The court highlighted that the exemption in question was granted to businesses based on their geographical location and nature of operations, particularly those operating in former tribal areas. According to the PHC, the condition requiring a pay order equivalent to the sales tax amount effectively nullifies the exemption. Instead of enjoying tax relief, businesses are burdened with a mechanism that closely resembles a tax payment regime, contrary to the intent of the exemption.
The court clarified that while these businesses are exempt from paying sales tax on raw materials imported under the concessionary regime, they must pay sales tax on products sold outside the former tribal areas. However, demanding a pay order at the time of consignment clearance forces these businesses to divert operational funds, defeating the exemption’s intended purpose and violating constitutional protections under Articles 23 and 24, which safeguard property rights and the freedom to engage in business.
Examining the legal framework, the PHC noted that the Sales Tax Act, 1990, and its Sixth Schedule do not stipulate that exemptions are contingent upon payment orders. The court deemed this additional requirement discriminatory and unreasonable, as it unfairly targets businesses in the former tribal regions. The judgment found that the imposition of such a condition was inconsistent with the principles of fairness, reasonableness, and equality enshrined in Articles 18, 23, 24, and 25 of the Constitution.
As part of its verdict, the PHC declared the amendment to Entry No. 151 of the Sixth Schedule unconstitutional. It directed authorities to replace the pay order requirement with post-dated cheques for sales tax compliance, providing relief to the affected businesses. Additionally, any pay orders already submitted are to be returned.
This decision reinforces the exemption regime, ensuring that businesses operating in economically sensitive areas can fully utilize their resources without facing undue financial constraints. The ruling underscores the need for legislative and administrative frameworks to align with constitutional principles, avoiding measures that dilute the benefits of tax exemptions granted to incentivize regional and sectoral growth.
