‘Maize Starch’ not covered by general exemption entry under TNGST Act, 4% Tax Payable: Supreme Court

The Supreme Court bench consisting of Justice Dipankar Datta held that ‘maize starch’ is not covered by general exemption entry under TNGST Act and 4% tax is payable.

BACKGROUND

The appellant, registered under the Tamil Nadu General Sales Tax Act, 1959 deals in maize starch since 1975. The classification of maize starch under the Act is the subject of dispute in the first of the two appeals.

The Government of Tamil Nadu, vide Exemption Notification exempted the products of millets including maize from tax payable under the Act. As per the Exemption Notification the Governor of Tamil Nadu exempts, with effect on and from the 1st April 1970, all sales of products of millets (like rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize) from the tax payable under the Act.

The Legislative Assembly of Tamil Nadu amended Schedule I to the Act, adding Part C and including Entry No. 53 therein, which imposed a 5% tax on ‘sago and starch of any kind’ w.e.f. 12th March, 1993.

Later, through another amendment5, ‘sago and starch of any kind’ was moved to Entry No. 61 of Part B of Schedule I (“Taxation Entry No. 61”, hereafter) and the tax rate was reduced to 4% effective from 17th July, 1996.

The amendment dated 12th March, 1993 sparked concerns among maize starch dealers. One of them, M/s Lakshmi Starch, sought a clarification from the Special Commissioner and Commissioner of Commercial Taxes. Vide Circular dated 14th December, 1993, the Commissioner clarified that the exemption would remain in effect — a specific notification will prevail over a general entry in the Schedule. It was further stated that the process of obtaining maize starch from maize involves simple processing; therefore, maize starch will be classified as ‘maize products’ and covered by the Exemption Notification.

The Legislature next amended the Act w.e.f. 1st April, 1994. Entry No. 8 of Part B of Schedule III (“Exemption Entry No. 8”, hereafter) was inserted exempting “products of millets (rice, flour, brokens and bran of cholam, cumbu, ragi, thinai, varagu, samai, kudiraivali, milo and maize)” from taxation under the Act. The amendment retained the language of the Exemption Notification except that the word ‘like’ was omitted. Although, in effect, the Exemption Notification lost force with the amendment of the Schedule, nevertheless, the exemption on maize starch remained unchanged based on subsequent clarifications issued by the Commissioner on 31st December, 1996 and 6th May, 1997.

However, this position was followed by two subsequent developments – the latter being crucial for the present purpose. Firstly, Section 28-A was inserted w.e.f. 6th November, 1997 by way of an amendment7 to the Act which empowered, by way of a statutory provision, the Commissioner to issue clarifications concerning the rate of tax under the Act. Secondly, after the insertion of Section 28-A, the Commissioner issued a Circular dated 23rd June, 1998, clarifying that Exemption Entry No. 8 does not encompass maize starch; the said entry only applies to products listed within the brackets and excludes maize starch which is distinct from maize flour and not commonly understood as such by ordinary people or even dealers. Being covered by Entry 67 of Part D of Schedule I, it will be taxed at 11%. However, a request having been received from the appellant for withdrawal of the Circular dated 23rd June, 1998, the Commissioner vide a subsequent Circular dated 8th October, 1998 cancelled the earlier Circular dated 23rd June, 1998 and clarified that maize starch is taxable from 1st April, 1994, since Item 8 of Part B of Schedule III does not include maize starch. In view of specific Entry No. 61 of Part D of Schedule I, i.e., “sago and starch of any kind”, it covers maize starch also, subject to a 4% tax to be levied w.e.f. 17th July, 1996 and not tax at 11%.

Questioning the clarification, the appellant made a representation before the Commissioner which came to be rejected on 28th June, 1999. The appellant was served with notices8 for recovery of general sales tax to the tune of Rs 7,69,729/- for FY 1998-1999, followed by a provisional assessment notice issued by the Commissioner. This triggered litigation between the parties.

ARGUMENTS 

The appellant contended that High Court failed to consider the correct entry pertaining to the assessment year 1998-99. Exemption Entry No. 8 clearly outlined an exemption in favour of products of millet, including maize, because maize starch is in the form of flour, though the flour is not obtained by mere grinding of the grains, but rather through the treatment of maize by soaking it in water, subjecting it to various processes, and ultimately obtaining starch, which is sold as flour, and this process would certainly result in the sole product of millet retaining the flour form. This is distinct from Taxation Entry No. 61, which pertains to ‘sago and starch of any kind’ and sago being derived from tapioca, a combined interpretation of the phrase ‘sago and starch of any kind’ would exclude maize starch and encompass only tapioca starch.

The responded urged that in the Assessment Year 1998-1999, maize starch will fall under Taxation Entry No. 61, categorized as ‘sago and starch of any kind’, and will be subject to a 4% tax rate. The term ‘starch of any kind’, encompasses all types of starch, including maize starch. 

RULING

The Apex Court observed that law is well settled that if in any statutory rule or statutory notification two expressions are used – one in general words and the other in special terms – under the rules of interpretation, it has to be understood that the special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specific provision, the latter must prevail.

Supreme court stated that What emerges from the above discussion is that Taxation Entry No.61 is relatable to ‘starch’ of any kind whereas Exemption Entry No.8 relates to products of ‘millet’. Looking at the specific (Taxation Entry No.61) in contradistinction with the general (Exemption Entry No.8), there can be no manner of doubt that maize starch would be covered by the taxation entry and not by the exemption entry.

Case Title: Santhosh Maize & Industries Limited versus The State of Tamil Nadu & Anr.

Citation: CIVIL APPEAL NO. 5731 & 5732 OF 2009