1989 (9) TMI 369 - HC - VAT and Sales Tax

Issues Involved:
1. Interpretation of Notification No. FD 34 CSL 87 (III) dated 28th March 1987.
2. Applicability of the 1987 Notification to tiny sector industrial units.
3. Validity of the Commissioner's circular dated 29th October 1987.
4. Entitlement of tiny sector units to tax exemption under the 1987 Notification.

Detailed Analysis:

1. Interpretation of Notification No. FD 34 CSL 87 (III) dated 28th March 1987:
The core issue revolves around the interpretation of the 1987 Notification which exempts the tax payable under section 5 of the Karnataka Sales Tax Act, 1957 on the purchase of groundnuts/seeds if the dealer produces proof of payment of tax on the sales of non-refined groundnut oil made within the State or in the course of inter-State trade or commerce. The petitioners argue that the notification should not be interpreted literally to deprive them of the exemption on their purchase turnover.

2. Applicability of the 1987 Notification to Tiny Sector Industrial Units:
The petitioners, all tiny sector industrial units, contend that the 1987 Notification should apply to them as they are not specifically excluded from its application. They argue that the term "payable" should be understood as "paid" or "liable to be paid," thus entitling them to the exemption under the 1987 Notification despite their sale turnover being exempt under the 1983 Notification.

3. Validity of the Commissioner's Circular Dated 29th October 1987:
The controversy arises from the Commissioner's circular which insists that only where tax is paid on the resultant oil, the groundnuts used to produce such oil are exempt. The circular implies that tiny sector units enjoying 100% tax concession on their sale turnover cannot claim exemption on their purchase turnover of groundnuts. The petitioners challenge this interpretation as erroneous and ultra vires the notification.

4. Entitlement of Tiny Sector Units to Tax Exemption Under the 1987 Notification:
The petitioners argue that the insistence on the production of proof of payment of tax on their sales is unreasonable and impossible since their sales are exempt under the 1983 Notification. They seek a harmonious interpretation of both notifications to ensure they are not deprived of the additional benefit of exemption on their purchase turnover.

Judgment Summary:

The court acknowledges the complexity of the issue and emphasizes the need to interpret both notifications together to provide a meaningful and beneficial construction. The court agrees with the petitioners that the Commissioner's circular is not justified and should not bind the assessing authorities.

The court references several cases to support the petitioners' arguments, including:
- Innamuri Gopalam and Maddala Nagendrudu v. State of Andhra Pradesh: Emphasizing that the taxpayer should not be denied the benefit of exemption if within the plain terms of the exemption.
- Tata Yodogwa Limited v. Union of India: Interpreting "paid" as "contracted to be paid" to avoid unjust results.
- Collector of Central Excise, Bombay v. Parle Exports (P.) Ltd.: Stating that exemption clauses should be interpreted in favor of the subject.

The court concludes that the 1987 Notification should be construed to extend the benefit to tiny sector units without insisting on proof of payment of tax on their sales. The literal interpretation proposed by the Commissioner would lead to hardship and injustice, contrary to the purpose of the notifications.

Conclusion:
The writ petitions are allowed, and the notices, assessment orders, and demands based on the Commissioner's circular are set aside. The court declares the Commissioner's circular as non-binding on the assessing authorities and directs them to give effect to the 1987 Notification in light of this judgment for the petitioners and similarly situated tiny sector industrial units.

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