Himachal Conductors ... v. The Deputy Excise An...

T.U Mehta, J.:— The question involved in this writ petition is whether the petitioners herein are liable to pay Central sales tax on the turnover of their inter-State trade for the assessment year 1972-73 under section 8(2A) of the Central Sales Tax Act, 1956, in view of the fact that the goods in question have been exempted from the State's sales tax by virtue of the Incentive Rules framed by the Government on 12th April, 1971, and the subsequent notification issued on 27th May, 1974, by the State Government under section 42 of the Himachal Pradesh General Sales Tax Act, 1968.

2. Short facts of the case are that petitioner No. 1 is a private limited company which has established an industry at Saproon in Solan District of the State for manufacturing electric goods. On 12th April, 1971, the Government of Himachal Pradesh issued a notification by virtue of which several rules were framed “regarding grant of incentives to new and already established industries in the Pradesh”. According to these rules, new industries as well as established industries were given different types of incentives and one of such incentives was with regard to sales/purchase tax. This particular incentive was given by rule 3(4)(c), which reads as under:

“3. (4)(c) Sales/Purchase tax: No sales/purchase tax will be charged from the small-scale industries registered with the Industries Department, Himachal Pradesh. In the case of new industries, the period for this concession will be 5 years and for those already established, it will be 3 years. Industries desiring exemption of sales/purchase tax should get themselves registered with the Industries Department.

A certificate of eligibility will be issued by the Director of Industries, to an industrial concern registered for the grant of this concession,

Provided that this power may also be exercised by an officer duly authorised by the Director of Industries in this respect.”

3. Rule 2 of the Incentive Rules gives certain definitions and defines the expression “sales tax” as under in clause (p):

“‘Sales tax’ means the tax defined as such in the Himachal Pradesh General Sales Tax Act, 1968.”

4. The case of the petitioners is that relying upon these Incentive Rules they invested good deal of capital, purchased machinery, bought land, erected buildings and made capital investment of about 15 lacs of rupees. It is found that, thereafter, on 27th May, 1974, the Government of Himachal Pradesh issued a notification giving exemption by virtue of the powers which it has got under sub-section (1) of section 42 of the Himachal Pradesh General Sales Tax Act, 1968. A copy of this notification is found at annexure C in the record of this case. Section 42(1) of the Himachal Pradesh General Sales Tax Act, as it stood in the year 1974, was in the following terms:

“42. (1) The Government, if satisfied that it is necessary or expedient so to do in the interest of cottage industries, or small-scale industries, may, by notification, exempt any class of co-operative societies or persons from the payment of tax under this Act on the purchase or sale of any goods subject to such conditions as may be specified in such notification.”

5. It is found that the words “or small-scale industries” have been inserted in this section in the year 1973. It follows, therefore, that before the year 1973, exemption contemplated by sub-section (1) of section 42 was with regard only to cottage industries.

6. Having thus obtained the power to grant exemption under section 42(1) of the Act even with regard to small-scale industries, the Government seems to have issued the above-referred notification (annexure C) on 27th May, 1974. This notification is in the following terms:

“In exercise of the powers conferred by sub-section (1) of section 42 of the Himachal Pradesh General Sales Tax Act, 1968, the Governor, H.P, with a view to providing incentive to the small-scale industries, is pleased to grant exemption from payment of sales/purchase tax to the eligible small-scale industries with effect from 12th April, 1971, subject to the following conditions:

1. That there shall not be charged sales/purchase tax from the small-scale industries which were in existence and registered with the Industries Department as such on 12th April, 1971, for a period of three years from that date.

2. That the exemption from payment of sales/pur chase tax in the case of small-scale industries which came into being and are registered with the Industries Department as such after 12th April, 1971, would be applicable for a period of 5 years commencing from the date of their coming into existence.

3. That the small-scale industries registered as such with the Industries Department who deal partly in the manufacture of goods and partly otherwise, would be entitled to avail the sales/purchase tax holiday in respect of such goods as are purchased by them for the purpose of manufacture foi sale in H.P

4. That no holiday from Central sales tax would be available to small-scale industries under the Central Sales Tax Act, 1956.

5. That holiday from sales/purchase tax shall be admissible only to those small-scale industries which are registered under the Himachal Pradesh General Sales Tax Act, 1968, and comply with its provisions.

6. That a small-scale industry must continue to function for a period for which the concession has been availed failing which it shall pay tax for the remaining period, equal to the amount which would have been paid during the said exempted period but for such exemption, and

7. that the holiday from the sales/purchase tax will be subject to the filing of certificate of genuineness with the assessing authority concerned by 30th April, each year, granted by the Director of Industries, H.P, under his signature.

Sd./- P.K Mattoo,

Secretary to the Govt. of H.P”

7. It is found that for the purpose of assessment year 1972-73, petitioner No. 1 made inter-State sales of electric goods manufactured by it worth Rs. 5,23,248. In its quarterly return for the year 1972-73, petitioner No. 1-company claimed exemption for this inter-State trade under section 8(2A) of the Central Sales Tax Act on the ground that the goods in question were also exempted from the State sales tax. This contention of petitioner No. 1 was rejected by the assessing authority on the ground that the exemption from the State sales tax was granted on the goods in question on the specific condition that no holiday from Central sales tax would be available to small-scale industries under the Central Sales Tax Act, 1956, as mentioned in clause (4) of the above referred notification found at annexure C. Being aggrieved by this decision of the assessing authority, the petitioners appealed but they failed even in their appeal. It is thereafter that the petitioners have approached this Court by preferring this writ petition.

8. At this stage it would be proper to note the relevant provisions of the Central Sales Tax Act. According to section 6(1A) of the Central Sales Tax Act a dealer shall be liable to pay tax under the Central Sales Tax Act on sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding the fact that no tax would have been leviable under the sales tax law of the appropriate State if that sale had taken place inside that State. Thus, in ordinary course of things, under the provisions of subsection (1A) of section 6, the petitioners would be liable to pay the Central sales tax even if they are not liable to pay any tax under the local Sales Tax Act.

9. However, sub-section (2A) of section 8 acts as the proviso to subsection (1A) of section 6 above referred to, because it contains a non obstante clause with regard to sub-section (IA) of section 6, and provides as under:

“(2A) Notwithstanding anything contained in sub-section (1A) of section 6 or sub-section (1) or clause (b) of 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 four 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 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.”

10. It is apparent from the provisions contained in sub-section (2A) of section 8 that if the goods in question are exempt from tax generally, then the rate of Central sales tax which would apply in the case of such goods would be nil. The main provisions of sub-section (2A) are, however, controlled by the explanation, which is appended thereto. According to this explanation fa sale or purchase of goods shall not be deemed to be exempt from tax under the sales tax law of the appropriate State if under that law (1) the sale or purchase of goods is exempt only in specified circumstances, or (2) it is exempt under specified conditions, or (3) the tax is levied on the sale or purchase of such goods at specified stages, or (4) the tax is levied otherwise than with reference to the turnover of the goods. The explanation, therefore, shows that if any of the above stated four conditions is found to be in existence then the exemption from the Central sales tax which is contemplated by the main provision of sub-section (2A) would not be available to the dealer in question.

11. Now the contention of the petitioners in this case is that none of the above referred four conditions of the explanation is applicable in the instant case and, therefore, the matter does not fall within the purview of explanation and they are not liable to pay Central sales tax on the turnover in question.

12. As against this, the contention of the respondents, which they have raised in the return, is that the explanation which is attached to subsection (2A) of section 8 becomes operative in this case inasmuch as clause (4) of the notification, annexure C, issued on 27th May, 1974, expressly mentions a condition that no holiday from Central sales tax would be available to the small-scale industries in question. It is contended in the return that it was on this specific condition of payment of Central sales tax, that the State Government has notified exemption from the State's sales tax and, therefore, the matter is governed by the explanation which is attached to sub-section (2A) of section 8 of the Central Sales Tax Act.

13. In view of the above contentions of the parties, the simple question which arises to be considered is whether the exemption contemplated by incentive rule 3(4)(c) and also by the notification annexure C operates under the existence of any circumstances, or is conditional upon the performance of any condition. If it is found that the exemption which is contemplated, either by the incentive rule 3(4)(c), or by the notification annexure C would operate only under certain circumstances and on performance of certain conditions, then there would be no scope for challenging the proposition that the matter is completely covered by the explanation attached to sub-section (2A) of section 8 of the Central Sales Tax Act, but not otherwise.

14. We have already given the analysis of the explanation which is attached to sub-section (2A) of section 8. So far as the facts of this case are concerned, conditions Nos. 3 and 4 which bring that explanation into operation are not relevant, but the first two conditions are relevant because the contention of the State is that incentive rule 3(4)(c) as well as the notification annexure C do not contemplate any exemption which is free from certain conditions. Under the circumstances, it is first necessary to see what is the scope of the operation of the existence of specified circumstances or specified conditions which are contemplated by the explanation. The simple reading and the plain meaning of the language employed by the legislature in the explanation shows that the exemption contemplated by subsection (2A) would not be available if the four conditions already described above are found to be in existence. It is, therefore, clear that the first two conditions, namely, the existence of specified circumstances and specified conditions operate as conditions for not allowing exemption contemplated by sub-section (2A). In other words, it means that the existence of circumstances and the performance of conditions which are contemplated by the explanation are the expressions of limitations which qualify the exemption and, therefore, if a circumstance or condition under consideration does not impose any limitation which would disentitle the industry to claim exemption, it would not be covered by the mischief of the explanation. Therefore, if the role played by a particular circumstance or condition is only to identify or to describe the industry which is entitled to exemption or to specify the period for which exemption can be claimed, the circumstance or the condition in question cannot be said to be possessing the quality of limiting or qualifying the right to claim exemption, and hence, the same would be out of the mischief of the explanation. It is in the background of this principle that we shall presently discuss whether incentive rule 3(4)(c) as well as the notification annexure C specify any circumstance or condition which acts as a limitation to the earning of exemption by petitioner No. 1.

15. We have already quoted above the relevant provisions of the Incentive Rules. The learned Advocate-General contended that clause (c) of rule 3(4) of the Incentive Rules contemplates circumstances and conditions inasmuch as it prescribes the period of three years for exemption and also requires the industry concerned to get itself registered with the Industries Department. We find that neither the period for which the concession is available nor the fact that the industry desiring exemption should get itself registered with the Industries Department can be construed as imposing any condition for earning exemption from the local sales tax. It is, no doubt, true that according to clause (c) of rule 3(4) the period of exemption for the new industry is five years and for the industries which were already established, it is three years, but this period is merely pointing out the duration for which the exemption is available. It does not impose any condition upon the performance of which the exemption would be available to the concerned industry. The requirement as regards the registration of the industry with the Industries Department also does not operate as a condition for earning exemption. It is merely a procedural provision for establishing that the industry in question is a bona fide and genuine industry contemplated by the Incentive Rules. Under these circumstances, we are of the opinion that clause (c) of rule 3(4) of the Incentive Rules does not specify any circumstance or condition as contemplated by the explanation attached to sub-section (2A) of section 8 of the Central Sales Tax Act.

16. As already noted above, the above Incentive Rules were framed on 12th April, 1971. About three years thereafter the Government issued notification annexure C. We have already quoted this notification in extenso. The notification shows that it has been applied with retrospective effect as from 12th April, 1971, which is the date on which the Incentive Rules were framed. It is, therefore, obvious that the notification purports to cover the past period of three years for the purpose of giving incentive under the Sales Tax Act. It was contended on behalf of the petitioners that it was not open to the Government to issue notification with retrospective effect because no such power is given by the main statute under which the notification is issued. We find that it is not necessary to go into this question because the discussion which follows shows that, in our opinion, even this notification does not prescribe any circumstances or conditions which would bring the case within the purview of the explanation which is attached to sub-section (2A) of section 8 of the Central Sales Tax Act.

17. Now, coming to the terms of the notification, it would be noticed that it specifies seven clauses which are described by the preamble of the notification as “conditions”. We have already discussed about what terms can amount to the specified circumstances and specified conditions within the meaning of the explanation attached to sub-section (2A) of section 8. Applying these tests to the seven clauses which are found in the notification we find that none of these seven clauses amounts either to a specified circumstance or to a specified condition within the meaning of the said explanation attached to sub-section (2A) of section 8. We shall presently discuss how this is so.

18. The pure reading of first and second clauses of this notification shows that while the first clause prescribes the period of three years for the industries which were in existence on 12th April, 1971, the second clause prescribes for a period of five years exemption for the industries which have come into being after 12th April, 1971. Both these clauses are introduced with a view to specify the periods for which the exemption is contemplated and classes of industries to which this period could apply. None of these two clauses prescribes any condition or circumstance under which the exemption can be had. It, therefore, follows that the first two clauses of this notification are not covered by the explanation attached to sub-section (2A).;

19. So far as clause (3) is concerned, it visualises a type of industry which deals partly in the manufacture of goods and partly otherwise. The second category of dealing which is contemplated by this clause is obviously the dealing in goods which are not manufactured by the industry itself. There, fore, the industry which manufactures goods and deals with it and also purchases goods and deals with them would be the industry covered by this clause (3). For such industry exemption from sales tax or purchase tax would be available only in respect of such goods which are purchased by it for the purpose of manufacture for sale in Himachal Pradesh. In other words, if such an industry purchases goods for the purpose of sale, then on the goods so purchased, the exemption would not be available.

20. The learned Advocate-General contended that this clause clearly stipulates a condition, namely, sale in Himachal Pradesh and, therefore, if the matter is covered by this clause then the explanation attached to sub-1 section (2A) of section 8 would be invited.

21. We find that it is not the case of the respondents that the industry conducted by petitioner No. 1 is of the type which is visualised by clause (3). In fact, the petitioners have specifically stated in paragraph 1 of the petition that petitioner No. 1 is engaged in “the business of manufacturing electric goods and their sale”. This particular averment is not denied in the return. It, therefore, means that petitioner No. 1 is an industry which only manufactures goods for sale and, therefore, it is not the composite type of industry which is contemplated by clause (3) of the notification annexure C. Under the circumstances, even if it is believed, for the sake of argument, that this clause (c) contemplates a condition for earning exemption, the same is not applicable to the case of the petitioners. The fact of the matter is that at no stage in the past during the course of the assessment proceedings it has been the contention of the State or the assessing authority that the case of the petitioners falls within clause (3) of the notification. All the while and even during the course of this writ petition the contention of the respondents has been that the petitioners are not entitled to exemption from Central sales tax because of the condition which is found in clause (4) of the notification.

22. Under these circumstances, the legal interpretation of clause (3) is not required in order to determine whether it stipulates any circumstance or condition which would bring the case of the petitioners within the mischief of the explanation attached to sub-section (2A) of section 8. However, if we are called upon to interpret this clause, we would have no hesitation to observe that even this clause does not contemplate any specified circumstance or condition which would bring the case within the explanation attached to sub-section (2A) of section 8, because we find that the clause merely describes the goods on which the exemption would be available, the description being that the goods must be those which were purchased “for the purpose of manufacture for sale in Himachal Pradesh”. In our opinion, this is nothing but the description of the class of goods on which exemption can be claimed. Therefore, in our opinion, this clause also does not contemplate any condition for earning the exemption.

23. Then coming to clause (4), which was the only clause on which the petitioners' claim for exemption has been rejected, it is evident that this clause says something about the Central sales tax and provides that no holiday from Centra] sales tax would be available to the small-scale industries concerned. It is difficult to understand how this clause can be construed as a condition for earning exemption under the State Sales Tax Act. The first question which would arise with regard to this clause is regarding the legal competency of the State Government to provide anything as regards the levy or exemption of Central sales tax. It is entry No. 54 of the Second List of the Seventh Schedule of the Constitution under which a legislation as regards levy of sales tax or purchase tax can be made. This entry No. 54 is in the following terms:

“Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92-A of List I.”

24. This entry, therefore, shows that the legislative power of the State extends to the levy or exemption of sales tax or purchase tax only with regard to those items which are not covered by entry 92-A of List I. This entry 92-A of List I is in the following terms:

“Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.”

25. It is thus clear that levy of tax on the sale and purchase of goods in the course of inter-State trade or commerce is a Central subject and not a State subject. That being so, it was not open to the State Government to give any prescription as regards levy or exemption of Central sales tax at the time of issuing the notification annexure C. If exemption under the Central Sales Tax Act is available to the petitioners that exemption is available to them in spite of what the State Government thinks about it, because the said exemption would be available by virtue of the operation of the statute, namely, the Central Sales Tax Act, and not by virtue of any incentive proposed to be given by the State Government. Under the circumstances, we are of the opinion, not only that clause (4) of the notification annexure C does not operate as a condition, but also, that it was not legally competent to the State Government to make any such provision which would bind the petitioners to pay tax against the statutory provisions contained in the Central Sales Tax Act.

26. Clause (5) of the notification provides that the tax holiday would be available only to those small-scale industries which are registered under the Himachal Pradesh General Sales Tax Act. The learned Advocate-General contended that this clause also operates as a condition which would bring the case within the explanation attached to sub-section (2A) of section 8. Here also we find ourselves unable to agree with him because the provision as regards the admissibility of tax holiday only to the small-scale industries which are registered under the Act merely points to a class of dealers who would be entitled to exemption. Description or identification of a particular class which is entitled to exemption would by no stretch of imagination amount to a condition the non-fulfilment of which would disentitle the dealer from exemption.

27. Clause (6) says that if a particular industry is not found to have been functioning for a particular period, then it would be required to pay the tax from which exemption was granted. This clause is nothing but the elaboration of the period for which the exemption could be claimed and, therefore, it also does not amount to a condition which could be fulfilled or performed before earning the exemption.

28. Clause (7) provides for the obtaining of the certificate of genuineness from the concerned authority for the purpose of earning tax exemption. Even this clause does not amount to a condition for earning tax exemption. It merely provides for establishing the fact that the industry concerned is a genuine industry contemplated by the notification.

29. The analysis of all the seven clauses of the notification thus shows that none of these clauses can be termed as a condition or circumstance which would entitle a small-scale industry to earn exemption. We find that the above referred questions have been dealt with by the different decisions of different High Courts which have taken exactly the same view which we are taking in the matter. The early decision on these points is found to have been given by the Madhya Pradesh High Court in Commissioner of Sales Tax v. Kapoor Dori Niwar and Co. [1968] 22 S.T.C 152. The question similar to the one which has arisen before us also arose before that High Court. The assessee contended in the case that its turnover on inter-State sales of niwar could not be taxed in view of section 8(2A) of the Central Sales Tax Act after its amendment in the year 1958 as there was an exemption given under the State Sales Tax Act. The court, when construing the expression “exempt only in specified circumstance or under specified condition” occurring in the explanation attached to sub-section (2A), held that this expression meant such circumstances or conditions the non-existence or non-performance of which precluded the grant of exemption, so that if those circumstances did not exist or those conditions were not performed, the sales of goods would not be exempted from tax even if they were effected by a class of dealers to whom the exemption was granted and during the period for which the exemption was granted. While discussing this point, the High Court has further observed that neither the period for which the exemption is granted, nor the requirement that the dealer in question should be registered would operate as a condition for earning exemption.

30. This case of the Madhya Pradesh High Court was referred to by the Allahabad High Court in Hindustan Safety Glass Works (P.) Ltd. v. State of U.P [1974] 34 S.T.C 209., wherein also a similar question arose for decision. The Allahabad High Court approved of the decision given by the Madhya Pradesh High Court and also observed that the stipulation in the notification that turnover of sales would, for a period of three years, be exempt from-the payment of sales tax did not amount to exempting any turnover in such goods from tax under the specified circumstances or specified conditions. Both these decisions have been cited with approval by the Supreme Court in Indian Aluminium Cables Ltd. v. State Of Haryana. In this decision, the Supreme Court has explained what are the types of specified circumstances and specified conditions which are contemplated by the explanation attached to sub-section (2A) of section 8. The court in that case was concerned with section 5(2)(a)(iv) of the Punjab Sales Tax Act, which was in the following terms:

“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 (9 of 1910), of goods for use by it in the generation or distribution of such energy.”

31. Referring to this provision the Supreme Court observed that specified circumstances in that case were that the sales 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, and the specified condition was that the goods purchased by the undertaking must be used for generation or distribution of electrical energy. It is obvious that, so far as the instant case in our consideration is concerned, there was no such condition which could be attached to the exemption in question. Our attention was drawn to the latest decision given by a Division Bench of the Allahabad High Court in Poysha Industrial Co. Ltd. v. Commissioner Of Sales Tax, wherein all the above referred decisions have been referred to and approved.

32. In view of the above discussion, we are of the opinion that neither the incentive rule 3(4)(c) nor the notification annexure C prescribes any condition or circumstance which would bring this case under the explanation attached to sub-section (2A) of section 8 of the Central Sales Tax Act. That being the position, we are of the opinion that the demand for the Central sales tax on the turnover in question for the assessment year 1972-73 from the petitioners was not proper.

33. The learned counsel for the petitioners contended that even otherwise the respondents would be estopped from demanding Central sales tax under the provisions of the notification annexure C, under the principle of promissory estoppel. The argument was that by enacting the Incentive Rules the State Government held out a promise that on proper investment these incentives would be earned by the industry in question

34. In view of the discussion which has preceded, we find that it is not necessary for us to go into the question of the application of this principle of promissory estoppel.

35. In view of this we allow this writ petition and declare that the petitioners are not bound to pay Central sales tax on their turnover of inter-State sales for the assessment year 1972-73 on the goods in question. We, accordingly, quash the order passed by the Deputy Excise and Taxation Commissioner, respondent No. 1, as found at annexure G. The rule is accordingly made absolute without any order as to costs. In view of the above, necessary adjustment or refund as regards the tax which is already paid by the petitioners shall be made.

36. Petition allowed.