2008 (9) TMI 886 - HC - VAT and Sales Tax

Whether starch is a product of millet and all products of millets would be exempt from tax as per the Notification No. 89/70 dated March 14 1970? Held that - It is well-settled in law that a Schedule to the Act is part of the Act itself and as such it has statutory force the Commissioner being an executive authority cannot override the provisions of the Act and in exercise of the power conferred under section 28A of the Act he cannot issue clarification running counter to the provisions of the Act. Even if any clarifications issued contrary to the provisions of the Act those clarifications cannot have any statutory backing and consequently would have no legal sanction. Inasmuch as sago and starch are classified in entry No. 22(vi) of Part B of the First Schedule taxable at four per cent on the first sale and entry No. 44 of the Third Schedule does not include maize starch and exempt from payment of tax the petitioner is liable to pay tax at four per cent and cannot claim total exemption. In view of the amendment to the Schedule the circular dated March 14 1970 cannot be made applicable to the assessee and the impugned clarification dated October 8 1998 requires no interference. However the adjudication on the provisional assessment notices shall be proceeded in terms of this order. With these observations this writ petition is dismissed

Issues Involved:
1. Validity of the circular dated October 8, 1998, issued by the Special Commissioner and Commissioner of Commercial Taxes, Chennai.
2. Whether maize starch is exempt from sales tax under the Tamil Nadu General Sales Tax Act, 1959.
3. The binding nature of earlier circulars and clarifications on the tax exemption of maize starch.
4. The impact of statutory amendments on the applicability of earlier notifications and circulars.

Detailed Analysis:

1. Validity of the Circular Dated October 8, 1998:
The court examined the validity of the circular dated October 8, 1998, which classified maize starch under entry No. 61 of Part B of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959, making it taxable at four percent. The court noted that this circular was issued after the insertion of section 28A into the Act, which empowers the Special Commissioner and Commissioner of Commercial Taxes to issue clarifications. Since the circular was issued in conformity with section 28A, it has statutory backing and is valid.

2. Tax Exemption of Maize Starch:
The petitioner argued that maize starch should be exempt from sales tax based on earlier notifications and circulars, including Notification No. 89/70 dated March 14, 1970, which exempted all products of millets from tax. However, the court found that the said notification did not have statutory backing as section 28A was inserted only with effect from November 6, 1997. Additionally, subsequent amendments to the Act and the Schedule reclassified sago and starch, including maize starch, making them taxable. Therefore, maize starch is not exempt from sales tax under the current statutory framework.

3. Binding Nature of Earlier Circulars and Clarifications:
The petitioner contended that earlier circulars and clarifications exempting maize starch from tax should be binding on the authorities. The court acknowledged that generally, circulars are binding on subordinate authorities. However, it emphasized that the earlier circulars, including the one dated March 14, 1970, did not have statutory backing and were superseded by subsequent statutory enactments. Consequently, these earlier circulars cannot override the express provisions of the law as amended.

4. Impact of Statutory Amendments:
The court highlighted that the Schedules to the Tamil Nadu General Sales Tax Act were amended with effect from March 12, 1993, and subsequent amendments further reclassified starch products, including maize starch, making them taxable. The court reiterated that a Schedule to the Act is part of the Act itself and has statutory force. Therefore, the Commissioner cannot issue clarifications that run counter to the provisions of the Act. The court concluded that the circular dated March 14, 1970, cannot be applied to the assessee due to the lack of statutory backing and subsequent amendments to the Act.

Conclusion:
The court dismissed the writ petition, holding that the circular dated October 8, 1998, is valid and binding on the assessee. The notification dated March 14, 1970, and earlier circulars exempting maize starch from tax do not have statutory backing and are not applicable due to subsequent amendments to the Act. The petitioner is liable to pay tax at four percent on maize starch, as classified under entry No. 22(vi) of Part B of the First Schedule. The court directed that the provisional assessment notices should be adjudicated in terms of this order.

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