REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 693-6939 OF 2008

(Arising out SLP (C) Nos.20012-20013 of 2004)

Commissioner of Trade Tax, U.P. … Appellant

Versus

S.S. Ayodhya Distillery & Ors. … Respondents

WITH

CIVIL APPEAL NOS. 6940, 6941-46, 6947, 6948-6949, 6950-6951, 6952,

6953-6957, 6958, 6959-6963, 6964, 6965, 6966-6970, 6971, 6972-6973, 6974-

6975, 6976, 6977-6980, 6981, 6982, 6983, 6984, 6985-6986, 6987-6988, 6989,

6990, 6991, 6992, 6993-6994, 6995, 6996, 6997, 6998, 6999, 7000, 7001, 7002,

7003, 7004, 7005, 7006 & 7007 OF 2008

(Arising out of SLP (C) Nos.20014, 20015-20020, 21679, 21682-21683,

21684-21685, 21686, 21687-21691, 21692, 21693-21697, 21699, 21700,

22853-22857, 22861, 22862-22863, 22859-22860, 22989, 26264-26267,

24774 & 23836 of 2004, 22620, 25255, 24802-24803, 25210-25211, 25395

& 25208 of 2005, 1586, 7796, 2389-2390, 16779, 16852, 16853, 16854,

16855, 18597, 25216, 20092, 20094, 20096, 20099 & 20010 of 2006 and

2044 of 2007)

J U D G M E N T

S.B. Sinha, J.

1.Leave granted.

Question

2.Whether Paddy Husk and Rice Husk connote the same commodity or

not is the question involved herein.

An overview

3.Respondents, who own and operate their manufacturing units, use

Paddy Husk as fuel in their respective factories.

They were assessed for payment of sales tax in terms of various

notifications issued by the State of Uttar Pradesh (for short, ‘the State’)

from time to time under Section 3D of the Uttar Pradesh Trade Tax Act (for

short, ‘the Act’).

4.Before we advert to the rival contentions of the parties, we may

notice certain statutory provisions.

Section 3 of the Act is the charging provision. The rate of tax is

determined by the State in exercise of its power conferred on it under

Section 3A of the Act.

Section 3D of the Act which is material for our purpose, reads as

under :

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“Section 3-D - Levy of trade tax on purchase of

sales of certain goods—(1) Except as provided in

sub-section (2), there shall be levied and paid, for

each assessment year or part thereof, a tax on the

turnover, to be determined in the prescribed

manner—

(a) of first purchases of opium, at such rate not

exceeding 'thirty-five percent ;

(b) of first purchases of such other goods at

such rate not exceeding--

(i) the maximum rate for the time being

specified in Section 15 of the Central

Sales Tax Act, 1956 in respect of

goods declared by Section 14 of the

Act to be of special importance in

inter-State trade or commerce, and

(ii) twenty percent, in respect of other

goods.

and with effect from such date, as the State

Government may, by notification in the

Gazette, specify in relation to purchases

made within Uttar Pradesh by a dealer

(whether on his own account or on account

of any one else), or through a dealer acting

as a purchasing agent.”

5.Indisputably, the State in exercise of its power conferred upon it

under clause (b) of sub-section (1) of Section 3D of the Act, had been

issuing notifications from time to time specifying the rate of tax and the

point thereof. One of such notifications was issued on 7.9.1981, Item No.

18 thereof reads as under:

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“18.Rice polish, rice bran and rice husk.”

By reason of a notification dated 5.6.1985, inter alia, the said item

was amended to the following effect.

“18.Rice polish, rice bran and rice husk, but

excluding de-oiled rice bran, de-oiled rice polish

or de-oiled rice husk.”

In supersession of the earlier notifications, however, the State yet

again amended the said item with effect from 6.6.1996 by a notification of

the said date, which reads as under :

“(18)Rice polish, rice bran, rice husk and paddy

husk but excluding de-oiled rice bran,- de-oiled

rice polish, de-oiled rice husk and de-oiled paddy

husk. @ 4% at first purchase.”

However, on or about 15.1.2002, the said entry was given a new look

and in stead and place of entry No.18, new entry being entry No.15 was

inserted, pursuant whereto and in furtherance whereof the rate of interest

was increased from four per cent to eight per cent. The said entry reads as

under :

“15.Rice polish, Rice bran, Rice husk and paddy

husk but excluding deoiled rice bran, deoiled rice

polish, deoiled rice husk and deoiled paddy husk.”

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However, an amendment was carried out in the description of goods

as also the rate of tax by a notification issued on 30

th

September, 2000.

Precedents

6.The procedure relating to manufacture of rice from paddy vis-à-vis

the exemption clauses contained in the relevant notifications came up for

consideration before the High Court from time to time.

7.We would refer to a few of the decisions rendered by the Allahabad

High Court and Madhya Pradesh High Court to which our attention has

been drawn by the learned counsel for the parties. One of such decisions is

Commissioner of Sales Tax, U.P. v. Naveen Traders [36 Sales Tax Cases

440] wherein, the High Court of Allahabad, while determining the question

in regard to the meaning of the words ‘Bhusa’ and ‘Bhusi’ for which

exemption was claimed, held as under :

“The assessee owns a rice mill. It purchased paddy

and after processing it obtained rice. Thereafter,

the rice so obtained is subjected to polishing

process. As a result of this process, the outer

surface of the rice is scraped off. The scraping so

obtained, which is in powder form is called rice

bran and in Etawah district, where this mill is

situate, this product is also known as "polish". The

bran so obtained is used for either extracting oil or

for feeding cattle. By Notification No. ST-911/X

dated 31st March, 1956, the State Government in

exercise of powers conferred by Section 4 of the

U. P. Sales Tax Act exempted with effect from 1st

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April, 1956, amongst other articles "cattle fodder

including green fodder" from payment of tax. This

notification was amended by Notification No. ST-

3471/X dated 16th July, 1956, and for the entry

"cattle fodder and green fodder" the following was

substituted:

Cattle fodder including green fodder, chuni, bhusi,

chhilka, chokar, cotton seed, gowar and oil-cake.

The assessee claimed that rice bran was exempt

under this notification. This contention was

neither accepted by the Sales Tax Officer nor by

the Assistant Commissioner, Sales Tax. The

revising authority, however, took the view that

rice bran was nothing but bhusi of rice, because it

was the inner husk of the rice and as such was

exempt from tax. We are unable to agree with the

view of the revising authority. Rice with its outer

husk is known as paddy. After the husk is

removed, the product is known as "rice". Rice

does not have any inner husk, as has been held by

the revising authority. Moreover, it is clear from

the findings recorded that rice bran in respect of

which exemption is claimed is powdered rice,

which is obtained in the polishing process. It is

difficult to appreciate how this powdered form of

rice can be termed as bhusi of rice. Bhusi is

nothing but a fine form of bhusa, which in turn is

obtained by thrashing of stems, leaves and the

outer husk of grain. The rice bran in question, as

has been seen, is obtained during the polishing

process of the grain itself. It is not a product

obtained from stalk, leaves or the husk of paddy or

rice.”

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The Court while applying the common parlance test to the

terminologies ‘Bhusa’ and ‘Bhusi’ opined that they are commodities

obtained from stalk, leaves and husk of grains.

A similar view was taken by another Division Bench of the said High

Court in Commissioner of Sales Tax v. Jamuna Prasad [36 STC 442]

wherein relying on or on the basis of an earlier decision of the said Court in

Naveen Traders, N.D. Ojha, J. (as His Lordship then was) speaking for the

Bench, opined :

“The notification dated 16th July, 1956, exempts

from sales tax cattle fodder, which term is defined

to include green fodder, chuni, bhusi, chhilka,

chokar, cotton seed, gowar and oil-cake. In

Commissioner of Sales Tax, U. P., Lucknow v.

Naveen Traders, Etawah 1973 U.P.T.C. 215, a

Division Bench of this Court has held that rice

with its outer husk is known as paddy and after the

husk is removed the product is known as rice. Rice

does not have any inner husk. The rice bran in

respect of which exemption was claimed was

nothing but powdered rice. "Bhusa" and "bhusi" as

understood in common parlance are commodities

obtained from stalk, leaves and husk of grains.

"Rice bran" cannot be treated as "bhusi of rice". In

view of this decision, the question referred to us

has to be answered against the assessee.”

The contention of the assessee therein that rice bran was cattle fodder,

however, was directed to be considered afresh on the premise that the same

involves a wider question.

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The Madhya Pradesh High Court had also an occasion to consider the

said question in Chordia Kavelu Udyog v. State of M.P. & Two Ors. [(1988)

69 STC 49]. N.D. Ojha, Chief Justice, relied upon the decision of the

Allahabad High Court in Naveen Traders to hold :

“4. "Husk" according to dictionary means, inter

alia, "bhusi". The question as to whether rice bran

could be called "bhusi" or husk, came up for

consideration before a Division Bench of the

Allahabad High Court in Commissioner of Sales

Tax, U.P. v. Naveen Traders [1975] 36 STC 440.

It was held that "bhusa" or "bhusi" as are

understood in common parlance, are commodities

obtained from stalk, leaves and husk of grains.

Rice, with its outer husk, is known as paddy. After

the husk is removed, the product is known as

"rice". Rice does not have any inner husk. Rice

bran is powdered rice and is obtained during the

polishing process of the grain itself and is not a

product obtained from stalk, leaves or the husk of

paddy or rice. The same view was taken by

another Division Bench of the said Court in

Commissioner of Sales Tax v. Jamuna Prasad

[1975] 36 STC 442. It was held that bran cannot

be included in the category of "bhusi". Again the

same view was reiterated in Commissioner of

Sales Tax, U.P. v. Dhannamal Ramgopal [1975]

36 STC 445. We agree with this view.

5. Reliance was placed by the learned counsel for

the petitioner on an extract from Shri A. C. Datta's

book "A Class Book of Botany" attached as

annexure D to the writ petition which indicates

that on removing the husk,, a brownish

membraneous layer is seen adherent to the grain

and that this layer is made up of the seed coat and

the wall of the fruit fused together. The said

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extract further indicates that rice grain and the

husk are together known as the paddy grain.

6. It would thus be seen that the seed coat has not

been treated as an ingredient separate from rice,

otherwise it would have stated that the rice grain,

its seed coat and the husk are together known as

the paddy grain. The seed coat, even according to

the learned author of the book aforesaid thus

constitutes a part of rice.”

The said question also came up for consideration before a Three

Judge Bench of the Trade Tax Tribunal. Shri R.N. Singh and Shri Dau

Dayal, Members, Trade Tax Tribunal, Moradabad held in favour of the

assessee stating that paddy hust and rice husk are different commodities.

But Shri Y.C. Gupta, Member of the Tribunal held in favour of the

Revenuestating that they are the same commodity. The High Court, while

exercising the revisional jurisdiction at the instance of the Revenue,

affirmed the majority decision of the Tribunal. These appeals are against

the judgments of the High Court.

Submissions

8.Mr. Sunil Gupta, learned senior counsel appearing on behalf of

appellant, would contend whether factually or conceptually and/or legally

decided or judicially determined, Paddy Husk and Rice Husk denote the

same commodity and in that view of the matter, the word ‘Paddy Husk’

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must be held to have been notified by the State of Uttar Pradesh from the

very beginning for the purpose of levy of sales tax,

Dehusking of paddy, Mr. Gupta would contend, is a crushing process

which when undertaken, the grain is left which is rice and the second

process thereof is the sheathing of the rice (grain) whereby the brown

coating on the rice is eliminated which is commonly known as Rice Bran,

Rice Husk or Rice polish. The decisions of Allahabad High Court and the

Madhya Pradesh High Court, it was argued, having categocially noticed the

process of husking and having laid down that rice does not have any other

husk, the impugned judgment cannot be sustained.

Mr. Gupta urged this Court to agree with the minority opinion of the

Tribunal contending that rice bran or rice polish being not husk and their

being no other inner husk of rice, the view taken by the majority Members

of the Tribuanl and consequently by the High Court suffers from a legal

infirmity.

9.Mr. Dhruv Agrawal, and Mr. Rakesh K. Khanna, senior counsel

appearing on behalf of the respondents, on the other hand, would contend

that for the purpose of levy of sales tax, rice husk and paddy husk had all

along been treated to be different commodities, as would appear from

Section 14(1) of the Central Sales Tax Act, 1956. Relying on or on the

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basis of the said distinction, the learned counsel would contend, that as

paddy husk was included for the first time to be an item in respect whereof

sales tax became leviable by reason of the notification dated 6.6.1996, any

assessment or demand of tax prior thereto must be held to be wholly illegal

and without jurisdiction. The said notification of 1996 as also the

subsequent notifications, it was urged, were not clarificatory in nature as tax

has been levied thereby which, therefore, must be held to be a substantive

provision.

Application of Statute/Precedents

10.At the threshold, we must notice the definition of ‘husk’; the

dictionary meaning whereof is ‘the dry outer covering of certain fruits or

seeds of plants; the outer or worthless part of anything’.

The Act is a taxing statute. The notifications have been issued

thereunder. Concededly, tax becomes payable at such rate and at such point

as may be directed by reason of the notifications issued by the State

Government from time to time.

It may not be correct to contend that a notification imposing any

fiscal liability can be imposed upon a dealer by way of clarification or

otherwise. A tax must be levied having regard to the provisions contained

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in Article 265 of the Constitution of India, i.e., by authority of law. The

power to impose tax must be express and no equity can be claimed in the

matter of levy of tax. One has to look merely at what is clearly stated in the

statute.

Imposition of tax is permissible only in terms of the provisions of

statute. Reasonable taxation is a part of the doctrine of good governance.

In Mumbai Agricultural Produce Marked Committee v. Hindustan Lever

Ltd. [(2008) 5 SCC 575], this Court referring to this Court’s decision in

Jindal Stainless Ltd. (2) v. State of Haryana [(2006) 7 SCC 241], stated the

law, thus :

“A finding of fact has been arrived at by the High

Court that no service was being rendered by the

State. If no service is being rendered, even no fee

could have been levied. It has been so held by a

Constitution Bench of this Court in Jindal

Stainless Ltd. and Anr. v. State of Haryana and

Ors. [(2006) 7 SCC 241] in the following terms :

‘40. Tax is levied as a part of common

burden. The basis of a tax is the ability or

the capacity of the tax payer to pay. The

principle behind the levy of a tax is the

principle of ability or capacity. In the case

of a tax, there is no identification of a

specific benefit and even if such

identification is there, it is not capable of

direct measurement. In the case of a tax, a

particular advantage, if it exists at all, is

incidental to the State's action. It is assessed

on certain elements of business, such as,

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manufacture, purchase, sale, consumption,

use, capital, etc. but its payment is not a

condition precedent. It is not a term or

condition of a licence. A fee is generally a

term of a licence. A tax is a payment where

the special benefit, if any, is converted into

common burden.”

If an entry contained in a notification imposing tax is ambiguous, the

assessee cannot suffer therefor.

In their decisions, the Allahabad and Madhya Pradesh High Courts to

which we have adverted to heretobefore, while stating that nothing is known

as rice husk, however, opined that rice polish and rice brown are the same

thing.

Although the said decisions were rendered long time back, no attempt

was made by the State to clearly state that rice husk is synonym to paddy

husk. It was necessary in view of the fact that admittedly paddy and rice are

different commodities. It has been held to be so in a decision of this Court

in Ganesh Trading Company, Karnal v. State of Haryana & Anr. [(1974) 3

SCC 620] in the following words

“Now, the question for our decision is whether it

could be said that when paddy was dehusked and

rice produced, its identity remained. It was true

that rice was produced out of paddy but it is not

true to say that paddy continued to be paddy even

after dehusking. It had changed its identity. Rice is

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not known as paddy. It is a misnomer to call rice

as paddy. They are two different things in ordinary

parlance. Hence quite clearly when paddy is

dehusked and rice produced, there has been a

change in the identity of the goods.”

Our View

11.As paddy and rice are considered to be the separate commodities,

paddy husk cannot be treated to be rice husk.

Not only in the notification dated 7.9.1981 but also in the notification

dated 5.6.1985 paddy husk is not mentioned. By reason of notification

dated 6.6.1996 ‘paddy husk’ was inserted. Even then, the rice husk was not

deleted. No explanation was offered therefor. Both rice husk and paddy

husk, thus, found place in the notification. Indisputably, therefore, paddy

husk was subjected to for the first time by reason of the said notification

dated 6.6.1996. Yet again, while giving a purported new look to the entry

in the notification dated 15.1.2000, the words ‘rice husk’ and ‘paddy husk’

have respectively been mentioned. Even then no attempt was made to issue

any clarification.

Two expressions having been used ordinarily two different meanings

should be assigned thereto. If by reason of a notification, taxes are sought

to be imposed upon a new commodity applying Heydon’s Rules (3 Co. Rep.

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7a; 76 E.R. 637), it must be held that the mischief was sought to be remidied

thereby.

It is, therefore, difficult to agree with Mr. Gupta that rice husk and

paddy husk denote the same commodity.

12.We may place on record that schedule was annexed to the notification

prescribing rate to the U.P. Value Added Tax Ordinance, 2007 specifying

the exempted goods, item No.4 whereof is as under :

“Acquatic feed; poultry feed including balanced

poultry feed; cattle feed including balanced cattle

feed; and cattle fodder including green fodder,

chuni, bhusi, Chhilka, choker, javi, gower, de-

oiled rice polish, de-oiled paddy husk or outer

covering of paddy; acquatic, poultry and cattle

feed supplement, concentrate and additives

thereof; wheat bran and deoiled cake but

excluding oil cake; rice polish; rice bran and rice

husk.”

(Emphasis supplied)

It is, therefore, evident that rice husk is still considered by the

Government of Uttar Pradesh to be a different commodity. Even from the

perusal of the Decision of the Chordia Kavelu Udyog v. State of Madhya

Pradesh & Two Ors. [1988 (69) STC 49], it would appear that ‘A Class

Book of Botany’ was referred to therein which indicated that on removing

the husk, a brownish membranous layer is seen adherent to the grain and

15

that this layer is made up of the seed coat and the wall of the fruit fused

together.

13.If, according to the Government of Uttar Pradesh, rice husk is this

cover which further requires husking, no exception thereto can be taken.

When a paddy is dehusked, it becomes paddy husk and when the rice is

dehusked, it becomes rice husk.

14.There are two other aspects of the matter which cannot be lost sight

of. If something is included in the Schedule which is non-existent, no tax

can be levied thereupon. Furthermore, if there is a doubt or dispute as to

whether paddy husk or the rice husk denotes the same commodity or not,

the benefit thereof shall be given to the assessee. Furthermore, it is not the

case of the appellant that the respondent extracts any oil out of ‘paddy

husk’.

There are many other fruits which have two layers; for example Pista,

Cashew Nut and Ground Nut etc. One may only remove the outer cover and

take the fruit or grain with the inner cover but one may like to take out the

inner cover also which will depend upon the taste of the person concerned.

Some persons may like to take ‘brown rice’ but some other may like to take

‘white rice’.

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In Babu Ram Jagdish Kumar & Co. v. State of Punjab & Ors. [(1979)

3 SCC 616], this Court, following the decision of Ganesh Trading Co.

(supra), opined :

“We may at this stage refer to one other subsidiary

argument urged on behalf of the appellants. It is

argued that because paddy and rice are not

different kinds of goods but one and the same,

inclusion of both paddy and rice in Schedule ‘C’

to the Act would amount to imposition of double

taxation under the Act. There is no merit in this

contention also because the assumption that paddy

and rice are one and the same is erroneous. In

Ganesh Trading Co., Karnal v. State of Haryana,

arising under the Act, this Court has held that

although rice is produced out of paddy, it is not

true to say that paddy continued to be paddy even

after dehusking; that rice and paddy are two

different things in ordinary parlance and,

therefore, when paddy is dehusked and rice

produced, there is a change in the identity of the

goods.”

15.For the reasons aforementioned, there is no merit in these appeals

which are dismissed accordingly with costs. Counsel’s fee assessed at

Rs.25,000/- in each matter.

………………………….J.

[S.B. Sinha]

..…………………………J.

[Cyriac Joseph]

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New Delhi;

December 02, 2008.

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