Sales tax exemption for sugar by-products denied without basis amounts to Article 14 discrimination and was set aside

The Karnataka HC considered whether a sugar industry was entitled to sales tax exemption on by-products such as molasses, bagasse and filter mud under the Industrial Policy 1996-2001. It found the petitioner and the comparator unit similarly situated in material respects, and noted that the State had already extended the same benefit to the comparator despite purchase tax deferment. No sustainable basis was shown for denying the petitioner identical treatment, so the refusal amounted to conscious discrimination between similarly placed industrial units and offended Article 14. The petitioner was therefore held entitled to the exemption, and the rejection order was set aside.

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Issues: Whether the petitioner was entitled to exemption from payment of sales tax on the sale of by-products of sugar, namely molasses, bagasse and filter mud, under the Industrial Policy 1996-2001, and whether denial of the benefit was discriminatory in light of the exemption granted to a similarly placed sugar industry.

Analysis: The petitioner and the comparator unit were found to be similarly situated in material respects. The impugned communication itself indicated that the question of extending the same benefit to the petitioner required consideration by the State Level Co-ordination Committee. The record showed that the comparator unit had been granted sales tax exemption on by-products despite enjoying purchase tax deferment, and no sustainable basis was established for treating the petitioner differently. The denial was therefore held to amount to conscious discrimination between similarly placed industrial units and offended Article 14 of the Constitution of India.

Conclusion: The petitioner was held entitled to exemption from payment of sales tax on molasses, bagasse and filter mud, and the impugned order rejecting the claim was set aside.

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