Companies Ltd. Vs. State of Bihar & Ors  Insc 595 (29 September 2004)
Arijit Pasayat & C.K.
Thakker Arijit Pasayat, J.
Challenge in this appeal is to the legality of judgment rendered by a
Division Bench of the Patna High Court.
Appellant questioned legality of the notices issued on 30.5.2002 and
24.6.2002 by the Deputy Commissioner, Commercial Taxes, Patna Special Circle,
Patna (Respondent No.3) proposing to levy tax for the assessment years 1998-99,
1999-2000 and 1.4.2000 to 14.11.2000 under the Bihar Finances Act, 1981 (in
short the 'Act') before the High Court.
Notices were issued on the purported basis that the appellant was not
entitled to adjustment of tax paid under the Bihar Tax on Entry of Goods into
Local Areas for Consumption, use or Sale Therein Act, 1993 (hereinafter
referred to as the 'Entry Tax Act'). The High Court upheld validity of the
notice and action taken by concerned respondents.
Factual position in a nutshell is as follows:
Appellant is a public limited company registered under the Companies Act,
1956 (in short the 'Act') and has two manufacturing units -one at Sindri and
another at Jhinkpani. Prior to bifurcation of the erstwhile State of Bihar the
units were registered under the Act and as well as under the Entry Tax Act and
the consolidated registration was made at Patna Special Circle, under the Act.
On 15th November, 2000, the erstwhile State of Bihar was bifurcated into two
States, namely, State of Jharkhand and the State of Bihar and the said two manufacturing
units of the appellant now have fallen in the State of Jharkhand.
In the year 1995, the State Government has come out with Industrial Policy
to give incentives to the new units or the existing units having
additional/incremental production with regard to payment of sales tax. In terms
of the aforesaid policy, claim of the appellant is that it invested money for
additional/incremental production cement in the unit at Sindri and with regard
to aforesaid additional/incremental production exemption was granted in terms
of the aforesaid industrial policy as well as under the provisions of the Act
for the period from 1.4.1998 to 31.3.2007 The appellant also claimed exemption
under the provisions of the Act on the basis of the aforesaid Industrial Policy
which was denied by the State and then he filed a writ petition before the High
Court and the same was dismissed and the matter is pending before this Court.
According to the appellant it was entitled to adjust the entry tax paid
under the Entry Tax Act while computing the tax payable under the Act.
Appellant questioned correctness of the notices issued by filing writ petition
(CWJC No.7821 of 2002). By the impugned judgment dated 28.3.2003 the Division
Bench of the High Court dismissed the writ petition holding that there was no
scope of such adjustment.
Reference was made to various provisions of the Act i.e. Section 3(1) of the
Entry Tax Act and the exemption notification No. SO 37 dated 25th February,
1993 issued by the State Government. It was held that "tax" as
defined under clause 2(x) of the Act includes additional tax.
Clause 2 of the exemption notification issued clearly stipulated that if
there was liability under the Act then that shall be reduced to the extent of
tax paid under the Ordinance issued in relation to the entry tax. It was
further held that as additional tax is also a part of tax as stipulated in
clause 2 of the Act, the appellant is entitled to benefit under the
notification and its liability for payment of additional tax has to be adjusted
against payment of tax under the Entry Tax Act.
Learned counsel for the appellant submitted that the High Court has failed
to notice the clear language used in the Act and the Entry Tax Act. Bifurcation
sought to be introduced as regards each goods which have suffered tax and those
which were exempted from payment of tax is not legally permissible. According
to the respondents it is only that part of the turnover which has suffered tax
and it is the tax levied in respect of such turnover which is available to be
adjusted in terms of the exemption notification and not otherwise. This was
stated to be an erroneous reading of the relevant provision.
Learned counsel for the respondent submitted that the exemption notification
has to be construed strictly. There cannot be any exemption by implication.
When there is no liability to tax because of the exemption granted, the
question of any adjustment of tax in respect of goods which have not suffered
tax does not arise.
It would be appropriate to take note of the relevant provisions of the Entry
Tax Act and the Act. Section 2(c) of the Entry Tax Act reads as follows:
"2(c): "Entry of goods" with all its grammatical variations
and cognate expressions means Entry of goods into a local area from any place
outside that local area or any place outside the State for consumption use, or
[Provided that in case of such goods which are liable to tax under Section
12(1), of the Bihar Finance Act, 1981, entry of Goods shall mean entry of goods
into local area from any place outside the State for consumption, use or sale
therein.]" Section 3 of the Entry Tax Act is the charging section under
the said Act. Same reads as follows:
"3. Charge of Tax- (1) There shall be levied and collected a tax on
entry of scheduled goods into a local area for consumption, use or sale therein
at such rate not exceeding 5 percentum of the import value of such goods as may
be specified by the State Government in a notification published in a official
gazette subject to such conditions as may be prescribed.
Provided different rates for different scheduled goods and different local
areas may be specified by the State Government.
(2) The tax leviable under this Act shall be paid by every dealer liable to
pay tax under Bihar Finance Act, 1981 or any other person who brings or causes
to be brought into the local areas such scheduled goods whether on his own
account or on account of his principal or takes delivery or is entitled to take
delivery of such goods on such entry:
Provided no tax shall be leviable in respect of entry of such scheduled
goods effected by a person other than the dealer if, the value of such goods
does not exceed 25 thousands in a year.
Provided further that where an importer of scheduled goods liable to pay tax
under the Act, becomes liable to pay tax under the Bihar Finance Act, 1981
(Bihar Act, 5 1981) by virtue of sale of such scheduled goods, his liability to
pay tax under the Bihar Finance Act, 1981 shall stand reduced to the extent of
tax paid under the Act.
(3) The liability to pay tax on scheduled goods shall only be at the point
of first entry into a local area and any subsequent entry or entries into any
other local area or areas of the said scheduled goods shall not be subject to
tax provided the subsequent importing dealer produces before the assessing
officer the original copy of the cash memo, invoice, bill or challan issued to
him by the dealer from whom he purchased or received the said scheduled goods,
and files a true and complete declaration in the form and manner
Section 2(d) of the Act defines "Dealer". Section 3(h) defines
"Goods" and Section 3(j) defines "Gross Turnover". Section
3 of the Act is the charging section which reads as follows:
"3. Charge of tax (1) Subject to the provisions of this part, the
sales tax or the purchase tax as the case may be, shall be paid by every dealer
(a) with effect from the date of commencement of the Bihar Finance Act, 1981
if his gross turnover during a period not exceeding twelve months immediately
preceding the said date exceeded the specified quantum;
(b) to whom clause (a) does not apply, with effect from the date immediately
following the day on which his gross turnover during a period not exceeding
twelve months immediately preceding such date first exceeded the specified
Explanation In this section, the expression, 'specified quantum' means (i)
in relation to an importer, nil;
(ii) in relation to any dealer, who himself manufactures any goods, nil;
(iii) in relation to any dealer engaged in the execution of works contract Where
the total value of works contracts taken together exceeds Rs. Twenty-five
thousand in a year;
(iv) in relation to any dealer engaged in the delivery or supply of goods as
a result of transfer of the right to use any goods for any purpose nil;
(v) in relation to any other dealer, Rs.1,00,000.
Provided that the State Government may, by notification published in the
Official Gazette and subject to condition of one month's previous notice,
increase or reduce the amount of specified quantum.
(2) Such tax shall be payable to a dealer to whom clause (a) of sub-section
(1) applies on sales and purchases made inside Bihar on and from the date of
commencement of the Bihar Finance Act, 1981 and by a dealer to whom clause (b)
of the said sub-section applies on such sales and purchases made on or from the
date immediately following the day mentioned in the said clause (b).
(8) Notwithstanding anything contained in other sub-sections, a dealer
registered under the Central Sales Tax Act, 1956 (LXXIV of 1956) shall
irrespective of the quantum of his gross turnover, be liable to pay sales tax
on his ale, made, inside Bihar, of any goods which he has purchased after
furnishing a declaration under sub-section (4) of Section 8 of the said Act or
any goods in the manufacture or possessing of which goods so purchased by him
have been used:
Provided that sales tax shall not be payable if the dealer shows to the
satisfaction of the prescribed authority that the sale is deductible from his
gross turnover under clause (c) of sub-section (1) of Section 21 for purpose of
determining his taxable turnover.
(10) The tax for each year may, with the previous approval of the
Commissioner, be estimated and collected in advance during a year in such
instalments as may be fixed by the prescribed authority. For the purpose the
prescribed authority may require the dealer to furnish an advance estimate of
his taxable turnover for that year and may provisionally determine the amount
of tax payable by the dealer in respect of the year. Thereupon the dealer shall
pay the amount so determined by such date as may be fixed by such
authority." Section 6 deals with charge of additional tax and Section 7
deals with exemption. Section 7 is a pivotal provision so far as present
dispute is concerned. It reads as under:
"7. Exemption (1) No tax shall be payable under this Part on sales or
purchases of goods which have taken place (a) in the course of inter-State
trade or commerce;
(b) outside the State;
(c) in the course of import of goods into, or export of goods out of the
territory of India.
(2) The provisions of the Central Sales Tax Act, 1956 (LXXIV of 1956) shall
apply for determining when sale or purchase of goods shall be deemed to have
taken place in any of the ways mentioned in clauses (a), (b) or (c) of
(3) The State Government may, by notification and subject to such conditions
or restrictions as it may impose, exempt from the sales tax or purchase tax (a)
sales of any goods or class or description of goods;
(b) sales of any goods or class or description of goods to or by any class
(c) purchase of any goods by any class of dealers or any purchase or
category or description of purchases of such goods.
(4) Where exemption from the levy of tax under this Part on any sale or
purchase of goods is claimed by a dealer under the provisions of this section
or Section 21, the burden of proof shall lie on such dealer and the prescribed
authority may require the dealer to substantiate the claim in the prescribed
manner." Literally "exemption" is freedom from liability, tax or
Fiscally it may assume varying shapes, specially, in a growing economy.
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 of 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 liberal and
strict construction of an exemption provision is to be invoked at different
stages of interpreting it. When the question is whether a subject falls in the
notification or in the exemption clause then it being in nature of exception is
to be construed strictly and against the subject but once ambiguity or doubt
about applicability is lifted and the subject falls in the notification then
full play should be given to it and it calls for a wider and liberal
construction. (See Union of India and Ors. v.
Wood Papers Ltd. and Anr. (1990 (4) SCC 256), Mangalore Chemicals and
Fertilisers Ltd. v. Deputy Commissioner of Commercial Taxes and Ors.
(1992 Supp (1) SCC 21) to which reference has been made earlier.
Notification no.37 dated 25th February, 1993 is also relevant, more
particularly, clause (2) thereof. There is no dispute that in terms of clause
(1) cement is one of the scheduled goods. Clause (2) reads as under:
"Where an Importer of India made foreign liquor, Vegetable and
Hydro-generated Oil or Cement is liable to pay tax under sub-section (2) of
Section 3 of the Ordinance becomes liable to pay tax under the Bihar Finance
Act, 1981 by virtue of sale of such scheduled goods, his liability under the
Bihar Finance Act, 1981 shall be reduced to the extent of tax paid under the
Ordinance." It is to be noted that reference therein is made to the
Ordinance i.e. Bihar Ordinance No.1/93. The same has been enacted. The
notification has been issued in exercise of the powers conferred by sub-
section (1) of Section 3 of the Entry Tax Act and proviso to sub- section (1)
of Section 12 of the Act.
A bare reading of clause (2) of the notification makes the position clear
that liability of importer of cement under the Act shall be reduced to the
extent of tax paid under the Entry Tax Act where such importer become liable to
pay tax under the Act by virtue of sale of the scheduled goods.
Stand of the respondents appears to be that since there was no liability in
respect of portion of sales because of notification of the State Government SO
No.479 dated 22.12.1995 as part of the Industrial Policy 1995 granting
exemption from payment of sales tax on production of extended industrial unit
which undertakes expansion of their capacity, no question of adjustment arises.
To put differently stand of the respondent is that when there was no tax
liability on such sales, there was no liability to pay any tax and, therefore,
the benefit of adjustment available under clause (2) of the notification SO No.
37 dated 25.2.1993 does not arise. The interpretation put forward by the
respondents found acceptance by the High Court.
Crucial question, therefore, is whether the appellant had any
"liability" under the Act. The answer to this lies in Section 3 of
the Act which is extracted above and is the charging section. In sub-section
(1) subject of the provision of the part (i.e. part I) sales tax or purchase
tax, as the case may be, shall be paid by every dealer as provided in the
section itself. Section 7 speaks of exemption. Sub- section (3) of Section 7
stipulates that State Government may, by notification and subject to such
conditions or restrictions as it may impose, exempt from sales tax or purchase
tax certain sales or purchases as the case may be. The question of exemption
arises only when there is a liability. Exigibility to tax is not the same as
liability to pay tax. The former depends on charge created by the Statute and
latter on computation in accordance with the provisions of the Statute and
rules framed thereunder if any. It is to be noted that liability to pay tax
chargeable under Section 3 of the Act is different from quantification of tax
payable on assessment. Liability to pay tax and actual payment of tax are
conceptually different. But for the exemption the dealer would be required to
pay tax in terms of Section 3. In other words, exemption presupposes a
liability. Unless there is liability question of exemption does not arise.
Liability arises in term of Section 3 and tax become payable at the rate as
provided in Section 12. Section 11 deals with the point of levy and rate and
The word "liable" in the Concise Oxford Dictionary means
"legally bound, subject to a tax or penalty, under an obligation". In
Black's Law Dictionary (6th Edn.) the word "liable" means "bound
or obliged in law or equity; responsible, chargeable, answerable, compellable
to make satisfaction, compensation, or restitution...... obligated, accountable
for or chargeable with". The above position was noted in Zungarrao Bhikaji
Nagarkar v. Union of India and Ors. (1997 (7) SCC 409) Tax at the appropriate
rate would have become payable but for the exemption. Decision in Australian
Mutual Society v. IRC (1962 AC 135 (P.C.) has stated the position as follows:
"The phrase "exempt from taxation" (Land and Income Tax Act,
1954 (No.6701) (New Zealand) Section 86(1) does not cover income that is not at
all within the reach of the New Zealand tax laws. It refers to income that
would, had it not been for the exemption, otherwise have been so taxable".
Therefore, it cannot be said that as tax was not paid on portion of the
turnover of the scheduled goods i.e. cement, the assessee- appellant had no
liability under the Act. It was definitely liable to pay tax under the Act, but
for the exemption. There is no dispute that the assessee-appellant was liable
to pay tax under sub-section (3) of Section 3 of the Entry Tax Act. Therefore,
it was entitled to reduction to the extent of tax paid under the Entry Tax Act
while working out tax payable by it under the Act.
Above being the position the notices issued by the respondent are without
legal sanction and are quashed. The judgment of the High Court is set aside.
The appeal is allowed with no order as to costs.