TMI Blog2010 (4) TMI 1004X X X X Extracts X X X X X X X X Extracts X X X X ..... oner No. 2 is the administrative officer and authorized signatory of petitioner No. 1 and petitioner No. 3 is a member of petitioner No. 1 association, carrying on business as a registered dealer of raw jute and an occupier of a jute mill under the trade name of M/s. Birla Corporation Limited. The facts and circumstances leading to filing this application are: Petitioner No. 3 filed returns for 4 quarters ending on March 31, 2006 and by an order dated November 26, 2008 an assessment thereon has been made wherefrom it appears that the input-tax credit claimed by petitioner No. 3 on the amount of tax paid on purchase of raw jute has been disallowed on the basis of sub-section (2) of section 22 of the VAT Act and hence the present application is filed challenging the decision taken by the respondent-Department as a whole that the input-tax credit claimed/to be claimed by owners/occupiers of jute mills on the amount of tax paid or payable towards purchase of raw jute under section 11 of the VAT Act is not admissible under the provision of sub-section (2) of section 22 read with the provision of clause (47) of section 2 of the VAT Act, i.e., raw jute being taxfree goods at the point ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited [2009] 5 SCC 342. Mr. B. Majumdar, the learned State Representative, though at first intended to file affidavit-in-opposition for the respondents to contest the contents of ultra vires but ultimately has filed written submission for the Revenue for consideration contending, inter alia, that the occupiers of jute mills form a well defined separate class since the Bengal Raw Jute Taxation Act, 1941 and such classification of the occupiers of jute mills from the other dealers of jute goods and/or other goods is founded on an intelligible differentia which distinguishes that subject-matter from the others left out and considering the wide discretion enjoyed by the Legislature in the field of taxation and its economic activities courts generally refrain from striking down the classification unless the fiscal law is manifestly discriminatory. For proper appreciation of the moot point of unconstitutionality and the decision thereon in the context of this case it appears just and proper to us to note at the outset as to what is input tax as per clause (18) of section 2 and what is input-tax credit as per provision of clause (19) of section 2 and how and to what extent inpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been disallowed on the ground of non-entitlement as per provision of sub-section (2) of section 22 of the VAT Act and here lies the question of justification of such a notion of disallowance in the light of the relevant provisions of the Act vis-a-vis the constitutional guarantee of equal treatment among the equals, i.e., all the dealers of raw jute as well as of other goods under the structure of the VAT Act and the scheme and object behind grant of ITC. The scheme for ITC to a registered dealer has enumerated in section 22 of the Act and as per sub-section (1) thereof every registered dealer other than those specified elsewhere in the Act shall be entitled to claim ITC as defined in clause (19) of section 2 and subject to such conditions and restrictions as may be prescribed. In sub-section (2) of section 22 the condition imposed for entitlement of ITC by a registered dealer is that the dealer was to purchase taxable goods during the tax period for use in West Bengal. Now as per this condition to be eligible to ITC the dealers' purchase must be related to taxable goods as has been defined in clause (47) of section 2 of the Act and it means the goods other than those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oint of purchase but tax-free goods at the point of sale by placing it under Schedule A, entry 30 and the result is that all other dealers of taxable goods are enjoying ITC but the dealers who are occupiers of jute mills are denied ITC due to the definition clause (47) of section 2 of the Act and here lies its unconstitutionality. Undisputedly raw jute is the only goods which has been made taxable at the point of purchase and tax-free at the point of sale right from the days of introduction of such tax by the enactment of the Bengal Raw Jute Taxation Act, 1941 (Bengal Act 11 of 1941) on November 27, 1941, and that is continuing through the Bengal Sales Tax Act, 1941, West Bengal Sales Tax Acts, 1954 and 1994 and even in the VAT Act, 2005. Here we intend to reproduce the relevant section 3(1) of the Bengal Raw Jute Taxation Act, 1941: 3. (1) Except as otherwise expressly provided in this Act, there shall be charged and levied a tax of (twelve paise) on every maund of raw jute purchased by the occupier of a jute mill or purchased and despatched outside areas to which this Act extends by any means of transit by a shipper of jute and such tax shall be payable to the Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an feel the anxiety of petitioner No. 1 in not getting the benefit of ITC by one of its members and also the apprehension of similar order against all the other members in the similar situations but cannot share the legal view as thrust upon by Mr. Bhattacharyya for them accusing the legislative act of specifying raw jute in Schedule A by defining it as tax-free item in the realm of taxation and/or with the contention of Mr. Bhattacharyya as is made in writing under paragraphs 11-13 in the written notes that harmonious reading of the provisions under sub-section (2) of section 22; section 11; sub-clause (b) of clause (18) and clause (19) of section 2 points out that taxable goods means an item which is taxable either at the point of purchase or at the point of sale of that item and/or in the true sense of the term raw jute is a taxable goods and/or by placing the goods under Schedule A by virtue of the definition clause (47) of section 2, the occupiers of the jute mills have been severely discriminated amongst the other registered dealers of same goods and/or of other goods and/or it is contrary to article 14 of the Constitution of India and also unreasonable, vague, unworkable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unequal economic activities. Shipper of jute as per definition clause (42) read with subclause (b) of clause (54) of section 2 means any person who purchases raw jute and supplies it himself or by an agent to any person including himself at any place outside West Bengal by any means of transit. Considering the above activities of the shippers of jute with reference to the provision under section 21A(2) of the Act it can be said/held that they sell the purchased raw jute in the course of export within the meaning of section 5 of the Central Sales Tax Act, 1956 and such sales come under clause (59) of section 2 and mean zero rated sale on which no tax is chargeable but credit for the input tax related to that sale is admissible. On the other hand, occupier of a jute mill , as per definition clause (25) of section 2, means the person who has ultimate control over the affairs of the jute mill and as per clause (21) of section 2 jute mill means a factory, . . . which is engaged wholly or in part in the manufacture of jute products which are quite different commercial goods from that of raw jute as is defined in clause (36) of section 2 of the VAT Act. In the realm of Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question of rational relation to the object of ITC be considered later. In State of West Bengal v. Anwar Ali Sarkar AIR 1952 SC 75 it is settled that if one's interest is affected by a particular piece of legislation denying equal privileges with others occupying the same position the Legislature was actuated by a hostile intention against a particular person or class. But here in this case we have analyzed the economic activities of the intradealers of raw jute at the point of sale and found that the occupiers of jute mills are not occupying the same place with that of the shippers of jute and hence, the principle is not aptly applicable in the case of the petitioners. In the ease of Video Electronics Pvt. Ltd. v. State of Punjab [1990] 77 STC 82 (SC); AIR 1990 SC 820 the question was reduction of sales tax payable by electronic manufacturing units in Punjab by notification while for similar goods manufactured outside the State and sold within the State remained the same on the allegation of discrimination it was held concessional rate was introduced considering industrial situation of the State and hence not discriminatory and power to grant exemption is inherent in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working on administration or clerical side of factory or in office being made entitled to gratuity on completion of only one year of continuous service or even lesser by service compensation held discriminatory and violative of article 14 of the Constitution. In the above cited case the classification of technical employees and administrate and clerical employees on the point of entitlement of gratuity on completion of five years and one year or less continuous service was not based on any intelligible differentia but in this case of ITC we have seen such a differentia based on national interest. The cited case of Associate Provisional Picture Houses Private Ltd. v. Wednesbury Corporation [1948] 1 KB 223 the matter of unreasonable exercise of statutory discretion by a person entrusted with a discretion but here in this case it is not the case that the concerned Deputy Commissioner of Sales Tax, Corporate Division had discretionary power in the matter of ITC but that is not exercised reasonably and/or by exercising the discretion unreasonably against the petitioner No. 3 ITC has not been granted. However, if the decision is sought to be applied in relation to the statutory di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le (1) of rule 21 is . . . input tax credit or input tax rebate shall be available on opening stock of goods . . . held on the appointed day by a registered dealer other than a shipper of jute, an auctioneer. . . . The provision of sub-rule (2) of Rules 21 is as follows: Notwithstanding anything contained in sub-rule (1), input-tax credit or input tax rebate will be available only on stock of those goods that suffered any kind of tax under section 12 . . . of the West Bengal Sales Tax Act, 1994 prior to the appointed day and are taxable under the Act. Sub-rule (3) stipulates. The claim for input-tax credit shall be supported by proof regarding payment of tax by the purchasing dealer. A conjoint reading of the provisions of sub-rules (1), (2) and (3) shows that the occupiers of jute mills will get ITC on their stock of raw jute purchased before April 1, 2005 and subject to the proof regarding payment of tax by the purchasing dealers. After analyzing different relevant provisions of the VAT Act and the Rules framed thereunder it appears that it is not at all necessary to consider the question of Constitutional validity of section 2(47) or section 22(2) and express a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit or input-tax rebate, as referred to in sub-section (1), shall be allowed to the registered dealer who has purchased taxable goods (hereinafter referred to as, the purchasing dealer ) during a tax period for use by him in West Bengal subject to the provisions as laid down in sub-section (3) to sub-section (20). Undisputedly, the occupiers of jute mills, as represented by their association, have paid purchase tax at the time of purchase of raw jute, thus satisfying that the goods purchased were taxable goods for use by them in West Bengal. This provision of section 22(2) becomes nugatory if it is held that raw jute is a non-taxable item because of entry 30 in Schedule A to the VAT Act, detailing items on the sales of which no tax is payable, ignoring the fact that tax on raw jute has been paid at purchase point. The provisions of two sections thus contradict each other making at least one of them unworkable. The explicit intention of the Legislature to allow input tax credit or rebate to the occupiers of jute mills under one section cannot perhaps be negated by another section. We are, therefore, of the view that at least for the purpose of allowing input-tax rebate raw jute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id by them. The petitioners have submitted that section 2(47) read with the provisions of section 22(2), can be read differently and harmoniously with other relevant provisions to save it from the vice of discrimination and unconstitutionality. Alternatively, it has been submitted that if interpretation of the Revenue is allowed to prevail section 2(47) along with section 22(2) get tainted with vice of discrimination for making unreasonable classification without any nexus with the object of such classification, if any. VAT Act which came into force from April 1, 2005 has entitled every registered dealer in West Bengal to claim and obtain input-tax credit (in short, ITC) or input-tax rebate (in short, ITR) (vide section 22(1)). Section 22(2) has allowed registered purchasing dealers the benefit of ITC or ITR on their purchases of taxable goods (emphasis Here italicised. supplied) for use by them during a tax period. Sub-sections (1) and (2) of section 22 of the VAT Act are reproduced below: 22. Input tax credit or input tax rebate by a registered dealer. (1) Every registered dealer other than those specified elsewhere in the Act, shall be entitled to claim an input tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupiers of jute mills have been excluded from operation of section 11. Section 12 of the VAT Act has imposed purchase tax on all registered dealers under specified circumstances. There is no dispute that up to August 1, 2006, ITC was available both on sales tax and purchase tax paid by registered dealers. It is to be noted that sales tax is paid by the purchasing dealer to the selling dealer, who remains liable to deposit such sales tax with the State Government while purchase tax is paid by the purchasing dealer to the State Government directly. Practically, nature of both the taxes is the same, but legal liability is on different persons. In both the case tax is actually paid by the purchaser in case of sales tax indirectly through the seller and in case of purchase tax directly to the ex-chequer. Present dispute relates to the year 2005-06. Revenue authorities refused to allow benefit of ITC on purchase tax paid by the occupiers of jute mills in the said year 2005-06 on the plea that raw jute being in Schedule A was not taxable goods as defined by section 2(47) and section 22(2) did not allow ITC on purchase tax paid for purchasing non-taxable goods enlisted in Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of input tax, or part thereof, by a registered dealer against the amount of his output tax. Input tax paid by a registered dealer during 2005-06 was to be calculated taking into account purchase tax paid on purchase of raw jute under section 11. Section 22 of the VAT Act was/is enacted for the purpose of making input-tax credit available and facilitating refund of ITC to those dealers who are entitled to get such refund. When purchase tax paid on purchase of raw jute was made a component of input tax section 22(2) could not have meant to exclude or ignore purchase tax paid on purchase of raw jute for the purpose of giving input-tax credit. In simple words, input-tax credit is the difference between the amount of input tax and the amount of output tax paid by a dealer during a tax period. Moreover Schedule A to the VAT Act is a list of goods on which sales tax is not payable by the selling dealer. It does not exempt payment of purchase tax or deal with the liability of the purchaser to pay purchase tax. Raw jute has been included in the Schedule A as no sales tax is payable by the seller. Section 21 provides: 21. Tax-free sale of goods. No tax shall be pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the definition in section 2(47). According to us taxable goods in sub-section (2) of section 22 means goods on which any kind of tax is leviable under the provisions of the VAT Act. Any other interpretation or construction will be contrary to and will defeat the object of giving input-tax credit or rebate as contemplated by the VAT Act itself during material point of time. It has been pointed out that raw jute is the only goods on which purchase tax is payable but no sales tax is chargeable at sale point. Non-payability of sales tax at the point of sale does not really make any material difference. Section 2(59) of the VAT Act has made input-tax credit admissible even for zero rated sales also. As it is held that taxable goods in section 22(2) are not to be interpreted on the basis of the definition contained in section 2(47), it is not necessary to consider the question of discrimination and resultant constitutional invalidity. For the reasons aforesaid it is declared that raw jute was to be treated as taxable item up to July 31, 2006 for the purpose of input-tax credit or inputtax rebate under section 22(2) of the VAT Act and that the occupiers of jute mill ..... X X X X Extracts X X X X X X X X Extracts X X X X
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