TaxTMI 
TaxTMI 
2009 (12) TMI 883
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....y. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. . ." See Elel Hotels and Investments Ltd. v. Union of India [1989] 74 STC 146 (SC) at 156; [1989] 3 SCC 698 Parameters of judicial review over tax law "Though other legislative measures dealing with economic regulation are not outside article 14, it is well-recognised that the State enjoys the widest latitude where measures of economic regulation are concerned. These measures for fiscal and economic regulation involve an evaluation of diverse and quite often conflicting economic criteria and adjustment and balancing of various conflicting social and economic values and interests. It is for the State to decide what economic and social policy it should pursue and what discriminations advance those social and economic policies. In view of the inherent complexity of these fiscal adjustments, courts give a larger discretion to the Legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways. If two or more methods of adjustments of an ec....
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....he Eleventh Schedule other than the goods notified by the Government under section 3C, at a point other than the point of levy specified therein: Provided that any resale turnover included in the total turnover of a dealer paying tax under sub-section (2) of section 3D and sections 3E, 7C, 7D and 7E is not liable for resale tax: Provided further that the goods taxable at the point of last purchase in the State are not liable to resale tax." Section 3I levying surcharge reads as follows: 3I. Levy of surcharge.-A surcharge at the rate of five per cent shall be levied on the tax levied under sub-sections (2), (2C), (3) and (5) of section 3, sections 3A, 3B and 3C, sub-section (1) of section 3D and sections 3G, 3J, 5, 7A and 7C, and at the first point of sale in the State under sub-section (2A) of section 3. It is seen that "kerosene" was originally brought under entry 40 of Part B of the First Schedule to the TNGST Act (introduced by second Amendment Act TN Act 37 of 1996 with effect from July 17, 1996) taxable at four per cent (first sale) with effect from July 17, 1996 till March 26, 2002. Subsequently, kerosene was brought under entry 9 of Part G of the First Schedul....
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....al Commissioner and the Commissioner of Commercial Taxes by one such dealer, the Commissioner gave a clarification under section 28A of the TNGST Act. The clarification, dated September 3, 2001 in clarification No. 204 of 2001 reads as follows: "Tvl. Power Petroproducts, Chennai 83, in their letter cited have requested rate of tax clarification under section 28A of the TNGST Act, 1959, for 'superior kerosene oil'. The details furnished by the petitioners have been perused and the following clarification on rate of tax is issued: Superior kerosene oil is taxable at four per cent under entry 40 in Part B of the First Schedule to the TNGST Act, 1959 with effect from July 17, 1996." According to the petitioner even the authorities working the Act have also understood only in that sense. The bifurcation of the kerosene into kerosene and SKO with effect from March 21, 2003 was not valid, because the goods known as white kerosene or SKO did not have any separate identity. They are also kerosene for all practical purposes. Therefore, the petitioners are aggrieved by the artificial separation of the same goods, i.e., kerosene. The levy of tax at four per cent on kerosene....
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....sale tax was not amended, they are entitled to exemption in respect of any levy found in the Eleventh Schedule. So long as these notifications were not amended to exclude SKO/white kerosene oil from the purview of exemption notification, they need not pay surcharge and resale tax. Hence the circular issued by the Principal Commissioner, dated October 1, 2003 that such an exemption was not available from March 21, 2003, the day on which the entry relates to kerosene was split up into two different items, leviable to tax at different percentage was not valid. In some cases, the petitioners have challenged individual assessment orders on the ground that they are not liable to pay either enhanced tax or surcharge and resale tax. They have not availed statutory appellate remedies available to them before the Assistant Appellate Commissioner as well as before the Sales Tax Appellate Tribunal. They have chosen to move this court, challenging the orders of assessment. This court is not inclined to go into the factual dispute on the liability on such petitioners. Except for deciding the legal and constitutional issues, regarding the liability of dealers to pay the enhanced levy of SKO....
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....on from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30 per cent on the turnover of arishtams and asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied. In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India [1963] 3 SCR 957, this court considered whether the ayurvedic medicinal preparations known as mritasanjibani, mritasanjibani sudha and mrithasanjibani sura, prepared in accordance with an acknowledged ayurvedic formula, could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was a Central Act. The court held that the three preparations were medicinal preparations, and observed that the me....
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.... of kerosene limits the scope of its import by the public sector. Therefore with a view to increase the domestic availability of kerosene and to reduce the scope for its unauthorised diversion from PDS supplies, Government have decided to allow private sector entrepreneurs to undertake kerosene imports in line with LERMS (Liberalised Exchange Rate Management System) and to arrange the sale thereof in the domestic market through their own network at market determined prices. 1.2.0. To achieve the above objectives, the Government have taken\ following measures: 1.2.1. The supplies of subsidised kerosene through PDS would be continued but all households with LPG connections would be excluded from such supplies. 1.2.2. Kerosene sold through PDS would be imparted blue colour to visually distinguish it from the kerosene sold in the free market." (emphasis Here italicised. added) He also relied on the brochure of Bureau of Indian Standards (for short BIS). In paragraph 0.2 the specification for kerosene reads as follows: "0.2. This specification was originally issued in 1959 and subsequently revised in 1968. It was amended in 1972 in order to modify the requirements of I....
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....aphs 20 to 22, it was held as follows: "20. From the above, we find that in Associated Cement case [2006] 144 STC 342 (SC); [2006] 1 SCC 597, it was held by this court that the rate of tax on cement was dependent on the question whether the price included the cost of packing materials whereas in the present case we are concerned with the exemption granted to the dealer of NPK 23: 23:0. In view of our discussion made hereinabove, we are, therefore, of the view that the decision in the case of Associated Cement [2006] 144 STC 342 (SC); [2006] 1 SCC 597 stands on a different factual situation. Therefore, we are unable to accept the contention of the learned counsel for the appellants that the decision in Arya Vaidya Pharmacy case [1989] 73 STC 346 (SC); [1989] 2 SCC 285 and the principles laid down in that case cannot be applied in the present case. 21.. This being the position and in view of our discussion made herein earlier that the products of the respondent and the exemption granted in the notification in question which are similar in nature, we hold that the product of NPK 23:23:0 is also a similar commodity within the meaning of the notification of exemption dated April 1....
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....has to be interpreted. Reliance was made on the following passages found in paragraphs 43 to 45, which read as follows: "43. . . . While interpreting an entry in a taxing statute, the court's role would be to consider the effect thereof, upon considering the same from different angles. Different tests are laid down for interpretation of an entry in a taxing statute, namely, dictionary meaning, technical meaning, users point of view, popular meaning, etc. 44.. It is true that the court must bear in mind the precise purpose for which the statute has been enacted, namely, herein for the purpose of collection of tax, but the same by itself would not mean that an assessee would be made to pay tax although he is not liable therefor, or to pay higher rate of tax when he is liable to pay at a lower rate. 45.. An exemption notification may require a strict construction, but where a statute merely provides for different rates of tax, application of the principles of strict construction may not be appropriate." The learned senior counsel also submitted that there is no rhyme or reason in fixing four per cent for kerosene and per cent for SKO and it is clearly arbitrary. ....
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....hat potentiality or strength of the transformer oil is decreased after its use by the petitioner cannot be made basis for taking it out of the ambit of the expression "petroleum product". In paragraph 10 of the judgment, it was held as follows: "10. A reading of the plain language of section 18 along with item No. 7 of notification dated December 30, 1987 makes it clear that tax is leviable on petroleum products including spirit at the first stage of sale. It is not in dispute that the transformer oil purchased by the petitioner for its use falls within the ambit of the term 'petroleum products' appearing at serial No. 7 of notification dated December 30, 1987. It was used by the petitioner as a lubricant for operating transformers. Thereafter, the same was sold to the registered dealers as the used transformer oil and not as any other commodity. It was neither the petitioner's pleaded case nor any evidence was produced before the assessing officer to show that the used transformer oil does not retain its character as lubricant and cannot be used as such. Therefore, the mere fact that potentiality or strength of the transformer oil is decreased after its use by the p....
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....GST Act and that cannot be changed by way of a circular issued by the same authority. Mr. N. Inbarajan, learned counsel for some of the petitioners adopted the arguments of Mr. R. Venkatraman, learned senior counsel and added that the use of kerosene is covered by the provisions of the Essential Commodities Act, 1955 and also Kerosene (Restriction on use and Fixation of Ceiling Price) Order, 1993. The said order framed under section 3 of the Essential Commodities Act defines "kerosene" under rule 2(e), which reads as follows: "'kerosene' means a middle distillate mixture of hydrocarbons meeting BIS specification No. IS-1459 of 1974 with important characteristics of flash point at a minimum of 35OC and smoke point at a minimum of 18 mm." It also defined the "parallel marketing system" and "public distribution system" under rule 2(i) and 2(j) which are as follows: "(i) 'parallel marketing system' means a system, other than the public distribution system, under which a person imports kerosene, or stores, transports, packs, distributes or sells imported kerosene, under his own arrangement; (j) 'public distribution system' means the system o....
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....d illegal orders, the petitioners are entitled to challenge the assessment orders before this court. The question of alternative remedy is only self-imposed restriction. He also submitted that the clarification issued by the Principal Commissioner under section 28A is very much available. Therefore, he submitted that the point of levy cannot be shifted. Mr. N. Sriprakash, learned counsel appearing for some of the petitioners, made attack only against the collection of surcharge when there is special exemption provided under section 17(1). He stated that he is not challenging the validity of the Act. His contention is that the exemption under section 17(1) is independent of any entry made pursuant to section 59(1). Even if any entry in the Eleventh Schedule is bifurcated, the exemption which is originally granted under section 17(1) will continue to be valid until amended in terms of section 17(2) or section 17(3) of the TNGST Act. In the present case, when the Schedule provides kerosene as a single entry is taxed at the rate of four per cent. When the Government granted exemption both from surcharge as well as resale tax, the dealers are entitled to avail of such exemption. T....
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....phtha for use in the manufacture of fertilizers." The subsequent entry 67, corresponding to the earlier entry No. 11 reads as follows (at page 518 of 121 STC): "67. Petroleum products, that is to say, petrol, diesel, crude oil, lubricating oil, transformer oil, brake or clutch fluid, bitumen (asphalt), tar and others, but excluding aviation fuel, liquid petroleum gas (LPG), kerosene and naphtha for use in the manufacture of fertilizers." The Supreme Court while noting the change in the terminology used in the entry, in paragraph 11 observed as follows (at page 519 of 121 STC): "11. Both these entries (Nos. 11 and 67) mention 'petroleum products': Whereas in entry 11 the first words are all petroleum products, the word 'all' is missing in the new entry 67. This, however, will not make any material difference because petroleum products would clearly mean any type of petroleum product. The use of the words 'and others' would, in our opinion, refers to petroleum products other than those which are specifically mentioned therein. What is, however, important is that the said entries specifically exclude aviation fuel, liquid petroleum gas, kerosene and....
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....fidavit, it was averred as follows: "11. It is respectfully submitted that the amendment was made to the Eleventh Schedule by the Legislature which is within its competence. The intention of the Legislature for making the above amendment is to curb illegal transportation of white kerosene (superior kerosene) in order to arrest evasion of tax. Moreover, the commodity kerosene and white kerosene are meant for two different purposes, i.e., kerosene is used for domestic purpose and white kerosene (superior kerosene) is meant for industrial use. Hence, the Government which is empowered to fix different rates for a given commodity which has different usages has classified the commodity under two different entries which is quite in order. Therefore, the contention of the petitioners that the classification of the kerosene into two different entries in the said Eleventh Schedule is arbitrary, is not acceptable, since it is not based on any sound reason because both the commodities even though are available in the said Eleventh Schedule are meant for different usage. Similarly, the clarification given by the Commissioner stating that the commodity white kerosene (superior kerosene) attra....
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....ems to me there are two principles or rules of interpretation which ought to be applied to the combination of Act and Schedule. If the Act says that the Schedule is to be used for a certain purpose and the heading of the part of the Schedule in question shows that it is prima facie at any rate devoted to that purpose, then you must read the Act and the Schedule as though the Schedule were operating for that purpose, and if you can satisfy the language of the section without extending it beyond that purpose, you ought to do it. But if in spite of that you find in the language of the Schedule words and terms that go clearly outside that purpose, then you must give effect to them and you must not consider them as limited by the heading of that part of the Schedule or by the purpose mentioned in the Act for which the Schedule is prima facie to be used. You cannot refuse to give effect to clear words simply because prima facie they seem to be limited by the heading of the Schedule and the definition of the purpose of the Schedule contained in the Act.' 32.. The above observation was not disapproved in appeal in (Gittus v. Commissioners of Inland Revenue [1921] 2 AC 81). However, ....
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....e, clear is that what applies to the main levy, applies to the additional duties as well. We find no substance in contention (c) either." Therefore, he stated that the power of the State Government to issue a notification to amend the Schedule in terms of section 59(2) is also a part of the statute and it is not subjected to challenge as contended by the petitioners. In any event, the statute, in order to make it foolproof, was also amended by a separate legislative amendment. Therefore, the petitioners cannot attack the said notification on the ground that it is violative of articles 14 and 19(1)(g) of the Constitution of India. He also submitted that once the Schedule is amended, the exemption notification cannot stand on its own. He also stated that if the exemption is granted only in respect of tax payable under this Act on the sale or purchase of any specified class of goods and once exempted in respect of only specified class of goods and that class of goods has been specifically mentioned in the different entry into the Eleventh Schedule, then exemption notification will still apply to SKO is unsustainable. The learned counsel in this context placed reliance upon th....
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....ion on original entry was still continued when relief was claimed on the basis of exemption notification, the said contention was repelled. The following passages found in paragraphs 3 and 4 reads as follows (at page 94 of 94 STC): "3. The State of U.P. has been issuing, from time to time, notifications under section 4 of the Act, exempting milk and milk products from the levy of sales tax. It has also been issuing from time to time notifications under section 3A notifying the rates of tax on sale/ purchase of different goods. In this case, we are concerned with one notification under section 4, namely, the one dated May 21, 1974 and two notifications under section 3A dated November 4, 1974 and May 30, 1975. The notification under section 4 dated May 21, 1974 exempted milk and milk products from the levy of tax. Ice-cream was understood to be a milk product and, therefore, exempt. However, by notifications issued under section 3A (dated November 4, 1974 and May 30, 1975) a rate of tax was prescribed expressly for ice-cream among other goods. 4.. In Commissioner, Sales Tax v. Agra Belting Works [1987] 66 STC 1; [1987] 3 SCC 140 a Bench of this court comprising R.S. Pathak, C.J....
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.... or circulars. Law is what is declared by this court and the High Court-to wit, it is for this court and the High Court to declare what does a particular provision of statute say, and not for the executive. Of course, the Parliament/ Legislature never speaks or explains what does a provision enacted by it mean. (See Sanjeev Coke Manufacturing Co. v. Bharat Coking Coal Ltd. AIR 1983 SC 239)." Therefore, in the light of the above, he submitted that the attack made against the levy of per cent tax in respect of SKO cannot be challenged. The parameters of judicial review over such levy of tax was dealt with by the Supreme Court on several occasions. In this context, he placed reliance upon the judgment of the Supreme Court in Elel Hotels and Investments Ltd. v. Union of India reported in [1989] 74 STC 146; [1989] 3 SCC 698. The Supreme Court held in that case that the sales tax can also be made on the basis of income differences and there cannot be any uniformity in such matters. The Supreme Court in paragraph 14 of the said judgment held as follows (at page 153 of 74 STC): "14. On a consideration of the matter, we are of the opinion that the submissions of the learned A....
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....rnible dissimilarity between those grouped together and those excluded is a pragmatic test, if there be a rational nexus of such classification with the object to be achieved. In the abstract, all cooked food may be the same since its efficacy is to appease the hunger of the consumer. But when the object is to raise only limited revenue by taxing only some category of cooked food sold in eating houses and not all cooked food sold anywhere, it is undoubtedly reasonable to tax only the more costly cooked food. The taxed cooked food being the more costly variety constitutes a distinct class with a discernible difference from the remaining tax-free cooked food. A blinkered perception of stark reality alone can equate caviar served with champagne in a luxury hotel with the gruel and buttermilk in a village hamlet on the unrealistic abstract hypothesis that both the meals have the equal efficacy to appease the hunger and quench the thirst of the consumer. Validity of a classification under our Constitution does not require such a blurred perception. 8.. The cost of meal in these two distinct classes of eating houses varies considerably, the cost in a modest eating house quite often be....
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....n, whereas SKO is meant for commercial use. The courts have held even by the place where it is sold, commodities are leviable with different rates of levies. When the Legislature has consciously made a distinction between the two products, the same cannot be attacked on the ground that they are same products and should receive same percentage of levy of tax. Further, it must be noted that the State Government had come out with a stand that a separate levy of tax was made so as to prevent misuse or black marketing of public distribution commodities. Reliance placed upon the judgment of the Supreme Court in Arya Vaidya Pharmacy case [1989] 73 STC 346; [1989] 2 SCC 285 has no application. The said case has been subsequently distinguished in two different cases and explained away in one case of State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd. [2007] 7 VST 535 (SC). Further, the Bureau of Indian Standards (BIS) prescribes criteria for adding chemical for colour quoting is mainly for purpose of standardizing so as to avoid any accusation of adulteration. In such cases, the dealers may avoid facing litigation in supplying adulterated kerosene. Similarly....