* THE HON'BLE SRI JUSTICE GODA RAGHURAM AND * THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN + WRIT PETITION Nos.1582 and 2119 OF 2010 % Dated 25-11-2010 # M/s. Tirupati Chemicals …. Petitioner Vs. $ The Dy. Commercial Tax Officer (VMU-I) No.I Division, Vijayawada and 4 others …. Respondents ! Counsel for the Petitioner: Sri T. Ramesh Babu ^ Counsel for the Respondents: Sri A.V. Krishna Koundinya and Sri P.Balaji Verma <GIST: > HEAD NOTE: ? Cases referred 1. (1963) 1 SCR 404 2. (2007) 5 SCC 447 3. (1990) 4 SCC 366 4. (2005) 142 STC 111 5. (2010) 324 ITR 381 6. AIR 1981 SC 1887 7. 1926 AC 37 8. (1940) 9 ITR 442 9. (1955) 1 SCR 810 10. (1963) 3 SCR 893 11. AIR 1994 SC 2393 12. (2004)7 SCC 591 13. (1985)4 SCC 343 14. 1993 Supp (1) SCC 754 15. 2004(8) SCC 15 16. AIR 1964 SC 1742 17. (1899)2 QB 158 18. 2003 (2) SCC 455 19. (2007) 2 SCC 230 20. AIR 2003 SC 2434 21. AIR 1962 SC 256 22. LR (1891) AC 107 23. 2002) 1 SCC 633 24. (2006) 12 SCC 607 25. (1964) 2 All ER 627 26. (1963) 1 SCR 1) 27. (1973) 1 SCC 216 28. 1958 SCR 360 29. 1976 (1) SCC 77 30. (2004) 9 SCC 686 31. (2004) 11 SCC 625 32. (1983) 2 SCC 235 33. AIR 2004 SC 4219 34. (2002) 4 SCC 539 35. AIR 1957 SC 832 36. (1955) AC 696 (HL) 37. AIR 2001 SC 1980 38. (2001) 5 SCC 407 39. (2001)8 SCC 676 40. (2001) 8 SCC 540 41. AIR 1976 SC 43 42. AIR 1966 SC 1678 43. (1984 (2) SCC 500 44. (2001)8 SCC 61 45. (2003)5 SCC 134 46. (2005)10 SCC 437 47. (1992) Supp (1) SCC 323 48. (2010) 5 SCC 622 49. (1986 (4) SCC 746 50. (2001)4SCC 139 51. (2001)3 SCC 735 52. 1975 (Suppl.) SCC 1 53. Halsbury’s Laws of England (Statutes Vol. 44(1), fourth reissue para 1474 pp 9806-07) 54. Judgment in I.T.T.A.Nos.613 of 2006 and batch dated 9.9.2010 55. (2010) 253 ELT 3 (SC) 56. (2006) 12 SCC 583 57. (1976) 1 SCC 245 58. (2006) 3 SCC 434 59. (1999) 6 SCC 418 60. (1985) 4 SCC 404 61. (1961) 2 SCR 679 62. (1960) 1 SCR 200 63. 1901 AC 102 64. AIR 1945 PC 48 65. (1985) 3 SCC 398 66. (2006) 3 SCC 276 67. (1970) 2 SCC 458 68. (1981) 1 SCC 664 69. (1964) 1 SCR 259 70. (2000) 7 SCC 12 71. (1984) 2 SCC 50 72. AIR 2001 SC 886 73. AIR 1992 SC 1846 74. (1997) 1 SCC 373 75. AIR 1997 SC 1125 THE HON'BLE SRI JUSTICE GODA RAGHURAM AND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN WRIT PETITION Nos.1582 and 2119 OF 2010 COMMON ORDER: (Per Hon’ble Sri Justice Ramesh Ranganathan) In W.P. No.2119 of 2010, the validity of Clause (iii) of Sub-section (4) of Section 67 of the Andhra Pradesh Value Added Tax Act (for short ‘the Act’) is under challenge as being arbitrary, illegal and as taking away the powers of quasi-judicial authorities under the Act. A consequential direction is sought to declare the assessment order, passed by the assessing authority, as without jurisdiction. 2. The petitioner is a proprietary concern and a registered VAT dealer on the rolls of the respondent carrying on business of property development, including construction and sale of apartments. They opted for payment of tax under the composition scheme in terms of Section 4(7) (d) of the Act read with Rule 17(4)(i) of the A.P. VAT Rules, 2005 (“Rules” for short). The petitioner claims to have entered into an agreement with the land owners for construction of apartments having obtained necessary permission from the Urban Development Authority; and to have constructed apartments, and effected sale of apartments in a single sale deed along with the land owners. It is their case that they paid 1% tax on the total sale consideration of Rs.2,01,92,000/-. The respondent issued notice dated 22.10.2008 informing the petitioner of the advance ruling dated 23.5.2006 and 30.7.2006, in the case of M/s Matyas Hill County Pvt. Ltd, Hyderabad and Lumbani Construction Pvt Ltd, wherein it was clarified that the development agreement for construction and sale of apartments fell outside the scope of Section 4(7)(d) of the Act; the type of construction undertaken by them fell under Section 4(7)(c); and they were liable to pay tax at 4% of the total consideration received by them. The petitioner was called upon to pay the differential tax of 3% amounting to Rs.6,05,760/-. The petitioner’s reply dated 3.12.2008 was of no avail, and an order of assessment dated 30.10.2009 was passed. 3. In W.P. No.1582 of 2010, the show cause notice issued by the fifth respondent dated 30.12.2009, proposing to revise the order of assessment in exercise of his powers under section 32(2) of the Act, (upon setting aside the order of the Appellate Deputy Commissioner dated 10.09.2010 and restoring the order of the Deputy Commissioner (Commercial Tax) dated 21.02.2010), is under challenge. The petitioner, a partnership firm dealing in non-petroleum and non crystalline paraffin wax of less than 0.75% oil and normal waxes, is registered on the rolls of the 2nd respondent. The petitioner has been paying VAT at 4% from the year 2006 onwards claiming that their goods fall under Sub-Entry 189 of Entry No.100 of Schedule IV to the Act. The 1st respondent, after conducting an audit of the accounts of the petitioner for the tax period April, 2006 to November, 2008, opined that the goods sold by them did not fall under sub-entry 189 as the customs tariff code did not tally with the HSN code mentioned in sub-entry 189. The petitioner was called upon to pay tax at 12.5% from September, 2006 onwards. The 1st respondent passed the assessment order dated 21.2.2009 levying tax at 12.5% treating the goods as falling under the residuary Schedule V to the Act. Aggrieved thereby, the petitioner preferred an appeal to the 4th respondent who, by his order dated 10.9.2009, set aside the assessment order passed by the 1st respondent holding that the waxes sold by the petitioner were covered by Entry 100(189) of Schedule IV to the Act. Thereafter the 5th respondent issued the impugned show cause notice dated 30.12.2009, proposing to revise the order of the 4th respondent dated 10.9.2009, relying on the Advance Ruling Authority’s (ARA) proceedings dated 30.12.2007 which related to a clarification sought by M/s. Tirupati Chemicals. In its ruling dated 30.12.2007 the ARA had clarified that only “Paraffin Wax less than weight 0.75% of oil” was taxable at 4%, and the other goods i.e., “residula wax, waxy oil, rubber process oil and slag wax” were taxable at 12.5% under the residuary entry of the V Schedule to the Act. Apprehending that the 5th respondent would classify their goods as falling under Schedule V to the Act, and not under Entry No.100(189) of Schedule IV, and as the clarification of the ARA is binding on the authorities, the petitioner has invoked the Writ jurisdiction of this Court. As the scope of Section 67 of the Act falls for consideration in this case also, W.P. No.1582 of 2010 was tagged with W.P. No.2119 of 2010; both the Writ Petitions were heard together; and are now being disposed of by a common order. 4. Sri T. Ramesh Babu and Sri K.Raji Reddy, Learned Counsel for the petitioners, made oral and written submissions. Sri A.V. Krishna koundinya and Sri P.Balaji Verma, Learned Special Standing Counsel for Commercial Taxes, put forth their submissions on behalf of the respondents IS SECTION 67(4) (ii) OF THE ACT ARBITRARY AND ULTRA VIRES ARTICLE 14 OF THE CONSTITUTION OF INDIA? 5. Except to contend that Section 67(4)(ii) of the Act is arbitrary, and in violation of Article 14 of the Constitution of India, the basis on which such a submission is founded is not stated. It is for the person who assails a legislation as violative of Article 14, to establish that it is so. This burden is all the heavier when the legislation under attack is a taxing statute. (East India Tobacco Co. v. State of A.P.,[1]). For attracting Article 14, necessary facts are required to be pleaded, and the grounds taken must be based on factual foundation. (Southern Petrochemical Industries Co. Ltd. v. Electricity Inspector & ETIO,[2]). The foundational facts as to how Section 67(4)(ii) of the Act is in violation of Article 14 of the Constitution of India have not been stated at all. The test to be applied to determine whether a statutory provision is in violation of Article 14 is of ‘palpable arbitrariness’ in the context of the felt needs of the times and societal exigencies informed by experience. (Shashikant Laxman Kale v. Union o f India[3]) . It is only when a provision of a taxing/fiscal statute is so manifestly/palpably arbitrary as to be in violation of Article 14 of the Constitution of India would it be required to be struck down. No such case has been made out. 6. The submissions made by the learned Counsel for the petitioners is on the construction of various sub-sections of Section 67 of the Act. They would contend that these provisions require the binding effect of the ruling of the ARA to be confined only to the applicant-dealer. For convenience sake, the submissions in this regard are broadly classified into two different heads. I. IS THE RULING OF THE ARA BINDING ON DEALERS OTHER THAN THE APPLICANT DEALER WHO SOUGHT THE CLARIFICATION? 7. Learned Counsel for the petitioners would submit that the order passed by the ARA is qua the applicant-dealer, and cannot bind all other dealers and their respective officers and authorities; clauses (ii) and (iii) of Section 67(4) interfere with the functioning of quasi-judicial authorities whose duty it is to decide the liability of a dealer in accordance with law, and not based on the decision of the ARA; the chance of a non-applicant coming to know of the order of the ARA, relating to another dealer, is remote; under clauses (ii) and (iii) of Section 67(4), the clarification given in respect of one applicant cannot be made applicable to another dealer; to hold otherwise would mean that the department has to verify whether the ARA’s decision has become final, and no appeal was filed thereagainst before the Tribunal within 30 days of the ruling; the appeal provided under Section 33(1) (c) must draw colour from the proviso to Section 67(4) in respect of the very same applicant who sought the ruling or order from the ARA; the expression “any dealer” in Section 33 must be confined to the applicant only, as is evident from the proviso to Section 67(4), which is the basis for filing an appeal before the Tribunal; the appeal under Section 33 comes with an onerous condition requiring the appellant to pay 50% of the tax, penalty and interest which is due as per the order of the authority following the ruling; while the assessee, in whose case the ARA’s decision is not followed for whatsoever reason, has a right of appeal to the Appellate Deputy Commissioner by paying only 12.5% of the disputed tax, other assessees, who receive an order from the authority following the ruling, are forced to prefer an appeal to the Tribunal on the onerous condition of paying 50% of the disputed tax; Act 4/09 only enables a non-applicant, in whose case the decision is followed, to prefer an appeal against such order, but does not provide for a direct appeal against the decision of the ARA itself; Section 33 cannot remedy the situation and sort out the anomaly in Section 67 in restricting the remedy of an appeal, against the decision of the ARA, only to the applicant-dealer; and Section 67(4) of the Act is similar to Section 245(S) of the Income Tax Act. Learned Counsel would rely on K.S. Biyani v. State of A.P.[4]; and Prudential Assurance Company v. Director of Income Tax[5]. 8. On the other hand Learned Special Standing Counsel for Commercial Taxes would submit that Section 67(4)(ii) of the Act binds dealers, other than the dealer who sought a clarification, in respect of goods or transactions in relation to which a clarification was sought; any other construction would render either clause (i) or clause (ii) of Section 67(4) redundant; that an appeal is now provided under Section 33(1)(c) of the Act, consequent to its amendment by Act 4 of 2009, to any dealer who has suffered an order passed by an authority following the ruling of the ARA, would show that the ruling under Section 67(4)(ii) applies to dealers other than the applicant also; and any other construction would render such an appellate remedy wholly unnecessary. 9. Before examining the rival contentions it is necessary to note the relevant provisions of the Act and the Rules made thereunder. Section 67 of the Act relates to Clarification and Advance Ruling. The clarification, which the ARA is empowered to give under Section 67(1), is limited to such aspects which relate to the implementation of the Act, and not beyond. The manner in which the clarification should be given is required to be prescribed by Rules made under the Act. Rule 66 of the Rules prescribes the procedure for filing, and disposal, of applications before the ARA. 10. Under sub-section (2) of Section 67 of the Act, no application shall be entertained where the question raised in the application is already pending before any officer or authority of the department or appellate tribunal or any court. Under its proviso, no application shall be rejected under sub-section (2) unless an opportunity has been given to the applicant of being heard. Where the application is rejected, reasons therefor are required be recorded in the order. Section 67(3) stipulates that no officer, or any other authority of the department, shall proceed to decide any issue in respect of which an application has been made by an applicant under Section 67, and is pending. Under sub-section (4), the order of the authority shall be binding (i) on the applicant who had sought the clarification; (ii) in respect of the goods or transactions in relation to which a clarification was sought; and (iii) on all the officers other than the Commissioner. Under its proviso, the order of the authority would bind only if the dealer does not file an appeal, before the Sales Tax Appellate Tribunal (STAT), within 30 days of the ruling. Section 67(5) confers on the ARA the power to review, amend or revoke its ruling at any time, for good and sufficient cause, by giving an opportunity to the affected parties. An order, giving effect to such review or amendment or revocation, is not subject to the period of limitation. Section 67(6) enables the Commissioner to refer any matter for the opinion of the ARA, without prejudice to his authority. 11. Under Rule 66(7) of the Rules, if an application is admitted under sub-rule (4), the ARA shall, after examining such further material as may be placed before it by the applicant or obtained by the ARA, pass such order as is deemed fit on the questions specified in the application, after giving an opportunity to the applicant of being heard, if he so desires. The ARA is required to pass an order within four weeks from the date of the order admitting the application, and a copy of such order is required to be sent to the applicant, to the authority specified in sub-rule (3), and to the assessing or registering authority concerned. Under sub-rule (11) a copy of the order shall be sent to the applicant, the Commissioner and the officer concerned. 12. While Section 67(4)(i) stipulates that the order of the authority (i.e., the clarification/ruling given by the ARA) shall be binding on the applicant who sought the clarification, Section 67(4)(ii) makes the said order binding in respect of goods or transactions in relation to which a clarification was sought. An applicant-dealer would seek a clarification only in respect of his goods or transactions, and the clarification/ruling would be given only on the question/issue raised by him. As such the question of the clarification/ruling binding the applicant on matters other than those in respect of their goods and transactions does not arise, more so as the clarification/ruling which the ARA is empowered to give is confined to aspects which relate to the implementation of the Act. If the order of the ARA, under Section 67(4), is to bind only the applicant, and not other dealers, in respect of the goods or transactions in relation to which he had sought a clarification, then clauses (i) and (ii) would overlap, thereby rending either clause (i) or (ii) inapposite surplussage. 13. When a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed, and then proceeds to provide the machinery to make the liability effective. A distinction has to be made by the Court, while interpreting the provisions of a taxing statute, between charging provisions which impose the charge to tax and machinery provisions which provide the machinery for the quantification of the tax, and the levy and collection of the tax imposed. While charging provisions are construed strictly, machinery sections are not generally subject to a rigorous construction, (Associated Cement Co. Ltd. v. Commercial Tax Officer, Kota[6]; Whitney v. Commr of Inland Revenue[7]; CIT v, Mahaliram Ramjidas[8]); India United Mills Ltd. v. Commr. of Excess Profits Tax, Bombay[9] and Gursahai Saigal v. CIT, Punjab[10]), and are to be construed like in any other Statute. (J.K. Synthetics Ltd. v. Commercial Taxes Officer[11]; Whitney7; Mahaliram Ramjidas8; India United Mills Ltd.9 and Gursahai Saigal10). The rule of strict construction of a taxing statute does not apply to a provision which merely lays down the machinery for the calculation or procedure for the collection of tax. (ITC Ltd. v. Commissioner of Central Excise, New Delhi[12]; Gursahai Saigal10). Likewise if two constructions are possible, and a strict construction would lead to an absurd result, then the construction which is in keeping with the object of the statutory provision may be adopted. (ITC Ltd.12; Commissioner of income Tax. v. J. H. Gotla, Yadagir[13]). Similarly if there is a provision conferring a right of appeal in a fiscal/tax statute it should be read in a reasonable and practical manner. (Commissioner of Income Tax, A.P. v. Ashoka Engineering Co.[14]). The presumption as to purposive construction applies to Taxing statutes as to other Acts. (Commissioner of Central Excise, Pondicherry v. M/s. Acer India Ltd[15]; Francis Bennion's Statutory Interpretation, Fourth Edition, page 828). 14. Apart from the emphasis on the letter of the law, the fundamental rule of construction of a taxing statute is not different from that of any other statute. The duty of the court is to give effect to the intention of the legislature, as that intention is to be gathered from the language employed having regard to the context in connection with which it is employed. (Banarsi Debi v. I.T. Officer[16]; Attorney-General v. Carlton Bank[17]). The primary rule of construction is that the intention of the Legislation must be found in the words used by the Legislature itself. (Unique Butyle Tube Industries Pvt. Ltd., v. Uttar Pradesh Financial Corporation[18]). The legislature is deemed to intend and mean what it says. The need for interpretation arises only when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. (ITC Ltd.12). A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. (Raghunath Rai Bareja v. Punjab National Bank[19]; Shiv Shakti Coop. Housing Society v. Swaraj Developers[20]). A provision must be construed according to the natural meaning of the language used. The court, in interpreting a statute, must therefore proceed without seeking to add words which are not to be found in the statute. (Southern Petrochemical Industries Co. Ltd.2; Union of India v. Mohindra Supply Co[21]; Bank of England v. Vagliano Bros[22]; CIT v. Anjum M.H. Ghaswala[23]; J. Srinivasa Rao v. Govt. of A.P.[24]). Statutory language must always be given presumptively the most natural and ordinary meaning which is appropriate in the circumstances, (Chertsey Urban District Council v Mixnam's Properties Ltd[25]) , and must be construed according to the rules of grammar. When the language is plain and unambiguous, and admits of only one meaning, no question of construction of a statute arises, for the Act speaks for itself. The meaning must be collected from the expressed intention of the legislature. (State of U.P. v. Dr Vijay Anand Maharaj[26]). In construing a statutory provision, the first and the foremost rule of construction is the literal construction. All that the court has to see at the very outset is what does that provision say. If the provision is unambiguous and if from that provision the legislative intent is clear, the court need not call into aid other rules of construction of statutes, and the other rules of construction are to be called into aid only when the legislative intention is not clear. (Raghunath Rai Bareja19; Hiralal Ratanlal v. STO[27]). 15. If the words used are capable of one construction only, it would not be open to the Courts to adopt any other hypothetical construction on the ground that such hypothetical construction is more consistent with the alleged object and policy of the Act. The words used in the material provisions of the Statute must be interpreted in their plain grammatical meaning, (Kanai Lal Sur v. Paramnidhi Sadhukhan[28]), and must be construed it in its ordinary sense as it is well recognised that the language used speaks the mind and reveals the intention of the framers. (C.I.T. v. T.V. Sundaram Iyengar (P) Ltd[29]). The language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what it has said. Assuming there is a defect in the words used by the legislature, the court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result. (Raghunath Rai Bareja19; Prakash Nath Khanna v. CIT[30]; Delhi Financial Corpn. v. Rajiv Anand[31]). It would be impermissible to call in aid any external aid of construction to find out the hidden meaning. A statute should be construed according to the intention expressed in the Statute itself. (D.D. Joshi v. Union of India[32]). The other rules of interpretation i.e., the mischief rule, purposive interpretation, etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or, if read literally, would nullify the very object of the statute. Where the words of a statute are clear and unambiguous, recourse cannot be had to principles of interpretation other than the literal rule. (Swedish Match AB v. Securities and Exchange Board of India[33]; Raghunath Rai Bareja19). 16. Resort can be had to the legislative intent for the purpose of interpreting a provision of law, when the language employed by the legislature is doubtful or susceptible of meanings more than one. (Ombalika das v. Hulisa Shaw[34]). Unless there is any ambiguity it would not be open to the Court to depart from the normal rule of construction which is that the intention of the Legislature should be primarily gathered from the words which are used. It is only when the words used are ambiguous that they would stand to be examined and construed in the light of surrounding circumstances and constitutional principles and practice. (CIT v. Sodra Devi[35]). A provision is not ambiguous merely because it contains a word which in different contexts is capable of different meanings. It would be hard to find anywhere a sentence of any length which does