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CASE NO.: Appeal (civil)  4601 of 2000

PETITIONER: Commissioner of Trade Tax U.P. & Anr.    

RESPONDENT: M/s. Kajaria Ceramics Ltd.,

DATE OF JUDGMENT: 12/07/2005

BENCH: Ruma Pal & Arun Kumar

JUDGMENT: J U D G M E N T With  C.A. No. 4602/2000

RUMA PAL, J

                The issue in these appeals is the extent of the entitlement  of the respondent to the benefit of exemption from payment of  trade tax granted under a notification dated 27th July, 1991  issued under Section 4A of the U.P. Trade Tax Act, 1948 (  hereinafter referred to as ’the Act’)         The respondent manufactures and sells ceramic tiles in  its factory at Sikandarabad, District Bulandshahr in the State of  Uttar Pradesh since 1988 having received an industrial licence  from the Government of India to do so. The annual production  capacity of the respondent was 12000 TPA (tonnes per  annum). The total investment made in the unit upto 12th August,  1988 was Rs.16,21,54,452/- and the first sale was effected on  16th August, 1988.         A notification issued on 26th December, 1985  (referred to as the 1985 Notification)  under Section 4-A of the  Act granted a six-years’ tax exemption in respect of new units  having an investment in excess of 3 lakhs starting production  on or after the first date of October, 1982 but not later than the  first day of March, 1990. Admittedly the respondent’s unit  fulfilled the conditions mentioned in the notification and, since  its investments exceeded Rs. 3 lakhs, it was granted exemption  for six years which was reckoned from the date of first sale i.e.  from 16th August, 1988 to 15th August, 1994.          During the period 1st April, 1990 to 15th August,  1990 the capacity of the respondent’s unit was increased from  12000 to 26000 tonnes per annum. A further fixed capital  investment of Rs.11,14,95,641/- was made and the eligibility  certificate which had been granted was suitably revised on 11th  April, 1991 noting the increased production capacity of the unit  to 26000 TPA. Again between 16th August, 1990 to 28th  December, 1991, the respondent made an additional fixed  capital investment of Rs.12,50,66,080/- and increased the units  capacity from 26000 to 40000 TPA. Finally the capacity was  increased to 60000 TPA by making a further investment of Rs.  29,95,20,778/- by 28th March, 1994. The total additional  investment in the three expansions was Rs. 54,51,03,544.         In the meanwhile a notification dated 27th July, 1991  (referred to as the 1991 Notification ) had been issued granting  an exemption from tax to a new unit and also to units which had  undertaken expansion, diversification or modernization. It  provided similar relief from payment of tax under the Act to new  units excluding units mentioned in Annexure \026 II to the second

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Notification as well as to goods manufactured in units other  than units of the type mentioned in Annexure \026II which had  undertaken expansion, diversification or modernization on or  after 1st April, 1990 but not later than 31st March, 1995 in  specified areas. Under paragraph 1(B) (1) (a) no tax was  payable or, as the case may be the tax was payable at reduced  rates specified in Column IV of Annexure \026 I on the turnover of  sales by such units in respect of inter alia  "the quantity of  goods manufactured in excess of the base production in the  case of units undertaking expansion or modernization".    Paragraph 1B (2) ( ii ) provided that in the case of units  undertaking expansion or modernization the period of such  facility was to be reckoned from the first date of production of  goods manufactured in excess of the base production. The  benefits under the Notification were available only on  production of an eligibility certificate granted by the named  authority to the assessing authority. Annexure \026 I provided for  the rates of tax applicable in respect of such units situated in  different districts named in that Annexure. The rate of  exemption of tax applicable was fixed on the basis of the  investment and varied according to the location of the unit as  specified in Annexure 1 to the Notification. The respondent’s  unit was covered by Serial No. 2( i ) of Annexure 1 to the  notification which covered the district of Bulandshahr within  which the respondent’s factory is situated. The relief was  granted for 9 years and was fixed at ’nil’ in case of units with a  fixed capital investment exceeding 50 crores and in the case of  other units at different percentages subject to 150 per cent of  the fixed capital investment in the case of small scale units and  125 per cent of the fixed capital investment in the case of  medium and large scale units.  

On 30th June, 1993, a Circular was issued by the  Commissioner of Sales Tax clarifying that units which had  started production upto 31st March, 1990 and which could enjoy  unlimited exemption for a fixed period, and which had  undertaken expansion, diversification or modernization would  get the benefit of exemption of reduction from the specified  dates confined to 100% to 150% of the additional fixed capital  investment.         When the 1991 Notification came into force, the  respondent was still enjoying the benefit of the 1985  notification.  After that period of exemption came to an end on  15th August, 1994, on 16th September, 1994, the respondent  made three separate applications under cover of a letter dated  15th September, 1994 to the General Manager, District  Industries Centre for recommendation to the Divisional Level  Committee stating that the respondent company had started its  production on 12th August, 1988 with an installed capacity of  12000 TPA and that it had "undertaken three successive  expansions during 1990 to 1994. First it increased the capacity  from 12000 MT to 26000 in August, 1990 and raised it to 40000  MT in December, 1991 and 60000 MT in March, 1994".          However, on 21st November, 1994 the respondent  withdrew all three applications and on 17th July, 1995, filed a  revised application claiming that there was one expansion from  12th August, 1988 to 28th March, 1994 by which the annual  production capacity of the respondent’s unit was increased from  12000 TPA to 60000 TPA by making an additional fixed capital  investment of Rs.54,51,03,549/-  

Before the revised application under the 1991 Notification  was filed by the respondent a third notification was issued on  31st March, 1995 ( referred to as the 1995 Notification ) granting  benefits to units which were either new or had undertaken

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expansion, diversification or modernization on or after              1st April, 1995 but not later on 31st March, 2000. The difference  in this notification with the earlier notifications is not only with  regard to the period but also in the allowance of the benefit to  any finished goods manufactured in such a unit which had  undertaken "backward integration" during the same period. The  limits to which exemption was granted has been mentioned in  Annexure \026I. Units where the fixed capital investment exceeded  Rs. 50 crores would, like the earlier notification, be wholly  exempted from payment of tax. Where the investment was not  Rs. 50 crores, the benefit was granted at reducing percentages  - the maximum (at least as far as certain districts including  Bulandshahar were concerned) being 200% of the fixed capital  investment or, as the case may be, additional fixed capital  investment.         On the basis of the revised application and in accordance  with the procedure prescribed, an inquiry was made and a  report submitted by the Trade Tax Officer to the Divisional  Level Committee ( DLC ). The DLC by its decision dated          7th July, 1996 granted an exemption only in respect of the  expansion of the unit from 40000 TPA to 60000 TPA. The base  production was taken at 40038 MT. The  benefit in respect of  the first and second expansions for achieving the expansion of  40000 MT was not granted. The production was also taken to  have commenced from 28th March, 1994 as a result of  expansion. The total figure of investment accepted by the DLC  included the cost of land and site building and plant &  machinery. Other expenses claimed by the respondent such as  interest payable to financial institutions, expenditure incurred for  rights issue, foreign travel and foreign technical expenses were  not included. An eligibility certificate based on the decision of  the DLC was accordingly issued.         Aggrieved by the DLC’s decision, the respondent filed an  appeal under Section 10 of the Act to the Trade Tax Tribunal.  The Tribunal accepted the respondent’s claim except to the  extent that the exemption was limited to a percentage of the  additional fixed capital investment of Rs.54,51,03,544/-. In other  words, the Tribunal held that there was only one expansion and  not three and that the benefit under the 1991 notification was  not to be calculated as a percentage of the fixed capital  investment prior to the expansion but as a percentage of the  additional fixed capital investment. However the expenses on  rights issue, foreign technicians, foreign travel, laboratory  equipment, fire fighting equipment and establishment of water  distribution schemes were included in the value of the fixed  capital investment.           The appellants filed a trade tax revision before the High  Court. The respondent also filed a trade tax revision before the  High Court challenging the limitation of the grant of exemption  to the additional fixed capital investment. By the impugned  judgment , the High Court allowed the respondent’s application  and dismissed the State’s application holding that the  respondent’s unit was entitled to include the fixed capital  investment of Rs.16,21,54,452/- as on 12th August, 1988 in the  fixed capital investment under the 1991 notification and that the  tax benefit would be calculated at the specified percentage of  the original and additional fixed capital investment. The Circular  dated 30th June 1993 was struck down and the DLC was  directed to issue a revised eligibility certificate to the  respondent in accordance with the finding.  Two appeals have been preferred from both these  decisions by the Trade Tax Authorities, both of which are being  disposed of by this judgment. As no stay was granted by us at  the time of the admission of the appeals, tax relief was granted

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to the respondent by the appellants as directed by the High  Court.          According to the appellants the 1985 Notification granted  tax relief only to new units and did not extend to units  undergoing expansion, diversification or modernization. The  1991 Notification expanded the category of units to the latter  category for the first time. As far as the fixed capital  investments were concerned it is submitted that Explanations  1,2,4 and 5 to Section 4A of the Act showed that there was a  distinction between original and additional fixed capital  investment and that contextually, the phrase "fixed capital  investment" used in the notification when read in the case of a  new unit should mean ’original fixed capital investment’ and in  the case of a unit undertaking expansion, diversification  or  modernization to mean ’additional fixed capital investment  resulting in such expansion, diversification or modernization. It  is submitted that that was how the respondent had understood  the matter initially. Any other construction, according to the  respondents, would lead to absurd consequences not only by  granting benefits to older units at the expense of new units but  also by granting double benefit in respect of the same  investment. Multiple expansions would also allow the same  original investment to be counted for each expansion and an  expansion by only 25% of the original investment would mean  that the unit would have a tax benefit including the 100% earlier  invested. This, according to the appellants was not the object of  the notification. The appellants contend that the ambiguity in  the 1991 Notification was clarified by the 1995 Notification  which explicitly says that tax benefits would be on the additional  fixed capital investment in the case of expansion, diversification  or modernization. According to the Appellants the High Court  should not have struck down the Circular issued in 1993 which  had earlier clarified the issue. In any event it is submitted, the  fixed capital investment could not, in the light of explanation 4  to Section 4A be construed to include any item apart from the  items specified therein.  On the question whether there was one  or three separate expansions, the Appellants contended that  there was no evidence whatsoever to show that the three  expansions were part of one integrated scheme. They say that  treating the expansion as one would be contrary to the statute.  Finally it is submitted that if at all the respondent had not  collected any tax on the strength of the eligibility certificate  issued by the authorities consequent to the High Courts  judgment ( which was disputed ) that did not, according to the  appellants, debar the State Government from recovering its  dues from the respondent. It is said that the respondent had the  option of collecting the tax from the customers and applying for  a refund.

       Countering these submissions, the respondent has  submitted that Section 4A fixed the eligibility criteria for the  grant of benefits under the Act and the actual grant of the  benefit was effected by the notification and in terms thereof.  Thus the 1991 notification linked the extent of the benefit to the  fixed capital investment in contrast to the additional fixed capital  investment provided in the 1995 notification. There was a  conscious decision to grant older units the benefit in respect of  the additional production by linking the same to the original and  the additional fixed capital investment. The distinction was  deliberate and unambiguous. If, as a result, older units  undertaking expansion, diversification or modernization were in  a better position than new units, this would not, according to the  respondent, make the grant discriminatory or arbitrary, nor was  there any warrant in law not to give effect to the language used.

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It was then submitted that there was no bar under the 1991  Notification against claiming exemption in three phases of  expansion at the end of the third phase nor was there any time  limit to do so. It was contended that the Tribunal had  correctly allowed the preoperative expenses as part of the  value of the plant and machinery which was includible in  the  respondent’s fixed capital investment. It is said that to limit the  phrase ’fixed capital investment’ as excluding the expenses for  setting up and commissioning the expanded unit would lead to  an anomalous result as all the expenses incurred in connection  with such fabrication, installation and commissioning forms part  of the value of this plant. This was an accepted principle of  accountancy and the respondent had only taken such amounts  which it had paid on the  plant before the commencement of the  production as a result of such expenses. It was  next submitted  that the decision of the High Court had been accepted by the  appellants and circulars had been issued by the authorities to  this effect even prior to the refusal of stay by this Court, and it  was not open to the State to re-agitate the issue. Besides,  according to the respondent, it had not availed of even 50% of  the benefit which it could have claimed under the 1991  Notification in terms of the High Court’s judgment.  Finally the  submission is that the respondent  had  not realised any tax  during the period nor could it have done so under Section 8A  (2) read with Section 15A (1) (qq) of the Act. In the  circumstances even if the appeal were to be allowed the tax  should not be directed to be recovered as this would lead to a  closure of the respondent’s unit.          The issues which have arisen for the decision in this  appeal and which have been formulated fairly by the  appellants are :

I.      Whether a unit undergoing expansion is entitled  under the notification dated 27.07.1991 to the  benefit of exemption on the additional fixed capital  investment as a result of such expansion, or the  total fixed capital investment (being the aggregate  of the original as well as the additional fixed capital  investment ) ?

II.     Whether the Respondents’ claim of one integrated  expansion from 12000 TPA to 60000 TPA during  the period 12.8.88 to 28.3.94 is sustainable in fact  or in law ?

III.    Whether or not certain preoperative expenses form  part of "Fixed Capital Investment" for the purpose of  Section 4A of the U.P. Trade Tax Act and the  notification dated 27.07.1991 ?

IV.     Whether the Respondents, ( allegedly ) not having  collected or realized any tax on the strength of the  eligibility certificate, granted pursuant to the High  Court’s judgment, and which was not stayed by this  Hon’ble Court, are entitled to any relief ?

ISSUE - I           Section 4A of the Act was introduced in the Act for the  stated purposes of increasing the production of goods or for  promoting the development of industry in the State or any of the  districts. Under Section 4-A sub-section (1) the State  Government may by notification, declare that the turnover of  sales is exempt from trade tax for a period not exceeding 12  years subject to such conditions as may be specified in the

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notification. The 1991 Notification cannot therefore be read in  isolation but in the context and within the parameters of Section  4A of the Act under which it was issued. As we have noticed at  the outset, the varying amounts of the benefit available under  the 1991 Notification have been tabulated in Annexure I  thereto. The basis of the exemption or reduction on tax is the  fixed capital investment \026 the quantum of relief being a  percentage of such investment. The phrase "fixed capital  investment" will have to be read harmoniously not only with the  other provisions of the Notification itself but also in the light of  section 4A.

                 ’Fixed Capital Investment’ has  been defined in  paragraph 3 of the 1991 Notification as being determinable in  the case of an industrial undertaking financed by a term loan  advanced by a public financial institution or a Scheduled Bank  according to the certificate to that effect issued by such  institution or a bank and in any other case according to (a)  value of the land certified by the Collector; (b) value of building  certified by an evaluator approved by the Income Tax  Department for the purpose (c ) the value of plant, machinery,  equipment, apparatus and components certified by a Chartered  Accountant. Paragraph 4 provided: "In determining the fixed capital investment  as defined in clause (4) of the Explanation  in case of ’New units’ or ’Additional Fixed  Capital Investment’ referred to in sub- clause (d) of clause (5) of the Explanation  in case of ’unit which have undertaken  expansion, diversification or modernization’  the investment in only such land, building,  plant, machinery, equipment, apparatus  and component or, as the case may be,   such additional land, building, plant,  machinery, equipment apparatus and  component shall be taken into account as  were acquired on or before the relevant  date of commencement of the period of  facility notified under sub-section (1) of  Section 4-A of the Act." (Emphasis  supplied).

               This paragraph therefore links original fixed capital investments  to new units and additional fixed capital investments to already  established units undertaking expansion, modernization etc. for the  purposes of Clauses (4) and clause (5) (d) of the Explanation. There  appears to be no clause (4) or (5) to any Explanation in the 1991  Notification. Clearly the reference is to the Explanation in Section 4A of  the Act which has defined "fixed capital investment" and "unit which has  undertaken expansion diversification or modernization" in clauses (4) and  (5) respectively. The relevant extracts of these clauses read as follows :- "(4)    ’Fixed capital investment’ means investment  in land and building and such plant,  machinery, equipment apparatus,  components, moulds, dyes, jigs and fixtures  as have not been used or acquired for use in  any other factory or workshop in India:

(5)     ’unit which has undertaken expansion,  diversification or modernization’ means an  industrial undertaking

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(a)     of  a dealer who is not a defaulter in payment  of any due under this Act, or the Central Sales  Tax Act, 1956 or under any loan scheme  administered by the Pradeshiya Industrial and  Investment Corporation of Uttar Pradesh  regarding trade tax on sale or purchase of  goods;

(b)     whose first date of production of goods,

( i )   Of a nature different from those  manufactured earlier by such undertaking  in case of units undertaking  diversification, and (or)  

(ii)    Manufactured in excess of base  production, in such undertaking in case  of units undertaking expansion or  modernization, falls at any time after  March 31, 1990.

 ( c )   the production capacity whereof has  increased by at least twenty five percent as a  result of expansion of modernization or  wherein goods of a nature different from these  manufactured earlier are manufactured after  diversification;

   (d)     Wherein an additional fixed capital investment  of at least twenty five percent, of such original  fixed capital investment (without providing for  depreciation ) is made.

       What is of significance is that a distinction is made  between ’additional’ and ’original’ fixed capital investment’ not  only in clause (d) of clause (5) to the Explanation in Section 4A  of the Act but in the body of the entire clause \026 the first relating  to old units undertaking expansion etc. and the second to new  units.         Paragraph 4 of the Notification also refers only to the  additional fixed capital investment in determining the fixed  capital investment as far as units which have undertaken  expansion, diversification or modernization are concerned. The  emphasised portions of the paragraph as quoted earlier  indicate the mode of determination of additional fixed capital  investment as far as units which have undertaken expansion  etc. and original fixed capital investment as far as new units are  concerned.  

       The High Court held that sub clause (d) of Explanation \0265  to Section 4A had nothing to do with the extent of benefit of  exemption which could be granted to a unit undertaking  modernization, expansion for diversification but referred to the  field of eligibility. As far as paragraph 4 of the 1991 notification  was concerned, according to the High Court,  it merely provided  how the fixed capital investment as defined in Explanation-4 in

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the case of new units or in the case of additional fixed capital  investment referred  to in sub clause (d) of Explanation \026 5 was  to be computed. It did not provide that in the case of a unit  undertaking modernization expansion or diversification only  additional fixed capital investment shall be considered.         We disagree. The different methods of computation  contained in paragraph 4 of the 1991 Notification serve two  separate purposes and that is to determine the two relevant  investments for the distinct benefits available to two different  kinds of units viz. new units and established units which have  undertaken expansion etc. Significantly there is no mode  prescribed determination of original fixed capital investment as  far as the latter kind of unit is concerned nor additional fixed  capital investment in respect of the former.    The High Court  did not consider the logical consequences of paragraph 4 of the  notification providing only for the computation of additional fixed  capital investment as far as units undertaking an expansion etc.  were concerned.  In our opinion the High Court misread  paragraph 4 of the notification, the only reasonable  interpretation of which is that as far as new units were  concerned the ’original fixed capital investment’ would have to  be computed and as far as units undertaking expansion etc.  were concerned ’additional fixed capital investment alone would  have to be computed.         Form XLVI appended to the UP Trade Tax Rules, 1948     ( referred to hereafter as the Rules) prescribes the details for an  application for exemption from or reduction in rate of tax to new  units the date of starting production whereof fell on or after 1st  April, 1990 or to units which have undertaken expansion,  diversification or modernization on or after 1st April, 1990 under  Section 4A of the Act.  Serial No. 6(a) gives the necessary  particulars of the fixed capital investment in case of the latter  kind of unit.  There are three columns viz., Original investment  (without giving margin for depreciation), Additional investment  in the expansion etc on the date of commencement of the  period of facility and a certificate of valuation of the additional  fixed capital investment.  The investments contemplated are in  (1) land (ii) building and (iii) plant, machinery, equipment,  apparatus and components.  The certificates in respect of items  (1) and (ii) as far as additional fixed capital investment are to be  given by the Collector of the District and the evaluator approved  by the Income Tax Department respectively.  The valuation of  the third item is to be given by a chartered accountant.  The  note to Serial No. 6(a) also requires a certificate from a  chartered accountant of the original fixed capital investment.    The particulars indicate that while fixed capital investment  includes original and additional investments a distinction is  made between the two.  The purpose is patently to enable the  Department to verify the calculation of the percentage of  increase in the additional investment by reason of the  expansion over the original.  It does not mean that in respect of  units undertaking expansion the percentage is to be calculated  on an aggregate of both original and additional investments.          The three notifications namely the one issued in 1985,  1991 and 1995 form part of a pattern. The 1985 notification  granted benefit to new units provided their original investment  exceeded Rs. 3 lacs of their entire turnover. The 1991  Notification extended the benefit to old units undertaking  expansion and which may have already got the benefit, like the  respondent, of the original investment made under the 1985  Notification subject to the old unit making a further investment  and the benefit was limited to a percentage of that investment.  Similarly the 1995 Notification further extended the benefit to  units which had undertaken backward integration again limiting  the benefit to the investment made. All three notifications were

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issued under the same section and for the same purpose of  effecting development and were part of a chain of progress  without any overlapping. Not only would the contents of each  notification derive its meaning from Section 4A as each is  derived from and refers back to the section, but also if a phrase  used in one of the notifications is still ambiguous, then for the  purpose resolving the ambiguity the contents of the previous or  subsequent notifications can be looked into. Indeed that is what  the High Court did. It relied upon the 1995 notification for  construing the 1991 notification, an exercise which was  recognised as permissible in Pappu Sweets & Biscuits v.  CTT, U.P.  (1998) Supp 2 SCR 119. Because the 1995  notification explicitly states in Annexure 1 to that notification  that the exemption is calculatable on the fixed capital  investment or as the case may be ’additional fixed capital  investment’, the High Court was of the view that when the 1991  notification only used the words ’fixed capital investment’ in  Annexure 1 as the basis of calculation of benefit without making  any such distinction, all units whether new or old were entitled  to the benefit of the original and the additional fixed capital  investment.         Apart from being contrary to the language of paragraph 4  of the 1991 Notification, the decision in Pappu Sweets, on  which the  High Court founded its reasoning does not support  the conclusion of the High Court.  In Pappu Sweets, the very  same notifications namely the 1991 and 1995 Notifications  were considered. The question was whether the word   ’Sweetmeats" under the 1991 Notification could be read as  including ’toffees’. A Bench of 3 Judges of this Court held that  the 1995 Notification could be looked into for clarifying the  ambiguity in the 1991 Notification. The 1995 Notification did not  use the word ’Sweetmeats’ at all but mentioned different kinds  of condiments but did not mention toffees. On the principle  enunciated in Cape Branch Syndicate v. I.R.C (1921) 2 KB  403 to the effect  that "if there be any ambiguity in the earlier  legislation, then the subsequent legislation may fix the proper  interpretation which is to be put upon the earlier Act" , it was  held that the word ’Sweetmeats’ in the 1991 Notification did not  include toffees. Therefore the 1995 Notification was seen as  clarificatory of the 1991 Notification. Applying the same  reasoning we hold that the ambiguity  in the 1991 Notification  as to the meaning to be put on the phrase ’fixed capital  investment’ in Annexure  I was removed by the clarification in  Annexure I of the 1995 Notification by its reference to additional  fixed capital investment as far as established units undertaking  expansion etc. were concerned.

       In fact even before the issuance of the 1995 Notification a  circular had been issued by the Department in 1993 inter alia to  the following effect- "(4) -  Units starting production on or after 1.4.90 if  undertake expansion diversification or  modernization in accordance with clause 5 of  explanation to Sec. 4A than such unit shall be  entitled to facility exemption/reduction in rate of tax  on the production in excess of base products or on  the manufacture of new product for a period of  8,9,10 years from the date of expansion  diversification modernization and shall be limited to  the extent of 100% to 150% of additional fixed  capital investment".

       The Circular can be read as a contemporaneous  understanding and exposition of the intention and purport of the  Notification.  Courts have treated contemporary official

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statements  as contemporary exposition and used them as aids’  to interpret even recent statutes.          Thus in Collector v. Andhra Sugar [1988 ] 3 Supp          (SCR)  543 Mukharji, J (as His Lordship then was ) said \026

"It is well settled that the meaning ascribed by  the authority issuing the Notification, is a good  guide of a contemporaneous exposition of the  position of law. Reference may be made to  the observations of this Court in K.P.  Varghese v. The Income Tax Officer,  Ernakulam [1982]1 SCR 629. It is a well  settled principle of interpretation that courts in  construing a Statute will give much weight to  the interpretation put upon it at the time of its  enactment and since, by those whose duty  has been to construe, execute and apply the  same enactment."

       (See also in Karnataka SSIDCL Vs. CIT (2002) Supp 4  SCR 453, 460.)         The High Court therefore erred in striking down the  circular by holding that the circular was contrary to what the  High Court thought was  the clear intention behind the  notification instead of seeing the circular as contemporaneous  evidence of such intention.    

The position was therefore abundantly clear. Old units  undertaking expansion, diversification or modernization would  be entitled to get benefit of tax reduction on the additional fixed  capital investment made. The respondent acted on this and in  its application dated 27th October, 1995 for grant of Eligibility  Certificate for expansion of its capacity addressed to the  Chairman, Committee of Sales Tax Exemption & Commissioner   said \026

"According to rules the Company is entitled to  get full exemption from Trade Tax for a period  of nine years subject to monetary limit of  125% of additional fixed capital investment  with effect from the first date of production in  excess of base production."

       Before the Tribunal too, the respondent had only claimed  in its amended application that it should have been given  exemption on the capital investment of Rs.54,51,03,544/-  namely the additional fixed capital investment relating to the  three expansions. The particulars of the items of investment  including land and buildings claimed related only to this. The  appellants contention before the Tribunal was that only the third  expansion should be granted the benefit under the 1991  Notification. There was thus no issue raised before the Tribunal  by the respondent that the original investment should be  included in computing the tax benefit under the 1991  Notification. Even if the High Court found that the issue was  raised in the grounds of Appeal, it should not have allowed the  respondent to raise it in revision when clearly it had not been  pressed before the Tribunal.

         Furthermore the appellants’ submission that the High  Court’s interpretation of the 1991 Notification leads to  anomalous results also appears to be sound. The High Court  has correctly found that "the object of granting exemption from  payment of sales tax has always been for encouraging capital

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investment and establishment of  industrial units for the  purpose of increasing production of goods and promoting the  development of industry in the State". If the intention of the  State Government, as expressed in Section 4A itself is to  encourage investment, it is unlikely that the investment already  made would entitle an industry to any further benefit again. Yet  if we accept the respondent’s reasoning (which was affirmed by  the High Court), there may be multiple expansions qualifying for  the benefit of the 1991 Notification and the original investment  would be taken into account every time. Apart from the fact that  a new unit would have to face competition from an old  established unit, a new unit would be additionally handicapped  by the greater benefits being granted to the old established  businesses. It is unlikely that any new unit could be persuaded  to set up industries in such adverse circumstances leading to a  situation which was certainly not envisaged either under  Section 4A or under any of the notifications issued thereunder.         The respondent may be correct in contending that if as a  result of the notifications new units lose market or face tough  composition the same cannot be said to be arbitrary or  discriminatory. The contention would have been apposite if  there were a challenge to the constitutionality of the notification.  There is no such challenge. We are merely seeking to construe  the notification and although consequences cannot and should  not alter the statutory language but they may at least fix its  meaning.          It is patent to us therefore that the benefit of the 1991  Notification as far as units undertaking expansion etc. like the  respondent are concerned is limited to a percentage of the  additional fixed capital investment and not the original and  additional fixed capital only and not to a percentage of the  aggregate of the original and additional fixed capital.

ISSUE NO. 2         Were there three separate expansions of the  respondent’s unit as claimed by the appellants or only one as  asserted by the respondent and affirmed by both the Tribunal  and the High Court ?. The issue is a mixed   question of law  and fact. Were it only a question of fact no doubt we would  have stayed our hands and let the matter rest there unless  ofcourse the concurrent conclusion of both fora could be said to  be perverse. However the appellants’ contention is that the  decision is factually perverse and erroneous in law.          The DLC had taken the last expansion as the only  expansion and granted relief to the respondent on that basis.  The first two expansions were ignored. The Tribunal held that  the three expansions were phases of a single scheme of  expansion. It is not very clear what persuaded the Tribunal to  hold so. The High Court held that the Tribunal’s finding was a  conclusion of fact and could not be reversed except on the  ground of perversity. It also independently came to the same  conclusion on the grounds 1) that the DLC had categorically  observed that the dealer had made the expansion in phases  and that the respondents pleading that there was one scheme  for expansion prepared earlier was not disputed by it; 2) the  Enquiry report submitted by the Trade Tax Officer did not  observe that there were three separate schemes of expansion.  The High Court also relied on a circular dated 26th September,  1996 in support of its finding. Whether it could have done so is  a question of law and will be addressed after the factual  reasons are assessed.

       The High Court was right in saying that the question is  essentially one of fact but it has lost right of the basic principle

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that the onus to prove a fact is on the person asserting it. Since  it was the respondent’s case that there was a single scheme of  expansion which was implemented in three phases the onus  was on the respondent which it has not discharged. A scheme  of expansion would necessarily warrant estimates, plans,  drawings and all the other steps which go into the process of  formulating a scheme. There is not a single piece of evidence  to this effect. Merely because the DLC uses the phrase "phase"  would not do. Apart from the fact that there is a dispute as to  the correct translation of the relevant Hindi word which has  been translated as ’phase’, the appellants have consistently  though unsuccessfully reiterated their stand of there being three  expansions. A mere plea before the DLC by the respondent  cannot cure this very crucial lacuna in the respondent’s case.

       As far as the Trade Tax Officer’s Report is concerned, the  terms or the scope of the enquiry have not been shown to us.  Was he called upon to determine whether there was one  expansion or three ? The report is prepared in a set proforma. It  gives a picture of the various investments made and when they  were made. That is all. It does not in any way support the  respondent’s submission on this issue.         Although not strictly speaking necessary, we may now  consider on the other hand the admitted facts each of which go  to show that there were in fact three separate expansions. For  each of the three expansions, separate industrial licences were  applied for and obtained from the Central Government.  Separate negotiations for finances were entered into between  the respondent and the financial institutions. The  correspondence exchanged shows that the expansions were  separate. For example,  a letter dated 17th July, 1989 written by  the IFCI to the respondent in connection with the first expansion  refers to "your (the respondents) expansion scheme envisaging  increase in the installed capacity for the manufacture  of  ceramic wall and floor tiles from 12000 TPA to 26000 TPA at  Sikanderabad". Finally as noticed earlier, the respondent had  itself made three separate applications, one for each  expansion. In the covering letter it was said that the respondent  had undertaken three successive expansions". These facts  were not adverted to either by the High Court or the Tribunal  and their conclusion that there was only one expansion was  perverse.         This brings us to the law. Sub-Section (2) of Section 4A  provides for the conditions which may be imposed in the  notification    in order to obtain an exemption or reduction in the  rate of tax. Two of such conditions  are :

"(c)    in respect of those goods only which are  manufactured in a unit which has  undertaken expansion, diversification or  modernization on or after April 1, 1990,  and which, in case of diversification, are  different from the goods manufactured  before such diversification, and in the  case of expansion of modernization are  additional production as a result of such  expansion or modernization; and  

(d)     only if the manufacturer furnishes to the  assessing authority an Eligibility  Certificate granted by such Officer, in  accordance with such procedure, as  may be specified."         

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Paragraph 1 (B) 1 of the 1991 Notification accordingly  specified inter alia that the benefit of tax exemption or reduction  would be available on the turnover of sales of the goods  manufactured in certain industries which had undertaken  expansion, diversification or modernization between 1st April,  1990 and 31st March, 1995.

       Reading the quoted provisions of Section 4A with  paragraph 1 (B) (1) (a) of the Notification it is clear that the  benefit under the notification must be limited to those goods  which are additionally produced as a result of expansion or  modernization. In other words the benefit was relatable to the  expansion. We then come to Explanation (5) to Section 4A of  the Act. It has been quoted verbatim earlier on. To recapitulate  briefly : Explanation 5 defines a "unit which has undertaken  expansion, diversification or modernization". It contains four  clauses which provide the conditions of the definition. Clause  (a) requires that the dealer should not be a defaulter. Clause (b)  defines "first date of production of goods". Clause ( c ) refers to  the minimum extension of capacity, namely 25% as a result of  expansion. Clause (d) requires a minimum additional fixed  capital investment of 25% .          Explanation 6 defines the expression "base production".    (the original definition has been replaced in 1998 with  retrospective effect from 1.4.90 ) as:-

"(a)  eighty percent of the installed annual  production capacity; or   (d)     maximum production achieved during  any one of the preceding five consecutive  assessment years or if the unit were in  production for less than five years, the  maximum production achieved during any one  of the preceding assessment years, whichever  is higher"

                    These definitions are reflected in the 1991 Notification.  Base production of unit undertaking expansion or  modernization has been provided for under paragraph 5  according to which it shall be deemed to be : "a)     maximum production achieved during any one  of the preceding five consecutive assessment  year, or

b)      80 per cent of the installed annual production  capacity, whichever is higher".

       Determination of base production has been provided also  in paragraph 6 as follows :- a)      Turnover of sale of goods in any assessment  year to the extent of the quantity covered by  base production of that year and the stock of  base production of previous years shall be  deemed to be the turnover of base production.

b)      Only the turnover of goods in any assessment  year in excess of the quantity referred to in  clause (a) shall be entitled to the facility of  exemption from or reduction in the rate of tax.

       Base production therefore refers to the pre additional  investment stage or the maximum production in the already  installed pre-expanded unit. The excess production as a result

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of the expansion is entitled to the benefit of exemption or  reduction of tax.

       The commencement of the facility according to Section  4A (1) would be the date declared in the 1991 Notification.  Paragraph 1 (B) (2) (ii) says that the period of facility shall be  reckoned from the first date of production of goods  manufactured in excess of the base production. So with the commencement of an additional investment  which must overtake the original investment by at least 25% the  expansion commences. Ofcourse the ultimate expansion must   result in an increased capacity of at least 25%. Then the first  excess production over the base production brought about by  such increased capacity and ultimately by the additional  investment would be the ’first date of production’ and the  expansion would be completed and the period of facility would  commence.

Section 4A (5) (a) provides that a manufacturer shall be  entitled to the facility of exemption from, or reduction in, the rate  of tax notified under subsection (1) \026  

"(a) If he applies for such facility within six  months from the relevant date of  commencement of the period of facility  referred to in that Sub-Section or by 30th  September, 1992, whichever expires later, for  the entire period notified under that Sub- Section".  

       Now a dealer may, for whatever reason apply for the facility of  exemption later. This would not mean that the facility starts from the  date of application but that the dealer is entitled to the facility from the  date of the application till the period of the operation of Notification is  over. This is clear from clause (b) of sub-section (5) of Section 4A  which provides :

(b) If  he applies for such facility later than the  date specified in Clause (a) only for part of the  period notified under Sub-Section (1) which  shall be computed from the date of application  till the end of the period of the facility".  

       Admittedly the respondent produced goods in excess of  what was its base production as a result of the establishment of  its original unit in 1991 when the first expansion was completed.  With the production of the first tile after the first expansion the  period of facility under the 1991 Notification commenced and  the expansion was complete.

       The years of the first expansion would then be taken into  account for determining the base production for the second  expansion, and the moment this was exceeded  as a result of  the second expansion the expansion was complete. The same  process would apply to the third expansion. Therefore each  time the respondent made an additional investment, increased  its capacity to produce and in fact produced goods there was  an expansion.         The respondent cannot in terms of this statutory scheme  claim in one breath that a single expansion commenced from  1988 and was completed in 1994 and at the same time say that  the base production was the figure of production in 1992-93 viz.  40038 MT. The base production as we have seen must  statutorily precede the expansion and cannot be a figure taken

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while the expansion has already progressed. The figure of  40038 MT was accepted by the DLC as the base production as  it had rejected the respondent’s claim relating to the first two  expansions and limited it to the third expansion. The appellants  have similarly accepted this figure of 40038 MTs. But this is in  keeping with their contention that there were in fact three  expansions and that the figure of 40038 MTs is the base  production for the third and last expansion.          The respondent has however relied on the second  proviso to Explanation 6 of the Notification as well as  Notifications dated 19th July, 1996 and 21st February, 1997 in  support of its contention that there was one expansion. To  quote the language of the second proviso to Explanation 6 as it  originally stood:

"Provided further that where investment made  during certain period is clubbed together for  the purpose of determining the fixed capital  investment, the production immediately prior  to the date on which such investment was first  started to be made in respect of expansion or  modernization shall be taken into account for  determining the base production."

       The clubbing under the second proviso does not relate to  the date of production and the commencement of the facility but  to the base production.

       The two notifications referred to declare that new units or  old units making an additional fixed capital investment of fifty  crore rupees or more would be entitled to exemption from tax  for a period of three years on or after specified dates. According  to the respondent the notifications permit fixed capital  investment even after the commencement of facility and was an  instance of the clubbing permitted under the second proviso.   Neither of the notifications refer to the second proviso nor were  they in operation during the relevant period.         The circular dated 26th September, 1996 was relied on by  the High Court presumably to overcome the effect of Section  4A (5) (a) & (b) quoted earlier. Although the circular itself does  not  attempt to explain or clarify these provisions. It purports to  construe the provisions relating to base production and reads :

"Reference was made to the government in  respect of grant of exemption on the goods  produced by new industrial units as defined  u/s. 4A(2) of Uttar Pradesh Trade Tax Act,  having undertaken diversification or  modernization as to whether a unit which has  undertaken diversification/ modernization after  establishment but before completion of 5  years, would be entitled to benefit of  diversification/ modernization or not ? If such  unit is granted benefit under the said policy  than how the calculation of base production in  accordance with sub section (5) of Section 4A  shall be made ?

In the matter under reference, the government  vide its letter No. TT-1167/Eleven-9(101)/96  dtd. 4/6/1996 have informed that according to  the present provisions base production shall  be deemed to be maximum production  achieved during any one of the preceding five

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consecutive assessment years or 80 percent  of the installed annual production capacity,  which ever is higher. If any unit undertakes  diversification, modernization before five  years from its establishment than the  aforesaid provisions shall be applicable even  thereafter meaning thereby that it shall not be  entitled to exemption unless there is  production in the preceding five consecutive  assessment years."

       The High Court therefore concluded that the respondent  could only make one composite application after five years. It  should no have done so.              For one, the circular was issued  subsequent to the  relevant period and after the respondent had filed its revised  application for exemption under Section 4A.  For another, the  construction put by the circular on the definition of base  production is questionable and has in any event  no statutory  force. In  any event the definition of base production in  Explanation 6 which was amended in 1998 with effect from 1st  April, 1990 (quoted earlier) clearly says that if the unit has   been in production for less than five years, the maximum  production achieved during any one of the preceding  assessment years would be taken as the base production. The  appellants are therefore right in contending that three separate  applications were maintainable at all material times despite the  fact that when such expansions were done the unit was in  production for less than five years.         We accordingly hold that there were in fact and in law  three expansions and decide the issue in favour of the  appellants. ISSUE NO. 3         The respondent had claimed preoperative expenses as  part of the fixed capital investment which included interest to  financial institutions, rights shares  issue expenses, foreign  technician expenses and  foreign travel expenses. The Tribunal  allowed the claim relying on Challapalli Sugars Ltd. \026vs- CIT  (1975) 98 ITR 167, Commissioner of Income Tax \026vs- Motor  Industries Co. Ltd., (1988) 173 ITR 374 and CIT v. Polychem  Ltd. : 1975 98 ITR 574 on the ground that the expenses were  necessary to undertake the expansion scheme. The view was  affirmed by the High Court, in our opinion, wrongly.         We have already noted in connection with Issue I that  Explanation 4 to section 4A has defined fixed capital investment  saying that it "means "investment in land and building and such  plant, machinery, equipment apparatus, components, moulds,  dyes, jigs and fixtures as have not been used or acquired for  use in any other factory or workshop in India".

       The language of the definition of the phrase in  Explanation 4 to Section 4A is sufficiently clear and  unambiguous. This coupled with the use of the word "means" in  the Explanation  shows that the definition is exhaustive. As has  been observed in Feroze N. Dotiwala v. P. M. Wadhwani  (2003) 1 SCC 433, 442 : "Generally, when the definition of a word  begins with "means" it is indicative of the fact  that the meaning of the word has been  restricted; that is to say, it would not mean  anything else but what has been indicated in  the definition itself\005\005\005\005\005\005\005\005\005\005

Therefore, unless there is any vagueness of  ambiguity, no occasion will arise to interpret

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the term in a manner which may add  something to the meaning of the word which  ordinarily does not so mean by the definition  itself, more particularly, where it is a restrictive  definition."

       According to the Constitution Bench in PLD Corporation  Ltd., v. Presiding Officer [1990] 3 SCR 111, 150 when the  statute says that a word or phrase shall mean certain things it is  a "hard and fast definition, and no other meaning can be  assigned to the expression than is put down. A definition is an  explicit statement of the full connotation of a term".  Therefore apart from the actual investment in or cost of  the specific items of land, building, plant, machinery, equipment  apparatus, components moulds dyes, jigs and fixtures, no other  item of expense is includible under the head of fixed capital  investment for the purposes of section 4A of the Act.  

       This principle of statutory interpretation is reinforced not  only by the particulars itemized in form XLVI of the Rules but  also by the procedures for determination of fixed capital  investment specified in paragraphs 3 and 4 of the 1991   notification, all of which  underscore the definition’s restrictive  nature. There is and indeed could be no reference either in the  form or in the 1991 notification to any item outside the definition  in Explanation 4 to Section 4A.           Besides the underlying object of the scheme of  exemption under Section 4A of the Act, is to grant benefit by  way of a quid pro quo for the actual value of assets brought into  the State. The determination of such value would necessarily  have to be an objective exercise. For the purposes of the  Income Tax Act on the other hand, a tax on income may allow  the valuation of an asset taking into consideration  circumstances which may be entirely personal to the assessee  under which the asset is purchased subject to certain  permissible limits. The perspective of the two statutes is  therefore different and everything that may go into the cost of  an asset for the purpose of the Income Tax Act may not be  relevant for an objective determination of its value under the  U.P. Act. It is also noteworthy that the definition of ’fixed capital  investment’ in Explanation 4 talks of investment in land,  building, plant, machinery etc. and not investment in relation to  or in connection with them.     The Tribunal and the High Court  failed to construe these statutory provisions and relied upon  judgments delivered in connection with the Income Tax Act, the  provisions and purpose of which could hardly be said to be in  pari materia with the provisions of the UP Act and the 1991  Notification.  The four items of expenditure which the High Court  accepted viz. Interest paid on loans by financial institutions,   expenses in connection with a rights issue of shares, expenses  on foreign technicians or foreign travel do not reflect the value  of the items forming part of the fixed capital investment for the  purposes of this Act or 1991 Notification and  cannot by any  principle of statutory interpretation be brought within the  definition of the phrase  in Explanation 4 to Section 4A. The  issue is thus decided against the respondent and in favour of  the appellants.

ISSUE  - 4         The respondent’s objection to the recovery of the tax is  that the appellants by Circulars dated 31st October, 2000 and  14th November, 2000 had accepted the judgment of the High  Court even prior to the refusal to stay the impugned judgment

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by this Court. It is submitted that circulars issued by the  Department are binding upon them and that this was laid down  in Collector of Central Excise, Vadodra v. Dhiren Chemical  Industries (2002) 2 SCC 127 and Commissioner of Sales  Tax, UP \026vs- Indra Industries (2000) 9 SCC 66.

       The objection is misconceived. Circulars may be of  varying kinds. The circulars relied on were merely official  communications to the subordinate officers directing  compliance with the decision of the High Court. They were not  clarifications of statutory provisions in which event, as was held  in CST v. Indra (supra), they would represent the official  understanding of those statutory provisions and would be  binding on the taxing authority. Nor was there any statutory  provision in the UP Act corresponding to Section 37B of the  Central Excise Act, 1944 by the Central Board of Excise and  Customs which make circulars issued there under binding on  the authorities as was held in CCE vs Dhiren Chemicals   (supra) . The appellants’ appeals before this Court were filed  before any action was taken on the High Court’s decision. We  granted leave to appeal on 11th August, 2000 and issued notice  on the interim relief claimed by the appellants. Stay was finally  refused on contest on 4th January, 2001. In the absence of any  order of stay by this Court, the appellants were bound to  comply with the impugned decision. Such compliance by itself  cannot destroy the appellants rights to press their appeals  before this Court.          The preliminary objection is accordingly rejected.

       The respondent then submitted that it has not availed of  even 50% of the total benefit under the notification in terms of  the impugned judgment and it has not and could not in law  have realised any tax during the period of the facility which  expired on 31st March, 2003. Reference has been made to  Section 8A (2) read with Section 15A (1) (qq) to contend that  the prohibition on the collection of tax from consumers by a  dealer which is itself not liable to pay tax is backed by severe  penalties. It is said that the recovery of the tax would lead to the  ultimate closure of the Respondent’s unit which would be  contrary to the very concept, object and intention of the  exemption provision and policy of the state.

       The appellants on the other hand have relied on the State  of Rajasthan v. J. K. Udaipur Udyog Limited (2004) 7 SCC  673 to contend that even if the respondent had not passed on  its liability to and collected tax from its consumers,  it was  bound to pay the tax which it  could and should have paid on  the tiles sold by it during the period of facility. The factual basis  of the respondent’s claim that it had not collected tax from its  customers is also disputed. It is said that the respondent had  the option of collecting the tax and applying for refund under  Section 29A of the Act in terms of paragraph II of the Industrial  Policy.

       A similar contention was considered by us in State of  Rajasthan v. J. K. Udaipur Udyog Ltd., ( supra) where after  considering the authorities on the issue we held : "The mere circumstance that the respondent  Companies having availed of the Exemption  Scheme were prohibited from collecting the  tax from their customers or that they had not  collected the sales tax from their customers  (which assertion is strongly disputed by the  appellants), is of no consequence. The  primary liability to pay the sales tax is on the

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seller. The seller may or may not be entitled to  recover the same from the purchaser. The  State Government is entitled to recover the  same from the respondent Companies  irrespective of the fact that the respondent  Companies may have lost the chance of  passing on their liability to pay sales tax to  their purchasers".

       We see no reason to differ from this view. Indeed the Act  itself envisages a situation where a dealer may be called upon  to pay the tax which it may not have collected from its  customers. We have seen earlier that sub section (2) of section  4A of the Act provides for the conditions which may be imposed  in an exemption notification. Apart from the conditions already  noted by us, paragraph 2 of the 1991 notification stated that the  facility of exemption from or reduction in the rate of tax shall be  subject to the condition : "(iv)   that the said unit furnishes to the assessing  authority concerned an eligibility certificate  granted in this behalf by the General  Manager, District Industries centre, Area  Development Officer (Industry) of the  concerned Industrial Development Authority,  Additional or Joint Director of Industries of the  range or Additional or Joint Director Industries  of the concerned Industrial Development  Authority, as the case may be".

       In our narration of facts in an earlier part of this judgment we  have seen how the respondent had, with the completion of each of  the expansions, applied for and obtained an amendment of the  eligibility certificate granted to it on 5th May, 1990 in respect of the  original unit.          Sub section (3) of Section 4A however allows the  Commissioner by order to cancel or amend the eligibility certificate  before or after the expiration of the period of exemption under certain  circumstances. In such event the dealer is liable to pay the tax which  ought to have been paid under sub section (4) which provides:

"(4)    For the removal of doubts, it is hereby  declared that where an Eligibility Certificate has  been cancelled or amended under sub-section (3),  the dealer shall be liable to pay tax on his turnover  of the period during which the facility of exemption  or reduction under this Section is not admissible to  him."

       Therefore even if the dealer under the fear of punishment  under section 15A (qq) (viii) does not realise amount by way of  tax on the sale of its goods in compliance with the provisions of  section 8A (2) during the period it is exempt from paying tax, it  would still have to pay the tax under sub section (4) of section  4A if it is found that it was not entitled to such exemption. The  overriding nature of this consequence follows not only from the  use of the imperative word "shall" in sub section (4) but also  from the non obstante clause with which section 4A opens.  Given the clear language, it is not necessary for us to express  any view on section 29A of the Act or the industrial policy  underlying section 4A or the 1991 Notification.

       The High Court has found that the respondent had taken  the benefit of the increased capacity of the unit which came  about by reason of the first two expansions in the sense that

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the exemption on entire sales turnover relatable to such  increased capacity had been enjoyed by the respondent under  the 1985 Notification. The DLC had also granted tax benefit to  the respondent only in respect of the third expansion excluding  the preoperative expenses. Albeit for other reasons, in our  opinion, having regard to our decision on the various issues  against the respondent, this is the highest relief that the  respondent could claim and which the appellants concede  would be the most equitable.  

       The appeals are accordingly allowed. The decisions of  High Court and Tribunal are set aside and the decision of the  Divisional Level Committee is affirmed. There will be no order  as to costs.