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

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 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]