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Nemichand Parasmal and Company Vs. the Deputy Commercial Tax Officer, Evening Bazaar Assessment Circle, Madras and anr. - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberWrit Appeal No. 330 of 1977, Writ Petition No. 3657 of 1977 and T.C. Nos. 4 and 1565 of 1981
Judge
Reported in[1984]55STC47(Mad)
ActsTamil Nadu General Sales Tax Act, 1959 - Sections 2
AppellantNemichand Parasmal and Company
RespondentThe Deputy Commercial Tax Officer, Evening Bazaar Assessment Circle, Madras and anr.
Appellant AdvocateV. Ramachandran, Adv.
Respondent AdvocateThe Adv. General and ;K.S. Bakthavatsalam, Additional Government Pleader
Cases ReferredIn Annapurna Biscuit Manufacturing Co. v. Commissioner of Sales Tax
Excerpt:
.....artificial silk as not including terene, dacron and nylon, the state government proceeded to levy sales tax under the tamil nadu general sales tax act, 1959. in that case the central government has taken the view that artificial silk will include terene, dacron and nylon and therefore they are liable for levy of additional excise duty under the central act 58 of 1957. the assessee contended that the same interpretation has to be given by the state government as well to the expression 'artificial silk'.this court held that having regard to the essence of the bargain between the centre and the states and the object of levying of the additional excise duty under the central act 58 of 1957, which is also one for the benefit of the state as well, a uniform interpretation has to be given..........that wherever additional excise duties are levied on certain goods, the state governments will not levy sales tax on those goods but will be entitled to seek for the contribution from the proceeds of the additional excise duty, that, in this case, the central excise authorities are levying additional excise duty under act 58 of 1957 on sugar candy and that, therefore, the state government, in so far as it is getting its share of contribution from the proceeds of the additional excise duties levied by the central government, it has no power to impose sales tax on sugar candy and other articles referred to in item 9 of the second schedule. thus, the only point that was urged in the writ petition was as to the validity of the amendments brought into item 9 of the second schedule and item 5.....
Judgment:

Ramanujam, J.

1. Since the petitioner in the two tax case petitions and the appellant in the writ appeal are one and the same person and the points involved are also substantially the same, they are dealt with together.

2. The facts leading to the writ appeal may first be stated. The appellant is a dealer in sugar candy and confectionery. For the assessment year 1975-76, he has been assessed to sales tax on a total and taxable turnover of Rs. 6,42,507.91 and Rs. 7,364.79 respectively on the basis of the return furnished by him. In the said assessment, the local sales of sugar candy for the period 2nd April, 1975, to 31st March, 1976, amounting to Rs. 5,93,298.12 was excluded from the taxable turnover on the ground that sugar candy was not liable to sales tax under the Tamil Nadu General Sales Tax Act, and the balance turnover alone was held liable to tax. Subsequently, on 12th July, 1977, the assessing authority proposed to revise the assessment in exercise of its power under section 16 for bringing the sales turnover of sugar candy to tax at 3 per cent single point under item 9 of the Second Schedule to the Tamil Nadu General Sales Tax Act with effect from 7th July, 1975, on the ground that the said turnover had erroneouly been exempted from tax in the original assessment. The assessee was served with a notice to show cause why the revised assessment as proposed should not be made and the assessee filed his objections to the proposed revision of assessment. He submitted that according to the decision of this Court in Vasantha & Co. v. State of Madras [1963] 14 STC 696, 'sugar' should be taken to include 'sugar candy' and therefore the sugar candy which has been sold by the assessee should be taken as nothing but sugar and that as sugar has been exempted from the levy of sales tax under the provisions of the Act, sugar candy also should be exempted from the levy of tax. The assessing authority did not accept this contention put forward by the assessee and revised the assessment and brought the turnover of Rs. 4,49,777.12 relating to sales of sugar candy for the period from 7th July, 1975, to 31st March, 1976, to tax at the rate of 3 per cent.

3. At that stage, the appellant came forward with W.P. No. 3657 of 1977, out of which the writ appeal arises, questioning the amendments made to item 9 of the Second Schedule and item 5 of the Third Schedule to the Tamil Nadu General Sales Tax Act wherein the items like bura sugar, sugar candy and sugar candy honey had been excluded from the main item 'sugar' with effect from 7th July, 1975. The case as put forward by the appellant in his writ petition is that the history of legislation relating to the levy of tax on sales of sugar would clearly show that the above amendments subjecting to sales tax the sales of sugar candy, etc., are beyond the legislative competence of the State Government and as such they are ultra vires the State Legislature, that under the Additional Duties of Excise (Goods of Special Importance) Act (58 of 1957) certain articles were brought within the purview of the additional excise duty, that the levy of additional excise duty on the goods covered by Act 58 of 1957 was passed on the recommendations of the Central Finance Commission, that wherever additional excise duties are levied on certain goods, the State Governments will not levy sales tax on those goods but will be entitled to seek for the contribution from the proceeds of the additional excise duty, that, in this case, the Central excise authorities are levying additional excise duty under Act 58 of 1957 on sugar candy and that, therefore, the State Government, in so far as it is getting its share of contribution from the proceeds of the additional excise duties levied by the Central Government, it has no power to impose sales tax on sugar candy and other articles referred to in item 9 of the Second Schedule. Thus, the only point that was urged in the writ petition was as to the validity of the amendments brought into item 9 of the Second Schedule and item 5 of the Third Schedule, which brought within the net of taxation, for the first time, items like sugar candy, bura sugar and sugar candy honey while retaining the exemption on sugar in the year 1975. Mohan, J., who heard the writ petition held that the levy of additional excise duty on sugar candy does not take away the power of the State Legislature to levy tax on the sales of sugar candy and therefore merely because the sugar candy had been subjected to levy of excise duty or the additional excise duty it cannot disable the State Legislature from bringing that item within the net of taxation. In that view the learned Judge has dismissed the writ petition as being devoid of any merit. The correctness of the order of Mohan, J., has been questioned in the writ appeal.

4. As already pointed out the only ground on which the amendment to item 9 of the Second Schedule has been challenged is that since the additional excise duty is levied on sugar candy, no sales tax could be levied thereon by the State Government. According to the appellant, since the additional excise duty is levied on sugar candy in pursuance of the recommendations of the Second Finance Commission that in case where additional excise duty is levied by the Central Government, the State Government will not levy sales tax on the same goods as they will be entitled to get the proportionate share in the excise duties, and therefore the levy of sales tax by the State Legislature on sugar candy or other items referred to in item 9 of the Second Schedule will be contrary to the recommendations of the Finance Commission and if such double taxation is allowed, one as a Central excise duty and the other as sales tax, it will amount to the State Government getting themselves unjustly enriched. Even assuming that levy of additional excise duty as suggested by the Second Finance Commission on the sugar candy is conditional upon the State not levying any sales tax on that item is correct, the levy of sales tax by the State Legislature contrary to the recommendations of the Second Finance Commission cannot be said to be without legislative authority. As a matter of fact, Parliament itself while imposing additional excise duty contemplates the levy of sales tax on the same item by the State and provides for the consequences of such levy. It deprives the State from getting its share of contribution from the Central excise realisations. The Central Act 58 of 1957, which was enacted to provide for the levy and collection of additional duties of excise on certain goods and for the distribution of a part of the net proceeds thereof among the States in pursuance of the principles of distribution formulated on the recommendations of the Finance Commission in its report dated 12th May, 1965, has specifically provided in section 4 that during each financial year the States are entitled to be paid out of the Consolidated Fund of India (which includes the collections by way of Central excise by the Central Government) in accordance with the provisions of the Second Schedule. In proviso to section 2 of the Second Schedule it is made clear that if during any financial year there is levied and collected in any State a tax on the sale or purchase of any of the articles which are subjected to excise duty under that Act, no amount will be payable to the State under section 4 of that Act, unless the Central Government by order otherwise directs. Thus the Central Act itself provides as to what is to happen if the State starts levying sales tax on the goods which are covered by the said Act. It says that if and when the State chooses to levy sales tax on the goods which are subjected to additional excise duty under the Central Act, it will lose the benefit of contribution from the Consolidated Fund of India, viz., sums representing a part of the net proceeds of the additional duties levied. Thus the Central Act 58 of 1957 does not prevent a State Government from levying sales tax on the goods covered by that Act but it merely says that if any State Government levies sales tax it will lose the benefit which it would otherwise get under section 4 of the Act read with the Second Schedule to the Act. Therefore, it is clear that Act 58 of 1957 instead of taking away the power of the State Legislature to impose sales tax on the items of goods covered by that Act, merely disables the State Government from getting its share of the Central excise revenue realised under the provisions of the said Act. We are, therefore, of the view that the provisions of Central Act 58 of 1957 do not affect the power of the State to levy sales tax on the goods which are covered by the said Act. It is not possible to agree with the contention advanced by the learned counsel for the appellant that the State Legislature has no power to amend item 9 of the Second Schedule to the Tamil Nadu General Sales Tax Act in the manner it did, in view of the provisions of Central Act 58 of 1957.

5. The learned council for the appellant then relies on the decision of this Court in Kishinchand Chellaram v. Joint Commercial Tax Officer [1968] 21 STC 367 and contends that since additional excise duty has been levied on sugar which includes sugar candy, the State would be estopped from levying sales tax. In the said decision (Kishinchand Chellaram v. Joint Commercial Tax Officer [1968] 21 STC 367 , the article involved is artificial silk. Artificial silk was brought within the scope of Central Act 58 of 1957 for levying additional excise duty. Treating artificial silk as not including terene, dacron and nylon, the State Government proceeded to levy sales tax under the Tamil Nadu General Sales Tax Act, 1959. In that case the Central Government has taken the view that artificial silk will include terene, dacron and nylon and therefore they are liable for levy of additional excise duty under the Central Act 58 of 1957. The assessee contended that the same interpretation has to be given by the State Government as well to the expression 'artificial silk'. This Court held that having regard to the essence of the bargain between the Centre and the States and the object of levying of the additional excise duty under the Central Act 58 of 1957, which is also one for the benefit of the State as well, a uniform interpretation has to be given for the words 'artificial silk' and that it is not open to the State to give a different interpretation for the same expression 'artificial silk'. The reasoning of the court is contained in the following observation :

'Article 261 of the Constitution of India is a pointer to this effect and provides that full faith and credit shall be given throughout the territory of India to public acts of the Union and of every State. It cannot be disputed seriously that the opinions and the decisions taken by the Government of India under the Indian Tariff Act and the Excise Acts are such public acts. It is also significant to note that the Additional Duties of Excise (Goods of Special Importance) Act was passed after a deep consideration of the mutual interests and benefits the Centre and the States should and ought to derive by such an imposition. This is seen from the Finance Commission's Report preceding the passing of the Additional Duties of Excise (Goods of Special Importance) Act and this is also referred to in the counter-affidavit filed on behalf of the Central Government. Such being the essence of the bargain between the Centre and the States, when the additional excise duty was imposed on artificial silk, it is not ordinarily open to the State, who did not at any time choose to impose a levy on the products under consideration ever since the passing of the Madras General Sales Tax Act, 1959, to take up a view contrary to that practice and understanding and arbitrarily decide to levy sales tax on the goods in question on the foot that they are not artificial silk.'

6. Here there is no dispute as to the interpretation of any expression as was the case in the decision in Kishinchand Chellaram v. Joint Commercial Tax Officer [1968] 21 STC 367. It is not the State Government's contention that 'sugar' as defined in the Central Excises and Salt Act will not take in sugar candy. But what they contend is that, though sugar is exempted from the levy of tax under the Tamil Nadu General Sales Tax Act, sugar candy has been taken as a separate article of commerce, and therefore, they have chosen to levy sales tax on sugar candy. In the said decision (Kishinchand Chellaram v. Joint Commercial Tax Officer [1968] 21 STC 367 the power of the State Legislature to impose sales tax on artificial silk has not been questioned. But the principle laid down in that case was, a certain expression appearing in a statute should get the same interpretation either at the hands of the Government of India or at the hands of the State Government and they cannot understand the expression so as to give different interpretations without regard to the legislative object. We do not see how the power given to the State Legislature under the Constitution of India to make a law in relation to sales tax can be said to be taken away in respect of any particular article by a Central legislation such as Central Act 58 of 1957. Whatever be the consequences of the State Legislature levying sales tax on the same article, which is also subjected to additional excise duty under Central Act 58 of 1957, the constitutional power given to the State Legislature to legislate on sales tax cannot be said to have been affected or taken away. In this view of the matter, we have to hold that the amendments brought in by the State Legislature to item 9 of the Second Schedule and item 5 of the Third Schedule do not suffer from legislative incompetence as urged by the appellant. The writ appeal, therefore, fails and it is dismissed.

7. Coming to the two tax case petitions, it is seen that the main question that arises there is, whether the article (diamond sugar) sold by the assessee was sugar falling within the definition of 'sugar' or 'sugar candy'. It is not in dispute that if diamond sugar is taken to be sugar, it cannot be subjected to sales tax as sugar is exempted under item 5 of the Third Schedule. If the diamond sugar is treated as sugar candy, it cannot be disputed that it is liable to levy of sales tax under item 9 of the Second Schedule. It is no doubt true that no distinction was made between sugar and sugar candy or diamond sugar till the year 1975 when the amendments to item 9 of the Second Schedule and item 5 of the Third Schedule were brought about by the State Government. Therefore, before 1975, sugar and all products made out of sugar like sugar candy, bura sugar and sugar candy honey were treated as sugar and exempted from the levy of sales tax outright. But, after the amendments, sugar alone has been exempted and the other articles made of sugar were brought within the net of taxation. Though at the stage of the Tribunal, the assessee's case was that the diamond sugar dealt with by him was to be taken as sugar candy, before us the learned counsel for the assessee contends that the diamond sugar will fall within the expression 'sugar' and not 'sugar candy' and that the assessee has been under a wrong impression that the diamond sugar was sugar candy while in fact it is only sugar and nothing but sugar. Therefore, the question which we have to consider in these tax case petitions is as to whether the diamond sugar dealt with by the assessee is sugar candy or it is merely sugar.

8. The learned counsel refers to the decision of this Court in Vasantha & Co. v. State of Madras [1963] 14 STC 696. In that case the question was whether sugar candy was sugar which was exempted from the levy of sales tax by the notifications issued by the State Government. The Sales Tax Appellate Tribunal had taken the view that sugar candy will not come within the description of sugar. This Court after referring to the definition of 'sugar' under section 2(c) of Central Act 58 of 1957 and the notifications issued by the State Government exempting sugar from the levy of sales tax from 1957, held that sugar, which was exempted by the notification of the State Government, did in the context in which the exemption was granted took in sugar candy also. The said decision was rendered at a time when sugar candy and other articles made of sugar, such as bura sugar, and sugar candy honey had not been exempted from the definition of 'sugar' for sales tax purposes as has now been done by the amendments introduced in the year 1975 to item 9 of the Second Schedule and item 5 of the Third Schedule. There was no difficulty in holding that sugar which is a subject-matter of additional levy of excise duty under Central Act 58 of 1957 would take in even sugar candy, having regard to the definition of 'sugar' in the Central Excises and Salt Act in item 8 of the First Schedule as follows :

'Sugar means any form of sugar containing more than 90 per cent of sucrose.'

9. Having regard to the wide definition given in item 8, sugar and articles made of sugar, such as sugar candy, will come within the wider definition of 'sugar' contained in the Central Excises and Salt Act. But the difficulty has arisen in this case since the State Government has brought in the amendments in the year 1975, practically excluding sugar candy and similar articles from the scope of the expression 'sugar'. Item 5 of the Third Schedule exempts sugar alone and does not provide for exemption of articles like sugar candy, sugar candy honey, etc. So long as the Legislature has got the power to classify articles for purposes of taxation, we cannot question the power of the legislature to give a restricted definition of 'sugar' for the purpose of sales tax, and to restrict the exemption only to pure sugar. Therefore, the said decision in Vasantha & Co. v. State of Madras [1963] 14 STC 696 cannot be taken to conclude the issue that arises before us. As a matter of fact, in Surana and Company v. State of A.P. [1977] 40 STC 192, a Division Bench of the Andhra Pradesh High Court proceeds on the basis that though the only component of 'sugar candy' is 'sugar', in common parlance the expressions 'sugar' and 'sugar candy' are used to denote substances identifiable as distinct substances and that if the expressions 'sugar' and 'sugar candy' are understood as they are understood in common parlance, there would be no difficulty in holding that sugar and sugar candy are two different articles of commerce. In that case item 6 of the Fourth Schedule to the Andhra Pradesh General Sales Tax Act referred to 'sugar' and the explanation to that Schedule said that the expression in item 6 is to have the same meaning assigned to it in Central Act 58 of 1957. Thus in the face of definition of 'sugar' in Central Act 58 of 1957 and considering the fact that the same definition has been given in item 6, the court held that the State has excluded sugar candy from 'sugar' and that it is entitled to levy sales tax on sugar candy while exempting 'sugar' as such from the levy of sales tax.

10. In Annapurna Biscuit Manufacturing Co. v. Commissioner of Sales Tax : [1982]1SCR149 , the Supreme Court has observed as follows while dealing with the question as to how an entry given in a schedule to the sales tax legislation has to be understood :

'It is a well-settled rule of construction that the words used in a law imposing a tax should be construed in the same way in which they are understood in ordinary parlance in the area in which the law is in force. If an expression is capable of a wider meaning as well as narrower meaning the question whether the wider or the narrower meaning should be given depends on the context and the background of the case.'

11. In this case, having regard to item 5 of the Third Schedule, it is not possible for us to say that the expression 'sugar' will include either sugar candy or the diamond sugar which is dealt with by the assessee in this case. Though the diamond sugar is made out of sugar, it is the result of a different process other than the one involved in the manufacture of sugar. It cannot be disputed that the legislature can always pick and choose articles for taxation and say that it will tax diamond sugar, but will not tax sugar. So long as the competence of the legislature to tax diamond sugar which is commercially a different product from sugar is conceded, we do not see how the sales tax authorities are in error in treating diamond sugar as one different from sugar and bringing it within the net of taxation, especially after the amendment of item 9 of the Second Schedule which specifically refers to the various items which are made out of sugar. It is no doubt true that item 9 of the Second Schedule does not refer to diamond sugar which is said to have been dealt with by the assessee. But as long as diamond sugar is sold in the market as a separate commodity apart from sugar, it can be taken as a separate commodity other than sugar for the purpose of levy of sales tax. It cannot be disputed that diamond sugar is not normally treated in common parlance as sugar and a customer who comes to a shop and asks for sugar will not be satisfied if he is supplied with diamond sugar. It is the assessee's own case that diamond sugar, though made out of sugar, contains a higher percentage of sugar and that in the commercial circles it is treated as an entirely different commodity from sugar.

12. It is also to be pointed out that sugar is used for all purposes while the need for the diamond sugar appears to be restricted. The fact that the assessee here is only a dealer in diamond sugar and not a dealer in sugar in general itself indicates that it is a special commodity different from sugar. In this view of the matter we have to uphold the orders of the Tribunal in these cases holding that diamond sugar is a sugar candy and as such it is liable to the levy of sales tax under item 9 of the Second Schedule.

13. In the result, these two tax case petitions will also stand dismissed. There will be no orders as to costs in any of these three matters.


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