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TMI Blog2016 (5) TMI 912X X X X Extracts X X X X X X X X Extracts X X X X ..... tory provisions of the Constitution that impose certain limitations upon the powers of the State legislature, (d) the operation of the impugned law beyond the borders of the State, and (e) the abdication of the essential legislative function. The petitioners in these writ petitions could not establish the existence of any of these grounds, for holding the phrase "in the State" appearing in Section 2(11) of the Tamil Nadu VAT Act, 2006. Therefore, the challenge to the statutory prescription made in these writ petitions has to be failed. The challenge to the validity of Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006, is rejected and the prayer of the writ petitioners for declaration that Section 2(11) is ultra vires and unconstitutional, is dismissed. - W. P. Nos. 37604 & 37605 of 2007, 8758 to 8762, 15024 to 15026, 24270, 24271, 24729 to 24731, 26643 of 2010, 9966, 9967, 10312,10313, 10983, 10984 and 29139 of 2011 - - - Dated:- 5-4-2016 - V. Ramasubramanian And N. Kirubakaran, JJ. For the Petitioners : Mr. R. L. Ramani, S.C. For Mr.K.J.Chandran, Mr.B.Raveendran For the Respondents : Dr.Anita Sumanth, Spl.G.P. (T) ,Mr.Manoharan Sundaram, AGP, Mr.Cibi Vishnu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amil Nadu Value Added Tax Act, 2006, capital goods as described in Section 2(11) of the Act, are included in serial number 25 and as a consequence, they attract tax at the rate of 5%. Since serial number 25 of Part-B is specifically confined to capital goods as described in Section 2(11) of the Act, other capital goods which may not satisfy the description contained in Section 2(11), despite really being capital goods, may fall under serial number 69 of Part-C of the First Schedule, attracting tax at the rate of 14.5%. 7. At this stage, it will be appropriate and useful to extract Section 2(11) of the Act. It reads as follows:- capital goods means- (a) plant, machinery, equipment, apparatus, tools, appliances or electrical installation for producing, making, extracting or processing of any goods or for extracting or for bringing about any change in any substance for the manufacture of final products; (b) pollution control, quality control, laboratory and cold storage equipments; (c) components, spare parts and accessories of the goods specified in (a) and (b) above; (d) moulds, dies, jigs and fixtures; (e) refractors and refractory materials ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds, when used outside the State; (ii) treating the dealers of one and the same goods differently, depending upon their place of use, offends Article 14; (iii) a sale in the course of inter-State trade or commerce, to a person other than a registered dealer, is covered by Section 8(2) of the Central Sales Tax Act, 1956 and hence, the prescription contained in Section 2(11) is an encroachment by a State law into a field occupied by a Central Legislation; (iv) the prescription contained in Section 2(11) is violative of Article 286(1)(a) of the Constitution; and (v) the prescription contained in Section 2(11) is violative of Article 303 of the Constitution. Response of the State 12. The overall response of the State of Tamil Nadu, to the challenge to Section 2(11), as projected by Dr.Anita Sumanth, learned Special Government Pleader (Taxes), is that the entire thrust of Sales Tax Law, is to encourage transactions between two registered dealers. The dealers who have come up with a challenge to Section 2(11) are only those who sell goods in the course of inter-State trade or commerce, to unregistered dealers. If the first category of writ petitioners, who object to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egislature, of its essential Legislative function or the excessive delegation of that power to some other body. 16. The grounds on which a law cannot be invalidated, are also listed out in para 11 of the Judgment in Namita Sharma. It is pointed out therein that a law cannot be invalidated on the ground that the law making body did not apply its mind or that it was prompted by improper motive. A law cannot even be challenged on the ground that it contravened any of the directives contained in Part-IV of the Constitution. Even the wisdom of the Legislature in making such a law, cannot be a matter of consideration. The manner in which such a law is administered or capable of being administered cannot also be a ground of challenge. 17. Mrs.R.Hemalatha, learned counsel appearing for some of the petitioners submitted (i) that if the State wanted to give liberal treatment to the goods used within the State, they could have resorted to the power of exemption under Section 30; (ii) that the nature of the goods cannot depend upon the situs of use, so as to run contrary to Section 8(2); (iii) that the definition of the expression capital goods in the statutes of all other States excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In this connection, he placed heavy reliance upon the decision of the Supreme Court in Paper Products Ltd., Vs. Commissioner of Central Excise [1999 (112) ELT 765(SC)] and the decision of this Court in Mohan Breweries and Distilleries Limited Vs. Commercial Tax Officer [(2005) 139 STC 477]. 23. There are two difficulties about the above submissions. The first is that the main challenge in these writ petitions is to the validity of Section 2(11). On the basis of a circular or clarification issued by the Department the vires of a statutory provision cannot be tested. The second is that the circulars do not decide what are capital goods that are entitled to a reduced rate of tax. Hence, the above contention is liable to be rejected. 24. A similar contention was advanced by Mr.C.Baktha Sironmoni, learned counsel for one of the petitioners, on the basis of a letter dated 25.9.2007 issued by the Commissioner of Commercial Taxes in favour of one company. The said letter merely clarifies in respect of that company that the capital goods sold to other States without declaration are taxable at 4%. We do not think that it is of general application. 25. A number of letters issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 28. As rightly pointed out by Dr.Anita Sumanth, learned Special Government Pleader (Taxes), it is not open to this Court to treat any word or expression used in any statute as redundant or superfluous. The reliance placed by the learned Special Government Pleader in this regard on the decision of the Supreme Court in Grasim Industries Ltd. v. Collector of Customs [128 STC 350], is well founded. Paragraph 9 of the said decision which clinches the issue in this regard, may be usefully extracted as follows: 9. No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the Legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sententia legis of the Legislature. Where the words are clear and there is no obscurity, and there is no ambiguity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be imported to any other rule or statute. 30. Therefore, the issue is not as to how the very same goods become capital goods when used in the State, but become different goods when used outside the State. The Sales Tax Law of the past and the Value Added Tax Law of the present seek to treat goods of a particular description differently, for the purpose of determining the incidence of tax. This is not prohibited by law and hence, the first ground of challenge has to fail. Second ground of challenge: 31. The second ground of challenge is that the treatment of dealers of one and the same goods differently, depending upon the place of use of the goods, offends Article 14. 32. But this ground of challenge cannot be sustained at least for two reasons. The first is that even the Central Sales Tax Act, 1956, treats the dealers of one and the same goods differently, depending upon whether the goods are sold in the course of inter-state trade or commerce to a registered dealer or to an unregistered dealer. If the sale is to a registered dealer, the tax leviable is under Section 8(1) of the Central Sales Tax Act. If the sale is to an unregistered dealer, the tax leviable is under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne who manufactures certain items by employing the plant and machinery. But for a person who manufactures such plant and machinery, the same may not be capital goods. Therefore, the Legislature is entitled to treat different items differently and it is also entitled to treat the same item differently for different purposes. Hence, the second ground of challenge cannot be sustained. Third ground of challenge: 36. The third ground of challenge is that the sale in the course of inter-state trade or commerce to a person other than a registered dealer, is covered by Section 8(2) of the Central Sales Tax Act, 1956 and that therefore, the prescription contained in Section 2(11) is an encroachment by a State law into a field occupied by a Central Legislation. 37. In order to understand the scope of this contention, it is necessary to take note of the provisions of Section 8(2) of the Central Sales Act, 1956, which reads as follows:- 8(2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or commerce not falling within sub-section (1), shall be at the rate applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n List I shall prevail over the State powers as enumerated in Lists II and III and in case of overlapping between Lists III and II, the former shall prevail. 41. Having laid down the above principles, the Supreme Court made it very clear that the principle of federal supremacy in Article 246(1) cannot be resorted to unless there is an irreconcilable conflict between the entries in Union and State Lists and that the said conflict has also to be a real conflict (not an imaginary one). 42. In this case, we do not see any irreconcilable conflict between Section 2(11) of the TNVAT 2006 and Section 8(2) of the Central Sales Tax Act, 1956. Section 2(11) merely makes certain capital goods as capital goods, if they are used in the State. If they are not used in the State, those goods merely go out of the purview of capital goods under Section 2(11). This does not mean that the State sought to tax inter-state trade or commerce, which falls exclusively within the domain of the Parliament. 43. Assuming without admitting that there is some element of encroachment, the same would tantamount only to incidental trenching, which is permissible in law, as held by the Supreme Court in State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf under Section 8(2) of the CST Act, 1956, but in adopting the rate applicable to the sale or purchase of goods inside the appropriate State amounted to an abdication of the legislative function. The said question was answered in the negative by the Supreme Court in Gwalior Rayons by pointing out that the Parliament, while making such a law under Section 8(2) did not indulge in self-effacement. We do not know how Gwalior Rayons is of any assistance to the petitioners. The cases on hand do not represent a converse of the position that was argued in Gwalior Rayons. 48. In other words, Section 8 deals with the Sales Tax payable on the sale of goods in the course of inter-State trade or commerce. The Central Sales Tax Act, 1956, itself is a law that deals with sale of goods in the course of inter-State trade or commerce. No law of a State is entitled to impose or authorise the imposition of a tax on the sale or purchase of goods where such sale or purchase takes place outside the State. Therefore, what is prohibited is the imposition of a tax on the sale or purchase that takes place outside the State. 49. But Section 2(11) does not impose a tax on the sale or purchase of goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed for the goods falling within the definition of Section 2(11) read with Entry 25 of Part-B of the First Schedule. Therefore, as a matter of fact, it is possible for persons whose goods fall within the definition of Section 2(11) to contend that despite their goods being capital goods, they are paying tax at 5% while dealers of the very same goods sold in the course of inter-State trade and commerce satisfying the prescription contained in Section 8(1) are paying tax only at 2%. Therefore, the fourth contention is also liable to be rejected. Last ground of challenge: 53. The last ground of challenge is that the restriction imposed in Section 2(11) is violative of Article 303 of the Constitution. 54. Article 303 of the Constitution reads as follows:- 303. Restriction on the legislative powers of the Union and of the States with regard to trade and commerce.-- (1) Notwithstanding anything in article 302, neither Parliament nor the Legislature of a State shall have power to make any law giving, or authorising the giving of, any preference to one State over another, or making, or authorising the making of, any discrimination between one State and another, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule and was then known as British India, while the remaining part of the territory of India was governed by Indian princes and it consisted of several Indian States. A large number of these States claimed sovereign rights within the limitations imposed by the paramount power that behalf, an duty purported to exercise their legislative power of imposing taxes in respect of trade and commerce which inevitably led to the erection of customs barriers between themselves and the rest of India. In the matter of such barriers British India was governed by the provisions of s. 297 of the Constitution Act, 1935. To the provisions of this section we will have occasion later to refer during the course of this judgment. Thus, prior to 1950 the flow of trade an commerce was impeded at several points which constituted the boundaries of Indian States. After India attained political freedom in 1947 and before the Constitution was adopted the process of the merger and integration of the several Indian states with the rest of the country was speedily accomplished with the result that when the Constitution was first passed the territories of India can State of Part A States which broadly stated repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk that the said decision is of any assistance to the petitioners. 61. On the challenge of the petitioners to the impugned provision as being violative of Articles 301 and 303(1) of the Constitution, the answer lies in the decision of the Constitution Bench of the Supreme Court in the State of Tamil Nadu v. N.K.Nataraja Mudaliar. This decision actually took note of the earlier Bench decision in Atiabari Tea Co. and Automobile Transport. Eventually, the Court, by a majority, laid down the following principles: (i) It must be taken as settled law that the restrictions or impediments which directly and immediately impede or hamper the free flow of trade, commerce and intercourse fall within the prohibition imposed by Article 301 and subject to the other provisions of the Constitution they may be regarded as void. (ii) It must be regarded as settled law that a tax may in certain cases directly and immediately restrict or hamper the flow of trade, but every imposition of tax does not do so. .... (v) An Act which is merely enacted for the purpose of imposing tax which is to be collected and to be retained by the State does not amount to a law giving or authorising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... four scenarios emerge out of Section 2(11). They are as follows: (i) If an article, which falls strictly within the definition of the expression capital goods under Section 2(11), is sold, it will attract tax at the rate of 5%. (ii) If such a sale falls within the purview of Section 8(1) of the Central Sales Tax Act, 1956, it will attract tax only at the rate of 2%. (iii) Goods, which are otherwise capital goods, but which do not satisfy the definition contained in Section 2(11), will also attract tax only at the rate of 2% under Section 8(1) of the CST Act, 1956, if the sale of such goods takes place in the course of inter-State trade or commerce in favour of a registered dealer. (iv) It is only those capital goods, which do not satisfy the requirements of Section 2(11) and which are sold in the course of inter-State trade or commerce, but which do not fall under Section 8(1) of the CST Act, 1956 that a higher rate of tax at 14.5% under Entry 69 of Part-C of the First Schedule is attracted. 64. In other words, there are two categories of persons, who may sell, in the course of inter-State trade or commerce, goods which are capital goods within the meaning of Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Sub-Section (2) of Section 8, steered clear of any confusion that the dealers may entertain on the basis of Yaddalam Lakshminarasimhiah. 69. As a matter of fact, Sub-Section (2-A) was inserted in Section 8, actually to take care of the contingency that arose in Yaddalam Lakshminarasimhiah. But Sub-Section (2-A) was omitted under Finance Act 20 of 2002. 70. The purport of Sub-Section (2-A) was explained by the Supreme Court in Commissioner of Sales Tax vs. Pine Chemicals Limited [96 STC 355]. It was pointed out therein that the idea behind Sub-Section (2-A) was to exempt the sale or purchase of goods from the Central Sales Tax where the sale or purchase of such goods is exempt generally under the State Sales Tax Law. Due to the use of expression generally in Sub-Section (2-A), the Court held that unless the exemption is a general exemption and not an exemption operative in specified circumstances or specified conditions, Sub-section (2-A) will not operate. 71. But neither the decision in Yaddalam Narasimhiah nor the decision in Pine Chemicals, will be of any assistance to the petitioners. We cannot overlook the fact that we are dealing with the validity of a defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive parts. Clause (a) of Section 2(11) is one part. Clauses (b) to (g) comprise the other part. If the good in question falls under any one of the categories mentioned in Clause (a), such as plant, machinery, equipment, apparatus, tools, appliances or electrical installation, it would be treated as capital good, provided it is used for producing, making, extracting or processing of any goods or for extracting or for bringing about any change in any substance for the manufacture of final products. If the good in question falls under any one of the categories mentioned in Clauses (b) to (g), it should be used for the purpose of manufacture, processing, packing or storing of goods in the course of business. But, civil structures and such goods as may be notified by the Government are excluded. 75. Though many of the other expressions used in Section 2(11) are not further defined in the Act, the expression manufacture is defined in Section 2(27) as follows: manufacture with its grammatical variations and cognate expressions means producing, making, extracting, altering, ornamenting, finishing, assembling or otherwise processing, treating or adapting any goods and includes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be addressed in this batch of cases. That is a problem that they have learnt to live with. Moreover, cases which are not covered by Section 8(1) of the CST Act are covered by Section 8(2). As a consequence, they may have to pay tax at the rate as applicable under the local Sales Tax Law of the State, in which the purchaser is located. Normally, the local Sales Tax Laws of the respective States, exempt from local sales tax, any sale made to the local Government. Therefore, we do not know how far the petitioners belonging to the second category of cases are correct in their submission. We think the difficulty expressed by the second category of persons is perhaps projected theoretically for the purpose of attacking Section 2(11). 80. One last issue that remains to be dealt with, is the reliance placed by some of the petitioners on an order passed by the Authority for Advance Ruling and clarification issued under Section 48A. 81. But we do not think that any ruling or clarification issued by such an Authority can go contrary to the Statutory provisions. Under Sub-section (1) of Section 48A, the said Authority is entitled only to clarify any point concerning the rate of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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