Supreme Court Affirms Challenged Judgment on Taxation Entry, Dismisses Appeals for Want of Merit, Parties' Cost Liability Unchanged

Case title:

Santhosh Maize & Industries Limited vs. The State of Tamil Nadu & Anr.

Date of Order:

July 04, 2023.

Bench:

Hon’ble Justice Dipankar Datta

Parties:

APPELLANT- Santhosh Maize & Industries Limited

RESPONDENTS- The State of Tamil Nadu & Anr

SUBJECT

• The appellant has brought two appeals before the Hon'ble Supreme Court of India with special permission. These appeals arise from orders issued by a Division Bench of the Madras High Court ("High Court" for short). The first appeal, C.A. No. 5731 of 2009, challenges the judgment and order dated 8th September 2008, which dismissed the writ petition filed by the appellant. 
• The second appeal, C.A. No. 5732 of 2009, challenges the order dated 10th February 2009, which dismissed the appellant's review application seeking a review of the aforementioned judgment and order.

OVERVIEW

• The appellant, who has been engaged in the trade of maize starch since 1975, is involved in a legal dispute concerning the classification of maize starch under the Tamil Nadu General Sales Tax Act, 1959 ("the Act"). The first of the two appeals centers around this issue.
• To provide some context, the Government of Tamil Nadu issued an "Exemption Notification" that exempted products of millets, including maize, from tax under the Act, effective from 1st April 1970. 
• However, the Legislature later made amendments to Schedule I of the Act, introducing a 5% tax on 'sago and starch of any kind' from 12th March 1993, which was later reduced to 4% from 17th July 1996.
• This amendment of 12th March 1993 raised concerns among maize starch dealers. M/s Lakshmi Starch, one of the dealers, sought clarification from the Special Commissioner and Commissioner of Commercial Taxes. 
• The Commissioner issued a Circular on 14th December 1993 stating that the exemption for maize starch would continue, as specific notifications take precedence over general entries in the Schedule. The Circular also clarified that the process of obtaining maize starch from maize involves simple processing, making it a 'maize product' eligible for exemption.
• Despite the subsequent amendment in 1994 that omitted the word 'like' from the Exemption Entry No. 8, thereby making the Exemption Notification inoperative, the exemption on maize starch remained unchanged due to further clarifications issued by the Commissioner on 31st December 1996 and 6th May 1997.
• However, two important developments followed. Firstly, Section 28-A was inserted into the Act on 6th November 1997, empowering the Commissioner to issue clarifications regarding tax rates. Secondly, the Commissioner, after the insertion of Section 28-A, issued a Circular on 23rd June 1998, stating that maize starch is not covered by Exemption Entry No. 8 and would be subject to a 11% tax under Entry 67 of Part D of Schedule I. 
• But, after the appellant requested the withdrawal of this Circular, the Commissioner issued a subsequent Circular on 8th October 1998, canceling the earlier one and clarifying that maize starch is taxable from 1st April 1994 under Entry No. 61 of Part D of Schedule I, subject to a 4% tax from 17th July 1996.
• The appellant challenged this clarification and made a representation before the Commissioner, which was rejected on 28th June 1999. 
• The appellant was then served with notices for the recovery of general sales tax amounting to Rs. 7,69,729/- for the financial year 1998-1999, followed by a provisional assessment notice issued by the Commissioner, leading to litigation between the parties.

ARGUMENTS ADVANCED BY THE APPELLANT

• Mr. K.K. Mani, the learned counsel, presented the following arguments:
• The High Court overlooked the correct entry applicable for the assessment year 1998-99. Exemption Entry No. 8 explicitly grants an exemption for products of millet, including maize, because maize starch is essentially in the form of flour.
•  Although the process of obtaining maize starch involves various treatments, it eventually results in a product that retains the flour form, making it a millet product. 
• This distinction sets it apart from Taxation Entry No. 61, which pertains to 'sago and starch of any kind,' where sago is derived from tapioca. An interpretation of the phrase 'sago and starch of any kind' would exclude maize starch and include only tapioca starch.
• To support the contention that exemptions arise only when there is a liability to pay tax, Mr. K.K. Mani referred to the case of Reliance Trading Company, Kerala vs. State of Kerala. According to Section 3(2) read with Schedule I, a tax liability is imposed on 'sago and starch of any kind.' 
• However, Section 8 read with Schedule III creates an exemption for maize starch, and thus Exemption Entry No. 8 takes precedence over Taxation Entry No. 61.
•  Mr. K.K. Mani also cited the cases of State of Tamil Nadu vs. Lakshmi Starch and State of Tamil Nadu vs. TVL. Indras Agencies (P) Ltd. to support the argument that Exemption Entry No. 8 originates from the Exemption Notification, and its validity was upheld in the former judgment, resulting in an exemption for maize starch. 
• Therefore, Exemption Entry No. 8 effectively re-enacts the language of the Exemption Notification in the form of a statutory provision, reflecting the Legislature's intention to exempt maize starch from tax.
• Regarding the omission of the word 'like' in the amendment, Mr. K.K. Mani argued that since the amendment retained the language of the Exemption Notification, the exclusion of the word 'like' would not alter the scope of the entry, especially considering the consistent practice of exempting maize starch from taxation under Exemption Entry No. 8.

ARGUMENTS ADVANCED BY THE RESPONDENT

The learned counsel representing the respondents, in support of the contested judgment, presented the following arguments:

• Firstly, in the Assessment Year 1998-1999, maize starch should be categorized under Taxation Entry No. 61 as 'sago and starch of any kind,' attracting a 4% tax rate. The term 'starch of any kind' is inclusive and encompasses all types of starch, including maize starch. 
• To support this view, the decision in Associated Cement Company Ltd. vs. Commissioner of Customs was cited, which interpreted the words 'any kind' in an inclusive manner, covering all types of goods.\
• Secondly, the Exemption Notification gained statutory support only from 1st April 1994 through an amendment that introduced Exemption Entry No. 8, which exempted products of millets. However, Taxation Entry 'sago and starch of any kind' had already existed since 1993 and was the applicable entry for the relevant period.
• Thirdly, Exemption Entry No. 8 modified the exempting provision provided under the Notification by omitting the word 'like,' which previously restricted the benefit of the exemption to the items specifically mentioned. 
• The principles expressed in the decisions of Union of India vs. Tulsiram Patel and B. Shankara Rao Badami vs. the State of Mysore were relied upon to support the maxim "expressum facit cessare tacitum." The contention is that when specific matters are expressly mentioned, anything not mentioned should be deemed to have been excluded.
• Fourthly, Exemption Entry No. 8 refers to maize as a raw product and not maize starch, which is a processed product. This interpretation is reinforced by the mention of items like 'flour' and 'bran of cholam' in the exempting entry, which are processed products.
• Finally, the legislative intent is evident from the 2002 amendment, where Exemption Entry No. 8 was repositioned as Entry No. 44, and the specific reference to 'maize' was eliminated, thereby denying exemption to all maize products.

In conclusion, Mr. Kumar, on behalf of the respondents, argued that the appeals lack merit and should be dismissed accordingly.

JUDGEMENT ANALYSIS

• The appellant initiated assessment proceedings and challenged the validity of the Circular dated 8th October 1998 before the Tamil Nadu Taxation Special Tribunal ("Tribunal"). However, the petitions were dismissed on 29th July 1999, with the Tribunal stating that it was not appropriate for the appellant to challenge the Circular independently while contesting the assessment proceedings simultaneously. The Tribunal suggested that the validity of the Circular could be contested during the assessment proceedings.
• Subsequently, the appellant approached the High Court through a writ petition, seeking the quashing of the Tribunal's order dated 29th July 1999. 
• Additionally, the appellant prayed for a declaration that the Circular dated 8th October 1998 was ultra vires Section 28-A, Exemption Entry No. 8, and Articles 14, 19(1)(g), and 265 of the Constitution of India. Alternatively, the appellant requested that the Circular should apply prospectively from 8th October 1998 rather than retroactively from 17th July 1996.
• Initially, the Division Bench of the High Court dismissed the appellant's writ petition on 25th August 1999, stating that all the points could be raised before the assessing authority, which would decide the matter following the law. 
• Unhappy with this decision, the appellant appealed to the Supreme Court. On 3rd November 2000, the Supreme Court allowed the appeal, and the writ petition was reinstated for consideration by the High Court. 
• The Supreme Court directed that since the validity of the Circular dated 8th October 1998 was being challenged, it was more appropriate for the High Court to decide this legal point rather than remanding the case to lower authorities.
• After hearing the arguments from both parties, the Division Bench of the High Court, on 8th September 2008, dismissed the writ petition on its merits. The High Court held that the Exemption Notification and subsequent circulars issued by the Commissioner, which sought to exempt maize starch from taxation, lacked statutory backing and were not binding. 
• According to the High Court, only the Circular dated 8th October 1998, issued after the insertion of Section 28-A on 6th November 1997, carried legal validity. The High Court concluded that maize starch would not be entitled to the benefit of exemption and upheld the validity of the Circular dated 8th October 1998, classifying maize starch under Entry No. 61 and subject to a 4% tax.
• Displeased with the High Court's decision, the appellant filed a review application. However, the High Court, on 10th February 2009, dismissed the review application, as it did not find any grounds for interference put forth by the appellant.
• When Act No. 32 of 1994 amended Schedule III of the Act, Exemption Entry No. 8 underwent changes and no longer included the word 'like,' which was previously present in the Exemption Notification (No. 88 of 1970 dated 14th March 1970). The word 'like' in English grammar can serve as a verb, noun, or preposition depending on its context. In the Exemption Notification, it was used as a noun. 
• By examining Exemption Entry No. 8 introduced by Act No. 32 of 1994, it becomes evident that (i) the word 'like' is not included as the first word within brackets, and (ii) maize is mentioned along with rice, flour, etc., but not maize starch. 
• Hence, only the items specifically listed within the brackets qualify for exemption as products of millets under Section 8 of the Act, read with Schedule III as per Exemption Entry No. 8.
• As for considering maize starch as a millet product under Exemption Entry No. 8, it is deemed inappropriate. Maize is the raw product, while maize starch is a processed product. While it is established that maize is entitled to exemption as per Exemption Entry No. 8 before the relevant assessment year, maize starch, being a product derived through a mechanical process, cannot be read as "like maize" since the term 'like' was excluded by Act No. 32 of 1994. 
• Maize starch falls under Taxation Entry No. 61 introduced by Act No. 37 of 1996, which covers "starch of any kind." The word "any" has diverse meanings, including "one," "same," "all," and its specific meaning in a statute depends on the context and subject matter of the statute. If the legislature intended to exclude any starch, including maize starch, it would have made a specific provision to that effect.
• The decision in Associated Cement Company Ltd. case has established that the words "any other kind of moveable property" in the Customs Act define 'goods' to include all tangible movable articles. Additionally, the decision in M/s. Associated Indem Mechanical (P) Limited vs. West Bengal Small Industries Development Corporation highlighted that the word 'any' has a broad meaning and prima facie excludes limitations.
• In Taxation Entry No. 61, the presence of 'sago' before 'starch of any kind' does not make a significant difference. Sago itself is a type of starch extracted from tropical palm stems. Consequently, what falls under Taxation Entry No. 61 is both 'sago' and 'starch of any kind,' which unquestionably includes maize starch.
• The appellant's argument that the clarification issued by the Commissioner should not have retrospective effect lacks merit in our careful evaluation. The clarification, as per the Circular dated 8th October 1998, was issued under the authority of Section 28-A of the Act. Such clarifications are meant to make the tax rate explicitly clear, which might have been implicit before. 
• If we were to accept the appellant's contention, it would defeat the purpose of issuing clarifications unless they were deemed to have retrospective effect. The main objective of the clarification provided by the Commissioner was to remove any confusion and clarify the meaning of the two entries. Therefore, such a clarification is inherently retrospective.
• Furthermore, considering the nature of the clarification, we find that the Circular dated 8th October 1998 does not violate the provisions of the Act.
• The Supreme Court took into account the decisions cited by Mr. Mani in the cases of Lakshmi Starch Limited and TVL. Indras Agencies (P) Limited. However, based on the reasons we have given above, we hold that those decisions do not support the petitioner's argument.

CONCLUSION

The Hon'ble Supreme Court of India upholds the challenged judgment, even though it does so for different reasons than those given by the High Court. After examining the appeals, the Supreme Court finds no merit in them and dismisses them accordingly. Each party will bear its own costs in this matter.