2022 (8) TMI 56 - HC - VAT and Sales Tax

Court rules in favor of assessee, grants full exemption under Exemption Notification

The court held that the restrictive Clause 2 of the Exemption Notification did not apply to the assessee, entitling them to full exemption as provided ... Interpretation to the addendum of notification - Available limit of exemption under section 4-A of the U.P. Trade Tax Act, 1948 - Eligibility Certificate creating exemption from tax (under the Act), for a period of 8 years, beginning from the date of the starting production - whether the Restrictive Notification was applicable to the case of the assessee and whether the 'Explanation' appended to the Restrictive Notification, ousted the claim of the assessee to exemption - to the full extent, under the Exemption Notification or whether it was restricted to 5% of the sale price, under Clause 2 of the Exemption Notification? HELD THAT:- In the first place, the language of proviso (ii) Clause 2 of the Exemption Notification leaves no doubt, the legislature adopted the mode - legislation by incorporation. It bodily lifted and incorporated the 'Conditions & Restrictions' contained in the Restrictive Notification, to the Exemption Notification, as a further condition to be fulfilled, to avail exemption. Legislation by incorporation is clearly a well-recognized mode of legislation. In that, the legislature only avoids repetition of words, phrases, and even whole provisions - by virtue of proviso (ii) of Clause 2 of the Exemption Notification, the legislature chose to provide three conditions to be fulfilled to exclude the applicability of Clause 2 of the Exemption Notification. First, it excluded applicability of the restrictive Clause to ‘new units’ established in specified districts. Second, it excluded that restrictive Clause to ‘new units’ providing employment to members of specified categories, in prescribed percentages. Such ‘new units’ would avail full/unrestricted exemption. Third, it was provided, the restrictive Clause 2 would not apply if “Conditions and Restrictions” specified in the Restrictive Notification, were fulfilled. The Restrictive Notification is not an addendum or corrigendum to the Exemption Notification. It is an independent notification issued under Section 4-AA of the Act. By its very nature, such notifications were issued by the State Government, at the relevant time, to grant exemption to a unit, based on employment granted - to persons belonging to specified categories. The assessee had not claimed that exemption. Whether the 'Explanation' to the Restrictive Notification also constitutes part of the 'Conditions and Restrictions' contained therein? - HELD THAT:- For the Exemption Notification, the legislature - in its wisdom, restricted the computation of 'total employment' to such employees/workmen only, who may be making contributions to the provident fund. Seen in that light, the 'Explanation' is likely to work in favour of the ‘new unit’ claiming exemption, under Section 4-A of the Act. A ‘new unit’ where provident fund contribution may be made by some employees, only such number of employees would be included in the list of 'total employment', who may be making that contribution. The larger body of workmen including those who may not be making such contribution would stand excluded in that computation. It is seen, the computation of 'total employment' provided under the Restrictive Notification appears to run to the benefit of the assessee, to exclude therefrom such workmen who may have been engaged on casual basis and with respect to whom the requirement to make contributions to provident fund would not apply. Computed on that basis, there is no dispute that the ‘Explanation’ to the Restrictive Notification was satisfied - In the present case, it is found - though the 'Explanation' appended to the Restrictive Notification would apply to the reading of Clause 2 of the Exemption Notification, at the same time, it would remain a directory provision of law. Where the figure of employment to be computed under the Restrictive Notification remained indeterminate, the same would be read as 'total employment' granted otherwise. There is no dispute to the fact, considering that figure, the percentage of employment granted by the assessee to the members of Scheduled Castes, Scheduled Tribes and Other Backward Classes and minorities was met, satisfactorily. Thus, substantial compliance of the directory provision had been made by the assessee - the proviso (ii) to Clause 2 of the Exemption Notification wholly applied to the assessee's case. Consequently, the restrictive Clause 2 of the Exemption Notification did not apply to it. Still, consequentially, the assessee was entitled to full exemption under the Exemption Notification, as provided under Annexure No. I thereto. The question of law is answered in the negative i.e., in favour of the assessee and against the revenue - Revision allowed. Issues Involved:1. Applicability of the Restrictive Notification to the Exemption Notification.2. Compliance with conditions and restrictions under the Restrictive Notification.3. Interpretation of the 'Explanation' in the Restrictive Notification.4. Eligibility for full tax exemption under the Exemption Notification.Issue-wise Detailed Analysis:1. Applicability of the Restrictive Notification to the Exemption Notification:The main question was whether the 'Explanation' to Notification No. TT-2-779/XI-9 (226)/94 dated 31.03.1995 (Restrictive Notification) was mandatory to be fulfilled while applying it to proviso (ii) of Clause 2 of Notification No. TT-2-780/XI-9 (226)/94 dated 31.03.1995 (Exemption Notification). The court noted that the legislature adopted legislation by incorporation, meaning the 'Conditions & Restrictions' of the Restrictive Notification were incorporated into the Exemption Notification. This mode of legislation was recognized and applied in Ram Sarup Vs. Munshi & Ors., AIR 1963 SC 553.2. Compliance with Conditions and Restrictions under the Restrictive Notification:The assessee had set up a 'new unit' and engaged members of specified categories in the prescribed percentages, thus fulfilling the requirement for full exemption. The Tribunal applied the Restrictive Notification and concluded that the assessee was restricted to claiming exemption up to 5% of the sale value. The court found that the assessee met the first condition of filing certificates from the District Magistrate and Assistant Labour Commissioner and the second condition of maintaining the prescribed employment percentages.3. Interpretation of the 'Explanation' in the Restrictive Notification:The 'Explanation' in the Restrictive Notification defined 'total employment' as including only those employees who contribute to the Employees Provident Fund. The court noted that the revenue's interpretation implied an additional restrictive condition that employees must contribute to the Provident Fund. However, the court found no such condition in the language of the Restrictive Notification or the Exemption Notification. The 'Explanation' was seen as a definition rather than a condition.4. Eligibility for Full Tax Exemption under the Exemption Notification:The court found that the 'Explanation' should be read as directory rather than mandatory. It noted that the purpose of the Exemption Notification was to encourage capital investment and industrial development. The court cited Commissioner of Sales Tax Vs. Industrial Coal Enterprises, (1999) 2 SCC 607, which emphasized a liberal interpretation of exemption provisions. The court concluded that the assessee substantially complied with the directory provision, thus qualifying for full exemption.Conclusion:The court held that the restrictive Clause 2 of the Exemption Notification did not apply to the assessee, and it was entitled to full exemption as provided under Annexure No. I of the Exemption Notification. The question of law was answered in favor of the assessee, and the revision was allowed with the direction to refund any tax deposited by the petitioner, subject to the rule of unjust enrichment.