1968 (5) TMI 46 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the sale of timber was for use in the generation or distribution of electrical energy within the meaning of section 5(2)(a)(iv) of the Punjab General Sales Tax Act.

Detailed Analysis:

Issue 1: Interpretation of Section 5(2)(a)(iv) of the Punjab General Sales Tax Act

The core issue revolves around the interpretation of section 5(2)(a)(iv) of the Punjab General Sales Tax Act, which allows for the deduction from taxable turnover for "sales to any 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, of goods for use by it in the generation or distribution of such energy."

Facts and Procedural History:
The assessee, a timber supplier, provided timber to the Punjab Public Works Department-Electricity Branch for the construction of the Kotla Power House during 1953-1956. The assessee claimed deductions for these sales under section 5(2)(a)(iv) of the Act. The assessing authority, Deputy Excise and Taxation Commissioner, and the Excise and Taxation Commissioner rejected this claim, stating that the timber was used for construction purposes and not directly in the generation or distribution of electrical energy. The Financial Commissioner upheld this decision, emphasizing that the goods must be used "directly" in the generation or distribution of electrical energy.

Legal Arguments:
The assessee argued that the word "directly" was not present in the statute and that the timber used for constructing the power house should qualify for the exemption. The assessee's counsel cited the principle that in cases of ambiguity in tax statutes, the interpretation should favor the taxpayer. The counsel also referenced the Supreme Court judgment in Innamuri Gopalam and Maddala Nagendrudu v. The State of Andhra Pradesh, which emphasized that tax statutes should be interpreted based on the clear meaning of the words.

Court's Analysis:
The court examined whether timber supplied for the construction of a power house could be considered as being used "in the generation or distribution" of electrical energy. The court noted that the word "in" must be interpreted in context, and it should imply that the goods partake in the generation or distribution process. The court rejected the argument that the Financial Commissioner had improperly added the word "directly" to the statute, clarifying that the Commissioner used it to emphasize the statutory requirement.

The court referred to various dictionary definitions and legal precedents to interpret the word "in." It concluded that the goods must be used in a manner that directly contributes to the generation or distribution of electrical energy. Timber used for making shutters of a power house does not meet this criterion.

Conclusion:
The court held that the sale of timber for the construction of the power house could not be considered as being for use "in the generation or distribution of electrical energy" within the meaning of section 5(2)(a)(iv) of the Act. The reference was answered in the negative, against the assessee, with no order as to costs.

Separate Judgment:
Another judge concurred, stating that if the legislature intended to exempt every article used in constructing a power house, it would have used different language. The exemption is limited to goods used in the generation or distribution of electrical energy, not for construction purposes.

Reference Answered:
Reference answered in the negative.