MEGA TRADERS Vs. STATE OF KERALA

JUDGEMENT

(1.) THESE nine original petitions relate to the question as to at what rate the turnover relating to agarbathis is liable to Kerala general sales tax during the period from April 1, 1984 to August 29, 1989. Though separate original petitions are filed, the Revenue filed a common counter in original petition No. 9375 of 1989 and requested the court to treat this as counter in all the nine original petitions. It would be advantageous to deal with these nine original petitions together as the same legal question arises for consideration. As and when necessary, I shall advert to the facts of individual original petitions during the later portion of this judgment.

(2.) BEFORE I set out the facts of the case, it would be just and proper to indicate the rate of tax for agarbathis at different points of time. Prior to September 16, 1980, neither agarbathis, nor raw bathis, nor scented sticks, were in the First Schedule of the Kerala General Sales Tax Act, 1963 (hereinafter called "the Act"). They were treated as items which are chargeable at the general rate of 5 per cent. Prior to September 16, 1980, there was exemption of sales tax for agarbathis. By virtue of the Finance Act of 1984, with effect from April 1, 1984, entry 80B was introduced in the First Schedule and the entry reads as follows : Rate "80B Raw bathis At the point of first sale in 10 per cent" the State by a dealer who is liable to tax under section 5. The Finance Act of 1984 did not include agarbathis and scented sticks as specific items in the First Schedule, nor were they introduced in entry 80B. By virtue of Act 18 of 1987 entry 80B became entry 155, and it continued to be only raw bathis and the rate of tax continued to be at 10 per cent. The amended First Schedule came into force with effect from July 1, 1987. By Act 18 of 1987 also agarbathis were not included in the First Schedule. By G.O.Rt. No. 344/82/TD dated May 28, 1982, a clarification was issued in exercise of the powers under section 59A and agarbathis were sought to be taxed as a specific item covered by the First Schedule. The clarification was to the effect that entry 80 in the First Schedule which deals with talcum powder, other perfumeries and cosmetics, not falling under any other items in this Schedule was construed as including agarbathis. That clarification came to be challenged in T.R.C No. 72 of 1986, and a Division Bench of this Court by judgment dated May 28, 1986 reported as Deputy Commissioner of Sales Tax v. K. A. Latheef [1988] 69 STC 29, declared that the phrase "perfumeries and cosmetics" occurring in entry 80 of the First Schedule does not cover agarbathis. The court held that the Appellate Tribunal was justified in holding that the turnover of agarbathis can be assessed only at the general rate and not at 10 per cent under entry 80 of the First Schedule. Dealing with the specific language of the entry, the court observed as follows : "It is settled law that you should not only look at the words, but should also look at the context, the collocation and the object of such words, relating to such a matter and interpret the meaning, according to what would appear to be the meaning intended to be conveyed by the use of the words under such circumstances ........ 'other perfumeries and cosmetics' occurring in entry 80 of the First Schedule to the Kerala General Sales Tax Act, should be understood with reference to the preceding words 'talcum powder'. So viewed, we have no doubt in our mind that agarbathi cannot be considered to be a 'perfumery', akin to 'talcum powder', (the preceding words) occurring in entry 80 of the First Schedule." After this attempt to tax agarbathis at 10 per cent as an item covered by the specific entry in the First Schedule failed, and the High Court held against the Government, the State Legislature took steps to amend the First Schedule and it first promulgated Ordinance 7 of 1989 which was published in the Gazette on September 28, 1989. In this Ordinance clause 6(d) was introduced to amend entry 155 and after the words "raw bathis" the words "agarbathis and other scented sticks" were added in entry 155. Under clause 1(2) of the Ordinance sub -clause (d) of clause 6 was deemed to have come into force with effect from April 1, 1984. The controversy in these original petitions arose as a result of the promulgation of this ordinance. Subsequently 7 of 1989 was replaced by Act 3 of 1990.

(3.) SOME of these original petitions are filed while the Ordinance was in force, and before the Act came into existence, while some were filed after the Act came into force. In those original petitions which were filed while the Ordinance alone was in force petitions have been filed to amend the prayers in the original petitions. As a result of the ordinance and the subsequent Act 3 of 1990 the State tries to tax the turnover on agarbathis under entry 155 and levy tax at 10 per cent while earlier, agarbathis were a general rate item for which tax is to be paid at five per cent. The crucial question is whether the retrospective operation sought to be given by the Ordinance and the Act with effect from April 1, 1984, for the amendment of entry 155 is valid, and whether the State has the right to collect tax for sales effected prior to August 29, 1989, at 10 per cent.