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TMI Blog2009 (7) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... essments for the years already mentioned and a direction is sought not to recover any amount towards differential tax pursuant to exhibits P1 to P3 assessment orders by placing reliance on the provisions of section 30(2) of the Act. I heard learned senior counsel for the petitioner Sri Arshad Hydayathullah and learned Special Government Pleader Sri Vinod Chandran. Sri Arshad Hydayathullah, learned senior counsel appearing for the petitioner, would contend that in view of substitution of section 30(2) the substituted provisions will hold sway from the commencement of the Act. The fact that it is provided that the substitution is with effect from April 1, 2008 would not entitle the respondents to contend that it is to have effect only from April 1, 2008 runs the argument of the petitioner. The date April 1, 2008 is mentioned only to indicate that substitution has come into play but its effect will be from the commencement of the Act itself, he contends. He further contends that if it is found that the substituted provisions will have only effect from April 1, 2008 the court would have to necessarily consider the constitutional validity of section 30(2) and hold the provisions of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purporting to be by way of tax under this Act. It is thus contended by the petitioner that the Legislature itself having realised the discrimination flowing from the provisions of the Act decided to consciously intervene and it resorted to the legislative device of substitution of the previously obtaining provisions with the provisions as are extant at present. It is pointed out that under section 30(2), as it stands after substitution, the petitioner is also entitled to collect tax even if it has proceeded to opt for compounding. He would submit, in such circumstances when a provision is substituted it will have operation from the date of commencement of the Act and thus argue that this court has to give effect to the said principle and hold that amendment carried out by way of substitution in 2008 will have effect from the date on which the Act was commenced. In this regard learned senior counsel sought to draw considerable support from the decision in Government of India v. Indian Tobacco Association [2005] 5 RC 379; [2005] 7 SCC 396. It is necessary to notice the facts of the case. The respondent was an association of cultivators of tobacco. An incentive scheme was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and bring the same in conformity with what the Legislature really intended to provide, stating (SCC page 12, paras 23-25): '23. The text of section 2 of the Second Amendment Act provides for the word "up to" being substituted for the word "after". What is the meaning and effect of the expression employed therein-"shall be substituted"? 24.. The substitution of one text for the other pre-existing text is one of the known and well-recognised practices employed in legislative drafting. "Substitution" has to be distinguished from "supersession" or a mere repeal of an existing provision. 25.. Substitution of a provision results in repeal of the earlier provision and its replacement by the new provision (see Principles of Statutory Interpretation, ibid., page 565). If any authority is needed in support of the proposition, it is to be found in West U.P. Sugar Mills Assn. v. State of U.P. [2002] 126 STC 190; [2002] 2 SCC 645, State of Rajasthan v. Mangilal Pindwal [1996] 5 SCC 60, Koteswar Vittal Kamath v. K. Rangappa Baliga and Co. [1969] 1 SCC 255 and A.L.V. R.S.T Veerappa Chettiar v. S. Michael AIR 1963 SC 933. In West U.P. Sugar Mills Assn. case [2002] 126 STC 190 (SC); [2002] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission in 1953 and he retired on January 2, 1959. It is necessary to refer to paragraphs 17, 18, 19 of the said judgment. Paragraphs 17, 18 and 19 read as under: "17. It is a matter of legislative practice to provide while enacting an amending law, that an existing provision shall be deleted and a new provision substituted. Such deletion has the effect of repeal of the existing provision. Such a law may also provide for the introduction of a new provision. There is no real distinction between 'repeal' and an 'amendment'. In Sutherland's Statutory Construction, third edition, volume 1 at page 477, the learned author makes the following statement of law: 'The distinction between repeal and amendment as these terms are used by the courts, is arbitrary. Naturally the use of these terms by the court is based largely on how the Legislatures have developed and applied these terms in labelling their enactments. When a section is being added to an Act or a provision added to a section, the Legislatures commonly entitle the Act as an amendment. . . When a provision is withdrawn from a section, the Legislatures call the Act an amendment, particularly when a provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislative process termed 'substitution' proved to be abortive inasmuch the amending Act did not receive the assent of the Governor-General under section 107 of the Government of India Act, 1935 and was thus void and inoperative. Distinguishing the two earlier decisions in Firm A.T.B. Mehtab Maajid & Co. v. State of Madras [1963] 14 STC 355 (SC); [1963] Supp 2 SCR 435; AIR 1963 SC 928 and Koteswar Vittal Kamath v. K. Rangappa Baliga & Co. [1969] 3 SCR 40; [1969] 1 SCC 255; AIR 1969 SC 504 the court observed that the mere use of the word 'substituted' does not ipso facto or automatically repeal a provision until the provision which is to take its place is constitutionally permissible and legally effective. It relied upon the following principle of construction stated in Halsbury's Laws of England, third edition, volume 36, page 474: 'Where an Act passed after 1850 repeals wholly or partially any former enactment and substitutes provisions for the enactment repealed, the repealed enactment remains in force until the substituted provisions come into operation.' And observed: (SCC page 651, para 18) 'We do not think that the word substitution neces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... require a Government servant to retire from the service on the date on which he completes 25 years of qualifying service or on any date thereafter.' . . . 5.. By notification dated September 2, 1975, sub-rule (2) of rule 244 of the Rules was substituted by the following provision: '244. (2) The Government, may, after giving at least three months' previous notice in writing or by payment of three months' pay and allowances in lieu of such notice require a Government servant to retire from the service on the date on which he completes 20 years of qualifying service or the date on which he attains the age of 50 years whichever is earlier, or on any date thereafter.' 6.. By a subsequent notification dated November 26, 1975, rule 244 of the Rules was substituted with effect from September 2, 1975. Subrule (2) of rule 244, thus substituted, read as follows: '244. (2)(i) The Government, may after giving at least three months' previous notice in writing require a Government servant to retire from the service on the date on which he completes 20 years of qualifying service or the date on which he attains the age of 50 years whichever is earlier, or o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule is made to cease to exist and, next, the new rule is brought into existence in its place. (See Koteswar Vittal Kamath v. K. Rangappa Baliga & Co. [1969] 1 SCC 255; [1969] 3 SCR 40, SCR, at page 48). In other words, the substitution of a provision results in repeal of the earlier provision and its replacement by the new provision. As regards repeal of a statute the law is thus stated in Sutherland on Statutory Construction. 'The effect of the repeal of a statute where neither a saving clause nor a general saving statute exists to prescribe the governing rule for the effect of the repeal, is to destroy the effectiveness of the repealed act in futuro and to divest the right to proceed under the statute, which, except as to proceedings past and closed, is considered as if it had never existed.' (volume I, para 2042, pages 522-523). . . . 12.. This means that as a result of repeal of a statute the statute as repealed ceases to exist with effect from the date of such repeal but the repeal does not affect the previous operation of the law which has been repealed during the period it was operative prior to the date of such repeal. The effect of the amendments that were intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 30 is made liable to be visited with penal consequences under the Act. It is apposite in this context to refer to para 17 (para 16 in SCC) of the Indian Tobacco Association case [2005] 5 RC 379; [2005] 7 SCC 396. It reads as follows: "17. By reason of the aforementioned amendment no substantive right has been taken away nor any penal consequence has been imposed. Only an obvious mistake was sought to be removed thereby." Reference to paragraphs 27 and 28 (paragraphs 26 and 27 in SCC) is also important to undo the legal knot which is presented in this case. They read as follows: "27. We are not oblivious of the fact that in certain situations, the court having regard to the purport and object sought to be achieved by the Legislature may construe the word 'substitution' as an 'amendment' having a prospective effect but such a question does not arise in the instant case. 28.. There is another aspect of the matter which may not be lost sight of. Where a statute is passed for the purpose of supplying an obvious omission in a former statute, the subsequent statute relates back to the time when the prior Act was passed. (See Attorney General v. Pougette [1816] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule which was the subject-matter of the decision. In Tobacco Association case [2005] 5 RC 379; [2005] 7 SCC 396 it is important to note that it related to the rectification of a mistake. Though a notification was issued it omitted "Guntur". When a representation was made another notification was issued and the said notification purported to supply the omission and cure or rectify the mistake as was noticed by the apex court and it had to be given effect from the date of the original notification. Learned Government Pleader is justified in drawing support from the decision of the Supreme Court in Bhagat Ram Sharma v. Union of India [1988] (Supp) SCC 30. I also feel that the decision in State of Rajasthan v. Mangilal Pindwal [1996] 5 SCC 60 would also show that if substitution of a provision is to be effective from a particular date the earlier provisions will continue to hold good till such date. Accordingly, I reject the contention of the petitioner. The further question which arises is as regards the challenge to the validity of section 30(2). No doubt, the learned Government Pleader would point out the prayer in the writ petition and the admitted amendment to section 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcludes those dealers paying compounded tax under clause (a) to clause (d) of section 8 of the KVAT Act, 2003 from the facility to collect the tax paid under the Act form the awarders of the contract or buyers, is ultra vires the KVAT Act, opposed to the scheme of the Act and, further, is discriminatory and hence violative of the fundamental rights of the petitioner under article 14 of the Constitution of India. The said provision is hence liable to be declared as unconstitutional." In the counter-affidavit of the respondents it is, inter alia, stated as follows: "3. As per sub-section (2) of section 30 of the Act contractors, who opted for payment of tax under section 8, are not entitled to collect tax. The Kerala Value Added Tax Act was passed by the State Legislature on February 27, 2003 and was amended by the Finance Act 2005 (Act 10 of 2005). As it originally stood section 8 of the KVAT Act permitted compounding to works contractors, mechanized crushing units, dealers of cooked food and beverages and dealers in lottery tickets as provided in sub-sections (a), (b), (c) and (d) of section 8 and section 30 prohibited collection of tax by dealers paying presumptive tax and those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner under article 14 of the Constitution of India. The petitioner is under no compulsion to opt for payment of tax under the compounded scheme as provided under section 8 of the KVAT Act and the petitioner has done it voluntarily after being fully aware of the provisions under section 30 of the Act prohibiting and preventing the petitioner from collecting tax paid at the compounded rate from its customers. The contention of the petitioner that they had not separately collected the tax and that the tax element is included in the composite cost of the individual apartment buildings is a deliberate falsehood. The petitioner has deliberately and with mala fide intentions acted against the provisions of the Act as has been revealed by the petitioner's own ledger accounts." In East India Tobacco Company v. State of Andhra Pradesh [1962] 13 STC 529, the apex court has considered whether the State could treat virginia tobacco as forming a class by itself for the purpose of taxation. The Act exempted sales of country tobacco but taxed virginia tobacco. The court proceeded to hold as follows (page 530 in 13 STC): "Taxation laws must also pass the test of article 14. But in decidin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lassification for differential treatment in taxation laws as well. The classification must be rational and based on some qualities and characteristics which are to be found in all the persons grouped together and absent in the others left out of the class. But this alone is not sufficient. The differntia must have a rational nexus with the object sought to be achieved by the law. The State, in the exercise of its Governmental power, has, of necessity, to make laws operating differently in relation to different groups or class of persons to attain certain ends and must, therefore, possess the power to distinguish and classify persons or things. It is also recognised that no precise or set formulae or doctrinaire tests or precise scientific principles of exclusion or inclusion are to be applied. The test could only be one of palpable arbitrariness applied in the context of the felt needs of the times and societal exigencies informed by experience. Classifications based on differences in the value of articles or the economic superiority of the persons of incidence are well-recognised. A reasonable classification is one which includes all who are similarly situated and none who are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent) as the tax to be levied at the point of first sale in the State. Item No. 135 provides a rate of 30 per cent in respect of arishtams and asavas at the point of first sale. We see no reason why arishtams and asavas should be treated differently from the general class of ayurvedic medicines covered by item No. 95. It is open to the Legislature, or the State Government if it is authorised in that behalf by the Legislature, to select different rates of tax for different commodities. But where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from other commodities no complain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey continue to be identified as medicinal preparations they must be treated, for the purposes of the sales tax law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol. On this ground alone the appellants are entitled to succeed." In State of Assam v. Shri Naresh Chandra Ghose [2001] 121 STC 294 the apex court distinguished the decision in Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346; [1989] 2 SCC 285 and held as follows (page 298 in 121 STC): "It is true that in the case of Arya Vaidya Pharmacy [1989] 73 STC 346; [1989] 2 SCC 285 this court declared that the two ayurvedic preparations termed as arishtams and asavas are medicinal preparations, and even though they contain a high alcohol content, so long as they continue to be identified as medicinal preparations (emphasis(1) supplied) they must be treated, for the purposes of the sales tax law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol. In that case, it is to be noted that while all other patent or proprietary medicinal preparations belonging to different systems of medicines were taxed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same, cannot be said to be arbitrary and violative of article 14 as held by the High Court in its impugned judgment. . ." It is also necessary to notice the decision of the apex court in Shashikant Laxman Kale v. Union of India [1990] 185 ITR 104; [1990] 4 SCC 366. Therein the employees of the private sector companies impugned section 10(10C) of the Income-tax Act, 1961. As per the said provision payment received by employees of public sector companies at the time of their voluntary retirement was exempted. However, this benefit was not extended to employees of the private sector companies. In the course of the judgment the apex court stated as follows (page 105 in 185 ITR): "The principles of valid classification are that those grouped together in one class must possess a common characteristic which distinguishes them from those excluded from the group; and this characteristic or intelligible differntia must have a rational nexus with the object sought to be achieved by the enactment. The court must look beyond the ostensible classification and to the purpose of the law and apply the test of 'palpable arbitrariness' in the context of the felt needs of the times ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the rates at which different categories are permitted to compound vary from category to category. For instance, the works contractor is permitted to pay tax at the rate of two per cent of the whole contract amount. It is necessary to quote section 8(a) of the Act. It reads as under: 8.. Payment of tax at compounded rates.-Notwithstanding anything contained in section 6,- (a)(i). any works contractor not being a dealer registered under the provisions of the Central Sales Tax Act, 1956 (Central Act 74 of 1956), or a dealer effecting first taxable sale in the State may, at his option, instead of paying tax in accordance with the provisions of the said section, but subject to payment of tax if any, payable under subsection (2) thereof, pay tax at two per cent of the whole contract amount: Provided that any works contractor who undertakes works of the Government Departments or Local Authorities or Kerala Water Authority shall not be liable to tax under sub-section (2) of section 6, if he pays compounded tax at the rate of three per cent on the whole contract amount: Provided further that notwithstanding anything contained elsewhere in this Act, a works contractor who intends to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eligible for payment of compounded tax under the said clause merely for the reason that the contract also involves work of the said categories. (iii) any contractor who had opted for payment of tax in accordance with the provisions of sub-section (7) or sub-section (7A) of section 7 of the Kerala General Sales Tax Act, 1963 (15 of 1963), in respect of any works contract prior to the date of coming into force of this Act, part of which remains to be executed on such date, such contractor may continue to pay tax in respect of the transfer of goods involved in the unexecuted portion of such contracts, at the rate specified in subsection (7) or sub-section (7A) of the said Act." As far as clause (b) is concerned it deals with dealer producing granite metals with the aid of mechanized crushing machine. Therein compounding is on the basis of the size of the machine. Clause (c) deals with dealer in cooked food and beverages other than dealer supplying cooked food or beverages to any airline service company. It also deals with any bar attached hotel, not being a star hotel of above three star or a club or a heritage hotel. It is based on turnover. Clause (d) relates to a dealer who trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had not been opened: Provided no additional tax is payable by a dealer covered by clause (ii) for the new branches opened during the year 2005-06. (iv) Notwithstanding anything contained elsewhere where a dealer commences business during the period from first day of April, 2006 to 30th day of September, 2006 may at his option, instead of paying tax in respect of such goods in accordance with the provisions of section 6, pay tax at compounded rate per month from the commencement of the business at one hundred and fifty per cent of the average monthly tax paid or payable from the commencement of business to 30th day of September, 2006 under this Act: Provided further that where a dealer had paid tax under clause (f) and opts for payment of tax under the clause for the succeeding year, the compounded tax payable for the succeeding year to which such option relates shall be at one hundred and fifteen per cent of the tax paid under this clause or tax payable as per returns or accounts whichever is higher for the preceding year: Provided also that a dealer who opts for payment of tax under this clause may collect tax on the sales at the rate not exceeding the rate prescribed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be increase in the revenue. Experience showed otherwise. On the one hand the rate of tax was increased in 2006 to four per cent and at the same time the system of compounding was introduced. The system of compounding comprehended paying tax at the rate of 115 per cent of the tax remitted in 2004-05. Subsequently, there have been changes in the provision and it is found in the present form as already referred and extracted in the course of this judgment. Thus, obviously, the object of these provisions is to augment collection of revenue. The problem of collection of revenue apparently could be dealt with commodity-wise. How best revenue could be raised in relation to a particular commodity is a matter which is best considered and dealt with by the law-giver as they would know the felt necessities of the time. Apparently, it is in this context that as a package to induce gold jewellers to avail of compounding scheme and therefore make it attractive Government thought it fit to offer compounding facility with the advantage of collecting tax as well. It is crucial to note that the equality is a doctrine which is not doctrinaire. The realities of life cannot be irrelevant cons ..... X X X X Extracts X X X X X X X X Extracts X X X X
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