2013 (11) TMI 261 - HC - VAT and Sales Tax

Tax liability - Exemption from sales tax - The firm of the petitioner is financed and registered with U.P. Khadi Evam Gramodyog Board - Exemption of tax for Paddy and rice production - Held that - Under the Government Order dated 31.01.1985, the exemption from trade tax liability has been granted on the sale of the products by the Units of the Khadi Gram Udyog Board. Specifying the products, in clause-38 of Entry-3, the words hulling, cutting/trimming, processing, packaging and marketing of cereals have been used and not processing of paddy . The hulling of the cereal is nothing but hulling of the paddy for manufacture of rice. In Notification No. 709 dated 27.02.1997 the words processing, packaging and marketing of cereals, pulses, masalas and chhonks have been used. Thus it was processing of the cereals and not processing of paddy. The word cereal means paddy, rice and all other food grains. Thus the exemption granted to the petitioner on the sale of rice was fully covered in the word cereals . By the subsequent Government Order dated 30.09.2004, rice and it s by-product manufactured from paddy has been specifically excluded from clause-38 of Entry-3. An exclusion clause can not be treated as a clarificatory clause, or clarification of existing clause. The exclusion of specific goods clearly proves that the excluded goods were included in this clause prior to that date of exclusion. The notification dated 30.09.2004, which carries exclusion of some goods will apply prospectively and not with retrospective effect. The reassessment under Section 21 (2) on the basis of notification dated 30.09.2004, which was not applicable for the Assessment Years 2002-03 and 2003-04, was illegal - By a notification dated 30.9.2004, Entry no. 38 was amended and by which the manufacturing of rice from paddy was specifically excluded from the words processing, packaging and marketing of cereals, pulses, masalas and chhonks . The petitioner is, therefore, liable to pay tax (Central) on sale of rice w.e.f. 1.10.2004 - Decided partly in favour of assessee.

Summary

Issues:
Exemption from sales tax for rice manufacturing, Interpretation of government orders for tax exemption, Retrospective application of government orders, Re-assessment for assessment years 2002-03, 2003-04, and 2004-05.

Exemption from Sales Tax for Rice Manufacturing:
The petitioner, a registered society under the Societies Registration Act, 1860, was granted exemption from sales tax for the financial years 2000-01, 2002-03, 2003-04, and 2004-05 by the Senior Manager, District Gramodyog, Varanasi. However, a subsequent notification dated 30.9.2004 excluded rice manufactured from paddy from the list of exemption, leading to a show cause notice and re-assessment for the mentioned years. The respondent assessed the petitioner for those years, recalling the exemption and directing payment of tax with interest, prompting the writ petition challenging the re-assessment.

Interpretation of Government Orders for Tax Exemption:
The issue raised in the case was analyzed in light of previous judgments, including Writ Tax No.575 of 2003 and Writ Tax No.1435 of 2008. The court referenced the Government Orders dated 31.01.1985 and 27.02.1997, highlighting that the exemption was granted to units of Khadi Gram Udyog Board for the sale of rice. The Special Counsel argued that the exemption was wrongly granted as the Apex Court had held that manufacturing rice from paddy is not processing but manufacturing. However, the court clarified that the exemption was valid as the notifications referred to the processing of cereals, including rice, and not just paddy.

Retrospective Application of Government Orders:
The court delved into the retrospective application of the Government Orders, emphasizing that the exclusion of rice and its by-products from paddy in the notification dated 30.09.2004 could not be considered clarificatory but exclusionary. The exclusion of specific goods indicated that they were previously included, and the notification should apply prospectively, rendering the reassessment based on it for the years 2002-03 and 2003-04 illegal.

Re-assessment for Assessment Years 2002-03, 2003-04, and 2004-05:
Based on the precedents and the interpretation of relevant notifications, the court concluded that the re-assessment orders for the mentioned assessment years were liable to be set aside. The petitioner was not liable for trade tax on the sale of rice until 30.9.2004, after which the manufacturing of rice from paddy was excluded from the exemption. Consequently, the writ petition was allowed, setting aside the re-assessment orders for 2002-03 and 2003-04 while partially allowing it for 2004-05, with the petitioner granted the liberty to appeal against the order for that year.