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 30th 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

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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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