2013 (3) TMI 315 - HC - VAT and Sales Tax

Kerosen v/s White Kerosene - 4% v/s 25% - contention of the appellants that up to 20.3.2003 the term Kerosene was not distinguished as Superior Kerosene Oil therefore the Superior Kerosene Oil was taxable only at 4% at first sale and not 25% - Held that - Coming to know about the use of white Kerosene as a substitute for Diesel Oil, besides causing more pollution and damage to the engines, in order to curb the said practice, it has been decided by the Government to increase the tax rate for white Kerosene from 4% to 25%. But, the tax rate for PDS Kerosene i.e. Blue Kerosene will however continue to remain at 4%. The object of providing such concessional rate of duty on kerosene used for illuminating burning oil lamps i.e., @ 4% was to provide some relief to those economically backward sections of society who use kerosene for illumination and other domestic purposes, and therefore, the benefit of concessional rate of duty was available only on the kerosene meant for PDS. On such consideration only the kerosene which meant for Public Distribution System was continue to remain taxed at 4%, whereas only the white Kerosene which is meant for industrial purpose is taxed at 25%. In a study undertaken by the Southern Region of the Anti-Adulteration Cell it was observed that unimaginable quantities of white kerosene are being imported for consumption by industrial consumers and by the general public. It was also found that the State Government suffers a heavy loss of revenue on account of sales tax evasion as the sales tax on diesel is around 28 per cent as against 13.8 per cent on SKO. Considering all these factors along with the laudable recommendations made by the Standing Committee and the follow up steps taken by the State Government to curb the misuse of kerosene meant for Public Distribution System, no illegality in imposing tax on white kerosene meant for industrial purpose at 25%.

Issues Involved:
1. Classification and taxation of kerosene and Superior Kerosene Oil (SKO).
2. Competency of the State to impose different tax rates on similar commodities.
3. Allegations of discrimination in tax rates.
4. Legislative power and policy decisions regarding tax amendments.
5. Exemption from resale tax and surcharge.
6. Misuse and adulteration of kerosene and SKO.

Detailed Analysis:

1. Classification and Taxation of Kerosene and SKO:
The appellants, assessees under the Tamil Nadu General Sales Tax Act, 1959, and the Central Sales Tax Act, 1956, contended that kerosene was initially taxed at 4% at the point of first sale. However, subsequent amendments, particularly Act 21 of 2003, differentiated kerosene into two categories: general kerosene and Superior Kerosene Oil (White Kerosene), with the latter being taxed at 25%. The appellants argued that this differentiation was arbitrary and discriminatory, asserting that 'kerosene' and 'White Kerosene' are identical and should not be taxed differently.

2. Competency of the State to Impose Different Tax Rates:
The learned Special Govt. Pleader defended the State's competency to impose different tax rates based on the usage of the commodities, stating that while general kerosene is for domestic use, SKO is for commercial purposes. The court upheld the State's power to classify and tax commodities differently, emphasizing that legislative policy decisions on taxation are within the State's competence.

3. Allegations of Discrimination in Tax Rates:
The appellants cited several Supreme Court decisions to support their claim of discrimination, including Arya Vaidya Pharmacy v. State of Tamil Nadu, where higher tax rates on certain ayurvedic preparations were deemed discriminatory. However, the court distinguished these cases, noting that the differentiation in tax rates for kerosene and SKO was based on their distinct uses and the need to curb misuse and adulteration, thus not constituting discrimination.

4. Legislative Power and Policy Decisions Regarding Tax Amendments:
The court observed that amendments to the tax schedule, including the differentiation of kerosene into two categories, were policy decisions reflected in the Budget Speech and aimed at preventing misuse and adulteration of SKO. The court emphasized that questioning such legislative policies falls outside judicial purview, provided the amendments are within the legislative competence.

5. Exemption from Resale Tax and Surcharge:
The appellants also challenged the imposition of resale tax and surcharge. The court noted that while the State had granted exemptions from these taxes for petroleum products, the amendments introducing higher taxes on SKO were valid and within the State's legislative power. The court agreed with the learned single Judge that dealers were liable to pay the enhanced tax, surcharge, and resale tax notwithstanding the exemptions.

6. Misuse and Adulteration of Kerosene and SKO:
The court highlighted the State's objective to curb the misuse and adulteration of SKO, as detailed in the 46th Report by the Ministry of Petroleum & Natural Gas and the recommendations of the Standing Committee on Petroleum and Chemicals. The report underscored the widespread misuse of SKO as a substitute for diesel, leading to significant revenue loss and environmental harm. The court found the State's decision to tax SKO at a higher rate justified and aligned with efforts to prevent such misuse.

Conclusion:
The court dismissed the appeals, upholding the legislative amendments and the differentiation in tax rates for kerosene and SKO. The court found no merit in the appellants' claims of discrimination and arbitrary taxation, affirming the State's power to classify and tax commodities based on their usage and policy objectives. Consequently, the connected miscellaneous petitions were closed, and no costs were awarded.

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