P. Shanmugam, J. 1. The prayer in the first original petition is for a declaration that exhibits PI and P2, to the extent of the levy of tax on biscuits manufactured within Kerala only at 4 per cent as illegal. The second original petition is to quash exhibit P2 notification granting concessional rate of sales tax at 4 per cent on biscuits manufactured by SSI units in Kerala and to declare that the concessional rate is available to all small-scale industrial units, which manufacture biscuits outside Kerala.
2. The notifications exhibit P1 (SRO No. 1728 of 1993) and exhibit P2 (SRO No. 429 of 1995) were subsequently amended by SRO No. 585 of 1996, SRO Nos. 214 of 1997, 217 of 1997 and 294 of 1998. By virtue of the notification SRO No. 1728 of 1993 biscuit manufacturing units within the State were given concessional rate of tax at 4 per cent as against 10 per cent payable by the petitioners who manufacture their biscuits outside Kerala bring it on stock transfer and sell the same in Kerala. Biscuit is an item taxable at the point of first sale at 10 per cent as item 17 in the First Schedule to the Kerala General Sales Tax Act, 1963. Providing for the biscuit manufacturing units within the State alone 4 per cent of tax is unconstitutional according to the petitioners. After filing of the first original petition against the said notification, the Government amended the notification SRO No. 585 of 1996 and restricted the concessional rate of 4 per cent to small-scale industrial units initially for a period of one year from April 1, 1996 and now extended up to the year 2000. Petitioners are not aggrieved by the grant of concessional rate of tax, if the turnover does not exceed Rs. 50 lakhs. But as per the amended notification, in so far as the biscuit manufacturers, concessional rate of 4 per cent is granted irrespective of the turnover of the SSI Units. According to the petitioners, the notifications are violative of Articles 14, 301 and 304(a) of the Constitution and discriminatory.
3. The Government has filed a counter-affidavit in O.P. No. 435 of 1998 wherein it is stated that the concession was granted with a view to promote SSI units in the State of Kerala, in the public interest. It is further stated that the exemption is given to a special class within the State for a limited period with specific conditions.
4. The question raised by the petitioner is one similar to that was raised in O.P. No. 5959 of 1992. In that case, the challenge was against the notification granting exemption only to the products of village industries which were manufacturing within the State of Kerala. The learned Judge following the decisions of the Supreme Court in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 ; (1990) 3 SCC 87 and Shree Mahavir Oil Mills v. State of Jammu and Kashmir [1997] 104 STC 148 ; (1996) 11 SCC 39 declared that the exemption granted to the local manufacturers of products of village industries is violative of Articles 301 and 304(a) of the Constitution of India. I find that the situations are identical. The ratio laid down by the Supreme Court in Shree Mahavir Oil Mills' case [1997] 104 STC 148 ; (1996) 11 SCC 39 referred above applies to the facts of this case also. The Supreme Court held that the power of the State to levy tax on goods imported from other States cannot be exercised to effect discrimination between imported goods and similar goods manufactured or produced locally.
5. The stand of the learned Government Pleader is that the restriction is only for a specified period and that it is only for a class of small-scale industrial units. Small-scale industrial units are granted exemption initially as an incentive to make the unit viable. However, continuance of that exemption by renewing the period of concession every year would in effect make a discriminatory tariff. The Supreme Court in Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 referred above observed that Article 404(a) does not prevent levy of tax on goods ; what it prohibits is such levy of tax on goods as would result in discrimination between goods imported from other States and similar goods manufactured or produced within the State. The object is to prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods since the difference between the two rates would constitute a tariff wall or fiscal barrier and thus impede the free-flow of inter-State trade and commerce. The question as to when the levy of tax would constitute discrimination would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied. The grant of exemption must be based on cogent and intelligible reasons of economic encouragement and growth.
6. In this case, I do not find any grounds whatsoever for the grant of exemption to the small-scale industrial units of this State alone. All the SSI units irrespective of the place of manufacture are entitled for the same treatment. The denial of the same rate of tax to SSI units having factories outside Kerala is a discrimination and violative of Articles 301 and 304(a) of the Constitution.
7. For the above reasons, exhibit P2 notification as amended from time to time is quashed to the extent of granting concessional rate of sales tax at 4 per cent on biscuits manufactured by SSI units in Kerala alone and it is declared that the concessional rate is available to all SSI units manufacturing biscuits outside Kerala.
In the circumstances, the declaration of invalidity of impugned notification shall take effect from the date of this judgment. The petitioner shall not be entitled to claim any amount by way of refund or otherwise by virtue of or as a consequence of this declaration.
The original petitions are accordingly allowed to the extent stated above.
Order on C.M.P. No. 635 of 1998 in O.P. No. 435 of 1998-B dismissed.