2(vii)after item 17 and before Explanation-I, the following item and entries shall be inserted, namely:-
"18.White kerosene (superior kerosene oil) First sale 25 per cent."
9.By this separate entry in the 11th schedule, Kerosene is chargeable to tax at 4% and the new entry White Kerosene (SKO) at first sale is taxable at 25%. This amendment was made due to the policy decision taken by the State Government and also finds a place in the Budget Speech made on the floor of the Tamil Nadu Assembly (See for reference 130 STC Statute 26). Thereafter, by the Tamil Nadu Amendment Act 21/2003, the schedule was amended wherein in Part-DD, Entry 10 and Entry 18 read as follows:
"10.Kerosene other than while kerosene First sale 4 per cent."
"18.White kerosene (superior kerosene oil) First sale 25 per cent."
10.This Amendment Act received assent of the President on 18.3.2003, but was made to come into effect from 21.3.2003. Therefore, the contention of the petitioner was that from 17.7.96 to 20.3.2003, Part B or Part G of the First Schedule or Entry 10 of the Eleventh Schedule, the general term of Kerosene was used without any exclusion. Therefore, the term "Kerosene" used is exhaustive and whatever name it was called it was taxable only at 4% at first sale. When a clarification was sought from the Special Commissioner and the Commissioner of Commercial Taxes by one such dealer, the Commissioner gave a clarification under Section 28A of the TNGST Act. The clarification, dated 3.9.2001 in Clarification No.204/2001 reads as follows:
"Tvl.Power Petroproducts, Chennai-83, in their letter cited have requested rate of tax clarification under Section 28-A of the TNGST Act, 1959, for "Superior Kerosene Oil".
The details furnished by the petitioners have been perused and the following Clarification on rate of tax is issued:
Superior Kerosene Oil is taxable at 4% under entry 40 in Part B of the First Schedule to the TNGST Act, 1959 with effect from 17.7.96."
11.According to the petitioner even the authorities working the Act have also understood only in that sense. The bifurcation of the Kerosene into kerosene and SKO with effect from 21.3.2003 was not valid, because the goods known as White Kerosene or SKO did not have any separate identity. They are also kerosene for all practical purposes. Therefore, the petitioners are aggrieved by the artificial separation of same good i.e. kerosene. The levy of tax at 4% on kerosene and 25% on SKO as introduced by the notification under Section 59(1) as well as made by the Amendment Act 21/2003 is arbitrary and unconstitutional.
12.Thus, the circular issued by the Commissioner of Commercial Taxes, dated 1.10.2003, stating that even exemption granted from surcharge and resale tax of kerosene will have to stand modified was also illegal. The said circular reads as follows:
"The petitioner is informed as follows:-
1.Exemption was granted from surcharge and resale tax on Kerosene vide notification No.II(1)/CT/40(b-5)/2002 and II(1)/CT/40(b-4)/2002, Dated: 29.6.2002. (with effect from 1.7.2002) respectively.
2.From 21.3.2003, Kerosene was specified by adding "Other than white kerosene (Superior Kerosene Oil)".
3.Thus, the exclusion of white kerosene is only with effect from 21.3.2003.
4.Upto 20-3-2003, white kerosene was deemed included in 'kerosene' and hence exempt for surcharge and resale tax. Hence, white kerosene is liable to surcharge and resale tax from 21.3.2003."
13.Therefore, it is contended that by virtue of the amendment, exemption from surcharge and resale tax if at all not available it is only made from 21.3.2003.
14.The petitioners thus challenged the Amendment Act as well as Notification under Section 59(1), making separate entries of the goods as kerosene and SKO with two different tax rates as well as the direction to levy surcharge and resale tax with effect from 21.3.2003 was illegal.
15.In one batch of cases, it was also contended that by G.O.Ms.No.79, Commercial Taxes Department, dated 27.6.2002, by the exercise of power under Section 17(1) of the TNGST Act, the State Government granted an exemption in respect of surcharge payable under Section 3-I on the sale of kerosene and some of the products as specified in the Eleventh schedule. The said notification was to come into effect from 1.7.2002. Similar exemption under Section 3-H was given by the same G.O. in respect of resale of petroleum products specified in the Eleventh Schedule. The said notification was also to come into effect from 1.7.2002.
16.Therefore, the petitioner contended that the power under
Section 17(1) is independent of power under section 59(1) of the TNGST Act. Insofar as exemption notification issued for surcharge and resale tax was not amended, they are entitled to exemption in respect of any levy found in the Eleventh Schedule. So long as these notifications were not amended to exclude SKO/White Kerosene oil from the purview of exemption notification, they need not pay surcharge and resale tax. Hence the circular issued by the Principal Commissioner, dated 1.10.2003 that such an exemption was not available from 21.3.2003, the day on which the entry relates to kerosene was split up into two different items, leviable to tax at different percentage was not valid.
17.In some cases, the petitioners have challenged individual assessment orders on the ground that they are not liable to pay either enhanced tax or surcharge and resale tax. They have not availed statutory appellate remedies available to them before the Assistant Appellate Commissioner as well as before the Sales Tax Appellate Tribunal. They have chosen to move this court, challenging the orders of assessment.
18.This court is not inclined to go into the factual dispute on the liability on such petitioners. Except for deciding the legal and constitutional issues, regarding the liability of dealers to pay the enhanced levy of SKO at the rate of 25% with effect from 21.3.2003 as well as the liability to pay surcharge and resale tax with effect from 1.7.2002 alone are decided herein.
19.Mr.R.Venkatraman, learned Senior Counsel assisted by Mrs.Lakshmi Sriram, after briefly submitting the history of various amendments, submitted that the authority under the Act is empowered to issue clarification under Section 28-A of the TNGST Act. Inasmuch as they have understood that SKO is taxable at 4% as per Entry 40 Part B of the First Schedule with effect from 17.7.96, they have understood that SKO is only a part of Kerosene. They did not make any distinction between kerosene and SKO as a different commodity. Therefore, that should be given credence. The department cannot introduce any artificial definition of the term Kerosene.
20.The learned Senior counsel placed a strong reliance upon the judgment of the Supreme Court in Arya Vaidya Pharmacy and another Vs. State of Tamil Nadu reported in 73 STC 346. He relied upon the following passages found in pages 350 and 351, which reads as follows:
"We think that the appeals are entitled to succeed. Item No.95 mentions the rate of 7 per cent (now 8 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 complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30 per cent on the turnover of arishtams and asavas constitutes good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate has been applied. In Adhyaksha Mathur Babu's Sakthi Oushadhalaya Dacca (P) Ltd. Vs. Union of India (1963) 3 SCR 957, this Court considered whether the ayurvedic medicinal preparations known as mritasanjibani, mritasanjibani sudha and mrithasanjibani sura, prepared in accordance with an acknowledged ayurvedic formula, could be brought to tax under the relevant State Excise Act when medicinal preparations were liable to excise duty under the Medicinal and Toilet Preparations (Excise Duty) Act, which was a Central Act. The Court held that the three preparations were medicinal preparations, and observed that the mere circumstance that they contained beverages could not justify their being treated differently from other medicinal preparations. The Court said:
"So if these preparations are medicinal preparations but are also capable of being used as ordinary alcoholic beverages, they will fall under the (Central) Act and will be liable to duty under item No.1 of the Schedule at the rate of Rs.17.50 nP per gallon of the strength of London proof spirit. On a consideration of the material that has been placed before us, therefore, the only conclusion to which we can come is that these preparations are medicinal preparations according to the standard ayurvedic text-boos referred to already, though they are also capable of being used as ordinary alcoholic beverages..... They cannot however be taxed under the various Excise Acts in force in the concerned States in view of their being medicinal preparations which are governed by the Act."
We are of opinion that similar considerations should apply to the appeals before us. The two preparations, 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 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."
21.Applying the same ratio, the senior counsel wanted to state that the commodity kerosene whether it is ordinary kerosene or white kerosene makes no difference. Neither the authority can levy by notification under Section 59(1) nor by amendment to Eleventh Schedule, different rates of tax can be imposed. Such an action on their part is arbitrary and unconstitutional.
22.In this context, the learned senior counsel also produced the guidelines of Parallel Marketing of Kerosene issued by the Oil Marketing companies. Paragraphs 1.1.0 to 1.2.2 of Parallel Marketing of Kerosene by private parties reads as follows:
"1.1.0.The Government have been considering ways and means to increase the availability of Kerosene in the country particularly through the Public Distribution System (PDS). The restricted availability of foreign exchange for the import of Kerosene limits the scope of its import by the Public Sector. Therefore with a view to increase the domestic availability of Kerosene and to reduce the scope for its unauthorised diversion from PDS supplies, Government have decided to allow private sector entrepreneurs to undertake Kerosene imports in line with LERMS (Liberalised Exchange Rate Management System) and to arrange the sale thereof in the domestic market through their own network at market determined prices.
1.2.0.To achieve the above objectives, the Government have taken following measures:
1.2.1.The supplies of subsidised Kerosene through PDS would be continued but all households with LPG connections would be excluded from such supplies.
1.2.2.Kerosene sold through PDS would be imparted blue colour to visually distinguish it from the Kerosene sold in the free market." (Emphasis added)
23.He also relied on the brochure of Bureau of Indian Standards (for short BIS). In paragraph 0.2 the specification for kerosene reads as follows:
"0.2.This specification was originally issued in 1959 and subsequently revised in 1968. It was amended in 1972 in order to modify the requirements of IK grade kerosine. The present second revision has been prepared as a result of a review of the standard in the light of the present day requirements of kerosine in the country. The 1968 version of the specification covered two grades of kerosenes, namely SK grade and IK grade, but since the production of IK grade kerosine in the country has been discontinued, it was felt necessary to delete this grade from the specification and retain only SK grade. In this revision the colour requirements of SK grade kerosine has also been reduced from +21 Saybolt to +10 Saybolt."
24.Therefore, when private marketing is permitted in kerosene in order to distinguish the kerosene available at the public distribution system, blue dye was used and to avoid pilferage and black marketing, the white kerosene was introduced for private marketing. Merely because there is colour distinction, the product does not get changed and it remains as kerosene only.
25.The learned Senior Counsel, thereafter, relied upon the judgment of the Supreme Court in Associated Cement Companies Ltd. Vs. Government of Andhra Pradesh and another reported in 144 STC 342 SC for the purpose of showing that in that case the Supreme Court distinguished Arya Vaidya Pharmacy case (cited supra). When cement was levied tax at different rates that is on the sale price including value of packing materials and sale price not including the value of packing materials, the Supreme Court upheld the stand of the Revenue that there can be different tax rates on the same commodity to get over artificial billing by dealers. The Government's decision to levy two different taxes were held to be valid as they were based upon proper classification.
26.In an another judgment, the Supreme Court in State of Assam and others Vs. Shri Naresh Chandra Ghose reported in 121 STC 294 SC, held that Arya Vaidya Pharmacy case (cited supra) was distinguishable and also held that if tax is made based upon the strength of alcohol contents in any medicines cannot be said to be arbitrary and violative of
Article 14 of the Constitution of India.
27.These two decisions were subsequently referred to by the Supreme Court in State of U.P. and others Vs. Deepak Fertilizers & Petrochemical Corporation Ltd. reported in 2007 (7) VST 535 (SC). Explaining those judgments in paragraphs 20 to 22, it was held as follows:
"20.From the above, we find that in Associated Cement case (2006) 1 SCC 597, it was held by this court that the rate of tax on cement was dependent on the question whether the price included the cost of packing materials whereas in the present case we are concerned with the exemption granted to the dealer of NPK 23:23:0.. In view of our discussion made hereinabove, we are, therefore, of the view that the decision in the case of Associated Cement (2006) 1 SCC 597 stands on a different factual situation. Therefore, we are unable to accept the contention of the learned counsel for the appellants that the decision in Arya Vaidya Pharmacy (1989) 2 SCC 285 and the principles laid down in that case cannot be applied in the present case.
21.This being the position and in view of our discussion made herein earlier that the products of the respondent and the exemption granted in the notification in question which are similar in nature, we hold that the product of NPK 23:23:0 is also a similar commodity within the meaning of the notification of exemption dated April 10, 1995. Therefore, it would not be open for the appellants, as held by the High Court, to realise tax retrospectively on sale of NPK 23:23:0 from April 10, 1994 to March 31, 1995.
22.Before parting with this judgment, it would be necessary for us to take into consideration another decision of this court in the case of State of Assam Vs. Shri Naresh Chandra Ghosh (decd. by Lrs.) (2001)1 SCC 265. The learned counsel for the appellants relied on this decision in order to distinguish the decision of this court in the case of Arya Vaidya Pharmacy (1989) 2 SCC 285. In our view, this decision is factually distinguishable. In paragraph 9, this court observed that so far as the Assam Act is concerned, unlike the Tamil Nadu General Sales Tax Act, 1959, it identified the medicinal preparations containing more than 12 per cent alcohol as a separate class vis-a-vis such preparations either not containing alcohol or containing less than 12 per cent alcohol. The difference, according to this decision, distinguishes the basis of the judgment of this court in Arya Vaidya Pharmac case (1989)2 SCC 285 inasmuch as the Assam Act did not identify medicinal preparations containing more than 12 per cent alcohol as being the same as other medicinal preparations not containing alcohol. It was also noted in that decision that, on the other hand, these types of spintuous medicinal preparations, which contained 12 per cent alcohol, have been separately classified for the levy of tax under item 67 of the Schedule to the Act. In that view of the matter, the classification founded in the said decision with regard to the medicinal preparations based on the strength of alcohol contents in the same, cannot be said to be arbitrary and violative of
article 14, as held by the High Court. This decision, as already noted, is of no help to the appellants and the reasons that this decision will not help the appellants have already been discussed above. Accordingly, we are not in a position to rely on the decision as cited by the learned counsel for the appellants."
28.The learned senior counsel further placed reliance upon the judgment of the Supreme Court in Ponds India Ltd. (Merged with H.L.Ltd.) Vs. Commissioner of Trade Tax, Lucknow reported in 2008 (15) VST 256(SC) for the purpose of explaining as to how taxing statute has to be interpreted. Reliance was made on the following passages found in paragraphs 43 to 45, which reads as follows:
"43....While interpreting an entry in a taxing statute, the court's role would be to consider the effect thereof, upon considering the same from different angles. Different tests are laid down for interpretation of an entry in a taxing statute namely dictionary meaning, technical meaning, users point of view, popular meaning, etc.
44.It is true that the court must bear in mind the precise purpose for which the statute has been enacted, namely, herein for the purpose of collection of tax, but the same by itself would not mean that an assessee would be made to pay tax although he is not liable thereof, or to pay higher rate of tax when he is liable to pay at a lower rate.
45.An exemption notification may require a strict construction, but where a statute merely provides for different rates of tax, application of the principles of strict construction may not be appropriate."
29.The learned senior counsel also submitted that there is no rhyme or reason in fixing 4% for kerosene and 25% for SKO and it is clearly arbitrary.
30.The learned Senior counsel also placed reliance upon the judgment of the Supreme Court in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam Vs. Bharat Petroleum Corporation Ltd. reported in 1997 Vol.104 STC 102 (SC), wherein the Supreme Court had an occasion to consider whether the definition of petrol given under the Kerala General Sales Tax Act will cover even the special boiling point spirit and shell hexane. In that case, the Supreme Court in pages 104 and 105 held as follows:
"We are not directly concerned with the question of the scope of Item 57-A in the First Schedule. Our inquiry is limited to the question of locating the type of petrol covered under Item 57-B of the First Schedule. The term petrol has been defined and ordinarily the same meaning must be given to that word wherever it appears unless the context demands otherwise. In the instant case, we find it difficult to agree with Mr Iyer that in the context petrol in Item 57-B of the First Schedule must be understood to exclude substances which do not provide a reasonably efficient fuel for combustion engines. We are, therefore, of the opinion that the ultimate conclusion reached by the High Court that the brand of petrol having a flashing point below 24.4 degrees centigrade falls within Item 57-B in Schedule 1 is correct. After reaching that conclusion we find it difficult to appreciate why the High Court allowed the assessees revision and remanded the cases to the Tribunal. Presumably the High Court overlooked the fact that it was admitted that the substances in question fell within the definition of petrol under
Section 2(xvii). Once the High Court found that they fell within Item 57-B in the First Schedule the levy on these substances would be in accordance with and at the rate stated in the said Schedule against the said item."
31.The learned senior counsel also placed reliance upon the judgment of the division bench of the Punjab and Haryana High Court in Bhakra Beas Management Board Vs. State of Haryana reported in (2006) 147 STC 336 (P&H). In that case, the Punjab and Haryana High Court after reviewing all the cases held that even used transformer oil falls within the term "petroleum products" and the same was sold to the registered dealers as used transformer oil and not as any other commodity. Therefore, it was held that the mere fact that potentiality or strength of the transformer oil is decreased after its use by the petitioner cannot be made basis for taking it out of the ambit of the expression "petroleum product". In paragraph 10 of the judgment, it was held as follows:
"10.A reading of the plain language of
section 18 along with item No.7 of notification dated December 30, 1987 makes it clear that tax is leviable on petroleum products including spirit at the first stage of sale. It is not in dispute that the transformer oil purchased by the petitioner for its use falls within the ambit of the term "petroleum products" appearing at S.No.7 of Notification dated December 30, 1987. It was used by the petitioner as a lubricant for operating transformers. Thereafter, the same was sold to the registered dealers as the used transformer oil and not as any other commodity. It was neither the petitioner's pleaded case nor any evidence was produced before the Assessing Officer to show that the used transformer oil does not retain its character as lubricant and cannot be used as such. Therefore, the mere fact that potentiality or strength of the transformer oil is decreased after its use by the petitioner cannot be made basis for taking it out of the ambit of the expression "petroleum product". In the common parlance and commercial sense, the used transformer oil continues to be a lubricant and falls within the scope of the term "petroleum product". The very fact that it was sold only to the registered dealers and not to any busy body goes to show that the used transformer oil can be used as a lubricant for other purposes."
32.Further, the learned Senior Counsel referred to the division bench judgment of this Court in Commercial Tax Officer, Thiruparangundram Assessment Circle and others Vs. Thiagarajar Mills Ltd. reported in 2004 Vol.134 STC 58 for the purpose of holding that the term product was not defined in the notification. Therefore, the cotton waste which is a by-product obtained in the process of manufacturing of yarn in the spinning mill is also a product within the meaning of notification granting deferral of sales tax on products manufactured by units. In paragraph 5, the division bench observed as follows:
"5.The word "product" has not been defined in G.O.P.No.92. It only refers to the products manufactured by the new units established in the backward taluks to which the G.O. applies. The G.O. clearly recognises that the unit may manufacture more than one product. In the absence of any definition limiting the scope for the product only to the principal product, for the manufacturing of which the unit is established, the term "product" is capable of comprehending within its by-product as well, especially when such by-products are themselves distinct commercial goods, which are capable of being marketed separately and which are also subjected to tax as an item of taxation."
33.The learned senior counsel finally placed reliance upon the judgment of the Supreme Court in Binani Industries Limited Vs. Assistant Commissioner of Commercial Taxes, VI Circle, Bangalore and others reported in 2007 (6) VST 783 (SC), wherein it was held that once an assessment is completed, merely because there was change of opinion of the assessing officer, the assessment cannot be reopened. In the present case, the assessment officers have understood the product in a particular way for all these years. Hence the same cannot be changed merely because the officer has not taken a new decision. The earlier clarification was issued under Section 28A of the TNGST Act and that cannot be changed by way of a circular issued by the same authority.
34.Mr.N.Inbarajan, learned counsel for some of the petitioners adopted the arguments of Mr.R.Venkatraman, learned Senior Counsel and added that the use of kerosene is covered by the provisions of the Essential Commodities Act, 1955 and also Kerosene (Restriction on use and Fixation of Ceiling Price) Order, 1993. The said order framed under Section 3 of the Essential Commodities Act defines Kerosene under Rule 2(e), which reads as follows:
"kerosene" means a middle distillate mixture of hydrocarbons meeting BIS specification No.IS-1459 of 1974 with important characteristics of flash point at a minimum of 35O C and smoke point at a minimum of 18 mm."
35.It also defined the "parallel marketing system" and "public distribution system" under Rule 2(i) and 2(j) which are as follows:
(i)"parallel marketing system" means a system, other than the public distribution system, under which a person imports Kerosene, or stores, transports, packs, distributes or sells imported Kerosene, under his own arrangement;
(j)"public distribution system" means the system of distribution, marketing or selling of kerosene at declared price through a distribution system approved by the Central or State Government;"
36.With a view to avoid the kerosene meant for public distribution system being misused by the introduction of parallel marketing system, Rule 8 enjoins upon oil companies to introduce suitable measures. Rule 8 reads as follows:
"8.Kerosene under public distribution system to be made distinguishable. - Kerosene supplied through public distribution system shall be made distinguishable from the kerosene to be imported, sold or distributed under parallel marketing system by use of suitable measures to be adopted by the Government Oil Companies as and when necessary."
(Emphasis added)
37.It is pursuant to this direction that kerosene is sought to be coloured with appropriate chemical dyes. Therefore, colouring is done only to prevent black marketing and misuse. But, the character of the actual product, i.e. Kerosene remains same. Therefore, SKO should not be subjected to higher tax merely because it was included as a separate Entry in the Eleventh schedule.
38.Mr.R.Senniappan, learned counsel for some of the petitioners after adopting the arguments of other counsels attacked the impugned assessment orders that the authorities have relied upon the circular issued by the Principal Commissioner and did not take into account the objections of the dealers. He also submitted that they have mechanically demanded the amounts without specifying as to when the liability arose.
39.He also placed reliance upon the decision of the division bench of this Court in Tube Investments of India Limited Vs. Deputy Commercial Tax Officer, Group III, Enforcement-I, Greams Road, Chennai and others reported in 2003 Vol.129 STC 238 as well as the decision of the Supreme Court in Shanmuga Traders v. State of T.N. reported in (1998) 5 SCC 349. In the first case, the division bench of this Court held that the steel tube of certain shapes continued to be declared goods and cannot be taxed as part or accessory of motor vehicle.
40.In the second decision, the Supreme Court held that if the product is exempted from tax, then it is not liable for tax either at the first point of sale or any subsequent sale in the State. On that basis, the learned counsel stated that since the authorities have passed irregular and illegal orders, the petitioners are entitled to challenge the assessment orders before this Court. The question of alternative remedy is only self imposed restriction. He also submitted that the clarification issued by the Principal Commissioner under Section 28A is very much available. Therefore, he submitted that the point of levy cannot be shifted.
41.Mr.N.Sriprakash, learned counsel appearing for some of the petitioners made attack only against the collection of surcharge when there is special exemption provided under Section 17(1). He stated that he is not challenging the validity of the Act. His contention is that the exemption under Section 17(1) is independent of any Entry made pursuant to Section 59(1). Even if any Entry in the Eleventh Schedule is bifurcated, the exemption which is originally granted under Section 17(1) will continue to be valid until amended in terms of
Section 17(2) or Section 17(3) of the TNGST Act.
42.In the present case, when the schedule provides Kerosene as a single entry is taxed at the rate of 4%. When the Government granted exemption both from surcharge as well as resale tax, the dealers are entitled to avail such exemption. The term kerosene as genus has been further subdivided into two species, i.e. Kerosene liable to tax at 4% and SKO or White kerosene subjected to tax at 25% by virtue of inclusion in the schedule under Section 59(1). Notwithstanding that exemption power continues and the dealers are not liable to pay either surcharge or resale tax.
43.The learned counsel further stated that even notwithstanding the statutory amendment, exemptions are valid. Alternatively, he submitted that at least, from the date and till the Act was amended, the dealers are entitled for exemption under both heads.
44.The learned counsel in this context placed reliance upon the judgment of the Supreme Court in Hansraj Gordhandas v. H.H. Dave, Asstt. Collector of Central Excise and Customs reported in (1969) 2 SCR 253 = AIR 1970 SC 755. He stated that operation of notification has to be judged not by the object which the rule making authority had in mind but by the words which it has employed to effectuate the legislative intent. It is well established that in a taxing statute there is no room for any intendment. The entire matter is governed wholly by the language of the notification. It tax payer is within the plain terms of the exemption, it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority.
45.Therefore, the learned counsel submitted that exemption notification continues to mention the term Kerosene without any corresponding modification. Therefore it should be understood as a commodity available on the date of notification and any subsequent change in the schedule will not automatically modify the exemption notification.
46.The learned counsel also placed reliance upon the judgment of the Supreme Court in Indian Aluminium Co. Ltd. v. Asstt. Commr. of Commercial Taxes (Appeals) reported in (2001) 2 SCC 201 = AIR 2001 SC 795. It is for the purpose of contending that a similar enactment under the Karnataka Tax on Entry of Goods Act, Entry No.67 relates to petroleum products came to be interpreted by the Supreme Court. The first notification under Entry No.11 reads as follows:
11. All petroleum products, that is to say, Petrol, diesel, crude oil, lubricating oil, transformer oil, brake or clutch fluid, bitumen (asphalt), tar and others, but excluding LPG, kerosene and naphtha for use in the manufacture of fertilizers. The subsequent Entry 67, corresponding to the earlier Entry No.11 reads as follows:
67. Petroleum products; that is to say; petrol, diesel, crude oil, lubricating oil, transformer oil, brake or clutch fluid, bitumen (asphalt), tar and others, but excluding aviation fuel, liquid petroleum gas (LPG), kerosene and naphtha for use in the manufacture of fertilizers.
47.The Supreme Court while noting the change in the terminology used in the Entry, in paragraph 11 observed as follows:
"11. Both these entries (Nos. 11 and 67) mention petroleum products: Whereas in Entry 11 the first words are All petroleum products, the word All is missing in the new Entry 67. This, however, will not make any material difference because petroleum products would clearly mean any type of petroleum product. The use of the words and others would, in our opinion, refers to petroleum products other than those which are specifically mentioned therein. What is, however, important is that the said entries specifically exclude aviation fuel, liquid petroleum gas, kerosene and naphtha for use in the manufacture of fertilizers. If the contention of the learned counsel for the appellants is correct that the words and others would not enable the inclusion of furnace oil in the said entries, then on the same parity of reasoning aviation fuel, liquid petroleum gas, kerosene and naphtha would also have to be regarded as not being included in the said entries and if this is so there was no need for their specific exclusion. The very fact that there is an exclusion clause, means that but for the said exclusion, aviation fuel, LPG, etc. would be included in the said entries and as they are not specifically mentioned they would be covered by reason of the words and others."
48.In the light of the same, the learned counsel submitted that merely because from the term kerosene, SKO is removed from the original entry and put as a separate entry in the schedule, that will not correspondingly alter an exemption notification. In that view of the matter, he stated that at least in respect of surcharge, the dealers should be unburdened of their liability.
49.The other counsels also submitted on similar analogy the resale tax was also liable for exemption.
50.The respondents have filed a common counter affidavit, dated 7.6.2007. In some of the cases, the taxing officers have also filed separate counter affidavits wherever the State was not made as a party.
51.It is stated by the State that when Entry 18 of Eleventh Schedule was inserted and the commodity White kerosene/SKO was notified taxable at 25%, the kerosene and SKO are separate and distinct commodities for the purpose of levying sales tax. Likewise, Section 3-H of the TNGST Act provides for levy of resale tax at the rate of 1% where total turnover exceeds Rs.10 lakhs per year. Section 3-I of the Act provides for levy of surcharge at the rate of 5% on the tax levied. Both sections 3-H and 3-I came into force with effect from 1.7.2002. The State Government issued notification exempting payment of resale tax and surcharge on sale of kerosene alone. Therefore, when a specific Entry was introduced in the schedule, i.e. SKO and the Commissioner had also clarified that exemption granted on payment of resale tax and surcharge is not applicable to SKO, the same cannot be questioned.
52.In paragraph 11 of the common counter affidavit, it was averred as follows:
"11.It is respectfully submitted that the amendment was made to the Eleventh Schedule by the Legislature which is within its competence. The intention of the Legislature for making the above amendment is to curb illegal transportation of White Kerosene (Superior kerosene) in order to arrest evasion of tax. Moreover, the commodity Kerosene and White Kerosene are meant for two different purposes, i.e., Kerosene is used for domestic purpose and White Kerosene (Superior Kerosene) is meant for industrial use. Hence, the Government which is empowered to fix different rates for a given commodity which has different usages has classified the commodity under two different entries which is quite in order. Therefore, the contention of the petitioners that the classification of the Kerosene into two different entries in the said Eleventh Schedule is arbitrary, is not acceptable, since it is not based on any sound reason because both the commodities even though are available in the said Eleventh Schedule are meant for different usage. Similarly, the clarification given by the Commissioner stating that the commodity White Kerosene (Superior Kerosene) attracts resale tax and surcharge is quite reasonable since the exemption granted from payment of resale tax and surcharge is applicable only for Kerosene and not for White Kerosene (Superior Kerosene) as contended by the petitioners. This clarification given by the Commissioner was issued only with reference to the Government Notification issued in this regard. Therefore, the action taken to recover the tax, resale tax and surcharge due on the commodity White Kerosene (Superior Kerosene) is quite justified."
53.Mr.Haja Nazaruddin, learned Special Government Pleader (Taxes) in support of the stand taken by the respondents State submitted that the Government has got power by delegated legislation to introduce an item into Schedule by virtue of Section 59(1) and even that becomes a part of the Statute. As to the effect of the Entry into the schedule came to be considered by the Supreme Court in Aphali Pharmaceuticals Ltd. v. State of Maharashtra reported in (1989) 4 SCC 378 = AIR 1989 SC 2227. In paragraphs 31 and 32, the Supreme Court held as follows:
31. A Schedule in an Act of Parliament is a mere question of drafting. It is the legislative intent that is material. An Explanation to the Schedule amounts to an Explanation in the Act itself. As we read in Halsburys Laws of England, Third Edn., Vol. 36, para 551:
To simplify the presentation of statutes, it is the practice for their subject-matter to be divided, where appropriate, between sections and Schedules, the former setting out matters of principle, and introducing the latter, and the latter containing all matters of detail. This is purely a matter of arrangement, and a Schedule is as much a part of the statute, and as much an enactment, as is the section by which it is introduced. The Schedule may be used in construing provisions in the body of the Act. It is as much an act of legislature as the Act itself and it must be read together with the Act for all purposes of construction. Expressions in the Schedule cannot control or prevail against the express enactment and in case of any inconsistency between the Schedule and the enactment, the enactment is to prevail and if any part of the Schedule cannot be made to correspond it must yield to the Act. Lord Sterndale, in IRC v. Gittus1 said: (at p. 576) It seems to me there are two principles or rules of interpretation which ought to be applied to the combination of Act and Schedule. If the Act says that the Schedule is to be used for a certain purpose and the heading of the part of the Schedule in question shows that it is prima facie at any rate devoted to that purpose, then you must read the Act and the Schedule as though the Schedule were operating for that purpose, and if you can satisfy the language of the section without extending it beyond that purpose, you ought to do it. But if in spite of that you find in the language of the Schedule words and terms that go clearly outside that purpose, then you must give effect to them and you must not consider them as limited by the heading of that part of the Schedule or by the purpose mentioned in the Act for which the Schedule is prima facie to be used. You cannot refuse to give effect to clear words simply because prima facie they seem to be limited by the heading of the Schedule and the definition of the purpose of the Schedule contained in the Act.
32. The above observation was not disapproved in appeal in Gittus v. IRC2. However, the basic principle is that in case of a conflict between the body of the Act and the Schedule, the former prevails. In the instant case, we do not find any such conflict."
54.He also relied upon the judgment of the Supreme Court in Ujagar Prints v. Union of India reported in (1989) 3 SCC 488 = AIR 1989 SC 516 and placed reliance upon paragraphs 62 to 64 of the said judgment, which reads as follows:
"62. That apart, Section 4 of Amending Act 6 of 1980 has amended the relevant items in the Schedule to the Additional Duties Act. The expressions produce or manufacture in Section 3(1) of the Additional Duties Act must be read along with the entries in the Schedules.
63. In Attorney-General v. Lamplough31 it is observed :
A schedule in an Act is a mere question of drafting, a mere question of words. The schedule is as much a part of the statute, and is as much an enactment, as any other part.
Maxwell says (in Interpretation of Statutes, 11th Edn., p. 156) :
.... if an enactment in a schedule contradicts an earlier clause it prevails against it.
Bennion (in Bennions Statutory Interpretation, pp. 568-569) referring to the place of schedules in statutes observes :
The Schedule is an extension of the section which induces it. Material is put into a Schedule because it is too lengthy or detailed to be conveniently accommodated in a section,....
A Schedule must be attached to the body of the Act by words in one of the sections (known as inducing words). It was formerly the practice for the inducing words to say that the Schedule was to be construed and have effect as part of the Act. (See, e.g., Ballot Act, 1872,
Section 28.) This is no longer done, being regarded as unnecessary. If by mischance the inducing words were omitted, the Schedule would still form part of the Act if that was the apparent intention.
.... The Schedule is as much a part of the statute, and is as much an enactment, as any other part. (See also, to the like effect, Flower Freight Co. Ltd. v. Hammond32, R v. Legal Aid Committee No. 1 (London) Legal Aid Area, ex p Rondel33, Metropolitan Police ComMr v. Curran34.
64. What appears, therefore, clear is that what applies to the main levy, applies to the additional duties as well. We find no substance in contention (c) either.
55.Therefore, he stated that the power of the State Government to issue a notification to amend the schedule in terms of Section 59(2) is also a part of the statute and it is not subjected to challenge as contended by the petitioners. In any event, the statute, in order to make it foolproof, was also amended by a separate legislative amendment. Therefore, the petitioners cannot attack the said notification on the ground that it is violative of Articles 14 and 19(1)(g) of the Constitution of India.
56.He also submitted that once the schedule is amended, the exemption notification cannot stand on its own. He also stated that if the exemption is granted only in respect of tax payable under this Act on the sale or purchase of any specified class of goods and once exempted in respect of only specified class of goods and that class of goods have been specifically mentioned in the different entry into the Eleventh Schedule, then exemption notification will still apply to SKO is unsustainable.
57.The learned counsel in this context placed reliance upon the judgment of the Supreme Court in COMMISSIONER, SALES TAX U.P. Vs. AGRA BELTING WORKS, AGRA reported in (1987) 3 SCC 140 = 1987 (66) STC 1. In that case, the question arose was if charging provision undergoes change whether the exemption notification can still continue to have the effect without taking into account the amendment to charging section. In paragraph 6, the Supreme Court observed as follows:
"6. As has been pointed out above,
Section 3 is the charging provision; Section 3-A authorises variation of the rate of tax and
Section 4 provides for exemption from tax. All the three sections are parts of the taxing scheme incorporated in the Act and the power both under Section 3-A as also under
Section 4 is exercisable by the State Government only. When after a notification under
Section 4 granting exemption from liability, a subsequent notification under Section 3-A prescribes the rate of tax, it is beyond doubt that the intention is to withdraw the exemption and make the sale liable to tax at the rate prescribed in the notification. As the power both for the grant of exemption and the variation of the rate of tax vests in the State Government and it is not the requirement of the statute that a notification of recall of exemption is a condition precedent to imposing tax at any prescribed rate by a valid notification under Section 3-A, we see no force in the contention of the assessee which has been upheld by the High Court. In fact, the second notification can easily be treated as a combined notification both for withdrawal of exemption and also for providing higher tax. When power for both the operations vests in the State and the intention to levy the tax is clear we see no justification for not giving effect to the second notification. We would like to point out that the exemption was in regard to a class of goods and while the exemption continues, a specific item has now been notified under Section 3-A of the Act.
58.Similarly, the Supreme Court vide its judgment in SALES TAX OFFICER, SECTOR IX, KANPUR Vs. DARLING DAIRY PRODUCTS AND ANOTHER reported in 1994 Supp (2) SCC 639 = 1994 (94) STC 93 (SC) dealt with a similar contention. In that case ice-cream was considered along with milk and milk products, which was exempted. Subsequently, a notification was issued and a rate of tax was prescribed expressly for ice-cream among other goods. Since the exemption on original entry was still continued when relief was claimed on the basis of exemption notification, the said contention was repelled. The following passages found in paragraphs 3 and 4 reads as follows:
"3. The State of U.P. has been issuing, from time to time, notifications under
Section 4 of the Act, exempting milk and milk products from the levy of sales tax. It has also been issuing from time to time notifications under Section 3-A notifying the rates of tax on sale/purchase of different goods. In this case, we are concerned with one notification under
Section 4 namely the one dated 21-5-1974 and two notifications under Section 3-A dated 4-11-1974 and 30-5-1975. The notification under
Section 4 dated 21-5-1974 exempted milk and milk products from the levy of tax. Ice-cream was understood to be a milk product and, therefore, exempt. However, by notifications issued under Section 3-A (dated 4-11-1974 and 30-5-1975) a rate of tax was prescribed expressly for ice-cream among other goods.
4. In CST v. Agra Belting Works1 a Bench of this Court comprising R.S. Pathak, C.J., Ranganath Misra and B.C. Ray, JJ. held, by a majority, that Sections 3, 3-A and 4 of the U.P. Sales Tax Act are parts of the taxing scheme incorporated in the Act, and therefore, where a notification is issued under Section 3-A prescribing a rate of tax for goods, which may have been exempted from tax by an earlier notification under
Section 4, it must be held that the intention was to withdraw the exemption and make the sale leviable to tax at the rate prescribed in the notification. It was held that it is not necessary in such a case that a specific or separate notification withdrawing or revoking the exemption is issued. Following the said decision it must be held that the exemption granted to ice-cream by notification dated 21-5-1974 was undone by the notification dated 4-11-1974 as well as by the notification dated 30-5-1975."
59.The learned Special Government Pleader also submitted that a circular of the Commissioner issued under Section 28A dated 3.9.2001 cannot go de-hors the provisions of the Act. For this purpose, the counsel relied upon the judgment of the Supreme Court in Bengal Iron Corpn. v. COMMERCIAL TAX OFFICER AND OTHERS reported in 1994 Supp (1) SCC 310 = 1993 (90) STC 47(SC) and placed reliance upon the following passages found in paragraphs 17 and 18 of the said judgment, which reads as follows:
"17....Yet, it must be remembered that the said power can be exercised for giving effect to the provisions of the Act, and not in derogation thereof....
18. So far as clarifications/circulars issued by the Central Government and/or State Government are concerned, they represent merely their understanding of the statutory provisions. They are not binding upon the courts. It is true that those clarifications and circulars were communicated to the concerned dealers but even so nothing prevents the State from recovering the tax, if in truth such tax was leviable according to law. There can be no estoppel against the statute. The understanding of the Government, whether in favour or against the assessee, is nothing more than its understanding and opinion. It is doubtful whether such clarifications and circulars bind the quasi-judicial functioning of the authorities under the Act. While acting in quasi-judicial capacity, they are bound by law and not by any administrative instructions, opinions, clarifications or circulars. Law is what is declared by this Court and the High Court to wit, it is for this Court and the High Court to declare what does a particular provision of statute say, and not for the executive. Of course, the Parliament/Legislature never speaks or explains what does a provision enacted by it mean. (See Sanjeev Coke Mfg. Co. v. Bharat Coking Coal Ltd.4)"
Therefore, in the light of the above, he submitted that the attack made against the levy of 25% tax in respect of SKO cannot be challenged.
60.The parameters of judicial review over such levy of tax was dealt with by the Supreme Court on several occasions. In this context, he placed reliance upon the judgment of the Supreme Court in Elel Hotels & Investments Ltd. v. Union of India reported in (1989) 3 SCC 698 = 1989 (74) STC 146 (SC). The Supreme Court held in that case that the sales tax can also be made on the basis of income differences and there cannot be any uniformity in such matters. The Supreme Court in paragraph 14 of the said judgment held as follows:
"14. On a consideration of the matter, we are of the opinion that the submission of the learned Attorney General as to the source of the legislative power to enact a law of the kind in question require to be accepted. The word income is of elastic import. In interpreting expressions in the legislative lists a very wide meaning should be given to the entries. In understanding the scope and amplitude of the expression income in Entry 82, List I, any meaning which fails to accord with the plenitude or the concept of income in all its width and comprehensiveness should be avoided. The cardinal rule of interpretation is that the entries in the legislative lists are not to be read in a narrow or restricted sense and that each general word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. The widest possible construction, according to the ordinary meaning of the words in entry, must be put upon them. Reference to legislative practice may be admissible in reconciling two conflicting provisions in rival legislative lists. In construing the words in a constitutional document conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude."
61.Similarly, the Supreme Court had an occasion to consider the question of tax imposed on sale of cooked food in posh hotels and restaurants and no such tax was imposed on sales in modest eating places. When allegations of discrimination was made, the same was repelled by the Supreme Court in Kerala Hotel and Restaurant Assn. v. State of Kerala reported in (1990) 2 SCC 502 = 1990 (77) STC 253 (SC). The Supreme Court repelled the contention that once there is common genus or species of product, the same is liable to be tax of only on uniform percentage. On the contrary, even if the product is same, depending upon the place where it was sold, it can be levied tax. Paragraphs 7 and 8 of the said judgment may be usefully extracted below:
"7. We are here concerned with the constitutional validity of a legislative provision which has the effect of making the cooked food sold in the posh eating houses alone exigible to sales tax while exempting from that levy the cooked food sold in the moderate eating houses. Reasonableness of the classification has to be decided with reference to the realities of life and not in the abstract. A discernible dissimilarity between those grouped together and those excluded is a pragmatic test, if there be a rational nexus of such classification with the object to be achieved. In the abstract all cooked food may be the same since its efficacy is to appease the hunger of the consumer. But when the object is to raise only limited revenue by taxing only some category of cooked food sold in eating houses and not all cooked food sold anywhere, it is undoubtedly reasonable to tax only the more costly cooked food. The taxed cooked food being the more costly variety constitutes a distinct class with a discernible difference from the remaining tax free cooked food. A blinkered perception of stark reality alone can equate caviar served with champagne in a luxury hotel with the gruel and buttermilk in a village hamlet on the unrealistic abstract hypothesis that both the meals have the equal efficacy to appease the hunger and quench the thirst of the consumer. Validity of a classification under our Constitution does not require such a blurred perception.
8. The cost of meal in these two distinct classes of eating houses varies considerably, the cost in a modest eating house quite often being a mere pittance of that in a posh eating house. Not only that, the incidence of sales tax on the cost of food served in a posh eating house quite often would not even be noticed by the customer and it may even exceed the total cost of the meal served in a modest eating house. How can the two meals be then equated and classified together by application of the unreal test that the efficacy of both meals is to appease the consumers hunger? It is the substance and not form alone which must be seen. The difference in the cooked food classified differently, taxed and tax free, is as intelligible and real as the two types of customers to whom they are served at these different eating houses. This difference must also be available to support the difference in the incidence of the impugned sales tax. This classification does bear a rational nexus with the object sought to be achieved. The object clearly is to raise the needed revenue from this source, determined by the fiscal policy, which can be achieved by taxing sale of costly food alone and thereby placing the burden only on the affluent in the society. The classification is made by grouping together only those places where costly food is sold leaving out the comparatively modest ones. The classification is, therefore, founded on intelligible differentia and has a rational nexus with the object to be achieved."
62.In the light of the above, the learned counsel submitted that the petitioners are not entitled for any indulgence. In the contrary, their contentions do not stand scrutiny of law and liable to be rejected.
63.Considering the rival submissions of the parties, the following propositions of law emerges. An Entry by virtue of Section 59(1) made into the schedule will stand in the same footing as entry by virtue of legislative amendment. The attack that a commodity is same and therefore, is liable for the same rate of tax cannot be accepted as it would amount to questioning the legislative policy of the State to tax a particular commodity. In such circumstances, the allegation of discrimination will not arise as legislature had chosen to make an entry into the schedule specifying the commodities under two different heads and so liable for different levies. Even otherwise, as it is already set out, while normal kerosene available under the public distribution system is meant for domestic consumption, whereas SKO is meant for commercial use. The courts have held even by the place where it is sold, commodities are leviable with different rates of levies.
64.When the legislature has consciously made a distinction between the two products, the same cannot be attacked on the ground that they are same products and should receive same percentage of levy of tax. Further, it must be noted that the State Government had come out with a stand that a separate levy of tax was made so as to prevent misuse or black marketing of public distribution commodities.
65.Reliance placed upon the judgment of the Supreme Court in Arya Vaidya Pharmacy case (cited supra) has no application. The said case has been subsequently distinguished in two different cases and explained away in one case (2007 (7) VST 535 (SC)).
65.Further, the Bureau of Indian Standards (BIS) prescribes criteria for adding chemical for colour quoting is mainly for purpose of standardizing so as to avoid any accusation of adulteration. In such cases, the dealers may avoid facing litigation in supplying adulterated kerosene. Similarly, relying upon the notification under the Essential Commodities Act has no place. So long as the commodity is an essential commodity and private marketing system is introduced by the Parliament through a delegated legislative wanted to safeguard the interest of kerosene supply under the public distribution system. Therefore, it cannot be said that the State legislature lacks power in taxing kerosene different from that of SKO or White kerosene oil. The attack of discrimination thus must fall to ground in the light of the above legal precedents as set out above.
66.The second contention that exemption notification under
Section 17(1) will continue to be in operation notwithstanding the amendment to the entry in the schedule because the same term continues to be in use in the amendment notification cannot also be accepted. Though such an argument is attractive, it does not stand to legal scrutiny in the light of the judgment of the Supreme Court in 1994 (94) STC 93 (SC).
67.What applies to surcharge is also applicable to resale tax. Further, once legal issues are settled regarding the separate tax for SKO/White kerosene under a different entry in the Eleventh Schedule, the dealers are bound to pay the said rate of levy of tax and also surcharge and resale tax, which are also applicable notwithstanding the so-called exemption under
Section 17(1).68.The other issues raised by the individual petitioners, i.e. the attack against the assessment notices and demands, cannot be scrutinized by the court. In fact, such matters came to be admitted only because the challenge to the constitutional of legislative entry into the schedule is pending before the Tribunal or before the Taxation Appellate Tribunal or before this court. In some cases, there was also interim orders. Even those cases were admitted without scrutinizing the individual claims of the dealers. Now that the legal question is squarely answered against the dealers and the contention of the State has been upheld, there is no scope for entertaining those writ petitions and the petitioners are relegated to the place where it emanated or their writ petitions have to be dismissed. Liberty is granted to the petitioners to challenge these orders before the appropriate statutory forums under the TNGST Act.
69.In the light of the above, all the writ petitions will stand dismissed. The parties are directed to bear their own costs. Consequently, connected miscellaneous petitions stand closed.
vvk To
1.The Commercial Tax Officer, Ayanavaram Assessment Circle, Kuralagam Annexe, Chennai - 108.
2.The Commissioner of Commercial Taxes (CT) Ezhilagam, Chepauk,Chennai.
3.The Secretary, The State of Tamil Nadu, Commercial Taxes Department, Fort St.George, Chennai