Chemicals & Fertilisers Limited Vs. Deputy Commissioner of Commercial Taxes
& Ors  INSC 169 (2 August 1991)
M.N. (J) Venkatachalliah, M.N. (J) Agrawal, S.C.
1992 AIR 152 1991 SCR (3) 336 1992 SCC Supl. (1) 21 JT 1992 (3) 482 1991 SCALE
Sales Tax Act, 1957--Section 8A--Notifications dated 30.6. 1969 and 11.8.1975
issued under granting reliefs and incentives-Filing of monthly returns
adjusting refund of sales tax in anticipation of permission of Revenue--Initia-
tion of proceedings u/s. 13 and demand notices for sales-tax payment, when assessee's
application for permission to adjust sales tax not disposed of by the
of Statutes--Taxing Statute--Provisions whether substantive or procedural
character Ascertainment--Need of--When interpretative process arises,
30th June, 1969, State Government issued a notifica- tion under Section 8A of
the Karnataka Sales Tax Act, 1957, providing a package of reliefs and
incentives including one concerning relief from payment of sales tax.
further notification dated 11th August, 1975 was issued, envisaging certain
modified procedures for effectu- ating the reliefs contemplated by the
exemption notification of 30th June, 1969.
the assessment year 1976-77, the appellant made an application to the
Respondent No. 1 on 10th
November, 1976 for
adjustment of the refunds against sales-tax due and permission was granted with
retrospective effect from 1st May, 1976
validating the adjustments, which the appellant had made during the
the three subsequent years, viz., 1977-78, 1978-79 and 197980, similar
applications, which were made on 29th March 1977, 20th
March 1978 and 8th March 1979 respectively, remained undisposed
anticipation of the permission, appellant adjusted the refund against tax
payable for these years and filed its monthly returns setting out adjustments
There was no dispute that the appellant was entitled to the benefit of the
notification dated 30th
June, 1969 and that
the refunds were eligible to be adjusted against sales-tax payable for
respondent no. 1 in his letter dated 27.3.1979 informed the appellant that the
orders on appellant's appli- cation for permission would be passed only on
receipt of the clarification from the Government on the matters.
On 9th January, 1980, the appellant was issued three
demand notices by the Commercial Tax Officer demanding payment of the sales-tax,
stating that as prior permission to adjust sales-tax had not been considered by
the respond- ent no. 1, he was obliged to proceed to recover the taxes.
for recovery of the penalties were also initiated.
appellant moved the High Court for issue of writ of mandamus to quash the
demand notices and the proceedings initiated for recovery of penalty under
section 13 of the Act.
High Court dismissed the writ petition, against which the present appeal was
appellant urged that indisputably the permission for the three years had been
sought well before the commencement of the respective years but had been
withheld for reasons, which were demonstrably extraneous; that the basic eligibil-
ity was conditioned by the notification of 30th June, 1969, which required a
certificate from the Department of Indus- tries and Commerce; that the
requirement of the annual permission for adjustment envisaged by the
notification of 11th August; 1975 was merely procedural, as clause 3 of the
notification stipulated; and that if the conditions were satisfied, it was
deemed that permission was given.
respondents contended that it was not as if the right to the refund was denied
or defeated by the inaction of the Deputy Commissioner but only one mode of the
refund by adjustment--became unavailable; that the benefit envis- aged by the
notification of 11th August, 1975 was in the nature of a concession and that
the appellant in order to avail itself of its benefit had to show strict
compliance with conditions subject to which it was available; that where
exemptions were concerned, the conditions thereof ought to be strictly
construed and strict compliance with them exacted before a person could lay
claim to the 338 benefit of the exemptions; and that if, in the meanwhile, the
period itself expired, no relief was possible as quite obviously, the
requirements of 'prior permission' became impossible of compliance.
the appeal, this Court,
1. The main exemption is under the 1969 notifica- tion. The subsequent
notification which contains condition of prior-permission clearly envisages a
procedure to give effect to the exemption. [347E-F]
Clause 3 of the notification leaves no discretion to the Deputy Commissioner to
refuse the permission, if the conditions are satisfied. The words are that he
"will grant". There is no dispute that appellant had satisfied the
conditions. Yet the permission was withheld--not for any valid and substantial
reason, but owing to certain extrane- ous things concerning some
interdepartmental issues. Appel- lant had nothing to do with those issues.
There was no other disentitling circumstance which would justify the refusal of
the permission. Appellant did not have prior permission, because it was withheld
by the Revenue without any justification. The High Court took the view that
after the period to which the adjustment related had expired no permission
could at all be granted. A permis- sion of this nature was a technical
requirement and could be issued making it operative from the time it was
applied for. [349C-D]
distinction between the provisions of statute which are of substantive
character and were built-in with certain specific objectives of policy on the
one hand and those which are merely procedural and technical in their nature on
the other must be kept clearly distinguished. [347E-G]
choice between a strict and a liberal construc- tion arises only in case of
doubt in regard to the intention of the Legislature manifest on the statutory
the need to resort to any interpretative process arises only where the meaning
is not manifest on the plain words of the statute. If the words are plain and
clear and directly convey the meaning, there is no need for any inter- pretation.
[348F-G] Assistant Commissioner of Commercial Taxes (Asstt.), Dharwar &
Ors. v. Dharmendra Trading Co. & Ors.,
 3 SCC 570; Wells v. Minister of Housing and Local Government,  1
WLR 1000 at 1007 339 and Union of India & Ors. v. M/s. Wood Papers Ltd.
& Ors.,  JT (1) 151 at 155, referred to.
Jute Manufacturing Co. v. Commercial Tax Officer, Calcutta & Ors.,  3
SCR 626 at 630 and Col- lector of Central Excise, Bombay and Anr. v. Messrs Parle Exports
(P) Ltd.,  1 SCC 345, distinguished.
Bennion: "Statutory Interpretation", 1984 edi- tion at page 683,
APPELLATE JURISDICTION: Civil Appeal No. 3235 of 1991.
the Judgment and Order dated 14.8.1990 of the Karnataka High Court in Writ Petition
No. 3436 of 1980.
Salve, K.P. Kumar, Ravinder Narain, P.K. Ram and Ms. Amrita Mitra for the
K.H. Nobin Singh and M. Veerappa for the Respondents.
following Order of the Court was delivered:
this petition, Messrs Mangalore Chemicals & Fertilis- ers Limited, a
registered dealer under the Karnataka Sales Tax Act, 1957, ("Act")
seeks special leave to appeal to this court from the judgment and order dated 14th August, 1990 of the High Court of Karnataka in
W.P. No. 3436 of 1980.
have heard Shri Harish Salve, learned counsel for the petitioner and Shri R.N. Narasimhamurthy,
learned Senior Counsel for the respondent-Revenue. Special leave granted.
2. On 30th June, 1969, State Government issued a noti- fication
in exercise of powers referable to sec. 8A of the Act providing certain
incentives to enterpreneurs starting new industries in the State, pursuant to
State's policy for "rapid industrialisation". The notification
contains a package of reliefs and incentives including one concerning relief
from payment of sales tax with which this appeal is concerned.
clause in the said notification of 1969 relevant for the present purpose reads:
"(1). Sales tax: A cash refund will-be allowed on all sales-tax paid by a
new industry on raw materials purchased by it for the first five (5) years from
the date of the industry goes into production, eligibility to the conces- sions
being determined on the basis of a certificate to be issued by the Department
of Industries and Commerce." This was followed by a further notification
dated 11th August, 1975 envisaging certain modified
procedures for effectuating the reliefs contemplated by the earlier exemp- tion
notification of 30th
June, 1969. The
relevant portions of the Preamble and the body of the notification say:
". .... The Commissioner of Commercial Taxes has suggested that New Indus-
tries covered by the above scheme might be permitted to adjust the refunds to
which they would be eligible against the sales tax pay- able by them.
In partial modification of the Gov- ernment order cited (2) above, Government
are pleased to prescribe the following procedure for claiming refund of sales
tax by new indus- tries.
new industries intending to take advantage of the system of adjustment shall
apply to the Deputy Commissioner of Commercial Taxes (Administration) of the
Division concerned through the assessing authority. The application must
contain the following particulars.
Name and address of the new industry;
Date of commencement of the industry;
Reference number of the certificate issued by the Director of Industries &
Com- merce, Bangalore;
Year for which the permission to withhold tax amount is related;
description of finished products in which the materials are used.
Deputy Commissioner of Com- mercial Taxes (Administration) of the con- cerned
Division, after scrutinising the appli- cation filed by the new industry and
after satisfying himself that the industry is cov- ered by the scheme
sanctioned in G.O. No. 0I 58 FMI 69 dated 30.6.1969 will permit the industry to
withhold the amount of tax payable on raw materials purchased and used in the
manufacture of goods.
Omitted as unnecessary
new industry may apply for permission at any time during the year subject to
its renewal every subsequent year. Until permission of renewal is granted by
the Deputy Commissioner of Commercial Taxes, the new industry should not be
allowed to adjust the refunds. At the end of the assessment year, particulars
should be formulated in the annual return of the total amount adjusted during
the entire year. Along with the return, details prescribed in Government Order
No. FD 428 CSL 70 dated 1.2. 1971 should be furnished.
6) * *
7) * Omitted as unnecessary." * 8) * *
Appellant, it is not in dispute, had the necessary eligibility under the
original exemption notification of 1969. The controversy is confined only to
the question of the manner of effectuating the refund of sales tax that
appellant, admittedly, was entitled to.
particulars as to the application made by the appellant for grant of permission
might, perhaps, be neces- sary here. For the assessment year 1976-77, the
appellant made such an application to Deputy Commissioner of Sales-tax
(Administration) on 10th November, 1976 for adjustment of the refunds against
sales-tax due. This permission was granted with retrospective effect from 1st
May, 1976, vali- dating the adjustments which the appellant had made during the
for the three subsequent years viz., 1977-78, 1978-79 342 and 1979-80, similar
applications which were made on 29th March, 1977, 20th March, 1978 and 8th
March, 1979, respec- tively, remained undisposed of. In the meanwhile, in antici-
pation of the permission appellant adjusted the refund against tax payable for
these years and filed its montly returns setting out adjustments so effected.
There is, as set-out earlier, no dispute that the appellant was entitled to the
benefit of the notification dated 30th June, 1969. There is also no dispute
that the refunds were eligible to be adjusted against sales-tax payable for
respective years. The only controversy is wheth- er the appellant, not having
actually secured the "prior permission" would be entitled to
adjustment having regard to the words of the notification of 11th August, 1975,
that "until permission of renewal is granted by the Deputy Com- missioner
of Commercial Taxes, the new industry should not be allowed to adjust the
refunds". The contention virtually means this: "No doubt you were
eligible and entitled to make the adjustments. There was also no impediment in
law to grant you such permission. But see language of clause 5.
we did not give you the permission you cannot be permitted to adjust." Is
this the effect of the law? The sales tax already paid by the appellant on the
raw materials procured by it is the subject matter of the re- funds. The
sales-tax against which the refund is sought to be adjusted is the sales-tax
payable by appellant on the sales of goods manufactured by it. If the
contention of the Revenue is correct, the position is that while the appellant
is entitled to the refund it cannot, however, adjust the same against current
dues of the particular year but should pay the tax working out its refunds
separately. The situa- tion may well have been such but the snag comes here. If
the adjustments made by the appellant in its monthly statements are disallowed,
the sales-tax payable would be deemed to be in default and would attract a
penalty ranging from 1-1/2% to 21/2% per month from the date it fell due. That
penalty, in the facts of this case, would be very much more than the amounts of
What emerges from the undisputed facts is that appel- lant was entitled to the
benefit of these adjustments in the respective years. It had done and carried
out all that was necessary for it to do and carry out in that behalf. The grant
of permission remained pending on account of certain outstanding
inter-departmental issues as to which of the departments--the Department of
Sales-tax or the Department of Industries--should. absorb the financial impact
of these concessions.
Correspondence indicates that on account of these questions, internal to
administration, the request for permission to adjust was not processed. On 27th
March 1979, the Deputy Commissioner of Commercial Taxes wrote to the appellant
to say that the orders on appellant's application for permis- sion would be
passed only on receipt of the clarification from the Government on these
While the matter stood thus, on 9th January, 1980, the Commercial Tax Officer
of the concerned jurisdiction issued three demand notices demanding payment of
the sales- tax. He said prior permission to adjust "had not been con- sidered
by the Deputy Commissioner of Managlore Division, Mangalore, and, therefore,
the Commercial Tax Officer was obliged to proceed to recover the taxes."
Steps for recovery of the penalities were also initiated. Thereafter, in Febru-
ary, 1980, the appellant moved the High Court for issue of writ of mandamus to
quash the demand notices and the pro- ceedings initiated for recovery of
penalty under sec. 13 of the Act.
contention in the High Court were somewhat di.fferent from those urged before
us. Before the High Court the Revenue asserted that the very conditions of
eligibility for entitlement to these concessions stood modified under a
subsequent notification of 12th January, 1977 and that appellant did not satisfy the altered conditions of eligi- bility.
The question, therefore, was whether enterpreneurs who had commenced their
ventures prior to 12th
January, 1977, could
be held to be governed by the terms of the later notification of 12th January 1977. This question, in princi- ple, had
been settled by a decision of this Court in Assist- ant Commissioner of
Commercial Taxes (Asst.), Dharwar & Ors. v. Dharmendra Trading Co. & Ors., [ 1988] 3 SCC 570. The question that
arose there pertained to another condition stipulated in the same notification
of 12th January, 1977.
Court held that industries established prior to that date were not governed by
those altered conditions. Though in the present case the altered condition
set-up against appellant was a different one, on the principle decided in Dharmendra
Trading Company's case the altered condition would not be attracted. But the
High Court took a different view of the matter. It held, in our opinion quite
erroneous- ly, that the principle of the earlier decision of this Court was not
applicable because it was rendered in the context of another condition in the
1977 notification. What fell for decision was not whether a particular
condition was or was not applicable; but the very basic question whether a subse-
quent notification could undo the eligibility for the con- cession stipulated
and conferred under the 1969 notifica- tion.
Narasimhamurthy with his usual fairness said that he found it difficult to
support the approach of the High Court to the question. The main point on which
the case turned is thus settled in favour of the appellant.
a subsidiary question arose whether the grant of permission for adjustment
could at all be made after the period to which such adjustment related had itself
this, the High Court said:
........ But under Ext. B, the 1975 noti- fication, a clear procedure was
provided in order to claim the benefit of refund on the sales-tax paid on raw
materials purchased by the industrialists. The industrialists claim- ing the
benefit had to secure the prior per- mission of the assessing authority to
withhold the tax subject to the Government's permis- sion. In other words,
prior permission was a condition precedent.
instant case, Mr. Kumar was not able to satisfy us, permission had indeed been
granted. On the other hand, he fairly conceded that though an application was
made, no permission was actually granted to withhold the payment. Therefore, in
view of the 1975 notification prescribing the proce- dure for claiming the
benefit under 1969 notification as at Ex. A, there has been no compliance and
as such, the petitioner will not be entitled to withhold the tax. With the
result, the demand at Annexure R.S and T would be justifiable and legal."
(Emphasis supplied) This is the only ground on which the appellant's right to
adjustment is contested by the Revenue.
Harish Salve urged that indisputably the permis- sion for the three years had
been sought well before the commencement of the respective years but had been
withheld for reasons which were demonstrably extraneous. Learned counsel emphasised
that the basic eligibility was condi- tioned by the notification of 30th June,
1969, which re- quired a certificate from the Department of Industries and
Commerce. Both the eligibility and the fact that there was such certification
from the Department of Industries were not disputed. Indeed, the requirement of
the annual permis- sion for adjustment envisaged by the notification of 11th
August, 1975 was, says counsel, merely procedural as clause 3 of the
notification stipulated that if the conditions were satisfied--there was no
dispute they were--the Deputy Com- missioner 345 "will permit" the
adjustment. Counsel says that if, in these circumstances, the Deputy
Commissioner withheld the permis- sion law treats that as done which ought to
have been done.
Narasimha Murthy, however, sought to contend that the requirement of the prior
permission was held--and rightly--by the High Court to be a 'condition
precedent' and that non-satisfaction of that condition precedent, whatever be
the reason for the non-satisfaction, automatically en- tailed the logical
consequences. Learned counsel further submitted that it was not as if the right
to the refund was denied or defeated by the inaction of the Deputy Commission- er
but only one mode of the refund--by adjustment--became unavailable. Learned
counsel urged that the benefit envis- aged by the notification of 11th August,
1975 was in the nature of a concession and that the appellant in order to avail
itself of its benefit had to show strict compliance with condition subject to
which it was available. Learned counsel placed reliance on Kedarnath Jute Munufacturing
Co. v. Commercial Tax Officer, Calcutta & Ors.,  3 SCR 626 and
Collector of Central Excise, Bombay and Anr. v. Messrs Parle Exports (P) Ltd.,
 1 SCC 345 to support his contention that where exemptions were
concerned, the condi- tions thereof ought to be strictly construed and strict
compliance with them exacted before a person could can lay claim to the benefit
of the exemptions.
counsel submitted that the point was not whether there was any justification
for delaying the permission; but, more importantly, whether appellant at the
relevant point of time had, such prior permission or not and that if, in the
meanwhile, the period itself expired, no relief was possible as, quite
obviously, the requirements of 'prior permission' became impossible of
Murthy relied on the following observa- tions of this court in Kedarnath Jute
Manufacturing Co. 's case to support this contention:
.......... But the said exemption is made subject to a proviso. Under that
proviso, in the case of such sales a declaration form duly filled up and signed
by the registered dealer to whom the goods are sold and containing the
prescribed particulars on a prescribed form obtainable from the prescribed
authority has to be furnished in the prescribed manner by the dealer who sells
the goods .....
" ........... The provision pre- scribing the exemption shall, therefore,
be strictly construed............. ....... ......To accept the argument of the
learned counsel for the appellant is to ignore the proviso altogether, for if
his contention be correct it will lead to the position that if the declaration
form is furnished, well and good; but if not fur- nished, other evidence can be
produced. That is to rewrite the clause and to omit the proviso. That will
defeat the express inten- tion of the Legislature ..... "
have given our careful consideration to these submissions. We are afraid the
stand of the Revenue suffers from certain basic fallacies, besides being wholly
techni- cal. In Kedarnath's case, the question for consideration was whether
the requirement of the declaration under the proviso to Sec. 5(2)(a)(ii) of the
Bengal Finance (Sales-tax) Act, 1941, could be established by evidence aliunde.
The court said that the intention of the Legislature was to grant exemption
only upon the satisfaction of the substantive condition of the provision and
the condition in the proviso was held to be of substance embodying
considerations of policy. Shri Narasimha Murthy would say the position in the
present case was no different. He says that the notification of 1 1th August,
1975 was statutory in character and the condition as to 'prior-permission' for
adjustment stipulated therein must also be held to be statutory. Such a
condition must, says counsel, be equated with the requirement of production of
the declaration form in Kedarnath's case and thus understood the same
consequences should ensue for the non-compliance. Shri Narasimhamurthy says
that there was no way out of this situation and no adjustment was permissible,
whatever be the other remedies of the appellant. There is a fallacy in the
emphasis of this argument. The consequence which Shri Narasimha Murthy suggests
should flow from the non-compliance would, indeed, be the result if the
condition was a substantive one and one fundamental to the policy underlying
the exemption. Its stringency and mandatory nature must be justified by the
purpose intended to be served. The mere fact that it is statutory does not
matter one way or the other. There are conditions and conditions.
may be substantive, mandatory and based on considera- tions of policy and some
others may merely belong to the area of procedure. It will be erroneous to
attach equal importance to the non-observance of all conditions irrespec- tive
of the purposes they were intended to serve.
case itself this Court pointed out that the string- 347 ency of the provisions
and the mandatory character imparted to them were matters of important policy.
The Court ob- served:
..... The object of s. 5(2)(a)(ii) of the Act and the rules made there under is
self- evident. While they are obviously intended to give exemption to a dealer
in respect of sales to registered dealers of specified classes of goods, it
seeks also to prevent fraud and collusion in an attempt to evade tax. In the
nature of things, in view of innumerable transactions that may be entered into
between dealers, it will wellnigh be impossible for the taxing authorities to
ascertain in each case whether a dealer has sold the specified goods to another
for the purposes mentioned in the section. Therefore, presumably to achieve the
two fold object, namely, prevention of fraud and facilitating administrative effi-
ciency, the exemption given is made subject to a condition that the person
claiming the exemption shall furnish a declaration form in the manner
prescribed under the section. The liberal construction suggested will
facilitate the commision of fraud and introduce adminis- trative
inconveniences, both of which the provisions of the said clause seek to avoid."
(Emphasis Supplied) (See: (1965) 3 SCR 626 at 630) Such is not the scope or
intendment of the provisions concerned here. The main exemption is under the
1969 notifi- cation. The subsequent notification which contain condition of
prior-permission clearly envisages a procedure to give effect to the exemption.
A distinction between the provi- sions of statute which are of substantive
character and were built-in with certain specific objectives of policy on the
one hand and those which are merely procedural and technical in their nature on
the other must be kept clearly distin- guished. What we have here is a pure
technicality. Clause 3 of the notification leaves no discretion to the Deputy
Commissioner to refuse the permission if the conditions are satisfied. The
words are that he "will grant". There is no dispute that appellant
had satisfied these conditions. Yet the permission was withheld--not for any
valid and substan- tial reason but owing to certain extraneous things concern- ing
some inter-departmental issues. Appellant had nothing to do with those issues. Appel-
|ant is now told "we are sorry. We should have given you the permission.
But now that the period is over, nothing can be done". The answer to this
is in the words of Lord Denning: "Now I know that a 348 public authority
can not be estopped from doing its public duty, but I do think it can be estopped
from relying on a technicality and this is a technicality" (See Wells v.
Minister of Housing and Local Government,  1 WLR 1000 at 1007).
Bennion in his "Statutory Interpretation", 1984 edition, says at page
technicality: Modern courts seek to cut down technicalities attendant upon a
statutory procedure where these cannot be shown to be necessary to the fulfilment
of the purposes of the legislation."
Narasimhamurthy again relied on certain obser- vations in Collector of Central
Excise, Bombay-1 & Anr. v. M/s. Parle Exports (P) Ltd.,  1 SCC 345 in
support of strict construction of a provision concerning exemptions.
is support of judicial opinion to the view that exemp- tions from taxation have
a tendency to increase the burden on the other unexempted class of tax-payers
and should be construed against the subject in case of ambiguity. It is an equally
well-known principle that a person who claims an exemption has to establish his
case. Indeed, in the very case of M/s. Parle Exports (P) Ltd. relied upon by
Sri Narasimhamurthy, it was observed:
interpreting an exemption clause, liberal interpretation should be imparted to
the language thereof, provided no violence is done to the language employed. It
must, howev- er, be borne in mind that absurd results of construction should be
avoided." The choice between a strict and a liberal construction arises
only in case of doubt in regard to the intention of the Legislature manifest on
the statutory language. Indeed, the need to resort to any interpretative
process arises only where the meaning is not manifest on the plain words of the
statute. If the words are plain and clear and directly convey the meaning,
there is no need for any interpretation.
appears to us the true rule of construction of a provi- sion as to exemption is
the one stated by this Court in Union of India & Ors. v. M/s. Wood Papers
Ltd. & Ors., JT(1) 151at 155.
...... Truly, speaking liberal and strict construction of an exemption
provision are to be invoked at different stages of interpreting it. When the
question is whether a 349 subject jails 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 .... " (Emphasis
appears to us that the view taken of the matter by the High Court does not
acknowledge the essential dis- tinction between what was a matter of form and
w/hat was one of substance. There was no other disentitling circumstance which
would justify the refusal of the permission. Appellant did not have prior
permission because it was withheld by the Revenue without any justification.
The High Court took the view that after the period to which the adjustment
related had expired no permission could at all be granted. A permis- sion of
this nature was a technical requirement and could be issued making it operative
from the time it was applied for.
We, therefore, allow the appeal, set aside the judgment of the High Court under
appeal and direct the Deputy Commissioner of Sales Tax (Admn.) to grant the
per- mission for the said three years operative from the dates of the
application. The permission shall entitle the appellant to the adjustment of
the refunds against the taxes due for the respective years. We issue these
directions in view of the admitted position that, apart from the technical objec-
tion that periods to which the applications related had since expired, there
was no other, impediment for the grant of permission. It also follows that the
demand notices which proceed on the premise that adjustment of refunds against
taxes due was unavailable can not also stand. They are quashed.
will be no order as to costs.