Exemption for Single Super Phosphate blocked tax on sulphur content where no lawful basis existed to separate gypsum

The exemption notification covered the phosphatic component of Single Super Phosphate, with the exempt percentage to be determined by guidelines from the Department of Agriculture, Uttar Pradesh, but no such guidelines were issued. On the material described, sulphur in the product existed only as gypsum and not as elemental sulphur, and gypsum for agricultural use was separately exempt. The revenue could not rely on a Central Government composition order to override the notification's mechanism or tax an internal constituent of a commodity that was otherwise exempt in law. In the absence of a specific taxing entry or lawful basis to segregate sulphur from gypsum, the levy on the estimated sulphur content was unsustainable.

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Issues: Whether the sulphur content in Single Super Phosphate was taxable despite exemption of the phosphatic component under Notification No. 440 dated 12.02.2001 and exemption of gypsum for agricultural use under Notification No. 784 dated 31.03.1995, and despite the absence of guidelines from the Department of Agriculture, Uttar Pradesh for determining the exempt percentage.

Analysis: The exemption notification covered the phosphatic component of Single Super Phosphate and made the percentage of such component dependent on guidelines to be issued by the Department of Agriculture, Uttar Pradesh. No such guidelines were issued. The material on record showed that sulphur in Single Super Phosphate existed only in the form of gypsum and not as elemental sulphur. Gypsum for agricultural use was separately exempt under the earlier notification. The revenue could not rely on the Central Government composition order to substitute the statutory mechanism chosen in the exemption notification, nor could it dissect the composite commodity and tax an internal constituent when the commodity as identified in law enjoyed exemption. In the absence of a specific taxing entry or lawful basis to segregate sulphur from gypsum, the levy on the estimated sulphur content was not sustainable.

Conclusion: The question was answered in the negative. The levy of tax on the sulphur component of Single Super Phosphate was held unsustainable and the revisions were allowed.

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