2014 (4) TMI 65 - SC - VAT and Sales Tax

Manufacturer of glassware not eligible for reduced tax rate under Govt. notification. Appeal allowed, no penalty imposed.

The Supreme Court held that the respondent-dealer, a manufacturer of glassware, does not qualify as a 'type of glass' under the notification S.O. No.25 ... Rate of tax – “types of glass” versus “forms of glass” - Exemption Notification – Eligibility to fall under Notification - Interpretation - Whether the notification would at all be applicable to the sale of product in question - construction of “types of glass and glass-sheets” under notification – u/s 8(5)(b) of the Act – Held that:- It could not be agreed that a notification which grants tax incentives should to be liberally construed - At the outset a strict approach ought to be adopted in administering whether a dealer/ manufacturer is covered by notification at all and if the dealer/manufacturer falls within it, then the provisions of the notification be liberally construed - Relying on Union of India v. Wood Papers Ltd., [1990 (4) TMI 55 - SUPREME COURT OF INDIA] It was observed that construction of an exemption notification or an exemption clause in contrast with the charging provision has to be tested on different touchstone and held that the eligibility clause in relation to an exemption notification is given strict meaning and the notification has to be interpreted in terms of its language, however, once an assessee satisfies the eligibility clause, the exemption clause therein may be construed literally. Relying upon M/s GAMMON INDIA LTD. Versus COMMISSIONER OF CUSTOMS, MUMBAI [2011 (7) TMI 17 - SUPREME COURT OF INDIA] SC while rejecting the plea of the appellant that the exemption notification should receive a liberal construction to further the object underlying it relied upon NOVOPAN INDIA LTD. Versus COLLECTOR OF C. EX. AND CUSTOMS, HYDERABAD [1994 (9) TMI 67 - SUPREME COURT OF INDIA] -The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee, assuming that the said principle is good and sound—does not apply to the construction of an exception or an exempting provision; they have to be construed strictly - A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State - This is for the reason explained in Mangalore Chemicals and other decisions viz. each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it - Constitution Bench in Hansraj Gordhandas v. CCE and Customs [1968 (9) TMI 112 - SUPREME COURT OF INDIA] held such a notification has to be interpreted in the light of the words employed by it and not on any other basis - In a taxing statute, there is no room for any intendment, that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification i.e. by the plain terms of the exemption. Whether the notification would at all be applicable to the sale of product in question – Held That:- The State Government has issued a notification and has used the expression “types of glass” and not the expression “forms of glass” - Thus, what requires to be examined is whether the two terms would be identical in their connotation and import - In taxing statutes the terms and expressions must be seen in their common and popular parlance and not be attributed their scientific or technical meanings - In common parlance, the two words “type” and “form” are not of the same import – Glassware is a form of glass and it is contended by the assessee that forms of glass are also covered by the said notification - The term glassware would generally encompass ornaments, objects and articles made from glass. The New Oxford Dictionary, the Merriam-Webster Dictionary and the Macmillian Dictionary refer to the said general meaning while defining it - Glassware would include crockery such as drinking vessels (drinkware) and tableware and general glass items such as vases, pots, etc. - Thus, it cannot be accepted that the expression “types of glass” could have been intended to refer to or include “forms of glass”. The glassware so manufactured by the assessee, though made of glass cannot be considered or called as a “type of glass” and since the notification only provides for the reduction in the rate of tax of types of glass and not for “forms of glass” which is manufactured by the respondent as glassware, the respondent would not be covered by the notification – It is held that the assessee is not entitled to derive the benefit of the notification dated 25.06.2001 - Judgment and order passed by the High Court set aside and appeal allowed – Decided in favour of Revenue. Issues Involved:1. Interpretation of the notification S.O. No.25 issued by the Government of Jharkhand.2. Eligibility of the respondent-dealer to pay a reduced rate of tax under the notification.3. Classification of 'glassware' as a 'type of glass' under the notification.4. Applicability of liberal construction principles for tax exemption notifications.Issue-wise Detailed Analysis:1. Interpretation of the Notification S.O. No.25:The core issue in this appeal revolves around the interpretation of the notification S.O. No.25 issued by the Government of Jharkhand on 25.06.2001. The notification directed that the tax payable under subsections (1) or (2) of Section 8 of the Central Sales Tax Act, 1956, in respect of the sale of all types of glass and glass sheets in the course of interstate sale from any place of business in Jharkhand, shall be calculated at the rate of 3% without requiring any statutory form. The notification came into force on 16.06.2001.2. Eligibility of the Respondent-Dealer to Pay Reduced Rate of Tax:The respondent-dealer, a manufacturer of glassware, claimed eligibility for the reduced tax rate of 3% as per the notification. They had informed the authorities of this position immediately after the issuance of the notification. However, the authorities directed the respondent to deposit tax at 4% for sales to registered dealers and 12% for sales to unregistered dealers, rejecting the respondent's claim for the reduced rate.3. Classification of 'Glassware' as a 'Type of Glass':The primary contention was whether 'glassware' could be classified as a 'type of glass' under the notification. The respondent-dealer argued that glassware, being a product made by fusing different components of glass, falls under the category of 'types of glass.' The authorities, however, contended that 'glassware' is merely a form of glass and does not qualify as a 'type of glass.' The Supreme Court examined the common parlance meanings of 'type' and 'form,' concluding that 'types of glass' and 'forms of glass' are not identical. 'Types' refer to kinds or classes, whereas 'forms' refer to the visible shape or configuration of something. The Court held that glassware, being a form of glass, does not qualify as a 'type of glass' under the notification.4. Applicability of Liberal Construction Principles for Tax Exemption Notifications:The respondent-dealer argued for a liberal interpretation of the notification, suggesting that tax incentives should be construed to promote economic growth. The Court, however, reiterated the principle that exemption provisions should be construed strictly. The eligibility clause of an exemption notification must be interpreted strictly, and only if the dealer/manufacturer falls within the notification's scope, should the provisions be liberally construed. The Court cited previous judgments, including Union of India v. Wood Papers Ltd., to emphasize that exemption provisions are exceptions and must be strictly interpreted to determine eligibility.Conclusion:The Supreme Court concluded that the respondent-dealer, being a manufacturer of glassware, does not fall under the category of 'types of glass' as per the notification. Consequently, the respondent is not entitled to the reduced tax rate of 3%. The appeal was allowed, and the judgment of the High Court was set aside. The Court directed that no penalty should be levied while recovering the difference of tax payable for the assessment years 2002-2003 to 2005-2006. No order as to costs was made.