TMI Blog2005 (11) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue to ensure that the taxpayer does not wriggle out of the net of taxation. The present writ petitions are no exception to this phenomenon. The petitioner is an industry manufacturing products using alcohol and alcoholic products and is said to be manufacturer of acidic acid and allied products. It also happens to be a dealer registered under the provisions of the Karnataka Sales Tax Act, 1957 (for short, the Act ). The petitioner, in the course of its manufacturing activity, uses rectified spirit which can be characterised even as a raw material for its end-products and has to buy such rectified spirit from persons who sell the same, who are limited in numbers and who for such purpose also have to be licensed. While so buying the rectified spirit , the petitioner has to bear the brunt of sales tax levied on the sale of rectified spirit by the selling dealer who collects the tax from the buyers, i.e., persons like the petitioner and pass it on to the State. The rate at which these products/goods are subjected to tax has varied from time to time and as mentioned in Schedules entries 12(ii) and (iii) of which read as under: 12. Spirits and alcohol, that is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Legislature lacks legislative competence to make any law, to subject the rectified spirit to tax as it is contended that the rectified spirit being a version of industrial alcohol, it is not within the competence of the State Legislature to levy any tax at all on this product, inasmuch as, the Central Government, nay, the Parliament by enacting the provisions of the Industries (Development and Regulation) Act, 1951 for the enactment of which power of the Parliament is referable to entry 52 of List I, i.e., Union List and having indicated that fermentation industries, i.e., industries engaged in manufacturing alcohol and other products of fermentation industries being one of the industries which the Union Government wishes to take under its control for the development and regulation of the particular industry in terms of entry 26 in the First Schedule to this Act read with sections 2 and 3(i) of this Act and the rectified spirit being a product manufactured by such an industry, the development and regulation of which is now controlled and regulated by this Act of Parliament, the State Legislature is denuded of its power to enact any law including a law to levy any tax im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its concerned departments, the respondents herein, to refund all taxes collected by the respondents from the petitioner from the date of its manufacturing activity in the year 1997 as detailed in annexure B with interest at 24 per cent per annum and pass such other orders as this honourable court might deem meet in the interests of justice. This writ petition was admitted on August 28, 2002 and the respondents have entered appearance through Sri Vedamurthy, learned Government Pleader. The writ petition was amended and additional prayers in terms of (aa) and (ab) have been sought for. The respondents have filed their statement of objections and after amendment have filed additional statement of objections. While it is asserted in the statement of objections that the State Legislature has legislative competence to levy sales tax on rectified spirit , it is also asserted that subjecting this transaction of sale of rectified spirit and ethyl alcohol at different rates is also justified; that the two products of alcohol, i.e., the two presentations in which alcohol is sold in commercial parlance are identified and recognised as two different items; that it has been s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, which is taxed at 10 per cent, and is a clear case of discrimination vis-a-vis the persons who buy these products in the market; that there is absolutely no reason for subjecting these products to different rates of taxation and therefore the provisions are violative of article 14 of the Constitution of India and as such to be declared as bad. To drive home this submission, reliance is also placed by Sri Vijaya Shankar, learned Senior Counsel on the notification dated May 18, 1991, a copy of which is produced at annexure B to W.P. No. 22098 of 2002, issued under clause (19-A) of section 2 of the Karnataka Excise Act, wherein it is indicated that ethyl alcohol also known as rectified spirit, silent spirit, natural spirit and such other substance, having a chemical formula C2H5OH to be a material for the purpose of the said Act, and wherein the State Government itself understood that ethyl alcohol and rectified spirit are one and the same product, having the same chemical formula . Reliance is also placed on the notification issued under the Ethyl (Price Control) Order, 1971, particularly the table appended to clause (2), which reads as under: and submits that the chemical cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Government under the Industries (Development and Regulation) Act, 1951. It is in support of this proposition, considerable reliance is placed by Sri Vijaya Shankar, learned Senior Counsel appearing for the petitioners on the decision of the Supreme Court in the case of Synthetics Chemicals Ltd. v. State of U.P. [1991] 80 STC 270; AIR 1990 SC 1927, a decision of a Bench of seven-Judge of the Supreme Court, which was considering the competence of the State Legislature for levying of excise duty on production of alcohol potable or non-potable particularly that was in place of production of industrial alcohol and wherein the Supreme Court had occasion to hold that it was only the Central Government which was competent to levy any duty or tax on the industrial alcohol with reference to entry 84 of List I and it was held that the State Legislature was not competent to levy such tax on manufacturers producing industrial alcohol, referring to entry 51 of List II of the Seventh Schedule to the Constitution. Though the Supreme Court was examining the competence of the State Legislatures to enact the respective enactments for levying of tax or vend fee and the answers were in the context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court and is a law that is binding on all courts in terms of article 141 of the Constitution and this ruling of the Supreme Court having been followed in a number of subsequent decisions of the Supreme Court, one such being in the case of State of Uttar Pradesh v. Modi Distillery [1995] 5 SCC 753 as also in the case of State of U.P. v. Vam Organic Chemicals Ltd. AIR 2003 SC 4650, and that the ratio of this case has to be applied for the decision in the present writ petitions and the writ petitions are to be allowed. It is also urged on behalf of the petitioners that though there is another decision of the Supreme Court with a composition of two learned Judges, in the case of State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289; [SCST Vol. 2 SC 1737], wherein the Supreme Court had itself described that its earlier decision in the case of Synthetics Chemicals Ltd. v. State of U.P. [1991] 80 STC 270; AIR 1990 SC 1927, on this aspect of the matter, viz., competence of the State Legislature to levy sales tax on alcohol and alcoholic products, as per incuriam and had reversed the decision of the Allahabad High Court, which had in fact applied the law as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusive powers in favour of Union Parliament to legislate or to make laws governing such industries, control of which is to be regulated by the Union by law declared by Parliament be extended in public interest and such law having been made by Parliament in the form of the Industries (Regulation and Development) Act, 1951 and industries involved in the production of alcohol being an industry notified for such purpose, submitted that all activities relating to such industry are a subjectmatter within the exclusive province of Parliament and no aspect of this subject can be in any way legislated upon or made the subject-matter of any tax or to impose any levy by any State Legislature and in this view of the matter also, it is submitted that insofar as the levy of any tax either by way of sales tax or otherwise, on a product of this nature of which the regulation and control is taken over by the Union by way of a Central Act, the State Legislature cannot levy any tax even by reference to any of the entries either in List III or List II. It is for this reason, it is submitted that any reference to entry 4 in List II by the respondents as a source of power to levy sales tax on the sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly arose in the case of State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289 (SC); [SCST Vol. 2 SC 1737], and has been squarely and directly answered by the Supreme Court, inasmuch as having characterised its earlier decision in the case of Synthetics Chemicals Ltd. v. State of U.P. [1991] 80 STC 270 (SC); AIR 1990 SC 1927, as a decision rendered per incuriam vis-a-vis the provisions of entry 54 of List II of the Seventh Schedule to the Constitution, and as the State is placing reliance only on entry 54 of List II, the discussion and the ruling rendered by the Supreme Court in the context of the competence of the State Legislature to levy any tax or what was known as vend fee, placing reliance or drawing sustenance by reference to entry 31 of List II was of no consequence; that whereas in the earlier case the debate was in the context of scope of legislation by the reference for withdrawal. In the light of entry 52 and entry 84 of List I visa-vis the competence of the State Legislature to levy such a duty by reference to entry 51 of List II, in the present case, there is no such competition as between the Legislatures of the Union and the State; that the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entifying the product for levy of sales tax by the State Government and the State Government wants to subject different products to different rates of tax, which is well within the domain of the State Legislature and in such an exercise if the Legislature has laid stress on the commercial nature of the product rather than chemical contents or scientific classification of the product, the petitioners could not have any grievance in the matter. In support of this submission, the learned Government Pleader relies on the decision of the Supreme Court in the case of Ramavatar Budhaiprasad v. Assistant Sales Tax Officer [1961] 12 STC 286. The learned Government Pleader alternatively submits that in the matter of selection of goods for levying of tax, the State enjoys a very wide leeway or frame and it is open to the State to subject to tax only such persons and commodities, as it chooses and also to levy tax at different rates and so long as the persons grouped for similar or identical terms form a class by themselves and are similarly situated or located. It is in this context, the learned Government Pleader submits that ethyl alcohol and rectified spirit are not exactly similarly si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration, in my view, lies in a narrow compass. In matters of taxation, liability for payment of tax arises in the context of statutory provisions and determination of such liability as under the statute governing levy, quantification (assessment) and collection of the tax. A dispute in such liability can be essentially raised by a person who has to remit the tax and sales tax being a tax collected through the medium of dealers who are primarily liable/responsible to collect tax and remit it to the State. Though a dealer may ultimately pass on the burden of tax that he has to pay to the State to consumers and may also work the tax into his pricing scheme of the product, the Act, at the best, positively permits under certain circumstances as sales tax payable to the State. A dealer whether he collects or otherwise such tax from a purchaser, is nevertheless liable to remit the tax. The State primarily looks to the dealer for payment of such tax. Such liability can be questioned, the correctness of it is challenged only in the manner provided under the statute itself, i.e., by the hierarchy of appeals and revisions. In the context of sales tax liability, a purchaser like the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which has to be paid, and a declaration invalidating the provisions of levy, such tax being beneficiary in the event of success of the petitioners, examination is taken up for such purpose. With regard to the first and the main contention, viz., want of legislative competence, on perusal of the rival pleadings and the submissions urged at the Bar, I am of the considered view that in the light of the decision of the Supreme Court in the case of State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289; [SCST Vol. 2 SC 1737], wherein the Supreme Court had occasion to examine its earlier decision in the case of Synthetics Chemicals Ltd. v. State of U.P. [1991] 80 STC 270; AIR 1990 SC 1927, and while answering the direct question as to the competence of a State Legislature levying sales tax on alcohol, even on industrial alcohol, and having answered this question directly and squarely in favour of the State and by reversing the decision of a division Bench of the Allahabad High Court, which had only placed reliance on the earlier decision of the very Supreme Court in the case of State of U.P. v. Synthetics and Chemicals Ltd. [1992] 87 STC 289; [SCST Vol. 2 SC 1737], and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming up, clearly indicates that the Supreme Court had occasion to examine the scope of levy of tax under the taxing entries 51 and 54 of List II vis-a-vis the non-taxing entry 52 in List I as also the general entry 8 in List II. The Supreme Court had also occasion to examine the scope of the legislation even in the context of entry 33 of the Concurrent List and it is after a thorough and detailed examination of the scope of such entries and topics of legislation, the court opined that insofar as the legislation of levy of sales tax under the provisions of the Act, like the Karnataka Sales Tax Act, is concerned, the source of power is referable only to entry 54 of List II, subject to the limitation contained in the very entry itself and is within the exclusive province of the State Legislature. It is in this view of the matter, the Supreme Court characterised that the earlier observations of the very court in the case of Synthetics Chemicals Ltd. v. State of U.P. [1991] 80 STC 270; AIR 1990 SC 1927, to the effect that its finding/ruling is per incuriam. Though it is vehemently contended by the learned Senior Counsel appearing for the petitioners that the latter decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure itself has made a distinction of the two items namely, rectified spirit and ethyl alcohol. It is beyond doubt or question that a classification can be adopted and the State can choose a product for levy of tax and it is also well within the domain of the State to fix a rate. While so doing, it can subject different persons to different rates of tax so also different items. In what manner a person or a product is subjected to levy of tax or impost under other enactments is also of no consequence for such levy under this enactment, as the very existence of different enactment for levying different types of taxes by itself indicates that it is possible and permitted for the State to do so and what result follows under one enactment need not necessarily follow in the other enactment. A person may be taxed at a lower rate in one enactment and may be subjected to tax at a higher rate in another enactment. It is for this reason that what has transpired under the provisions of the Karnataka Excise Act cannot have any bearing on levy a tax under the Karnataka Sales Tax Act. Insofar as the argument of discrimination is concerned, the argument can arise only when two similar or identic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t arise in the present case, inasmuch as the Legislature has not left this aspect for a matter of interpretation as the two products are differently identified and subjected to tax at the rate as indicated against the particular product. Further, the question of interpretation does not arise in a situation of this nature and it is therefore that while rectified spirit suffers tax at a higher rate, ethyl alcohol may suffer tax at a lower rate. Different products will have different rates of taxes, which does not amount to any discrimination and this principle of levying tax at different rates on different products in taxation matters is well settled for being examined at any greater length. It is for this reason the second contention urged on behalf of the petitioners to declare that the levy of tax at two different rates is discriminatory and therefore one levy of tax at only one rate is permissible or that it should be so interpreted as to levy tax at the rate lower on both the products on the premise that the chemical combination is the same, is rejected. As both the contentions urged on behalf of the petitioners fail, it is not necessary for this court to consider the further ..... X X X X Extracts X X X X X X X X Extracts X X X X
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