Madras High Court
Sgs Petro Organic Limited vs The Commercial Tax Officer on 25 February, 2013
Author: Elipe Dharma Rao
Bench: Elipe Dharma Rao, M.Venugopal
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 25.02.2013 CORAM: THE HONOURABLE MR.JUSTICE ELIPE DHARMA RAO AND THE HONOURABLE MR.JUSTICE M.VENUGOPAL Writ Appeals No.781 to 786, 903 to 905; 911 to 915; 1586 to 1592; 1644 to 1649; 1863 to 1874; 1922 to 1924; 1993; 2109 to 2122; 2503; 2647, 2648, 2690, 2691, 2697 of 2010; 710 to 712, 97, 98, 355 to 359 of 2011 and 1036 to 1038 of 2012 with M.Ps.in all the matters W.A.No.781 of 2010: SGS Petro Organic Limited, 168, Purasawalkam High Road, Kellys, Chennai- .. Appellant Vs. 1. The Commercial Tax Officer, Ayanavaram Assessment Circle, Chennai 600 108. 2. Commissioner of Commercial Taxes, Ezhilagam, Chepauk, Chennai. 3. The State of Tamil Nadu Rep. by the Secretary, Commercial Taxes Department, Fort St. George, Chennai. .. Respondents * * * All the Writ Appeals are preferred under Clause 15 of the Letters Patent, as against the common order passed by the learned single Judge dated 23.12.2009, in W.P.Nos.35270 of 2005 & etc. batch. - - - For Appellants : Mr.R. Venkataraman in all WAs Senior Counsel for M/s. Lakshmi Sriram For Respondents : Mr.R. Sivaraman in all WAs Special Govt. Pleader (Taxes) - - - COMMON JUDGMENT
ELIPE DHARMA RAO, J Aggrieved by the common order passed by the learned single Judge in W.P.Nos.35270 of 2005 & etc. batch, dated 23.12.2009, the writ petitioners, who have lost their case before the learned single Judge, have come with the present appeals.
2. Since the issue involved in all these writ appeals being same and inter-connected, they were heard together and disposed of by this common judgment.
3. The appellants are the assessees under the provisions of the Tamil Nadu General Sales Tax Act, 1959 and the Central Sales Tax Act, 1956 and they were appointed as Dealers to handle superior kerosene oil for sale, both first sales as well as the second sales within the State. According to the appellants, the kerosene was included as taxable item under Schedule I as item 40 Part B and it was made taxable at the point of first sale @ 4% and from 27.3.2002 the same was brought under Entry 9 Part G of the First Schedule and was taxed at 25% at the point of first sale. Subsequently, by virtue of Act 22 of 2002, Schedule 11 was inserted from 27.6.2002, whereunder the 'Kerosene' was brought under Serial No.10. Under G.O.Ms.No.25 CT (B-1), dated 21.3.2003, by Act 21 of 2003, Serial No.18 was inserted, whereunder Superior Kerosene Oil (White Kerosene) was specified as a taxable entry levying tax at 25% at the point of first sale in the State. Under the same amendment, Entry 10 was amended to read "Kerosene other than white kerosene - First sale - 4 per cent". Moreover, under Section 3H of the Tamil Nadu General Sales Tax Act, a resale tax has been made leviable on the dealers whose turnover is not less than Rs.10 lakhs @ 1% and under Section 3-I, a surcharge at the rate of 5% has been made leviable with effect from 1.7.2002. However, as per Notification dated 27.6.2002 in G.O.Ms.No.79 CT (B2), the State Government granted exemption from payment of resale tax under Section 3H in respect of resale tax payable on the sale of petroleum productions and under the same notification it had also granted exemption from payment of surcharge payable under Section 3-I of the TNGST Act. The amendment had received the assent of the President on 18.3.2003 and came into effect from 21.3.2003. Therefore, it is the contention of the appellants that up to 20.3.2003, the term 'Kerosene' was not distinguished as Superior Kerosene Oil and therefore the Superior Kerosene Oil was taxable only at 4% at first sale and not 25% as per Act 21 of 2003. On the aforesaid background of facts, the amendment Act 21/2003, by which Entry 10 and 18 got amended, came to be challenged before the Tamil Nadu Taxation Special Appellate Tribunal, on abolition of which the matters came before the learned single Judge, who, under the impugned order dismissed the writ petitions by observing that the State Government has got every power to tax kerosene different from that of Superior Kerosene Oil or White Kerosene Oil and the attack of discrimination has to fail.
4. Mr. Venkataraman, learned Senior Counsel appearing for some of the appellants, though reiterated the contentions raised before the learned single Judge, strenuously contended that there is no difference between the term 'Kerosene" or 'White Kerosene' and both denotes the same meaning and it was not distinguished by the Government at any point of time prior to coming into force of Act 21 of 2003. It is his further contention that different tax treatment could not be given to the self same products and the competency of the State to impose different rates for different products was never in challenge before the learned single Judge. According to him, the amending Act has to go on the ground of discrimination. In support of the aforesaid contention, the learned counsel has placed strong reliance on the following decisions of the Hon'ble Supreme Court :-
1. (1989) 73 STC 346 (SC) [Arya Vaidya Pharmacy and another v. State of Tamil Nadu)
2. (2006) 144 STC 342 (SC) (Associated Cement Companies Ltd v. Government of Andhra Pradesh and another)
3. (2001) 121 STC 294 [State of Assam and others v. Shri Naresh Chandra Ghose]
4. (2007) 7 VST 535 (SC) [State of U.P. and others v. Deepak Fertilizers & Petrochemical Corporation Ltd.)
5. Learned Special Govt. Pleader, on the other hand, contended that the object of the amendment is only to curb the smuggling and adultering the diesel or petrol. He further contended that though both the commodities are identical, depending upon the use of the commodities, separate tax can be imposed. While 'kerosene' is for domestic purpose, 'Superior Kerosene Oil or White Kerosene Oil' is for commercial purpose. He also relied on the Parliamentary Committee report to curb the misuse of the kerosene. Moreover, it is his contention that the Government is empowered to fix different rates for a given commodity which has different usages and, therefore, the contention of the appellants that the classification of the Kerosene into two different entries in the said Eleventh Schedule is arbitrary, is not acceptable and the learned single Judge has rightly rejected the aforesaid contention and it needs no interference from this Court. In support of his contention he placed reliance on the decisions of the Hon'ble Supreme Court in (1987) 66 STC 1 (Commissioner, Sales Tax, U.P. v. Agra Belting Works) and (1994) 94 STC 93 (Sales Tax Officer, Sector IX, Kanpur v. Darling Dairy Products and another).
6. From the averments made and the materials on record, it is seen that "Kerosene" was originally brought under Entry 40 of Part B of First Schedule to TNGST Act taxable at 4% on First sale with effect from 17.7.1996 till 26.3.2002. Subsequently, Kerosene was brought under Entry 9 of Part G of the First Schedule taxable at 4% at first sale from 27.3.2002 till 30.6.2002. By a further amendment through Seventh Amendment Act (Tamil Nadu Act 22/2002) Kerosene was brought under Entry 10 of the Eleventh Schedule and it was taxable at 4% and this continued till 20.3.2002. Thereafter, by the exercise of power under Section 59(1) of the TNGST Act, the State by Notification issued under G.O.Ms.No.25, Commercial Tax Department, dated 21.3.2003, amended the Entry in Eleventh Schedule with effect from 21.3.2003, by which "Kerosene" was differentiated into two different items i.e., 2(iv) and 2(vii). As per Part 2(vii) of the Schedule, "White Kerosene" (Superior Kerosene Oil) was made taxable at 25% at first sale. This amendment was taken as a policy decision by the Statement Government and also found a place in the Budget Speech made on the floor of the Tamil Nadu Assembly. Thereafter, by Act 21/2003, the Schedule was amended as per which White Kerosene was taxed at 25% at first sale by Entry 18 with effect from 21.3.2003. In the above background, it is the contention of the appellants that from 17.7.1996 to 20.3.2003, Kerosene was used without any exclusion and whatever name it was called, it was taxable only at 4% at first sale and not 25% as amended by Act 21 of 2003. According to them, 'Kerosene' is a single commodity and there cannot be any artificial separation of same commodity into two types and therefore the imposition of two different taxes on the same commodity by the State is illegal, arbitrary and unconstitutional and therefore liable to be set aside. In a few cases, the appellants have challenged the individual assessment orders by stating that they are not liable to pay either enhanced tax or surcharge and resale tax.
7. In support of the aforesaid contentions, the learned Senior Counsel has strongly placed reliance upon the judgment of the Hon'ble Supreme Court in Arya Vaidya Pharmacy and another v. State of Tamil Nadu ( [1989] 73 STC 346). In the said case, Arishtams and asavas, which are ayurvedic medicinal preparations, were classified under the Tamil Nadu General Sales Tax, 1959, separately under item No.135 of the First Schedule attracting a rate of sales tax of 30 per cent, whereas other medicinal preparations shown under item No.95 were subjected to 7 per cent tax, which was later increased to 8 percent. The manufacturers of ayurvedic medicines filed a writ petition challenging the higher levy of sales tax on arishtams and asavas on the ground that such imposition of higher tax was discriminatory and it discourages import of such preparations from the neighbouring State of Kerala and thus infringed Article 301 of the Constitution of India. It was the contention of the Government that such higher tax was introduced to curb the abuse of medicinal preparations for their alcoholic content by drink addicts and to eliminate the mushroom growth of ayurvedic pharmacies preparing sub-standard arishtams and asavas for purposes other than medicinal use. The High Court dismissed the writ petition. On appeal, the Hon'ble Supreme Court, reversed the decision of the High Court by holding that arishtams and asavas were ayurvedic medicinal preparations and there was no reason why they should be treated differently and the reason behind the higher rate of 30 per cent on the turnover of arishtams and asavas did not constitute good ground for taking those two preparations out from the general class of medicinal preparations to which a lower rate of tax had been applied. This decision was pressed into service by the appellants to contend that whatever name the Kerosene is called, the Kerosene should be taxed only at 4% and imposition of tax at 25% on Superior Kerosene Oil, which is also a kerosene, is arbitrary and unconstitutional.
8. It is to be noted that the aforesaid decision has no application to the present case as it has been subsequently distinguished in Associated Cement Companies Ltd's case by observing as follows :-
"26. . . . Reversing the decision it was held by this Court that the two preparations, arishtams and asavas, were medicinal preparations, and even though they contained a high alcohol content, so long as they continue to be identified as medicinal preparations they must be treated, for the purposes of the sales tax law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol. In the said case the charge of discrimination was upheld having regard to the inherent nature of the commodity and its similarity with others falling within the same category. But in the present case, the rate of tax on cement is made dependent on whether the sale price of cement includes the cost of packing materials.
27. The legislature distinguished between two categories of sale of cement recorded by the dealer as in these two categories there is considerable variation in the turnover base. In the category of transactions falling in clause (a) Entry 18 taxable turnover includes the value of the cement and the value of the packing material. In the category of transactions falling under clause (b) the taxable turnover includes the value of the cement only. It does not include the value of the packing material. So the turnover base under clause (a) and clause (b) differs. The turnover base under clause (b) is inevitably higher than the turnover base under clause (a) and would be equivalent to the value of the packing material. The discrimination does not arise for any dealer because the dealer can avail any one of the options available in clauses (a) and (b). If the dealer sells cement along with the packing material and the sale price includes value of packing material he continues to pay tax at the previous rate i.e. 16%. If the dealer opts to sell the packing material and cement separately he has to pay tax at a higher rate i.e. 20% on cement only. The dealer is not left without any option. He can exercise one of the two options and pay the tax accordingly."
9. Though Arya Vaidya Pharmacy case was distinguished by the aforesaid subsequent decision in Associated Cement Companies Ltd., the latter decision was relied on by the appellants to contend that in the said decision classification of the same commodity i.e., cement is impermissible and would amount to discrimination being violative of article 14 of the Constitution of India.
10. The aforesaid subsequent decision in Associated Cement Companies Ltd., has also been distinguished and explained away by the Hon'ble Supreme Court in Deepak Fertilizers & Petrochemicals case and therefore the appellants cannot take any shelter under those decisions.
11. The contention of the learned counsel for the respondents is that the amendment made to 11th Schedule by the Legislature is within its competence and it has got power by delegated legislation to introduce an item into Schedule by virtue of Section 59(1) and even that becomes a part of the Statute. In support of such contention, he has placed reliance on the decisions of the Hon'ble Supreme Court in (1989) 4 SCC 378 (Aphali Pharmaceuticals Ltd v. State of Maharashtra), (1989) 3 SC 488 (Ujagar Prints v. Union of India). By placing reliance on the decision of the Supreme Court in Commissioner, Sales Tax U.P. v. Agra Belting Works, Agra (1987) 3 SCC 140 he contended that once the Schedule is amended, the exemption notification cannot stand on its own.
12. The learned single Judge after considering the rival contentions has rightly observed that an entry by virtue of Section 59(1) made into the Schedule will stand in the same footing as entry by virtue of legislative amendment and the attack that a commodity is same and therefore is liable for the same rate of tax cannot be accepted as it would amount to questioning the legislative policy of the State to tax a particular commodity. As rightly pointed out, in the present case, the allegation of discrimination will not arise as the legislature had chosen to make an entry into the schedule specifying the commodities under two different heads and so liable for different levies. In respect of surcharge and resale tax we are in agreement with the decision of the learned single Judge that the dealers are bound to pay the said rate of levy of tax and also surcharge and resale tax, which are also applicable notwithstanding the so-called exemption under Section 17(1).
13. Apart from the reasons given by the learned single Judge, the appeals are liable to the rejected for other reasons stated under. One has to borne in mind the object of the amendment to the schedule incorporating that the SKO is separate and liable to be taxed higher than the domestic / PDS kerosene. The object behind the Amendment is to curb the smuggling and adultering the diesel or petrol.
14. In the 46th Report presented by the Ministry of Petroleum & Natural Gas to Lok Sabha on 22.6.2003, on the basis of the recommendations made by the Standing Committee on Petroleum and Chemicals (2003) on Parallel Marketing in Petroleum Products, with regard to modus operandi of parallel marketing in the State of Tamil Nadu, the Tamil Nadu Government has informed that some of the parallel marketers intentionally and with the knowledge are selling the SKO to the vehicle owners as substitute of diesel and the parallel marketers are also selling the product to the licenced retail outlets, some of which are located on highways.
15. It is indicated that in order to prevent mis-use / diversion of imported Kerosene for adulteration, the Government notified the Kerosene (Restriction on Use and Fixation of Ceiling Price (Amendment) Order, 1998 incorporating certain regulations on sale of imported Kerosene. As per the provisions of the said Notification, no person shall sell or can use imported Kerosene under Parallel Marketing Scheme as fuel or additive to the fuel in the automobiles and the parallel marketers shall file the 'end-use certificates' from their industrial consumers and also furnish customer wise sales on a quarterly basis to the civil supplies authorities of the State Governments.
16. From the aforesaid Report, it is further seen that the Ministry of Petroleum and Natural Gas had requested the Ministry of Finance to consider levying of additional Excise Duty on PMS Kerosene with a view to contain adulteration of PMS Kerosene in Diesel and the Ministry had also requested the State Governments to increase Sales Tax on PMS Kerosene at par with Diesel. Heeding to the request, the State Government of Tamil Nadu has increased Sales Tax on PMS Kerosene. When the Committee sought to know the role of the State Governments regulating Parallel Marketing in the States, the Tamil Nadu Government has elaborated as follows :-
"In order to regulate the parallel marketing system, the dealers have o obtain a licence under "Tamil Nadu Kerosene (Regulation of Trade) Order 1973". They need not remit any security deposit. The business premises of both wholesalers and retailers are being inspected by the inspecting officials periodically and action is being taken against those dealers who contravene the provisions of the Tamil Nadu Kerosene (Regulation of Trade) Order 1973."
17. The Standing Committee observed that the Government of India's Notification dated 2.9.1993 relating to import of SKO stipulated that no person should sell or use kerosene imported under Parallel Marketing Scheme as fuel or as additive to fuel in a motor vehicle. With regard to implementation of the Notification, the Tamil Nadu Government explained that Officers of Civil Supplies and Consumer Protection Department, Revenue Department and all Gazetted Officers in Police Department have been notified as authorised officers. It is also stated by the Government that if the kerosene is used as fuel or additive to fuel for motor vehicle, then the Civil Supplies C.I.D. are taking action by registering criminal cases and arresting the accused seizure of fuel, adulterated fuel and the vehicle concerned and a final report is sent to the Collector to take action.
18. The Committee, while making its recommendations, has opined as follows:-
"3. The Committee find that there is a big difference between the selling price of SKO and HSD (High Speed Diesel) ranging from Rs.3.76 to Rs.7.26 per litre. This wide difference is the basis cause of misuse of SKO. The Committee are of the opinion that this difference should be bridged. Apart from raising customs duty the Committee recommend that the State Governments should impose sales tax to such an extent that the difference between rolling price of SKO and HSD is marginal. . .
4. Government through a notification have made it mandatory for the public sector oil companies to colour the kerosene blue meant for Public Distribution System (PDS). Imported kerosene is of white colour and can easily be mixed with diesel and even with petrol. The Committee are of the opinion that the Government should make it mandatory to colour the imported kerosene also with a colour different from blue which is meant for PDS. "
19. The report consists of certain annexures. Annexure-1I of the Report gives the details of the cases registered for misuse of PDS kerosene & Superior Kerosene Oil in automobiles as fuel. As per the said Annexure, about 15,065 litres of both PDS kerosene and SKO worth about Rs.2,44,023/- and about 26 tanker lorries were seized in 2002, about 22,437 litres worth about Rs.3,68,866 were seized in 2003 and upto 5.7.2003, 62 cases were registered and about 37,502 litres worth about 6,12,889/- along with 64 vehicles were seized.
20. The aforesaid details make it crystal clear that the misuse of PDS kerosene & Superior Kerosene Oil in automobiles as fuel have been increasing from year to year. In 2002 only 24 cases were registered, whereas in 2003 it increased to 62 and in 2003 upto 5.7.2003, it gone to 64. This would only infer that the persons engaged in misuse of SKO and the kerosene meant for PDS are being increased from time to time .
21. The aforesaid aspect has been highlighted in the Budget Speech made on the Floor of the year 2003-2004. Coming to know about the use of white Kerosene as a substitute for Diesel Oil, besides causing more pollution and damage to the engines, in order to curb the said practice, it has been decided by the Government to increase the tax rate for white Kerosene from 4% to 25%. But, the tax rate for PDS Kerosene i.e. Blue Kerosene will however continue to remain at 4%.
22. The object of providing such concessional rate of duty on kerosene used for illuminating burning oil lamps i.e., @ 4% was to provide some relief to those economically backward sections of society who use kerosene for illumination and other domestic purposes, and therefore, the benefit of concessional rate of duty was available only on the kerosene meant for PDS. On such consideration only the kerosene which meant for Public Distribution System was continue to remain taxed at 4%, whereas only the white Kerosene which is meant for industrial purpose is taxed at 25%. It is brought to the notice of this Court that in a study undertaken by the Southern Region of the Anti-Adulteration Cell it was observed that "unimaginable quantities of white kerosene are being imported for consumption by industrial consumers and by the general public. It was also found that the State Government suffers a heavy loss of revenue on account of sales tax evasion as the sales tax on diesel is around 28 per cent as against 13.8 per cent on SKO. Considering all these factors along with the laudable recommendations made by the Standing Committee and the follow up steps taken by the State Government to curb the misuse of kerosene meant for Public Distribution System, we do not any see any illegality in imposing tax on white kerosene meant for industrial purpose at 25%.
23. With regard to the writ appeals filed challenging the individual order of assessment, we are in full agreement with the learned single Judge in rejecting those matters as they have been tied along with this batch only for considering the legal issue involved and not the factual aspects raised challenging the assessment order.
For the reasons stated above, the writ appeals fail and the same are dismissed. Consequently, the connected miscellaneous petitions are closed. No costs.
(E.D.R.,J) (M.V.,J)
25-02-2013
Index : Yes / No
Internet: Yes / No
dpk
To
1. The Commercial Tax Officer,
Ayanavaram Assessment Circle,
Chennai 600 108.
2. Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai.
3. The State of Tamil Nadu
Rep. by the Secretary,
Commercial Taxes Department,
Fort St. George, Chennai.
ELIPE DHARMA RAO, J
and
M. VENUGOPAL, J
dpk
COMMON JUDGMENT
IN W.A.Nos.781 to 786
of 2010 & etc. batch
25-02-2013