2018 (10) TMI 145 - HC - VAT and Sales Tax

Rate of VAT - sale of Rectified Spirit - Case of Revenue is that as per Serial No.56, Part II of Schedule II of VAT Act on liquor , the petitioner is liable to pay VAT at the rate of 5% whereas, the Rectified Spirit does not come within the aforesaid Schedule and, therefore, the petitioner is liable to pay VAT at the rate of 14% - Vires of Section 46 and 53 of the M.P. VAT Act, 2002, read with Rule 60 of M.P. VAT, Rules, 2006. Held that - It is clear that rectified spirit is not alcohol and not fit for human consumption and hence, not an excisable article. In absence of such excise ability under the M.P. Excise Act, the question of levying excise or power to levy does not arise and hence the goods in question do not fall within preview of Entry 47, List I of VAT Act to be considered Tax free goods. Section 2(6) of M.P. Excise Act, 1915 says that excisable article means (a) any alcoholic liquor for human consumption, hence liquor is fit for human consumption and excisable article, but after 1.4.2013 liquor is also taxable by Entry 56 Schedule II of VAT Act - Rectified spirit is not fit for human consumption and by notification dated 01.04.2011, rectified spirit is not an excisable article. The Constitution Bench of the Apex Court in Mohd. Hanif Quareshi & others v. State of Bihar, 1958 (4) TMI 110 - SUPREME COURT while dealing with the meaning, scope and effect of Article 14, reiterated what was already explained in earlier decisions that to pass the test of permissible classification, two conditions must be fulfilled, namely, (i) the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and (ii) such differentia must have rational relation to the object sought to be achieved by the statute in question. The Apex Court further stated that classification might be founded on different basis, namely, geographical, or according to objects or occupations or the like and what is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration. Petition dismissed.

Summary

Issues Involved:
1. Levy of VAT on Rectified Spirit.
2. Constitutional validity of Section 46 and 53 of the M.P. VAT Act, 2002, and Rule 60 of the M.P. VAT Rules, 2006.
3. Power of appellate authority to waive or reduce the quantum of pre-deposit.
4. Classification of Rectified Spirit under the VAT Act.
5. Presumption of constitutionality of legislative enactments.

Detailed Analysis:

1. Levy of VAT on Rectified Spirit:
The petitioner, a manufacturer of 'spirit' and 'alcoholic beverages', challenged the imposition of VAT at 14% on Rectified Spirit, arguing it should be taxed at 5% as 'liquor'. The court noted that the adjudicating authority concluded Rectified Spirit does not fall under the 'liquor' category in Schedule II of the VAT Act, thus subjecting it to a 14% VAT rate. The court referenced the Supreme Court's decision in Synthetic & Chemical Ltd. V/s. State of U.P., which held that Rectified Spirit is not fit for human consumption and thus not an excisable article.

2. Constitutional Validity of Section 46 and 53 of the M.P. VAT Act, 2002, and Rule 60 of the M.P. VAT Rules, 2006:
The petitioner argued that the procedure prescribed under these sections and rules is arbitrary and ultra vires Articles 14, 19, and 265 of the Constitution. The court, however, upheld the legislative competence to enact such provisions, emphasizing the presumption of constitutionality. The court cited precedents, including the Apex Court's ruling in Mohd. Hanif Quareshi & others v. State of Bihar, which established that classification must be founded on an intelligible differentia with a rational relation to the statute's objective.

3. Power of Appellate Authority to Waive or Reduce the Quantum of Pre-Deposit:
The petitioner contended that the appellate authority lacks the power to waive or reduce the pre-deposit, causing undue hardship. The court dismissed this argument, referencing the Division Bench's decision in M/s. K.S. Oils Ltd V/s. State of M.P., which held that the mandatory pre-deposit condition for filing an appeal is not violative of any constitutional rights. The court also cited the Madras High Court's decision in Devi Spinning Ltd. V/s. Appellate Commissioner Salem, which supported the necessity of pre-deposit for the right to appeal.

4. Classification of Rectified Spirit under the VAT Act:
The court clarified that Rectified Spirit is not classified as 'liquor' under the VAT Act. It referenced the Supreme Court's ruling that Rectified Spirit is not fit for human consumption, thus not falling under the category of excisable articles. The court noted that after 01.04.2013, Indian Made Foreign Liquor is taxable under Schedule II Entry 56, but Rectified Spirit remains taxable under the residuary entry at 14%.

5. Presumption of Constitutionality of Legislative Enactments:
The court reiterated the principle that legislative enactments are presumed constitutional unless proven otherwise. It cited the Apex Court's decisions, including Karnataka Bank Limited V/s. State of Andhra Pradesh & Ors., emphasizing that courts should not declare laws unconstitutional merely because they seem unjust or unreasonable. The court stressed that the legislature is presumed to understand the needs of the people and that hardship is not a relevant factor in determining the validity of a fiscal statute.

Conclusion:
The court dismissed the writ petition, upholding the validity of the impugned provisions and the assessment order. It granted the petitioner liberty to file a statutory appeal with the necessary pre-deposit, to be decided on merit. The judgment reinforced the principles of legislative competence, the presumption of constitutionality, and the mandatory nature of pre-deposit conditions for appeals.