ORDER
P. Venkatarama Reddi, J.
1. In
these writ petitions, the petitioners who are rice millers question the legality of the assessment orders passed by the first respondent for the year 1997-98 on the ground that the deduction of tax to the extent permissible under Rule 6(1)(l) of the Andhra Pradesh General Sales Tax Rules has not been given based on the Circular issued by the Commissioner of Commercial Taxes, the 2nd respondent herein in Roc. No.AII (1)/1950/98, dated 24-2-1998.
2. Paddy and rice are declared goods. Declared goods are specified in Section 14 of Central Sales Tax Act to be goods of special importance in inter-State Trade and Commerce. The declared goods are chargeable to tax under Section 6 of APGST Act read with III Schedule at single point and at a rate not exceeding 4%. Paddy is taxable at 4% at the first purchase point whereas rice is taxable at the point of first sale at 4%. In order to avoid the contingency of both paddy and corresponding rice being subjected to tax, the Legislature introduced Explanation (III) Schedule in tune with Section 15(c) of the Central Sales Tax Act. The said Explanation reads as follows:
“Explanation III .–For the purpose of items 21 and 22, where a tax has been
levied under this Act in respect of the sale or purchase inside the State of any paddy, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy”.
3. To illustrate the application of the Explanation if the sale value of rice is Rs.5,000/- and the purchase value of paddy from which rice is derived is Rs.4,000/-, the actual rate of tax payable would be Rs.40/- i.e., 0.8%. This is the net amount of tax payable, though if the general rate of 4% is applied, the tax would have been Rs.200/-.
4. Sales Tax is leviable on the net turnover of the dealer which, broadly speaking, is nothing but an aggregate of sale prices of taxable goods. Normally and in the absence of the stipulations to the contrary, the sale price is made up of tax element also. Whatever is charged by the seller from the buyer in the form of tax or other pre-sale expenses would be in the nature of consideration for the sale of goods and accordingly enters into the sale price and it constitutes the turnover of a dealer. However, the Act and the Rules provide for certain deductions and exemptions in arriving at the net turnover of a dealer which is ultimately subjected to tax at the prescribed rate. Rule 6(1)(l) of the APGST Rules is one such Rule which provides for certain deductions “in determining the net turnover” of a dealer.
5. The Rule was introduced in 1995 after the definition of ‘turnover’ was changed by APGST (Amendment) Act No.22 of 1995 with the object of excluding the tax on tax. The amount collected towards tax is excludable from ‘turnover’. In other words, if the sale price is inclusive of tax, the amount representing the tax shall be deducted from the sale price and the tax should be levied on the balance. If the tax passed on to the buyer is separately shown
or otherwise deducted, no tax should be leviable thereon. In order to give effect to the principle that there should be no tax on tax, a formula has been set out in clause (1) of Rule 6(1). The relevant portion of the Rule reads as under:
“(1) In determining the net turnover of a dealer the following deduction shall be made from the aggregate of the sale prices, including sales tax, namely:
The amount arrived at by applying the following formula:
???
“Provided that no deduction on the basis of the above formula shall be made if the amount by way of tax collected by a registered dealer, in accordance with the provisions of this Act, has been otherwise deducted from the aggregate of Sale prices.”
It may be noted that the said Rule is exactly similar to Section 8-A(1) of the Central Sales Tax Act.
6. Whether the formula laid down in the Rule has been correctly applied by the assessing authority and whether the Commissioner’s Circular goes contrary to the said Rule is the question that falls for consideration. The material portion of the Commissioner’s Circular dated 24-2-1998 is extracted below:
“It is decided that the tax payable on sales of rice is the net tax payable after providing rebate towards the tax on paddy as provided in the Explanation HI to the Third Schedule of APGST Act and also as provided under Section 15(c) of the CST Act, 1956. In all paddy and rice cases, the deduction towards tax component on rice will be worked out on the basis of the net tax payable on sales of rice after the rebate is given on
the basis of tax paid on corresponding purchase of paddy consumed”.
Under Section 42-A of the APGST Act, the Commissioner is empowered to issue orders, instructions and directions not inconsistent with the provisions of the Act or the Rules made thereunder to his Subordinate Officers for the proper administration of the Act and such Officers are bound to comply with them.
7. It is not in dispute that the tax deduction vis-a-vis the turnover of rice was worked out in the light of the Circular. Taking the figures in Writ Petition No.7690 of 1999, let us explain how the assessing officer arrived at the figure qualifying for deduction towards the tax component. The sale value of rice is mentioned at Rs.3,19,71,580/-. From this purchase value of corresponding paddy to the extent of Rs.2,63,08,760/- has been deducted. After such deduction an amount of Rs.56,62,820/-has been arrived at. It is with reference to this, the said formula has been applied. The element of tax has thus been worked out at Rs.2,17,800/-. It may be noted that the formula was applied on the basis that the sale price was exclusive of tax, as observed by the assessing officer himself. The above method of quantifying the deduction under Rule 6(1)(l) is on the basis that the assessing authority imported Explanation HI to Third Schedule into the process of computation. In accordance with the Circular issued by the Commissioner, the assessing authority did not apply the standard rate of 4% on the sale value of rice, but he proceeded to arrive at the figure by reducing the tax attributable to paddy.
8. According to the learned Counsel for the petitioners, the formula under Rule 6(1)(i) has to be worked out without projecting the Explanation III to Third Schedule. The reduction or rebate towards paddy tax shall not enter into the computation of deductable amount towards tax element
according to the petitioners. The petitioners therefore suggest the following method of computation.
Rs. 3,19,71,580×4/104
= Rs. 12.29 lakhs roughly.
9. Before proceeding to consider the crucial issue, let us make it clear that in the normal course, we would not have gone into the question of correctness of the assessment orders and we would have rejected the writ petitions in limini relegating the petitioners to alternative remedies provided under the Act. But, this is a case where the assessing authority has relied on the Commissioner’s Circular which was binding on him. So long as the Commissioner’s Circular remains in force, quite probably, the future assessments will also be made in accordance with the said Circular. The resultant position would be that uncertainty will loom large and illegality will be perpetuated. We have therefore thought it expedient to consider the question of legality of the Commissioner’s Circular and direct review of assessments in the light of the view expressed by us.
10. Taking up then the issue of legality of the Commissioner’s Circular, we are of the considered view that the Circular flies in the face of Rule 6(1)(l) of the APGST Rules. We are of the view that within the framework of the Rule, it is not possible to give effect to the Circular. What is clarified by the Commissioner goes contrary to what is laid down in the formula enunciated in Rule 6 (1)(l). The formula does not contemplate that the tax attributable to corresponding turnover of paddy shall be excluded before arriving at the deduction of the amount relatable to tax on rice as per Rule 6(1)(l). The only possible way of reconciling the Circular with the Rule is to construe the expression ‘rate of tax’-as the net amount of tax payable on rice after allowing the rebate on paddy tax in accordance with the Explanation III to
Schedule III. Such an interpretation would amount to giving strained interpretation to the expression ‘rate of tax’. In fact, it is not the stand of the respondents that ‘rate of tax’ on rice is anything other than the standard rate of 4 per cent.
11. The rebate of reduction provided for by Explanation III to Schedule III does not determine the ‘rate of tax’ contemplated by the formula. Even the assessment order shows that the ‘rate of tax’ was taken as 4%. Apart from the direct decisions of this Court which interpreted the expression ‘rate of tax’, we are informed that if expression ‘rate of tax’ vis-a-vis rice is taken as the net amount of tax after giving rebate to tax on paddy, the loss of revenue to the State would be more inasmuch as the same meaning may have to be given to the expression ‘rate of tax’ occurring in Section 8(2-A) of the Central Sales Tax Act. We are also informed that under Section 8(2-A), the rate of 4% is applied to the inter-State sales of rice, though the corresponding paddy had suffered local tax.
12. The Commissioner’s Circular fails to take into account the decisions of this Court which have been holding the field for long. In Ganesh Trading Companv v. Stale ofAndhra Pradesh, (1998) 6 APSTJ 258, a Division Bench interpreted ‘twice the rate of tax’ occurring in Section 8(2)(a) as follows:
“The rate of tax applicable to the sale of rice inside the State of Andhra Pradesh is 4 per cent as specified against item 22 of the Third Schedule to the Act. Liability to tax under Section 8 (2) (a) has to be quantified with reference to that rate and at double that rate. Emphasis is on the expression ‘calculated at twice the rate’. Sri Dasaratharama Reddy, learned Counsel appearing for the assessee, would like us to interpret the expression ‘rate’ as meaning the amount
of tax ultimately levied. There is no warrant for such an interpretation. It is well settled that the words of a statute must be given their ordinary meaning. Given the said meaning, the expression calculated at twice the rate’ applicable to the sale of goods inside the appropriate State only mean that the goods viz., the rice sold by the petitioner outside the State of Andhra Pradesh and not supported by declarations in Form ‘C’ is liable to tax at the rate of 8 per cent i.e., double the rate of 4 per cent applicable to sale of rice inside the State of Andhra Pradesh. Explanation III to entries 21 and 22 of the Third Schedule to the Act does not alter or revise the rate; it only provides for a concessions to the extent indicated therein”.
13. We are told the decision in Ganesh Trading Company (supra) is being consistently followed by the Tribunal and the view taken therein has not been questioned before us for obvious reasons. The view taken by the Tribunal in that appeal TANo.838 of 1996 was affirmed by this Court, the TRC having been rejected in lititine. It is brought to our notice that the view taken in Ganesh Trading Company was followed and applied by the Tribunal to a case in which Section 8A(1) of the CST Act (identical to Rule 6 (1)(l) came up for consideration. The Tribunal rejected the contention that the rebate under Section 15(c) has to be excluded while giving deduction for the tax element in respect of inter-State sales. Thus, the Commissioner’s Circular runs counter to the catena of decisions both of the High Court and of the Tribunal. The effect and impact of these decisions were obviously not considered by the Commissioner.
14. It is relevant to refer to one more decision of the Division Bench in State Andhra Pradeh v. Lakshminarayan Gupta, (1995) 21 APSTJ 21. Their Lordships were construing the proviso to
Section 8-A (1) (a) of CST Act which is identical to the proviso to Rule 6(1)(l) of APGST Rules. While observing that the basic principle embodied in Section 8-A of the Central Tax Act is that there should be no tax on tax, the legal position as regards the true scope of the proviso to Section 8-A(1)(a) has been stated as follows:
“The proviso to Section 8-A (1) (a) of the Centra! Act enjoins that on the basis of the formula contained in Section 8-A(1) of the Central Act, no deduction shall be made if the amount of tax collected by the registered dealer, in accordance with the provisions of the Central Act, has already been deducted from the aggregate of the sale price or otherwise. This also supports that the intention of the Parliament in prescribing the formula is that the relief should be confined to avoid tax on the tax component. But it is equally clear that the deduction allowed under Section 8-A(1) of the Central Act would be available to the dealer only if the tax forms a part of the sale price. The burden of showing that the turnover includes the Central Sales Tax for purpose of application of the formula under Section 8-A (1) of the Central Act, is on the dealer”.
15. In this context, the learned Judges relied on the dicta laid down in Rallies India Limited v. State of Andhra Pradesh, 53 STC 267, wherein it was observed as follows:
“While it is true that Central Sales Tax is payable irrespective of the fact whether the dealer collects the same or not from his purchaser it does not follow there from that Central Sales tax should be deducted even where it is not collected, for such a course would result in, as rightly pointed out by the Tribunal, reducting the sale price, a result not
contemplated or permissible by the Act And nobody is in a better position than the dealer to show whether he has collected the Central Sales Tax or not.
For the above reasons, we are of the opinion that the formula in Section 8-A(l) applies only in cases where Central Sales Tax is shown to have been collected by the dealer and forms part of the aggregate of sale price. Where, of course, Central Sales Act has been otherwise shown to have been deducted from the aggregate of the sale price, there is no occasion for applying the formula.”
16. Thus, the burden is on the dealer to show whether and to what extent the tax component entered into all inclusive price charge while claiming the deduction under Rule 6(1)(l). As far as the present cases are concerned, there is a finding of the assessing authority that the sale price is inclusive of tax. Of course, it is not specified whether it is 4 per cent or less as no enquiry at all was made on those lines.
17. Our conclusion is that the Circular of the Commissioner is contrary to law and cannot control the plain effect of formula laid down in Rule 6(1)(l). However, it is open to the assessing authority to hold an enquiry whether and to what extent the tax element has been included in the sale price. In view of the fact that the assessment orders are based on the Commissioner’s circular (in fact, in some of the assessments a specific reference has been made to the Commissioner’s Circular) and the mode of arriving at the deduction under Rule 6(1)(l) is based on incorrect understanding of the Rule, we set aside the assessments and direct fresh assessments to be made without reference to the Commissioner’s Circular.
18. Before parting with the case, we must record that we have found fault with
the Commissioner’s Circular because it goes contrary to the plain language of the formula and for the reason that the expression ‘rate of tax’ does not take any rebate under Explanation III to Schedule III. But, it seems to us that the Circular rests on a rational basis and perhaps gives better effect to the intention of the rule-making authority in avoiding levy of tax on the tax component. In arriving at the tax component forming part of’all inclusive price’, there is nothing irrational or improper in restricting the relief to the actual or net amount of tax payable on rice (arrived at after reducing the tax paid on paddy). Whereas, the actual tax liability of the assessee is much less than 4 per cent on account of Explanation III to Schedule III, when it comes to the question of deduction under Rule 6(1)(l), the rate of tax to be taken into account is 4 per cent having regard to the specific language of the Rule. As the Rule now stands, the Commissioner’s view cannot stand the scrutiny of law, though as we observed earlier, it is perhaps a more rational view to take. It is for the Legislature or the Rule making authority to take into account this factor and bring in suitable amendment in so far as the tax deduction on the sale turnover of rice is concerned, in the context of the peculiar situation that has arisen on account of the operation of Section 15(c) of the CST Act read with Explanation III to Schedule III to APGST Act.
19. One more point has been urged in the writ petition i.e., with regard to the quantum of deduction towards rural development cess. We are not inclined to go into this question as the petitioner has an effective alternative remedy. We repeat that insofar as deduction under Rule 6(1)(l) is concerned, we have gone into that question for the reason that the Commissioner’s Circular which is contrary to law stands in the way of the assessing authority.
20. For the reasons aforesaid, the impugned assessment orders insofar as the amount arrived at by the assessing authority for the purpose of deduction under Rule 6(1)(l) are set aside and the assessing authorities are directed to make fresh assessments without reference to the Circular of the Commissioner and in the light of the observations made by us.
21. Accordingly, the writ petitions are allowed. No costs.