A man M/S.
Falcon Tyres Limited Vs. State of Karnataka & Ors [2006] Insc 435 (20 July 2006)
Ashok
Bhan & Markandey Katju Bhan, J.
The
appellant is a public limited company and a dealer registered under the
Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred to as "the
Entry Tax Act"). It is engaged in the manufacture of tyres of two wheeler
motor vehicles. Appellant is located in Metagalli in Mysore and Metagalli is a local area
within the definition of 'Local area' in Section 2 (A) (5) of the Entry Tax
Act. The main input in the manufacture of tyres is rubber which the appellant
procures from the neighbouring State of Kerala.
Sub-section
(1) of section 3 of Entry Tax Act prescribes that there shall be levied and
collected tax on entry of any goods specified in the First Schedule into a
local area for consumption, use or sale therein, at such rates not exceeding 5%
of the value of the goods, as may be specified retrospectively or
prospectively, by the State Government by issuance of Notifications. Section 2
of the Entry Tax Act defines the various expressions used in the Act. The
expression 'Agriculture produce or horticulture produce' is defined in section
2 (A) (1). In substance, it includes all agriculture or horticulture produce
excluding tea, coffee, rubber, cashew, cardamom, pepper and cotton and such
agricultural or horticultural produce which has been subjected to any physical,
chemical or other process for being made fit for consumption except merely
cleaning, grading, sorting or drying.
Sub-section
(6) of Section 3 provides for total exemption from entry tax on the goods
specified in the Second Schedule to the Entry Tax Act. The exemption Schedule,
i.e., Second Schedule in Sl. No.2, specifies agricultural produce including
tea, coffee and cotton (whether ginned or unginned) as exempt from the Entry
Tax.
Appellant
claimed exemption from entry tax before the assessing authority on the value of
rubber brought into the local area for the assessment year 1996-97 in terms of
the definition of agricultural produce or horticultural produce read with Sl.
No. 2 of the Second Schedule to the Entry Tax Act. The assessing authority held
that rubber is not one of the agricultural produce included in Sl. No. 2 in the
Second Schedule and consequently, disallowed the claim. Appellant contested the
assessment order before the first appellate authority, i.e., Joint Commissioner
of Commercial Taxes (Appeals) Bangalore City Division.
The
first appellate authority held that rubber purchased by the appellant from outside
the State of Karnataka was subjected to treatment by sulphuric acide and smoke
to make it into sheets and therefore such rubber sheets do not fit the
definition of agricultural produce under Section 2(A)(1) of the Entry Tax Act.
The first appellate authority held that Sl. No. 2 of Second Schedule to the Act
also clearly excluded rubber from the purview of agricultural produce.
Consequently,
the appeal was dismissed.
The
appellant being aggrieved carried the matter in second appeal before the
Karnataka Appellate Tribunal (for short "the Tribunal"). The Tribunal
applied the judgment of this Court in the case of M/s Karnataka Forest
Development (4) SCC 455, and allowing the appeal held, that latex is a modern
name for caoutchouc. It is nothing but natural rubber. Caoutchouc or latex
means not only the milky substance obtained from the trees but it included all
milk substance processed, till it is made marketable. Since the processing does
not result in bringing out a new commodity but it preserves the same and
renders it fit for being marketed, it does not change its character. It
continues to be caoutchouc or latex when it is treated by sulphuric acide and
continued to be so even after it is dried with smoke to obtain the shape of
sheets.
State
of Karnataka being aggrieved by the judgment of
the Tribunal filed statutory civil revision petition in the High Court of
Karnataka.
By the
impugned judgment the High Court has allowed the civil revision petition and
quashed and set aside the judgment of the Tribunal. The High Court conceded
that raw rubber is an agricultural produce but held that in view of the
definition of 'agricultural produce or horticultural produce' in section 2(A)(1)
of the Entry Tax Act, which clearly excludes rubber, rubber brought in the
local area by the appellant could not be considered as agricultural produce for
the purposes of the Entry Tax Act. That Sl. No. 2 of the Second Schedule
specified agricultural produce, does not exempt rubber from payment of entry
tax and therefore when the definition of agriculture produce in Section 2(A)(1)
and enumeration of agriculture produce in Sl. No. 2 of the Second Schedule are
taken together and construed, there could be no ambiguity that raw rubber is
not an agriculture produce for the purposes of the Act. In repelling this
contention, the High Court held that it will have to be guided by the
provisions of the definition under Section 2(A)(1) which clearly excludes
rubber and not by the enumeration in Sl. No. 2 of the Second Schedule.
Aggrieved
against the aforesaid order the present appeal has been filed. Shri Dhruv
Mehta, learned counsel appearing for the appellant strenuously contended that
the High Court erred in construing the definition of 'agricultural produce or
horticultural produce' in Section 2 (A) (1) of the Entry Tax Act as excluding
rubber, whereas the definition properly construed makes it clear that what is
excluded is only such tea, coffee, rubber etc. which are subjected to any
physical, chemical or other process for making them fit for consumption. It is
submitted that the semicolon after the word cotton does not mean that the first
part of the Section is disjunctive from 'such produce' as has been subjected to
any physical, chemical or other process. It is further submitted that punctuation
is not a safe tool in construction of statute and if the first part of the
Section is read as disjunctive from the other part it conflicts with Sl. No. 2
in the Second Schedule.
It is
also submitted that definition Section which is the interpretation clause to
the statute begins with the expression "unless the context otherwise
requires". That reading of Section 3 (6) read with Sl. No. 2 in the Second
Schedule before and after the amendment in 1992 would lead to the conclusion
that rubber which is an agricultural produce is exempt from Entry Tax. Assuming
for the sake of argument that agricultural produce excludes rubber which is not
subjected to any chemical process, does not necessarily mean that it is not an
agricultural produce if the context requires otherwise.
As
against this Shri Sanjay Hegde, counsel appearing for the State of Karnataka
submitted that the clear cut decision as emerges in Section 2(A)(1) of the
Entry Tax Act unequivocally excludes rubber from all other items that come under
the head of 'agriculture produce' along with a few of the others that are
enumerated therein. It is his submission that for all intent and purposes as
far as the present Act is concerned, it is this definition that will govern the
expression 'agriculture produce'. He, therefore, contends that while reading
Entry No. 2 of the Second Schedule to the Entry Tax Act there is absolutely no
scope to include in the entry 'rubber' which has been specifically excluded in
the defining section.
That
the Tribunal appears to have been influenced by some of the earlier judicial
decisions which relate to the definition of 'agriculture produce' under the
Karnataka Sales Tax Act. It was pointed out by him that as far as the present
Act is concerned, the Legislature has deliberately included and excluded
certain items and therefore while interpreting the provisions of the present
Act, the legislative intention will have to be given effect to inconsonance
with the definition as contained in the statute.
Definition
of the expression 'agricultural produce or horticultural produce' in Section
2(A)(1), sub-section (6) of Section 3 providing for exemption in respect of
goods specified in the Second Schedule and Sl. No. 2 of Second Schedule
specifying "Agricultural produce including tea, coffee and cotton (whether
ginned or unginned)" as relevant are extracted below:
Section
2(A)(1):
"'agricultural
produce or horticultural produce' shall not include tea, coffee, rubber,
cashew, cardamom, pepper and cotton; and such produce as has been subjected to
any physical, chemical or other process for being made fit for consumption,
save mere cleaning, grading, sorting or drying." Sub-section (6) of
Section 3:
-
"No tax
shall be levied under this Act on any goods specified in the Second Schedule on
its entry into a local area for consumption, use or sale therein." Sl. No.
2 of Second Schedule:
-
"agriculture
produce including tea, coffee and cotton (whether ginned or un-ginned).
We
would have readily accepted the submissions advanced by the learned counsel for
the appellant without any difficulty under normal circumstances but for the
fact that in the present Act as indicated by us earlier, term 'agricultural
produce' as defined by the legislature specifically excludes rubber from
agricultural produce. Under the law governing the principles of interpretation
of a statute, this Court is necessarily restricted while construing the
expression 'agricultural produce' in relation to the present Act by the
definition that is incorporated in the Act itself.
Under
these circumstances it is not possible to accept the submission of the learned
counsel for the appellant. The expression 'agricultural produce' as it appears
in the Second Schedule has to given its normal and ordinary interpretation.
Sl.
No. 2 of the Second Schedule which reads "Agricultural produce including
tea, coffee and cotton is an inclusive definition and not an exhaustive
definition. What is excluded from the definition of the 'agricultural produce'
in the Act cannot be held to be an agricultural produce unless the same find
mentions in the Second Schedule.
Since
the legislature provided tea, coffee and cotton in Sl. No. 2 of the Second
Schedule and not the rubber, rubber cannot be taken to be agricultural produce
within the meaning of 'agricultural produce' as defined under the Act.
We do
not find any substance in the submission of the learned counsel for the
appellant that the semicolon after the word cotton does not mean that the first
part of the Section is disjunctive from 'such produce' as has been subjected to
any physical, chemical or other process. Section 2 (A) (1) is in two parts, it
excludes two types of food from agricultural produce. According to us, the
definition of the agriculture and horticulture produce does not say as to what
would be included in the agriculture or horticulture produce, in substance it
includes all agriculture or horticulture produce but excludes,
-
tea, coffee,
rubber, cashew, cardamom, pepper and cotton from the definition of the
agriculture or horticulture produce though all these products as per dictionary
meaning or in common parlance would be understood as agricultural produce and
-
"such
produce as has been subject to any physical, chemical or other process for
being made fit for consumption", meaning thereby that the agricultural
produce other than what has been excluded, which has been subjected to any
physical, chemical or other process for making it fit for consumption would
also be excluded from the definition of the agriculture or horticulture produce
except where such agricultural produce is merely cleaned, graded, sorted or
dried. For example, if the potatoes are cleaned, graded, sorted or dried, they
will remain agricultural produce but in case raw potato is subjected to a
process and converted into chips for human consumption it would cease to be
agricultural produce for the purposes of the Entry Tax Act. The words
"such produce" in the second part does not refer to the produce which
has already been excluded from the agricultural or horticulture produce but
refers to such other agricultural produce which has been subjected to any
physical, chemical or other process for being made fit for human consumption.
We do
not agree with the submission of the learned counsel for the appellant that what
is excluded is only such tea, coffee, rubber etc., which are subjected to any
physical, chemical or other process for making them fit for consumption.
In our
opinion, the definition of the agriculture and horticulture produce does not
say as to what would be included in the agriculture or horticulture produce, in
substance it includes all agriculture or horticulture produce but excludes tea,
coffee, rubber, cashew, cardamom, pepper and cotton from the definition of the
agriculture or horticulture produce though all these products as per dictionary
meaning or in common parlance would be understood as agricultural produce.
From
the reading of the definition under Section 2 (A) (1), it unequivocally emerges
that rubber and few other items enumerated therein are excluded from being
agricultural produce or horticulture produce. For all intent and purposes as
far as the present Act is concerned, it is the definition given in the Act
which will govern the expression 'agricultural produce'. While reading Entry 2 in
the Second Schedule to the Act there is no scope to include rubber from being
exempt from payment of entry tax. Entry 2 of Second Schedule creates exceptions
regarding few of the excluded items from payment of Entry Tax but not all
excluded items. The items for which an exception has been created in Entry 2 of
the Second Schedule would only be exempt from payment of entry tax and not all
the items, which have been excluded from being agricultural produce in the
definition clause. While interpreting the provisions of present Act the
legislative intention will have to be given effect to inconsonance with the
definition as contained in the statute.
In the
definition clause of Section 2 (A) (1) rubber is excluded form the agricultural
produce, sub-section (6) of Section 3 provides for exemption in respect of
goods specified in the Second Schedule. At Sl. No. 2 of the Second Schedule,
only tea, coffee and cotton (whether ginned or un-ginned) have been given
exemption from payment of Entry Tax and not other items such as rubber, cashew,
cardamom and pepper and such other agricultural produce which has been
subjected to any process for making it fit for human consumption. Intention of
the legislature is that though tea, coffee and cotton have been excluded in the
definition clause from the agricultural produce but for the purposes of the
Entry Tax Act tea, coffee and cotton are exempted from payment of Entry Tax.
This is an exception created by the legislature. If the legislature intended to
create exception for rubber also it could have done it but it chose not to do
it. Simply because the legislature has included tea, coffee and cotton in the
Second Schedule exempting it from payment of Entry Tax does not mean that all
other agricultural produce items which have been excluded from the definition
of the agricultural produce would stand included in the Second Schedule to the
Act exempting them from payment of Entry Tax. This would be doing violation to
the Act as well as acting contrary to the intent of the legislature.
Learned
counsel for the appellant relied upon Cantreads Private Limited and Others,
1994 (4) SCC 455, to contend that rubber is an agricultural produce. This was a
case under the Karnataka Forest Act, 1963 for the purposes of levy of the
Forest Development Tax. The meaning assigned to the agricultural produce in the
present Act is different from what was assigned to it in the Karnataka Forest
Act, 1963. The same is not relevant. Similarly, he cited two other judgments
which are not germane to the point and need not even be noticed.
The
Legislature has deliberately excluded certain items from being agricultural
produce and therefore while interpreting the provisions of the present Act, the
legislative intention will have to be given effect to in consonance with the
definition as contained in the statute.
For
the reasons stated above, we do not find any merit in this appeal and dismiss
the same with costs.
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