State of Haryana Vs.
M/S Liberty Enterprises [2009] INSC 546 (17 March 2009)
Judgment
Judgment ) SUPREME
COURT OF INDIA RECORD OF PROCEEDINGS Civil Appeal No......./2009 @ SLP(C) No.
23970 of 2007 State of Haryana .. Appellant(s) Versus M/s Liberty Enterprises
.. Respondent(s) WITH CIVIL APPEAL NO....../2009 @ SLP(C) NO. 24170 OF 2007 CIVIL
APPEAL NO....../2009 @ SLP(C) NO. 6975 OF 2008 CIVIL APPEAL NO....../2009 @
SLP(C) NO. 6976 OF 2008 DATE : 17/03/2009 These matters were called on for
pronouncement of judgment today.
For Appellant(s) Mr.
T.V. George, Adv.
For Respondent(s) Mr.
M.P. Devanath, Adv.
Mr. Mohan Pandey,
Adv.
--- Hon'ble Mr.
Justice S.H. Kapadia pronounced the judgment of the Bench comprising his
Lordship and Hon'ble Mr. Justice H.L. Dattu.
Delay condoned.
Leave granted.
The appeals filed by
the Department are dismissed in terms of the signed judgment which is placed on
the file.
[ S. Thapar ] [ Madhu
Saxena ] PS to Registrar Court Master [ Signed reportable judgment is placed on
the file ] REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE
JURISDICTION CIVIL APPEAL NO. 1618 OF 2009 (Arising out of S.L.P.(C) No.23970
of 2007) State of Haryana ... Appellant (s) Versus M/s. Liberty Enterprises ...
Respondent(s) WITH
Civil Appeal No. 1619 of 2009 - Arising out of S.L.P. (C) No.24170 of 2007
Civil Appeal No. 1620 of 2009 - Arising out of S.L.P. (C) No.6975 of 2008 Civil
Appeal No. 1621 of 2009 - Arising out of S.L.P. (C) No.6976 of 2008
S. H. KAPADIA, J.
1. Delay condoned.
2. Leave granted.
Facts in the Lead
Matter:
3. For the sake of
convenience we state the facts occurring in Civil Appeal No. 1618 of 2009 -
Arising out of S.L.P.(C) No.23970 of 2007 - State of Haryana vs. M/s. Liberty
Enterprises.
4. M/s. Liberty
Enterprises (assessee) is engaged in the REPORTABLE manufacture of shoes in
the State of Haryana. They availed exemption from payment of sales tax under
Section 13B of Haryana General Sales Tax Act, 1973 read with Rule 28A of
Haryana General Sales Tax Rules, 1975 respectively. Assessee was granted
Exemption Certificate No.116 for an amount of Rs.533 lakhs with effect from
15.3.95 to 14.3.2002 in terms of Rule 28A of the said 1975 Rules. The assessee
availed benefit of exemption till 31.12.96 and from 1.1.97 the assessee
switched over to the deferment tax payment scheme. Till 31.12.96 the exemption
granted to the assessee was for an amount of Rs.53.94 lakhs. On exercising
option of deferment, an entitlement Certificate No.07 for an amount of
Rs.479.06 lakhs effective for the period 1.1.97 to 14.3.2002 was issued to the
assessee in place of earlier Exemption Certificate.
5. The assessment of
the assessee for the year 1996-97 was finalized vide order dated 12.3.01; from
the total gross turnover the Assessing Authority allowed the deduction of
Export Sales against the Declaration Forms. However, the assessment was revised
by the Revisional Authority, Karnal, which assessed the Export Sales made
during the period of exemption (1.4.96 to 31.12.96) at 4% for the purpose of
Rule 28A of the 1975 Rules. Since the exempted quantum of the assessee fixed at
Rs.53.94 lakhs stood exhausted, the excess amount was ordered to be recovered
by the Revisional Authority.
REPORTABLE Against
the said order of the Revisional Authority, the assessee appealed before the
Haryana Tax Tribunal. Vide Order dated 13.1.04 the Tribunal set aside the order
of the Revisional Authority which was challenged by the State of Haryana
(Department) by way of civil writ petition before the High Court of Punjab
& Haryana at Chandigarh. By the impugned Order dated 26.5.06, the High
Court dismissed the said writ petition in terms of its earlier judgment
rendered in the case of M/s. Kagaz Print-N-Pack (India) Pvt. Ltd. v. State of
Haryana- (G.S.T.R.No.10 of 2004) ISSUE
6. The short question
which arises for determination in this civil appeal is : whether Export Sales
are includible in "notional tax liability" of a unit as defined in
Rule 28A(2)(n) of the 1975 Rules.
CONTENTIONS
7. Mr. Anoop G.
Choudhary, learned senior counsel appearing on behalf of the State, submitted
that in terms of the proviso to Rule 28A (4)(a) of the 1975 Rules, the benefit
of exemption on payment of tax was available to a unit on its `gross turnover'
which was defined to mean the total receipt on account of sales made by a
dealer, which included even the Export Sales. In this connection, reliance was
placed on the REPORTABLE proviso to Rule 28A(4)(a) which inter alia states
that the benefit of exemption shall extend to tax on `gross turnover', which
according to learned counsel would cover total sales receipts (including Export
Sales).
8. On the other hand,
Mr. Monish Panda, learned counsel appearing on behalf of the assessee,
submitted that exemption from payment of sales tax stood provided for under
Section 13B of the said 1973 Act. It provided for exemption from payment of sales
tax to eligible units subject to the conditions mentioned in the Rules. The
conditions for availing the exemption were provided for under Rule 28A of the
1975 Rules. The exemption was available from the date of commercial production.
The benefit of exemption, according to learned advocate, was available for a
specified period and upto the specified quantum. According to learned advocate,
for the purpose of calculating the quantum of exemption, the "notional
sales tax liability" was to be taken into consideration. The expression
"notional sales tax liability" stood defined in Rule 28A(2)(n) of the
1973 Rules. According to learned advocate, on a bare reading of 28A(2)(n), it
is clear that all the incidences of sales transaction that are to be computed
for arriving at the notional sales tax liability stood incorporated in the said
sub- rule. According to learned advocate, on a bare reading of the above
REPORTABLE sub-rule, it is clear that sale made in the course of export outside
India ("Export Sale", for short) was not included in "notional
sales tax liability" as defined in Rule 28A(2)(n). According to learned
advocate, such exclusion of Export Sale from the meaning of "notional
sales tax liability" under Rule 28A(2)(n) leads to the clear conclusion
that Rule 28A never intended to deem "Export Sale" within
"notional sales tax liability" and, therefore, learned advocate urged
that in the context of `notional tax liability', turnover of export goods could
not have been included in the `gross turnover'.
Relevant Provisions
of Law:
9. To decide the
controversy we need to quote relevant provisions of the 1973 Act and 1975 Rules
which read as under:
"1973 ACT:
Section 2.
Definitions: - In this Act, unless there is anything repugnant in the subject
or context.- (e) - "export" means the taking out of goods from the
State to any place outside it otherwise than by way of sale in the course of
inter-State trade or commerce or in the course of export out of the territory
of India (gg) - "gross turnover" means the aggregate of the amounts
of sales and purchases and parts of sales and purchases made by any dealer
whether as principal, agent or in any other capacity during the given period
less any sum allowed as cash discount according to ordinary trade practice, but
including any sum charged for anything done by the dealer in respect of the
goods at the time of, or before, delivery thereof;
(p) - "taxable
turnover" means that part of a dealer's gross REPORTABLE turnover which
remains after allowing deductions under Section 27 of the Act.
Section 6 - Incidence
of Taxation:- (1) Subject to the provisions of Section 15 and 27 of this Act,
every dealer whose gross turnover during the year immediately preceding the
27th day of May, 1971 exceeded the taxable quantum, shall from the 27th day of
May, 1971 and every other dealer shall, on the expiry of thirty days after the
date on which his gross turnover first exceeds the taxable quantum, be liable
to pay tax under this Act on the sale or purchase of goods by him in the State
at the stage hereinafter provided.- (a) to (c) xxx xxx xxx (i) & (ii) xxx
xxx xxx Provided ... xxx xxx xxx Provided further that in the case of a dealer,
- (a) who imports any goods for sale or for use in manufacturing or processing
any goods for sale, the liability to pay tax shall commence from the date on
which he imports such goods;
(b) who manufactures
or processes any goods for sale, the liability to pay tax shall commence, from
the date on which his gross turnover, during any year, first exceeds the
taxable quantum;
(c) who exports any
goods purchased within the State, the liability to pay tax shall commence from
the date on which he purchases such goods; ... ... ...
Section 12 - No tax
payable in case of inter-State trade, etc.- Notwithstanding anything contained
in this Act, a tax on the sale or purchase of goods shall not be imposed under
this Act;
(i) where such sale
or purchase takes place outside the State;
(ii) where such sale
or purchase takes place in the course of import of the goods into, or export of
the goods out of, the territory of India; or (iii) where such sale or purchase
takes place in the course of inter-State trade or commerce.
Section 13B.- Power
to exempt certain class of industries.- REPORTABLE The State Government may,
if satisfied that it is necessary or expedient so to do in the interest of
industrial development of the State, exempt such class of industries from the
payment of tax, for such period and subject to such conditions as may be
prescribed.
Section 27 - Taxable
turnover.- (1) In this Act, the expression, "taxable turnover" means
that part of a dealer's gross turnover during any period which remains after
deducting therefrom his turnover during that period - (a) on account of - (i)
to (iii) xxx xxx xxx (iv) Sale and purchase of goods falling under Section 12:
... ... ..." "1975
RULES :
Rule 28A. Class of
industries, period and other conditions for exemption/deferment from payment of
tax (Sections 13B and 25A) - (1) The industries covered under this rule shall
not be entitled to any deferment or exemption from payment of tax under any
other provisions of these rules.
(2) For the purposes
of this Chapter, unless the context otherwise requires - (n) "notional
sales tax liability" means- (i) amount of tax payable on the sales of
finished products of the eligible industrial unit under the Local Sales Tax Law
but for an exemption computed at the maximum rates specified under the Local
Sales Tax Law as applicable from time to time; and Explanation:- The sales made
on consignment basis within the State of Haryana or branch transfer within the
State of Haryana shall also be deemed to be sales made within the State and
liable to tax;
(ii) amount of tax
payable under the Central Sales Tax Act, 1956, on the sales of finished
products of the eligible industrial unit made in the course of inter-State
trade or commerce computed at the rate of tax applicable to such sales as if
these were made against certificate in form C on the basis that the sales
REPORTABLE are eligible to tax under the said Act.
Explanation:- The
branch transfers or consignment sales outside the State of Haryana shall be
deemed to be the sale in the course of inter-State trade or commerce.
Note : The expression
and terms, if any appearing in this rule not defined above shall unless the
context otherwise requires carry the same meaning as assigned to them under the
Act and rules made thereunder.
Rule 28A (3) Option -
An eligible industrial unit may opt either to avail benefit of tax exemption or
deferment. Option once exercised shall be final except that it can be changed
once from exemption to deferment for the remaining period and balanced quantum
of benefit.
Rule 28A (4)(a)
Subject to other provisions of this rule, the benefit of tax exemption or
deferment shall be given to an eligible industrial unit holding exemption or
entitlement certificate, as the case may be to the extent, for the period, from
year to year in various zones from the date of commercial production or from
the date of issue of entitlement exemption/exemption certificate as may be
opted as under:- ... ... ...
Provided that in the
case of exemption the benefit shall extend to tax on gross turnover and in the
case of deferment, it shall extend to tax on the taxable turnover of goods
manufactured by the unit.
... ... ... Explanation:-
1. For the purpose of arriving at the limit of tax exemption/deferment, the
notional sales tax liability of the unit shall be taken into
consideration."
(emphasis supplied by
us) FINDINGS:
10. At the outset, we
may state that there is a vital difference between REPORTABLE the scheme of
Deduction and a scheme for Exemption. Even within the scheme of exemption there
is a basic difference between the "Basis" for computation of the
quantum of benefit and the "Limit" or ceiling to be placed on that
quantum. There is no dispute that but for exemption claimed, the assessee was a
dealer, who was subject to incidence of sales tax under the 1973 Act. Its
transactions were liable to be dealt with in accordance with the provisions of
the Act relating to taxability. What was exempted under the Act and the Rules
was payment of tax by a class of dealers who had been issued
eligibility/exemption certificates. This is not in dispute. Under the
provisions of 1975 Rules benefit of exemption from payment of tax was available
for a specified period and upto the specified quantum. Rule 28A provides for
calculation of the quantum of exemption upto the limit of tax exemption and,
therefore, it provides for deduction of the "notional sales tax
liability" from the total exemption limit available to a dealer during the
period of exemption.
11. Rule 28A(2)(n)
included in its purview the following transactions:
(a) amount of tax
payable under the local sales tax law;
(b) sales made on
consignment basis within the State or the branch transfers within the State;
(c) amount of tax
payable under the Central Sales Tax Act, 1956 on the sales made in the course
of inter-State trade or commerce; and (d) branch transfers or consignment sales
outside the State.
12. A perusal of the
above transactions, included in the "notional sales REPORTABLE tax
liability", shows that the said Rule 28A(2)(n) of the 1975 Rules included
sales which were otherwise exigible to sales tax, namely, local sales and
inter-State sales and secondly the Rule also included branch transfers or
consignment sales outside the State and sales made on consignment basis or
branch transfers within the State by treating them as deemed sales, which two
transactions were otherwise not exigible to sales tax for any other unit not
availing the exemption. In other words, a unit availing exemption from payment
of sales tax under Rule 28A had been disallowed certain deductions which were
otherwise available to an assessee if it would have been a case of normal
assessment. The assessee was eligible to avail deductions from its `gross
turnover' for transactions relating to inter-State branch transfers or consignment
sales outside the State and sales made on consignment basis or branch transfers
within the State. These deductions stood disallowed to a unit allowing
exemption for calculating the "notional sales tax liability" as
defined in Rule 28A(2)(n), as a condition for grant of exemption. It is
important, however, to note that the "notional sales tax liability"
apart from the above referred to transactions did not include even by a deeming
fiction the Export Sale(s). Export Sale(s) was not included in `notional tax
liability' by a deeming fiction or otherwise. A scheme for Exemption has to be
interpreted in the strict sense. A scheme for Deduction provides for conditions
to be specified for grant of exemption. Export Sales were never sought to be
included in the "notional sales tax liability" as defined in Rule
28A(2)(n). The assessee was not entitled to avail tax incentives beyond the
period of exemption. The assessee was not entitled to REPORTABLE avail
exemption of tax also beyond the maximum limit of tax determined and certified
in his eligibility/exemption certificate. Therefore, the scheme contemplated
tax-limit and time-limit. The notional tax liability was deductible from the
total exemption limit available to a dealer during the period of exemption. To
the extent the notional tax liability exceeded the total exemption limit, the
Department was entitled to order the recovery of the difference. In the present
case, the Department has sought to recover the difference on the ground that
the notional tax liability exceeded the exempted quantum during the period of
exemption.
13. Rule 28A deals
with computation of the quantum of tax incentive available to a dealer in whose
favour eligibility certificate is issued. In order to regulate the exemption
scheme the concept of "notional sales tax liability" stood
incorporated vide Rule 28A(2)(n) of the 1975 Rules.
14. The Department
has placed heavy reliance on the proviso in Rule 28A(4)(a), which has been
quoted above. The said proviso states that in case of exemption, the benefit
shall extend to tax on gross turnover and in case of deferment it shall extend
to tax on the taxable turnover of the goods manufactured by the unit. We have
quoted the definition of the word "gross turnover" which is defined
to mean the aggregate of the amount of sales and purchases made by any dealer.
The Department placed heavy reliance on this definition of the words
"gross turnover" to say that it would include Export Sales,
particularly, when Rule 28A contains a proviso to the effect REPORTABLE that
in case of exemption, the benefit shall extend to tax on "gross
turnover".
There is no dispute
on this proposition. However, in this case we are concerned with the
"limit" to be placed on tax exemption/deferment and for calculating
that limit/ceiling one has to take into account the notional sales tax
liability of the unit. Therefore, one has to read the proviso in Rule 28A(4)
with Explanation 1 which states that "for the purposes of arriving at the
limit of tax exemption/deferment, the notional sales tax liability of the unit
shall be taken into consideration". It is because of the said Explanation
that notional sales tax liability has been defined in Rule 28A(2)(n).
Therefore, one has to go strictly by the definition of the words "notional
sales tax liability" in the said Rule 28A(2)(n) of the 1975 Rules.
15. There is one more
aspect which needs to be considered. For the purpose of granting exemption from
payment of sales tax under Section 13B of the 1973 Act, the Legislature
incorporated Rule 28B on 16.9.98 providing conditions for availing exemption
from payment of sales tax to eligible units.
Under the provisions
of Rule 28B of the 1975 Rules, benefit of exemption was available for a
specified period and upto the specified quantum.
However, Rule 28B
provided that for the purposes of calculating the quantum of exemption availed
by the unit upto the limit of tax exemption allowed, the notional sales tax
liability shall be taken into consideration.
Accordingly, notional
sales tax liability stood defined even in Rule 28B(2)(m).
On a bare reading of
the definition of "notional sales tax liability" under Rule 28B(2)(m)
it is clear that the definition included within its scope "sales made
REPORTABLE in exports outside India" by deeming it to be a sale in the
course of inter- State trade or commerce. Such deeming fiction did not exist in
Rule 28A(2) (n). Rule 28B(2)(m) is not applicable to the facts of the present
case.
However, in order to
explain the position, we have discussed, by way of analogy, Rule 28B(2)(m) of
the 1975 Rules.
16. For the
aforestated reasons, we hold that Export Sales were not includible in the
matter of calculation of "notional tax liability" during the period
in question.
17. Before concluding
learned counsel for the State also raised the question of constitutionality by
stating that the Export Sales in any event were not taxable by the State
Government in view of Article 286 of the Constitution read with Section 12 of
the 1973 Act. We keep this question of law open.
18. Suffice it to
state that Export Sales were not included in the definition of "notional
sales tax liability" as defined in Rule 28A(2)(n) of the 1975 Rules. On
this point alone the assessee succeeds.
19. For the
aforestated reasons, the civil appeals filed by the Department are accordingly
dismissed with no order as to costs.
.................................J.
(S.H. Kapadia)
................................J.
(H. L. Dattu)
REPORTABLE
New
Delhi;
March
17, 2009.
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