Judgment:
K. Shivashankar Bhat, J.
1. The office is directed to prepare the cause title, preamble, etc., in all these cases.
2. The effect of explanation VIII found in the Second Schedule to the Karnataka Sales Tax Act, 1957 ('the Act', for short) is to be considered in these writ petitions; the question has arisen only in respect of the year 1990-91, regarding the levy of turnover tax with reference to silk yarn. It is undisputed that for the subsequent years, the circular issued by the Commissioner of Commercial Taxes has clarified the scope of the said explanation in favour of the assessees.
3. The explanation reads as follows :
'Where tax has been levied under this Act, in respect of raw silk referred to in Sl. No. 7 of the Third Schedule, and out of such raw silk, silk yarn is manufactured, no tax shall be levied on such silk yarn to the extent it is manufactured out of such raw silk.'
4. Thus the explanation removes the particular silk yarn from the levy of tax.
5. The real question is whether the tax, from which silk yarn is excluded, is the tax referred to in the Second Schedule or the term 'tax' includes, other taxes also levied under the Act. Petitioners contend that, the term 'tax' found in the last part of the explanation is comprehensive and wide to cover every kind of tax levied under the Act (as defined in the Act itself). The Revenue, on the other hand, insists that the word 'tax' found in the explanation, can only be, the tax levied by virtue of Second Schedule, read with section 5(3)(a) of the Act.
6. The pre-requisite to attract the explanation is that the silk yarn referred to therein, must have been manufactured out of the raw silk referred to in Sl. No. 7 of the Third Schedule.
7. The Third Schedule enumerates several goods, in respect of which a single point purchase tax only is livable under section 5(3)(b); the point of levy and the rate of tax are also stated in the said Schedule. As per Sl. No. 7, in respect of 'raw silk' a single point purchase tax only is livable at the point of 'purchase by the first or the earliest of the successive dealers in the State liable to tax' under the Act. In other words, the liability to pay the tax under section 5, in respect of the dealing in raw silk, is confined to the first purchaser of the said goods in the State; no tax is livable at the sale point. Similarly tax is not levied at the subsequent purchase points.
8. When silk yarn is manufactured out of the raw silk, raw silk used in such manufacture ceases to exist thereafter; 'silk yarn' comes into existence. Silk yarn is a new article commercially different goods from the raw silk.
9. Silk yarn is covered by the Second Schedule. The Second Schedule enumerates the goods on the sale of which a single point tax is livable on the first or earliest or successive dealers in the State under section 5(3)(a). Therefore, the manufacturer of silk yarn out of raw silk purchased by him, when he sells the said silk yarn out of raw silk purchased by him, when he sells the said silk yarn will be the first or earliest of successive dealers in the State in respect of the said silk yarn. On the raw silk purchased by him, he has to pay the purchase tax under section 5(3)(a) read with the Third Schedule, when he is the first or the earliest of the successive dealers in the State. The resultant position that, he shall have to pay tax on the purchase of the raw silk and then pay tax on the silk yarn sold by him which is manufactured out of the said raw silk. Obviously, Legislature thought it inexpedient to burden the silk yarn with another tax, when its raw material has already suffered tax under the Third Schedule. On this aspect there is no dispute. However, the State contends that, this benefit is confined only to the tax livable under the Second Schedule and therefore, explanation VIII is added to the said Schedule.
10. Different varieties of sales tax is levied under the Act.
11. As per section 5(1) tax is levied on the 'taxable turnover' of each dealer. But, ambit of this provision is cut down by the various sub-sections confining the point of levy either to the sale point or purchase point, or fixing a particular rate of tax as in the case of section 5(1-A). Section 6 provides for levy of purchase tax under certain circumstances. Section 6B, which is relevant for deciding the present issue, provides for the levy of 'turnover tax'. This is quite different from 'taxable turnover'. The levy under section 6B is based on the total turnover of a dealer, 'whether or not the whole or any portion of such turnover is liable to tax under any other provisions of this Act'.
12. As per section 8, no tax shall be payable under the Act on the sale of goods specified in the Fifth Schedule subject to conditions and exceptions.
13. Section 8A of the Act empowers the State Government to notify exemptions and reduction of tax.
14. 'Tax under the Act' certainly would include the tax levied under section 6B. On this aspect, there is no dispute and in fact, even a notification exempting the tax 'livable under the Act' in respect of any goods, has been held as covering the tax under section 6B also and therefore, the turnover of tax in respect of such goods has to be excluded, while computing the turnover for the purpose of levy of tax under section 6B.
15. In Jain Book Manufacturers v. Commercial Tax Officer, IV Circle, Hubli [1989] 75 STC 126, the scope of an exemption notification issued by the State Government under section 8A of the Act was considered. The notification exempted the tax payable under the Act. It was held that words 'tax payable under the Act', covered, the tax levied under section 6B also. One of the reasons is at page 129 (para 8), which reads thus :
'Under section 8A of the Act the State has power to exempt or reduce rate of tax payable on any items under the Act. Section 2(1)(u) of the Act defines the word 'tax' to mean a tax livable under the provisions of the Act. By definition, therefore, the tax levied under section 6B is also a tax levied under the provisions of the Act. The expression 'tax' levied under section 6B is also covered by section 8A of the Act and could be exempted under section 8A of the Act. In fact the Legislature itself understood the matter in that manner, is clear. Between 8th May, 1975 and 1st April, 1984 an explanation had been added to section 8A of the Act. That explanation reads as follows :
'For the purpose of sub-section (3-A) the expression 'tax' does not include the tax payable under section 6B'. If really the expression 'tax' covered by section 8A of the Act had not taken within its sweep a tax covered by section 6B there was no need for this explanation at all. On the other hand, the Legislature having understood that the tax under section 8A also covered a tax levied under section 6B of the Act, the explanation became necessary. But the explanation was confined to only one sub-section and not to the entire section. The notification in question that has been issued is only under section. The notification in question that has been issued is only under section 8-A(1) of the Act and, therefore, the explanation though had no effect upon the notification issued, it has a bearing on the interpretation of the section. Therefore, both on the ground that section 2(1)(u) of the Act defines the word 'tax' in a comprehensive manner to include turnover tax levied under section 6B of the Act, and the explanation referred to above makes the matter further clear, it has to be understood that the tax referred to under section 8A also covers a tax levied under section 6B of the Act. Hence, the inference that has to be drawn on this discussion is that the State has power to exempt payment of tax under section 8A of the Act even in respect of tax covered by tax under section 6B of the Act.'
16. The definition of the word 'tax' was also applied to construe its scope.
17. Legislative history may be referred here. Prior to April 1, 1990, raw silk (thrown silk or twisted silk or spun yarn) was found in Sl. No. 38-A of the Fifth Schedule. Therefore, till April 1, 1990, sale, purchase or turnover in respect of twisted silk was statutorily exempted from the tax levied under the Act. After April 1, 1991, again, twisted silk was brought out of the taxation net by virtue of a notification dated March 27, 1991 read with the notification dated August 28, 1991. In other words, undisputedly, no tax was livable under the Act (including the tax under section 6B) in respect of twisted silk prior to April 1, 1990, as well as, after April 1, 1991. Therefore, the problem posed in these cases, is confined to the period from April 1, 1990 to March 31, 1991.
18. With effect from April 1, 1990, entry 22 in Part 'S' of the Second Schedule was introduced as follows :
'Silk yarn that is to say twisted or thrown silk yarn, spun silk yarn and noil silk yarn.'
19. By virtue of this entry, tax was livable on the first or the or the earliest of the successive dealer in respect of the silk yarn at 2 per cent. However, explanation VIII, quoted already, states that under the circumstances referred to therein, no tax is levied on the silk yarn.
20. Explanation does not say that 'no tax under section 5' shall be levied; instead, it says 'no tax shall be levied'. Therefore, prima facie, the language of the explanation, provides for the non-levy of 'tax' (as defined in the Act). In other words, the word 'tax' used in the last part of the explanation, shall have to be understood as 'tax livable under the provisions of this Act'. If so, the explanation shall have to be read as :
'Where tax has been levied under this Act, in respect of raw silk referred to in Sl. No. 7 of the Third Schedule and out of such raw silk, silk yarn is manufactured, no tax livable under the provisions of this Act shall be levied on such silk yarn to the extent it is manufactured out of such raw silk.'
21. If the above is the correct reading of the explanation, petitioners contention has to be accepted and to that extent from the turnover of the petitioners, turnover in respect of silk yarn referred to in the explanation shall have to be excluded, for the purpose of section 6B.
22. Second Schedule has several explanations appended thereto. The language employed in explanations I, III, V and VII discloses that wherever levy of tax is exempted in respect of the goods referred to therein, exclusion from the levy is confined to the levy of tax under section 5 only, or the levy of tax under a particular item. Explanation VIII stands by itself in the matter of the language used in the legislation, by not restricting the exempted tax to any particular section or item. This is a strong circumstance justifying the claim of the petitioners that the exemption from the levy of tax provided for by explanation VIII is an exemption from the levy of tax under the Act and not merely the levy of tax under section 5.
23. Learned Government Advocate contended that the scope of the explanation has to be confined to the particular provision in which, the explanation is found and therefore the tax referred to in the explanation is the tax levied under the Second Schedule and not any other tax under the Act.
24. In Aphali Pharmaceuticals Ltd. v. State of Maharashtra AIR 1989 SC 2227, 1989 ( 2 ) SCALE 617, the Supreme Court observed regarding the scope of an explanation thus, at page 130 of STC; 2238 of AIR :
'An explanation, as was found in Bihta Co-operative Development and Cane Marketing Union v. Bank of Bihar : [1967]1SCR848 , may only explain and may not expand or add to the scope of the original section. In State of Bombay v. United Motors (India) Ltd. : [1953]4SCR1069 , it was found that an explanation could introduce, a fiction or settle a matter of controversy. Explanation may not be made to operate as 'exception' or 'proviso'. The construction of an explanation, as was held in Collector of Customs v. G. Dass & Co. : 1983(13)ELT1511(SC) , must depend upon its terms and no theory of its purpose can be entertained unless it is to be inferred from the language used. It was said in Burmah Shell Oil Storage and Distributing Co. of India Ltd. v. Commercial Tax Officer : [1961]1SCR902 , that the explanation was meant to explain the article and must be interpreted according to its own tenor and it was an error to explain the explanation with the aid of the article to which it was annexed. We have to remember what was held in Dattatraya Govind Mahajan v. State of Maharashtra : [1977]2SCR790 , that mere description of a certain provision, such as 'explanation' is not decisive of its true meaning. It is true that the orthodox function of an explanation is to explain the meaning and effect of the main provision to which it is an explanation and to clear up any doubt or ambiguity in it. But ultimately it is the intention of the Legislature which is paramount and mere use of a label cannot control or deflect such intention. State of Bombay v. United Motors (India) Ltd. : [1953]4SCR1069 , laid down that the interpretation must obviously depend upon the words used therein, but this must be borne in mind that when the provision is capable of two interpretations, that should be adopted which fits the description. An explanation is different in nature from a proviso for a proviso excepts, excludes or restricts while an explanation explains or clarifies. Such explanation or clarification may be in respect of matters whose meaning is implicit and not explicit in the main section itself. In Hira Lal Rattan Lal v. Sales Tax Officer : [1973]2SCR502 , it was ruled that if on a true reading of an explanation it appears that it has widened the scope of the main section, effect must be given to legislative intent notwithstanding the fact that the Legislature named that provision as an explanation. In all these matters courts have to find out the true intention of the Legislature. In D. G. Mahajan v. State of Maharashtra : [1977]2SCR790 this Court said that the Legislature has different ways of expressing itself and in the last analysis the words used alone are repository of legislative intent and that if necessary an explanation must be construed according to its plain language and 'not on any a priori consideration'.'
25. Therefore, there is no single particular formula to find out the scope of an explanation. Ultimately, the rule of interpretation of finding out the true intention of the Legislature shall have to guide the court.
26. In Peirceleslie India Ltd. v. State of Karnataka [1985] 59 STC 302 a Bench of this Court was considering the scope of explanation VI to the Second Schedule, which stated, 'where a tax has been levied in respect of cashew under item 88, the kernel pressed out of the said cashew shall not be liable to tax under this Act'. The Bench held at page 306 that 'the explanation VI is in the nature of an exemption clause which provides for exemption of kernel from the tax at the sale point ...' I am of the view that the same observation would govern explanation VIII also. If it is an exemption clause, then, there is no reason to restrict the beneficial character of the said provision.
27. The learned Government Advocate relied on a few decisions to contend that the levy under section 6B is independent of the levy under other provisions of the Act and a turnover excluded from consideration under other provisions like section 5(3)(a), is still liable to be included for the levy under section 6B. It was also contended that section 6B itself declares that a turnover 'whether or not the whole or any portion of such turnover is liable to tax under any other provisions of this Act', - is still liable to the levy under section 6B.
28. The gist of the above contention and the decisions cited in support of it, is actually the result of the language of section 6B referred to above, as part of the second contention. In the instant case, the question arises at the threshold of section 6B, as to its applicability in view of the explanation VIII which said 'no tax' shall be livable. If the word 'tax' includes all varieties of taxes under the Act, then section 6B also cannot be invoked. The above quoted words of section 6B, makes it clear that exemption from the levy under another provision of the Act, by itself, is no ground to exclude it from the levy under section 6B, because, section 6B to that extent is an independent levy.
29. In view of the legislative history and the language employed by the Legislature in using the comprehensive word 'tax' in the explanation in question, there can be no doubt that the explanation envisages exemption from the levy of turnover tax under section 6B also, apart from other levies under the Act.
30. In W.P. No. 5310 of 1992, petitioner has sought, inter alia, quashing of a clarification dated November 5, 1990, issued by the Commissioner of Commercial Taxes stating that the purchase value of raw silk purchased after April 1, 1990, is taken into account for the purpose of turnover tax and the sales turnover of twisted silk effected after April 1, 1990, is also to be taken into account for the purpose of turnover tax, irrespective of the fact that whether the twisted silk is manufactured out of tax suffered raw silk or otherwise. Said clarification to the extent it is opposed to the scope of explanation VIII in question as explained in this order, is declared as illegal and ultra vires and therefore unenforceable.
31. In the result, I make the following order :
(i) It is declared that explanation VIII to the Second Schedule to the Act shall be read as conveying the following meaning :
'Where tax has been levied under this Act in respect of raw silk referred to in Sl. No. 7 of the Third Schedule, and out of such raw silk, silk yarn is manufactured, no tax of whatever kind livable under this Act shall be levied on such silk yarn to the extent it is manufactured out of such raw silk.' (ii) The impugned notices and orders in these writ petitions are quashed with liberty to the respondents to proceed afresh according to law.
32. The petitions are accordingly allowed.
Rule made absolute.
No order as to costs.
33. Writ petitions allowed.