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Jaimets Pvt. Ltd. Vs. the State of U.P. and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax;Constitution
CourtAllahabad High Court
Decided On
Case Number Civil Misc. Writ No. 179 of 1982
Judge
Reported in[1984]55STC119(All)
AppellantJaimets Pvt. Ltd.
RespondentThe State of U.P. and ors.
Appellant Advocate J.C. Bhardwaj, Adv.
Respondent Advocate The Standing Counsel
Excerpt:
.....the legislature creates a fiction which it is competent to do. it covers all such commodities like acrylic yarn which in common parlance are considered to be knitting wool. in the case before us, the finding of the sales tax officer as affirmed by the appellate authority clearly is that acrylic yarn sold by the petitioner is meant for knitting of sweaters, socks, topas, etc. 21. the learned counsel for the petitioner next contended that since the commodity sold by the petitioner was yarn and it, in fact was clearly covered by the expression 'yarn of all kinds' used in notification no. in similar circumstances, the state government had been, from time to time, issuing circulars like annexure a-l to the counter-affidavit directing that the difference between the tax payable and tax..........of that entry was covered by some other notification prescribing rate of tax lower than 7 per cent, acrylic yarn, after 1st of october, 1977, became liable to tax at the rate of 7 per cent as provided under section 3-a(2-a) of the act. however, in the instant case, we are not concerned with the position as prevailed in this regard after 1st of october, 1977, and till notification no. 2177/x dated 1st of march, 1979, providing that knitting yarn whether woollen, acrylic or of any other kind was made liable to tax at the rate of 6 per cent.6. while excluding item no. 108 from the schedule which concerned itself with yarns of all kinds except those of the nature specified in entry no. 105 and which the state government, in exercise of its powers under the proviso to sub-section (2-a).....
Judgment:

H.N. Seth, J.

1. Even though petitioner M/s. Jaimets Private Ltd. had already preferred appeals against the orders of the Sales Tax Officer, Ghaziabad, dated 31st of August, 1981 (annexures 1 and 2 to the petition), assessing it to sales tax under the Central as well as State Sales Tax Acts for the year 1979-80, it by means of the present petition also moved this Court for relief under Article 226 of the Constitution claiming, inter alia, that amendment in Notification No. 8224/X dated 31st of August, 1979, made by the U. P. Sales Tax (Amendment and Validation) Ordinance, 1981 (Ordinance No. 12 of 1981), with retrospective effect was unconstitutional and invalid. In the meantime, the appeals filed by the petitioner were dismissed by the Assistant Commissioner (Judicial), Sales Tax, Ghaziabad, vide his order dated 27th of March, 1982 (annexure RA-1), and Ordinance No. 12 was replaced by the U. P. Sales Tax (Amendment and Validation) Act, 1982. Accordingly, the petitioner moved an application seeking to question the validity of the Amendment Act on grounds identical to those on which the validity of Ordinance No. 12 of 1981 had been questioned by it.

2. The petitioner is a dealer in 'acrylic yarn'. It claimed that during the period 1st of April, 1979, to 31st of August, 1979, acrylic yarn was, under the provisions of the Sales Tax Act, taxable at the rate of 7 per cent, i.e., 6 per cent under Section 3-A of the Act plus additional tax at the rate of 1 per cent under Section 3-F of the Act. Likewise for the period 1st of September, 1979, to 31st of March, 1980, it was taxable at the rate of 3 per cent, i.e., at the rate of 2 per cent plus additional tax at the rate of 1 per cent and paid the tax accordingly. The Sales Tax Officer accepted the turnover as disclosed by the petitioner. He, however, came to the conclusion that cashmilon, i.e., acrylic yarn sold by the petitioner fell in the category of knitting wool inasmuch as in common parlance, it was so understood. It was used in knitting sweaters, socks and topas, etc., by crosia or knitting needles and that it was not used for purposes of spinning. He concluded that the goods sold by the petitioner did not fall in the category of yarn of all kinds and was, therefore, taxable at the rate of 7 per cent plus additional tax of 1 per cent total 8 per cent for the entire period between 1st of April, 1979, and 31st of March, 1980. The appellate authority affirmed the decision of the Sales Tax Officer and observed that even though knitting wool was also a kind of yarn, but for purposes of the provisions contained in the Sales Tax Act, it fell in the category of knitting wool and had to be taxed as such.

3. In order to appreciate and decide the points raised in this petition, it will be convenient to notice certain provisions of the Sales Tax Act as it stood at the relevant time and the notifications issued thereunder. Section 3-A(1) of the U. P. Sales Tax Act provides that sales tax shall be payable by a dealer under the Act on the turnover in respect of goods specified in the second column of the First Schedule at the point specified in the third column thereof at such rate not exceeding 15 per cent as the State Government may, by notification, declare. The second proviso to Sub-section (1) enables the State Government to, by notification, omit an entry in the schedule and to, in the like manner, restore any entry so omitted. Sub-section (2-A) then lays down that the turnover in respect of goods other than those mentioned in Sub-section (1) or (2) are liable to be taxed at the rate of 7 per cent but then it is open to the State Government to, from time to time by notification in official Gazette, modify the rate and the point of tax in respect of the goods covered by the sub-section. Entries and items Nos. 105, 106 and 108 of the Schedule referred to in Section 3-A(1) ran thus :

105. Woollen carpet yarn, rayon yarn, filature silk yarn, handspun silk yarn, staple fibre yarn and nylon yarn.

106. Woollen goods excluding carpets and hosiery but including knitting wool and ready-made garments made out of woollen cloth.

108. Yarn of all kinds including unspun fibre used in weaving, other than handspun yarn, but excluding cotton yarn, woollen carpet yarn, rayon yarn, filature silk yarn, staple fibre yarn and nylon yarn.

4. Under Notification No. 332/X dated 15th of November, 1971, the articles falling under entries Nos. 105, 106 and 108 were made liable to tax at the rate of 2 per cent, 6 per cent and 4 per cent respectively. However, the State Government issued notifications omitting entries Nos. 105 (Notification No. 5784/X dated 30th of September, 1977), 106 (Notification No. 2175/X dated 1st of March, 1979) and 108 (Notification No. 8224/X dated 31st of August, 1979) from the schedule referred to in Section 3-A(1) with effect from 1st of October, 1977, 1st of March, 1979, and 1st of September, 1979, respectively. The State Government also had in exercise of its powers under the proviso to Sub-section (2-A) of Section 3-A of the Act, issued Notification No. 4949/X dated 30th of May, 1975, declaring that with effect from 1st of June, 1975, the turnover in respect of the goods specified in column II of the schedule to that notification, shall be liable to tax at the point of sale and at the rate specified in columns III and IV thereof. After various entries mentioned in the schedule referred to in Sub-section (1) of Section 3-A had been omitted, it became open to the State Government to, in respect of the goods covered by those entries, issue notifications under the proviso to Sub-section (2-A) of Section 3-A of the Act and to include the same in the schedule of goods appended to Notification No. 4949/X dated 30th of May, 1975 and to provide for the rate of tax as well as the point of sale at which such goods would be taxable. Accordingly the State Government issued Notification No. 2177/X dated 1st of March, 1979, amending the schedule to Notification No. 4949/X dated 30th of May, 1975, by inserting therein a new entry (No. 36) according to which knitting yarn, whether woollen, acrylic or any other kind was liable to tax at the rate of 6 per cent. It further, in exercise of its powers under the proviso to Section 3-A(2-A) of the Act, vide Notification No. 8224/X dated 31st of August, 1979, declared that yarn of all kinds except cotton yarn but including desi kali are liable to tax at the rate of 2 per cent. It is obvious that in the context this notification had been issued with a view of supplement the contents of Notification No. 4949/X dated 30th of May, 1975, as amended from time to time.

5. It appears that there was some controversy as to whether acrylic yarn of the type manufactured by the petitioner fell under item No. 105 of the schedule referred to in Section 3-A(1) of the Act. By means of a Circular No. Vidhi-138/ 1977 dated 6th of August, 1977, the Commissioner informed all the Sales Tax Officers that after obtaining legal opinion, it had been decided that acrylic yarn was synthetic yarn and that it was covered by the entry rayon yarn, staple fibre yarn, nylon yarn, etc., and as such it was taxable at the rate of 2 per cent. Although it was not said that this rate was applicable as provided in entry No. 105 but then it is apparent that it was only with reference to that entry that it was held that the rate of tax applicable was 2 per cent. However, as already stated the said entry was omitted from the schedule with effect from 1st of October, 1977, and unless the subject-matter of that entry was covered by some other notification prescribing rate of tax lower than 7 per cent, acrylic yarn, after 1st of October, 1977, became liable to tax at the rate of 7 per cent as provided under Section 3-A(2-A) of the Act. However, in the instant case, we are not concerned with the position as prevailed in this regard after 1st of October, 1977, and till Notification No. 2177/X dated 1st of March, 1979, providing that knitting yarn whether woollen, acrylic or of any other kind was made liable to tax at the rate of 6 per cent.

6. While excluding item No. 108 from the schedule which concerned itself with yarns of all kinds except those of the nature specified in entry No. 105 and which the State Government, in exercise of its powers under the proviso to Sub-section (2-A) of Section 3-A, issued Notification No. 8224/X dated 31st of August, 1979, providing therein that yarn of all kinds except cotton yarn but not including desi kali was to be liable to tax at the rate of 2 per cent with effect from 1st of September, 1979. Apparently, generality of the expression 'yarn of all kinds' embraced within its ambit 'knitting yarn, whether woollen, acrylic or of any other kind' mentioned in Notification No. 2177/X dated 1st of March, 1979, as well and thus rendering such yarn liable to tax at the rate of 2 per cent.

7. Realising that it was not the intention of the State Government to, while issuing Notification No. 8224/X dated 31st of August, 1979, affect the rate of tax in respect of knitting yarn provided for by Notification No. 2177/X dated 1st of March, 1979, the Governor of Uttar Pradesh promulgated the U. P. Sales Tax (Amendment and Validation) Ordinance, 1981. Section 21(5) of the Ordinance provided that in Notification No. 8224/X dated 31st of August, 1979, in the list therein, in the entry in column II against serial No. 1, for the words 'except cotton yarn', the words 'except those covered by any other notification' shall be substituted and be deemed to have been substituted.

8. The case of the petitioner is that the commodity sold by it was acrylic yarn which was used for purposes of knitting. Accordingly with effect from 1st of March, 1979, it, under Notification No. 2177/X dated 1st of March, 1979, became liable to tax at the rate of 6 per cent. Then Notification No. 8224/X dated 31st of August, 1979, was issued, the goods sold by the petitioner fell in the category of yarn of all kinds and became liable to tax at the rate of 2 per cent. The petitioner accordingly realised the tax at the rate of 2 per cent for the period between 1st of September, 1979, and 31st of March, 1980, and deposited the same in the treasury. It was long after 31st of March, 1980, that the Governor of Uttar Pradesh issued Ordinance No. 12 of 1981, on 3rd of August, 1981, providing that the entry 'yarn of all kinds' mentioned in Notification No. 8224/X dated 31st of August, 1979, was to be read as 'yarn of all kinds except those provided in any other notification,' meaning thereby that knitting yarn whether woollen, acrylic or of any other kind mentioned in Notification No. 2177/X dated 1st of March, 1979, was to continue to be liable to tax at the rate of 6 par cent even for the period 1st of March, 1979, and 31st of August, 1979.

9. The learned counsel for the petitioner vehemently contended that under the provisions of the Sales Tax Act, the petitioner, who is a registered dealer, is entitled to recover the sales tax payable in respect of the goods sold by it from the purchasers. The effect of giving retrospective operation to the amendment made by Section 21 of the Ordinance in Notification No. 8224/X dated 31st of August, 1979, is that the petitioner is compelled to pay tax at a rate higher than 2 per cent even though on the basis of the notification as it was then in force, it was competent to realise tax at the rate of 2 of per cent only from the purchasers. This, according to him, could not be done and it, at any rate, would have the effect of contravening the fundamental right granted by Article 19(1)(f) and (g) of the Constitution of India.

10. In our opinion, there is no substance in this submission made by the learned counsel for the petitioner. It is not disputed that the power of the Governor to promulgate an Ordinance is co-extensive with that of the legislature. In the case of Tata Iron and Steel Co. v. Bihar State AIR 1958 SC 452 at 463, the learned Judges while considering the provisions of the Bihar Sales Tax Act observed that the legislature acting within its own legislative field had the powers of a sovereign legislature and could make its law prospectively as well as retrospectively. In the case of Hira Lal Rattan Lal v. Sales Tax Officer, Section III, Kanpur [1973] 31 STC 178 (SC), the Supreme Court had the occasion to consider the question whether retrospective validation of a notification, which deprives a dealer of an opportunity to pass on the incidence of sales tax to the consumer, stands vitiated as being in violation of the provisions contained in Article 19(1)(f) and (g) of the Constitution. While dealing with this question, the learned Judges of the Supreme Court observed thus :

A feeble attempt was made to show that the retrospective levy made under the Act is violative of Article 19(1)(f) and (g). But we see no substance in that contention. As seen earlier, the amendment of the Act was necessitated because of the legislature's failure to bring out clearly in the principal Act its intention to separate the processed or split pulses from the unsplit or unprocessed pulses. Further, the retrospective amendment became necessary as otherwise the State would have to refund large sums of money. The contention that the retrospective levy did not afford any opportunity to the dealers to pass on the tax payable to the consumers, has not much validity. The tax is levied on the dealer; the fact that he is allowed to pass on the tax to the consumers or he is generally in a position to pass on the same to the consumer has no relevance when we consider the legislative competence.

11. In this view of the matter, the objection raised to the constitutional validity of Ordinance No. 12 of 1981 cannot be sustained.

12. The learned counsel for the petitioner next contended that the effect of issuing Notification No. 8224/X dated 31st of August, 1979, was that the entry in Notification No. 2177/X dated 1st of March, 1979, relating to knitting yarn whether woollen, acrylic or any other kind, stood repealed and any retrospective amendment made in Notification No. 8224/X dated 31st of August, 1979, made subsequently could not have the effect of reviving what had in fact been repealed by it prior to its amsndment. We are unable to accept this submission. Even for judging whether the entry in Notification No. 2177/X dated 1st of March, 1979, stood repealed by Notification No. 8224/X dated 31st of August, 1979, the notification will have to be read in the light of the provisions contained in Ordinance No. 12 of 1981. When Section 21 of that Ordinance states that the concerned entry would always be deemed to be read as 'yarn of all kinds except those covered by any other notification,' it will have to be read as if the amended provision was there in the notification at the time of its issue. It is now well-settled that by giving retrospective operation to a provision, the legislature creates a fiction which it is competent to do. Once the fiction is created, it has to be given its full effect and in doing so, mind cannot be allowed to boggle. Accordingly, we have to take it that from the very beginning when Notification No. 8224/X was issued on 31st of August, 1979, it provided that only such yarns would be liable to tax at the rate of 2 per cent as were not covered under any other notification. On the petitioner's own showing acrylic yarn was on that date covered by Notification No. 2177/X dated 1st of-March, 1979, rendering it liable to tax at the rate of 6 per cent. Accordingly nothing contained in Notification No. 8224/X dated 31st August, 1979, affects the taxability of acrylic yarn sold by the petitioner.

13. This, however, is not the end of the controversy involved in this case. The petitioner claims that in respect of the yarn sold by it during the period 1st of March, 1979, to 31st of August, 1979, it was liable to pay sales tax at the rate of 6 per cent in accordance with Notification No. 2177/X dated 1st of March, 1979, and in case its contention with regard to the validity of Ordinance No. 12 of 1981 is repelled, it would continue to be liable to pay sales tax at the same rate together with an additional tax of 1 per cent under Section 3-F of the Act, i.e., the total tax computed at the rate of 7 per cent. The respondents have, however, computed the total tax at the rate of 8 per cent, 7 per cent normal tax and 1 per cent additional tax under Section 3-F of the Act.

14. As already explained, the controversy in this case concerns the period after the entries at items Nos. 105 and 106 in the schedule referred to under Section 3-A(1) had been omitted therefrom with effect from 1st of October, 1977, and 1st of March, 1979. Obviously the goods sold by the petitioner did not fall in the category of the goods enumerated in item No. 108 of the schedule which entry too stood omitted with effect from 1st of September, 1979. As already explained, once an entry is omitted from the schedule, referred to in Section 3-A(1) of the Act, the goods covered by such entry automatically became, under Section 3-A(2-A), liable to tax at the rate of 7 per cent unless there is a notification by the State Government providing for a lower rate. Whereas the case of the petitioner is that acrylic yarn sold by it fell in the category of knitting yarn for which a lower rate of 6 per cent tax was provided in Notification No. 2177/X dated 1st of March, 1979, and as such the respondents were not justified in assessing it to tax at the rate of 7 per cent plus 1 per cent additional tax, the case of the respondents seems to be that acrylic yarn sold by the petitioner was in fact knitting wool, and for purposes of the Sales Tax Act, it is considered to be a commodity different from yarn. Entry in Notification No. 2177/X dated 1st of March, 1979, providing the rate of 6 per cent in respect of knitting yarn thus does not apply to acrylic yarn. In support of this submission, the respondents referred to entries Nos. 105, 106 and 108 of the schedule referred to in Section 3-A(1), which according to them, went to show that for purposes of the Sales Tax Act, knitting wool is treated as a commodity different from yarn. They contended that the expression 'knitting wool' is not confined merely to threads made out of wool and which is meant for knitting. It covers all such commodities like acrylic yarn which in common parlance are considered to be knitting wool. Since after the omission of item No. 106 from the schedule with effect from 1st of March, 1979, no notification providing for a lower rate of tax in respect of knitting wool as distinguished from yarn has yet been issued, knitting wool which was till then taxable at the rate of 6 per cent, became taxable at the rate of 7 per cent as provided in Section 3-A(2-A) of the Act. The learned counsel for the respondents further claimed that a learned single Judge of this Court has in the case of Commissioner of Sales Tax v. Rajhans Soda Water Factory (Sales Tax Revision No. 446 of 1981 decided on 26th of April, 1982) printed at page 128 infra, held that acrylic yarn is not yarn. Likewise on the ratio of the decision of the Supreme Court in the case of Commissioner of Sales Tax, U. P. v. Sarin Textile Mills [1975] 35 STC 634 (SC), knitting wool cannot be treated as yarn inasmuch as it is not used for purposes of weaving.

15. We find no merit in the submission made by the learned counsel for the respondents. In the case of Rajhans Soda Water Factory (Sales Tax Revision No. 446 of 1981 decided on 26th of April, 1982-Allahabad High Court) printed at page 128 infra the controversy before the court was whether the expression 'yarn of all kinds including unspun fibre used in weaving other than handspun yarn but excluding cotton yarn' covered within its ambit acrylic yarn which was being sold by the petitioner of that case as knitting wool. The question whether acrylic yarn of the kind sold by the petitioner in the instant case was covered within the ambit of the expression 'knitting yarn, whether woollen, acrylic or of any other kind' mentioned in Notification No. 2177/X dated 1st of March, 1979, was not gone into. This Court relying upon an earlier decision of the Division Bench of this Court in Commissioner of Sales Tax v. Savin Textile Mills [1971] 27 STC 228 concluded that the entry as it stood at that time covered within its ambit only such types of yarn as were being used in weaving and as in that case it had not been shown that acrylic yarn was used in weaving, it was not covered by the said entry and was to be taxed as an unclassified item. Rajhans Soda Water Factory's case (Sales Tax Revision No. 446 of 1981 decided on 26th of April, 1982-Allahabad High Court) printed at page 128 infra nowhere lays down that acrylic yarn is a commodity different from yarn.

16. In the case of Commissioner of Sales Tax, U. P. v. Sarin Textile Mills [1975] 35 STC 634 (SC), the Supreme Court interpreted the entry which ran thus :

Yarn of all kinds, including unspun fibre used in weaving, other than hand-spun yarn but excluding cotton yarn in cops and cones.

17. It, after considering the meaning given to the word 'yarn' in various dictionaries, observed thus :

Thus a fibre in order to answer the description of 'yarn' in the ordinary commercial sense must have two characteristics. Firstly, it should be a spun strand. Secondly, such strand should be primarily meant for use in weaving, knitting or rope-making.

18. However, interpreting the entry that was before it, the Supreme Court came to the conclusion that in that entry only such kinds of yarn which were used in weaving alone were covered and as in that case it had not been shown that acrylic yarn was meant for weaving, it was not covered by the entry in question. In the case before us, the finding of the Sales Tax Officer as affirmed by the appellate authority clearly is that acrylic yarn sold by the petitioner is meant for knitting of sweaters, socks, topas, etc. It is being sold in the same manner in which knitting wool is sold in market. It is true that the Sales Tax Officer has recorded a finding that acrylic yarn is not used in spinning, but then as observed by the Supreme Court, a commodity would qualify as 'yarn' if it is shown that it is a strand meant to be used in knitting. The Supreme Court's decision in Sarin Textile Mills' case [1975] 35 STC 634 (SC) nowhere lays down that strands used for spinning or weaving alone qualify 'yarn'.

19. The appellate authority has conceded that knitting wool is also a yarn but then it reasoned that as there exists a specific entry with regard to knitting wool, this commodity would fall outside the ambit of general entry relating to yarn of all kinds and it has to be taxed in accordance with the rates provided in the specific entry. For purposes of this case, it is not necessary for us to go into the question as to whether or not the sales tax authorities were justified in treating acrylic yarn sold by the petitioner as knitting wool. Apart from the entry at item No. 106 of the schedule, referred to in Section 3-A(1) of the Act which stands deleted with effect from 1st of March, 1979, no other specific entry or notification dealing with knitting wool making the same liable to tax at the rate of 7 per cent has been brought to our notice, accordingly, there is no reason to exclude acrylic yarn, which on the ratio of the Supreme Court's decision in Sarin Textile Mills' case [1975] 35 STC 634 (SC), qualifies as yarn, from the ambit of the expression 'knitting yarn, acrylic', used in Notification No. 2177/X dated 1st of March, 1979. The reason given by the appellate authority in this regard is, in our opinion, not sustainable.

20. In the result, we are of opinion that the petitioner's turnover of acrylic yarn for the period 1st of April, 1979, to 31st of March, 1980, was, under Section 3-A of the U. P. Sales Tax Act, taxable at the rate of 6 per cent and under Section 3-F of the Act to an additional tax at the rate of 1 per cent, i.e., at the total rate of 7 per cent and not at the total rate of 8 per cent.

21. The learned counsel for the petitioner next contended that since the commodity sold by the petitioner was yarn and it, in fact was clearly covered by the expression 'yarn of all kinds' used in Notification No. 8224/X issued on 31st of August 1979, the petitioner could not and did' not realise tax from its purchasers at a rate higher than 2 per cent. It was only because of retrospective operation of Ordinance No. 12 of 1981 that it has been made liable to pay tax at a higher rate. In similar circumstances, the State Government had been, from time to time, issuing circulars like annexure A-l to the counter-affidavit directing that the difference between the tax payable and tax actually realised by the trader be not recovered. There is no reason why in this case when there is no lack of bona fides on the part of the petitioner, similar consideration should not be shown to it. The petitioner .has already made a representation to the State Government in this regard which representation is still pending consideration. It is for the State Government to deal with the representation and to pass such orders thereon as it, in the circumstances of the case, considers to be fair, proper and equitable. We do not think it necessary to issue, at this stage, any direction to the State Government regarding the manner in which the said representation is to be dealt with by it. We may make it clear that as the challenge to the Sales Tax Act, which has since replaced Ordinance No. 12 of 1981, was based on identical grounds, we have not considered it necessary to deal with the same separately. Suffice it to say that for the reasons already stated while considering the question with regard to the validity of Ordinance No. 12 of 1981, the petitioner's objection to the validity of enactment replacing Ordinance can also not be sustained.

22. In the result, the petition succeeds in part. The order dated 31st of August, 1981, passed by the assessing authority as also that dated 27th of March, 1982, passed by the appellate authority are set aside, and the assessing authority is directed to pass a fresh assessment order computing the tax payable by the petitioner on the turnover already determined in the light of the observations made in this judgment. Parties are directed to bear their own costs.


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