M/S. KHADI AND VILLAGED SOAP INDUSTRIESversusSTATE OF HARYANA & OTHERS

          M/S. KHADI AND VILLAGED SOAP INDUSTRIES                                A
                             v.
                 STATE OF HARYANA & OTHERS

                             AUGUST 17, 1994

               [J.S. VERMA AND K. RAMASWAMY, JJ.)                                B

       Hal)•a11a General Sales Tax Act, 1973-Section 13 (/}-Exemption
 from paymem of Sales Tax grallted to Khadi Ashram, Panipat and its
 ce11tralised units-Limit of exemption to other cooperative societies
 raised--Classification made between KJ1adi Ashram and other cooperative         c
 societies-f'ennissible and valid classification.

        Constitution of lndi~Article /~Sales Tax-Exemption granted to
 Kliadi Ashram, Pa11ipat a11d its units under Sectio11 13 (I) of Haryana
 Ge11eral Sales Tax Act, 1973-Classification made between Khadi Ashram,
 Pa11ipat and other cooperative societies-Held: not discriminatory and viola-    D
 tive of Anicle 14.

        Notification No. S.O. 153/H.A. 20/73/S.13/87 dated 30.12.1987 with
  grants exemptions from the payment of sales tax to the Khadl Ashram
· Panipat and its centralised units functioning within the State of Haryana      E
  in exercise of the powers conferred by sub-section (1) of Section 13 of the
  Haryana General Sales Tax Act, 1973, but limits the exemption to the other
  cooperative societies and persons to their turnover not exceeding five lakbs
  in a year was challenged as ·invalid. The question raised before the High
  Court as whether the classification made between the Khadi Ashram,
  Panipat and its units and the other co-operative societies was dis-            F
  criminatory and violative of Article 14 of the Constitution of India.

        The High Court held that there was no discrimination inasmuch as
 the total exemption granted to the Khadi Ashram and its units while
 granting a limited exemption to others is a permissible and valid clas-         G
 sification.

        In these appeals by special leave, appellants reiterated the ground
 of discrimination to challenge the limit Imposed. In reply it has been stated
 that it is for the Government to determine whether a particular industry
 falls within the category to which exemption can be granted under Section H
                                      675
    676                   SUPREME COURT REPORTS (1994) SUPP. 2 S.C.R;

A   13 of the Act. Distinguishing features to justify the classifications have
    been indicated and it has also been stated that accounts of Khadl Ashram,
    Panipat in Haryana are duly audited and their activities monitored effec-
    tively.

          Dismissing the matter, this Court
B
           HELD : The principles for determining the vali1iity of classification
    in taxing statutes are well-settled and so also the limits of judicial review
    in testing the validity thereof on the touchstone of equality under Article
    14. The test applicable for striking down a taxing provision on this ground
C   is one of palpable arbitrariness in the context. A classification is permis·
    sible in a taxing statute of dealers on the basis of different turnovers for
    levying va11ing rates of sales tax. Thus, a classificatio.n made on the basis
    of turnover apart from the other distinguishing featur"s of Khadl Ashram,
    Panipat and its units justifies putting them in a distinct class for the grant
    of total exemption from payment of sales tax particularly when there is no
D   challenge by the other Khadi units. [677-H, 678-A-C]

         Kera/a Hotel and Restaurant Association and Ors. v. State of Kera/a
    and Ors., [1990) 2 sec 502, relied on.

          CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4236 of
E   1991 etc.

         From the Judgment and Order dated 14.11.90 of the Punjab               &
    Haryana High Court in C.W.P. No. 14563 of 1'990.

          G. Vishwanatha Iyer and Prem Malhotra Advs. for the Appellants.
F
          LS. Goyal, Indu Malhotra and Uma Datta for the Respondents.

          The Judgment of the Court was delivered by

        VERMA, J. The challenge in these appeals is to a part of the
G Notification No. S.O. 153/H.A. 20173/S.13/87 dated 30.U.1987 (Annexure
    P-2) which grants exemption from the payment of sales tax to the Khadi
    Ashram, Panipat and its centralised units functioning within the State of
    Haryana in exercise of the powers conferred by sub-section (1) of Section
    13 of the Haryana General Sales Tax Act, 1973 (for short "the Act"), but
H   limits the exemption to the other cooperative societies and persons to their
                                                                   I
             KHADI SOAP INDS. ASSN. v. STATE (\:'ERMA, J.]                 677

turnover no exceeding rupees five lakhs in a year. An earlier Notification A
dated 10.8.1973 (Annexure P-1) granting exemption to this extent by An-
nexure P-2. Annexure P-2 has been brought into force w.e.f. 1.1.1988.
Thereafter, by Notification dated l4.9. 1992 brought into force w.e.f.
1.4.1992, the exemption limit of rupees five lakhs has been raised to rupees
30 lakhs. Three is no grievance for the period subsequent to 1.4.1992. The
only question, therefore, is : Whether the classification made between the
                                                                             B
Khadi Ashram,Panipat and its units and the other cooperative societies is
discriminatory and violative of Article 14 of the Constitution of India?

      The High Court has held that there is no discrimination inasmuch as
the total exemption granted to the Khadi Ashram and its units while               c
granting a limited exemption to others is a permissible and valid classifica-
tion. Hence these appeals by special leave.

        Shri G. Vishwantha Iyer, learned counsel for the appellants has
 reiterated the ground of discrimination to challenge the limit imposed in
 Annexure P-2 dated 30.12.1987 in respect of the other cooperative .D
societies. However, learned counsel also submitted that the challenge now
survives only in respect of appellant No. 2 Mis. Swastic Hand-made Papers
production Cooperative Industries Societies Limited. Shri l.S. Goyal, in
 reply submitted that it is for the Government to determine whether a
 particular industry falls within the category to which exemption can be
given under Section 13 of the Act and the object of promotion of Khadi E
envisaged by the directive principle in Article 43 of the Constitution
permits such a classification placing the Khadi Ashram, Panipat and its
units in the State of Haryana in a distinct class. He also submitted that it
is significant that no challenge to this classification has been made by any
other Khadi unit.
                                                                                  F
      In the counter-affidavit of the State of Haryana, the distinguishing
features of the Khadi Ashram, Panipat have been indicated it has also been
stated that its accounts are duly audited whereas the other Khadi units
which have not been granted the same degree of exemption do not have
their activities monitored as effectively as the Khadi Ashram, Panipat in         G
Haryana. O_ther distinguishing features to justify the classification have also
been indicated in the counter-affidavit.

      The principles for determining the validity of classification in trucing
statutes are well settled and so also the limits of judicial review in testing
the validity thereof on the touchstone of equality under Article 14. The test H
    678                   SUPREME COURT REPORTS [1994] SUPP. 2 S.C.R.

A applicable striking down a trucing provision on this ground is one of
    palpable arbitrariness in the context. It has also been held that a classifica-
    tion is permissible in a trucing statute of dealers on the basis of different
    turnovers Jor levying varying rates of sales tax. Adverting to the earlier
    decisions, this has been summarised in Kera/a Hotel and Restaurant As-
B   socitJtion and Others v. State of Kera/a and Others, [1990] 2 S.C.C. 502.
    Thus, a classification made on the basis of turnover apart from the other
    distinguishing features of Khadi Ashram, Panipat and its units justifies
    putting them in a distinct class for th1: grant of total exemption from
    payment of sales tax particularly when there is no challenge by the other
    khadi units. It is unnecessary to examine any other aspect since the above
C   reasoning alone is sufficient to justify the classification.

           The appeals are dismissed accordingly.   No. costs.
    A.G.                                                      Appeals dismissed.