1988 (10) TMI 41 - SC - VAT and Sales Tax

Supreme Court: 'Cotton fabrics' exemption aligns with amended definition, ensuring legislative harmony

The Supreme Court held that the exemption for 'cotton fabrics' under the Kerala General Sales Tax Act, 1963 should include the amended definition from the ... Whether, in respect of the assessment years 1971-72 and 1972-73 the exemption given to 'cotton fabrics' under Item 7 above should be restricted to 'cotton fabrics' as defined in the Central Excises and Salt Act.1944 as it stood on 1-4-1963 or whether it would also cover goods falling under the said definition after Its amendment in 1969? Held that:- the 1963 Act, on a proper construction, does indicate a policy that certain items which are subject to additional excise duty should be left out of sales tax levy except in cases where there is a specific indication or provision of the Act to the contrary. The Kerala State legislature cannot be said to have attracted the 1944 Act definitions with their future amendment, blindly and without application of mind. On the other hand, it has been done in pursuance of a scheme, a purpose and a policy. It cannot, therefore, be said that there has been any abdication of its legislative functions by the Kerala legislature. Thus the High Court was right in the view it took viz. that the scope of the exemption available under Item 7 of the Third Schedule to the 1963 Act will vary according to the scope of the corresponding entry in the Schedule to the 1944 Act as it stands at the relevant time. So far as assessment years 1971-72 and 1972-73 are concerned, the definition of 'cotton fabrics' in Item 19 of the Schedule to the 1944 Act, as amended by the Finance Act, 1969 w.e.f. 1-4-1969, will apply. Appeal dismissed. Issues Involved:1. Interpretation of legislation by incorporation or reference.2. Applicability of amended definitions in subsequent legislation for tax exemption purposes.3. Relationship between various Central and State legislations affecting sales tax and excise duty.Detailed Analysis:1. Interpretation of Legislation by Incorporation or Reference:The primary issue is whether the exemption for 'cotton fabrics' under Section 9 of the Kerala General Sales Tax Act, 1963 should be interpreted as incorporating the definition from the Central Excises and Salt Act, 1944 as it stood on 1-4-1963, or whether it includes amendments made thereafter. The court examined principles of interpretation, distinguishing between referential legislation that merely cites another statute and legislation that incorporates provisions of another statute. The court referenced several precedents, including Secretary of State v. Hindustan Cooperative Insurance Society Ltd. and State of Madhya Pradesh v. Narasimhan, to elaborate that in cases of mere reference, the provision along with its amendments should be read into the first statute, whereas in cases of incorporation, the incorporated provisions remain static.2. Applicability of Amended Definitions:The court considered whether the amended definition of 'cotton fabrics' in the 1944 Act, post the 1969 amendment, should apply to the Kerala General Sales Tax Act, 1963. The High Court had previously held that the exemption should reflect the amended definition to avoid the 1963 Act becoming 'unworkable and ineffectual.' The Supreme Court upheld this view, stating that the 1963 Act referred to the definitions in the 1944 Act by way of reference or citation, not incorporation. This meant the definition should grow and shrink with amendments in the 1944 Act. The court emphasized that the 1963 Act and the 1944 Act were part of an integrated scheme, making it necessary to consider the evolving definitions.3. Relationship Between Various Legislations:The court explored the interconnections between the 1944 Act, the Central Sales Tax Act, 1956 (CST Act), the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (1957 Act), and the Kerala General Sales Tax Act, 1963. It noted that these legislations were part of an integrated scheme to regulate sales tax and excise duties on certain goods. The CST Act and the 1957 Act imposed restrictions and conditions on sales tax levies, which were linked to the definitions in the 1944 Act. The court concluded that the Kerala General Sales Tax Act, 1963, by referring to the definitions in the 1944 Act, intended to align with this integrated scheme, thus necessitating the application of amended definitions.Conclusion:The Supreme Court concluded that the exemption for 'cotton fabrics' under the Kerala General Sales Tax Act, 1963 should be interpreted to include the amended definition from the Central Excises and Salt Act, 1944, as it stood after the 1969 amendment. This interpretation ensures the 1963 Act remains functional and aligns with the integrated legislative scheme involving the CST Act and the 1957 Act. Consequently, the appeal was dismissed, affirming the High Court's judgment that the scope of the exemption varies with the corresponding entry in the 1944 Act as amended.