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TMI Blog1989 (9) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of inter-State trade or commerce inside the State." By Notification V No. FD 51 CSL 83(V) dated 31st March, 1983, issued by the Government under section 8-A(1)(b) of the Act, the turnover of the sale of goods manufactured in Karnataka and sold by all the tiny sector industrial units was exempted for a period of five years. That all the petitioners in these cases are tiny sector units eligible for exemption of tax under the said notification is not in dispute and it is also a fact that all the units covered by the Notification of 1983 are enjoying the benefit of such exemption. The Notification dated 31st March, 1983, is reproduced below: "In exercise of the powers conferred by clause (b) of sub-section (1) of section 8-A of Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), the Government of Karnataka hereby exempts, with effect from first day of April, 1983, the tax or taxes payable under the said Act, on the turnover of the goods manufactured in Karnataka and sold by all tiny sector industrial units as defined hereafter, for a period of 5 years from the respective date of commencement of their commercial production, subject to the following restrictions and conditio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able to tax under section 5 of the Act, is eligible for exemption from the levy of tax if the dealer produces proof of payment of tax on the turnover of sale of such oil made within the State or in the course of inter-State trade or commerce inside the State. The effect of the Commissioner's circular is that in case of tiny sector units whose sale turnover is exempt from tax, they are not again eligible for exemption on their purchase turnover under the 1987 Notification. As a result of the said circular, the petitioners, who are all the tiny sector units, are thus deprived of the exemption granted under the 1987 Notification since they have not paid tax on their sale turnover and, consequently, they are not in a position to produce proof of payment to claim exemption of tax on their purchase turnover of groundnuts. The argument of the petitioners is that the 1987 Notification should not be literally interpreted leading to the deprivation of the exemption of tax on their purchase turnover. The first contention is that under the 1987 Notification the tiny sector units are not specifically excluded from the application of the notification. The second contention is that the term "p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sold by all tiny sector industrial units. This exemption was, however, subject to certain restrictions and conditions referred to therein. That the exemption specifically related to the tax payable on the sale turnover of the manufactured goods, is clear from clause (v) of the notification. While all the tiny sector units enjoyed the benefit of exemption under the said notification, the Government issued the second Notification on 28th March, 1987, under section 8-A of the Act conferring the benefit of exemption of tax payable under section 5 of the Act on the purchase of groundnut seeds made by a dealer. This exemption is available and could be claimed only on producing the proof of payment of tax on the sales of non-refined groundnut oil produced out of the groundnuts, the purchase turnover of which is liable to tax under section 5 of the Act. In the course of the assessment proceedings under the Act against the petitioners before me in W.P. Nos. 1155 and 1156 of 1988, the assessing officer completed the assessment levying tax on the purchase turnover on the ground that the assessee failed to produce proof of payment of tax on the sale of non-refined oil, as required to be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on their purchase turnover also under the 1987 Notification? It is the contention of the petitioners that their units being recognised as tiny sector industrial units, the sale turnover of finished products is exempt by virtue of the 1983 Notification. While the petitioners are enjoying the exemption on their sale turnover, the Government by its Notification dated 28th March, 1987, exempted the purchase turnover of groundnut/seeds of all the manufacturers of non-refined groundnut oil in the State. But, this was made subject to the production of proof of payment of tax on the sales of such oil by the manufacturers. The contention of the petitioners is that it is impossible, besides being unreasonable, to insist on production of proof of payment of tax on the sales of manufactured oil since their sales are exempt under the 1983 Notification. It is, therefore, argued that by the insistence on production of proof of payment of tax by the department on a literal construction of the Notification of 1987, the petitioners would be deprived of the benefit of the 1987 Notification. It is also their case that on a harmonious interpretation of both the notifications, the additional benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nescapable that the word 'leviable' used in the proviso means that in respect of the goods specified as regards which he claims exemption from the payment of sales tax there was a liability upon him to pay the additional excise duty under clause 3 of the Bill for it was only in that event that he would be able to prove to the assessing authorities that additional duty has been levied and collected from him.......................................". "................................. If the tax-payer is within the plain terms of the exemption he cannot be denied its benefit by calling in aid any supposed intention of the exempting authority.................................". Relying on this condition, the State Government interpreted the notification to mean that the dealers were not entitled to exemption in view of the specific condition imposed under clause 3 about the situs or the location of the goods. The question that arose out of the order of the Government was: whether the dealers were not entitled to the exemption from levy of sales tax on cotton textile goods? The Supreme Court held on a construction of the terms of the exemption clause 3 of the notification, the dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the scraps by the petitioners, are liable to any excise duty or not. It is in this context that a clarification was needed and it was so needed to clarify the Notification No. 150/77 as also the Notification No. 66/73. The clarification came, but in it however, the words used in Notification No. 150/77 were taken for interpretation and, as noticed above, it was said that the assessment included nil duty and the expression 'paid' bad to be construed to mean 'contracted to be paid' and it was not necessary that the same amount of duty had actually been assessed and actually been paid. The petitioners have asserted and the respondents have not denied that accepting the said interpretation to apply to the ingots manufactured by them, they (the petitioners) were exempted from payment of any duty until they received demand notices and it was only when further advice came from Central Board of Excise and Customs to the Collector of Central Excise, Patna on 18th August, 1980, that they were asked to pay duty on the ingots". The expression "paid" was construed to mean, "contracted to be paid", and it was further observed that it was not necessary that the amount of duty should have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he intention of the Parliament. However, on the facts of the said case, his Lordship held "that the fairest and most rational method to interpret the will of the law-maker is by exploring his intentions at the time when the law was made". However, the observations of his Lordship are very much relied upon for purpose of this case that when two views of a notification are possible, it should be construed in favour of the subject (See para 17) (page 116 of STC). The observations of his Lordship in the same paragraph, "that while interpreting an exemption clause, the literal interpretation should be imported to the language thereof, though the language in a taxation provision indicating exception to the general rule on tax, should be construed strictly", is relied upon by the learned Counsel. The other decisions relied upon by the learned counsel are these: (4) Nyadar Singh v. Union of India [1988] 3 JT 448 (SC); AIR 1988 SC 1979. The observations made by his Lordship M.N. Venkatachaliah, J., in the said decision contained in paragraph 9 are relied upon. Reference was made to certain passages from the "Statutory Interpretation" by Francis Bennion, and applied in the context of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord with how a man in the street might answer the problems posed by the words'-the statute must be taken as one finds it. Considerations relevant to interpretation are not whether a differently conceived or worded statute would have yielded results more consonant with fairness and reasonableness. Consequences do not alter the statutory language, but may only help to fix its meaning." Apart from the passages relied upon by their Lordships, Sri Indra Kumar pointed out certain other passages in the same book by Francis Bennion at page 330, paragraph 140, which reads thus: "140. Presumptions: that regard to be had to consequences of a construction. It is presumed to be the legislator's intention that the court, when considering, in relation to the facts of the instant case, which of the opposing constructions of the enactment corresponds to its legal meaning, should assess the likely consequences of adopting each construction, both to the parties in the case and (where similar facts arise in future cases) for the law generally. If, on balance the consequences of a particular construction are more likely to be adverse than beneficent this is a factor telling against that construction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 597 (SC); AIR 1981 SC 1922. Dealing with section 52 of the Income-tax Act, 1961, in support of his contention that a literal construction which leads to manifestly unreasonable and absurd consequences should be avoided. The other decisions cited by Sri Indra Kumar-namely: Commissioner of Income-tax v. J.H. Gotla [1985] 166 ITR 323 (SC); AIR 1985 SC 1698 and Commissioner of Income-tax v. Satellite Engineering Ltd. [1978] 113 ITR 208 (Guj). This was a case of an incentive given to a new industrial undertaking in the form of a tax holiday. The observations at page 216, that, "any interpretation of a provision extending benefits to new industrial undertakings must be in consonance with the avowed aim and object of the legislature and not such as would defeat the same", is the only portion that is relevant to be noticed. Sri Dattu has relied upon the following decisions in support of his contention: 1.. AIR 1962 SC 1614 (Chhotabhai Jethabhai Patel and Co. v. State of Uttar Pradesh). 2.. [1969] 24 STC 20 (All.) (Anwar Khan Mehboob Co. v. Commissioner of Sales Tax, U.P.). 3.. [1973] 88 ITR 192 (SC) (Commissioner of Income-tax, West Bengal-I v. Vegetable Products Ltd.). The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, no relevance to the facts of the present case. 7.. AIR 1985 SC 537 (D.R. Kohli v. Atul Products Ltd.) (paras 12 and 13). The observation made in paragraph 12 is relied upon by the learned Government Pleader. That was a case of voluntary payment of excise duty on dyes which were not liable for such payment during the relevant period. The Supreme Court, therefore, held on facts, that such payment would not earn any exemption under the notification. In this decision, therefore, it was held on facts, that such payment would not earn any exemption under the notification. This decision is, therefore, of no assistance to the respondents. I have considered carefully the arguments advanced by the learned counsel for the petitioners and the learned Government Pleader. The question that arises in these cases is one of construction of the second notification issued by the Government on 28th March, 1987. The question is not free from difficulty. Unless both the notifications are considered together and an attempt is made to give a purposeful meaning to both the notifications, the benefit under the second notification would not be available to the petitioners. If the literal interpreta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om payment of tax on their sale turnover, but the further question that arises is whether or not, they are entitled to and can claim the additional benefit of exemption of tax on their purchase turnover of the raw material under the 1987 Notification? For deciding this question, I have to examine, whether the petitioners, whose sale turnover is exempt under the 1983 Notification, can be insisted upon to produce proof of payment of tax on their sales in order to get the benefit under the 1987 Notification? On the very undisputed factual position, the petitioners do not pay the tax on their sales. But, at the same time, they claim the benefit of exemption on their purchase turnover, and are pleading inability to produce proof of payment of tax on their sales, since the sale of oil by them is exempt under the 1983 Notification. The object of 1983 Notification, it cannot be disputed is to encourage the small industrial units in their initial stages of existence. As held by the Gujarat High Court in the case of Commissioner of Income-tax, Gujarat-I v. Satellite Engineering Ltd. [1978] 113 ITR 208, any interpretation of a provision extending exemption from payment of tax on a new indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches and opposing constructions which the learned author has compiled and put forward with his own views are very useful in deciding as to the correct line of construction that should be adopted in such cases. The petitioners who had the benefit of exemption from payment of tax on their sale turnover of oil, as tiny sector units, cannot be expected to produce proof of payment of tax on their sales for getting the additional benefit of exemption of tax on their purchase turnover under the 1987 Notification. The very fact and circumstance that they were not liable to pay tax on their sale turnover under an earlier notification, should be construed in their favour and the insistence on proof of payment of tax on their sale turnover, would be impossible of compliance, besides being unreasonable. The proper construction to be placed in such a situation is one of "beneficent construction", the application of which will avoid hardship and injustice to the tiny sector units. The literal application of the 1987 Notification in the manner it is sought to be interpreted by the Commissioner, will lead to deprivation of the additional benefit which is available to all manufacturers of non-ref ..... 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