of Orissa & Ors Vs. M/S. Tata Sponge Iron
Ltd  Insc 956 (18
Sinha & Harjit Singh Bedi
APPEAL NO. 4342 OF 2007 [Arising out of SLP (Civil) No. 4659 of 2007] S.B.
Interpretation of an exemption notification in regard to payment of sales tax
is involved in this appeal which arises out of a judgment and order dated
9.8.2006 passed by the High Court of Orissa in O.J.C. No. 2213 of 2001.
Before embarking upon the said question, we may notice the basic fact of the
herein which is a large industrial unit had set up a Sponge Iron Factory at Bileipada,
Joda in the district of Keonjhar, Orissa.
it is classified as a large scale industry in terms of Industrial Policy
Resolution (IPR), 1980 adopted by the State. In or about 1989, IPR was adopted
for existing industries classified under IPR, 1980 wherein benefits for
exemption from payment of sales tax on finished products were to be granted
subject to the terms and conditions laid down therein including repayment of
loan availed under IPR, 1980. Before the benefits of the said IPR could be
obtained by the respondent, the Government of Orissa announced IPR, 1992 in
terms whereof the existing industrial units could obtain exemption or deferment
of sales tax on finished products and capital investment subsidy provided it
had undergone an expansion/ modernization/ diversification of its unit.
our purpose, we may only notice paragraphs 7.4 and 7.5 of IPR, 1992 which are
in the following terms:
Exemption / Deferment of Sales Tax on raw materials, spare parts, and finished
products of small, medium large scale and Pioneer Industrial Units.
Small, medium & Large scale industrial units including, pioneer units will
be eligible for exemption of sales tax on raw materials, spare parts, &
finished products for a period of 5 years subject to a ceiling of 100 per cent
of fixed capital investment if the unit is located in zone-A 75 per cent.
located in zone B and 60 per cent if located in zone-C. New medium and large
industrial units may also opt to defer payment of sales tax on their finished
products for a period of 5 years subject to a maximum of 100 per cent of fixed
capital investment if the unit is located in zone-A 75 per cent if located in
zone-B and 60 per cent if located in zone-C from the date of commercial
amounts in respect of each year will be repaid in full after the expiry of the
period of deferment annually. Period of exemption / deferent allowed for
different zones shall be extended by two years for Pioneer units. However,
defaulters of OSFC/IPI COL dues shall be eligible only after they clear such
Exemption / Modernization / Diversification.
incentive by way of exemption or deferment of sales tax on finished products
shall be available for expansion / modernization / diversification of existing
units taken up after the effective date subject to a limit of 60 per cent of
the additional capital investment in plant and machinery only in zone-C, 75 per
cent in zone-B and 100 per cent in zone-A provided that such expansion /
modernization / diversification has been undertaken on the basis of separate
project report duly appraised by the financial institutions and provided
further that subject to the provisions of the Sales Tax Act, the benefit of
exemption / deferment shall not have the effect of reducing the sales tax paid
by the unit prior to commencement of the expansion / modernization /
diversification programmes. In other words, the benefit shall be applicable to
Respondent contended that in view of paragraph 7.5 of IPR, 1992 it was entitled
to the benefit of deferment of payment of sales tax on finished products in
respect of incremental sale over and above the immediate preceding year as it
existed prior to expansion of the industrial unit upto a limit of Rs. 49.45 crores
being 75% of the fixed capital investment in the plant and machinery. It was
furthermore claimed to be entitled to capital investment subsidy. As the said
benefits were denied to the respondent, it filed a writ petition before the
High Court of Orissa, Cuttack which was marked as O.J.C. No. 2213
reason of the impugned judgment, a Division Bench of the Orissa High Court
allowed the said writ petition directing:
Opposite party No.2 The Director of Industries, Orissa is directed to
reconsider the petitioner's application for re-evaluation of its investment for
expansion of the unit and determine afresh, the extent to which the petitioner
is entitled to the sales tax incentives and also to make necessary amendment to
the eligibility certificate granted by it in accordance with the IPR, 1992.
stipulation of a 'time period' in the certificate of eligibility granted to the
petitioner in Form No.II-A under Annexure-4 to the writ petition is declared
ultra vires the IPR, 1992 and shall have no effect. Necessary amended
"Eligibility Certificate" in terms of directions in Paragraphs 1
& 2, be issued to the petitioner, within two months from the date of
communication of this judgment.
After issue of the revised eligibility certificate as directed above, the
petitioner company is directed to produce the same before the Sales Tax
Officer, Keonjhar Circle, who on receipt of the same along with the revised
returns that may be filed by the petitioner as a consequence of revision of the
eligibility certificate, shall pass appropriate order of assessment and direct
refund of excess tax deposited on ascertainment of the assertion of the
petitioner that it has not collected sales tax from the purchasers but had paid
the same from its own re-source, within a period of two months from the date of
production of the "Revised Eligibility Certificate".
Opposite part No.1 is directed to reconsider the petitioner-company's
application for grant of capital investment subsidy in terms of the direction
contained herein and release the "Capital Investment Subsidy" as is
due to the petitioner within a period of two months from the date of
communication of this order."
Vikas Singh, learned Additional Solicitor General appearing on behalf of the
appellant, restricted his submissions only in regard to the exemption for
payment of sales tax. The learned counsel submitted that although no period for
obtaining the benefit thereof had been fixed in the original policy, the
operational guidelines issued in that behalf will clearly point out that the
said benefit was to be granted for a period of five years in case of new industries
and for a period of seven years in case of pioneer industries. In this behalf,
our attention has been drawn to paragraph 5 of operational guidelines in
respect of grant of sales tax concession under IPR, 1992, which reads as under:
Sales Tax exemption / deferment certificate for raw material, spare parts and
finished products shall be issued for a period of 5/7 year at a time. The
Director of Industries Orissa and Director of H & CI can however, inspect
the unit and withdraw the certificate in case of non- fulfillment of the
conditions. The beneficiary unit should also maintain necessary records and
registers for this purpose as may be prescribed by the Director of Industries, Orissa."
pointed out that the purported operational guidelines had been circulated by
reason of a circular letter dated 8.02.1993 by the Government of Orissa to all
concerned which is in the following terms:
am directed to enclose herewith a set of "operational guidelines"
relating to Sales Tax concessions admissible under Industrial Policy Resolution
1992 (IPR 1992) effective from 1.8.92 for your information and necessary
are requested kindly to bring it to the notice of all concerned for proper
implementation of the provisions of IPR 1992"
learned Additional Solicitor General would submit that the respondent herein
made expansion of its undertaking in the year 1997 and it having asked the
benefit in terms of IPR, 1992 for a period of five years only as would be
evident from its application filed in prescribed Form II-A dated 26.05.1999
which is in the following terms:
certificate is issued for 5 (five) years of its commercial production or
expansion / modernization / diversification and is valid from the date of
7.9.98 to 6.9.2003.";
it is estopped
and precluded from contending otherwise, and, thus, it cannot be permitted to
change its stand by seeking an amendment therefor as has been sought to be done
by its letter dated 7.04.2000 and, thus, it was rightly rejected by the
Government of Orissa in terms of its letter dated 17.05.2000.
said letter dated 17.05.2000 reads as under:
7.4 and 7.5 (Part II) of IPR'92 are co-related. Though paragraph 7.5 is silent
about the period of sales tax benefit, it refers to the previous paragraph of
7.4. Moreover, while considering to extend the S.T. benefit, one has to go by
the provisions of paragraph 6.1 (part-II) of the IPR'92 which states as
to operational guidelines / instructions and procedure, sales tax incentives
shall be allowed after the unit has gone into commercial production and from
the date of commercial production."
operational guidelines, issued to Industries Deptt. vide Letter No.4068 dtd.
8.2.93 under the IPR'92 the period of exemption / deferment for E/M/D has been
clearly mentioned as 5 years. Accordingly the Director of Industries, Orissa
has issued eligibility certificate for a period of 5 years w.e.f.7.9.98 to
trust that the above clarification will remove your doubt."
A.K. Ganguli, learned senior counsel appearing on behalf of the respondent, on
the other hand, submitted that the exemption benefit was limited to the
finished products and not to the raw-materials and, thus, there is no infirmity
in the impugned judgment.
High Court passed the impugned judgment inter alia on the premise that
operational guidelines being in the nature of a subordinate sub- delegated
legislation, the same was required to be in consonance with the IPR and by
reason thereof no other or further condition could have been stipulated so as
to prevail over the policy decision itself holding:
we accept the contention advanced by the learned Counsel for the Revenue that
the 'operational guidelines' provide a "limitation" or "time period"
for sales tax incentives, it would tantamount to accepting a principle that by
sub- delegated legislation, a delegatee may also effectively amend or supplant
legislation, which it is clearly incompetent to do. On a reading of the said
'operational guidelines' and the terms thereof would clearly indicate that the
stipulations regarding time period find mention in Clause-5 of the 'operational
guidelines'. It would be clear that the said stipulation would relate only to
those industries covered under Para 7.3 and 7.4 of the IPR 1992 and would be
limited to apply to those industries only to which "time periods"
have been stipulated in the IPR itself and not to the industries / activities
covered under Paragraphs 7.2 and 7.5.
the petitioner's industry is covered in the EMD category under Para-7.5 of the
IPR 1992 read with Entry No.44 of SRO No.1091 of 1992, Clause 5 of the
'operational guidelines' cannot be said to apply to it. We are of the view that
Clause- 5 of the 'operational guidelines' and stipulation in the Eligibility
Form (the eligibility certificate), to the extent that it provides for a period
of time is not in consonance with the IPR, 1992, is clearly without
jurisdiction / without sanction of law and is also ultra vires to the IPR 1992.
The operational guideline and / or instructions were made for administration of
incentive contained in the Policy and not for the purpose of imposing any new
stipulation and / or conditions alien to and /or not in consonance with the
passing of the 1992 Policy. Such a stipulation cannot be in law be read into
and allowed to operate since it would frustrate the very objective sought to be
achieved by the 1992 Policy Declaration."
was furthermore held:
an analogy from the aforesaid principles of law, we are of the view that for
the incentive under paragraph 7.5 read with entry No.44 as notified in S.R.O
No. 1019 of 1992, exemption of tax did not provide any period of limitation.
Neither the IPR, 1992 nor the Finance Department Notification in SRO No.1019 of
1992 provided any stipulation as to how long the exemption from sales tax would
remain in force and therefore, the position that emerges therefrom, is that,
such exemption granted under the Notification was to remain operative till the
industry utilizes / exhausts the incentive granted to it. The petitioner is
entitled to such benefit till such time such exemption is allowed to remain in
force without being withdrawn by the subsequent notification. It is important
to point out here that no such notification withdrawing such exemption has been
brought to our notice in course of hearing."
Indisputably, pursuant to or in furtherance of the aforementioned IPR, 1992,
the State Government amended the provisions of the Orissa Sales Tax Act. Section
6 of the said Act reads as under:
Tax Free Goods The State Government may, by notification, subject to such
conditions and exceptions, if any, exempt from tax the sale or purchase of any
goods, or class of goods and likewise withdraw any such exemption."
Indisputably, again pursuant to or in furtherance of the aforementioned
provision, the Finance Department of the State of Orissa had issued
notification bearing SRO No. 1091 of 1992 dated 23.09.1992 and inserted Entry
44 in terms whereof the respondent became entitled to exemption. Entry 44 of
the said notification reads as under:
Sale of finished products of an existing industrial unit, located in Orissa
i.e. an industrial unit which has gone into production before 1st August, 1992,
and which has undertaken expansion / modernization / diversification of the
said unit after the 1st day of August, 1992 on the basis of separate project
report duly appraised by the financial institution, and a certificate to this
effect that is, regarding expansion / modernization / diversification of the
unit is produced from the concerned General Manager, Project Manager, District
Industries; Centre in case of Small Scale Units and a certificate in Form E
(92) is produced from the Director of Industries, Orissa in case of Medium,
Large and pioneer Units.
exemption of sales tax shall be limited to 60 per cent of the additional
capital investment, in plant and machinery only in Zone-C, 75 per cent of the
additional capital investment in plant and machinery only in Zone-B and 100 per
cent of additional capital investment in plant and machinery only in Zone-A.
capital investment in plant and machinery means additional investment of 50 per
cent of more of the undepreciated book value of fixed capital investment of an
existing unit in acquisition of plant and machinery for expanding /
modernization / diversifying the production of the said unit.
that the benefit of exemption is admissible only on the incremental sales arising
out of such expansion / modernization and diversification.
further that no exemption as indicated above shall be allowed to the following
categories of industries, namely:
Rice Hullers and Rice Mills.
Flour Mills including manufacture of Besan, Pulse Mill and chuda mills.
Further, the eligibility certificate granted for sales tax concession on sale
of finished products categorically states that exemption may be available as
per Finance Department Notification No. SRO 1091 of 1992 as amended from time
to time up to a ceiling amount of:
100% of the additional capital investment in plant and machineries being
located in ......Zone-'A'
is not in dispute that in the said entry, during which the same would remain
operative, no period far less the period of five or seven years had been
mentioned. The only limitation prescribed thereby was that only 75% of the
additional capital investment in Zone B would be allowed where the unit of the
respondent is situate.
terms of Clause 5 of IPR, 1992, the respondent became entitled to exemption
from payment of sales tax on finished products for an amount of Rs. 49.45 crores
being 75% of Rs. 63.95 crores invested in plant and machinery.
may notice that the Finance Department of the State of Orissa passed a
consequential order in IPR, 1992 bearing SRO No. 1091 of 1992 dated 23.09.1992
which was given effect from 1.08.1992.
perusal of the said notification would clearly show that whenever the period upto
which the exemption, could be obtained was required to be stated had
specifically been done therein, as for example Sl. Nos. 30A, 41, 42A and 43A
etc. We may, furthermore, notice that against the Entry 44, however, what is
mentioned is the extent to which such exemption would be granted. No period
during which such exemption is to be obtained was stated. In other words, no
period of limitation was fixed thereby.
view of the clear legal provision as also the aforementioned notification dated
23.09.1992, there cannot be any doubt whatsoever that the exemption in respect
of deferment of sales tax having been provided for under the Orissa Sales Tax
Act as also the notification issued thereunder, the High Court, in our opinion,
is correct in taking its view.
is furthermore a well settled principle of law that an exemption notification
must be liberally construed. [See Commissioner of Customs (Imports), Mumbai v. Tullow
India Operations Ltd., (2005) 13 SCC 789, Tata Iron & Steel Co. Ltd. v.
State of Jharkhand and Others, (2005) 4 SCC 272, Government of India and Ors.
v. Indian Tobacco Association, (2005) 7 SCC 396, Commnr. Of Central Excise, Raipur
v. Hira Cement, JT 2006 (2) SC 369. and P.R. Prabhakar v. Commnr. of Income
Tax, Coimbatore, 2006 (7) SCALE 191]. The said principle, therefore, applies in
all fours in the present case.
For the reasons aforementioned, there is no merit in this appeal which is
dismissed accordingly with costs. Counsel's fee assessed at Rs. 25,000/-.