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Girja Shanker Dubey Vs. Commissioner of Sales Tax - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtAllahabad High Court
Decided On
Case Number Sales Tax Reference No. 10 of 1964
Judge
Reported in[1968]21STC127(All)
AppellantGirja Shanker Dubey
RespondentCommissioner of Sales Tax
Appellant Advocate G.D. Srivastava and ; Swami Dayal, Advs.
Respondent Advocate The Standing Counsel
Excerpt:
- - apparently, it was for this reason that the last-mentioned notification of 1956 clearly excluded chemical fertilizers from the category of exempted fertilizers altogether. he referred to an article on chile in the encyclopaedia britannica, volume v, where, under the heading 'mining',the following passage occurs :there are various theories to account for the deposits in chile of caliche, the grey, rock-like substance containing sodium chloride, sodium nitrate and iodine salts. 3 by saying that chilean nitrate is a fertilizer as well as a chemical and can be called a chemical fertilizer......section 11 of the u.p. sales tax act :1. whether the petitioner was liable to pay any sales tax on chilean nitrate, a fertilizer, even though it could be used for purposes other than fertilizer ?2. whether the chilean nitrate imported by the petitioner is a mineral imported in the natural form, there being no chemical process involved in it and it is dug from the sun-baked earth in north chile (south america) and packed in bags as such ? 3. whether the commodity which the petitioner deals is a fertilizer pure and simple or a chemical or even chemical fertilizer ?4. whether the word 'fertilizer' mentioned in notification no. st-119/x-928, dated 7th june, 1948, includes 'chemical fertilizer' as such 2. the circumstances under which the above-mentioned questions arose are as follows : the.....
Judgment:

M.H. Beg, J.

1. The following questions have been referred to us under Section 11 of the U.P. Sales Tax Act :

1. Whether the petitioner was liable to pay any sales tax on Chilean nitrate, a fertilizer, even though it could be used for purposes other than fertilizer ?

2. Whether the Chilean nitrate imported by the petitioner is a mineral imported in the natural form, there being no chemical process involved in it and it is dug from the sun-baked earth in North Chile (South America) and packed in bags as such ?

3. Whether the commodity which the petitioner deals is a fertilizer pure and simple or a chemical or even chemical fertilizer ?

4. Whether the word 'fertilizer' mentioned in Notification No. ST-119/X-928, dated 7th June, 1948, includes 'chemical fertilizer' as such

2. The circumstances under which the above-mentioned questions arose are as follows : The assessee M/s. Girja Shanker Dubey and Company describes itself as 'chemical dealers' at Firozabad, but it claims to be 'an agriculturist holding substantial agricultural farms' and 'as such appointed agents of various companies for the imports and redistribution of Chilean nitrate which is used as manure'. It was assessed on an estimated turnover of Rs. 40,000 for each of the two years 1954-55 and 1955-56 for payment of sales tax on sales of imported Chilean nitrate which were treated as chemicals. The contention on behalf of the assessees was that the Chilean nitrate sold by them was a 'fertilizer' exempt under the provisions of Notification No. ST-119/X-1948 dated 7th June, 1948. This notification was issued under Section 4 of the U. P. Sales Tax Act exempting from the provisions of Section 3 of the U. P. Sales Tax Act a number of goods including fertilizers which are mentioned as item No. 11 on the List which came into, effect from the 1st of April, 1948. The term 'fertilizer' is used here without any qualification whatsoever, and, prima facie, it includes all kinds of fertilizers. On behalf of the department, reliance is placed upon another Notification No. ST-117/X-923-1948 dated 8th June, 1948. Item No. 11 in the List No. I of this notification is: 'Chemicals of all kinds'. These are made taxable at the rate of 6 pies per rupee. On 16th July, 1956, another Notification No. S.T. 3470/X was issued, under Section 4 of the U.P. Sales Tax Act, 1948, by which four items were exempted from the payment of sales tax. The last of the items in this notification was : 'Fertilizers other than chemical fertilizers'. There is no express mention in this last notification that the previous Notification No. S.T. 118/X-1948 was superseded by it so far as fertilizers are concerned. Nevertheless, it can be inferred that the reason for this fresh notification of 1956 was that the State Government realised that the first notification regarding exemption of fertilizers was wide enough to include chemical fertilizers. Apparently, it was for this reason that the last-mentioned notification of 1956 clearly excluded chemical fertilizers from the category of exempted fertilizers altogether. It also appears that for the assessment years 1952-53 and 1953-54, the two years preceding the years with which we are now concerned, Chilean nitrate was considered by the Sales Tax Authorities themselves to be exempt from sales tax as it was a fertilizer. Again, if Chilean nitrate is a chemical fertilizer, it would not be exempt from sales tax after the last-mentioned notification of 1956. We are, however, concerned only with the period prior to the notification of 1956 declaring that chemical fertilizers did not fall in the category of fertilizers exempt from sales tax.

3. The Sales Tax Officer held that the turnover of the assessee to be taxable under the head : 'Chemicals of all kinds'. The Judge (Appeals) also took the view that Chilean sodium nitrate was used as a fertilizer, but it could also be used as a chemical for preparing glass. He made a general observation that the Chilean nitrate sold at Firozabad openly was being used as a chemical for preparing glass which was a combination of acids, oxide and nitrates. The assessee went up in revision. The learned Judge (Revisions) disposed of the revision applications appertaining to the two years mentioned above by a single order. He held that even if Chilean nitrate was a fertilizer it could only be held to be a 'chemical fertilizer'. He took the view that the Notification No. S.T. 119/X-928-1948 dated 7th June, 1948, did not mention chemical fertilizers but only dealt with 'fertilizers' which excluded chemical fertilizers. The learned Judge observed that a chemical fertilizer is prepared through some chemical process whereas Chilean nitrate of soda is basically a chemical which is used for purposes other than that of a manure or fertilizer. Hence, the learned Judge considered the case of Chilean nitrate to be outside the category of fertilizers. He thought that it was covered more properly by the broader category of 'chemicals of all kinds' mentioned in Notification No. S.T.117/X-923-1948 dated 8th June, 1948, taxable at 6 pies per rupee. He held that this entry was wide enough to include chemical fertilizers. Thereafter, the assessee applied for reference of a number of questions to this Court. The questions mentioned above were selected out of these for reference to us by the learned Judge (Revisions).

4. Mr. Swami Dayal, on behalf of the assessee, contended that Chilean nitrate was not a chemical at all but was a mineral used for purposes of fertilization. He referred to an article on Chile in the Encyclopaedia Britannica, Volume V, where, under the heading 'Mining', the following passage occurs :

There are various theories to account for the deposits in Chile of caliche, the grey, rock-like substance containing sodium chloride, sodium nitrate and iodine salts. Caliche is found in a narrow strip about 10 to 50 mi. wide between latitudes 19 and 25 S., along the eastern slope of the coast range. The deposits vary in thickness from a few inches to several feet. It is uncertain who first realised that nitrate had commercial value, whether Jesuit priests or Thaddeus Haenke, the German explorer. With recognition of its value as a fertilizer and in the manufacture of explosives, exportation began in 1830s; by 1860 a flourishing business had been established.

5. The contention was that the natural deposits of Chilean nitrate were not the result of any industrial or chemical process and that these deposits were used as fertilizers. It was urged that Chilean nitrate could not be classified amongst 'chemicals of all kinds' simply because it had a chemical composition. It was pointed out that almost every substance has some chemical composition. It is the meaning of the terms 'chemical' and 'fertilizer' as used in the Government notifications which had to be determined and not the mere possibility of using some substance for chemical purposes. The contention was that the dominant or the ordinary purpose for which a commodity was used would determine its nature from the point of view of its use. It was urged that if Chilean nitrate is ordinarily considered and used as a fertilizer it could not become a chemical for purposes of the Sales Tax Act simply because some purchasers of Chilean nitrate utilized it in order to produce chemical effects in the manufacture of glass.

6. An alternative argument placed before us was that even if Chilean nitrate could be classified as a chemical, yet if it is generally used and regarded as a fertilizer, it will be taxable as a fertilizer and not as a chemical. In our view, this contention on behalf of the assessee is more effective and less answerable than the first. The most that could be urged in answer to this contention was that the Notification No. S.T. 117/X-923-1948 dated 8th June, 1948, containing, as item No. 11 in List I of the Schedule, 'chemicals of all kinds ' which are taxable at a single point at 6 pies per rupee, was issued under Section 3-A of the Act, one day after the Notification No. S.T. 119/X-928-1948 dated 7th June, 1948, issued under Section 4 of the Act, exempting twenty-one categories of goods, including fertilizers, from the provisions of Section 3 of the Act. Hence, it was contended for the department, the terms of the later notification must be deemed to prevail over the provisions of the first notification. In other words, what was exempted from tax under a more specific entry was taxed next day under a more general classification of another notification. This contention on behalf of the department is, in our opinion, unacceptable. The purposes of the two notifications were different. The first notification was issued under Section 4 of the Act which was intended to exempt certain commodities from the purview of sales tax, whereas the later notification under Section 3-A of the Act was only intended to make certain categories of goods liable to tax at a single point at the rate given in the Schedule. The later notification does not contain any words indicating that it was meant to supersede any other notification. It does not bring into the categories of taxable commodities those items which had been already exempted from the provisions of Section 3 of the Act. It would, therefore, be more reasonable to infer that whatever could be included in 'chemicals of all kinds', meant to be dealt with by the subsequent notification, referred to only such chemicals as had not been already exempted by the prior notification under the heading 'fertilizers' or any other heading. The notifying authorities must be deemed to be fully aware of the contents of and the object behind the prior notification when they issued the subsequent notification under Section 3-A of the Act mentioning 'chemicals of all kinds' in List I of the Schedule. The third Notification No. S.T. 3470/X dated 16th July, 1956, seems to have become necessary as the State Government realised the resulting position under the law as it stood till then.

7. The view adopted by the learned Judge (Revisions) that the term 'fertilizers'used in the first notification under Section 4 of the Act does not cover 'chemical fertilizers' appears to us to be too narrow and unwarranted. The notification itself does not qualify the term 'fertilizers' in any way. It does not restrict the exemption to 'fertilizers' of any particular kind. On the face of it, the term includes fertilizers of every kind whether chemical or non-chemical. The view adopted by the learned Judge (Revisions) amounted to restricting the scope of the general and simple term 'fertilizers' to non-chemical or natural fertilizers. It amounts to introducing the qualifying word 'non-chemical' before the word 'fertilizers'. We find no justification for interpreting the notification in this restrictive manner. The earlier and the later notifications certainly constitute laws, the earlier of which refers to the particular category of fertilizers to which, as held by us above, Chilean nitrate belongs specifically, and the later notification refers to a larger and a more general category of 'chemicals of all kinds'. There is no rule of construction that in such cases the more general and later provision has the effect of abrogating earlier provisions dealing with a particular matter. On the other hand, the applicable rule of construction enjoins otherwise. The principle dealt with in Maxwell's Interpretation of Statutes, 1962 Edition, at page 168, is : Generalia specialibus nou derogant. It was observed there: 'A general later 'law does not abrogate an earlier special one by mere implication'.

8. It was held in Seward v. Vera Cruz (1884) 10 App. 59 at p. 68: 'Where there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, you are not to hold that earlier and special legislation indirectly repealed, altered, or derogated from merely by force of such general words, without any indication of a particular intention to do so.' Again, we may quote Lord Phillimore, from Eileen Louise Nicolle v. John Winter Nicolle [1922] 1 A.C. (P.C.) 284 at p. 290:

It is no doubt a sound principle of all jurisprudence that a prior particular law is not easily to be held to be abrogated by a posterior law, expressed in general terms and by the apparent generality of its language applicable to and covering a number of cases of which the particular law is but one. This as a matter of jurisprudence, as understood in England, has been laid down in a great number of cases, whether the prior law be an express statute as in Hawkins v. Gathercole (1855) 6 D.M. & G. 1; Seward v. Vera Cruz (1884) 10 App. Gas. 59 at p. 68; or be the underlying common or customary law of the country : Heydon's case, (1584) 3 Rep. 7a; River Wear Commissioners v. Adamson (1877) 2 App. Cas. 743

9. We think that the principle of construction mentioned above is fully applicable to the case before us.

10. It was, however, contended that Chilean nitrate is more appropriately described as a chemical than as a fertilizer. Two recent decisions of this Court were cited to support the contention that the question whether a commodity has to be regarded as a chemical or a fertilizer must depend upon the use to which the commodity was to be put and the nature and purpose of it as understood by its sellers and purchasers. Fertilizers and chemicals do not constitute mutually exclusive categories in scientific terminology, although, after an interpretation of the particular entries of the notifications, we may arrive at the conclusion that the legal position is that the entry 'chemicals of all kinds' excludes fertilizers by way of an exception engrafted upon or carved out of the very broad category of chemicals. This follows from reading the two notifications together according to the principle indicated above. We may, however, consider the decisions cited on behalf of the department.

11. In Sales Tax Reference No. 614 of 1964, Commissioner of Sales Tax v. Banaras Chemicals [1967] 20 S.T.C. 246 decided on 5th December, 1966, the question considered was whether sodium silicate 'as used in the manufacture of soap' was included in 'chemicals of all kinds' falling within entry No. 7 of Notification No. S.T. 905/X dated 31st March, 1956. It was pointed out by the Division Bench which decided the case that too narrow a view of the uses to which sodium silicate was put could not be taken. After considering the chemical composition of and the various uses to which sodium silicate could be put, this Court came to the conclusion that sodium silicate would fall within the category of a chemical and would be covered by the entry 'chemicals of all kinds'.

12. In S.T.R. No. 469 of 1964 Industrial Gases Ltd. v. Commissioner of Sales Tax [1968] 21 S.T.C. 124, decided on 6th December, 1966, the question to be answered was whether oxygen prepared by means of an industrial process fell within the classification 'chemical'. After examining the meaning of the term 'chemical' and the nature of oxygen and the process by which oxygen was produced, this Court came to the conclusion that oxygen was a chemical substance. The view taken in this case was supported by the following observation of Desai, C.J., in Bishambhar Dayal Sri Niwas v. Commissioner of Sales Tax, Uttar Pradesh [1963] 14 S.T.C. 184 :

If an article is sold as an article belonging to one category it must be treated as a sale of an article of that category even though it answers the description of another category. The Legislature has fixed different rates for taxation for different categories according to certain principles it has in mind. If a colour is sold it charges sales tax on it at a certain rate, whereas if a chemical is sold it charges sales tax at a higher rate. If an article, though capable of being used as a colour, is sold as a chemical, it would be more in consonance with the legislative intention to assess sales tax on it as a chemical. When a question is put 'what was sold by the assessee?', it would be truer to say that he sold a chemical than to say that he sold a colour. If an article is capable of being used as a chemical, and also as a colour, the answer to the question what he sold would depend upon how it was treated by the vendor. If he stocked and sold it as a chemical, it would be a chemical sold by him and more so if it was bought by the vendee also as such...

13. We do not think that any of the above-mentioned decisions of this Court are helpful to the department in the present case inasmuch as there is no evidence that Chilean nitrate was sold by the assessee for any purpose other than that of a fertilizer. The Sales Tax Authorities only conjectured that it must have been used in the manufacture of glass as a chemical because the assessee sells Chilean nitrate at Firozabad where glass manufacturers use it as a chemical in the process of manufacturing glass. The present case is distinguishable from the cases cited above on behalf of the department inasmuch as the assessee in each of the above-mentioned cases had been shown to have been selling his commodity as a chemical only. In the present case, so far as we can see, the assessee has not made any attempt to sell Chilean nitrate as a chemical for a purpose other than that of a fertilizer. The assessee asserted that it was sold as a fertilizer and for use as a fertilizer. We are, therefore, left without any help from the above-mentioned cases in answering the question before us now even if we were to assume that the purpose for which a commodity is sold could determine its classification for purposes of sales tax. We doubt the correctness of the proposition that the purpose for which an article is sold by a vendor or the use to which it is put by the purchaser determines its classification for purposes of sales tax in every case. However, as already pointed out by us, this principle cannot help the department in the present case as we can see no evidence of the fact that Chilean nitrate was not sold as a fertilizer by the assessee before us. The statement of the case only mentions that the learned Judge (Appeals) took the view that Chilean nitrate was not necessarily used as a fertilizer but could also be used as a chemical for preparing glass and that it was being used openly as a chemical at Firozabad. This does not amount to a finding that the assessee was not selling it as a fertilizer but was selling it only as a chemical to be used for purposes other than a fertilizer.

14. A reference was made to the following definition of the word 'chemical' in the Webster's Third New International Dictionary :

A substance (as an acid, alkali, salt, synthetic organic compound) obtained by a chemical process, prepared for use in chemical manufacture, or used for producing a chemical effect...

15. A reference was also made to the chemical and industrial processes by which synthetic sodium nitrate, which is indistinguishable from Chilean nitrate, can be produced. We do not think that any useful purpose will be served by considering the chemical processes of production or the various uses of Chilean nitrate. There can be no doubt that Chilean nitrate can be classified as a chemical. It can also not be doubted that Chilean nitrate, whenever it is used as a fertilizer, has certain chemical effects and properties in the process of fertilization. The question still remains whether it should be taxed as a fertilizer, which is exempt by virtue of the previous notification, or as a chemical only which is not so exempt.

16. In our view the least that could be said is that the notifying authority by exempting all fertilizers, including the chemical fertilizers, by the first notification, has made it possible for the assessee to urge that every type of fertilizer, including what may be called a chemical fertilizer such as Chilean nitrate, is exempt from the provisions of Section 3 of the Act. After reading the two notifications together and as a whole, the intention we gather is that even a chemical fertilizer would be exempt from the purview of 'chemicals of all kinds' in the subsequent notification because it fell within the category of exempted fertilizers until the notification of 1956 which changed the position. The category of fertilizers is narrower in comparison with the wide class of 'chemicals of all kinds'. An entry applying more specifically to a particular commodity should be preferred to a more general class which may cover other commodities also. Applying this principle of interpretation we must hold that Chilean nitrate fell within the category of the exempted 'fertilizers' and, therefore, was not included within the subsequent entry 'chemicals of all kinds' until the notification of 1956 removed the doubt. A doubt has to be resolved in favour of the assessee when the preponderating weight of considerations tilts the balance in his favour.

17. Turning now to the four questions selected for reference to us out of a number of questions placed before the learned Judge (Revisions), we do not think it necessary to answer question No. 2, because it is purely academic. Moreover, the question involves a determination of the origin of the Chilean nitrate sold by the assessee without any evidence worth the name on this matter. Findings of fact which are absolutely necessary for answering this question were not given by any of the Sales Tax Authorities. Therefore, we do not propose to answer this question raised for the first time at the stage when a reference to this Court was sought. We answer question No. 1 in the negative by saying that the assessee was not liable to pay sales tax on Chilean nitrate, a fertilizer, because it was exempted under Section 4 of the Act, by the first Notification No. S.T. 119/X-1948 dated 7th June, 1948, which applied during the years under consideration. It is quite immaterial that it could also be used for purposes other than a fertilizer. We answer question No. 3 by saying that Chilean nitrate is a fertilizer as well as a chemical and can be called a chemical fertilizer. It can perhaps also be described as a mineral. These considerations, however, do not matter inasmuch as the most material question in the present case was whether Chilean nitrate was a fertilizer as dealt with in the first notification. We consider question No. 4 to be the crucial question in the case, We answer it in the affirmative and hold that the term 'fertilizer', as used in the relevant notification, includes a chemical fertilizer. Inasmuch as we have held that Chilean nitrate should be classified as a fertilizer, even though it may be a chemical fertilizer, it is covered by the first notification exempting it from sales tax.

18. As our answers to the questions are in favour of the assessee and against the department, we order that the department shall pay assessee's costs which we assess at Rs. 100. Counsel's fee is assessed at the same figure. We hereby direct that copies of our judgment shall be sent, under the seal of this Court and the signature of the Registrar, to the Revising Authority and the Commissioner of Sales Tax, as required by Section 11(6) of the U.P. Sales Tax Act, so that the Revising Authority may reconsider and dispose of the case in conformity with this judgment.


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