Shri Rama Sugar Industries Ltd. and Ors. vs. State of Andhra Pradesh and Ors.

Facts

The Respondent (Government of Andhra Pradesh) had adopted a policy (Annexure III) under Section 21(3)(b) of the Act of 1961, granting tax exemptions only to cooperative societies running sugar factories, excluding other anew established or substantially expanded industries. Several petitioners, including the appellant, challenged the government's decision, arguing that it was discriminatory and contradicting the object of the Act, which aimed to incentivize the expansion of all sugar factories.

Key Takeaways for Students

Legal Issue

• Does the term ‘may’ in Section 21(3)(b) impose a mandatory obligation on the government to grant tax exemptions to all sugar industries that meet the expansion criteria?
• Whether the government’s policy of limiting tax exemptions to only cooperative sugar factories arbitrary and unconnected to the object of the Act?

Holding

The Supreme Court held that the term “may” in Section 21(3)(b) confers discretionary power on the government but requires that the discretion be exercised reasonably and in line with the purpose of the legislation. The court found the policy extending the benefit of tax exemptions to only cooperative sugar factories and explicitly excluding the new or substantially expanded industries from the said benefit is arbitrary and unrelated to the object of Section 21(3)(b). The provision aimed to encourage the expansion of sugar production in all industries. The policy was quashed, and a mandamus was issued to the government to reconsider the applications of the petitioners and the appellant without adhering to the invalid policy.

Ratio

The classification made by the policy or rule must not be arbitrary but must have rational relation to the object of the exempting provision. When an Act confers discretionary power on the government it must not be exercised arbitrarily.