Full Judgment Text
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PETITIONER:
STATE LEVEL COMMITTEE & ANR.
Vs.
RESPONDENT:
M/S MORGARDSHAMMAR INDIA LTD.
DATE OF JUDGMENT10/11/1995
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
MAJMUDAR S.B. (J)
CITATION:
1996 AIR 524 1996 SCC (1) 108
JT 1995 (8) 53 1995 SCALE (6)306
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
B.P.JEEVAN REDDY,J.
Leave granted.
The only question arising in this appeal, preferred
against the judgment of the Allahabad High Court, is whether
the respondent-unit qualifies as a "new unit" within the
meaning of Explanation (i) to sub-section (2) of Section 4-A
of the U.P. Sales Tax Act. The ground upon which the
Divisional Level Committee declined to recognise it as a new
unit is that a part of the machinery acquired by it for
setting up its factory was purchased from M/s. Modi Steels
who has purchased the said machinery earlier for their own
use. A review application filed by the respondent was
rejected by the State Level Committee. The writ petition
filed by the respondent has, however, been allowed by the
High Court holding that in case M/s. Modi Steels has not put
the said machinery to any use as contended by the
respondent, the respondent-unit cannot be denied the
eligibility certificate under Section 4-A. the Bench
purported to follow an earlier decision of the High Court in
Amit Plastic Industry, Ghaziabad v. Divisional Level
Committee, Meerut (1994 UPTC 121). The High Court has set
aside the orders impugned in the writ petition and remitted
the matter to the State Level Committee with a direction to
re-examine the material on record and to record a
categorical finding as to whether or not the machinery
purchased by the petitioner form M/s.Modi Steels was
actually used in any other factory or workshop in India. If
it is found that the said machinery was not actually used in
any factory or workshop before its installation in the
respondent-unit, the High Court opined, the respondent-unit
would be entitled to be treated as a new unit for the
purpose of Section 4-A.
The respondent-unit has applied for issuance of an
eligibility certificate under Section 4-A of the Act on the
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ground that it has set up a new unit for manufacturing
rolling mill guide system equipment. It had acquired
machinery worth about Rs.25 lakhs, out of which machinery
worth Rs.4,59,575/- was acquired from M/s.Modi Steels under
Bill No.244 dated April 27, 1984. Admittedly, the said
machinery was acquired by M/s.Modi Steels for setting up an
unit of its own but it is stated that it abandoned that idea
later and sold the machinery to the respondent. The question
is whether the respondent-unit cannot claim to be a "new
unit" within the meaning of Explanation (i) to sub-section
(2) of Section 4-A on account of the fact that part of the
machinery acquired by it was acquired for use in any other
factory or workshop in India.
Section 4-A Provides for exemption from sales tax of
goods manufactured by a new unit during the first five-year
period, subject to the terms and conditions specified
therein. Explanation (i), with which alone we are concerned
herein, reads as follows:
"Explanation.- For the purposes of this
section,-
(i) ‘new unit’ means a factory or
workshop whether set up by a dealer
already having an industrial unit
manufacturing the same goods at any
other place in the State or an
industrial unit, adjacent to, the site
of an existing factory or workshop; but
does not include:
(a) any factory or workshop using
machinery, accessories or components
already used or acquired for use in any
other factory or workshop in India,
(b) nay factory or workshop established
on, or adjacent to the site of an
existing factory or workshop
manufacturing the same goods, or
(c) any addition to or extension of an
existing factory or workshop,"
An analysis of the definition yields the following
features:
(a) if a dealer is already having an industrial unit
manufacturing particular goods and if he sets up another
industrial unit manufacturing the same goods at any other
place in the State, it would be a new unit. In other words
if a dealer establishes a new factory or workshop on or
adjacent to his existing factory or workshop is meant for
manufacturing the very same goods as are manufactured in the
existing factory or workshop, the newly established factory
or workshop would not be a "new unit" within the meaning of
the Explanation.
(b) If, however, the new industrial unit is meant for
manufacturing goods different from the goods manufacturing
in the existing factory or workshop, the new industrial unit
(factory or workshop) ca be located on the same premises or
adjacent to the premises of the existing factory or
workshop; to would be a "new unit" for the purposes of
Explanation.
(c) If, however, any such new factory or workshop uses
machinery, accessories or components "already used or
acquired for use in any other factory or workshop in India",
it does not and cannot qualify as a "new unit".
(d) Any factory or workshop established on or adjacent to
the site of an existing factory or workshop manufacturing
same goods as are being manufactured in the existing factory
or workshop cannot be called "new unit" for the purposes of
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the Explanation.
(e) Any addition to or extension of an existing factory or
workshop cannot and does not qualify as a new unit.
The definition of ’new unit" in Explanation (i) thus
comprises of two clauses (mentioned as (a) and (b) above) to
which three exceptions (mentioned as (c), (d) and (e) above)
are appended.
The ground upon which the respondent-unit has been
denied the eligibility certificate under Section 4-A by the
appropriate authorities is that part of the machinery used
in setting up the respondent-unit was "acquired for use in
any other factory or workshop in India’ and, therefor, the
respondent-unit does not qualify as a "new unit". According
to the authorities, it is enough that the machinery or part
of the machinery installed in the new factory or workshop is
"acquired for use in any other factory or workshop in
India". It is immaterial, they say, whether such machinery
was actually used or not in any other factory or workshop in
India. Clauses (a) does not contemplate an enquiry of the
nature ordered by the High Court, they say. On the other
hand, the contention of the respondent-unit, which has ben
upheld by the High Court is that unless the machinery
acquired for use in any other factory or workshop in India
is actually used in that other factory or workshop in India,
the disqualification provided by clauses (a) in the
Explanation is not attracted.
Section 4-A is an elaborate one. it contains several
features and provides for several situations, with all of
which we are not concerned herein. It is enough for the
present purpose to note that a new unit staring production
on or after first day of October, 1982 is entitled to
exemption from sales tam provided the unit satisfies the
requirements and conditions prescribed by the section. Inter
alia, it must furnish to the assessing authority an
eligibility certificate granted by the prescribed
officer/authority in accordance with the procedure
specified. Explanation (i) to sub-section (2) defines the
expression "new unit", which definition has already been set
out by us hereinabove. One of the grounds upon which a new
factory or workshop is disqualified from being called a "new
unit" is if such factory or workshop uses "machinery,
accessories or components already used or acquired for use
in any other factory or workshop in India." It is relevant
to notice that the clause uses both the expressions "already
used’ and "acquired for use" in any other factory or
workshop in India. Surely both the expressions cannot mean
one and the same thing. It is a disqualification if the new
factory or workshop uses machinery/accessories/components
already used in any other factory or workshop in India. It
is a disqualification if the new factory or workshop uses
machinery/accessories/components which were acquired for use
in any other factory or workshop in India. When the clause
uses both the said expressions simultaneously, it would not
be reasonable or proper to construe the word "acquired for
use" as meaning the same thing as "already used". Such a
construction would make the words "acquired for use"
superfluous and a surplusage. No such interpretation ought
to be adopted by a Court. The words "acquired for use" must
be understood in their plain and ordinary meaning. It is
enough that the machinery/accessories/components which are
used in the factory or workshop (claiming the benefit of
Section 4-A) are acquired for use in any other factory or a
workshop in India. It is not necessary to go further and
enquire whether that machinery/accessories/components were
actually used in any other factory or workshop in India.
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In this case, admittedly, a part of the machinery
installed in the respondent’s unit was acquired by M/s. Modi
Steels for use in the factory or workshop proposed to be set
up by them. According to the certificate issued by M/s.Modi
Steels, their project did not materialise because it was
found to be not viable. For that reason, they say, the
machinery purchased by them for the said purposed was lying
in packed and un-used condition and was sold to the
respondent. Thus, on their own showing, the respondents case
is directly hit by clause (a) in the Explanation and is not
entitled to the exemption provided by Section 4-A.
It is submitted by Sri S.K.Dhaon, learned counsel for
the respondent, that aforesaid interpretation would not be a
reasonable one and would not be consistent with the object
underlaying Section 4-A. It is submitted that Section 4-A is
devised to encourage new industries. Disqualifying an unit
from the benefit of the section on the mere ground that part
of the machinery installed in the unit was acquired by
another person for setting up a unit, which in fact he never
did, would not be consistent with the object underlying the
section, says Sri Dhaon. We are unable to see any
unreasonableness in the interpretation placed by us. All the
words used in the clause have to be give their due meaning.
None of them can be treated as a surplusage. It is not also
possible to ignore the words expressly employed in the said
clause or to explain them away on notions of one’s own
reasonableness. Indeed, there appears to be good reason
behind the use of both the said expression in the clauses.
the Legislature, it is obvious, wanted to avoid an enquiry
into the factual issue of actual user where the machinery
(which expressions means machinery, accessories or
components) is acquired for use in any other factory or
workshop in India. Once it is shown that such machinery was
acquired for use in any other factory or workshop in India,
the Legislature presumes user - a case of conclusive
presumption. the idea was to shut out enquires of the type
now ordered by the High Court. One person may say that
though the machinery was acquired by him, he never installed
it or used it; another may say that he only installed the
machinery but did not use or operate it; a third person may
say that the machinery was used only for trial run but not
on a regular basis, ad so on and so forth. The authorities
in charge of issuing eligibility cetificates would thus be
caught in endless factual disputes. The idea was to lessen
the room for factual controversies. It must be remembered
that no unit has a right to claim exemption from tax as a
master of tight. His right is only insofar as it is provided
by Section 4-A. While providing for exemption, the
Legislature has hedged it with certain conditions. It is not
open to the Court to ignore those conditions and extend the
exemption. We must repeat that when the clause used" both
the expressions "already used" and "acquired for use", they
cannot be construed as meaning one and the same thing by a
process of interpretation.
It is suggested by the learned counsel for the
respondent that Section 4-A must be literally construed to
further the object underlying it. In case of any ambiguity,
it is submitted, the construction favouring the assessee
should be adopted. We cannot agree. Section 4-A provides for
exemption from tax. It is repeatedly held by this Court that
a provision providing for an exemption or an exception as
the case may be, has to be construed strictly. In Mangalore
Chemicals and Fertilizers Limited v. Diputy Commissioner of
Commercial Taxes, (1992 Supp. (i) S.C.C.21) which case dealt
with an exemption notification, M.N.Venkatachaliah,J. stated
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the principle in the following words:
"Shri Narasimhamurty again relied on
certain observations in CCE v. Parle
Exports (P) Ltd., [(1989) 1SCC 345: 1989
SCC (Tax) 84] in support of strict
construction of a provision concerning
exemptions. there is support of judicial
opinion to the view that exemptions from
taxation have a tendency to increase the
burden on the other unexempted class of
tax payers and should be construed
against the subject in case of
ambiguity. It is an equally well known
principle that a person who claims an
exemption has to establish his case.
Indeed, in the very case of parle
Exports (P) Ltd. relied upon by Shri
Narasimhamurty, it was observed: (SCC
p.357, para 17)
‘while interpreting an exemption
clause, liberal interpretation
should be imparted to the language
thereof, provided no violence is
done to the language employed. It
must, however, be borne in mind
that absurd results of construction
should be avoided.’
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. Indeed, the need to
resort to any interpretative process
arises only where the meaning is not
manifest on the words are plain and
clear and directly convey the meaning,
there is no need for any interpretation.
It appears to us the true rule of
construction of a provision as to
exemption is the one stated by this
Court in Union of India v. Wood Papers
Ltd.[(1990) 4 SCC 256 : 1990 SCC (Tax)
422]: (SCC p.260 para 4)
‘Truly speaking liberal and strict
construction of an exemption
provision are to be invoked at
different stages of interpreting
it. When the question is whether a
subject falls in the notification
or in the exemption clause then it
being in nature of exception is to
be construed strictly and against
the subject but once ambiguity‘y or
doubt about application then full
play should be give to it and it
calls for a wider and liberal
construction......’"
Following the said decision and after referring to
certain English decisions expressing divergent opinions, a
three-Judge Bench of this Court, of which one of us
(B.P.Jeevan Reddy, J.) was a member, held in Novopan India
Ltd., Hyderabad v. Collector of Central Exercise and
Customs, Hyderabad (1994 Suppl. (3) S.C.C.606) thus:
"16. We are, however, of the opinion
that, on principle, the decision of this
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Court in Mangalore Chemical - and in
union of India v. Wood Paper referred to
therein _ represents the correct view of
law. The principle that in case of
ambiguity, a taxing statute should be
construed in favour of the
assesseeassuming that the said principle
is good and sound - does not apply to
the construction of an exception or an
exempting provision; they have to be
construed strictly. A person invoking an
exception or an exemption provision to
relieve him of the tax liability must
establish clearly that he is covered by
the said provision. In case of doubt or
ambiguity, benefit of it must go to the
State. This is for the reason explained
in Mangalore Chemical and other
decisions, viz., each such
exception/exemption increases the tax
burden on other members of the community
correspondingly. Once, of course, the
provision is found applicable to him,
full effect must be given to it. As
observed by a Constitution Bench of this
Court in Hansraj Gordhandas v. H.H. Dave
[(1969) 2 SCR 253: AIR 1970 SC 755] that
such a notification has to be
interpreted in the light of the words
employed by it and not on nay other
basis. This was so held in the context
of the principle that in a taxing
statue, there is no room for any
intendment, that regard must be had to
the clear meaning of the words and that
the matter should be governed wholly by
the language of the notification, i.e.,
by the plain therms of the exemption."
The learned counsel for the respondent, however, relied
upon the decision in Collector of Central Excise. Bombay v.
M/s.Parle Exports (P) Ltd. (1989 (1) S.C.R. 345) rendered by
a Bench of this Court comprising Sabyasachi Mukharji and
S.Ranganathan,JJ. The observations in paras 17 and 18 are
particularly relied upon by the learned counsel:
"17. How then should the courts proceed?
The expressions in the Schedule and in
the notification for exemption should be
understood by the language employed
therein bearing in mind the context in
which the expressions occur. The words
used in the Provision, imposing taxes or
granting exemption should be understood
in the same way in which these are
understood in ordinary parlance in the
area in which the law is in force or by
the people who ordinarily deal with
them. It is, however, necessary to bear
in mind certain principles. The
notification in this case was issued
under R.8 of the Central Excise Rules
and should be read along with the Act.
The notification must be read as whole
in the context of the other relevant
provisions. When a notification is
issued in accordance with power
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conferred by the statute, it has
statutory force and validity and
therefore, the exemption under the
notification is, as if it were contained
in the Act itself. See in this
connection the observations of this
Court in Orient Weaving Mills (P) Ltd.
v. Union of India, [1962 Supp (3) SCR
481 : (AIR 1963 SC 98)]. See also
Kailash Nath v. State of U.P. (AIR 1957
SC 790). The principle is well settled
that when two views of a notification
are possible, it should be construed in
favour of the subject as notification is
part of a fiscal enactment. But in this
connection, it is well to remember the
observations of the Judicial Committee
in Coroline M. Armytage v. Frederic
Wilkinson, [(1878) 3 AC at p. 370] that
it is only, however, in the event of
there being a real difficultly in
ascertaining the meaning of a particular
enactment that the question of
strictness or of liberality of
construction arises. The Judicial
Committee reiterated in the said
decision at pate 369 of the report that
in a taxing Act Provisions establishing
an exception to the general rule of
taxation are to be construed strictly
against those who invoke its benefit.
While interpretation should be imparted
to the language thereof, provided no
violence is done to the language
employed. It must, however, be borne in
mind that absurd results of construction
should be avoided.
18. In Hindustan Aluminium Corporation Ltd.
v. State of Uttar Pradesh, [(1982) 1 SCR
139]: (AIR 1981 SC 1649) this Court
emphasised that the notification should not
only be confined to its grammatical or
ordinary parlance but it should also be
constroced in the light of the context. This
court reiterated that the expression should
be construed in a manner in which similar
expressions have been employed by those who
framed relevant notification. The court
emphasised the need to derive the intent from
a contextual scheme."
We agree with the above statement of law except insofar
as it states that where two view of the exemption
notification are possible, it should be construed in favour
of the subject since it is contrary to the decisions afore-
mentioned including the three-Judge Bench decision in
Novopan India Limited. It may be noted that this decision
was referred to in Mangalore Chemical and Fertilizers and
yet a slightly different principle enunciated. So far as
decision in Hindustan Alumunium Corporation (referred to in
Parle Export), rendered by a Bench comprising Tulzapurkar
and R.S.Pathak,JJ., is concerned, it only holds that the
expression "mental" occourring in a notification issued
under U.P.Sales tax Act should be understood in its primary
sense, i.e., in the form in which it is marketable as
primary commodity. The learned Judges held that the
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subsequent forms evolved from the primary from constituted
distinct commodities marketable as such and must be regarded
as new commercial commodities and not included within the
four corners of the notification. This decision cannot
therefor be understood as supporting the proposition
enunciated in Parle Export with which we have disagreed. Be
that as it may, the occasion for appaying the said
proposition arises only where there is "real difficulty, in
ascertaining the meaning of a particular enactment"
(statement in Parle Exports). In the case before us, there
is neither any ambiguity in the language nor does the clause
in question present a real difficulty in ascertaining its
meaning.
Sri Dhaon, learned counsel for the respondent, then
contended that the words "acquired for use in any other
factory or workshop in India" must be read and understood as
"acquired for use in any other existing factory or workshop
in India". The learned counsel says that it should be so
read to give effect to the idea underlying the said clause.
We are unable to agree. The very definition contained in
Explanation (i) uses both the expression "factory or
workshop" and "existing factory or workshop" at more than
one place which fact would be evident from a bare perusal of
the said definition. Wherever the Legislature wanted to
refer to an existing factory or workshop, it is not possible
to read the words "acquired for use in any other factory or
workshop in India" to mean "acquired for use in any other
existing factory or workshop in India". We see no reason to
add any words to those employed in the clause. It cannot
also be said that such addition of word(s)_ is necessary to
avoid an absurdity.
Lastly, Sri Dhaon submitted that the respondent unit
has substantially complied with the requirement of the said
clause in the definition inasmuch as the value of the
machinery acquired from M/s.Modi Steels is only about Rs.4.5
lakhs as against the value of the entire machinery at Rs.25
lakhs. In our opinion, there is no room for such a
contention in view of the specific language of clause (a).
The clause uses all the three words - machinery, accessories
or components. The use of the word "or" indicates that use
of either of them, which are already used or acquired for
use in any other factory or workshop in India, would
disqualify the factory or workshop from being called a "new
unit" within the meaning of Section 4-A. The clause does not
say or indicate in any manner that only where the entire
machinery installed in the unit (claiming to the new unit)
has already been used or was acquired for use in any other
factory or workshop in India, that the disqualification
contained therein gets attracted. In the face of the clear
language of the clause, it is not possible to entertain the
submission of substantial compliance urged Sri Dhaon.
For the above reasons, the appeal is allowed and the
judgment of the High Court is set aside. The writ petition
filed by the respondent in the High Court is dismissed. No
costs.