Holding

Notification S.O.377 is violative of Article 304(a) of the Constitution and is quashed.

Summary

The Rajasthan government issued Notification S.O.377 on 9 March 2007, exempting VAT on asbestos cement sheets and bricks containing at least 25% fly ash, provided the dealer began commercial production in the state by 31‑December‑2006 and the exemption lasted until 23‑January‑2010 (later extended). The appellants, manufacturers of fly‑ash‑based asbestos products with no manufacturing units in Rajasthan but with sales depots in the state, challenged the notification as discriminatory against goods imported from other states under Article 304(a) of the Constitution. The High Court dismissed the writ petitions, relying on the precedent set in Video Electronics, and held that the exemption did not violate Article 301/304. The Supreme Court examined the constitutional provisions, the criteria for non‑hostile discrimination, and a host of precedents, concluding that the notification lacked a rational justification, was not limited to new industries or a specific period, and therefore created a hostile discrimination against out‑of‑state goods. Consequently, the Court held the notification violative of Article 304(a) and quashed it, allowing the appeals. The Court also directed that any deposits made by the appellants be refunded with interest and posted the appeals for further directions.

Issues considered

Whether Notification S.O.377 dated 09‑03‑2007 granting VAT exemption to asbestos products manufactured in Rajasthan violates Article 304(a) of the Constitution by discriminating against goods imported from other states.
Whether the Rajasthan High Court was correct in holding that the notification does not infringe Article 301(a) and is covered by the exception in Video Electronics.

Legislation cited

Constitution of Indias. 301, s. 302, s. 303, s. 304
Rajasthan Sales Tax Act, 1994s. 15
Rajasthan Value Added Tax Act, 2003s. 8(3)

Headnote

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 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;

Subjects

Value Added Tax exemptionSale of asbestos cement sheetsViolation of Art. 304(a)Notification No. S.O.377Government of RajasthanFly ash 25% contentCommercial production requirementDiscriminatory taxNon‑hostile discriminationDifferentiationExceptional categoryTax barriersFiscal barriersFree trade, commerce and intercourse

Judgment

[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
1420 [2025] 9 S.C.R.

Supreme Court Reports

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. 1421

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
1422 [2025] 9 S.C.R.

Supreme Court Reports

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. 1423

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.
1424 [2025] 9 S.C.R.

Supreme Court Reports

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. 1425

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 sub-
section (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
1426 [2025] 9 S.C.R.

Supreme Court Reports

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. 1427

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 above-
mentioned 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
1428 [2025] 9 S.C.R.

Supreme Court Reports

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. 1429

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
1430 [2025] 9 S.C.R.

Supreme Court Reports

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. 1431

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
1432 [2025] 9 S.C.R.

Supreme Court Reports

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.
[2025] 9 S.C.R. 1433

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
1434 [2025] 9 S.C.R.

Supreme Court Reports

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.
[2025] 9 S.C.R. 1435

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
1436 [2025] 9 S.C.R.

Supreme Court Reports

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 non-
discriminatory 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
[2025] 9 S.C.R. 1437

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

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. It cannot be said that the power
of taxation per se is outside the purview of any
constitutional limitations.
1438 [2025] 9 S.C.R.

Supreme Court Reports

10.1.7 Referring to Ramjilal vs. Income Tax Officer, AIR
1951 SC 97, it was observed that protection against
the imposition and collection of taxes, save by the
authority of law, directly comes under Article 265
and cannot be said to be covered by clause (1) of
Article 301. Therefore, levy of a tax per se cannot
be a violation of Article 14 of the Constitution. It was
also held that the power to levy tax would ultimately
be based on Article 245 which deals with the extent
of laws made by Parliament and by the Legislatures
of States, as it begins with the words “Subject to
the provisions of the Constitution”. Therefore, the
power of Parliament and the Legislatures of the
States to make laws including laws imposing taxes
is subject to the provisions of the Constitution and
therefore, the application of Part XIII also. However,
Article 301 which is in Part XIII is not subject to
the other provisions of the Constitution but is made
subject only to other provisions of only Part XIII.
Therefore, once the width and amplitude of the
freedom enshrined in Article 301 are determined,
they cannot be controlled by any provision outside
Part XIII. The freedom guaranteed under Article
301 is made subject to the exceptions provided
by the other Articles in Part XIII and is not limited
by any other provisions of the Constitution outside
Part XIII. It was also observed that the legislative
competence of the Legislature in question would
have to be judged in light of the relevant Articles
of Part XIII. Hence, it was observed that the
argument that tax laws are outside Part XIII, cannot
be accepted.
10.1.8 It was noted that the freedom of trade guaranteed
by Article 301 is freedom from all restrictions except
those which are provided by the other Articles in
Part XIII. While examining the other Articles of Part
XIII, it was stated that the effect of Article 304(a)
is to treat imported goods on the same basis as
goods manufactured or produced in any State; and it
[2025] 9 S.C.R. 1439

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

authorises tax to be levied on such imported goods
in the same manner and to the same extent as may
be levied on goods manufactured or produced inside
the State. In other words, taxation can be levied
by the State Legislature on goods manufactured
or produced within its territory and it provides that
outside goods cannot be treated any worse. The
non-obstante clause referring to Article 301 would
go with Article 304(a) and that tax on goods would
not have been permissible but for Article 304(a)
with the non-obstante clause. In other words, Article
304(a) is another exception to Article 301.
10.1.9 Analysing Article 304(a), it was observed that a tax
could be levied by a State Legislature on goods
manufactured or produced or imported in the State
and thereby reasonable restrictions can be placed
on the freedom of trade either with another State
or between different areas of the same State. Tax
legislation, thus authorised, must therefore be
deemed to be included in Article 301, for that is the
obvious inference from the use of the non-obstante
clause.
10.1.10 It was concluded that while determining the limits of
the width and amplitude of the freedom guaranteed
by Article 301, a rational and workable test should
apply and that only such restrictions as directly
and immediately restrict or impede the free flow
or movement of trade, are barred. Therefore, it
cannot be held that all taxes should be governed
by Article 301, whether or not their impact on trade
is immediate or mediate, direct or remote. Thus, an
extreme approach cannot be upheld. Therefore,
Article 301 envisages that the flow of trade shall run
smooth and unhampered by any restriction either at
the boundaries of the States or at any other points
inside the States themselves.
10.1.11 Consequently, it was held that the Assam Act had
imposed a direct restriction on the freedom of trade
1440 [2025] 9 S.C.R.

Supreme Court Reports

and since it had not complied with the provision of
Article 304(b), it was declared to be void.
10.1.12 In the said case, Shah, J. in his opinion observed
that the power of taxation is essentially an attribute
of the sovereignty of the State and is not exercised
in consideration of the protection it affords or the
benefit that it confers upon citizens and aliens. Its
content is not measured by the apparent need of
the amounts sought to be collected and its incidence
does not depend upon the ability of the citizens to
meet the demand. But it is still not an unrestricted
power. By Article 265 of the Constitution, the power
to tax can be exercised by authority of law alone.
The power of taxation has therefore to be exercised
by the Legislature strictly within the limits prescribed
by the Constitution and any alleged transgression
either by Parliament or the State Legislature of the
limits imposed by the Constitution is justiciable.
10.1.13 Discussing on the guarantee of freedom of trade
and commerce, it was observed by Shah, J. that
the guarantee is not addressed merely against
prohibitions, complete or partial; it is addressed
to tariffs, licensing, marketing regulations, price-
control, nationalisation, economic or social planning,
discriminatory tariffs, compulsory appropriation of
goods, freezing or stand still orders and similar other
impediments operating directly and immediately on
the freedom of commercial intercourse as well. It
was clarified that what is guaranteed is freedom in
its widest amplitude — freedom from prohibition,
control, burden or impediment in commercial
intercourse. Not merely discriminative tariffs
restricting movement of goods are included in the
restrictions which are hit by Article 301, but all
taxation on commercial intercourse even imposed
as a measure for collection of revenue is so hit.
10.1.14 It was also stated that between discriminatory tariffs
and trade barriers on the one hand and taxation
[2025] 9 S.C.R. 1441

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

for raising revenue on commercial intercourse, the
difference is one of purpose and not of quality. Both
these forms of burden on commercial intercourse
trench upon the freedom guaranteed by Article 301.
10.1.15 While interpreting Article 304(a), it was observed
that the State Legislature has the power to impose
tax on the imports of goods to which similar goods
manufactured or produced in the State are subject,
provided that by taxing the goods imported from
another State or Union Territory, no discrimination
is practised. Consequently, Shah, J. held that the
Assam Act was infringing the guarantee of freedom
of trade and commerce under Article 301.
10.1.16 However, in view of the majority opinion, the writ
petitions were allowed.

Automobile Transport Ltd.:
10.2 A seven-Judge Bench of this Court in Automobile (Rajasthan)
Transport Ltd. vs. State of Rajasthan, AIR 1962 SC 1406
(“Automobile Transport Ltd.”) heard the appeals having
regard to the importance of the constitutional issues involved
and the views expressed in Atiabari Tea Co. Ltd. while
considering the validity of Rajasthan Motor Vehicles Taxation
Act, 1951. The contours of the freedom envisaged under
Article 301 was considered inasmuch as the question, whether,
regulatory measures or compensatory taxes were restrictions
on the freedom of trade came up for consideration and more
particularly, the State law imposing tax on motor vehicles
carrying passengers and goods within or throughout the State.
The majority view was expressed through S.K. Das, J. (as he
then was) who observed that the taxes imposed under the
Rajasthan Motor Vehicles Taxation Act, 1951 are compensatory
taxes which did not hinder the freedom of trade, commerce
and intercourse assured by Article 301 and hence, the Act did
not violate the provisions of that Article. This was because
regulatory measures imposing taxation for use of trading
facilities do not come within the purview of the restrictions
contemplated under Article 301 and such measures need not
1442 [2025] 9 S.C.R.

Supreme Court Reports

comply with the requirements of the proviso to Article 304(b)
of the Constitution.
10.2.1 While analysing the issues raised in the said case,
it was observed that those which facilitate trade and
commerce are not a restriction, and those which in
reality hampers or burdens trade and commerce are a
restriction. That, it is the substance of the matter that
has to be considered and it is not possible a priori to
draw a dividing line between that which would really be
a charge for a facility provided and that which would
really be a deterrent to a trade; but the distinction is
real and clear. For the tax to become a prohibited
tax, it has to be a direct tax, the effect of which is to
hinder the movement part of trade. So long as a tax
remains compensatory or regulatory, it cannot operate
as a hindrance. A working test for deciding whether a
tax is compensatory or not is to enquire whether the
trades people are having the use of certain facilities
for the better conduct of their business and paying
not patently much more than what is required for
providing the facilities. It would be impossible to judge
the compensatory nature of a tax by a meticulous test,
and in the nature of things that cannot be done. If a
statute fixes a charge for a convenience or service
provided by the State or an agency of the State and
imposes it upon those who choose to avail themselves
of the service or convenience, the freedom of trade
and commerce may well be considered unimpaired.
In such a case, the imposition assumes the character
of remuneration or consideration charged in respect
of an advantage sought and received.
10.2.2 The minority, speaking through Hidayatullah, J. (as he
then was) observed that a law which prohibits trade,
commerce and intercourse and releases them on the
fulfilment of some unreasonable condition including
the payment of an unreasonable or discriminatory
tax will just as much be a restriction offending the
freedom as a tariff wall or any other barrier. No
question of pith and substance in this context arises.
[2025] 9 S.C.R. 1443

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

Therefore, taxation laws directly impinging on trade
and commerce cannot be upheld on the ground that
they are regulatory. A tax which is made the condition
precedent of the right to enter upon and carry on
business is a restriction on the right to carry on trade
and commerce and the restriction is released on the
payment of the tax, which is the price of such release.
A regulation of trade and commerce, on the other hand,
may achieve some public purpose which affects trade
and commerce incidentally but without impairing the
freedom. It was observed that the tax is evidently not
a fee for administrative purposes. Therefore, it cannot
be justified as representing payment of services. Its
object is the raising of revenue. Therefore, such a tax
is neither a compensatory tax nor a regulatory Act. It
was further held that the said tax offended Article 301
of the Constitution and since resort to the procedure
prescribed by Article 304(b) was not taken, it was ultra
vires the Constitution.

Firm Mehtab Majid:
10.3 The validity of Rule 16 of the Madras General Sales Tax
(Turnover and Assessment) Rules, 1939, (hereinafter, called
“the Madras Rules”) was impugned in Firm Mehtab Majid. The
Constitution Bench of this Court, speaking through Raghubar
Dayal, J. noted the contention of the petitioner therein to the
effect that under the impugned rule, tanned hides or skins
imported from outside the State and sold within the State were
subject to a higher rate of tax than the tax imposed on hides
or skins tanned and sold within the State, inasmuch as sales
tax on the imported hides or skins tanned outside the State
is on their sale price while the tax on hides or skins tanned
within the State, though ostensibly on their sale price, was,
in view of the proviso to clause (ii) of sub-rule (2) of rule 16,
really on the sale price of these hides or skins when they were
purchased in the raw condition and which was substantially
less than the sale price of tanned hides or skins. Further, for
similar reasons, hides or skins imported from outside the State
after purchase in their raw condition and then tanned inside
1444 [2025] 9 S.C.R.

Supreme Court Reports

the State were also subject to higher taxation than hides or
skins purchased in the raw condition in the State and tanned
within the State, as the tax on the former was on the sale
price of the tanned hides or skins and, on the latter, was on
the sale price of the raw hides or skins. Such a discriminatory
taxation was said to offend Article 304(a) of the Constitution.
10.3.1 Taking note of the earlier decision in Atiabari Tea Co.
Ltd., it was observed that in the majority judgment
in Automobile Transport Ltd., the interpretation of
the majority in Atiabari Tea Co. Ltd. was held to be
correct but subject to a clarification. That, regulatory
measures or measures imposing compensatory taxes
for the use of trading facilities do not come within the
purview of restrictions contemplated by Article 301.
That, such regulatory measures which do not impede
the freedom of trade, commerce and intercourse and
compensatory taxes for the use of trading facilities are
not hit by the freedom declared by Article 301. They
are excluded from the purview of the provisions of Part
XIII of the Constitution for the simple reason that they
do not hamper trade, commerce and intercourse but
rather facilitate them. Subba Rao, J, had also concurred
with this view in Automobile Transport Ltd.
10.3.2 It was observed that taxing laws can be restrictions on
trade, commerce and intercourse, if they hamper the
flow of trade and if they are not what can be termed
to be compensatory taxes or regulatory measures.
On the other hand, sales tax, which has the effect of
discriminating between goods of one State and goods
of another, may affect the free flow of trade which
offends against Article 301 and will be valid only if it
comes within the terms of Article 304(a). That Article
304(a) enables the Legislature of a State to make
laws affecting trade, commerce and intercourse by
imposition of taxes on goods from other States if
similar goods in the State are also subjected to similar
taxes, so as not to discriminate between the goods
manufactured or produced in that State and the goods
which are imported from other States.
[2025] 9 S.C.R. 1445

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

10.3.3 Applying the said principles to the said case, it was
held that the effect of the sales tax on tanned hides
or skins imported from outside was that the latter
becomes subject to a higher tax by the application
of the proviso to sub-rule (2) of rule 16 of the Rules,
and was discriminatory and unconstitutional and was
hence, struck down.
10.3.4 On the aspect of whether the rule discriminated
between hides or skins imported from outside the State
and those manufactured or produced in the State,
this Court examined the grievance ventilated on the
amount of tax levied being different on account of the
existence of a substantial disparity in the price of the
raw hides or skins and of those hides or skins after
they had been tanned, though the rate was the same.
It was explained that if the dealer has purchased the
raw hide or skin in the State, he would have had to pay
on the purchase price only. But if the dealer purchased
raw hides or skins from outside the State and tanned
them within the State, he would be liable to pay sales
tax on the sale price of the tanned hides or skins. He
too would have had to pay more tax even though the
hides and skins were tanned within the State, merely
on account of his having imported the hides and skins
from outside and having not therefore paid any tax
under sub-rule (1). Thus, there was discriminatory
nature of tax imposed. As a result, Rule 16(2) was
held to discriminate against the imported hides or
skins which had been purchased or tanned outside
the State and therefore it contravened the provisions
of Article 304(a) of the Constitution. Hence, the petition
was allowed and the State was directed to refund of
tax illegally collected from the petitioner.

Kalyani Stores:
10.4 In Kalyani Stores vs. State of Orissa, AIR 1966 SC 1686,
(“Kalyani Stores”) the notifications issued under Section
27 of the Bihar and Orissa Excise Act, 1915, imposing
countervailing duty on foreign liquor imported into the State
1446 [2025] 9 S.C.R.

Supreme Court Reports

and later enhancing the duty by another notification, were
assailed. The contention of the appellant therein was that
the State could levy under Section 27 of the said Act duty
on excisable articles produced or manufactured in the State
and a countervailing duty on excisable articles imported into
the State, imposed with a view to equalize the burden on the
imported articles with the burden on manufactured articles in
the State, but no countervailing duty on liquor imported could
be levied if there was in the year of licence no liquor similar to
the imported liquor manufactured within the State and as there
was no distillery in the State manufacturing “foreign liquor”,
the levy of countervailing duty was without authority of law.
10.4.1 It was observed that exercise of power under Article
304(a) can only be effective if the tax or duty imposed
on goods imported from other States and the tax or duty
imposed on similar goods manufactured or produced
in that State are such that there is no discrimination
against imported goods. As no foreign liquor was
produced or manufactured in the State of Orissa, the
power to legislate provided under Article 304 was not
available and the restriction which is declared on the
freedom of trade, commerce or intercourse by Article
301 of the Constitution remained unfettered. Hence, the
appeal was partially allowed by this Court by declaring
that the notification enhancing duty on foreign liquor
was invalid as offending Article 304 of the Constitution
and therefore unenforceable. However, the right of the
State to enforce the liability against the appellants to
pay duty at the rate prescribed in the earlier notification
which held the field, remained however unaffected.
10.4.2 Hidayatullah, J. (as he then was) however observed
that Article 304(a) was not applicable to the case. That,
in the matter of excise duties, the State Legislature has
competence even apart from Article 304(a) because
the power to impose duties of excise on alcoholic
liquors for human consumption produced in the State
and countervailing duties on similar liquors produced
outside the State in India was already conferred by
the legislative list. Therefore, it was held that the
[2025] 9 S.C.R. 1447

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

notification issued in the year 1961 under Section 27
was valid and the new notification did not run against
any constitutional provision. Therefore, he dismissed
the appeal. However, the majority partially allowed
the appeal.

Weston Electronics:
10.5 The case in Weston Electronics vs. State of Gujarat, (1988)
2 SCC 568 (“Weston Electronics”) concerned manufacturers
of electronic goods, including television sets, television cameras
and television monitors at factories located at Delhi and the
goods sold through sales organisations spread all over India,
including the State of Gujarat. The petitioners therein filed a
writ petition before this Court questioning the Notification dated
29.03.1986 under which the rate of sales tax in respect of
television sets imported from outside the State was reduced
from 15 per cent to 10 per cent, and for goods manufactured
within the State the sales tax was reduced to 1 per cent. It
was contended that there was an invidious discrimination
which adversely affected the free flow of inter-State trade
and commerce, resulting in a contravention of Article 301 of
the Constitution. It was contended that the sale of electronic
goods manufactured by the petitioner has been prejudicially
affected within the State of Gujarat. Based on the rulings of
this Court in Firm Mehtab Majid as well as in H. Anraj vs.
Government of Tamil Nadu, (1986) 1 SCC 414 (“H. Anraj”) -
wherein this Court struck down the levy of tax imposed by the
State of Tamil Nadu on lottery tickets issued by other States
and sold within the State of Tamil Nadu while exempting from
such levy lottery tickets issued by the Government of Tamil
Nadu - the writ petition was allowed and Notifications dated
23.07.1981 and 29.03.1986 prescribing a lower rate of tax
for local manufacturers in respect of television sets and other
electronic goods were quashed.

Video Electronics:
10.6 A three-Judge Bench of this Court decided a batch of writ
petitions filed under Article 32 of the Constitution of India in
Video Electronics. The focus of the said case was on the
1448 [2025] 9 S.C.R.

Supreme Court Reports

question of harmonising the power of different States in the
Union of India to legislate and/or give appropriate directions
within the parameters of the subjects in List II of the Seventh
Schedule of the Constitution with the principle of economic unity
envisaged in Part XIII of the Constitution of India. The provision
of exemption/ encouragement/incentives given by different
States to boost or help economic growth and development in
those States and in so doing the attempt of the States to give
preferential treatment to the goods manufactured or produced
in those States was also considered.
10.6.1 In one of the writ petitions, the challenge was to the
constitutional validity of Notification dated 26.12.1985
issued by the State of Uttar Pradesh under the Uttar
Pradesh Sales Tax Act, 1948 as well as subsequent
notifications thereunder. The petitioners therein stated
that they carried on business of selling cinematographic
films and other equipment in the State of Uttar
Pradesh and in Delhi. They were dealers on behalf
of the manufacturers from outside the said State. In
Uttar Pradesh, there was a single point levy of sales
tax. Their contention was that the Notification dated
26.12.1985 discriminated between the manufacturers
covered by the said Notification who were entitled to
sell the articles manufactured by them without liability
to pay sales tax and the manufacturers in other States
and non-manufacturers of the same article selling the
same goods in the State who were liable to pay sales
tax under the local Sales Tax Act. They contended
that they were subjected to gross discrimination and
their business was crippled on account of the said
fact and therefore, they challenged the vires of the
said notification under Articles 14 and 19(1)(g) of the
Constitution. However, this Court opined that the main
question was, whether, the said notifications were valid
in light of Part XIII of the Constitution.
10.6.2 This Court speaking through Sabyasachi Mukharji, J.
(as he then was) made a detailed discussion of the
judgment rendered in Atiabari Tea Co. Ltd. and also
the decision of this Court in Automobile Transport
[2025] 9 S.C.R. 1449

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

Ltd. This was also in the context of whether regulatory
measures or measures imposing compensatory taxes
for using trading facilities did not come within the
purview of restrictions contemplated under Article 301.
10.6.3 Reference was made to the case of A. Hajee Abdul
Shakoor & Co. vs. State of Madras, AIR 1964 SC
1729 and to the observations of this Court in State
of Madras vs. N.K. Nataraja, AIR 1969 SC 147 as
well as in Andhra Sugars Ltd. vs. State of Andhra
Pradesh, AIR 1968 SC 599, wherein it was reiterated
that a sales tax which discriminates against goods
imported from other States may impede the free flow of
trade and is invalid unless protected by Article 304(a)
of the Constitution.
10.6.4 It was observed that Part XIII of the Constitution cannot
be read in isolation. That it is part and parcel of a single
constitutional instrument envisaging a federal scheme
and containing a general scheme conferring legislative
powers in respect of the matters relating to List II of the
Seventh Schedule on the States. That the economic
development of States to bring in the constitutional
philosophy of equality between the States and thereby
developing the economic unity of India is one of the
goals or commitments of the constitutional aspirations.
The economic equality of all the States is as much
vital as economic unity. Thus, it held that the taxes
which do not directly or immediately restrict or interfere
with trade, commerce and intercourse throughout the
territory of India, would therefore be excluded from
the ambit of Article 301 of the Constitution. That sales
tax has only an indirect effect on trade and commerce
and does not directly impede the free movement of
transport. On the aspect of the imposition of a rate
of tax on goods, it was observed that the free flow
of trade between two States does not necessarily or
generally depend upon the rate of tax alone. Many
factors including the cost of goods play an important
role in the movement of goods from one State to
another. Hence, the mere fact that there is a difference
1450 [2025] 9 S.C.R.

Supreme Court Reports

in the rate of tax on goods locally manufactured and
those imported would not amount to hampering of trade
between the two States within the meaning of Article
301 of the Constitution. That, since Article 304(a) and
(b) is an exception to Article 301, resort to an exception
will arise only if the tax impugned is hit by Articles 301
and 303 of the Constitution. If it is not, then Article 304
will not come into picture at all. Further, the imposition
of a rate of sales tax is influenced by various political,
economic and social factors. Prevalence of differential
rate of tax on sales of the same commodity cannot be
regarded in isolation as determinative of the object to
discriminate between one State and another. This Court
also recalled the observations in V. Guruviah Naidu
& Sons vs. State of Tamil Nadu, AIR 1977 SC 548,
wherein it was observed that Article 304(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. That
any discrimination in that regard would constitute a
tariff wall or fiscal barrier and would thus impede the
free flow of inter-State trade and commerce.
10.6.5 This Court further noted that 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 object is to prevent discrimination
against the imported goods by imposing tax on
such goods at a rate higher than that borne by local
goods. It was observed that every differentiation is
not discrimination. This was because the expression
‘discrimination’ in Article 304(a) involves an element
of intentional and purposeful differentiation thereby
creating economic barrier and involves an element of
an unfavourable bias. That discrimination implies an
unfair classification. When the general rate applicable
to the goods locally made and on those imported from
other States is the same, nothing more is to be shown
[2025] 9 S.C.R. 1451

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

by the State to dispel the argument of discrimination
under Article 304(a), even though the resultant tax
amount on imported goods may be different.
10.6.6 Further, the question, whether, the power to grant
exemption to specified class of manufacturers for a
limited period on certain conditions would be violative
of Article 304(a) was considered. The contention was
that the State should grant exemption to all goods
irrespective of the fact that the goods are locally
manufactured or imported from other States, else
it would be violative of Article 304(a). The aforesaid
argument was contested by the respondent therein by
stating that if the exemptions are based on natural and
business factors which do not involve any intentional
bias, the impugned notifications to grant exemption for
limited period on certain specific conditions cannot be
held to be bad in law. Accepting the said argument,
it was held that the impugned notification was not
violative of the constitutional provisions since Article
301 did not apply to the case. Then, Article 304(a),
which is an exception to Article 301, would also not
apply. In paragraph 27, it was noted that in the said
case, the general rate applicable to locally made goods
was the same as on the imported goods. Hence, it did
not fall within the exception of Article 304 as it was not
hit by Article 301. In paragraph 28 of the judgment, this
Court observed that the concept of economic barrier
must be adopted in a dynamic sense with changing
conditions. That in a federal polity, all the States have
powers to grant exemption to specified class for limited
period; such granting of exemption cannot be held to
be contrary to the concept of economic unity. It was
reasoned that the contents of economic unity by the
people of India would necessarily include the power
to grant exemption or to reduce the rate of tax in
special cases for achieving industrial development or
to provide tax incentives to attain economic equality
in growth and development. When all the States
have such provisions to exempt or reduce rates, the
1452 [2025] 9 S.C.R.

Supreme Court Reports

question of economic war between the States inter se
or economic disintegration of the country as such did
not arise. Therefore, the challenge to the exemption
was upheld.
10.6.7 In the very same case, writ petitions concerning the
notification issued by the Punjab Government whereby
two different rates of taxes were provided, were also
considered. There was a differentiation in the rate of
tax between the manufacturers of electronic goods
outside the State and those within the State of Punjab.
It was reasoned that the lower rate of tax on those
electronic goods manufactured in the State of Punjab
was due to the prevailing peculiar circumstances of
Punjab. It was to attract new entrepreneurs from other
States and within the State to manufacture within the
State of Punjab. Therefore, incentive was provided for
growth of industry in Punjab which had already shifted
to other States.
10.6.8 In view of the above, the concessional rate of tax
introduced was held to be non-discriminatory. Taking
note of the situation in the State of Punjab, it was
observed that a backward State or a disturbed State
cannot with parity engage in competition with advanced
or developed States. Even within a State, there are
often backward areas which can be developed only if
some special incentives are granted. If the incentives
in the form of subsidies or grant are given to any part
of a State so that it may come out of its limping or
infancy to compete as equals with others, that cannot
contravene the spirit and the letter of Part XIII of the
Constitution. However, there must be valid, justifiable
and rational reasons for differentiation. If there is none,
it will amount to hostile discrimination. Consequently,
the notification issued by the Punjab Government under
the Punjab General Sales Tax Act was also upheld.

Shree Mahavir Oil Mills:
10.7 In Shree Mahavir Oil Mills, the facts were that the cost of
production of edible oil in Jammu and Kashmir was higher
[2025] 9 S.C.R. 1453

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

than in the adjoining States and as a result, the manufacturers
of edible oil in the adjoining States were able to sell their
products in Jammu and Kashmir at a price lower than the
price at which the local manufacturers were able to sell them.
Facing the prospect of closure, the manufacturers of the edible
oil in the State sought exemption from the levy of sales tax
on the sale of their products. With a view to protect the local
edible oil industry, the Government of Jammu and Kashmir
issued SRO 93 of 1991 on 07.03.1991 under Section 5 of the
Jammu and Kashmir General Sales Tax Act, 1962 directing
that “the goods manufactured by a dealer operating as a
small-scale industrial unit in the State and registered with
the Director of Industries and Commerce, Handicrafts or
Handloom Development, subject to certain conditions, shall
be exempted from payment of tax to the extent and for the
period specified in the Schedule forming Annexure A”. The
exemption was total and the period of exemption was five
years and later extended by another five years. This led to
the manufacturers of edible oil in other States being obliged
to pay sales tax on the sales effected by them in the State of
Jammu and Kashmir at the rate of four per cent, while the local
manufacturers were totally exempted therefrom. The rate of
tax was thereafter raised from four per cent to eight per cent
to be paid only by the outside manufacturers, while the local
manufacturers were exempt fully. The outside manufacturers
approached the Jammu and Kashmir High Court by way of writ
petitions which were dismissed by both learned Single Judge
as well as by the Division Bench of the High Court, based
mainly on the decision of this Court in Video Electronics.
10.7.1 B.P. Jeevan Reddy, J. observed that under Article
304(a), a State Legislature may tax goods imported
from other States/Union Territories but in the process
ought not to discriminate against them vis-à-vis goods
manufactured locally. Therefore, there could not be tax
barriers or fiscal barriers, in the interest of freedom
of trade, commerce and intercourse throughout the
territory of India, guaranteed by Article 301. In other
words, for the purpose of encouraging or promoting the
local industries, the weapon of taxation cannot be used
1454 [2025] 9 S.C.R.

Supreme Court Reports

to discriminate against the imported goods vis-à-vis
the locally manufactured goods. That, Part XIII of the
Constitution would indicate that no State would tax its
people at a higher level merely with a view to tax the
people of other States at that level. But conversely,
there cannot be “tariff walls” or fiscal barriers in so far
as goods manufactured outside a State and imported
into the State is concerned.
10.7.2 It was further observed that the freedom guaranteed in
Article 301 was “throughout the territory of India” and
not merely between the States as such; the emphasis
is upon the oneness of the territory of India. That,
Article 301 was a general provision and Article 304(a)
was not really an exception to Article 301, despite the
use of the non-obstante clause but a restatement of a
facet of the very freedom guaranteed by Article 301,
namely, power of taxation by the States.
10.7.3 After referring to several decisions of this Court, in the
context of the judgment Video Electronics on which
strong reliance was placed by the State of Jammu and
Kashmir, it was noted that in the said case there were
two notifications impugned and as already noted above,
the said notifications were upheld. Relying on the said
judgment of the three-judge Bench, it was contended
on behalf of the State of Jammu & Kashmir that a
State which is technically and economically weak on
account of various factors should be allowed to develop
economically by granting concessions, exemptions
and subsidies to new industries. That, all parts of
the country are not equally developed, industrially or
economically. Further, the power to grant exemption
is inherent in all taxing statutes and the Government
cannot be deprived of this power by invoking Articles
301 and 304. This is because a backward State or a
disturbed State cannot be on par with advanced or
developed States. Even within a State, there are often
backward areas which could be developed only if some
[2025] 9 S.C.R. 1455

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

special incentives are granted. If there are justifiable
and rational reasons for differentiation, then there will
be no hostile discrimination.
10.7.4 Distinguishing the judgment in Video Electronics, it
was observed that the limited exception created in the
said case does not help the State of Jammu & Kashmir
for the reason that exemption concerned herein is
neither confined to “new industries”, nor is circumscribed
by other conditions of the nature stipulated in the Uttar
Pradesh notification. That it is not possible to go on
extending the limited exception created in the said
judgment, by stages, which would have the effect of
robbing the salutary principle underlying Part XIII of
its substance. Consequently, it was held that the total
exemption granted in favour of small-scale industries
in Jammu and Kashmir producing edible oil was not
sustainable in law. It was also observed that Article
304(a) of the Constitution shall not be so exercised as
to bring about a discrimination between the imported
goods and the similar goods manufactured or produced
in a State. That the clause deals only with discrimination
by means of taxation; it prohibits it. The prohibition
cannot be extended beyond the power of taxation.
This means that the States are free to encourage and
promote the establishment and growth of industries
within their States by all such means as they think
proper but they cannot, in that process, subject the
goods imported from other States to a discriminatory
rate of taxation, i.e., a higher rate of sales tax vis-à-vis
similar goods manufactured/produced within that State
and sold within that State. The prohibition is against
discriminatory taxation by the States and it matters not
how this discrimination is brought about. The limited
exception carved out in Video Electronics cannot
be enlarged, lest it would eat up the main provision.
Placing reliance on Firm Mehtab Majid and the other
cases, it was held that the exemption from payment of
sales tax altogether was discriminatory and prohibited
under Article 304(a) of the Constitution.
1456 [2025] 9 S.C.R.

Supreme Court Reports

10.7.5 Another contention which was urged by the State of
Jammu and Kashmir was to the effect that when the
rate of tax was four percent there was no challenge
to the sale but when the rate of tax climbed to eight
per cent there was a challenge and hence a principle
of acquiescence applied. This contention was
repelled by stating that there can be no question of
any acquiescence in matters affecting constitutional
rights or limitations. Further, the contention regarding
applicability of Article 14 and there being an intangible
difference between locally produced edible oil and
imported edible oil was also retorted. This Court
observed that Article 14 speaks of equality; whereas
Article 301 speaks of freedom and Article 304(a)
speaks of uniform taxation of both the imported
goods and the locally produced goods by the States.
However, the consequential direction was that the
declaration of invalidity of the impugned notification was
to take effect from 01.04.1997 and till that date, the
impugned notification was to continue to be effective
and operative. Therefore, the appellants therein were
not entitled to claim any amount by way of refund or
otherwise.

Loharn Steel Industries Ltd.:
10.8 In Loharn Steel Industries Ltd., the facts were that the
appellant therein was a registered dealer of iron and steel in
the State of Andhra Pradesh and purchased iron and steel
scraps and ingots in the said State and sent to a rerolling mill
in the State of Karnataka. The raw material was rerolled and
brought back to the State of Andhra Pradesh and sold therein.
The impugned exemption notification impugned therein, as it
originally stood exempted all rerolled finished products sold in
the State of Andhra Pradesh from tax provided tax had been
paid in the said State on the raw material. This exemption
was available to rerolled products which were manufactured
even within the said State. There was no challenge to that
portion of the notification. However, the exemption notification
discriminated against goods manufactured outside the State
[2025] 9 S.C.R. 1457

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

of Andhra Pradesh by denying exemption to such goods
(manufactured outside the State). This portion was added
by an amendment to the notification. This amendment was
struck down by applying the doctrine of severability on the
premise that it violated Article 304(a) of the Constitution as
it was discriminatory.

Laxmi Paper Mart:
10.9 Exercise books prepared from paper purchased within the
State was exempted from sales tax whereas exercise books
prepared outside the State and brought and sold within the
State was subjected to sales tax. This was held to be in
violation of Article 304(a) of the Constitution in Laxmi Paper
Mart. Referring to Firm Mehtab Majid and Shree Mahavir
Oil Mills, it was observed that the exemption from payment
of tax on locally manufactured goods vis-à-vis imported goods
from other States was discriminatory as it created a fiscal
barrier on the free flow of trade and commerce and hence,
the exemption was struck down as offending Article 301 of
the Constitution.

Digvijay Cements:
10.10 In Digvijay Cements, the challenge was to notification dated
12.03.1997 issued by the State of Rajasthan under Section
8(5) of the Central Sales Tax Act whereby it reduced the rate
of sales tax on inter-state sale of cement by any dealer from
that State to 4%. The grievance of the petitioner therein was
that as a consequence of such reduction of sales tax, cement
from Rajasthan became much cheaper in the neighbouring
States like Gujarat and that adversely affected the local
sale of cement manufactured by the petitioners therein in
Gujarat by reason of higher rate of sales tax on the local
sales within that State. Such reduction of the rate of tax, it
was contended, was contrary to the scheme contained in
Part XIII of the Constitution and was liable to be struck down.
The Constitution Bench of this Court did not agree with the
contention that the impugned notification had the effect of
preventing or hindering the free movement of goods from
one State to another. As far as the State of Rajasthan was
1458 [2025] 9 S.C.R.

Supreme Court Reports

concerned, it had the opposite effect. Merely because local
rate of tax in the neighbouring States on the sale of cement
was higher than the inter-state sales tax on the cement sold
from the State of Rajasthan cannot lead to the conclusion
that the impugned notification prevented or hindered the free
movement of goods from one State to another.
10.10.1 According to this Court, the impugned notification
increased the movement of cement from the State of
Rajasthan to the other States. There was no barrier
as such but there was an increase in the volume of
inter-state trade. Referring to Shri Digvijay Cement
Co. vs. State of Rajasthan, AIR 1997 SC 2609,
it was observed that increase in revenue and its
utilisation for the public of the State can generally
be regarded to be in public interest but that by
itself could not be regarded as sufficient, if it had
the effect of going against the policy of the statute
and the object of the constitutional provisions. That
Section 8(5) of the Central Sales Tax Act, 1956
clearly enables the State Governments to reduce
the rate of inter-state sales tax if it is satisfied that
it is necessary to do so in public interest. It was
observed that if the reduction of the rate of tax results
in increase of revenue and of industrial activities,
providing employment in the industry, it cannot be
said that the notification was not issued in the public
interest. On the other hand, if the lowering of tax
adversely affects the movement of goods from one
State to another then, the free flow of trade would
be adversely affected which would be violative of
Article 301 of the Constitution. Consequently, on
the facts of the said case, Shri Digvijay Cement
Co. vs. State of Rajasthan, AIR 1997 SC 2609
was overruled.

Jaiprakash Associates:
10.11 A Notification dated 18.06.1997 issued under Section 5 of the
Uttar Pradesh Trade Tax Act, 1948 (“UP Act”) was the centre
of controversy in Jaiprakash Associates. The substantial
[2025] 9 S.C.R. 1459

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

question of law that was considered was, whether, grant of
rebate of tax by the Uttar Pradesh State Government by
issuance of a notification under Section 5 of the UP Act,
discriminated between the goods imported from neighbouring
States and goods manufactured and produced in the State
of Uttar Pradesh contravened the constitutional provisions of
Articles 301 and 304(a) of the Constitution of India.
10.11.1 The appellants therein were public limited companies,
manufacturing cement in their manufacturing units
in Rewa District situated in the State of Madhya
Pradesh after procuring fly ash from the thermal
power stations in the State of Uttar Pradesh and
thereafter selling the manufactured product, namely,
cement, in the districts of the State of Uttar Pradesh.
Utilisation of fly ash so as to control its pollution led to
cement projects being set up to make use of the fly
ash generated from the power plants. To encourage
manufacturers using fly ash in manufacturing of
their products, the Government of Uttar Pradesh
by Notification dated 18.06.1997, granted “rebate
of tax” to the dealers in the State of Uttar Pradesh
excluding all other dealers manufacturing cement
outside the State of Uttar Pradesh using fly ash
purchased in the State of Uttar Pradesh. The said
notification provided the names of the districts and
the period for which the rebate was allowed. The
second Notification dated 27.02.1998 was issued
by the Government of Uttar Pradesh which was
rescinded by issuing a Notification dated 14.10.2004.
Aggrieved by the Notification dated 27.02.1998, the
cement industries situated in the neighbouring States
approached the Allahabad High Court by filing writ
petitions and seeking quashing of Condition I of the
Notification dated 27.02.1998, which were dismissed.
10.11.2 Two issues fell for consideration before this Court
which could be epitomised as under:
“Firstly, whether the grant of rebate of tax
was hit by the constitutional limitation on
1460 [2025] 9 S.C.R.

Supreme Court Reports

the State Legislature under Article 304(a)
read with Article 301 of the Constitution
of India, as and when it discriminated
between the imported goods and the goods
manufactured and produced outside the
State.
The second issue that arose was, whether
the grant of rebate, directly or indirectly,
restricted the free flow of trade, commerce
and intercourse among States by assuming
the effects of an exemption/concession
which is nothing but a concept within the
scope of taxation.”
10.11.3 Discussing on Chapter XIII of the Constitution, it
was observed that Article 304(a) does not prevent
levy of tax on goods; what is prohibited 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 was to prevent imported goods
being discriminated against by imposing a higher
tax thereon than on local goods. Thus, the rate of
taxation on local as well as imported goods must
be the same so as to discourage the States from
creating fiscal barriers.
10.11.4 It was noted that the principle of “non-discriminatory
tax” is a sine qua non to free movement of goods
between States as provided in Article 304(a) of
the Constitution of India. Thus, the power given
to the State under the said clause is not a blanket
power but is restrictive, although it is an exception
to Article 301. Observing thus, it was noted that
in order to ascertain discrimination under Article
304(a), the effect of the tax on the flow of the goods
from outside the taxing statute has to be taken into
consideration and whether the overall effects of
rebate of tax is such that they fall within the meaning
of “concessional rate of tax”.
[2025] 9 S.C.R. 1461

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

10.11.5 Delineating on the concept of rebate of tax and
its overall impact on the trade, commerce and
intercourse, it was observed that a rebate is a
“discount”, i.e., to allow a deduction from a gross
amount. It is a discount repaid to the payer. A
rebate of tax can also be akin to concessional
/ reduced rate of tax. That in the said case, the
controversy concerned the grant of rebate up to
the full amount of the tax levied on any specific
point in the series of sales/purchase of goods.
Such rebate was only extended to the districts
in the State of Uttar Pradesh. The question was,
whether, this was a weapon of taxation that was
discriminatory between the goods imported and
manufactured in Uttar Pradesh as laid down in
Article 304(a) of the Constitution. While observing
that this Court in Shree Mahavir Oil Mills clarified
the exception carved out by the three-judge bench
in Video Electronics, it was held necessary to
ascertain whether the particular exemption granted
by the State affected Articles 301 and 304. This
Court noted that Article 304(a) is a provision that
deals with taxation to limit the power of taxation by
the State so as to prevent discrimination against
imported goods by imposing taxes on such goods
at a higher rate than is borne by indigenous goods.
It was observed that if the rebate of tax by way of
repayment to the full amount of tax levied qualified
within the same meaning as that of exemption, then
the same would a fortiori mean discrimination on the
rate of tax by repaying by way of a rebate to one
class of local dealers the whole amount of sales
tax paid and on the other hand the outside dealers
are taxed higher in the absence of the benefit of
rebate. This was held to be “discrimination” within
the meaning of Article 304(a) of the Constitution.
10.11.6 On the aspect of exemption from tax, it was noted
that it has a twofold impact: first, exemptions/
concessional rate of tax affect consumer choice by
1462 [2025] 9 S.C.R.

Supreme Court Reports

impacting relative pricing and therefore, materially
altering the economic balance. Since consumption
tends to shift towards the items which are not taxed,
the prices of those items and the raw materials used
to produce them would increase while the prices
of taxed items would decrease relatively; second,
such exemptions unfairly burden some businesses
either within the same industry or in other competing
industries.
10.11.7 Speaking about rebate, it was observed that it is
another device used by the Government which, when
given on the rate of tax to the full amount of tax levied,
gives favourable treatment to one class of dealers
situated within the State barring the dealers similarly
placed outside the State manufacturing goods
using the same raw material. Then, grant of such
rebate has the colour of exemption/concessional
rate of tax along with the same deleterious effects
of an exemption. While considering Article 304(a)
in the context of whether rebate is within the realm
of tax defined under the said clause so as to say
that it discriminates between the two classes of
goods, namely, locally manufactured goods and the
imported goods when both the classes of dealers
meet the conditions required to qualify for the grant
of rebate i.e. the use of fly ash, the Court noted that
the overall effect or impact of such rebate would
be on the manufacturer. Following the judgments
of Firm Mehtab Majid; W.B. Hosiery Assn. vs.
State of Bihar, (1988) 4 SCC 134 (“W.B. Hosiery
Assn.”) and H. Anraj, the issue with regard to the
disparity between the locally manufactured goods
within the State and those manufactured in other
States were discussed in light of the facts of those
cases. It was observed that the rebate of tax being
in the nature of an exemption in the instant case
was discriminatory and violative of Article 304(a) of
the Constitution of India.
[2025] 9 S.C.R. 1463

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

Jindal Stainless Ltd.:
10.12 Jindal Stainless Ltd. is a nine-Judge Bench decision of this
Court wherein by a majority, this Court, inter alia, observed
as under:
“1159.1. Taxes simpliciter are not within the
contemplation of Part XIII of the Constitution of
India. The word “free” used in Article 301 does not
mean “free from taxation”.
1159.2. Only such taxes as are discriminatory in
nature are prohibited by Article 304(a). It follows that
levy of a non-discriminatory tax would not constitute
an infraction of Article 301.
1159.3. Clauses (a) and (b) of Article 304 have to
be read disjunctively.
1159.4. A levy that violates Article 304(a) cannot be
saved even if the procedure under Article 304(b) or
the proviso thereunder is satisfied.
1159.5. The Compensatory Tax Theory evolved in
Automobile Transport (Rajasthan) Ltd. v. State
of Rajasthan, AIR 1962 SC 1406 : (1963) 1 SCR
491 and subsequently modified in Jindal Stainless
Ltd. (2) v. State of Haryana, (2006) 7 SCC 241 has
no juristic basis and is therefore rejected.
1159.6. The decisions of this Court in Atiabari
Tea Co. Ltd. v. State of Assam, AIR 1961 SC
232 : (1961) 1 SCR 809 , Automobile Transport
(Rajasthan) Ltd. v. State of Rajasthan, AIR 1962
SC 1406 : (1963) 1 SCR 491 and Jindal Stainless
Ltd. (2) v. State of Haryana, (2006) 7 SCC 241
cases and all other judgments that follow these
pronouncements are to the extent of such reliance
overruled.
xxx
1159.8. Article 304(a) frowns upon discrimination
(of a hostile nature in the protectionist sense) and
1464 [2025] 9 S.C.R.

Supreme Court Reports

not on mere differentiation. Therefore, incentives,
set-offs, etc. granted to a specified class of dealers
for a limited period of time in a non-hostile fashion
with a view to developing economically backward
areas would not violate Article 304(a). The question
whether the levies in the present case indeed satisfy
this test is left to be determined by the regular
Benches hearing the matters.”
10.12.1 The question formulated by this Court for
determination by the nine-Judge Bench which are
relevant to the present case read as under:
“(i) Can the levy of a non-discriminatory
tax per se constitute infraction of Article
301 of the Constitution of India?”
10.12.2 While answering these questions, the majority,
speaking through Thakur, C.J., discussed whether
levy of a tax is an attribute of sovereignty and if so,
whether Article 246 of the Constitution recognises
the sovereign power of the State to make laws
including the power to levy taxes on subjects
enumerated in List II of the Seventh Schedule to
the Constitution. While holding that power to levy
taxes is an essential attribute of sovereignty, it was
observed that constitutional provisions relating to
the power of taxation do not operate as grants of
the power of taxation to the Government but instead
merely constitute limitations upon a power which
would otherwise be practically without limit. Since
Article 265 of the Constitution provides that no tax
shall be levied or collected except by authority of law,
it would be necessary to first enquire whether the
legislature which passes the Act was competent to
pass it or not. Thus, power to tax being an incident
of sovereignty, however, under the Constitution, is
circumscribed by Articles 245, 246 and 265. In other
words, the exercise of sovereign power of taxation
is subject to constitutional limitation in a federal
system like in India where the Union as well as the
[2025] 9 S.C.R. 1465

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

States have the power to make laws including laws
that levy taxes, duties and fees, however, within the
extent permissible under the Constitution.
10.12.3 These constitutional limitations on the power of the
State Legislatures to levy taxes or for that matter
enact laws are mentioned by way of relevant
Entries of Lists II and III of the Seventh Schedule
(there being no taxation in Entry of List III). Further,
there are other provisions which provide for the
constitutional limitations in the matter of taxation
to be levied by the Union or the State which is not
necessary to advert to in the present case.
10.12.4 After analysing other Articles in Part XIII of the
Constitution, the Court dealt with Article 304 that
deals with restrictions on trade, commerce and
intercourse among States which could be made
by the Legislature of a State. It was observed that
Article 304(a) does not treat tax as a restriction so
that any such levy may fall foul of Article 301. In
fact, Article 304(a) recognises the State Legislature’s
competence to impose a tax on goods imported from
other States or the Union Territories. However, the
power to tax goods imported from other States or
Union Territories is not unqualified or unrestricted.
That there are two restrictions on the power. The
words “to which similar goods manufactured or
produced in that State are subject” impose the first
restriction on the power of the State Legislature to
levy such tax. These words would imply that a tax
on import of goods from other States will be justified
only if similar goods manufactured or produced in
the State are also taxed. The second restriction
comes from the expression “so, however, as not
to discriminate between goods so imported and
goods so manufactured or produced”. The State
Legislature cannot in the matter of levying taxes
discriminate between goods imported from other
States and those manufactured or produced within
the State levying such a tax. The net effect of Article
1466 [2025] 9 S.C.R.

Supreme Court Reports

304(a) therefore is that while levy of taxes on goods
imported from other State and the Union Territories
is clearly recognised as constitutionally permissible,
the exercise of such power is subject to the two
restrictive conditions referred to above. That does
not however detract from the proposition that levy
of taxes on goods imported from other States is
constitutionally permissible so long as the State
Legislatures abide by the limitations placed on the
exercise of that power. To put it differently, levy of
taxes on import of goods from other States is not
by itself an impediment under the scheme of Part
XIII or Article 301 appearing therein.
10.12.5 The next question, namely, whether clauses (a) and
(b) of Article 304 have to be read conjunctively or
disjunctively was also considered.
10.12.6 It was observed that clauses (a) and (b) of Article 304
deal with two distinct subjects and must, therefore,
be understood to be independent of each other.
While clause (a) deals entirely with imposition of
taxes on goods imported from other States, clause
(b) deals with imposition of reasonable restriction
in public interest. The use of the word “and”
between clauses (a) and (b) does not admit of an
interpretation that may impose an obligation upon
the legislature to necessarily impose a tax and a
restriction together. The word “and” can mean “or”
as well as “and” depending upon the context in
which the law enacted by the legislature uses the
same. Levy of taxes do not constitute a restriction
under Part XIII except in cases where the same
are discriminatory in nature. In paragraph 76, the
discussion was summarised as under:
“76. The sum total of what we have said
above regarding Articles 301, 302, 303
and 304 may be summarised as under:
76.1. Freedom of trade, commerce and
intercourse in terms of Article 301 is not
[2025] 9 S.C.R. 1467

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

absolute but is subject to the provisions
of Part XIII.
76.2. Article 302 which appears in Part
XIII empowers Parliament to impose
restrictions on trade, commerce and
intercourse in public interest.
76.3. The restrictions which Parliament
may impose in terms of Article 302 cannot
however give any preference to one State
over another by virtue of any entry relating
to trade and commerce in any of the Lists
in the Seventh Schedule.
76.4. The restriction that Parliament may
impose in terms of Article 302 may extend
to giving of preference or permitting
discrimination between one State over
another only if Parliament by law declares
that a situation arising out of scarcity of
goods warrants such discrimination or
preference.
76.5. Article 304(a) recognises the
availability of the power to impose taxes
on goods imported from other States, the
legislative power to do so being found in
Articles 245 and 246 of the Constitution.
76.6. Such power to levy taxes is however
subject to the condition that similar goods
manufactured or produced in the State
levying the tax are also subjected to tax
and that there is no discrimination on that
account between goods so imported and
goods so manufactured or produced.
76.7. The limitation on the power to levy
taxes is entirely covered by clause (a) of
Article 304 which exhausts the universe
insofar as the State Legislature’s power
to levy of taxes is concerned.
1468 [2025] 9 S.C.R.

Supreme Court Reports

76.8. Resultantly, a discriminatory tax on
the import of goods from other States
alone will work as an impediment on free
trade, commerce and intercourse within
the meaning of Article 301.
76.9. Reasonable restrictions in public
interest referred to in clause (b) of Article
304 do not comprehend levy of taxes as
a restriction especially when taxes are
presumed to be both reasonable and in
public interest.”
10.12.7 Thus, it was held that Article 304(b) of the Constitution
does not deal with taxes as restrictions. That those
restrictions referred to in that provision are non-
fiscal in nature. Therefore, any constitutional validity
of any taxing statute has to be tested only on the
anvil of Article 304(a) and if the law is found to
be non-discriminatory, it can be declared to be
constitutionally valid without the legislation having
to go through the test of the process envisaged
by Article 304(b). Should, however, the statute fail
the test of non-discrimination under Article 304(a),
it must be struck down for the same cannot be
sustained even if it had gone through the process
stipulated by Article 304(b). This is because what
is constitutionally impermissible in terms of Article
304(a) cannot be validated and sanctioned through
the medium of Article 304(b). Any challenge to
a fiscal enactment on the touchstone of Article
304(a) must be tested by the same standard as in
the decision of this Court in Kathi Raning Rawat
vs. State of Saurashtra, AIR 1952 SC 123. The
Court ought to examine whether the differentiation
made is intended or inspired by an element of
unfavourable bias in favour of the goods produced or
manufactured in the State as against those imported
from outside. If the answer be in the affirmative, the
differentiation would fall foul of Article 304(a) and
may tantamount to discrimination. Conversely, if the
[2025] 9 S.C.R. 1469

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

Court were to find that there is no such element of
intentional bias favouring the locally produced goods
as against those from outside, it must go further and
see whether the differentiation would be supported
by valid reasons. This is because discrimination
without reason would be unconstitutional whereas
discrimination with reason may be legally acceptable.
10.12.8 Regarding the decision in Video Electronics, it
was observed that the differentiation made was
supported by reasons. It was observed that power
to grant exemption is a part of the sovereign power
to levy taxes which cannot be taken away from
the States that are otherwise competent to impose
taxes and duties. It was further observed that Video
Electronics, therefore, correctly states the legal
position as regards the approach to be adopted
by the courts while examining the validity of levies.
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 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 territory. In this context,
Shree Mahavir Oil Mills was held distinguishable
inasmuch as the manufacturers of edible oil therein
were exempt totally and unconditionally while other
manufacturers from outside the State were not so
exempt. Referring to several other decisions, in
paragraph 144 of the judgment, it was observed
that so long as the intention behind the grant of
exemption/adjustment/credit is to equalise the
fall of the fiscal burden on the goods from within
the State and those from outside the State, such
exemption or setoff will not amount to hostile
discrimination offensive to Article 304(a).
10.12.9 Bobde, J. (as he then was) concurred with Thakur,
C.J. and SK Singh, J. and observed that to muster
compliance with Part XIII of the Constitution, the
1470 [2025] 9 S.C.R.

Supreme Court Reports

tax must pass the twin tests embodied in Article
304(a) i.e., (i) similar goods produced locally must
also be subjected to similar tax; and (ii) such State
action should not attract the vice of discrimination
between the two varieties of goods.
10.12.10 In paragraph 262 of the judgment, Ramana, J. (as
he then was) observed that 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. It does not prohibit levy of tax as
such in the situation wherein the goods are not
produced or manufactured in the State itself and
does not affect the authority of the State to tax the
imported goods. It only bars discrimination on the
basis of taxing the products manufactured within
the State vis-à-vis imported goods which will only
occur if the precondition of manufacturing in the
taxing State is satisfied.
10.12.11 Banumathi, J. while agreeing with Thakur, C.J.
observed that decisions in Atiabari Tea Co. Ltd.
and Automobile Transport Ltd. to the extent they
declare that taxes generally are restrictions on
the freedom of trade, commerce and intercourse
ought to be overruled. Further, non-discriminatory
taxes do not constitute infraction of Article 301
of the Constitution. The law laid down in Video
Electronics was also endorsed.
10.12.12 By contrast, Dr. Chandrachud, J. (as he then was),
firstly stated that a discriminatory tax is prohibited
under Article 304(a) in the context of exemptions
and incentives as held in the judgments of this
Court in Video Electronics and Shree Mahavir Oil
Mills. It was observed that in Video Electronics,
this Court considered the validity of the notifications
issued under the Uttar Pradesh Sales Tax Act,
[2025] 9 S.C.R. 1471

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

1948, as well as under the Punjab General Sales
Tax Act. Under the notification issued under the
Uttar Pradesh legislation, an exemption from
the payment of sales tax was granted for goods
manufactured in new industrial units, where the date
of commencement of production fell between two
stipulated dates. The exemption was for a stipulated
period reckoned from the date of first sale if such
sale took place not later than six months from
the commencement of production. The period of
exemption was confined for a specified period of
three to seven years. Insofar as the State of Punjab
was concerned, sales tax at the rate of 12% was
provided on electronic goods sold within the State
irrespective of their manufacture. In pursuance of a
notification issued under the Sales Tax law, the rate
of sales tax payable by electronic manufacturing
units producing goods specified thereunder was
brought down from 12% to 1%. This was justified
on the ground that it was an incentive to a backward
industrial State. A Bench of three learned Judges
in Video Electronics observed that this was not a
case involving “a naked blanket preference in favour
of locally manufactured goods, as against goods
coming from outside the State”. This Court therefore
held that there was no discrimination under both
the notifications against goods manufactured
outside the State. In Video Electronics, this Court
distinguished the judgment in Weston Electronics.
Dr. Chandrachud, J. (as he then was) observed
that the substratum of the judgment in Video
Electronics clearly is that Article 304(a) would
not be breached by a classification brought about
by a carefully structured notification which grants
incentives to local industry of a specified class
of units, with reference to a specific category of
manufactured goods and for a stipulated period. The
judgment in Video Electronics was distinguished
on the ground that in that case, the notifications
1472 [2025] 9 S.C.R.

Supreme Court Reports

of the States of Uttar Pradesh and Punjab were
carefully circumscribed.
10.12.13 Referring to paragraphs 22 and 23 of the judgment
of this Court in Shree Mahavir Oil Mills, Dr.
Chandrachud, J. (as he then was) observed that
“the Court cautioned that a limited exception which
had been carved out in Video Electronics should
not be enlarged “lest it eat up the main provision””.
An unconditional exemption in the case of edible
oil produced within the State from sales tax while
subjecting similar goods produced in other States
to sales tax at 8% was held to violate Article 304(a)
of the Constitution. In Shree Mahavir Oil Mills, an
exemption from the payment of sales tax altogether
granted to local industry was set aside as violating
Article 304(a). The earlier decision in Video
Electronics was distinguished on the ground that it
related to a case not involving a blanket preference.
In this regard, in paragraph 693, Dr. Chandrachud,
J. (as he then was) observed as under:
“693. A close reading of the judgment in
Video Electronics would thus indicate
that both sets of notifications involving
the States of Uttar Pradesh and Punjab
were carefully structured to cover one
or more of the following circumstances:
(i) Availability of a reduced rate of sales
tax to new industrial units;
(ii) Applicability of a reduced rate of
sales tax to producers of certain
specified goods, such as electronic
goods;
(iii) Limitation of the period during
which the reduced rate of tax could
operate; and
(iv) Applicability of the general rate of
sales tax to an overwhelmingly large
[2025] 9 S.C.R. 1473

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

number of local manufacturers, on
a par with imported goods.”
10.12.14 Thus, Dr. Chandrachud J. (as he then was) opined
that the judgment in Shree Mahavir Oil Mills
left open the correctness of the view in Video
Electronics. Shree Mahavir Oil Mills is a judgment
rendered by a two-Judge Bench comprising B.P.
Jeevan Reddy, J. and S.C. Sen, J. while Video
Electronics was a judgment of three Judges of
this Court. The decision in Video Electronics was
distinguished on the ground that it related to a case
not involving a blanket preference.
10.12.15 Ashok Bhushan, J. in his dissenting opinion but
concurring on some issues, speaking about the
three-Judge Bench decision of this Court in Video
Electronics, observed that the exemption therein
was upheld as it was granted to a special class for
limited period on specific conditions of maintaining
the general rate of tax on the goods manufactured
by all those producers in the State who do not
fall within that category. That Video Electronics,
however, further states that if tax is imposed in
a colourable manner, intentionally or purposely
to create unfavourable bias by prescribing a
general lower rate on locally manufactured
goods either in the shape of general exemption
to locally manufactured goods or in the shape of
lower rate of tax, such an exercise of power can
always be struck down by the courts. However,
in Shree Mahavir Oil Mills, it was observed
that exception carved out in Video Electronics
cannot be widened or expanded to cover cases
of a different kind. That in Video Electronics,
the exemption notification was upheld because it
was limited to a specified type with short period.
Therefore, even in Video Electronics, general
exemption of a wider nature was not approved. In
other words, the exemption cannot be used as a
measure of discrimination between goods imported
1474 [2025] 9 S.C.R.

Supreme Court Reports

from other States and goods manufactured or
produced in the State. The exemption has to be a
limited exemption to the tax which is imposed on
the similar goods. In the event such exemption is
total and general in nature, the said exemption is
clearly violative of Article 304(a). Similarly, set-off
of a particular tax which is general and not limited
to specified category has also to be disapproved.
Therefore, Ashok Bhushan, J. held that the ratio
of the three-Judge Bench judgment in Video
Electronics has to be read to the above extent
and with the limitation as noticed above. Hence,
the State Legislature in exercise of its taxing power
can grant exemption/set-off to local goods, only
to a limited extent based on intelligible differentia
which is not in the nature of general/unspecified
exemption. The exemption/set-off which tend
to become a general exemption violates Article
304(a) of the Constitution.

Discussion from Overseas Case Law:
11. At this instance, it is relevant to discuss a similar provision in Section
51(ii) and Section 92 of the Commonwealth of Australia Constitution
Act, 1900, also known as the Australian Constitution. Sections 51(ii)
and 92 provide as follows:
“51. Legislative powers of the Parliament
The Parliament shall, subject to tis Constitution, have
power to make laws for the peace, order, and good
government of the Commonwealth with respect to:
xxx
(ii) taxation; but so as not to discriminate between
States or parts of States;
xxx
92. Trade within the Commonwealth to be free
On the imposition of uniform duties of customs, trade,
commerce, and intercourse among the States, whether
[2025] 9 S.C.R. 1475

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

by means of internal carriage or ocean navigation, shall
be absolutely free.”
(emphasis supplied)

11.1 A bare reading of the above provision would instantly draw
our attention to Articles 301 and 304 of our Constitution.
11.2 It appears that the interpretation of Section 92 of the Australian
Constitution, specifically as to ‘what should the imposition be
free from?’, has been a subject matter of conflicting opinions.
It was the decision of the High Court of Australia in Cole vs.
Whitfield, (1988) HCA 18 that clarified its scope. The High
Court of Australia, through a unanimous opinion, and relying
on Australian federal movement, held that section 92 of the
Australian Constitution prohibits measures that discriminate
against interstate trade and commerce with the purpose
or effect of protecting intrastate trade or industry against
competition from other States.
11.3 The High Court specifically held:
“25. The task which has confronted the Court is
to construe the unexpressed; to formulate in legal
propositions, so far as the text of s.92 admits, the
criteria for distinguishing between the burdens
(including restrictions, controls and standards) to
which inter-State trade and commerce may be
subjected by the exercise of legislative or executive
power and the burdens from which inter-State trade
and commerce is immune. The history of s.92 points
to the elimination of protection as the object of s.92
in its application to trade and commerce. The means
by which that object is achieved is the prohibition
of measures which burden inter-State trade and
commerce and which also have the effect of conferring
protection on intra-State trade and commerce of
the same kind. The general hallmark of measures
which contravene s.92 in this way is their effect as
discriminatory against inter-State trade and commerce
in that protectionist sense.
xxx
1476 [2025] 9 S.C.R.

Supreme Court Reports

26. In relation to both fiscal and non-fiscal measures,
history and context alike favour the approach that
the freedom guaranteed to inter-State trade and
commerce under s.92 is freedom from discriminatory
burdens in the protectionist sense already mentioned.”
11.4 The High Court further explained that the concept of
discrimination, so far as it relates to inter-State trade
and commerce, embraces both factual as well as legal
discrimination. By factual, the Court meant the operation of
a law producing a disability or a disadvantage, and by legal,
the Court meant the provisions, on the face of it. The Court
however noted that the section accommodates laws that
genuinely regulate intra-State and inter-State trade in a non-
protective manner.
11.5 Finally, the Court concluded that a general law enacted
under Section 51(i) of their Constitution may offend Section
92 if its effect is discriminatory and the discrimination is upon
protectionist grounds. That whether such a law is discriminatory
in effect and whether the discrimination is of a protectionist
character are questions raising issues of fact and degree. That
such answer to those questions may, in the ultimate, depend
upon judicial determination.
11.6 While we are aware of the dangers involved in importing an
interpretation from a judgment of a foreign jurisdiction, it is
relevant to note from Australian jurisprudence that when the
Court therein was called upon to interpret Section 92 of their
Constitution, specifically to answer what should the imposition
of uniform duties of customs, trade, commerce, and intercourse
among their States be free from, the Court answered that they
should be free from discrimination of a protectionist character.
Their emphasis on the protectionist nature is of relevance to
us, for the insertion of Part XIII in our Constitution was also to
prevent the growth of sectional and local interests which are
inimical to the interests of the nation as a whole.

Application of the Analysis to the Present Case:
12. On a perusal of the facts of the present cases and the judicial dicta
relating to Articles 301 and 304(a) of the Constitution of India, we
[2025] 9 S.C.R. 1477

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

find that the issue herein could be decided by determining if the
impugned notification falls within the parameters of the exception
provided for in Video Electronics. In other words, if the impugned
notification could be justified as falling within the parameters of the
dictum in Video Electronics, it could be upheld. Otherwise, it would
have to be struck down as unconstitutional. Thus, the dictum in Video
Electronics has to be juxtaposed with the facts of the present cases
as well as in light of other judicial dicta discussed above.
12.1 On a perusal of the judgment of this Court in Jindal Stainless
Ltd. as regards Video Electronics, the position of law as to
when a tax merely differentiates and not discriminates, appears
to be as follows:
(i) Clauses (a) and (b) of Article 304 are to be read
disjunctively, and hence, a tax cannot be said to merely
differentiate only if the procedure under Article 304(b)
is satisfied, but not Article 304(a) of the Constitution;
(ii) A tax imposed on goods imported from another state
would not be discriminatory if no similar goods are
produced within that State;
(iii) States are at liberty to design their fiscal legislations in
such a manner to ensure that the tax burden on goods
imported from other States is equal to the tax burden
on those goods produced within the State. Therefore, a
tax designed to impose equal burdens cannot be said
to be discriminatory. However, whether the tax burden
falls equally is a question of fact to be determined in
each case when the question arises;
(iv) Further, a tax rebate or other relief in the form of
incentives or set-off which is:
● granted to a specified class of dealers;
● for a limited period of time;
● in a non-hostile fashion;
● with a view to developing economically backward
areas;
● would not be held to be discriminatory.
1478 [2025] 9 S.C.R.

Supreme Court Reports

(v) However, the question whether a tax fulfils the above
criteria is a question of fact to be determined depending
upon the facts of each case.
12.2 Before applying the aforementioned law to the facts of this
case, it is relevant to note that our analysis is not restricted
to the impugned notification alone. Rather, it will be looked at
in the context of the preceding and succeeding notifications
issued by the State of Rajasthan. This is necessary because
the impugned notification is merely one of the notifications out
of a series of notifications effected to grant tax exemptions to
the sale of asbestos cement sheets and bricks having contents
of fly ash 25% or more by weight, manufactured in the State of
Rajasthan. However, we make it clear that our decision would
be restricted to the validity of the impugned notification only.
12.3 Applying the criteria provided for as above, we find that
admittedly, the impugned notification restricted the exemption
from payment of tax to a specified class of dealers, namely,
those who manufactured asbestos cement sheets and bricks
having contents of fly ash 25% or more by weight. We also
find that, as regards the time period, the impugned 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.
12.4 However, a combined reading of the notifications dated
24.01.2000, 16.03.2005, 05.07.2006 and 28.12.2010 suggests
that, initially, the benefit was restricted to dealers who
commenced commercial production in the State of Rajasthan by
31.12.2001 and the benefit was upto 23.01.2010. Later, it was
extended to those who commenced production by 31.12.2006.
While initially the benefit was upto 23.01.2010, by notification
dated 28.12.2010, the benefit was made available for ten
years from the date of commencement of first commercial
production, but with an outer cut-off date of 23.1.2016. There is
nothing on record to suggest that the exemption was granted
thereafter as well.
12.5 As far as duration is concerned, it can be observed that the
maximum benefit a dealer would have obtained under these
notifications was ten years. There were no serious arguments
[2025] 9 S.C.R. 1479

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

raised by the appellants herein to the question whether the
benefit of a maximum of ten years would qualify as ‘limited
period of time’ within the criteria devised in Jindal Stainless
Ltd.. Hence, we do not intend to decide on the same.
12.6 As regards the criterion of “with a view to developing
economically backward areas”, admittedly, the 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.
12.7 However, the criterion of ‘non-hostile fashion’ was fiercely
contested by both sides, as noted earlier in the submissions.
The expression ‘non-hostile’, as expressed in Jindal Stainless
Ltd., relates to discrimination of a hostile nature in the
protectionist sense.
12.8 In our view, the contours of such discrimination, in essence,
can be reduced to whether there are sufficient reasons to
term such discrimination as ‘differentiation’. In State of West
Bengal vs. Anwar Ali Sarkar, (1952) 1 SCC 1, this Court
noted that the expressions “discriminatory” and “hostile” are
found to be used by American Judges often simultaneously
in connection with discussions on the equal protection clause.
That 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.
12.9 Similarly, the opinion of this Court in Twyford Tea Co.
Ltd. vs. State of Kerala, (1970) 1 SCC 189 on the meaning
of ‘classification without unreasonably discriminating between
persons similarly situated’ is relevant to this case. The Court
noted then as follows:
“18. What is meant by the power to classify without
unreasonably discriminating between persons
similarly situated, has been stated in several other
cases of this Court. The same applies when the
Legislature reasonably applies a uniform rate after
1480 [2025] 9 S.C.R.

Supreme Court Reports

equalising matters between diversely situated
persons. Simply stated the law is this: Differences
in treatment must be capable of being reasonably
explained in the light of the object for which the
particular legislation is undertaken. This must be
based on some reasonable distinction between
the cases differentially treated. When differential
treatment is not reasonably explained and justified
the treatment is discriminatory. If different subjects
are equally treated there must be some basis
on which the differences have been equalised
otherwise discrimination will be found. To be able
to succeed in the charge of discrimination, a person
must establish conclusively that persons equally
circumstanced have been treated unequally and
vice versa.”
(underlining by us)

12.10 In Vijay Lakshmi vs. Punjab University, (2003) 8 SCC 440,
this Court discussed the earlier judgment in State of J&K
vs. Triloki Nath Khosa, (1974) 1 SCC 19 and observed
that discrimination is the essence of classification and does
violence to the constitutional guarantee of equality only if it
rests on an unreasonable basis.
12.11 Further, in Video Electronics, this Court noted that the
word ‘discrimination’ is not used in Article 14 but is used in
Articles 16, 303 and 304(a). That in the context of Article
304(a), it involves an element of intentional and purposeful
differentiation.
12.12 As regards the reasons behind a public authority issuing
a notification, this Court in Commissioner of Police vs.
Gordhandas Bhanji, AIR 1952 SC 16 noted that:
“We are clear that public orders, publicly made, in
exercise of a statutory authority cannot be construed
in the light of explanations subsequently given by
the officer making the order of what he meant, or
of what was in his mind, or what he intended to do.
Public orders made by public authorities are meant
[2025] 9 S.C.R. 1481

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

to have public effect and are intended to affect the
actings and conduct of those to whom they are
addressed and must be construed objectively with
reference to the language used in the order itself.”
(underlining by us)

12.13 Similarly, as submitted by learned counsel for the appellants,
the Constitution Bench of this Court in Mohinder Singh
Gill observed that 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.
12.14 A perusal of the impugned notification dated 09.03.2007 would
suggest that the reason stated by the State Government to
exempt from payment of tax was simply that “it was expedient
in the public interest so to do”. The notification states no further
reason for issuing the impugned notification. The exemption
from payment of tax on the sale of asbestos sheets and
bricks subject to the following conditions:
(i) That the asbestos sheets and bricks are manufactured
in the State of Rajasthan; and
(ii) They have 25% content of fly ash or more by weight.
Further, the following condition would apply, 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 commercial production
in the State by 31.12.2006; and
(iii) that the exemption shall be available up to 23.01.2010.
Therefore, with respect to the goods manufactured by the
dealer who commenced commercial production in the State
before 31.12.2006 the exemption was upto 21.03.2010.
Thereafter, by subsequent notification, the benefit was
extended upto 23.01.2016.
1482 [2025] 9 S.C.R.

Supreme Court Reports

12.15 There is also nothing on record to suggest that the notification
was issued pursuant to, say, an industrial policy or otherwise.
During the course of submissions, we had asked the learned
senior counsel for the respondent State if there are any
policies of the State as regards setting up of asbestos sheet
or cement industry, pursuant to which the notifications were
issued, the learned senior counsel could not take us to any
such background policy, but submitted that the reasons for the
notification can be discerned from the counter affidavit filed
before the High Court. In light of the dictum of this Court in
Mohinder Singh Gill, we are not able to accept the contention
of the learned senior counsel for the State of Rajasthan that
the reasons for the notification can be discerned from the
counter affidavit filed before the High Court.
12.16 Keeping aside the dictum in Mohinder Singh Gill, even
otherwise, the counter affidavit filed before the High Court
attempts to provide reasons as to why the notification dated
24.01.2000 was issued. The reason stated was to promote
the use of fly ash as a raw material from the production of
asbestos cement sheets and bricks with the intention of
utilization of fly ash coming out of thermal power plant and
to promote the production of asbestos cement sheets for
which there was no manufacturing plant in Rajasthan. There
is no other reason stated for why the impugned notification
is issued. Admittedly, the impugned notification can be said
to be a continuation of the earlier notifications, including
the notification dated 24.01.2000. However, there are no
reasons stated even in the counter-affidavit as to why the
benefit was extended to those who commenced production
beyond 31.12.2001 through the impugned notification. The
State ought to have explained, for e.g., the effect of the
earlier notifications, the inadequacy, if any, of the notification
in fulfilling the intended objectives, if any, and the consequent
need for issuing the subsequent notification.
12.17 In the absence of any such explanation, we cannot, but
conclude, that the impugned notification is bereft of any reason
or justification. The High Court in the impugned judgment
relied upon the reasoning in Video Electronics to arrive at
the conclusion that the stand of the State of Rajasthan was
[2025] 9 S.C.R. 1483

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

supported by the reasoning in the aforesaid case. While
acknowledging that in Shree Mahavir Oil Mills, this Court had
explained and distinguished the dictum in Video Electronics
wherein the exemption was granted to new industries for a
specified period, the High Court in our view, fell in error in
holding that the present case also falls in the exceptional
category covered by the case of Video Electronics. We
observe that the 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. The exemption was
granted initially upto 23.01.2010 and later extended upto
23.01.2016. The 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, (i) that such fly ash constituted 25% or more in
the contents by weight; and (ii) that the unit commenced
commercial production by 31.12.2001.
12.17.1 The 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. The 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, we find a discrimination
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 such exemption,
there would not have been any discrimination
1484 [2025] 9 S.C.R.

Supreme Court Reports

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. But, that is not so in the present
case. Hence, we have no hesitation in holding that
the impugned notification violates Article 304(a) of
the Constitution as it is discriminatory in nature.
12.17.2 The impugned notification initially was to remain
operative upto 23.01.2010 only. The time for
commencement of commercial production was
extended from time to time and by the notification
issued on 16.03.2005, the State Government
extended the commencement of production by
31.12.2006. It was submitted that the notification
dated 09.03.2007 impugned in the writ petition
before the High Court came to be issued by the
State Government after coming into force of the
Rajasthan VAT Act so as to continue with the
discriminatory exemption.
12.18 On a survey of the judicial dicta of this Court, what emerges
is that in Atiabari Tea Co. Ltd., the object and purpose of
Part XIII of the Constitution of India and particularly Article 301
was considered and it was observed that while determining
the width and amplitude of the freedom guaranteed by the
said Article, a rational and workable test should be applied
and only if the restrictions impede free flow of trade, it would
be barred. Otherwise, taxes imposed on goods would not by
themselves impede trade and commerce in the said case, the
Assam Act was held to be void as it had not complied with
Article 304(b) of the Constitution. While interpreting Article
304(a), it was observed that the State Legislatures have the
power to impose tax on the import of goods to which similar
goods manufactured or produced in the State are subject,
provided that by taxing the goods imported from another
State or Union Territory, no discrimination is practised.
[2025] 9 S.C.R. 1485

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

12.18.1 Automobile Transport Ltd. also concerned Article
304(b) of the Constitution. It was observed that a
tax to become a prohibited tax, has to be a direct
tax, the effect of which is to hinder the movement
of trade. So long as a tax remains compensatory
or regulatory, it cannot operate as a hindrance.
Taxation which impedes trade and commerce cannot
be upheld on the ground that they are regulatory. A
regulation of trade and commerce, on the other hand,
may achieve some public purpose which affects
trade and commerce incidentally but not impairing
the freedom. In the said case, it was observed that
the tax offended Article 301 of the Constitution since
resort to the procedure prescribed by Article 304(b)
was not taken.
12.18.2 In Firm Mehtab Majid, referring to the aforesaid
decisions, it was held that sales tax which has
the effect of discriminating between goods of one
State and goods of another State may affect the
free flow of trade which offends Article 301 and
will be valid if it comes within the terms of Article
304(a). Thus, Article 304(a) enables the Legislature
of a State to make laws by imposition of taxes on
goods from other States if similar goods in the
State are also subjected to similar taxes, so as not
to discriminate between the goods manufactured
or produced in that State and the goods which are
imported from other States. In the said case, the
writ petition was allowed as the sales tax was held
to be discriminatory in nature and the State was
directed to refund the tax illegally collected from
the petitioner therein.
12.18.3 Similarly, in Weston Electronics, the reduction on
the rate of sales tax on television sets manufactured
within the State to 1% whereas television sets
imported from outside the State of Gujarat being
at 10% was held to be discriminatory in nature and
therefore, struck down.
1486 [2025] 9 S.C.R.

Supreme Court Reports

12.18.4 The judgment in Video Electronics by a three-
Judge Bench of this Court is a watershed in the
line of precedent on the interpretation of Chapter
XIII of the Constitution. In this case, the imposition
of differential rate of tax on sales of the commodity
imported from outside the State as compared to
the same commodity manufactured within the
State and sold in the State was upheld as being
not discriminatory in nature. It was observed that
the expression “discrimination” in Article 304(a) of
the Constitution involves an element of intentional
and purposeful discrimination thereby creating
an economic barrier and involves an element of
unfavourable bias. Insofar as the State of Punjab
was concerned, it was reasoned that the lower rate
of tax on those electronic goods manufactured in the
State of Punjab was due to the prevailing peculiar
circumstances in the said case, namely, terrorist
activity. In order to attract new entrepreneurs from
other States and to encourage manufacturers within
the State of Punjab, incentives were provided for
growth of industry in the State of Punjab which
had already shifted to other States, therefore,
the concessional rate of tax introduced for goods
manufactured within the State of Punjab was held
to be non-discriminatory. The aforesaid reasoning
was given having regard to the situation then
prevailing in the State of Punjab as it was observed
that a disturbed State cannot with parity engage in
competition with advanced or developed States.
Therefore, the differential rate of taxation was upheld
in the said case. The emphasis was on goods
manufactured in the State having a concessional
rate of tax irrespective of who manufactured the
goods. The object was to attract industrial activity
in the State as it was passing through a difficult
phase and hence the need for a focus on economic
development. Such a reason is conspicuous by its
absence in the present case.
[2025] 9 S.C.R. 1487

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

12.18.5 On the other hand in Shree Mahavir Oil Mills, it
was observed that under Article 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. Therefore, there cannot be
tax barriers or fiscal barriers in the interest of free
trade, commerce and intercourse throughout the
territory of India guaranteed by Article 301. Thus, the
weapon of taxation cannot be used to discriminate
against the imported goods vis-à-vis the locally
manufactured goods.
12.18.6 Referring to Video Electronics, on which strong
reliance was placed by State of Jammu and Kashmir
in the aforesaid case, this Court made a distinction
by observing that the said judgment created a
limited exception and that it was not possible to go
on extending the limited exception created in the
said judgment, by stages which would have the
effect of robbing the salutary principle underlying
Part XIII of its substance. That States can also
encourage growth of industries by all such means
that are just and proper provided goods imported
from other States are not discriminated against by
a higher rate of sales tax being imposed. That the
limited exception carved out in Video Electronics
cannot be enlarged, “lest it would eat up the main
provision”. Placing reliance on Firm Mehtab Majid,
this Court ruled in favour of the petitioners therein.
Loharn Steel Industries Ltd., Laxmi Paper Mart
have followed Shree Mahavir Oil Mills.
12.18.7 In Jaiprakash Associates, while considering the
question whether rebate is within the realm of tax
defined under Article 304(a) so as to say that it
discriminates between the two classes of goods,
namely, locally manufactured goods and imported
goods when both the classes of dealers meet the
condition required to qualify for the grant of rebate
i.e., use of fly ash, this Court noted that the overall
1488 [2025] 9 S.C.R.

Supreme Court Reports

effect or impact of such rebate would be on the
manufacturer. Consequently, this Court held that
“rebate of tax granted by the State Government to
cement manufacturing units using fly ash as raw
material in a unit established in the districts of the
State of Uttar Pradesh alone was violative of the
provisions contained in Articles 301 and 304(a) of
the Constitution of India.” This judgment squarely
applies to the present cases.
12.18.8 While analysing Article 304(a) of the Constitution, the
majority in the nine-Judge Bench in Jindal Stainless
Ltd. identified two restrictions under Article 304(a)
of the Constitution which are in the use of the
expressions “to which similar goods manufactured
or produced in that State are subject” and “so,
however, as not to discriminate between goods so
imported and goods so manufactured or produced”.
Therefore levy of taxes on goods imported from
other States is constitutionally permissible so long
as the State Legislature abides by the limitations
placed on the exercise of that power. Thus, levy of
taxes on import of goods from other States by itself,
is not an impediment under the scheme of Part XIII
of the Constitution.
12.18.9 With regard to Video Electronics, it was opined that
so long as the differentiation is to benefit a distinct
class of industries and not intended to create an
unfavourable bias and if the differentiation is for a
limited period, then, the benefit must be held to flow
from a legitimate desire to promote industries within
its territory. It was also held that Shree Mahavir
Oil Mills was also distinguishable from Video
Electronics. This was because the exemption for
locally manufacturers of edible oil was discriminatory
vis-à-vis other manufacturers from outside the State
who had no benefit of the said exemption.
12.19 Applying the aforesaid dicta to the present cases, we find
that the notification impugned in these cases are hit by the
[2025] 9 S.C.R. 1489

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

judgments referred to above and the judgment in Video
Electronics being an exception having regard to the peculiar
facts therein does not apply to the present cases. Therefore,
the notification impugned in these cases dated 09.03.2007 is
violative of Article 304(a) of the Constitution. Consequently,
the impugned notification is quashed. The civil appeals are
hence allowed. No cost.
12.20 Having regard to the interim order dated 09.05.2008 passed
in these appeals, it is necessary to ascertain whether the
differential amount which has been deposited before this Court
was collected from their customers. If not, the appellants would
be entitled to refund of the amount deposited with interest @
6% per annum from the date of deposit till realisation. In order
to ascertain this aspect, we post the appeals for directions.
All pending applications, if any, shall stand disposed of.

Result of the case: Appeals allowed and posted for directions.

†
Headnotes prepared by: Nidhi Jain