Harmonious construction of export unit exemption notification preserves nil-tax benefit where domestic sales fall within permitted relaxation.

An exemption notification for a 100 per cent export oriented unit must be construed as a whole, and clauses cannot be read in isolation. Where the unit used raw materials for export production, complied with the prescribed time-limit, and made domestic tariff area sales only within the relaxation permitted by the Government of India, there was no breach warranting withdrawal of the nil-tax benefit. The attempted denial of exemption under clause (v) was therefore unsustainable, and the benefit remained available to the assessee.

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Issues: Whether the exemption under the notification granting nil tax on sales to a 100 per cent export oriented unit could be denied on the ground that part of the manufactured goods was sold in the domestic tariff area.

Analysis: The notification under section 8A of the Karnataka Sales Tax Act, 1957 had to be read as a whole, and clauses (i) to (iii) could not be isolated from each other. The unit had used the raw materials for manufacture of export goods, complied with the time-limit for use, and the sale in the domestic tariff area was within the relaxation permitted by the Government of India. Since there was no contravention beyond the permitted relaxation, clause (v) of the notification could not be invoked to withdraw the benefit.

Conclusion: The denial of exemption was unsustainable and the issue was decided in favour of the assessee and against the Revenue.

Ratio Decidendi: An exemption notification for a 100 per cent export oriented unit must be construed harmoniously, and domestic tariff area sales made within the government-permitted relaxation do not constitute a breach warranting denial of the notified benefit.

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