1998 (10) TMI 452 - SC - VAT and Sales Tax

Whether toffee is sweetmeat or a commodity of a like nature and therefore the appellant s industrial units making toffees, though newly set-up, were not entitled to the benefit of exemption from payment of sales tax under notification dated July 27, 1991, issued by the State of Uttar Pradesh, in exercise of its powers under section 4-A of the Uttar Pradesh Sales Tax Act, 1948? Held that - Appeal allowed. High Court has not correctly interpreted and construed entry No. 18 of the notification. Considering the object of the notification and the intention of the State Government in granting exemption from payment of sales tax and applying the correct principles of interpretation in such cases, we hold that the word sweetmeat and the words commodities of like nature as used in the notification dated July 27, 1991 did not include within their sweep toffees manufactured by industrial units as contemplated by the notification and the Joint Director of Industries, the Tribunal and the High Court were wrong in taking a contrary view.

Issues Involved:
1. Whether "toffee" is considered "sweetmeat" or a commodity of a like nature under the Uttar Pradesh Sales Tax Act, 1948.
2. Eligibility of new industrial units manufacturing toffees for sales tax exemption under the notification dated July 27, 1991.

Detailed Analysis:

Issue 1: Whether "toffee" is considered "sweetmeat" or a commodity of a like nature under the Uttar Pradesh Sales Tax Act, 1948.
The primary question in these appeals was whether "toffee" falls under the category of "sweetmeat" or commodities of a like nature, thus disqualifying the appellant's industrial units from sales tax exemption under the notification dated July 27, 1991. The High Court interpreted the word "sweetmeat" by considering:
- Dictionary definitions of "sweetmeat," "confectionery," and "toffee."
- Commercial understanding of "toffee."
- The expanded scope of entry No. 18 indicated by "commodities of like nature."
- Potential discrimination against Indian-origin items like "reori" and "gazak" if "toffee" was not considered "sweetmeat."
- The fact that some toffee manufacturers market their products as "sweets."

The High Court concluded that "toffee," being rich in sugar and a type of confectionery, is a "sweetmeat" and a commodity of a like nature. This interpretation was challenged on the grounds that the High Court did not correctly apply the popular parlance test and instead relied on dictionary meanings and foreign understanding of "toffee."

The Supreme Court emphasized that the object of the notification and the context in which "sweetmeat" was used must be considered. The notification aimed to promote industrial growth by exempting new units from sales tax, but it explicitly excluded certain industries, including those making "sweetmeat," "namkeen," "reori," and "gazak." The Court noted that these items are typically prepared by shopkeepers and restaurants, not in industrial units.

The Court found that the High Court erred by not applying the popular parlance test correctly. It should have considered how "toffee" is understood in India and particularly in Uttar Pradesh. The evidence indicated that "toffee" is not considered "sweetmeat" by dealers or consumers in India. The Court also noted that subsequent legislation clarified that confectionery manufacturing units registered under the Factories Act, 1948, were excluded from the scope of "sweetmeat."

Issue 2: Eligibility of new industrial units manufacturing toffees for sales tax exemption under the notification dated July 27, 1991.
The notification issued by the State of Uttar Pradesh aimed to promote industrial development by granting sales tax exemptions to new industrial units and those undergoing expansion, diversification, or modernization. However, it excluded certain industries, including those making "sweetmeat" and similar commodities.

The appellants, who established new industrial units for manufacturing toffees, applied for eligibility certificates for sales tax exemption. Their applications were rejected on the grounds that "toffee" was considered "sweetmeat." The Trade Tax Tribunal and the High Court upheld these rejections.

The Supreme Court, however, held that the word "sweetmeat" and the phrase "commodities of like nature" in the notification did not include toffees manufactured by industrial units. The Court emphasized that the object of the notification was to promote industrial growth, and the exclusionary part of the notification should be construed strictly. The Court directed the concerned authorities and the State of Uttar Pradesh to grant the required eligibility certificates and extend the benefit of sales tax exemption to the appellants.

Conclusion:
The Supreme Court allowed the appeals, set aside the judgments and orders of the High Court, and directed the State of Uttar Pradesh to grant eligibility certificates and extend sales tax exemption benefits to the appellants' industrial units manufacturing toffees. The Court emphasized the importance of interpreting exemption notifications in a manner that aligns with their object and avoids unintended results.

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