TaxTMI 
TaxTMI 
2019 (5) TMI 4
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal as unconstitutional. (iii) challenge sub-section (6-A) of Section 14 of 2002 Act whereby the liability is fastened on the purchasing dealer against the Input Tax Rebate (ITR). (iv) challenge the constitutional validity of Section 20(5) of VAT Act, 2002. (v) challenge the constitutional validity of the procedure prescribed under Section 46 and 53 of VAT Act, 2002 read with Rule 60 of the Madhya Pradesh VAT Rules, 2006, as regulating the procedure of filing of appeal and its summary rejection. [2] Petitioners are manufacturer and sellers of spirit and alcoholic beverages in the State of Madhya Pradesh. They purchase/ import Grains Neutral Spirits/ Extra Neutral Alcohol, concentrate of Alcoholic Beverages and imported Foreign Liquor as bottled in original in the State of Madhya Pradesh. The spirit is used for manufacture of potable liquor. The spirit manufactured by the petitioner is sold within and outside State of Madhya Pradesh. The manufacture and sale is on the strength of licence issued under provisions of Madhya Pradesh Excise Act, 1915 and the Rules framed there under. The petitioners are also registered under the Madhya Pradesh Value Added Ta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of entry 47 of Schedule I of the VAT Act by virtue of judgement in United Spirit Limited Vs. State of M.P. (judgment dated 26/08/2016 in W.P. No. 6655/2015). It is contended that, the legislature has intentionally placed liquor under entry no.6 of Part III-A of Schedule II so as to ensure that there is no input tax rebate available for sale of liquor which includes spirit. The very fact that liquor has been included under Part III-A of Schedule 2 displays the clear intention of the legislature to ensure that there is no input tax rebate available against sale of spirit. It is contended that, the argument of the respondents stating that 'liquor' only means to include the final product of bottled liquor meant for human consumption is entirely misplaced as there can be no set off against sale of a final product. Thus, the respondents clearly envisaged scenario where sales of spirit made to manufacture IMFL/ country liquor should not be provided the benefit of set off. Thus, spirit falls within the meaning of the word 'liquor' as envisaged under the VAT Act read with the M.P. Excise Act. It is further contended that the respondents have tried to incorporate Entry 51 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... its turn controvert the contention that the spirit cannot be taxed at the rate which find mention in Entry 1 in Part IV of Schedule II. It is urged that it is within the competence of the State to charge tax on ENA/ Rectified Spirit at higher rate vide residuary clause. [9] Considered the rival submissions. [10] The VAT Act was enacted to levy tax on sale and purchase of goods, tax on buildings and tax on goods carried by road in the State of Madhya Pradesh previous to VAT Act, the Act which governed the field were the Madhya Pradesh General Sales Tax Act, 1958 which was then replaced by the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994. And now the VAT Act, 2002. [11] The excisable articles under the Excise Act, 1915 was kept out of the purview of the Sales Tax. In other words, they were tax free goods, brought under Schedule I Entry No. 23 of 1958 Act. Entry No.18 of 1994 Act and Entry No. 47 of 2002 Act, as we are presently concerned with, of the VAT Act, Entry 47 of Schedule prior to 01/04/2013 stood thus:- "47. Goods on which duty is or may be levied under the Madhya Pradesh Excise Act, 1915 (No.2 of 1915) other than medicinal and toilet preparations specified....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AR (India) Ltd. and another Vs. Collector of Excise and others [AIR 1994 SC 2489], it is held:- "24. ....The distinction which the Constitution makes for legislative purposes between a 'tax' and a 'fee' and the characteristic of these two as also of 'excise duty' are well- known. "A tax is a compulsory exaction of money by public authority for public purposes enforceable by law and is not a payment for services rendered". A fee is a charge for special services rendered to individuals by some governmental agency and such a charge has an element in it of a quid pro quo. Excise duty is primarily a duty on the production or manufacture of goods produced or manufactured within the country. ....." [18] A taxing statute is to be strictly construed is the well established principle of law. [19] In Commissioner of Income Tax, Madras Vs. Kasturi & Sons Ltd. [(1999) 3 SCC 346], it is observed:- "9. The principle that a taxing statute should be strictly construed is well settled. In Principles of Statutory Interpretation by Justice G.P. Singh, 6th edition 1996, the law is stated thus:- "The well-established rule in the familiar words of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....words used. In the very full sense of the word 'construction' the judges have set themselves in this branch of the law to try to frame the law as they would like to have it ..... ". [See: Samples of Law Making--Oxford University Press--p.70-71] "A statute" says Max Radin "is neither a literary text nor a divine revelation. Its effect is, therefore, neither an expression laid on immutable emotional over-tones nor a permanent creation of infallible wisdom. It is a statement of situation or rather a group of possible events within a situation and as such it is essentially ambiguous." [See "Statutory Interpretation"--43 Har. L.R. 863 (868)]. The observations of Lord Russel of Killowen in Attorney General v. Carlton Bank, [1899] 2 Q.B. 158 though an early pronouncement, is refreshing from its broad common-sense: "I see no reason why special canons of construction should be applied to any Act of Parliament, and I know of no authority for saying that a Taxing Act is to be construed differently from any other Act. The duty of the Court is, in my opinion, in all cases the same, whether the Act to be construed relates to taxation or to any other su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... however, should not be understood to have pronounced on the question of constitutionality. That is the task of the Court in judicial-review but the rule of preference of a particular construction amongst the alternatives, in order to avoid unconstitutionality is unavailable here. Accordingly, while Civil Appeals No. 1226 and 1227 of 1975 preferred by the assessee are dismissed, CA No. 1118 of 1975 of the revenue is allowed and in reversal of the order dated 18.9.1974 of the Andhra Pradesh High Court the question referred is answered in the negative and in favour of the revenue. In the circumstances, the parties are left to bear and pay their own costs in these appeals." [22] Furthermore, it is held in Keshavji Ravji and Co. and others Vs. Commissioner of Income Tax [(1990) 2 SCC 231]:- "11. The premises of the argument is good in parts; but the inference does not logically follow. Section 40(b), it is true, seeks to prevent the evasion of tax by diversion of the profits of a firm; but the legislative expedience adopted to achieve that objective requires to be given effect on its own language. Section 40 opens with the non-obstante clause and directs t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... "Artificial rules of construction have probably found more favour with the courts than they have ever deserved. Their application in legal controversies has often times been pushed to an extreme which has defeated the plain and manifest purpose in enacting the laws. Penal laws have sometimes had all their meaning construed away and in remedial laws, remedies have been found which the legislature never intend- ed to give. Something akin to this has befallen the revenue laws....." (Emphasis Supplied)" [23] In the field of taxation it is well known that the legislature has wide discretion in selecting the person or objects it wants to tax. In State of Assam and others Vs. Naresh Chandra Ghose (D) by LRs [(2001) 1 SCC 265], it is held:- "4. There is no dispute that the legislature has a wide discretion in selecting the persons or objects it wants to tax and that a statute cannot be challenged on the ground that it levies tax on one class of articles and not on others....." 8. This class of spirituous medicinal preparation is to be taxed @ 20 paise in a rupee. The question, therefore, for our consideration is whether this type of classification which differen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....3) it can be "Denatured Spirit" or "Denatured Alcohol" which means "alcohol of any strength which has been rendered effectively unfit for human consumption by admixture of such denaturant as may be approved by the Excise Commissioner". Further, as per Rule 2(7) it could be "Extra Neutral Alcohol" which is "silent spirit of an optimum quality which complies with the standard for neutral spirit prescribed by the Bureau of Indian Standards for the purpose. That Rule 2(21) of Rules 1995 defines "Rectified Spirit" which means "plain un-denatured spirit of strength of 66 degrees or more over proof and includes Extra Neutral Alcohol and Absolute Alcohol". [29] Thus when the sale or purchase is of ENA/ Rectified Spirit the State will be within its competence to charge levy at the rate under residual entry. [30] When the liquor is sold by a dealer who holds F.L.2/F.L.3/F.L.3A/F.L.4/F.L.4A licence under M.P. Foreign Liquor Rules 1996, the tax is 5 %. Similarly when it is sold by a dealer other than dealer holding these licences, the tax is 5 %. [31] These licences under Rules 1996 are: "F.L.2 (Restaurant Bar licence)- F.L.2 licence holder may sell foreign liquor to the customer o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... [33] Furthermore, under Entry 56 in part II of Schedule II and Entry 6 in part III A of Schedule II of the VAT Act 2002, the liquor which is sold by the holder of licence FL2, FL3, FL3A, FL4 and FL4A is only subjected to 5 % tax and not other species of the liquor which as rightly construed by the State functionaries will be covered by residuary entry. [34] In view whereof, we do not perceive any ultra vires or an arbitrary act on the part of the State in charging tax at the rate 13% on ENA/Rectified Spirit. The challenge accordingly fails. As to direction No.(iii):- [35] Next challenge is to sub-section (6-A) of Section 14 of 2002 Act which deals with input tax rebate: It stipulates : "6-A. Notwithstanding anything to the contrary contained in this section, in no case the amount of input tax rebate on any purchase of goods shall exceed the amount of tax in respect of such purchase of goods, actually paid under the Act, into the Government Treasury: Provided that if a registered dealer (selling dealer) has furnished return of a period, the tax in respect of the purchases made by a registered dealer from the selling dealer during the period shall ordinari....
X X X X Extracts X X X X
X X X X Extracts X X X X
....put tax rebate they were not given the opportunity of hearing. [38] In view whereof, we do not perceive any force in the submissions made on behalf of the petitioner that they are not afforded opportunity to prove the bonafide of their claim. The decision in Arise India Ltd. (Supra) as rightly pointed out on behalf of the State turns on different set of provisions. Thus the challenge to the validity of Section 14 (6A) also fails. As to direction No.(iv):- [39] The challenge is also to sub-section (5) of Section 20 and Sections 46 and 53 of 2002 Act, read with Rule 60 of the Rules 2006. [40] Section 20 of 2002 Act deals with assessment. Sub-section (1) whereof stipulates that the assessment of every registered dealer shall be made separately for every year. Proviso, however, causes an exception in the following terms : (a) the Commissioner may, subject to such conditions and restrictions as may be prescribed, assess the tax due from any dealer for any part of a year; (b) a registered dealer who claims a refund of input tax rebate under the provisions of sub-section (4) of Section 14,- (i) in his return for any quarter of a year and makes an app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(i) has not maintained any accounts, or (ii) the accounts maintained by him are not in accordance with the provisions of sub-section (1) of Section 39, or (iii) has not regularly employed any method of accounting, or (iv) the method employed is such that in the opinion of the Commissioner assessment cannot properly be made on the basis thereof, the Commissioner shall after issue of a notice in the prescribed form appointing a place which may be the business premises or at the place specified in the notice and in the prescribed manner, assess the dealer to the best of his judgment." [42] The contention that the provisions contained under sub-section (5) lacks jurisdictional foundation and therefore it is ultra vires, are taken note of and are rejected outright. If the petitioners have any grievance as regard to the procedural irregularity they are always at liberty to take recourse to forum of appeal for redressal of the grievance. Merely on assumption that the procedural irregularity may occur, a statutory provision cannot be held to ultra vires constitution. The challenge to validity of sub-section (5) of Section 20 also fails. As to di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....djudication by itself following the rules of natural justice would be violative of any right, constitutional or statutory, without any right of appeal, as such. If a statute gives a right to appeal upon certain conditions, it is upon fulfilment of those conditions that the right becomes vested and exercisable to the appellant. From the aforesaid findings of the Hon'ble Apex Court it become apparent that any mandatory condition for pre deposit of certain portion of assess tax would not be violative of any right given by the Constitution." 9. The petitioner has mainly challenged the provision of Section 46 on the ground that there is no power with the appellate authority to waive or reduce the quantum of pre deposit when such provision exists in other Act. The Division Bench of M.P. High Court in Writ Petition No.5159/2012, (M/s. K.S. Oils Ltd V/s. State of M.P. & Ors. ) wherein alternative prayer of such petitioner was thus :- "(ii) that the common order dated 29.5.2012 Annexure P/1 may kindly be quashed and the matter may kindly be remanded to the appellate Authority for decision of merits without insisting for deposit of percentage amount as required under th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rity. Resultantly, this petition fails and is hereby dismissed with no order as to costs." 11. Recently, the Division Bench of this Hon'ble Court at main seat, Jabalpur in the case of M/s. Walmart India Pvt. Ltd V/s. State of M.P. in W.P.No.19769/2014 by order dated 22.01.2015 has directed as under :- "On the appellant's depositing 10% of the amount as proposed by the impugned order within a period of 10 days from today before the Appellate Authority, the Appellate Authority shall take up the appeal for hearing and after considering the application for stay and the prayer for waiver of pre deposit amount, shall pass order on their interlocutory application within a period of one month from the date of the order shall be subject to petitioner's depositing 10% amount as indicated herein above on or before 3rd February, 2015 and appearing before the Appellate Authority on 3rd February, 2015." 12. The Orissa High court in the case of Jindal Stainless Ltd V/s. State of Orissa in W.P.No. (C)15962 of 2014 by order dated 07.8.2012 in Para 23 of the order has held thus :- "23. In view of the above, we are of the considered view that the provis....