State
Level Committee & Anr Vs. M/S Morgardshammar India Ltd. [1995] INSC 656 (10 November 1995)
Jeevan
Reddy, B.P. (J) Jeevan Reddy, B.P. (J) Majmudar S.B. (J) B.P. Jeevan Reddy, J.
CITATION:
1996 AIR 524 1996 SCC (1) 108 JT 1995 (8) 53 1995 SCALE (6)306
ACT:
HEAD NOTE:
Leave
granted.
The
only question arising in this appeal, preferred against the judgment of the
Allahabad High Court, is whether the respondent-unit qualifies as a "new
unit" within the meaning of Explanation (i) to sub-section (2) of Section
4-A of the U.P. Sales Tax Act. The ground upon which the Divisional Level
Committee declined to recognise it as a new unit is that a part of the
machinery acquired by it for setting up its factory was purchased from M/s. Modi
Steels who has purchased the said machinery earlier for their own use. A review
application filed by the respondent was rejected by the State Level Committee.
The writ petition filed by the respondent has, however, been allowed by the
High Court holding that in case M/s. Modi Steels has not put the said machinery
to any use as contended by the respondent, the respondent-unit cannot be denied
the eligibility certificate under Section 4-A. the Bench purported to follow an
earlier decision of the High Court in Amit Plastic Industry, Ghaziabad v.
Divisional Level Committee, Meerut (1994 UPTC 121). The High Court has set
aside the orders impugned in the writ petition and remitted the matter to the
State Level Committee with a direction to re-examine the material on record and
to record a categorical finding as to whether or not the machinery purchased by
the petitioner form M/s.Modi Steels was actually used in any other factory or
workshop in India. If it is found that the said machinery was not actually used
in any factory or workshop before its installation in the respondent-unit, the
High Court opined, the respondent-unit would be entitled to be treated as a new
unit for the purpose of Section 4-A.
The
respondent-unit has applied for issuance of an eligibility certificate under
Section 4-A of the Act on the ground that it has set up a new unit for
manufacturing rolling mill guide system equipment. It had acquired machinery
worth about Rs.25 lakhs, out of which machinery worth Rs.4,59,575/- was
acquired from M/s.Modi Steels under Bill No.244 dated April 27, 1984.
Admittedly, the said machinery was acquired by M/s.Modi Steels for setting up an
unit of its own but it is stated that it abandoned that idea later and sold the
machinery to the respondent. The question is whether the respondent-unit cannot
claim to be a "new unit" within the meaning of Explanation (i) to
sub-section (2) of Section 4-A on account of the fact that part of the
machinery acquired by it was acquired for use in any other factory or workshop
in India.
Section
4-A Provides for exemption from sales tax of goods manufactured by a new unit
during the first five-year period, subject to the terms and conditions
specified therein. Explanation (i), with which alone we are concerned herein,
reads as follows:
"Explanation.-
For the purposes of this section,- (i) `new unit' means a factory or workshop
whether set up by a dealer already having an industrial unit manufacturing the
same goods at any other place in the State or an industrial unit, adjacent to,
the site of an existing factory or workshop; but does not include:
(a)
any factory or workshop using machinery, accessories or components already used
or acquired for use in any other factory or workshop in India,
(b) nay
factory or workshop established on, or adjacent to the site of an existing
factory or workshop manufacturing the same goods, or
(c) any
addition to or extension of an existing factory or workshop,"
An
analysis of the definition yields the following features:
(a) if
a dealer is already having an industrial unit manufacturing particular goods
and if he sets up another industrial unit manufacturing the same goods at any
other place in the State, it would be a new unit. In other words if a dealer
establishes a new factory or workshop on or adjacent to his existing factory or
workshop is meant for manufacturing the very same goods as are manufactured in
the existing factory or workshop, the newly established factory or workshop
would not be a "new unit" within the meaning of the Explanation.
(b)
If, however, the new industrial unit is meant for manufacturing goods different
from the goods manufacturing in the existing factory or workshop, the new
industrial unit (factory or workshop) ca be located on the same premises or
adjacent to the premises of the existing factory or workshop; to would be a
"new unit" for the purposes of Explanation.
(c)
If, however, any such new factory or workshop uses machinery, accessories or
components "already used or acquired for use in any other factory or
workshop in India", it does not and cannot qualify as a "new
unit".
(d)
Any factory or workshop established on or adjacent to the site of an existing
factory or workshop manufacturing same goods as are being manufactured in the
existing factory or workshop cannot be called "new unit" for the
purposes of the Explanation.
(e)
Any addition to or extension of an existing factory or workshop cannot and does
not qualify as a new unit.
The
definition of 'new unit" in Explanation (i) thus comprises of two clauses
(mentioned as (a) and (b) above) to which three exceptions (mentioned as (c),
(d) and (e) above) are appended.
The
ground upon which the respondent-unit has been denied the eligibility
certificate under Section 4-A by the appropriate authorities is that part of
the machinery used in setting up the respondent-unit was "acquired for use
in any other factory or workshop in India' and, therefor, the respondent-unit
does not qualify as a "new unit". According to the authorities, it is
enough that the machinery or part of the machinery installed in the new factory
or workshop is "acquired for use in any other factory or workshop in India". It is immaterial, they say,
whether such machinery was actually used or not in any other factory or
workshop in India. Clauses (a) does not contemplate
an enquiry of the nature ordered by the High Court, they say. On the other
hand, the contention of the respondent-unit, which has ben upheld by the High
Court is that unless the machinery acquired for use in any other factory or
workshop in India is actually used in that other factory or workshop in India,
the disqualification provided by clauses (a) in the Explanation is not
attracted.
Section
4-A is an elaborate one. it contains several features and provides for several
situations, with all of which we are not concerned herein. It is enough for the
present purpose to note that a new unit staring production on or after first
day of October, 1982 is entitled to exemption from sales tam provided the unit
satisfies the requirements and conditions prescribed by the section. Inter alia,
it must furnish to the assessing authority an eligibility certificate granted
by the prescribed officer/authority in accordance with the procedure specified.
Explanation (i) to sub-section (2) defines the expression "new unit",
which definition has already been set out by us hereinabove. One of the grounds
upon which a new factory or workshop is disqualified from being called a
"new unit" is if such factory or workshop uses "machinery,
accessories or components already used or acquired for use in any other factory
or workshop in India." It is relevant to notice that the clause uses both
the expressions "already used' and "acquired for use" in any
other factory or workshop in India. Surely
both the expressions cannot mean one and the same thing. It is a
disqualification if the new factory or workshop uses
machinery/accessories/components already used in any other factory or workshop
in India. It is a disqualification if the
new factory or workshop uses machinery/accessories/components which were
acquired for use in any other factory or workshop in India. When the clause uses both the said
expressions simultaneously, it would not be reasonable or proper to construe
the word "acquired for use" as meaning the same thing as
"already used". Such a construction would make the words
"acquired for use" superfluous and a surplusage. No such
interpretation ought to be adopted by a Court. The words "acquired for
use" must be understood in their plain and ordinary meaning. It is enough
that the machinery/accessories/components which are used in the factory or
workshop (claiming the benefit of Section 4-A) are acquired for use in any
other factory or a workshop in India. It is
not necessary to go further and enquire whether that machinery/accessories/components
were actually used in any other factory or workshop in India.
In
this case, admittedly, a part of the machinery installed in the respondent's
unit was acquired by M/s. Modi Steels for use in the factory or workshop
proposed to be set up by them. According to the certificate issued by M/s.Modi
Steels, their project did not materialise because it was found to be not
viable. For that reason, they say, the machinery purchased by them for the said
purposed was lying in packed and un-used condition and was sold to the
respondent. Thus, on their own showing, the respondents case is directly hit by
clause (a) in the Explanation and is not entitled to the exemption provided by
Section 4-A.
It is
submitted by Sri S.K.Dhaon, learned counsel for the respondent, that aforesaid
interpretation would not be a reasonable one and would not be consistent with
the object underlaying Section 4-A. It is submitted that Section 4-A is devised
to encourage new industries. Disqualifying an unit from the benefit of the
section on the mere ground that part of the machinery installed in the unit was
acquired by another person for setting up a unit, which in fact he never did,
would not be consistent with the object underlying the section, says Sri Dhaon.
We are unable to see any unreasonableness in the interpretation placed by us.
All the words used in the clause have to be give their due meaning.
None
of them can be treated as a surplusage. It is not also possible to ignore the
words expressly employed in the said clause or to explain them away on notions
of one's own reasonableness. Indeed, there appears to be good reason behind the
use of both the said expression in the clauses.
the
Legislature, it is obvious, wanted to avoid an enquiry into the factual issue
of actual user where the machinery (which expressions means machinery,
accessories or components) is acquired for use in any other factory or workshop
in India. Once it is shown that such
machinery was acquired for use in any other factory or workshop in India, the Legislature presumes user - a
case of conclusive presumption. the idea was to shut out enquires of the type
now ordered by the High Court. One person may say that though the machinery was
acquired by him, he never installed it or used it; another may say that he only
installed the machinery but did not use or operate it; a third person may say
that the machinery was used only for trial run but not on a regular basis, ad
so on and so forth. The authorities in charge of issuing eligibility cetificates
would thus be caught in endless factual disputes. The idea was to lessen the
room for factual controversies. It must be remembered that no unit has a right
to claim exemption from tax as a master of tight. His right is only insofar as
it is provided by Section 4-A. While providing for exemption, the Legislature
has hedged it with certain conditions. It is not open to the Court to ignore
those conditions and extend the exemption. We must repeat that when the clause
used" both the expressions "already used" and "acquired for
use", they cannot be construed as meaning one and the same thing by a
process of interpretation.
It is
suggested by the learned counsel for the respondent that Section 4-A must be
literally construed to further the object underlying it. In case of any
ambiguity, it is submitted, the construction favouring the assessee should be
adopted. We cannot agree. Section 4-A provides for exemption from tax. It is
repeatedly held by this Court that a provision providing for an exemption or an
exception as the case may be, has to be construed strictly. In Mangalore
Chemicals and Fertilizers Limited v. Diputy Commissioner of Commercial Taxes,
(1992 Supp. (i) S.C.C.21) which case dealt with an exemption notification, M.N.Venkatachaliah,J.
stated the principle in the following words:
"Shri
Narasimhamurty again relied on certain observations in CCE v. Parle Exports (P)
Ltd., [(1989) 1SCC 345: 1989 SCC (Tax) 84] in support of strict construction of
a provision concerning exemptions. there is support of judicial opinion to the
view that exemptions 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 parle Exports (P) Ltd. relied upon by Shri Narasimhamurty,
it was observed: (SCC p.357, para 17) `while interpreting an exemption clause,
liberal interpretation should be imparted to the language thereof, provided no
violence is done to the language employed. It must, however, 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 words are plain and clear and directly convey the meaning,
there is no need for any interpretation.
It
appears to us the true rule of construction of a provision as to exemption is
the one stated by this Court in Union of India v. Wood Papers Ltd.[(1990) 4 SCC
256 : 1990 SCC (Tax) 422]: (SCC p.260 para 4) `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 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`y or doubt
about application then full play should be give to it and it calls for a wider
and liberal construction......'" Following the said decision and after
referring to certain English decisions expressing divergent opinions, a
three-Judge Bench of this Court, of which one of us (B.P.Jeevan Reddy, J.) was
a member, held in Novopan India Ltd., Hyderabad v. Collector of Central
Exercise and Customs, Hyderabad (1994 Suppl. (3) S.C.C.606) thus:
"16.
We are, however, of the opinion that, on principle, the decision of this Court
in Mangalore Chemical - and in union of India v. Wood Paper referred to therein _ represents the correct view of law.
The principle that in case of ambiguity, a taxing statute should be construed
in favour of the assesseeassuming that the said principle is good and sound -
does not apply to the construction of an exception or an exempting provision;
they have to be construed strictly. A person invoking an exception or an exemption
provision to relieve him of the tax liability must establish clearly that he is
covered by the said provision. In case of doubt or ambiguity, benefit of it
must go to the State. This is for the reason explained in Mangalore Chemical
and other decisions, viz., each such exception/exemption increases the tax
burden on other members of the community correspondingly. Once, of course, the
provision is found applicable to him, full effect must be given to it. As
observed by a Constitution Bench of this Court in Hansraj Gordhandas v. H.H.
Dave [(1969) 2 SCR 253: AIR 1970 SC 755] that such a notification has to be
interpreted in the light of the words employed by it and not on nay other
basis. This was so held in the context of the principle that in a taxing
statue, there is no room for any intendment, that regard must be had to the
clear meaning of the words and that the matter should be governed wholly by the
language of the notification, i.e., by the plain therms of the exemption."
The learned counsel for the respondent, however, relied upon the decision in
Collector of Central Excise. Bombay v. M/s.Parle
Exports (P) Ltd. (1989 (1) S.C.R. 345) rendered by a Bench of this Court
comprising Sabyasachi Mukharji and S.Ranganathan,JJ. The observations in paras
17 and 18 are particularly relied upon by the learned counsel:
"17.
How then should the courts proceed? The expressions in the Schedule and in the
notification for exemption should be understood by the language employed
therein bearing in mind the context in which the expressions occur. The words
used in the Provision, imposing taxes or granting exemption should be
understood in the same way in which these are understood in ordinary parlance
in the area in which the law is in force or by the people who ordinarily deal
with them. It is, however, necessary to bear in mind certain principles. The
notification in this case was issued under R.8 of the Central Excise Rules and
should be read along with the Act.
The
notification must be read as whole in the context of the other relevant
provisions. When a notification is issued in accordance with power conferred by
the statute, it has statutory force and validity and therefore, the exemption
under the notification is, as if it were contained in the Act itself. See in
this connection the observations of this Court in Orient Weaving Mills (P) Ltd.
v. Union of India, [1962 Supp (3) SCR 481 : (AIR 1963 SC 98)]. See also Kailash
Nath v. State of U.P. (AIR 1957 SC 790). The principle is
well settled that when two views of a notification are possible, it should be
construed in favour of the subject as notification is part of a fiscal
enactment. But in this connection, it is well to remember the observations of
the Judicial Committee in Coroline M. Armytage v. Frederic Wilkinson, [(1878) 3
AC at p. 370] that it is only, however, in the event of there being a real
difficultly in ascertaining the meaning of a particular enactment that the
question of strictness or of liberality of construction arises. The Judicial
Committee reiterated in the said decision at pate 369 of the report that in a
taxing Act Provisions establishing an exception to the general rule of taxation
are to be construed strictly against those who invoke its benefit.
While
interpretation should be imparted to the language thereof, provided no violence
is done to the language employed. It must, however, be borne in mind that
absurd results of construction should be avoided.
18. In
Hindustan Aluminium Corporation Ltd. v. State of Uttar Pradesh, [(1982) 1 SCR 139]: (AIR 1981 SC 1649) this Court emphasised
that the notification should not only be confined to its grammatical or
ordinary parlance but it should also be constroced in the light of the context.
This court reiterated that the expression should be construed in a manner in
which similar expressions have been employed by those who framed relevant
notification. The court emphasised the need to derive the intent from a
contextual scheme." We agree with the above statement of law except
insofar as it states that where two view of the exemption notification are
possible, it should be construed in favour of the subject since it is contrary
to the decisions afore- mentioned including the three-Judge Bench decision in Novopan
India Limited. It may be noted that this decision was referred to in Mangalore
Chemical and Fertilizers and yet a slightly different principle enunciated. So
far as decision in Hindustan Alumunium Corporation (referred to in Parle
Export), rendered by a Bench comprising Tulzapurkar and R.S.Pathak,JJ., is
concerned, it only holds that the expression "mental" occourring in a
notification issued under U.P.Sales tax Act should be understood in its primary
sense, i.e., in the form in which it is marketable as primary commodity. The
learned Judges held that the subsequent forms evolved from the primary from
constituted distinct commodities marketable as such and must be regarded as new
commercial commodities and not included within the four corners of the
notification. This decision cannot therefor be understood as supporting the
proposition enunciated in Parle Export with which we have disagreed. Be that as
it may, the occasion for appaying the said proposition arises only where there
is "real difficulty, in ascertaining the meaning of a particular enactment"
(statement in Parle Exports). In the case before us, there is neither any
ambiguity in the language nor does the clause in question present a real
difficulty in ascertaining its meaning.
Sri Dhaon,
learned counsel for the respondent, then contended that the words
"acquired for use in any other factory or workshop in India" must be read and understood
as "acquired for use in any other existing factory or workshop in India". The learned counsel says
that it should be so read to give effect to the idea underlying the said
clause.
We are
unable to agree. The very definition contained in Explanation (i) uses both the
expression "factory or workshop" and "existing factory or
workshop" at more than one place which fact would be evident from a bare
perusal of the said definition. Wherever the Legislature wanted to refer to an
existing factory or workshop, it is not possible to read the words
"acquired for use in any other factory or workshop in India" to mean "acquired for
use in any other existing factory or workshop in India". We see no reason to add any words to those employed
in the clause. It cannot also be said that such addition of word(s)_ is
necessary to avoid an absurdity.
Lastly,
Sri Dhaon submitted that the respondent unit has substantially complied with
the requirement of the said clause in the definition inasmuch as the value of
the machinery acquired from M/s.Modi Steels is only about Rs.4.5 lakhs as
against the value of the entire machinery at Rs.25 lakhs. In our opinion, there
is no room for such a contention in view of the specific language of clause
(a).
The
clause uses all the three words - machinery, accessories or components. The use
of the word "or" indicates that use of either of them, which are
already used or acquired for use in any other factory or workshop in India,
would disqualify the factory or workshop from being called a "new
unit" within the meaning of Section 4-A. The clause does not say or
indicate in any manner that only where the entire machinery installed in the
unit (claiming to the new unit) has already been used or was acquired for use
in any other factory or workshop in India, that the disqualification contained therein gets attracted. In the
face of the clear language of the clause, it is not possible to entertain the submission
of substantial compliance urged Sri Dhaon.
For
the above reasons, the appeal is allowed and the judgment of the High Court is
set aside. The writ petition filed by the respondent in the High Court is
dismissed. No costs.
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