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2008 (12) TMI 693
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....ent of surcharge payable under section 3 of the Kerala Surcharge on Taxes Act, 1957 in relation to the goods mentioned in sub-clause (a). The aggregate exemption in respect of sales tax and Central sales tax together is not to exceed 100 per cent of the fixed capital investment of the unit. Later it came to be modified by Notification S.R.O. No. 1092 of 1999 and still later there was substitution also effected by S.R.O. No. 295 of 2000 dated March 31, 2000 and after the substitution it reads as follows: "S.R.O. No. 1092/99.-In exercise of the powers conferred by section 10 of the Kerala General Sales Tax Act, 1963 (Act 15 of 1963), the Government of Kerala, having considered it necessary in the public interest so to do hereby make the following modification to the exemption granted in clauses (1) to (7) of the notification issued in G.O. (P) No. 155/93/TD dated 3rd November, 1993 and published as S.R.O. No. 1729/93 in Kerala Gazette Extraordinary No. 1122 dated 4th November, 1993, namely:- The said notification shall apply only to the following categories of industries: (i) new industrial units other than public sector undertakings which have been set up or have commenced ....
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....hority which issued the exemption order, shall, after affording such industrial unit a reasonable opportunity of being heard cancel the exemption. 2.. Industrial units which had been sanctioned exemption/deferment as per notification S.R.O. No.1729/93 before 1st day of January, 2000 shall continue to enjoy the concession for the full period covered by the order of exemption/deferment. This notification shall come into force on the 1st day of January, 2000." The essential question which needs to be answered revolves around the interpretation of the words "necessary plant and machinery". The appellant is the writ petitioner. It challenged exhibit P24 order passed by the Deputy Commissioner (General), Department of Commercial Taxes, Thiruvananthapuram, hereinafter referred to as the third respondent, rejecting its application for exemption from payment of sales tax in terms of S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and aggrieved by S.R.O. No. 295 of 2000. The appellant further sought a writ of mandamus directing the third respondent to grant necessary sales tax exemption certificate to the petitioner after taking into account the effect of exhibits P....
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..... The Schemes found expression through various notifications. As already mentioned exhibit P1 is the Notification S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and S.R.O. No. 295 of 2000. According to the petitioner, it had complied with the requirements of the notification and it applied for exemption. According to the appellant, in particular, it has taken the following steps for fulfilment of the conditions: "(i) Filed IEM with SIA vide SIA ACK/2655/SIA/IMO/1999 dated December 28, 1999. (ii) Acquired 50 acres of land in Kanjikode, Palakkad District from Western India KINFRA on December 28, 1999, by executing a lease agreement dated December 28, 1999 and paying the entire consideration amount of Rs. 2,77,64,000 to Western India KINFRA vide DD dated December 24, 1999. (iii) Obtained the necessary consent from the Kerala State Pollution Control Board on December 20, 1999. (iv) Placed orders on suppliers of plant and machinery prior to December 31, 1999. (v) Commenced commercial production by March, 2001." The State Level Committee took the stand that in so far as the appellant had not placed any firm orders for the entire plant and machinery....
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....to be rejected. The third respondent however, it is stated, with the intention to thwart the legal claims of the appellant resorted to new proceedings. Exhibit P13 dated June 20, 2005 is issued by him calling upon the company to adduce evidence in support of its claim to have placed firm orders for all necessary plant and machinery before the cut-off date as required in the notification. The appellant caused exhibit P14 lawyers notice to be sent in reply. By exhibit P15 the appellant requested the fourth respondent, namely, the Director of Industries and Commerce to issue the copy of the eligibility certificate. The fourth respondent vide exhibit P16 letter advised the appellant to contact the third respondent for a copy. The appellant approached the third respondent vide exhibit P17 letter. Faced with no response from the third respondent, the appellant approached the second respondent for copy of the eligibility certificate (exhibit P18). The second respondent, by exhibit P19, asked the appellant to approach the fourth respondent. The appellant again approached the fourth respondent vide exhibit P20. Vide exhibit P21, the appellant was issued with another notice dated September 2....
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.... to take effective steps before the cut-off date. Exhibit R1(a) is produced as the certificate issued by the Director of Industries and Commerce. There are no conclusive findings by this court or the Supreme Court that the appellant had satisfied the requirement as specified in the notification. The appellant had not furnished details to prove that they have taken effective steps for acquiring the necessary plant and machinery for the operation of the unit. Third respondent is the authority to pass exemption order. It is also the case of the respondents that an exemption notification must be given strict interpretation. A reply affidavit is filed by the appellant essentially reiterating the contentions raised in the writ petition. Heard learned counsel appearing on behalf of the appellant and the learned Special Government Pleader for Taxes Sri Vinod Chandran. Learned counsel for the appellant would contend that the third respondent has acted illegally in passing exhibit P24. He contended that the learned single judge, after having correctly found that there was indeed manufacturing activity, has erred in taking the view that the appellant has not fulfilled the conditions ....
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....f this court, it is not open to the parties to take a contrary view. It is contended that the first part is independent of the second part. Examples are given. Appellant is also qualified under clause (c). Appellant had placed orders for supply of paramix plant comprising of deaeration plant, mixing plant, beverage chilling plant, carbonation plant, switch and control unit and frame, blow moulder, pet conveyor system, unscrambler and air conveyor, gripper, rinser, warmer, case packer, filler and capper. It is stated that all these orders for Rs. 7 crores are necessary plant and machinery. It is further contended that even construing the matter in a very narrow manner and considering only two orders as firm orders, the requirement of clause (c) is fulfilled, because all that the clause requires was the demonstration of having taken bona fide steps. Reliance is placed on the decision in Deepak Fertilisers's case [2007] 7 VST 535 (SC); [2007] SC 2 GJX 709 to contend that it could not have been contemplated to fix different level of rigour for cases coming under clause (b) and clause (c), as under clause (b) if the appellant had simply applied for loan, it would have qualified w....
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....ted money to purchase land for setting up a unit, but does have the resources to set up the industry without availing of finance and a self financing unit, which has substantial resources have been categorized on a rational basis. In O.P. No. 8563 of 2003 (Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker)), it is contended that the appellant had approached this court and contended that they had paid advance for four major items of machinery and placed firm orders with respect to the other plant and machineries and also contended that as per the deeming provision with respect to the items for which advance has been paid, it should be deemed to be placing of firm orders with respect to the said machineries and the quantum of advance paid is irrelevant. It is also contended that in the earlier round of litigation in respect of items for which advance had not been paid, the appellant had contended that they are ready to adduce evidence for the placing of orders. This court had taken the view that the quantum of advance is not relevant and however negligible, the fact of payment of advance would result in finding of placing of firm orders in respect of those i....
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....erit, it is contended and what was considered in the earlier round was whether the quantum of advance is relevant or not. The specific case of the appellant was that it came squarely under sub-clause (c), it is pointed out. In the case of medium and large scale industries, the eligibility certificate in the case of units assisted by the KSIDC or KFC ought to be issued by the Corporation rendering financial assistance and with respect to the self-financing units, by the Director of Industries. The eligibility certificates so issued only certifies the quantum of fixed capital investment otherwise eligible for exemption and the date of commercial production. There is a two-tier system in respect of large and medium scale industries as distinct from SSI or Sick Industrial Units. The decision in Mahabir Vegetable Oils Pvt. Ltd. v. State of Haryana [2006] 145 STC 350 (SC); [2006] 3 SCC 620 relied on by the appellant is sought to be distinguished on the ground that in the said decision the dictum laid down was that exemption cannot be taken away retrospectively particularly when the parent Act does not empower such a course. S.R.O. No. 1092 of 1999 does not evidence any such retrospective....
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....ufacture involved must be kept in mind. The court also took the view that the difficulty in ascertaining the fulfilment of condition of exemption could not be a criterion for refusal of exemption. (iii) In Commissioner of Income-tax v. Strawboard Manufacturing Co. Ltd. [1989] 177 ITR 431 (SC); [1989] Supp. 2 SCC 523, the apex court was considering the case whether straw-board could be said to fall within the expression "paper and pulp". The court took note of the fact that the provision for rebate was made for the purpose of setting up of new industries and that it was clear when the Schedule referred to paper and pulp, they in fact intended to refer to paper and pulp industry. The court further held as follows: (page 434 of ITR) "...The expression has been used comprehensively. It is necessary to remember that when a provision is made in the context of a law providing for concessional rates of tax for the purpose of encouraging an industrial activity a liberal construction should be put upon the language of the statute..." (iv) In State of Jharkhand v. Tata Cummins Ltd. [2006] 145 STC 340; [2006] 4 SCC 57, the apex court was dealing with an exemption provision in a....
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....and machineries to be used in the manufacture of goods meant only for export in units situated in the defined zones. The object and purpose of such exemption notification is to encourage exports by granting exemption from customs duty on materials that are required to be imported for the purpose of manufacture of resultant products which are to be exclusively exported. The words of the notification have to be construed keeping in view the said object and purpose of the exemption. CEGAT erred in adopting a very narrow approach while construing the words 'for being used in connection with the production of goods for export'." (viii) In Pappu Sweets and Biscuits v. Commissioner of Trade Tax, U.P. [1998] 111 STC 425 (SC); [1998] 7 SCC 228 the question which arose was whether toffee is sweetmeat or a commodity of a like nature and therefore the appellants' industrial unit making toffee, though newly set up, was not entitled to exemption as sweetmeat was among the products not entitled to exemption. The court held as follows: (page 431 of STC) "The notification further discloses that the object of declaring exemption from payment of sales tax was to increase industrial ....
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....d consideration of public interest and the fact that there cannot be estoppel against a statute are exceptions. (xi) Appellant also relies on the decisions reported in Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346 (SC); [1989] 2 SCC 285 and State of U.P. v. Deepak Fertilizers & Petrochemical Corporation Ltd. [2007] 7 VST 535 (SC); [2007] (SC2) GJX 0709 SC for the proposition that the notification cannot discriminate. In the latter case except NPK 23:23:0 all other phosphatic fertilizers of NPK were exempt. The court found it discriminatory. In the first case, namely, Arya Vaidya Pharmacy's case [1989] 73 STC 346 (SC); [1989] 2 SCC 285, the court frowned upon denial of the concessional rate to ayurvedic medicines containing alcohol, it being subjected to higher rate of tax while all other medicinal preparations were taxed at a lower rate. (xii) The decision in K.P. Varghese v. Income-tax Officer, Ernakulam [1981] 131 ITR 597 (SC); [1981] 4 SCC 173 is relied on for the principle of contemporanea expositio. The court held as follows: (page 612) "... The rule of construction by reference to contemporanea expositio is a well established rule for interpreting....
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....pondents. Learned Government Pleader placed reliance on the decision of the Supreme Court reported in Union of India v. Wood Papers Ltd. [1991] 83 STC 251. In the said decision the court, inter alia, held as follows: (page 254) "Entitlement of exemption depends on construction of the expression 'any factory commencing production' used in the table extracted above. Literally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective, etc. That is why its construction, unlike charging provision, has to be tested on different touchstone. In fact, an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly either because of legislative intention or on economic justification of inequitable burden or progressive approach of fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking....
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....nt or superfluous. It is further held as follows: (page 349) "...Where the words are clear and there is no obscurity and the intention of the Legislature is clearly conveyed, there is no scope for the court to take upon itself the task of amending or altering the statutory provisions. Wherever the language is clear the intention of the Legislature is to be gathered from the language used. While doing so what has been said in the statute and what has not been said has to be noted. A construction which requires for its support addition or substitution of words which results in rejection of words has to be avoided. The court cannot aid the Legislature's defective phrasing of an Act, the court cannot add or mend and by construction make up deficiencies which are left there..." (ii) In State of Rajasthan v. J.K. Udaipur Udyog Ltd. [2004] 137 STC 438 (SC) the court dealing with an exemption scheme under the Sales Tax Act held as follows: (page 439) "An exemption is by definition a freedom from an obligation which the exemptee is otherwise liable to discharge. It is a privilege granting an advantage not available to others. An exemption granted under a statutory provis....
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....tions. In the same lines the respondents relied on the decision in Dr. Pragna R. Jambusaria v. State of Gujarat [1998] 109 STC 124 (Guj). The Government, in the said case, attempted to alter the scope of the notified exemption. This was found to be impermissible. In response to the contention of the appellants that the notification does not contemplate a two-tier system, where once the Director issues eligibility certificate, it becomes binding on the Tax Department. Reliance is placed by the respondents on the decision of a learned single judge reported in Tamil Nadu Ammonia Pvt. Ltd., Ernakulam v. Secretary (Taxes) II, Board of Revenue (Taxes) [1998] 6 KTR 644 (Ker). Therein the learned judge took the view that in view of the provision contained in clause 3(b) of Notification S.R.O. No. 521 of 1992, the Board of Revenue has got the power and jurisdiction to consider the claim for exemption independently. Whether the findings against the appellant are impermissible in view of res judicata and/or constructive res judicata arising out of the judgment in O.P. No. 8563 of 2003 (Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker)) as confirmed by the Divi....
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....e been placed with the sellers prior to the first day of January, 2000..." Thereafter, the court proceeded to direct the second respondent to independently consider the appellant's application in the light of the observations contained in the judgment and after considering the documents with regard to the placing of firm orders in respect of plant and machinery and equipment furnished by the appellant untrammelled by the view taken by the State Level Committee as well as in exhibit P26. Thus while pronouncing the decision as vitiated, the learned judge proceeded to specifically state that even in cases where no advance payments had been effected, it can be said that firm orders were placed with the sellers prior to the first date of January, 2000. If it were a case where nothing remained to be done, in the light of the view taken by the learned single judge, it was unnecessary for the court to further direct a decision to be taken in the light of the documents to be produced and in accordance with law. We take this view despite the averments taken in the Special Leave Petition no doubt where the impression is created that as the judgment stood, they would be bound to give th....
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....notification, which we have extracted above. Hence we reject the said contention. Exhibit R1(a) is a certificate of eligibility. No doubt as found by the learned single judge it is not challenged in the writ petition. No doubt it was not served on the appellant. At least when it came to be produced along with the counter-affidavit, it could have been made the subjectmatter of the challenge. In exhibit R1(a) eligibility certificate it is stated that the eligibility certificate is issued on the condition that the Deputy Commissioner (General), Commercial Taxes, which is the sanctioning authority shall decide on the eligibility of the unit for the sales tax exemption under the relevant notification vide general procedure in this regard clarified by the State Level Committee in the meeting held on February 15, 2003. Thus even the eligibility certificate as it stood granted and which is a premise of the appellant's contention is conditional and does not militate against the authority of the Deputy Commissioner, but on the contrary declares that it is the Deputy Commissioner to decide on the question of eligibility. No doubt learned counsel for the appellant made an attempt to con....
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....meaning of clause (b) is concerned, though it is attractive at first blush, we would think that having regard to the scheme of the notification flowing as it does from the words used, the contention does not contain any merit. There cannot be any doubt that even treating Notification, S.R. O. No. 1092 of 1999, in so far as it permits the grant of exemption in the exceptional cases as an exemption notification, it is settled law that such an exemption notification must be construed strictly. In a notification granting exemption as held by the apex court, consideration of the question falls into two parts. The first stage is when the court considers whether the party has satisfied the eligibility criteria, the question is whether the subject falls in the exemption clause and being in the nature of an exception, it has to be construed strictly. Once an ambiguity or doubt regarding applicability is removed, then full effect has to be given and it calls for a wider and liberal construction. No doubt, there is also the principle that when a court is considering a notification as providing for the benefits for the development of a backward area, an interpretation which is purposeful and b....
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....(iii), which applies to clauses (ii) and (iii), Government had advisedly used a deeming fiction by employing the word "deemed". In other words, Government took care to use two expressions to convey a different meaning. In short, when it uses the word "considered" in clauses (ii) and (iii), it contemplated that it was only if the conditions which were laid down therein were satisfied that it could be taken that a person has taken effective steps. The purport of the word "deemed" was to put an end into any inquiry that may have otherwise been called for to ascertain whether effective steps were taken. In other words, if a party shows that advance has been paid, however negligible it may be, it suffices to attract the deeming provision and to demand the benefit of exemption provided other conditions are satisfied. Thus, we are not impressed by the argument based on the general words in the opening paragraph of clause (ii). We are supported in the view that it is open to the State to place conditions, so as to foreclose any controversy and consequential inquiry. In the decision reported in State Level Committee v. Morgardshammar India Ltd. [1996] 101 STC 1 (SC) the provision provided t....
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.... the decision in Arya Vaidya Pharmacy v. State of Tamil Nadu [1989] 73 STC 346 (SC); [1989] 2 SCC 285. In Arya Vaidya Pharmacy's case [1989] 73 STC 346 (SC); [1989] 2 SCC 285 also the appellants had filed writ petitions in the High Court of Madras challenging the levy of 30 per cent on arishtams and asavas which contained alcohol on the ground that it was discriminatory. The further question to be considered is whether what is the import of the words "plant and machinery", and what is the effect of the letters issued by the Secretary, Taxes and the Government of Kerala in the context of the doctrine of contemporanea expositio. This is the crucial question, which falls for our decision. Clause (c) undoubtedly mandates that a person must have placed firm orders for the necessary plant and machinery before January 1, 2000 to entitle it to the benefit of exemption. Two rival theories are pressed into service, each vying with the other for our acceptance. On the one hand it is contended by the learned counsel for the appellant being a clause which is embedded in a notification providing for an incentive in the form of an exemption for setting up a unit in a State with little indu....
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....d as firm orders, prior to December 31, 1999. It consists of nine items. Item No. 1 is the sub-lease of 50.48 acres of land. Item No. 2 is the pet conveyor system. The order is stated to be placed on December 24, 1999 with Selvel, Mumbai. The amount shown is Rs. 40,00,000. Item No. 3 is the machinery blow-moulder. The order is stated to be dated December 20, 1999 and the order is placed with Sidel Industry, Malaysia. The amount is shown as Rs. 3,09,62,065. Item No. 4 is installation and commissioning of the blowmoulding machine. The amount is Rs. 15,00,000. The order is on December 20, 1999. Item No. 5 is placed with Skyline Engineering Contracts (India) Pvt. Ltd., and it relates to building foundation, roads, boundary walls, open storage, drainage, ETP and other miscellaneous infrastructure. Item No. 6 is shown as plant and machinery paramix plant, CMX-18, de-aeration plant, mixing plant, beverage chilling plant, carbonation plant, switch and control unit and frame. The order is placed with KHS Machinery Pvt. Ltd., Ahmedabad. The amount shown is Rs. 65,00,000. Item No. 7 is shown as unscrambler and air conveyor with Lanfranchi, Italy. The amount shown is Rs. 57,47,300. Item No. 8 ....
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.... contrary to the judgments. In the view we have taken on the powers of the Deputy Commissioner, we are of the view that it is open to the Deputy Commissioner to issue exhibit P13. It was the bounden duty of the appellant to produce and satisfy the Commissioner that the appellant was eligible for exemption and therefore entitled to an order of exemption within the meaning of clause 10(c), which we have already extracted. As far as item No. 5 is concerned, it relates to building foundation, roads and boundary walls. The learned judge took the view that these are not part of the necessary plant and machinery. In this context, we have to notice the definition of the words "fixed capital investment of a unit" in exhibit P1 notification (S.R.O. No. 1729 of 1993). It is defined as follows: "'Fixed capital investment of a unit' shall mean the total investment of land including land development cost, building, plant and machinery, power generating system, delivery vehicles and the like required for the industrial purpose." A perusal of the definition of "fixed capital investment of a unit" would show that while both investment in land and land development cost and....
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....rom Deutshe Bank) and hence the company qualifies for the tax exemption contemplated in G.O. (P) 57/2000/T.D dated March 31, 2000 provided all other conditions are complied with. The case may be disposed of in accordance with the procedure stipulated." Reliance is also placed on the communication dated December 21, 2001 by the Principal Secretary (Industries) to the Director of Industries and Commerce. It is stated as follows: "In response to a clarification sought by the Commissioner, Commercial Taxes as per his letter dated October 12, 2001, Government had clarified that the Pepsi Cola Company satisfies the eligibility criteria for having paid the advance and the amount getting credited into the sellers' account for the purchase of equipment. The S.R.O. No. 295 of 2000 generally prescribes the criteria for tax exemption. The SRO being in general nature, you can take a view on other variations of the request and the SRO cannot prescribe specific condition for all possible situations. In the above circumstances, I am to request you to take a view and decide the matter." Further reliance is placed on the letter written by the Principal Secretary, Industries to the Direc....
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.... that under the doctrine of contemporanea expositio, the views of the executive officer administering the act has high persuasive effect. But when the language is clear then the court would not hesitate to ignore the views of the executive. The contention of the appellant is that, the fact that appellant has placed firm orders admittedly for certain items suffices to fulfil the criteria. He submits that what is relevant is whether the machineries in respect of which firm orders are placed are plant and machineries necessary for the running of the unit. In considering the acceptability of this contention, we must not forget that the theory of effective steps is incorporated in the notification in order to meet the challenge based on the doctrine of promissory estoppel. Promissory estoppel is an equitable principle. Apparently, S.R.O. No. 1092 of 1999 is not a notification which grants exemption. It is a notification by which the exemption granted by S.R.O. No. 1729 of 1993 was withdrawn. No doubt exceptional circumstances are enumerated and those exceptional circumstances are based on cases of bona fide acts of persons falling in different categories, which would entitle them for....