Commissioner of Trade
Tax, U.P. Vs. M/S. National Industrial Corpn. Ltd.  INSC 2056 (2 December
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 693-6939 OF 2008
(Arising out SLP (C) Nos.20012-20013 of 2004) Commissioner of Trade Tax, U.P.
... Appellant Versus S.S. Ayodhya Distillery & Ors. ... Respondents WITH CIVIL
APPEAL NOS. 6940, 6941-46, 6947, 6948-6949, 6950-6951, 6952, 6953-6957, 6958,
6959-6963, 6964, 6965, 6966-6970, 6971, 6972-6973, 6974- 6975, 6976, 6977-6980,
6981, 6982, 6983, 6984, 6985-6986, 6987-6988, 6989, 6990, 6991, 6992,
6993-6994, 6995, 6996, 6997, 6998, 6999, 7000, 7001, 7002, 7003, 7004, 7005,
7006 & 7007 OF 2008 (Arising out of SLP (C) Nos.20014, 20015-20020, 21679,
21682-21683, 21684-21685, 21686, 21687-21691, 21692, 21693-21697, 21699, 21700,
22853-22857, 22861, 22862-22863, 22859-22860, 22989, 26264-26267, 24774 &
23836 of 2004, 22620, 25255, 24802-24803, 25210-25211, 25395 & 25208 of
2005, 1586, 7796, 2389-2390, 16779, 16852, 16853, 16854, 16855, 18597, 25216,
20092, 20094, 20096, 20099 & 20010 of 2006 and 2044 of 2007)
S.B. Sinha, J.
Paddy Husk and Rice Husk connote the same commodity or not is the question
who own and operate their manufacturing units, use Paddy Husk as fuel in their
They were assessed
for payment of sales tax in terms of various notifications issued by the State
of Uttar Pradesh (for short, `the State') from time to time under Section 3D of
the Uttar Pradesh Trade Tax Act (for short, `the Act').
we advert to the rival contentions of the parties, we may notice certain
Section 3 of the Act
is the charging provision. The rate of tax is determined by the State in
exercise of its power conferred on it under Section 3A of the Act.
Section 3D of the Act
which is material for our purpose, reads as under : 3 "Section 3-D - Levy
of trade tax on purchase of sales of certain goods--(1) Except as provided in
sub-section (2), there shall be levied and paid, for each assessment year or
part thereof, a tax on the turnover, to be determined in the prescribed
manner-- (a) of first purchases of opium, at such rate not exceeding
'thirty-five percent ;
(b) of first
purchases of such other goods at such rate not exceeding-- (i) the maximum rate
for the time being specified in Section 15 of the Central Sales Tax Act, 1956
in respect of goods declared by Section 14 of the Act to be of special
importance in inter-State trade or commerce, and (ii) twenty percent, in
respect of other goods. and with effect from such date, as the State Government
may, by notification in the Gazette, specify in relation to purchases made
within Uttar Pradesh by a dealer (whether on his own account or on account of
any one else), or through a dealer acting as a purchasing agent."
the State in exercise of its power conferred upon it under clause (b) of
sub-section (1) of Section 3D of the Act, had been issuing notifications from
time to time specifying the rate of tax and the point thereof. One of such
notifications was issued on 7.9.1981, Item No.18 thereof reads as under:
"18. Rice polish, rice bran and rice husk."
By reason of a
notification dated 5.6.1985, inter alia, the said item was amended to the
polish, rice bran and rice husk, but excluding de-oiled rice bran, de-oiled
rice polish or de-oiled rice husk."
In supersession of
the earlier notifications, however, the State yet again amended the said item
with effect from 6.6.1996 by a notification of the said date, which reads as
polish, rice bran, rice husk and paddy husk but excluding de-oiled rice bran,-
de-oiled rice polish, de-oiled rice husk and de-oiled paddy husk. @ 4% at first
However, on or about
15.1.2002, the said entry was given a new look and in stead and place of entry
No.18, new entry being entry No.15 was inserted, pursuant whereto and in
furtherance whereof the rate of interest was increased from four per cent to
eight per cent. The said entry reads as under :
polish, Rice bran, Rice husk and paddy husk but excluding deoiled rice bran,
deoiled rice polish, deoiled rice husk and deoiled paddy husk."
However, an amendment
was carried out in the description of goods as also the rate of tax by a
notification issued on 30th September, 2000.
procedure relating to manufacture of rice from paddy vis-`-vis the exemption
clauses contained in the relevant notifications came up for consideration
before the High Court from time to time.
would refer to a few of the decisions rendered by the Allahabad High Court and
Madhya Pradesh High Court to which our attention has been drawn by the learned
counsel for the parties. One of such decisions is Commissioner of Sales Tax,
U.P. v. Naveen Traders [36 Sales Tax Cases 440] wherein, the High Court of
Allahabad, while determining the question in regard to the meaning of the words
`Bhusa' and `Bhusi' for which exemption was claimed, held as under :
owns a rice mill. It purchased paddy and after processing it obtained rice.
Thereafter, the rice so obtained is subjected to polishing process. As a result
of this process, the outer surface of the rice is scraped off. The scraping so
obtained, which is in powder form is called rice bran and in Etawah district,
where this mill is situate, this product is also known as "polish".
The bran so obtained is used for either extracting oil or for feeding cattle.
By Notification No. ST-911/X dated 31st March, 1956, the State Government in
exercise of powers conferred by Section 4 of the U. P. Sales Tax Act exempted
with effect from 1st 6 April, 1956, amongst other articles "cattle fodder
including green fodder" from payment of tax. This notification was amended
by Notification No. ST- 3471/X dated 16th July, 1956, and for the entry
"cattle fodder and green fodder" the following was substituted:
including green fodder, chuni, bhusi, chhilka, chokar, cotton seed, gowar and
The assessee claimed
that rice bran was exempt under this notification. This contention was neither
accepted by the Sales Tax Officer nor by the Assistant Commissioner, Sales Tax.
The revising authority, however, took the view that rice bran was nothing but
bhusi of rice, because it was the inner husk of the rice and as such was exempt
from tax. We are unable to agree with the view of the revising authority. Rice
with its outer husk is known as paddy. After the husk is removed, the product
is known as "rice". Rice does not have any inner husk, as has been
held by the revising authority. Moreover, it is clear from the findings
recorded that rice bran in respect of which exemption is claimed is powdered
rice, which is obtained in the polishing process. It is difficult to appreciate
how this powdered form of rice can be termed as bhusi of rice. Bhusi is nothing
but a fine form of bhusa, which in turn is obtained by thrashing of stems,
leaves and the outer husk of grain. The rice bran in question, as has been
seen, is obtained during the polishing process of the grain itself. It is not a
product obtained from stalk, leaves or the husk of paddy or rice." The
Court while applying the common parlance test to the terminologies `Bhusa' and
`Bhusi' opined that they are commodities obtained from stalk, leaves and husk
A similar view was
taken by another Division Bench of the said High Court in Commissioner of Sales
Tax v. Jamuna Prasad [36 STC 442] wherein relying on or on the basis of an
earlier decision of the said Court in Naveen Traders, N.D. Ojha, J. (as His
Lordship then was) speaking for the Bench, opined :
notification dated 16th July, 1956, exempts from sales tax cattle fodder, which
term is defined to include green fodder, chuni, bhusi, chhilka, chokar, cotton
seed, gowar and oil-cake. In Commissioner of Sales Tax, U. P., Lucknow v.
Naveen Traders, Etawah 1973 U.P.T.C. 215, a Division Bench of this Court has
held that rice with its outer husk is known as paddy and after the husk is
removed the product is known as rice. Rice does not have any inner husk. The
rice bran in respect of which exemption was claimed was nothing but powdered
rice. "Bhusa" and "bhusi" as understood in common parlance
are commodities obtained from stalk, leaves and husk of grains. "Rice
bran" cannot be treated as "bhusi of rice". In view of this
decision, the question referred to us has to be answered against the
assessee." The contention of the assessee therein that rice bran was
cattle fodder, however, was directed to be considered afresh on the premise
that the same involves a wider question. The Madhya Pradesh High Court had
also an occasion to consider the said question in Chordia Kavelu Udyog v. State
of M.P. & Two Ors. [(1988) 69 STC 49]. N.D. Ojha, Chief Justice, relied
upon the decision of the Allahabad High Court in Naveen Traders to hold :
"Husk" according to dictionary means, inter alia, "bhusi".
The question as to whether rice bran could be called "bhusi" or husk,
came up for consideration before a Division Bench of the Allahabad High Court
in Commissioner of Sales Tax, U.P. v. Naveen Traders  36 STC 440. It was
held that "bhusa" or "bhusi" as are understood in common
parlance, are commodities obtained from stalk, leaves and husk of grains.
Rice, with its outer
husk, is known as paddy. After the husk is removed, the product is known as
"rice". Rice does not have any inner husk. Rice bran is powdered rice
and is obtained during the polishing process of the grain itself and is not a
product obtained from stalk, leaves or the husk of paddy or rice. The same view
was taken by another Division Bench of the said Court in Commissioner of Sales
Tax v. Jamuna Prasad  36 STC 442. It was held that bran cannot be
included in the category of "bhusi". Again the same view was
reiterated in Commissioner of Sales Tax, U.P. v. Dhannamal Ramgopal  36
STC 445. We agree with this view.
5. Reliance was
placed by the learned counsel for the petitioner on an extract from Shri A. C.
Datta's book "A Class Book of Botany" attached as annexure D to the
writ petition which indicates that on removing the husk,, a brownish
membraneous layer is seen adherent to the grain and that this layer is made up
of the seed coat and the wall of the fruit fused together. The said 9 extract
further indicates that rice grain and the husk are together known as the paddy
6. It would thus be
seen that the seed coat has not been treated as an ingredient separate from
rice, otherwise it would have stated that the rice grain, its seed coat and the
husk are together known as the paddy grain. The seed coat, even according to
the learned author of the book aforesaid thus constitutes a part of rice."
The said question
also came up for consideration before a Three Judge Bench of the Trade Tax
Tribunal. Shri R.N. Singh and Shri Dau Dayal, Members, Trade Tax Tribunal,
Moradabad held in favour of the assessee stating that paddy hust and rice husk
are different commodities.
But Shri Y.C. Gupta,
Member of the Tribunal held in favour of the Revenuestating that they are the
same commodity. The High Court, while exercising the revisional jurisdiction at
the instance of the Revenue, affirmed the majority decision of the Tribunal.
These appeals are against the judgments of the High Court.
Sunil Gupta, learned senior counsel appearing on behalf of appellant, would
contend whether factually or conceptually and/or legally decided or judicially
determined, Paddy Husk and Rice Husk denote the same commodity and in that view
of the matter, the word `Paddy Husk' must be held to have been notified by the
State of Uttar Pradesh from the very beginning for the purpose of levy of sales
tax, Dehusking of paddy, Mr. Gupta would contend, is a crushing process which
when undertaken, the grain is left which is rice and the second process thereof
is the sheathing of the rice (grain) whereby the brown coating on the rice is
eliminated which is commonly known as Rice Bran, Rice Husk or Rice polish. The
decisions of Allahabad High Court and the Madhya Pradesh High Court, it was
argued, having categocially noticed the process of husking and having laid down
that rice does not have any other husk, the impugned judgment cannot be
Mr. Gupta urged this
Court to agree with the minority opinion of the Tribunal contending that rice
bran or rice polish being not husk and their being no other inner husk of rice,
the view taken by the majority Members of the Tribuanl and consequently by the
High Court suffers from a legal infirmity.
Dhruv Agrawal, and Mr. Rakesh K. Khanna, senior counsel appearing on behalf of
the respondents, on the other hand, would contend that for the purpose of levy
of sales tax, rice husk and paddy husk had all along been treated to be
different commodities, as would appear from Section 14(1) of the Central Sales
Tax Act, 1956. Relying on or on the basis of the said distinction, the learned
counsel would contend, that as paddy husk was included for the first time to be
an item in respect whereof sales tax became leviable by reason of the
notification dated 6.6.1996, any assessment or demand of tax prior thereto must
be held to be wholly illegal and without jurisdiction. The said notification of
1996 as also the subsequent notifications, it was urged, were not clarificatory
in nature as tax has been levied thereby which, therefore, must be held to be a
the threshold, we must notice the definition of `husk'; the dictionary meaning
whereof is `the dry outer covering of certain fruits or seeds of plants; the
outer or worthless part of anything'.
The Act is a taxing
statute. The notifications have been issued thereunder. Concededly, tax becomes
payable at such rate and at such point as may be directed by reason of the
notifications issued by the State Government from time to time.
It may not be correct
to contend that a notification imposing any fiscal liability can be imposed
upon a dealer by way of clarification or otherwise. A tax must be levied having
regard to the provisions contained in Article 265 of the Constitution of India,
i.e., by authority of law. The power to impose tax must be express and no
equity can be claimed in the matter of levy of tax. One has to look merely at
what is clearly stated in the statute.
Imposition of tax is
permissible only in terms of the provisions of statute. Reasonable taxation is
a part of the doctrine of good governance.
Agricultural Produce Marked Committee v. Hindustan Lever Ltd. [(2008) 5 SCC
575], this Court referring to this Court's decision in Jindal Stainless Ltd.
(2) v. State of Haryana [(2006) 7 SCC 241], stated the law, thus :
"A finding of
fact has been arrived at by the High Court that no service was being rendered
by the State. If no service is being rendered, even no fee could have been
levied. It has been so held by a Constitution Bench of this Court in Jindal
Stainless Ltd. and Anr. v. State of Haryana and Ors. [(2006) 7 SCC 241] in the
following terms :
`40. Tax is levied as
a part of common burden. The basis of a tax is the ability or the capacity of
the tax payer to pay. The principle behind the levy of a tax is the principle
of ability or capacity. In the case of a tax, there is no identification of a
specific benefit and even if such identification is there, it is not capable of
direct measurement. In the case of a tax, a particular advantage, if it exists
at all, is incidental to the State's action. It is assessed on certain elements
of business, such as, manufacture, purchase, sale, consumption, use, capital,
etc. but its payment is not a condition precedent. It is not a term or
condition of a licence. A fee is generally a term of a licence. A tax is a
payment where the special benefit, if any, is converted into common
If an entry contained
in a notification imposing tax is ambiguous, the assessee cannot suffer
therefor. In their decisions, the Allahabad and Madhya Pradesh High Courts to
which we have adverted to heretobefore, while stating that nothing is known as
rice husk, however, opined that rice polish and rice brown are the same thing.
Although the said
decisions were rendered long time back, no attempt was made by the State to
clearly state that rice husk is synonym to paddy husk. It was necessary in view
of the fact that admittedly paddy and rice are different commodities. It has
been held to be so in a decision of this Court in Ganesh Trading Company,
Karnal v. State of Haryana & Anr. [(1974) 3 SCC 620] in the following words
"Now, the question for our decision is whether it could be said that when
paddy was dehusked and rice produced, its identity remained. It was true that
rice was produced out of paddy but it is not true to say that paddy continued
to be paddy even after dehusking. It had changed its identity. Rice is not
known as paddy. It is a misnomer to call rice as paddy. They are two different
things in ordinary parlance. Hence quite clearly when paddy is dehusked and
rice produced, there has been a change in the identity of the goods."
paddy and rice are considered to be the separate commodities, paddy husk cannot
be treated to be rice husk. Not only in the notification dated 7.9.1981 but
also in the notification dated 5.6.1985 paddy husk is not mentioned. By reason
of notification dated 6.6.1996 `paddy husk' was inserted. Even then, the rice
husk was not deleted. No explanation was offered therefore. Both rice husk and
paddy husk, thus, found place in the notification. Indisputably, therefore,
paddy husk was subjected to for the first time by reason of the said
notification dated 6.6.1996. Yet again, while giving a purported new look to
the entry in the notification dated 15.1.2000, the words `rice husk' and `paddy
husk' have respectively been mentioned. Even then no attempt was made to issue
having been used ordinarily two different meanings should be assigned thereto.
If by reason of a notification, taxes are sought to be imposed upon a new
commodity applying Heydon's Rules (3 Co. Rep. 7a; 76 E.R. 637), it must be
held that the mischief was sought to be remidied thereby. It is, therefore,
difficult to agree with Mr. Gupta that rice husk and paddy husk denote the same
may place on record that schedule was annexed to the notification prescribing
rate to the U.P. Value Added Tax Ordinance, 2007 specifying the exempted goods,
item No.4 whereof is as under :
poultry feed including balanced poultry feed; cattle feed including balanced
cattle feed; and cattle fodder including green fodder, chuni, bhusi, Chhilka,
choker, javi, gower, de- oiled rice polish, de-oiled paddy husk or outer
covering of paddy; acquatic, poultry and cattle feed supplement, concentrate
and additives thereof; wheat bran and deoiled cake but excluding oil cake; rice
polish; rice bran and rice husk."
It is, therefore, evident that rice husk is still considered by the Government
of Uttar Pradesh to be a different commodity. Even from the perusal of the
Decision of the Chordia Kavelu Udyog v. State of Madhya Pradesh & Two Ors.
[1988 (69) STC 49], it would appear that `A Class Book of Botany' was referred
to therein which indicated that on removing the husk, a brownish membranous
layer is seen adherent to the grain and that this layer is made up of the seed
coat and the wall of the fruit fused together.
according to the Government of Uttar Pradesh, rice husk is this cover which
further requires husking, no exception thereto can be taken. When a paddy is
dehusked, it becomes paddy husk and when the rice is dehusked, it becomes rice
are two other aspects of the matter which cannot be lost sight of. If something
is included in the Schedule which is non-existent, no tax can be levied
thereupon. Furthermore, if there is a doubt or dispute as to whether paddy husk
or the rice husk denotes the same commodity or not, the benefit thereof shall
be given to the assessee. Furthermore, it is not the case of the appellant that
the respondent extracts any oil out of `paddy husk'.
There are many other
fruits which have two layers; for example Pista, Cashew Nut and Ground Nut etc.
One may only remove the outer cover and take the fruit or grain with the inner
cover but one may like to take out the inner cover also which will depend upon
the taste of the person concerned.
Some persons may like
to take `brown rice' but some other may like to take `white rice'. In Babu Ram
Jagdish Kumar & Co. v. State of Punjab & Ors. [(1979) 3 SCC 616], this
Court, following the decision of Ganesh Trading Co. (supra), opined :
"We may at this
stage refer to one other subsidiary argument urged on behalf of the appellants.
It is argued that because paddy and rice are not different kinds of goods but
one and the same, inclusion of both paddy and rice in Schedule `C' to the Act
would amount to imposition of double taxation under the Act. There is no merit
in this contention also because the assumption that paddy and rice are one and
the same is erroneous. In Ganesh Trading Co., Karnal v. State of Haryana,
arising under the Act, this Court has held that although rice is produced out
of paddy, it is not true to say that paddy continued to be paddy even after
dehusking; that rice and paddy are two different things in ordinary parlance
and, therefore, when paddy is dehusked and rice produced, there is a change in
the identity of the goods."
the reasons aforementioned, there is no merit in these appeals which are
dismissed accordingly with costs. Counsel's fee assessed at Rs.25,000/- in each