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PETITIONER: ALLADI VENKATESWARLU & ORS.

       Vs.

RESPONDENT: GOVT.  OF ANDHRA PRADESH & ANR.

DATE OF JUDGMENT21/02/1978

BENCH: BEG, M. HAMEEDULLAH (CJ) BENCH: BEG, M. HAMEEDULLAH (CJ) UNTWALIA, N.L.

CITATION:  1978 AIR  945            1978 SCR  (2) 190  1978 SCC  (2) 552

ACT: Interpretation of taxing statute--If the language is  clear, it will be unfair to interpret against the assessee. Andhra Pradesh General Sales Tax Act, 1957 S. 5 r/w Entry 66 of  Schedule  I to the Act--When "Paddy" was  already  taxed under  item 8 Schedule II, Whether "Atukulu" (Parched  Rice) and  "muramuralu" (Puffed rice) are exigible to tax for  the second  time  as rice falling under Item 66(a)  of  Schedule I--Whether "Atukulu" (Parched rice) and "muramuralu" (Puffed rice)  are  "rice"  within the meaning  of  entry  66(b)  of Schedule I. Andhra   Pradesh  General  Sales  Tax  Act,  1957,   Section 5(2)--Difference between taxation u/s 5(2)(a) and 5(2)(b).

HEADNOTE: Section 5 of the Andhra Pradesh General Sales Tax Act,  1957 regulates the levy of tax on sales or purchase of goods.  S. 5(1)  enjoins that every dealer (other than a casual  trader and an agent of a non-resident dealer) whose total  turnover is  Rs. 25,000 and upwards and every agent of a  nonresident dealer irrespective of his turnover shall pay a tax for each year  at  the  rate  of four paise on  every  rupee  of  his turnover.  "Paddy" is subjected to sales tax under item 8 of the  2nd schedule @ the rate of five paise in the  rupee  at the  point of first purchase in the State.  A rebate,  of  2 paise  in the rupee shall be allowed on the paddy  purchased and  consumed in the State.  Under s. 5(2)(a) r/entry 66  of Schedule  I to the Act, rice is subject to sales tax at  the rates  specified  at the point of the sale effected  by  the dealer  selling them.  "Paddy" is either parched  or  heated and sold as Atukulu (parched rice) and "muramuralu"  (puffed rice).   When the sales tax authorities sought to levy  once over again on the sale of paddy which has already been taxed at the purchase point, after making it edible in the form of "atukulu"  and "Muramuralu" the appellants challenged    the said  action.    ’ The Andhra Pradesh High Court  held  that parched  rice  and  puffed rice not    being  rice  at  all, falling  within  either of the two parts of  entry  66  were taxable  as separate kinds of goods altogether u/s  5,  sub- section 1 of the Act. Allowing the appeals by special leave the Court, HELD.  1.  Where  two interpretations  of  a  provision  are

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possible,  courts  should  apply  the  principle  that   the interpretations   which  favours  the  assessee  should   be preferred.   Unless the language of the taxing  statute  was absolutely clear, it should not be given an obviously unfair interpretation against the assessee. [195-G-H] 2.   Commonly  accepted  sense of a term should  prevail  in construing the description of an article of food. [195D] Kalyani  &  Co.  v. Commissioner of Sales  Tax,  [1953]  (4) S.T.C. 387 @ 390’ (Hyd.) referred to. 3.   Court  must give a broad enough interpretation  to  the term  ’.rice"  in accordance with the common sense  rule  of interpretation  laid down by this Court in  M/s  Tungabhadra Industries Ltd. v. Commercial Tax Officer, Kurnool, [1961] 2 S.C.R. 14 @ 23. [196 C-D] 4.   The  term  rice is wide enough to include rice  in  its various forms whether edible or unedible.  Rice in the  form of  grain is not edible.  Parched rice an& puffed  rice  are edible.   But the entry rice covers both forms of rice.   At any rate it is wide enough to cover them. [194H, 195A] 191 5.   There is a distinction between "paddy" as found in item 8 of the 2nd schedule and "rice" as mentioned under item  66 of  the  first schedule.  The view that, if paddy  has  been taxed  in  the hands of the purchaser, who is a  dealer  the same  individual  was made to pay tax on it  again  as  rice falling  within item 66(a) and not as "rice"  falling  under item 66(b) cannot be accepted because such a view would  run counter to the express provisions of item 66(b).  If what is taxed  is "rice", it would obviously fall under  item  66(b) because it has already been taxed in the form of paddy.   It could  certainly  not  fall under item 66(a)  which  is  for "rice" not so taxed.  To urge that it falls under item 66(a) is to concede that it is "rice". [194A] 6.   On a parity of reasoning the term ’rice’ as  ordinarily understood  in English language would include  both  parched and  Puffed rice.  Atukulu (parched rice)  and  "muramuralu" (puffed rice) are "rice." within the meaning of entry  66(b) of  Schedule 1 of the Andhra Pradesh General Sales Tax  Act, 1957. [197 A-B] 7.   The difference between taxation under the   schedule u/s 5(2)(a)  and  under the 11 schedule u/s 5 (2)  (b)  is  that whereas the first is a tax at the point of sale, the  second is a tax at the point of purchase.  The II schedule is meant for goods in respect of which a single point tax is leviable u/s 5 (2) (b) of the Act.  The dealer’s turnover may include purchases as well as sales.  In the instant case the  dealer has paid a tax at the time of purchase of rice under item  8 of the 11 schedule when it was paddy. [193F-G] 8.   It  is not the intention of the legislature to tax  u/s 5(1)   as   well  as  under  section  5(2)   of   the   Act. Simultaneously  s.  5(2) does not say that a  "further"  tax would  be  levied u/s 5(2).  It only talks of  levying  ’the tax’ in accordance with s. 5(2) of the Act in cases  falling within  the ambit of the 2nd schedule to which reference  is made in s. 5(2) of the Act.  It is not fair to so  interpret a  taxing  statute,  as  to  impute  an  intention  to   the legislature  to  go  on taxing what is  virtually  the  same product  in  different forms over and over  again.   Such  a result wouId be contrary to basic axioms of taxation. [194B- D] 9.   Keeping  in  view the various provisions  of  the  Act, together  with  the  history of exemption  of  "palalu"  and "muramuralu" and its cancellations it was not the  intention of the State Govt. suddenly to make the incidence of tax  so heavy. [196C]

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JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  391  and 392 of 1977. (Appeals by Special Leave from the Judgment and Order  dated the 24-8-1976 of the Andhra Pradesh High Court in W.A.  Nos. 1/75 & 61/76). S.   C. Manchanda and B. Kanta Rao for the appellants. P.   Parameshwara  Rao  and T. V S. Narasimhachari  for  the Respondents. The Judgment of the Court was delivered by BEG, C.J.-The question before us in these appeals by special leave was framed as follows : "Whether  ’Atukulu’ (parched rice), and ’Muramuralu  (puffed rice)  are  ’rice’  within the meaning  of  Entry  66(b)  of Schedule  1  to the Andhra Pradesh General  Sales  Tax  Act. 1957" 192 This question arose before the Andhra Pradesh high Court  in appeals  from single Judge decisions of the High Court,  out of provisions of Andhra Pradesh General Sales Tax Act,  1957 (hereinafter referred to as ’the Act’).               Section 5 (1 ) of the Act provides               "5.Levy of Tax on Sales or Purchases of  Goods               : (1) Every dealer (other than a casual trader               and  an agent of a non-resident dealer)  whose               total turnover for a year is not less than Rs.               25,000  and  every agent    of  a non-resident               dealer whatever be his turnover for the  year,               shall pay a tax for each year, at the rate  of               four paise on every rupee of his turnover."               Section 5(2) enacts               "Notwithstanding  anything contained  in  sub-               section  (1) the tax under this Act  shall  be               levied-               (a)   in  the case of the goods  mentioned  in               the  first Schedule, at the rates and only  at               the point of the sale specified as  applicable               thereof  effected in the State by  the  dealer               selling    them,  on his turnover of sales  in               each year relating to such goods  irrespective               of the quantum of turnover,               (b)   in  the case of the goods  mentioned  in               the Second Schedule, at the rates and only  at               the   point  of  the  purchase  specified   as               applicable  thereto, effected in the State  by               the dealer purchasing them, on his turnover of               the  purchase  in each year relating  to  such               goods   irrespective   of   the   quantum   of               turnover." The first Schedule to the Act dealing with matters  provided by S.     5  (2)  (a) contains the entry 66  which  runs  as follows: ------------------------------------------------------------ Description of goods     point of levy         Rate of tax ------------------------------------------------------------ 66. Rice :(a) not Covered by  At the point of sale by            (b) below          the first wholesale dealer  in the state effecting the sale                            6 Paise in the rupee Provided  that a rebate of two paise in the rupee  shall  be allowed  on  the  rice sold and consumed  in  the  State  in accordance with such rules as may be prescribed.

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------------------------------------------------------------- (b) Rice obtained from    At the point of sale  by the first wholesale dealer in the state effecting the sale.                              1 Paise in the rupee It  seems  that  tax  on  paddy  which  was  converted  into ’Atukulu’ (parched rice), and ’Muramaralu’ (puffed rice) had already been ------------------------------------------------------------ 193 levied  in  the form in which it comes to the  market  as  a crop.  The Division Bench of the High Court in the  judgment under appeal before us stated               "It is common case that the paddy out of which               these  commodities have been made in  all  the               three cases has been subjected to tax". On  this assumption, the only question before us is  whether the  parched  rice and the puffed rice are covered  by  item 66(b)  which reads : "rice obtained from paddy that has  met tax under the Act".  ’Paddy’ is defined in the dictionary as "rice in the husk".   The question is : Does it cease to  be even  "rice"  when  it is converted into  parched  rice  and puffed rice ? It is true that it is no longer rice grain  as it emerges from the husk.  To make it edible as parched rice and  puffed  rice it has to go  through  further  processes. These  are only products obtained by converting  rice  grain into a different form of it by heating or parching. if  such rice  is  still rice, even if we confine the term  rice"  to grain, is it by going through these processes of heating  or parching  converted into separate items for the purposes  of entry 66 in the 1st Schedule of the Act ? We find that considerable argument was advanced in the  High Court  on  the question whether if parched rice  and  puffed rice are not covered at all by entry 66 of the 1st  Schedule it would still be taxable.  We find that the answer given by the  High  Court was that, in any case, such rice  would  be taxable under Section 5,_ sub-section (1)    of the Act  set out above. It  was also pointed out before us that paddy out  of  which the products in question become available, had already  been taxed,  as admitted by both sides, under item 8 of  the  2nd Schedule  which  imposes a tax of 5 paise in  the  rupee  on paddy  at  the point of first purchase in  the  State.   The entry also says :               "Provided  that  a rebate of 2  paise  in  the               rupee shall be allowed on the paddy  purchased               and  consumed in the State in accordance  with               such rules as may be prescribed’. The  2nd schedule is meant for goods in respect of  which  a single  point tax is leviable under section 5(2) (b) of  the Act.  The difference between taxation under the 1st schedule under  section  5(2)(a)  and under the  2nd  schedule  under section  5(2) (b) appears to be that whereas the first is  a tax at the point of sale the second is a tax at the point of purchase.   The dealer’s turnover may include  purchases  as well  as  safes.  Therefore, as is assumed  in  the  instant case,  the dealer had paid a tax at the time of purchase  of rice under item 8 of the 2nd schedule, when it was  "paddy", could  it  be contemplated that he must pay a tax  again  on the- same item as "rice" not covered by item 66(b), that  is to  say,  as  "rice"  falling  under  item  66(a)?   It   Is impossible to accept the view that, if paddy has been  taxed in  the  hands of the purchaser, who is a dealer,  the  same individual  was made to pay tax on it again as rice  falling within item 66(a) and not

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194 as "rice" falling under item 66(b) because such a view would run  counter  to the express provisions of item  66(b).   If what is taxed is ’rice’, it would obviously fall under  item 66(b)  because  it  has already been taxed in  the  form  of paddy.   It could certainly not fall under item 66(a)  which is  for  "rice" not so taxed.  To urge that it  falls  under item 66(a) is to concede that it is "rice". We find that the High Court had come to the conclusion  that parched rice and puffed rice, not being rice at all, falling within  either of the two parts of item 66 were  taxable  as separate  kinds  of  goods  altogether.  This  meant   that, although, the dealer had paid a tax of five paise per  rupee on paddy as item 8 in schedule 2 he will have to pay again a tax  at the rate of 4 paise on every rupee of  his  turnover under  section 5(1) if his total turnover was not less  than Rs.  25,000/- per year.  We do not think that the  intention of  the legislatures could be to tax under section  5(1)  as well  as  under  section 5 (2) of  the  Act  simultaneously. Section  5(2)  does not say that a "further"  tax  would  be levied  under section 5(2).  It only talks of  levying  "the tax"  in  accordance with section 5(2) of the Act  in  cases falling within the ambit of the 2nd schedule to which refer- ence  is made in section 5(2) of the Act.  We do  not  think that  it  is  fair to so interpret a taxing  statute  as  to impute an intention to, the legislature to go on taxing what is  virtually the same product in different forms  over  and over again.  Such a result would be contrary to basic axioms of taxation.  Unless the language of the taxing statute  was absolutely clear, it should not be given an obviously unfair interpretation against the assessee. It  may be that an item may be taxed once as  raw  material, and, after it is manufactured and converted into  separately taxable   goods,  taxed  again  as  another   taxable   item altogether.   But, in such cases, the identity of the  goods sold  would  be deemed to be different even though  the  raw materials  may have been taxed already in a  different  form earlier.   The  question, therefore, before  us  is  whether "rice", which obtained from paddy, already taxed under  item 8  of the 2nd schedule, ceases to be "rice"  falling  "prima facie"  under item 66(b) as rice on which a tax was  already paid  when  it was in the form of paddy ?  Does  heating  or parching only to make it edible have that effect ? It is clear that there is a distinction between "paddy",  as found  in  item  8  of the  2nd  schedule,  and  "rice",  as mentioned under item 66 of the first schedule.   Apparently, the  removal of the husk makes this difference.  It is  true that the 1st schedule, which contains as many as 136  items, includes  a  number  of separate  fairly  detailed  entries. Entry 58 is for bran or husk of "rice;’, and entry 59 is for "deviled  bran of rice".  It appears, therefore, that  "rice in husk" is "paddy".  When it is removed from husk, the husk and  rice  become  separately taxable.  But,  there  are  no separate  entries for rice and rice reduced into  an  edible form  by  heating  or  parching  without  any  addition   of ingredients or appreciable changes in chemical  composition. The  term  "rice"  is wide enough to  include  rice  in  its various forms whether edible or unedible.  Rice in the  form of grain is not. 195 edible.  Parched rice and puffed rice are edible.  But,  the entry  "rice" seems to us to cover both forms of  nice.   At any rate, it is wide enough to cover them The  High  Court bad relied on a judgment  of  the  Division Bench  of  the  Hyderabad High Court in  Kalyani  &  Co.  v.

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Commissioner of Sales Tax(1), where it was held, inter  alia (at p. 390) that :               "Rice  in  all forms would mean all  kinds  or               variety  of  rice or species of rice  such  as               broken  rice,  kichidi rice, pichodi  rice  or               rice  flour, etc.  In this view of the  matter               we  find  no  justification  in  holding  that               "rice" in item No. 1 of the exempted  articles               in Schedule I of the, Hyderabad General  Sales               Tax   Act  dealing  with  cereals  should   be               interpreted as meaning cooked rice or biriyani               or pulao".               But, in that very case, Jaganmohan Reddy,  J.,               delivering the judgment of the Division Bench,               had held in dealing with the term bread".               "When the Legislature uses a term relating....               to a particular kind, such as ’double roti’ ". The  judgment  in Kalyani & Co.’s case  (supra)  related  to items in a different schedule of a different enactment.  The only  principle  deducible  from it  is  that  the  commonly accepted  sense of a term should prevail in  construing  the description  of an article of food.  While dealing  with  an item  meant for rice, as a cereal, the Court had accepted  a more  limited meaning of the term "rice" so, as  to  exclude cooked rice in all its forms.  Of course, the case before us is  not a case of rice, cooked and prepared in the  form  of "pulao" or "biryani" or any (Aber type of cooked rice  which may  have  undergone changes of character  by  additions  or chemical  transformation  which may convert it into  a  food product  with  a substantially different identity.   It  was only  converted from unedible grain into an edible  form  by parching or puffing through a heating process. Even if parched rice and puffed rice could be looked upon as separate in commercial character from rice as grain  offered for sale in a market, yet, keeping in view the other matters mentioned  above,  it  could not be  presumed  that  it  was intended  to  exclude from entry 66 ,.rice",  which  at  any rate,  bad  not  so  changed  its  identity  as  not  to  be describable  as "rice" at all.  ’Muramaralu’ was  after  all rice  even  though  it was puffed.   ’Atukulu’  even  though parched  was still called rice.  We must also remember  that the  schedule which we have to interpret is in  the  English language where the term rice is still found in the rendering or description of ’palalu’ as well as that of ’muramamlu’ in the   English   language.   And,  in  any   case,   if   two interpretations  of a provision are possible, we think  that we  ought to, in such a case, apply the principle  that  the interpretation   which  favours  the  assessee   should   be preferred. (1)  [1953] (4) S.T.C. 387 @ 3290. 196 It  was possible for the Government to lay down  a  separate category  for parched rice and puffed rice, but it  has  not done  so.  Section 40 of the Act lays down the power of  the State  Government to modify, to alter or to cancel any  item in the Schedule.. It can also notify, under section 9 of the Act, exemptions and reductions of tax.  In this  connection, it is worth remembering that both "palalu" and  "muramuralu" were  previously  exempted  completely  from  tax  under   a notification  of the State Government probably because  they are  largely consumed by the poorer sections of the  public. But, the exemption had been withdrawn before the  assessment years under consideration.  If that be so, it. could not  be the  intention  to suddenly put these items  in  a  category where  they will become unusually or doubly taxed  items  in

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substance.   We, therefore, think that, keeping in view  the various provisions of the Act, together with the history  of exemption of "palalu" and "muramuralu" and its cancellation, it  could  not  be the intention  of  the  State  Government suddenly to, make the incidence of tax so heavy as it  would be if the view of the High Court is allowed to stand. Keeping  in view all the matters mentioned above,  we  think that we must give a broad enough interpretation to the  term "rice",  in  accordance  with  what  may  perhaps  be   best described as the "commonsense" rule of interpretation,  laid down  by this court in M/s.  Tungabhadra Industries Ltd.  v. the Commercial Tax Officer, Kurnool.(1) That  was a case of taxation of ground nut oil.  A  question arose whether dehydrogenated oil called Vanaspati was  still ground  nut oil or a product of ground nut oil.  This  Court held inter alia :               "To be ground nut oil two conditions had to be               satisfied-it  must  be from groundnut  and  it               must be "oil".  That the hydrogenated oil sold               by the appellants was out of the groundnut not               being in dispute, the only point is whether it               continues to be oil even after  hydrogenation.               Oil  is a chemical compound of glycerine  with               fatty acids or rather a glycerine of a mixture               of  fatty acids principally  oloic,  linoleic,               stearic  and palmitic, the proportion  of  the               particular fat varying in the case of the  oil               from  different  oilseeds  and  it  remains  a               glyceride  of  fatty  acids  even  after   the               hardening   process,   though   the   relative               proportion  of  the different types  of  acids               undergoes  a slight change.  In its  essential               nature therefore no change has occurred and it               remains  an oil--a glyceride of  fatty  acids-               that it was when it issued out of the press".               In  Tungabhadra Industries case  (supra)  this               Court  rejected  the  argument,  based  on  an               analysis  of chemical changes produced by  the               absorption of hydrogen atoms in the process of               hardening and on the consequent intermolecular               changes in  the oil.  It said :               "But  neither mere absorption of other  matter               nor intermolecular changes necessarily  affect               the  identity  of a  substance  as  ordinarily               understood". (1)  [1961] 2 S.C.R. 14 at 23. 197 We  think that, on a parity of reasoning the term "rice"  as ordinarily  ’understood  in English language  would  include both parched and puffed rice. For  the reasons given above, we set aside the  judgment  of the  High, Court and we answer the question framed above  as follows  : ’Atukulu parched rice, and  ’muramaralu’  (puffed rice) are rice within the meaning of entry 66(b) of Schedule 1  of  the  Andhra  Pradesh Central  Sales  Tax  Act,  1957. Parties will bear their own costs.        Appeal allowed. 198