Full Judgment Text
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PETITIONER:
INDIAN ALUMINIUM CABLES LTD.
Vs.
RESPONDENT:
STATE OF HARYANA
DATE OF JUDGMENT02/04/1976
BENCH:
RAY, A.N. (CJ)
BENCH:
RAY, A.N. (CJ)
BEG, M. HAMEEDULLAH
SINGH, JASWANT
CITATION:
1976 AIR 1711 1976 SCR (3) 992
1976 SCC (4) 27
CITATOR INFO :
R 1977 SC 540 (2,5)
R 1987 SC 7 (1)
ACT:
Exemption from tax liability-General Tax exemption-
Central Sales Tax Act (74 of 1956)-Section 8(2A) and
Explanation thereto-Meaning of "exempt from tax generally".
Punjab Sales Tax Act-Section 5(2)(a)(iv)-Nature of exemption
granted under the Section-Whether in specified circumstances
or under specified conditions.
HEADNOTE:
Under section 5(2)(a)(iv) of the Punjab Sales Tax Act
"taxable turnover" meant that part of a dealer’s gross
turnover during any period which remains after deducting
therefrom, his turnover during that period on sales to any
undertaking supplying electrical energy to the public under
a licence or sanction granted under the Indian Electricity
Act, 1910, of goods for use by it in the generation or
distribution of such energy.
Under section 8 of the Central Sales Tax, every dealer.
who in the course of inter state trade or commerce sells to
the Government any goods: or sells to a registered dealer
other than the Government goods of the description referred
to in sub section (3) shall be liable to pay tax under the
Act, which shall be three per cent of his turnover. Section
8(2A) reads as follows:-
"Notwithstanding anything contained in sub-section
(1A) of section 6 or sub section (1) or sub
section (2) of this section, the tax pay able
under this Act by a dealer on his turnover in so
far as the turn over or any part thereof relates
to the sale of any goods, the sale or, as the case
may be, the- purchase of which is, under the sales
tax law of the appropriate state, exempt, from tax
generally, or subject to tax generally at a rate
which is lower than three per cent. (whether
called a tax or fee or by any other name), shall
be nil or, as the case may be shall be calculated
at tho lower rate.
Explanation: For the purpose of this sub-section
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or sale or purchase of any goods shall not be
deemed to be exempt from tax generally under the
sales tax law of the appropriate state, if under
the law the sale or purchase of such goods is
exempt only in specified circumstances or under
specified conditions or the tax is levied on the
sale or purchase of such goods is exempt only in
specified circumstances or under specified
conditions or the tax is levied on the sale or
purchase of such goods at specified stages or
otherwise than with reference to the turnover of
the goods."
The appellants were suppliers of poles and cables to
the Delhi Electric Supply Undertaking and the sales were in
the course of inter state trade or commerce and admittedly
exempt under the state sales tax u/s 5(2) (a) (iv). The
state assessed tax u/s 8 of tho Central Sales Tax Act, 1956
on the ground that the exemption granted u/s 5(2)(a)(iv) of
the state Act fell under Explanation to s. 8(2A) of the
Central Sales Tax Act. The High Court held that the sales by
the undertaking supplying electrical energy were not exempt
from tax generally within the meaning of section 8(1A) of
the Central Act read with Section 5(2)(a)(iv) of the State
Act.
Dismissing the appeal, by special leave, the Court.
^
HELD: (I) General exemption means that goods should be
totally exempt from tax before similar exemption from the
levy of central sales tax can become available. Where the
exemption from taxation is conferred by conditions or in
certain circumstances there is no exemption from tax
generally. Section 6 of the State Act does not speak of
exemption but deals with tax free goods. Section 6 deals
with specified goods on which no tax is payable.
993
Section 5 of the State Act deals with what has to be
excluded from taxable turnover of the dealer. Both the
sections deal with goods which do not suffer from Sales tax.
Section 8(2A) of the Central Act exempts goods from inter
State Sales tax where a tax law of the state has exempted
them from sales tax. The explanation to section 8(2A) of the
Central Act takes away the exemption where it is not general
and has been granted in specified circumstances or under
specified conditions. The provisions contained in section
5(2) (a) (iv) of the state Act exclude sales which are made
under specified circumstances or specified conditions. The
specified circumstances are that the sale must be to an
undertaking engaged in supplying electrical energy to the
public under a licence or sanction granted under the Indian
Electricity Act 1910. The specified condition is that the
goods purchased by the undertaking must be used for the
generation or distribution of electrical energy. If the
circumstances do not exist or if the conditions are not
performed then the sales of goods cannot be exempted from
tax. The expression "generation or distribution of such
energy" specifies the condition under which exemption is
granted. [996H, G97A-D]
Commissioner of Sales Tax, M.P. v. Kapoor Dari Niwar &
Co., Gwalior 22 STC p. 152; Hindustan Safety Glass Works (P)
Lrd. v. The State of U.P. and Anr. 34 STC 209, discussed.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 68 of
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1974 and 936 of 1975.
Appeals by Special Leave from the Judgment and order
dated 5-11-1973 of the Punjab & Haryana High Court in Sales
Tax Reference Nos. 12 and 11 of 1969.
R. 5. Desai, (In CA No. 936/75), P. C. Bhartari, R.
Narain, K. J. John, O. C. Mathur for the Appellants.
B. Sen, (In CA No. 68/74), and R. N.Sachthey for the
Respondent.
P. C. Bhartari for Applicant/Interveners (In CA
No.68/74).
The Judgment of the Court was delivered by
RAY, C.J. This appeal by special leave is on the
question whether the appellant is exempt from inter-State
tax on the sales of poles and cables to the Delhi Electric
Supply Undertaking by reason of the provisions contained in
section S(2)(a)(iv) of the Punjab Sales Act hereinafter
referred to as the State Act.
Section 5(2) (a) (iv) of the State Act is as follows:
"5(2) In this Act the expression "taxable
turnover" means that part of a dealer’s gross turnover
during any period which remains after deducting
therefrom-
(a) his turnover during that period on-
(iv) 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."
Under section 8 of the Central Sales Tax Act
hereinafter referred to as the Central Act, every dealer,
who in the course of inter-State
994
trade or commerce sells to the Government any goods; or
sells to a registered dealer other than the Government goods
of the description referred to in sub-section (3) shall be
liable to pay tax under this Act, which shall be three per
cent of his turnover.
The provisions in section 8(2A) of the Central Act are
as follows :-
"Notwithstanding anything contained in sub-section
(1A) of section 6 or sub-section (1) or sub-section (2)
of this section, the tax payable under this Act by a
dealer on his turnover in so far as the turnover or any
part thereof relates to the sale of any goods, the sale
or, as the case may be, the purchase of which is, under
the sales tax law of the appropriate State, exempt from
tax generally or subject to tax generally at a rate
which is lower than three per cent, (whether called a
tax of fee or by any other name), shall be nil or, as
the case may be, shall be calculated at the lower rate.
EXPLANATION: For the purposes., of, this sub-
section a sale or purchase of any goods shall not be
deemed to be exempt from tax generally under the sales
tax law of the ’ appropriate State if under that law
the sale or purchase of such goods is exempt only in
specified circumstances or under specified conditions
or the tax is levied on the sale or purchase of such
goods at specified stages or otherwise than with
reference to the turnover of the goods."
The contention on behalf of the appellant is that by
reason of the Explanation to section 8(2A) of the Central
Act read with section 5(2)(a)(iv) of the State Act the
appellant is exempt from payment of inter-State sales tax.
The words "goods for use by it in the gene ration or
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distribution of such energy" occurring in section S (2) (a)
(iv) of the State Act are said by counsel for the appellant
to be descriptive of the goods. In short, the appellant’s
contention is that goods for use by the undertaking
supplying electrical energy are generally exempt from
taxation, and, therefore, they should not be included in the
turn over.
The contention on behalf of the State is that the
exemption granted under section 5(2)(a)(iv) of the State Act
is exemption in specified circumstances and under specified
conditions. The specified circumstances are said to be sales
to an undertaking supplying electrical energy to the public
under the Indian Electricity Act, 1910. The specified
conditions are that the goods are for use by the undertaking
in the generation or distribution of such energy.
The answer to the question in this appeal is whether
the exemption mentioned in section 5(2) (a) (iv) of the
State Act is in specified cir circumstance or under
specified conditions, as the Case may be, or it is a general
exemption as the appellant contends in cases of sales of
goods to an Electric Supply Undertaking for use by it in the
generation or distribution of such energy.
995
The appellant referred to Schedule read with section 6
of the State Act and in particular Items 33 and 46 to
illustrate what would be exemption under specified
circumstances or specified conditions. In Schedule there are
two columns. The first column describes the goods. The
second column describes the conditions which make the goods
tax free. In Item 33 in Schedule "Photographs including
Xrays photographs" mentioned in the first column are tax
free "when sold by photographers and radiologists preparing
them" as mentioned in the second column. In Item 46 "hand
spun yarn" mentioned in the first column becomes tax free
"when sold by one who deals in hand spun yarn exclusively"
as mentioned in the second column
Section 5(2) of the State Act deals with taxable
turnover. There is no dispute that electricity poles and
cables sold to the undertaking supplying electric energy are
exempt under the State Act from being included within the
taxable turnover. The question is whether such sales made in
the course of inter-State trade are also exempt from the
levy of Central Sales Tax.
The appellant contends that the exemption in the State
Act is general because exemption applies in respect of goods
without any enumeration or classification of goods. Further,
it is said that exemption is general because the sales are
for use in generation and distribution of electrical energy.
According to the appellants sales of all goods to the
undertaking supplying electrical energy are exempt from
being included in the taxable turnover as long as the goods
answer the description that they are for use in the
generation or distribution of electrical energy.
The appellant relied on the decision of the Madhya
Pradesh High Court in Commissioner of Sales Tax, Madhya
Pradesh v. Kapoor Dori Niwar & Co., Gwalior(1) tn support of
the meaning of the expression "exempt from tax generally".
In the Madhya Pradesh case (supra) the State Government
issued a notification in the year 1959 exempting from the
payment of sales tax for a period of one year sales of niwar
by a dealer registered under the 1958 relevant State Act.
The exemption was later on extended up to 31 March, 1963.
The assessee a registered dealer claimed exemption on inter
State sales of niwar. The Madhya Pradesh High Court held
that during the period of the exemption, the sales of niwar
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by a registered dealer were exempt from tax generally within
the meaning of section 8(2A) of the Central Act, and,
therefore, the assessee’s inter-State sales of niwar were
exempt from tax under the Central Act. The expression
"exempt only in specified circumstances or under specified
conditions" occurring in the Explanation to section 8(2A) of
the Central Act was held to mean such circumstances or
conditions the non-existence or non-performance of which
precludes the grant of exemption. In other words, if those
circumstances do not exist or those conditions are not
performed then the sales of goods cannot be exempted from
tax even if they are effected by a class of dealers to whom
exemption is granted and during the period for which
exemption is granted.
996
In the Madhya Pradesh case (supra) there was no dispute
that the sales effected by the assessee fell under section
8(1) of the Central Act. The State Act granted exemption
from sales tax on sales of niwar effected by a registered
dealer. The exemption granted to sales by a registered
dealer under the notification was without any restriction or
limitation so far as sales by a registered dealer were
concerned. Though the period of exemption was fixed, it was
not regarded as a condition imposed in relation to the
exemption. It was also contended there that because the
exemption was granted to the registered dealers the
exemption was granted to a class of dealers, and, therefore,
it should be construed to be an exemption in specified
circumstances or under specified conditions. The Court
repelled the contention by stating that the exemption was to
all registered dealers without any restriction or condition.
The other decision on which the appellant relied is of
the Allahabad High Court in Hindustan Safety Glass Works
(P.) Ltd. v. The State of Uttar Pradesh & Anr.(1) In the
Safety Glass Works case (supra) the company manufactured
toughened glasses and mirrors in its factories. Under a
notification issued by the State Government under the State
Act sales of mirrors and safety glasses were liable to sales
tax either at the point of sale by the importer of such
goods or at the point of sale by the manufacturer thereof.
Subsequently, a notification was issued by the State
Government exempting toughened glasses and mirrors
manufactured by the company at Allahabad from payment of
sales tax for a period of three years. The company claimed
that the turnover of sales of toughened glasses and mirrors
manufactured by it, being generally exempt from tax under
the State Act, was also not liable to Central Sales Tax
because of the provisions contained in section 8(2A) of the
Central’Act. It was held that for purposes of section 8(2A)
of the Central Act, sale of mirrors and toughened glasses
manufactured by the company was under no condition and in no
circumstance liable to be taxed in the hands of the company.
The reasons given were that normally it will be taken that
the sale of mirrors and toughened glasses by the company was
exempt from to the generally unless it could be shown that
such goods belonged to the class specified in the
Explanation to section 8(2A) of the Central Act. As the
toughening glasses and mirrors manufactured by the company
did not fall in such a category the turnover of the sales of
those goods in the hands of the company was not liable to
tax under the Central Act.
The stipulation in the notification in the Safety Glass
Work case (supra) that the turnover of such sales would for
a period of three years be exempt from payment of sales tax
did not amount to exempting the turnover of such goods from
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tax under specified circumstances or specified conditions.
Section 6 of the State Act does not speak of exemption,
but deals with tax free goods. In other words, section 6
deals with specified goods on which no tax is payable.
Section S of the State Act deals with what has to be
excluded from the taxable turnover of the dealer.
997
Both the sections deal with goods which do not suffer from
sales tax. A Section 8(2A) of the Central Act exempts goods
from inter State sales tax where a tax law of the State has
exempted them from sales tax. The Explanation to section
8(2A) of the Central Act takes away the exemption where it
is not general and has been granted in specified
circumstances or under specified conditions. The provisions
contained in section 5 (2) (a) (iv) of the State Act exclude
sales which are made under specified circumstances or
specified conditions. The specified circumstances are that
the sale must be to an undertaking engaged in supplying
electrical energy to the public under a licence or sanction
granted under the Indian Electricity Act, 1910. The
specified condition is that the goods purchased by the
undertaking must be used for the generation or distribution
of electrical energy. If the circumstances do not exist or
if the conditions are not performed then the sales of goods
cannot be exempted from tax. General exemption means that r
the goods should be totally exempt from tax before similar
exemption from the levy of Central sales tax can become
available. Where the exemption from taxation is conferred by
conditions or in certain circumstances there is no exemption
from tax generally.
The contention of the appellant that the words "in the
generation or distribution of such energy" in section
5(2)(a)(iv) of the State Act are descriptive of goods is
unacceptable. The expression "generation or distribution of
such energy" specifies the condition under which exemption
is granted.
For these reasons we are of opinion that the High Court
was correct in holding that the sales by the undertaking
supplying electrical energy were not exempt from tax
generally within the meaning of section 8(2A) of the Central
Act read with section 5(2)(a)(iv) of the State Act. The
appeal is dismissed. In view of the fact that the High Court
directed the parties to pay and bear their own costs,
similar order is made here.
S.R. Appeal dismissed.
998