Commissioner of Trade
Tax, U.P. Vs. Varun Beverages Limited
JUDGMENT
Dr. Mukundakam
Sharma, J.
1.
Leave
granted.
2.
This
appeal is directed against the Judgment and Order dated 19.01.2010 passed by the
Allahabad High Court whereby the High Court allowed the revision petition
preferred by the respondent holding that values of "bottles" and
"crates" are to be treated as part of "Fixed Capital
Investment" as they are essential apparatus for manufacture of Soft Drinks
and therefore could be governed and covered within the meaning of explanation 4(b)(i)
to Section 4-A of the U.P. Trade Tax Act (hereinafter referred to as `the
Act').
3.
The
issue, therefore, which falls for our consideration is as to whether or not
bottles and crates used by the respondent could be said to be essential apparatus
or equipments or components for the establishment and running of the factory of
the respondent.
4.
The
respondent is engaged in manufacturing and sale of soft drink and beverages. The
assessee - respondent applied for the grant of eligibility certificate under Section
4A of the U.P. Trade Tax Act read with notification No. 640 dated 21.02.1997. Pursuant
to the aforesaid request, the respondent/assessee was granted an eligibility certificate
on 26.5.2000 by the Divisional Level Committee constituted under section 4A of the
Act. The exemptions were granted to the assessee for a period of ten years
running from 15.4.1999 to 14.4.2009 or to the extent of 200% of the fixed capital
2investment of Rs.53,79,49,612/-, whichever was earlier. The exemption certificate
granted on 26.5.2000 stipulates that it was granted for the goods, which were manufactured
by the assessee as mentioned in the eligibility certificate. Towards the end of
the eligibility certificate the goods manufactures by the respondent are
described, which are as under: - 1. Carbonate Soft Drinks/Aerated Drinks, including
syrups and beverages packed in a sealed container. 2. Sealed and no unsealed
soft drinks packed in sealed glass containers carbonated drinks and aerated water
including sweated and non sweated drinks, mineral water packed in pet bottles and
pet pre forms to be used in fillings of beverages and liquids articles.
5.
Subsequently
the assessee applied for a review of the eligibility certificate and sought extension
of the period from ten years to fifteen years. In the said review application, the
assessee also sought exemptions for fixed capital investment made by it in glass
bottles and crates claiming that these items were essential for the manufacture
of soft drinks and for running a beverage unit. In that application it was also
stated that while computing the fixed capital investment, an amount equal to Rs.
5,73,62,277/- invested by the assessee towards 3purchases of bottles and crates
should also be included in the fixed capital investment.
6.
The
Divisional Level Committee vide its order dated 10.04.2001 allowed the review application
and ordered that the aforesaid amount of Rs. 5,73,62,277/- be included while
computing the fixed capital investment of the assessee. By the aforesaid order
dated 10.04.2001 the eligibility certificate was also granted to the assessee
for a period of 15 years.
7.
Being
aggrieved by the aforesaid order dated 10.04.2001 the appellant filed an appeal
before the UP Tribunal, Trade, Tax, Lucknow. The Tribunal by its order dated 14.05.2002
allowed the said appeal filed by the appellant holding that the bottles and crates
are neither directly nor indirectly used in the manufacture of beverages and therefore
the same cannot be treated as "Apparatus" as used in the said entry in
explanation (4) to Section 4-A of the Act.
8.
Being
aggrieved by the said order passed by the UP Tribunal, Trade, Tax, Lucknow, the
respondent assessee filed a revision petition before the Allahabad High Court
which was registered as Trade Tax Revision No. 337 of 2002. The High Court by
its order dated 19.01.2010 allowed the said revision petition holding that for the
manufacture of soft drink, the bottles and crates are essential apparatus especially
in a captive industry where the liquid which is prepared and collected by way of
a continuous process in the bottles and thereafter kept it in crates and therefore
both bottles and crates are to be accepted as "apparatus" within the
meaning of Explanation (4) (b) (i) to section 4-A of the U.P. Trade Tax Act.
9.
The
question of law that was framed by the High Court was answered in favour of the
assessee holding that such bottles and crates are to be treated as fixed
capital investment. It was also held that the period of exemption was for 15
years.
10.
The
aforesaid order passed by the High Court was challenged by the appellant by filing
the present appeal in which we heard learned counsel appearing for the parties.
By way of clarification it has to be stated at this stage that in the present appeal
what is specifically challenged is first part of 5the order with regard to bottles
and crates forming part of fixed capital investment and not that part of the
order granting exemption for a period of 15 years. The appeal, therefore, is
restricted to the aforesaid limited issue.
11.
The
counsel appearing for the appellant during the course of his arguments had
taken us through the provisions of Section 4-A of the Act. He submitted that in
the light of aforesaid provisions, the State Government granted exemption from
payment of trade tax in certain cases.
12.
The
aforesaid provision relied upon is Section 4A of the Act which lays down that
where the State Government is of the opinion that it is necessary so to do for increasing
the production of any goods or for promoting the development of any industry in
the State, it may on the application or otherwise declare that the turnover of
sales in respect of such goods by the manufacturer thereof shall, during such period
not exceeding fifteen years is exempted from payment of trade tax provided that
goods manufactured in the new unit has a fixed capital investment of five crore
rupees or more. The said 6section further provides in sub-section (4) of
Section 4-A of the Act as to what is the meaning of the expression "Fixed
Capital Investment". It is provided therein that "Fixed capital
investment" means value of land and building and such plants including captive
power plant, machinery, equipment, apparatus, components, moulds, dyes, jigs
and fixtures. It is mentioned in sub-clause (b) inserted in the proviso to sub-section
(4) of Section 4-A of the Act that for the purposes of determining value of plant
including captive power plant, machinery, equipment, apparatus, components,
moulds, dyes, jigs and fixtures only the following shall be taken into
account:- (i) investment, whether by means of purchases, hire or lease in such plant,
equipment, apparatus, components and machinery, as is necessary for the
establishment or running of the factory or workshop.
13.
Relying
on the aforesaid provisions the counsel appearing for the appellant submitted
that bottles and crates cannot be held to be 'Fixed Capital Investment' either
for establishment or running of the factory or workshop of the respondent and 7therefore
the value of the same cannot be included within the expression "fixed capital
investment" and, therefore, the High Court was not justified in directing
for inclusion of the value of the aforesaid bottles and crates to be read within
the expression of "fixed capital investment". Counsel appearing for
the appellant further submitted that the impugned order is contrary to the ruling
of this Court in State of Bihar and Others vs. Steel City Beverage Limited and another
reported in (1999) 1 SCC 10. It was held by this Court that in respect of an industry
manufacturing soft drinks and beverages, it can be said that plant would mean that
apparatus which is used for manufacturing soft drinks or beverages and not articles
like crates and bottles used for storing the manufactured goods. It was also
submitted by the counsel that the High Court erred in enlarging the scope of
the definition of the word "Fixed Capital Investment" ignoring the
specific words used in the said definition. It was also submitted that the use
of word "Apparatus" in the definition of "Fixed Capital Investment"
is restricted to such apparatus which are actually used in the manufacture of finished
8product and that it cannot be extended to such apparatus which are used for
storing of finished products.
14.
14.
Counsel appearing for the respondent, however, not only refuted the aforesaid
submissions but also submitted that the above referred decision of this Court
is clearly distinguishable from the facts of the present case in view of the clear
distinction between the provision of law upon which the above referred decision
was rendered by this Court and the provision of law which is applicable to the
facts of the present case. He also submitted that the definition of fixed capital
investment as per sub-section (4) of Section 4-A of the Act would indicate that
respondent is entitled to exemption for all the fixed capital investment which
not only include within its ambit the value of the land and building but also such
apparatus, components and equipments, which are necessary for the establishment
or running of the factory or workshop. He further submitted that provisions of
the Act includes not only plants, machinery but also includes apparatus, components,
moulds, dyes, jigs and fixtures. He also submitted that the glass bottles and
creates are absolutely necessary for the unit of soft drink as without the use of
these apparatus, the manufacture of soft drink would not be complete.
15.
In
the light of the submissions made by counsel appearing for the parties, we heard
learned counsel appearing for the parties and considered the scope and ambit of
the question which falls for our determination. 16. This Court in the case of CST
v. Industrial Coal Enterprises, reported at (1999) 2 SCC 607, observed that as
under: - "6. Admittedly the provisions for exemption from sales tax have been
introduced in the Act for the purpose of increasing the production of goods and
for promoting the development of industries in the State. In fact, when the scheme
called "Grant of Sales Tax Exemption Scheme 1982 to industrial units under
Section 4-A of the Sales Tax Act" was originally framed, it was expressly
stated that the Government granted the facility of exemption in order to encourage
the capital investment and establishment of industrial units in the State. The Scheme
contained various rules for grant of such exemption........ xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
16.
In
CIT v. Straw Board Mfg. Co. Ltd. this Court held that in taxing statutes, provision
for concessional rate of tax should be liberally construed. So also in Bajaj Tempo
Ltd. v. CIT it was held that provision granting incentive for promoting economic
growth and development in taxing statutes should be liberally construed and restriction
placed on it by way of exception should be construed in a reasonable and purposive
manner so as to advance the objective of the provision. 12. We find that the object
of granting exemption from payment of sales tax has always been for encouraging
capital investment and establishment of industrial units for the purpose of increasing
production of goods and promoting the development of industry in the State. If
the test laid down in Bajaj Tempo Ltd. case is applied, there is no doubt whatever
that the exemption granted to the respondent from 9-8-1985 when it fulfilled all
the prescribed conditions will not cease to operate just because the capital investment
exceeded the limit of Rs 3 lakhs on account of the respondent becoming the
owner of land and building to which the unit was shifted....................."
17.
The
aforesaid object of the relevant provision in the light of other provisions of the
Act, makes it crystal clear that the value of investment for equipments, apparatus
and components for running the factory and workshop has also to be considered
as investment and such value is required to be included within the ambit of fixed
capital investment. The wordings of the provision of law which call for our
interpretation are not identical and similar which were considered and interpreted
by this court in the decision in State of Bihar and Others (supra).
18.
This
Court in the case of State of Bihar v. Steel City Beverages Ltd., reported as (1999)
1 SCC 10, observed that as under: - "8. It is also relevant to refer to
the two notifications of the Government of India in the Ministry of Industry (Department
of Industrial Development) dated 2-4- 1991 and 1-1-1993 issued under Section
11-B of the Industries (Development & Regulation) Act, 1951. Notification No.
232 dated 2-4-1991 while stating what has to be included under fixed assets while
ascertaining whether a small-scale industrial unit's investment has exceeded
the limit of Rs 60 lakhs has clarified that the cost of storage tanks which store
raw material or finished products is to be excluded.
The 1993 notification
has amended the notification of 2-4-1991 and clarified by adding Note that in calculating
the value of plant and machinery, the cost of storage tanks which store raw materials/finished
products only and which are not linked with the manufacturing process shall be excluded.
On 8-5-1995, the Government of India again issued a circular, after having received
representations from the industry seeking clarification whether bottles and crates
are to be taken into account for determining the SSI status of the units engaged
in manufacture of soft drinks/concentrates, clarifying that investment in bottles
and crates in such units is in the nature of storage of finished products and, therefore,
such investment has to be excluded while computing the value of plant and
machinery.
As pointed out in the
affidavit-in-rejoinder, the Company had applied for an Eligibility Certificate claiming
the status of a small-scale industry. It is, in fact, registered as a
small-scale industrial unit. While declaring its investment at the time of seeking
registration as a small-scale industrial unit, it did not include investment in
bottles and crates under the head "Plant and Machinery". The investment
in bottles and crates was shown under a separate head. It is further pointed out
in the said affidavit that if the investment of the Company in bottles and 1 crates
is included under the head "Plant" then its total fixed capital investment
will reach the level of 137.36 lakhs and it can no longer be regarded as a small-scale
industrial unit. As the Company had applied as a SSI unit, the District Level Committee
had to verify the status of the Company as SSI unit and, therefore, it was bound
to take into account the above-referred two notifications of the years 1991 and
1993. If under these circumstances, the District Level Committee came to the conclusion
that the Company is not entitled to the benefit of deferment in respect of its investment
in bottles and crates, it cannot be said that it has acted contrary to
law."
19.
A
careful reading of the ratio of the aforesaid decision would reveal that expression
plant and machinery in the said case was intended to take such articles which are
required for the purpose of manufacture and not for storage. Besides, the said decision
was rendered in the context of the two notifications which specifically
excluded value of bottles and crates to be included in the expression "plant
and machinery" as the same are used for the purpose of storage of finished
products and not used for the purpose of manufacture of finished products.
20.
However,
in this case, not only the wordings of the Act are wider but there is also no such
notification issued by the State Government giving a restricted meaning to the 1
expression "fixed capital investment" which as per provision enacted also
includes all such investment made for equipment, apparatus, components and machinery
which are necessary for running of the factory or workshop.
21.
In
that view of the matter and considering the wording of the provision itself, it
is quite necessary to give full and complete effect to the provision in a purposive
manner so as to advance the objective of the provision. So in the instant case all
those apparatus, equipments and components which are necessary for running of
the factory would also be considered as investment and would therefore be part of
the definition of fixed capital investment. Besides, as laid down in the
decision of this Court in CIT v. Straw Board Mfg. Co. Ltd. reported as 1989
Suppl. (2) SCC 523, in taxing statutes, provisions for concessional rate of tax
should be liberally construed.
22.
The
respondents are engaged in the manufacture of soft drink and beverages which are
required to be bottled and thereafter sealed, which are essential part of
running of the 1 factory and therefore the same will have to be included within
the aforesaid extended meaning of the word `investment' as appearing from the words
`fixed capital investment'. To that extent, facts of the present case are distinguishable
from the facts of State of Bihar and Others (supra) on which reliance was placed
by the counsel appearing for the appellant.
23.
Considering
the facts and circumstances, we hold that so far bottles are concerned, they are
essential part of components and equipments necessary for the running of the factory
and therefore such value of the investment would form part of the fixed capital
investment and would be entitled to exemption as provided for. But so far
crates are concerned they are used by the respondent only for the purpose of
marketing. Use of crates is necessary for taking out the bottled beverages out
of the factory and while doing the marketing of the sealed bottled beverages. The
aforesaid view taken by us also receives support from the contents of the eligibility
certificate given by the appellant and therefore crates have no user so far as
running of the factory of the respondent. Therefore, the value of crates in our
considered opinion cannot be deemed to be investment for the purpose of including
it within the meaning of expression "Fixed Capital Investment" as per
sub-section (4) of Section 4-A of the Act.
24.
Having
held thus, we allow this appeal partly to the aforesaid extent. We uphold the order
passed by the High Court so far bottles are concerned but set aside the same so
far crates are concerned. In terms of the aforesaid order and observations,
this appeal stands disposed of but there will be no order as to costs.
..........................................J.
[Dr. Mukundakam Sharma]
..........................................J.
[Anil R. Dave]
New
Delhi,
April
11, 2011
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