The Southern India Cotton WasteMerchants & Exporters Association v. The Union of India & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 20.3.2009C O R A M :THE HONOURABLE MR.JUSTICE K. CHANDRUW.P.Nos.614 and 615 of 1998The Southern India Cotton WasteMerchants & Exporters Association,No.92, Thiruvenkataswamy Road,R.S.Thiruvenkataswamy Road,R.S.Puram, Coimbatore-2. .. Petitioner in W.P.No. 614 of 1998 Abba Traders, rep.by itsProprietor Mr.C.R.Natarajan .. Petitioner in W.P.No. 615 of 1998-vs-1.The Union of India, rep.by theSecretary, Ministry of Finance,Department of Revenue,New Delhi.2.The State of Tamil Nadu, rep.bythe Secretary to Government,Department of Commercial Taxesand Religious Endowments,Fort St.George, Chennai-9.3.The Special Commissioner &Commissioner of Commercial Taxes,Ezhilagam, Chennai-600 005. ... Respondents 1 to 3 in both the WPs.4.The Deputy Commercial Tax Officer,R.S.Puram West Circle, Coimbatore. .. Respondent No.4 in W.P.No.615 of 1998PRAYER in W.P.No.614 of 1998 : Petition filed under Article 226 ofthe Constitution of India praying for the issuance of a writ ofmandamus directing the respondents and their officers and agents toforbear from demanding central Sales Tax on the Inter-State sales ofwaste cotton effected by the members of the Association over andabove 4% as indicated by G.O.Ms.No.693, dated 19.6.1982 of the secondrespondent herein in so far as the members of the petitionerAssociation are concerned. https://hcservices.ecourts.gov.in/hcservices/ PRAYER in W.P.No.615 of 1998 : Petition filed under Article 226 ofthe Constitution of India praying for the issuance of a writ ofcertiorari calling for the records on the file of the fourthrespondent in CST/571395/96-97, dated 19.12.1997 and quash the same.For petitioner: Mr.N.Inbarajan For respondents : Mr.R.Tholgappian, GA (Taxes) (R3) Mr.A.Arumugam, Spl.GP (R2)O R D E R The first writ petition is filed by the Southern India CottonWaste Merchants and Exporters Association seeking for a direction tothe respondents to forbear from demanding Central Sales Tax (CST) oninter-State sale of waste cotton effected by the members of theAssociation over and above 4% as indicated in G.O.Ms.No.693, CT & REDepartment, dated 19.6.1982 of the second respondent. A list ofmembers of the petitioner Association has been included in the typedset filed along with the writ petition.2. W.P.No.615 of 1998 was filed by the petitioner Abba Traderschallenging the order of the fourth respondent (DCTO, Coimbatore,R.S.Puram West Circle) dated 19.12.1997 wherein the Central Sales Taxwas sought to be levied at 10% on the cotton waste not covered by 'C'forms. 3. Notice was ordered in both the writ petitions on 21.1.1998.This Court also granted an interim injunction restraining therespondents from demanding more than 4%. Subsequently, this Court bya further order dated 26.2.2000 made the interim order absolute. Acounter affidavit was filed by the fourth respondent in W.P.No.615 of1998 dated 14.7.2000. 4. The State Government issued G.O.Ms.No.693, CT & RE Department,dated 19.6.1982 based on the request made by the Chamber of Commerce,Coimbatore about their difficulties in having exposed to the risk ofpaying enhanced rate of CST for non-production of 'C' forms and lossof business due to competition from Maharashtra and Gujarat. In theoperative portion of the order in paragraphs 2 and 3, the StateGovernment had given a direction, which is as follows:-''Para 2. The Government have examined the request inconsultation with the Commissioner of Commercial Taxes.The Commissioner of Commercial Taxes has recommendedfor reduction of the rate of tax under section 8(2)(b)of the Central Sales Tax Act 1956 to 4% so that inter-State sales with or without 'C' form will attract taxat 4% only. https://hcservices.ecourts.gov.in/hcservices/ Para 3. The Government have decided to accept therecommendation of the Commissioner of Commercial Taxesand to reduce the rate of tax under section 8(2)(b) to4% in respect of inter-State sales of cotton waste."5. Pursuant to the said decision, a Gazette notification wasissued in the Tamil Nadu Government Gazette (Extraordinary) dated26.2.1982 and it is as follows:-''In exercise of the powers conferred by sub-section(5) of Section 8 of the Central Sales Tax Act, 1956(Central Act 74 of 1956), the Governor of Tamil Naduhaving been satisfied that it is necessary so to do inthe public interest, hereby directs that the taxpayable by any dealer under clause (b) of sub-section(2) of Section 8 of the said Act in respect of sales ofcotton waste in the course of inter-State trade orcommerce shall be calculated at the rate of four percent."6. Despite the issuance of notification, the petitionerAssociation complained to the Commissioner of Commercial Taxes bytheir letter dated 30.12.1996 stating that despite the sales tax onthe inter-State sale of cotton waste, tax is to be assessed only at4%. The authorities at Coimbatore were insisting for the submissionof 'C' forms without which they threatened to impose 10% tax. TheCommissioner of Commercial Taxes informed the petitioner Associationby D.O.Letter dated 17.4.1997 stating that in view of the decision ofthe Supreme Court in State of Rajasthan and another -vs- SarvotamVegetables Products reported in (1996) 101 STC 547= (1996) 8 SCC 639,'C' form has to be filed even if the rate of Sales Tax was fixedunder section 8(5) of the CST Act. Subsequently, a clarification wasissued stating that the judgment of the Supreme Court in SarvotamVegetables Products case (cited supra) covers all transactions forwhich notification is issued under section 8(5) of the CST Actreducing the rate of CST under section 8(2)(b) or otherwise.Therefore, the Deputy Commissioners were directed not to pass ordersapplying the principles until clarification is received from theGovernment.7. It was the contention of the petitioners that the judgment ofthe Supreme Court in Sarvotam Vegetables Products case (cited supra)will relate to notification issued under section 8(1) - sale byregistered dealers, whereas the petitioners' case will fall undersection 8(2)(b) - sale by unregistered dealers. They also relied uponthe said judgment to contend that the Supreme Court was notconsidering the provision of Section 8(2)(a). In response to theirletter, the third respondent informed them by a letter dated06.11.1997 that section 8(2)(a) of the CST Act is not an independentprovision but a proviso to section 8(1) of the CST Act. Therefore, https://hcservices.ecourts.gov.in/hcservices/ when a benefit is claimed under section 8(2)(a), it can only be inrespect of goods which are exempted from tax generally or is subjectto tax generally at a rate which is lower than 4%. When the tax rateis 4% or more, the State cannot dispense with the tax condition offiling 'C' form and continue to tax goods at 4%. Thereafter a noticewas given by the Department informing the dealers that if 'C' form isnot produced, it will result in 10% tax. 8. It is at this stage, the petitioners came forward with thewrit petitions seeking for the direction referred to above. In para 4of the counter, the fourth respondent has averred as follows:-Para 4 .''.... in the notification No.II(1)/CTRE/188(a)/82issued under sub-section (5) of section 8 of the CSTAct, the Government have directed that the taxpayable by any dealer under Clause (b) of sub-section(2) of Section 8 of the said Act in respect of salesof cotton waste in the course of interstate trade orcommerce shall be calculated at the rate of 4%. In thedecision of State of Rajasthan -vs- SarvottamVegetables Products, reported in 101 STC 547, theHon'ble Supreme Court has held that any notificationissued under section 8(5) of the CST Act reducing therate of tax is subject to other provisions containedin Section 8 and it is not as if that the saidnotification issued under sub-section (5) is dehors toother provisions of the CST Act. Having regard to theabovesaid view of the Hon'ble Supreme Court, the thirdrespondent the Special Commissioner and Commissionerof Commercial Taxes has given clarification that thesaid decision is applicable to the Notification as ithas also been issued under Section 8(5) of the CST Act. It is therefore submitted that it is not correctto say that the clarification has been issued by thethird respondent that the production of 'C' forms ismandatory in order to avail the concessional rate oftax at 4% on interstate sales of cotton waste."9. It must be stated that the power of exemption in this case wasexercised under section 8(5) of the CST Act, which reads as follows:-S.8(5). Notwithstanding anything contained in this section,the State Government may, 1(on the fulfilment of therequirements laid down in sub-section (4) by thedealer) if it is satisfied that it is necessary soto do in the public interest, by Notification in theOfficial Gazette, and subject to such conditions asmay be specified therein, direct - https://hcservices.ecourts.gov.in/hcservices/ (a)that no tax under this Act shall be payable byany dealer having his place of business in theState in respect of the sale by him, in thecourse of inter-State trade or commerce, 1(to aregistered dealer or the Government) from anysuch place of business of any such goods orclasses of goods as may be specified in thenotification, or that the tax on such salesshall be calculated at such lower rates thanthose specified in sub-section (1) or sub-section (2) as may be mentioned in thenotification;(b)that in respect of all sales of goods or salesof such classes of goods as may be specified inthe Notification, which are made in the courseof inter-State trade or commerce, 1(to aregistered dealer or the Government) by anydealer having his place of business in theState or by any class of such dealers as may bespecified in the Notification to any person orto such class of persons as may be specified inthe Notification, no tax under the Act shall bepayable or the tax on such sales shall becalculated at such lower rates than thosespecified in sub-section (1) or sub-section (2)as may be mentioned in the Notification)."1. These words are added by Section 152(v) of the Finance Act (20 of) 2002.The words in parenthesis were introduced by section 152(v) of theFinance Act (20 of) 2002. Therefore, the incorporation of Sections 8(4) and 8(5) was not conceived before the amendment effected by Act20 of 2002. 10. The present exemption was rendered in terms of section 8(2)(b), which reads as follows:-S.8.Rates of tax on sales in the course of inter-State tradeor commerce.- (1) omitted (a) omitted (b) omitted(2) The tax payable by any dealer on his turnover in sofar as the turnover or nay part thereof relates tothe sale of goods in the course of inter-State tradeor commerce not falling within sub-section (1) - https://hcservices.ecourts.gov.in/hcservices/ (a)omitted(b)in the case of goods other than declaredgoods, shall be calculated at the rate of tenpercent or at the rate applicable to the saleor purchase of such goods inside theappropriate State, whichever is higher; 11. A reading of the section clearly states that it is anexemption in respect of sale of cotton waste and the rate of 4% wasspecifically fixed. It cannot be termed as notification with someconditions or that section 8(4) could be read into it. The SupremeCourt in Sarvotam Vegetables Products case (cited supra) held thatsection 8(5) is an integral part of section 8. The power of exemptionand the exercise is to be guided by consistent with the provisions ofthe Act. In page 554, it was observed as follows:-''Para 12. Sub-section (5) of Section 8 is an integral part ofSection 8 and the Act as such. The said power has tobe exercised in public interest. The power ofexemption and its exercise is to be guided by and beconsistent with the provisions of the Act. Moreimportant, the levy of Central sales tax and theprescription of rate is not by the notifications butby the Act itself. Section 8(1) prescribes the rateand sub-section (4) the condition that has to besatisfied for availing of the rate in sub-section(1). What the notifications do is to reduce the rateprescribed by Section 8(1) further, subject tocertain conditions. The conditions prescribed by thenotifications are the conditions prescribed foravailing the further reduction of rate provided bythe notification. The notifications merely reduce therate of tax; they do not do away with the levyaltogether. All that the notifications have done isto reduce the rate of tax from 4% to 1 1/2% (2 1/2%,as the case may be). Separate conditions areprescribed for availing the rate (which itself is aconcessional rate) prescribed in Section 8(1) and foravailing the further reduction provided by thenotification. Those two sets of conditions areprescribed by Section 8(4) and by the notificationsrespectively. One cannot conceive of the saidnotifications independent of, or apart from Section 8(1). They merely reduce the rate in Section 8(1) asalready mentioned. One must first satisfy thecondition in Section 8(4) to become eligible for theconcessional rate in Section 8(1). It is onlythereafter that he can claim the benefit of the said https://hcservices.ecourts.gov.in/hcservices/ notifications, for which purpose again he has tosatisfy the conditions prescribed in thenotifications. It is therefore wrong to think thatSection 8(5) or the notifications are self-containedand operate dehors the other provisions of theAct/Rules. The Division Bench has unfortunatelyfailed to appreciate the notifications in theircorrect perspective. We are of the opinion that thejudgment under appeal is unsustainable in law and itis accordingly set aside. The learned Single Judgewas right in dismissing the writ petitions." But in that case the Supreme Court considered a notification issuedunder section 8(5) but prescribing certain conditions. It was alsoheld that in that case the impugned notification was not total butpartial. 12. The judgment of the Supreme Court came to be considered by aDivision Bench of this Court in Sree Ayyanar Spinning and WeavingMills Limited -vs- State of Tamil Nadu reported in (1998) 109 STC205. In that judgment, the Division Bench after referring toSarvotham Vegetables Products case held in paragraphs 26 and 27 asfollows:-Para 26. But, the question is as to whether the dictum laiddown therein is applicable to the facts of the caseon hand. Admittedly, under the second notificationissued dated April 17, 1990, in supersession of theearlier notification dated December 26, 1986, thetax payable under sub-section (1) of section 8, byany dealer having business in a State in respect ofthe sales by him shall be calculated at the rate of1 ½ per cent, subject to the fulfilment of certainconditions. Therefore, it is crystal clear that thenotification issued under sub-section (5) of section8 of the CSTA, the tax payable under sub-section (1)of section 8 thereof was reduced from 4 percent to 1½ per cent and therefore the Apex Court said thatfor reducing the rate to become effective andpayable, it is incumbent upon the assessee-dealersto produce the relevant ''C'' forms, as contemplatedby sub-section (4) of section 8, on the rationale orbasis that the rate, as prescribed by sub-section(1) of section 8, is operable subject to thefulfilment of the conditions that had beenprescribed by sub-section (4) of section 8 of theCSTA and that is all and nothing further.Para 27. We have reproduced the Notification No.II(1)/CTRE/139(b)/76 dated March 19, 1976 relevant for the https://hcservices.ecourts.gov.in/hcservices/ instant case. Therefore, there is no need toreproduce the same again here. If one sifts and sansthe language employed in the said notification, itwill be abundantly clear that there are no areas oflimitation therein, so as to restrict the operationof the notification, with reference to sub-section(1) of section 8 of the CSTA. If we refer to clause(ii) of the said notification, the words or theexpressions employed therein, namely, ''the taxpayable under the said Act" shall be calculated atthe lower rate of two per cent. (emphasis supplied).Section 8 of the CSTA prescribes the rate of tax onsales in the course of inter-State trade orcommerce, while section 6 is a charging provision."13. Thereafter, in paragraphs 39 and 40, the conclusions arrivedat by the Division Bench were as follows:-Para 39.In this view of the matter, the order of theTribunal, adding the rate of levy of two per cent,by way of additional sales tax to the lower rate oflevy at two percent imposed, pursuant to thenotification issued by the State Government, undersub-section (5) of section 8 of the CSTA, as noticedearlier, cannot at all be stated to be sustainablein law and therefore, such imposition deserves to beset aside.Para 40. For the reasons as above, we are not inclined toaffix our seal of approval to the submissions,emerging from learned Special Government Pleaderrepresenting the Revenue that the decision inSarvotam Vegetables Produces (1996) 101 STC 547(SC)is applicable on all fours to the facts of theinstant case."14. Therefore, in the light of the exemption granted undersection 8(5) of the CST Act, which is not conditional, it is not opento the respondents to seek for the submission of 'C' forms as acondition precedent for availing payment of CST at the rate of 4%.Both the writ petitions stand allowed. However, there will be noorder as to costs.Sd/Asst.Registrar/true copy/Sub Asst.Registrarjs https://hcservices.ecourts.gov.in/hcservices/ To1.The Secretary to Government, Ministry of Finance,Department of Revenue,New Delhi.2.The Secretary to Government,Department of Commercial Taxesand Religious Endowments,Fort St.George, Chennai-9.3.The Special Commissioner &Commissioner of Commercial Taxes,Ezhilagam, Chennai-600 005. 4.The Deputy Commercial Tax Officer,R.S.Puram West Circle, Coimbatore. 2 CC To Mr.N.Inbarajan, Advocate, SR NO.86202 CC to the Government Pleader, SR NO.8692 & 8693.W.P.Nos.614 and 615 of 1998 ssr(co)pmk/26.3.2009.