Central State Farm vs State of U.P. and Others

Central State Farm, Girijapuri, District Baharaich through its Director has filed instant writ petition under Article 226 of the Constitution of India, requesting therein for issuance writ of certiorari quashing the impugned demand notice as contained in Annexure Nos. 1 to 5 respectively to the writ petition and further for issuance of writ in the nature of mandamus commanding opposite parties to refrain from executing the impugned demand notices till the final disposal of the instant writ petition.

Brief background of the case as is reflected from the pleadings of the writ petition are that State Farms Corporation of India Limited is a corporation owned and controlled by the Government of India. Its 98% share vest with the Government of India in the name of President of India and 2% share vest with the Ministry of Agriculture. Central State Farm, Girijapuri is a Unit of State Farm of State Farms Corporation of India Limited, established in District Bahraich. Main objective of State Farm of India is to produce high yielding varieties of seeds and to cater the needs of State Government. For this purpose Central Government took land of around 10,000 acres from U.P. Government and established Central State Farm, Girijapuri in District Bahraich to cater the seeds requirement of U.P. Government. Petitioner has contended that vehicles owned by the Central State Farm, Girijapuri are used for Government purposes unconnected with any commercial purpose and in this background no tax should be levied on the said vehicles in question and the transporting authorities have illegally sent demand notices dated 06.08.2003 in respect of five trucks of Central State Farm, Girijapuri and have levied taxes. In this background it has been stated that levying of taxes is unjustifiable and vehicles owned by Central State Farm, Girijapuri are liable to be exempted from tax.

Counter affidavit has been filed and therein plea has been taken that demand notices which have been issued are totally justifiable demand and further it has also been stated that Central State Farm Girijapuri, District Bahraich is a subsidiary of the State Farms Corporation of India and said Farm operates several trucks and buses and further the goods tax with effect from 09.11.1998 as per the provision as contained under U.P. Motor Vehicles (Taxation) Act, 1997 and U.P. Motor Vehicles (Taxation) Rules 1998 has not been paid whereas road tax as provided u/s 4 of the Taxation Act, 1997 is being paid. It has also been stated that the trucks being operated by the petitioner are goods carriage for which it is liable to pay additional tax u/s 5 of the Taxation Act, 1997 and the Corporation has not been exempted from said liability under the Statues. It has further been stated that Rules 28 and 29 of 1998 Rules deals with exemption and partial exemption from payment of tax and the petitioner''s vehicles are goods carriage as per Section 2(d) of the Taxation Act, 1997 but the petitioner failed to produce any certificate issued under Rules 28 and 29 of 1998 Rules before the authority and additional tax as provided u/s 5 of the Act has rightly been imposed on the said vehicles. Issue has also been raised that petitioner has not clarified the situation as to when they are making payment of road tax of the vehicles in question then why goods tax and additional tax are not being paid by it. In this background it has been stated that liability has rightly been fastened and further under Rule 28 (1) of 1998 Rules it is the Government of India or the Government of any State of India whose motor vehicles have been exempted from payment of tax under the Taxation Act but not the Corporation like petitioner, as such additional tax has rightly been subjected to. In this background it has been suggested that writ petition deserves to be dismissed.

Rejoinder affidavit has been filed and therein it has been sought to be contended that petitioner uses its trucks for intra-farm shifting of agricultural inputs, like seeds and fertilizers etc and the trucks are not used on hire or for carriage of commercial goods and as such petitioner being instrumentality of Government of India as such petitioner''s farm is fully liable to be exempted from goods tax under the statue.

After pleadings mentioned above have been exchanged, present writ petition is being taken up for final hearing and disposal with the consent of the parties.

Sri Raj Kumar, learned Counsel for the petitioner, contended with vehemence that in the present case, tax liability cannot be fastened upon the petitioner''s vehicles for the simple reason that Rule 28(1) of U.P. Motor Vehicles Taxation Rules 1995 provides for exemption for payment of tax to certain motor vehicles which are owned and exclusively used by or on behalf of Government of India or the Government of any State of India and as entire activities carried out by the petitioner''s Corporation are on behalf of Government of India as such petitioner''s vehicles are liable to be exempted from tax, in this background it has been contended that writ petition in question deserves to be allowed and the authorities be restrained on said front from realizing the taxes.

Countering said submission learned Standing counsel contended that in the present case, petitioner cannot escape from tax liability as taxing statutes should be read in the way and manner as it has been provided for, without adding or subtracting any word to the same and by giving plain meaning to the same. Here vehicles in question which are exempted under the Rules are the vehicles of the Government of India or Government of any State of India and Corporation like petitioner have not at all been exempted, in fact vehicles owned by them are within the scope and ambit of the Tax which has been demanded and as petitioners'' are labouring under misconception as such writ petition in question deserves to be dismissed.

Before proceedings to consider the arguments which have been advanced relevant provision namely Rule 28(1) of U.P. Motor Vehicles Taxation Rules 1995 framed u/s 28 of the Act is being looked into.

Rule 28: Exemption from the payment of the Tax; Motor Vehicles of the following classes are wholly exempted from the payment of tax under the Act.

Rule 28(1): Motor Vehicles (other than that used for the carriage of goods or passengers for hire) owned and exclusively used by or on behalf of the Government of India or the Government of any State of India.

A bare perusal of the provision quoted above would go to show that under Rule 28(1), it has been provided that motor vehicles (other than that used for the carriage of goods or passengers for hire) owned and exclusively used by or on behalf of the Government of India or the Government of any State of India are exempted from payment of tax under the Act.

In the present case this fact has not been disputed and as mentioned in paragraph 3 of the writ petition that Central State Farm Corporation India Limited is owned and control by Government of India and is Government of India undertaking wherein its 98% of the share vest with Government of India, in the name of President of India and rest is held by Additional Director General (State Farms) Department of Agriculture, New Delhi; Financial Adviser Ministry of Foods Agriculture CD and Corporation, Department of Agriculture, New Delhi. Central State Farm, Girijapuri, District Bahraich is a Unit of State Farm Corporation of India Limited, wholly owned and controlled by Government of India.

Question is that when State Farm Corporation of India Limited has been incorporated wherein 98% of the share vest with the Government of India in the name of President of India, and balance 2% also in the name of Department of Agriculture, can it be equated with the Government of India or the Government of any State of India.

u/s 2(23) of General Clauses Act, 1897, Government has been defined which is inclusive of both the Central Government and any State Government. Central Government and State Government have been respectively defined u/s 2(8) and 2(60) respectively as follows:

Section 2(8)- "Central Government" shall, -

(a) in relation to anything done before the commencement of the Constitution, mean the Governor-General or the Governor-General in Council, as the case may be; and shall include,-

(i) in relation of the functions entrusted under Sub-section (1) of Section 124 of the Government of India Act, 1935 to the Government of a Province, the Provincial Government acting within the scope of the authority given to it under the Sub-section; and

(ii) in relation to the administration of a Chief Commissioner''s Province, the Chief Commissioner acting within the scope of the authority given to him under Sub-section (3) of Section 94 of the said Act; and

(b) in relation to anything, done or to be done after the commencement of the Constitution, mean the President; and shall include,-

(i) in relation of functions entrusted under Clause (1) of Article 258 of the Constitution, to the Government of a State, the State Government acting within the scope of the authority given to it under the clause;

(ii) in relation to the administration of a Part C State [before the commencement of the Constitution (Seventh Amendment) Act, 1956], the Chief Commissioner or the Lieutenant-Governor or the Government of a neighbouring State or other authority acting within the scope of the authority given to him or it under Article 239 or Article 243 of the Constitution, as the case may be;

(iii) in relation to the administration of a Union territory, the administrator thereof acting within the scope of the authority given to him under Article 239 of the Constitution];

Section 2(60)- "State Government",-

(a) as respects anything done before the commencement of the Constitution, shall mean, in a Part A State, the Provincial Government of the corresponding Province, in a Part B State, the authority or person authorised at the relevant date to exercise executive Government in the corresponding Acceding State, and in a Part C State, the Central Government.

(b) as respects anything done [after the commencement of the Constitution and before the commencement of the Constitution (Seventh Amendment) Act 1956] shall mean in a Part A State, the Governor, in a Part B State, the Rajpramukh, and in a Part C State, the Central Government;

(c) as respects anything done or to be done after the commencement of the Constitution (Seventh Amendment) Act, 1956, shall mean, in a State, the Governor, and in a Union territory, the Central Government;

and shall, in relation of functions entrusted under Article 258A of the Constitution of the Government of India, include the Central Government acting within the scope of the authority given to it under that article];

Under Motor Vehicles Act 1988, Central Government and State Government has not been defined (except in reference of Union Territory), in this background, assistance can be taken from the provisions of General Clauses Act, wherein Central Government and State Government has been defined and described and admitted position is that petitioners do not fall within the scope and ambit of either Central Government/State Government.

It has been contended that petitioners are instrumentality of Central Government and in fact agency of Central Government and as such for all practical purposes, petitioners will have to be kept at par with Central Government, and exemption of tax benefit, ipso facto has to be extended without entering into any further debate on the issue, as vehicles in question will have to be accepted as belonging to Government of India and being used on behalf of Government of India.

In the case of Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, Hon''ble Apex Court in reference of Article 12 of the Constitution of India took the view that corporation is instrumentality or agency of the Government and it is immaterial for this purpose whether the corporation is created by a statute or under a statute. Relevant paragraph 11 of the said judgment is being quoted below:

We may point out that it is immaterial for this purpose whether the corporation is created by a statute or under a statute. The test is whether it is an instrumentality or agency of the Government and not as to how it is created. The inquiry has to be not as to how the juristic person is born but why it has been brought into existence. The corporation may be a statutory corporation created by a statute or it may be a Government Company or a company formed under the Companies Act, 1956 or it may be a society registered under the Societies Registration Act, 1860 or any other similar statute. Whatever be its genetical origin, it would be an "authority" within the meaning of Article 12 if it is an instrumentality or agency of the Government and that would have to be decided on a proper assessment of the facts in the light of the relevant factors. The concept of instrumentality or agency of the Government is not limited to a corporation created by a statute but is equally applicable to a company or society and in a given case it would have to be decided, on a consideration of the relevant factors, whether the company or society is an instrumentality or agency of the Government so as to come within the meaning of the expression "authority" in Article 12.

Accepting the position that, petitioners are instrumentality/agency of the Government, keeping in view its constitution and deep pervasive control of the Government, can such instrumentality/agencies be treated at par with Government of India.

Answer to such an issue has already been given by Hon''ble Apex Court.

In Western Coalfields Limited Vs. Special Area Development Authority, Korba and Another, it is held that even though the entire share capital of Companies has been subscribed by the Government of India, it cannot be predicated that Companies themselves so owned comes within the definition of Government of India. The Companies which are incorporated under the Companies Act, have a corporate personality of their own, distinct from the Government of India. The lands and buildings are vested in and owned by the Companies; the Government of India only owns the share capital. In this case reference is made, among others, to the case of Heavy Engineering Mazdoor Union v. State of Bihar AIR 1970 SC 88. In this case it is held that a Company incorporated under the Companies Act and the entire share holding of which is contributed by the Central Government (a Central Government Company) does not carry on an industry under the authority of the Central Government within the meaning of Section 2(a) of the Industrial Disputes Act, 1947 It is emphasized that an incorporated company has a separate existence and law recognizes it as a judicial person separate and distinct from its members. The mere fact that the entire share capital of the Company is contributed by the Central Government and the fact that all its shares are held by the President and certain Officers of the Central Government do not make any difference to that position. Relevant extract of the said judgment, paragraphs 20, 21A are being quoted below:

The third contention of the Attorney General flows from the provisions of Article 285(1) of the Constitution which says that the property of the Union shall, save in so far as Parliament may by law otherwise provide, be exempt from all taxes imposed by a State or by any authority within a State. Section 127A(2) of the Madhya Pradesh Municipalities Act and Section 136 of the Madhya Pradesh Municipal Corporation Act also provide that the property tax shall not be leviable, inter alia, on "buildings and lands owned by or vesting in the Union Government". Relying on these provisions, it is contended by the Attorney General that since the appellant companies are wholly owned by the Government of India, the lands and buildings owned by the companies cannot be subjected to property tax. The short answer to this contention is that even though the entire share capital of the appellant companies has been subscribed by the Government of India, it cannot be predicated that the companies themselves are owned by the Government of India. The companies, which are incorporated under the Companies Act, have a corporate personality of their own, distinct from that of the Government of India. The lands and buildings are vested in and owned by the companies: the Government of India only owns the share capital. In Rustom Cavasjee Cooper v. Union of India (The Banks Nationalisation case) it was held:

A company registered under the Companies Act is a legal person, separate and distinct from its individual members. Property of the Company is not the property of the shareholders. A shareholder has merely an interest in the Company arising under its Articles of Association, measured by a sum of money for the purpose of liability, and by a share in the profit.

In Heavy Engineering Mazdoor Union v. The State of Bihar and Ors., the Heavy Engineering Corporation Limited was incorporated under the Companies Act and its entire share capital was contributed by the Central Government. It was therefore a Government Company u/s 617 of the Companies Act. On the question as to whether the Corporation carried on an industry under the authority of the Central Government within the meaning of Section 2(a) of the Industrial Disputes Act, 1947, it was held by this Court that an incorporated company has a separate existence and the law recognises it as a juristic person, separate and distinct from its members. The mere fact that the entire share capital of the respondent company was contributed by the Central Government and the fact that all its shares were held by the President and certain officers of the Central Government did not make any difference to that position.

21A. The decision of this Court in the Andhra Pradesh State Road Transport Corporation v. The Income Tax Officer and Anr. puts the matter beyond all doubt. In that case, the Andhra Pradesh Road Transport Corporation claimed exemption from taxation under Article 289 of the Constitution by which, the property and income of a State is exempt from union taxation. This Court, while rejecting the Corporation''s claim, held that though it was wholly controlled by the State Government it had a separate entity and its income was not the income of the State Government. Gajendragadkar, C. J., while speaking for the Court, referred to the judgment of Lord Denning in Tamlin v. Hansaford in which the learned Judge observed:

In the eye of the law, the corporation is its own master and is answerable as fully as any other person or corporation. It is not the Crown and has none of the immunities or privileges of the Crown. Its servants are not civil servants, and its property is not Crown property. It is as much bound by Acts of Parliament as any other subject of the King. It is, of course, a public authority and its purposes, no doubt, are public purposes, but it is not a government department nor do its powers fall within the province of government.

In Pennington''s Company Law, 4th Edition, pages 50-51, it is stated that there are only two decided cases where the court has disregarded the separate legal entity of a company and that was done because the company was formed or used to facilitate the evasion of legal obligations. The learned author, after referring to English and American decisions, has summed up the position in the words of an American Judge, Sanborn, J. to the effect that as a general rule, a corporation will be looked upon as a legal entity and an exception can be made "when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime", in which case, "the law will regard the corporation as an association of persons". In cases such as those before us, there is no scope for applying the doctrine of lifting the veil in order to have regard to the realities of the situation. The appellant companies were incorporated under the Companies Act for a lawful purpose. Their property is their own and it vests in them. u/s 5(1) of the Coal Mines (Nationalisation) Act, 26 of 1973, which applies in the instant case, the right title and interest of a nationalised coal mine vest, by direction of the Central Government, in the Government company. If the lands and building on which respondent 1 has imposed the property tax cannot be regarded as the property of the Central Government for several other purposes like attachment and sale, there is no reason why, for taxing purposes, the property can be treated as belonging to that Government as distinct from the company which has a juristic personality.

Judgments of Hon''ble Apex Court, clears the issue that Central Government or State Government can create its instrumentality or agency and same can be said to be authority within the meaning of Article 12 of the Constitution of India and the companies which are incorporated under the Companies Act have a corporate personality of their own, distinct from the Government of India and same cannot be equated with the Government of India. In the said case also house tax exemption was claimed on the ground since the appellant company was wholly owned by Government of India, the land and buildings owned by the companies cannot be subjected to property tax. The said issue was negated, by mentioning that said buildings and lands are vested and owned by the companies, Government of India only owns the share capital. Thus, the inevitable conclusions are that the instrumentality/agencies of Government of India/ Government of State of India, cannot be treated at par with Government of India/ Government of State of India.

Here also it is being sought to be contended on behalf of the petitioner that petitioner''s corporation is cent percent controlled by the Government of India as 98% of the share is owned by the Central Government, in the name of President of India and 2% in the name of Ministry of Agriculture, as such it should be treated at par with Government of India, and Government of India should be accepted as owner and vehicle in question being used on its behalf, in this background exemption in question should be accorded.

Rule in question is explicit and clear and it proceeds to provide exemption to only those class of vehicles which are owned and exclusively used by or on behalf of the Government of India or the Government of any State of India. For the vehicle in question coming within the purview of tax exemption category, there are two pre-requisite terms and conditions provided for namely (i) Owned by Government of India/Government of State of India (ii) and exclusively used by or on behalf of Government of India/Government of State of India. Issue of ownership comes first followed by issue of exclusive user. Unless and until both the conditions are not at all fulfilled by the vehicle in question, it will have to be subjected to tax. Here the very first pre-requisite condition is lacking, i.e. that the Government of India is the owner, whereas the fact of the matter is that owner of vehicle in question are the petitioners, who have corporate personality of their own, distinct from Government of India, and in the said venture Government of India has its share capital. Petitioner''s corporation cannot be equalized with Government of India and vehicle in question cannot be said to be owned and exclusively used by Government of India or on behalf Government of India in the facts of the case.

Consequently Corporation having not been included within scope and ambit of the Rules, wherein vehicles which were to be exempted from levying of taxes, has been provided for, tax has rightly been levied and sought to be realised. Action of respondents is strictly within the parameter of taxing provision.

Consequently, present writ petition lacks substances and same is dismissed.

No order as to cost.