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PETITIONER: HINDUSTAN PAPER CORPN.  LTD.  ETC.  ETC.

       Vs.

RESPONDENT: STATE OF KERALA AND OTHERS

DATE OF JUDGMENT26/03/1993

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) VENKATACHALA N. (J)

CITATION:  1993 SCR  (2) 655        1993 SCC  Supl.  (3) 350  JT 1993 (2)   458        1993 SCALE  (2)238

ACT: Central Sales Tax Act 1956.  Section 8(2A). Kerala General Sales Tax Act 1963: Section 10 & Notification RSO 415 of 1971. Central  Sales  Tax-Exemption-Whether  available  for  inter state   sales   also-Exemption   contained   in   the   1971 Notification-"Whether an exemption from tax ’generally’.

HEADNOTE: The  State  of Kerala issued Notification RSO  415  of  1971 under  Section  10  of  the Kerala  General  Sales  Tax  Act providing  for an exemption in respect of tax in  regard  to the turn over of the sales of newsprint for a period of  two years from the date of starting production of the  newsprint plant.   The  appellant entered into an agreement  with  the State Government in 1974 giving the said exemption. A major portion of the newsprint manufactured at the factory located  within the State was sold in the course  of  inter- state  trade and commerce, and during the  assessment  years relevant to the period of the two years from the date of the commencement  of  the  production,  the  appellant   claimed exemption  not only from the State Sales Tax, by  virtue  of the  1971 Notification and the 1974 agreement but also  from the  Central  Sales Tax under and by virtue  of  sub-section (2A) of Section 8 of the Central Sales Tax Act. The  Sales  Tax Officer accepted the claim under  the  State Sales Tax Act but rejected the claim under the Central Sales Tax Act. Appeals   preferred  by  the  appellant  to  the   Appellant Assistant Commissioner and the Sales Tax Appellant  Tribunal were  dismissed, and when the appellant approached the  High Court by way of revision under Section 41 of the State Sales Tax  Act  the  High  Court  also  dismissed  the   revisions petitions. 656 In  the appeals to this Court it was contended on behalf  of the appellant relying on Pine Chemicals Limited v. Assessing Authority, [199] 2 S.C.C. 683 that the exemption granted  to It  by the 1971 State Government notification  Issued  under the  Kerala Sales Tax Act Is a general exemption within  the meaning  of Section 8(2A) and, therefore, the  inter-  state sales  effected by it are equally exempt from Central  Sales

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Tax by virtue of Section 8(2A). The  State  contested  the appeals by  contending  that  the exemption granted to the appellant under the State Sales Tax is  not a general exemption but a conditional one, and  that the   exemption   operates   only   in   certain   specified circumstances,  and that the provision contained in  Section 8(2A)  does  not go to exempt the inter-state sales  of  the appellant. On the question whether the exemption granted under the 1971 State  notification exempting the produce of  the  appellant factory manufacturing newsprint from the State Sales Tax for a  period  of  two years from the date  of  commencement  of production  in the factory can be called An  exemption  from tax ’generally’. Allowing the appeals, this Court, HELD:1. The inter-state sales effected by the appellant are  those failing under Section 3(a) of the  Central  Sales Tax  Act.The  liability to pay Central Sales Tax  on  inter- state  sales arises by virtue of sub-section (1) of  Section 6. Sub-section (2A) of section 8 seeks to provide  exemption to  a dealer with respect to his turnover.  The  explanation appended to the sub-section is couched in negative terms and seeks  to define the words ’exempt from tax generally",  and indicates when a sale or purchase of any goods shall not  be deemed to be exempt from tax generally under the State Sales Tax Law. [659 B, 660 B-C] 2.An  inter-state sale or purchase of a  commodity  shall not  be  deemed as exempt from State Tax  generally  if  the exemption  is given only (1) in specified  circumstances  or under specified conditions or (2) the tax is leviable on the sale  or purchase of such goods at specified stages  or  (3) otherwise than with reference to the turnover of the  goods. These  conditions or limitations are with reference  to  the transaction of sale or purchase. [663 F-G] 657 3.The  existence  or  otherwise of  the  aforesaid  three limitations  on  claiming exemption  the  explanation  under Section S(2-A) of the Central Sales Tax Act will have to  be tested with reference to the transaction of sale or purchase as the case may be of the dealer who claims the exemption in respect  of  his  intrastate sale or purchase  of  the  same goods. [663 H, 664 A] 4.The  facts  which the dealer has to prove  to  get  the benefit  of  the  government orders  are  intended  only  to identify  the dealer and the goods in respect-of  which  the exemption   is  sought  and  they  are  not  conditions   or specifications  of  circumstances relating to  the  turnover sought to be exempted from payment of tax within the meaning of Section 8(2-A). [664 E] 5.The  conditions relating to identity of the  goods  and the  dealer  are always there in every  exemption  and  that cannot be put as a condition of sale. [664 G] Pine  Chemicals  Limited v. Assessing  Authority,  [1992]  2 S.C.C. 683, explained and followed. [660 H] Indian  Aluminum Cables v. State of Haryana, 38 S.T.C.  108, Industrial  Cables Corporation v. Commercial Tax Officer  35 S.T.C. 1, distinguished. [662 A]

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 507375/1985 From  the  Judgment and Order dated 9.9.1985 of  the  Kerala High Court in T.R.C. Nos. 29, 30 and 31 of 1985. A.S.  Nambiar, Mrs. Shanta Vasudevan, P.K. Manohar and  C.N.

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Sreekumar for the Appellants. The Judgment of the Court was delivered by. B.P. JEEVAN REDDY, J. Civil Appeal Nos. 5073-75185. These  appeals  arise from a common judgment of  the  Kerala High  Court  in a batch of three tax  revision  cases.   The question  relates to the interpretation of Section 8(2A)  of the Central Sales Tax Act, 1956. 658 In exercise of the power conferred upon it by Section 10  of the  Kerala  Sales  Tax Act, the State of  Kerala  issued  a notification  RS0415 of 1971 providing for "an exemption  in respect  of the tax payable under the said Act in regard  to the  turn-over  of the sales of newsprint by  the  newsprint plant in the State for the period of two years from the date of starting production of the newsprint by the said plant.’ The  appellant Hindustan Paper Corporation  Limited  entered into an agreement with the Government of Kerala in the year, 1974  reiterating the said exemption.  The relevant  portion of the agreement reads thus:               "The Government of Kerala, with a view to help               the  project to tide over the difficulties  in               the  initial stages and to  establish  itself,               agree  to exempt the turnover relating to  the               sale, of the products by the corporation  from               the  payment of sales tax for a period of  two               years from the date of starting of  production               of the newsprint." A major portion of the newsprint manufactured at the factory located  within Kerala is sold in the course of  inter-state trade and commerce.  During the assessment years relevant to the period of the two years from the date of commencement of production  at  the Kerala Factory,  the  appellant  claimed exemption not only from the State sales tax by virtue of the aforesaid  notification and agreement but also from  Central Sales Tax under and by virtue of sub-section (2A) of Section 8  of  the  Central Sales Tax Act.  The  Sales  Tax  Officer accepted  the  claim  under  the State  Sales  Tax  Act  but rejected  the  claim under the Central Sales Tax  Act.   The appeals   preferred  by  the  appellant  to  the   Appellate Assistant Commissioner and the Sales Tax Appellate  Tribunal were dismissed whereupon it approached the High Court by way of  revisions under Section 41 of the State Sales  Tax  Act. The  High Court too disagreed with the contentions urged  by the appellant and dismissed the tax revision cases.   Hence, these appeals. The  dispute  between the parties, in brief,  is  thus:  the appellant says that exemption granted to it by the aforesaid notification issued under the Kerala Sales Tax  is a general exemption   within  the  meaning  of  Section   8(2A)   and, therefore, the inter- state sales effected by it are equally exempt  from Central Sales Tax by virtue of  Section  8(2A). On the other hand, the 659 case  of  the  Government of Kerala is  that  the  exemption granted  to the appellant under the State Sales Tax  Act  is not  a general exemption but a conditional one; further  the exemption operates only in certain specified  circumstances. Accordingly,  they say, the provision contained  in  Section 8(2A)  does  not go to exempt the inter-state sales  of  the appellant. The  inter-state sales effected by the appellant  are  those failing  under  Section 3(A) of the Central Sales  Tax  Act. The liability to pay Central Sales Tax on inter-state  sales arises  by  virtue  of sub-section (1) of  Section  6.  Sub- section (1A) of Sec. 6 says that a dealer shall be liable to

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pay  tax under the Central Act on sale of goods effected  by him   in  the  course  of  inter-state  trade  or   commerce notwithstanding  that no tax would have been leviable  under the Sales Tax law of the appropriate State if such sale  had taken place inside the State.  Sub-section (1) of Section  8 prescribes  the  rate  at which the  Central  Sales  Tax  is chargeable   where  the  goods  are  sold  to  persons   and authorities   mentioned   therein  while   sub-section   (2) prescribes the rate in cases other than those falling  under sub-section  (1).  Sub-section (2A) of Section 8,  which  is material for our purpose reads thus:               "(2A)  Notwithstanding anything  contained  in               sub-section  (lA) 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 nill or, as the case may  be,               shall be calculated at the lower rate.               Explanation:-  For  the purpose 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  special               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."               660. What  does  sub-section  (2A) says?  It opens  with  a  non- obstante clause which gives it an overriding effect over the provisions  contained in Sections (lA) and over  sub-section (1) as well as clause (b) of sub-section (2) of section 8. b section  seeks to provide exemption to a dealer with  expect to  his  turnover  in so far as his  turnover  or  any  part thereof  relates (a) 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 (b)  where his turnover or any part thereof relates  to  the sale  of any goods the sale or purchase of which is  subject to  tax  generally at a rate which is lower  than  four  per cent.   In a case covered by (a) the Central Sales Tax  will be nil while in a case falling under (b), Central Sales  Tax shall  he  chargeable at the same lower rate  at  which  the State sales tax is charge-able.  The explanation appended to sub-section  seeks  to  define the words  "exempt  from  tax generally."  The explanation is couched in  negative  terms. It  says  that for the purposes of the said  sub-section,  a sale  or  purchase of any goods shall not be  deemed  to  be exempt  from tax generally under the State Sales Tax law  if (i)  under the State law the sale or purchase of such  goods is  exempt only in specified circumstances or (ii) if  under the’ State law the sale or purchase of such goods is  exempt only under specified conditions or (iii) if under the  State law the tax is levied on the sale or purchase of such  goods at  specified stages or (iv) where under the State  law  the tax is levied otherwise than with reference to the  turnover

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of the goods. The  sole  question in this case is  whether  the  exemption granted  under  the  aforesaid  notification  exempting  the produce of a factory manufacturing newsprint from the  State sales  tax  for  a  period of two years  from  the  date  of commencement  of production in the factory can be called  an exemption  from tax generally.  To put it  differently,  the question is whether the said exemption is one operative only in  specified circumstances or whether the exemption is  one which is operative only under specified conditions in  which case it cannot be said to be an exemption "generally. The  learned  counsel  for the  appellant  relies  upon  the decision  of  this  Court  in  Pine  Chemicals  Limited   v. Assessing  Authority,  [1992]  2  S.C.C.  683,  a   decision rendered by S. Ranganathan, V. Ramaswami and N.D. Ojha,  )J. According  to  him, the said decision is conclusive  on  the question. 661 The  counsel  for the State of Kerala, on  the  other  hand, seeks  to distinguish the said decision.  According to  him, the said decision does not consider the precise question and aspect which really, arises in these .appeals.  The  learned counsel  for  the State of Kerala, Sri G.  Vishwanath  lyer, puts  his case thus: if one is asked whether  the  exemption granted  under  the  aforesaid  notification  is  a  general exemption,  his obvious answer would be, no.  It is  not  an exemption which operates generally but an exemption  limited to two years from the date of commencement of the production of  newsprint  in the factory.  Similarly, if  a  person  is asked  whether newsprint is exempt generally from the  State sales  tax in Kerala, none would answer in the  affirmative. He would say that the sale of newsprint in Kerala is  exempt only in certain circumstances or subject only to a condition viz.,  that  newsprint is produced within two years  of  the commencement  of  the production in the factory  located  in Kerala.   It is, therefore, idle to contend, says Sri  lyer, that the sale of newsprint within Kerala is exempt generally from the State sales tax.  In such a case, says the counsel, the  provision contained in sub-section (2A) does  not  come into  operation and the inter-state sales of such  newsprint cannot be said to be exempt from the Central Sales Tax.  Mr. lyer further says that the exemption notification issued  by the  Government of Kerala under Section 10 of the State  Act does  not  exempt  newsprint from the State  sales  tax  al- together.  It grants exemption only in a specified situation viz., in respect of the newsprint produced within the period of two years from the date of commencement of production  by a  factory manufacturing newsprint in the State  of  Kerala. The  exemption would thus operate for different  periods  in the  case  of different assessees inasmuch as  the  date  of commencement  of  production  by all  the  manufacturers  of newsprint may not be the same.  Moreover, the benefit of the said  notification  is available only where a  factory  goes into production after the commencement of the said notifica- tion,  says  Sri lyer, He elaborates his  submission  saying that the exemption granted by the said notification is  only in  favour  of  certain dealers or a class  of  dealers,  in certain circumstances and is not in the nature of a  general exemption.  An exemption given under Section 10 of the State Act  with reference to dealers or a class of  dealers  i.e., referable  to  clause  (ii) of  sub-section  (1),  says  the counsel, can never be called a general exemption nor can  it be  characterised as an exemption operating ’generally’.   A general exemption, according to the learned counsel, means a general, unqualified/unconditional exemption.  Counsel  says

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that the decisions of 662 this Court in Indian Aluminum Cables v. State of Haryana  38 S.T.C.   108  and  in  Industrial  Cables   Corporation   V. Commercial  Tax Officer 35 S.T.C. 1 support his  contention. The  learned counsel places strong reliance upon the  object and reasons appended to the bill proposing the  substitution of  sub-section  (2A)  in the year 1972.   The  objects  and reasons relied upon by the learned counsel read thus:               "Clause 5 Sub-Clause (a) of this clause  seeks               to  substitute  a  new  sub-section  for   the               existing sub-section (2A) of Section 8 of  the               Principal  Act.  The new sub-section seeks  to               bring  out more clearly that an  exemption  or               lower  rate of levy under the local sales  tax               law   of  the  appropriate  State   would   be               available in respect of an inter-state sale of               goods only if such exemption or lower levy  is               available  generally with reference.  to  such               goods  or such class of goods under the  local               sales tax law." According  to  Sri Iyer the said statement  of  objects  and reasons  puts  the meaning, purpose and object of  the  sub- section beyond any doubt. On the other hand, Sri A.S. Nambiar, learned counsel for the appellant-corporation  submits,  adopting the  reasoning  in Pine   Chemicals  that  the  circumstances   or   conditions contemplated  by the explanation to sub-section must be  the circumstances  and conditions attaching to the sale and  not to the dealer.  The exemption notification merely serves  to identify the dealer and the goods entitled to exemption  but it  does  not  lay  down  any  circumstances  or  conditions attaching  to  the sale of goods (Newsprint).   Sri  Nambiar says  that once the goods are identified viz., that it is  a newsprint manufactured by a factory within two years of  its commencing   production,  there  is  no  further   condition attaching to the exemption; the goods are exempt  generally. It is not a case where the exemption is hedged in by certain conditions  nor  is it a case where the  exemption  operates only in certain circumstances.  The learned counsel  submits that  the  decisions of this court in  Indian  Aluminum  and Industrial Cables have been considered and explained by this Court  in  Pine Chemicals and, therefore, the  principle  of those  decisions  cannot be read as supporting  the  State’s submissions. While  we  see  the force in the submissions  of  Sri  Iyer, learned  counsel  for the State of Kerala,  we  cannot  give effect to the same in the light of 663 the  binding decision in Pine Chemicals which deals with  an almost  similar exemption notification.  The  Government  of Jammu  & Kashmir had issued orders providing  for  exemption "from the State sales tax both on raw-materials and finished products  for a period of five years from the date the  unit goes into production." Question had arisen whether the  said exemption attracts the exemption contained in Section  8(2A) of  the Central Act?  The said question was answered in  the affirmative  by  V., Ramaswami, J. speaking for  the  Bench. The learned Judge examined the scheme of sub-section (1) and (lA)  of Section 6 as well as of sub-sections (1),  (2)  and (2A) of Section 8 and then observed:               "On  a plain reading of Section 8(2-A) of  the               Central  Sales  tax  Act  it  deals  with  the               liability of a dealer to pay tax under the Act

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             on  his interstate sales turnover relating  to               any  goods  on the turnover relating  to  such               goods  if the sale had taken place inside  the               State  is  exempt from payment  of  sales  tax               under  the  sales tax law of  the  appropriate               State.  It provides that if an intrastate sale               or  purchase of a commodity by the  dealer  is               exempt  from tax generally or subject  to  tax               generally at a rate which is lower than 4  per               cent  than  his  liability to  tax  under  the               Central  Sales Tax Act when such commodity  is               sold on inter-state trade would be either  nil               or as the case may be shall be calculated at a               lower rate.  Explanation states as to when the               sale or purchase shall not be deemed as to  be               exempt from tax generally under the sales  tax               law.   That  is to say an intrastate  sale  or               purchase  shall not be deemed as to be  exempt               from  tax generally under the sales  tax  law.               That is to say an intrastate sale or  purchase               of  a commodity shall not be deemed as  exempt               from  State tax generally if the exemption  is               given  only (1) in specified circumstances  or               under  specified conditions or (2) the tax  is               leviable on the sale or purchase of such goods               at specified stages or (3) otherwise than with               reference to the turnover of the goods.  These               conditions  or limitations are therefore  with               reference  to  the  transaction  of  sale   or               purchase.   The  main clause  deals  with  the               turnover  of  ’a  dealer’  which  term   would               include ’any dealer’ or ’any class of dealers’               The  existence  or  otherwise  of  the   three               Limitations under the               664               explanation  above  referred  to  on  claiming               exemption under Section 8(2-A) of the  Central               Sales Tax Act will therefore have to be tested               with  reference to the transaction of sale  or               purchase as the case may be of the dealer  who               claims   the  exemption  in  respect  of   his               intrastate sale or purchase of the same goods.               Thus  the  specified  circumstances  and   the               specified   conditions  referred  to  in   the               explanation  should be with reference  to  the               local  turnover of the same dealer who  claims               exemption under Section 8(2-A) of the  Central               Sales Tax Act.               The  learned  Advocate-General for  the  State                             contended that the conditions that the industr y               should  have  been  set  up  and  commissioned               subsequent  to the Government Orders  159  and               414  above referred to and the commodity  sold               by  him in order to claim the exemption  under               the  said  government order,  shall  be  those               manufactured  by that industry are  conditions               or specified circumstances within the  meaning               of the explanation and, therefore, the  dealer               (Pine  Chemicals)  is  not  entitled  to   any               exemption under Section 8(2-A) of the  Central               Sales  Tax Act.  We are unable to  agree  with               this submission of the learned counsel for the               State.   The  facts which the  dealer  has  to               prove  to  get the benefit of  the  government

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             orders  are  intended  only  to  identify  the               dealer  and the goods in respect of which  the               exemption   is   sought  and  they   are   not               conditions or specifications of  circumstances               relating to the turnover sought to be exempted               from  payment  of tax within  the  meaning  of               those provision.  The specified  circumstances               and  the specified conditions referred  to  in               the   explanation   should   relate   to   the               transaction  of sale of the commodity and  not               identification of the dealer or the  commodity               in respect of the exemption is claimed.  These               conditions  relating to identity of the  goods               and  the  dealer  are always  there  in  every               exemption   and  that  cannot  be  put  as   a               condition of sale.  We have already held  that               not  only sale by the manufacturer  to  dealer               that is exempt under the government orders but               since  the General Sales Tax Act  had  adopted               only a single point levy, even the sub-               665               sequent   sales  would  be  covered   by   the               exemption  order.   Therefore,  the   question               whether  the  tax is leviable on the  sale  or               purchase  at ’specified stage" does not  arise               for  consideration.  This is not also  a  case               where  the  exemption  is  with  reference  to               something  other  than  the  turnover  of  the               goods."                                          (emphasis added) The  learned  Judge then dealt with the  decisions  of  this Court   in  Indian  Aluminum  and  Industrial   Cables   and distinguished them pointing out that the exemption concerned in  those cases was clearly a conditional one.  The  learned Judge  pointed out that the exemption concerned therein  was with   respect  to  "sales  of  an   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 generation  or  distribution of such  energy."  The  learned Judge  pointed out that the two conditions mentioned in  the said  notification  related  to  purchaser-company  being  a licensed  undertaking  supplying electrical  energy  to  the public and further that the goods sold to it are for use  by the  said undertaking in generation or distribution of  such energy. Following  the  decision  in Pine  Chemicals,  we  must  and accordingly  we  do allow these appeals.  No  orders  as  to costs. N.V.K. Appeals allowed. 666