Small-scale industry exemption turns on production of own manufactured goods, not mere job work, under the sales tax rule.

Rule 3(66) of the Bengal Sales Tax Rules, 1941 was construed to extend the turnover tax exemption to a newly set up small-scale unit from the date it first sold goods manufactured by it. Production was read in light of the rule's object of encouraging manufacture for sale, so mere fabrication or job work for others did not count as production of the unit's own goods. On that construction, a unit that first manufactured and sold its own goods after 31 March 1978 could claim the extended five-year benefit, and the rejection orders were quashed with a direction to reconsider the renewal application according to law.

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Issues: Whether a small-scale industrial unit that had undertaken only fabrication or job work before 31 March 1978, but first manufactured and sold its own goods after that date, was entitled to the extended tax holiday under rule 3(66) of the Bengal Sales Tax Rules, 1941.

Analysis: Rule 3(66) granted exemption from turnover tax on sales by a newly set up small-scale industry from the date of first sale of goods manufactured by it. The amended explanation extended the benefit to a new industrial unit that started production for the first time after 31 March 1978. The word "production" was construed in the context of the scheme and object of the rule, which was to encourage manufacture of goods for sale by newly set up small-scale industries. The Court held that mere fabrication work or job work done for others did not amount to production of the unit's own manufactured goods for the purpose of curtailing the exemption. In a fiscal statute, where two views are possible, the construction favourable to the taxpayer was preferred, and exemption provisions were applied to effectuate the legislative object.

Conclusion: The petitioner's unit was held to have started the relevant production after 31 March 1978, so the extended five-year benefit under rule 3(66) was available.

Final Conclusion: The impugned rejection orders were quashed and the authorities were directed to reconsider the renewal application in accordance with law.

Ratio Decidendi: For the purpose of a small-scale industry exemption linked to the first sale of manufactured goods, "production" means production of goods for sale by the unit itself and does not include mere fabrication or job work for others.

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