Judgment

S. NATARAJAN, J.

(1) WRIT Petition No. 1521 of 1987 has been filed under Article 32 of the Constitution of India to challenge the constitutional validity of S. 41 of the Bombay Sales Tax Act (hereinafter referred to as the Act) on the ground it confers arbitrary powers of exemption on the State government so as to exempt all types of new units from the payment of purchase tax, sales tax and central sales tax under the Package Scheme of Incentives, 1979. On notice losing issued in the writ petition, the respondent-State of Maharashtra has filed affidavit in reply and the petitioner has filed a rejoinder.

(2) IN order to exempt in public interest any specified class of sales or purchases from payment of the whole or any part of the tax payable under the Act, the State Government gave to itself powers of exemption under Section 41 of the Act. In exercise of its powers under Section 41 the government had been issuing notifications so as to grant exemption in appropriate cases from payment of sales tax or purchase tax or both as the case may be. One of such notifications issued by the government under entry 136 was for granting full tax exemption for the purchases of the inputs and the sales of finished goods of new units set up in the backward areas of the State. The government also issued notification under Section 85 of the Central Sales Tax Act to the sales of finished goods of such units from payment of central sales tax. These tax exemption benefits were accorded to the new industries by way of (1) incentives for development of industries in backward areas, (2) promotion of the dispersion of industries all over the State, (3) the industrialisation of backward areas and (4) for creating employment opportunities in the backward areas.

(3) BY virtue of the exemption notifications issued by the government in exercise of its powers under Section 41, the industries engaged in the production of edible as well as non-edible oils set up in backward areas came to enjoy the benefit of exemption from paying purchase tax/sales tax.

(4) SUBSEQUENTLY, the government came to realise that the sales tax exemption given under the Package Scheme of Incentives, 1979 for a period ranging from 5 to 9 years without any limit had conferred far more benefits on some of the industries concerned than what the government had in mind when the notifications granting tax exemptions were made and that the exemption facility was not only adversely affecting the governments finances but was also placing the existing small scale units on a comparative disadvantage. The government, therefore, passed a Resolution on July 5, 1982 (No. IDL-7082/(3559)/IND-B) to modify the Package Incentives Scheme and the benefits flowing therefrom in order to limit the benefit to 100 per cent of the fixed capital investment of the small scale units. Since the Package Scheme of Incentives, 1979 provided for giving notice of six months for any change or modification in the scheme, the modified scheme dated July 5, 1982 was proposed to be brought into force in respect of small scale units with effect from January 10. 1983. The government, however, noticed that during the intervening period of notice, a number of small scale units, particularly the oil units, tried to take advantage of the unlimited incentives to the disadvantage of the existing units and also caused loss to the public exchequer in respect of the revenue from sales tax. The small scale units also sought to take advantage of the decision of the Bombay High Court in Tapti Oil Industries v. State of Maharashtra by claiming benefit of tax exemption without any limit, thereby causing a continuing loss to the revenue.

(5) THE government, therefore, considered it would not be expedient in the public interest to continue the concession and, that suitable provision must immediately be made in the Act so as to limit the benefit of the exemption from payment of sales tax under the Pa