State tax concession cannot discriminate against out-of-State goods when it restricts market access and inter-State trade.

A concessional sales tax notification limited to SSI biscuit manufacturers within Kerala was held unconstitutional to the extent it denied the same benefit to similarly situated biscuit units outside the State. The Court applied the principle that tax concessions may support economic policy, but they must rest on cogent and intelligible reasons and cannot discriminate against goods brought in from outside the State or impede inter-State trade. The restriction was found violative of Articles 14, 301 and 304(a). The notification was struck down in part, with relief operating prospectively and without refund consequences.

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Issues: Whether a concessional sales tax notification restricted to small-scale industrial units manufacturing biscuits within the State was discriminatory and violative of Articles 14, 301 and 304(a) of the Constitution of India.

Analysis: The concession was confined to biscuit manufacturers within the State, while similarly situated units manufacturing biscuits outside the State were denied the same rate of tax. A tax concession or exemption may be granted for economic encouragement, but it must rest on cogent and intelligible reasons and cannot create discrimination between locally manufactured goods and goods brought in from outside the State. The restriction operated as a fiscal barrier and was contrary to the protection afforded to inter-State trade under Articles 301 and 304(a).

Conclusion: The restricted concessional rate was unconstitutional to the extent it was limited to SSI units manufacturing biscuits in Kerala, and the same benefit had to be extended to all SSI units manufacturing biscuits outside Kerala.

Final Conclusion: The impugned notification was struck down in part, with the declared relief operating prospectively and without refund consequences.

Ratio Decidendi: A State cannot, under the guise of tax concession or exemption, discriminate between goods manufactured within the State and similar goods imported from outside the State when such discrimination impedes the free flow of inter-State trade.

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