MARCH 15, 2012

Pulse of Retrospective Validity

By Trivedi & Gupta, Advocates

SERVICE TAX is payable, under the reverse mechanism scheme, as notified under Section 68(2) of the Finance Act, 1994 by the service availers of GTA services. However, the Government of India had, vide Notification No.33/2004-ST dated 3.12.04, exempted GTA service in relation to transport of fruits, vegetables, eggs or milk by road, from the whole of Service Tax leviable thereon. The said Notification was issued in the public interest to lessen the burden of tax in respect of edible commodities used by people at large. Hence, the producers of pulses all over the country (which are, in the common parlance as well as in dictionary meaning, vegetables) are availing the benefit of the said exemption.

It was the understanding of the trade, and correctly so, that pulses such as Tur Dal are vegetables or vegetable products and hence exempted from the Service Tax leviable on GTA in relation to their transport by road. This was also the understanding of the Service Tax authorities who, despite the knowledge of the existence of such producers, did not make any inquiry in respect of the said exemption, from such producers.

It is only when the amending Notification No.4/2010-ST dated 27.2.10 substituted the words "eggs or milk" with the words "eggs, milk, food grains or pulses" that the Service Tax authorities have come out, that too two years after the amending Notification, with the theory that prior to 27.2.10 such pulses were not exempted and hence the producers of pulse are liable to pay Service Tax on GTA services in relation to the transportation of pulse.

1) That by substituting the words "eggs or milk" with the words "eggs, milk, food grains or pulses", the amending Notification has only made explicit / declaratory what was implicit in the first Notification. That the word "vegetables" used in the first Notification was wide enough to cover pulses. That the dictionary meaning of pulses is edible seeds of leguminous plants, example peas, beans, lentils. The word "vegetable" used in the Notification must be construed as understood in common parlance and it must be given its popular sense. In common parlance "vegetable" is understood as referring to edible plants or parts of edible plants including seeds thereof. The Hon'ble Supreme Court has held that the word "vegetable" denotes those classes of vegetables which are grown in a kitchen garden or in a farm and are used for the table. This definition is laid down by the Hon'ble Supreme Court in Saraswati Sugar Mills v/s. Haryana State Board as reported in AIR 1992 SC 224. In this judgment the Hon'ble Supreme Court has extensively relied upon the dictionary meanings of the term "vegetables" and the common parlance.

2.   That even the HSN classifies pulses under Chapter Heading 07.13 as dried leguminous vegetables under the Chapter of "edible vegetables". Even the Customs and Central Excise Tariff have classified pulses as dried leguminous vegetables, shelled, whether or not skinned or split. That it is beyond any doubt that the pulses produced by the producers at Vasad are nothing but leguminous vegetables and continue to be so even after the amendment of the first Notification.

3.   Notwithstanding the above, the issue involved lies more in the realm of interpretation of law than a logical interpretation made by the authorities. It will be appreciated that the amendment made by the amending Notification is by way of substitution. As per the principles governing statutory interpretation, substitution of a provision results in repeal of the earlier provision and its replacement by the new provision and such substitution would have the effect of amending the operation of law during the period in which it was in force.

4.   It must also be appreciated that by amending the Notification, the legislature has remedied the lacuna or the confusion and has made explicit what was implicit; that the exemption should be available from GTA Service Tax on transport of food grains and pulses which are in the same league of essential commodities such as fruits, vegetables, eggs or milk. The legislative intent to cure the defect/omission in the first Notification is manifest in the fact that food grains and pulses are as essential commodities for human consumption as are the fruits, vegetables, milk or eggs.

5.   Notification has only cured the defect in the first Notification. It is a settled legal principle that if the legislature has cured the defect then such construction has to be construed to advance the cure/remedy. Therefore, such amendment is required to be construed as being retrospectively made. We crave leave to refer to rely upon the Hon'ble Supreme Court in the case of Bengal Immunity Co. Ltd. v/s. State of Bihar as reported in AIR 1955 SC 661.

6.   Whenever an amendment is declaratory or explanatory, it has to be construed as retrospective even if the amendment does not use the word "declaration". Ordinarily when an enactment declares the previous statute and when it is required to be given retrospective effect since the function of a declaratory statute is to supply an omission or explain the previous statute and when such an amendment is passed it comes into effect when the previous statute was passed. We crave leave to refer to and rely upon the Constitution Bench of Hon'ble Supreme Court in the case of Shyam Sunder and Others v/s. Ramkumar & Others, AIR 2001 SC 2472.

7.   In order to determine the implied retrospective nature of an amendment four factors are relevant as follows:

i) General scope and purview of the statute (in the present case to grant exemption to essential commodities for human consumption from payment of GTA services)

ii) The remedy sought to be applied (to extend the scope of exemption to equally essential commodities for human consumption from payment of GTA services)

iii) The former state of law (in the present case the former exemption continues to remain the same) and

iv) What it was that the legislature contemplated (in the present case the legislature has contemplated exemption to essential commodities for human consumption).

Considering the above four relevant facts in the present case there is no doubt that the amendment made in the first Notification is to be read retrospectively.

8.   It is also to be noted that the amendment has been made in the first Notification by way of substitution. Substitution of a provision results into repeal of the earlier provision and its replacement by the new provision. This principle of statutory interpretation has been upheld by the Hon'ble Supreme Court in judgments as reported in AIR 2002 SC 948, AIR 1969 SC 504 and AIR 1963 SC 933.

Notwithstanding the above, it is a matter of fact that food grains and pulses are by and large wholly exempted under various Central and State tax laws such as the Central Excise Act, 1944 and the Gujarat VAT Tax. Any attempt to tax directly or indirectly food grains and pulses would go against the sovereign objective of making food grains and pulses available to large masses of people at as much cheap price as possible.