AI Structured Summary
Not yet generated for this judgment
Judgment
M.B. Shah, J.—Rule. Mr. M. G. Doshit waives service on behalf of the respondents. At the request of the learned advocates for the parties, the matter is heard finally.
Petitioner No. 1 is a public limited company having its registered office at Indore (M. P.) and it has got various branches in different States, including the State of Gujarat. It is the contention of the petitioners that the business of petitioner No. 1 is to manufacture electro mosquito repellent ("EMR", for short) and mosquito mat (hereinafter referred to as "the mat"). It is pointed out that EMR is an electrical instrument with a socket to be entered into a plug for transmitting electric power. For manufacturing the mat, the main raw material is allethrin in liquid form (which is imported from Japan) and filter paper. In the process of manufacturing the mat, filter paper is mechanically cut into tablets and on such tablets, allethrin 4 per cent in liquid form is poured and, thereafter, the tablets are mechanically scaled. This mat is put into the EMR at a space specially meant for it and when the electric power is switched on, allethrin contained in the mat gradually evaporates and allethrin vapour spreads in a room and kills mosquitoes. It is contended that, petitioner No. 1, from its factory, consigns EMR and mats to its various branches in the country and they are sold separately. So far as the mats are concerned, they are sold under the trade name Jet mat".
It is also pointed out that, Ahmedabad branch of petitioner No. 1, in the State of Gujarat, is a dealer registered under the Gujarat Sales Tax Act, 1969. That branch was started in the financial year 1988-89 and while assessing petitioner No. 1 for the years 1988-89 and 1989-90, respondent No. 1 treated the sales of "mats" mad by the petitioner as "insecticide" covered by residuary entry 13 of Schedule III appended to the Gujarat Sales Tax Act and the petitioners were given the benefit of concessional rate on the basis of entry 98 of notification issued by the State Government u/s 49(2) of the Act. It is further pointed out that, from August 1, 1990, entry 129 pertaining to "mosquito replants" is added. It is the contention of the petitioners that, the mats produced by the petitioners are recognized in popular parlance as "insecticides" in contradistinction to "mosquito replants" such as Odomas cream. The main action of the mats produced by the petitioners is to destroy the mosquitoes while the purpose of mosquito replants is to repel the mosquitoes. It is their contention that, despite this position, respondents have imposed the sales tax on the mats produced by the petitioners as if the mats are "mosquito replants". The petitioners further contended that, in spite of the objections raised by the petitioners, the Sales Tax Officer, City Division, Ahmedabad, has passed the assessment order for the financial year 1990-91 considering the mats sold by the petitioners as mosquito repellents and not insecticides.
It is pointed out by Mr. R. D. Pathak, learned advocate for the petitioners that up to July 31, 1990, Jet mat was considered by the respondents as "insecticide" and with effect from 1st August, 1990, the tax on Jet mat is assessed at the rate of 10 per cent under entry 129, by holding that it is mosquito repellent.
In this petition, it is prayed that entry 129 of Schedule 11, Part A of the Gujarat Sales Tax Act be declared ultra vires the Constitution being violative of article 14 of the Constitution and it be declared that the sales of mats produced by the petitioners are eligible to be taxed on a concessional basis, as specified under entry 98 of the notification u/s 49 of the Sales Tax Act. It is also prayed that (a) the impugned order, annexure A-2 and (b) the order, annexure A-3, passed by the Deputy Commissioner of Sales Tax, u/s 62 of the Act be quashed and set aside. The order u/s 62 of the Act is passed on an application filed by M/s. Besta Cosmetics Limited for determining whether Odomas mat is mosquito repellent or whether it is covered by entry 98 of the notification issued u/s 49(2) of the Act.
At the time of hearing of this matter, it was made clear to the learned advocate for the petitioners that against the impugned order, annexure A-2, passed by the Sales Tax Officer, it was open to the petitioners to approach the appellate authority under the Gujarat Sales Tax Act, i.e., appeal before the Commissioner of Sales Tax and further appeal to the Tribunal against the order passed by the Commissioner. However, it is contended by Mr. Pathak that it is no use approaching the appellate authority mainly because the Deputy Commissioner has decided a similar question u/s 62 of the Sales Tax Act and has arrived at the conclusion that similar mats would be considered as mosquito repellents and not insecticides. He further submitted that the question involved in this matter may be determined at this stage because by approaching the appellate authority, determination of the question would be delayed and the petitioner would be put to irreparable loss.
He further submitted that Jet mats produced by petitioner No. 1 cannot be considered to be mosquito repellents because their purpose is to destroy or kill the mosquitoes and not to repel them. According to him, the sales tax authorities have confused themselves by considering that insecticides are to be used only for protecting the crops against the insects in the farms. He also contended that the said stand taken by the authorities is inconsistent with their stand prior to August 1, 1990, when Jet mats admittedly were considered as insecticides.
Mr. Pathak further contended that entry 129 of Schedule II, Part A of the Sales Tax Act is ultra vires the Constitution being violative of article 14 of the Constitution because respondent No. 4 has prescribed high rate of tax under entry 129 for mosquito repellent, which belongs to general class of insecticides. Sale and purchase of insecticides are taxed at a lower rate, as provided under entry 98 of the notification u/s 49(2) of the Act. According to his contention, there is no rational basis for differentiating mosquito repellents and insecticides for the purpose of imposing tax. For this purpose, he relied upon the decision of the Supreme Court in the case of Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346(kant).
As against that, Mr. Doshit, learned advocate appearing on behalf of the respondents, submitted that Jet mats are rightly considered to be mosquito repellents. Even the petitioners are selling them as mosquito repellents. He further contended that the impugned order passed by the sales tax officer is appealable and the petitioners ought to have filed the appeal against the impugned order. But as the petitioners have challenged the vines of entry 129, the question involved in this petition may be decided on merits. In support of this contention, he exhaustively referred to the affidavit in reply filed by die Assistant Commissioner of Sales Tax. With regard to the vines of entry 129, Mr. Doshit submitted that the contention raised by the petitioners is without any foundation. It is open to the Legislature to levy different rate of tax on different items and that mosquito repellent is known in the market as a different commercial commodity.
For appreciating the contentions raised by the rival parties, it is necessary to refer to entry 129 of Schedule II, Part A, entry 13 of Schedule III and entry 98 of the notification issued u/s 49 of the Gujarat Sales Tax Act, which are as under :
"SCHEDULE II, PART A
Goods, the sale or purchase of which is subject to sales tax or purchase tax and the rates of the tax.
----------------------------------------------------------------------- S. Description of goods Rate of sales Rate of No. tax purchase tax ----------------------------------------------------------------------- 129 Mosquito repellents Twelve paise Twelve paise in the rupee in the rupee. ----------------------------------------------------------------------- (Inserted with effect from August 1, 1990) SCHEDULE III Goods, the sale or purchase of which is subject to sales tax, general sales tax or purchase tax and the rates of sales tax and general sales tax.
----------------------------------------------------------------------- S. Description of goods Rate of sales Rate of No. tax general sales tax ----------------------------------------------------------------------- 13 All goods other than those Eight paise Eight paise specified from Eight paise in in the rupee in the rupee Eight paise in time to time in sections 18, 19A, 19B and the 19C and in Schedules I and II and in the preceding entries. ----------------------------------------------------------------------- Entry 98 of notification issued u/s 49(2) of the Sales Tax Act ----------------------------------------------------------------------- S. Class of sales or purchases Exemption whether of Conditions No. whole or part of tax ------------------------------------------------------------------------ 98 Sales or purchases of pesti- To the extent to which Nil cides and insecticides. the amount of sales tax exceeds two paise in the rupee. ------------------------------------------------------------------------ (Stands repealed from April 1, 1992)."
Entry 129 for mosquito repellent is added with effect from August 1, 1990. It is admitted that, up to March 31, 1992, there was no specific entry in Schedule II, Part A with regard to pesticides and insecticides. From 1st April, 1992, pesticides and insecticides are covered by entry 136. There is also variation in the rates of sales tax in entries 129 and 136. It is also an admitted fact that, entry 98 of the notification u/s 49(2) of the Act is also repealed with effect from April 1, 1992.
With this background, now, we would deal with the contention of the learned advocate for the petitioners that entry 129 of Schedule II, Part A of the Sales Tax Act is ultra vires the Constitution, as it is violative of article 14 because it discriminates between insecticides and mosquito repellents, which are manufactured out of insecticides. He further submitted that there is no rational basis for differentiating mosquito repellents and insecticides. For this purpose, he placed heavy reliance upon the decision of the, Supreme Court in the case of Arya Vaidya Pharmacy [1989] 73 STC 346.
In our opinion, the judgment relied upon by the learned counsel for the petitioner has no bearing to the present case because in that very judgment, the court has observed that it is open to the Legislature, or the State Government if it is authorised in that behalf by the Legislature, to select different rates of tax for different commodities. But where the commodities belong to the same class or category, there must be a rational basis for discrimination of one commodity foreign another for the purpose of imposing tax. The Supreme Court further held that, what the actual rate should be is not a matter for the courts to decide generally, but where a distinction is made between commodities falling in the same category a question arises before the court, whether there is justification for the differentiation. In that case, the court was required to consider a question whether the State was justified in imposing sales tax at the rate of 30 per cent on arishtams and a saves prepared under the ayurvedic system, whereas all other patent or proprietary medicinal preparations belonging to the different systems of medicines were taxed at the rate of 7 per cent only. It was contended that, such a levy on two ayurvedic medicines/preparations, which were known as "arishtams and asavas" was discriminatory. The court observed that the preparations arishtams and asavas, are medicinal preparations, even though they contain high alcohol content. So long as they continue to be identified as medicinal preparations, they must be treated for the purpose of sales tax, in like manner as medicinal preparations generally, including those containing a lower percentage of alcohol. In our view, the aforesaid decision would not be applicable to the present case because mosquito repellent is a different commodity by itself, may be that it is prepared out of the insecticide known as "d-Allethrin 4 per cent".
In the affidavit in reply, it is pointed out that, even when mosquito repellent mats contain an ingredient, which is an insecticide, such mats constitute a separate class distinct from other insecticides and that, ordinarily, "insecticides" connote substances used for protecting crops against insects in farms, i.e., in large, open areas. It is also pointed out that, mosquito repellents are meant for use in a small compact area. It is, therefore, submitted that entry 129 is based on intelligible criteria having a real nexus to the object sought to be achieved and is not violative of article 14 of the Constitution.
Apart from the aforesaid submission, in our view, applying the test of common parlance, it is apparent that "mosquito repellents" would normally not be considered by its buyers as insecticides because they are produced and purchased for a specific purpose of repelling mosquitoes. The product "mosquito repellent mat", may be produced by using some insecticide, but after its production as a mat, a different commodity known as mosquito repellent mat comes into existence. As stated above, in the case of Arya Vaidya Pharmacy [1989] 73 STC 346, the Supreme Court specifically held that, it is open to the Legislature or the State Government, if it is authorised in that behalf by the Legislature, to select different rates of tax for different commodities. Once it is held that mosquito repellent mat is a different commodity, then the contention raised by the learned advocate for the petitioner would be of no substance. It is quite possible that for the sale of insecticides, the object may be to encourage a certain trade or industry in the context of State policy, with a view to seeing that the crops are protected. But it would not be a matter for the court to decide whether, on mosquito repellents, the State ought to have imposed a tax at a particular rate lower or higher than the rate prescribed for insecticides.
Further, it is also an accepted principle that the Legislature is allowed more freedom of choice in the matter of taxation vis-a-vis other laws. It is well-settled that the State does not have to tax everything in order to levy tax on some item. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably. In the case of Elel Hotels and Investments Limited and Others Vs. Union of India, , after discussing various decisions, the Supreme Court observed as under :
"............. It is now well-settled that a very wide latitude is available to the Legislature in the matter of classification of objects, persons and things for purposes of taxation. It must needs be so, having regard to the complexities involved in the formulation of a taxation policy. Taxation is not now a mere source of raising money to defray expenses of Government. It is a recognised fiscal tool to achieve fiscal and social objectives. The differential of classification presupposes and proceeds on the premise that it distinguishes and keeps apart as a distinct class hotels with higher economic status reflected in one of the indicia of such economic superiority."
In this view of the matter, there is no substance in the contention raised by the learned counsel for the petitioners that, entry 129 is ultra vires the Constitution, as, in our view, entry 129 deals with a specific item of mosquito repellent/mat, which is a different commodity.
At the relevant time, when entry 129 was inserted, there was no specific entry for pesticides and insecticides in Schedule II, Part A of the Sales Tax Act. Therefore, the goods which were known as mosquito repellents or pesticides or insecticides were covered by a residuary entry 13 of Schedule III of the Sales Tax Act. After insertion of a specific entry in the Schedule, residuary entry would not be applicable. The residuary entry 13 itself provides that it would apply only to the goods other than those specified, from time to time, in Schedules I and II and in the substantial entries of Schedule III. Therefore, only entry 129, which deals with a specific item known as "mosquito repellents" would cover a produce which is known as "mosquito repellents mat". It was contended that, in view of entry 98 of the notification issued u/s 49(2) of the Gujarat Sales Tax Act, which gives partial exemption to the sale or purchase of pesticides and insecticides, and, as the mat is produced by using insecticides, petitioners are entitled to have benefit of entry 98. This, in our view, is a far-fetched submission. When there is a specific entry dealing with a specific item, that entry covers the said item and not an entry which deals with the general items.
Now, we will deal with the alternative submission of Mr. Pathak, learned advocate for the petitioners, that the impugned order passed by the Sales Tax Officer is illegal. In our view, against the impugned order, it was open to the petitioners to file appeal. However, the petitioners have not chosen to file appeal, by contending that the Deputy Commissioner has taken the similar view while passing the order u/s 62 of the Gujarat Sales Tax Act and, therefore, filing of appeal would be an exercise in futility. He further submitted that, if the petitioners are asked to file appeal at this stage, they would suffer irreparable loss and the question involved in the matter may be decided once for all.
In view of the aforesaid submission, we deal with the alternative submission raised by the learned advocate for the petitioners that the mat produced by the petitioner cannot be considered as "mosquito repellents" and that it would not be covered by the same entry. This submission was made by contending that the mat produced by petitioner No. 1 is for destroying or killing the mosquitoes and not for repelling the mosquitoes. Against this submission learned advocate, Mr. Doshit, appearing on behalf of the respondents, relied upon the affidavit-in-reply filed by the Assistant Commissioner of Sales Tax, wherein he stated that, for determining whether sale of a substance is liable to be taxed under entry 129, it is irrelevant whether the substance has the character of killing mosquitoes or scaring them away. The function of the mosquito repellent is to alleviate the hazard of mosquitoes whether by destroying them or by creating conditions obnoxious to mosquitoes, so as to remove them from the proximity. Because of this, the entry "mosquito repellent" would cover a mat which is used either to destroy mosquitoes or to scare them away.
In our view, there is much substance in the contention raised by the learned advocate, Mr. Doshit, appearing on behalf of the department. Entry 129 is a specific entry, which deals with the articles known as "mosquito repellents". Whether those articles (Jet mat) destroys the mosquitoes or drives them away is of no consequence for determining whether that would fall under entry 129. In common parlance, in the market such mats are known as "Mosquito repellents" and, therefore, the order passed by the Sales Tax Officer was legal and in accordance with entry 129. Once a new product is produced by using small quantity of insecticides, it would not mean that the said commodity would get the benefits which are given to insecticides or pesticides under the Sales Tax Act. It is admitted by the petitioner that mat is prepared not only out of allethrin but it is manufactured out of filter paper and only 4 per cent insecticide. Filter paper is mechanically cut into tablets of specified size and, thereafter, liquid insecticide is poured. After pouring liquid again, it is mechanically scaled. Therefore, the commodity is altogether a different commodity manufactured out of filter paper and the insecticide.
While dealing with the question whether the Legislature can split pulses from the unsplit or unprocessed pulses and treat the two as separate and independent goods, the Supreme Court in the case of Hira Lal Rattan Lal v. Sales Tax Officer [1973] 31 STC 178, observed that it is open to the Legislature to define the nature of the goods, the sale or purchase of which should he brought to tax; Legislature was not incompetent to separate the processed or split pulses from the unsplit or unprocessed pulses and treat the two as separate and independent goods and negatived the contention of violation of article 14 of the Constitution. The relevant observations are as under :
"Legislature was not incompetent to separate the processed or split pulses from the unsplit or unprocessed pulses and treat the two as separate and independent goods.
In Jagannath and Others Vs. Union of India (UOI), , a question arose for decision whether it was open to the Legislature to impose separate excise duty on tobacco leaf as well as on broken leaf of tobacco. This Court overruled the contention that such a levy was invalid. It held that it was open for the Legislature to separate the two items. We see no basis for the contention that the Legislature cannot for the purpose of tax under the Act separate the split or processed pulses from the unsplit or unprocessed. The power of the Legislature to specify the nature of the goods, the sale or purchase of which, it will bring to tax is very wide."
In this view of the matter, there is no substance in the contentions raised by the learned advocate for the petitioner that Jet mat produced by the petitioner would not be covered by entry 129.
In the result, this petition is rejected. Rule discharged with no order as to costs.
Petition dismissed.