State tax exemption for local goods violates Article 304(a) when it creates protectionist preference without objective justification

A State tax exemption confined to asbestos cement sheets and bricks manufactured in Rajasthan, subject to fly ash content and commencement-date conditions, was held discriminatory because it favoured local goods over comparable imports without a non-hostile, objectively justifiable basis. The measure was not a neutral, time-bound incentive and its text did not disclose a sufficient reason for preferential treatment. Only narrowly tailored exemptions for a distinct class, limited period, and without protectionist bias can fall outside Article 304(a). The notification was therefore unconstitutional, and the challenge succeeded.

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Issues: Whether the notification granting exemption from tax only to asbestos cement sheets and bricks manufactured in Rajasthan, subject to fly ash content and commencement-date conditions, was discriminatory and violative of Article 304(a) of the Constitution of India.

Analysis: The exemption was confined to a specified class of goods manufactured in the State and was not structured as a neutral incentive applicable on an equal basis to comparable goods imported from outside the State. The notification did not disclose any sufficient reason in its text for the preferential treatment, and the surrounding material did not establish a valid, non-hostile basis capable of taking the measure outside the prohibition in Article 304(a). The earlier line of authority permits only a limited and carefully structured incentive or exemption to a distinct class for a limited period and without protectionist bias. The impugned notification did not satisfy that standard, and the exception recognised in the incentive cases could not be extended to uphold a blanket-local preference of this kind.

Conclusion: The notification was discriminatory and unconstitutional under Article 304(a), and the challenge succeeded in favour of the assessee.

Ratio Decidendi: A State tax exemption that preferentially burdens imported goods by confining tax relief to locally manufactured goods, without a non-hostile and objectively justifiable basis, violates Article 304(a); only narrowly tailored, time-bound, and non-protectionist incentives are permissible.

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