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PETITIONER: INDIAN ALUMINIUM CABLES LTD.

       Vs.

RESPONDENT: STATE OF HARYANA

DATE OF JUDGMENT02/04/1976

BENCH: RAY, A.N. (CJ) BENCH: RAY, A.N. (CJ) BEG, M. HAMEEDULLAH SINGH, JASWANT

CITATION:  1976 AIR 1711            1976 SCR  (3) 992  1976 SCC  (4)  27  CITATOR INFO :  R          1977 SC 540  (2,5)  R          1987 SC   7  (1)

ACT:      Exemption from  tax  liability-General  Tax  exemption- Central  Sales  Tax  Act  (74  of  1956)-Section  8(2A)  and Explanation thereto-Meaning  of "exempt from tax generally". Punjab Sales Tax Act-Section 5(2)(a)(iv)-Nature of exemption granted under the Section-Whether in specified circumstances or under specified conditions.

HEADNOTE:      Under section  5(2)(a)(iv) of  the Punjab Sales Tax Act "taxable turnover"  meant that  part  of  a  dealer’s  gross turnover during  any period  which remains  after  deducting therefrom, his  turnover during  that period on sales to any undertaking supplying  electrical energy to the public under a licence  or sanction  granted under the Indian Electricity Act, 1910,  of goods  for use  by it  in the  generation  or distribution of such energy.      Under section 8 of the Central Sales Tax, every dealer. who in  the course of inter state trade or commerce sells to the Government  any goods:  or sells  to a registered dealer other than  the Government goods of the description referred to in  sub section  (3) shall be liable to pay tax under the Act, which  shall be three per cent of his turnover. Section 8(2A) reads as follows:-           "Notwithstanding anything contained in sub-section           (1A) of  section 6  or  sub  section  (1)  or  sub           section (2)  of this  section, the  tax  pay  able           under this  Act by  a dealer on his turnover in so           far as  the turn  over 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  three  per  cent.  (whether           called a  tax or  fee or by any other name), shall           be nil  or, as the case may be shall be calculated           at tho lower rate.           Explanation: For  the purpose  of this sub-section

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         or 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           the law  the sale  or purchase  of such  goods  is           exempt only  in specified  circumstances or  under           specified conditions  or the  tax is levied on the           sale or  purchase of  such goods is exempt only in           specified   circumstances   or   under   specified           conditions or  the tax  is levied  on the  sale or           purchase of  such goods  at  specified  stages  or           otherwise than  with reference  to the turnover of           the goods."      The appellants  were suppliers  of poles  and cables to the Delhi  Electric Supply Undertaking and the sales were in the course  of inter  state trade or commerce and admittedly exempt under  the state  sales tax  u/s 5(2)  (a) (iv).  The state assessed  tax u/s 8 of tho Central Sales Tax Act, 1956 on the  ground that the exemption granted u/s 5(2)(a)(iv) of the state  Act fell  under Explanation  to s.  8(2A) of  the Central Sales Tax Act. The High Court held that the sales by the undertaking  supplying electrical energy were not exempt from tax  generally within  the meaning  of section 8(1A) of the Central  Act read  with Section 5(2)(a)(iv) of the State Act.      Dismissing the appeal, by special leave, the Court. ^      HELD: (I)  General exemption means that goods should be totally exempt  from tax  before similar  exemption from the levy of  central sales  tax can  become available. Where the exemption from  taxation is  conferred by  conditions or  in certain  circumstances   there  is  no  exemption  from  tax generally. Section  6 of  the State  Act does  not speak  of exemption but  deals with  tax free  goods. Section  6 deals with specified goods on which no tax is payable. 993 Section 5  of the  State Act  deals  with  what  has  to  be excluded from  taxable turnover  of  the  dealer.  Both  the sections deal with goods which do not suffer from Sales tax. Section 8(2A)  of the  Central Act  exempts goods from inter State Sales  tax where  a tax  law of the state has exempted them from sales tax. The explanation to section 8(2A) of the Central Act takes away the exemption where it is not general and has  been granted  in specified  circumstances or  under specified conditions.  The provisions  contained in  section 5(2) (a)  (iv) of the state Act exclude sales which are made under specified  circumstances or  specified conditions. The specified circumstances  are that  the sale  must be  to  an undertaking engaged  in supplying  electrical energy  to the public under  a licence or sanction granted under the Indian Electricity Act  1910. The  specified condition  is that the goods purchased  by the  undertaking must  be used  for  the generation or  distribution of  electrical  energy.  If  the circumstances do  not exist  or if  the conditions  are  not performed then  the sales  of goods  cannot be exempted from tax. The  expression "generation  or  distribution  of  such energy" specifies  the condition  under which  exemption  is granted. [996H, G97A-D]      Commissioner of  Sales Tax, M.P. v. Kapoor Dari Niwar & Co., Gwalior 22 STC p. 152; Hindustan Safety Glass Works (P) Lrd. v. The State of U.P. and Anr. 34 STC 209, discussed.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos. 68 of

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1974 and 936 of 1975.      Appeals by  Special Leave  from the  Judgment and order dated 5-11-1973  of the Punjab & Haryana High Court in Sales Tax Reference Nos. 12 and 11 of 1969.      R. 5.  Desai, (In  CA No.  936/75), P.  C. Bhartari, R. Narain, K. J. John, O. C. Mathur for the Appellants.      B. Sen,  (In CA  No. 68/74),  and R. N.Sachthey for the Respondent.      P.  C.   Bhartari  for   Applicant/Interveners  (In  CA No.68/74).      The Judgment of the Court was delivered by      RAY, C.J.  This appeal  by  special  leave  is  on  the question whether  the appellant  is exempt  from inter-State tax on  the sales  of poles and cables to the Delhi Electric Supply Undertaking  by reason of the provisions contained in section S(2)(a)(iv)  of the  Punjab  Sales  Act  hereinafter referred to as the State Act.      Section 5(2) (a) (iv) of the State Act is as follows:           "5(2)  In   this  Act   the  expression   "taxable      turnover" means  that part of a dealer’s gross turnover      during  any   period  which   remains  after  deducting      therefrom-      (a) his turnover during that period on-           (iv) sales to any undertaking supplying electrical                energy to  the  public  under  a  licence  or                sanction  granted  or  deemed  to  have  been                granted under  the  Indian  Electricity  Act,                1910,  of   goods  for   use  by  it  in  the                generation or distribution of such energy."      Under  section   8  of   the  Central   Sales  Tax  Act hereinafter referred  to as  the Central  Act, every dealer, who in the course of inter-State 994 trade or  commerce sells  to the  Government any  goods;  or sells to a registered dealer other than the Government goods of the  description referred  to in sub-section (3) shall be liable to  pay tax  under this Act, which shall be three per cent of his turnover.      The provisions  in section 8(2A) of the Central Act are as follows :-           "Notwithstanding anything contained in sub-section      (1A) of section 6 or sub-section (1) or 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  three per cent, (whether called a      tax of  fee or  by any other name), shall be nil or, as      the case may be, shall be calculated at the lower rate.           EXPLANATION: For  the  purposes.,  of,  this  sub-      section a  sale or  purchase of  any goods shall not be      deemed to  be exempt from tax generally under the sales      tax law  of the  ’ appropriate  State if under that law      the sale  or purchase  of such  goods is exempt only in      specified circumstances  or under  specified conditions      or the  tax is  levied on  the sale or purchase of such      goods  at  specified  stages  or  otherwise  than  with      reference to the turnover of the goods."      The contention  on behalf  of the  appellant is that by reason of  the Explanation  to section  8(2A) of the Central Act read  with section  5(2)(a)(iv) of  the  State  Act  the appellant is  exempt from  payment of inter-State sales tax. The words  "goods for  use by  it  in  the  gene  ration  or

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distribution of  such energy" occurring in section S (2) (a) (iv) of  the State Act are said by counsel for the appellant to be  descriptive of  the goods.  In short, the appellant’s contention  is   that  goods  for  use  by  the  undertaking supplying  electrical   energy  are  generally  exempt  from taxation, and, therefore, they should not be included in the turn over.      The contention  on behalf  of the  State  is  that  the exemption granted under section 5(2)(a)(iv) of the State Act is exemption  in specified circumstances and under specified conditions. The specified circumstances are said to be sales to an  undertaking supplying electrical energy to the public under  the  Indian  Electricity  Act,  1910.  The  specified conditions are that the goods are for use by the undertaking in the generation or distribution of such energy.      The answer  to the  question in  this appeal is whether the exemption  mentioned in  section 5(2)  (a) (iv)  of  the State  Act   is  in  specified  cir  circumstance  or  under specified conditions, as the Case may be, or it is a general exemption as  the appellant  contends in  cases of  sales of goods to an Electric Supply Undertaking for use by it in the generation or distribution of such energy. 995      The appellant  referred to Schedule read with section 6 of the  State Act  and in  particular Items  33  and  46  to illustrate  what   would  be   exemption   under   specified circumstances or specified conditions. In Schedule there are two columns.  The first  column  describes  the  goods.  The second column  describes the conditions which make the goods tax free.  In Item  33 in  Schedule  "Photographs  including Xrays photographs"  mentioned in  the first  column are  tax free "when  sold by photographers and radiologists preparing them" as  mentioned in  the second  column. In Item 46 "hand spun yarn"  mentioned in  the first  column becomes tax free "when sold  by one  who deals in hand spun yarn exclusively" as mentioned in the second column      Section 5(2)  of  the  State  Act  deals  with  taxable turnover. There  is no  dispute that  electricity poles  and cables sold to the undertaking supplying electric energy are exempt under  the State  Act from  being included within the taxable turnover. The question is whether such sales made in the course  of inter-State  trade are  also exempt  from the levy of Central Sales Tax.      The appellant  contends that the exemption in the State Act is general because exemption applies in respect of goods without any enumeration or classification of goods. Further, it is  said that  exemption is general because the sales are for use in generation and distribution of electrical energy. According to  the appellants  sales  of  all  goods  to  the undertaking supplying  electrical  energy  are  exempt  from being included  in the taxable turnover as long as the goods answer  the  description  that  they  are  for  use  in  the generation or distribution of electrical energy.      The appellant  relied on  the decision  of  the  Madhya Pradesh High  Court in  Commissioner of  Sales  Tax,  Madhya Pradesh v. Kapoor Dori Niwar & Co., Gwalior(1) tn support of the meaning  of the  expression "exempt from tax generally". In the  Madhya Pradesh  case (supra)  the  State  Government issued a  notification in  the year  1959 exempting from the payment of sales tax for a period of one year sales of niwar by a  dealer registered  under the  1958 relevant State Act. The exemption  was later  on extended  up to 31 March, 1963. The assessee  a registered dealer claimed exemption on inter State sales  of niwar.  The Madhya  Pradesh High  Court held that during  the period of the exemption, the sales of niwar

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by a registered dealer were exempt from tax generally within the meaning  of section  8(2A)  of  the  Central  Act,  and, therefore, the  assessee’s inter-State  sales of  niwar were exempt from  tax  under  the  Central  Act.  The  expression "exempt only  in specified  circumstances or under specified conditions" occurring in the Explanation to section 8(2A) of the Central  Act was  held to  mean  such  circumstances  or conditions the  non-existence or  non-performance  of  which precludes the  grant of  exemption. In other words, if those circumstances do  not exist  or  those  conditions  are  not performed then  the sales  of goods  cannot be exempted from tax even  if they are effected by a class of dealers to whom exemption  is  granted  and  during  the  period  for  which exemption is granted. 996      In the Madhya Pradesh case (supra) there was no dispute that the  sales effected  by the assessee fell under section 8(1) of  the Central  Act. The  State Act  granted exemption from sales  tax on  sales of  niwar effected by a registered dealer. The  exemption granted  to  sales  by  a  registered dealer under the notification was without any restriction or limitation so  far as  sales by  a  registered  dealer  were concerned. Though  the period of exemption was fixed, it was not regarded  as a  condition imposed  in  relation  to  the exemption. It  was also  contended there  that  because  the exemption  was   granted  to   the  registered  dealers  the exemption was granted to a class of dealers, and, therefore, it should  be construed  to be  an  exemption  in  specified circumstances  or  under  specified  conditions.  The  Court repelled the contention by stating that the exemption was to all registered dealers without any restriction or condition.      The other  decision on which the appellant relied is of the Allahabad  High Court  in Hindustan  Safety Glass  Works (P.) Ltd.  v. The  State of  Uttar Pradesh  & Anr.(1) In the Safety Glass  Works case  (supra) the  company  manufactured toughened glasses  and mirrors  in its  factories.  Under  a notification issued  by the State Government under the State Act sales of mirrors and safety glasses were liable to sales tax either  at the  point of  sale by  the importer  of such goods or  at the  point of sale by the manufacturer thereof. Subsequently,  a   notification  was  issued  by  the  State Government   exempting   toughened   glasses   and   mirrors manufactured by  the company  at Allahabad  from payment  of sales tax  for a  period of three years. The company claimed that the  turnover of sales of toughened glasses and mirrors manufactured by  it, being  generally exempt  from tax under the State  Act, was  also not  liable to  Central Sales  Tax because of  the provisions contained in section 8(2A) of the Central’Act. It  was held that for purposes of section 8(2A) of the  Central Act,  sale of  mirrors and toughened glasses manufactured by the company was under no condition and in no circumstance liable to be taxed in the hands of the company. The reasons  given were  that normally it will be taken that the sale of mirrors and toughened glasses by the company was exempt from  to the  generally unless it could be shown that such  goods   belonged  to   the  class   specified  in  the Explanation to  section 8(2A)  of the  Central Act.  As  the toughening glasses  and mirrors  manufactured by the company did not fall in such a category the turnover of the sales of those goods  in the  hands of  the company was not liable to tax under the Central Act.      The stipulation in the notification in the Safety Glass Work case  (supra) that the turnover of such sales would for a period  of three years be exempt from payment of sales tax did not  amount to exempting the turnover of such goods from

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tax under specified circumstances or specified conditions.      Section 6 of the State Act does not speak of exemption, but deals  with tax  free goods.  In other  words, section 6 deals with  specified goods  on which  no  tax  is  payable. Section S  of the  State Act  deals  with  what  has  to  be excluded from the taxable turnover of the dealer. 997 Both the  sections deal  with goods which do not suffer from sales tax.  A Section 8(2A) of the Central Act exempts goods from inter  State sales tax where a tax law of the State has exempted them  from sales  tax. The  Explanation to  section 8(2A) of  the Central  Act takes away the exemption where it is  not   general  and   has  been   granted  in   specified circumstances or  under specified conditions. The provisions contained in section 5 (2) (a) (iv) of the State Act exclude sales  which  are  made  under  specified  circumstances  or specified conditions.  The specified  circumstances are that the sale  must be  to an  undertaking engaged  in  supplying electrical energy  to the public under a licence or sanction granted  under   the  Indian   Electricity  Act,  1910.  The specified condition  is that  the  goods  purchased  by  the undertaking must  be used for the generation or distribution of electrical  energy. If  the circumstances do not exist or if the  conditions are not performed then the sales of goods cannot be  exempted from tax. General exemption means that r the goods  should be  totally exempt from tax before similar exemption from  the levy  of Central  sales tax  can  become available. Where the exemption from taxation is conferred by conditions or in certain circumstances there is no exemption from tax generally.      The contention  of the appellant that the words "in the generation  or  distribution  of  such  energy"  in  section 5(2)(a)(iv) of  the State  Act are  descriptive of  goods is unacceptable. The  expression "generation or distribution of such energy"  specifies the  condition under which exemption is granted.      For these reasons we are of opinion that the High Court was correct  in holding  that the  sales by  the undertaking supplying  electrical   energy  were  not  exempt  from  tax generally within the meaning of section 8(2A) of the Central Act read  with section  5(2)(a)(iv) of  the State  Act.  The appeal is dismissed. In view of the fact that the High Court directed the  parties to  pay  and  bear  their  own  costs, similar order is made here. S.R.      Appeal dismissed. 998