IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 11.3.2009
C O R A M :
THE HONOURABLE MR. JUSTICE K. CHANDRU
W.P.No.3512 of 1997
1. A.S.Mohammad Shareef & Co.
Tiruvarur, rep.by its partner
Mr.A.S.Mohammad Shareef,
14-15, V.R.M.Road, Tiruvarur.
2. P.M.A.Ahmed Kabir & Co.
Tiruvarur rep.by its Partner
P.M.A.Ahmed Kabir,
32/B-1B, Thanjavur Road,
Tiruvarur.
3. Indira Store, rep.by its Proprietor
A.Perialwar, 40, Karikkara Street,
Kumbakonam.
4. Srinivasa Traders, rep.by its
Proprietor P.Selvaraj,
33-B, Saliyamangalam Road,
Papanasam, Nagai-Q.M.District. .. Petitioners
-vs-
1. State of Tamil Nadu, rep.by
Secretary to Government,
Commercial Taxes & Religious
Endowments department,
Fort St.George, Chennai-9.
2. The Special Commissioner &
Commissioner of Commercial Taxes,
Ezhilagam, Chennai-5. .. Respondents
PRAYER : Petition filed under Article 226 of the Constitution of India praying for the issuance of a writ of certiorarified mandamus calling for the records of the first respondent in G.O.Ms.No.339, Commercial Taxes and Religious Endowments Department and quash the notification dated 13.9.1996 and further forbear the respondents and their officers and subordinates from levying, demanding or collecting tax on Inter-State sales of pulses and grams.
For petitioner : Mr.K.Chandramouli, SC
for Mr.S.Viswanathan
For respondents : Mr.Radhakrishnan, GA (Taxes)
*****
O R D E R
The challenge in this writ petition is to the G.O.Ms.No.339, CT & RE Department, dated 13.9.1996 and to set aside the same and to consequently forbear the respondents from levying, demanding or collecting tax on Inter State sales of pulses and grams.
2. The writ petition was admitted on 13.3.1997. Pending the writ petition, this Court held that prima facie the Government lacks power to collect tax for items mentioned in the impugned G.O. under the Central Sales Tax Act by an order dated 12.4.1997.
3. On notice from this Court, on behalf of the respondents, a counter affidavit dated 21.1.2008 was filed. It is the case of the petitioners that they are the registered wholesale dealers both under the Central Sales Tax Act, 1956 (for short ‘CST Act’) as well as the Tamil Nadu General Sales Tax Act, 1959 (for short ‘TNGST Act’). The first petitioner was carrying on wholesale business in pulses, grams, paddy, rice and other items at Tiruvarur. Similarly the other petitioners were also carrying on similar trades at Tiruvarur, Kumbakonam and Papanasam. According to the petitioners, in terms of Section 3 of the TNGST Act, every dealer whose total turnover per year exceeds Rs.3 lakhs and every casual trader or agent of a non-resident dealer, whatever be his turnover for the year, shall pay tax for each year in accordance with the provisions of the Act.
4. Section 8 of the TNGST Act exempts certain commodities from payment of tax subject to the terms and conditions prescribed. A dealer who deals in goods specified in the schedule is not liable to pay any tax in respect of such goods. Section 59(1) of the TNGST empowers the Government to issue notification to alter, add or to cancel any of the schedules. The third schedule to the TNGST Act describes various goods that are exempt from tax under section 8 of the Act. It is also further stated that the pulses and grams attract single point levy of tax under the TNGST Act on the first sale in the State. In exercise of the power under section 59(1) of the TNGST Act, the State Government has issued G.O.Ms.No.250, CT & RE Department, dated 17.7.1996 adding items 75 to 84 the the third schedule. Item 80 of the said addition refers to pulses and grams including broken husk and dust. This G.O. was superseded by G.O.Ms.No.272, CT & RE Department, dated 05.8.1996 in Schedule 3, Part-B. After Item 79, certain entries were made and Entry 80(a) relates to pulses and grams including brokens, splits, husk and dust thereof. Subsequently, by the introduction of Section 59(2) of the TNGST Act, (amended by Act 37 of 1996), Items 75 to 81 were added to Part-B of Third Schedule and the sale of pulse and grams was totally exempt from sales tax with effect from 17.7.1996.
5. By virtue of Rules 6 and 6(a) of the TNGST Rules, 1959, all amounts for which goods specified in the Third Schedule to the Act are sold are to be deducted in determining the taxable turnover. In view of the amendment for the goods sold since the amounts have to be deducted from the total turnover of the dealer, no tax on intra-state sales is payable. In view of the goods being exempt from local sales tax, they are also equally exempt from levy of tax payable under the CST Act if they are moved out of the State. When the petitioners brought this to the notice of the authorities, the second respondent replied to the petitioners that when pulses and grams are moved outside the State, whether purchased from the agriculturists or locally and whether ‘C’ form is obtained or not, sales tax at the rate of 4% will have to be paid under the CST Act.
6. The explanation to Section 8(2) of the CST Act reads as follows:-
”S. 8(2). Explanation. – For the purposes of this sub-section a sale or purchase of any goods shall not be deemed to be exempt from tax generally under the Sales Tax law of the appropriate State, if under that law the sale or purchase of such goods is exempt only in specified circumstances or under specified conditions or the tax is levied on the sale or purchase of such goods at specified stages or otherwise than with reference to the turnover of the goods.”
In the light of the above explanation, it was sought to be argued that pulses and grams are totally exempt by the TNGST Act. Therefore, correspondingly they are deemed to be exempted under the CST Act.
7. It is in the light of these facts, the G.O. levying tax was sought to be challenged. The G.O. as notified in the Tamil Nadu Gazette reads as follows:-
”Levy of Central Sales Tax on certain items.
….
G.O.Ms.No.339, Commercial Taxes and Religious
Endowments
13th September 1996
….
No.II(1)/CTRE/109/96
….
In exercise of the powers conferred by Section (5) of Section 8 of the Central Sales Tax (Central Act 74 of 1956) the Governor of Tamil Nadu having been satisfied that it is necessary so to do in the public interest hereby directs that the tax payable by any dealer in respect of the sale by him of-
a) Pulses and grams, the following including broken splits, husk and dust thereof
i) Gram or gulab grain
ii) Tur or arthar
iii) Moong or green gram
iv) Mastur or Lentil
v) Urad or black gram
vi) Moth
vii) Lekh or Khesari
b) Chillies, tamarind, coriander, turmeric pepper and shikakai
c) Asafoetida
d) Jeera including black jeera (cumin seeds)
e) Palmyrah Sugar candy
In the course of Inter-State trade or commerce shall be calculated at the rate of 4 percent with or without ‘C’ Form.
Sd/-
K.DHARMARAJAN
Secretary to Government”
8. In the counter affidavit filed by the respondents, it is contended that the entry of Item 81 in Part-B of Third Schedule as introduced by Act 37 of 1996 in terms of Section 59(2) of the TNGST Act only states that a dealer whose turnover does not exceed Rs.100 crores in a year is not liable to any tax, does not amount to a general exemption but only a conditional exemption. It is only in cases where any dealer has been granted exemption under section 8(2-A) of the CST Act, for inter-state sale of pulses and grams, the question of any exemption may arise. The explanation to Section 8(2-A) of the CST Act at the relevant time reads as follows:-
”S. 8(2-A). Notwithstanding anything contained in sub-section (1-A) of Section 6 or sub-section (1) or clause (b) of sub-section (2) of this section, the tax payable under this Act by a dealer on his turnover in so far as the turnover or any part thereof relates to the sale of any goods, the sale or, as the case may be the purchase of which is, under the sales tax law of the appropriate State, exempt from tax generally or subject to tax generally at a rate which is lower than four per cent (whether called a tax or fee or by any other name), shall be nil or, as the case may be, shall be calculated at the lower rate”.
(Emphasis added)
9. Therefore, it was stated that unless there is a general exemption under the State Sales Tax Act, there is no automatic exemption under the Central Sales Tax Act. Since the turnover not exceeding Rs.100 crores is only a conditional exemption, it cannot be construed as a general exemption so as to get out of the provisions of the liability to pay tax under the CST Act.
10. Mr.K.Chandramouli, learned Senior Counsel leading Mr.S.Viswanathan placed reliance upon the judgment of the Supreme Court in International Cotton Corporation (P) Ltd. -vs- Commercial Tax Officer reported in (1975) 3 SCC 585. Reliance was placed upon the following passage found in paragraph 7 which reads as follows:-
”Para 7. …….. A sales tax has necessarily to be levied on a sale or purchase and this argument implies that all sales are exempt from tax. The plain meaning of the said sub-section is that if under the sales tax law of the appropriate State no tax is levied either at the point of sale or at the point of purchase at any stage the tax under the Act shall be nil. Reading Section 6(1A) and Section 8(2A) together along with the Explanation the conclusion deducible would be this: where the intra-State sales of certain goods are liable to tax, even though only at one point, whether of purchase or of sale, a subsequent inter-State sale of the same commodity is liable to tax, but where that commodity is not liable to tax at all if it were an intra-State sale the inter-State sale of that commodity is also exempt from tax. Where an intra-State sale of a particular commodity is taxable at a lower rate than three per cent then the tax on the inter-State sale of that commodity will be at that lower rate. A sale or purchase of any goods shall not be exempt from tax in respect of inter-State sales of those commodities if as an intra-State sale the purchase or sale of those commodities is exempt only in specific circumstances or under specified conditions or is leviable on the sale or purchase at specified stages. On this interpretation Section 6(1-A) as well as Section 8(2-A) can stand together.”
11. The learned Senior Counsel also referred to the decision of the Division Bench of the Andhra Pradesh High Court in Vinod Solvent Extracts (P) Ltd. -vs- State of A.P. reported in 1989 Vol.73 STC 175 (AP). Reliance was placed upon the following passage found in page 178:-
” The statutory exemption contemplated under section 8(2-A) comes into force in respect of any inter-State transactions if the same goods was exempted from tax under the State law. Such kind of exemptions falling within the ambit of Section 8(2-A) are outside the purview of section 8(5). If no exemption id granted under section 8(5) by the Government, the inter-State transactions of the concerned dealer or class of dealers must suffer Central sales tax in the absence of the application of section 8(2-A).”
12. The learned Senior Counsel also brought to the notice of this Court the judgment of the Supreme Court in State of U.P. -vs- M/s.Hindustan Safety Glass Works (P) Ltd. reported in (1996) 8 SCC 84 and placed reliance upon paragraph 15 of the judgment, which reads as follows:-
”Para 15. The purpose behind the amendment of Section 8(2-A) was to make the existing provisions clearer. In other words, the object was not to bring about any change in the existing law but to set it out in clearer words.”
13. Thereafter reliance was placed upon the judgment of the Supreme Court in Commissioner of Sales Tax, J & K and others -vs- Pine Chemicals Ltd. and others reported in (1995) 1 SCC 58. The following passages found in paragraphs 8 and 9 are relevant, which may be usefully reproduced below:-
”Para 8. The idea behind sub-section (2-A) of Section 8 of the Central Sales Tax Act, which we have analysed hereinbefore, is to exempt the sale/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. We must give due regard and attach due meaning to the expression generally which occurs in the sub-section and which expression has been defined in the explanation. If the said expression had not been there, it could probably have been possible to argue that inasmuch as the goods sold by a particular manufacturer-dealer are exempt from the State tax in his hands, they must equally be exempt under the Central Act. But sub-section (2-A) requires specifically that such exemption must be a general exemption and not an exemption operative in specified circumstances or under specified conditions. Can it be said that the goods sold by the dealers in this case are exempt from tax generally under the State sales tax enactment? The answer can only be in the negative. Such goods are exempt from tax only when they are manufactured in a large or medium industrial unit within five years of its commencement of production and sold within the said period, i.e., in certain specified circumstances alone. The exemption is not a general one but a conditional one. The exemption under the Government Order No. 159 is not with reference to goods or a class or category of goods but with reference to the industrial unit producing them and their manufacture and sale within a particular period. For the purposes of the government order, the nature, class or category of goods is irrelevant; it may be any goods. It is concerned only with the industrial unit producing them and the period within which they are manufactured and sold. Can it be said in such a case that it is an instance where the sale is of goods, the sale or purchase of which is under sales tax law of the appropriate State, exempt from tax generally? Certainly not. Exemption provided by Government Order No. 159, to repeat, is not with reference to goods but with reference to the industrial unit. So long as it is (i) a large or medium scale industry and (ii) it manufactures and sells goods within the five years of its going into production, the sale of such goods is exempt irrespective of the nature or classification of goods. Similar goods may be manufactured by another unit but if it does not satisfy the above two requirements, the goods manufactured and sold by it would not be entitled to exemption from tax. Indeed, the goods manufactured by that very unit would not be eligible for exemption if they are manufactured after the expiry of five years from the date it goes into production and/or sells them beyond the said period. The period of exemption may also vary from unit to unit depending on the date of commencement of production in each unit. For the above reasons, we are of the opinion that the exemption granted under the aforesaid government order does not satisfy the requirements of Section 8(2-A).
Para 9. We may point out that this was also the view taken by this Court in two earlier cases. In Indian Aluminium Cables Ltd. v. State of Haryana (1976) 4 SCC 27 the question was whether the poles and cables sold by the appellant therein to Delhi Electric Supply Undertaking were exempt from Central sales tax by virtue of the fact that Section 5(2)(a)(iv) of the Punjab Sales Tax Act exempted sales to any undertaking supplying electrical energy to the public under a licence or sanction granted or deemed to have been granted under the Indian Electricity Act, 1910, of goods for use by it in the generation or distribution of such energy from the State tax. The claim of the appellant was negatived by Ray, C.J., speaking for himself and Beg and Jaswant Singh, JJ., holding that the exemption granted under Section 5(2)(a)(iv) of the State Act was not a general exemption but an exemption operative only in specified circumstances and under specified conditions. It was pointed out that the specified circumstance in that case was that the sale must be to an undertaking engaged in supplying electrical energy to the public under a licence and the specified condition was that the goods purchased by the undertaking must be used for generation or distribution of electrical energy. If any of these circumstances are not satisfied, it was pointed out, the sale of such goods was not exempt from tax. It was emphasised that (SCC p.31, para 15) :
General exemption means that the goods should be totally exempt from tax before similar exemption from the levy of Central sales tax can become available. Where the exemption from taxation is conferred by conditions or in certain circumstances there is no exemption from tax generally.
In our respectful opinion, the ratio of this decision clearly concluded the question arising in Pine Chemicals1 against the assessees inasmuch as it was not a case where goods were totally exempt from tax. It was a case where the exemption operated or was attracted only if it was established that such goods were manufactured in a large or medium industrial unit within five years of its going into production and were sold within that period. As pointed out hereinbefore, the exemption was not with reference to goods but with reference to the unit manufacturing the goods.”
It is not clear as to how the above passages are of any assistance to the petitioners.
14. Per contra, Mr.Radhakrishnan, learned Government Advocate (Taxes) relied on following passage found in the judgment of this Court reported in (1962) 13 STC 433 in M.A.Abbas and Co. -vs- The State of Madras, which may be usefully reproduced below:-
”Since reported as K.Mohamed Elias and Co. and others -vs- The State of Madras (1962) 13 STC 425 on inter-State sales should be at the ”nil” rate. It is true that the sale of hides and skins is subject to tax at a single point under the local sales tax law. It is not the same thing as saying that the sale or purchase of such goods is exempt from tax under that law. The expression used in the proviso to section 8(1) is ”….. if under the sales tax law of the appropriate State, the sale or purchase of any goods by a dealer is exempt from tax generally and not in specified cases or in specified circumstances…..”. To our minds, the correct interpretation of this expression is that the goods should be totally exempt from tax before similar exemption from the levy of Central sales tax can become available; but where the exemption from taxation is conferred on conditions such as that the turnover of a dealer under the local sales tax law is below the minimum prescribed, or that the tax will attach to a transaction only in certain circumstances, there is no exemption from tax ”generally”. This provision cannot apply to the present case”.
15. He also brought to the notice of this Court that in respect of the very same argument based upon the amendment made by Tamil Nadu Act 37 of 1996, this Court in an unreported decision in Tvl.Sri Rajalakshmi Stores -vs- The Union of India and others made in W.P.No.11826 of 1997 dated 04.9.2006 dismissed the writ petition. In that case, this Court specifically rejected that the exemption granted if the turnover is not exceeding Rs.100 crores is not a general exemption. The said exemption dealt only with a dealer and it is not a general exemption under the TNGST Act. Therefore, in view of the above, he sought for dismissal of the writ petition.
16. It is clear that at the relevant time the explanation to section 8(2-A) specifically mentioned about exemption from tax generally. In the present case, the exemption relied on by the petitioners can never be held to be an exemption which will have a bearing on the Central Sales Tax Act so as to enure the benefit of an exemption. Therefore, the decisions relied on by the petitioners/ assessees do not help their case.
17. In that view of the matter, the writ petition is misconceived and accordingly will stand dismissed. However, there will be no order as to costs.
js
To
1. The Secretary to Government,
Commercial Taxes & Religious
Endowments Department,
Fort St.George, Chennai-9.
2. The Special Commissioner &
Commissioner of Commercial Taxes,
Ezhilagam,
Chennai 5