STATE LEVEL COMMITTEE AND ANR. v.

M/S. MORGARDSHAMMAR INDIA LTD.

NOVEMBER 10, 1995

[B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.]

U.P. Sales Tax Act-Section 4A Explanation (i)-Exemption from sales tax of goods manufactured by a new unit-Definition of 'new unit' in E>.planation (i)-Disqualification if machinery used in th~ factory or workshop is acquired for use in any other factory-No requirement to enquire whether that machinery were actually used in any other f act01y in India.

The respondent unit applied for issuance of an eligibility certificate

U/s. 4-A of the U.P. Sales Tax Act on the ground that it had set up a new unit. The appropriate authorities denied them the certificate holding that D part of the machinery used in setting up the respondent unit was 'acquired for use in any other factory or workshop in India' and, therefore, the respondent unit did not qualify as a 'new unit'. The writ petition filed by the respondent was allowed by the High Court holding 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 clause (a) in the Explanation is not attracted. The High Court 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 from other factory was actually used in that other factory. This appeal had been filed against the judgment of the High Court.

The respondent submitted that Section 4-A was devised to encourage new industries, disqualification of an unit on the mere ground that part

of the machinery installed in the unit was acquired by another person for G setting up a unit, which in fact he never used, would not be consistent with the object underlying the proYision, and therefore, Section 4-A must be literally construed to further the object underlying it and in case of ambiguity, the construction favouring the assessee should be adopted; 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 H 63

A or workshop in India' and that the respondent unit had substantially complied with the requirement of that clause in the definition inasmuch as the value of the machinery acquired from other unit was only about Rs. 4.5 lakhs as against the value of the entire machinery at Rs. 25 lakhs.

B Allowing the appeal, this Court

HELD: 1.L Under section 4-A of the U.P. Sales Tax Act, for claiming exemption from sales tax, 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 equally a disqualification if it uses C 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 words "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 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. All the words used in the clause have to be given 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. (69-B-E; 70-B]

F 1.2. No unit has a right to claim exemption from tax as a matter of right. 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. When the clause uses both the expressions "already used" and G "acquired for use" they cannot be construed as meaning one and the same thing by a process of interpretation. (70-E-F]

1.3. A povision providing for an exemption or an exception, as the case may be, has to be construed strictly. Whenever the Legislature wanted to refer to an existing factory or workshop, it has said so specifically. In H such a case it is not possible to read the words "acquired for use in any

STATEv. MORGARDSHAMMARINDIALTD. 65

other factory or workshop in India" to mean "acquired for use in any other A existing factory or workshop in India". There is no reason to add any words to those employed in the clause. It cannot also be said that such addition ofword(s) is necessary to avoid an absurdity. 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 B 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 C clear language of the clause, it is not possible to entertain the submission of substantial compliance. [70-G-H; 74-H; 75-A-D]

Amit Plastic Industry, Ghaziabad v. Divisional Level Committee, Meemt, (1994) UPTC 121, referred.

Mangalore Chemicals and Fe1tilizers Limited v. Deputy Commissioner of Commercial Taxes, [1992) Supp. 1 SCC 21 and Novopan India Ltd., Hyde.rabad v. Collector of Central Excise and Customs, Hyderabad, [1994) Suppl. 3 SCC 606, relied on.

Collector of Central Excise, Bombay v. M/s. Parle Exports (P) Ltd., [1989] 1 SCR 354, partly overruled.

Hindustan Aluminium Corporation Ltd. v. State of U.P., [1982) 1 SCR 129, distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9968 of 1995.

From the Judgment and Order dated 21.9.94 of the Allahabad High Court in C.M.W.P. No. 984 of 1991.

D.V. Sehgal and R.B. Misra for the Appellant.

S.K. Dhaon and Sunil Kumar Jain for the Respondent.

The Judgment of the Court was delivered by

B.P. JEEV AN REDDY, J. Leave granted.

The only question arising in this appeal, preferred against the judgment of the Allahabad High Cout, is whether the respondentunit 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 Mis. Modi Steels who had 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 had 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 Industly, Ghaziabad v.

D Divisional Level Committee, Meemt, (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 from M/s. Modi Steels was actually used in any other factory or workshop in India. If it is found that the said E machinery was not actually used in any factory or workshop before its installation in the respondentunit, the High Court opined, the respondentunit would be entitled to be treated as a new unit for the purpose of section

4-A.

p The respondent-unit had applied for issuance of an eligibility certificate under section 4-A of the Act on the 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 G 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 H factory or workshop in India.

SfATE v. MORGARDSHAMMARINDIA LID. [B.P. JEEV AN REDDY, J.) 67

Section 4-A provides for exemption from sales tax of goods manufac- A tured 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, manufacturing any other goods on, or 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) any factory or workshop established on, or adjacent to D 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," E

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, and if the new 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 manufactured in the existing factory or workshop, the new industrial unit (factory or workshop) can be located on the same premises or adjacent to the premises of the existing factory or workshop; it 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 a "new unit" for the purposes of 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 D 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, therefore, 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. Clause (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 been upheld by the High Court is that unless the machinery acquired for 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 clause (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 G herein. It is enough for the present purpose to note that a new unit starting production on or after first day of October, 1982 is entitled to exemption from sales tax provided the unit satisfies the requirements and conditions prescribed by the section. Inter alia it must furnish to the asses'Sing authority an eligibility certificate granted by the prescribed of- H ficer/authority in accordance with the procedure specified. Explanation (i)

SfATE v. MORGARDSHAMMAR INDIA LTD. [B.P. JEEVAN REDDY, J.J 69

to sub-section (2) defines the expression "new unit", which definition has A 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 B 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 equally a disqualification if it uses machinery/accessories/components which were acquired for use in any other factory or workshop in India. C When the clause uses both the said expressions simultaneously, it would not be reasonable or proper to construe the words "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" D 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 a<:quired 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.

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 F found to be not viable. For that reason, they say, the machinery purchased by them for the said purpose was lying in packed and un-used condition and was sold to the respondent. Thus, on their own showing, the respondent's 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 the aforesaid interpretation would not be a reasonable one and would not be consistent with the object underlying section 4-A. It is submitted that section4-A is devised to encourage new industries. Disqualifying an

unit from the benefit of the section on the mere ground that part of the H

A machinery installed in the unit was acquired by another person for setting up a unit, wl:ich in fact he never did, would not be consistent with the object underlying the section, says Shri Dhaon. We are unable to see any unreasonableness in the interpretation placed by us. All the words used in the clause have to be given 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 clause. 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 enquiries of the type now ordered by the High Court. One person may say that though the machinery D 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 and so on and so forth. The authorities in charge of issuing eligibility certificate would thus be caught in endless factual disputes. The idea was to lessen the room for fctual controversies. It must be remembered that E no unit has a right to claim exemption from tax as a matter of right. 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 uses both the expressions "already F 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 G should be adopted. We cannot agree. Section 4-A provides for exemption from tax. It is repatedly 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 Fe1tilizers Limited v. Deputy Commissioner of Commercial Taxes, [1992) Supp. 1 SCC 21 which case dealt with H an exemption notification, M.N. Venkatachaliah, J. (as the learned Chief

SfATE v. MORGARDSHAMMAR INDIA LTD. [B.P. JEEVAN REDDY, J.) 71

Justice then was) and S.C. Agarwal, J. stated the principle in the following A words:

"Shri Narasimhamurty again relied on certain observations in CCE

v. Parle Exports (P) Ltd., [1989] 1SCC345: 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 C upon by Shri Narasimhamurty, it was observed : (SCC p. 357, para 17)

'While interpreting an exemption clause, liberal interpreta tion should be imparted to the language thereof, provided no violence is done to the language employed. It must, however, D 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 E manifest on the statutory language. Indeed, 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. It appears to us the true rule of construction of a provision as to exemption is the one stated by this Court in F 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 G 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 or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction ... .'" H

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 Excise and Customs, Hyderabad, [1994) Suppl. 3 SCC 606 thus :

"16. We are, however, of the opinion that, on principle, the decision of this Court in Mangalore Chemicals - and in Union of ltidia v.

Wood Papers 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 assessee-assuming 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 Chemicals 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 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."

The learned counsel for the respondent, however, relied upon the decision in Collector of Central Excise, Bombay v. Mis. Parle Exports (P) G Ltd., [1989] 1 SCR 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 scheduled and in the notification for exemption should be under-

STATE v. MORGARDSHAMMAR INDIA LTD. [B.P. JEEV AN REDDY, J.] . 73

stood by the language employed therein bearing in mind the A 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 B 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 a whole in the context of the other relevant provisions. When a notification is issued in accordance with power conferred by the statute, it has statutory force and validity and, therefore, the exemption under C the notification is, as if it were contained in the Act itself. See in this connection the observations of this Court in Olient 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 notifica- D tion 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 Caroline M. Amiytage v. Fredelic Wilkinson, (1878) 3 AC 355 at p. 370 that it is only, however, in the event of there being a real difficulty in ascertaining the meaning of a particular enactment that E the question of strictness or of liberality of construction arises. The Judicial Committee reiterated in the said decision at page 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 interpreting an exemption F 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.

18. In Hindustan Aluminium Corporation Ltd. v. State of Uttar G Pradesh, [1982) 1 SCR 129 : 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 construed in the light of the con.text. This Court reiterated t_hat the expression

shoud be construed m a manner in which similar expressions have H

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 views 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 Chemicals and Fe1tilizers and yet a slightly different principle enunciated. So far as decision in Hindustan Aluminium Corporation (referred to in P01ie Exp01t), rendered by a Bench comprising Tulzapurkar and R.S. Pathak, JJ., is concerned, it only holds that the expression "metal" occurring 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 a primary commodity. The learned Judges held that the subsequent forms D evolved from the primary form 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 Exp01ts with which we have disagreed. Be that as it may, the occasion for applying the said proposition arises only where there is "real difficulty, E in ascertaining the meaning of a particular enactment" (statement in Parle Exp01ts). 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.

F 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 expressions G "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 has said so specifically. In such a case it is not possible to read the words "acquired for use is any other factory or workshop in India" to H mean "acquired for use in any other existing factory or worksfiop in India".

STATE v. MORGARDSHAMMAR INDIA LTD. (B.P. JEEVAN REDDY, J.) 75

We see no reason to add any words to those employed in the clause. It A 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 B 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 C any other factory of 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 D of the clear language of the clause, it is not possible to entertain the submission of substantial compliance urged by 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 E High Court is dismissed. No costs.

R.A.

Appeal Allowed.