Santhosh Maize and Industries Limited vs State of Tamil Nadu and Others

D. Murugesan, J.—The petitioner - M/s. Santhosh Maize and Industries Limited, Salem are dealers in maize starch since 1975 (hereinafter referred to as "the assessee"). By Government Notification No. 89/70 dated March 14, 1970, all sale of products of millets (like rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize) was exempt from payment of tax and the said notification came into effect from April 1, 1970. The State of Tamil Nadu had issued circulars from time to time categorically stating that maize starch classified in the above entry is exempt from payment of tax. In view of series of clarifications, it could be seen that there has been a consistent practice to treat the maize starch as being exempt from payment of sales tax. According to the assessee, maize starch was exempt from sales tax, as it was classified under Sl. No. 8, Part B of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959. The Special Commissioner and Commissioner of Commercial Taxes, Chennai had issued a clarification dated December 14, 1993 clarifying that maize starch is also included in the above notification and therefore, it would also be exempt from tax. According to the assessee, till the year 1994, the above entry also referred to the words "like rice", which did not occur in the entry after 1994. Except the said change, the entry continued to be the same even prior to 1994. The assessee further claims that there had been consistent practice to treat maize starch as falling under entry Sl. No. 8 before 1994 and even after the deletion of the word "like" from the entry, after 1994. The deletion of the word "like" will not make any difference to the scope of the entry, as the entry covers products of millets and would naturally cover all products that are manufactured out of maize.

The assessee further claims that maize starch as marketed by the petitioner is in the form of flour, though the flour is not obtained by mere grinding of the grains. The treatment of the maize by soaking it in water, thereafter subjecting it to various processes and ultimately obtaining the starch which is sold as flour, would certainly result in the sole product of millet retaining the flour form. The assessee relied upon the judgment of this Court in State of Tamil Nadu v. Lakshmi Starch Ltd. [1994] 92 STC 464, wherein it was held that maize starch is a product of millet and all products of millets would be exempted from tax as per Notification No. 89/1970 dated March 14, 1970. The grievance of the assessee is that despite the clear legal position, the Special Commissioner and Commissioner of Commercial Taxes, Chennai had issued a circular dated June 23, 1998 clarifying that maize starch will fall under entry No. 67 of Part D of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959 and accordingly maize starch is liable to be taxed at 11 per cent with effect from July 17, 1996.

As the said notification was issued in the case of one M/s. Unique Enterprises, the assessee had made an application to withdraw the abovesaid circular. Therefore, by a subsequent Notification dated October 8, 1998, the Special Commissioner and Commissioner of Commercial Taxes, Chennai again clarified that maize starch is taxable at four per cent under entry No. 61 of Part B of the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. By that notification, the Special Commissioner and Commissioner of Commercial Taxes had requested the Government to issue instructions to the assessing officers to assess maize starch from 1998-99 onwards. Questioning the above clarification, the assessee had again made a representation before the Special Commissioner and Commissioner of Commercial Taxes dated June 10, 1999. The said representation was rejected on June 28, 1999. In the circumstances, a provisional assessment notice dated July 27, 1999 was issued by the Commercial Tax Officer demanding a sum of Rs. 88,182 being arrears of tax for the month of April, 1998 payable within 15 days from the date of receipt of such provisional assessment notice from the assessee. Similarly, on the same date, another provisional assessment notice was also issued demanding a sum of Rs. 76,902 being tax for the month of May, 1998. Further, by the provisional assessment notices dated July 27, 1999, a sum of Rs. 79,535 being the tax for the month of June, 1998 and a sum of Rs. 30,148 for the month of July, 1998 were demanded at the rate of four per cent as against the total taxable turnover. Questioning the above provisional assessment notices, the assessee has approached the Tamil Nadu Taxation Special Tribunal, Chennai in Original Petition Nos. 881 and 883 of 1999, which came to be dismissed with the observation that whether the retrospective clarification is incorrect or not and whether the assessee would be exempt from payment of tax are questions which could be contested in the assessment proceedings. Based on the dismissal order, notices of assessment dated August 9, 1999 were issued demanding Rs. 1,34,011, Rs. 1,53,151, Rs. 1,37,450 and Rs. 68,150 for the months of April, 1998 to July, 1998 from the assessee. Under these circumstances, the petitioner approached this Court by way of the present writ petition seeking writ of certiorarified mandamus quashing the orders of the third respondent in O.P. No. 883 of 1999 dated July 29, 1999, confirming the circular of the first respondent in Lr. No. Acts Cell-II/65530/98 dated October 8, 1998, and direct the respondents 1 and 2 not to give effect to the said circular in Lr. No. Acts Cell-II/65530/98 dated October 8, 1998 of the first respondent to deny the classification of maize starch under Sl. No. 8 of Part B of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959, or in any manner not to give effect to the said circular of the first respondent dated October 8, 1998 in Lr. No. Acts Cell-II/65530/98 dated October 8, 1998 for the past and prior to the said date, i.e., October 8, 2008.

By order dated August 25, 1999, this Court dismissed the writ petition holding that the assessee would be free to agitate all the points before the assessing authority and the assessing authority will proceed according to law. Not being satisfied with the above order, the assessee had approached the Supreme Court and filed an appeal, which was taken on file in Civil Appeal No. 6176 of 2000 along with Civil Appeal Nos. 6177 and 6178 of 2000 (Santosh Maize & Industries Ltd. v. State of Tamil Nadu) and the appeals were allowed by judgment dated November 3, 2000 with the following direction:

After hearing the counsel for the parties, we are of the opinion that inasmuch as the validity of the circular issued u/s 28A has been challenged it would be appropriate that this point of law is decided by the High Court rather than that the case is remanded to the authorities below. We, therefore, allow these appeals, set aside the judgments of the High Court and restore the writ petitions for being decided by the Madras High Court.

As such, the writ petition is listed before us for hearing.

We heard the learned Counsel for the petitioner and the learned Special Government Pleader (Taxes) for the respondents.

The thrust of the argument advanced on behalf of the assessee is that inasmuch as this Court in State of Tamil Nadu v. Lakshmi Starch Ltd. [1994] 92 STC 464 upheld the finding of the Tribunal that starch is a product of millet and all products of millets would be exempt from tax as per the Notification No. 89/70 dated March 14, 1970, the impugned clarification would amount to nullifying the decision of this Court. Further, unless the statutory provisions in entry No. 8 of Part B of the Third Schedule to the Act are amended by the State Legislature, the Revenue cannot issue clarifications/ circulars contrary to the above entry. In any event, the circulars are binding on the Revenue and, therefore, the subsequent impugned clarification which was issued contrary to the notification dated March 14, 1970 exempting maize starch from payment of tax is bad in the eye of law.

Section 28A of the Tamil Nadu General Sales Tax Act, 1959 (hereinafter called as, "the Act") empowers the Special Commissioner and Commissioner of Commercial Taxes to issue clarifications on an application by a registered dealer. The said section was inserted with effect from November 6, 1997. On and after the said date, any clarification issued in exercise of the power u/s 28A, is backed by statutory provision.

Whether the circulars and clarifications can override the express provisions of law came up for consideration before this Court in Amul Ploycure Industries Ltd. v. Tamil Nadu Taxation Special Tribunal [2004] 134 STC 526. That case arose on a clarification issued by the Special Commissioner in exercise of the power u/s 28A of the Act and a Division Bench of this Court held that a clarification given by the Special Commissioner is not an adjudication, thereby meaning that it is binding on the dealer concerned. Subsequently, in Salt Sales Corporation v. Deputy Commercial Tax Officer [2004] 134 STC 529 (TNTST), a similar view was taken. However, another Division Bench (to which one of us is a party) in Tvl. Pizzeria Fast Foods Restaurant (Madras) Pvt. Ltd. Vs. Commissioner of Commercial Taxes and Others, had observed that though the circular issued by the Commissioner u/s 28A is not binding on the assessing authority or the appellate authority, yet the Commissioner is a superior authority to the assessing authority or the appellate authority and it would be impracticable to expect the subordinate authority to take a view contrary to the view expressed by the Commissioner.

Placing reliance on the above judgment, it is argued by the petitioner that earlier circulars/clarifications exempting maize starch from payment of tax are binding on the authorities.

Before we delve upon the above issue, the following few facts are to be noticed. The claim of the assessee is on the basis of a notification dated March 14, 1970, whereby all sale products of millets (like rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kuthiraivali, milo and maize) were exempt from payment of tax. The said notification came into effect from April 1, 1970. It includes maize also. The said notification was not backed by any statutory provision, as Section 28A was inserted only with effect from November 6, 1997. All the above judgments arose in respect of the clarifications/circulars issued in exercise of the power u/s 28A, namely, statutory circulars/clarifications.

The Schedules to the Act were amended in toto with effect from March 12, 1993. The First Schedule was divided and entry No. 53 of Part C of the First Schedule relates to sago and starch of any kind taxable at the rate of five per cent. This entry was in force only till July 16, 1996. Thereafter, with effect from July 17, 1996 sago and starch of any kind was reclassified as entry No. 22(vi) of Part B of the First Schedule taxable at the rate of four per cent at first sale.

By Act No. 3 of 1994, the Third Schedule was also amended with effect from August 11, 1993 and the goods enumerated thereunder were exempted on account of the arrangements between the Union and the States under the Additional Duties of Excise (Goods of Special Importance) Act, 1957. In this part of the Schedule in entry No. 44, the exemption to products of millets (rice, flour, etc.,) became statutorily available and thereby the notification dated March 14, 1970 was superseded by the subsequent notification.

The notification dated March 14, 1970 did not have any statutory backing, as Section 28A of the Act came into force only with effect from November 6, 1997 empowering the Commissioner to issue clarification. That apart, Section 3(2) of the Act contemplates that "subject to the provisions of Sub-section (1), in the case of goods mentioned in the First Schedule, the tax under the section shall be payable by a dealer, at the rate and at the point specified therein on the turnover in each year relating to such goods". The said provision creates a statutory liability on the dealer to pay the taxes in respect of the goods mentioned in the First Schedule.

Section 8 of the Act contemplates exemption from tax and states that subject to such restrictions and conditions as may be prescribed, a dealer who deals in the goods specified in the Third Schedule shall not be liable to pay any tax under the Act in respect of such goods. There is no specific exemption granted to starch maize in entry No. 44 under the Third Schedule entitling a dealer to claim exemption from tax.

Generally, a circular may be binding on the subordinate authorities while they are not acting in their judicial capacity and is more so after insertion of Section 28A into the Act. In the wake of the subsequent statutory enactments in not providing such exemptions, the impugned circular which was issued in conformity with Section 28A of the Act cannot be challenged on the ground of earlier circular dated March 14, 1970, which did not have any statutory backing. Though much is argued as to the binding nature of the circular dated March 14, 1970, in the given facts and circumstances of this case and in view of the subsequent enactments, the said circular cannot be given effect to and is not valid and consequently the impugned circulars issued by the Commissioner which are in conformity with the provisions of Section 28A would be valid and are binding on the assessee.

In these circumstances, we find no merit in the writ petition in challenging the impugned circulars and we also hold that the notification dated March 14, 1970 is not binding on the authorities, as it has no statutory backing and also in view of the subsequent amendment to the Act itself. As regards clarification issued by the Special Commissioner of Commercial Taxes dated December 31, 1996 exempting maize starch from payment of tax under entry 8 of Part B of the Third Schedule to the Tamil Nadu General Sales Tax Act, 1959, again it must be noted that the said circular was issued prior to the insertion of Section 28A into the Act with effect from November 6, 1997. Therefore, the said circular has no statutory backing. The circular dated October 8, 1998 was issued after insertion of Section 28A and such circular has statutory backing. In view of the subsequent amendment to the Schedule as well as power conferred on the Commissioner to issue clarifications, the judgement in Lakshmi Starch Ltd.''s case [1994] 92 STC 464 (Mad) cannot be pressed into service, as the said case arose prior to the amendment to the Schedule and the insertion of Section 28A into the Act.

As it is well-settled in law that a Schedule to the Act is part of the Act itself and as such it has statutory force, the Commissioner being an executive authority cannot override the provisions of the Act and in exercise of the power conferred u/s 28A of the Act, he cannot issue clarification running counter to the provisions of the Act. Even if any clarifications issued contrary to the provisions of the Act those clarifications cannot have any statutory backing and consequently would have no legal sanction. Inasmuch as sago and starch are classified in entry No. 22(vi) of Part B of the First Schedule taxable at four per cent on the first sale and entry No. 44 of the Third Schedule does not include maize starch and exempt from payment of tax the petitioner is liable to pay tax at four per cent and cannot claim total exemption.

In these circumstances, we hold that in view of the amendment to the Schedule, the circular dated March 14, 1970 cannot be made applicable to the assessee and the impugned clarification dated October 8, 1998 requires no interference. However, the adjudication on the provisional assessment notices shall be proceeded in terms of this order. With these observations, this writ petition is dismissed. No cost.