Deputy Commissioner (Law), Commercial Taxes Vs Parekh Brothers

Arijit Pasayat, C.J.@mdashThese three applications have been filed by the Revenue u/s 41 of the Kerala General Sales Tax Act, 1963 (in short, "the Act") read with Rule 41(1) of the Kerala General Sales Tax Rules, 1963 (in short, "the Rules"). They relate to assessments made under the Act in respect of assessment years 1982-83, 1983-84 and 1985-86. Respondent (hereinafter referred to as "the assessee") was assessed by the Assistant Commissioner (Gujarathi Accounts), Special Circle-II, Kozhikode, who levied tax at the rate of 10 per cent on assessed turnover of tarpaulin. Assessee took the stand that tarpaulin is nothing but cotton fabrics and, therefore, covered under item 7 (wrongly described as item 8) of the Third Schedule to the Act. This plea did not find acceptance by the assessing officer, who held that the commodity was covered by item 100-C of the First Schedule. Though assessing officer and the first appellate authority, i.e., Deputy Commissioner (Appeals), Kozhikode held that tarpaulin falls under item 100-C, Kerala Sales Tax Appellate Tribunal, Additional Bench, Kozhikode (in short, "the Tribunal") held otherwise, and relying on the decision of the Andhra Pradesh High Court in State of Andhra Pradesh v. Binny Limited [1992] 86 STC 207(ap), it concluded that tarpaulin is nothing but cotton fabrics and granted relief to the assessee.

2. Revenue''s stand, in essence, is that tarpaulin is a textile commodity falling under item 100-C of the First Schedule and not under item 7 of the Third Schedule, as held by the Tribunal. Learned counsel for the assessee submitted that at the relevant point of time, there was no specific entry in respect of tarpaulin and, therefore, it has been rightly held to be covered under item 7 of the Third Schedule to the Act.

3. Assessment years, as noted above, are 1982-83, 1983-84 and 1985-86. Only question that needs adjudication is whether sale of tarpaulin is exigible to tax. For answering this question, it would be proper to take note of the legislative history of a few items in Schedules I and III. There was no specific entry for tarpaulin till March 31, 1984. It was classified as a separate item under item 100-C of the First Schedule, taxable at 8 per cent at point of first sale in the State with effect from April 1, 1984. Said position continued till June 30, 1987. Item was re-numbered as 152 with effect from July 1, 1987 and read as "PVC cloth, waterproof cloth, rexine and their products and tarpaulin". Rate continued to be 8 per cent at the point of first sale. This item continued till July 31, 1991. PVC cloth was omitted therefrom by the Kerala Finance Act, 1991 with effect from August 1, 1991. No change in any other item, rate, point of levy was made. This was the position till March 31, 1992, as amended by the Kerala Finance Act, 1992. New item 106 reads as "rain coat, tarpaulin and products of waterproof cloth, rexine and PVC cloth". Rate of tax has been increased to 10 per cent, with no change in the point of levy. According to the Revenue, tarpaulin falls under item 100-C or 152, as the case may be, taxable at 8 per cent at the first point of sale in the State from April 1, 1984 to March 31, 1992. It falls under item 106 with effect from April 1, 1992 taxable at 10 per cent at the point of first sale in the State. So far as periods prior to April 1, 1984 are concerned, it is to be noted that there was no specific entry for tarpaulin in the Schedules to the Act. Exemption is claimed by the assessee on the ground that tarpaulin is encompassed by expression "cotton fabrics" coming under item 7 of the Third Schedule to the Act.

4. It is to be noted that sale of tarpaulin was exempted by virtue of a notification issued u/s 10 of the Act (SRO No. 342 of 1963). That was withdrawn with effect from June 1, 1974. First Schedule to the Act was substituted with effect from July 1, 1987 by Finance Act 18 of 1987. Prior to that, with effect from April 1, 1986, by Finance Act 7 of 1986, item 100-C was introduced to the Schedule. Same reads as follows :

"100-C : PVC cloth, waterproof cloth, rexine and their    8%"

Thereafter, First Schedule was substituted by Finance Act 18 of 1987 with effect from July 1, 1987, as stated above. In substituted Schedule, item 152 reads as follows :

"152 : PVC cloth, waterproof cloth, rexine and their    8%" 

First Schedule again underwent change with effect from April 1, 1992, whereby relevant item was renumbered as item 106 and it reads thus :

 "106 : Rain coat, tarpaulin and products of waterproof    10%"

5. A close reading of the items would go to show that there was no specific entry in the First Schedule to cover tarpaulin as a classified item taxable at the rate provided therein. Stand of the Revenue that it could be treated as an item liable to be taxed u/s 5(1)(ii) of the Act is clearly unacceptable. During the relevant point of time, relevant item in the Third Schedule (goods exempted from tax u/s 9) was as follows :

"7. Cotton fabrics, woollen fabrics and rayon or artificial silk fabrics as defined in items Nos. 19, 21 and 22 respectively of the First Schedule to the Central Excises and Salt Act 1944."

6. Revenue has strongly relied on the clarification issued by the State u/s 59A of the Act. It has to be noted that scope of said provision was examined by this Court in Travancore Chemical and Manufacturing Company Ltd. and Others Vs. State of Kerala and Others, It was, inter alia, held that provision empowering the State Government to decide questions as to rate of tax confers arbitrary and unguided power on the executive, subverting the scheme of a quasi-judicial and judicial resolution of a Us between the State and assessee and consequently, it was violative of Article 14 of the Constitution and ultra vires the provisions of the Constitution. It may be noted that the heading of the section reads as "power of Government to determine rate of tax". But the section nowhere stated that the Government was entitled or authorised to issue clarifications. It is relevant that decision of the Government is provided to be final. There was conspicuous absence of any indication as to the person who shall refer the question to the Government or about the procedure the Government should follow before it arrives at a decision, or again of an indication about the persons bound by the decision. It gave the prima facie impression that the decision of Government may even bind the adjudicating Tribunal. Word "decision" u/s 59A implies that Government discharges a judicial or quasi-judicial function. That feature has other integrally connected attributes like an obligation on the part of Government to hear the parties to the dispute, affording an opportunity to the parties to put forward their case and lead evidence, and a duty to render the decision on the basis of material and evidence placed before it and after hearing both parties, decision will only bind parties and their privies and cannot bind others unless they are already heard and/or made parties to the proceedings. Decision of the Government is final notwithstanding any other provision in the Act. It has a disturbing potency of having a binding effect even on the Tribunal or the High Court while functioning as a revisional court u/s 41 of the Act. View of this Court in Travancore Chemical & Manufacturing Company Ltd''s case [1991] 81 STC 313(sc) was upheld by the apex Court in State of Kerala v. Travancore Chemicals and Manufacturing Co. [1999] 112 STC 191(ker). It was, inter alia, observed that quasi-judicial or judicial determination stands replaced by the power to take an administrative decision. Section does not contain any guidelines as to at what stage the power can be exercised. There is nothing in the section which debars the Government from exercising the power even after a dealer has succeeded on a question relating to the rate of tax before an appellate authority. Power u/s 59A is so wide and unbridled that it can be exercised at any time and the decision so rendered is made final. Section enables the passing of an executive order which has the effect of subverting the scheme of a quasi-judicial and judicial resolution of the Us between the State and the dealer. That being the position, revenue was not authorised to levy tax on the basis of clarification by notification issued by the State u/s 59A of the Act. As has been rightly observed by the Tribunal, in the absence of any specific entry, tarpaulin was covered by entry 7 of the Third Schedule.

We find nothing illicit to the conclusions of the Tribunal to warrant interference. Revision applications are accordingly dismissed.