2006 (3) TMI 322 - SC - VAT and Sales Tax

Whether the processed foodgrains should be treated different from the foodgrains from which it is obtained after processing? Held that - Appeal allowed. In view of the re-induction of Explanation II to section 3-D with retrospective effect by the State Legislature by the Uttar Pradesh Sales Tax (Amendment & Validation) Act, 1980 U. P. Act No. 2 of 1980, the split and processed foodgrains would now be different from unsplit and unprocessed foodgrains and the respondent would be liable to pay purchase/sales tax on the split dal purchased by him from the dal mills in the State of U. P. although the mills had already paid the tax on the unsplit and unprocessed dal from which broken dal purchased by the respondent was produced.

Summary

Issues:
1. Interpretation of tax exemption on purchase of foodgrains.
2. Applicability of legislative amendments to tax laws.
3. Validity of Explanation II to section 3-D of the U. P. Sales Tax Act.
4. Impact of retrospective amendments on tax liabilities.

Analysis:
1. The case involved a dispute regarding tax exemption on the purchase of rice and broken dal by the respondent, a dealer in foodgrains. The assessing officer disallowed tax exemption on these purchases, leading to an appeal by the respondent. The revising authority set aside the previous orders and remanded the case for reassessment. The High Court, relying on a previous decision, held that the distinction between split and unsplit foodgrains no longer existed, thus allowing the respondent's claim for tax exemption on broken dal.

2. The legislative history of the U. P. Sales Tax Act was crucial in this judgment. Various amendments were made to section 3-D of the Act over the years, impacting the taxation of different commodities. The amendments introduced Explanations to clarify the tax treatment of processed foodgrains, such as dal. These legislative changes aimed to resolve controversies and ensure proper tax collection on various goods, including foodgrains and pulses.

3. The judgment discussed the validity and applicability of Explanation II to section 3-D of the U. P. Sales Tax Act. The court analyzed the impact of retrospective amendments on the interpretation of this Explanation. The earlier decision in Tilok Chand's case was referenced to understand the commercial differentiation between processed and unprocessed foodgrains. The court considered the legislative intent behind the amendments and their effect on tax liabilities.

4. The retrospective amendments introduced by the State Legislature through the Uttar Pradesh Sales Tax (Amendment and Validation) Act, 1980, re-inducted Explanation II with retrospective effect. This re-introduction clarified the differentiation between split and unsplit foodgrains for tax purposes. As a result, the respondent became liable to pay purchase/sales tax on the split dal purchased, even if tax had been paid on the unsplit dal. The judgment accepted the appeal, setting aside the previous order and emphasizing the impact of legislative changes on tax liabilities.