring locally sourced inputs. The notification was therefore unconstitutional for violating articles 301 to 304(a), and the assessee was entitled to the exemption for poultry feed manufactured from out-of-State ingredients.

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Issues: Whether the exemption notification issued under section 9(1) of the Andhra Pradesh General Sales Tax Act, 1957, which granted tax relief only to poultry feed manufactured from ingredients that had suffered tax or were exempt within the State, was discriminatory and violative of articles 301 to 304(a) of the Constitution of India, and whether the assessee was entitled to extension of the same benefit to poultry feed manufactured from ingredients imported from other States.

Analysis: The notification created two classes of poultry feed based solely on the source of ingredients, with the result that feed manufactured from ingredients brought from outside the State was taxed while similarly placed feed made from locally sourced ingredients enjoying prior tax incidence or exemption was relieved. The Court applied the constitutional principle that tax differentiation under Part XIII is valid only where it rests on justifiable and rational reasons, and distinguished the limited, reasoned exemption upheld in Video Electronics from a naked preference or blanket exemption. Finding no discernible justification in the counter-affidavit for restricting the exemption to local ingredients, the Court treated the notification as discrimination without reason and therefore unconstitutional.

Conclusion: The notification was held to be violative of articles 301 to 304(a) of the Constitution of India, and the assessee was entitled to the benefit of the exemption for poultry feed manufactured from ingredients imported from other States.

Ratio Decidendi: A sales tax exemption that prefers locally sourced goods or inputs over imported goods without a valid, rational, and disclosed basis amounts to hostile discrimination under Part XIII of the Constitution and cannot be sustained.

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