TMI Blog2003 (4) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section, if he produces before the assessing authority a declaration in the prescribed form from that trade mark or brand name holder. (2B) Where a trade mark or brand name holder consumes the goods purchased by him under sub-section (2A), in the manufacture of other goods or uses or disposes of such goods in any manner otherwise than by way of sale within the State or despatches such goods to any place outside the State, otherwise than by way of interState sale, such trade mark or brand name holder shall be liable to pay tax on the turnover relating to such purchase for the year irrespective of the quantum of his total turnover. " As modified by order dated July 17, 2003. 2.. The petitioners in all these writ petitions are dealers engaged in the purchase and sale of various commodities such as palm oil and other edible oil, etc. They purchase goods either locally or inter-State and sell the goods under a trade mark or brand name of which they are the trade mark holders or brand name holders. However, they have not registered the trade mark or brand name under the Trade and Merchandise Marks Act. They are aggrieved by the above amendments in so far as brand name holders/tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mark or brand name without any right or ownership over the said trade mark or brand name are treated on a par with registered trade mark/brand name holders who sells goods under the registered brand name/trade mark that will amount to discrimination treating dissimilarly situated persons alike attracting article 14 of the Constitution. Senior Counsel submitted that the sub-sections can be saved from the vice of article 14 only if the expression "holder" used in the said sub-sections is given the meaning holder of registered trade mark/brand name. 4.. Sri Pathrose Mathai, learned counsel appearing for the petitioner in O.P. No. 6142 of 1999 submits that trade mark holders and brand name holders who sell the goods purchased by them from local dealers after paying the tax are being treated separately for levy of the single point tax at a different stage for the simple reason that they sell the goods purchased by them under a trade mark or brand name which is clearly against the scheme of the Act. The counsel further submitted that the classification of dealers similarly situated for the purpose of levy of tax at different stages is unreasonable and irrational and that such classific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the year 1999-2000 already completed is illegal. 8.. Sri S. Ananthakrishnan, learned counsel appearing for the petitioner in O.P. No. 1767 of 2003 had also made submissions on similar lines as argued by the counsel appearing for other petitioners. He further submitted that exhibits P1, P2, P4 and P5 proceedings of the respondents are illegal and liable to be quashed. 9.. Sri Raju Joseph, learned Special Government Pleader appearing for the respondents made the following submissions: (1) section 5(2) is an exception to the normal rule under section 5(1) in regard to the point of levy and that it is only in respect of the manufactured goods other than tea sold by brand name holders and trade mark holders under a brand name or a trade mark sub-section (2) is attracted; (2) the manufacturer as such has no relevance. The criteria is sale of goods under a brand name or a trade mark by a brand name holder or a trade mark holder and that too in respect of the manufactured goods only; and (3) section 5(2) is an independent charging provision in respect of the matters covered by the said sub-section. It is also an overriding provision which is evident from the expressions "not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Merchandise Marks Act as also the provisions of section 27 thereof and submitted that even the Trade and Merchandise Marks Act contemplates the user of a trade mark or brand name by unregistered trade mark or brand name holders and that the said statute does not prohibit the user of any unregistered trade mark or brand name except to state that a suit cannot be filed claiming right in respect of a trade mark or a brand name except by a registered trade mark holder/brand name holder. Regarding the reasonableness of the classification and to pick and choose persons and goods for the purpose of taxation the Special Government pleader relied on the decisions of the Supreme Court in East India Tobacco Company v. State of Andhra Pradesh [1962] 13 STC 529, Murthy Match Works v. Assistant Collector of Central Excise (1974) 4 SCC 428, State of Assam v. Shri Naresh Chandra Ghose [2001] 121 STC 294 and the decision of the Supreme Court in State Bank of India v. N. Sundara Money AIR 1976 SC 1111. The Special Government Pleader also relied on the decision of the Bombay High Court in Federation of Associations of Maharashtra v. State of Maharashtra [1995] 97 STC 145 and submitted that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to fix the point of levy of tax in a series of transactions which take place within the State. 12.. Under section 5(1) of the Act, every dealer other than a casual trader or agent of a non-resident dealer whose total turnover for a year is not less than two lakh rupees and every casual trader or agent of a non-resident dealer, whatever be his total turnover for the year, shall pay tax on his taxable turnover for that year. Under clause (i) of sub-section (1) of section 5 in the case of goods specified in the First or Second Schedule, tax is payable at the rates and only at the points specified against such goods in the said Schedules. It is unnecessary for us to refer to the other clauses of sub-section (1) of section 5 of the Act for the purpose of this case. The First and Second Schedules specified the description of goods, the point of levy and the rate of tax. It can be seen from the point of levy that the goods described in column 2 in the Schedule are taxable either at the point of first sale in the State by a dealer who is liable to tax under section 5 or at the point of last purchase in the State by a dealer who is liable to tax under section 5. There are certain goods wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual first sale in the State. Virtually sub-section (2) is in the nature of an explanation to the point of levy, viz., At the point of first sale in the State by a dealer who is liable to tax under section 5 occurring in the First or the Second Schedule to the Act. In other words the levy of tax is under section 5(1) read with the relevant entry in the First or the Second Schedule to the Act as explained in sub-section (2). To put it differently, sub-section (2) is not a separate charging section. It only says what the first point sale is in respect of goods specified therein. There is no change in the rate of tax or in any other matters except that brand name holders and trade mark holders who effect sale of manufactured goods under the brand name/ trade mark within the State are classified separately from other dealers who are effecting sale of the very same goods but without using any trade mark or brand name only for the purpose of determining the point of levy. 14.. Sub-section (2A), it must be noted, is enacted as an aid in the implementation of sub-section (2) and to exempt or exonerate other dealers who effect actual first sale of the manufactured goods in the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequently the need for the dealer who sells the goods to the trade mark/brand name holder to comply with the requirements of section 5(2A) so as to exempt or exonerate him from liability under section 5(1). 16.. As already noted, the scheme of the Act is only to levy a single point tax except in respect of commodities falling under the Fifth Schedule to the Act. As such, in a case where a dealer who effects first sale in the State in respect of manufactured goods is not a brand name holder/trade mark holder and the sale is not to a trade mark holder/brand name holder for sale under a trade mark or a brand name, the sale by such dealer will be the first sale exigible to tax under section 5(1) of the Act and consequently a second sale of the very same goods by the purchasing dealer to a trade mark holder or brand name holder for sale by him under a brand name or trade mark cannot be subjected to tax again at the hands of the second seller if he produces the certificate contemplated under rule 32(13A) of the Rules. There is no requirement for the second seller to produce the declaration contemplated under section 5(2A) of the Act in such a case. Though section 5(2) is capable of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(1) is the sale effected by such brand name holder or trade mark holder. No question of double taxation arises. 19.. Next question arises as to whether in a case where a dealer who is not a brand name holder/trade mark holder effects sale of manufactured goods to a brand name or trade mark holder for sale under a brand name or trade mark if he is not able to obtain the declaration provided under sub-section (2A) from the purchasing dealer he may not get the benefit of exemption contemplated under sub-section (2A), for, the production of the declaration is mandatory. If the purchasing dealer does not give the declaration contemplated under sub-section (2A) to the selling dealer at the time of purchase of the goods he will have to pay the tax on his purchases to the selling dealer. Since the liability under sub-section (2) is independent of sub-section (2A), in a case where the person liable under subsection (2) pays tax on his purchases he is entitled to get deduction of the tax paid by him on his purchase turnover from the tax due on the sale of the said goods effected by him by virtue of the provisions of rule 32(13B) which reads, "13B. Where for any reason the goods sold by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e prescribed form obtained from that trade mark holder or brand name holder. It must be noted that sub-section (2A) by itself is not a substantive portion. It only provides for a rule of evidence to establish the fact that the first seller, who effects sale of a manufactured goods has effected the sale to a brand name holder or a trade mark holder who is a registered dealer under the Act for sale of the said goods under a trade mark or brand name and that no tax was collected from the purchasing dealer which alone exonerates the selling dealer from liability to tax under section 5(1). Section 5(2), it must be noted, does not depend on whether the selling dealer produces the declaration specified in section 5(2A) and gets the benefit of exemption from payment of sales tax. Section 5(2) is independent of sub-section (2A) and it shifts the liability under section 5(1) in case the manufactured goods are sold by a dealer who is liable to tax under section 5(1) to a registered dealer, who is a brand name holder or a trade mark holder for sale by him under a brand name or a trade mark. Further, if the purchasing dealer, who is a trade mark holder or a brand name holder wants to avoid paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the appellants that the charges of discrimination in taxing only Virginia tobacco and not in country tobacco, it is not sufficient merely to show there are differences between these two varieties but that it must further be shown, that the differentia has reasonable relation to the object of the legislation, the Constitution Bench observed that, if a State can validly pick and choose one commodity for taxation and that is not open to attack under article 14, the same result must follow when the State picks out one category of goods and subjects it to taxation. The Supreme Court also observed that under the law it is for the person who assails a legislation as discriminatory to establish that it is not based on a valid classification and it is wellsettled that this burden is all the heavier when the legislation under attack is a taxation statute. 25.. The Supreme Court in Murthy Match Works v. Assistant Collector of Central Excise (1974) 4 SCC 428, considered the reasonableness of classification of match boxes into mechanised and nonmechanised sector for purpose of imposition of tax and also a mini classification between large and small sections of manual match manufactur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally settled is that merely because there is room for classification, it does not follow that legislation without classification is always unconstitutional. The court cannot strike down a law because it has not made the classification which commends to the court as proper. Nor can the legislative power be said to have been unconstitutionally exercised because within the class a sub-classification was reasonable but has not been made. The Supreme Court also referred to the famous words of Holmes J., in Bain Peanut Co. v. Pinson (1930) 282 US 499, 501, "We must remember that the machinery of Government would not work if it were not allowed a little play in its joints." Based on the aforesaid principles the Supreme Court held that the classification was reasonable. 26.. Now we will deal the decision of the Supreme Court in Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346 relied on by the petitioners. In that case arishtams and asavas, which were ayurvedic medicinal preparations were classified under the Tamil Nadu General Sales Tax Act, 1959, separately under item No. 135 of the First Schedule attracting the levy of sales tax of 30 per cent whereas all other medicinal p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a court whether there is justification for the discrimination. In the present case, we are not satisfied that the reason behind the rate of 30 per cent on the turnover of arishtams and asavas constitutes good ground for taking those two preparations out from the general class of med ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uous medicinal preparations under any pharmacopoeia containing more than 12 per cent by volume of alcohol (but other than those which are declared by the State Government by notification in the Official Gazette to be not capable of causing intoxication). Rate of tax was 20 paise in the rupee . Thus this item carves out an exception from item No. 28 in regard to those medicinal preparations prepared under any pharmacopoeia, be it allopathic, ayurvedic, homeopathic or unani medicines if it contains more than 12 per cent by volume of alcohol. The Supreme Court observed that an analysis of these two items of the Schedule to the Act clearly shows that generally all ayurvedic, homeopathic and unani medicines are exempt from the levy of tax. However, this exemption is not available to a specific class of medicinal preparation including allopathic, ayurvedic, homeopathic and unani medicines if it contains 12 per cent by volume of alcohol. This class of spirituous medicinal preparation is to be taxed at 20 paise in a rupee. The Supreme Court thereafter observed that, the question, therefore, for our consideration is whether this type of classification which differentiates medicinal preparat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of item 28, ayurvedic, homeopathic and unani medicines either not containing alcohol or containing less than 12 per cent alcohol have been exempted from the levy of sales tax but the Legislature thought that in regard to the medicinal preparations irrespective of the fact whether they are allopathic, ayurvedic, homeopathic or unani have to be separately classified as spirituous medicinal preparations if it contained more than 12 per cent by volume of alcohol (see item 67). Therefore, so far as the Assam Act is concerned, unlike the Tamil Nadu General Sales Tax Act, 1959, it identified the medicinal preparations containing more than 12 per cent alcohol as a separate class vis-a-vis such preparations either not containing alcohol or containing less than 12 per cent alcohol. This difference distinguishes the basis of the judgment of this Court in Arya Vaidya Pharmacy s case [1989] 73 STC 346 ; (1989) 2 SCC 285 inasmuch as the Assam Act does not identify the medicinal preparations containing more than 12 per cent alcohol as being the same as other medicinal preparations not containing alcohol. On the contrary, as could be seen these types of spirituous medicinal preparations which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders and brand name holders purchase manufactured goods from small-scale industries or other small-scale dealers for comparatively smaller amounts and sell the goods for a fairly higher amount using their trade marks or brand names which escape taxation. Thus, if the classification made under section 5(2), i.e., a separate treatment of trade marks holder and brand name holders who sells manufactured goods under a brand name or a trade mark from those dealers who effect sale of the same goods without using any brand name or trade mark is reasonable there cannot be any discrimination attracting article 14. The decision of the Supreme Court in East India Tobacco Company's case [1962] 13 STC 529 and in Murthy Match Works's case (1974) 4 SCC 428 discussed earlier are authorities for the proposition that the Legislature has got a wide discretion in selecting the persons or objects it will tax and that it is only when within the range of its selection the law operates unequally and that it cannot be justified on the basis of any valid classification that it would be violative of article 14. If a State can validly pick and choose one commodity for taxation, the same result must fall wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd particularly in view of the fact that there is no difference in the rate of tax whatever be the point of levy, we are of the view that the provisions of section 5(2) do not impinge article 14. 31.. Now we will deal with the contention of Sri Arshad Hidayathullah, learned Senior Counsel for the petitioner in O.P. No. 1144 of 2002 that the word "holder" used in sub-sections (2), (2A) and (2B) of section 5 must be understood as registered trade mark holders or registered brand name holders as otherwise the legislation will be hit by article 14 of the Constitution. The counsel has relied on the dictionary meaning of the word "holder" used in section 5(2), 5(2A) and 5(2B) of the Act and submitted that going by the meaning of the word "holder" the person who holds the trade mark or brand name must have ownership over the trade mark or brand name and that such ownership over a trade mark or a brand name can be obtained only if the trade mark or brand name is registered under the Trade and Merchandise Marks Act. The further submission of the Senior Counsel is that when the Legislature has used the expression brand name holder or trade mark holder it must be understood as referring to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brand name for his products even without registration of the trade mark or brand name under the Trade and Merchandise Marks Act when the Legislature uses the expression "trade mark holder" or "brand name holder" it is not possible to say that the legislative intention is that the expression "trade mark holder" or "brand name holder" only mean registered trade mark holder or registered brand name holder. If such an interpretation is placed that will amount to rewriting the section by adding words which were not in the section. It is settled that interpreting a taxing statute, equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed: it cannot imply anything which is not expressed: it cannot import provisions in the statutes so as to supply any assumed deficiency [Commissioner of Sales Tax v. Modi Sugar Mills Ltd. [1961] 12 STC 182 (SC); AIR 1961 SC 1047]. It is relevant in this context to note that wherever Legislature wanted to refer to registered trade mark/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a v. State of Maharashtra [1995] 97 STC 145. In that case by the Bombay Sales Tax (Amendment and Validating Provisions) Act, 1988, an Explanation was inserted below the definition of "resale" in section 2(26) of the Bombay Sales Tax Act, 1959, and in exercise of its rule-making power rule 42H was inserted by the State Government in the Bombay Sales Tax Rules, 1959. The cumulative effect of these amendments read with section 8 of the Principal Act is that, in respect of levy of sales tax on goods specified in Schedule C to the Principal Act, no sales tax was leviable on resale of goods purchased from registered dealers, but, by virtue of the Explanation, sales of goods by dealers holding trade marks or a patents would not be "resales" for the purpose of section 8, and such a dealer is liable to pay tax on his turnover of sales of goods purchased from registered dealers; but under rule 42H, such a dealer is allowed drawback, setoff or refund of the whole or part of the tax in respect of his purchases of such goods, with the result that a dealer who holds a trade mark or a patent in effect pays sales tax on his turnover as reduced by the purchase price of such goods. On the grounds, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection to a latest decision of the Supreme Court in Federation of Hotel Restaurant Association of India v. Union of India [1989] 74 STC 102 wherein it was held that it is now well-settled that though taxing laws are not outside article 14, having regard to the wide variety of diverse economic criteria that go into the formulation of fiscal policy, the Legislature enjoys a wide latitude in the matter of selection of persons, subject-matter, events, etc., for taxation. The tests of the vice of discrimination in a taxing law are, accordingly, less rigorous. In examining the allegations of a hostile, discriminatory treatment, what is looked into is not its phraseology, but the real effect of its provisions. If there is equality and uniformity within each group, the law would not be discriminatory. Decisions of the Supreme Court have permitted the Legislature to exercise an extremely wide discretion in classifying items for tax purposes so long as it refrains from clear and hostile discrimination against particular persons or classes. The only requirement is that the classification must be rational and based on some qualities and characteristics which are to be found in all the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in respect of resale of such goods also. However, to avoid the incidence of double taxation, provision has been made in rule 42H for drawback, set-off or refund of tax paid on the purchase of such goods. We do not find any infirmity in this action of the State Legislature. It is within the legislative competence of the State Legislature to provide for levy of tax on any transaction at any stage and thus make the levy originally contemplated to be single point levy, a double point or multi-point levy in respect of certain class of goods or dealers. The Legislature may choose certain goods alone or certain dealers or class of dealers alone for the purposes of such levy and make changes in taxation from time to time. The fact that in the principal Act, the Legislature had provided that sales of certain goods would be subject to single point levy would not preclude it from amending the law and to provide for double point or multi-point levy at a different stage or stages or take out certain transactions for double point or multi-point levy." 36.. The contention of the Senior Counsel is that the High Court did not consider a binding decision of the Supreme Court in Arya Vaidya Pharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bbreviation of a name. As the term employed in the section is 'trade mark holder', it means the dealer shall have the absolute right to hold the trade mark (i.e.), all other dealers who cannot use the trade mark are excluded from the purview. In other words, trade mark shall be registered under the Trade and Merchandise Marks Act, 1958 or the trade mark is an international brand name to attract levy under this section. ...................... 7. If a dealer purchases general goods from any local registered dealer and effects a resale of such goods with a brand name of which he is not a holder of trade mark (i.e., not registered under the Trade and Merchandise Marks Act) he is not liable to pay tax under section 3-J of the Act, but is liable only under section 3-H of the Act on his resale turnover." It is not clear as to whether these guidelines issued by the Commissioner of Commercial Taxes have any legal backing. Any way, these circular issued by statutory authorities is not binding on courts in the interpretation of statute though it may reflect the views of the statutory functionaries. At any rate, this is of no assistance to interpret the provisions of the Act for, as alre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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