Taxation Classification | Specific Provision Will Prevail Over General Provision In A Statute : Supreme Court In ‘Maize Starch’ Case

The Supreme Court has ruled that if in any statutory rule or statutory notification, two expressions are used - one in general words and the other in special terms – then, as per the rules of interpretation, the special terms are not meant to be included in the general expression. Alternatively, the court said that where a statute contains both a general provision as well as a specific provision, the latter must prevail.

The bench of Justices S. Ravindra Bhat and Dipankar Datta made the observation while dealing with the issue regarding the classification and taxability of ‘maize starch’ under the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) for the assessment year, i.e., 1998-99.

The bench noted that during the relevant assessment year, only two entries were operating the field, i.e., the Taxation Entry No.61 which taxed ‘starch of any kind’ and the Exemption Entry No.8 which exempted products of ‘millet’.

Comparing the specific entry (i.e., Taxation Entry No.61) with the general entry (i.e., Exemption Entry No.8), the court concluded that there was no doubt that maize starch would be covered by the taxation entry and not by the exemption entry.

The bench remarked that the Taxation Entry No.61 provided a more specific description. Thus, maize starch undoubtedly being a ‘kind of starch’ would, therefore, fall within the ambit of the Taxation Entry, the court said.

Facts:

The appellant, Santhosh Maize & Industries Limited, who is registered under the TNGST Act, deals in maize starch.

Initially, the Government of Tamil Nadu, vide a Notification dated 14^th March, 1970 exempted the products of “millets (like rice, flour,… and maize)” from tax payable under the TNGST Act.

Later, through the TNGST (Second Amendment) Act, 1996, the Tamil Nadu Legislative Assembly moved ‘sago and starch of any kind’ to Entry No. 61, Part B of Schedule I of the Act (Taxation Entry). The same was made taxable at 4% with effect from 17^th July, 1996.

The Legislature next amended the TNGST Act in 1994, w.e.f. 1st April, 1994, and Entry No. 8 was inserted in Part B of Schedule III of the Act. The said Exemption Entry No. 8 exempted “products of millets (rice, flour,…and maize)” from taxation under the Act. The said Entry retained the language of the 1970 Exemption Notification except that the word ‘like’ was omitted. In view of the said 1994 amendment, the 2017 Exemption Notification ceased to be operative.

Thereafter, Section 28-A was inserted in the TNGST Act w.e.f. 6^th November, 1997 by way of an amendment, which empowered the Commissioner to issue clarifications concerning the rate of tax under the Act.

After the insertion of Section 28-A, the Commissioner issued a Circular dated 23^rd June, 1998, clarifying that Exemption Entry No. 8 does not encompass maize starch. The Commissioner held that the specific entry (Entry No. 61 of Part B of Schedule I), i.e., “sago and starch of any kind”, also covered maize starch. Thus, maize starch attracted a 4% tax to be levied w.e.f. 17^th July, 1996.

Later, assessment proceedings were initiated against the appellant seeking recovery of general sales tax. The appellant approached the Tamil Nadu Taxation Special Tribunal challenging the provisional assessment notices issued against him. The appellant also challenged the validity of the Circular dated 8^th October, 1998. The petitions filed by the appellant were dismissed by the Tribunal.

The writ petition filed by the appellant was also dismissed by the Division Bench of the Madras High Court, who upheld the validity of the Circular dated 8th October, 1998, which classified maize starch under Taxation Entry No. 61 subjecting it to a 4% tax. The High Court concluded that maize starch was not entitled to the benefit of exemption. The review application of the appellant was also dismissed by the High Court.

Decision of the Supreme Court:

In the appeal filed before the Supreme Court against the decision of the High Court, the top court noted that the entries under Schedule I are taxed under Section 3(2) of the TNGST Act while the entries under Schedule III are exempted under Section 8 of the Act.

The court said that the issue was to be decided in terms of the TNGST Act read with the Schedules as it stood on 17^th July, 1996. The court reckoned that though the TNGST Act was further amended with effect from 27^th March, 2002, but the same was admittedly beyond the relevant period under consideration.

The court observed that during the period of the relevant assessment year, i.e., 1998-99, there were two entries operating the field, i.e., “sago and starch of any kind” in Schedule I (Taxation Entry No.61) and “products of millets (rice, flour,… and maize)” in Schedule III (Exemption Entry No.8).

The bench held that when Schedule III of the TNGST Act was amended in 1994 and Exemption Entry No.8 was inserted, the said Exemption Entry did not include the word ‘like’ which was present in the 1970 Exemption Notification.

The court concluded, “Once it becomes clear from Exemption Entry No.8, as introduced by Act No.32 of 1994, that (i) it does not include the noun “like” as the first word within brackets and (ii) that maize is only included along with rice, flour, etc. (and not maize starch), it is only those items within the brackets which, for the purposes of exemption, qualify as products of millets.”

The bench thus said that only those products of millets which are specifically indicated within the brackets in Exemption Entry No.8, are entitled to exemption under Section 8 of the TNGST Act read with Schedule III.

The court further ruled that ‘maize starch’ cannot be considered a millet product in terms of Exemption Entry No.8. “Maize is the raw product, whereas maize starch is a processed product. While we are bound to hold that maize is entitled to exemption in terms of Exemption Entry No.8 as it stood prior to the relevant assessment year, maize starch being a product of maize derived through mechanical process, it cannot be read as “like maize”, the “like” having been excluded by Act No. 32 of 1994,” said the court.

It thus ruled that maize starch being a kind of starch, was covered by Taxation Entry No. 61 in Schedule I of the Act, since the same taxed “sago and starch of any kind”. While noting that the dictionary meaning of the word “any” is “one or same or all”, the court said, “Had the legislature intended to exclude any starch, including maize starch, a specific provision excluding it would have been made.”

The court thus said, “We hold that ‘any kind’ in the context the same has been used in the taxation entry clearly indicates that it has been used in a wide sense extending from one to all and admits of no exception.”

It further held that the fact that in Taxation Entry No.61, ‘starch of any kind’ is preceded by ‘sago’ does not make any material difference. “Sago is a starch extracted from the pith, or spongy core tissue of various tropical palm stems. Therefore, what is taxable under Taxation Entry No.61 is ‘sago’, which itself is a starch, as well as starch of any kind which would obviously include maize starch,” it observed.

The court reiterated that the Legislature cannot have intended two entries for the same commodity, one under the exempted category and the other under the taxable entry. Therefore, maize starch has to be either covered by Taxation Entry No.61 or Exemption Entry No.8, the bench said.

The court held that Taxation Entry No.61 provides a more specific description, and maize starch undoubtedly being a ‘kind of starch’ would, therefore, fall within the ambit of the Taxation Entry. “This is more so because what is covered by Exemption Entry No.8 is maize, which is a product of millet. The position would have been otherwise if Exemption Entry No.8 or any other entry in Schedule III carried the description of product of maize instead of ‘product of millet’,” the court added.

Thus, while holding that Taxation Entry No.61 is relatable to ‘starch’ of any kind whereas Exemption Entry No.8 relates to products of ‘millet’, the court concluded, “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.”

The bench further dismissed the contention advanced by the appellant that the clarification provided by the Commissioner could not have been made applicable with retrospective effect.

The appellant had argued before the top court that the clarifications issued by the Commissioner vide Circular dated 8^th October, 1998 requiring the recovery of 4% tax on maize starch retrospectively, i.e., w.e.f. 17^th July, 1996, must only take effect from the date of issue, i.e., on and from 8th October, 1998.

Rejecting the plea raised by the appellant, the court said that the clarification issued vide Circular dated 8^th October, 1998, was made in exercise of the power conferred by the statute, i.e., Section 28-A of the TNGST Act. The court remarked that the clarification provided by the Commissioner only cleared the meaning of the two entries which was already implicit but had given rise to a confusion. “A clarification of this nature, therefore, is bound to be retrospective,” the court said.

The court added: “Also, having regard to the nature of clarification issued, we hold that Circular dated 8th October, 1998 does not run counter to the provisions of the Act.”

The court thus dismissed the appeal and upheld the decision of the High Court.

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

Citation : 2023 LiveLaw (SC) 499

Counsel for the Appellant: Mr. K. K. Mani, AOR Ms. T.archana, Adv. Mr. Rajeev Gupta, Adv. Mr. Vinay Rajput, Adv.

Counsel for the Respondent: Mr. Sabarish Subramanian, AOR Mr. C Kranthi Kumar, Adv. Mr. Vishnu Unnikrishnan, Adv. Mr. Naman Dwivedi, Adv. Mr. Danish Saifi, Adv. Mr. M. Yogesh Kanna, AOR

Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) - Sections 3(2), 28-A; Schedule I, Part B (Taxation Entry No.61) and Schedule III, Part B (Exemption Entry No.8).

The Supreme Court has ruled that if in any statutory rule or statutory notification, two expressions are used - one in general words and the other in special terms – then, as per the rules of interpretation, the special terms are not meant to be included in the general expression. Alternatively, the court said that where a statute contains both a general provision as well as a specific provision, the latter must prevail.

The bench made the observation while dealing with the issue regarding the classification and taxability of ‘maize starch’ under the TNGST Act for the assessment year, i.e., 1998-99.

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