Supreme Court Rules ‘Maize Starch’ is Taxable: Specific Provision Shall Prevail Over General Provision in a Statue

Supreme Court Rules ‘Maize Starch’ is Taxable: Specific Provision Shall Prevail Over General Provision in a Statue

The Supreme Court coram comprising of Justices S. Ravindra Bhat and Dipankar Datta while dismissing an appeal filed by Santhosh Maize & Industries Limited (appellant) in a case concerning the classification of ‘maize starch’ under the Tamil Nadu General Sales Tax Act, 1959, held that ‘maize starch’ would be covered by the Taxation Entry No.61 and not by the Exemption Entry No.8.

The bench was of the view that, “Law is well settled that if in any statutory rule or statutory notification two expressions are used - one in general words and the other in special terms - under the rules of interpretation, it has to be understood that the special terms were not meant to be included in the general expression; alternatively, it can be said that where a statute contains both a general provision as well as a specific provision, the latter must prevail.”

The case centred on the classification and taxation of maize starch under the Tamil Nadu General Sales Tax Act (TNGST Act).

The appellant, Santhosh Maize & Industries Limited, argued for exemption based on an Exemption Notification issued by the Government of Tamil Nadu. However, subsequent amendments to the Act altered the entry for maize starch, making it subject to a 4% tax rate. The classification of maize starch under the Act became a matter of dispute.

The appellant had approached the Madras High Court through a writ petition, seeking to invalidate the order of the Tamil Nadu Taxation Special Tribunal and declaring a circular dated 8 October, 1998 as ultra vires Section 28-A, Exemption Entry No. 8, and Articles 14, 19(1)(g) and 265 of the Constitution of India.

Alternatively, the appellant requested that the circular be applied prospectively from October 8, 1998 instead of retroactively from July 17, 1996.

The Division Bench of the High Court, dismissed the writ petition and opined that the Exemption Notification and subsequent circulars issued by the Commissioner, which aimed to exempt maize starch from taxation, lacked statutory authority and were not binding. Consequently, the High Court upheld the validity of the Circular dated October 8, 1998, which classified maize starch under Entry No. 61 subject to a 4% tax.

Represented by Mr. K.K. Mani, the appellant contended that Exemption Entry No. 8, covering products of millets, encompassed maize starch. The appellant relied on previous circulars issued by the Commissioner of Commercial Taxes to support their claim.

Mr. C. Kranthi Kumar, representing the respondents, asserted that maize starch should be taxed under the broader category of ‘sago and starch of any kind.’

The Supreme Court, after careful analysis of the provisions and amendments, noted that the entries under Schedule I are taxed under Section 3(2) of the TNGST Act while the entries under Schedule III are exempted under Section 8 of the Act.

The Court said that the issue was to be decided in terms of the TNGST Act read with the Schedules as it stood on 17 July, 1996. The bench reckoned that though the TNGST Act was further amended with effect from 27 March, 2002, but the same was admittedly beyond the relevant period under consider

The bench noted that during the period of the relevant assessment year, i.e., 1998-99, there were two entries operating the field, i.e., “sago and starch of any kind” in Schedule I (Taxation Entry No.61) and ‘products of millets (rice, flour,… and maize)’ in Schedule III (Exemption Entry No.8).

According to the Apex Court, when Schedule III of the TNGST Act was amended in 1994 and Exemption Entry No.8 was inserted, the said Exemption Entry did not include the word ‘like’ which was present in the 1970 Exemption Notification.

The Court observed, “Once it becomes clear from Exemption Entry No.8, as introduced by Act No.32 of 1994, that (i) it does not include the noun ‘like’ as the first word within brackets and (ii) that maize is only included along with rice, flour, etc. (and not maize starch), it is only those items within the brackets which, for the purposes of exemption, qualify as products of millets. It is, therefore, those products of millets specifically indicated, which are entitled to exemption under Section 8 of the Act read with Schedule III as per Exemption Entry No.8.”

The bench noted that there was a distinction between maize (raw product) and maize starch (processed product). While maize was entitled to exemption under Exemption Entry No.8, maize starch could not be considered the same as maize, as Act No. 32 of 1994 specifically excludes the like of maize.

The bench remarked that if the legislature had intended to exclude any starch, including maize starch, a specific provision to that effect would have been included.

Reliance was placed on the decision passed in M/s. Associated Indem Mechanical P. Ltd vs. West Bengal S.S.I.D.C. Ltd. (2007), wherein it was held that the word ‘any’ has a broad meaning and generally excludes limitations.

By referring to this decision, the bench indicated that the term ‘starch of any kind’ in Taxation Entry No.61 should be interpreted broadly and encompasses all types of starch, including maize starch.

The bench reasoned that the legislature likely did not intend to have two separate entries for the same commodity, one exempted and the other taxable. Considering the specific language used in Taxation Entry No. 61, which provided a more detailed description, the bench concluded that maize starch would fall under the taxation entry. This interpretation was further supported by the fact that Exemption Entry No.8 covers maize, which was a product of millet, not maize starch.

The Court held that if Exemption Entry No.8 or any other entry specifically mentioned ‘product of maize’ instead of ‘product of millet’, the situation would have been different.

While rejecting appellant’s contention that the clarification provided by the Commissioner, through the Circular dated 8 October 1998, could not have retrospective effect, the Court explained that the power to issue such clarifications was derived from Section 28-A of the Act.

The Court said that the purpose of issuing these clarifications was to make the rate of tax explicit, especially when there was ambiguity or confusion in interpreting certain provisions. The bench emphasized that the clarification served to remove any confusion regarding the classification of maize starch under the relevant entries. As such, it was intended to have a retrospective effect.

The Court with regard to the nature of clarification issued, held that the Circular dated 8 October, 1998 does not run counter to the provisions of the Act.

The Court thus, dismissed the appeal and upheld the decision of the High Court.