ASSOCIATE TRADE LIMK Vs. STATE OF KERALA

JUDGEMENT

(1.) The petitioner is a manufacturer and seller of Magnesium Sulphate which is a chemical fertilizer. The whole supply by the petitioner was to F.A.C.T. Ltd., a leading manufacturer of chemical fertilizers in the Public Sector in the State. Even though 26 items of individual fertilizers and mixtures of such fertilizers are covered by Entry 50 of the First Schedule to the K.G.S.T. Act providing for tax at 2.5%, Magnesium Sulphate was not covered by the said Entry. Since Magnesium Sulphate was not specifically covered by Entry 50, petitioner applied for a clarification on rate of tax before the Government under Section 59A of the K.G.S.T. Act. The Government vide Annexure-A2 order dated 21.2.1986 clarified that Magnesium Sulphate is an item of fertilizer taxable at the rate of 2.5%. Based on the clarification, petitioner started collecting tax and remitting the same along with monthly and annual returns filed after the clarification. The assessments were also completed accepting the rate of tax returned by the petitioner. However, pursuant to challenge by certain dealers against adverse clarifications issued by the Government against them in the case of other goods, this Court vide judgment in Travancore Chemicals and Manufacturing Company Ltd. v. State of Kerala, 1991 1 KerLT 196 declared Section 59A as unconstitutional. This Court further held that other notifications issued under the said Section are also unconstitutional and invalid. However, the Government did not accept the judgment of this Court and the matter was taken to Supreme Court. The Supreme Court vide judgment in State of Kerala v. Travancore Chemicals and Manufacturing Company Ltd., 1999 1 KerLT 91 upheld the judgment of this Court. The petitioner's assessment for 1995-96 was taken up after the judgment of the Supreme Court and based on declaration by this Court confirmed by the Supreme Court, the Assessing Officer rejected the returns filed and assessed the turnover of Magnesium Sulphate at 10% which is the rate provided for chemicals including caustic soda, caustic potash, soda ash, sodium sulphate, sodium silicate, sulphur, chemcial components and mixtures not elsewhere classified in the First Schedule under Entry 29. Since appeals at two levels were unsuccessful, petitioner has filed revision before this Court against the order of the Tribunal. The Division Bench which heard the revision felt that petitioner's right under Section 22(1) was infringed on account of Annexure-A2 order issued by the Government on 21.2.1986, no matter the said clarification was cancelled by this Court along with all other clarifications. without any challenge against the same. The Division Bench took note of the fact that petitioner collected tax in terms of Annexure-A2 clarification issued by the Government and monthly returns and annual returns were accepted without any contest and petitioner was deprived of the right to collect tax in excess of 2.5% by virtue of Annexure-A2 order and therefore, Division Bench felt that it would not be just, fair or legal to demand tax at higher rate ignoring Annexure-A2 clarification issued by the Government. We have heard Counsel for the petitioner and the Special Government Pleader appearing for the respondent.

(2.) Counsel for the petitioner pointed out that clarification issued in favour of the petitioner namely, Annexure-A2 was not under challenge before this Court and the dealers of Magnesium Sulphate as well as the Government accepted the same. Tax collection, filing of returns and assessments were also done based on the same. Further, he pointed out that petitioner was not aware of the litigation that was going on in this Court between parties who contested adverse clarifications and the Government which defended those notifications. It is seen from the Division Bench judgment of this Court that this Court did not consider the validity of all the clarifications issued under Section 59A, but considered the case of some of the parties who approached this Court and declared Section 59A as unconstitutional. All the clarifications were cancelled only as a consequential measure i.e. on account of declaration of Section 59A as unconstitutional. The Court had no occasion to consider the case of large number of dealers who accepting the clarification issued by the Government and applicable to their products, collected and remitted tax accordingly and the Assessing Officers following the clarifications completed the assessments. In fact, Section 22(1) authorises registered dealers to collect tax only to the extent payable and any excess collection of tax is a violation of Section 22(2) of the Act warranting forfeiture under Section 46A(1) of the Act. Neither Division Bench of this Court nor the Supreme Court had any occasion to consider the adverse consequences on manufacturers and dealers who following the clarification issued under Section 59A collected and remitted the tax based on clarification which remained uncontested by any party before any Court. We are in complete agreement with the grievance highlighted by the petitioner because by virtue of Annexure-A2 order issued on 21.2.1986, petitioner was bound to collect tax only at 2.5% and could be assessed only at that rate on the sale of Magnesium Sulphate until this Court cancelled the clarification along with other clarifications. In fact, the Government did not accept the judgment of the Division Bench and filed appeal against the same before Supreme Court. Further, until assessment for 1995-96 was taken up, the Assessing Officer also did not raise any objection against the collection of tax filing of monthly returns and payment of tax by the petitioner at the rate in terms of the clarification issued by the Government. Special Government Pleader has brought to our notice decision of this Court in Deputy Commissioner of S.T. v. Cherian P. Varghese,1995 97 STC 626 wherein Division Bench has held that after the Division Bench judgment of this Court referred above, clarification issued even in favour of assessees are null and void. We are unable to uphold the view expressed by the Division Bench because Government did not accept the judgment of the Division Bench, but challenged the same in appeal before Supreme Court/Further, during pendency of the appeal and even thereafter, parties were allowed to enjoy the benefit of clarification by accepting collection of tax and returns filed by them and by making assessments in terms of the returns so filed. As noticed by the Division Bench in the Reference Order, the Assessing Officer and the Government by their conduct deprived the petitioner of their valuable right to collect tax at higher rate, if at all the same was payable. Even though the clarification stands cancelled by virtue of Division Bench judgment of this Court confirmed by Supreme Court, it was the duty of the Assessing Officer to have objected against filing of monthly returns at the rate of tax based on the clarification issued by the Government namely, Annexure A2. We are of the view that until the Assessing Officer rejects the monthly return filed by the petitioner, he was bound to complete the assessment based on Annexure-A2 clarification issued by the Government because by virtue of the same, petitioner was forbidden from exercising their statutory right to collect tax in excess of such rate under Section 22(1) of the Act. The Supreme Court has in Ponds India Ltd. v. Commissioner, Trade Tax, 2008 15 VST 256 held that if an entry had been interpreted consistently in a particular manner for several assessment years, ordinarily it would not be permissible for the Revenue to depart therefrom unless there is any material change. Going by this decision, we feet that the stand of the Government in the clarification cannot be altered based on general orders issued by Court in other cases. Further, on merits also we feel that the non-inclusion of Magnesium Sulphate along with other chemical fertilizers in Entry 50 was probably because it was brought under Fertilizer Control Order 1985 only in 1992. We also feel that the assessment of the item under Entry 29 which provides for chemicals is also not tenable because Entry 29 provides for chemicals other than those specifically covered by the other entries. All chemical fertilizers are chemicals and all such items covered by the entry would have come in Entry 29 but for their specific coverage under Entry 50. Therefore, Entry 29 does not visualise any chemical fertilizer to be covered therein. Petitioner has produced various literature from the Agricultural Department proving the nature of use of the item which is only application as a fertilizer, particularly to prevent yellowing of plants. Sales tax being a commodity tax is borne by the customer and a lower rate of tax to fertilizer and plant protection chemicals are provided only to help the farmers who are the only consumers of the same. Admittedly, the entire sales of the petitioner are to a fertilizer company for marketing the product in combination with other fertilizers made by them. Therefore, on merits also petitioner's claim is well-founded and we, therefore, hold that the product irrespective of the clarification, is assessable under Entry 50 of the First Schedule to the K.G.S.T. Act of the relevant year.