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TMI Blog2020 (3) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Constitution of India read with section 15(b) of the CST Act. Alternatively, the petitioners seek a declaration that the impugned notification cannot lead to denial of reimbursement as per section 15(b) of the CST Act in assessment under the GVAT Act. The petitioners further seek a direction to the respondents to grant reimbursement under section 15(b) of the CST Act to the members of the first petitioner. 2. The first petitioner is an association of traders of animal hides and skins. Members of the first petitioner are engaged in the business of trading in animal hides and skins. The first petitioner is duly registered with the Charity Commissioner of Ahmedabad and the members of the first petitioner are duly registered under the GVAT Act and the CST Act. They purchase goods locally and thereafter inter alia resell such goods in the course of inter-State trade and commerce. 3. In the exercise of the powers under article 286(3) of the Constitution of India, the Parliament declared certain goods to be of special importance in inter-State trade and commerce under section 14 of the CST Act. One of the goods so declared to be of importance was "hides and skins, whether in a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trade and commerce. There was no exclusion of trading in declared goods such as hides and skins for the purpose of reduction of input tax credit. The said entry was substituted by Notification No. (GHN-35) VAT-2010-S.11(6)(3)-TH dated 7th September, 2010 so as to exclude certain goods from the purview of the notification. Thereafter, the impugned entry was again substituted by Notification No. (GHN-14) VAT-2014-S.11(6)(4)/TH dated 23rd September, 2014, thereby providing for different rates of reduction of input tax credit for different products. The rate of reduction of input tax credit provided for hides and skins was from 2% to 1%. 6. It is the case of the petitioners that they still believed that despite that there being such notification, they would be granted refund of tax paid on purchases in terms of section 15(b) of the CST Act. However, in assessments/appeals in case of members of the petitioners, neither tax credit nor refund is being granted on the basis of the impugned notification. Being aggrieved, the petitioners have filed the present petition seeking the reliefs noted hereinabove. 7. Mr. Uchit Sheth, learned advocate for the petitioners submitted that the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate legislation such as the impugned notification. In support of such submission, reliance was placed upon the decision of this court in the case of State of Gujarat v. Narayan Traders, (1979) 43 STC 516 (Guj.), wherein the assessee had purchased cotton yarn from registered dealers on payment of sales tax under the Bombay Sales Tax Act, 1959, on such purchases and made inter-State sales of such cotton yarn on which sales tax was also recovered under the CST Act. The assessee however was granted refund of the sales tax paid by him to registered dealers from whom he purchased cotton yarn under rule 47 of the Bombay Sales Tax Rules, 1959. It was the case of the assessee that no central sales tax could be levied on the inter-State sales of yarn. The Supreme Court held that section 15(b) of the CST Act was amended by the Central Sales Tax (Amendment) Act, 1972 retrospectively with effect from 1st October, 1958, by which payment of Central sales tax was made a condition precedent for obtaining refund of State sales tax and although no amendment had been made in section 44 of the State Act or rule 47 of the rules framed thereunder pursuant to the amendment in section 15(b) of the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Kadwani Forge Ltd. v. State of Gujarat rendered on 22.7.2014 in Special Civil Application No.17439 of 2019, for defending curtailment of input tax credit by the impugned notification. 7.6 It was pointed out that the challenge to the impugned notification in the case of Kadwani Forge Ltd. (supra) was on multiple grounds and it was concerning all goods and not restricted to declared goods. It was submitted that while the petitioners who were before this court did rely upon section 15(b) of the CST Act insofar as declared goods are concerned, the stand of the respondent State for declared goods as recorded in paragraph 5.11 of the judgment was that there could be no reimbursement in that case since the petitioners had manufactured and sold different goods and since the vital condition for reimbursement under section 15 is that the purchased as well as sold goods both should be declared goods. It was submitted that it appears from the relevant portion of the rejoinder of the petitioners in those cases as recorded in paragraph 6.4 of the judgment that the submission of the respondent State was that the impugned notification would not be applicable to declared goods on case to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perly be made compelling the Municipal Corporation to construct a stall at the pitching site of a PG NO 939 pavement squatter. Professor P.J. Fitzgerald, editor of the Salmond on Jurisprudence, 12th edn. explains the concept of sub silentio at p. 153 in these words: "A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The Court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the court should not have decided in favour of the particular party unless it also decided point B in his favour; but point B was not argued or considered by the court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio." 12. In Gerard v. Worth of Paris Ltd. (K), (1936) 2 All ER 905, the only point argued was on the question of priority of the claimant's debt, and, on this argument being heard, the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out any citation of the authority'. It was approved by this Court in Municipal Corporation of Delhi v. Gurnam Kaur. The Bench held that, 'precedents sub-silentio and without argument are of no moment'. The Courts thus have taken recourse to this principle for relieving from injustice perpetrated by unjust precedents. A decision which is not express and is not founded on reasons nor it proceeds on consideration of issue cannot be deemed to be a law declared to have a binding effect as is contemplated by Article 141. Uniformity and consistency are core of judicial discipline. But that which escapes in the judgment without any occasion is not ratio decidendi. In Shama Rao v. State of Pondicherry, it was observed, 'it is trite to say that a decision is binding not because of its conclusions but in regard to its ratio and the principles, laid down therein'. Any declaration or conclusion arrived without application of mind or preceded without any reason cannot be deemed to be declaration of law or authority of a general nature binding as a precedent. Restraint in dissenting or overruling is for sake of stability and uniformity but rigidity beyond reasonable limits is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (b) of section 15 of the CST Act. 8.2 Attention was invited to section 11 of the GVAT Act which provides for tax credit. It was submitted that clause (a) of sub-section (3) thereof provides that subject to the provisions of the section, tax credit to be claimed under sub-section (1) shall be allowed to a purchasing dealer on his purchase of taxable goods which inter alia are intended for the purpose of sale in the course of inter-State trade and commerce. It was submitted that sub-section (6) of section 11 of the GVAT Act provides that the State Government may, by notification in the Official Gazette, specify any goods or the class of dealers that shall not be entitled to whole or partial tax credit. It was submitted that accordingly, in exercise of powers under sub-section (6) of section 11 of the GVAT Act, the State Government has issued the impugned notification specifying that in respect of the goods referred to therein, the dealer shall not be entitled to partial tax credit. It was submitted that therefore, the impugned notification is well within the powers conferred upon the State Government under sub-section (6) of section 11 of the GVAT Act. 8.3 Next, it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be gathered from the setting of the Act and the rules framed thereunder. Such contention gets support from the decisions of this Court in P.J. Irani, S. Kandaswamy Chettiar, Jalan Trading Co., Workmen of Meenakshi Mills Ltd. 49. The power of relaxation under Rule 39 of Mineral Concession Rules is to be exercised for "mineral development" and "in public interest" after recording reasons for such exercise of power. In our view, it has been rightly contended by the learned counsel in support of the validity of Rule 39, that the exercise of power under the said Rule 39 cannot be made arbitrarily, capriciously and on subjective satisfaction of the authority concerned but the same is to be exercised within the parameters of "mineral development" and "in public interest" which as aforesaid, are not vague and indefinite concepts. Such exercise of power must satisfy the reasonableness of State action before a court of law if any challenge of improper action in exercise of the said power under Rule 39 in a given case is made. It has been held by the Constitution Bench of this Court in Meenakshi Mill case that if a speaking order is required to be passed on objective consideration, suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter of policy of quarrying a minor mineral in the State, particular provision of the Mineral Concession Rules has got to be amended. On the contrary, if a suitable provision empowering exemption or relaxation of other provisions in the Mineral Concession Rules is made by confining its exercise in an objective manner consistent with the MMRD Act and in furtherance of the cause of mineral development and in public interest, by giving proper guidelines, such provision containing relaxation or exemption cannot be held to be unjustified or untenable on the score of violating the other provisions of the Mineral Concession Rules" 8.5 Reliance was placed upon the decision of the Supreme Court in the case of Vrajlal Manilal & Co. v. State of M.P., 1986 Supp. SCC 201, wherein the court held thus:- "15. Tendu leaves do not stand on the same footing as other raw materials. Their only use appears to be as a consumable packing material or container for tobacco in the manufacture of bidis just as a cigarette paper is used in the manufacture of cigarettes. Thus, tendu leaves form a separate class of commercial commodity and it is open to the State to tax them differently from other commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act for the purpose of seeking justification for levying tax on the sales and purchases of tendu leaves at a rate different from that on the sales and purchases of other goods. As pointed out earlier, tendu leaves constituted a different commercial commodity and it was open to the State to tax them at a rate different from the rate of tax on other commodities. The said Act would be a justification for treating differently the State as a dealer in tendu leaves from other dealers in tendu leaves. We may mention that the validity of the said Act was upheld by a Constitution Bench of this Court in H/s. Anwar Yhan Mehbaob & Co. v. State of Madhya Pradesh and other. 16. In support of the challenge under Article 14, it was further contended that without amending the definition of "raw material" given in clause (1) of section 2 of the M.P. Sales Tax Act, a different rate of tax cannot be levied upon tendu leaves. Section 8 was amended both by the 1968 Act and the 1971 Act but the definition of "raw material" was not amended and it continued to remain the same. We are unable to understand what difference this makes. By section 8 tendu leaves are expressly excluded from the concessional ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g "Manufactured tobacco" are set out cigars and cheroots, cigarettes, and bidis in the manufacture of which any process has been conducted with or without the aid of power. Tendu leaves nowhere feature in the said Item No.4 though tobacco and bidis do. It is, therefore, tobacco and bidis which are goods of special importance in inter-State trade and commerce and not tendu leaves. Tendu leaves cannot by any stretch of imagination be equated with bidis or tobacco just as cigarette paper used for rolling cigarettes cannot be equated by any stretch of imagination with cigarettes or tobacco. This being the position, it is wholly unnecessary to consider the other arguments advanced in support of this challenge. 19. The challenge to the impugned amendments under Articles 301 and 304 of the Constitution was that by taxing tendu leaves at a higher rate than in the neighbouring States, the cost of bidis manufactured in the State of Madhya Pradesh increased considerably and thus it impeded the freedom of trade and commerce throughout the territory of India. Article 301 provides as follows : "301. Freedom of trade, commerce and intercourse. Subject to the other provisions of this Part, tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecific ends. To satisfy the test of permissible classification, it must not be "arbitrary, artificial of evasive" but must be based on some real and substantial distinction bearing a just and reasonable relation to the object sought to be achieved by the Legislature. [See :-Re : Special Court Bill, [1979] 20 SCR 476, 7 -judges Bench; R.K. Garg v. Union of India, [1981] 4 SCC 675, 5 -judges Bench.) It was further held in R.K. Garg's case that laws relating to economic activities or those in the field of taxation enjoy a greater latitude than laws touching civil rights such as freedom of speech, religion etc. Such a legislation may not be struck down merely on account of crudities and inequities inasmuch as such legalisations are designed to take care of complex situations and complex problems which do not admit of solutions through any doctrinaire approach or straight-jacket formulas. Their Lordships quoted with approval the observations made by Frank Furter, J. In Morey v. Doud (1957) 354 US 457- "In the utilities, tax and economic regulations cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erated that the impugned notification is, therefore, well within the legislative competence of the State and section 15(b) has to be read in accordance with section 11(6) of the GVAT Act. It was, accordingly, urged that the petition being devoid of merits, deserves to be dismissed. 9. In rejoinder, Mr. Uchit Sheth, learned advocate for the petitioner, submitted that the contention of the respondent State that reduction of input tax credit is permissible by the impugned notification since section 15(b) of the CST Act allows reimbursement in the manner and subject to such conditions as may be provided in the State law, deserves to be rejected outright. It was submitted that while it may be open for the State to stipulate conditions for granting reimbursement as was done under rule 45 of the erstwhile Gujarat Sales Tax Rules, prescription of conditions cannot cover within its ambit curtailment of reimbursement. It was contended that such contention apart from not being supported by the plain language of the section, will defeat the entire object and purpose of section 15 of the CST Act, which is to avoid double taxation. Reference was made to the decision of the Supreme Court in Stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared goods within a State.- Every sales tax law of State shall, insofar as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely: (a) xxxxx (b) where a tax has been levied under that law in respect of the sale or purchase inside the State of any declared goods and such goods are sold in the course of inter-State trade or commerce, and tax has been paid under this Act in respect of the sale of such goods in the course of inter-State trade or commerce, the tax levied under such law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce in such manner and subject to such conditions as may be provided in any law in force in that State;" 12. Thus, section 15 of the CST Act provided that every sales tax law of a State insofar as the same authorised or imposed a tax on the sale or purchase of declared goods would be subject to the restrictions and conditions provided therein. By virtue of clause (b) of section 15 of the CST Act, it is provided that where a tax has been levied under a State law in respect of sale or purchase of declared good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 14 to be of special importance in inter-State trade or commerce. Section 14 of the CST Act to the extent the same is relevant for the present purpose, reads as under: "14. Certain goods to be of special importance in inter-State trade or commerce.- It is hereby declared that the following goods are of special importance in inter-State trade or commerce:- (iii) hides and skins, whether in a raw or dressed state; Thus, while under the sales tax regime, a specific provision was made in the rules for refund of the whole of the tax levied under the State law in respect of declared goods, upon the coming into force of the GVAT Act, there was no specific rule therein for the manner in which reimbursement was to be granted in respect of declared goods, and hence, reimbursement was granted by way of input tax credit under section 11 of the GVAT Act. 15. Section 11 of the Gujarat Value Added Tax Act, 2003 bears the heading "Tax credit". Sub-section (6) thereof provides that the State Government may by notification in the Official Gazette, specify any goods or class of dealers that shall not be entitled to whole or partial tax credit. Thus, sub-section (6) of section 11 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded vide notification dated 7.9.2010, was subject matter of challenge in the group of writ petitions wherein a common judgment came to be rendered. The petitioners therein had also challenged the constitutional validity of sub-section (6) of section 11 of the Gujarat Value Added tax Act, 2003 and had sought refund of the amount of tax paid by the petitioners for reduction of tax credit to the extent of 2% on the taxable turnover of purchases within the State for which tax credit is admissible in respect of goods sold/resold in the course of inter-State trade or commerce or goods used as input including raw material in the manufacture of goods which are sold in the course of inter-State trade or commerce. 19.1 The petitioners in those cases were engaged in the activity of manufacturing and trading of iron and steel goods specified in entry 43 of Schedule II to the GVAT Act as well as goods of special importance declared under section 14 of the CST Act. It may be germane to refer to certain submissions made on behalf of the petitioners as recorded in paragraphs 4.17 and 4.18 of the said decision, which are extracted herein below. [4.17] Without prejudice to the above submissions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of inter-State trade and commerce. It is further submitted that input tax credit admissible under Section 11 of the VAT Act is nothing but refund of tax paid on purchases made from within the State of Gujarat. Insofar as inter-State sale of declared goods is concerned, the provisions of section 11 of the VAT Act are in compliance with Article 286(3) of the Constitution of India read with Section 15(b) of the Central Act. It is further submitted by the learned Counsel appearing on behalf of the respective petitioners that the impugned notifications issued by the State Government under Section 11(6) of the VAT Act curtail to the extent of 2% the amount of refund of tax paid on purchases of declared goods as stipulated by Section 15(b) of the Central Act and therefore insofar as declared goods are concerned, the impugned notifications are clearly violative of Article 286 of the Constitution of India. In support of their above submissions, learned Counsel appearing on behalf of the respective petitioners have heavily relied upon the decision of the Hon'ble Supreme Court in the case of Manickam and Co. v. State of Tamil Nadu reported in 39 STC 12 (SC). It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al condition for reimbursement under section 15 is that the purchased as well as sold goods both should be declared goods. 19.3 Thus, it appears that the stand of the State before the court was that if the goods purchased as well as sold are both declared goods, they would be entitled to reimbursement under section 15 of the CST Act. 20. On the reading of the above judgment, it appears that while the submissions made by the learned counsel for the petitioners therein, even regarding declared goods have been considered, they appear to have been considered in the context of the declared goods having been used in the manufacture of other goods which resulted in new and different goods being sold and not in the context of both purchase and sale of declared goods. Moreover, reading the findings recorded by the Division Bench in their entirety, it is evident that there is no discussion in the context of section 15(b) of the CST Act. 21. While the court in the above decision has recorded the submissions advanced on behalf of the petitioners therein in respect of declared goods also, from the submissions advanced by the learned Advocate General it appears that in the facts of those case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case stands concluded by the above decision. 26. As noted hereinabove, in the above decision, the court has referred to the submissions advanced with respect to the challenge to the impugned notification in the context of declared goods. But as noted earlier, the learned Advocate General had drawn a distinction and had stated that section 15 of the CST Act would not come to the aid of petitioners therein inasmuch as the goods purchased and sold were not both declared goods as contemplated by section 15 of the CST Act. The Division Bench in the above decision has not specifically dealt with the contention regarding article 286(3) of the Constitution of India read with section 15(b) of the CST Act in the context of goods which are both purchased and sold as declared goods. Thus, while the impugned notification was also challenged in respect of declared goods and the aspect of section 15(b) of the CST Act was also placed before the court and the court has recorded the submissions, but in the findings recorded by it, the court has not dealt with the contentions based on section 15(b) of the CST Act. Thus, while the said notification can be said to have been upheld by the court, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, viz. whether it is permissible for the State to reduce the State tax which is required to be reimbursed under section 15(b) of the CST Act on sales of declared goods in the course of inter-State trade or commerce? Clause (3) of article 286 of the Constitution of India provides that any State law, insofar as it imposes or authorises the imposition of a tax on sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as Parliament may by law Specify. Thus, the imposition of tax on sale or purchase of declared goods is subject to the restrictions and conditions specified by the Parliament by law. The Parliament has enacted the law namely, section 15(b) of the CST Act, which in clear and unambiguous terms provides for reimbursement of the tax levied under the State law when such goods are sold in the course of inter-State trade or commerce. 31. On behalf of the respondents it has been contended that section 15(b) of the CST Act permits the State to put restrictions and conditions subject to which the reimb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich such reimbursement is to be granted which may be subject to restrictions or conditions. However, from the language employed in section 15(b) of the CST Act, it is not possible to cull out an intention that the State law is permitted to tinker with the amount of reimbursement. The words of clause (b) of section 15 of the CST Act are clear and unambiguous, namely that the tax levied under the State law shall be reimbursed to the person making such sale in the course of inter-State trade or commerce. 33. Therefore, in the light of the provisions of article 286(3) of the Constitution read with section 15(b) of the CST Act, the State is bound to reimburse the State tax levied on declared goods. The impugned notification, to the extent it curtails the entitlement to input tax credit on sales or purchases of declared goods made during the course of inter-State trade or commerce, therefore falls foul of the above provisions of the Constitution and the CST Act which is the Central Act. Keeping in mind the fact that the impugned notification does not relate only to declared goods, the entire notification cannot be struck down. However, the notification has to be read down to mean that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law operates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. In the present case, the impugned notification has not been challenged as being discriminatory, but on the ground that the same is inconsistent with section 15(b) of the CST Act. The said decision also, therefore, has no applicability to the facts of the present case. 37. In State of U.P. v. Kamla Palace, (supra), wherein the court held that laws relating to economic activities or those in the field of taxation enjoy a greater latitude than laws touching civil rights such as freedom of speech, religion etc. Such a legislation may not be struck down merely on account of crudities and inequities inasmuch as such legislations are designed to take care of complex situations and complex problems which do not admit of solutions through any doctrinaire approach or straight-jacket f ..... 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