2014 (2) TMI 1258 - HC - VAT and Sales Tax

Eligibility - Chemical fertilizer mixture - Grant of exemption from the levy of turnover tax under Section 6B of the Karnataka Sales Tax Act - Notifications dated March 31, 1997, March 1, 1998, March 31, 1999 - Tribunal passed the order without considering the judgment of this Court as not a binding precedent in the case of Pali Chemical Industries, Nippani, Belgaum v. Additional Commissioner of Commercial Taxes, Zone I, Bangalore 2004 (11) TMI 545 - KARNATAKA HIGH COURT . Held that - discipline is sine qua non for effective and efficient functioning of the judicial system. If the courts command others to act in accordance with the provisions of the Constitution and rule of law, it is not possible to countenance violation of the constitutional principle by those who are required to lay down the law. Therefore, the Tribunal should have kept in mind that the doctrine of binding precedent has the merit of promoting a certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs, and, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a court. Entry 11 defines what a chemical fertilizer is and what a chemical fertilizer mixture is. Both are distinct entries and so understood, as such exemption was granted only to chemical fertilizer. This benefit was not extended to chemical fertilizer mixture. Therefore, when the Legislature made a distinction between chemical fertilizer and chemical fertilizer mixture from the inception, a notification exempting from payment of turnover tax on chemical fertilizer cannot be extended to chemical fertilizer mixture. If that is done by the interpretation process, the court would be adding to the notification which the Legislature and the Government did not intend to. The courts have no power to legislate, to add or to remove from the notification issued by the Government. When the Government notification specifically refers to the chemical fertilizer, there is no scope for interpretation also. In that view of the matter, we do not see any substance in the said contention. In fact, in the Pali Chemical Industries case (supra), the Division Bench, as stated earlier, has extracted the entries, examined the entire scheme of entry 11, followed the judgment of the apex court, looked into the very same notification and has placed interpretation, which, in our opinion, is also proper and correct. We do not see any justification to differ from the said interpretation and the judgment in Pali Chemical Industries case (supra) equally binds this court. Therefore, the order passed by the Tribunal cannot be sustained. - Revision Petitions are allowed

Summary

Issues Involved:
1. Validity of the reassessment orders under section 12A of the Karnataka Sales Tax Act.
2. Interpretation of the term "chemical fertilizers" under the Karnataka Sales Tax Act.
3. Binding nature of judicial precedents on lower authorities.

Detailed Analysis:

1. Validity of the reassessment orders under section 12A of the Karnataka Sales Tax Act:
The reassessment orders were passed based on the judgment in Pali Chemical Industries, which held that chemical fertilizer mixtures are not eligible for exemption from turnover tax even if their components have already suffered local tax. This led to the reassessment of the assessee's turnover for the financial years 1997-98, 1998-99, and 1999-2000, which was initially exempted.

2. Interpretation of the term "chemical fertilizers" under the Karnataka Sales Tax Act:
The Tribunal concluded that the term "chemical fertilizers" includes fertilizer mixtures, citing the Fertilizer (Control) Order, 1985, which defines fertilizer to include mixtures. However, the High Court disagreed, emphasizing that the term "chemical fertilizers" and "chemical fertilizer mixtures" are distinct entries under the Act. The High Court referenced the judgment in Pali Chemical Industries, which clarified that chemical fertilizer mixtures are different commercial commodities with different uses and properties from their components. The Court also referred to the Supreme Court's decision in Shaw Wallace & Co. Ltd., which held that fertilizer mixtures are different articles from their components and thus should be treated separately for tax purposes.

3. Binding nature of judicial precedents on lower authorities:
The High Court expressed concern over the Tribunal's refusal to follow the binding precedent set by the Division Bench in Pali Chemical Industries. The Tribunal assumed the power to declare the Division Bench's judgment as per incuriam, which the High Court found unacceptable. The High Court stressed the importance of judicial discipline and the doctrine of binding precedent, which promotes certainty and consistency in judicial decisions. The Court highlighted that if a Division Bench disagrees with an earlier decision, it should refer the matter to a Larger Bench rather than overrule the decision.

Conclusion:
The High Court set aside the Tribunal's order, restored the reassessment orders passed by the assessing authority, and emphasized the necessity of following binding judicial precedents to maintain judicial discipline and consistency in legal interpretations. The Court reiterated that the exemption from turnover tax applies only to chemical fertilizers and not to chemical fertilizer mixtures.