Fiscal concession classification must have a rational nexus; exclusion by engine capacity was struck down as discriminatory.

A tax concession scheme limited to fuel-efficient light commercial vehicles with engine capacity between 3200 cc and 3500 cc failed Article 14 scrutiny because the added cubic-capacity condition had no rational nexus with the stated object of encouraging fuel-efficient vehicles and conserving fuel; the notification was therefore arbitrary and discriminatory and was struck down. The challenge under Article 19(1)(g) was rejected because the constitutional vice lay in the discriminatory classification for grant of fiscal benefit, not in any unlawful restraint on business activity; no violation of Article 19(1)(g) was found.

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Issues: (i) Whether the notification granting sales tax concession only to fuel-efficient light commercial vehicles with engine capacity between 3200 cc and 3500 cc was arbitrary and discriminatory under Article 14 of the Constitution of India. (ii) Whether the notification infringed the right to carry on business under Article 19(1)(g) of the Constitution of India.

Issue (i): Whether the notification granting sales tax concession only to fuel-efficient light commercial vehicles with engine capacity between 3200 cc and 3500 cc was arbitrary and discriminatory under Article 14 of the Constitution of India.

Analysis: The concession scheme was intended to encourage fuel-efficient vehicles and thereby promote conservation of fuel. The addition of cubic capacity as a condition had no rational connection with that object. The classification was held to be based on an extraneous consideration and to exclude otherwise fuel-efficient vehicles, thereby creating an invidious distinction among similarly placed vehicles. A tax concession may rest on a valid classification, but where the differentiating feature has no nexus with the policy objective, the classification fails constitutional scrutiny.

Conclusion: The notification was held to be arbitrary and discriminatory and therefore violative of Article 14.

Issue (ii): Whether the notification infringed the right to carry on business under Article 19(1)(g) of the Constitution of India.

Analysis: The challenge on the ground of restriction on trade was not accepted by the Court as the real vice in the notification lay in the unconstitutional classification for grant of tax concession, not in the creation of an unlawful restraint on business activity.

Conclusion: No violation of Article 19(1)(g) was found.

Final Conclusion: The exclusionary condition attached to the concessional sales tax scheme was invalid, and the appellant succeeded in having the impugned notification struck down on constitutional grounds.

Ratio Decidendi: A fiscal concession must satisfy Article 14 by resting on a rational classification having a real nexus with the policy objective; an extraneous condition that excludes otherwise eligible persons or goods renders the classification arbitrary and discriminatory.

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