TaxTMI 
TaxTMI 
2016 (5) TMI 912
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.... thereof, all these writ petitions have been clubbed together and were taken up for disposal. 2. We have heard Mr.R.L.Ramani, learned Senior Counsel, M/s. B.Raveendran, Mrs.R.Hemalatha, N.Prasad, L.Muralikrishnan, Ms.Aparna Nandakumar, C.Baktha Sironmani, S.Ramanathan, K.Soundararajan, V.Sundareswaran and S.Raveekumar, learned counsel appearing for the writ petitioners and Dr.Anita Sumanth, learned Special Government Pleader(Tax), assisted by Mr.Manoharan Sundaram, Additional Government Pleader(Tax), and Mr.Cibi Vishnu, Additional Government Pleader (Tax), appearing for the State. 3. Under Section 8(1) of the Central Sales Tax Act, a dealer who sells goods of the description referred to in Sub-Section (3) in the course of inter-State trade or commerce, is liable to pay tax at a concessional rate. But if the sale is of the goods not falling within Sub-Section (1), the tax payable will be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax Law of that State. 4. The petitioners in these cases are dealers within the meaning of the said expression in Section 2(b) of the Central Sales Tax Act, 1956. The petitioners claim ....
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....in Clauses (a) to (g); (ii) the goods must be used in the State; (iii) they must be used for the purpose of manufacture, processing, packing or storing of goods; (iv) such an activity should take place in the course of business; and (vi) the same should not be civil structures or such goods as may be notified by the Government. 9. One set of dealers who claim that they are selling goods that satisfy all the above criteria except what is mentioned in serial number (ii) above, have come up with writ petitions, objecting to the presence of the phrase "in the State" appearing in Section 2(11). Another set of dealers whose goods are not even treated as falling within the description contained in Clauses (a) to (g) have come up with a set of writ petitions contending that what they sell are also capital goods that will fall within the description contained in Clauses (a) to (g). 10. In other words, two categories of persons have come up with the above writ petitions. One set of persons are those who admittedly manufacture the goods of the description contained in Clauses (a) to (g), but whose goods are used not "in the State" but outside the State, as a consequence of w....
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....Tax Act, 1959, also contained similar expressions. But they were not challenged. Therefore, the challenge to a particular expression contained in Section 2(11), especially after the deletion of Section 8(2-A) of the CST Act, 1956, simultaneously with the introduction of the TNVAT Act, 2006, has no substance. 13. We have carefully considered the rival contentions. We shall take up the grounds of challenge one by one. First ground of challenge: 14. The first ground of challenge to Section 2(11) is that the nature of the goods cannot change, merely on the basis of the location in which they are used. According to the petitioners, if certain goods are admittedly capital goods, their nature will not change merely because they were sold in the course of inter-state trade or commerce, to persons outside the State. 15. But this argument of the petitioners is based merely upon logic and common sense. Unfortunately, law, much less tax law, is not founded upon logic and common sense. The petitioners have forgotten for a moment that they are challenging the vires of a legislation. The law validly enacted by a State Legislature, cannot be challenged on the ground that it defies logi....
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....rred by statute upon the executive. Therefore, it could be exercised only subject to the provisions of the statute. Once the statute defines an expression, the fact that the same object could have been achieved even by exercising the power of exemption, cannot be an answer. 19. The second contention of Mrs.R.Hemalatha, that the nature of the goods cannot depend upon the situs of the use, is wholly unsustainable. What are capital goods and what are not, may vary from statute to statute. Every State legislature is entitled to adopt its own definition, depending upon the exigencies. What are capital goods for those who use them in the production of other products, may not be capital goods for the person who manufactures those very goods. 20. The fact that all other States except Delhi have adopted a particular definition for the expression capital goods, is an argument to be advanced on the floor of the Assembly or in the public domain. The vires of a provision of law cannot be tested on the basis of what the other States have done or have not done. 21. That the State does not stand to lose by treating the expression used in the State appearing in Section 2(11) as redundant, ....
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....re is entitled to treat a particular item or good as a capital good, when used within the State. It may not even be a capital good in common parlance. Similarly, a particular good which is treated as capital good in all other States, may be treated differently by one State, provided the law making it so, passes the tests indicated above. 27. As rightly pointed out by Dr.Anita Sumanth, learned Special Government Pleader (Taxes), Sub-section (3) of Section 3 of the TNGST Act, 1959, used the expression "inside the State" and Sub-Section (5) of the very same Section used the expression "use in his factory site situate within the State". The relevant parts of Sub-sections (3) and (5) of The TNGST ACT, 1959 read as follows:- "(3) Notwithstanding anything contained in sub-section(2),(2-A) or (2- C), but subject to the provisions of sub-section (1), the tax payable by a dealer in respect of sale of any goods including consumables, packing materials and labels, but excluding plant and machinery, to another dealer for use by the latter in the manufacture, and assembling, packing or labeling in connection with such manufacture inside the State, for sale by him of any goods other t....
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....ults in rejection of words has to be avoided. As stated by the Privy Council in Crawford v. Spooner [(1846) 6 Moore PC 1]" we cannot aid the Legislature's defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there". In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well-settled and reference to few decisions of this Court would suffice. [See: Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests, Palghat and Anr. (AIR 1990 SC 1747), Union of India and Anr. v. Deoki Nandan Aggarwal (AIR 1992 SC 96), Institute of Chartered Accountants of India v. Price Waterhouse and Anr. (1997 (6) SCC 312) and Harbhajan Singh v. Press Council of India and Ors. (JT 2002 (3) SC 21)]." Therefore, the contention of the petitioners that the words "used in the State" appearing in Section 2(11) have to be ignored or treated as redundant or superfluous is completely contrary to the law laid down by the Supreme Court. 29. Relying upon the decision of the Supreme Cou....
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....e to the definition of the expression "capital goods" under the State Act, cannot be assailed as discriminatory, offending Article 14 of the Constitution. 33. For assailing the impugned provision, as being violative of Article 14, Mr.S.Ravee Kumar, learned counsel places strong reliance upon the decision of the Constitution Bench of the Supreme Court in Subramanian Swamy v. CBI [(2014) 8 SCC 682]. 34. But, as pointed out by the Supreme Court in the said decision, a person challenging a legislation as ultra vires and violative of Article 14 should satisfy two fundamental requirements, namely (a) that the legislation permits discrimination based on an impermissible or invalid classification, and (b) that the impugned legislation permits excessive delegation of powers and conferment of uncanalised and unguided powers on the executive. But, both these requirements are not satisfied in the case on hand. Section 8 of the Central Sales Tax Act, 1956, itself creates a classification based upon the registration of the dealers. Such classification is permissible in view of the object sought to be achieved, namely to encourage transactions between two registered dealers, as propounded i....
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.... in the Certificate of Registration of the registered dealer purchasing the goods as being intended for re-sale by him or subject to any Rules made by the Central Government in this behalf, for use by him in the manufacture of processing of goods for sale or 3 [in the telecommunications network or] in mining or in the generation or distribution of electricity or any other form of power." 38. A careful look at Section 8(2) would show that the Rule contained therein would apply to the sale of goods in the course of inter-State trade or commerce, not falling within sub-Section (1). In other words, if two conditions are satisfied namely (a) that the goods are of the description referred to in sub-Section (3), and (b) that the sale is to a registered dealer, then the sale would be covered by Section 8(1). Even if any one of the two conditions is absent, the sale would fall under Section 8(2). 39. If a sale falls within Section 8(1), it will attract tax at the rate of 3% (now 2%) or at the rate applicable under the Sales Tax Law of that State, whichever is lower. If the sale falls under Section 8(2), the tax payable would be as per the local Sales Tax Law of that State. 40. For ....
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....Bashir Oil Mills v. Maharashtra Sales Tax Tribunal [(1993) 90 STC 195 (Bom.)], it is contended by Mr.R.L.Ramani, learned senior counsel appearing for some of the petitioners that the use of the words "used in the State" in Section 2(11) of TNVAT Act, 2006, was obviously redundant and superfluous, as the State is not competent to levy any tax on the sale of goods in the course of inter-state trade or commerce. 45. But, in Bashir Oil Mills, the Bombay High Court was concerned with an exemption notification issued under Section 41 of the Bombay Sales Tax Act. The notification exempted all sales of oil cakes, including oil cakes for the purpose of cattle feed within the State of Maharashtra. The controversy arose about the use of the words "within the State of Maharashtra". The Bombay High Court construed the exemption notification to be an exemption from tax generally made within the purview of Section 8(2A). As a consequence, the Bombay High Court held that the expression "within the State of Maharashtra" cannot be said to be a condition to the exemption. But, the effect of the expression "generally" used in Section 8(2A) has already been expounded by the Supreme Court in Pine Che....
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....e the third ground of challenge is fallacious and is rejected. Fourth ground of challenge: 50. The fourth ground of challenge is that the prescription contained in Section 2(11) is violative of Article 286(1)(a) of the Constitution. Article 286(1)(a) reads as follows:- "286. Restrictions as to imposition of tax on the sale or purchase of goods.-- (1) No law of a State shall impose, or authorise the imposition of, a tax on the sale or purchase of goods where such sale or purchase takes place (a) outside the State; " 51. The above Article merely mandates that no law of a State shall impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place outside the State. We do not know how Article 286(1)(a) stands violated by a mere definition clause. Section 2(11) merely defines what capital goods are. Those capital goods are charged to a particular rate of tax under Entry 25 of Part-B of the First Schedule. Therefore all that Section 2(11) seeks to do is to impose a tax at the rate of 5%, upon certain types of goods that are used in the State for the purpose of manufacture, processing, packing or stor....
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.... territory of India. " 55. We do not know how the definition of the expression "capital goods" is violative of Article 303 of the Constitution. Clause (1) of Article 303 of the Constitution prohibits the Parliament and the Legislature of a State from making any law that would confer a preferential treatment to one State over the other or from discriminating one State from another. As far as we understand the purport of the said Article, what is prohibited by the same is only the making of a law that would treat the goods purchased from or sold to a dealer in one State, more or less favourable than the goods purchased from or sold to a dealer in other States. Even the provisions of this Article do not prevent a State from making a law that would provide a special treatment to certain types of goods or certain types of dealers or certain types of transactions. Therefore, the contention that the adoption of a restricted meaning to a particular word contained in the statute tantamounts to a violation of Article 303, can hardly be accepted. 56. In Atiabari Tea Co. Ltd. v. State of Assam [AIR 1961 SC 232], the Constitutional validity of Assam Taxation (on goods carried by roa....
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....icles in Part XIII. The main object of Art. 301 obviously was to allow the free flow of the stream of trade, commerce and intercourse throughout the territory of India." 58. Thereafter, the Supreme Court pointed out that the provision contained in Article 301 guaranteeing the freedom of trade, commerce and intercourse is not a declaration of a mere platitude or the expression of a pious hope of a declaratory character. Article 301, it was pointed out by the Supreme Court, embodies and enshrines a principle of paramount importance that the economic unity of the country will provide the main sustaining force for the stability and progress of the political and cultural unity of the country. However, the Court ultimately held that restrictions, freedom from which is guaranteed by Article 301 would be such restrictions as directly and immediately restrict or impede the very flow or movement of trade. The Court also pointed out that taxes may amount to restrictions, but it is only such taxes as directly and immediately restrict trade that would fall within the purview of Article 301. The Court also clarified that despite Article 301, the State Legislatures can impose restrictions, aft....
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....e channels, the rates of freight, trading facilities, availability of efficient transport and other facilities for carrying on trade. It is where differentiation is based on considerations not dependent upon natural or business factors which operate with more or less force in different localities that Parliament is prohibited from making a discrimination. Prevalence of differential rates of tax on sales of the same commodity cannot be regarded in isolation as determinative of the object to discriminate between one State and another." 62. Relying upon the decision in Weston Electronics v. State of Gujarat [(1988) 70 STC 52 (SC)], it is contended by Mrs.R.Hemalatha, learned counsel appearing for some of the petitioners that even the adoption of a higher rate of tax can be taken to be a restriction on trade and commerce. But, the said contention is wholly misconceived. As we have pointed out earlier, the State is not seeking to impose differential rates of duties on goods used within the State and those used outside the State. Section 2(11) merely defines what capital goods are for the purpose of the Act. Merely because those who sell the very same goods in the course of inter-stat....
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.... Law is to encourage transactions between two registered dealers. Therefore, the decisions cited do not advance the cause of the petitioners. 66. Contending that it may not be possible to expect every part of the definition contained in Section 2(11) to be satisfied, for the purpose of claiming the benefit of a lesser rate of tax, Mr.N.Prasad, learned counsel for some of the petitioners argued that a definition cannot contain a pre-condition to be satisfied. In this regard the learned counsel drew our attention to the difference in the language employed between old Section 8(2) and new Section 8(2) and argued that the Supreme Court had already indicated in The State of Mysore vs. Yaddalam Lakshminarasimhiah [16 STC 231], as to how to read Section 8(2) of the Central Sales Tax Act, 1956. 67. In Yaddalam Lakshminarasimhiah, the Supreme Court was concerned with a case where an assessee claimed that its turnover consisting of sales of textiles manufactured by means of power looms in the course of inter-State trade is liable to be taxed at the same rate and exactly in the same manner as they would have been taxed if they had been intra-State transactions. The High Court accepted t....
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.... it is not open to the court either to go by the general perception of what an animal is or by a forensic examination of whether the prescription of four legs etc., are conditions precedent or mere general indicators. Therefore, the last ground of challenge is also liable to be rejected. 72. As pointed out in paragraph 15 above, a statutory provision can be challenged only on very limited grounds, namely (a) the infringement of any of the fundamental rights, (b) the lack of competence on the part of the relevant legislature, due to the distribution of powers, (c) contravention of any of the mandatory provisions of the Constitution that impose certain limitations upon the powers of the State legislature, (d) the operation of the impugned law beyond the borders of the State, and (e) the abdication of the essential legislative function. The petitioners in these writ petitions could not establish the existence of any of these grounds, for holding the phrase "in the State" appearing in Section 2(11) of the Tamil Nadu VAT Act, 2006. Therefore, the challenge to the statutory prescription made in these writ petitions has to be failed. Individual grievances 73. Apart from the chall....
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....ess of goods which brings into existence, a commercially different and distinct commodity, is also manufacture and hence any equipment that is used to process goods, so as to bring into existence a commercially distinct and different commodity, would be a capital good. That such a good should also be used in the State, so as to satisfy the requirements of Section 2(11), is altogether different. 77. Once the above tests are applied, it would be clear that concrete mixtures, fermenters, paper cup machinery, coir and curling machine, welding machinery parts, printing machinery parts, cold storage equipment etc., which the petitioners in some of the writ petitions are dealing in, would certainly be capital goods, provided they also satisfy the requirement of 'used in the State' found in Section 2(11). The assessing authorities shall take note of this and apply their mind while passing orders of assessment. 78. In so far as the second category of cases is concerned, their grievance is that they are selling goods which fall within clauses (a) to (g) of Section 2(11). But, they are selling those goods to Governments, Government Undertakings, or Government Companies of other ....