IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH WEDNESDAY, THE 17TH JUNE 2009 / 27TH JYAISHTA 1931 WP(C).No. 21251 of 2008(E) -------------------------- PETITIONER(S): ---------------------- M/S. MARDEC R.K LATEX PVT. LTD., REGISTERED 0FFICE, 21/7, RAVI INDUSTRIAL ESTATE, OPP. C.M.T.I, 4TH MAIN ROAD, INDUSTRIAL SUBURB, 2ND STAGE, TUMKUR ROAD, BANGALORE-560 022, REP. BY ITS SENIOR MANAGER- SALES MR. D. DHARMARAJ. BY SHRI HIDAYATHULLAH, SENIOR COUNSEL. BY ADV. SRI.JOSEPH KODIANTHARA SRI.MATHEWS K.UTHUPPACHAN RESPONDENT(S): ------------------------- 1. STATE OF KERALA, REP. BY THE SECRETARY TAXES, SECRETARIAT, TRIVANDRUM. 2. COMMISSIONER OF COMMERCIAL TAXES, TRIVANDRUM. 3. DY. COMMISSIONER OF COMMERCIAL TAXES, CIVIL STATION, THRISSUR-680 003. 4. ASSISTANT COMMISSIONER (ASSMT.), DEPARTMENT OF COMMERCIAL TAXES, SPECIAL CIRCLE, THRISSUR. BY SPL. GOVERNMENT PLEADER SHRI VINOD CHANDRAN. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15.12.2008 ALONG WITH W.P.C.NO.21286/08H, THE COURT ON 17.6.2009 DELIVERED THE FOLLOWING: W.P.(C).NO.21251/08E PETITIONER'S EXHIBITS: EXT.P1TRUE COPY OF ORDER DATED 3.8.2006 OF THE KARNATAKA HIGH COURT. EXT.P2TRUE COPY OF NOTICE DATED 25.6.2008 ISSUED TO THE PETITIONER BY THE THIRD RESPONDENT. EXT.P3TRUE COPY OF NOTIFICATION S.R.O.695/03 DATED 29.7.2003. EXT.P4TRUE COPY OF ASSESSMENT ORDER DATED 38.10.2006 WITH RESPECT TO KGST FOR 2000 - 01 PASSED BY THE 4TH RESPONDENT. EXT.P5TRUE COPY OF ASSESSMENT ORDER DATED 30.10.2006 WITH RESPECT TO CST FOR 2000-01 PASSED BY THE FOURTH RESPONDENT. EXT.P6TRUE COPY OF REVISED ASSESSMENT ORDER DATED 2.6.2007 WITH RESPECT TO CST FOPR 2000 - 01 PASSED BY THE 4TH RESPONDENT. EXT.P7TRUE COPY OF ORDER DATED 25.9.2007 OF THE APPELLATE TRIBUNAL. EXT.P8TRUE COPY OF JUDGMENT DATED 8.12.2003 OF THIS HONOURABLE COURT IN WRIT PETITION NO.12376/2003 OF KURIAN ABRAHAM. EXT.P9TRUE COPY OF JUDGMENT DATED 12.2.2008 OF THE HONOURABLE SUPREME COURT IN CIVIL APPEAL NOS.7965 & 7966 OF 2004 PERTAINING TO KURIAN ABRAHAM'S CASE. EXT.P10 TRUE COPY OF ORDER DATED 8.6.2007 OF THE KERALA HIGH COURT IN S.T. REVISION NO.177/2007 OF PADINJAREKARA AGENCIES. EXT.P11 TRUE COPY OF ORDER DATED 8.2.2008 OF THE HONOURABLE SUPREME COURT IN CIVIL APPEAL NOS. 5700-5712 OF 2007. EXT.P12 TRUE COPY OF NOTICE NO.R1-2781/08 ISSUED TO R.K. LATEX RUBBER DEALER. RESPONDENTS' EXHIBITS: EXT.R1TRUE COPY OF THE NOTIFICATION SRO.946/2007. // True Copy // PS to Judge K.M.JOSEPH, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - WP.(C) Nos.21251 & 21286 of 2008 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 17th June, 2009 JUDGMENT Common questions arise in these writ petitions and they are being disposed of by this common judgment. 2. Petitioners challenge notices issued under Section 35 of the Kerala General Sales Tax Act, 1963, hereinafter referred to as 'the Act'. The purport of the notice is set out as hereunder: “Please take notice that the sales tax assessment for the year 2000-2001 finalised by the Assistant Commissioner (Assmt.), Special Circle, Thrissur is found defective for the following reasons: The assessment for the year 2000-2001 has been completed fixing a total and taxable turnover of Rs.274366445.78 and Rs.317250/- respectively. On a detailed verification, it is seen that an incorrect exemption of Rs.214.57 lakh was given on the purchase turnover of centrifuged latex and cream latex sold interstate which resulted in a huge shortage of tax of Rs.23.60 lakh. Rubber is a good taxable at last purchase point in the state and as per SRO.695/03 exemption is allowed only for manufacturers. It is also judicially held by the Apex Court that there was no manufacture in conversion of latex into centrifuged latex. In the circumstances the assessment completed by the WPC.21251&21286/08 2 assessing authority is incorrect and prejudicial to the revenue. Therefore, it is proposed to cancel the assessment for 2000-01 under Section 35 of the KGST Act. You are given an opportunity of being heard in the matter on 9.7.2008 in my office at Thrissur Civil Station at 11 a.m objections if any, may be filed within the above said period.” 3. Petitioners are engaged in manufacture and sale of centrifuged latex. Government of Kerala brought out a notification under Section 10 of the Act as SRO. 695/03, which reads as follows: “S.R.O. No.695/2003.- In exercise of the powers conferred by Section 10 of the Kerala General Sales Tax, 1963 (Act 15 of 1963), the Government of Kerala, having considered it necessary in the public interest so to do, hereby exempt manufacturers of centrifuged latex and crumb rubber from the payment of tax payable under the Kerala General Sales Tax Act, 1963 on the purchase turnover of rubber in any form used for the manufacture of centrifuged latex and crumb rubber. This Notification shall be deemed to have been in force during the period from 1st April 1988 to 9th October, 2001. Tax, if any, already paid shall not be refunded.” According to the petitioners, the benefit of the notification was allowed WPC.21251&21286/08 3 and tax on purchase of field latex came to be exempted vide Ext.P4 assessment order in W.P.(C) 21251 of 2008 and Ext.P3 in W.P.(C) 21286 of 2008 for the year 2000-2001. With regard to the assessment under the Central Sales Tax Act for the same year, though initially interstate sale of centrifuged latex was visited with concessional rate of 4%, on the ground that there is no manufacturing process involved in conversion of field latex into centrifuged latex and SRO.1731/1993 was not available, the interstate sale was assessed at 12%. Petitioner in W.P.(C) 21251 of 2008 approached the statutory authority, the Appellate Tribunal and by Ext.P7 order the Tribunal proceeded to hold that the petitioner is entitled to 4% concessional rate and holding that Kurian Abraham's case does not in any manner categorically lay down that there is no manufacturing process involved. In W.P.(C) 21286 of 2008 it is stated that against Ext.P5 order levying tax at 12% on the interstate sale, appeal is pending before the Deputy Commissioner, Ernakulam. Petitioners further point out that a Full Bench of this court in Kurian Abraham's Case, which is produced as Ext.P6 in W.P.(C) 21286/2008, was primarily concerned with Circular No.16/98 dated 28.5.1998 issued by the Board. Petitioner also relies on the decision of the Apex Court in Kurian Abraham's case confirming the judgment of the Full Bench. Petitioners have further relied on the decision of the Apex Court in M/s. Padinjarekara Agencies WPC.21251&21286/08 4 Pvt. Ltd. v. State of Kerala. 4. Counter affidavits have been filed, wherein they have inter alia stated that petitioners have an alternate remedy. What is impugned are only notices. The judicial history culminating in SRO. 946/2007 are relied on to contend that what is intended was relief from taxation only either in respect of field latex or centrifuged latex. 5. I heard learned Senior Counsel for the petitioners Sri.Hidayathullah and Sri.Vinod Chandran, learned Special Government Pleader for Taxes. 6. Sri.Hidayathullah would point out that having regard to the stand in the impugned notices and also the stand taken in the counter affidavit, this court may not relegate the matter to the statutory authority. In this regard, he relied on the decision of the Apex Court reported in Siemens Ltd. v. State of Maharashtra (2007(1) KLT 88(SC)). He also relied on the decisions in Sainet Private Ltd. v. Union of India (1984 (18) E.L.T. 141(Bom.)) and Bomin Private Limited v. Union of India (1981 E.L.T. 18(Gij.)). He further points out that the terms of the notification, S.R.O. 695/2003 are clear and if field latex has been utilized for manufacture of centrifuged latex, the assessee is entitled to exemption on the turnover of field latex. He would refer me to the decision of the Apex Court in Kurian Abraham's case, which is the subject matter of the WPC.21251&21286/08 5 notices and point out that the authority has proceeded on a totally misplaced interpretation of the judgment of the Apex Court. It is also pointed out that the issue is pre-judged rendering the proceedings an empty formality. Learned counsel would submit that the construction, which is sought to be placed in the impugned notices would render S.RO. 695 of 2003 otiose and unworkable. He would further point out that as what is involved is only the interpretation of the notification and the appreciation of the judgment of the Apex Court. These are fit cases where this court should take it upon itself to pronounce upon the issue rather than relegating the parties to the statutory authority, which will only culminate in multiplicity of proceedings, he contends. He would further point out that an exemption granted under Section 10 of the Act by a notification is a matter which should fall to be decided on the basis of the interpretation of the specific words used in the notification and there should be no scope for importing anything into the notification. Even proceeding on the basis that both field latex and centrifuged latex could be commodities exigible to tax, it would not mean that the concerned authority was not endowed with power to grant administrative relief against double taxation, which is precisely what was done vide Circular 16/1998, he points out. On the strength of the decision in M/s.Padinjarekare Agencies Pvt. Ltd's case he would further WPC.21251&21286/08 6 contend that it would be a different thing altogether when the question is the effect of a notification granting exemption and that is a matter where one would have to decide the issue by looking at what is said in the notification. It is not at all correct to say that there is no manufacture involved in the making of centrifuged latex, he complains. 7. Per contra, the learned Government Pleader would point out that the entries relating to rubber in the Act reads as follows: Originally it stood as follows: __________________________________________________________ __ Sl. Description of goods Point of levy Rate of tax % __________________________________________________________ __ 38 Rubber At the point of last Rubber excluding purchase in the State synthetic rubber by a dealer who is 5 liable to tax under Section 5. __________________________________________________________ __ 39 Rubber products other At the point of first than those specifically sale in the State by a mentioned in this dealer who is liable to 8” Schedule tax under Section 5. __________________________________________________________ __ From 1.7.1987. __________________________________________________________ __ WPC.21251&21286/08 7 110 Rubber, that is to say,- (a) raw rubber, latex, dry rubber sheet of all RMA grades, tree lace, earth scrap, ammoniated latex, preserved latex concentrate, centrifugal latex, dry crepe rubber, dry block rubber, crumb rubber, skimmed rubber and all other qualities and grades of latex, (i) purchased within the At the point of last purchase State in the State by a dealer who 10 is liable to tax under Section 5. (ii) brought from outside At the point of first sale in the State the State by a dealer who 10 is liable to tax under Section 5. (b) Reclaimed rubber, all grades and -do- 10 qualities. (c) Synthetic rubber -do- 12.5 __________________________________________________________ __ Thereafter from 1.4.1988 Entry 161 reads as follows: 161. Rubber, that is to say: (a) Raw rubber latex, dry rubber At the point of last sheet of all RMA grades, tree purchase in the State by a lace, earth scrap, ammoniated dealer also is liable to latex, preserved latex, tax under Section 5. concentrate centrifuged latex and all other qualities and grades of latex dry crape rubber, dry block rubber, crumb rubber, WPC.21251&21286/08 8 skimmed rubber; and (b) Reclaimed rubber all grades At the point of sale And qualities. Within the the State by a dealer, a dealer who is liable to tax under Section 5. It is then submitted that this court took the view in M/s.Padinjarakkara Agencies Ltd. v. Asst. Commissioner (1996(2) KLT 641), which related to the assessment years 1983-84 to 1986-87, that centrifuged latex was a commercially different product from field latex and it came within the term finished product under Section 5(7) of the KGST Act. Section 5(7) was omitted with effect from 1.7.1987. The said provision provided inter alia for concessional rate of tax in respect of industrial raw materials or packing materials sold to industrial units for use in the production of finished products inside the State for sale, or for packing of such finished products inside the State for sale. On the reasoning that the centrifuged latex was commercially different product from field latex, the court took the view that the issue of Form 18 declaration to the effect that the drums were for marketing the Company's finished products was justified. It is pointed out that from 1.4.1988 rubber latex and centrifuged latex are treated as one and the same commodity for the purpose of taxation and therefore the decision in M/s.Padinjarekkara Agencies Ltd's case would not apply. It is pointed out that with effect from 1988 if a dealer WPC.21251&21286/08 9 purchased field latex and converted it into centrifuged latex and sold centrifuged latex within the State to a registered dealer, he could claim exemption from tax if the buyer had issued the declaration in Form 25. It is pointed out that if on the other hand the processed latex (centrifuged latex) is sold interstate, the dealer would have to pay the tax on the purchase of field tax as he would be the last purchaser within the State besides having to pay Central Sales Tax on the interstate sale of centrifuged latex. Sri.Vinod Chandran would point out that on 11.10.2001 a Division Bench of this court in Supersonic Industrial Complex v. Deputy commissioner of Sales Tax (130 STC 69) on the reasoning that field latex and centrifuged latex are two different commodities, quashed Circular 16/1998, by which the Board of Revenue (Taxes) instructed the officers that field latex and centrifuged latex are to be considered as a single commodity for the purpose of sales tax assessment. There was a hue and cry in the State, it is pointed, and this necessitated the Government to issue SRO.695/2003 and SRO.316/2005 to avoid a double taxation both on field latex and centrifuged latex or crumb rubber or crape rubber, which is made out of latex which has already suffered tax. Subsequently the decision in Supersonic Industrial Complex's Case came to the overruled by the Full Bench in the decision reported in M/s. Kurian Abraham v. State of Kerala WPC.21251&21286/08 10 (2004(1) K.L.T. 498(FB)), which was later confirmed by the Apex Court. It is the case of the Government that field latex and centrifuged latex are separate and distinct items which come under the Entry 110, taxable at the last purchase point within the State. It is pointed out that the intention of the Government was to get tax on the last purchase point of latex and SRO.695/2003 and SRO.316/2005 were issued by the Government to avoid double taxation at the point of last purchase both on field latex and centrifuged latex, a situation that arose due to the decision in Supersonic Industrial Complex's Case. But when the decision in Supersonic Industrial Complex's Case itself was overruled by this court, Government has issued SRO.946/2007 to restore the old position and to ensure that tax at one point either at purchase of field latex or centrifuged latex be levied and SRO.316/2005 was cancelled. It is pointed out that fourth respondent had erred in giving exemption on the purchase turnover of field latex with the result that the State has not received any tax at all and this is not the intention of the Government. He would point out that a perusal of the assessment order would show that whenever Form 25 declaration has been produced the assessee has been given exemption. This is for the reason that tax being levied at the point of last purchase in the State and the declaration in Form 25 being a statutory method to establish that the assessee to whom Form 25 WPC.21251&21286/08 11 declaration is given is not the last purchaser within the State, to whom exemption would be granted. Learned Government Pleader would point out that this is the purport of Circular 16/1998. Learned Government Pleader points out that a perusal of the assessment order in W.P.(C) 21286 of 2008 would show that the petitioner has been the beneficiary of an illegal adjustment causing loss to the exchequer resulting from the incorrect appreciation of the law and facts. 8. Sri.Hidayathullah in reply would point out that it is true that SRO.946/2007has rescinded the notification SRO.316/2005 dated 31.3.2005 but it does not affect notification SRO.695/2003, which alone relevant to the assessment years in question. He would further point out that the contention of the learned Government Pleader based on Form 25 does not find expression in the notices impugned, which the petitioner is called upon to answer. 9. What is impugned are the notices issued under Section 35 of the Act. The first question to be considered is whether petitioners are to be relegated to the preferring of objections to the same and permitting the statutory authority to take a decision thereon. In this context, it is necessary to refer to the case law cited by the learned Senior Counsel for the petitioners. In Sainet Private India Ltd. v. Union of India ( 1984 (18) E.L.T. 141( Bom.) the court inter alia held as WPC.21251&21286/08 12 follows: “It is true as we have observed above that not following the statutory remedies under the Act is a material circumstances to be considered by this Court at the time of hearing. However, in a case where fiscal statutes are brought in dispute and taxing liability is under consideration as being without authority of law, we do not think that, this court will be justified in declining jurisdiction in such matters. Moreover, the petitioners have stated in para 19 that the Appellate Authority of the Customs has expressed adverse opinion and the appeal from the officer at Goa would also lie to him. Petitioner has stated that he does not expect any other order. There is another reason. When the matter only rests on the interpretation of a particular statute or section or Entry and does not involve any question of facts, it would not be a proper exercise of jurisdiction for this Court to decline jurisdiction because the interpretation of law and construction of a particular statute is ultimately the responsibility of this Court. In our view, although the objection raised by the learned counsel for the respondents is no doubt a matter of worthy consideration, yet for the reasons which we have given above, we do not think that this petition can be rejected on that ground and the matter can be sent to the Collector.” In Bomin Private Limited v. Union of India (1981 E.L.T. 18(Guj.)) the Gujarat High Court inter alia held as follows: “If the question relating to the interpretation of WPC.21251&21286/08 13 statutory provisions or exemption notification is involved, it would not be wise and expedient for the High Court to dismiss a writ petition in limine on the ground of alternative remedy under Art.226 of the Constitution.” The Apex Court in the decision reported in Siemens Ltd. v. State of Maharashtra (2007(1) KLT 88 (SC) was dealing with a show cause notice relating to a demand for payment of cess from the writ petitioner proceeded to hold as follows: “Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of Uttar Pradesh v, Brahm Datt Sharma & Anr. (AIR 1987 SC 943) Special Director & Anr. v. Mohd. Ghulam Ghouse & Anr. (2004) 3 SCC 440 and Union of India & Anr. v. Kurisetty Sayanarayana (2006 (12)SCALE 262) , but the question herein has to be considered from a different angle, viz, when a notice is issued with with pre-meditation, a writ petition would be maintainable. In such an event, even if the courts directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose (See K.I.Shephard & Ors. v. Union of India & Ors. (1987) 4 SCC 432 : AIR 1988 SC 686). It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter affidavit as also in its WPC.21251&21286/08 14 purported show cause. x x x x x x x x A bare perusal of the order impugned before the High Court as also the statements made before us in the counter affidavit filed by the respondents, we are satisfied that the statutory authority has already applied its mind and has formed an opinion as regards the liability or otherwise of the appellant. If in passing the order the respondent has already determined the liability of the appellant and the only question which remains for its consideration is quantification thereof, the same does not remain in the realm of a show cause notice.” 10. In Kurian Abraham's case the court was concerned with the Circular issued by the Board of Revenue, which after referring to the relevant entries relating to rubber products and the decision in M/s. Padinjarekkara Agencies Case (5 KTR 26) took the view that with effect from 1.4.1988 Padinjarakkara Agencies Case would not be applicable for deciding whether centrifuged latex is commercially different from field latex and it was further ordered that from 1.4.1988 since field latex and centrifuged latex are one and the same commodity, by the change of law, the decision will not have operation of law no new products emerges when field latex is converted into centrifuged latex. It was further claimed that therefore the notification, SRO.585/90 will not have application in the case of such SSI units from 1.4.1988. The Apex WPC.21251&21286/08 15 Court held inter alia as follows: “We find no merit in the above contentions. At the outset, it may be stated that in the case of field latex there is 60% water and 40% is the rubber content. On the other hand, centrifuged latex produced from field latex reverses the ratio whereby the rubber content is increased to 60% and the water content is reduced to 40%. Basically, field latex is raw rubber whereas centrifuged latex is a product. This is the rationale behind giving or setting off/deduction under Notification dated 13.11.2007. Tax administration is a complex subject. It consists of several aspects. The Government need to strike a balance in the imposition of tax between collection of revenue on one hand and business friendly approach on the other hand. Today, Governments have realized that in matters of tax collection, difficulties faced by the business have got to be taken into account. Exemption, undoubtedly, is a matter of policy, Interpretation of an Entry is undoubtedly a quasi- judicial function under the tax laws. Imposition of taxes consists of liability, quantification of liability and collection of taxes. Policy decisions have to be taken by the Government. However, the Government has to work through its senior officers in the matter of difficulties which the business may face, particularly in matters of tax administration. That is where the role of the Board of Revenue comes into play. The said Board takes administrative decisions, which includes the authority to grant Administrative Reliefs. This is the underlying reason WPC.21251&21286/08 16 for empowering the Board to issue orders, instructions and directions to the officers under it. In the present case, we are not concerned with deciding the scope and extent of each item in Entry 110. We are essentially concerned in this case with the nature of the powers exercised by the Board/Commissioners under Section 3(1A). Take the case of centrifuged latex. It is a product made from field latex (raw- rubber). Even for the sake of argument and even assuming that centrifuged latex and field lated are two different items of taxation under the 1963