IMPORTANT POINT
Notification No. S.R.O. 93 of 1991, exempting unconditionally edible oil produced by local manufacturers/ producers in State of Jammu and Kashmir altogether from the sales tax is violative of the provisions contained in Articles 301 and 304(a) of the Constitution of India.

JUDGMENT

B.P. Jeevan Reddy, J.-Leave granted.

2. The State of Jammu & Kashmir seeks to encourage and promote the industrialisation of the State - like every other State in the country. Edible oil industry is one such. Because of certain inherent problems, the cost of production of edible oil in Jammu & Kashmir is said to be higher than the cost of production of similar edible oil in the adjoining States with the result that the manufacturers of edible oil in the adjoining States are able to sell their products in Jammu & Kashmir at a price lower than the price at which the local manufacturers are able to sell. This is said to have created a situation where the local industries faced the prospect of closure; at any rate, they were not able to compete with the out-State manufacturers. They approached their government, which is seeking to protect their interest by inter alia exempting them totally from the levy of sales tax on the sale of their products. That has given rise to the writ petition from which the present appeal arises. On the Jammu & Kashmir High Court dismissing the writ petition, they have approached this Court.

3. The Jammu & Kashmir Sales Tax Act contains four Schedules. Each of the Schedules carries a particular rate of sales tax. Edible oils were previously included in Schedule-D which prescribes the rate of tax at four percent. On December 20, 1993, edible oils were shifted from Schedule-D to Schedule-C, which prescribes the rate of tax at eight percent. (It is stated that S.R.O.213 of 1993 issued on December 3, 1993 shifting edible oils from Schedule-D to Schedule-C was rescined within about a week thereafter but was re-issued as S.R.O. 124 of 1994 on May 27, 1994).

4. With a view to protect the local edible oil industry, the Government of Jammu & Kashmir issued S.R.O. 93 of 1991 on March 7, 1991 under Section 5 of the Jammu & Kashmir 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 Director of Industries and Commerce, Handicrafts or Handloom Development, subject to the conditions specified below, shall be exempted from payment of tax to the extent and for the period specified in the Schedule forming Annexure-A". All the units manufacturing edible oil in the State are small scale industrial units as defined by the Jammu and Kashmir Government. (It appears that initially the limit was an investment of Rupees ten lakhs according to which one unit in the State did not qualify as a small scale industrial unit. Subsequently, it is stated, the limit of investment was raised to Rupees thirty lakhs, as a result of which the said unit also fell under the definition of small scale unit). The exemption was total and the period of exemption was five years - which has later been extended by another five years.

5. The result of the orders aforementioned was that whille until December, 1993/May, 1994, the manufacturers of edible oil in other States were obliged to pay sales tax on the sales effected by the them in the State of Jammu and Kashmir at the rate of four percent, the local manufacturers were totally exempted therefrom. In December, 1993/May, 1994, the rate of tax was raised from four percent to eight percent, as stated above. With the raising of the rate of sales tax to eight percent, the outside manufacturers were obliged to pay at eight percent while the local manufacturers were exempt fully. It is then that some of the outside manufacturers including the appellants herein, approached the Jammu & Kashmir High Court by way of writ petitions which were dismissed by a learned Single Judge. The Letters Patent Appeals preferred by the appellants have also been dismissed by the Division Bench relying mainly upon the decision of this Court in Video Electronics Private Limited.1

6. Sri Harish Salve, learned counsel for the appellants, assailed the correctness of the judgment of the High Court on several grounds. Counsel submitted