Arbitrary classification in small scale industry exemption withdrawal held unsustainable where branded goods were singled out without rational basis.

A challenge was raised to a notification withdrawing small scale industry exemption for specified goods bearing the brand name or trade name of a person not entitled to the exemption. The High Court found that the earlier exemption scheme treated affixing another's brand name as not changing the identity of the manufacturer, and that the impugned notification singled out only small scale units supplying branded goods to large industrial houses while leaving other similarly placed units unaffected. It further noted that brand marking did not amount to manufacture and did not rationally advance the stated objects of preventing duty avoidance or protecting small scale industries. The classification was therefore arbitrary and failed the test of permissible classification.

---

---

Issues: Whether the notification withdrawing Small Scale Industry exemption from specified goods bearing the brand name or trade name of a person not entitled to exemption was unconstitutional as creating an arbitrary classification among similarly situated Small Scale Industries.

Analysis: The exemption under the earlier notification applied to specified goods manufactured by Small Scale Industries, and the earlier scheme expressly treated affixing another's brand name as not altering the identity of the manufacturer. The impugned notification singled out only those Small Scale Industries that supplied goods with the brand name of a large scale unit, while leaving other Small Scale Industries untouched. The Court held that the difference drawn was not supported by a rational connection with the stated objects of preventing duty avoidance by large industrial houses or protecting Small Scale Industries from unequal competition, because brand marking did not amount to manufacture and did not prevent a large unit from purchasing the goods unbranded and later affixing its own brand name.

Conclusion: The classification created by the impugned notification was arbitrary and failed the test of permissible classification; the notification was liable to be struck down and the writ petitions were allowed.

---