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

Not available · 2025 INSC 1154Decided 24 Sept 2025
Not available
Justice B.V. Nagarathna · Justice K.V. Viswanathan

Background

Rajasthan issued a 2007 notification under its VAT Act exempting from tax the sale of asbestos cement sheets and bricks manufactured within the state using at least 25% fly ash, provided production had commenced by end-2006. The appellants, manufacturers with sales depots (but not factories) in Rajasthan, challenged the notification as discriminatory against goods brought in from outside the state, in violation of the constitutional guarantee of free trade across India. The Rajasthan High Court had upheld the notification as falling within a recognised narrow exception for genuine industrial-promotion measures.

Decision Breakdown

The Supreme Court undertook an extensive review of its precedents on Article 304(a), including the nine-judge Constitution Bench ruling in Jindal Stainless Ltd., and concluded that a tax exemption benefiting only in-state manufacturers, without a compelling and clearly justified developmental rationale of the kind recognised in the limited Video Electronics exception, amounts to unconstitutional discrimination against goods from outside the state. It found the Rajasthan notification did not even require that the fly ash itself be sourced within the state, undercutting the state's stated justification. The notification was quashed and the appeals allowed, with the matter posted for further directions on refunding, with 6% interest, any differential tax deposited that was not passed on to customers.

Lesson Learnt

A state cannot use tax exemptions to favour its own local manufacturers over businesses bringing in similar goods from other states unless there is a specific, narrowly tailored and genuine justification; blanket local-only tax breaks violate the constitutional right to trade freely throughout India.

Official source (sci.gov.in)View Judgment (PDF)

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