Hindustan Paper Corpn. Ltd. Vs. State of Kerala
& Ors [1993] INSC 160 (26 March 1993)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Venkatachala N. (J)
CITATION:
1993 SCR (2) 655 1993 SCC Supl. (3) 350 JT 1993 (2) 458 1993 SCALE (2)238
ACT:
Central
Sales Tax Act 1956. Section 8(2A).
Kerala
General Sales Tax Act 1963: Section 10 & Notification RSO 415 of 1971.
Central
Sales Tax-Exemption-Whether available for inter state sales also-Exemption
contained in the 1971 Notification-"Whether an exemption from tax
'generally'.
HEAD NOTE:
The
State of Kerala issued Notification RSO 415 of 1971
under Section 10 of the Kerala General Sales Tax Act providing for an exemption
in respect of tax in regard to the turn over of the sales of newsprint for a
period of two years from the date of starting production of the newsprint
plant. The appellant entered into an agreement with the State Government in
1974 giving the said exemption.
A
major portion of the newsprint manufactured at the factory located within the
State was sold in the course of inter- state trade and commerce, and during the
assessment years relevant to the period of the two years from the date of the
commencement of the production, the appellant claimed exemption not only from
the State Sales Tax, by virtue of the 1971 Notification and the 1974 agreement
but also from the Central Sales Tax under and by virtue of sub-section (2A) of
Section 8 of the Central Sales Tax Act.
The
Sales Tax Officer accepted the claim under the State Sales Tax Act but rejected
the claim under the Central Sales Tax Act.
Appeals
preferred by the appellant to the Appellant Assistant Commissioner and the
Sales Tax Appellant Tribunal were dismissed, and when the appellant approached
the High Court by way of revision under Section 41 of the State Sales Tax Act
the High Court also dismissed the revisions petitions.
656 In
the appeals to this Court it was contended on behalf of the appellant relying
on Pine Chemicals Limited v. Assessing Authority, [199] 2 S.C.C. 683 that the
exemption granted to It by the 1971 State Government notification Issued under
the Kerala Sales Tax Act Is a general exemption within the meaning of Section
8(2A) and, therefore, the inter- state sales effected by it are equally exempt
from Central Sales Tax by virtue of Section 8(2A).
The
State contested the appeals by contending that the exemption granted to the
appellant under the State Sales Tax is not a general exemption but a
conditional one, and that the exemption operates only in certain specified
circumstances, and that the provision contained in Section 8(2A) does not go to
exempt the inter-state sales of the appellant.
On the
question whether the exemption granted under the 1971 State notification
exempting the produce of the appellant factory manufacturing newsprint from the
State Sales Tax for a period of two years from the date of commencement of
production in the factory can be called An exemption from tax 'generally'.
Allowing
the appeals, this Court,
HELD:1.
The inter-state sales effected by the appellant are those failing under Section
3(a) of the Central Sales Tax Act.The liability to pay Central Sales Tax on
inter- state sales arises by virtue of sub-section (1) of Section
6.
Sub-section (2A) of section 8 seeks to provide exemption to a dealer with
respect to his turnover. The explanation appended to the sub-section is couched
in negative terms and seeks to define the words 'exempt from tax
generally", and indicates when a sale or purchase of any goods shall not
be deemed to be exempt from tax generally under the State Sales Tax Law. [659
B, 660 B-C] 2.An inter-state sale or purchase of a commodity shall not be
deemed as exempt from State Tax generally if the exemption is given only (1) in
specified circumstances or under specified conditions or (2) the tax is leviable
on the sale or purchase of such goods at specified stages or (3) otherwise than
with reference to the turnover of the goods.
These
conditions or limitations are with reference to the transaction of sale or
purchase. [663 F-G] 657 3.The existence or otherwise of the aforesaid three
limitations on claiming exemption the explanation under Section S(2-A) of the
Central Sales Tax Act will have to be tested with reference to the transaction
of sale or purchase as the case may be of the dealer who claims the exemption
in respect of his intrastate sale or purchase of the same goods. [663 H, 664 A]
4.The facts which the dealer has to prove to get the benefit of the government
orders are intended only to identify the dealer and the goods in respect-of
which the exemption is sought and they are not conditions or specifications of
circumstances relating to the turnover sought to be exempted from payment of
tax within the meaning of Section 8(2-A). [664 E] 5.The conditions relating to
identity of the goods and the dealer are always there in every exemption and
that cannot be put as a condition of sale. [664 G] Pine Chemicals Limited v.
Assessing Authority, [1992] 2 S.C.C. 683, explained and followed. [660 H]
Indian Aluminum Cables v. State of Haryana, 38 S.T.C. 108, Industrial Cables
Corporation v. Commercial Tax Officer 35 S.T.C. 1, distinguished. [662 A]
CIVIL
APPELLATE JURISDICTION: Civil Appeal Nos. 507375/1985 From the Judgment and
Order dated 9.9.1985 of the Kerala High Court in T.R.C. Nos. 29, 30 and 31 of
1985.
A.S. Nambiar,
Mrs. Shanta Vasudevan, P.K. Manohar and C.N. Sreekumar for the Appellants.
The
Judgment of the Court was delivered by.
B.P.
JEEVAN REDDY, J. Civil Appeal Nos. 5073-75185.
These
appeals arise from a common judgment of the Kerala High Court in a batch of
three tax revision cases. The question relates to the interpretation of Section
8(2A) of the Central Sales Tax Act, 1956.
658 In
exercise of the power conferred upon it by Section 10 of the Kerala Sales Tax
Act, the State of Kerala issued a notification RS0415 of 1971 providing for
"an exemption in respect of the tax payable under the said Act in regard
to the turn-over of the sales of newsprint by the newsprint plant in the State
for the period of two years from the date of starting production of the
newsprint by the said plant.' The appellant Hindustan Paper Corporation Limited
entered into an agreement with the Government of Kerala in the year, 1974
reiterating the said exemption. The relevant portion of the agreement reads
thus:
"The
Government of Kerala, with a view to help the project to tide over the
difficulties in the initial stages and to establish itself, agree to exempt the
turnover relating to the sale, of the products by the corporation from the
payment of sales tax for a period of two years from the date of starting of
production of the newsprint." A major portion of the newsprint
manufactured at the factory located within Kerala is sold in the course of
inter-state trade and commerce. During the assessment years relevant to the
period of the two years from the date of commencement of production at the Kerala
Factory, the appellant claimed exemption not only from the State sales tax by
virtue of the aforesaid notification and agreement but also from Central Sales
Tax under and by virtue of sub-section (2A) of Section 8 of the Central Sales
Tax Act. The Sales Tax Officer accepted the claim under the State Sales Tax Act
but rejected the claim under the Central Sales Tax Act. The appeals preferred
by the appellant to the Appellate Assistant Commissioner and the Sales Tax
Appellate Tribunal were dismissed whereupon it approached the High Court by way
of revisions under Section 41 of the State Sales Tax Act.
The
High Court too disagreed with the contentions urged by the appellant and
dismissed the tax revision cases. Hence, these appeals.
The
dispute between the parties, in brief, is thus: the appellant says that
exemption granted to it by the aforesaid notification issued under the Kerala
Sales Tax is a general exemption within the meaning of Section 8(2A) and,
therefore, the inter- state sales effected by it are equally exempt from
Central Sales Tax by virtue of Section 8(2A).
On the
other hand, the 659 case of the Government of Kerala is that the exemption granted
to the appellant under the State Sales Tax Act is not a general exemption but a
conditional one; further the exemption operates only in certain specified
circumstances.
Accordingly,
they say, the provision contained in Section 8(2A) does not go to exempt the
inter-state sales of the appellant.
The
inter-state sales effected by the appellant are those failing under Section
3(A) of the Central Sales Tax Act.
The
liability to pay Central Sales Tax on inter-state sales arises by virtue of
sub-section (1) of Section 6. Sub- section (1A) of Sec. 6 says that a dealer
shall be liable to pay tax under the Central Act on sale of goods effected by
him in the course of inter-state trade or commerce notwithstanding that no tax
would have been leviable under the Sales Tax law of the appropriate State if
such sale had taken place inside the State. Sub-section (1) of Section 8
prescribes the rate at which the Central Sales Tax is chargeable where the
goods are sold to persons and authorities mentioned therein while sub-section
(2) prescribes the rate in cases other than those falling under sub-section
(1). Sub-section (2A) of Section 8, which is material for our purpose reads
thus:
"(2A)
Notwithstanding anything contained in sub-section (lA) of Section 6 or sub-section
(1) or clause (b) of sub-section (2) of this section, the tax payable under
this Act by a dealer on his turnover in so far as the turnover or any part
thereof relates to the sale of any goods, the sale or, as the case may be, the
purchase of which is under the sales tax law of the appropriate State, exempt
from tax generally or subject to tax generally at a rate which is lower than
four per cent.
(Whether
called a tax or fee or by any other name), shall be nill or, as the case may
be, shall be calculated at the lower rate.
Explanation:- For the purpose of this sub-
section a sale or purchase of any goods shall not be deemed to be exempt from
tax generally under the sales tax law of the appropriate State if under that
law the sale or purchase of such goods is exempt only in special circumstances
or under specified conditions or the tax is levied on the sale or purchase of
such goods at specified stages or otherwise than with reference to the turnover
of the goods." 660.
What
does sub-section (2A) says? It opens with a non- obstante clause which gives it
an overriding effect over the provisions contained in Sections (lA) and over
sub-section (1) as well as clause (b) of sub-section (2) of section 8. b
section seeks to provide exemption to a dealer with expect to his turnover in
so far as his turnover or any part thereof relates (a) sale of any goods, the
sale or, as the case may be, the purchase of which is under the sales tax law
of the appropriate State, exempt from tax generally or (b) where his turnover
or any part thereof relates to the sale of any goods the sale or purchase of
which is subject to tax generally at a rate which is lower than four per cent.
In a case covered by (a) the Central Sales Tax will be nil while in a case
falling under (b), Central Sales Tax shall he chargeable at the same lower rate
at which the State sales tax is charge-able. The explanation appended to
sub-section seeks to define the words "exempt from tax generally."
The explanation is couched in negative terms.
It
says that for the purposes of the said sub-section, a sale or purchase of any
goods shall not be deemed to be exempt from tax generally under the State Sales
Tax law if (i) under the State law the sale or purchase of such goods is exempt
only in specified circumstances or (ii) if under the' State law the sale or
purchase of such goods is exempt only under specified conditions or (iii) if
under the State law the tax is levied on the sale or purchase of such goods at
specified stages or (iv) where under the State law the tax is levied otherwise
than with reference to the turnover of the goods.
The
sole question in this case is whether the exemption granted under the aforesaid
notification exempting the produce of a factory manufacturing newsprint from
the State sales tax for a period of two years from the date of commencement of
production in the factory can be called an exemption from tax generally. To put
it differently, the question is whether the said exemption is one operative
only in specified circumstances or whether the exemption is one which is
operative only under specified conditions in which case it cannot be said to be
an exemption "generally.
The
learned counsel for the appellant relies upon the decision of this Court in
Pine Chemicals Limited v.
Assessing
Authority, [1992] 2 S.C.C. 683, a decision rendered by S. Ranganathan, V. Ramaswami and N.D. Ojha, )J.
According
to him, the said decision is conclusive on the question.
661
The counsel for the State of Kerala, on the
other hand, seeks to distinguish the said decision. According to him, the said
decision does not consider the precise question and aspect which really, arises
in these .appeals. The learned counsel for the State of Kerala, Sri G. Vishwanath
lyer, puts his case thus: if one is asked whether the exemption granted under
the aforesaid notification is a general exemption, his obvious answer would be,
no. It is not an exemption which operates generally but an exemption limited to
two years from the date of commencement of the production of newsprint in the
factory. Similarly, if a person is asked whether newsprint is exempt generally
from the State sales tax in Kerala, none would answer in the affirmative.
He
would say that the sale of newsprint in Kerala is exempt only in certain
circumstances or subject only to a condition viz., that newsprint is produced
within two years of the commencement of the production in the factory located
in Kerala. It is, therefore, idle to contend, says Sri lyer, that the sale of
newsprint within Kerala is exempt generally from the State sales tax. In such a
case, says the counsel, the provision contained in sub-section (2A) does not
come into operation and the inter-state sales of such newsprint cannot be said
to be exempt from the Central Sales Tax. Mr. lyer further says that the
exemption notification issued by the Government of Kerala under Section 10 of
the State Act does not exempt newsprint from the State sales tax al- together.
It grants exemption only in a specified situation viz., in respect of the
newsprint produced within the period of two years from the date of commencement
of production by a factory manufacturing newsprint in the State of Kerala.
The
exemption would thus operate for different periods in the case of different assessees
inasmuch as the date of commencement of production by all the manufacturers of
newsprint may not be the same. Moreover, the benefit of the said notification
is available only where a factory goes into production after the commencement
of the said notifica- tion, says Sri lyer, He elaborates his submission saying
that the exemption granted by the said notification is only in favour of
certain dealers or a class of dealers, in certain circumstances and is not in
the nature of a general exemption. An exemption given under Section 10 of the
State Act with reference to dealers or a class of dealers i.e., referable to
clause (ii) of sub-section (1), says the counsel, can never be called a general
exemption nor can it be characterised as an exemption operating 'generally'. A
general exemption, according to the learned counsel, means a general,
unqualified/unconditional exemption. Counsel says that the decisions of 662
this Court in Indian Aluminum Cables v. State of Haryana 38 S.T.C. 108 and in
Industrial Cables Corporation V.
Commercial
Tax Officer 35 S.T.C. 1 support his contention.
The
learned counsel places strong reliance upon the object and reasons appended to
the bill proposing the substitution of sub-section (2A) in the year 1972. The
objects and reasons relied upon by the learned counsel read thus:
"Clause
5 Sub-Clause (a) of this clause seeks to substitute a new sub-section for the
existing sub-section (2A) of Section 8 of the Principal Act. The new
sub-section seeks to bring out more clearly that an exemption or lower rate of
levy under the local sales tax law of the appropriate State would be available
in respect of an inter-state sale of goods only if such exemption or lower levy
is available generally with reference. to such goods or such class of goods
under the local sales tax law." According to Sri Iyer the said statement
of objects and reasons puts the meaning, purpose and object of the sub- section
beyond any doubt.
On the
other hand, Sri A.S. Nambiar, learned counsel for the appellant-corporation
submits, adopting the reasoning in Pine Chemicals that the circumstances or
conditions contemplated by the explanation to sub-section must be the
circumstances and conditions attaching to the sale and not to the dealer. The
exemption notification merely serves to identify the dealer and the goods
entitled to exemption but it does not lay down any circumstances or conditions
attaching to the sale of goods (Newsprint). Sri Nambiar says that once the
goods are identified viz., that it is a newsprint manufactured by a factory within
two years of its commencing production, there is no further condition attaching
to the exemption; the goods are exempt generally.
It is
not a case where the exemption is hedged in by certain conditions nor is it a
case where the exemption operates only in certain circumstances. The learned
counsel submits that the decisions of this court in Indian Aluminum and
Industrial Cables have been considered and explained by this Court in Pine
Chemicals and, therefore, the principle of those decisions cannot be read as
supporting the State's submissions.
While
we see the force in the submissions of Sri Iyer, learned counsel for the State
of Kerala, we cannot give effect to the same
in the light of 663 the binding decision in Pine Chemicals which deals with an
almost similar exemption notification. The Government of Jammu & Kashmir
had issued orders providing for exemption "from the State sales tax both
on raw-materials and finished products for a period of five years from the date
the unit goes into production." Question had arisen whether the said
exemption attracts the exemption contained in Section 8(2A) of the Central Act?
The said question was answered in the affirmative by V., Ramaswami, J. speaking
for the Bench.
The
learned Judge examined the scheme of sub-section (1) and (lA) of Section 6 as
well as of sub-sections (1), (2) and (2A) of Section 8 and then observed:
"On
a plain reading of Section 8(2-A) of the Central Sales tax Act it deals with
the liability of a dealer to pay tax under the Act on his interstate sales
turnover relating to any goods on the turnover relating to such goods if the
sale had taken place inside the State is exempt from payment of sales tax under
the sales tax law of the appropriate State. It provides that if an intrastate
sale or purchase of a commodity by the dealer is exempt from tax generally or
subject to tax generally at a rate which is lower than 4 per cent than his
liability to tax under the Central Sales Tax Act when such commodity is sold on
inter-state trade would be either nil or as the case may be shall be calculated
at a lower rate.
Explanation
states as to when the sale or purchase shall not be deemed as to be exempt from
tax generally under the sales tax law. That is to say an intrastate sale or
purchase shall not be deemed as to be exempt from tax generally under the sales
tax law.
That
is to say an intrastate sale or purchase of a commodity shall not be deemed as
exempt from State tax generally if the exemption is given only (1) in specified
circumstances or under specified conditions or (2) the tax is leviable on the
sale or purchase of such goods at specified stages or (3) otherwise than with
reference to the turnover of the goods. These conditions or limitations are
therefore with reference to the transaction of sale or purchase. The main
clause deals with the turnover of 'a dealer' which term would include 'any
dealer' or 'any class of dealers' The existence or otherwise of the three
Limitations under the 664 explanation above referred to on claiming exemption under
Section 8(2-A) of the Central Sales Tax Act will therefore have to be tested
with reference to the transaction of sale or purchase as the case may be of the
dealer who claims the exemption in respect of his intrastate sale or purchase
of the same goods.
Thus
the specified circumstances and the specified conditions referred to in the
explanation should be with reference to the local turnover of the same dealer
who claims exemption under Section 8(2-A) of the Central Sales Tax Act.
The
learned Advocate-General for the State contended that the conditions that the industr
y should have been set up and commissioned subsequent to the Government Orders
159 and 414 above referred to and the commodity sold by him in order to claim
the exemption under the said government order, shall be those manufactured by
that industry are conditions or specified circumstances within the meaning of
the explanation and, therefore, the dealer (Pine Chemicals) is not entitled to
any exemption under Section 8(2-A) of the Central Sales Tax Act. We are unable
to agree with this submission of the learned counsel for the State. The facts
which the dealer has to prove to get the benefit of the government orders are
intended only to identify the dealer and the goods in respect of which the
exemption is sought and they are not conditions or specifications of
circumstances relating to the turnover sought to be exempted from payment of
tax within the meaning of those provision. The specified circumstances and the
specified conditions referred to in the explanation should relate to the
transaction of sale of the commodity and not identification of the dealer or
the commodity in respect of the exemption is claimed. These conditions relating
to identity of the goods and the dealer are always there in every exemption and
that cannot be put as a condition of sale. We have already held that not only
sale by the manufacturer to dealer that is exempt under the government orders
but since the General Sales Tax Act had adopted only a single point levy, even
the sub- 665 sequent sales would be covered by the exemption order.
Therefore,
the question whether the tax is leviable on the sale or purchase at 'specified
stage" does not arise for consideration. This is not also a case where the
exemption is with reference to something other than the turnover of the
goods." (emphasis added) The learned Judge then dealt with the decisions
of this Court in Indian Aluminum and Industrial Cables and distinguished them
pointing out that the exemption concerned in those cases was clearly a
conditional one. The learned Judge pointed out that the exemption concerned
therein was with respect to "sales of an undertaking supplying electrical
energy to the public under a licence or sanction granted or deemed to have been
granted under the Indian Electricity Act, 1910 (9 of 1910), of goods for use by
it in generation or distribution of such energy." The learned Judge
pointed out that the two conditions mentioned in the said notification related
to purchaser-company being a licensed undertaking supplying electrical energy
to the public and further that the goods sold to it are for use by the said
undertaking in generation or distribution of such energy.
Following
the decision in Pine Chemicals, we must and accordingly we do allow these
appeals. No orders as to costs.
N.V.K.
Appeals allowed.
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