By G. G. Goyal, Chartered Accountant, C. B. Thakar, Advocate
Introduction
Under the scheme of
Indirect Taxation, tax is attracted if the concerned goods are classified under
the taxable entry. There are instances when the entry is interpreted in a
particular manner. Subsequently the Government adds Explanation in the entry
for making its intentions clear. The dispute arises when such Explanation/s
have retrospective or prospective effect.
Taxation of Unmanufactured
Tobacco
Under Maharashtra Value
Added Tax Act, 2002 (MVAT Act), Entry A-45A exempts sale of unmanufactured
tobacco from levy of tax. However, an Explanation was added in said entry from
1.4.2002 stating that unmanufactured tobacco will not include the tobacco sold
in packages under a brand name. A dispute arose between assessees and Sales Tax
Department as to effective date of the Explanation. The view of Sales Tax
Department was that Explanation is clarificatory and it is effective
retrospectively from 1.4.2007 itself (since when the entry was existing) and
hence, liability arises retrospectively. The assessees were insisting that the
Explanation is substantive, hence effective from 1.4.2012 (i.e. from date of
insertion of such explanation) and hence no liability till 31.3.2012. In other
words, the issue was whether the given Explanation is clarificatory or
substantive.
The matter went to the
Bombay High Court, Aurangabad Bench in case of Amar Agencies (W.P. No.4944
of 2013) and others which was decided on 5.5.2017
Relevant Entry
The Hon. High Court has
reproduced the controversial entry and also given verdict on dispute as under:
“7. Upon consideration of
the arguments canvassed by learned counsel for respective parties, it is
manifest that we will have to deal with Entry 45A, it’s explanation, so also
entry 2401. For the sake of convenience, the same are reproduced below.
MAHARASHTRA VALUE ADDED TAX
ACT 2002
SCHEDULE A
1. ………
Before amendment
45A (a) unmanufactured tobacco covered
Nil 1.4.2007
under tariff heading No.
2401
to
of the Central Excise Tariff Act,
1985. 31.3.2012
After amendment
45A (a) unmanufactured tobacco covered Nil
1.4.2012
under
tariff heading No. 2401 to date
of
the Central Excise Tariff Act, 1985.
Explanation. For the removal of the doubts, it is hereby
declared that, the unmanufactured tobacco shall not include unmanufactured
tobacco when sold in packets under the Brand name.
8. The moot question would
be reading the explanation, as a substantive amendment or clarificatory.
9. Entry 45A of the Act of
2002 was amended by notification dated 31.03.2012 by the Government exercising
its powers u/s. 09 of the Act of 2002. Entry 45A as it stood prior to amendment
of 31.03.2002, it contained Clause B with no explanation. Vide notification
dated 31.03.2012 Clause B which dealt with biris is deleted and an explanation
is added. The bone of contention between the parties is the date of
applicability of amendment.
By the explanation, it is
declared that the unmanufactured tobacco shall not include unmanufactured
tobacco when sold in packets under the brand name. Prior to 31.03.2012, the
legislature did not make any distinction between unmanufactured tobacco sold in
brand name or otherwise. The Entry 45A is part of Schedule A, which details the
list of goods for which the rate of tax is nil. The unmanufactured tobacco
covered under tariff heading No. 2401 of the Central Excise Tariff Act, 1985 is
not taxable i. e. it’s tax is nil as per Entry 45A(a).
10. The Trade Circular,
under challenge, lays down that the said explanation is clarificatory in
nature. If the explanation is interpreted as a mere clarificatory, then the
question of its applicability prospectively or retrospectively may not arise.
When the explanation serves the purpose of clarification of the existing law,
there is no question of its prospective or retrospective operation, as the said
explanation would only explain and clear any mental cobwebs surrounding meaning
of statutory provision and to prevent controversial interpretation.
Explanations generally are intended more as a legislative exposition or
clarification of the existing law than as a change in it. If we go to the
literal words employed in the explanation, then the said explanation is
introduced for the removal of the doubts. The language of the explanation
depicts such intention. If the explanation is interpreted as merely clarificatory,
then the trade circular cannot be held to be erroneous.
11. Yet, we will have to
bear in mind that, the taxing statutes have to be interpreted strictly. We will
have to consider whether the incorporation of explanation to Entry 45A of the
Act of 2002 has altered the law as existing prior to the amendment dated
31.03.2012. While adding the said explanation, the entry 12 to Schedule D is
also amended.
12. As per section 9(1A) of the Act, the State
Government has the powers to amend the Schedule by adding or modifying any
entry in the Schedule. The notification dated 29.03.2007 was in force upto 31st
March, 2012. Item B in the entry 45A is deleted with effect from 01.04.2012,
that would be interpretation of the fact that, notification dated 31.03.2012
operates prospectively. The trade circular dated 30th March, 2007
clarifies that the unmanufactured tobacco cleared under Chapter Head 2401 of
the Central Excise and Tariff Act will be exempted from tax. The trade circular
dated 6th August, 2009 also clarifies the same. Incorporation of
explanation has amendatory implication with effect from 1st April,
2012. The explanation in the notification dated 31st March, 2012
will have to be held as amendatory and not clarificatory. We are only concerned
with the position prior to 31.03.2012. As from 1st April, 2012, the
unmanufactured tobacco sold in brand name is taxable. We are only concerned
with unmanufactured tobacco covered under heading 2401 of CETA.
13. Considering the trade
circular dated 30th March, 2007 and 6th August, 2009, it
would be clear that the Department considered the unmanufactured tobacco
covered under Chapter Head 2401 of the Central Excise and Tariffs Act exempted
from tax. The said position subsisted till 31.03.2012. It would appear that, no
distinction was made between sale of unmanufactured tobacco in packet or in
retail or whether branded or not branded. For the first time, the said
distinction is made by virtue of explanation to Entry No. 45A of the
Maharashtra Value Added Tax Act 2002.
14. The explanation no
doubt begins with the expression “for removal of doubts”. However,
the same does not appear to be plain and conclusive in nature. The operative
implication of the expression “for removal of doubts” in the explanation
does not show nexus to legislative intent of taxing liability. By virtue of
explanation, a particular class is created. By inserting explanation to Entry
No. 45A, new class is created i. e.
‘unmanufactured tobacco sold in packets under a brand name’. A distinction is
made for the first time by insertion of said explanation between the
unmanufactured tobacco sold in retail, loose and those unmanufactured tobacco
sold in packets under a brand name. The said distinction has been introduced by
way of an explanation. By reason of explanation a substantive law is introduced
and if a substantive law is introduced, wherein a class is created thereby
making it liable for tax, the explanation will have to be held amendatory to
operate prospectively and not retrospectively.
15. In the light of the
above, it will have to be held that the addition of explanation to Entry No.
45A under notification dated 31.03.2012 is substantive provision and it is not
merely clarificatory, as such would operate prospectively. It will have to be
held that, unmanufactured tobacco sold in packets under a brand name would not
be taxable from 01.04.2007 to 31.03.2012. The impugned trade circular 9T dated
30.06.2012 stating that explanation is merely clarificatory is held to be
erroneous to that extent.”
Conclusion
The judgment clears the
legal position. It is expected that the government will appreciate substance of
the judgment.
It is expected that there
should not be retrospective burden on tax payers by way of inserting an
explanation/s which when earlier it was understood that the goods / commodities
concerned were understood to be under an exempt category. We hope that under
GST era, there will be much better clarity of law and no ambiguous situations
will arise.
