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TMI Blog2005 (7) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... , are entitled to any relief? Held that:- Appeal allowed. The High Court has found that the respondent had taken the benefit of the increased capacity of the unit which came about by reason of the first two expansions in the sense that the exemption on entire sales turnover relatable to such increased capacity had been enjoyed by the respondent under the 1985 notification. The DLC had also granted tax benefit to the respondent only in respect of the third expansion excluding the pre-operative expenses. Albeit for other reasons, in our opinion, having regard to our decision on the various issues against the respondent, this is the highest relief that the respondent could claim and which the appellants concede would be the most equitable. - Civil Appeals No. 4601, 4602 of 2000 - - - Dated:- 12-7-2005 - RUMA PAL AND ARUN KUMAR JJ. G.K. Banerjee, Senior Advocate (Punit Dutt Tyagi, S. Aggarwal and Mukesh Verma, Advocates, with him), for the appellants. Gopal Subramanium and Bharatji Aggarwal, Senior Advocates (Dhruv Agarwal, Praveen Kumar, Umesh Khaitan and Nishant Menon, Advocates, with them), for the respondent. ------------------------------------------------ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaken expansion, diversification or modernisation. It provided similar relief from payment of tax under the Act to new units excluding units mentioned in annexure II to the second notification as well as to goods manufactured in units other than units of the type mentioned in annexure II which had undertaken expansion, diversification or modernisation on or after April 1, 1990 but not later than March 31, 1995 in specified areas. Under paragraph (1-B)(1)(a) no tax was payable or, as the case may be, the tax was payable at reduced rates specified in column 4 of annexure I on the turnover of sales by such units in respect of inter alia, the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernisation . Paragraph (1-B)(2)(ii) provided that in the case of units undertaking expansion or modernisation the period of such facility was to be reckoned from the first date of production of goods manufactured in excess of the base production. The benefits under the notification were available only on production of an eligibility certificate granted by the named authority to the assessing authority. Annexure I provided for the rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital investment of Rs. 54,51,03,549. 9.. Before the revised application under the 1991 notification was filed by the respondent a third notification was issued on March 31, 1995 (referred to as the 1995 notification ) granting benefits to units which were either new or had undertaken expansion, diversification or modernisation on or after April 1, 1995 but not later than March 31, 2000. The difference in this notification with the earlier notifications is not only with regard to the period but also in the allowance of the benefit to any finished goods manufactured in such a unit which had undertaken backward integration during the same period. The limits to which exemption was granted has been mentioned in annexure I. Units where the fixed capital investment exceeded Rs. 50 crores would, like the earlier notification, be wholly exempted from payment of tax. Where the investment was not Rs. 50 crores, the benefit was granted at reducing percentages the maximum (at least as far as certain districts including Bulandshahar were concerned) being 200 per cent of the fixed capital investment or, as the case may be, additional fixed capital investment. 10.. On the basis of the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and that the tax benefit would be calculated at the specified percentage of the original and additional fixed capital investment. The circular dated June 30, 1993 was struck down and the DLC was directed to issue a revised eligibility certificate to the respondent in accordance with the finding. 13.. Two appeals have been preferred from both these decisions by the trade tax authorities, both of which are being disposed of by this judgment. As no stay was granted by us at the time of the admission of the appeals, tax relief was granted to the respondent by the appellants as directed by the High Court. 14.. According to the appellants the 1985 notification granted tax relief only to new units and did not extend to units undergoing expansion, diversification or modernisation. The 1991 notification expanded the category of units to the latter category for the first time. As far as the fixed capital investments were concerned it is submitted that Explanations (1), (2), (4) and (5) to section 4-A of the Act showed that there was a distinction between original and additional fixed capital investment and that contextually, the phrase fixed capital investment used in the notificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the actual grant of the benefit was effected by the notification and in terms thereof. Thus the 1991 notification linked the extent of the benefit to the fixed capital investment in contrast to the additional fixed capital investment provided in the 1995 notification. There was a conscious decision to grant older units the benefit in respect of the additional production by linking the same to the original and the additional fixed capital investment. The distinction was deliberate and unambiguous. If, as a result, older units undertaking expansion, diversification or modernisation were in a better position than new units, this would not, according to the respondent, make the grant discriminatory or arbitrary, nor was there any warrant in law not to give effect to the language used. It was then submitted that there was no bar under the 1991 notification against claiming exemption in three phases of expansion at the end of the third phase nor was there any time-limit to do so. It was contended that the Tribunal had correctly allowed the pre-operative expenses as part of the value of the plant and machinery which was includible in the respondent's fixed capital investment. It is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-A of the Act was introduced in the Act for the stated purposes of increasing the production of goods or for promoting the development of industry in the State or any of the districts. Under section 4-A, sub-section (1) the State Government may by notification, declare that the turnover of sales is exempt from trade tax for a period not exceeding 12 years subject to such conditions as may be specified in the notification. The 1991 notification cannot therefore be read in isolation but in the context and within the parameters of section 4-A of the Act under which it was issued. As we have noticed at the outset, the varying amounts of the benefit available under the 1991 notification have been tabulated in annexure I thereto. The basis of the exemption or reduction on tax is the fixed capital investment the quantum of relief being a percentage of such investment. The phrase fixed capital investment will have to be read harmoniously not only with the other provisions of the notification itself but also in the light of section 4-A. 18.. Fixed capital investment has been defined in paragraph 3 of the 1991 notification as being determinable in the case of an industrial undertakin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dministered by the Pradeshiya Industrial and Investment Corporation of Uttar Pradesh regarding trade tax on sale or purchase of goods; (b) whose first date of production of goods, (i) of a nature different from those manufactured earlier by such undertaking in case of units undertaking diversification, and (or) (ii) manufactured in excess of base production, in such undertaking in case of units undertaking expansion or modernisation, falls at any time after March 31, 1990. (c) the production capacity whereof has increased by at least twenty-five per cent as a result of expansion or modernisation or wherein goods of a nature different from those manufactured earlier are manufactured after diversification; (d) wherein an additional fixed capital investment of at least twenty-five per cent, of such original fixed capital investment (without providing for depreciation) is made. 20.. What is of significance is that a distinction is made between additional and original fixed capital investment not only in clause (d) of clause (5) to the Explanation in section 4-A of the Act but in the body of the entire clause the first relating to old units undertaking expansion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lone would have to be computed. 24.. Form XLVI appended to the U.P. Trade Tax Rules, 1948 (referred to hereafter as the Rules ) prescribes the details for an application for exemption from or reduction in rate of tax to new units the date of starting production whereof fell on or after April 1, 1990 or to units which have undertaken expansion, diversification or modernisation on or after April 1, 1990 under section 4-A of the Act. Serial No. 6(a) gives the necessary particulars of the fixed capital investment in case of the latter kind of unit. There are three columns, viz., original investment (without giving margin for depreciation), additional investment in the expansion, etc., on the date of commencement of the period of facility and a certificate of valuation of the additional fixed capital investment. The investments contemplated are in (i) land (ii) building and (iii) plant, machinery, equipment, apparatus and components. The certificates in respect of items (i) and (ii) as far as additional fixed capital investment are to be given by the Collector of the district and the evaluator approved by the Income-tax Department respectively. The valuation of the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that when the 1991 notification only used the words fixed capital investment in annexure I as the basis of calculation of benefit without making any such distinction, all units whether new or old were entitled to the benefit of the original and the additional fixed capital investment. 26.. Apart from being contrary to the language of paragraph 4 of the 1991 notification, the decision in Pappu Sweets See [1998] 111 STC 425 (SC); (1998) Supp 2 SCR 119., on which the High Court founded its reasoning does not support the conclusion of the High Court. In Pappu Sweets See [1998] 111 STC 425 (SC); (1998) Supp 2 SCR 119., the very same notifications namely, the 1991 and 1995 notifications were considered. The question was whether the word sweetmeats under the 1991 notification could be read as including toffees . A Bench of three judges of this Court held that the 1995 notification could be looked into for clarifying the ambiguity in the 1991 notification. The 1995 notification did not use the word sweetmeats at all but mentioned different kinds of condiments but did not mention toffees. On the principle enunciated in Cape Brandy Syndicate v. Inland Revenue Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply the same enactment. (See also in Karnataka Small Scale Industries Development Corporation Ltd. v. Commissioner of Income-tax See [2002] 258 ITR 770 (SC). [2002] Supp 4 SCR 453, 460.) 30.. The High Court therefore erred in striking down the circular by holding that the circular was contrary to what the High Court thought was the clear intention behind the notification instead of seeing the circular as contemporaneous evidence of such intention. 31.. The position was therefore abundantly clear. Old units undertaking expansion, diversification or modernisation would be entitled to get benefit of tax reduction on the additional fixed capital investment made. The respondent acted on this and in its application dated October 27, 1995 for grant of eligibility certificate for expansion of its capacity addressed to the Chairman, Committee of Sales Tax Exemption and Commissioner said According to rules the company is entitled to get full exemption from trade tax for a period of nine years subject to monetary limit of 125 per cent of additional fixed capital investment with effect from the first date of production in excess of base production. 32.. Before the Tribunal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrary or discriminatory. The contention would have been apposite if there were a challenge to the constitutionality of the notification. There is no such challenge. We are merely seeking to construe the notification and although consequences cannot and should not alter the statutory language but they may at least fix its meaning. 35.. It is patent to us therefore that the benefit of the 1991 notification as far as units undertaking expansion, etc., like the respondent are concerned is limited to a percentage of the additional fixed capital investment and not the original and additional fixed capital only and not to a percentage of the aggregate of the original and additional fixed capital. ISSUE NO. 2 36.. Were there three separate expansions of the respondent's unit as claimed by the appellants or only one as asserted by the respondent and affirmed by both the Tribunal and the High Court. The issue is a mixed question of law and fact. Were it only a question of fact no doubt we would have stayed our hands and let the matter rest there unless of course the concurrent conclusion of both fora could be said to be perverse. However the appellants' contention is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the various investments made and when they were made. That is all. It does not in any way support the respondent's submission on this issue. 40.. Although not strictly speaking necessary, we may now consider on the other hand the admitted facts each of which go to show that there were in fact three separate expansions. For each of the three expansions, separate industrial licences were applied for and obtained from the Central Government. Separate negotiations for finances were entered into between the respondent and the financial institutions. The correspondence exchanged shows that the expansions were separate. For example, a letter dated July 17, 1989 written by the IFCI to the respondent in connection with the first expansion refers to your (the respondents) expansion scheme envisaging increase in the installed capacity for the manufacture of ceramic wall and floor tiles from 12,000 TPA to 26,000 TPA at Sikanderabad . Finally as noticed earlier, the respondent had itself made three separate applications, one for each expansion. In the covering letter it was said that the respondent had undertaken three successive expansions. These facts were not adverted to either by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maximum production achieved during any one of the preceding five consecutive assessment years or if the unit were in production for less than five years, the maximum production achieved during any one of the preceding assessment years, whichever is higher. 45.. These definitions are reflected in the 1991 notification. Base production of unit undertaking expansion or modernisation has been provided for under paragraph 5 according to which it shall be deemed to be: (a) maximum production achieved during any one of the pre- ceding five consecutive assessment years, or (b) 80 per cent of the installed annual production capacity, whichever is higher. 46.. Determination of base production has been provided also in paragraph 6 as follows: (a) Turnover of sale of goods in any assessment year to the extent of the quantity covered by base production of that year and the stock of base production of previous years shall be deemed to be the turnover of base production. (b) Only the turnover of goods in any assessment year in excess of the quantity referred to in clause (a) shall be entitled to the facility of exemption from or reduction in the rate of tax. 47.. Base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 991 notification commenced and the expansion was complete. 53.. The years of the first expansion would then be taken into account for determining the base production for the second expansion, and the moment this was exceeded as a result of the second expansion the expansion was complete. The same process would apply to the third expansion. Therefore each time the respondent made, an additional investment, increased its capacity to produce and in fact produced goods there was an expansion. 54.. The respondent cannot in terms of this statutory scheme claim in one breath that a single expansion commenced from 1988 and was completed in 1994 and at the same time say that the base production was the figure of production in 1992-93 viz., 40,038 M.T. The base production as we have seen must statutorily precede the expansion and cannot be a figure taken while the expansion has already progressed. The figure of 40,038 M.T. was accepted by the DLC as the base production as it had rejected the respondent's claim relating to the first two expansions and limited it to the third expansion. The appellants have similarly accepted this figure of 40,038 M.Ts. But this is in keeping with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th sub-section (5) of section 4-A shall be made. In the matter under reference, the Government vide its letter No. TT-1167/Eleven-9(101)/96 dated June 4, 1996 have informed that according to the present provisions base production shall be deemed to be maximum production achieved during any one of the preceding five consecutive assessment years or 80 per cent of the installed annual production capacity, whichever is higher. If any unit undertakes diversification, modernisation before five years from its establishment then the aforesaid provisions shall be applicable even thereafter meaning thereby that it shall not be entitled to exemption unless there is production in the preceding five consecutive assessment years. 59.. The High Court therefore concluded that the respondent could only make one composite application after five years. It should not have done so. 60.. For one, the circular was issued subsequent to the relevant period and after the respondent had filed its revised application for exemption under section 4-A. For another, the construction put by the circular on the definition of base production is questionable and has in any event no statutory force. In any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he term in a manner which may add something to the meaning of the word which ordinarily does not so mean by the definition itself, more particularly, where it is a restrictive definition. 65.. According to the Constitution Bench in Punjab Land Development and Reclamation Corporation Ltd. v. Presiding Officer [1990] 3 SCR 111, 150 when the statute says that a word or phrase shall mean certain things it is a hard and fast definition, and no other meaning can be assigned to the expression than is put down. A definition is an explicit statement of the full connotation of a term . 66.. Therefore apart from the actual investment in or cost of the specific items of land, building, plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures, no other item of expense is includible under the head of fixed capital investment for the purposes of section 4-A of the Act. 67.. This principle of statutory interpretation is reinforced not only by the particulars itemised in form XLVI of the Rules but also by the procedures for determination of fixed capital investment specified in paragraphs 3 and 4 of the 1991 notification, all of which underscore the definition& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng upon them and that this was laid down in Collector of Central Excise, Vadodra v. Dhiren Chemical Industries* (2002) 2 SCC 127 and Commissioner of Sales Tax, U.P. v. Indra Industries (2000) 9 SCC 66. 71.. The objection is misconceived. Circulars may be of varying kinds. The circulars relied on were merely official communications to the subordinate officers directing compliance with the decision of the High Court. They were not clarifications of statutory provisions in which event, as was held in Commissioner of Sales Tax v. Indra Industries See [2001] 122 STC 100 (SC); [2001] 248 ITR 338 (SC). (2000) 9 SCC 66, they would represent the official understanding of those statutory provisions and would be binding on the taxing authority. Nor was there any statutory provision in the U.P. Act corresponding to section 37-B of the Central Excise Act, 1944 by the Central Board of Excise and Customs which make circulars issued thereunder binding on the authorities as was held in Collector of Central Excise v. Dhiren Chemical See [2002] 126 STC 122 (SC); [2002] 254 ITR 554 (SC). The appellants' appeals before this Court were filed before any action was taken on the High Court's de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e primary liability to pay the sales tax is on the seller. The seller may or may not be entitled to recover the same from the purchaser. The State Government is entitled to recover the same from the respondent-companies irrespective of the fact that the respondent-companies may have lost the chance of passing on their liability to pay sales tax to their purchasers. 75.. We see no reason to differ from this view. Indeed the Act itself envisages a situation where a dealer may be called upon to pay the tax which it may not have collected from its customers. We have seen earlier that sub-section (2) of section 4-A of the Act provides for the conditions which may be imposed in an exemption notification. Apart from the conditions already noted by us, paragraph 2 of the 1991 notification stated that the facility of exemption from or reduction in the rate of tax shall be subject to the condition: (iv) that the said unit furnishes to the assessing authority concerned an eligibility certificate granted in this behalf by the General Manager, District Industries Centre, Area Development Officer (Industry) of the concerned Industrial Development Authority, Additional or Joint Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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