Gopal Soap Industries vs Assistant Commissioner of Commercial Taxes and Others

R. Gururajan, J.—The petitioner Gopal Soap Industries is seeking for various prayers. The petitioner is a registered dealer under the Karnataka Sales Tax Act, 1957. It carries on the business of Manufacturing handmade soaps. The petitioner established its village industry in the year 1992. The product manufactured and sold by the petitioner fell under entry 28 of the Fifth Schedule to the KST Act. The petitioner satisfied the prescribed condition under rule 25-A of the Rules. The petitioner was exempt from payment of tax. The petitioner is recognised by the Commissioner of Commercial Taxes as a village industry and granted recognition certificate in terms of the Rules. Rule 25-A of the Karnataka Sales Tax Rules (now rule 24) lays down conditions and limitations that are to be satisfied for prescribed village industries to be eligible for exemption from levy of tax under the K.S.T. Act. Rule 25-B(3), as it then stood, made provisions for the Commissioner of Commercial Taxes for grant of certificate of recognition. The petitioner is having a certificate. Sub-rule (3) of rule 25-A (now rule 24(3) was introduced by Notification No. FD 39 CSL 96 dated May 8, 1996. In terms of the sub-rules only for the village industries established on or after April 1, 1996 the prescribed condition of maximum annual sales turnover for prescribed village industries which was not to exceed to be eligible for sales tax exemption was increased from Rs. 10 lakhs to Rs. 20 lakhs. According to the petitioner, this has resulted in discrimination.

The petitioner was issued with a notice u/s 12A in terms of annexures "A" and "A1". In the light of these two notices, the petitioner is before me.

Heard the learned Counsel for the petitioner. He reiterates the facts and grounds raised in the petition. According to the petitioner a discriminatory treatment is meted out by the State Government in the matter of concession in respect of pre April 1, 1996 and post April 1, 1996 industries. This according to him is in violation of article 14. He relies on the Judgment of the Supreme Court in S.K. Dutta, Income Tax Officer and Others Vs. Lawrence Singh Ingty., .

The Karnataka Sales Tax Act provides for levy of sales tax. Exemptions are also provided in certain types of dealers. Village industries are granted exemption subject to a recognition Certificate in terms of the Rules. The Fifth Schedule to the Karnataka Sales Tax Act is referable to goods exempted from tax u/s 8 products manufactured by village industries is found at SI. No. 28. Rule 24 in para 3 provides for licence and certificate of recognition. Earlier rule 25-A(1)(2)(3) provides for recognition. Rule 25A reads as under :

"25-A. The village industries for the purpose of serial Number 28 of the Fifth Schedule.-The village industries for the purposes of Serial No. 28 of the Fifth Schedule shall be as specified in column (2) of the Table below, subject to the condition that,

(1) in the case of village industries existing on 17th February 1984 ;

(a) the total investment on plant and machinery at any given time does not exceed rupees one lakh ; and

(b) the annual sales turnover thereof does not exceed rupees ten lakhs.

(2) in the case of village industries established after 17th February 1984 ;

(a) the industry is situated within the limits of a village or town, whose population as per the latest available census reported does not exceed one lakh ;

(b) the total investment on plant and machinery at any given time does not exceed rupees one lakh ; and

(c) the annual sales turnover thereof does not exceed rupees ten lakhs.

(3) In the case of village industries established on or after the First day of April 1996 ;

(a) the industry is situated within the limits of a village or town whose population as per latest available census report does not exceed one lakh ;

(b) the total investment on plant and machinery at any given time does not exceed rupees two lakhs ; and

(c) the annual sales turnover does not exceed rupees twenty lakhs.

The argument before me is one of discriminatory treatment in the matter of similar industries by the State Government. Rule 25-A(l) provides for exemption on village industries existing on February 17, 1984. Rule 25-A(2) provides for industries established after February 17, 1984. Rule 25-A(3) provides for exemption in respect of village industry on or after April 1, 1996. In the case of industries existing on February 17, 1984 or thereafter till April 1, 1996 the annual sales turnover is restricted to Rs. 10 lakhs. The same has been enhanced to Rs. 20 lakhs for industries established on or after April 1, 1996. According to the petitioner, pre 1996 and post 1996 sales turnover at Rs. 10 lakhs and 20 lakhs violates article 14 of the Constitution of India. It is a well-established principle that in the matter of exemption the courts have very little say in the matter. The argument of discriminatory is no doubt attractive but the said attraction gets dissolved once we go to the root of the matter. Rs. 10 lakhs and Rs. 20 lakhs has been fixed taking into consideration the fall in rupee value in subsequent years. What was Rs. 10 lakhs in 1984 in terms of rupee value is much more than Rs. 20 lakhs in the year 1996. In the matter of exemption Government can fix its own yardstick taking into consideration various aspects of the matter. A mere enhancement of turnover by itself after 1996 in my view cannot by itself violate article 14 of the Constitution of India. But however if exemption is in violation of any constitutional provision, the court can step in and prevent constitutional violation. In this connection, the petitioner has cited a Judgment in support of his contention reported in S.K. Dutta, Income Tax Officer and Others Vs. Lawrence Singh Ingty., . In that very judgment itself the Supreme Court noticed in para 14 reading as under :

"It was the contention of the learned Solicitor-General that exemption from Income Tax was given to members of certain scheduled tribes due to their economic and social backwardness ; it is not possible to consider a Government servant as socially and economically backward and hence the exemption was justly denied to him. According to the Solicitor-General, once a tribal becomes a Government servant he is lifted out of his social environment and assimilated into the forward sections of the society and therefore he needs no more any crutch to learn on. This argument appears to us to be wholly irrelevant. The exemption in question was not given to individuals either on the basis of their social status or economic resources. It was given to a class. Hence individuals as individuals do not come into the picture. We fail to see in what manner the social status and economic resources of a Government servant can be different from that of another holding a similar position in a corporation or that of a successful medical practitioner, lawyer, architect, etc. To over paint the picture of a Government servant as the embodiment of all power and prestige would sound ironical. Today his position in the society to put it at the highest is no higher than that of others who in other walks of life have the same income. For the purpose of valid classification what is required is not some imaginary difference but a reasonable and substantial distinction having regard to the purpose of the law."

(Underline is mine)

The Supreme Court in the case of Shashikant Laxman Kale v. Union of India in : [1990]185ITR104(SC) has noticed the scope of article 14 in the following words :

"It is well-settled that the latitude for classification in a taxing statute is much greater ; and, in order to tax something, it is not necessary to tax everything. In order to see whether classification in a particular taxing provision is valid, the Court must look beyond the ostensible classification and to the purpose of the law and apply the test of ''palpable arbitrariness'' in the context of the felt needs of the times and societal exigencies informed by experience to determine the reasonableness of the classification."

In the case on hand, it cannot be said that there is unreasonable classification as sought to be made out by the counsel. The object of providing exemption is not diluted or denied by increasing from Rs. 10 lakhs to Rs. 20 lakhs. In the given set of circumstances, I am unable to accept the argument of the counsel that the present action is in violation of article 14. The contention is without substance and it requires to be rejected. No other point is argued before me,

Writ petition stands rejected.