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TMI Blog2009 (12) TMI 883X X X X Extracts X X X X X X X X Extracts X X X X ..... raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. . ." See Elel Hotels and Investments Ltd. v. Union of India [1989] 74 STC 146 (SC) at 156; [1989] 3 SCC 698 Parameters of judicial review over tax law "Though other legislative measures dealing with economic regulation are not outside article 14, it is well-recognised that the State enjoys the widest latitude where measures of economic regulation are concerned. These measures for fiscal and economic regulation involve an evaluation of diverse and quite often conflicting economic criteria and adjustment and balancing of various conflicting social and economic values and interests. It is for the State to decide what economic and social policy it should pursue and what discriminations advance those social and economic policies. In view of the inherent complexity of these fiscal adjustments, courts give a larger discretion to the Legislature in the matter of its preferences of economic and social policies and effectuate the chosen system in all possible and reasonable ways. If two or more methods of adjustments of an economic measure are available, the legislative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnment under section 3C, at a point other than the point of levy specified therein: Provided that any resale turnover included in the total turnover of a dealer paying tax under sub-section (2) of section 3D and sections 3E, 7C, 7D and 7E is not liable for resale tax: Provided further that the goods taxable at the point of last purchase in the State are not liable to resale tax." Section 3I levying surcharge reads as follows: 3I. Levy of surcharge.-A surcharge at the rate of five per cent shall be levied on the tax levied under sub-sections (2), (2C), (3) and (5) of section 3, sections 3A, 3B and 3C, sub-section (1) of section 3D and sections 3G, 3J, 5, 7A and 7C, and at the first point of sale in the State under sub-section (2A) of section 3. It is seen that "kerosene" was originally brought under entry 40 of Part B of the First Schedule to the TNGST Act (introduced by second Amendment Act TN Act 37 of 1996 with effect from July 17, 1996) taxable at four per cent (first sale) with effect from July 17, 1996 till March 26, 2002. Subsequently, kerosene was brought under entry 9 of Part G of the First Schedule taxable at four per cent at first sale from March 27, 2002 till June 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 28A of the TNGST Act. The clarification, dated September 3, 2001 in clarification No. 204 of 2001 reads as follows: "Tvl. Power Petroproducts, Chennai 83, in their letter cited have requested rate of tax clarification under section 28A of the TNGST Act, 1959, for 'superior kerosene oil'. The details furnished by the petitioners have been perused and the following clarification on rate of tax is issued: Superior kerosene oil is taxable at four per cent under entry 40 in Part B of the First Schedule to the TNGST Act, 1959 with effect from July 17, 1996." According to the petitioner even the authorities working the Act have also understood only in that sense. The bifurcation of the kerosene into kerosene and SKO with effect from March 21, 2003 was not valid, because the goods known as white kerosene or SKO did not have any separate identity. They are also kerosene for all practical purposes. Therefore, the petitioners are aggrieved by the artificial separation of the same goods, i.e., kerosene. The levy of tax at four per cent on kerosene and per cent on SKO as introduced by the notification under section 59(1) as well as made by the Amendment Act 21 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not amended to exclude SKO/white kerosene oil from the purview of exemption notification, they need not pay surcharge and resale tax. Hence the circular issued by the Principal Commissioner, dated October 1, 2003 that such an exemption was not available from March 21, 2003, the day on which the entry relates to kerosene was split up into two different items, leviable to tax at different percentage was not valid. In some cases, the petitioners have challenged individual assessment orders on the ground that they are not liable to pay either enhanced tax or surcharge and resale tax. They have not availed statutory appellate remedies available to them before the Assistant Appellate Commissioner as well as before the Sales Tax Appellate Tribunal. They have chosen to move this court, challenging the orders of assessment. This court is not inclined to go into the factual dispute on the liability on such petitioners. Except for deciding the legal and constitutional issues, regarding the liability of dealers to pay the enhanced levy of SKO at the rate of per cent with effect from March 21, 2003 as well as the liability to pay surcharge and resale tax with effect from July 1, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stinction is made between commodities falling in the same category a question arises at once before a court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30 per cent on the turnover of arishtams and asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied. In Adhyaksha Mathur Babu's Sakti Oushadhalaya Dacca (P) Ltd. v. Union of India [1963] 3 SCR 957, this court considered whether the ayurvedic medicinal preparations known as mritasanjibani, mritasanjibani sudha and mrithasanjibani sura, prepared in accordance with an acknowledged ayurvedic formula, could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was a Central Act. The court held that the three preparations were medicinal preparations, and observed that the mere circumstance that they contained a high percentage of alcohol and could be used as ordinary alcoholic beverages could not justify their being treated d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unauthorised diversion from PDS supplies, Government have decided to allow private sector entrepreneurs to undertake kerosene imports in line with LERMS (Liberalised Exchange Rate Management System) and to arrange the sale thereof in the domestic market through their own network at market determined prices. 1.2.0. To achieve the above objectives, the Government have taken\ following measures: 1.2.1. The supplies of subsidised kerosene through PDS would be continued but all households with LPG connections would be excluded from such supplies. 1.2.2. Kerosene sold through PDS would be imparted blue colour to visually distinguish it from the kerosene sold in the free market." (emphasis Here italicised. added) He also relied on the brochure of Bureau of Indian Standards (for short BIS). In paragraph 0.2 the specification for kerosene reads as follows: "0.2. This specification was originally issued in 1959 and subsequently revised in 1968. It was amended in 1972 in order to modify the requirements of IK grade kerosene. The present second revision has been prepared as a result of a review of the standard in the light of the present day requirements of kerosene in the country. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on cement was dependent on the question whether the price included the cost of packing materials whereas in the present case we are concerned with the exemption granted to the dealer of NPK 23: 23:0. In view of our discussion made hereinabove, we are, therefore, of the view that the decision in the case of Associated Cement [2006] 144 STC 342 (SC); [2006] 1 SCC 597 stands on a different factual situation. Therefore, we are unable to accept the contention of the learned counsel for the appellants that the decision in Arya Vaidya Pharmacy case [1989] 73 STC 346 (SC); [1989] 2 SCC 285 and the principles laid down in that case cannot be applied in the present case. 21.. This being the position and in view of our discussion made herein earlier that the products of the respondent and the exemption granted in the notification in question which are similar in nature, we hold that the product of NPK 23:23:0 is also a similar commodity within the meaning of the notification of exemption dated April 10, 1995. Therefore, it would not be open for the appellants, as held by the High Court, to realise tax retrospectively on sale of NPK 23:23:0 from April 10, 1994 to March 31, 1995. 22.. Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... role would be to consider the effect thereof, upon considering the same from different angles. Different tests are laid down for interpretation of an entry in a taxing statute, namely, dictionary meaning, technical meaning, users point of view, popular meaning, etc. 44.. It is true that the court must bear in mind the precise purpose for which the statute has been enacted, namely, herein for the purpose of collection of tax, but the same by itself would not mean that an assessee would be made to pay tax although he is not liable therefor, or to pay higher rate of tax when he is liable to pay at a lower rate. 45.. An exemption notification may require a strict construction, but where a statute merely provides for different rates of tax, application of the principles of strict construction may not be appropriate." The learned senior counsel also submitted that there is no rhyme or reason in fixing four per cent for kerosene and per cent for SKO and it is clearly arbitrary. The learned senior counsel also placed reliance upon the judgment of the Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Bharat Petroleum Corporation Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment, it was held as follows: "10. A reading of the plain language of section 18 along with item No. 7 of notification dated December 30, 1987 makes it clear that tax is leviable on petroleum products including spirit at the first stage of sale. It is not in dispute that the transformer oil purchased by the petitioner for its use falls within the ambit of the term 'petroleum products' appearing at serial No. 7 of notification dated December 30, 1987. It was used by the petitioner as a lubricant for operating transformers. Thereafter, the same was sold to the registered dealers as the used transformer oil and not as any other commodity. It was neither the petitioner's pleaded case nor any evidence was produced before the assessing officer to show that the used transformer oil does not retain its character as lubricant and cannot be used as such. Therefore, the mere fact that potentiality or strength of the transformer oil is decreased after its use by the petitioner cannot be made basis for taking it out of the ambit of the expression 'petroleum product'. In the common parlance and commercial sense, the used transformer oil continues to be a lubricant and fal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... added that the use of kerosene is covered by the provisions of the Essential Commodities Act, 1955 and also Kerosene (Restriction on use and Fixation of Ceiling Price) Order, 1993. The said order framed under section 3 of the Essential Commodities Act defines "kerosene" under rule 2(e), which reads as follows: "'kerosene' means a middle distillate mixture of hydrocarbons meeting BIS specification No. IS-1459 of 1974 with important characteristics of flash point at a minimum of 35OC and smoke point at a minimum of 18 mm." It also defined the "parallel marketing system" and "public distribution system" under rule 2(i) and 2(j) which are as follows: "(i) 'parallel marketing system' means a system, other than the public distribution system, under which a person imports kerosene, or stores, transports, packs, distributes or sells imported kerosene, under his own arrangement; (j) 'public distribution system' means the system of distribution, marketing or selling of kerosene at declared price through a distribution system approved by the Central or State Government;" With a view to avoid the kerosene meant for public distribution system being misused b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner under section 28A is very much available. Therefore, he submitted that the point of levy cannot be shifted. Mr. N. Sriprakash, learned counsel appearing for some of the petitioners, made attack only against the collection of surcharge when there is special exemption provided under section 17(1). He stated that he is not challenging the validity of the Act. His contention is that the exemption under section 17(1) is independent of any entry made pursuant to section 59(1). Even if any entry in the Eleventh Schedule is bifurcated, the exemption which is originally granted under section 17(1) will continue to be valid until amended in terms of section 17(2) or section 17(3) of the TNGST Act. In the present case, when the Schedule provides kerosene as a single entry is taxed at the rate of four per cent. When the Government granted exemption both from surcharge as well as resale tax, the dealers are entitled to avail of such exemption. The term kerosene as genus has been further subdivided into two species, i.e., kerosene liable to tax at four per cent and SKO or white kerosene subjected to tax at per cent by virtue of inclusion in the Schedule under section 59(1). Notwith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er oil, brake or clutch fluid, bitumen (asphalt), tar and others, but excluding aviation fuel, liquid petroleum gas (LPG), kerosene and naphtha for use in the manufacture of fertilizers." The Supreme Court while noting the change in the terminology used in the entry, in paragraph 11 observed as follows (at page 519 of 121 STC): "11. Both these entries (Nos. 11 and 67) mention 'petroleum products': Whereas in entry 11 the first words are all petroleum products, the word 'all' is missing in the new entry 67. This, however, will not make any material difference because petroleum products would clearly mean any type of petroleum product. The use of the words 'and others' would, in our opinion, refers to petroleum products other than those which are specifically mentioned therein. What is, however, important is that the said entries specifically exclude aviation fuel, liquid petroleum gas, kerosene and naphtha for use in the manufacture of fertilizers. If the contention of the learned counsel for the appellants is correct that the words 'and others' would not enable the inclusion of furnace oil in the said entries, then on the same parity of reasoning a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f white kerosene (superior kerosene) in order to arrest evasion of tax. Moreover, the commodity kerosene and white kerosene are meant for two different purposes, i.e., kerosene is used for domestic purpose and white kerosene (superior kerosene) is meant for industrial use. Hence, the Government which is empowered to fix different rates for a given commodity which has different usages has classified the commodity under two different entries which is quite in order. Therefore, the contention of the petitioners that the classification of the kerosene into two different entries in the said Eleventh Schedule is arbitrary, is not acceptable, since it is not based on any sound reason because both the commodities even though are available in the said Eleventh Schedule are meant for different usage. Similarly, the clarification given by the Commissioner stating that the commodity white kerosene (superior kerosene) attracts resale tax and surcharge is quite reasonable since the exemption granted from payment of resale tax and surcharge is applicable only for kerosene and not for white kerosene (superior kerosene) as contended by the petitioners. This clarification given by the Commissioner w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any rate devoted to that purpose, then you must read the Act and the Schedule as though the Schedule were operating for that purpose, and if you can satisfy the language of the section without extending it beyond that purpose, you ought to do it. But if in spite of that you find in the language of the Schedule words and terms that go clearly outside that purpose, then you must give effect to them and you must not consider them as limited by the heading of that part of the Schedule or by the purpose mentioned in the Act for which the Schedule is prima facie to be used. You cannot refuse to give effect to clear words simply because prima facie they seem to be limited by the heading of the Schedule and the definition of the purpose of the Schedule contained in the Act.' 32.. The above observation was not disapproved in appeal in (Gittus v. Commissioners of Inland Revenue [1921] 2 AC 81). However, the basic principle is that in case of a conflict between the body of the Act and the Schedule, the former prevails. In the instant case, we do not find any such conflict." He also relied upon the judgment of the Supreme Court in Ujagar Prints v. Union of India reported in [1989] 74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is not subjected to challenge as contended by the petitioners. In any event, the statute, in order to make it foolproof, was also amended by a separate legislative amendment. Therefore, the petitioners cannot attack the said notification on the ground that it is violative of articles 14 and 19(1)(g) of the Constitution of India. He also submitted that once the Schedule is amended, the exemption notification cannot stand on its own. He also stated that if the exemption is granted only in respect of tax payable under this Act on the sale or purchase of any specified class of goods and once exempted in respect of only specified class of goods and that class of goods has been specifically mentioned in the different entry into the Eleventh Schedule, then exemption notification will still apply to SKO is unsustainable. The learned counsel in this context placed reliance upon the judgment of the Supreme Court in Commissioner, Sales Tax, U.P. v. Agra Belting Works, Agra reported in [1987] 66 STC 1; [1987] 3 SCC 140. In that case, the question arose was if charging provision undergoes change whether the exemption notification can still continue to have the effect without taking into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 4 of the Act, exempting milk and milk products from the levy of sales tax. It has also been issuing from time to time notifications under section 3A notifying the rates of tax on sale/ purchase of different goods. In this case, we are concerned with one notification under section 4, namely, the one dated May 21, 1974 and two notifications under section 3A dated November 4, 1974 and May 30, 1975. The notification under section 4 dated May 21, 1974 exempted milk and milk products from the levy of tax. Ice-cream was understood to be a milk product and, therefore, exempt. However, by notifications issued under section 3A (dated November 4, 1974 and May 30, 1975) a rate of tax was prescribed expressly for ice-cream among other goods. 4.. In Commissioner, Sales Tax v. Agra Belting Works [1987] 66 STC 1; [1987] 3 SCC 140 a Bench of this court comprising R.S. Pathak, C.J., Ranganath Misra and B. C. Ray, JJ. held, by a majority, that sections 3, 3A and 4 of the U.P. Sales Tax Act are parts of the taxing scheme incorporated in the Act, and therefore, where a notification is issued under section 3A prescribing a rate of tax for goods, which may have been exempted from tax by an earli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eev Coke Manufacturing Co. v. Bharat Coking Coal Ltd. AIR 1983 SC 239)." Therefore, in the light of the above, he submitted that the attack made against the levy of per cent tax in respect of SKO cannot be challenged. The parameters of judicial review over such levy of tax was dealt with by the Supreme Court on several occasions. In this context, he placed reliance upon the judgment of the Supreme Court in Elel Hotels and Investments Ltd. v. Union of India reported in [1989] 74 STC 146; [1989] 3 SCC 698. The Supreme Court held in that case that the sales tax can also be made on the basis of income differences and there cannot be any uniformity in such matters. The Supreme Court in paragraph 14 of the said judgment held as follows (at page 153 of 74 STC): "14. On a consideration of the matter, we are of the opinion that the submissions of the learned Attorney-General as to the source of the legislative power to enact a law of the kind in question require to be accepted. The word 'income' is of elastic import. In interpreting expressions in the legislative Lists, a very wide meaning should be given to the entries. In understanding the scope and amplitude of the expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue by taxing only some category of cooked food sold in eating houses and not all cooked food sold anywhere, it is undoubtedly reasonable to tax only the more costly cooked food. The taxed cooked food being the more costly variety constitutes a distinct class with a discernible difference from the remaining tax-free cooked food. A blinkered perception of stark reality alone can equate caviar served with champagne in a luxury hotel with the gruel and buttermilk in a village hamlet on the unrealistic abstract hypothesis that both the meals have the equal efficacy to appease the hunger and quench the thirst of the consumer. Validity of a classification under our Constitution does not require such a blurred perception. 8.. The cost of meal in these two distinct classes of eating houses varies considerably, the cost in a modest eating house quite often being a mere pittance of that in a posh eating house. Not only that, the incidence of sales tax on the cost of food served in a posh eating house quite often would not even be noticed by the customer and it may even exceed the total cost of the meal served in a modest eating house. How can the two meals be then equated and classified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntage of levy of tax. Further, it must be noted that the State Government had come out with a stand that a separate levy of tax was made so as to prevent misuse or black marketing of public distribution commodities. Reliance placed upon the judgment of the Supreme Court in Arya Vaidya Pharmacy case [1989] 73 STC 346; [1989] 2 SCC 285 has no application. The said case has been subsequently distinguished in two different cases and explained away in one case of State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd. [2007] 7 VST 535 (SC). Further, the Bureau of Indian Standards (BIS) prescribes criteria for adding chemical for colour quoting is mainly for purpose of standardizing so as to avoid any accusation of adulteration. In such cases, the dealers may avoid facing litigation in supplying adulterated kerosene. Similarly, relying upon the notification under the Essential Commodities Act has no place, so long as the commodity is an essential commodity and private marketing system is introduced by the Parliament through a delegated legislation to safeguard the interest of kerosene supply under the public distribution system. Therefore, it cannot be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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