Supreme Court Clarifies Tax on Maize Starch: Santhosh Maize & Industries Limited vs. State of Tamil Nadu (2023)

Introduction

Date of the Judgment: 04 July 2023
Citation: (2023) INSC 627
Judges: S. Ravindra Bhat, J., Dipankar Datta, J.

Is maize starch a “product of millet” exempt from sales tax, or is it simply “starch of any kind” subject to taxation? The Supreme Court of India recently addressed this question in a dispute between Santhosh Maize & Industries Limited and the State of Tamil Nadu. The core issue revolved around the classification of maize starch under the Tamil Nadu General Sales Tax Act, 1959, and whether it should be taxed or exempted. The court had to interpret the relevant entries in the Act’s schedules and clarify the scope of exemptions for millet products.

The bench comprised Justices S. Ravindra Bhat and Dipankar Datta. Justice Dipankar Datta authored the judgment.

Case Background

Santhosh Maize & Industries Limited, the appellant, has been dealing in maize starch since 1975 and is registered under the Tamil Nadu General Sales Tax Act, 1959. The dispute arose from the classification of maize starch under the Act. Initially, a Government Notification exempted products of millets, including maize, from sales tax starting April 1, 1970.

The Tamil Nadu Legislative Assembly amended the Act in 1993, adding an entry that taxed “sago and starch of any kind” at 5%. This was later reduced to 4% in 1996. This amendment led to confusion among maize starch dealers, who sought clarification from the Commissioner of Commercial Taxes. The Commissioner clarified that the exemption for maize products would continue, as maize starch was considered a simple product of maize.

In 1994, the Act was amended again, introducing an exemption for “products of millets,” mirroring the earlier notification but omitting the word “like.” The Commissioner issued further clarifications in 1996 and 1997, maintaining that maize starch was exempt. However, in 1997, Section 28-A was added to the Act, empowering the Commissioner to issue binding clarifications on tax rates.

Subsequently, in 1998, the Commissioner issued a circular stating that maize starch was not exempt and would be taxed at 11%. This was later revised to 4%, classifying it under “sago and starch of any kind.” This change led to the appellant being served with notices for recovery of sales tax, which led to the litigation.

Timeline

Course of Proceedings

The appellant initially challenged the provisional assessment notices and the Commissioner’s circular of October 8, 1998, before the Tamil Nadu Taxation Special Tribunal. The Tribunal dismissed these petitions, stating that the appellant could not challenge the circular and contest the assessment simultaneously.

The appellant then filed a writ petition in the High Court, seeking to quash the Tribunal’s order and declare the circular ultra vires. The High Court initially dismissed the writ petition, stating that the appellant could raise all points before the assessing authority. The appellant appealed to the Supreme Court, which allowed the appeal and restored the writ petition to the High Court, directing it to decide the legal point regarding the validity of the circular.

On hearing the matter, the High Court dismissed the writ petition, holding that the earlier exemption notifications and circulars lacked statutory backing, as Section 28-A came into effect only in 1997. It upheld the validity of the October 8, 1998, circular, classifying maize starch under Entry No. 61, subject to a 4% tax. The appellant then filed a review application, which was also dismissed by the High Court.

Legal Framework

The case primarily revolves around the interpretation of the Tamil Nadu General Sales Tax Act, 1959. Key provisions include:

• Section 3(2) of the Tamil Nadu General Sales Tax Act, 1959: This section imposes a tax on goods listed in Schedule I of the Act.
• Section 8 of the Tamil Nadu General Sales Tax Act, 1959: This section provides exemptions for goods listed in Schedule III of the Act.
• Section 17 of the Tamil Nadu General Sales Tax Act, 1959: This section empowers the State Government to exempt payment of tax.
• Section 28-A of the Tamil Nadu General Sales Tax Act, 1959: This section, inserted in 1997, empowers the Commissioner to issue clarifications regarding tax rates.

The Act also includes various schedules that list taxable and exempt goods:

• Schedule I of the Tamil Nadu General Sales Tax Act, 1959: Lists goods subject to tax.
• Schedule III of the Tamil Nadu General Sales Tax Act, 1959: Lists goods exempt from tax.

The relevant entries are:

• Entry No. 53 of Part C of Schedule I: (Introduced in 1993) Taxed ‘sago and starch of any kind’ at 5%.
• Entry No. 61 of Part B of Schedule I: (Introduced in 1996) Taxed ‘sago and starch of any kind’ at 4%.
• Entry No. 8 of Part B of Schedule III: (Introduced in 1994) Exempted “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)”.
• Entry No. 44 of Part B of Schedule III: (Introduced in 2002) Exempted “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, and milo)”.

Arguments

Appellant’s Arguments:

• The appellant argued that maize starch should be considered a product of millet, specifically maize, and therefore exempt under Exemption Entry No. 8. They contended that maize starch is essentially maize flour, albeit obtained through a process of soaking and treating maize.
• The appellant relied on the decision in Reliance Trading Company, Kerala vs. State of Kerala to argue that an exemption arises when there is a liability to pay tax. They argued that since maize starch is covered under the exemption, it should override the taxation entry.
• The appellant cited the decisions in State of Tamil Nadu vs. Lakshmi Starch and State of Tamil Nadu vs. TVL. Indras Agencies (P) Ltd., where the court had upheld the validity of the Exemption Notification, which exempted maize starch from tax. They argued that Exemption Entry No. 8 is a reenactment of the notification and reflects the legislature’s intent to exempt maize starch.
• The omission of the word “like” in the 1994 amendment was argued to be insignificant, as the intention was to continue the exemption for maize starch.
• The appellant contended that the High Court erred by considering Entry No. 44 of Part B of Schedule III, which was introduced in 2002 and explicitly removed maize. Before that, Exemption Entry No. 8, which included maize, was applicable.
• The appellant argued that the power under Section 28-A cannot be used to contradict the Act’s statutory scheme, especially when the classification issue has been settled by a court of law. The consistent practice of exempting maize starch, supported by multiple circulars, should be upheld.
• The appellant argued that the circular dated 8th October, 1998, cannot have retrospective effect and should apply only from the date of its issue.

Respondents’ Arguments:

• The respondents argued that maize starch falls under Taxation Entry No. 61, which covers “sago and starch of any kind,” and is therefore subject to a 4% tax. They contended that the term “starch of any kind” is inclusive and covers all types of starch, including maize starch. They relied on Associated Cement Company Ltd. vs. Commissioner of Customs to support this argument.
• The respondents argued that the Exemption Notification gained statutory support only from April 1, 1994, through the amendment introducing Exemption Entry No. 8. However, the taxation entry for “sago and starch of any kind” had already existed since 1993.
• The respondents argued that the omission of the word “like” in Exemption Entry No. 8 was deliberate and restricted the exemption only to the items specifically mentioned. They relied on Union of India vs. Tulsiram Patel and B. Shankara Rao Badami vs. the State of Mysore to support the maxim “expressum facit cessare tacitum,” which means that when specific matters are expressly mentioned, anything not mentioned is deemed excluded.
• The respondents argued that Exemption Entry No. 8 covers raw products like maize, not processed products like maize starch. They highlighted the mention of items like “flour” and “bran of cholam” as examples of processed products.
• The respondents argued that the legislative intent is clear from the 2002 amendment, where the specific reference to maize was removed from the exemption entry.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether maize starch is exempt from sales tax as a product of millet under Exemption Entry No. 8 or taxable as a type of starch under Taxation Entry No. 61 of the Tamil Nadu General Sales Tax Act, 1959.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases:

• Reliance Trading Company, Kerala vs. State of Kerala, (2011) 15 SCC 762 – The court referred to this case in the context of the appellant’s argument that an exemption will only arise when there is a liability to pay tax.
• State of Tamil Nadu vs. Lakshmi Starch, (1990) SCC OnLine Mad 777 – This case was cited by the appellant to support their contention that maize starch was exempt from tax and that the Exemption Entry No. 8 derives its origin from the Exemption Notification. The Supreme Court found that this case did not aid the appellant.
• State of Tamil Nadu vs. TVL. Indras Agencies (P) Ltd., T.C.(R) 902/1999 – This case was also cited by the appellant to support their contention that maize starch was exempt from tax. The Supreme Court found that this case did not aid the appellant.
• Associated Cement Company Ltd. vs. Commissioner of Customs, (2001) 4 SCC 593 – The court relied on this case to interpret the words “any kind” in an inclusive manner, to include all kinds of goods within its ambit.
• Union of India vs. Tulsiram Patel, (1985) 3 SCC 398 – This case was cited by the respondents to support the maxim “expressum facit cessare tacitum.”
• B. Shankara Rao Badami vs. the State of Mysore, (1969) 1 SCC 1 – This case was also cited by the respondents to support the maxim “expressum facit cessare tacitum.”
• M/s. Associated Indem Mechanical (P) Limited vs. West Bengal Small Industries Development Corporation, (2007) 3 SCC 607 – This case was used to interpret the word “any” as having a wide meaning, excluding limitations.

Legal Provisions:

• Section 3(2) of the Tamil Nadu General Sales Tax Act, 1959: The court considered this section as it imposes a tax on goods listed in Schedule I.
• Section 8 of the Tamil Nadu General Sales Tax Act, 1959: The court considered this section as it provides exemptions for goods listed in Schedule III.
• Section 17 of the Tamil Nadu General Sales Tax Act, 1959: The court considered this section to determine the source of power of the State Government to exempt payment of tax.
• Section 28-A of the Tamil Nadu General Sales Tax Act, 1959: The court considered this section as it empowers the Commissioner to issue clarifications regarding tax rates.
• Entry No. 53 of Part C of Schedule I of the Tamil Nadu General Sales Tax Act, 1959: The court considered this entry, which taxed ‘sago and starch of any kind’ at 5%.
• Entry No. 61 of Part B of Schedule I of the Tamil Nadu General Sales Tax Act, 1959: The court considered this entry, which taxed ‘sago and starch of any kind’ at 4%.
• Entry No. 8 of Part B of Schedule III of the Tamil Nadu General Sales Tax Act, 1959: The court considered this entry, which exempted “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)”.
• Entry No. 44 of Part B of Schedule III of the Tamil Nadu General Sales Tax Act, 1959: The court considered this entry, which exempted “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, and milo)”.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Reliance Trading Company, Kerala vs. State of Kerala [(2011) 15 SCC 762]*: The court acknowledged the appellant’s reliance on this case but did not find it persuasive in the context of the current dispute.
• State of Tamil Nadu vs. Lakshmi Starch [(1990) SCC OnLine Mad 777]*: The court held that this case did not aid the appellant’s argument, as the facts and legal context were different.
• State of Tamil Nadu vs. TVL. Indras Agencies (P) Ltd. [T.C.(R) 902/1999]*: The court held that this case did not aid the appellant’s argument, as the facts and legal context were different.
• Associated Cement Company Ltd. vs. Commissioner of Customs [(2001) 4 SCC 593]*: The court relied on this case to interpret the words “any kind” in an inclusive manner, indicating that it covers all types of starch.
• Union of India vs. Tulsiram Patel [(1985) 3 SCC 398]*: The court used this case to support the application of the maxim “expressum facit cessare tacitum,” which means that when specific matters are expressly mentioned, anything not mentioned is deemed excluded.
• B. Shankara Rao Badami vs. the State of Mysore [(1969) 1 SCC 1]*: The court used this case to support the application of the maxim “expressum facit cessare tacitum.”
• M/s. Associated Indem Mechanical (P) Limited vs. West Bengal Small Industries Development Corporation [(2007) 3 SCC 607]*: The court used this case to interpret the word “any” as having a wide meaning, excluding limitations.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the interpretation of the statutory provisions and the specific language used in the entries of the Tamil Nadu General Sales Tax Act, 1959. The court emphasized that maize starch is a processed product, not a raw product of millet, and therefore, it does not fall under the exemption provided for “products of millets.” The court also highlighted that the term “starch of any kind” in the taxation entry is inclusive and covers all types of starch, including maize starch. The court’s reasoning was also influenced by the principle that when a statute contains both a general provision and a specific provision, the latter must prevail.

Fact:Law Ratio

The court’s reasoning was more heavily influenced by legal considerations (70%) than factual aspects (30%). The court’s interpretation of the statute and the application of legal principles played a more significant role in the decision.

Logical Reasoning:

The Supreme Court considered alternative interpretations but rejected them. The court rejected the appellant’s argument that maize starch should be considered a “product ofmillet” because it is a processed product, not a raw agricultural product. The court also rejected the argument that the omission of the word “like” in the 1994 amendment was insignificant, holding that the omission was deliberate and restricted the exemption to the items specifically mentioned. The court also rejected the appellant’s argument that the clarification issued by the Commissioner should not have retrospective effect.

Final Decision

The Supreme Court dismissed the appeals filed by Santhosh Maize & Industries Limited. The court upheld the judgment of the Madras High Court, which had ruled that maize starch is taxable under the entry for “sago and starch of any kind.”

Implications:

• The judgment clarifies that maize starch is not exempt from sales tax as a product of millet.
• The decision confirms that maize starch falls under the category of “starch of any kind” and is subject to taxation.
• The clarification issued by the Commissioner of Commercial Taxes, stating that maize starch is taxable, is upheld.
• The judgment establishes a clear precedent for the tax treatment of maize starch under the Tamil Nadu General Sales Tax Act, 1959.

Key Takeaways

• Interpretation of Statutes: The Supreme Court emphasized the importance of interpreting statutory provisions based on the plain and natural meaning of the words used.
• Specific vs. General Provisions: The court reiterated the principle that when a statute contains both a general provision and a specific provision, the latter must prevail.
• Processed vs. Raw Products: The court distinguished between raw agricultural products and processed products, stating that exemptions for raw agricultural products do not automatically extend to their processed forms.
• Inclusiveness of “Any Kind”: The court held that the term “any kind” is inclusive and covers all types of goods within its ambit, unless there is a clear indication to the contrary.
• Retrospective Effect of Clarifications: The court upheld the retrospective effect of clarifications issued by the Commissioner of Commercial Taxes, provided it is within the scope of the statutory provisions.