State sales tax exemption struck down for discriminating against similar goods imported from other States.

A sales tax exemption limited to agricultural or horticultural produce grown "within the State" was held unconstitutional because it discriminated against similar goods brought from other States and operated as a fiscal barrier contrary to articles 301 and 304 of the Constitution. Once that territorial restriction was struck down, the assessment and revision orders levying tax on cardamom grown in Kerala and sold in Tamil Nadu could not be sustained. The connected tax demands were accordingly set aside or quashed to the extent necessary, and consequential relief was granted to the assessees.

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Issues: (i) Whether the words "within the State" in section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 were constitutionally valid in the light of articles 301 and 304 of the Constitution of India; (ii) Whether the assessment and revision orders levying tax on cardamom grown in Kerala and sold in Tamil Nadu could be sustained after the statutory exclusion was held invalid.

Issue (i): Whether the words "within the State" in section 2(r) of the Tamil Nadu General Sales Tax Act, 1959 were constitutionally valid in the light of articles 301 and 304 of the Constitution of India.

Analysis: The exclusion in section 2(r) extended tax exemption only to agricultural or horticultural produce grown within Tamil Nadu, while similar produce brought from other States was denied the benefit. The provision therefore created a territorial distinction in the levy of sales tax on identical goods and operated as a discriminatory fiscal barrier against goods imported from outside the State. The constitutional scheme under articles 301 and 304 forbids such discrimination in taxation, even though States retain power to impose taxes and grant incentives, provided the treatment of locally produced and imported similar goods remains nondiscriminatory. The impugned words could not be justified as a permissible restriction.

Conclusion: The words "within the State" in section 2(r) were held to be violative of the Constitution and were struck down.

Issue (ii): Whether the assessment and revision orders levying tax on cardamom grown in Kerala and sold in Tamil Nadu could be sustained after the statutory exclusion was held invalid.

Analysis: Once the territorial limitation in section 2(r) was struck down, the levy based on the impugned distinction could not survive. The assessment orders relating to the disputed turnover were therefore unsustainable. As to the connected matters, the Tribunal quashed the revision order where the assessing authority had exceeded its powers after appeal, and in the remaining petitions granted consequential relief in accordance with the decision on the constitutional issue.

Conclusion: The consequential tax demands and impugned orders were set aside or quashed to the extent warranted, and relief was granted to the assessees.

Final Conclusion: The decision invalidated the territorial restriction in the exemption provision, held the levy on the disputed agricultural produce unsustainable, and granted consequential relief in the connected petitions.

Ratio Decidendi: A State sales tax exemption that discriminates between similar goods produced within the State and identical goods brought from another State creates an impermissible fiscal barrier and is unconstitutional under articles 301 and 304.

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