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Kerala High Court · body

2002 DIGILAW 282 (KER)

M/S Chethana Pharmaseuticals v. Asst. Commisioner

2002-04-11

C.N.RAMACHANDRAN NAIR

body2002
Judgment :- The petitioner in this batch of cases are small scale industrial units engaged in the manufacture of small-scale industrial units is one of the petitioners in O.P.No. 29507 of 1999, and therefore those small scale industrial units who have not filed Writ Petitions are represented by the said association. The small scale industrial units with turnover below Rs. 50 lakhs in a year are granted concessional rate of tax at four per cent on the sale of their products. This was brought into effect by notification SRO 429 of 1995 effective from 1.4.1995. By this notification, the Government have brought about an amendment to the general notification granting exemption at concessional rate, etc., to various categories of goods, dealers, etc. The amendment was brought about to SRO 1728/93 by SRO429/95 with effect from 1.4.1995 by addition to schedule IV to the man notification, which is as follows: SCHEDULE IV Persons or units , rate of tax on whole sales or purchase of goods, is reduced under sub-clause(3) of clause I Later the Government further amended the above notification where under the concessional rate of four percent was made applicable on the fist rupees fifty lakhs of turnover during the first year where the turnover of the SSI unit exceeds Rs. 50 lakhs so that the higher rate was made applicable in that year only on the turnover above Rs.50 lakhs. This amendment was brought about by introducing an explanation to entry 8 of the IVth Schedule as given below vide SRO 585 of 1996. The introduction of explanation was with retrospective effect from 1.4.1995 by Notification No.585 of 1996 dated 29.7.1996. The explanation so introduced is as follows: Explanation: Where the turnover of the unit exceeds the limit of Rs. 50 lakhs, during the first year in which the turnover crosses the limit, the higher rate will be applied only on the turnover above 50 lakhs. This explanation shall be deemed to have come into force with effect from 1.4.1995 With the introduction of the above explanation, the small scale industrial units in Kerala with a turnover of rupees fifty lakhs and above can avail the concessional rate of four percent on the first rupees fifty lakhs turnover in the first year in which the turnover exceeded rupees fifty lakhs, and they need pay tax at the higher rate on the turnover above Rs. 50 lakhs. 50 lakhs. But for the later years they will have to pay tax at the normal rate on the entire lakhs. On the other hand, if the turnover remained below rupees fifty lakhs in any year the SSI units were liable petitioners’ claim is that they should get the concessional rate of 4 per cent on the first rupees fifty lakhs turnover in all the years, and the same should not be limited to the first year in which the turnover exceeds rupees fifty lakhs. They are therefore objecting to the explanation above referred to the extent of limiting the benefit only to the first year, which was introduced by SRO 585/96 with retrospective from 1.4.1995. 2 I have heard counsel for the petitioners and also special Government Pleader for the petitioners and also Special Government Pleader for the State. The prayer in the Original Petitions is for a direction to the respondents to grant concessional rate of tax at four per cent on the sale of products by the SSI units on the first rupees fifty lakhs of turnover of every year. In other words, the validity of the notification SRO 585/96 to the extent of limiting the facility of concessional rate of 4% to first rupees fifity lakhs only during the first year in which the turnover exceeds rupees fifity lakhs is questioned by the petitioner. 3 The main argument in support of the said contention is that the petitioners are not able to predict or foresee their turnover for a year and unless the rate of tax is known to them in advance they will not be able to collect appropriate tax as provided under Section 22(1) of the KGST Act. The effect of the notification as amended is that after the first year of turnover crossing rupees fifty lakhs a SSI unit will have to estimate in advance their possible turnover in a year and if it is below rupees fifty lakhs they have to collect tax at four per cent. On the other hand, if the turnover is above rupees fifty lakhs, they will have to pay tax at the rate applicable to the product on the entire turnover. On the other hand, if the turnover is above rupees fifty lakhs, they will have to pay tax at the rate applicable to the product on the entire turnover. However, according to the petitioners, if the concessional rate at 4% is available on the first rupees fifty lakhs turnover every year then they can collect tax at the appropriate rate without any risk of under collection or excess collection. If their prayer is allowed then they can collect tax at 4% on the first rupees fifty lakhs of turnover every year and for the turnover above rupees fifty lakhs at the higher rate applicable to the goods. This of course is a practical suggestion, but the question is whether this so-called practical difficulty experienced by the petitioners is sufficient to invalidate the notification. The petitioners further contended that they are always collecting tax on the basis of estimation of turnover in a year and if it is below rupees fifty lakhs they have to collect tax at four per cent. On the other hand, if the turnover is above rupees fifty lakhs, they will have to pay tax at the rate applicable to the product on the entire turnover, However, according to the petitioners, if the concessional rate at 4% is available on the first rupees fifty lakhs turnover every year then they can collect tax at the appropriate rate without any risk of under collection or excess collection. If their prayer is allowed then they can collect tax at 4% on the first rupees fifty lakhs of turnover every year and for the turnover above rupees fifity lakhs at the higher rate applicable to the goods. This is of course is a practical suggestion, but the question is whether this so-called practical difficulty experienced by the petitioners further contended that they are always collection tax on the basis of estimation of turnover, for example, if they estimate the turnover below rupees fifty lakhs and start collecting tax at the concessional rate of 4% available under the notification, but towards the end of the year, if the turnover goes above rupees fifty lakhs. Then they will be compelled to pay tax at the higher rate on the entire turnover even though they have collected tax only at 4%. Then they will be compelled to pay tax at the higher rate on the entire turnover even though they have collected tax only at 4%. On the other hand, if the turnover does not go above rupees fifty lakhs, but they start collecting tax at the higher rate, on the basis of estimation of turnover above rupees fifty lakhs , then they will be liable for penalty and forfeiture for excess collection. The last of the contentions raised by the petitioners is that even though the turnover is below rupees fifty lakhs there is a contingency on the part of the assessing officer under the Sales Tax Act to reject the accounts and estimate the turnover above rupees fifty lakhs, and then assess the entire turnover at the higher rate. Thereby taking away the concessional rate of 4 per cent available to the petitioners. 4. The last contention can be straight away rejected because, if any wrong assessment is made by estimating the turnover only to deny the benefit of concessional rate available under the notification to the assessee, when the actual turnover is below rupees fifty lakhs, the assessee/SSI unit can contest the said assessment and get the accounts accepted in first appeal or second appeal. Therefore the possibility of rejecting the books of accounts and estimation of turnover above rupees fifty lakhs is not a ground for challenging the notification which provides for concessional rate of tax at 4 per cent if the turnover in the first year is below rupees fifty lakhs. The petitioners have also cited various decisions in support of their contentions referred to above. One of the decision is that of the Karnataka High Court held that while interpreting a notification, the consequences of a construction should be borne in mind by the court that interpretation should be in such a way that the same should not work injustice nor should it go contrary to public interest or productive of inconvenience or hardship. I do not know how this decision helps the petitioners because the notification challenged by the petitioners is a beneficial notification, which gives concessional rate of tax to SSI units with turnover below rupees fifty lakhs. Another decision cited is that of the Madhya Pradesh High Court in M.P. SHOE HOUSE V. STATE OF M.P. (1987) 67 STC 427. I do not know how this decision helps the petitioners because the notification challenged by the petitioners is a beneficial notification, which gives concessional rate of tax to SSI units with turnover below rupees fifty lakhs. Another decision cited is that of the Madhya Pradesh High Court in M.P. SHOE HOUSE V. STATE OF M.P. (1987) 67 STC 427. In this case the Madhya Pradesh High Court held that the conditions imposed by notification which militates against the purpose for which the exemption was granted cannot be upheld. In this case, in order to avail the benefit of concessional rate no condition is imposed by the government to SSI units which can be divided into two classes; one with turnover below rupees fifty lakhs and the other with turnover above rupees fifty lakhs. The Government is absolutely right in making such a classification which is based on reasonable basis between small and large industries. While the benefit of concessional rate is available to relatively small industries, the same is denied to SSI units with large turnover (above rupees fifty lakhs). However, it is seen that the notification under challenge, SRO 585/96 has in fact extended the benefit to SSI units whith turnover above rupees fifty lakhs for the first year when they can avail the concessional rate up to rupees fifty lakhs they can avail the concessional rate up to rupees fifty lakhs even when the turnover in that year crosses rupees fifty lakhs. The petitioners have relied on Explanation to SRO 585/96 and the budget speech of the Minister which according to them conveyed that the benefit of concessional rate should be granted to SSI units for all years on the first rupees is free from doubt and the explanation makes it clear that rupees fifty lakhs is available to SSI units with turnover of rupees fifty lakhs only for the first year in which the turnover crosses rupees fifty lakhs. When the notification is very clear. I do not find any justification to go into the other aids of construction such as Explanatory not, or Minister’s speech, which cannot control the language of the practical difficulty in estimating turnover and paying appropriate rate of tax. Government has taken into account the practical difficulty of the unit un foreseeing the business from year to year. I do not find any justification to go into the other aids of construction such as Explanatory not, or Minister’s speech, which cannot control the language of the practical difficulty in estimating turnover and paying appropriate rate of tax. Government has taken into account the practical difficulty of the unit un foreseeing the business from year to year. Such a contingency is taken care of by providing tax at concessional rate in the first year up to the turnover of Rs. 50 lakhs. Such a SSI unit need only pay tax at the four per cent on the turnover of Rs. 50 lakhs. When the unit exceeded the turnover of rupees fifty lakhs in a year, natural presumption going by the first year turnover is that the same will continue, and therefore, the unit will have to be careful for the later years because already the unit had achieved the turnover of rupees fifty lakhs for a year. Therefore the turnover has to estimated on a scientific basis for the year or in other words, the unit will have to project it’s turnover for tax after the first year it exceeded Rs. 50 lakhs turnover, the unit will have to collect tax at the higher rate from the beginning of the year. Moreover nothing stops the unit from collecting tax at four per cent and limiting the turnover for year at rupees fifty lakhs, if it foresees that marginal increase in the turnover above Rs. 50 lakhs involves higher tax liability and reduction in dealer to collect tax at the full rate at which the dealer is liable to pay tax. It is only an option given to the dealer to collect or not to collect. If sufficient margin is there to take care of payment of tax, the dealer having a turnover above rupees fifty lakhs in a year is a small dealer unable to pay tax. The estimation of turnover in a year going by market conditions and competition in business is one of the petitioners that it is impossible to estimate the turnover in advance and pay the tax is not convincing or acceptable. The requirement of estimation of turnover is contemplated under the various provisions of the Act including the charging section. The estimation of turnover in a year going by market conditions and competition in business is one of the petitioners that it is impossible to estimate the turnover in advance and pay the tax is not convincing or acceptable. The requirement of estimation of turnover is contemplated under the various provisions of the Act including the charging section. The provision for turnover tax, which provided for payment of turnover tax on the estimated turnover, if the turnover exceeds rupees fifty lakhs in a year. Even the liability to pay tax under Section 5(1) of the Act itself is only when the turnover of the dealer exceeded rupees two lakhs in a year is one such situation. Therefore I do not think any of the practical difficulties highlighted by the petitioners will affect the validity of the notification, which is a beneficial notification challenged by the petitioners is only the second one SRO 585/96, which has introduced explanation to first notification SRO 485/95. Under the first notification there was not concessional rate on the first rupees fifty lakhs for the SSI units in any year. In other words, if the turnover exceeds rupees fifty lakhs, every SSI units ought to pay tax at the higher rate applicable to the goods for every year. In the impugned explanation, there is benefit conferred on the SSI units with turnover of above rupees fifty lakhs to avail the benefit in the first year. Then they need pay tax only at four per cent on the first rupees fifty lakhs turnover and higher rate of tax only on the balance turnover. I do not find the category of SSI units which are otherwise ineligible for concessional rate of four percent under the main notification have questioned the explanation to the notification which only confers a benefit on them at least for one year. Therefore I see no ground to invalidate the explanation to the notification. Therefore the Original Petitions are dismissed.