rovisions of the Kerala Agricultural Income Tax Act, 1991?
2. The factual matrix in brief is as under: The petitioner is a company incorporated under the provisions of Companies Act. It is an assessee under the provisions of the Kerala Agricultural Income Tax Act, 1991, hereinafter for the sake of brevity referred to as Act, 1991. During the accounting year relevant to the assessment year 1998-99, apart from others, the assessee had received income of Rs.13,706/-, which income represents the ground rent collected from the buyer customers of the assessee for the delay in clearing the agricultural produce sold to them from the premises of the assessee company. This income was reflected in the profit and loss account maintained by the assessee.
3. In the return of income filed for the accounting year 1998-99 relevant to the assessment year 1998-99, the assessee company had declared a net income of Rs. 3,28,99,880/- and also had produced the Books of Account, Profit and Loss account in support of the claim made for deduction for the purpose of the Act. S.T. Rev. No. 21 of 2004 - 2 -
The assessing authority, after rejecting the Books of Accounts, has proceeded to complete the assessment to the best of his judgment and has determined the sum payable by the assessee on the basis of such assessment. While doing so, he has made addition of rents collected from the buyer customers of the assessee for the delay in clearing the agricultural produce sold to them from the company's premises, since it answers the definition of agricultural income under Section 2(1) of the A.I.T. Act and accordingly has subjected to levy of tax under the Act, 1991.
4. Being aggrieved by the said order, the petitioner-company had preferred the first appeal before the Deputy Commissioner (Appeals) Ernakulam in Appeal No. AITA 17 of 2001. The Appellate authority by its order dated 11.01.2002 has allowed the assessee's appeal on the aforesaid issue and directed the assessing authority to allow the claim of the assessee.
5. Aggrieved by the aforesaid order of the first appellate authority on the aforesaid issue, the revenue had filed statutory appeal before the Kerala Agricultural Income Tax Appellate Tribunal, Ernakulam in Appeal No. AITA 35 of 2002. The assessee also had filed batch of appeals being aggrieved by the other portion of the order passed by the first appellate authority. The Tribunal, by its common judgment dated 18th January, 2003, has allowed the State's appeal and has reversed the findings and conclusions reached by the first appellate authority and thereby has confirmed the inclusion of ground rent received by the assessee as agricultural income for the purpose of computation of agricultural income for the assessment year 1998-99.
S.T. Rev. No. 21 of 2004 - 3 -
6. The assessee-company being aggrieved by the order passed by the Tribunal allowing State's appeal has preferred this Tax Revision Case.
7. The assessee-company has framed the following question of law for our consideration and decision:
"In the facts and circumstances of the case ought not the Tribunal have held that the 'ground rent' received by the petitioner for belated removal of goods by the purchaser would not amount to agricultural income?"
8. The aforesaid issue raised in this revision petition is no more res integra in view of the orders passed by this Court in S.T.Rev. No.11 of 2004. Therefore, the question of law framed by the assessee is answered against the assessee and in favour of the revenue.
? IN THE HIGH COURT OF KERALA AT ERNAKULAM
WA No. 1877 of 2007()
1. M/S.HOTEL ASOKA,
1. THE COMMERCIAL TAX OFFICER-1,
2. THE COMMISSIONER OF COMMERCIAL TAXES,
3. THE STATE OF KERALA,
4. M/S.MAGNET HOTELS, NEAR KSRTC BUS STAND
For Petitioner :SRI.SUDHI VASUDEVAN
For Respondent :GOVERNMENT PLEADER
The Hon'ble the Chief Justice MR.H.L.DATTU
The Hon'ble MR. Justice K.T.SANKARAN
O R D E R
H.L. DATTU, C.J. & K.T. SANKARAN, J.
W.A. No.1877, 1861, 1862, 1864, 1865,
1876 and 1883 of 2007
Dated this, the 28th day of September, 2007.
H.L. DATTU, C.J.
This judgment would dispose of Writ Appeal No. 1877 of 2007 and connected appeals, which have been filed against the common judgment passed by learned single Judge in W.P. (C) No. 8711 of 2007 and connected matters, whereby petitions filed by the appellants under Article 226 of the Constitution of India were dismissed. The question which arises for determination in these appeals is whether the amended provisions of Section 7(a) and (b) of the Kerala General Sales Tax Act, 1963 can be applied to those dealers who had opted for payment of Turnover Tax for the assessment year 2006-07 before the amendment was brought into the statute and whether the dealers are entitled to pay tax at the rate prescribed in clause (a) of Section 7 of the KGST Act before its amendment on the purchase of liquor for the assessment year 2006-07.
2. The appellants are registered dealers under the provisions of the Kerala General Sales Tax Act, 1963, hereinafter for the sake of brevity referred to as Act, 1963. They are running bar attached hotels within the area of Municipal Corporation, Municipal Council and other places.
3. Section 5(2) of the Act, among other things provides for levy of turnover tax at 10% on the sales turnover of alcohol by bar hotels. The KGST Act was amended by Kerala Finance Act, 2005 providing for payment of tax at compounded rate by bar licencees running hotels not being star hotels of and above three star classification, heritage hotel or club. The said provision reads as W.A. No. 1877 of 2007 and connected cases - 2 - under:
"4. Insertion of Section 7. - In the principal Act, after Section 6, the following section shall be inserted, namely: -
7. Payment of tax at compounded rates: - Notwithstanding anything contained in sub-section (2) of section 5, any bar attached hotel, not being a star hotel of and above three star hotel, heritage hotel or club, may, at its option, instead of paying turnover tax on liquor in accordance with the provisions of the said sub-section, pay turnover tax at the rate specified under the said sub-section on the turnover of foreign liquor calculated at the following percentage of the purchase price of such liquor, namely: -
(a) in the case of those situated within One hundred and the area of a municipal corporation forty percent or municipal council or a
(b) in the case of those situated in any One hundred and other place thirty five percent"
4. Section 7 was introduced in the statute, whereby a dealer could exercise his option of composition of payment of turnover tax at the rates prescribed in the Section. Under Rule 30 of KGST Rules, a dealer who is exigible to pay tax at the compounded rate under Section 7 and who desires to exercise the option has to make an application to the assessing authority concerned for permission to pay tax at the rates specified on or before 1st day of May of the year to which option relates. The assessing authority on receipt of the application has to conduct enquiries and pass orders granting or rejecting the application, as the case may be, and if the application is allowed by the assessing authority, he shall serve the dealer a notice of provisional assessment and demand for payment of tax under Section 7. The dealers who are permitted to pay tax at the compounded rate under this rule shall submit an annual return in form No. 9 on or before the first day of May of the succeeding year along with the proof of payment of tax or other amount due under the Act.
W.A. No. 1877 of 2007 and connected cases - 3 -
5. In view of the amended provision and as required under Rule 30, the dealers applied for grant of permission to pay tax at compounded rate and the same was allowed by the assessing authority and the petitioners have remitted the turnover tax payable under Section 5(2) of the Act at the compounded rate for the assessment year 2005-06 and for several months during 2006-07 at one hundred and forty percent of the purchase value of liquor in the case of those situated within the Municipal Corporation or Municipal Council or Cantonment and at one hundred and thirty five percent of the purchase value of liquor situated in other places.
6. The Kerala Finance Bill, 2006 was passed by the Kerala State Legislature as "The Kerala Finance Act, 2006, (Act 22 of 2006) on 19.10.2006. The Act received the assent of the Governor on 24.10.2006 and was published in the Kerala Gazette (Extra Ordinary) No.1670 on the same day. As per Section 2 (1) of the Act, the proposal in the Bill relating to amendment of Section 7 of the KGST Act has been accepted with an amendment in clause (b) reducing the rate of tax provided therein from 125% to 115%. As per Section 1(2)(d) of the Kerala Finance Act, the amendment would take effect from 1.7.2006. Section 7 of the Kerala General Sales Tax Act, 1963 as substituted by Section 2(1) of the Kerala Finance Act is as under:
"7. Payment of tax at compounded rates: - Notwithstanding anything contained in sub-section (2) of section 5, any bar attached hotel, not being a star hotel of and above three star hotel, heritage hotel or club, may, at its option, instead of paying turnover tax on foreign liquor in accordance with the provisions of the said sub-section pay turnover tax on the turnover of foreign liquor calculated, - (a) at one hundred and forty percent of the purchase value of such liquor in the case of those situated within the area of a municipal corporation or a municipal council or a cantonment, and at one hundred and thirtyfive percent of the purchase value of such liquor in the case of those situated in any other place; or
W.A. No. 1877 of 2007 and connected cases - 4 - (b) at one hundred and fifteen percent of the highest turnover tax payable by it as conceded in the return or accounts or the turnover tax paid for any of the previous consecutive three years, whichever is higher."
7. The Commissioner of Commercial Taxes in the exercise of his power under Section 3 of the Act has issued circular No. 44/2006 dated 27th November 2006 to all the authorities under the Act, for the proper administration of the amended provisions and also to maintain uniformity while permitting the dealers who are desirous of payment of turnover tax envisaged under Section 5(2) of the Act at the compounded rate under Section 7 of the Act. Omitting what is not necessary, the relevant portion of the circular is extracted and the same is as under:
"No. C1/520/2006/CT Office of the Commissioner, Department of Commercial Taxes,
27th November 2006.
CIRCULAR NO. 44/2006
Sub:- Kerala Finance Act, 2006 - Amendments under
KGST Act, 1963 and KVAT Act, 2003 - Payment
of tax at compounded rate - Dealers in foreign
liquor and cooked food - Instructions - Issued - reg. As per the Kerala Finance Act, 2006 certain amendments were made in Section 7 of the KGST Act and in section 8 of the KVAT Act, 2003 whereby certain changes were made in the provisions for payment of tax at compounded rate by dealers in foreign liquor and cooked food. In this connection the following instructions are issued: (1) Compounding is an option to be exercised on a yearly basis. So the effective date of operation of this option will be from 1st April 2006.
(2) As per the amended provision under Section 7 of the KGST Act, 1963 any bar attached hotels other than star hotels of and above three star classification heritage hotel or club are, at their option, eligible to pay turnover tax on the sale of foreign liquor at compounded W.A. No. 1877 of 2007 and connected cases - 5 - rate calculated at the following rates, whichever is higher: (i) At 140% of the purchase value of liquor, in the case of business places situated within a municipal corporation or municipal council or a cantonment and at 135% in the case of business places situated at other places, or
(ii) At 115% of the highest turnover tax payable for any of the previous consecutive three years immediately preceding the year to which the option relates.
(3) When an option for compounding under the above section is accepted, the assessing authority shall compute monthly tax liability worked out on an average basis, in accordance with item (ii) above. He shall then compare the said figure with figures worked out under item (i) based on the details conceded as per the return. The tax payable for a month will be the higher amount so worked out. This will be subject to revision based on the annual figures.
(4) In respect of the dealers who had not opted for compounding during 2005-06 and are now opting for compounding for the year 2006- 07, the value of closing stock of foreign liquor held by such dealers as on 31/3/2006 will have to be considered for the purpose of computing the compounded tax liability under item (i) above.
(5) There are some cases where option of dealers for compounding for the year 2006-07 in accordance with the pre- amended provisions of the Act were filed and accepted; such dealers will be eligible to pay tax in accordance with the pre-amended provisions only upto 30/6/2006 since there would be no promissory estoppel against statute. These dealers may opt for the new compounding system in accordance with the amended provisions effective from 1/7/2006 by filing fresh option."
8. The appellants who are running bar attached hotels and who had opted to pay turnover tax under Section 5(2) of the Act at the compounded rate filed Writ Petitions before this Court to challenge the validity of the Amendment Act and in that sought for quashing the circular instructions issued by the Commissioner of Commercial Taxes dated 27th November 2006 and further to declare that the petitioners are entitled to pay tax at the rate prescribed in clause (a) of Section 7 of KGST Act on the turnover of foreign liquor calculated at the rates mentioned under clause (a) or (b) as the case may be of the purchase price of such liquor and lastly to declare that the amended provisions of Section 7(a) or W.A. No. 1877 of 2007 and connected cases - 6 - (b) of KGST Act have no retrospective operation in the case of those who have paid compounded tax for the assessment year 2006-07 before the provisions were amended by the Kerala Finance Act, 2006. In aid of the relief sought, it was contended that the retrospective operation given to amended provision by Kerala Finance Act 2006 from 1.7.2006 while the same was published in the official gazette only on 24.10.2006 is unreasonable and arbitrary in relation to assessees who had opted for compounding prior to the enactment of the new provision and accordingly it was contended that in the case of persons who opted and acted upon as per the old scheme of compounding, the direction to pay higher tax retrospectively is improper and illegal and the retrospective operation of amended provision is highly unreasonable and illegal inasmuch as it violated Articles 14 and 19 of the Constitution of India. It was also contended that the petitioners volunteered for payment of turnover tax as provided on the basis of the statutory terms contained in the provision existed as on 1.4.2006 and later amendment of the provision is detrimental to their interest, and, therefore, the same is violative of principle of promissory estoppel and lastly it was contended that once the compounding is granted, both the assessee and the revenue cannot go back and seek to introduce new mode of calculation of the rate of compounding fee and that is sought to be done by virtue of the amended section, and therefore, the same is illegal and arbitrary. The contention of the petitioners was repelled by the learned single Judge and their Writ Petitions, as mentioned earlier, were dismissed.
9. Mr. Sudhi Vasudevan, learned counsel for the appellants in the appeals filed before us, while assailing the common judgment passed by the learned single Judge, would contend, that the appellants have a vested right under Section 7 of the Act, as it stood originally to pay the turnover tax at the compounded rate in the manner provided in clause (a) and (b) of Section 7 of the W.A. No. 1877 of 2007 and connected cases - 7 - Act for the year 2005-06 in view of insertion of Section 7 in the statute book by Kerala General Sales Tax (Amendment) Act 2005 and the said right to exercise the option envisaged in the said section was allowed to be exercised during the financial year 2006-07 also and the option so exercised was accepted by the authorities under the Act and once the application for exercising the option is accepted, the contract stands concluded and the right gets accrued in favour of the appellants and such a right cannot be allowed to be divested by bringing an amendment retrospectively. Alternatively, it is contended by the learned counsel that the legislature has provided the alternate method of discharging the turnover tax liability by the bar hotel owners which is known as "compounding levy", which is to be exercised by the hotel owners on an optional basis and once that method is opted by the dealer and accepted by the assessing authority, there is a concluded contract and should be allowed to be in force for the whole year and, the dealer and the assessing authority are estopped from venturing to withdraw the contract. In aid of his submission, the learned counsel relies on the observation made by this Court in the case of V.S. Jyothish Kumar and Others v. State of Kerala and others ((1994) 95 STC 527). In the said decision, the Court at para 13 has observed as under:
"13. As the compounded rate of tax is payable pursuant to the option exercised by the appellants and as a concluded contract has arisen when they exercised the option and when it was accepted by the department, they cannot get exonerated of their liabilities and obligations under the Act. As rightly observed by the learned single Judge, writ petition under Article 226 of the Constitution is not the appropriate remedy for impeaching the contractual obligations especially when they exercised their option on their own accord."
10. The learned counsel also invites our attention to the W.A. No. 1877 of 2007 and connected cases - 8 - observations made by this Court in the case of Surya Rock Products v. Additional Sales Tax Officer , 2002 (2) KLT Short Notes 69, Case No.84: "It is pointed out that rules consequent to Finance Act had been brought into existence only on 7.7.1994. Understandably, Form No. 21 also was published in November 1994and it was unthinkable that the application filed on 5.9.1994 requesting for composition should have been in a format which was prescribed month later. The conduct of the Departmental Officers of accepting the cheques for the tax paid, including countersigning of chalan forms virtually estopped them from taking a different stand at further date. Composition cannot be a piecemeal arrangement and has to be there for the year concerned. It was not possible for the party to contend that he had not filed formal application in the prescribed form and compounding could not be spelt out, when as a matter, on the basis of a letter submitted by him, tax amount at compounded rates, in fact was permitted to be remitted. There was compounding facility offered and accepted, and the Department could not and should not have turned round after years, and canvas for a contra position."
11. The learned counsel would then contend that in view of the promise made by the legislature under Section 7 of the Act, the dealers had opted for payment of turnover tax under Section 5(2) of the Act at a compounded rate and accordingly have arranged their affairs in relation to turnover tax payable under the Act and the Government is bound by the promise and it would not be open to the Government to go back on the promise made by introducing retrospective legislation, to nullify the permission granted for payment of turnover tax under the compounding scheme. The sum and substance of the argument is, the doctrine of promissory estoppel is available even against the statute. In support of his contention, the learned counsel strongly relies on the observations made by the Apex Court in the case of State of Punjab v. Nestle India Ltd. ((2004) 6 SCC 465) and the decision of the Supreme Court in the case of State of Himachal Pradesh and Others v. Ganesh Wood Products and Others (AIR 1996 SC 149).
12. The learned counsel would further contend that a reading of the W.A. No. 1877 of 2007 and connected cases - 9 - amended provision would show that the words found in clause (a) of Section 7 are carefully punctuated towards the end of the words in clause (a) with a semicolon and the word 'or' is employed after the said semicolon and in between clause (a) and (b) and therefore the legislature wanted these two sub-clauses to be read as disjunctive and not conjunctive. The words "whichever is higher" used at the end of clause (b) of Section 7 of the KGST Act therefore can control only the situations in clause (b) of the Section. Therefore, the learned counsel would submit that the dealer has an option to pay turnover tax at the compounded rate specified in clause (a) or clause (b) of Section 7 of the Act and the contrary view expressed by the Commissioner of Commercial Taxes requires to be set aside by the Court. In aid of this submission, the learned counsel relies on the observations made by this Court in the case of Norasia Lines (Malta) Ltd v. Deputy Commissioner of Income Tax (2005 (4) KLT Short Notes 21, Case No.26). In the said decision, the court has stated:
"The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. If the words are ambiguous and reasonably open to two interpretations benefit of interpretation is given to the subject. in the field of taxation, hardship or equity has no role to play in
determining exigibility to tax and it is for the legislature to determine the same."
13. The learned counsel also relies upon the observations made by a Division Bench of this Court in the case of Commissioner of Income Tax v. Mathew (2005 (4) KLT 22). In the said decision, the court has observed: "In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the W.A. No. 1877 of 2007 and connected cases - 10 - strict letter of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter."
14. The learned counsel would further contend that his submission is also supported in view of the amendment introduced in the Kerala Finance Bill 2007 to Section 7 of the Act which has come into force with effect from 1st day of April 2007, wherein after the word "calculated" the words "at the rates in clause (a) or (b) whichever is higher" is inserted and in clause (b) the words "whichever is higher" shall be omitted.
15. Per contra, learned counsel Mr. Mohammed Rafiq, appearing for the revenue, would submit that the legislative power conferred on the appropriate legislatures to enact laws in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively and when the legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, it can also provide for the retrospective operation of the said provision. To derive support to his contention, the learned counsel relies upon the observations made by Supreme Court in the case of Mycon Construction Ltd v. State of Karnataka ((2002) 127 STC 105). The learned counsel for the revenue, in opposing the contention of learned counsel for the appellant on the issue of 'doctrine of promissory estoppel' would submit that this doctrine is not available against the legislature. Reference is made to the observations made by Apex Court in the case of Motilal Padampat Sugar Mills Ltd v. The State of Utter Pradesh ((1979) 44 STC 42), wherein the court has stated, that, there can be no promissory estoppel against the exercise of W.A. No. 1877 of 2007 and connected cases - 11 - legislative power and the legislature can never be precluded from exercising its legislative function by resort to the doctrine of promissory estoppel. Further, a reference is also made to the observations made by Apex Court in the case of Union of India and Others v. Godfrey Philips India Ltd ((1985) 4 SCC 369). In the said decision the court at para 13 has observed as under: "13. Of course we must make it clear, and that is also laid down in Motilal Sugar Mills case, that there can be no promissory estoppel against the Legislature in the exercise of its legislative functions nor can the Government or public authority be debarred by promissory estoppel from enforcing a statutory prohibition. It is equally true that promissory estoppel cannot be used to compel the Government or a public authority to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make. We may also point out that the doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires; if it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be inequitable to hold the Government or public authority to the promise or representation made by it, the Court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or
representation against the Government or public authority. The doctrine or promissory estoppel would be displaced in such a case, because on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it. This aspect has been dealt with fully in Motilal Sugar Mills Case and we find ourselves wholly in agreement with what has been said in that decision on this point."
16. Insofar as the last issue, the learned counsel would submit that the intention of the legislature is expressed by the Finance Minister in his Budget Speech for the year 2006-07 and if that is kept in view, the only conclusion that is possible is that the legislature, while substituting the earlier provision with the amended provision, was to collect higher rate of turnover tax at the compounded rate and clauses (a) and (b) of Section 7 should be read conjunctively and not W.A. No. 1877 of 2007 and connected cases - 12 - disjunctively.
17. Re- contention (I): - Section 5(2) of the KGST Act provides for levy of turnover tax at 10% on the sales turnover of alcoholic liquor by bar hotels. Section 7 of the Act provides that any bar attached hotel, not being a star hotel of above three star hotel, club, heritage hotel liable to tax under this Act, may at their option exercisable in the manner prescribed in lieu of tax payable under sub-section (2) of Section 5 of the Act, pay turnover tax at the rate specified under that sub-section on the turnover of foreign liquor calculated in the case of bar attached hotel situate within the municipal corporation or municipal council or cantonment at one hundred and forty per cent of the purchase price of such liquor and in the case of those bar hotel situated in any other place at one hundred and thirty five per cent of the purchase price of such liquor. This provision was inserted by way of amendment to section 7 of the Act by Kerala General Sales Tax (Amendment) Act, 2005 for the assessment years 2005-2006 onwards. Section 7 of the Act which provides for composition of tax liability starts with a non-obstante clause and excludes the applicability of other provisions of the Act, which deals with assessment and payment of tax. Compounding of tax under Section 7 of the Act, is an option given to a dealer to pay the tax to the extent and at the rates provided under the said section, who would otherwise be liable to pay normal turnover tax under Section 5(2) of the Act. The appellants who are running bar attached hotels opted for payment of turnover tax at the compounded rate by following the procedure prescribed under Rule 30 of the KGST Rules for the assessment year 2005-2006 and 2006-2007. The determination of lumpsum amount in lieu of tax displaces the regular assessment proceedings and the quantification of tax liability is by agreement between the parties as envisaged in the section which would bind the parties.
W.A. No. 1877 of 2007 and connected cases - 13 - The Kerala Finance Bill, 2006 proposed an amendment to Section 7 in regard to the scheme of compounding the payment of turnover tax on liquor. The reason for such an amendment is forthcoming in the Budget Speech of the Minister for Finance for the year 2006-2007. Reference to the speech may be useful to answer one of the contentions canvassed by learned counsel for the appellant and therefore, it is noticed. In the proposal made, it is said that, "two Star bar hotels and below have an option to compound turnover tax at 10 per cent of the turnover of liquor calculated at 140 per cent of purchase value of liquor in the case of hotels situated in Corporation/Municipal areas and at 135 per cent of such purchase value in respect of hotels situated in other places; since this has led to a fall in revenue in some cases, I propose to amend this scheme by adding the stipulation that they may do so at the present compounding rate or at 125% of the highest of the turnover tax paid or payable for any of the previous three years, whichever is higher.
The proposal so made was given effect in the Kerala Finance Act, 2006 which was published in the Official Gazette dated 24.10.2006 and the amended provisions on turnover tax were made effective with effect from 1.7.2006. In the amendment so made, the legislature has not tinkered with the composition scheme for payment of turnover tax as such by the bar hotel owners, but has altered the method of quantification for payment of turnover tax on the turnover of foreign liquor. In the amended provision, under clause (a), it could be still at one hundred and forty per cent or one hundred and thirty five per cent, as the case may be, on the purchase value of foreign liquor, but in view of clause (b) of Section 7, the payment of turnover tax for the purpose of compounding scheme is made on the turnover of tax paid or payable for the previous consecutive three years, whichever is higher. Since the provisions looked little ambiguous to us, at W.A. No. 1877 of 2007 and connected cases - 14 - the time of hearing these appeals, because of the poverty of the language of the draftsman, we had directed the learned Government Pleader for the Revenue to file additional affidavit explaining the scheme of compounding envisaged in the amended provision. They have filed the additional affidavit explaining the scheme of compounding envisaged in the amended provision by way of illustration. The affidavit filed throws some light to understand the said provision and therefore, we have made that as part of our order by extracting the same: "The scheme of compounding envisaged in the above provision can be explained by way of illustration as under:-
Illustration:- Assessment of a Bar Hotel coming within the purview of section 7 situated in a Municipal area for the financial year 2006-2007.
1. Total purchase value of liquor for the year 2006-2007 = Rs.2,00,000/-
2. Turnover tax paid/payable for 2005-2006 = Rs.20,000/-
3. Turnover tax paid/payable for 2004-2005 = Rs.23,000/-
4. Turnover tax paid/payable for 2003-2004 = Rs.30,000/- Calculation under clause (a) of Section 7 on the basis of values given above:
The deemed turnover of the assessee as per
clause 7(a) would be at 140% of Rs.2,00,000/- being the total purchase value of liquor for the year 2006-2007 i.e. Rs.2,80,000/- Correspondingly the turnover tax @ 10% would be Rs.28,000/-
Calculation under clause (b) of Section 7 on the basis of values given above:
Upon comparison of the turnover tax paid/payable
for the previous consecutive three years the turnover tax for the year 2003-2004 ie. Rs.30,000/- is the highest. So the turnover tax under this clause has to be worked out on the basis of the said highest value. Correspondingly, the turnover tax @ 115% would be Rs.34,500/-
Among the final figures, so arrived under clause (a) and (b) of Section 7 "whichever is higher" has to be taken as the turnover tax payable by the assessee for the year 2006-2007. Therefore, in the given case Rs.34,500/- arrived at under clause (b) will be the Turnover Tax payable by the assessee for the year 2006-2007.".
18. The primary grievance of the appellant is that they have W.A. No. 1877 of 2007 and connected cases - 15 - exercised their option for payment at compounded rate of tax under Section 7 of the Act, prior to its amendment with effect from 1.7.2006 and therefore, they are entitled to continue to pay the turnover tax under the compounding scheme for the whole year, in spite of an amendment of the provision during the middle of the year. Alternatively, they contend that 'compounding scheme is a bilateral agreement between the parties and such an agreement would bind the parties for the entire assessment year and the same cannot be altered in the middle of the year and even if it is altered, the appellants are entitled to continue to pay turnover tax under the unamended provision till the end of the year. It is further stated by the learned counsel for the appellants that once an offer is made for permission to pay turnover tax under the compounding scheme and if that offer is accepted by the assessing authority, there is binding contract between the parties, which would create a vested right in the dealer and that cannot be taken away by subsequent amendment.
19. In our view, the law on that point is now well settled by several authoritative pronouncements by the Apex Court. The settled legal position appears to be that an agreement between the parties would be binding on both the parties but, the said agreement can be modified or altered in a manner known to law.
20. It is true that the agreement between two parties would be binding on both the parties and it would definitely create a vested right for both parties, since the same would be binding on both the parties. The Apex Court in the case of Entertainment Tax Officer vs. Ambac Picture Palace (1995) 96 STC 338 has observed that, if the State legislature have competence to legislate, they can do so prospectively as well as retrospectively and taxation laws are no exception to this power. The Supreme Court in Empire Industries Ltd.'s case W.A. No. 1877 of 2007 and connected cases - 16 - (1987) 64 STC 42 following Krishnamurthi and Co.'s case 31 STC 190 has held that the power of Parliament to make retrospective legislation including fiscal legislation is well settled, such legislation is not per se unreasonable. A retrospective law in the legal sense, is the one which takes away or impairs vested rights acquired under existing laws, or creates a new obligation and imposes a new duty or attaches a new disability, in respect of transactions or considerations already passed. So much so that any restriction enacted with retrospective effect may be valid by affecting rights obtained under the pre-existing law.
21. In the instant case, the grievance of the appellants is that under the pre-existing law they had opted for payment of turnover tax at a compounded rate and the same was granted to them by the assessing authority by passing an appropriate order and thereby they have derived a vested right and that right cannot be taken away by subsequent amendment, which has been given retrospective operation. This assertion of the appellants and their counsel, in our view, has no merit in view of the long line of authoritative pronouncements of the Supreme Court. We need not burden this judgment with all those decisions. It is suffice to refer to the observations made by Apex Court in the case of Krishnamurthi and Co. vs. State of Madras and another, (1973) 31 STC 190. In the said decision, the Court has observed:
"We may at the outset state that though the Legislature can pass a law and make its provision retrospective, it would be relevant to consider the effect of the said retrospective operation of the law both in respect of the legislative competence of the Legislature and the reasonableness of the restriction imposed by it. It would thus be open to a party affected by the provisions of an Act to contend that the retrospective operation of the Act so completely alters the character of the tax imposed by it as to take it outside the limits of the entry which gives the Legislature competence to enact the law or it may be open to the party to contend in the alternative that the restrictions imposed by the Act are so unreasonable that they should be struck down on the ground that they contravene the fundamental rights granted W.A. No. 1877 of 2007 and connected cases - 17 - under Article 19(1)(f) and (g) of the Constitution. At the same time, we have to bear in mind that the legislative power conferred on the appropriate Legislatures to enact laws in respect of topics covered by the several entries in the three lists can be exercised both prospectively and retrospectively. Where the Legislature can make a valid law, it may provide not only for the prospective operation of the material provisions of the said law, it can also provide for retrospective operation of the said provisions.".
22. In a recent decision in the case of Mycon Construction Ltd. vs. State of Karnataka, [2002} 127 STC 105, the Supreme Court was considering a more or less similar question as has been argued in the instant appeals. The questions that came up for consideration was whether sub-section (6) of Section 17 of Karnataka Sales Tax Act, 1957 as amended by Act No.5 of 1996 is unconstitutional and secondly whether the amendment brought in clause (1) of sub-section (6) of Section 17 of the Act by Act No.7 of 1997 retrospectively is also unconstitutional. Petitioners in the said decision had contended that sub-section (6) of Section 17, to the extent it had been given retrospective operation by Act 7 of 1997 was unconstitutional as it violated the rights guaranteed to the petitioners under Articles 14, 19(1)(g) and 265 of the Constitution of India. The petitioners and others like them, who had opted to the compounding scheme, as it stood prior to April, 1996 could not be saddled with additional burden of tax by the amended provision which was given effect retrospectively from April 1, 1988. While repelling the contention, the court has observed:
"So far as the validity of Act No.7 of 1997 is concerned, the learned Judge upheld its validity holding that the
Legislature was competent to enact the law with
retrospective effect. The High Court however noticed the stand of the State in its statement of objections filed in reply to the writ petition in which it was submitted that a view to avoid hardship that may be caused by the
retrospective operation of the amended provision, the court in the interest of justice may direct that the works W.A. No. 1877 of 2007 and connected cases - 18 - contractors may opt, if so advised, for regular assessment under section 5-B of the Act, even if they had earlier opted for assessment under the composition scheme. The learned Judge therefore, while dismissing the writ petitions, having regard to the stand of the State of Karnataka, reserved liberty to the petitioner to opt for regular assessment under section 5-B of the Act notwithstanding the fact that they had opted for composition under section 17(6) of the Act. For this purpose petitioners were required to make an application to the concerned assessing
authority and the assessing authorities were directed to proceed to assess the petitioners and all others who were not before the court, under section 5-B of the Act, if they so opted.".
23. In our view, the settled legal position is that legislature can give retrospective effect to the legislation passed by it, but, an executive government exercising subordinate and delegated legislative powers cannot make rules retrospective in effect unless that power is expressly conferred. The legislature while doing so cannot take away so called vested right which was again provided under the statutory provisions. The learned counsel for the appellant tried to impress on us the practical difficulties and inequalities produced by the impugned retrospective legislation and therefore requests us to hold that the impugned amended provisions is unreasonable and arbitrary. We do not think that these inequalities and practical difficulties assuming they exist which may be but peripheral and procedural, would be sufficient by themselves to render the retrospective effect unreasonable and to enable us to declare that impugned amendment giving retrospective effect as unreasonable and arbitrary on the touchstone of Article 14 and 19(1) (g) of the Constitution. Apart from this, the revenue in their statement of objections filed, has made it clear that it is open to the dealers either to continue to opt for payment of turnover at the compounded rate or to go for regular assessment as provided under the Act and this assurance of the State Government, in our opinion, should alleviate the difficulties expressed by the appellants. Before we conclude on this issue, we add none of the decision W.A. No. 1877 of 2007 and connected cases - 19 - on which reliance placed by the learned counsel for the appellant had an occasion to deal with the legal issue urged and canvassed in these appeals and therefore, reliance on the observations made in these decisions would not assist the appellants in any manner, whatsoever.
24. Re-contention of Doctrine of Promissory Estoppel:- The law relating to promissory estoppel has been succinctly explained by Apex Court in Motilal Sugar Mills Case, 44 STC 42 and in Union of India vs. Godfray Philips India Ltd., (1985) 4 SCC 369. In Godfray Philips India Ltd.'s case, the Supreme Court has stated:
"It is well settled that the doctrine of promissory estoppel represents a principle evolved by equity to avoid injustice and, though commonly named promissory estoppel, it is neither in the realm of contract nor in the realm of estoppel. The basis of this doctrine is the interposition of equity which has always, proved to its form, stepped in to mitigate the rigour of strict law. It is equally true that the doctrine of promissory estoppel is not limited in its application only to defence but it can also found a cause of action. The doctrine is applicable against the Government in the exercise of its governmental, public or executive functions and the doctrine of executive necessity or freedom of future executive action cannot be invoked to defeat the applicability of this doctrine. It is further well-established that the doctrine of promissory estoppel must yield when the equity so require. If it can be shown by the Government or public authority that having regard to the facts as they have transpired, it would be unequitable to hold the Government or public authority to the promise or representation made by it, the court would not raise an equity in favour of the person to whom the promise or representation is made and enforce the promise or representation against the Government or public authority. The doctrine of promissory estoppel would be displaced in such a case because on the facts, equity would not require that the Government or public authority should be held bound by the promise or representation made by it.".
25. Both these authorities clearly point out that the principle of promissory estoppel is wholly inapplicable to a case where legislature chooses to exercise its legislative function. So long as it is not denied that the amending legislation viz.,Kerala Finance Act, 2006 is within the legislative competence of W.A. No. 1877 of 2007 and connected cases - 20 - Entry 54 of List II of Schedule VII, there can be no plea of estoppel against the statute. However, Sri.Sudhi Vasudevan, learned counsel for the appellant heavily relying on the observations made by Apex Court in the case of State of Punjab vs. Nestle India Ltd., contended that the concept that there can be no plea of estoppel against the statute has been watered down and that plea of doctrine of estoppel is available against the legislature.
26. The facts in Nestle India Ltd.'s case was that several representations were made by the Chief Minister, Finance Minister and Commissioner of Commercial Taxes announcing the abolition of purchase tax on milk with effect from1.4.1996. But, notification pursuant thereto was not issued as required under the Act. The manufacturers acting on this assurance did not pay purchase tax in 1996-97 and passed on the benefit to the milk producers by providing various concessions and facilities. The dealers had relied upon the statements made and had arranged their business affairs and the State Government had requisite power under Section 6 (2) and Section 30 of the Act to exempt milk from purchase tax by issuing notification, since this was not done, the court was pleased to hold that the State Government is bound by such promises and therefore, not entitled to demand purchase tax on milk till date of contrary decision by the Cabinet.
27. In our view, the judgment on which reliance was placed by learned counsel for the appellants would not assist him in any manner whatsoever. In fact, in a recent decision, the Apex Court in the case of Rom Industries Ltd. v. State of J and K and another, (2005) 7 SCC 348, has observed as under. "We are not prepared to hold that the government policy by itself could give rise to any promissory estoppel in favour of the appellants against the respondents since the policy itself made by it absolutely clear that it would come into effect only on appropriate notification being issued. The notification was issued in exercise of the admitted powers of W.A. No. 1877 of 2007 and connected cases - 21 - the State Government under the State General Sales Tax Act. The State Government having power and competence to grant the exemption was equally empowered to withdraw it. As we have also noticed there was nothing either in the notification or in the policy which provided that the Negative List would not be amended or altered. On the contrary, clause (vii) of para 7 to GO No.10 of 1995 expressly reserved the Government's right to amend the Negative List. The right if any of the appellants was a precarious one and could not found a claim for promissory estoppel.".
28. In Nestle India Ltd.'s case, the Supreme Court was pleased to hold that when the Government has the power under the relevant statute to give effect to its promises by subordinate legislation, it cannot escape that liability by raising a plea that it cannot be compelled to exercise that power merely because the legislature cannot be compelled to pass a law. However, in the instant case, the earlier provision provided the dealer to opt for payment of turnover tax calculated in a particular manner and the mode and method of calculation for payment of turnover tax is modified by subsequent legislation by amending the statutory provision. Therefore, in our view, the fact situation which was considered by Apex Court in Nestle India Ltd.'s case is in no way nearer to the fact situation in the instant case and therefore, we are of the view that the said decision would not assist the appellants in support of their contention.
29. Re-contention No.(iii):- In Statutory interpretation by Francis Bennion, it is said, punctuation forms part of an Act, and may be used as a guide to interpretation. Punctuation is generally of little weight, however, since the sense of an Act should be the same with or without punctuation. It is further said, that punctuation is a device not for making meaning, but for making meaning plain. Its purpose, as Bouvier said, is to denote the stops that ought to be made in oral reading, and to point out the sense. Drafters are instructed that they should on no account, allow the meaning to turn, on the presence or absence of a punctuation mark. The good drafter consciously drafts every clause with an eye to what its W.A. No. 1877 of 2007 and connected cases - 22 - sense would be if all such marks were removed.
30. Crawford in his book on "Statutory Construction" says that when a statute is careful by punctuation, there is no doubt as its meaning, weight should undoubtedly be given to punctuation. Punctuation, therefore, certainly has its uses, but tendency of courts is not to allow it to control the plain meaning of a text. This is because the draftsman very often does use punctuation marks properly.
31. The Supreme Court in the case of Aswinikumar Ghose vs. Arbinda Bose, AIR 1952 SC 369, has observed, that it need not be denied that punctuation may have its uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be allowed to control the plain meaning of a text.
32. The use and purpose of using a 'semi-colon" in a statute is explained by Vepa P. Sarathi in his book Interpretation of Statutes. It is said 'semi colon' is an important and interesting mark to use. It is stronger than a comma, which is used more for a pause; but the semi colon does not imply a complete break like the full stop. It only makes a partial break and is at the same time a link between sentences appearing on the subject. It often implies that what follows at least partially explains and amplifies the sentence that comes before it. It is often used instead of a comma when it is followed by "and" or "or" or "but".
33. The Advanced Law Lexicon by P.Ramanatha Aiyer defines the punctuation semi-colon as "According to well established grammatical rules, this is a print only used to separate parts of a sense more distinctly than a comma (Lambert vs. People, 32 Ame Rep.293).
The semi-colon and the comma are both used for the same purpose in punctuation, namely to divide sentences and parts of sentences, the only difference being that the semi-colon makes the division a little more prolonged W.A. No. 1877 of 2007 and connected cases - 23 - than the comma.
34. Keeping in view the well accepted interpretation of Punctuation Marks often used in a fiscal statute, let us notice the contention canvassed by learned counsel for the appellants. It is argued that towards the end of the words in clause (a) of section 7, a semi colon and the word "or" is employed after the said semicolon and in between clauses (a) and (b) and the Legislature wanted these two sub-clauses to be read as disjunctive and not conjunctive. Secondly, the words "whichever is higher" used at the end of clause (b) of Section 7 of the KGST Act, therefore can control only the situation in clause (b) of Section 7. Though the argument looks attractive at the first blush, on a deeper consideration, in our view, it has no substance. The amendment was made to section 7 of the Act, as proposed by the Finance Minister in his Budget Speech for the financial year 2006-2007 was that, the earlier provisions has led to fall in revenue in some cases and therefore, amendment requires to be made to the compounding scheme by adding the stipulation that they may continue to pay turnover tax at the present compounding rate or at 125 cent of the highest of turnover tax paid or payable for any of the previous three years. This is the legislative policy of the State Government. The draftsman while drafting the legislation has ineptly used the semi column immediately after clause (a) of Section 7 and then again the word 'or' in between clause (a) and (b) of Section 7 of the Act. We are aware of the fact that the statement of a Minister cannot be taken for interpreting the provisions of the enactment, but can be looked at to ascertain the mischief sought to be remedied and the object and purpose for which legislation is enacted.
35. Tax structure is a question of policy and it is a matter of consideration by the legislature. Where there is no challenge to the provisions and the statute is not shown to be beyond the legislative competence, there is no W.A. No. 1877 of 2007 and connected cases - 24 - ground for interference with such legislation. It is also well settled legal principle that statutory enactment must ordinarily be construed, according to the plain and natural meaning of its language and no words should be added, altered, modified unless it is plainly necessary to do so, in order to prevent a provision from being unintelligible, absurd, unreasonable, unworkable or totally irreconcilable with the rest of the statute. It is also well settled law that if on a provision being literally interpreted, it leads to any kind of absurdity, such interpretation has to be avoided. Lastly, the court while considering a statute is only concerned with the legislative policy. Once the legislative policy is found to be clear and unambiguous, it cannot add any words therein to give a different meaning or to read the same in a manner that a different meaning is attractive.
36. Sri. Sudhi Vasudevan, learned counsel submits that the draftsman has used semi-colon at the end of clause (a) of Section 7 of the Act and thereby there is break in the sentence and after that the word 'or' is used, which only denotes, the legislature's intention is to give alternatives to the persons who are eligible to make use of the composition scheme either to choose clause (a) of Section 7 of the Act or in the alternative clause (b) of Section 7. This submission of the learned counsel for the appellant is difficult to accept for more than one reason. Firstly, the punctuation marks used in a fiscal legislation need not be given more weight as explained by Apex Court in Arbinda Bose's case and secondly, even if the draftsman has used the semi-colon in between clauses (a) and (b) of Section 7 of the Act, it would not imply the complete break of sentence and it makes a partial break and at the same time a link between sentences appearing on the same subject. The subject matter of the amended legislation is payment of turnover tax at the compounded rate in lieu of payment of turnover tax under Section 5(2) of the Act. The legislature in its wisdom has made amendment W.A. No. 1877 of 2007 and connected cases - 25 - to Section 7 of the Act, to increase the revenue. It has provided under clause (a) of the Act, that, a dealer under the Act can opt to pay the compounded rate at 140% or 135% as the case may be,of the purchase value of liquor or at 115% of the highest of turnover tax paid or payable for any of the three previous years, whichever is higher. By using the expression 'whichever is higher' immediately after clause (a) and clause (b) of Section 7, the legislature intends to provide only one rate under the 'compounding scheme' for payment of turnover tax under the Act. Though a dealer may exercise his option to pay turnover tax under compounding scheme under clause (a) of Section 7 of the Act, the assessing authority need not give him permission as required under Rule 30 of the Rules, if one hundred and fifteen per cent of the turnover tax payable or paid for three consecutive years is higher than what is prescribed under clause (a) of Section 7 of the Act and can still insist on the dealer, to pay turnover tax at the highest rate as provided either under clause (a) or (b) of Section 7 of the Act. This is made clear by the legislature by making certain amendments in the Kerala Finance Bill, 2007.
37. For the reasons stated above, we hold that there are no merits in these appeals. They are accordingly dismissed.
DK. JUDGE. (P.T.O.)
W.A. No. 1877 of 2007 and connected cases - 26 -
38. After the judgment was pronounced in open court, the learned counsel appearing for the assessee would request this Court to grant permission to the assessees either to opt for compounding under the new provisions or in the alternative to permit them to request the assessing authorities to complete the assessments in their case as provided under the charging provision. In our view, the request appears to be reasonable. Therefore, the petitioners are granted permission either to opt for payment of the turnover tax under the compounding scheme or as provided under Section 5(2) of the Act within a month's time from today. If such a request is made, the assessing authority would consider the same in accordance with law. Ordered accordingly.
DK. JUDGE. (True copy)