Fiscal preference for local manufacturers can violate free trade and equality when it burdens similar imported goods unfairly.
A concessional tax notification favouring specified local manufacturers and their purchasers, while leaving similar goods from outside the State at a higher effective burden, was treated as a fiscal barrier to inter-State trade and as discriminatory under Article 304(a). The real effect of the concession, not its form, was decisive, and the scheme was therefore described as violating Articles 301 and 304(a). The notification also split manufacturers of the same goods into favoured and unfavoured groups without intelligible differentia or rational nexus to industrial development, making the classification arbitrary under Article 14 and beyond the permissible scope of Section 15B. The concessional scheme was accordingly stated to be constitutionally invalid.
Issues: (i) Whether the impugned notification, by granting concessional tax to specified local manufacturers and their purchasers while leaving goods from outside the State at a higher rate, contravened Articles 301 and 304(a) of the Constitution of India. (ii) Whether the notification created an impermissible and arbitrary sub-classification among manufacturers within the State, thereby violating Article 14 of the Constitution of India and exceeding the permissible scope of Section 15B of the Chhattisgarh Value Added Tax Act, 2005.
Issue (i): Whether the impugned notification, by granting concessional tax to specified local manufacturers and their purchasers while leaving goods from outside the State at a higher rate, contravened Articles 301 and 304(a) of the Constitution of India.
Analysis: The concession operated in effect as a fiscal barrier because similar goods imported from outside the State became costlier and less competitive than goods manufactured within the State. The governing test was the real effect of the measure, not its form, and a tax measure that directly and inevitably impedes the free flow of inter-State trade falls within the mischief of Article 301 unless justified under Article 304. A tax structure that, by exemption or concession, subjects imported goods to a higher burden than similar local goods amounts to discrimination within Article 304(a), even if the difference is achieved indirectly through concessional treatment rather than by an express higher levy.
Conclusion: The notification violated Articles 301 and 304(a) and was unlawful to that extent.
Issue (ii): Whether the notification created an impermissible and arbitrary sub-classification among manufacturers within the State, thereby violating Article 14 of the Constitution of India and exceeding the permissible scope of Section 15B of the Chhattisgarh Value Added Tax Act, 2005.
Analysis: Section 15B permitted exemption in respect of a class of dealers or a class of goods, but the notification split manufacturers of the same goods into favoured and unfavoured groups without any demonstrated intelligible differentia or rational nexus with the object of industrial development. The absence of empirical material or rational basis for drawing the distinction between local manufacturers inside the favoured categories and those outside them rendered the classification arbitrary. A valid classification must distinguish persons grouped together from others and must bear a reasonable relation to the legislative object; a bare preference for select units without such basis amounts to class legislation.
Conclusion: The notification infringed Article 14 and could not be sustained under Section 15B.
Final Conclusion: The concessional taxation scheme, as framed in the impugned notification, was struck down as constitutionally invalid on both the inter-State trade and equality grounds, and the writ petitions succeeded.
Ratio Decidendi: A tax concession that, in its real effect, places similar imported goods at a higher competitive burden than locally manufactured goods violates Article 304(a), and any preferential fiscal classification must satisfy intelligible differentia and rational nexus to withstand Article 14 scrutiny.
TaxTMI 
AI Drafter ✕
TaxTMI 
