# M/s U.P. Asbestos Limited v. State of Rajasthan & Others

- **Citation:** 2025 INSC 1154
- **Court:** Supreme Court of India
- **Decided:** 2025-09-24
- **Case number:** Civil Appeal No. 3577 of 2008
- **Bench:** B.V. Nagarathna, K.V. Viswanathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-u-p-asbestos-limited-v-state-of-rajasthan-others-38673
- **Pages:** 71

## Headnote

Issue arose as regards the validity of the Notification No. S.O.377,
dated 09.03.2007, issued by the Government of Rajasthan in
exercise of its powers conferred by s.8(3) of the Rajasthan
Value Added Tax Act, 2003 granting exemption from payment of
Value Added Tax on sale of asbestos cement sheets and bricks,
manufactured in the State of Rajasthan, having contents of fly ash
25% or more by weight subject to specific conditions, is violative of
Art. 304(a) of the Constitution of India being discriminatory vis-à-vis
goods imported from outside the State of Rajasthan; and whether
the High Court was right in dismissing the writ petitions filed by the
appellants-manufacturers of asbestos cement sheets and bricks
by holding that the impugned notification dated 09.03.2007 did not
violate Art. 301(a) of the Constitution.
Headnotes†
Constitution of India - Art. 301(a), 304 - Rajasthan Value Added
Tax Act, 2003 - s.8(3) - Value Added Tax exemption on sale of
asbestos cement sheets, if violative of Art. 304(a) - Notification
No. S.O.377, dated 09.03.2007 issued by the Government
of Rajasthan granting exemption from payment of Value
Added Tax on sale of asbestos cement sheets and bricks,
manufactured in the State of Rajasthan, having contents of fly
ash 25% or more by weight subject to specific conditions -
Notification restricted the exemption to those dealers who
commenced commercial production in the State by 31.12.2006
and the exemption was available up to 23.01.2010,and later
extended upto 23.1.2016 - Appellants-engaged in the business
of manufacture and sale of fly ash based asbestos cement
products and did not have their manufacturing units in
* Author
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Rajasthan, but had their sales depots over there - Notification,
if violative of Art. 304(a) being discriminatory vis-à-vis goods
imported from outside the State of Rajasthan:
Held: Notification dated 09.03.2007 violative of Art. 304(a) as it
is discriminatory in nature - Impugned notification is bereft of any
reason or justification - Impugned notification is not restricted
to any specific district or a set of districts within the State of
Rajasthan, rather, the notifications provide exemption to any dealer
commencing production anywhere in the State - As regards the
criterion of 'non-hostile discrimination, the contours of discrimination
of hostile nature, can be reduced to whether there are sufficient
reasons to term such discrimination as 'differentiation' - If a
legislation is discriminatory and discriminates one person or class of
persons against others similarly situated and denies to the former
the privileges that are enjoyed by the latter, it has to be regarded
as "hostile" in the sense that it affects injuriously the interests of
that person or class - High Court erred in holding that the instant
case falls in the exceptional category covered by the case of Video
Electronics, wherein the exemption was granted to new industries
for a specified period - Said finding is incorrect inasmuch as the
exemption was not granted to new industries and neither was
it given for a limited period of time - Exemption was granted to
those asbestos sheet and bricks manufacturers in the State of
Rajasthan utilizing fly ash as its main raw material on the conditions
namely that such fly ash constituted 25% or more in the contents
by weight; and that the unit commenced commercial production
by 31.12.2001 - First condition is an ingredient specific criterion -
This would mean that any asbestos sheet product containing 25%
fly ash manufactured outside the State of Rajasthan and sold in
the said State would not have the benefit of the exemption - This
would mean that the source of fly ash is not really the basis for
the exemption - Asbestos products could be manufactured in the
State of Rajasthan with fly ash obtained from outside the State
and sold within the State - If the object of the exemption was to
utilise the fly ash available in the State of Raj

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[2025] 9 S.C.R. 1419 : 2025 INSC 1154
M/s U.P. Asbestos Limited
v.
State of Rajasthan & Others
(Civil Appeal No. 3577 of 2008)
24 September 2025
[B.V. Nagarathna* and K.V. Viswanathan, JJ.]
Issue for Consideration
Issue arose as regards the validity of the Notification No. S.O.377,
dated 09.03.2007, issued by the Government of Rajasthan in
exercise of its powers conferred by s.8(3) of the Rajasthan
Value Added Tax Act, 2003 granting exemption from payment of
Value Added Tax on sale of asbestos cement sheets and bricks,
manufactured in the State of Rajasthan, having contents of fly ash
25% or more by weight subject to specific conditions, is violative of
Art. 304(a) of the Constitution of India being discriminatory vis-à-vis
goods imported from outside the State of Rajasthan; and whether
the High Court was right in dismissing the writ petitions filed by the
appellants-manufacturers of asbestos cement sheets and bricks
by holding that the impugned notification dated 09.03.2007 did not
violate Art. 301(a) of the Constitution.
Headnotes†
Constitution of India - Art. 301(a), 304 - Rajasthan Value Added
Tax Act, 2003 - s.8(3) - Value Added Tax exemption on sale of
asbestos cement sheets, if violative of Art. 304(a) - Notification
No. S.O.377, dated 09.03.2007 issued by the Government
of Rajasthan granting exemption from payment of Value
Added Tax on sale of asbestos cement sheets and bricks,
manufactured in the State of Rajasthan, having contents of fly
ash 25% or more by weight subject to specific conditions -
Notification restricted the exemption to those dealers who
commenced commercial production in the State by 31.12.2006
and the exemption was available up to 23.01.2010,and later
extended upto 23.1.2016 - Appellants-engaged in the business
of manufacture and sale of fly ash based asbestos cement
products and did not have their manufacturing units in
* Author
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Rajasthan, but had their sales depots over there - Notification,
if violative of Art. 304(a) being discriminatory vis-à-vis goods
imported from outside the State of Rajasthan:
Held: Notification dated 09.03.2007 violative of Art. 304(a) as it
is discriminatory in nature - Impugned notification is bereft of any
reason or justification - Impugned notification is not restricted
to any specific district or a set of districts within the State of
Rajasthan, rather, the notifications provide exemption to any dealer
commencing production anywhere in the State - As regards the
criterion of 'non-hostile discrimination, the contours of discrimination
of hostile nature, can be reduced to whether there are sufficient
reasons to term such discrimination as 'differentiation' - If a
legislation is discriminatory and discriminates one person or class of
persons against others similarly situated and denies to the former
the privileges that are enjoyed by the latter, it has to be regarded
as "hostile" in the sense that it affects injuriously the interests of
that person or class - High Court erred in holding that the instant
case falls in the exceptional category covered by the case of Video
Electronics, wherein the exemption was granted to new industries
for a specified period - Said finding is incorrect inasmuch as the
exemption was not granted to new industries and neither was
it given for a limited period of time - Exemption was granted to
those asbestos sheet and bricks manufacturers in the State of
Rajasthan utilizing fly ash as its main raw material on the conditions
namely that such fly ash constituted 25% or more in the contents
by weight; and that the unit commenced commercial production
by 31.12.2001 - First condition is an ingredient specific criterion -
This would mean that any asbestos sheet product containing 25%
fly ash manufactured outside the State of Rajasthan and sold in
the said State would not have the benefit of the exemption - This
would mean that the source of fly ash is not really the basis for
the exemption - Asbestos products could be manufactured in the
State of Rajasthan with fly ash obtained from outside the State
and sold within the State - If the object of the exemption was to
utilise the fly ash available in the State of Rajasthan itself, it should
have been so spelt out in the impugned notification - Otherwise, a
discrimination is found between asbestos products manufactured in
the State of Rajasthan and manufactured outside, having content of
fly ash to an extent of 25% when sold in the State of Rajasthan, on
the other hand, if the notification had prescribed a condition that fly
[2025] 9 S.C.R.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
ash sourced from State of Rajasthan and products sold in the State,
irrespective of their place of manufacture would have the benefit
of such exemption, there would not have been any discrimination
between products manufactured outside the State of Rajasthan
sold within the said State and those manufactured within the State,
both having the benefit of exemption as both categories of products
would have utilised fly ash available in the State of Rajasthan -
This approach would have also met the objective of utilising the
available fly ash in the State of Rajasthan - However, that is not
so in the instant case - Under Art.304(a), a State Legislature may
tax goods imported from other States or Union Territories but in
the process ought not to discriminate against them vis-à-vis goods
manufactured locally - Thus, there cannot be tax barriers or fiscal
barriers in the interest of free trade, commerce and intercourse
throughout the territory of India guaranteed by Art.301 - Weapon of
taxation cannot be used to discriminate against the imported goods
vis-à-vis the locally manufactured goods - Impugned notification
is quashed. [Paras 12-12.20]
Case Law Cited
Jindal Stainless Ltd. v. State of Haryana [2016] 10 SCR 1 : (2017)
12 SCC 1 - followed.
Video Electronics Pvt. Ltd. v. State of Punjab [1989] Supp. 2 SCR
731 - distinguished.
State of U.P. v. Jaiprakash Associates Ltd. [2013] 11 SCR 943 :
(2014) 4 SCC 720 - held applicable.
Firm A.T.B. Mehtab Majid and Co. v. State of Madras [1963] Supp.
2 SCR 435; Shree Mahavir Oil Mills v. State of J&K [1996] Supp.
9 SCR 356; State of U.P. v. M/s Laxmi Paper Mart [1997] 1 SCR
914; Loharn Steel Industries Ltd. v. State of Andhra Pradesh
[1996] Supp. 10 SCR 898; Video Electronics and Shree Digvijay
Cement Co. Ltd. v. State of Rajasthan [1999] Supp. 5 SCR 428;
Anand Commercial Agencies v. Commercial Tax Officer VI Circle
Hyderabad [1997] Supp. 5 SCR 76 : (1998) 1 SCC 101; Atiabari
Tea Co. Ltd. v. State of Assam [1961] 1 SCR 809 : AIR 1961 SC
232; Mohinder Singh Gill v. Chief Election Commissioner [1978]
2 SCR 272 : (1978) 1 SCC 405; Ramjilal v. Income Tax Officer
[1951] 1 SCR 128 : AIR 1951 SC 97; Automobile (Rajasthan)
Transport Ltd. v. State of Rajasthan [1963] 1 SCR 491 : AIR 1962
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SC 1406; Kalyani Stores v. State of Orissa [1966] 1 SCR 865 :
AIR 1966 SC 1686; Weston Electronics v. State of Gujarat [1988]
3 SCR 768 : (1988) 2 SCC 568; H. Anraj v. Government of Tamil
Nadu [1985] Supp. 3 SCR 342 : (1986) 1 SCC 414; A. Hajee
Abdul Shakoor & Co. v. State of Madras [1964] 8 SCR 217 : AIR
1964 SC 1729; State of Madras v. N.K. Nataraja [1968] 3 SCR
829 : AIR 1969 SC 147; Andhra Sugars Ltd. v. State of Andhra
Pradesh [1968] 1 SCR 705 : AIR 1968 SC 599; V. Guruviah Naidu
& Sons v. State of Tamil Nadu [1977] 1 SCR 1065 : AIR 1977
SC 548; Shri Digvijay Cement Co. v. State of Rajasthan [1997]
3 SCR 184 : AIR 1997 SC 2609; W.B. Hosiery Assn. v. State of
Bihar [1988] Supp. 2 SCR 378 : (1988) 4 SCC 134; Kathi Raning
Rawat v. State of Saurashtra [1952] 1 SCR 435 : AIR 1952 SC
123; State of West Bengal v. Anwar Ali Sarkar [1952] 1 SCR
284 : (1952) 1 SCC 1; Twyford Tea Co. Ltd. v. State of Kerala
[1970] 3 SCR 383 : (1970) 1 SCC 189; Vijay Lakshmi v. Punjab
University [2003] Supp. 3 SCR 1034 : (2003) 8 SCC 440; State
of J&K v. Triloki Nath Khosa [1974] 1 SCR 771 : (1974) 1 SCC
19; Commissioner of Police v. Gordhandas Bhanji [1952] 1 SCR
135 : AIR 1952 SC 16 - referred to.
Cole v. Whitfield (1988) HCA 18 - referred to.
List of Acts
Rajasthan Value Added Tax Act, 2003; Constitution of India;
Rajasthan Sales Tax Act, 1994.
List of Keywords
Value Added Tax exemption; Sale of asbestos cement sheets;
Violation of Art. 304(a); Notification No. S.O.377, dated
09.03.2007; Government of Rajasthan; Exemption from payment
of Value Added Tax on sale of asbestos cement sheets and
bricks, manufactured in State of Rajasthan; Contents of fly ash
25%; Commercial production; Manufacture and sale of fly ash
based asbestos cement products; Notification discriminatory
vis-à-vis goods imported from outside the State of Rajasthan;
Criterion of 'non-hostile discrimination; Differentiation;
Exceptional category; Tax barriers or fiscal barriers; Interest of
free trade, commerce and intercourse.
[2025] 9 S.C.R.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
Case Arising From
CIVIL ORIGINAL JURISDICTION: Civil Appeal No. 3577 of 2008
From the Judgment and Order dated 02.08.2007 of the High Court
of Judicature for Rajasthan at Jaipur in CWP No. 3580 of 2007
With
Civil Appeal No. 3578 of 2008 and Civil Appeal No. 2692 of 2013
Appearances for Parties
Advs. for the Appellant:
Ms. Kavita Jha, Nikhil Goel, Sr. Advs., Siddhartha Chowdhury,
Shammi Kapoor, Ms. Swati Agarwal, Shaffi Mather, Ashutosh
Ghade, Ms. Riddhi Jain, Ms. Saloni Meshram, Adithya Koshy Roy.
Advs. for the Respondents:
Dr. Manish Singhvi, Sr. Adv., Apurv Singhvi, Ms. Shalini Haldar,
Milind Kumar, Ms. Nidhi Jaswal, Punit Dutt Tyagi.
Judgment / Order of the Supreme Court
Judgment
Nagarathna, J.
INDEX*
Bird's Eye View of the Controversy: ......................................
4
Factual Background: ................................................................
6
Submissions: ............................................................................ 12
Points for Consideration: ........................................................ 21
Relevant Constitutional Provisions: ....................................... 21
Atiabari Tea Co. Ltd.: ............................................................... 23
Automobile Transport Ltd.: ..................................................... 32
Firm Mehtab Majid: ................................................................... 35
Kalyani Stores: .......................................................................... 39
* Ed. Note: Pagination as per the original Judgment.
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Weston Electronics: .................................................................. 41
Video Electronics: ..................................................................... 43
Shree Mahavir Oil Mills: ........................................................... 51
Loharn Steel Industries Ltd.: ................................................... 57
Laxmi Paper Mart: ..................................................................... 58
Digvijay Cements: ..................................................................... 59
Jaiprakash Associates: ............................................................ 61
Jindal Stainless Ltd.: ................................................................ 67
Discussion from Overseas Case Law: ................................... 83
Application of the Analysis to the Present Case: ................. 87
Since these Civil Appeals involve common questions of facts and law,
they have been heard and are disposed of by this common judgment.
2.
The instant appeals have been preferred by the appellants-assessees
against the following three separate orders of the High Court of
Judicature for Rajasthan at Jaipur:
i)
Order dated 02.08.2007 in D.B. Civil Writ Petition
No.3580/2007;
ii)
Order dated 23.08.2007 in D.B. Civil Writ Petition
No.2222/2007; and
iii)
Order dated 05.09.2012 in D.B. Civil Writ Petition
No.4447/2011.
2.1 All the three Writ Petitions were dismissed on the basis of
reasons given in judgment and order dated 02.08.2007 in
D.B. Civil Writ Petition No.3506/2007 titled M/s. Hyderabad
Industries Ltd. vs. State of Rajasthan and Ors. ("Hyderabad
Industries") passed by the High Court of Judicature for
Rajasthan. Aggrieved by the orders of dismissal, the appellants
are before this Court.
Bird's Eye View of the Controversy:
3.
Briefly stated, the issue for determination in these appeals concern the
validity of the impugned Notification No. S.O.377, dated 09.03.2007,
[2025] 9 S.C.R.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
issued by the Government of Rajasthan in exercise of its powers
conferred by Section 8(3) of the Rajasthan Value Added Tax Act,
2003 ("2003 Act", for short). Specifically, the issue concerns whether
Notification No.S.O.377 dated 09.03.2007 issued by Respondent
State granting exemption from payment of Value Added Tax on sale
of asbestos cement sheets and bricks, manufactured in the State of
Rajasthan, having contents of fly ash 25% or more by weight subject
to specific conditions, is violative of Article 304(a) of the Constitution
of India being discriminatory vis-à-vis goods imported from outside
the State of Rajasthan.
3.1 The notification, in effect, exempted from tax the manufacturers
within the State of Rajasthan of asbestos cement sheets and
bricks having content of fly ash 25% or more. Specifically, the
challenge concerned sub-clauses (ii) and (iii) of the above
notification, on the ground, inter alia, that they violate free
movement of trade and commerce as envisaged in Articles 301
to 304 of the Constitution of India.
3.2 For immediate reference, the notification dated 09.03.2007 is
extracted below:
"FINANCE DEPARTMENT
(TAX DIVISION)
NOTIFICATION
JAIPUR, MARCH 9, 2007
S.O.377 - In exercise of the powers conferred by subsection (3) of section 8 of the Rajasthan Value Added
Tax Act, 2003 (Rajasthan Act No.4 of 2003), the State
Government being of the opinion that it is expedient
in the public interest so to do, hereby exempts from
payment of tax the sale of asbestos cement sheets and
bricks manufactured in the State having contents of fly ash
twenty five percent or more by weight, on the following
conditions, namely:-
(i) that the goods shall be entered in the registration
certificate of the selling dealer.
(ii) that the exemption shall be for such goods
manufactured by the dealer who commenced
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commercial production in the State by 31.12.2006;
and
(iii) that the exemption shall be available up to
23.01.2010.
No.F.12 (28) FD/Tax/2007/141)
By Order of the Governor
(Arun Gupta)
Deputy Secretary to Government"
(emphasis supplied by us)
3.3 In the course of the determination, this Court is also required to
examine the applicability of the judgment of this Court in Video
Electronics Pvt. Ltd. vs. State of Punjab, (1989) Supp. 2 SCR
731 ("Video Electronics") to the facts of this case, especially
in light of the nine-Judge Constitution Bench judgment of this
Court in Jindal Stainless Ltd. vs. State of Haryana, (2017)
12 SCC 1 ("Jindal Stainless Ltd.").
Factual Background:
4.
The facts emanating from all the three appeals are similar. The
appellants herein are engaged in the business of manufacture and
sale of fly ash based asbestos cement products. They do not have
their manufacturing units in the State of Rajasthan, but have their sales
depots in the State. These sales depots are duly registered with the
Commercial Tax Department under Central and local State Tax Acts.
4.1 Initially, the State of Rajasthan issued a notification dated
24.01.2000 under the erstwhile Section 15 of the Rajasthan
Sales Tax Act, 1994 (hereinafter "1994 Act") in the form of
exemption from sales tax, to encourage industries of asbestos
cement sheets and bricks manufactured in the State by an
industrial unit having fly ash as its main raw material on
certain conditions mentioned therein. The benefit was given
to industries starting commercial production upto 31.12.2001
and the notification was to remain in force upto 23.01.2010.
4.2 In supersession of the above notification dated 24.01.2000,
another notification dated 16.03.2005 was issued to exempt from
[2025] 9 S.C.R.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
tax the sale of asbestos cement sheets and bricks manufactured
in the State by an industrial unit having fly ash as its main raw
material on the condition that such fly ash shall constitute 25%
or more in content by weight of such asbestos cement sheets or
bricks. The benefit was given to industries starting commercial
production by 31.12.2006 and the notification was to remain
in force upto 23.01.2010. Admittedly, the above notifications
dated 24.01.2000 and 16.03.2005 were never challenged by
the appellants herein before any forum.
4.3 From 01.04.2006, the Rajasthan Value Added Tax Act, 2003
(hereinafter "VAT Act") came into operation on repeal of the
1994 Act. In order to continue the operation of the abovementioned notifications issued under the 1994 Act, the State
issued notifications dated 01.06.2006 and 05.07.2006 under
Section 8 of the VAT Act which are in pari materia to Section
15 of the 1994 Act.
4.4 The above notifications dated 01.06.2006 and 05.07.2006
were challenged by one of the appellants herein before the
Rajasthan High Court in W.P.No.7149 of 2006. While the matter
was pending, the State Government withdrew the notification
dated 05.07.2006 and issued the impugned notification dated
09.03.2007. It is relevant to note that, under this notification
also, the benefit was given to industries starting commercial
production by 31.12.2006 and the notification was to remain
in force upto 23.01.2010. This notification was challenged
before the Rajasthan High Court in D.B. Civil Writ Petition
Nos.3580/2007 and 2222/2007 and the impugned judgments
were passed on 02.08.2007 and 23.08.2007 respectively.
4.5 While the present appeals were pending before this Court, the
State by way of notification dated 28.12.2010 amended clause
(iii) of the impugned notification dated 09.03.2007 as follows:
"(iii) that maximum exemption benefits shall be
available for 10 years from the date of commencement
of first commercial production, but in no case
exemption shall be available after 23.1.2016."
4.6 One of the appellants herein, namely M/s. U.P. Asbestos Ltd.,
filed a writ petition being D.B. Civil Writ Petition No.4447/2011
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challenging the notification dated 28.10.2010. The said writ
petition was also dismissed by way of impugned order dated
05.09.2012.
4.7
As the High Court dismissed all the three writ petitions by
the impugned orders based on the judgment of that Court in
Hyderabad Industries, it is necessary to dilate the reasoning
provided therein.
4.8
The High Court in Hyderabad Industries first discussed the
judgments of this Court in Firm A.T.B. Mehtab Majid and
Co. vs. State of Madras, (1963) Supp. 2 SCR 435 ("Firm
Mehtab Majid"); Shree Mahavir Oil Mills vs. State of J&K,
(1996) Supp.9 SCR 356 ("Shree Mahavir Oil Mills"); State of
U.P. vs. M/s Laxmi Paper Mart, (1997) 1 SCR 914 ("Laxmi
Paper Mart"); Loharn Steel Industries Ltd. vs. State of
Andhra Pradesh, (1996) Supp. 10 SCR 898 ("Loharn Steel
Industries Ltd."); Video Electronics and Shree Digvijay
Cement Co. Ltd. vs. State of Rajasthan, (1999) Supp. 5
SCR 428 ("Digvijay Cements").
4.9
Based on a reading of the above judgments, the High Court
opined that the decision on the question whether, there has
been discrimination between the imported and the local goods
depends on diverse factors. That where there is no intentional
discrimination but the concession from sales tax is given in
respect of goods manufactured in a particular State which is
not so developed, in furtherance of economic development
and where such concession is granted to new industries for a
specific time which came into existence for a specific period,
such concession or exemption may not offend Part XIII of the
Constitution of India.
4.10 The High Court also observed that there was no challenge
either to the constitutional validity of Section 8 of the VAT Act
or to the notifications dated 24.01.2000 and 16.03.2005 which
were on identical terms to the impugned notification. That there
is no dispute that fly ash coming out of thermal power plants
is abundantly available in the State of Rajasthan and is not
unreasonable to presume that the State Government gave
incentives for asbestos manufacturing plants within the State
[2025] 9 S.C.R.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
of Rajasthan to promote the use of fly ash as raw material for
the production of asbestos cement sheets and bricks.
4.11 The High Court further noted that it was for the above reason
that way back in the year 2000, the State Government passed
the notification dated 24.01.2000 and that the benefit was
extended from time to time. It accepted the stand of the
State that it was bound even otherwise by the principle of
promissory estoppel to continue with the exemption since
in the notification dated 24.01.2000 itself, the benefit was to
continue until 23.01.2010.
4.12 The High Court acknowledged that this Court in Shree Mahavir
Oil Mills distinguished Video Electronics. However, the High
Court noted that Shree Mahavir Oil Mills justified the decision
in Video Electronics to grant exemption to a special class for
a limited period on specific conditions when there are justifiable
and national reasons for differentiation.
4.13 Hence, the High Court held that the impugned notification,
in the backdrop of earlier notifications dated 24.01.2000 and
16.03.2005, fell within the exceptional category covered in
Video Electronics and hence cannot be held to be offending
Article 304(a) of the Constitution of India. Therefore, the
question would also arise as to whether the Rajasthan High
Court decided Hyderabad Industries correctly.
Submissions:
5.
Learned senior counsel Sri Nikhil Goel appearing for the appellant
M/s U.P. Asbestos Ltd. and Smt. Kavita Jha appearing for appellant
M/s. Everest Industries Ltd., strenuously argued that the impugned
notification was unconstitutional and violated Article 304(a) of the
Constitution of India. To substantiate, the following submissions
were put forth:
5.1 That the impugned notification is discriminatory in nature and
falls foul of Article 304(a) of the Constitution of India as it did
not provide for any reason for the blanket exemption from
payment of tax provided to locally manufactured goods in the
State of Rajasthan as compared to goods imported from outside
the State. In this regard, they relied on Shree Mahavir Oil
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Mills, Laxmi Paper Mart, and Anand Commercial Agencies
vs. Commercial Tax Officer VI Circle, Hyderabad, (1998) 1
SCC 101.
5.2 Referring to the text of the impugned notification, it was
contended that it does not require the industries within the
State to only manufacture or procure fly ash from within the
State. That the lack of such a requirement ex-facie falsifies the
justification of the State that the exemption provided for in the
impugned notification was to encourage industries to utilise
the excess fly ash from the State. They further contended that
arguendo, even if the impugned notification required the fly ash
to be purchased within the State of Rajasthan, the notification
would still have to be quashed in light of the judgment of this
Court in State of U.P. vs. Jaiprakash Associates Ltd., (2014)
4 SCC 720 ("Jaiprakash Associates").
5.3 Reliance was placed on the observations of the nine-Judge
bench judgment in Jindal Stainless Ltd. to contend that the
differentiation made through the impugned notification was
intended or inspired by an element of unfavourable bias in
favour of the goods produced or manufactured in the State
of Rajasthan as against those imposed from outside. They
submitted that, in Jindal Stainless Ltd., this Court held that
every differentiation is discrimination if it involved an element
of "intentional and unfavourable bias". Learned senior counsel
Ms. Kavita Jha also provided us a summary of the relevant
observations in Jindal Stainless Ltd. which we shall discuss
later in this judgment.
5.4 That the High Court was not right in relying on Video Electronics
as the facts of that case are distinguishable. They highlighted
that in Video Electronics, this Court upheld the notifications
impugned therein on the ground that they related to a specific
class of industrial units and that the benefit under the same
was admissible only for a limited period of time. However, in the
present case, the restriction was not limited to a specific class
or period, but such exemption has been extended from time
to time from the year 2000 till the year 2016, to all the old and
new dealers of asbestos sheets, without assigning any reason.
Hence, the finding in paragraph 17 of the judgment in Hyderabad
[2025] 9 S.C.R.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
Industries that the exemption was only to a limited class, i.e.
those who commenced production by 31.12.2006 and was only
for a limited period, i.e. till 23.01.2010 was not accurate. Rather,
they contended that the facts of the present case are akin to
that in Shree Mahavir Oil Mills and Jaiprakash Associates.
5.5 Learned senior counsel also sought to repel the objection that
the appellants herein had not challenged the earlier notifications
by relying on the dictum in Shree Mahavir Oil Mills that there
can be no estoppel or acquiescence in a matter relating to
constitutional rights of citizens.
5.6 Referring to the submission of the State in its reply before the
High Court, they contended that the only justification put forth
by them was that it was empowered to grant exemption to a
class of industries to boost industrialisation within its State. The
learned senior counsel questioned this rationale by submitting
that if the same was accepted as a general proposition justifying
discrimination between two States while applying a tax regime,
such proposition would practically nullify the entire Chapter
XIII of the Constitution. That every State would then exempt
local manufacturers from tax simply by saying that it wants to
boost industrial growth. They submitted that Article 301 of the
Constitution cannot be stretched to its unnatural limits to justify
such a vague rationale.
6.
In response to the above submissions, learned senior counsel Dr.
Manish Singhvi made the following submissions:
6.1 Highlighting the implications of the Constitution Bench judgment
in Jindal Stainless Ltd., it was contended that the plenary
power to tax under Articles 245 and 246 of the Constitution
read in conjunction with the Entries in the Seventh Schedule
to the Constitution is per se not subject to Article 301 of the
Constitution. That the plenary power is restrained only if it
discriminates in terms of Article 304(a) of the Constitution.
6.2 That, in Jindal Stainless Ltd., this Court upheld the ratio
laid down in Video Electronics. He highlighted that, so long
as the differentiation made by the States is not intended to
create an unfavourable bias and so long as the differentiation
is intended to benefit a distinct class of industries and the life
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of the benefit is limited in terms of period, the benefit must
be held to flow from a legitimate desire to promote industries
within its territories. That this Court also distinguished Shree
Mahavir Oil Mills by noting that if the incentive/exemption in
taxation to spur industrialisation was for a limited period and
for achieving some objective, then it shall not be violative of
Article 304(a) of the Constitution.
6.3 Our attention was drawn to the observations of this Court in
Digvijay Cements wherein this Court stated that all States
have powers to grant exemption to specified class of goods
for a limited period and that such grant of exemption cannot
be held to be contrary to the concept of economic unity. It was
submitted that the power to grant exemptions is thus a dynamic
concept and they must be viewed at keeping in mind the overall
objectives sought to be achieved.
6.4 Learned senior counsel for the State of Rajasthan submitted
that, after the judgment in Jindal Stainless Ltd., it is not
clear if the ratio in Jaiprakash Associates still holds field.
He referred to paragraph 32 of the judgment in Jaiprakash
Associates to contend that it relied on the judgment rendered
in Atiabari Tea Co. Ltd. vs. State of Assam, AIR 1961 SC
232 ("Atiabari Tea Co. Ltd."), which was partly overruled in
Jindal Stainless Ltd.
6.5 Dealing with the facts of the case, learned senior counsel
submitted that prior to the notification dated 24.01.2000, there
was no asbestos sheet plant/industry in the State of Rajasthan.
That fly ash is an abundant raw material available in the State
and the intention of the exemption from sales tax was to promote
the use of fly ash coming out of thermal power plants as a raw
material for the production of asbestos cement sheets and bricks
for which there was no manufacturing plant in the State. He
also submitted that various notifications issued by the Ministry
of Environment and Forests required the compulsory use of
fly ash and hence the exemption as provided in the impugned
notification was envisaged. That additionally, having contents
of fly ash twenty five percent or more in asbestos sheets by
weight also improves the environment which was another
laudable objective.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
6.6 Learned senior counsel also submitted that if such an exemption
was not granted, then no asbestos sheet industry would have
come to the State of Rajasthan and the fly ash in the State
would go unutilised/unused, considering huge transportation
costs associated with transporting fly ash. That the economics
of transportation itself would repel any argument that the
notifications did not specifically require the manufacturers to
utilise the fly ash generated in the State. He also submitted
that, it was not the case of the appellants herein that they
would use the fly ash manufactured in the State of Rajasthan,
despite having manufacturing units elsewhere.
6.7 For the above reasons, Dr. Manish Singhvi emphasised that
the exemption provided for in the notification qualifies as
'differentiation', rather than discrimination and is saved as per
Article 304(a) of the Constitution.
6.8 To our query that the reasons for the notification could not be
found in the notification itself, learned senior counsel submitted
that the reasons for the notification can be discerned from the
records available and the counter affidavit filed before the High
Court. He therefore drew our attention to the relevant portions
in the counter-affidavit filed by the State before the High Court
where the reasons mentioned above were elucidated. He
submitted that there is presumption of constitutionality of any
law enacted by a State and that the State, though could have
provided the reasons for such an enactment in the notification
itself, was not incumbent to so spell out and the same could
always be gathered by surrounding circumstances.
6.9 In response to the submissions of learned senior counsel Dr.
Manish Singhvi, learned senior counsel Ms. Kavita Jha added
that the object behind the impugned notification, as stated
by the learned senior counsel in his submissions, was not
provided/ expressed in the impugned notification. That from its
bare perusal, no object, purpose or rationale was mentioned
to provide impetus to any industry but on the other hand to
discriminate among indigenous goods and imported goods.
7.
Learned senior counsel for the appellants relied on the judgment of
this Court in Mohinder Singh Gill vs. Chief Election Commissioner,
(1978) 1 SCC 405 ("Mohinder Singh Gill") to substantiate that
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any order passed by any public authority exercising administrative/
executive or statutory powers must be judged by the reasons so
mentioned in that order and cannot be supplemented by fresh reasons
in the shape of an affidavit or otherwise.
Points for Consideration:
8.
The following points would arise for our consideration:
(i)
Whether the High Court was right in dismissing the writ petitions
filed by the appellants herein by holding that the impugned
notification dated 09.03.2007 did not violate Article 301(a) of
the Constitution of India?
(ii)
If the answer to point No.(i) is in the negative, then, what order?
Relevant Constitutional Provisions:
9.
Articles 301 to 304, which are under Part XIII of the Constitution are
relevant for our discussion and are extracted as under:
"301. Freedom of trade, commerce and intercourse.-
Subject to the other provisions of this Part, trade, commerce
and intercourse throughout the territory of India shall be
free.
302. Power of Parliament to impose restrictions on
trade, commerce and intercourse.-Parliament may
by law impose such restrictions on the freedom of trade,
commerce or intercourse between one State and another or
within any part of the territory of India as may be required
in the public interest.
303. Restrictions on the legislative powers of the
Union and of the States with regard to trade and
commerce.-(1) Notwithstanding anything in article 302,
neither Parliament nor the Legislature of a State shall
have power to make any law giving, or authorising the
giving of, any preference to one State over another, or
making, or authorising the making of, any discrimination
between one State and another, by virtue of any entry
relating to trade and commerce in any of the Lists in the
Seventh Schedule.
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M/s U.P. Asbestos Limited v. State of Rajasthan & Others
(2) Nothing in clause (1) shall prevent Parliament from
making any law giving, or authorising the giving of, any
preference or making, or authorising the making of,
any discrimination if it is declared by such law that it
is necessary to do so for the purpose of dealing with a
situation arising from scarcity of goods in any part of the
territory of India.
304. Restrictions on trade, commerce and intercourse
among States. - Notwithstanding anything in article 301
or article 303, the Legislature of a State may by law-
(a) impose on goods imported from other States or the Union
territories any tax to which similar goods manufactured or
produced in that State are subject, so, however, as not
to discriminate between goods so imported and goods so
manufactured or produced; and
(b) impose such reasonable restrictions on the freedom of
trade, commerce or intercourse with or within that State
as may be required in the public interest:
Provided that no Bill or amendment for the purposes of
clause (b) shall be introduced or moved in the Legislature
of a State without the previous sanction of the President."
10. The significant judgments of this Court on the interpretation of Articles
301 to 304 could be discussed at this stage.
Atiabari Tea Co. Ltd.:
10.1 In Atiabari Tea Co. Ltd., the constitutionality of the Assam
Taxation (on Goods Carried by Roads or Inland Waterways)
Act (Assam Act) 13 of 1954 was questioned in a petition
filed under Article 32 of the Constitution before this Court.
The question that fell for determination in this case was,
whether, the said Act infringed the provisions of Part XIII
of the Constitution, with particular reference to Article 301.
While analysing Part XIII of the Constitution, it was observed
that Article 301 was subject to other provisions of Part XIII
and not subject to other provisions of the Constitution and
the generality of the words used in Article 301 is cut down
only by the provisions of the other Articles of Part XIII ending
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with Article 307. Article 301 emphatically declares that
trade, commerce and intercourse throughout the territory of
India is free, but there is wide divergence of views on the
answer to the question "free from what". It was observed
that having regard to the divergence and nature of States
in pre-Constitution India, it was necessary for the abolition
of all those trade barriers and tariff walls so that the entire
country was knit into one political unit in the interest of national
solidarity, economic and cultural unity as also of freedom of
trade, commerce and intercourse.
10.1.1 Adverting to Article 304, it was observed that the
said Article would show that it is divided into two
parts, namely, (i) dealing with imposition of nondiscriminatory taxes by a State Legislature; and (ii)
relating to imposition of reasonable restrictions, thus
showing that imposition of taxes is a class apart from
imposition of reasonable restrictions on freedom of
trade, commerce and intercourse.
10.1.2 It was further observed that if a law is passed by the
Legislature imposing a tax which in its true nature and
effect is meant to impose an impediment to the free
flow of trade, commerce and intercourse, for example,
by imposing a high tariff wall, or by preventing imports
into or exports out of a State, such a law is outside
the significance of taxation, as such, but assumes the
character of a trade barrier which it was the intention
of the Constitution-makers to abolish by Part XIII,
but taxation on movement of goods and passengers
is not necessarily an impediment. Article 304, while
recognising the power of a State Legislature to tax
goods imported inter-State, insists that a similar tax is
imposed on goods manufactured or produced within the
State. The Article thus brings out the clear distinction
between taxation as such for the purpose of revenue
and taxation for purposes of making discrimination or
giving preference.
10.1.3 It was observed by Sinha, C.J. that the Union and
State Legislature have the power to legislate by way of
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taxation in respect of trade, commerce and intercourse,
so as not to erect trade barriers, tariff walls or imposts,
which have a deleterious effect on the free flow of
trade, commerce and intercourse.
10.1.4 Consequently, he did not concur with the majority of
the Court by observing that his reading of Part XIII
of the Constitution did not justify the inference that
taxation simpliciter is within the terms of Article 301
of the Constitution.
10.1.5 The majority judgment delivered by Gajendragadkar,
J. (as he then was) referred to the constitutional
background of Part XIII and observed that prior to
1950, the flow of trade and commerce was impeded
at several points which constituted the boundaries of
Indian States. The main object of Article 301 obviously
was to allow the free flow of the stream of trade,
commerce and intercourse throughout the territory
of India. The reason being that economic unity was
absolutely essential for the stability and progress of
the federal policy which had been adopted by the
Constitution for the governance of the country.
10.1.6 The majority then proceeded to consider whether tax
laws are wholly outside the purview of Part XIII. In
this regard, Cooley's Constitutional Limitations on the
power of taxation was referred to observe that "the
power to impose taxes is one so unlimited in force
and so searching in extent, that the courts scarcely
venture to declare that it is subject to any restriction
whatever, except such as rest in the discretion of the
authority which exercises it". (Cooley's Constitutional
Limitation Vol. 2, 8th Edn., p.986). It was observed
that the power of levying tax is essential for the
very existence of the government, its exercise must
inevitably be controlled by the constitutional provisions
made in that behalf.