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Madhya Pradesh High Court · body

2010 DIGILAW 812 (MP)

ITD-CEMINDIA JV v. COMMERCIAL TAX OFFICER

2010-08-10

ARUN MISHRA, SUSHMA SHRIVASTAVA

body2010
ORDER Arun Mishra - In W.P. No. 12952 of 2008 prayer has been made to quash notification dated April 11, 2007 being ultra vires to the extent of exclusion of petrol and diesel from the purview of exemption granted under the said notification. Prayer has also been made to direct respondents to grant exemption to the commodities petrol and diesel as specified in Schedule II of Entry Tax Act when such goods are entered by composition dealers covered under section 11A of the Madhya Pradesh Value Added Tax Act, 2002 and the respondents be restrained from demanding entry tax on the said commodities. In W.P. No. 14160 of 2008 in addition, prayer has been made to hold that the aforesaid notification is not applicable to the petitioner. The petitioner is not liable to make payment of entry tax as he holds permission for composition under section 11A of the Madhya Pradesh Value Added Tax Act, 2002. Prayer has also been made in the alternative that the petitioner be held liable to pay tax at one per cent under Notification Nos. 79-80 dated September 30, 1997. Order (P7) dated October 6, 2008 passed by the Commissioner, Commercial Tax be quashed, and refund of the tax collected at 27 per cent be ordered along with the interest. It is averred in W.P. No. 12952 of 2008 that the petitioner is a joint venture between Italian-Thai Development Public Company Ltd., Thailand and ITD Cementation India Ltd. The petitioner has undertaken the construction package EW-II (MP-2) Rehabilitation and upgrading of KM 15 to KM 50 on NH-25 including Ghat Road and Sindh Bridge. The said contract is liable to tax under the provisions of the Madhya Pradesh Value Added Tax Act. The petitioner is a registered dealer under the provisions of the Madhya Pradesh VAT Act, 2002 and is also deemed to be a dealer for the purpose of provisions of Madhya Pradesh Entry Tax Act, 1976. It is further averred that the petitioner has adopted a composition scheme in accordance with the provisions of section 11A of the Madhya Pradesh VAT Act and his application for composition has already been accepted by the Commissioner of Commercial Tax, M.P. vide order (P2) dated March 20, 2006. It is further averred that the petitioner has adopted a composition scheme in accordance with the provisions of section 11A of the Madhya Pradesh VAT Act and his application for composition has already been accepted by the Commissioner of Commercial Tax, M.P. vide order (P2) dated March 20, 2006. The petitioner has been granted the benefit of the composition amount on a lump sum basis in accordance with the said provisions and correspondingly the provisions of sections 18, 20, 20A, 39 and 40 are not applicable to the petitioner. The petitioner has submitted that the similar provisions for composition in respect of the liability of the registered dealers engaged in the business of execution of works contract existed under the Madhya Pradesh Commercial Tax Act, 1994. Notification dated December 5, 1995 was issued under section 10 of the Entry Tax Act. The petitioner has opted for composition of tax under section 19 of the Madhya Pradesh Commercial Tax Act. Notification dated May 31, 1999 was issued under section 10 of the Entry Tax Act. The said notification exempted all such dealers commonly known as composition dealer with effect from April 1, 1995 from the operation of the provisions of section 3 of the Entry Tax Act. The petitioner has submitted that the effect of aforesaid notifications was that the composition dealers were kept out side the purview of Entry Tax Act. No fresh notification regarding composition dealers was issued by the Government till impugned notification dated April 11, 2007 was issued. Constitutional validity of the Entry Tax Act was assailed which was upheld by this court in W.P. No. 13547 of 2007 (Godfrey Philips India Ltd. v. State of M.P. [2008] 17 VST 465) as per order dated May 15, 2008. The special leave petition filed against the said decision is stated to be pending before the Supreme Court. It is further submitted by the petitioner that in notification dated April 11, 2007, the Government has now exempted the class of goods specified in the Schedule to the notification from payment of entry tax. Earlier the composition dealers as a class were exempted from payment of entry tax in entirety, now exception has been made with respect to petrol and diesel. The petitioner has submitted that impugned notification is arbitrary and violative of article 14 of the Constitution of India. Earlier the composition dealers as a class were exempted from payment of entry tax in entirety, now exception has been made with respect to petrol and diesel. The petitioner has submitted that impugned notification is arbitrary and violative of article 14 of the Constitution of India. The classification which has been made for petrol and diesel is impermissible. Earlier entire class of goods as well as the class of dealers were exempted. The composition dealers have always been treated as a class by themselves for the purpose of Entry Tax Act and the exemption has always been granted to the entire class of such dealers and all the composition dealers have always been exempted from payment of entry tax without any reference/distinction as to the commodities entered by them for the purpose of execution of their works contract. All commodities have also been exempted in their hands. The classification is not valid and is violative of article 14 of the Constitution of India. The classification of the commodities for exemption or for taxation cannot be based upon the blind approach. Hence writ petition has been preferred. In W.P. No. 14160 of 2008, the petitioner, M/s. B. Seenaiah & Co. (Project) Ltd., has contended that the petitioner is involved in the construction of four lining Jhansi-Lakhnadone section from KM 255 to KM 297 up to the end of Grade-Separator at Rajmarga Chauraha on National Highway No. 26. The petitioner - company is registered under the Madhya Pradesh VAT Act. The State Government has issued Notifications Nos. 79 and 80 dated September 30, 1997 under section 3(2) of the Entry Tax Act prescribing the rate of entry tax on entry into the local area at one per cent. However, with effect from May 31, 1999 exemption was granted to the contractors opting for composition from payment of entry tax under section 3 of Entry Tax Act. On April 1, 2007 notification under section 4A of the Entry Tax Act was issued superseding earlier notifications raising rate of entry tax on various goods including petrol and diesel to 27 per cent. Notification Nos. 79 and 80 dated September 30, 1997 have not been superseded by notification dated April 1, 2007. Notification dated April 11, 2007 grants exemption to the contractors going for composition under section 11A from payment of tax on goods other than petrol and diesel. Notification Nos. 79 and 80 dated September 30, 1997 have not been superseded by notification dated April 1, 2007. Notification dated April 11, 2007 grants exemption to the contractors going for composition under section 11A from payment of tax on goods other than petrol and diesel. It does not affect the levy of tax at one per cent under Notification Nos. 79 and 80 dated September 30, 1997. Notification under section 10 cannot create or enhance the liability of tax. Notification dated April 11, 2007 is not applicable in respect of levy of petrol and diesel as the same is not supplied in the course of execution of works contract. In the return filed in W.P. No. 12952 of 2008 it is contended that the notification dated April 11, 2007 is justified and reasonable. There is no violation of article 14 of the Constitution of India. The State Government has been empowered under section 10 of the Entry Tax Act to exempt either prospectively or retrospectively in whole or in part any class of dealers or persons or any goods or class of goods from payment of entry tax in respect of all or any of the local areas for such period as may be specified in the notification. Reply filed in W.P. No. 14160 of 2008 has also been relied upon contending that the application filed by the petitioner has been rightly rejected by the Commissioner vide order dated October 6, 2008 holding that the petitioner is not entitled to the "nil" tax or concessional rate of tax but liable to pay at 27 per cent under Notification No. 14 dated April 1, 2007 and that the question does not fall within the scope of section 13 of the Entry Tax Act, 1976 read with section 70 of the Madhya Pradesh Value Added Tax Act, 2002. The petitioner is registered under section 3(1) and 3(2) of the Entry Tax Act, therefore, the submission raised is baseless. Notification Nos. 79 and 80 dated September 30, 1997 are not applicable. The petitioner is liable to pay tax on import purchase of diesel at 27 per cent in terms of Notification No. 14 dated November 1, 2007 and No. 16 dated April 1, 2007. The validity of entry tax has been upheld by the Division Bench of this court in Godfrey Philips India Ltd. [2008] 17 VST 465 (MP). The petitioner is liable to pay tax on import purchase of diesel at 27 per cent in terms of Notification No. 14 dated November 1, 2007 and No. 16 dated April 1, 2007. The validity of entry tax has been upheld by the Division Bench of this court in Godfrey Philips India Ltd. [2008] 17 VST 465 (MP). Even if the goods are consumed within the local area, entry tax under section 4A shall be liable at the rate notified under section 4A. Thus the petition is bereft of merit. Shri H. S. Shrivastava, senior counsel, Shri P. M. Choudhary, Shri Sumit Nema and Shri Sandesh Jain, learned counsel appearing for the petitioners, have submitted that the State Government has made discrimination between same class by specifying certain classes of persons to be exempted from entry tax. The exemption from entry tax on petrol and diesel has been illegally withdrawn. The said goods are specified in Schedule II of the Entry Tax Act. The classification which has been made by the impugned notification dated April 11, 2007 is discriminatory and violative of article 14 of the Constitution of India. There is no rational or intelligible differentia made for the purpose of classification. State cannot pick and choose the commodities for exemption or for tax without any rationale. The objective of making composition under section 19 of the Commercial Tax Act and section 11A of the Madhya Pradesh Value Added Tax Act has been defeated. The learned counsel relied upon various decisions to be referred later. In addition Shri H. S. Shrivastava, learned senior counsel appearing with Shri Sandesh Jain, has strenuously argued that Notification Nos. 79 and 80 dated September 30, 1997 are intact with respect to the rate payable under the Entry Tax Act. By making out exemption with respect to petrol and diesel under notification dated April 11, 2007, the rate of tax has not been adversely affected as notification dated September 30, 1997 has not been superseded. Shri Deepak Awasthi, learned Government Advocate appearing for the respondents, has submitted that various provisions of the Entry Tax Act have been upheld by this court in Godfrey Philips India [2008] 17 VST 465 (MP). Shri Deepak Awasthi, learned Government Advocate appearing for the respondents, has submitted that various provisions of the Entry Tax Act have been upheld by this court in Godfrey Philips India [2008] 17 VST 465 (MP). He has also submitted that under section 10 of the Entry Tax Act it is permissible to the respondents to exempt either prospectively or retrospectively in whole or in part any class of dealers or persons or any goods or class of goods from the payment of entry tax. There is no question of discrimination or violating principle of intelligible differentia. Petrol and diesel cannot be said to be of the category of goods of the class with respect to which the exemption is available in the matter of works contract. Notification Nos. 79 and 80 dated September 30, 1997 are not applicable as there is exception clause in the aforesaid notification with respect to works contract exceeding value of Rs. 50,000. Notification dated April 1, 2007 prescribes the rate of petrol and diesel at 27 per cent and the same has to be given full effect to. The said notification was issued under section 4A of the Entry Tax Act. First we come to the submission raised by the learned counsel for the petitioners that notification dated April 11, 2007 is discriminatory and violative of article 14 of the Constitution of India inasmuch as it takes out petrol and diesel out of exemption from payment of entry tax, there is no intelligible differentia or rationale behind it. The said notification dated April 11, 2007 has been issued with retrospective effect with effect from April 1, 2006 taking out petrol and diesel out of the purview of exemption. Notification dated April 11, 2007 is quoted below : Notification No. F. A-3-11-07-1-V(16), dated April 11, 2007 Works contractor who has opted for composition under section 11A of the VAT Act - exempted from entry tax with effect from April 1, 2006. Notification dated April 11, 2007 is quoted below : Notification No. F. A-3-11-07-1-V(16), dated April 11, 2007 Works contractor who has opted for composition under section 11A of the VAT Act - exempted from entry tax with effect from April 1, 2006. In exercise of the powers conferred by section 10 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (No. 52 of 1976) (hereinafter referred to as, the Entry Tax Act), the State Government, hereby, exempts the class of goods specified in column (1) of the Schedule below from payment of tax under the said Adhiniyam, to the extent specified in column (2), subject to the restrictions and conditions specified in column (3) of the said Schedule : Schedule Class of goods Extent of exemption Restrictions and conditions subject to which exemptions is granted (1) (2) (3) Goods specified in Schedule II and Schedule III appended to the Entry Tax Act, other than petrol and diesel Whole of entry tax (1) When the goods specified in column (1) are entered into a local area by a contractor for supply in the course of execution of a works contract, in respect of which permission to pay a lump sum by way of composition under sect on 11A of the Madhya Pradesh VAT Act, 2002 has been granted. - - (2) The exemption under this notification shall not be available in respect of plant and machinery, capital goods and all kinds of motor vehicles which are ot supplied in the course of execution of the said works contract. 2. This notification shall be deemed to have come into force from April 1, 2006. It is apparent from the aforesaid notification that the contractor in the course of execution of a works contract, in respect of which permission to pay a lump sum by way of composition under section 11A of the Madhya Pradesh Value Added Tax Act, 2002 has been granted, is entitled for exemption from whole of entry tax on the goods specified in Schedule II and Schedule III appended to the Entry Tax Act other than petrol and diesel. In our considered opinion, it cannot be said to be a case of discrimination vis-a-vis to a class of dealers. The class of the contractors who have availed of the composition facility under section 11A remains as it is. In our considered opinion, it cannot be said to be a case of discrimination vis-a-vis to a class of dealers. The class of the contractors who have availed of the composition facility under section 11A remains as it is. No differentiation is brought in the matter of classification of the class of contractors availing of the facility of composition. In the instant case what has been done on April 11, 2007 is that class of goods, i.e., petrol and diesel have been taken out of the exemption from the payment of entry tax. The rate has been prescribed for payment of entry tax at 27 per cent vide notification dated April 1, 2007. It is clearly attracted. The availability of composition facility to pay tax is no more relevant for the purpose of petrol and diesel in view of notification dated April 11, 2007. Section 10 of the Entry Tax Act clearly empowers the State Government to exempt either prospectively or retrospectively in whole or in part any class of dealers or persons or any goods or class of goods from the payment of entry tax under the Act in respect of all or any of the local areas for such period as may be specified in the notification. It is not the case set up by the petitioners that discrimination is inter se between class of goods. Submission is that class of dealers or persons involved in works contract who were entitled for exemption are being discriminated with. We have found that there is no room for entertaining the aforesaid submission. The differentiation cannot be said to be with respect to the class of dealers or persons, class of dealers or persons are still entitled for exemption from payment of entry tax except with respect to petrol and diesel. It is not the submission that it is a case of discrimination vis-a-vis to similar class of goods or category. Section 10 of Entry Tax Act is quoted below : "10. Power to exempt. It is not the submission that it is a case of discrimination vis-a-vis to similar class of goods or category. Section 10 of Entry Tax Act is quoted below : "10. Power to exempt. - The State Government may, by notification, and subject to such restrictions and conditions as may be specified therein exempt, whether prospectively or retrospectively, in whole or in part, - (i) any class of dealers or persons, or any goods or class of goods, from the payment of entry tax under this Act, in respect of all or any of the local areas, for such period as may be specified in the notification; (ii) any dealer or class of dealers, from any provision of the Act as may specified in the notification : Provided that in respect to the period during which the Ordinance repealed under section 24 was in force, the retrospective effect may be given from the date of the commencement of the said Ordinance as if the liability to pay tax arose under this Act and for that purpose it shall and shall always be deemed that the provisions of this Act to the extent they correspond to the provisions of the said Ordinance were in force during the material times." A bare reading of the aforesaid section 10 makes it clear that the notification is in accord with the provisions contained in section 10 of the Entry Tax Act. The petitioners' counsels have relied upon the decision in Shashikant Laxman Kale v. Union of India [1990] 185 ITR 104 (SC) in which it has been laid down that there has to be intelligible differentia between two categories which had a rational nexus with the main object of promoting the national economic policy or the public policy. The principles of valid classification are that those grouped together in one class must possess a common characteristic which distinguishes them from those excluded from the group and this intelligible differentia must have a rational nexus with the object sought to be achieved by the enactment. In order to see whether classification in a particular taxing provision is valid, the court must look beyond the ostensible classification and to the purpose of the law and apply the test of palpable arbitrariness in the context of the felt-needs of the times and societal exigencies. In order to see whether classification in a particular taxing provision is valid, the court must look beyond the ostensible classification and to the purpose of the law and apply the test of palpable arbitrariness in the context of the felt-needs of the times and societal exigencies. It is permissible to look into the circumstances which prevailed at the time when the law was passed and which necessitated the passing of that law. It is also permissible to look into the Statement of Objects and Reasons of the Bill which actuated the step to provide a remedy for the then existing malady. In the instant case we find that the classification of the goods which has been made is permissible under section 10. Petrol and diesel can be separated from the exemption as they form different class of commodity altogether. It cannot be said that petrol and diesel form homogeneous part of other class covered under the exemption notification. Though exemption was enjoyed earlier at the time when Madhya Pradesh Commercial Tax Act was in force, it is permissible to look into that circumstances but that would not invalidate exemption which has been withdrawn by State Government by the impugned notification. It is permissible to withdraw the exemption to any class of goods at any point of time. Scope of judicial review is extremely narrow in such cases. It is the prerogative of the State. We are not satisfied that by withdrawal of the said exemption any annihilation has been done to the spirit of article 14 of the Constitution of India in the facts of the instant case. Another decision has been relied upon by the learned counsel for the petitioners in State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd. [2007] 7 VST 535 (SC) in which the apex court has laid down that every law has to pass through the test of constitutionality, which is nothing but a formal name of the test of rationality. Whenever any type of law is to be made for the purpose of levying taxes on a particular commodity or for exempting some other commodity from taxation, a sort of classification is to be made. But this classification cannot be the product of a blind approach by the administrative authorities on whom the responsibility of delegated legislation is vested. Whenever any type of law is to be made for the purpose of levying taxes on a particular commodity or for exempting some other commodity from taxation, a sort of classification is to be made. But this classification cannot be the product of a blind approach by the administrative authorities on whom the responsibility of delegated legislation is vested. In our opinion, the classification of goods which has been made in the instant case cannot be said to be illegal, arbitrary or irrational. Petrol and diesel being altogether different commodities and no commodity is shown to be identical to the same with respect to which exemption is availed of, in our opinion, the impugned notification cannot be said to be discriminatory. Reliance has also been placed on a decision in Marico Industries Ltd. v. State of Karnataka [2006] 148 STC 17 (Karn). The facts of the said decision were totally different. There was deliberate intention and desire on the part of the State to treat coconut oil differently when it was taken out from the group of edible oils occurring in entry 1 of Part E of the Second Schedule to the Act and put under entry 17A of Part C. The said decision has no application in the facts of the instant case. Coming to the submission raised by Shri H. S. Shrivastava, learned senior counsel in W.P. No. 14160 of 2008, it is apparent that the benefit of the notification dated September 30, 1997 cannot be said to be available to the petitioner as he has executed works contract worth more than Rs. 50,000. Said Notification Nos. 79 and 80 dated September 30, 1997 are quoted below : "Notification No. A-5-14-97-ST-V(79), dated September 30, 1997. Works contractors liable to pay tax under section 3(2). 50,000. Said Notification Nos. 79 and 80 dated September 30, 1997 are quoted below : "Notification No. A-5-14-97-ST-V(79), dated September 30, 1997. Works contractors liable to pay tax under section 3(2). In exercise of the powers conferred by sub-section (2) of section 3 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (No. 52 of 1976), the State Government hereby notifies, for the purpose of the said sub-section, persons who are not liable to pay tax under sub-section (1) of the said section and who are a party to a works contract that is - (i) persons contracting for any works and bringing or causing to be brought into a local area goods specified in Schedule II or Schedule III of value exceeding rupees fifty thousand for consumption, use or sale therein, for the purpose of execution of such works, excepting - (a) individuals contracting for any work of construction of houses for their own residential purposes; and (b) Housing Co-operative Societies contracting for work of construction of buildings for the residential purposes of their members; and (ii) persons executing works contract and bringing or causing to be brought into a local area, goods specified in Schedule II or Schedule III of value exceeding rupees fifty thousand for consumption or use in the execution of such works contract. This notification shall come into force with effect from October 1, 1997. (Published in Madhya Pradesh Rajpatra dated September 30, 1997). Notification No. A-5-14-97-ST-V(80), dated September 30, 1997. Rate of tax payable by works contractors under section 3(2). In exercise of the powers conferred by sub-section (1) of section 12 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (No. 52 of 1976), the State Government hereby directs that entry tax under sub-section (2) of section 3, shall be payable at the rate of 1 per cent, by the persons and in respect of the goods notified under sub-section (2) of section 3, by this Department Notification No. A-5-14-97-ST-V(79), dated September 30, 1997. This notification shall come into force with effect from October 1, 1997. (Published in Madhya Pradesh Rajpatra dated September 30, 1997)." There is difference between works contract and other works. There is exception clause with respect to works contract of worth more than Rs. This notification shall come into force with effect from October 1, 1997. (Published in Madhya Pradesh Rajpatra dated September 30, 1997)." There is difference between works contract and other works. There is exception clause with respect to works contract of worth more than Rs. 50,000, hence notification dated September 30, 1997 is not attracted with respect to the petitioner, M/s. B. Seenaiah & Company (Project) Ltd. Beside there was notification dated April 1, 2007 prescribing rate at 27 per cent for petrol and diesel and then impugned notification dated April 11, 2007 was issued with retrospective effect from April 1, 2007 taking out petrol and diesel out of purview of exemption from entry tax. The rate is provided in notification dated April 1, 2007 issued under section 4A of the Entry Tax Act. Merely by the fact that composition has been availed of under section 11A of the Madhya Pradesh VAT Act by the petitioner, cannot come to the rescue of the petitioner to make the rate of one per cent applicable when exemption itself has been withdrawn and rate has been prescribed in notification issued under section 4A dated April 1, 2007. The said notification has to be given full effect to. The petitioner is liable to pay entry tax. Necessary concomitant is that the petitioner is liable to make payment of tax at 27 per cent as prescribed in the notification dated April 1, 2007. Merely by the fact that the petitioner has been granted the facility of composition in the matter of payment of tax under section 11A of the VAT Act cannot be a ground to give the benefit to the petitioner of concessional rate of one per cent for the reasons mentioned hereinabove. Resultantly, we find no merits in these writ petitions. Writ petitions being devoid of merit, are hereby dismissed. No costs.