Carbon Crafts Pvt. Ltd. vs State of U.P. and The Deputy Commissioner (Assessment)-III Trade Tax

A.K. Yog, J.—Carbon Crafts Pvt. Ltd., a private limited Company incorporated under Indian Companies Act, is registered under U.P. Trade Tax Act (called TT Act) and under Central Sales Tax Act (called CST Act). The petitioner owns a Factory at village- Dhanpalpur, Mohansarai, P.O. Raja Talab, Vranasi which carries on Electro Paste Carbon prepared from raw material ''Calcined Petroleum Coke'' which is being imported by the petitioner from outside State of U.P. The Factory of the petitioner lies within territorial jurisdiction of Respondent No. 2/Deputy commissioner (Assessment-III) Trade Tax, Varanasi/Assessing Aurthority.

According to the petitioner, raw material- ''Calcined Petroleum Coke'' is a petroleum ''by product'' obtained as residue during refining of crude petroleum and said product is purchased as raw material from Graphite India Limited, Phulwaria, P.O. Barauni, District-Begusarai (Bihar).

The petitioner informed the Assessing Authority on 2-9-2005 that he is importing ''Calcined Petroleum Coke'' which does not fall within the purview of ''U.P. Tax on Entry of Goods Act''. However, the Assessing Authority passed an order on 26-9-2005, relying upon the Apex Court judgment in the case of India Carbon v. Superintendent Tax 1971 (28) STC 603; copy of which is Annexure-2 to the petition.

Controversy, in the instant case between the petitioner and Assessing Authority depends upon interpretation of ''Entry 17'' mentioned in the Schedule notified u/s 4(1) of U.P. Tax on Entry of Goods Act.

The petitioner has filed an extract of the said schedule as Annexure-3 to the petition. Complete text of the schedule, however, is part of the ''compilation'' of ''material and judgment'' filed by the petitioner in this case. For convenience, said schedule is reproduced below:

Schedule of the U.P. Tax on Entry of Goods Act, 2000

SCHEDULE {See Section 4(1)}

Auminium ore, metal and scrap and aluminum rolled products and extrusion products.

Chemicals of all kinds.

Coffee.

Crude Oil, as defined in Section 14 of the Central Sales tax Act, 1956.

Machinery and sapare parts of machinery valuing Rupees Ten lakes or more.

Motor Vehicles of all kinds including its chassis but excluding tractors.

Natural Gas.

Nylon yarn, poleyster yarn and poleyster staple fiber.

Refrigerator, air conditioner, over, washing machine and television.

Indian made foreign liquor.

Sugar

Textiles of all kinds valuing more than rupees Fifty per metre.

Tobacco in the form of cigarette.

Paper of all kind excluding newsprint.

Pan Masala contained tobacco (Gutka)

Cement

Coal

Tendu Leaves

Wax

Dressed Leather

Woods and timber of all kinds and of all trees of whatever species including ballies and bamboos, whether growing or cut or sawn imported from outside India.

Heard learned counsel for the parties and perused the record.

Petitioner has prayed for following reliefs:

PRAYER

It is, therefore, most respectfully prayed that this Hon''ble Court may graciously be pleased to:

(i) Issue a suitable writ, order or direction in the nature of certiorari quashing the notice no. 728 dated 26-09-2005 (contained as Annexure No 2 to this writ petition) issued by respondent no. 2. for realization of Entry Tax on the import of Calcined Petroleum Coke.

(ii) Issue a suitable writ, order or direction in the mature of mandamus commanding the respondent on. 2 in any case not to proceed against the petitioner in any manner under the provisions of U.P. tax on Entry of goods Act, 2000 till the decision of Hon''ble Supreme Court in Civil Appeal filed by the State of U.P. against Indian Oil Corporation.

(iii) Issue any other writ, order or direction which this Hon''ble High Court may deem fit and proper under the facts and circumstances of the case.

(iv) Award cost of the petition to the petitioner.

For convenience, impugned order dated 26-9-2005 (referred to above) is also reproduced:

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Since the Assessing Authority has relied has relied upon the Apex Court judgment in the case of India Carbon Ltd. v. Superintendent of taxes, Gauhati and Ors. 1971 (28) STC 603, relevant passage from the aforesaid judgment is reproduced:

Section 14 declares, inter alia, that coal including coke in all its forms constitutes goods which are of special importance in inter-State trade or commerce. Section 15 of the Central Act as it stood at the relevant time was in the following terms:

Section 15 "Every sales tax law of a State shall, in so far as it imposes or authorizes the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely:-

(a) the tax payable under that law in respect of sale or purchase of such goods inside the State shall not exceed (two percent) of the sale or purchase priced thereof, and such tax shall not be levied at more than one stage;

(b)...

It may be mentioned that by Amending Act 13 of 1966, 3 per cent. was substituted of 2 per cent. with effect from July 1, 1966.

It is not disputed that if petroleum coke is covered by Clause (i) of Section 14 which reads "coal including coke in all its forms" the State was not competent to levy tax at a rate exceeding the one given in Section 15(a) of the Central Act before the High Court it was common ground that petroleum coke is used mainly in industries dealing with the manufacture of carbon products and it differs in material constituents, quality, utility and composition from the ordinary coke use as fuel. It is used largely in the manufacture of dry cells, carbon electrodes and electric furnace resistance elements. Reference has also been made in the judgment to what is stated in "Chemical Engineers'' Handbok", 3rd Edition, at page 1566:

"Coke is a hard, dense, infusible carbonization residue that ranges from a dull gray-black to a silvery-gray; the latter is characteristic of good quality, high temperature coke. A coke of this type make a ringing sound when dropped or struck with a hard object. It exhibits a porous cellular structure, which primarily depends upon the kind of coal used and the rate of heating during the carbonization process.

This High Court was of the view that the word "coal" includes coke in all its forms in Clause (i) of Section 14 of the Central Act and must be taken to mean coke derived from coal. In other words it must be coke which had been derived or acquired from coal by following the usual process or heating or burning. The contention, therefore, of the appellant was negatived that petroleum coke was covered by the aforesaid provision of the Central Act.

We are wholly unable to agree with the reasoning or the conclusion of the High Court with regard to the ambit and scope of Clause (i) of Section 14 of the Central Act. The language is clearly wide and coal has been stated to include coke in all it forms. It is not denied that petroleum coke is one of the forms of coke. Therefore on a plain reading of the aforesaid clause it is incomprehensible how petroleum coke can be excluded from its ambit. It may be that the clause mentions coal only and then declares that that word shall include coke in all its forms. That shows that the object of the words which follow coal is to extend its meaning. It the writ petition it was stated in para 2 that "coke is the refuse left after destructive distillation of coal, shale-oil and is called petroleum coke, metallurgical coke or pitch coke, to indicate its source or origin; but all these are carbonaceous material used for the same purpose and having same properties, more or less, main being-Mixed carbon, Volatile matters, ash and Moisture.

Learned counsel for the petitioner contends that Item No. 21 in the Schedule in question wherein expression use ''coke'' should be read and understood as it is understood and received by general public in day to day use or its commercial purposes without adding or extracting anything therefrom. It is further submitted that expression ''coal'' used in the schedule in question cannot and should not be interpreted by taking external help; viz., with reference to ''expression'' used in the Statutes or Control Order.

Case of the petitioner is that the words ''...including coke in all its forms'' are conspicuously absent while the Entry ''coal'' finds place in the schedule in question. Absence of words ''including coke in all its forms'' while describing Entry 17 is conspicuous and reflects clear intention of the Legislature/State Government not to include ''coke''. Carrying his argument further it is contended that ''coal'' and ''coke'' are tow different commodities/substances distinctly understood and dealt with differently by all those persons dealing with the two commodities. In support of his argument learned counsel for the petitioner referred to Entry 2,4,6,12,14, and 21 of the schedule in question wherein a general substance/common substance was sough to include other categories. It is significant to note that while including ''coal'' in the articles/good mentioned at SI No. 17, no such expression has bee used with reference to Items mentioned at SI. Nos. 2,4,6,12, 14 and 21 of this very schedule. This clearly reflects the intention of the legislature/State Government not to include ''coke'' in the term ''coal'' used as Item No. 17 in the schedule in question.

Learned counsel for the Respondents, however, on the others hand, submitted that unless it is clearly spelled out from the Act and the schedule in question to exclude ''coke'' from ''coal'', ''coal'' shall include ''coke''. According to him, ''coke'' is also a derivative substance from the ''coal''.

In the above back-drop, we proceed to examine veracity of the contentions made on two sides. Before we proceed to examine the controversy in hand from legal aspect, it will be useful to refer to the general definition and meaning of the two terms, namely'' ''coal'' and ''coke'' which are as follows:

Webster''s Third New International Dictionary

Coal: piece of carbon or charred wood : a piece of charred wood or other combustible substance more or less completely consumed: CINDER 2. CHARCOAL 3a: a black solid combustible mineral substance formed by the partial decomposition of vegetable matter without free access of air and under the influence of moisture and in many cases increased pressure and temperature, the substance being widely used as a natural fuel and containing carbon, hydrogen, oxygen, nitrogen, and sulfur as well as inorganic constituents that are left behind as ash after burning.

Coal: 1 : to convert to charcoal by burning: CHAR (a cord of wood in on day) 2: to supply with coal or fuel (a steamer) vi: to take in coal (the steamer-ed as she reached port).

Coke: the infusible cellular coherent residue from carbonized coal that consists mainly of carbon, is hard, porous, and gray with a submetallic luster, and is used as a fuel (as in blast furnaces and domestic furnaces) b: a similar residue from various other carbonized substances (as petroleum, shale oil, or copal) C; a piece of coke (put a-on the fire).

The New International Webster''s Comprehensive Dictionary Coal: (kol) No. 1 A black, brittle, compact, amorphous substance of variable physical and chemical composition, produced by the carbonization of prehistoric vegetation: found in beds or veins in the earth and used as fuel; the principal varities are bituminous coal, anthracite, and lignite. 2. A piece of call as broken for use; such pieces collectively: in Great Britain commonly used in the plural 3 A fragment of burned wood; charcoal.

Coal may appear as a combining form in hyphemes or in solidemes, or in two-word phrases, as in:

Coal ashes coal-dark coal-heaver Coal barge coal-dealer coal-laden Coalbin coal-dealing coalmine Coal-black coal deposit coal-miner Coal-blue coal-digger coal-mining Coalbox coal-digging coalmonger Coal bunker coal district coal-producing Coal-burning coal-eyed coal-rich Coal-consumer coal-fired coal strata Coal-consuming coal furnace coalyard Coke: (kok) n. Slang Cocaine. 3. The Concise Oxford Dictionary

Coal: n. & v.n. la. a hard or blackish rock, mainly carbonized plant matter, found in underground seams and used as a fuel and in the manufacture of gas, tar, etc. b Brit. A piece of this for burning 2. a red-hot piece of coal, wood, etc. in a fire. V. 1 intr. Take in a supply of coal 2 tr. Put coal into (an engine, fire, etc.) coals to Newcastel something brought or sent to a place where it is already plentiful. Haul (or call) over the coals reprimand coaly adj. (Old English col. From Germanic).

Coke: n. 1.a solid substance left after the gases have been extracted from coal, 2 a residue left after the incomplete combustion of petrol etc. v. tr. Convert (coal) into coke (probably from northern English dialect colk ''core'' of unknown origin).

Here we may also refer to the definition of English word ''Char''.

From bare reading of the passage quoted from the judgment of the Apex Court in the case of India Carbon Ltd. (Supra), it is clear that ''coke'' and ''coal'' are not one and the same substance. The fact that ''coke'' is derived from ''coal'' is not a relevant circumstance to find out that the two goods in question are one and the same thing. If that factor is to be adopted as the sole criterion, it will lead to various anomalies. Simple criterion to find as to whether the term ''coal'' include ''coke'' or not, in the facts and circumstances of the instant case, particularly Trade Tax Act and Entry of Goods Act, one has to take recourse to the thumb rule of principle of interpretation, namely, whether two terms are used generally for one and same or different goods/commodities.

Learned Standing Counsel has placed reliance upon following extract of the judgment in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Jaswant Singh Charan Singh, :

...At the instance of the Commissioner of Sales Tax, the Board referred the following question to the High Court:-

Whether charcoal is covered under entry 1 of Part III of Schedule II to the M.P. General Sales Tax Act, 1958, and is taxable at the rate of 2 per cent or will be taxable at the rate of 4 per cent under entry 1 of Part VI of Schedule II to the M.P. General Sales Tax Act, 1958?

The High Court held that while construing entries in a statute like that Sales Tax Acts, the Court should prefer the popular meaning of the terms used in such entries and not their dictionary meanings and that so construed charcoal would be included in the word "coal". Consequently, it answered the question in favor of the respondent. According to the High Court, charcoal would be covered by entry 1 of Part III of Schedule II and was taxable at 2 per cent. Hence this appeal by special leave.

Entry 1 of part III of Schedule II reads as follows:-

Coal, including coke in all its forms 2 per cent. Entry 1 of Part VI of the said Schedule reads as follows:-

All other gods not included in Schedule I or any others part of this Schedule. 4 per cent.

We reproduce a passage from the aforesaid judgment which read:

The result emerging from there decisions is that while construing the word "coal" in entry 1 of Part III of Schedule II, the test that would be applied is what would be the meaning which persons dealing with coal and consumers purchasing it as fuel would give to that word. A sales tax statute, being on levying a tax on goods, must in the absence of a technical term or a term of science or art, be permitted to have used an ordinary term as coal according to the meaning ascribed to it in common parlance. Viewed from that angel both a merchant dealing in coal and a consumer wanting to purchase it would regard coal not in its geological sense but in the sense as ordinarily understood and would include "charcoal" in the term "coal". It is only when the question of the kind or variety of coal would arise that a distinction would be made between coal and charcoal; otherwise, both of them would in ordinary parlance as also in their commercial sense be spoken as coal.

In view of the ratio decidendi laid down in the case of Commissioner of Sales Tax Madhya Pradesh, Indore (Supra) we are unable to find as to how the Respondents can draw any support from the aforesaid decision.

Leaned counsel for the Respondents, however, referred to the Division Bench decision in the case of Khanna Coke Industries Ltd. Moradabad v. Assistant Commissioner, Sales Tax 1978 U.P.T.C. 473. Relevant paras 2 to 6 of the aforesaid Division Bench judgment are reproduced:

On the finding that coke briquettes are manufactured by mechanically pressing the mixture of coal dust, multani mitti and molasses, the Sales Tax Officer held it to be a product of coal and an unclassified item. The rate of tax under Sub-section (2-A) of Section 3-A of the U.P. Sales Tax Act in respect of goods others than those referred to in Sub-section (1) and (2) of the section at the point of sale by manufacturer or importer is seven per cent. It is not disputed that coke briquettes are not mentioned in any schedule or notification issued by the State Government.

Section 14(1) of the Central Sales Tax Act reads as under:

It is hereby declared that the following goods are of special importance.

XX XX XX (1-a) coal including coke in all its forms, but excluding charcoal:

XX XX XX 4. This sub-clause came up for interpretation before the Supreme Court in Indian Carbon Limited Vs. Superintendent of Taxes, Gauhati and Others, . The entry was held to be very wide. The view taken by the High Court that it must be coke which had been derived or acquired from coal by following the usual process of heating or burning was not approved.

In State of Gujarat v. Sakarwala Brothers 19 S.T.C. 24 (S.C.) the Supreme Court while interpreting an entry in the Bombay Sales Tax Act held that sugar included within its ambit all forms of sugar.

In Tungabhadra Industries Ltd. Vs. The Commercial Tax Officer, Kurnool, the argument that conversion of raw groundnut oil from its raw state by absorption of the hydrogenations into stearic acid which resulted in semi solid condition resulted in product of groundnut oil was not accepted.

Coke is a hard cellular mass of carbonaceous material. Coke is essentially a partially graphitized and cellular form of carbon. Coke is solid residue that remains after certain types of bituminous coals are heated to a high temperature out of contact with air until substantially all of the volable constituents of the coals have been driven off. The residue consists principally of carbon.- Encyclopedia Britannica, Vol. 6 (1973 Edition page 35) .

The Division Bench held that coal descendants shall be included in the expression ''coal''. We do not find as to how the aforesaid Division Bench decision help the respondents. The expression used in the schedule in the aforesaid case of M/S Khanna Coke Industries Ltd. (supra) was to the effect - ''coal'' including ''coke'' in all its forms, but excluding charcoal. The Division Bench referred to the Supreme Court judgment in the case Carbon India Ltd. (Supra) and came to the conclusion that ''coke'' descendants were included in the aforesaid expression. The case in hand is converse of the aforesaid case inasmuch as the schedule in question does not use the inclusive clause and Item no. 17 merely refers to ''coal''.

According to the General rule of interpretation, nothing should be added or extracted. On this principle, ''coal cannot include ''coke''; the two are entirely different commodities as per definitions contained in the English Dictionaries.

We are supported in our view by the observations made by learned Single Judge of this Court in the case of Mahabir Singh Ram Babu v. Assistant Sales Tax Officer, Firozabad and Anr. 1962 (XIII) S.T.C. 248. Relevant paragraph is reproduced:

It seems that the basic difference between "coal" and "cinder" is that coal is a mineral as it is dug out of the bowels of the earth without anything more being done to it. Cinder, on the other hand, is not coal because cinder is got only after something has been done to coal namely after coal has been burnt. If coal is completely burnt and all combustible property of coal has escaped into the atmosphere, what is left is ashes which are on longer capable of burning. Where all the combustible property of coal ha not completely escaped intoatmosphere, the residue which is left and which may still be capable of combustion and which may serve many of the purposes which are served by burning coal, is not coal but cinder. I am of the view that when the Legislature used the work "coal" in the notification, it was using that word in the sense in which it is strictly speakin used and understood in the English language. Coal is on particular variety of mineral or other product or substance, even though it may be capable of being used for many of the purposes for which another mineral or other product or substance may be capable of being used. To may mind the use is not the test.

Learned counsel for the petitioner then referred to the case of M. Varadariulu Naidu v. The State of Madras and Anr. 1965 (16) STC 684. Learned Single Judge of Madras High Court considered the expression "coal, including coke in all its forms" used in Madras General Sales Tax Act and held that it does not include ''cinder'' which is the residue or ash left when ''coal'' or ''coke'' is burnt and removed of its combustible matter. By inference and on this logic one arrives at the concluison that ''coke'' unless specifically included cinder/ash, could not include any other substance/goods even if it is derived therefrom.

Interestingly, the term ''coal and ''coke'' came up for consideration as early as in the year 1891 in the case of Fletcher v. Fields 1891 (1)QBD 790 wherein A.L. Smith, J. Observed:

... In this case we are asked to hold that the legislature included something else when it said coal and casks: but the two articles, coal and coke, were then well known and might have been both specified. The Act imposes a prohibition upon the public as to two specified articles only, and imposes penalties. Why should we stretch the provisions of the Act so as to extend the prohibition and penalty to another article ? I think that we are not at liberty to do so. It is admitted that cinders are not within the prohibition as to coal, and it seems to me that coke is no more coal than cinders are. I think we ought not to add a further prohibition to the absolute prohibition, as to two named articles, imposed upon the public by this section. The decision of the magistrate was wrong, and the conviction must be quashed.

Grantham, J. I am of the same opinion. This is a statutory restriction upon the liberty of the public, and must not be extended beyond its precise terms....

It is now well settled rule or interpretation that when a taxing statute admits of two interpretations, one which favours tax payer/assess should be adopted.

In view of the above, we have no hesitation in holding that the Assessing Authority wrongly placed reliance upon the case of Carbon India Ltd. (Supra). In the result, we hold that Item, No.17 using the expression ''coal'' in the schedule in question does not include ''coke''.

Consequently, the impugned order dated 26-9-2005/Annexure-2 to the writ petition cannot be sustained and set aside.

Writ Petition stands allowed, subject to the above observations.