Andhra HC (Pre-Telangana)
Srinivasa Poultery And Cattle Feed Pvt. ... vs Commissioner Of Commercial Taxes, ... on 16 December, 1998
Equivalent citations: 1999(1)ALD707, 1999(1)ALT577
Author: T. Ranga Rao
Bench: T. Ranga Rao
ORDER S.V. Maruthi, J.
1. These two Special Appeals and writ petition are disposed of by a common judgment as the issue involved is common. Since the facts are more or less similar, we refer the facts in the writ petition in brief.
2. By this writ petition, the petitioner is claiming for a writ of Certiorari to quash the Assessment Order dated 23-3-1998 passed by the 1st respondent in so far it relates to levy of tax of Rs.3,28,832/- on the turn over of Rs. 1,09,61,060/-.
3. The petitioner is a Private Limited Company engaged in the business of poultry feed with its Factory located at Atkuru village, Krishna District and is an assessee under the Commercial Tax Officer, Benz Circle, Vijayawada. The Government of Andhra Pradesh issued G.O. Ms. No. 1055, Revenue, dated 17-10-1994 exempting the tax payable under the A.P. General Sales Tax Act (for short 'the said Act') on the sale of poultry feed manufactured out of the ingredients which are either subject to tax or exempt from tax under the said Act and sold in the State.
4. On 13th July, 1995, the 4th respondent inspected the business premises of the petitioner and on the basis of the information furnished by the petitioner passed provisional assessment order under the said Act for the year 1994-95 dated 4-9-1995 levying tax on the turn over representing the sales of poultry feed manufactured out of ingredients that have not suffered tax under the said Act. Aggrieved by the assessment order, the petitioner filed an appeal before the 5th respondent who by his oraer dated 28-10-1995 set aside the assessment and remanded the matter to the assessing authority with certain directions. On 5-1-1998, the 2nd respondent revised the said order and remanded the matter to the 1st respondent with a direction to subject the sales turnover of poultry feed manufactured out of the ingredients purchased outside the State and restrict the exemption in terms of G.O. Ms. No. 1055, Revenue dated 17-10-1994 only to poultry feed manufactured from out of the ingredients purchased within the State. Aggrieved by the aforesaid order, the petitioner filed a Special Appeal No.20 of 1998.
5. Pursuant to the remand directions, the 2nd respondent passed final assessment order for the year 1994-95 and subjected the turnover of Rs. 1,09,61,060/- to tax at 4% on the ground that the said feed was manufactured out of the ingredients purchased in the course of inter-State trade. Since the impugned order was passed as per the remand directions of the 2nd respondent, the petitioner thought that it is futile to file an appeal and, therefore, the present writ petition questioning the interpretation placed by the 1st respondent on G.O. Ms. No. 1055 Revenue, dated 17-10-1994.
6. Special Appeal No.29 of 1998 was filed by the petitioner questioning (he order of the Commissioner of Commercial Tax dated 28-5-1998 communicated on 6-6-1998 for the assessment year 1995-96. In all the Special Appeals and the writ petition, the petitioner is claiming the benefit of G.O. Ms. No.1055, Revenue dated 17-10-1994 in respect of the poultry feed manufactured by him from out of the ingredients imported from other States and not suffered tax under the State Act.
7. The main argument of the learned Counsel for the petitioner is that the Supreme Court in the India Cements Ltd v. State of Andhra Pradesh, (1988) 6 APSTJ 62, under exactly similar circumstances, held the G.O., issued by the State of Andhra Pradesh to be violative of Articles 301 to 304 of the Constitution of India and the said principle is applicable to the facts of the present case. Therefore, the benefit of the said G.O., should be extended to the poultry feed manufactured by them from out of the ingredients imported from other States which have not suffered tax or exempt from tax under the said Act. The Counsel further submitted that there is no reason why there should be discrimination between the poultry feed manufactured from out of the ingredients which have suffered tax in the State or exempt from the tax in the State and the poultry feed manufactured from out of the ingredients imported from other States. The learned Counsel further submitted that by virtue of the exemption notification, poultry feed manufactured from out of the ingredients imported from the other States has to be sold at a higher rate as it has to suffer tax while the poultry feed manufactured from out of the ingredients which have suffered tax in the State is to be sold at a lower price. In other words, the very same poultry feed depending on the use of ingredients that are imported from other States and the ingredients from Ihe total market is to be sold at different prices - one at higher price and the other at lower price. Therefore, the benefit of the notification should be extended to the poultry feed manufactured from out of the ingredients imported from other States and not suffered tax in the State.
8. While the learned Special Counsel for the Revenue contended that the question of discrimination under Articles 301 to 304 or 14 of the Constitution of India has no application to a notification issued exempting the goods from payment of tax. Having regard to the facts and circumstances of the case, it is open to the Government in exercise of the powers conferred under Section 9 of the said Act to exempt certain goods from the payment of tax for a certain period and such power is upheld by the Supreme Court in Video Electronics Private Limited v. State of Punjab, . Therefore, the issue is now covered by the Judgment of the Supreme Court in the Video Electronic's case (supra) and the writ petition and the Special Appeals are liable to be dismissed.
9. In reply, the learned Counsel for the petitioner contended that the Video Electronic's case (supra) has been distinguished upon by the Supreme Court in Shree Mahavir Oil Mi/Is v. Slate of Jammu and Kashmir, (1997) 24 APSTJ 222, and, therefore, the issue is not covered by Video Electronic's case (supra) and even if the issue is covered by Video Electronic's case (supra), still in view of Shree Mahavir's case (supra), the petitioner is entitled to the benefit of the impugned G.O.
10. Before considering the respective arguments of the rival Counsels, it is necessary to refer to the impugned G.O., which reads as follows:
"In exercise of the powers conferred by sub-section (1) of Section 9 of the Andhra Pradesh General Sales Tax Act, 1957 (Act VI of 1957), the Governor of Andhra Pradesh hereby exempts from the tax payable under the said Act on the sale of poultry feed manufactured out of Ihe ingredients which are either subjected to tax or exempt from tax under the said Act and sold in the State."
11. From the above, it is clear that poultry feed manufactured from out of the ingredients imported is subjected to a tax while the poultry feed manufactured from out of the ingredients which have suffered tax in the State or which are exempt from the tax in the State is not subjected to tax. In other words, the poultry feed is classified into two categories - (1) poultry feed subjected to tax; and (2) poultry feed not subjected to tax; depending upon the ingredients used in the manufacture of the said poultry feed. If the ingredients of poultry feed have already suffered tax under the Act, or exempt from tax, then poultry feed manufactured from out of the said ingredients is exempt from the tax. While in the case of poultry feed manufactured from out of the ingredients imported from other States is not entitled to the benefit of the impugned notification as the said ingredients have not suffered tax under the Act or they are exempt from the payment of tax under the Act. The effect of the notification, as pointed out by the learned Counsel for the petitioner, results in two different prices for the very same poultry feed to be sold in the market.
12. In Rajasree Oil and Extractions Ltd. v. Dy. Commissioner (CT), (1998) 27 APSTJ 53, a full Bench of this Court to which one of us (Justice S. V. Maruthi) is a party held that "the incidence of tax on a dealer who extracts oil directly from goundnut cake visa-vis a dealer who purchases groundnut and extracts oil from the groundnut as wet! as cake should be subjected to the same rate of tax irrespective of the raw material from which it is extracted." It was further held that "Therefore, we are of the view that groundnut oil extracted whether from the groundnut which has suffered tax or from the groundnut cake which has suffered tax should be subjected to same rate of tax and Entry 24(a) which prescribes a higher rate of tax for groundnut oil extracted from groundnut cake suffers from the vice of discrimination and, therefore, is violative of Article 14 of the Constitution of India. We declare Entry 24(a) as discriminatory." Holding as above, this Court directed the Revenue to subject the groundnut oil extracted from groundnut cake which has already suffered tax to the same rate of tax as groundnut oil extracted from the groundnut which has suffered tax in the State.
13. If we apply the above principle to the facts of the present case, the poultry feed should be subjected to the same rate of tax irrespective of the manner in which it is manufactured. In other words, poultry feed manufactured from out of the ingredients which have suffered tax should be subjected to the same rate of tax as the poultry feed which is manufactured from out of the ingredients which have not suffered tax in the State.
14. In India Cements (supra), the Supreme Court was considering a G.O., issued by the Government of Andhra Pradesh reducing the rate of tax on sales of cement made to the manufacturing units of cements products in the State of Andhra Pradesh. The relevant portion of the G.O., reads as follows:
".... the Governor of Andhra Pradesh hereby directs that the tax leviable under clause (a) of sub-section (2) of Section 5 read with item 18 in the first schedule to the said Act, shall, in respect of Cement manufactured by Cement factories situated in the State and sold to the manufacturing units situated within, the State for the purpose of manufacture of Cement Products such as ..... be at the reduced rate of four paise in the rupee at, the point of first sale in the State with effect on and from the 1st January, 1987."
15. The effect of the G.O., is that cement products manufactured from out of the cement were subjected to a reduced rate of tax at four paise in the rupee provided the cement products are manufactured from out of the cement manufactured in the State and sold to the manufacturing Units for manufacturing the cement products. The reason for the notification as stated in the Judgment is that the production of cement was around six million tones out of which local consumption was to the tune of about three million tones and the production was expected to go up in 1987-88 and 1988-89 by 1.5 million tones and 3 million tones respeclively. Since local consumption was estimated to be low, the cement manufactured is to be markted out. Within the State were certain bulk consumers of cement who use the commodity as raw material for manufacturing Cement sheets, asbestos sheets, hume pipes, cement bricks, tiles etc., and such bulk consumers found products of cement from outside the State to be cheaper in view of the higher incidence of local State tax. In this back ground, the Government considered it necessary to reduce the tax rate under the Andhra Pradesh General Sales Tax Act to help the Cement Industries in easing out their marketing difficulty. Hence they have reduced the rate of tax in respect of the cement products manufactured out of cement manufactured in the State. The said Notification was questioned on the ground that it violates Part XIII of the Constitution of India. It was held that "under the Notification the rale of tax has been reduced to 4% in respect of sale made by indigenous cement manufacturers to manufacturers of cement products. Admittedly the Tamil Nadu producers have sates officers in Andhra Pradesh and in regard to their sale to such manufacturers of cement products the benefit of reduced rate of taxation is not applicable. The prescribed rate of tax under the Andhra Act is 13.75 per cent on cement. Thus under the Andhra Notification in regard to the local tax the indigenous producers of cement have a benefit of 9.75 per cent." The reason for the reduced rate of tax is that it is beneficial to the State revenue and secondly it protects the local manufacturers too. The learned Judges referring to the said reasons observed that the Counsel for the State Government has not been able to demonstrate to us how the reduction in the rate of sales tax is beneficial to the State revenue. As regards the other reason viz., to protect the local manufacturers, the learned Judges pointed out that Part XIII of the Constitution does not permit such protection. Holding as above, the learned Judges held that the Notifications are bad in law.
16. The next decision to be considered is the judgment of the Supreme Court in Video Electronic's case (supra). The writ petition deals with the constitutional validity of notifications issued by the U.P. Government and Punjab Government respectively under the respective Sales Tax Acts. By virtue of the notifications, the goods manufactured in a new industrial unit established in the areas mentioned in Column 2 of the table appended to the notifications starting the productions after the 1st day of October 1982, but not later than 31st March 1990 were exempted from the payment of sales tax for a period of 5 to 7 years. The said notifications were challenged by the petitioners on the ground that they violate not only Articles 19(b) and 14, but also Articles 301 and 305 of Part XIII of the Constitution of India. After referring to the principles laid down by the Supreme Court in various decisions under Articles 301 to 305, the learned Judges observed that "the 1st question, therefore, which one has to examine in this case is, whether the sales tax provisions (exemption, etc.) in these cases directly and immediately restrict the free-flow of trade and commerce within the meaning of Article 301 of the Constitution." After posing the said question, the learned Judges held that the object of Articles 301 to 304 of the Constitution of India is to "prevent discrimination against imported goods by imposing tax on such goods at a rate higher than that borne by local goods. The question as to when the levy of tax would constitute discriminalion would depend upon a variety of factors including the rate of tax and the item of goods in respect of the sale of which it is levied. Every differentiation is not discrimination..... Discrimination implies an unfair classification." the learned Judges referred to the observations made by Justice Fazal Ali in Kathi Raning Rawat v. State of Saurashtra, (1952) SCR 435, where the learned Judge pointed out the distinction between "discrimination without reason" and "discrimination with reason", and held that "the whole doctrine of classification is based on this and on the well known fact that the circumstances covering one set of provisions or objects may not necessarily be the same as those covering another set of provisions and objects so that the question of unequal treatment does not arise as between the provisions covered by different sets of circumstances." It was further observed that "The question naturally arises whether the power to grant exemption to specified class of manufacturers for a limited period on certain conditions as provided by Section 4-A of the UP Sales Tax Act is violative of Article 304 (a)." Answering the said question, the learned Judges held that "The power to grant exemption is always inherent in all taxing statutes ..... If the exemption is based on natural and business factors and does not involve any intentional bias, the impugned notifications to grant exemption for limited period on certain specific conditions cannot be held to be bad. Judged by that yardstick, the present notifications cannot be held to be violative of the constitutional provisions. An examination of Article 304(a) would reveal that what is being prohibited by this article which is really an exception to Article 301 will not apply if Article 301 does not apply." The learned Judges distinguished the cases of India Cement (supra); Western Electronics v. State of Gujarat, (1988) 70 STC 52; and West Bengal Hosiery Association v. State of Bihar, (1988) 71 STC 298, on the ground that those were cases of naked blanket preference in favour of locally manufactured goods as against goods com ing from outside the State. Those cases dealt with a conferment of exemption without any reason or concession in favour of indigenous manufactured goods which was not available in respect of the goods imported into that State. The learned Judges pointed out that the Notifications issued by the UP as well as the State of Punjab proceeded on a different basis. According to the learned Judges, granting of exemption to a special class for a limited period on specific conditions of maintaining the general rate of tax on the goods manufactured by all those producers in the State who do not fall within the exempted category at par with the rate applicable to imported goods is not violative of Article 301 or 14 of the Constitution of India. In other words, the learned Judges upheld the validity of the exemption notifications exempting the goods locally manufactured for a specific period subject to specific conditions on the ground that it is necessary for the economic development of the States to bring those States into equality with all other States and thereby develop the economic unity of India.
17. The next decision to be considered is the judgment of Sree Mahavir Oil Mills (supra). The facts in brief are that the Government of Jammu and Kashmir, with a view to protect the local edible oil industry, issued SRO No.93 of 1991 dated 7-3-1991 under Section 5 of the Jammu and Kashmir Sales Tax Act exempting the goods manufactured by small scale industrial units from payment of tax for a period of five years which has later been extended by another five years. As a result of the said exemption, outside manufacturers were obliged to pay tax while the local manufacturers were exempt fully. Some of the outside manufacturers filed writ petitions challenging the said exemption. A Division Bench of the Jammu and Kashmir High Court relying on the decision of Video Electronics (supra) dismissed the writ petitions. The matter went up to the Supreme Court. The Supreme Court referred to the observations made in Video Electronics case (supra) and observed that "For the purpose of this case, it is not necessary for us to say anything about the correctness of Video Electronics. Suffice it to say that the limited exception carved out therein cannot be widened or expanded to cover cases of a different kind. It must be held that the total exemption granted in favour of small scale industries in Jammu and Kashmir producing edible oil is not sustainable in law." The learned Judges further observed that "A limited exception has no doubt been carved out in Video Electronics but, as indicated hereinabove, that exception cannot be enlarged lest it eat up the main provision ..... It must be held that by exempting unconditionally the edible oil produced within the State of Jammu and Kashmir altogether from sales tax, even if it is for a period of ten years, while subjecting the edible oil produced in other States to sales tax at eight percent, the State of Jammu and Kashmir has brought about discrimination by taxation prohibited by Article 304(a) of the Constitution."
18. In other words, according to the learned Judges, the Judgment in Video Electronics (supra) should be limited to the facts of that case. Further a blanket exemption exempting the local goods from the goods which were imported would be in violation of Article 304(a) of the Constitution.
19. From the above, it follows that in India Cements (supra), the Supreme Court was considering the notification issued under the Act imposing a reduced rate of tax on products manufactured from out of the cement locally manufactured. While considering the said notification, the Supreme Court held that such a notification is violative of Articles 301 to 304 of the Constitution of India. The Judgment in India Cements (supra) is by a bench consisting of Ranganath Mishra and Murali Mohan Dutt, JJ; while the judgment in Video Electronics (supra) is by a bench consisting of Sabyasachi Mukharji, CJI, S. Ranganathan and J.S. Verma, JJ. According to the judgment in Video Electronic's case (supra), exemption granted by a notification exempting locally manufactured goods for a specific period subject to certain conditions was held to be valid and not in violation of Articles 301 to 304(a) of the Constitution, while in Mahavir Oil Mills case (supra), exemption granted by a notification exempting the goods manufactured by small scale industries from payment of tax for a period of 5 years was held to be bad in law on the ground that it is violativc of Articles 301 to 304(a) of the Constitution of India.
20. In Video Electronic's case (supra), the learned Judges also held that a naked blanket exemption in favour of locally manufactured goods as against the goods coming from outside the State is violative of the constitutional provisions. According to the learned Judges, a distinction is made between cases granting a naked blanket exemption, under the Act in favour of locally manufactured goods as against goods coming from outside the Stale and an exemption made for a specific period with certain conditions supported by justifiable reasons and held that the exception in the later case is not violative of Articles 301 to 304(a) of the Constitution of India. The basis for the view is that discrimination without reason is bad and discrimination with reason is valid. The preference given to locally manufactured goods as against the goods which were imported from other States was justified on the ground that it is necessary for the purpose of economic development of the State which is backward and to bring it into equality with all other States and thereby develop the economic unity of India. The preference given was further justified on the ground that it is absolutely necessary for economic viability and survival of the industries and the said preference was based on cogent and intelligible reasons of economic ecouragement and growth. In this context, the following observations of the learned Judges are relevant:
"A backward State or a disturbed State cannot with parity engage in competition with advanced or developed States. Even within a State, there are often backward areas which can be developed only if some special incentives are granted. If the incentives in the form of subsidies or grant are given to any part or unit of a State so that it may come out of the limping or infancy to compete as equals with others, that does not and cannot contravene the spirit and the letter of Part XIII of the Constitution. However, this is permissible only if there is a valid reason, that is to say, if there are justifiable and rational reasons for differentiation. If there is none, it will amount to hostile discrimination."
21. While in Mahavir Oil Mill's case (supra), the notification was held to be bad as it is a blanket and naked exemption in favour of locally manufactured goods as against the goods imported from other States. In other words, if the preference to the locally manufactured goods is based on justifiable reasons, it is discrimination with reasons and, therefore, valid and a naked and blanket exemption in favour of locally manufactured goods is bad as it is discrimination without any reason.
22. Let us now examine in the present case whether the exemption granted to the poultry feed manufactured from out of the ingredients which suffered tax or exempt from tax in the State is a naked and blanket exemption or based on valid reasons. In other words, whether the discrimination between the poultry feed manufactured from out of the ingredients which suffered tax in the State or which are exempt from the tax in the State is a discrimination with reason.
23. In the counter affidavit tiled by the respondents, there is no whisper as to the reason for granting such an exemption. They cannot justify the exemption on the ground that since ingredients have already suffered tax, therefore, the poultry feed can be exempted, as exemption is extended even to the poultry feed manufactured from out of the ingredients which are exempt. No reason is discernible from the counter affidavit justifying the exemption insofar as the poultry feed manufactured from out of the ingredients which have suffered tax or exempt from tax in the State. The exemption granted, in our view, is a naked and blanket exemption falling within the category of cases of India Cements (supra) and Sree Mahavir Oil Mills (supra). The ratio laid down in the judgment of Video Electronics (supra) is not applicable to the impugned notification. It is not a notification issued subject to certain conditions for a specific period for the economic development for a specific period for the economic development of a particular State to bring the State in equality with other Slates. Therefore, we are of the view that the impugned notification suffers from the discrimination without any reason and it is violative of Articles 301 to 304(a) of the Constitution of India.
24. If the notification suffers from the vice of discrimination without any reason, then the next question that arises for consideration is what is the relief that can be granted in this case. It is true that the petitioner do not want the notification to be quashed. On the other hand, the relief that is claimed is that the benefit of the notification should be extended to them. The question, therefore, is can such a relief be granted to the petitioner.
25. In M/s. Anand Commercial Agencies v. CTO, (1975) 25 APSTJ 254, the Supreme Court while holding that Entry 24-A of the First Schedule to the A.P. General Sales Tax Act is violative of provisions of Articles 301 to 304 of the Constitution of India, insofar as it imposes higher rate of tax on groundnut oil and refined oil which have been obtained from groundnuts that have not been taxed under the Andhra Pradesh Act, held that "the groundnut oil imported by the appellant from Karnataka for sale in Andhra Pradesh cannot be taxed at a rate higher than the rate prescribed in clause (b) of Entry 24 of the First Schedule to the Andhra Pradesh Act." The said decision was followed by this Court in Rajashree Oils and Extractions case (supra).
26. Following the above, we direct the respondents to extend the benefit of the impugned Notification G.O. Ms. No.1055, Revenue dated 17-10-1994 to the poultry feed manufactured from out of the ingredients imported from other States. There shall be a writ of Mandamus accordingly. The Special Appeals and the writ petition are allowed with costs. Advocate's fee Rs.500/-.