2008 (12) TMI 833 - SC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether Paddy Husk and Rice Husk connote the same commodity or not.

Summary:

Issue 1: Whether Paddy Husk and Rice Husk connote the same commodity or not.

The respondents, who own and operate their manufacturing units, use Paddy Husk as fuel in their respective factories. They were assessed for payment of sales tax in terms of various notifications issued by the State of Uttar Pradesh (the State) from time to time u/s 3D of the Uttar Pradesh Trade Tax Act (the Act). Section 3D of the Act is material for our purpose, and it specifies the levy of trade tax on the purchase of certain goods.

The State issued notifications specifying the rate of tax and the point thereof, including a notification on 7.9.1981, which listed "Rice polish, rice bran and rice husk." Subsequent notifications amended this item, and by 6.6.1996, the entry included "Rice polish, rice bran, rice husk and paddy husk." The rate of tax was increased from 4% to 8% by a notification on 15.1.2002.

Precedents from the Allahabad High Court and Madhya Pradesh High Court, such as Commissioner of Sales Tax, U.P. v. Naveen Traders, have held that rice bran is not bhusi of rice and that rice does not have any inner husk. The courts applied the common parlance test to the terminologies 'Bhusa' and 'Bhusi' and concluded that they are commodities obtained from stalk, leaves, and husk of grains.

Mr. Sunil Gupta, learned senior counsel for the appellant, argued that Paddy Husk and Rice Husk denote the same commodity. He contended that dehusking of paddy is a process that leaves rice, and the subsequent sheathing process produces Rice Bran, Rice Husk, or Rice polish. He urged the court to agree with the minority opinion of the Tribunal, which held that rice bran or rice polish is not husk.

On the other hand, Mr. Dhruv Agrawal and Mr. Rakesh K. Khanna, senior counsel for the respondents, argued that rice husk and paddy husk have always been treated as different commodities for sales tax purposes. They contended that the notification dated 6.6.1996, which included paddy husk for the first time, was not clarificatory but a substantive provision.

The court noted that the Act is a taxing statute, and tax must be levied by authority of law. The court referred to the dictionary definition of 'husk' and concluded that paddy husk and rice husk are different commodities. The court emphasized that if an entry in a notification imposing tax is ambiguous, the benefit should be given to the assessee.

The court held that paddy husk and rice husk are not the same commodity. The notifications issued by the State clearly distinguished between the two, and paddy husk was subjected to tax for the first time by the notification dated 6.6.1996. The court also noted that the Government of Uttar Pradesh still considers rice husk to be a different commodity, as evidenced by the U.P. Value Added Tax Ordinance, 2007.

The court dismissed the appeals with costs, concluding that there is no merit in the contention that paddy husk and rice husk denote the same commodity.