2014 (9) TMI 370 - HC - VAT and Sales Tax

SSI exemption - Whether the concessional rate of tax confined to the products manufactured by the SSI units, registered in the State of Kerala alone, under entry 6 of Schedule II of SRO No. 1091 of 1999, is discriminatory and violative of articles 301, 302 and 304(a) of the Constitution of India - Held that - stipulation under article 301 of the Constitution of India is not an absolute one, but is subject to the other provisions of Part XIII, i.e., articles 302, 303 and 304 as well. Obviously, article 304 starts with a nonobstante clause , carving out the exemption thereunder, enabling the State to have a different approach and course to meet the situation by necessary enactments. Section 10 of the KGST Act enables the State to exempt, a class of persons/category. The exemption stands confined only to such industries, who are registered with the Director of Industries and Commerce in the State as aforesaid, and it is with the intent to achieve a definite purpose to promote the social and economic scene and procure more employment opportunities within the State. - the challenge raised by the petitioners, in respect of entry No. 6 of Schedule II to SRO No. 1091/1999, to the extent the same confines the concession in the rate of tax only for the products manufactured by the small-scale industrial units within the State and having registration with the Directorate of Industries and Commerce of Kerala, stands repelled. - Decided against the assessee. Whether the product soda maker manufactured and marketed by the petitioners comes within entry 116 attracting a tax liability at 12 per cent or whether it comes under the residuary clause under entry 177 , with a lesser tax of eight per cent - Held that - It is true that the assessment in respect of the assessment years 2000-01, 2001-02 in the case of the petitioner was completed treating soda maker under residuary entry 177 , with the rate of tax payable at eight per cent. But later, it came to the notice of the Department that the actual rate of tax payable by the petitioner was 12 per cent as the item soda maker very much constituted an item scheduled under entry 116 of the First Schedule, leading to exhibits P4/P4(a) notices issued by the fast track team, proposing assessment under section 17D of the KGST Act. Going by the items listed under entry No. 116 of the First Schedule to the KGST Act, it is to be noted that the scope of the entry has been much widened, by virtue of the relevant amendments, at different points of time. So also, it is to be noted that the idea and understanding of the petitioner, that the items grouped under entry No. 116 are those, which are primarily connected with cooking in the kitchen and hence the term similar home appliances cannot take in soda maker is only wrong and misconceived. Under entry No. 104 as it existed in 1992-94 and thereafter till 2000, water filter was also one of the home appliances as included therein, attracting the tax liability at the prescribed rate, which in fact is in no way connected with cooking in kitchen, nor solely allocable for user in kitchen. In the year 2000 and afterwards, some other additional items were also included under the said entry. The petitioner-company themselves have described their product as home soda maker and hence it cannot but be a home appliance. This is more so, when, the home soda maker cannot have any application/utility other than the home use, as it is an alien product, so far as any commercial use is concerned. Applying the rule of harmonious interpretation and the principle of ejusdem generis , the term similar home appliances in entry No. 116 of the First Schedule to the KGST Act very much takes in a home soda maker as well and it is liable to be treated as a classified item, attracting the tax at the rate as prescribed. The product soda maker / home soda maker manufactured/marketed/sold by the petitioner is declared as an item grouped under entry 116 of the First Schedule to the KGST Act - Decided against assessee.

Summary

Issues Involved:
1. Discrimination and violation of constitutional provisions (Articles 301, 302, and 304(a)) regarding concessional tax rates for SSI units registered in Kerala.
2. Classification and applicable tax rate for "soda makers" under the Kerala General Sales Tax Act (KGST Act).

Issue-wise Detailed Analysis:

1. Discrimination and Violation of Constitutional Provisions:

The primary issue in both writ petitions was whether the concessional tax rate confined to products manufactured by "SSI units, registered in the State of Kerala" under entry 6 of Schedule II of SRO No. 1091 of 1999 is discriminatory and violative of Articles 301, 302, and 304(a) of the Constitution of India. The petitioners argued that this restriction was discriminatory as it denied them the benefit of a lower tax rate solely because their manufacturing units were located outside Kerala.

The court examined the constitutional provisions, particularly Articles 301, 302, 303, and 304. Article 301 ensures freedom of trade, commerce, and intercourse throughout India, subject to other provisions in Part XIII. Article 302 allows Parliament to impose restrictions on this freedom in the public interest. Article 303 prohibits both Parliament and State Legislatures from making laws that discriminate between states, except in situations of scarcity. Article 304 permits states to impose taxes on goods imported from other states, provided they do not discriminate against similar local goods.

The court referenced several landmark judgments, including Firm A.T.B. Mehtab Majid & Co. v. State of Madras, Weston Electroniks v. State of Gujarat, and Video Electronics Pvt. Ltd. v. State of Punjab, which dealt with similar issues of tax discrimination. The court observed that the stipulation under Article 301 is not absolute and is subject to Articles 302, 303, and 304. It emphasized that Section 10 of the KGST Act, which allows the state to grant tax exemptions or reductions, is in line with these constitutional provisions.

The court concluded that the notification SRO No. 1091/1999, which provides a concessional tax rate only for SSI units registered in Kerala, is not discriminatory. It is a reasonable classification aimed at promoting industrial activities within the state and providing a conducive environment for industrial growth. Therefore, the challenge against entry No. 6 of Schedule II to SRO No. 1091/1999 was repelled.

2. Classification and Applicable Tax Rate for "Soda Makers":

In W.P. (C) No. 35617 of 2009, the petitioner contended that "soda makers" should be taxed at 8% under the residuary entry rather than 12% under entry 116 of the First Schedule to the KGST Act. The petitioner argued that "soda makers" did not fall under entry 116, which includes home appliances, and should be classified under the residuary entry with a lower tax rate.

The court analyzed the relevant entries in the KGST Act and noted that entry 116 covers pressure cookers, non-stick cookware, utensils, water filters, and similar home appliances not classified elsewhere. The court referred to the petitioner's own description of the product as a "home soda maker" and concluded that it is indeed a home appliance. The court also applied the principle of "ejusdem generis," which means that general words following specific words should be interpreted in the context of the specific words.

The court held that "soda makers" fall within the scope of entry 116 as a home appliance and are subject to a 12% tax rate. The court rejected the petitioner's argument that the product should be classified under the residuary entry with a lower tax rate. It emphasized that classification should be based on the popular meaning of the term and that there is no estoppel regarding the provisions of law.

Conclusion:

The court upheld the validity of notification SRO No. 1091/99 with reference to entry 6 of Schedule II, confirming that the concessional tax rate for SSI units registered in Kerala is not discriminatory. Additionally, the court declared that "soda makers" fall under entry 116 of the First Schedule to the KGST Act and are subject to a 12% tax rate. Both writ petitions were dismissed accordingly.