2005 (10) TMI 510 - HC - VAT and Sales Tax

Issues Involved:
1. Whether seeds of wheat, pulses, paddy, mustard, etc., sold as seeds by the petitioner are "cereals or pulses" and are treated to be "cereals" in all its forms as provided in entry 6 of Schedule I or "pulses in all its forms" as provided in entry 48 of Schedule I respectively belonging to the list of exempted items for the purpose of exemption from sales tax in reference to section 9(1) of "the Act 1993".
2. Whether these wheat, paddy, mustard pulses sold by petitioner as seeds are to be taxed at 8 per cent treating these as seeds in entry "otherwise" covered by entry 2 of Schedule III of "the Act 1993".

Issue-wise Detailed Analysis:

1. Exemption of Seeds as Cereals or Pulses:
The petitioner, Assam Seeds Corporation Ltd., argued that seeds of wheat, pulses, paddy, mustard, etc., should be exempted from sales tax under entries 6 and 48 of Schedule I of the Assam General Sales Tax Act, 1993, which exempt "cereals in all its forms" and "pulses in all its forms" from sales tax. The petitioner contended that these seeds should be considered as cereals and pulses in all their forms and thus be exempt from tax.

2. Taxation of Seeds under Entry 2 of Schedule III:
The Superintendent of Taxes, Guwahati, levied an 8% tax on the sale of these seeds, treating them as taxable under entry 2 of Schedule III of the Act, which covers items not specifically exempted. The Joint Commissioner of Taxes upheld this decision, stating that seeds are distinct from cereals and pulses and are thus taxable.

Revisional Authority's Observations:
The revisional authority dismissed the petitioner's revision application, relying on the Karnataka High Court's decision in S.V. Halavapalli and Sons v. Commissioner of Commercial Taxes, which held that seeds are not cereals and are liable to be taxed. The authority emphasized that "cereals" and "seeds" should be interpreted in their popular sense, where cereals are grains fit for human consumption, and seeds are used for raising new crops and are not fit for human consumption due to chemical treatments.

Petitioner's Arguments:
The petitioner relied on the Bombay High Court's decision in Commissioner of Sales Tax v. Sultan Shev Co., which interpreted "cereals and pulses in all its forms" to include processed forms like shevaya or vermicelli. The petitioner argued that the user test should not be applied and that wheat, paddy, pulses, etc., when used as seeds, do not lose their character as cereals and pulses and should be exempt from tax.

State's Arguments:
The State contended that the petitioner deals in seeds, not cereals or pulses, and that seeds are taxable at 8% under entry 2 of Schedule III. The State argued that seeds are meant for germination and not for consumption as food, and thus should not be exempted as cereals or pulses.

Legal Precedents and Analysis:
The judgment analyzed various legal precedents, including decisions from the Supreme Court and High Courts, which emphasized that terms in taxing statutes should be interpreted in their popular sense. The judgment noted that seeds undergo processes that make them unfit for human consumption and distinct from foodgrains. It cited the Supreme Court's decision in Rajasthan Agricultural Input Dealers Association, which held that processed seeds are distinct commodities from foodgrains.

Conclusion:
The judgment concluded that seeds sold by the petitioner are not exempt under entries 6 or 48 of Schedule I as cereals or pulses in all their forms. Instead, these seeds are taxable under entry 2 of Schedule III of the Act. The petitioner's civil rule was dismissed, and the orders of the revisional authority for the assessment years 1994-95 and 1995-96 were upheld.

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