9911796707
TMI Blog2008 (12) TMI 693X X X X Extracts X X X X X X X X Extracts X X X X ..... hine stated to be worth ₹ 15,00,000 as plant and machinery, the total amount would still be only ₹ 1,20,00,000. In such circumstances, there is absolutely no merit in the contention of the appellant and the writ appeal deserves to be dismissed, and we do so. - Writ Appeal No. 2922 of 2007 - - - Dated:- 11-12-2008 - DATTU H.L. C.J. AND JOSEPH K.M. , JJ. The judgment of the court was delivered by K.M. JOSEPH J. Section 10 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to as, the KGST Act ) confers power on the Government to grant exemption from payment of tax. In exercise of the said power, S.R.O. No. 1729 of 1993 was issued. It, inter alia, provided that there will be an exemption in the case of new industrial units under smallscale industries, and medium and large-scale industries for a period of seven years from the date of commencement of commercial production in respect of tax payable under the KGST Act on the turnover of sale of goods manufactured and sold within the State and on the turnover of goods taxable at the point of last purchase in the State, which are used for manufacturing other goods for sale within the State or inter-St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unit has (a) or acquired necessary plant and machinery and/or equipment or (b) has owned or acquired or has been allotted land and has applied for loan from any regular financial institution and/or (c) has placed firm orders for the purchase of such plant and machinery and equipment before the 1st day of January, 2000 provided that such unit commences commercial production of such diversification, expansion or modernisation on or before the 31st day of December, 2001. A unit shall be deemed to have placed firm orders, for the purchase of plant, machinery and equipment if such unit had made any advance payments therefor by means of demand draft or cheque which has been credited to the account of the seller prior to 1st January, 2000. The onus of proving that an industrial unit had placed firm orders for purchase of such plant, machinery and equipments prior to 1st January, 2000 shall be on such industrial unit. (iv) a sick small-scale industrial unit which has been registered as a sick unit before the Director of Industries and Commerce prior to the 1st day of January, 2000. (v) where on enquiry it is found that any industrial unit had secured exemption by furnishing false ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the unit for exemption from payment of tax is to be certified by the Deputy Commissioner of Sales Tax in S.R.O. No. 1729 of 1993 and that such certification is to be contained in the exemption certificate issued by the Deputy Commissioner. He found that the appellant had not placed firm orders for the necessary plant and machinery as it had established only firm orders for plant and machinery for an amount of Rs. 1,05,00,000. He also found that exhibit P24 was within jurisdiction and that the appellant had not satisfied the conditions mentioned in the notifications and consequently dismissed the writ petition. It is feeling aggrieved by the same that the appeal is filed. Briefly put the case of the appellant is as follows: The appellant is a private limited company. The company, in 1999, decided to set up a medium-scale unit in Kanjikode in the State of Kerala for manufacturing soft drinks under the brand name Pepsi . The decision was largely influenced by the fact that the State Government had, with a view to attracting investment into the State, announced certain tax exemption schemes for new industrial units. It was also assured that the petitioner would be enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The State Government preferred an appeal and the Division Bench dismissed the appeal. Against the same, the State Government preferred a special leave petition, which is produced as exhibit P4. By exhibit P5 order the special leave petition came to be dismissed. The Director of Industries has thereafter issued eligibility certificate, it is stated. But it was not produced originally along with the writ petition as it was not served on the appellant. According to the appellant, it must have been issued considering the factual aspects and communications. The appellant had written a letter (1)Reported as pepsico India Holidings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker). (2)Reported as State of Kerala v. Pepsico India Holdings Pvt. Ltd. [2006] 144 STC 442 (Ker). dated May 11, 1999 to the Government of its proposal to set up a plant vide exhibit P7. Vide exhibit P8 dated May 13, 1999 the KSIDC confirmed that the proposed manufacturing activity is not included under the negative list of units which are not eligible for incentives offered by the State Government. The appellant, by exhibit P9 dated June 20, 2001 made an application for tax exemption. By exhibit P10 dated Jun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... necessary plant and machinery prior to January 1, 2000. Necessary plant and machinery shall mean all machinery and equipment required for running the unit. As per the flow chart of the unit, it contains the functional requirements. The activities of the unit start with the shipping in of bottles, its purification, inspection at various stage on one side, and the making of the product which starts from drawing water, its treatment at various levels in the water treatment plant, storage of syrup, mixing processes at various levels, bottling, labelling, inspection, etc., on the other side which are carried out simultaneously and which are all done with the aid of machinery. Therefore necessary plant and machinery required for each and every stage of its activities are the machineries for the various processes at various levels for making the ultimate product and machineries for bottling, labelling and inspection. It is stated that the only question before the court in O.P. No. 8563 of 2003 (Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker)) was with regard to the rejection of the application for eligibility certificate on the ground that the appellant had no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y which is impermissible. It is also contended that the appellant satisfies the first part having taken various other steps such as acquiring and paying for land, obtaining other clearances and placing orders and paying advances for the construction of factory building, in addition to placing firm orders for necessary plant and machinery. The doctrine of contemporanea expositio is pressed into service in the light of the interpretation given to the notifications by the authorities in the State, who are responsible for framing and implementing the industrial policy of the State. It is pointed out that no tax was collected from the customers. Relying on the views of the Principal Secretary (Tax) and the Principal Secretary (Industries), no tax has been collected from customers and the benefit is passed on by the appellant to the customers, it is contended. It is then contended that under the 1993 notification as amended it is for the Director of Industries and Commerce to examine and issue the certificate of eligibility. The Deputy Commissioner (Taxes) is only to issue the order of exemption and cannot sit in judgment over the orders of the Director. It is also pointed out that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hief Ministers to withdraw the exemption granted by S.R.O. No. 1729 of 1993. However, it is contended that to avoid litigations on the basis of promissory estoppel and to protect the interests of those who had substantially acted on the basis of the exemption notification it decided to give exemption to those who had taken steps. It is contended that as per S.R.O. No. 1092 of 1999 as amended by S.R. O. No. 295 of 2000, exemption available under S.R.O. No. 1729 of 1993 was confined to those industrial units, inter alia, which took effective steps for setting up such units before January 1, 2000 as also an existing unit which had taken effective steps for diversification of the unit, expansion or modernisation prior to January 1, 2000. In regard to new industrial undertakings, which had taken effective steps for setting up such units before January 1, 2000 the notification itself provided what was to be considered as having taken effective steps and they are contained in clauses (a) to (c). The commencement of commercial production before December 31, 2001 was a further condition for the grant of exemption. It is contended that a small entrepreneur desiring to start a small uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to issue the exemption certificate and it has to be issued independently of the eligibility certificate. There is no manufacturing activity. The purpose sought to be achieved by S.R.O. No. 1092/1999 is to cancel the exemption notification (S.R.O. No. 1729 of 1993), but with exception to protect the interest of those who have genuinely taken effective steps before January 1, 2000 to set up industries. Necessary plant and machinery required are from the level of drawing water to the level of bottling soft drinks. There is not even partial compliance of the Notification S.R.O. No. 1092 of 1999 as amended by S.R.O. No. 295 of 2000 much less a substantial compliance or total compliance, it is contended. Effective steps in the first part of clause (ii) cannot be read in isolation, but they have been clearly defined. It is contended that the Special Secretary (Taxes) and the Principal Secretary (Industries) are not authorities under the notifications and their views cannot be treated as final or conclusive. They cannot be taken in aid to interpret the notification. Also it is contended that their letters conclude with a rider that a decision has to be taken as per law. The plea o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of promissory estoppel not to go back on the assurance extended. (iii) Pournami Oil Mills' case [1987] 65 STC 1 (SC); [1986] Supp SCC 728 related to a case of exemption under section 10 of the KGST Act. It was also related to a case of promissory estoppel arising out of the setting up of an industry on the basis of the exemption granted. Petitioner relies on the following decisions for the principle that the court must resort to a purposive interpretation so as to promote the purpose of the enactment: (i) In Girdhari Lal Sons v. Balbir Nath Mathur AIR 1986 SC 1499 the court held that the court may even depart from the rule that plain words should be interpreted according to their plain meaning and it is open to the court to depart from the golden rule of construction so as to give effect to the object and purpose of the enactment by supplementing the written word, if necessary. (ii) In Tata Oil Mills Co. Ltd. v. Collector of Central Excise [1991] 82 STC 225; [1989] 43 ELT 183 the apex court was dealing with a case of exemption to soap on use of rice bran oil in its manufacture. The court took the view that the object and the purpose of exemption and the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is another equally valid principle that such notifications should be given their due effect, keeping in view the purpose underlying... (vi) In Bajaj Tempo Ltd. v. Commissioner of Income-tax [1992] 196 ITR 188 (SC); [1992] 3 SCC 78 the court was dealing with the taxing statute, under which incentives were given for promoting economic growth and development. The court took the view that such statutes should be liberally construed and restrictions placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the object of the provision and not to frustrate it. On the same lines is the decision in Commissioner of Sales Tax v. Industrial Coal Enterprises [1999] 114 STC 365 (SC); [1999] 2 SCC 607. (vii) In K.R. Steel Union Ltd. v. Commissioner of Customs [2001] 4 SCC 736 the court was dealing with an exemption notification in granting exemption in respect of import of machinery for manufacturing for the purpose of export. Therein the court held as follows: A notification like the one under consideration (No. 77/80Cus.) cannot be read in a narrow manner so as to defeat the object of the notification because it permits the importatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sa v. Crown Re-Roller (P) Ltd. [2007] 6 VST 331 (SC); [2007] 3 SCC 659 the court took the view that the State cannot resile from the statutory provisions of exemptions made by it and in equity in a situation therein the State must act in letter and spirit of the Act. The court also drew a distinction between exemption and refund. The court referred to the decision reported in Amrit Banaspati Co. Ltd. v. State of Punjab [1992] 85 STC 493; [1992] 2 SCC 411, wherein the apex court had held, inter alia, that the object of tax holiday or concession is to enable the industry to stand up and compete in the market, and if an industry is exempt from tax, the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. (x) In U.P. Power Corporation Ltd. v. Sant Steels Alloys (P) Ltd. [2008] 2 SCC 777 the court took the view that when the State Government makes representations and invites entrepreneurs by giving benefits for promoting investing in backward areas or hill areas, and investments are made on the basis of the representation, it would be unfair and arbitrary to resile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited v. Deputy Commissioner of Commercial Taxes [1991] 83 STC 234 (SC); [1992] Supp 1 SCC 21 the court took note of the distinction between provisions of statute which are substantive in character and built in with certain policy object on the one hand and those which are merely procedural and technical in their nature. The consequence of the former are mandatory while the latter may not require the same significance. The court also took the following view: (page 425 of 83 STC) The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the statutory language. The need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are plain and clear and directly convey the meaning, there is no need for any interpretation... (xv) In Union of India v. Arviva Industries (I) Ltd. [2007] 209 ELT 5 the apex court was dealing with the effect of the circular issued by the Central Board of Excise and Customs and it was held that the Department cannot be permitted to contend that such circulars are not binding on it. Decisions reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or workshop in India. The court held that a provision in a taxing statute providing for an exemption or an exception has to be construed strictly and that all words used have to be given their meaning. (ii) In Tata Iron Steel Co. Ltd. v. State of Jharkhand [2005] 140 STC 284 (SC) the court held as follows: (page 287) The principle that, in the event of a provision of a fiscal statute being obscure, such construction which favours the assessee may be adopted, will have no application to the construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of the exemption thereunder. Eligibility clause, it is well-settled, in relation to an exemption notification must be given a strict meaning. Learned Government Pleader relies on the decision reported in Commissioner of Central Excise, Raipur v. Hira Cement [2006] 145 STC 264 (SC) for the proposition that the criteria for determining eligibility for entitlement to exemption must be construed strictly. (i) In Grasim Industries Ltd. v. Collector of Customs, Bombay [2002] 128 STC 349, the apex court reiterated that no words or expressions in a statute can be sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vour of edible oils was not valid. Thereafter, the Government put edible oils in the negative list. The court held that the right, if any, of the dealers to exemptions under the Government order was a precarious one and could not found a claim for promissory estoppel and the Government was free to withdraw the exemption with effect from March 1, 1999. Government Pleader, apparently, in answer to the plea based on the doctrine of contemporaneous expositio relied on the decision of the Bombay High Court in Varun Polymol Organics Ltd. v. State of Maharashtra [1995] 97 STC 55 for the proposition that by an executive order the provision of the notification could not be modified. The executive order purported to deem consignments and branch transfers as sales for computing notional sales tax liability to be set-off against exemption. The court also took note of the fact that there is no power with the State Government to provide so. Government Pleader also relies on the decision of the Andhra Pradesh High Court in P.P.P. Industries v. Commissioner of Industries [1994] 92 STC 110. The court therein held that it is not open to restrict substantive provision of exemption by way of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words necessary plant and machinery , we are of the view that it cannot be held that the decision in O.P. No. 8563 of 2000 (Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker)) could be treated as res judicata. The court held as follows: (page 439) ...It would appear from a reading of the relevant portion of the proceedings (exhibit P19) of the State Level Committee dated July 29, 2002 and reiterated in the impugned order (exhibit P26) that the State Level Committee was taking the view that only if the petitioner had made advance payments in respect of the purchase orders for the entire plant and machinery and that too representing a substantial portion of the sale price, it can be considered to have taken effective steps for setting up the industrial unit. This view, it would appear, was taken by the second respondent keeping in mind paragraph 17 of the judgment of the Supreme Court in Mahaveer Oil Industries' case [1999] 115 STC 29. As already observed, the said view does not appear to be the correct legal position under the notification. Even in cases where no advance payments had been effected it can be established by other means that firm orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of commencement of commercial production and the monetary limit of exemption the unit is eligible for. The eligibility certificate issued in respect of existing medium and large scale industrial units which undertake expansion, modernisation or diversification shall also contain date of commencement as well as the date of completion of such expansion, modernisation or diversification. On a perusal of the aforesaid provisions, we would think that they contemplate a power with the Deputy Commissioner (General) to refuse to issue an order of exemption. The provisions clearly empower the Deputy Commissioner to consider the actual eligibility. In this regard, we are of the view that the view taken by the learned single judge of this court in Tamil Nadu Ammonia Pvt. Ltd.'s case [1998] 6 KTR 644 represents the correct view. The decision of the apex court in Deepak Fertilizers Petrochemical's case [2007] 7 VST 535; [2007] SC 2 GJX 709 and in Pondicherry State Cooperative Consumer Federation Ltd.'s case [2007] 10 VST 630 (SC); [2008] 1 SCC 206 cannot be applied to the facts of the present case. The dicta in the said two decisions cannot apply having regard to the terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppel. In other words, on the one hand while the notification contemplates withdrawal of exemption for all those who did not set up the industry before January 1, 2000, the State went further and took care also to protect those who had genuinely taken effective steps for the setting up of the industry apparently on the basis of the assurance of the State contained in S.R.O. No. 1729 of 1993. Therefore as emphasised by Sri Vinod Chandran, learned Government Pleader, the notification, S.R.O. No. 1092 of 1999 as subsequently amended by S.R.O. No. 295 of 2000 were notifications which purported to withdraw the benefit of exemption. They do not purport to per se grant exemptions. Undoubtedly the said notifications while withdrawing the exemptions provided for the exceptional cases in which units though not set up prior to January 1, 2000 were declared eligible for the benefit of exemption provided the conditions set out therein were satisfied. As far as the contention of the appellant that as long as it is established by a person that he had taken effective steps having regard to the totality of circumstances present in this case, it is entitled to the benefit of exemption within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts under clauses (a), (b) and (c). In other words, we feel that the Government felt that it should lay down the circumstances in which and which alone it would be considered that a party has taken effective steps within the meaning of clause (ii). In other words, classifying units into three, the Government have taken care to lay down the criteria upon satisfaction of which alone it intended that a party would be treated as having taken effective steps. The apparent purpose of laying down such criteria would be that the Government wanted to eliminate any controversy or further disputes and consequential inquiry as to whether a party has taken effective steps within the meaning of the notification. The liability to tax is a liability which afflicts every person otherwise liable. An exemption is an exception. It frees a person from the obligation to pay tax just as much as it burdens the Government so much more as is proportional to the exemption granted. There cannot be any legal right to an exemption unless such right flows from the terms of the exemption. We also notice in this connection that in clause (ii) the word used is considered . When it comes to the latter part to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anomalous. No doubt, learned Government Pleader sought to justify the categorisation. It is pointed out that one should not compare a small-scale industry or a person who may own or acquire land but requires financial support from financial institutions or Government and finally a person falling in the category (as the appellant) who has the necessary financial wherewithal. Apparently the Government did not want the pandora's box to be opened frustrating the smooth functioning of the exemption scheme. We are not called upon to sit in judgment over the wisdom of the scheme, nor can we be called upon to do so. In the absence of a challenge to the scheme as such, it may not be open to us to consider grant of relief on the foundation that it is irrational to have provided three different conditions in clauses (a), (b) and (c). Apparently in Deepak Fertilisers' case [2007] 7 VST 535 (SC); [2007] SC 2 GJX 709 there was a challenge to the notification dated May 15, 1995 on the ground that it was discriminatory in so far as it exempted all categories of fertilizers except NPK 23:23:0. Deepak Fertilisers' case [2007] 7 VST 535 (SC); [2007] SC 2 GJX 709 was rendered following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all is conspicuous by its absence before the words necessary plant and machinery and this bears out the case of the appellant that it is not the intention of the framer of the notification that placing of firm orders of all plant and machinery was essential to found a claim for exemption. Per contra, learned Government Pleader would contend that being a condition, which a party must fulfil to acquire the legal right to exemption, the condition must be strictly construed. Government Pleader reiterates that the total value of the plant and machinery is in the region of Rs. 32 crores and that orders which could be treated as firm orders prior to January 1, 2000 constituted only a small percentage of the plant and machinery. Learned Government Pleader reiterates that it is the view of the respondents that it is not sufficient that even a substantial portion of the plant and machinery are the subject-matter of firm orders prior to January 1, 2000, but the firm orders must be placed in respect of the entire plant and machinery. The appellant has produced exhibit P27 along with the reply affidavit. It contains, according to it, the details of purchase orders, which is called as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders without the aid of advance in respect of the items in question. A perusal of exhibit P14 reply would show that the appellant did not even make an attempt in doing so, instead in exhibit P14 reply it is stated, inter alia, that in particular the steps taken by the appellant were as follows: (i) Filed IEM with SIA dated December 28, 1999. (ii) Acquired 50 acres of land by executing a lease agreement dated December 28, 1999 and paid the entire consideration of Rs. 2,77,64,000. (iii) Obtained consent from the Pollution Control Board. (iv) Placed orders on suppliers of plant and machinery and effected payments through cheques drawn on the said suppliers between December 28 and 30, 1999. The fact of said amounts having been credited to the accounts of the suppliers prior to January 1, 2000 was also confirmed by the Deutsche Bank by their letter dated September 29, 2000. (v) It commenced commercial production by March, 2001. Thereafter reference is made only to the circumstances which led to the filing of the earlier writ petition, the writ appeal and the special leave petition and it is stated that it is not open to the Commercial Tax Department to adopt a stand con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds necessary plant and machinery . The words plant and machinery is undoubtedly preceded by the word necessary . As correctly pointed out by the learned Government Pleader no word can be rendered superfluous or redundant. It was intended to bear meaning and it is the duty of the court to find the meaning as it perceives. Learned counsel for the appellant is equally right in pointing out that the words necessary plant and machinery are not preceded by the word all . On the one hand the appellant contends that as long as the appellant has placed firm orders for some items of plant and machinery, which are necessary for the purpose of running the unit, the conditions stand fulfilled. In this regard he draws support from the stand taken by the authorities in the State. He refers to letter dated November 15, 2001 written by the Special Secretary to Government to the Commissioner of Commercial Taxes. Therein it is stated as follows: I am to invite your attention to the letter cited and to inform that M/s. Pepsi Cola India Manufacturing Company has remitted the amounts for plants and machinery before the stipulated time (vide certificate dated September 29, 2000 from Deutshe Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in Varghese (K.P.) v. Income-tax Officer, Ernakulam [1981] 131 ITR 597 (SC); [1981] 4 SCC 173 circulars were issued by the Central Board of Direct Taxes. The court took the view that apart from the binding character, they were in the nature of contemporanea expositio. The court also held that it must give way where the language of the statute is plain and unambiguous. The principle would appear to be that the construction placed of a contemporaneous nature by executive authorities charged with executing a statute should be palpably erroneous before the court declines to recognise its effectiveness. In State of Karnataka v. Balaji Computers [2007] 5 VST 120; [2007] 2 SCC 743 relied on by the appellant, the apex court noted that all the assessing authorities in the State except one from the year 1997-98 had taken the view that till the issuance of the circular on December 31, 2004 the parts of computer and computer peripherals were exempted from turnover tax. Applying the principle of contemporanea expositio to a notification, it must be exposition by an executive or administrative officer charged with administering or implementing it. It is undoubtedly true that under the doc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of each and every plant and machinery, which are necessary for the entire process from start to finish for the production of the commodity in question, it will not be entitled to exemption. Take an example, where the unit has either acquired or placed firm orders for a very substantial portion which is at least above 50 per cent of the value of the plant and machinery. Having regard to the purpose of the clause, could it not be said that it should not be denied the benefit of exemption. These clauses were admittedly made on the basis of the doctrine of promissory estoppel. We also note that in exhibit P4 special leave petition filed before the apex court two grounds are seen taken. They are as follows: 5.11. Because admittedly the total requirement of investment towards plant and machinery/equipments of the project was Rs. 32.10 crores. Against this Rs. 21.75 lakhs were paid as advance payment by the respondent-company before January 1, 2000. It is submitted that the advancements made by the respondent-company represent not even one per cent of the cost of 'total plant and machinery'. As per the provisions expressly contained in the notification, the respondentcompany ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
