EVEREADY INDUSTRIES INDIA LTD Vs. STATE OF KARNATAKA
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 4231 of 2006, Judgment Date: Apr 13, 2016
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4231 OF 2006
EVEREADY INDUSTRIES INDIA LTD. .....APPELLANT(S)
VERSUS
STATE OF KARNATAKA .....RESPONDENT(S)
J U D G M E N T
A.K. SIKRI, J.
The appellant herein (earlier known as BPL Soft Energy Systems
Limited) has challenged the legality and validity of the order dated
12.01.2005 rendered by the High Court of Karnataka whereby three petitions
of the appellant, after clubbing together, were heard and decided against
it, by the said common order. Those petitions were preferred under Section
15A of the Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred
to as the 'KST Act') against the order which was passed by the Karnataka
Appellate Tribunal, Bangalore. The necessity of filing three petitions
arose because of the reason that three Assessment Years i.e. 1997-1998,
1998-1999 and 1999-2000 are involved, though the question raised in all
these petitions was identical which pertains to the levy of entry tax under
the KST Act. All the authorities below including the Karnataka Appellate
Tribunal took the view that the appellant is liable to pay the tax under
the provisions of KST Act and is not entitled to exemption from payment of
entry tax on raw material under Notification/Government Order
No.CI.92.SPI.1997 dated 25.06.1997. The High Court has, vide the impugned
judgment, affirmed the said view of the authorities below.
Some of the seminal facts which require a mention to determine the lis, are
recapitulated below:
2.1 The appellant is a company incorporated under the provisions of the
Companies Act, 1956. It is also a dealer registered under the provisions
of the KST Act. The appellant is engaged in the manufacture of Dry
Manganese Dioxide Batteries (DMD batteries). It has its manufacturing Unit
at Somanahalli, Maddur Taluk, which falls under Zone-II of the
notification dated 23.06.1997 issued by the State Government. Before
establishing its manufacturing Unit at Somanahalli, Maddur Taluk, the
appellant-company had approached the State Government for grant of
incentive and exemption under the provisions of the KST Act and also under
the provisions of the Karnataka Sales Tax Act, 1957. Pursuant to the
request so made, the State Government had issued a Notification/Government
Order in No. CI.92.SPI.1997 dated 25.06.1997 inter alia granting exemption
from payment of entry tax on raw materials and component parts for a period
of six years from the date of commencement of commercial production. In
the Notification/Government Order, it was made clear that the appellant-
company should make an investment of a sum of Rs.111 crores, to claim
benefit under the notification dated 25.06.1997. After obtaining the said
exemption from the State Government, the appellant-company established its
manufacturing Unit at Somanahalli, Maddur Taluk. But for various reasons,
the appellant-company could not make investment of a sum of Rs. 111 crores,
as envisaged under the notification dated 25.06.1997. Therefore, the
appellant-company was ineligible to claim the “Tax Holiday” under the
aforesaid notification.
2.2 For the Assessment Year 1997-1998, initially, the Assessing
Authority had passed an order under the provisions of the Entry Tax Act,
granting exemption from payment of entry tax on raw materials, components
and machinery parts brought into thelocal area (Somanahalli) for use in the
manufacture of DMD batteries. Subsequently, the Assessing Authority had
initiated reassessment proceedings and had passed the order and in that,
has levied entry tax on the causing of entry of raw materials and
components into the local area, on the ground that the appellant-company
could not have availed tax exemption, since it did not fulfill the primary
condition stipulated in the notification dated 25.06.1997 and it was also
held by the Assessing Authority that since Government Order/Notification
dated 25.06.1997 had been specifically issued granting entry tax exemption
to the appellant-company subject to fulfilling certain conditions, the
appellant-company is ineligible to seek exemption under general
notification No. FD.11.CET.93(3) dated 31.03.1993. The Assessing Authority
while framing the reassessment order under Section 6 of the Act, had also
levied penalty under Section 6(2) of the KST Act.
2.3 Aggrieved by the aforesaid order passed by the Assessing
Authority, the assessee had preferred the first appeal before the Deputy
Commissioner of Commercial Taxes (Appeals) in KTEG.AP.25/02-03. The First
Appellate Authority by his order dated 18.03.2003 had partly allowed the
appeal filed by the assessee.
2.4 For the Assessment Years 1998-1999 and 1999-2000, the Assessing
Authority had also passed reassessment orders under Section 6(1) of the KST
Act and also had levied penalty under Section 6(2) of the KST Act.
Aggrieved by the said order, the assessee had filed first appeals before
the First Appellate Authority in Appeal Nos.KTEG.AP.24/02-03 (1998-1999)
and 25/02-03 (1999-2000), who by his order dated 20.01.2003 had rejected
the appeals so filed.
2.5 The assessee aggrieved by the orders passed by the Assessing
Authority under Sections 6(1) and 6(2) of the KST Act had also under
Section 5(5) of the KST Act for the Assessment Years 1997-1998 and 1999-
2000 had filed appeals before the Karnataka Appellate Tribunal and they
were registered as STA Nos. 571/2001, 709, 329 and 330/2003. The Tribunal
by its common order dated 23.01.2004 had allowed STA No. 571/2001 and had
partly allowed STA No. 709/2003 and had rejected STA Nos. 329 and 330/2003
for the Assessment Years 1997-1998, 1998-1999 and 2000-2001. In its order,
the Tribunal has concluded that the assessee is not entitled to benefit of
the Notification No.FD.11.CET.93(III) dated 31.03.1993; insertion of clause
(g) to the explanation to KST Notification No. FD.239.CSL.90(I) dated
31.03.1993; no penalty can be imposed under Section 5(5) of the KST Act on
the assessee company for the relevant Assessment Years.
Not satisfied with the aforesaid outcome, the appellant filed revision
petitions under Section 15A of the KST Act before the High Court which has
dismissed all the three petitions. Though, various arguments have been
discussed by the High Court in the impugned judgment, a perusal of the
judgment of the High Court would reflect that these arguments were advanced
by the appellant to contend that it was not liable to pay entry tax under
the Entry Tax Act and was entitled to exemption in terms of general
Notification dated 31.03.1993. The High Court has rejected the plea by
holding that due to amendment of notification dated 19.06.1991 by
notification dated 31.03.1993, the appellant was excluded from getting the
benefit of general Notification. In this behalf, it has concluded that
subsequent insertion of clause (g) to Explanation III of notification dated
19.06.1991 was applicable to the general exemption issued under Section 11-
A of Entry Tax Act. While so holding, the High Court has made a
distinction between legislation by reference and legislation by
incorporation and has held that in case of legislation by reference of
subsequent amendments to the legislation referred to will become applicable
whereas in case of legislation by incorporation, subsequent amendments to
the legislation referred to do not apply. As per the High Court, in the
present case, there was legislation by reference and not by incorporation
and, therefore, the newly inserted clause (g) to Notification dated
19.06.1991 would be applicable while implementing general exemption
notification dated 31.03.1993. The aforesaid principle stated by the High
Court in the impugned judgment was severely criticised and attacked by the
learned counsel for the appellant on the ground that in the present case
there was legislation by incorporation and not by reference. However, we
feel that it may not even be necessary to go into this aspect, having
regard to the discussion that follows hereinafter.
As pointed out above, the order dated 25.06.1997 was passed granting
exemption to the appellant from payment of entry tax on raw materials and
component parts for a period of six years from the date of commencement of
commercial products. However, it was subject to the condition that the
appellant should make an investment in the sum of Rs.111 crores in order to
enable itself to claim the benefit of the aforesaid notification. It is an
admitted fact that due to certain reasons, the appellant could not fulfill
this condition as it did not invest Rs.111 crores in the project, as
envisaged in the notification dated 25.06.1997. Therefore, insofar as
exemption notification dated 25.06.1997 which was issued specifically in
the case of the appellant, the appellant cannot be held entitled to the
benefit thereof as it failed to fulfill the conditions.
The appellant, however, still claims the exemption by virtue of general
Notification dated 31.03.1993 issued under the Entry Tax Act. This
notification was issued under Section 11A of the Entry Tax Act. Vide this
notification, the Government of Karnataka exempted the tax payable under
the Entry Tax Act on the entry of raw materials, component parts and inputs
and machinery and its parts into a local area for use in the manufacture of
an immediate or finished product by the new industrial units. This
notification contains a 'Table' which enlists type of industries and
location of industries which are entitled to exemption as well as the
period of exemption. It is not in dispute that the appellant industry
stands covered by one such category of industry the description whereof is
given in the notification. It is also located at a place which is
stipulated in the said notification. However, the exemption was available
to the new Industrial Units. The question arises as to whether the
appellant falls within the ambit of “new industrial unit” as defined
therein. Explanation in the notification defines “a new industrial unit”
which reads as under:
“Explanation – (1) For the purpose of this notification “a new industrial
unit” shall have the same meaning assigned to it in Notification No.FD 239
CSL 90(1), dated 19th June, 1991 issued under Section 8-A of the Karnataka
Sales Tax Act, 1957.
The provisions of this notification shall not apply to a unit to which the
provisions of Notification No.FD 239 CSL 90(I), dated 19th June 1991 issued
under section 8-A of the Karnataka Sales Tax Act, 1957 shall not apply.
The procedure specified in Notification No. FD 239 CSL 90(I) dated 19th
June 1991 issued under Section 8-A of the Karnataka Sales Tax Act, 1957 for
claiming exemption under that notification shall mutatis mutandis apply to
a industrial unit claiming exemption under notification.”
Reading of the aforesaid definition clearly suggests that “a new industrial
unit” is given the same meaning which is assigned in the notification dated
19.06.1991. For this purpose, one needs to look into the meaning that is
given to “a new industrial unit” in the notification dated 21.06.1991. A
scan through the said notification leads us to the definition given to a
“new industrial unit”. We reproduce this Explanation in its entirety:
“Explanation I. – (a) For the purpose of this Notification;
A “Tiny Industrial Unit” or “Small Scale Industrial Unit” or “Medium Scale
Industrial Unit” or “Large Scale Industrial Unit” means a unit which is
registered as such with the Director of Industries and Commerce or the
Ministry of Industries, Government of India.
(ii) A Khadi and Village Industrial Unit as defined under the Karnataka
Khadi & Village Industries Act, 1956 from time to time. [See Note 3]
(b) “A New Industrial Unit” means any of the units described in Clause (a)
above, which are certified to be eligible for exemption under this
Notification, by the authorities mentioned in Clauses (a) and (b) of Para
(1) under “Procedure” below.”
In order to qualify to be “A New Industrial Unit”, the following conditions
need to be fulfilled:
(i) It has to be either a Tiny Industrial Unit or Small Scale
Industrial Unit or Medium Scale Industrial Unit or Large Scale Industrial
Unit of the type of industries mentioned in Table contained in notification
dated 21.06.1991 or else it has to be a Khadi or Village Industrial Units
as defined under the Karnataka Khadi & Village Industries Act, 1956. (We
are not concerned with this later category in the present case.)
(ii) Such a Unit has to be registered with the Director of
Industries and Commerce or the Ministry of Industries, Government of India.
(iii) Such a Unit has to be certified to be eligible for exemption
under the said notification by the authorities mentioned therein.
What is significant for our purposes is that such a Unit has to be
certified to be eligible for exemption under the notification dated
21.06.1991. That is an essential requirement for a Unit to fall within the
definition of “A New Industrial Unit” under the notification dated
31.03.1993 as it is assigned the same meaning as contained in the
notification dated 21.06.1991. Notification dated 31.03.1993 further makes
it clear that this notification is not to apply to a Unit to which
notification dated 19.06.1991 does not apply. So much so, the procedure
prescribed in the notification dated 19.06.1991 for claiming exemption is
also made applicable to the Industrial Units seeking exemption under the
notification dated 31.03.1993. In the instant case, it was admitted by the
appellant itself that the Department of Industries and Commerce issued
eligibility certificate in terms of industrial policy G.O. No. CI 30 SPC 96
dated 15.03.1996 and notification dated 15.11.1996 issued under Section 19-
C of the KST Act. Such eligibility certificate would not be of any
consequence in as much as, in order to get the benefit of the notification
dated 31.03.1993, the appellant was required to get certification under the
notification dated 19.06.1991. Obviously, therefore, the appellant does
not fulfill the requirement of the notification dated 31.03.1993 as well.
It is trite that exemption notifications require strict interpretation. In
order to get benefit of any exemption notification, assessee has to satisfy
that it fulfills all the conditions contained in the notification This is
so held by this Court in Rajasthan Spinning and Weaving Mills, Bhilwara,
Rajasthan v. Collector of Central Excise, Jaipur, Rajasthan[1], wherein
this principle was stated in the following manner:
“16. Lastly, it is for the assessee to establish that the goods
manufactured by him come within the ambit of the exemption notification.
Since, it is a case of exemption from duty, there is no question of any
liberal construction to extent the term and the scope of the exemption
notification. Such exemption notification must be strictly construed and
the assessee should bring himself squarely within the ambit of the
notification. No extended meaning can be given to the exempted item to
enlarge the scope of exemption granted by the notification.”
In Novopan India Ltd. v. CCE and Customs[2], this Court held that a person,
invoking an exception or exemption provisions, to relieve him of tax
liability must establish clearly that he is covered by the said provisions
and, in case of doubt or ambiguity, the benefit of it must go to the State.
A Constitution Bench of this Court in Hansraj Gordhandas v. CCE and
Customs[3] held that (Novopan India Ltd. Case, SCC p. 614, para 16):
“16...such a notification has to be interpreted in the light of the words
employed by it and not on any other basis. This was so held in the context
of the principle that in a taxing statute, 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 terms of the exemption.”
It is a different matter that once the conditions contained in the
exemption notification are satisfied and the assessee gets covered by the
exemption notification, for the purpose of giving benefit notification has
to be construed liberally. However, in the present case, the appellant has
not been able to cross the threshold and to find entry under notification
dated 31.03.1993 for the reasons mentioned above. Therefore, we have no
option but to hold that the appellant was not entitled to exemption from
entry tax.
We, therefore, agree with the conclusions contained in the impugned order
and dismiss the instant appeal finding no merit therein. There
shall be no order as to costs.
.............................................J.
(A.K. SIKRI)
.............................................J.
(ROHINTON FALI NARIMAN)
NEW DELHI
APRIL 13, 2016.
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[1] (1995) 4 SCC 473
[2] 1994 Supp. (3) SCC 606
[3] (1969) 2 SCR 253 : AIR 1970 SC 755