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Laxmi Starch Factory Ltd. v. State Of Kerala .
Structured Summary of the Provided Legal Opinion
Factual and Procedural Background
The petitioner, Laxmi Starch Factory Limited, Eundara, was assessed to tax under the Central Sales Tax Act, 1956 in respect of its inter-State sales of tapioca chips for the assessment years 1958–1959 (T.R.C. No. 13) and 1959–1960 (T.R.C. No. 14). Prior to these assessments, the Government of Kerala issued a notification under Section 6 of the General Sales Tax Act, 1125, dated 23-9-1958 and published in the Kerala Gazette on 30-9-1958, exempting certain goods (including "Vegetables including tapioca except its manufactured product") from tax under the State Act, subject to compliance with a licence condition under the General Sales Tax Rules, 1950. The sales in question were effected after 30-9-1958 and it was common ground that the petitioner had complied with the licence condition specified in the notification. The petitioner contended that, because those sales would have been exempt under the State (General) Sales Tax Act if they had been intra-State sales, they were likewise not liable to tax under the Central Sales Tax Act, 1956 by virtue of Section 9 of that Act. The court considered the statutory provisions (including the substituted Section 9) and a relevant Supreme Court decision before allowing the petitions.
Legal Issues Presented
- Whether inter-State sales of tapioca chips that would have been exempt from tax under the State General Sales Tax Act by virtue of a Section 6 notification are nonetheless taxable under the Central Sales Tax Act, 1956, having regard to Section 9 of the Central Act.
- Whether the substitution of Section 9 by the Central Sales Tax (Second Amendment) Act, 1958 produced any material alteration relevant to the petitioner's case.
Arguments of the Parties
Petitioner's Arguments
- The petitioner argued that the relevant sales of tapioca chips would have been exempt from tax under the General Sales Tax Act, 1125, by virtue of the State notification dated 23-9-1958 (published 30-9-1958), and that the petitioner had complied with the notification's licence condition.
- On that basis, the petitioner contended that those inter-State sales were not liable to taxation under the Central Sales Tax Act, 1956, by virtue of Section 9 of the Central Act which directs that central tax be levied and collected "in the manner" provided by State law.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Mysore v. Laskhminarasimhiah Setty, (1965) 16 STC 231 : AIR 1965 SC 1510 | The Supreme Court's interpretation of Sections 6, 8 and 9 of the Central Sales Tax Act — in particular the principle that Section 9 requires the levy and collection of central tax "in the same manner" as State law, and that the scheme of the Central Act does not necessarily impose tax where the State law results in nil liability (including application of single-point taxation under the State Act). | The court relied on this decision to conclude that where, by operation of a State exemption (notification under Section 6 of the State Act), a dealer would not have been liable to tax if the sales were intra-State, the dealer is likewise not liable under the Central Sales Tax Act for the same transactions occurring in inter-State trade. The decision was applied to allow the petitions. |
Court's Reasoning and Analysis
The court's analysis proceeded from the statutory texts and the facts agreed between the parties. The key statutory provision was Section 9 of the Central Sales Tax Act, 1956 (including the substituted form under the 1958 amendment), which provides that tax on inter-State sales shall be levied and collected in the State from which the movement of goods commenced and that the State authorities will assess and collect the tax "in the same manner as" under the general sales tax law of the State. The court observed that the substitution of Section 9 by the 1958 amendment did not make any material alteration relevant to the case at hand.
The court noted the content of the Kerala notification under Section 6 of the General Sales Tax Act, 1125, which exempted the sale of specified goods (including tapioca) from State sales tax subject to licence conditions, and that the petitioner had complied with those licence conditions for the sales in question occurring after the notification publication date.
The court then relied on the Supreme Court's decision in State of Mysore v. Laskhminarasimhiah Setty, which construed Sections 6, 8 and 9 of the Central Act and held that the Central Act's scheme contemplates that in some cases (as indicated by the proviso to Section 8(1)) the effective rate may be nil, and that Section 9 requires the levy and collection of tax by the State authorities in the same manner as under State law. The Mysore decision specifically rejected a construction that would permit the Centre (through State agencies) to collect tax at multiple points where the State law taxes only at a single point; the Central Act must be construed to avoid such an anomaly.
Applying that principle, the court held that where the State law (by notification under Section 6) produces non-liability for the transactions if they had been intra-State, Section 9 of the Central Act postulates a corresponding non-liability under the Central Act even though the transactions were inter-State. On that basis the court allowed the petitions, concluding that the petitioner was not liable under the Central Sales Tax Act for the sales in question.
The court made this decision without any order as to costs.
Holding and Implications
Holding: PETITIONS ALLOWED.
Implications:
- The direct effect is that the petitioner is not liable to tax under the Central Sales Tax Act, 1956 in respect of the inter-State sales of tapioca chips for the assessment years 1958–1959 and 1959–1960 that were the subject of the assessments, because those sales would have been exempt under the State General Sales Tax Act by virtue of the Section 6 notification and the petitioner had complied with the notification conditions.
- The petitions were allowed without any order as to costs.
- The opinion applies an existing Supreme Court interpretation (State of Mysore v. Laskhminarasimhiah Setty) and does not purport to lay down a new precedent beyond applying that authority; the decision's practical consequence is limited to the parties and the assessments before the court.
1. The petitioner, the Laxmi Starch Factory Limited, Eundara, has been assessed to sales tax under the Central Sales Tax Act, 1956, in respect of its inter-State sales of tapioca chips in the assessment years 1958–1959 and 1959–1960. T.R.C No. 13 relates to the assessment year 1958–1959 and T.R.C No. 14 relates to the assessment year 1959–1960.
2. The intra-State sales of tapioca chips are exempt from taxation under the General Sales Tax Act, 1125, by virtue of a notification issued under Section 6 of the Act and dated 23-9-1958. The notification was published in the Kerala Gazette dated 30-9-1958. Section 6 of the General Sales Tax Act, 1125 deals with the power of the Government to notify exemption and reduction of tax, and reads as follows:
“(1) Government may by notification in the Gazette, make an exemption, or reduction in rate, in respect of any tax payable under this Act— (i) on the sale of any specified class of goods at all points or at any specified point or points in the series of sales by successive dealers; or
(ii) by any specified class of persons in regard to the whole or any part of their turnover.
(2) Any exemption from tax, or reduction in the rate of tax notified under sub-section (1)—
(a) may extend to the whole of the State or to any specified area or areas therein;
(b) may be subject to such restrictions and conditions as may be specified in the notification, including conditions as to licences and licence fees”.
3. The relevant portion of the notification is in the following terms:
“In exercise of the powers conferred by Section 6 of the General Sales Tax Act, 1125 (Act XI of 1125) the Government of Kerala hereby make an exemption in respect of the tax payable under the said Act on the sale of goods specified below subject to the condition that the dealers in such goods shall take out licences under Rule 21 of the General Sales Tax Rules, 1950 on payment of the fees prescribed under Rule 22 thereof:
Provided that the burden of proving that a transaction is not liable for taxation shall be on the dealer.
SCHEDULE
1. Vegetables including tapioca except its manufactured product.”
4. The sales in question were effected after 30-9-1958 and it is common ground that the petitioner has complied with the condition for the exemption specified in the notification. The petitioner's contention is that as the sales concerned would have been exempt from taxation under the General Sales Tax Act, 1125, if the were intra-State sales in Kerala, they are also not liable to taxation under the Central Sales Tax Act, 1956 by virtue of S. 9 of that enactment.
5. Section 9 of the Central Sales Tax Act, 1956, deals with the levy and collections of tax. Section 6 of the Central Sales Tax (Second Amendment) Act, 1958 substituted & new section for the old Section 9 of the Central Sales Tax Act, 1956, sub-section (1) of the substituted S. 9 (omitting the proviso thereto) reads as follows:
“The tax payable by any dealer under this Act on sales of goods effected by him in the course of inter-State trade or commerce (whether such sales fall within clause (a) or clause (b) of S. 3) shall be levied and collected by the Government of India in the manner provided in sub-section (3) in the State from which the movement of the goods commenced;”
and sub-section (3) of that section (omitting the proviso thereto):
“The authorities for the time being empowered to assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India and subject to any rules made under this Act assess, collect and enforce payment of any tax, including any penalty payable by a dealer under this Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, appeals, reviews, revisions, references, penalties and compounding of offences, shall apply accordingly.’
6. Section 9 of the Central Sales Tax Act, 1956, as it stood before the substitution—the substitution does not seem to make any material alteration as far as the case before us is concerned—was in the following terms:
“(1) the tax payable by any dealer under this Act shall be levied and collected in the appropriate State by the Government of India in the manner provided in sub-section (2).
(2) the authorities for the time being empowered to assess, collect and enforce payment of any tax under the general sales tax law of the appropriate state shall, on behalf of the Government of India and subject to any rules made under this Act, assess, collect and enforce payment of any tax payable by a dealer under this Act in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, appeals, reviews, revisions, references, penalties and compounding of offences, shall apply accordingly.
(3) the proceeds (reduced by the cost of collection) in any financial year of any tax levied and collected under this Act in any State on behalf of the Government of India shall, except in so far as those proceeds represent proceeds attributable to Union territories, be assigned to that State and shall be retained by it; and the proceeds attributable to Union territories shall form part of the Consolidated Fund of India.”
7. This section came up for consideration before the Supreme Court in State of Mysore v. Laskhminarasimhiah Setty, (1965) 16 STC 231 : (AIR 1965 SC 1510).
8. The turnover of the assessee sought to be taxed in the case before the Supreme Court, a case from Mysore, arose out of the sales of handloom and powerloom cloth in the course of inter-State trade or commerce. Under the Mysore Sales Tax Act, 1957, the sales of those goods were liable to tax under S. 5(3)(a) read with entry 7 in Schedule II of that Act at a single point, on sale by the first or the earliest of successive dealers in the State.
9. It was common ground that the assessee was not the first or the earliest of successive dealers in the State in respect of the transactions sought to be taxed and that if the inter-State sales were intra-State sales, no tax would have been attracted under, the Mysore Sales Tax Act, 1957. The majority judgment of the Supreme Court extracted Sections 6, 8 and 9 of the Central Sales Tax Act, 1956 and said:
“Section 6 of the Central Act is the charging section. Subject to the other provisions contained in the Act, every dealer is liable to pay tax under the Act on all sales effected by him. It will be noticed that the liability is not absolute but subject to the other provisions of the Act. If the effect of another provision is to lake away the liability, effect will have to be given to it. Section 8 prescribes the rates of tax to be levied. It is common ground that S. 8(1) does not apply to the facts of the case, but the proviso is important as it indicates that in some cases falling within the proviso the rate may be nil. In other words, notwithstanding S. 6, the dealer may not be liable to pay any tax if he comes within the proviso to S. 8(1). It follows that the scheme of the Act is not that every transactions in inter-State trade must bear some tax.
Section 8(2) provides for the method of calculating the tax; under that sub-section, the tax shall be calculated at the same rates and in the same manner as would have been done if the sale had, in fact, taken place inside the appropriate state. The expression ‘in the manner’ may give rise to two conflicting views, namely (i) it is concerned only with the calculation of the tax, and (ii) it deals not only with the-calculation of rates but also the manner of levy of the tax. But S. 9(1) dispels the ambiguity for it says that the tax payable by am dealer under the Central Act shall be levied and collected in the appropriate State by the Government of India in the manner provided in sub-section (2); and sub-section (2) of S. 9 empowers the appropriate State authorities to assess, collect and enforce payment of any tax payable by any dealer under the Central Act in the same manner as the tax on the sale of purchase of goods under the general sales tax law of the State is assessed, paid and collected. The expression ‘levy’ means ‘impose’. Under Section 5(3)(a) of the Mysore Sales Tax Act, 1957 hereinafter called the State Act, tax shall be levied in the case of the sale of any of the goods mentioned in column (2) of the Second Schedule by the first or the earliest of successive dealers in the State, who is liable to tax under that section, a tax at the rate specified in the corresponding entry of column (3) of the said Schedule on the turnover of sales of such dealer in such year relating to such goods when S. 9(1) says that under the Central Act tax shall be levied in the same manner as the tax on the sale or purchase of goods under the general sales tax law of the State is assessed, paid and collected, it is reasonable to hold that the expression ‘levied’ in Section 9(1) of the Central Act refers to the expression ‘levied’ in Section 5(3)(a) of the State Act. There is no reason why the Central Act made a departure in the manner of levy of tax on the specified goods which are taxed only at a single point under the State Act; if any such radical departure was intended, the Central Act would have expressly stated so. The Central Act was passed to levy and collect sales tax on inter-State sales to avoid confusion and conflict of jurisdictions; the tax is also collected only for the benefit of the States. Therefore, the construction we accept avoids the anomaly of the State collecting tax on powerloom textiles only at a single point and the Centre, through the agency of the State authorities, collecting the said tax for and on behalf of the State at multi-points.
There has been considerable difference of opinion among the High Courts about the true construction of Section 8(2), but none of them has relied on Section 9 of the Central Act. Therefore, it is not necessary to refer to the cases cited before us.”
10. It is agreed that by virtue of the notification under Section 6 of the General Sales Tax Act, 1125, the petitioner would not have been liable to sales tax under that Act if the sales in question were sales in intra-State trade instead of sales in inter-State trade. In the light of the decision of the Supreme Court we must hold that the non-liability to taxation under the State Act if the sales were in intrastate trade postulates a non-liability to taxation under the Central Act even when the sales were in inter-State trade, and allow these petitions. We do so; but in the circumstances of the case without any order as to costs.
KI/RSK/R.G.D
11. Petitions allowed.
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