Saturday, October 29, 2011


The mineral oil of Assam is contributing substantial amount of tax revenue to the State Exchequer. This is derived from crude oil, extracted from the oil fields of Assam. The crude oil- potentiality was there since centuries back, but no efforts or endeavour were there to unearth the said potential resources. After fall of the Ahom regime, the British Raj started its reign in this territory, consequent upon execution of Yandabu Treaty with the Mans in 1826 A.D. The British Raj had full conviction in mind that the soil of Assam bears acute potentiality in the field of agriculture, forest and mineral resources and there was ample scope for acceleration of economy.

The tea plants were discovered in abundance in the forest areas of Upper Assam. There was strong hunt to unveil such potential resources in other nearby areas. They started wide range of expedition giving priority to undivided Sivasagar and Lakshimpur districts. When achieved, this was extended to the western and southern part of the State. Gradually, they installed factories, adjacent to the tea garden areas and started commercial production keeping in mind to make growth of economy. The quality of Assam tea was excellent. Consequently, the Assam tea occupied a prominent place in the global market. The flow of income was by leap and bounds. There was no measure of tax on the sale or purchase of tea at the early stage. The same was introduced from the 24th December, 1947, when the Sales Tax Law came into operation in the State. Of course, a tax law on income of agriculture was introduced from the 1st April, 1939, which till now remains operative.

The British Raj equally felt that there was potentiality of mineral oil in the soil of Assam. The casual flame of fire was visible in soils, from time to time. A drilling operation was started in the year 1867. Ultimately, it yielded a positive result and for the first time in the history of Asian continent, crude oil field was discovered in Digboi area of the present Tinsukia district in the year 1889 A.D. Steps were taken to establish a mini oil refinery at Digboi and it was commissioned in 1901. Gradually, some more oil fields were discovered in and around Digboi including the Makum area. It is worthy to mention that this refinery used to feed fuel to the military convoy on its way to the war field in Burma area (now Myanmar), when Word War II was in full swing.

In the middle part of twentieth century, a good numbers of oil fields were discovered in a number of places in Sivasagar and Dibrugarh districts. The Government of India (Central Government) instead of installing a big-sized refinery in Assam, planned to pump out such crude oil to the Barauni Oil Refinery of Bihar. Naturally, a great irritation cropped up in the minds of the people Assam and they started agitation protesting against such odds depriving the people of Assam to get the legitimate benefit on the State resources. The decision of the Central Government was to give cognizance to the accrued anger of the people and pacify them by installing another medium sized refinery in Noonmati area in the heart of Guwahati city was an act of betrayal in as much as the Central Government simultaneously took decision to pump out a major quantity of such extracted crude oil to Barauni Refinery of Bihar. The Barauni refinery at earlier stage did not pay tax on such inter-State sales of crude oil to the State of Assam and challenged any act of levy. Fortunately, the Supreme Court of India (Apex court) delivered a historical judgment affirming the claim of the Government of Assam in getting its lawful revenue on such sales. Thereafter, during the regime of Mrs. Indira Gandhi, piloting the Indian Government, a refinery was installed at Dhaligaon of Bongaigaon to be fed by the crude oils, extracted from the soil of Assam. A big-sized oil refinery was as well installed at Numaligarh of Golaghat district, which is a product of six years’ long Assam movement on the foreigners’ issue at the behest of the All Assam Students Union (AASU), associated by many other like mined political and non-political organizations..

The Legislatures of Assam incorporated the item ‘crude oil’ in the tax schedule of the Assam Entry Tax Act, 2001(Entry Act) from the 4th October, 2004 making way to levy tax vis-à-vis to augment the State revenue of the State in respect of import of such goods from places out side the State of Assam to a local area in Assam as well as in respect of such import from one local area to another local area within the State of Assam. As a consequence, barring the Digboi refinery, all other refineries were roped in the tax net of the Entry Act. The Entry Act of 2001 met with a serious challenge and the Gauhati High Court declared the said Act as unconstitutional and held to be void. However, the said Act was reintroduced from 1st June, 2008 with a retrospective effect and validated the tax levy and realization including the tax to be realized in the interim period of non-existence and non-operation of any EntryAct. The matter is reported to be under sub-judice of the Apex Court.

Parliament introduced a provision in the Central Act in 1972, whereby any dispatch of taxable goods to places out side the State not by reasons of sales, but by way of stock transfer has been made admissible for exemption of tax under the said Act. Previously, such exemption of tax was conventional, but now it was legalized. As a matter of fact, such exemption of tax has a constitutional sanction in as much as sub-clause (a) of clause (1) of Article 286 of the Constitution restricted the State any levy of tax on the goods, so moved and sold out of the State. The provisions of Central Act, however, strictly laid down conditions that- (i) for such exemption, the burden of proof rested with the dealer, claiming such stock transfer vis-à-vis exemption of tax; (ii) the documents and evidences of dispatch and sales are to be produced; (iii) a declaration in Form ‘F,’ containing, the dispatch particulars, transfer invoices, value of the goods, so moved; (iv) the exemption of tax is not automatic and it is subject to enquiry by the competent taxing authority, allowing such exemption. As a part of inquiry, the said authority may insist on the compliance of the requirements, as laid down in sub-rule (4) of Rule 4 of the Central (Assam) Rules, 1957. Another, note worthy point, which is to be taken into consideration is that an ‘agreement’ in regard to such stock transfer and ‘sale’ out of the State and the ‘sale notes’ confirming, inter-alia, payment of tax in the respective State, as ought to have received by the transferor of the goods, is to be produced.

Form ‘F’ clearly specified that such movement of goods on stock transfer should be made by road transport, railway, steamer, air or post office and not other wise and furnishing the dispatch particulars in the said form viz consignment notes & dates etc. has been made imperative.

It has, of late, come to the light that some Oil refineries of Assam have been making the transfer of stock of ‘petrol’ and ‘diesel’ through pipe lines installed by them. This is a unilateral arrangement and the ball of such stock transfer remained at the court of such refinery. No organization for movement of such oil products was involved in the scenario. The taxing authorities might have entertained such claims of exemption. Whether such episode of stock transfer through pipe lines, has really any legal base? In such self-designed exercise, it is apprehended that the drainage of crore of State revenue has become obvious. A coparative study of the Central tax revenue collection for last three or four years may unveil the actual position.

We hope, this discussion will receive attention of the Government of India to find out a suitable remedy.


‘Tax’ means ‘the money that is to be paid to the State; charged as a proportion of personal income and business profits or added to cost of some goods and services’ ‘ Income’ means ‘a money received during a certain period for work or from investment.’ “Agriculture’, on the other hand, means ‘a science or practice of farming.’ ‘Tax on income’ is thus money to be paid on the profits earned by any person or organization for works or investment, while; ‘Tax on agricultural income’ is ‘the money that is to be paid on profit earned on the practice of farming.’

‘Tax on income’ is a subject, administered by the Government of India (Central Govt.) through the machineries at its disposal. Article 246(1) of the Constitution of India (Constitution) empowered Parliament to make enactment of laws on the subjects, specified in the Seventh Schedule- List I (Union List). ‘Tax on income other than agricultural income’, as occurred in entry 82 of the said Schedule is thus a tax to be levied by the Central Government for the purpose of augmentation of the Central revenue. In fact, the measure of tax on income in India was introduced in British Parliament long back in 1860 to bear the economic burden on account of armed revolution of the First War of Independence against the British regime. The reasonableness of such measure of income tax adopted, were assigned as : it is a (i) canon of ability for paying such tax; (ii) canon of certainty; (iii) canon of convenience and (iv)canon of economy. There was, however, no such tax from 1865-67 due to cropping up acute public murmuring. The Income Tax Act, 1886 was brought out to build- up licence tax. The Income Tax Act, adopted in 1922 ( IT Act)continued to be operative in post independent period too. After the Constitution took birth on January, 26th, 1950, the said law continued to be operative with the safe guard provided in Article 277 (Savings clause) of the Constitution. The Income Tax Act was remodeled and it was passed in the House of Parliament in September, 1961 and the Indian Income Tax Act, 1961 (Income Act) thus came into effect in continuation of the previous one. It is, in fact, a tax only on income, profits or gains and not on the capital, whether original, substituted or increased. The salient features are, therefore, - (i) income tax is only a charge on income and not the capital; (ii) the method of charging tax on income and capital gains is different; (iii) in computing the taxable income of a business, profession or vocation, only the revenue expenditure and not the capital expenditure is deducted from the trading profits.

‘Tax on agricultural income’, is a subject, administered by the State Governments through the tax machineries of the State. In 1925 the Indian Taxation Enquiry Commission opined the justification of creating a measure of tax on agricultural income, but the same was not readily materialized due some obvious difficulties. The Government of India Act, 1935 as well incorporated an entry No. 41 in the Seventh Schedule of Provincial Legislative List to facilitate introduction of tax measure on ‘agricultural income’. The measure of tax on agricultural income was thus introduced, which had the consequential effect that “The Assam Agricultural Income Tax Act, 1939” (Agricultural Act) was enacted by the then provincial Legislatures of Assam and the said Act became operative from the 1st April, 1939. After India attained the dignity of a Democratic, Republic Nation on the 26th January, 1950, the entry No. 46 incorporated in the Seventh Schedule of the Constitution provided power to the Legislatures of the State to enact law on the ‘Taxes on agricultural income tax’. As a matter of fact, the 1939 Act was already operative and it continued to be operative by virtue of the said provision read with Article 277 of the Constitution. It is worthy to mention that within this long spell of 70 years, a number of amendments of the Act took place in consideration of the administrative needs in the interest of public service..

‘Tax on income’, as defined in clause (29) of Article 366 of the Constitution ‘includes a tax on the nature of an excess profits tax’, ‘ Agricultural income’ as defined in clause (1) of the said Article means ‘agricultural income, as defined for the purpose of the enactments relating to Indian income tax.’ The Constitution thus maintained silence so as to provide independent and categorical definition on the term ‘agricultural income’, implying thereby that, it is dependent on the Income Tax Act. The definition in the Income Tax Act, inter-alia, laid down that ‘the income that is derived from the land of agriculture’. The tax on income and the tax on agricultural income are levied on the income derived in the previous year, subject to deduction of the amount, admissible under the relevant Acts out of the total quantum of income derived.

Though the main purpose of the agricultural Act is that, it is a tax on agricultural income, but a unique deviation has been made in the matter of determination of the quantum of the agricultural income of tea. The Income derived from tea is to be bifurcated into two. That is on income of agricultural activities and that of on trade activities. The ratio thereof was specified as 60 : 40- that is, 60 percent on agricultural income and 40 percent on trade income. This principle is exclusively maintained in case of the income of the agricultural product ‘tea’ only and not on other products like paddy, pulses, wheat, sugar- cane etc. where also simultaneously the question of both agricultural and trading activities are involved. There are good numbers of tea gardens in Assam exceeding 45, 000 in numbers with 700 to 800 numbers of industrial establishments. The former produces green tea laves, while the latter finished products, the black tea. In fact, the green tea tea leaves are sold to the industrial establishments, while the black tea in the State or out of the State in the course of inter-State trade or commerce.

The sales of green tea leaves are exempted from tax under the Assam Value Added Tax Act, 2003 (VAT Act) vide entry No. 41 in the First Schedule. The quantitative production of green tea, on the other hand, is taken into account for the purpose of levy of tax on tea garden lands, with the measuring scale of production of green tea leaves in smaller tea gardens, It is note worthy to state in the connection that the Legislatures of Assam incorporated the following provisions in the Assam Taxation On Specified Lands Act, 1990 (SPL Act)with effect from the 12th day of February, 2009

“Section 6A- Every person engaged in manufacture of tea and responsible for making any payment or discharging any liability on account of any amount purported to be the full or any part payment of sale price or consideration of purchase of green tea leaf, shall, at the time of credit to the account of or payment to the seller of such amount in cash, by cheque, by adjustment or in any manner, whatsoever, deduct tax calculated at the rate of 20 paise per kilogram and deposit the same in the State Exchequer in the same manner, as may be prescribed.” [The rate of tax was enhanced at 25 paise per Kilogram with effect from the 29th April, 2010”]

This apparently reflect that a tax is to be payable in a direct or indirect way on the sale or purchase of green tea leaves not on advelorem basis, but on weight basis, though, in fact, the VAT Act clearly restricted it.

The measure of tax, adopted in this behalf seems to be out side the scope of the VAT law in as much as the sales and purchase of green tea leaves are exempted from sales tax in Assam. The restriction to levy of 100% tax on the income of tea, therefore, obviously created an acute set-back in the revenue generation exercise of the State in as much as 40% of tax on such income is poured to the Central Coffer in the name of income on trade activities. In fact, tea industry is one of the few limited industries of Assam. Hence, a rethinking is necessary to maintain disparity in respect of other agricultural products to restore the fiscal equilibrium. The State Government may initiate dialogue with the Central Government on this issue, if considered necessary.

The Agricultural Act continued to be operative for long 72 years provided ample power to the said tax authorities to administer the Act including the levy of tax and other allied matters. Over the head of such vested quasi-judicial power, the exclusive power of determination of the quantum of total income and bifurcation thereof for agricultural income by the income tax authorities, is obviously a double standard vision in the power exercise scenario of the Agricultural Act. It is, no doubt, an irrational and a pre-judicious projection in the matter of levy of tax on agricultural income. Rule 5 framed under the said Act provided some discretionary power to the State taxing authority for scrutiny and examination on such determination and bifurcation in such cases, when circumstances warranted so. The Supreme Court of India, however, quashed the validity of the said State rule. The State tax authorities are thus to remain cipher and to act like rubber stamps on the unitary decision of the central authorities. The quasi-judicial aspect in the agricultural Act has been nullified thereby.

The Head Offices of limited numbers of industries, like tea industries, oil industries, coal industries, jute merchants etc.of Assam are mostly located at places out side the State of Assam. The taxes on income are generally deposited by such industrial entrepreneurs in the income tax territorial jurisdiction of such Head Offices. The concerned States in which such tax income tax revenue deposits use to get share of income tax, as envisaged in Article 270(2) of the Constitution. Assam is thus deprived of such benefit even though the base of production, manufacturing and trade activities fall within the territorial jurisdiction of Assam.

The sensitive sons of the soil of Assam, therefore, urge upon the Government of Assam to consider all this vital aspects and play a pivotal role for its suitable solution at this stage keeping in mind that a spark neglected may burn the house.