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The Tirunagar Co-operative Stores Limited Vs. the State of Tamil Nadu - Court Judgment

LegalCrystal Citation
SubjectSales Tax
CourtChennai High Court
Decided On
Case NumberTax Case No. 292 of 1977 (Revision No. 104 of 1977)
Judge
Reported in[1984]55STC39(Mad)
ActsGujarat Sales Tax Act, 1969 - Sections 5; Tamil Nadu General Sales Tax Act, 1959 - Sections 8 and 17
AppellantThe Tirunagar Co-operative Stores Limited
RespondentThe State of Tamil Nadu
Appellant AdvocateC. Natarajan, Adv.
Respondent AdvocateK.S. Bakthavatsalam, Additional Government Pleader (C.T.)
Cases ReferredMehta Brothers v. State of Gujarat
Excerpt:
.....challenging order rejecting exemption on turnover - entry 40 only carries description of exempted goods - entry did not lay down any conditions or restrictions - exemption from tax not qualified by any restrictions or conditions in entry 40 - authority need not refer to provisions of central excises and salt act for finding any restriction - tax revision case allowed. - - it would seem that if the first schedule to the central excises act had used the words 'manufactured in india' instead of merely 'manufactured' by way of referring to the goods specified in the said first schedule, the decision of the gujarat high court might well have been the opposite of what they had come to in the case reported. we would, however, like to pursue our independent thought for resolving the almost..........in the third schedule. as if this were not enough, rule 6(a) permits 'deduction' of the third schedule goods, only as respects sales; it does not deal with purchase turnover of the items in the third schedule goods; which seems to be a lacuna. at all events, rule 6(a) exhibits not a very correct understanding by the rule-making authority of section 8 to the third schedule as well as the scope of its own rule-making power. but, on one thing we are certain. in regard to none of the goods specified in the third schedule, has the rule-making authority thought fit to prescribe rules imposing any conditions and restrictions affecting the scope of the exemption. the result is that if the goods answered the description under one or other of the entries found in the third schedule, the.....
Judgment:

Balasubrahmanyan, J.

1. Section 8 of the Tamil Nadu General Sales Tax Act, 1959, is a provision relating to exemption from sales tax. The section declares that any dealer who deals in the goods specified in the Third Schedule to the Act shall not be liable to pay any sales tax under the Act. The section, however, enacts that this exemption is subject to such restrictions and conditions as may be prescribed.

2. The Third Schedule to the Act specifies certain goods, by description, and sets them down, seriatim, in various entries. Entry 4 of this Schedule specifies the following goods :

'Cotton fabrics, woollen fabrics and rayon or artificial silk fabrics, as defined in items 19, 21 and 22 respectively of the First Schedule to the Central Excises and Salt Act, 1944 (Central Act 1 of 1944).'

3. The assessee in this case is a consumers' co-operative society dealing in all kinds of things, including foreign-made and Indian-made textiles. In the year 1974-75, the assessee came by a quantity of confiscated smuggled foreign woollen and artificial silk fabrics. It sold them to its customers for Rs. 32,063.81. In its assessment to sales tax, the assessee claimed exemption for this turnover under section 8 of the Act read with entry 4 of the Third Schedule. The exemption was refused right through from the assessing authority onwards upto and including the Sales Tax Appellate Tribunal.

4. The view of the Tribunal and the other authorities was that only cotton, woollen and artificial silk fabrics which were excisable under the Central Excises Act are eligible for exemption from sales tax under entry 4 of the Third Schedule to the Sales Tax Act. Since the assessee in this case dealt in foreign fabrics, which were not manufactured in India and hence not excisable under the Central Excises Act, it was held that the assessee's sales turnover was not entitled to exemption.

5. This decision is challenged by the assessee in this revision. Mr. Natarajan, for the assessee, urges that the view of the Tribunal is based on a misconstruction of entry 4 of the Third Schedule to the Sales Tax Act. He said that it is not a condition for exemption from sales tax that cotton, woollen, rayon and artificial silk fabrics must have paid excise duty. Learned counsel relied on a decision of the Gujarat High Court in Mehta Brothers v. State of Gujarat [1979] 43 STC 208.

6. In that case, the Gujarat High Court had to decide whether the sale or purchase of imported artificial silk fabrics are exempt from sales tax as falling within the scope of the expression 'rayon or artificial silk fabrics as defined in item No. 22 of the First Schedule to the Central Excises and Salt Act, 1944'.

7. The court held that even imported fabrics were included within this exempted category. The court observed that a reference to item 22 of the First Schedule to the Central Excises and Salt Act, 1944, showed that the only stipulation in that schedule was that the artificial silk fabrics must have been 'manufactured'. The court proceeded to observe that the Schedule to the Central Excises Act did not carry a further stipulation that the fabrics in question must have been manufactured in India. The learned Judges expressed the view that for the strict purpose of construing the nature of the exempted goods under the Sales Tax Act, it was not pertinent to go into the body of the Central Excises Act and find the nature of the charge to Central Excise and the purpose for which the goods were classified and set out in the schedule to the said Act. It would seem that if the First Schedule to the Central Excises Act had used the words 'manufactured in India' instead of merely 'manufactured' by way of referring to the goods specified in the said First Schedule, the decision of the Gujarat High Court might well have been the opposite of what they had come to in the case reported.

8. The statutory scheme and the exemption provision of the Gujarat Sales Tax Act are in pari materia with the Tamil Nadu General Sales Tax Act. We would, however, like to pursue our independent thought for resolving the almost identical issue presented for our consideration in this case. We start with the position that the purchase and sale of certain goods are to be exempt from sales tax under the Act, and it is not the intention to tax everything under the sun. Section 8 is clear on this point. We further find from the words of this section that in order to find out which goods are exempted items, as respects their sale or purchase, we must go to the Third Schedule. For that is the place where the exempted items are specified. Section 8 says that the exemption attaches to sales or purchases of goods 'specified in the Third Schedule'. The thing which we have to do in terms of these words of section 8, is to scan the Third Schedule and find out which are the goods which are specified therein. We must also note that the exemption from tax contemplated by section 8 is not, in all cases, an absolute exemption. For the section itself says that the exemption is 'subject to' 'restrictions and conditions'. All the same, the restrictions and conditions are those which have got to be prescribed by the rule-making authority. Mark the words 'subject to such restrictions and conditions as may be prescribed'. 'Prescribed' means prescribed by the rules. Section 8 itself does not lay down any conditions and restrictions for the exemption. Nor does the section contemplates that any conditions or restrictions for exemption should be specified even in the Third Schedule. On the contrary, according to the scheme of section 8, there is to be a neat division of labour; the Third Schedule specifying what the exempted items are, the rules specifying what the conditions and restrictions, if any, which qualify the exemption. The entries in the Third Schedule are thus reduced to position of a mere catalogue of goods specified as exempt; they cannot be read as imposing any conditions or restrictions for granting exemption, any more than the rules can be construed as adding to the number of exempted items specified in the Third Schedule.

9. The mistake of the Tribunal, and of the departmental authorities, in this case lies on their mixing up the two different things; specification of the exempted goods, on the one hand, and the imposition of the terms and conditions of exemption on those goods, on the other. They overlooked that under the scheme of the exemption provision in section 8, the function of the entries in the Third Schedule is not to lay down any condition or restriction whatsoever on the scope of the exemption. The only function was to specify which are the goods whose sales or purchases would be exempt under section 8.

10. On this approach to the construction of entry 4 of the Third Schedule, we are satisfied that any cotton, woollen, rayon or other artificial silk fabrics, whether manufactured in India or outside, would be exempted items, provided they answer the description in the relevant entries in the First Schedule to the Central Excises Act; entry 4 does not read and under the structure of section 8, cannot be read as excluding from the exemption any fabric manufactured outside India or as imposing the further condition that the fabrics must have been manufactured in India and also borne Central excise.

11. This understanding of entry 4 of the Third Schedule was characterised by the learned Government Pleader as inapt in the present context of the statute under discussion. He relied on the changes and alterations made in the entry by Act 37 of 1974. He said that the court must pay heed to the legislative intention which imbued those changes.

12. Out of respect for the argument of the learned Government Pleader and to test its validity, if not its relevance, we wish to refer to entry 4 of the Third Schedule, as it stood till 31st March, 1974, before the amending Act altered the entry to the present form which we have reproduced at the beginning of this judgment. The entry, before its amendment by Act 37 of 1974, stood as under :

'All varieties of textiles (other than durries, carpets, druggets and pure silk cloth) made wholly or partly of cotton, staple fibre, rayon, artificial silk or wool including handkerchiefs, towels, napkins, dusters, cotton velvets and velveteen, tapes, niwars and laces and hosiery cloth in lengths.'

13. The entry, no doubt, does not refer to any definition in the Central Excises and Salt Act, 1944. But the pertinent question to ask is not whether entry 4 has undergone any material change. The question, rather, is whether the structure of the exemption provision has been altered to any extent by recent legislation. The answer is no. The amending Act 37 of 1974 leaves untouched the crucial provision in section 8. The section retains the same calibre both before and after the amendment of entry 4 of the Third Schedule on 1st April, 1972. It follows that, both before and after the changes introduced in entry 4 of the Third Schedule, we are forbidden to read any conditions or restrictions into that entry. For the law has always been that it is for the State Government, as the rule-making authority, to prescribe and lay down any conditions and restrictions, if they so want, as respects the exemption from tax of any purchase or sale transaction of the goods specified in the Third Schedule.

14. A reference to the Rules made by the State Government shows that there is one rule in particular on the subject of exemption under section 8. That rule is to be found in clause (a) of rule 6 of the Tamil Nadu General Sales Tax Rules, 1959. The rule lays down that in determining the taxable turnover of a dealer 'all amounts for which goods specified in the Third Schedule to the Act or sold shall be deducted'. The opening words of rule 6, no doubt, speak of deductions under that rule being subject to the conditions specified in each of the clauses.

15. We have more than one comment to make on this rule 6(a). Section 8 read with the Third Schedule grants tax exemptions. Neither this section, nor the Third Schedule, deals with deductions from taxable turnover. Yet, rule 6(a) proceeds to grant a deduction in respect of the Third Schedule items. Unlike section 17, section 8 empowers the State Government to declare by notification, exemptions from tax and reduction in rate of tax, on transactions in specified goods from sale or purchase turnover. Yet the rule made by the State Government proceeds to grant 'deduction' from taxable turnover. While the legislature itself had granted the exemption under section 8 read with the Third Schedule to the Act, the legislature has given to the rule-making authority only a limited discretion, namely, the power to impose conditions and restrictions on the exemption granted by the legislature to the goods specified in the Third Schedule. As if this were not enough, rule 6(a) permits 'deduction' of the Third Schedule goods, only as respects sales; it does not deal with purchase turnover of the items in the Third Schedule goods; which seems to be a lacuna. At all events, rule 6(a) exhibits not a very correct understanding by the rule-making authority of section 8 to the Third Schedule as well as the scope of its own rule-making power. But, on one thing we are certain. In regard to none of the goods specified in the Third Schedule, has the rule-making authority thought fit to prescribe rules imposing any conditions and restrictions affecting the scope of the exemption. The result is that if the goods answered the description under one or other of the entries found in the Third Schedule, the entire sale value or purchase value of the goods are totally and absolutely exempt from sales tax under the Act, for the simple reason that the rules do not subject the exemption to any conditions or restrictions.

16. In this state of the statute of the statutory rules, the Tribunal and the other authorities in this case were in error in bringing to tax the society's sales turnover of Rs. 32,063.81 in artificial silk fabrics.

17. The learned Government Pleader bewailed that the views adumbrated above of the statutory provisions and rules would grant to the foreign fabrics in question a double exemption; an exemption from excise duty which they enjoy, being foreign-make goods, plus the exemption from sales tax on the basis of this Court's present interpretation of section 8 and entry 4 of the Third Schedule. The learned counsel said that this could not possibly be the intention of the legislature. He said that the object behind the 1972 amendment of entry 4 of the Third Schedule was clear. According to him, the express reference in the Amended Act to the Central Excises Act was to ensure that only excisable fabrics which bear the burden of Central excise must be eligible for sales tax exemption.

18. In this connection, the learned Government Pleader invited us to look into the statement of objects and reasons which were published when Act 37 of 1974 was in the Bill stage. The objects and reasons in the statement read as under :

'Under entry 4 in the Third Schedule to the Tamil Nadu General Sales Tax Act, 1969 (Tamil Nadu Act 1 of 1959), all varieties of textiles as described therein were exempt from liability to tax under the Act. The use of the term 'textiles' which covers a wide range of articles, had resulted in certain doubts and difficulties in interpreting the term in regard to its application to certain varieties of fabrics such as processed cloth, P.V.C. cloth, rexine, etc. In the case of textiles, the exemption was given because of the levy of additional excise duty on this article under the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (Central Act 58 of 1957), and in view of the general agreement that in respect of articles on which additional excise duty has been levied by the Central Government, the States should not levy sales tax, as a part of the proceeds of the additional excise duty have to be shared by the States. It has, therefore, been considered necessary that the definition of the commodity as found in entry 4 in the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959, should correspond with the definition as found in the Central Excises and Salt Act, 1944.'

19. He said that the object of the legislature was not to grant exemption from sales tax to non-excisable textile fabrics. According to the learned Government Pleader, this legislative intention was implicit in the amended entry 4 in the Third Schedule. He said that we cannot put either a strained or a dry-as-dust construction on the entry such as would defeat the legislative intention.

20. We think we must raise our voice against the prevailing tendency of course of construction to look into notes on clauses, objects and reasons, parliamentary debates and what not, as aids to statutory construction. The way we are asked to lean on this peripheral legislative literature, we might as well do without reading the text of the statute and abide by what the Government spokesman have explained either on the floor of the legislature or elsewhere as to what the words of the statute are intended to convey. It is sometimes said that all aids to construction must be welcome to courts which help them to get at the legislature's intention. This, we think, is quite a wrong approach to the task of interpreting legislative Acts. The courts will have to apply to the statute to given situations which arise before them, and in that connection, the courts are obliged to understand and construe the statute aright, before proceeding to apply it to the facts. This can only be done by putting a reasonable meaning on the words of the statute, for words are but the outward expression of the intention of the legislature. Neither the objects and reasons, nor the notes on clauses, are authored by the legislature. They are the handiwork of the sponsors the Bill, usually the Government. Notes on clauses and objects and reasons are put into circulation at the Bill stage on the theory that they truly explain the object and meaning of the relevant clauses in the Bill. But this cannot be assumed, because the difficulties in language and communication are as such present in the words of the notes on clauses and objects and reasons, as they are in the words in the text of the Bill itself. In any case, the object of the sponsors of the Bill is not the same as the object of the legislature, even where the clauses in the Bill are passed without the slightest change. We must say that even to get at the object of the legislature is difficult enough as it is, in many cases, especially in taxing enactments, without our having to complicate our understanding still further by a perusal of explanatory handouts made by Government spokesman, Ministers and heads of departments and other practitioners of bureaucratic literature.

21. The learned Government Pleader advanced the 'mischief rule' of construction and said we will have to give the amended entry 4 in the Third Schedule a purposive or activist interpretation. He said that it definitely was not the intention of the legislature to bless smuggled foreign textile goods with a sales tax exemption when they already enjoy exemption from Central excise.

22. We are familiar with the well-meaning principle of fiscal jurisprudence which frowns against double taxation. But even this rule against double taxation is only a rule of construction, in case of doubt. It does not control legislative power in the drawing up of fiscal enactments. We have, however, not heard of any rule which forbids in taxing statutes the grant of double exemptions or multiplicity of exemptions. For these are very much matters of legislative discretion. In any case, when we talk of double exemption having to be avoided even as an acceptable canon of construction of fiscal statutes, we have in mind the duplication of the exemption in the self-same enactment, and not the enjoyment of exemption in totally different taxing enactments. The freedom from Central excise is enjoyed in the very nature of things, by all goods of foreign origin, whether they are smuggled into the country, or whether they are duty-paid under the Customs Act. Whether any given category of goods is chargeable to, or exempt from, customs duty or Central excise cannot really affect the claim for exemption of transactions under the Sales Tax Act. The question has to be decided on the terms of the operative provisions of the Sales Tax Act and cannot be decided on a priori considerations.

23. We have earlier referred to the decision of the Gujarat High Court in Mehta Brothers v. State of Gujarat [1979] 43 STC 208. The Gujarat Sales Tax Act, 1969, contained an exemption provision in section 5 which enacted that subject to the conditions or exceptions, if any, set out against each of the goods specified in column 3 of Schedule I to the Act, no tax shall be payable on the sales or purchases of any goods specified in that schedule. The difference between the format of exemption in section 5 of the Gujarat Sales Tax Act, 1969, and that provided by section 8 of the Tamil Nadu General Sales Tax, 1959, is this : Under section 5 of the Gujarat Sales Tax Act, the conditions and restrictions to be imposed on the statutory exemption are not left to the rule-making authority; on the contrary, if there are any conditions or restrictions in contemplation, those conditions and restrictions ought to be set out in the third column of Schedule 1 to the statute itself. Entry 40 in Schedule I to the Gujarat Act which was the subject of consideration in Mehta Brothers v. State of Gujarat [1979] 43 STC 208 specified the following goods :

'Rayon or artificial silk fabrics as defined in item No. 22 of the First Schedule to the Central Excises and Salt Act, 1944.'

24. This entry 40 only carries the description of the exempted goods. Just that and nothing else besides. The entry does not lay down any conditions or restrictions in column 3. The effect of non-mention of any conditions or restrictions against this entry is that, as a matter of construction, the exemption of rayon and artificial silk fabrics are not qualified by any restrictions, or conditions in entry 40 of the Schedule. It follows that we cannot refer to the provisions of the Central Excises and Salt Act, and draw from those provisions any restrictions and conditions for the purpose of qualifying the sales tax exemption granted absolutely by entry 40 of the Schedule. As a matter of construction of entry 40 of Schedule I to the Gujarat Sales Tax Act, what we are asked to find out from the Central Excises and Salt Act is the definition of rayon or artificial silk fabric in that statute and not any conditions or restrictions on the scope of the exemption.

25. As we earlier mentioned, this line of reasoning, however, was not adopted by the Gujarat High Court when they held that imported rayon or artificial silk fabric were nevertheless exempt from sales tax under entry 40 of Schedule I to the Gujarat Sales Tax Act. The reasoning of the Gujarat High Court, however, was quite different. They went into the principles and precedents of statutory construction on 'legislation by reference' and set out their decision on that basis.

26. As we earlier indicated, we do not wish to decide the present case, although arising under parallel provisions of the Tamil Nadu General Sales Tax Act, on the lines on which the Gujarat High Court rested their decision in Mehta Brothers v. State of Gujarat [1979] 43 STC 208. The argument of the learned counsel for the assessee in this case was more or less inspired by the Gujarat decision. But we rest our conclusion in this case on our own understanding of the scope and function of the exemption provision under section 8, the ambit of the entries in the Third Schedule, and the quite limited role of the rule-making power to prescribe an appropriate rule in this regard.

27. For all the reasons stated above, we allow the tax revision case and direct the deletion of the sum of Rs. 32,063.81 from the assessee's assessment to sales tax for 1974-75 under the Tamil Nadu General Sales Tax Act, 1959. The State Government will pay the costs of the assessee. Counsel's fee Rs. 250.


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