Supreme Court: In twin appeals challenging the orders passed by the Division Bench of the Madras High Court dismissing a writ petition in Santhosh Maize & Industries Limited v. State of Tamil Nadu, 2008 SCC OnLine Mad 1285 and a review application by the appellant dealing in maize starch since 1975 and was registered under Tamil Nadu General Sales Tax Act, 1959 (‘1959 Act’), the Division Bench of S. Ravindra Bhat and Dipankar Datta*, JJ. Concurred with the High Court to uphold the validity of clarification circular dated 8-10-1998 issued by the Commissioner of Commercial Taxes.
Taxability of Maize Starch in Tamil Nadu
The classification of maize starch under 1959 Act was the subject of dispute in the instant appeal, which stemmed after the State government exempted millet products (including maize) from tax payable under 1959 Act through exemption notification dated 14-03-1970. However, the State Legislative Assembly amended Schedule 1 of 1959 Act to impose 5% tax on ‘sago and starch of any kind’ which came into effect from 12-03-1993, and the same was later moved to Taxation Entry 61 and the rate of tax was reduced to 4% coming into effect from 17-07-1996.
After the first notification dated 12-03-1993 raised concerns among maize starch dealers, the Special Commissioner and Commissioner of Commercial Taxes through circular dated 14-12-1993 clarified that the exemption would remain in effect with the reasoning that ‘a specific notification will prevail over a general entry in the Schedule’. It was contended by the appellant that the process for extracting maize starch involves simple processing and therefore should be classified as maize product and covered by the exemption notification. The Legislature again amended the Act due to which, the exemption notification lost force but the exemption on maize starch remained unchanged after subsequent clarifications issued by the Commissioner on 31-12-1996 and 6-05-1997.
Later, Section 28-A was inserted through amendment which came into effect from 6-11-1997 empowering the Commissioner to issue clarifications concerning the rate of tax under 1959 Act. Thereby, the Commission issued a circular on 23-06-1998 clarifying that Exemption Entry No. 8 does not encompass maize starch and only applies to products listed and excludes maize starch which is distinct from maize flour and not commonly understood as such by ordinary people or even dealers, and the same would be taxed at 11%.
When the appellant requested withdrawal of the said circular dated 23-06-1998, it was cancelled through circular dated 8-10-1998 which notified that maize starch would be taxable at a rate of 4% from 17-07-1996. The appellant’s representation against the said clarification was rejected and was served with notices for recovery of GST to the tune of Rs 7,69,729 for financial year 1998-99 and a provisional assessment notice by the Commissioner.
Litigation History
The appellant approached the Tamil Nadu Taxation Special Tribunal to question the provisional assessment notices and challenge the validity of circular dated 8-10-1998, which was dismissed through judgment dated 29-07-1999 holding it improper for the appellant to independently challenge the circular and contest assessment proceedings at the same time. This was followed by the appellant approaching the High Court through writ petition seeking to quash the Tribunal’s order and praying for declaration of circular dated 8-10-1998 as ultra vires of Section 28-A, Exemption Entry No. 8 and Articles 14, 19(1)(g) and 265 of Constitution of India. Alternate prayer required application of the circular from 8-10-1998 and not retroactively from 17-07-1996.
The High Court’s Division Bench in Santhosh Maize & Industries Limited v. State of Tamil Nadu, 2008 SCC OnLine Mad 1285 initially dismissed the writ petition stating that the appellant could agitate all the points before the assessing authority. When the same was challenged before the Supreme Court, writ petition was restored before High Court through order dated 3-11-2000 rather than remanding the case to lower authorities. The Court said that decision had to be rendered on the basis of terms of the Act read with schedules and not the exemption notification.
The High Court’s Division Bench dismissed the writ petition on 8-09-2008 upholding the validity of circular dated 8-10-1998 with the view that exemption notification and circulars seeking to exempt maize starch from taxation did not hold binding since Section 28-A empowering the Commissioner to issue clarifications came into effect from 6-11-1997, and the circular dated 8-10-1998 held legal validity. The review application was also dismissed through order dated 10-02-2009.
Court’s Analysis in the Instant Matter
The Court agreed with the conclusion reached by the High Court in the instant matter. Although the Court found the High Court’s finding erroneous as regards the comment of exemption notification lacking statutory backing since exercise of power was in terms of Section 17 of 1959 Act which was repository of the State Government’s power to exempt payment of tax.
The Court pointed towards the two entries, namely ‘sago and starch of any kind’ and ‘products of millets (rice, flour, brokens and brans of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)’. It was highlighted that “When Act No.32 of 1994 amended Schedule III of the Act, Exemption Entry No.8 did not include the word ‘like’ which was hitherto there in the Exemption Notification dated 14-03-1970.” The same was used in the exemption notification as a noun which clarified that it does not include the noun “like” as the first word within brackets and that maize was only included along with rice, flour, etc. And not maize starch. Only items with the brackets/specifically indicated were exempted under Section 8 of 1959 Act read with Schedule 3 as per Exemption Entry 8.
On the question of whether maize starch can be considered a millet product for exemption, the Court refused to agree with the explanation that “Maize is the raw product, whereas maize starch is a processed product” and “maize starch being a product of maize derived through mechanical process, it cannot be read as ‘like maize’.” Maize starch being a kind of starch would be covered within ‘starch of any kind’. The Court further pointed that “Had the legislature intended to exclude any starch, including maize starch, a specific provision excluding it would have been made.”
The Court referred to Associated Indem Mechanical (P) Ltd. v. W.B. Small Industries Development Corpn. Ltd., (2007) 3 SCC 607 and held that ‘any kind’ used in taxation clearly indicated to have been used in wide sense extending from one to all and admitted no exception. The Court further explained that ‘starch of any kind’ being preceded by ‘sago’ in the relevant taxation entry did not make any material difference since sago is a starch extracted from the pith/spongy core tissue of tropical palm stems, which is itself a starch, and starch of any kind would obviously include maize starch.
The Court expressed that the legislature would not have intended two entries for self-safe commodity making one taxable and the other exempted from tax. It was explained that “Law is well settled that if in any statutory rule or statutory notification two expressions are used – one in general words and the other in special terms – under the rules of interpretation, it has to be understood that the special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specific provision, the latter must prevail.”
Regarding challenge against clarification having retrospective effect, the Court rejected the same with the explanation that such clarification was issued in exercise of power conferred by Section 28-A of 1959 Act and the object was to make the rate of tax explicit which was otherwise implicit. The Court was cautious that if the appellant’s contention was accepted, it would defeat the very object of issuing clarification unless it was construed to have retrospective effect since it clarified the meaning of two entries which was already implicit but caused confusion.
The Court finally upheld the validity of circular dated 8-10-1998 and judgment passed by the High Court in this regard.
[Santhosh Maize & Industries Ltd. v. State of T.N., 2023 SCC OnLine SC 764, decided on 4-07-2023]
Judgment authored by: Justice Dipankar Datta
Advocates who appeared in this case :
For Appellants: Advocate on Record K. K. Mani, Advocate T. Archana, Advocate Rajeev Gupta, Advocate Vinay Rajput;
For Respondents: Advocate on Record Sabarish Subramanian, Advocate C Kranthi Kumar, Advocate Vishnu Unnikrishnan, Advocate Naman Dwivedi, Advocate Danish Saifi, Advocate on Record M. Yogesh Kanna.
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