Tarun Chatterjee, J.— Challenge in this appeal is to the judgment passed by the Division Bench of the High Court of Judicature at Allahabad.
2. Deepak Fertilizers and Petrochemical Corporation Ltd. (the respondent herein) is a company registered under the Companies Act, 1956 which is engaged in the business of manufacture and sale of phosphatic fertilisers and allied chemicals, the composition of which is 23:23:0 (nitrogen, phosphorous and potassium) in the State of U.P and is registered under the U.P Trade Tax Act (hereinafter called “the Act”) and the Central Sales Tax Act. The State of U.P (the appellants herein) issued Notification dated 2-11-1994, which provided for exemption from payment of tax on the sale of potassium phosphatic fertilisers for a specified period. This notification reads as under:
“In the exercise of the powers under Clause (a) of Section 4 read with Section 25 of the U.P Trade Tax Act (U.P Act 15 of 1948), the Governor is pleased to direct that from 1-11-1994 to 31-3-1995 no tax would be payable under the aforesaid Act on the sale of potassium phosphatic fertilisers.”
3. A reading of this notification indicates that no tax would be payable for the period from 1-11-1994 to 31-3-1995 under the Act on the sale of potassium phosphatic fertilisers.
4. Subsequently a Notification dated 10-4-1995 was issued which superseded the Notification dated 2-11-1994. This notification runs as under:
“In exercise of powers under Section 25 read with Clause 21 of sub-section A of Section 4 of the U.P Trade Tax Act, 1948 (U.P Act 15 of 1948) and Section 21 of the U.P General Clauses Act, 1904 (U.P Act 1 of 1904) superseding Government Notification No. T.T-2-3714/11-9(856)/92-U.P. Act-15-48 Order-94 dated 2nd November, 1994 (Sl. No. 235), the Governor is pleased to direct that during the period 1st November, 1994 ending with 31st March, 1995 no tax will be payable under the aforesaid U.P Act 15 of 1948 for the following chemical fertilisers:
i.
DAP
ii.
MOP
iii.
Super Phosphate
iv.
NPK 12:32:16
v.
NPK 15:15:15
vi.
NPK 20:20:0
vii.
NPK 14:35:14”
5. This notification was followed by another Notification dated 15-5-1995, which provided for exemption to the same category of fertilisers as mentioned in the previous Notification dated 10-4-1995. From a perusal of the aforesaid two notifications, we find that the exemption to NPK 23:23:0 (product of the respondent) was withdrawn.
6. Finding that the exemption to NPK 23:23:0 was not allowed by the aforesaid two notifications, the respondent had written a letter to the Commissioner, Trade Tax of the State of U.P requesting him to include NPK 23:23:0 in the exemption list issued under the aforesaid two notifications. On 23-11-1995 the Trade Tax Department of U.P asked by a letter to the respondent Company, “why their product be included in the aforesaid two notifications?” As the exemption to the product of the respondent was not allowed and aggrieved by the issuance of these notifications withdrawing such exemption allowed by the 1994 notification, the respondent filed a writ petition in the High Court of Judicature at Allahabad challenging the validity of the aforesaid two notifications and prayed for a direction upon the appellants not to discriminate NPK 23:23:0 and to include the same in the list of exempted items of the aforesaid two notifications.
7. In the writ petition, the first grievance of the respondent was that the Notification dated 10-4-1995 could not have been issued with retrospective effect. Relying on a decision of the Allahabad High Court, namely, Ganesh International v. Asstt. Commr. (2001) 124 STC 600 (All) the High Court held that the Notification dated 10-4-1995 shall apply prospectively and not retrospectively. The learned counsel appearing on behalf of the appellants have not seriously challenged this part of the impugned order of the High Court. However, since this question arose before us and the High Court decided the same against the appellants relying on a decision of its Court, we prefer to deal with the question in this judgment. Let us, therefore, examine whether, in the facts and circumstances of the case, the Notification dated 10-4-1995 which denied exemption to NPK 23:23:0 retrospectively can be held to be invalid as held by the High Court in the impugned order. Before proceeding further we may reiterate that the Notification dated 2-11-1994 as quoted hereinearlier permits exemption from taxes on the sale of potassium phosphatic fertilisers from 1-11-1994 to 31-3-1995. In the Notification dated 2-11-1994 exemption, therefore, was allowed on sale of all categories of potassium phosphatic fertilisers which, however, was withdrawn in respect of the product of the respondent, namely, NPK 23:23:0 by the Notification dated 10-4-1995.
8. Now the question arises whether by the Notification dated 10-4-1995 retrospectively, the exemption granted to the product of the respondent, namely, NPK 23:23:0 could be withdrawn. The High Court held that such exemption could not be withdrawn by the Notification dated 10-4-1995 with retrospective effect. The learned counsel for the appellants, however, submitted that the High Court fell in error in holding that retrospective withdrawal of the exemption granted by the Notification dated 2-11-1994 could not be permitted. However, the learned counsel for the respondent submitted that such retrospective withdrawal was not permissible.
9. We have heard learned counsel for the parties on this aspect. After taking into consideration the Notifications dated 2-11-1994 and 10-4-1995 we have no hesitation in our mind to hold that the High Court was fully justified in holding that exemption granted to the respondent by the notification dated 2-11-1994 could not be withdrawn by a subsequent notification with retrospective effect. In this connection, we may rely on Section 25 of the Act itself which runs as under:
“25. Power to issue notifications with retrospective effect.—Where the State Government is satisfied that it is necessary so to do in public interest, it may issue a notification under Section 3-A, or Section 3-D, or Section 4 or Section 4-B so as to make it effective from a date not earlier than six months from the date of issuance of such notification:
Provided that no notification having the effect of increasing the liability to tax of a dealer shall be issued with retrospective effect under this section.”
(underlining is ours)
10. For this aspect, proviso to Section 25 of the Act is important. A bare perusal of the proviso to Section 25 of the Act would clearly show that no notification having the effect of increasing the tax liability shall be issued with retrospective effect under the aforesaid section. In our view, the High Court was justified in holding that exemption could not be withdrawn with retrospective effect by issuance of subsequent Notification dated 10-4-1995, superseding the Notification dated 2-11-1994. Restricting the exemption of tax to certain fertilisers in the same class of chemical fertilisers certainly amounted to increasing the liability to tax of the dealer with retrospective effect, which in our opinion, cannot be issued in view of the proviso to Section 25 of the Act. Accordingly, we hold that the Notification dated 10-4-1995, denying exemption to NPK 23:23:0 retrospectively is illegal and invalid and we are in agreement with the view expressed by the High Court on this question.
11. The second grievance of the respondent in the writ petition is that the Notification dated 15-5-1995 is discriminatory as it exempts all kinds of phosphatic fertilisers of NPK except NPK 23:23:0 fertiliser manufactured by the respondent Company. The learned counsel for the respondent contended that all the fertilisers of NPK category of various combinations are treated as phosphatic fertilisers not only by the Government of India but also by the various agricultural departments of the various State Governments, the farmers, the in-trade and in-common parlance. The High Court relying on a decision of this Court in Ayurveda Pharmacy v. State of T.N (1989) 2 SCC 285, held that the two items of the same category cannot be discriminated. Hence, the High Court held that merely because of composition of NPK, discrimination could not have been made against the respondent.
12. In Ayurveda Pharmacy (1989) 2 SCC 285 decision, it was held that while it was open to the legislature or the State Government to select different rates of tax for different categories, where the commodities belonged to the same class or category, it was necessary that there must be a rational basis of discrimination between one commodity and another for the purpose of imposing tax. Accordingly, the High Court went on to hold that merely because of different composition of NPK, discrimination could not have been made against NPK 23:23:0 and hence ordered the appellants not to realise tax on the sale of NPK 23:23:0 from the respondent for the period from 10-4-1995 to 31-3-1996.
13. From a perusal of the notifications in question, it is evident that other fertilisers of the NPK category i.e NPK 12:32:16; NPK 15:15:15; NPK 20:20:0; NPK 14:35:14 are included in the exemption list, whereas it is a matter of fact that NPK 23:23:0 fertiliser is also a fertiliser of the same category, but it is omitted from the list. According to the Notification dated 2-11-1994, the intention of the State was not to tax the sale of “potassium phosphatic fertilisers” but when we go into enquiry of nomenclature of these chemical compounds, we find that NPK 23:23:0 is a “nitro-phosphate fertiliser” which has no potassium (K) ingredient. The Notifications dated 10-4-1995 and 15-5-1995 clearly include NPK 20:20:0, which is also a nitro-phosphate fertiliser with zero content of potassium (K). This classification made under the Notification dated 10-4-1995 does not hold good on the rational basis and is hence subject to scrutiny. The fact remains stagnant that the notifications include a fertiliser NPK 20:20:0 which is of the same category as that of fertiliser NPK 23:23:0, because both are nitro-phosphate fertilisers. This shows that the State has not classified the two commodities on a rational basis for the purpose of imposing tax. This Court in Tata Motors Ltd. v. State of Maharashtra (2004) 5 SCC 783 has held:
“15. … It is no doubt true that the State has enormous powers in the matter of legislation and in enacting fiscal laws. Great leverage is allowed in the matter of taxation laws because several fiscal adjustments have to be made by the Government depending upon the needs of the Revenue and the economic circumstances prevailing in the State. Even so an action taken by the State cannot be so irrational and so arbitrary so as to introduce one set of rules for one period and another set of rules for another period by amending the laws in such a manner as to withdraw the benefit that had been given earlier resulting in higher burdens so far as the assessee is concerned, without any reason. Retrospective withdrawal of the benefit of set-off only for a particular period should be justified on some tangible and rational ground, when challenged on the ground of unconstitutionality.”
(underlining is ours)
14. The learned counsel for the appellants could not, however, satisfy us that there was a good reason to introduce the first set of notification for one period and another set of notification for another either by amending the notification or by introducing a new notification so as to withdraw the benefit that was given earlier, resulting in higher burden on the assessee without any reason.
15. The learned counsel appearing for the State relying heavily on Kerala Hotel and Restaurant Assn. v. State of Kerala (1990) 2 SCC 502, AIR 1990 SC 913 contended that the State has widest latitude where measures of economic and fiscal regulation are concerned. There is no dispute on this principle of law as enumerated in the aforesaid decision of this Court. However, this same law must not be repugnant to Article 14 of the Constitution i.e it must not violate the right to equality of the people of India, and if such repugnancy prevails then, it shall stand void up to the level of such repugnancy under Article 13(2) of the Constitution of India. Therefore, every law has to pass through the test of constitutionality, which is nothing but a formal name of the test of rationality. We understand that whenever there is to be made any type of law for the purpose of levying taxes on a particular commodity or exempting some other commodity from taxation, a sort of classification is to be made. Certainly, this classification cannot be a product of blind approach by the administrative authorities on which the responsibility of delegated legislations is vested by the Constitution. In a nutshell, the notifications issued by the Trade Tax Department of the State of U.P, dated 10-4-1995 and 15-5-1995 lack the sense of reasonability because it is not able to strike a rational balance of classification between the items of the same category. As a result of this, NPK 23:23:0 is not given exemption from taxation whereas all other NPK fertilisers of the same category like that of NPK 20:20:0 are provided with the exemption from taxation.
16. The reasonableness of this classification must be examined on the basis, that when the object of the taxing provision is not to tax the sale of certain chemical fertilisers included in the list, which clearly points out that all the fertilisers with the similar compositions must be included without excluding any other chemical fertiliser which has the same elements and compositions. Thus, there is no reasonable nexus of such classification among various chemical fertilisers of the same class by the State. This Court in Ayurveda Pharmacy (1989) 2 SCC 285 held that two items of the same category cannot be discriminated and where such a distinction is made between items falling in the same category it should be done on a reasonable basis, in order to save such a classification being in contravention of Article 14 of the Constitution of India.
17. Before finally deciding this aspect of the matter, we need to consider a decision cited by learned counsel for the appellant in Associated Cement Companies Ltd. v. Govt. of A.P (2006) 1 SCC 597 Learned counsel for the appellant, drawing inspiration from this judgment, submitted that no reliance could be placed on the decision of this Court in Ayurveda Pharmacy (1989) 2 SCC 285 wherein it was held that two items of the same category could not be discriminated and where such distinction was made between such items, it should be done in order to save such a classification being in contravention of Article 14 of the Constitution. While examining Ayurveda Pharmacy (1989) 2 SCC 285 this Court in Associated Cement (2006) 1 SCC 597 observed:
“29. In Ayurveda Pharmacy v. State of T.N (1989) 2 SCC 285 which is the sheet anchor of the appellants' submission the facts were: that the appellants were manufacturers of ayurvedic drugs and medicines, including arishtams and asavas. Arishtams and asavas contain alcohol, which according to the assessee was essential for the effective and easy absorption of the medicine by the human system and also because it acted as a preservative. While all other patent or proprietary medicinal preparations belonging to the different systems of medicines were taxed at the rate of 7% only, arishtams prepared under the ayurvedic system were made subject to a levy of 30%. The appellants filed the writ petitions in the High Court of Madras challenging the levy at 30% on arishtams and asavas, being violative of Article 14 as well as Article 19(1)(g) of the Constitution. The High Court dismissed the writ petition by observing that the imposition of the rate of 30% on the sale of arishtams and asavas must be regarded principally as a measure for raising revenue, and repelled the argument that the rate of tax was discriminatory or that Article 19(1)(g) was infringed.”
18. In Associated Cement case (2006) 1 SCC 597 this Court noted the aforesaid facts and principle laid down in Ayurveda Pharmacy (1989) 2 SCC 285 and after noting the same at p. 611 of the decision in Associated Cement (2006) 1 SCC 597, this Court observed as under: (SCC para 29)
“29. … Reversing the decision it was held by this Court that the two preparations, arishtams and asavas, were medicinal preparations, and even though they contained a high alcohol content, so long as they continue to be identified as medicinal preparations they must be treated, for the purposes of the sales tax law, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol.”
19. This Court in Associated Cement case (2006) 1 SCC 597 thus noted that in Ayurveda Pharmacy case (1989) 2 SCC 285 the charge of discrimination was upheld because of the inherent nature of the commodity and its similarity with others falling within the same category. However, while distinguishing the facts of Ayurveda Pharmacy (1989) 2 SCC 285, this Court in Associated Cement case (2006) 1 SCC 597 made the following observations:
“29. … But in the present case, the rate of tax on cement is made dependent on whether the sale price of cement includes the cost of packing materials.”
20. From the above, we find that in Associated Cement case (2006) 1 SCC 597, it was held by this Court that the rate of tax on cement was dependent on the question whether the price included the cost of packing materials whereas in the present case we are concerned with the exemption granted to the dealer of NPK 23:23:0. In view of our discussion made hereinabove, we are, therefore, of the view that the decision in Associated Cement (2006) 1 SCC 597 stands on different factual situation. Therefore, we are unable to accept the contention of the learned counsel for the appellants that the decision in Ayurveda Pharmacy (1989) 2 SCC 285 and the principles laid down in that case cannot be applied in the present case.
21. This being the position and in view of our discussion made hereinearlier that the products of the respondent and the exemption granted in the notification in question which are similar in nature, we hold that the product of NPK 23:23:0 is also a similar commodity within the meaning of the notification of exemption dated 10-4-1995. Therefore, it would not be open for the appellants, as held by the High Court, to realise tax retrospectively on sale of NPK 23:23:0 from 10-4-1995 to 31-3-1996.
22. Before parting with this judgment, it would be necessary for us to take into consideration another decision of this Court in State of Assam v. Naresh Chandra Ghose (2001) 1 SCC 265. The learned counsel for the appellants relied on this decision in order to distinguish the decision of this Court in Ayurveda Pharmacy (1989) 2 SCC 285. In our view, this decision is factually distinguishable. In para 9, this Court observed that 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% alcohol as a separate class vis-à-vis such preparations either not containing alcohol or containing less than 12% alcohol. The difference, according to this decision, distinguishes the basis of the judgment of this Court in Ayurveda Pharmacy case (1989) 2 SCC 285 inasmuch as the Assam Act did not identify the medicinal preparations containing more than 12% alcohol as being the same as other medicinal preparations not containing alcohol. It was also noted in that decision that on the other hand these types of spirituous medicinal preparations, which contained 12% alcohol, have been separately classified for the levy of tax under Item 67 of the Schedule to the Act. In that view of the matter, the classification founded in the said decision with regard to the medicinal preparations based on the strength of alcohol contents in the same, cannot be said to be arbitrary and violative of Article 14, as held by the High Court. This decision, as already noted, is of no help to the appellants and the reasons that this decision will not help the appellants have already been discussed above. Accordingly, we are not in a position to rely on the decision as cited by the learned counsel for the appellants.
23. For the reasons aforesaid, we do not find any merit in the appeal and the same is dismissed with no order as to costs.