HIGH COURT OF CHHATTISGARH AT BILASPUR Writ Petition (T) No.1673 of 2009 PETITIONERS: Chhattisgarh Manufacturers another Versus RESPONDENTS: HON’BLE SHRI R.N. CHANDRAKAR, J 3 egg/1% Spongg Association ORDER FOR CONSIDERATIONV” m M ,__.— ” a H Sdl- irendra Mishr Judge Sdl- R.N. Chandrakar Judge // Sdj‘ . “(ha Dmre wdge , ,kFK Iron and i i +h t POST FOR ORDER ON i6 FEBRUARY 2010 / 33hr“ State of Chhattisgarh and others / Dh a; / HIGH COURT OF CHHATTISGARH AT BILASPUR Writ Petition (T) No.1673 of 2009 PETITIONERS: Chhattisgarh Sponge Iron Manufacturers Assoc1atron 318 3rd Floor New Patwa Complex Lalganga Mansion, MG. Road, Raipur 492001 (CG) through its President, Shri Anil Nachrani, aged about 4O years, R/o C/o Prem Store, Opp. Nagar Nigam Office, Maiviya Road, Raipur (CG) Shri Anil Nachrani, President 2. Chhattisgarh Sponge iron Manufacturers Association, aged about 4O years, S/o Late Shri M.P. Nachrani, R/o C/o Prem Store, Opp. Nagar Nigam Office, Malviya Road, Raipur (CG) Versus ! x RESPONDENTS: State of Chhattisgarh, Through Secretary, Department of Commercial Taxes, D.K.S. Mantralaya Bhavan, Raipur (CG) Commissioner of Commercial Tax Vanijyik Kar Bhavan, Givil Lines, Raipur(CG) 3. Assistant Commissioner of CommercialTax, Raipur (CG) Present Shn Neelabh Dubey, cou el for the petitioners Shn Vinay Harit Deputy Advocate General With Shn S K Mishra Panel Lawyer for the State/respondents A Division Bench: Hon’ble Shri Dhirendra Mishra & Hon’ble Shri R.N. Chandrakar JJ. ‘ ORDER __..T__ (Passed on Mi“ February, 2010) The following order of the Court was passed by Dhirendra Mishra, J. A 7‘12, .x 1. The petitioners by this instaht petition under Article 226 of the Constitution of lndia have chaiienged the constitutionai validity of Entry 8 of Schedule lll of the Chhattisgarh Value Added Tax Act, 2005 (for short ‘the Act’) on the ground that it is ultra vires Constitution of lndia as also Central Sales Tax Act. The petitioners have further prayed for quashing of the notification dated 10-12-2007 of Annexure—P/1 whereby coal including coke in all its forms, but excluding charcoal has been added in Schedule lll and prayed for direction to the respondents to allow input tax rebate to the petitioners on purchase of coal and also during the period of operation of impugned notification during which it was derived. o , 2. Shri Neelabh Dubey, learned counsel for the petitioners would submit that the concept of'Value Added Tax is based on net tax method. A dealer is liable to pay tax due on sales after deducting the tax on purchases. A dealer is not liable to pay full amount of tax on sale price, he is liable to pay tax due on sales after reducing therefrom the amount of tax paid on purchases, which are being sold. 3. He further submitted that the State Government in purported exercise of powers under Entry/8..of‘uSchedule lll has issued impugned // notification. The impugned Entry 8 delegates unbridled, uncannalised and 'unguided power to the State Government to modify and amend Schedule lll. Such delegation is excessive delegation of essential legislative power and, therefore, is unconstitutional. lt is trite law that the legislature can delegate only the (power after laying down the policies and guidelines under which the delegated powersmare to be exercised. ln the instant case, Entry 8 of Schedule lll confers power Kg upon the State Government to include ‘such other goods in:Entry 8 as may be notified by the State Government.’ 4. From bare reading of impugned provision, it is clear that no policy or guideline has been laid down under which the State Government may act for amending Schedule Ill. A substantive right has been conferred upon the petitioners by inclusion of .coal in Schedule ii which makes them entitled to avail input tax rebate. The statute conferred upon the petitioners a right of not paying'a part of their taxes and it isrequivalent to the right of not paying taxes on goods enumerated in Schedule l. “‘5 5. Alternatively, it was argued that even if it is held that withdrawal of input tax rebate does not amount to fresh taxation, even then such withdrawal would be a severe disability for the petitioners and, therefore, any power that allows for withdrawal of input tax can also be delegated after laying down policy and guideline. 6. Section 15-A of the Act also provides comprehensive guidelines as to in' what conditions Schedule ll can be amended and also contains the adequate safeguards in the form of two provisions which provide for calling of objections and placing all the amending notifications before the legislative assem/bfy. V‘However, Entry 8 of Schedule Ill provides no such guidelines and it confers untrammeled, unguided, uncannalised and unbridled powers upon the state Government which defeats the entire purpose of granting input tax rebate as it is now op‘en for the State Government to pick any good and put it in Schedule iii which deprives it of the facility of input tax rebate. b , Reliance is placed in the matters of Ruchi Fabrics Limited Versus State of M.P. and others1, Kunj Biharilai Butail and others Vs. State of H.P. and othersz,‘and Devi Dass Gopal Krishnan and others Vs. State of Punjab and others3. 7. He further argued that by impugned notification Schedule ill has been amended without corresponding amendment in Schedule ll. Entry 40 in Scheduie ii Part ll reads “declared goods as specified in section 14 of the Central Sales Tax Act, 1956, other than those specified in Schedule l” and declared goods specified in section 14 of the Central Sales Tax Act includes coal. Entry in Schedule ii cannot be taken away by a mere notification without adhering to due process provided by the Statute under section 15-A of the Act and, therefore, it was incumbent to first amend Schedule Ii and remove coal from Entry 40 of Schedule Ii and only thereafter the goods notified by impugned notification could be transposed to Schedule iii. / 8. Shri Vinay Harit, learned Deputy Advocate General appearing for the State/respondents submitted that by inclusion of coal in Schedule iii of the Act the State has only disallowed input tax‘rebate to the dealers like the petitioners whgvwere otherwise entitled to such input tax rebate on payment of input tax which is chargeabie from them as per the provisions of the Act. No any extra tax on dealers like the petitioners in respect of commodity concerned i.e. coal, has been imposed and only facility of availing input tax rebate has been withdrawn. The State is authorized to impose tax in the nature of Value Added Tax as per Entry r 1 (2000) 1’17 STC 273 2 AIR 2000 SC 1069 3 i d (1967) 20 STC 430 tn _ 54 of the State List of Schedule Vii of the Constitution. It is open to the Iegislature to Ieave to the executives to determine details relating to the tax loss such as selection of persons on whom the tax is to be laid, the rates at which it is to be charged, in respect of different classes of goods and the like. 9. The State is empowered to exempt any'tax in whole or in part and as a corollary to the aforesaid provisions, the State is also empowered to withdraw the rebate earlier granted against payment towards input tax and the State Government was competent to modify or revoke the grant for the same reasons for which exemptions were granted under Section 13 of the Act and there is no indefeasible right to the dealers like the petitioners to obtain rebate in input tax. Reliance is placed in the matters of Mls Hiralal Rattanlal etc. etc. Vs. State of U.P. and another etc. etc.4, State of Rajasthan and another Vs. J.K. Udaipur Udyog Ltd. and another5. 10.Section 15-B of the Act delegated power on the State to exempt whether prospectively or retrospectively, by notification, any dealer or class of dealer from any provision of the Act. 11.We have heard learne’d counsel for the parties. 12. Before considering the rival submissions, we propose to deal with the A relevant provisions of the Act for the purpose of controversy involved in this petition. :(1973; . c- (2004) 137 src 45° (71.x \\ \ \ 13. Chapter IV of the Act deals with levy of tax. Section 8 provides that tax shall be levied on goods specified in Schedule ii at the rate mentioned in the corresponding entry in column (3) thereof. 14. Goods under Part ii of Schedule ii are chargeable to tax at the rate of 4%. Though there is no specific entry relating to coal in Schedules appended to the Act, entry 40 of Part ii includes “declared goods as specified in Section 14 of the Central Sales Tax Act,v1956 (for short ‘the Act, 1956’), other than those specified in Schedule l.” Under Section 14 of the Act, 1956 certain goods have been declared to be of special importance in inter-State trade or commerce. Under entry (ia) coal, including coke in all its forms, but excluding charcoal has been declared to be goods of special importance in inter-State trade or commerce. a 15. Section 13 of the Act provides for rebate of input tax. Clause (b) of sub-section (1) thereof provides that input tax rebate is available to a registered dealer on purchase of any goods specified in Paits l, ii and lV of Schedule ll other than thOse specified in Schedule Illtwithin the State of Chhattisgarh from another such dealer after payment to him of put tax, for use or co/nsumption of such goods for/in the manufacture /, amongst other things. 16. Schedule i contains list of tax free goods whereas Schedule III contains list of goods on which input tax is not available. Part iii of Schedule ll contains list oflgoods on which input tax rebate is not available but are treated as tax paid goods on sale of which no tax is leviable. 17.Sub—section (7) of Section 13 of the Act empowers the State Government to specify any goods mentioned in Part Ill of Schedule ll for the purpose of claiming or allowing input tax rebate tinder this section, when such goods are purchased by‘a registered dealer from another such deaier within the State of Chhattisgarh by a notification. 18.Section 15-A empowers the State Government to amend Schedule ll by a notification. This amending power is conferred within built in policies and guidelines prescribed in the section itself. Similarly, Section 15 (2) empowers the State Government to amend Schedule l by notification to include therein any goods not already specified or relax or omit any of the conditions and exceptions set out in the corresponding entry in the third column. 19.The grievance of the petitioners is that they are engaged in the o manufacture of sponge iron. In the manufacture of sponge iron, coal is used as a raw material or as input. Coal itself is not mentioned subsequently in Schedule ll, however, by virtue of entry 40 in Schedule ii Part ll tax is levied on a dealer for sale of coal. Since the/petitioners used the coal as input for manufacture of sponge iron, they were entitled for input tax rebate o‘ntax payable by them on their finished / goods sponge iron. The State Government in purported exercise of power under Entry 8 of Schedule iii issued impugned notification of Annexure-P/1 and included “coal including coke in all its forms but excluding charcoal" as entry No.1(i) in Schedule Ill and thereby input tax rebate available on coal has been withdrawn. 6 . r g“ 20.In Ruchi Fabrics1, constitutional validity of notification issued by the State of Madhya Pradesh in exercise of powers under Section 10(2) of the General Sales Tax Act amending Schedule i excluding certain cloth that was covered originally was challenged. Allowing the appeal of the trader, it was held thus:- “6. The High Court fell into error. Schedule i was a part of the original statute, that is to say, it was a creation of the Legislature. By virtue of section 10(2) of the statute the State Government was given the power, by notification, to amend Schedule l only “so as to include therein goods not already specified or may relax or omit any of the conditions and exceptions set out in the corresponding entry in the third column thereof’. (Emphasis supplied). The Legislature, therefore, empowered the State Government to amend Schedule i only to this extent that it could widen the scope thereof, either by including therein goods which had not already got its benefit or by relaxing or removing conditions which were a pre-requisite for obtaining the exemption thereunder. No power was conferred by the statute upon the State Government in any way to curtail the scope of Schedule l. ' Having regard to the express terms of section 10(2), reliance upon section 21 of Madhya Pradesh General Clauses Act was uncalled for. ln any event, under section 21 the power to issue a notification, order, rule or bye—law conferred by a Madhya Pradesh Act is to be read as including a power to add to, amend, vary or rescind the notification, ordér, rule or bye—law so issued. Section 21 has no application to a case such as this where the Schedule (Schedule I) is a part of the statute itself and not the creation of a notification, order, rule or bye-law.” 21. ln Kunj Biharilal Butilz,‘cons'titutional validity of the proviso inserted at the end of Rule 3 ofthe Himachal Pradesh Ceiling on Land Holdings Rules, 1973 was questioned whereby transfer of land treated a subservient to tree plantation and exemption from the operation of the Land Ceiling Act by land owners was barred. The Supreme Court observed that right to acquire, hold and dispose of property guaranteed to citizens under Article 19(1)(f) carried with it the right not to hold any a é g; w? r«. u ab§ property. Where a citizen (is holding land within the ceiling limits which was outside the purview of Section 3 of the Act, he cannot be compelled to own, such property against his will. With these observations, the impugned amendment in the rules was declared invalid and struck down as ultra vires on the ground that a delegated r power to legislate by making rules for carrying out the purposes of the Act is a general delegation without laying down any guidelines; it cannot be so exercised as to bring into existence substantive rights or obligations or disabilities not contemplated by the provisionsof the Act itself. l ier judgments on settled principles of 22. ln Devi Dass Gopal Krishnan/and others3, the Hon’ble Supreme Court, after considering its earl excessive delegation, held thus:- “The Constitution confers a power and imposes a duty on the Legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation. It must necessarily delegate the working out of details to the executive or any other agency. But there is a danger inherent in such a process of delegation. An soverburdened Legislature or one controlled by a powerful executive may unduly overstep the limits of delegation. lt may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement bf legislative power in fav'our of another agency either in wholeor in part is beyond the permissible limits of delegation. lt is for a Court to! hold on a fair, generous and liberal construction of an impugned statute whether g_ the Legislature exceeded such limits. But the said 10 liberal construction should not be carried by the Courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the Court to strike down without any hesitation any arbitrary power conferred on the executive by the Legislature.” 23.ln Pandit Banarsi Das Bhanot Versus The State of Madhya Pradesh and others6, it was held that the power conferred on the State Government by Section 6(2) to amend the schedule relating to exemption is in consonance with the accepted legislative practice relating to the topic and is not unconstitutional. i ¢ 24.ln Mls Hiralal Rattanlal etc. etc4 also, the Hon’ble Supreme Court, after referring all its earlierjudgments, observed that it is impoSsible for the Legislature to select the goods which should be subjected to single point sales or purchase tax. Before making such selections, several aspects such as the impact of the levy on the society, economic consequences and the administrative convenience will have to be considered. These factors may change from time to time.‘ Hence in the very nature of things, these details have got to be left to the ‘ executive. ‘lt was further held that it is not unconstitutional for the Legislature to leave it to the executive to determine the details relating to the working of the/taXationi‘laws, such as the selection of the persons on whom the tax is to be levied, the rates at which it is to be charged in respect of different classes of goods and the like. 25. In J.K. Udaipur Udyog Ltd. and anothers, a scheme was‘framed by the State granting exemption to' industrial units from payment of sales tax on intra-State and Inter—State 's’ale ’of goods and by-products 6AIR 1958 sc 909 z. 11 Q5? manufactured Within the State of Rajasthan. By a subsequent notification extent of percentage of exemption available to sick indUStries was sought to be corrected. The respondent company in a writ petition before the High Court contended that as per the scheme originally framed, the company availed the benefit of exemption for a period of 11 years, as the rights of the company under the scheme were claimed to be crystallized with effect from the date of certification of their applications under the particular clause of the scheme which could not be taken away by corrigendum with retrospective effect. Allowing the appeal of the State against the judgment of the High Court, it was held that the right to exemption was not a vested right but was a defeasible privilege which the State Government could amend according to public interest; the mere fact that the respondents which had availed of the exemption were prohibited from collecting the sales tax from their customers or that they had not collected sales tax from the customers was of no consequence. The seller might or might not be entitled to recover the same‘from the purchaser. The State Government was entitled to recover the same from the respondents irrespective of the fact that they might have lost the chance of passing x on their liability to pay/sales tax to their purchasers. A . 26. If we examine facts of the present case in the light of the principles of law laid down in the aforesaid judgments, we find that the tax was leviable on the sale of coal as per Section 8 of the Act in vie‘w of entry 40 of Schedule ii Part ll read with Section 14 of the Act, 1956, as the coal has been declared as goods of special importance under Section ""\\sm 14 (ia). The petitioners purchased coal after paying tax to the dealer .«. 12 as an input for production of sponge iron. Initially, goods coal was not mentioned in Schedule lll and as such, a registered dealer using coal as an input for manufacture of sponge iron was entitled for rebate of input tax in accordance with Section 13 (1)(b) of the Act which provides that where a registered dealer purchases any goods specified in Parts I, Il and IV of Schedule ii other than those specined in Schedule iii 'within the State of Chhattisgarh from another such dealer after payment to him of inpUt tax, for use or consumption of such goods for/in the manufacture or for/in mining in the State of any goods specified in Schedule ii for sale within the State of Chhattisgarh or in the course of interstate trade or commerce. 27. Input tax rebate is not available on the goods mentioned iri ‘Schedule iii. Entry 8 of Schedule iii empowers the State to include other goods in Schedule Iii by notification. 28. From bare reading of the provisions contained in Sections 84Aand 13 of the Act, it is manifestly clear that a registered dealer trading in goods specified in Schedule ii are liable to pay tax. 29.The Legislature in its wisdom extended the benefit of input tax rebate to a registered deale/r/‘underSection 13 (1)(b) tO‘wards any input tax paid by him for purchase of goods specified in Parts I, ii and IV of Schedule ii other than those specified in Schedule Ill. Entry No.8 of Schedule ill is a part of the statute itself and not the creation of notification which confers power on the State Government to include any goods in Schedule Ill. Exemption/rebate extended to the dealer under Section 13 is a privilege made available to the dealers trading in goods not included in Schedule iii. Since the Legislature has / 13 consciously conferred power to the State Government t9 enlarge Schedule Ill by adding goods, by no stretch of imagination, the same can be construed to be excessive delegation of power by the legislature to the State, as entitlement of input tax rebate necessarily is a concession allowed by the State Government and the petitioners do not enjoy the aforesaid concession as indefeasible right to avail forever. 30. Accordingly, we reject the challenge to the constitutionalwalidity of entry No.8 of Schedule iii on the aforesaid ground. .Second argument that power to amend Schedule ll is delegated to the State Government under Section 15-A of the Act and, therefore, to A remove coal from entry 40 in Part ll of Schedule ii, Schedule ll is required to be first amended by specifically deleting the coal from that entry and coal can be transposed and included in Schedule iii only after deleting the coal from Schedule ll is also unacceptable. Rebate of input tax under Section 13 is available to the registered dealer who purchases any goods specified in Parts I, ii and IV of Schedule ll other than those specified in Schedule ill within the State of Chhattisgarh from another such /dealerNafter payment to him of input tax for / manufacture of any goods specified in Schedule ll for sale within the State or in the course of inter—State trade or commerce or for sale outside the State. Thus, it is clear that Section 13 (1)(b) makes a provision for rebate of input tax only with respect to goods other than those specified in Schedule iii. Exclusion of coal including coke in all f its forms, but excluding charcoal in Schedule lll, vide impugned r notification of Annexure—P/1, disentitles the dealers who purchase the \\ 33. in the result, we do not find any substance in this petition, the same deserves to be dismissed and it is hereby dismissed. No order as to costs. *x i i" ‘ Dhirendra Sd/~ Mishra ,‘ f Judge J/ . ixx ”k Sd/. 7 A x_‘ ‘ R.N. Chandrakar ‘ Judge