Prospective tax exemptions and rational classification in fiscal notifications barred discriminatory exclusion of a similar fertiliser.

An exemption notification under the U.P. Trade Tax Act was treated as operating prospectively only, because it could not be given retrospective effect without clear authority. The exclusion of N.P.K. 23:23:0 from the exemption granted to similar phosphatic and potassic fertilisers was also found unsustainable, since fiscal classification within the same broad commodity class requires a rational basis and mere compositional difference was insufficient. On that reasoning, tax recovery on sales of N.P.K. 23:23:0 for the relevant period was not permitted.

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Issues: (i) whether the notification dated 10 April 1995 under section 4(a) of the U.P. Trade Tax Act, 1948 could operate retrospectively; (ii) whether exclusion of N.P.K. 23:23:0 from the exemption notifications dated 10 April 1995 and 15 May 1995 was discriminatory.

Issue (i): whether the notification dated 10 April 1995 under section 4(a) of the U.P. Trade Tax Act, 1948 could operate retrospectively

Analysis: The challenge was directed to the temporal reach of the exemption notification. The Court applied the earlier decision of the same High Court on the point and treated the notification as incapable of imposing a retrospective burden or altering rights for the past period in the absence of authority for such operation.

Conclusion: The notification dated 10 April 1995 was held to apply only prospectively and not retrospectively.

Issue (ii): whether exclusion of N.P.K. 23:23:0 from the exemption notifications dated 10 April 1995 and 15 May 1995 was discriminatory

Analysis: The Court held that the fertilisers covered by the notifications belonged to the same broad class of phosphatic and potassic fertilisers. Where commodities are in the same class, fiscal differentiation must rest on a rational basis. Mere difference in composition, without a rational justification for exclusion, was insufficient to sustain the discrimination in exemption treatment.

Conclusion: The exclusion of N.P.K. 23:23:0 from the exemption granted to similar fertilisers was held to be discriminatory and unsustainable.

Final Conclusion: The petition succeeded and the respondents were directed not to realise tax on sales of N.P.K. 23:23:0 for the relevant period covered by the impugned notification.

Ratio Decidendi: Commodities belonging to the same class cannot be differently treated in fiscal exemptions unless the distinction rests on a rational basis.

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