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

Date of the Judgment: July 04, 2023
Citation: 2023 INSC 590
Judges: S. Ravindra Bhat, J., Dipankar Datta, J.
Can a processed product like maize starch be considered a “product of millet” and thus be exempt from sales tax? The Supreme Court of India recently addressed this question, clarifying the scope of tax exemptions under the Tamil Nadu General Sales Tax Act, 1959. The core issue revolved around whether maize starch, derived from maize through mechanical processes, should be classified as a “product of millet” and thus be tax-exempt, or as “starch of any kind” and therefore taxable. The judgment was delivered by a division bench comprising Justice S. Ravindra Bhat and Justice Dipankar Datta, with the majority opinion authored by Justice Dipankar Datta.

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 Act). The dispute arose regarding the tax classification of maize starch under the Act. Initially, the Government of Tamil Nadu had exempted products of millets, including maize, from sales tax via a notification effective from April 1, 1970. However, subsequent amendments to the Act introduced a tax on ‘sago and starch of any kind’. This created a conflict regarding whether maize starch should be considered a tax-exempt ‘product of millet’ or a taxable ‘starch of any kind’.

The legislative assembly of Tamil Nadu amended Schedule I to the Act, adding Part C and including Entry No. 53, which imposed a 5% tax on ‘sago and starch of any kind’ effective from March 12, 1993. Later, this was moved to Entry No. 61 of Part B of Schedule I with a reduced tax rate of 4% from July 17, 1996. An amendment to the Act, effective from April 1, 1994, inserted Entry No. 8 of Part B of Schedule III, exempting “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)” from tax. Despite this, the Commissioner of Commercial Taxes issued circulars clarifying that maize starch was exempt as a ‘maize product’.

However, the Commissioner later issued a circular on June 23, 1998, stating that maize starch was not covered under the exemption and would be taxed at 11%. This was followed by a subsequent circular on October 8, 1998, which clarified that maize starch was taxable from April 1, 1994, at a rate of 4% under Entry No. 61 of Part D of Schedule I. This change in stance led to the appellant receiving notices for recovery of sales tax for the financial year 1998-1999, which led to the litigation.

Timeline

Course of Proceedings

Initially, the appellant challenged the provisional assessment notices and the validity of the Commissioner’s circular dated October 8, 1998, before the Tamil Nadu Taxation Special Tribunal. The Tribunal dismissed the petitions, stating that the challenge to the circular should be part of the assessment proceedings. The appellant then approached 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. However, the Supreme Court allowed the appeal and restored the writ petition to the High Court for a decision on the validity of the circular.

The High Court, after hearing the parties, dismissed the writ petition on merits, holding that the Exemption Notification and subsequent circulars lacked statutory backing before the insertion of Section 28-A of the Act. It further held that the circular dated October 8, 1998, was valid and that maize starch was taxable under Entry No. 61. The appellant’s review application was also dismissed by the High Court. Subsequently, the appellant appealed to the Supreme Court.

Legal Framework

The core of the dispute lies in the interpretation of the Tamil Nadu General Sales Tax Act, 1959, specifically concerning the taxability of maize starch. The Act has two key sections:

• Section 3(2): This section deals with the levy of taxes on goods listed under Schedule I of the Act. It states that:
  “Every dealer shall pay for each year, a tax on his total taxable turnover for the year at the rate of tax specified in Schedule I”.
• Section 8: This section provides for exemptions on goods listed under Schedule III of the Act. It states that:
  “A tax shall not be levied on the sale of goods specified in Schedule III.”

The relevant entries are:

• Taxation Entry No. 61 of Part B of Schedule I: This entry, effective from July 17, 1996, taxes ‘sago and starch of any kind’ at a rate of 4%.
• Exemption Entry No. 8 of Part B of Schedule III: This entry, effective from April 1, 1994, exempts “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)”.

Additionally, Section 28-A of the Act, inserted on November 6, 1997, empowers the Commissioner to issue clarifications regarding the rate of tax under the Act. This section states that:

“(1) If any question arises as to the rate of tax leviable under this Act in respect of any goods, the Commissioner may, either on his own motion or on an application made to him by a registered dealer, determine the rate of tax leviable on such goods.
(2) The Commissioner may, on his own motion, clarify any point concerning the rate of tax under this Act, or the procedure relating to assessment and collection of tax, as provided for under this Act.”

The interplay between these provisions and entries forms the basis of the legal dispute.

Arguments

Appellant’s Submissions:

• The appellant argued that maize starch should be considered a “product of millet” and therefore exempt under Exemption Entry No. 8. They contended that maize starch is essentially a form of flour derived from maize, albeit through a process of soaking and treatment. It was argued that maize starch is the sole product of millet and retains the flour form.
• The appellant contended that the phrase ‘sago and starch of any kind’ in Taxation Entry No. 61 should be interpreted to exclude maize starch, as sago is derived from tapioca, and therefore, the entry should only encompass tapioca starch.
• The appellant relied on the decision in Reliance Trading Company, Kerala vs. State of Kerala [(2011) 15 SCC 762], arguing that an exemption arises when there is a liability to pay tax. They contended that Exemption Entry No. 8 overrides Taxation Entry No. 61, as the former specifically exempts maize products.
• The appellant cited the decisions in State of Tamil Nadu vs. Lakshmi Starch [(1990) SCC OnLine Mad 777] and State of Tamil Nadu vs. TVL. Indras Agencies (P) Ltd. [T.C.(R) 902/1999], arguing that Exemption Entry No. 8 was a re-enactment of the Exemption Notification, which had been upheld in the former judgment. They argued that the omission of the word ‘like’ in Exemption Entry No. 8 did not change the scope of the entry, given the consistent practice of exempting maize starch.
• The appellant argued that the High Court erred by considering Entry No. 44 of Part B of Schedule III for the assessment year 1998-1999, as this entry was introduced in 2002 and explicitly removed maize. Prior to that amendment, Exemption Entry No. 8, which included maize, was applicable.
• The appellant argued that the power under Section 28-A of the Act cannot be exercised contrary to the statutory scheme, especially when the classification has been settled by a court of law. They contended that the consistent practice of exempting maize starch, as confirmed by various circulars, should be upheld. The circular dated October 8, 1998, was a mere change of opinion without cogent reason and should be quashed.
• The appellant argued that the Circular dated October 8, 1998, could not have retrospective effect and should only apply from the date of its issue.

Respondents’ Submissions:

• The respondents argued that maize starch falls under Taxation Entry No. 61 as ‘sago and starch of any kind’ and is subject to a 4% tax. They contended that the term ‘starch of any kind’ is inclusive and encompasses all types of starch, including maize starch. They relied on the decision in Associated Cement Company Ltd. vs. Commissioner of Customs [(2001) 4 SCC 593] to support this contention.
• The respondents argued that the Exemption Notification gained statutory support only from April 1, 1994, through the amendment that introduced Exemption Entry No. 8. However, Taxation Entry No. 61 had already existed since 1993 and was the applicable entry.
• The respondents argued that Exemption Entry No. 8 modified the exemption provided under the notification by omitting the word ‘like’. They relied on the decisions in Union of India vs. Tulsiram Patel [(1985) 3 SCC 398] and B. Shankara Rao Badami vs. the State of Mysore [(1969) 1 SCC 1] to support the maxim expressum facit cessare tacitum, arguing that when specific matters are mentioned, anything not mentioned is deemed excluded.
• The respondents contended that Exemption Entry No. 8 applies to raw products like maize, not processed products like maize starch. They argued that the mention of items like ‘flour’ and ‘bran of cholam’ in the exempting entry indicated that these are processed products.
• The respondents argued that the legislative intent was clear from the 2002 amendment, wherein Exemption Entry No. 8 was repositioned as Entry No. 44, and the specific reference to ‘maize’ was eliminated, denying exemption to all maize products.

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 covered under the exemption for “products of millets” as per Exemption Entry No. 8 of Schedule III, or whether it is taxable as “starch of any kind” under Taxation Entry No. 61 of Schedule I 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:

The Court also considered the following legal provisions:

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 distinguished this case, stating that it did not support the appellant’s argument that an exemption arises when there is a liability to pay tax.
• State of Tamil Nadu vs. Lakshmi Starch [(1990) SCC OnLine Mad 777]*: The Court did not follow this decision, stating that it did not aid the petitioner’s case.
• State of Tamil Nadu vs. TVL. Indras Agencies (P) Ltd. [T.C.(R) 902/1999]*: The Court did not follow this decision, stating that it did not aid the petitioner’s case.
• Associated Cement Company Ltd. vs. Commissioner of Customs [(2001) 4 SCC 593]*: The Court followed this decision, using it to interpret the phrase “any kind” in an inclusive manner.
• Union of India vs. Tulsiram Patel [(1985) 3 SCC 398]*: The Court followed this decision, using it to support the maxim expressum facit cessare tacitum.
• B. Shankara Rao Badami vs. the State of Mysore [(1969) 1 SCC 1]*: The Court followed this decision, using it 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]*: The Court followed this decision, using it to interpret the word “any” as a word of very wide meaning.

The Supreme Court upheld the High Court’s decision, albeit for different reasons. The Court held that maize starch is not exempt as a “product of millet” under Exemption Entry No. 8. Instead, it is taxable under Taxation Entry No. 61 as “starch of any kind.” The Court reasoned that:

• Maize starch is a processed product, not a raw product of millet.
• The omission of the word “like” in Exemption Entry No. 8 narrowed the scope of the exemption to only the items specifically listed.
• The term “starch of any kind” in Taxation Entry No. 61 is inclusive and encompasses all types of starch, including maize starch.
• Taxation Entry No. 61 is more specific than Exemption Entry No. 8, and specific provisions prevail over general ones.
• The clarification issued by the Commissioner on October 8, 1998, was valid and had retrospective effect, as it clarified the existing legal position.

The Court emphasized that the legislature could not have intended two entries for the same commodity, one under the exempted category and another under the taxable category. It concluded that maize starch, being a “kind of starch,” falls under the taxable entry.

The Court stated, “Had the legislature intended to exclude any starch, including maize starch, a specific provision excluding it would have been made.”

The Court also noted, “The dictionary meaning of the word “any” is “one or same or all”. In Black’s Law Dictionary, it is explained that the word ‘any’ has diverse meaning and may be employed to indicate ‘all’ or ‘every’ as well as ‘same’ or ‘one’ and its meaning in a given statute depends upon the context and subject matter of the statute.”

Further, the Court observed, “Trite to say, the Legislature may not have intended two entries for the self-same commodity, one under the exempted category and the other under the taxable entry.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by a strict interpretation of the statutory provisions and the principle that specific entries prevail over general ones. The court emphasized that maize starch, being a processed product, did not qualify as a “product of millet” as the term was intended in the exemption entry. The court also noted the significance of the omission of the word “like” in the exemption entry, which narrowed its scope to only the items specifically listed. The court’s reasoning was also influenced by the inclusive nature of the term “starch of any kind” in the taxation entry, which was interpreted to cover all types of starch, including maize starch.

Fact:Law Ratio

The Court’s reasoning was heavily based on the legal provisions and their interpretations, with less emphasis on the factual aspects of the case. The Court focused on the specific wording of the entries and the legislative intent, rather than the practical implications for the appellant.

Logical Reasoning:

Dissenting Opinion

There was no dissenting opinion in this case. The judgment was delivered by a division bench with the majority opinion authored by Justice Dipankar Datta, and Justice S. Ravindra Bhat concurred with the opinion.

Conclusion

The Supreme Court’s decision in Santhosh Maize & Industries Limited vs. The State of Tamil Nadu & Anr. (2023) provides a significant clarification on the taxability of maize starch under the Tamil Nadu General Sales Tax Act, 1959. The Court’s emphasis on the distinction between raw and processed products, the inclusive nature of the term “starch of any kind,” and the principle that specific provisions prevail over general ones, offers valuable guidance for the interpretation of tax statutes. The judgment underscores the importance of precise statutory language and the need for a consistent interpretation of tax laws. The decision has significant implications for businesses involved in the production and sale of maize starch and other processed agricultural products, as it clarifies that such products are generally taxable unless specifically exempted.

The Court’s rejection of the appellant’s argument that maize starch should be considered a “product of millet” highlights the court’s focus on the specific wording of the statute and its interpretation. The Court’s emphasis on the inclusive nature of the term “any kind” and the omission of the word “like” in the exemption entry further clarifies the scope of the tax laws. The decision underscores the importance of clear legislative language and the need for a consistent interpretation of tax laws. The judgment has significant implications for businesses involved in the production and sale of maize starch and other processed agricultural products, as it clarifies that such products are generally taxable unless specifically exempted.