M/S Ravi Prakash Refineries (P) Ltd. Vs State of Karnataka, on 3rd May 2016, Supreme Court of India – Read Judgement

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4760 OF 2016

(Arising out of S.L.P.(C) No. 21015 of 2012)

M/S RAVI PRAKASH REFINERIES (P) LTD. …. APPELLANT(S)
VERSUS
STATE OF KARNATAKA .. RESPONDENT(S)

J U D G M E N T

DIPAK MISRA, J.
Delay condoned.
2. Leave granted.
3. The assessee-appellant is engaged in the manufacturing of refined
edible oil by solvent extraction process and refining along with trading in
edible oil and oil-cake. For the assessment year ending 31-3-2003 the
assessee had filed Revised Annual Return in Form 4, declaring the Gross
Taxable Turnovers at Rs.19,76,37,615-00 and Rs.1,60,93,055-00 respectively.
4. As the factual narration would show the appellant sold Sunflower De-
oiled Cake (SF DOC) and several other goods in the course of inter-State
trade and commerce and in the course of the said transaction the appellant
produced ‘C’ Forms obtained from the dealers in inter-State sales. The
assessee had admitted the liability of tax at 2 per cent on the sale of SF
DOC in the course of inter-State trade and commerce. The Deputy
Commissioner of Commercial Taxes (Assessment) Chitradurga, the assessing
authority, had passed an order of assessment under Section 9(2) of the
Central Sales Tax Act, 1956 (for brevity, ‘the CST Act’) on 29th January,
2005, whereby it had expressed the view that a sum of Rs.4,75,68,764/- was
subjected to tax at 2 per cent. The assessing officer had
granted the benefit on production of ‘C’ Form in terms of the Notification
No.FD 119 CSL 2002 (2) dated 31st May, 2002.
5. After the order of assessment was passed, the succeeding assessing
officer formed an opinion that there was an escapement of tax due to the
reason that the inter-State sales of SF DOC was actually liable to tax at 4
per cent and not at 2 per cent, which had been erroneously adopted by the
earlier assessing authority. Following the principles of natural justice,
he levied the tax at 4 per cent on the inter-State sales of SF DOC.
6. The aforesaid order was called in question in an appeal before the
Joint Commissioner of Commercial Taxes (Appeals), Davansere Division,
Davangere under Section 20(5) read with Section 9 (2) of the CST Act. The
Appellate Authority noted the submissions advanced on behalf of the
assessee as well as the revenue and thereafter referred to Section 12-A of
the Karnataka Sales Tax Act, 1957 (for short, ‘KST Act’) and referred to
the decisions in the cases of Nagaraja Overseals Traders vs. The State of
Mysore,[1] Mahaveer Drug House vs. ACCT Gandhinagar, Bangalore,[2] State
of Andhra Pradesh vs. Ampro Food Products,[3] Giridharial Co. vs. State of
Andhra Pradesh,[4] C. Sathiragu and Sons vs. State of Andhra Pradesh,[5]
Somani Brothers vs. State of Bihar,[6] Eureka Forbes vs. State of Bihar[7]
and came to hold that the change of opinion could not have been a ground
for reopening of assessment in exercise of power under Section 12-A of the
KST Act and, accordingly, set aside the order of re-assessment.
7. Though the assessee succeeded, yet it preferred an appeal, being
STA No.425 of 2006 before the Karnataka Appellate Tribunal, Bangalore (for
short, ‘the tribunal’), as the first Appellate Authority had not expressed
any opinion with regard to rate of tax on oil-cake and de-oiled cake. It
was contended before the Tribunal that the oil cake and de-oiled cake as
per the commercial parlance are one and the same and, therefore, the rate
of tax has to be at 2 per cent and not 4 per cent. The tribunal after
noting the submissions referred to the schedule in the notification and the
decision in M/s Sterling Foods vs. State of Karnataka,[8] State of
Karnataka vs. M/s Goa Granites[9], M/s Habeeb Protiens and Fats Extracts,
Hiriyur, Chitradurga District vs. Commissioner of Commercial Taxes,
Bangalore and Anr.[10] and came to hold as under :
“Thus, we hold that the expression ‘oil cake in sl. No. 6 of the CST
Notification No. FD 119 CSL 2002(2) dated 31.5.2002 would include also de-
oiled cake and that therefore the reassessment order passed by the AA under
CST Act, 1956 for the year 2002-03 in so far as it concerned levy of CST at
4% on inter-State Sales of sunflower de-oiled cake covered by C Forms by
denying the benefit of reduction in the rate of CST to 2% granted in the
Notification dated 31.05.2002 is liable to be held unsustainable and set
aside.
….

Consequential to the decision taken by us as above, the appellate order of
the learned FAA is liable for modification accordingly. As regards the
reassessment order set aside by the learned FAA on the basis of lay that
reassessment is not permissible by change of pinion, which is supported by
the several case laws cited in the appellate order itself, it need to be
placed on record that Hon’ble Supreme Court of India has reiterated the
said legal position that reopening of an assessment by change of opinion is
not permissible in the recent judgment rendered in the case of M/s Binani
Industries Ltd. Vs. Assistant Commissioner of Commercial Taxes, VI Circle,
Bangalore and others (2007) 6 VST 783.”

8. On the aforesaid analysis, the tribunal issued the following
directions:
“(i) Reassessment order passed by the DCCT (Transition), Chitradurga under
CST Act, 1956 for the year 2002-03 in respect of rate of CST levied at 4%
on the turnover of Rs.4,75,68,764 relating to inter-State sales of
sunflower de-oiled cake covered by C Forms is modified to 2% allowing the
benefit of reduction in the rate of CST to 2% granted in the Notification
No.FD 119 CSL 2002 (2) dated 31-5-2002.

(ii) The appellate order passed by the FAA in CST AP 27/2005-06 dated 20-4-
2006 shall stand modified accordingly.

(iii) Directions are issued that the AA shall accordingly issue revised
demand notice.”

9. The aforesaid order of tribunal was assailed before the High Court
in Revision Petition being STRP No. 32 of 2009. Be it noted, the High
Court had formulated the following two substantial questions of law:-
(i) Whether, on the facts and in circumstances of the case, can it be
held that the order dated 12.7.2007 passed by the Karnataka Appellate
Tribunal in STA 425/2006 allowing the appeal is correct and in accordance
with law?

(ii) Whether on the fact and in circumstances of the case, can it be
held that the Appellate Tribunal was right in law in ignoring that under
the KST Act in the Second Schedule in serial No.1 of Part O, oil cake and
de-oiled cake are listed under two separate sub-headings as two different
commodities?

10. After deliberating on the aforesaid two questions, the High Court
referred to the provisions of the KST Act and the Notification issued under
Section 8(5) of the CST Act, distinguished the decisions placed reliance
upon by the first Appellate Authority and the tribunal as well as the
decision rendered by this Court in M/s Sterling Foods (supra) and came to
hold that there is distinction between oil cake and de-oiled cake and they
are two different commodities and not one and the same. Elaborating the
discussion, the Division Bench held thus:-
“The contention that the commodities will have to be understood in common
parlance as understood by a common man is even harder to accept. What a
common man understands need not necessarily mean what is understood in
accordance with law. In the instant case, the framers of the schedule were
aware of the distinction between oil cake and de-oiled case. Accordingly,
they have treated it as two different commodities. Therefore, to hold that
the view of a common man has to necessarily over ride the view of the
Legislature is difficult to accept. The Distinction in law has been made
which requires to be followed. Oil cake and de-oiled case cannot stand
extended to de-oiled cake. The impact of the notification reducing the tax
impact was every well known when the benefit was granted. A notification
has to be strictly construed. The Court cannot read into the notification
what is not there. The notification is clear and unambiguous. Any attempt
to read it otherwise is not only uncalled for but would amount to
redrafting the notification.”
Being of this view, it answered the two questions that were framed
by it in favour of the Revenue and against the Assessee. The said judgment
and order is the subject matter of challenge in this appeal by special
leave.
11. We have heard Shri Dhruv Mehta, learned senior counsel along with
Ms. Anupama, learned counsel for the appellant and Shri Basava Prabhu S.
Patil, learned senior counsel along with Shri V.N. Raghupathy, learned
counsel for the State.
12. First, we shall take up the issue pertaining to
Section 12-A of the KST Act. Section 12-A(1) which is relevant for the
present purpose is extracted below:
“12-A. Assessment of escaped turnover-(1) If the assessing authority has
reason to believe that the whole or any part of the turnover of a dealer in
respect of any period has escaped assessment to tax or has been under-
assessed or has been assessed at a rate lower than the rate at which it is
assessable under this Act or any deductions or exemptions have been wrongly
allowed in respect thereof, the assessing authority may, notwithstanding
the fact that the whole or part of such escaped turnover was already before
the said authority at the time of the original assessment or re-assessment
but subject to the provisions of subsection (2), at any time within a
period of [eight years] from the expiry of the year to which the tax
relates, proceed to assess or re-assess to the best of its judgment the tax
payable by the dealer in respect of such turnover after issuing a notice to
the dealer and after making such enquiry as it may consider necessary.”
13. On a perusal of the aforesaid provision, it is limpid that it
permits re-opening of an assessment on the ground that if the assessee has
been assessed at a rate lower than the rate at which it is assessable under
Act. The rate of tax is four per cent. The assessee had filed the return
and the ‘C’ Forms claiming the benefit of the Notification dated 31.05.2002
in respect of inter-State sale of oil-cakes. The assessing officer had
accepted the ‘C’ Forms on verification and granted the benefit. The
assessing officer on a proper security has accept the ‘C’ Forms on the
basis of which reduced rate of tax was claimed. The assessment was
reopened as there was no escapement of tax due in respect of inter-State
sale in respect of SF DOC.
14. Mr. Dhruv Mehta, learned senior counsel for the appellant, would
submit that once an assessment order was framed on all the material
available on record and the rate of tax was accepted, the view expressed by
the 1st appellate authority which had got the stamp of affirmance by the
tribunal should be accepted to be correct more for the reason the revenue
had not challenged the order of assessment and that apart the High Court
has not appositely dealt with it. He would place heavy reliance on the
pronouncement in M/s. Binani Industries Limited v. Assistant Commissioner
of Commercial Taxes, VI Circle, Bangalore[11].
15. It is submitted by Mr. Basava Prabhu S. Patil, learned senior
counsel, that claiming of benefit on production of ‘C’ Forms had nothing to
do with the nature of product that was sold. Learned senior counsel would
contend that the first Appellate Authority, as well as the tribunal, has
been erroneously guided that there has been change of opinion. Learned
senior counsel has submitted that the words “reason to believe” have to be
expansively understood to import a meaning to the provision, for when the
assessment has taken place at a rate lower than the rate at which the
turnover of a dealer is assessable, there can be reopening of assessment.
16. First, we shall proceed to consider the acceptability of the
opinion expressed by the High Court. The Government of Karnataka in
exercise of its powers conferred by Section 8 (5) of the CST Act, issued
Notification No.119 FD 119 CSL 2002(2) dated 31.05.2002 granting reduction
in the rate of central sales tax payable on inter-State sales of goods
specified in Serial Nos.1 to 11 of the notification, subject to the
condition that the Dealer produces declarations in Forms ‘C’ obtained from
the registered Dealers/Government to whom the goods are sold. Be it noted
oil cake is one of the goods specified in serial No. 6 of the notification.
Submission of Mr. Mehta, learned senior counsel is that the High Court has
clearly erred in law by distinguishing the facts and by opining that the
judgment in the case of M/s Habeeb Protiens (supra) is not a decision in
issue and an obiter. In the case of M/s Sterling Foods (supra), the
question that arose for consideration was whether shrimps, prawns and
lobsters subjected to processing like cutting of heads and tails, peeling,
deveining, cleaning and freezing ceased to be the same commodity and became
a different commodity for the purpose of the Central Sales Tax Act. The
Court posed the question whether they still go under the description of
shrims, prawns and lobsters or in other words, shrimps, prawns and lobsters
would mean only raw shrimps, prawns and lobsters as caught from the sea or
they also include process and frozen shrimps, prawns and lobsters. After
referring to the various provisions and placing reliance on the decision in
Dy. CST vs. Pio Food Packers[12] the Court held as under:-
“…..when the State Legislature excluded processed or frozen shrimps, prawns
and lobsters from the ambit and coverage of Entry 13a, its object obviously
was that the last purchases of processed or frozen shrimps, prawns and
lobsters in the State should not be exigible to State Sales Tax under Entry
13a. The State Legislature was not at all concerned with the question as to
whether processed or frozen shrimps, prawns and lobsters are commercially
the same commodity as raw shrimps, prawns and lobsters or are a different
commodity and merely because the State Legislature made a distinction
between the two for the purpose of determining exigibility to State Sales
Tax, it cannot be said that in commercial parlance or according to popular
sense, processed or frozen shrimps, prawns and lobsters are recognised as
different commodity distinct from raw shrimps, prawns and lobsters. The
question whether raw shrimps, prawns and lobsters after suffering
processing retain their original character or identity or become a new
commodity has to be determined not on the basis of a distinction made by
the State Legislature for the purpose of exigibility to State Sales Tax
because even where the commodity is the same in the eyes of the persons
dealing in it the State Legislature may make a classification for
determining liability to sales tax. This question, for the purpose of the
Central Sales Tax Act, has to be determined on the basis of what is
commonly known or recognised in commercial parlance. If in commercial
parlance and according to what is understood in the trade by the dealer and
the consumer, processed or frozen shrimps, prawns and lobsters retain their
original character and identity as shrimps, prawns and lobsters and do not
become a new distinct commodity and are as much ‘shrimps, prawns and
lobsters’, as raw shrimps, prawns and lobsters, sub-section (3) of section
5 of the Central Sales Tax Act would be attracted and if with a view to
fulfilling the existing contracts for export, the assessee purchases raw
shrimps, prawns and lobsters and processes and freezes them, such purchases
of raw shrimps, prawns and lobsters would be deemed to be in course of
export so as to be exempt from liability to State Sales Tax.”

17. Relying on the said passage, it is contended by Mr. Mehta that
when identity of the goods on the basis of commercial parlance is similar,
the High Court would have been well advised to follow the principles set
out in the aforesaid decision and should not have been guided by the
concept of enumeration in the Notification. In essence, the submission is
that there is no distinction between the oil cake and the de-oiled cake and
both should be perceived as one in commercial parlance. Thus, the emphasis
is on the commercial parlance test. To bolster the said stand, reliance
has been placed on M/s Habeeb Protiens case, wherein the Division Bench of
the High Court of Karnataka has drawn a distinction between sunflower oil
cake and groundnut oil cake on the one hand and de-oiled sunflower cake and
groundnut oil cake on the other. The aforesaid analysis made in the said
judgment should not detain us long, for Mr. Patil learned senior counsel
for the State has brought to our notice a recent decision of this Court in
the case of Agricultural Produce Market Committee vs. Biotor Industries
Limited and Anr.[13] . In the said case, the two-Judge Bench had posed
five questions and the question pertinent for our purpose reads thus:-
“13.4 Whether the Division Bench is justified in recording the finding on
the second issue (see para 7, above at p.737 c-d) in connection with LPA
NO. 195 of 2006 that the respondent concern is not liable to pay any market
fee on the de-oiled cakes sold by it which are stated to be the by-product
in the course of manufacturing castor oil which is not one of the items
enumerated in the Schedule to the Act and the notification issued by the
Directorate?”
18. Dealing with the distinction between the oil-cake and the de-oiled
cake, the Court referred to the process and quoted from the findings
referred by the learned Single Judge. Though the said decision was
rendered in the backdrop of Gujarat Agricultural Produce Markets Act, 1963
to levy of market fee, it is absolutely distinctly perceptible from the
judgment that the Court has arrived at a definite conclusion that there is
a distinction between the oil-cake and de-oiled cake and they are two
different commercial products. Thus, when the difference has been drawn by
this Court, the assessee herein cannot be allowed to advance a plea that
the said test should not be applied, but the commercial parlance test
should be adopted to determine the said goods for the purposes of Central
Sales Tax Act. To have a complete picture, we may refer to the Notification
dated 31.05.2002. The relevant part of it reads as follows :
“In exercise of the powers conferred by sub-Section (5) of Section 8 of the
Central Sales Tax, 1956 (Central Act 74 of 1956), the Government of
Karnataka, being satisfied that it is necessary so to do in the public
interest, hereby directs that which effect from the First day of June,
2002, the tax payable by a dealer under Section 8 of the said Act on the
sale of goods specified below, made in the course of inter-State trade or
commerce, to a registered dealer or the Government shall be calculated at
the rate of two per cent subject to production of declaration in Form ‘C’
or certificate in Form ‘D’ duly filed and signed by the registered dealer
or the Government to whom the said goods are sold:-

1. Cotton Yarn

2. Bicycles

3. Chemical fertilizers and chemical fertilizer mixtures

4. Edible oil-refined and non-refined

5. Khandasari Sugar

6. Liquid Glucose, Dextrine, Maixe Starch, gluten, grits, maize, husk,
oil cake, corn steep liquor, dextrose, corn oil, maixe hydrol and maize
germs.”

19. From the said Notification, it is evident that the competent
authority while exercising power under sub-section (5) of Section 8 of the
CST Act, has kept the reduction of tax qua de-oiled cake from the purview
of Notification and has only provided oil cake to be taxed at the reduced
rate of tax. In view of the fact that the goods have distinct and
different identity which also get recognition from the Notification, we are
obliged to hold that the High Court has correctly distinguished the
authority in M/s Sterling Foods (supra) and we unhesitatingly agree with
the same.
20. Though we have agreed with the said conclusion of the High Court,
yet the fact remains that the assessing authority had expressed the opinion
with regard to the rate of tax on the de-oiled cake while scrutinizing ‘C’
Forms which is an expression of opinion on the available materials brought
on record and, therefore, the first appellate authority as well as the
tribunal was justified in concurring with the said order. It is worthy to
note that the revenue had not challenged the order passed by the Joint
Commissioner. The High Court has not expressed any opinion on this score.
Considering the cumulative effect of the facts and law we have stated, we
have not an iota of doubt in our mind that there should not have been
reopening of assessment. However, the finding recorded by the High Court
overturning the view of the tribunal that oil-cake and de-oiled cake are
the same product and, therefore, both are liable to reduced rate of tax
despite the notification only mentions oil-cake, is not defensible.
21. Consequently, the appeal filed by the assessee is allowed in part.
The finding of the High Court as regards oil-cake and de-oiled cake being
different products as per the notification dated 31st May, 2002 is correct.
However, the assessee shall reap the benefit of initial assessment as the
same could not have been reopened. In the facts of the case, there shall
be no order as to costs.
…………………………..J.[DIPAK MISRA]
…………………………..J. [SHIVA KIRTI SINGH]
NEW DELHI,

MAY 03, 2016.
———————–
[1] JJ STC 315
[2] [1994] 93 STC 51 (Kar)
[3] 96 STC 618
[4] 97 STC 442
[5] 111 STC 703
[6] 99 STC 47
[7] 119 STC 460
[8] (1986) 63 STC 239
[9] 2007 (5) VST 434 (Kar)
[10] 2005 (58) Kar.L.J. 155
[11] (2007) 6 VST 783
[12] 1980 Supp. SCC 174
[13] (2014) 3 SCC 732

 

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