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PETITIONER: STATE LEVEL COMMITTEE & ANR.

       Vs.

RESPONDENT: M/S MORGARDSHAMMAR INDIA LTD.

DATE OF JUDGMENT10/11/1995

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) MAJMUDAR S.B. (J)

CITATION:  1996 AIR  524            1996 SCC  (1) 108  JT 1995 (8)    53        1995 SCALE  (6)306

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T B.P.JEEVAN REDDY,J.      Leave granted.      The only  question arising  in this  appeal,  preferred against the judgment of the Allahabad High Court, is whether the respondent-unit  qualifies as  a "new  unit" within  the meaning of Explanation (i) to sub-section (2) of Section 4-A of the  U.P. Sales  Tax  Act.  The  ground  upon  which  the Divisional Level Committee declined to recognise it as a new unit is  that a  part of  the machinery  acquired by  it for setting up  its factory  was purchased from M/s. Modi Steels who has  purchased the  said machinery earlier for their own use. A  review  application  filed  by  the  respondent  was rejected by  the State  Level Committee.  The writ  petition filed by  the respondent  has, however,  been allowed by the High Court holding that in case M/s. Modi Steels has not put the  said   machinery  to   any  use  as  contended  by  the respondent,  the   respondent-unit  cannot   be  denied  the eligibility  certificate   under  Section   4-A.  the  Bench purported to follow an earlier decision of the High Court in Amit  Plastic   Industry,  Ghaziabad   v.  Divisional  Level Committee, Meerut  (1994 UPTC  121). The  High Court has set aside the  orders impugned in the writ petition and remitted the matter  to the State Level Committee with a direction to re-examine  the   material  on   record  and   to  record  a categorical finding  as to  whether  or  not  the  machinery purchased  by   the  petitioner  form  M/s.Modi  Steels  was actually used  in any other factory or workshop in India. If it is found that the said machinery was not actually used in any factory  or workshop  before  its  installation  in  the respondent-unit, the  High Court opined, the respondent-unit would be  entitled to  be treated  as a  new  unit  for  the purpose of Section 4-A.      The respondent-unit  has applied  for  issuance  of  an eligibility certificate  under Section 4-A of the Act on the

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ground that  it has  set up  a new  unit  for  manufacturing rolling  mill   guide  system  equipment.  It  had  acquired machinery worth  about Rs.25  lakhs, out  of which machinery worth Rs.4,59,575/-  was acquired from M/s.Modi Steels under Bill   No.244 dated  April 27,  1984. Admittedly,  the  said machinery was  acquired by M/s.Modi Steels for setting up an unit of its own but it is stated that it abandoned that idea later and sold the machinery to the respondent. The question is whether  the respondent-unit  cannot claim  to be  a "new unit" within  the meaning  of Explanation (i) to sub-section (2) of  Section 4-A  on account of the fact that part of the machinery acquired  by it  was acquired for use in any other factory or workshop in India.      Section 4-A  Provides for  exemption from  sales tax of goods manufactured  by a new unit during the first five-year period,  subject  to  the  terms  and  conditions  specified therein. Explanation  (i), with which alone we are concerned herein, reads as follows:      "Explanation.- For  the purposes of this      section,-      (i)  ‘new   unit’  means  a  factory  or      workshop whether  set  up  by  a  dealer      already  having   an   industrial   unit      manufacturing  the  same  goods  at  any      other  place   in  the   State   or   an      industrial unit,  adjacent to,  the site      of an  existing factory or workshop; but      does not include:      (a)  any   factory  or   workshop  using      machinery,  accessories   or  components      already used  or acquired for use in any      other factory or workshop in India,      (b) nay  factory or workshop established      on,  or  adjacent  to  the  site  of  an      existing     factory     or     workshop      manufacturing the same goods, or      (c) any  addition to  or extension of an      existing factory or workshop,"      An analysis  of the  definition  yields  the  following features: (a) if  a  dealer  is  already  having  an  industrial  unit manufacturing particular  goods and  if he  sets up  another industrial unit  manufacturing the  same goods  at any other place in  the State,  it would be a new unit. In other words if a  dealer establishes  a new  factory or  workshop on  or adjacent to  his existing  factory or  workshop is meant for manufacturing the very same goods as are manufactured in the existing factory  or workshop, the newly established factory or workshop  would not be a "new unit" within the meaning of the Explanation. (b) If,  however, the  new  industrial  unit  is  meant  for manufacturing goods  different from  the goods manufacturing in the existing factory or workshop, the new industrial unit (factory or  workshop) ca be located on the same premises or adjacent  to   the  premises  of  the  existing  factory  or workshop; to  would be  a "new   unit"  for the  purposes of Explanation. (c) If,  however, any  such new  factory  or  workshop  uses machinery,  accessories   or  components  "already  used  or acquired for use in any other factory or workshop in India", it does not and cannot qualify as a "new unit". (d) Any  factory or  workshop established  on or adjacent to the site  of an  existing factory  or workshop manufacturing same goods as are being manufactured in the existing factory or workshop  cannot be called "new unit" for the purposes of

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the Explanation. (e) Any  addition to  or extension of an existing factory or workshop cannot and does not qualify as a new unit.      The definition  of ’new  unit" in  Explanation (i) thus comprises of two clauses (mentioned as (a) and (b) above) to which three exceptions (mentioned as (c), (d) and (e) above) are appended.      The ground  upon which  the  respondent-unit  has  been denied the  eligibility certificate under Section 4-A by the appropriate authorities  is that part of  the machinery used in setting  up the  respondent-unit was "acquired for use in any other  factory or  workshop in India’ and, therefor, the respondent-unit does  not qualify as a "new unit". According to the  authorities, it is enough that the machinery or part of the machinery installed in the new factory or workshop is "acquired for  use in  any  other  factory  or  workshop  in India". It  is immaterial,  they say, whether such machinery was actually used or not in any other factory or workshop in India. Clauses  (a) does  not contemplate  an enquiry of the nature ordered  by the  High Court,  they say.  On the other hand, the  contention of  the respondent-unit, which has ben upheld by  the High  Court  is  that  unless  the  machinery acquired for  use in  any other factory or workshop in India is actually used in that other factory or workshop in India, the  disqualification   provided  by   clauses  (a)  in  the Explanation is not attracted.      Section 4-A  is an  elaborate one.  it contains several features and  provides for  several situations,  with all of which we  are not  concerned herein.  It is  enough for  the present purpose  to note  that a new unit staring production on or  after first  day of  October,  1982  is  entitled  to exemption from  sales tam  provided the  unit satisfies  the requirements and conditions prescribed by the section. Inter alia,  it   must  furnish  to  the  assessing  authority  an eligibility   certificate    granted   by   the   prescribed officer/authority   in   accordance   with   the   procedure specified. Explanation  (i) to  sub-section (2)  defines the expression "new unit", which definition has already been set out by  us hereinabove.  One of the grounds upon which a new factory or workshop is disqualified from being called a "new unit" is  if  such  factory  or  workshop  uses  "machinery, accessories or  components already  used or acquired for use in any  other factory  or workshop in India." It is relevant to notice that the clause uses both the expressions "already used’ and  "acquired  for  use"  in  any  other  factory  or workshop in  India. Surely  both the expressions cannot mean one and  the same thing. It is a disqualification if the new factory or  workshop  uses  machinery/accessories/components already used  in any  other factory or workshop in India. It is a  disqualification if  the new  factory or workshop uses machinery/accessories/components which were acquired for use in any  other factory  or workshop in India. When the clause uses both  the said expressions simultaneously, it would not be reasonable  or proper  to construe the word "acquired for use" as  meaning the  same thing  as "already  used". Such a construction would  make    the  words  "acquired  for  use" superfluous and  a surplusage.  No such interpretation ought to be  adopted by a Court. The words "acquired for use" must be understood  in their  plain and  ordinary meaning.  It is enough that  the machinery/accessories/components  which are used in  the factory  or workshop  (claiming the  benefit of Section 4-A)  are acquired for use in any other factory or a workshop in  India. It  is not  necessary to  go further and enquire whether  that machinery/accessories/components  were actually used in any other factory or workshop in India.

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    In this  case, admittedly,  a  part  of  the  machinery installed in the respondent’s unit was acquired by M/s. Modi Steels for use in the factory or workshop proposed to be set up by  them. According to the certificate issued by M/s.Modi Steels, their  project did  not materialise  because it  was found to  be not  viable. For  that reason,  they  say,  the machinery purchased  by them for the said purposed was lying in  packed  and  un-used  condition  and  was  sold  to  the respondent. Thus, on their own showing, the respondents case is directly  hit by clause (a) in the Explanation and is not entitled to the exemption provided by Section 4-A.      It is  submitted by  Sri S.K.Dhaon, learned counsel for the respondent, that aforesaid interpretation would not be a reasonable one  and would  not be consistent with the object underlaying Section 4-A. It is submitted that Section 4-A is devised to  encourage new  industries. Disqualifying an unit from the benefit of the section on the mere ground that part of the  machinery installed  in the  unit  was  acquired  by another person for setting up a unit, which in fact he never did, would  not be consistent with the object underlying the section,  says   Sri  Dhaon.   We  are  unable  to  see  any unreasonableness in the interpretation placed by us. All the words used  in the clause have to be give their due meaning. None of  them can be treated as a surplusage. It is not also possible to  ignore the words expressly employed in the said clause or  to explain  them away  on notions  of  one’s  own reasonableness. Indeed,  there appears  to  be  good  reason behind the  use of  both the said expression in the clauses. the Legislature,  it is  obvious, wanted to avoid an enquiry into the  factual issue  of actual  user where the machinery (which   expressions   means   machinery,   accessories   or components) is  acquired for  use in  any other  factory  or workshop in  India. Once it is shown that such machinery was acquired for  use in any other factory or workshop in India, the  Legislature  presumes  user  -  a  case  of  conclusive presumption. the  idea was  to shut out enquires of the type now ordered  by the  High Court.  One person  may  say  that though the machinery was acquired by him, he never installed it or  used it;  another may  say that he only installed the machinery but  did not use or operate it; a third person may say that  the machinery  was used only for trial run but not on a  regular basis,  ad so on and so forth. The authorities in charge  of issuing  eligibility cetificates would thus be caught in  endless factual  disputes. The idea was to lessen the room  for factual  controversies. It  must be remembered that no  unit has  a right  to claim exemption from tax as a master of tight. His right is only insofar as it is provided by  Section   4-A.  While   providing  for   exemption,  the Legislature has hedged it with certain conditions. It is not open to  the Court to ignore those conditions and extend the exemption. We  must repeat  that when  the clause used" both the expressions  "already used" and "acquired for use", they cannot be  construed as  meaning one and the same thing by a process of interpretation.      It  is   suggested  by  the  learned  counsel  for  the respondent that  Section 4-A  must be literally construed to further the  object underlying it. In case of any ambiguity, it is  submitted, the  construction favouring  the  assessee should be adopted. We cannot agree. Section 4-A provides for exemption from tax. It is repeatedly held by this Court that a provision  providing for  an exemption  or an exception as the case  may be, has to be construed strictly. In Mangalore Chemicals and  Fertilizers Limited v. Diputy Commissioner of Commercial Taxes, (1992 Supp. (i) S.C.C.21) which case dealt with an exemption notification, M.N.Venkatachaliah,J. stated

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the principle in the following words:      "Shri  Narasimhamurty  again  relied  on      certain observations  in  CCE  v.  Parle      Exports (P) Ltd., [(1989) 1SCC 345: 1989      SCC  (Tax)  84]  in  support  of  strict      construction of  a provision  concerning      exemptions. there is support of judicial      opinion to the view that exemptions from      taxation have a tendency to increase the      burden on  the other unexempted class of      tax  payers   and  should  be  construed      against   the   subject   in   case   of      ambiguity. It  is an  equally well known      principle that  a person  who claims  an      exemption has  to  establish  his  case.      Indeed,  in   the  very  case  of  parle      Exports (P)  Ltd. relied  upon  by  Shri      Narasimhamurty, it  was  observed:  (SCC      p.357, para 17)           ‘while  interpreting  an  exemption           clause,   liberal    interpretation           should be  imparted to the language           thereof, provided  no  violence  is           done to  the language  employed. It           must, however,  be  borne  in  mind           that absurd results of construction           should be avoided.’      The  choice   between  a  strict  and  a      liberal construction arises only in case      of doubt  in regard  to the intention of      the   legislature    manifest   on   the      statutory language.  Indeed, the need to      resort  to  any  interpretative  process      arises only  where the  meaning  is  not      manifest on  the  words  are  plain  and      clear and  directly convey  the meaning,      there is no need for any interpretation.      It  appears  to  us  the  true  rule  of      construction  of   a  provision   as  to      exemption is  the  one  stated  by  this      Court in  Union of  India v. Wood Papers      Ltd.[(1990) 4  SCC 256  : 1990 SCC (Tax)      422]: (SCC p.260 para 4)           ‘Truly speaking  liberal and strict           construction   of    an   exemption           provision  are  to  be  invoked  at           different  stages  of  interpreting           it. When  the question is whether a           subject falls  in the  notification           or in  the exemption clause then it           being in  nature of exception is to           be construed  strictly and  against           the subject but once ambiguity‘y or           doubt about  application then  full           play should  be give  to it  and it           calls  for   a  wider  and  liberal           construction......’"      Following the  said decision  and  after  referring  to certain English  decisions expressing  divergent opinions, a three-Judge  Bench  of  this  Court,  of  which  one  of  us (B.P.Jeevan Reddy,  J.) was  a member, held in Novopan India Ltd.,  Hyderabad   v.  Collector  of  Central  Exercise  and Customs, Hyderabad (1994 Suppl. (3) S.C.C.606) thus:      "16. We  are, however,  of  the  opinion      that, on principle, the decision of this

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    Court in  Mangalore Chemical  -  and  in      union of India v. Wood Paper referred to      therein _ represents the correct view of      law.  The  principle  that  in  case  of      ambiguity, a  taxing statute  should  be      construed    in     favour    of     the      assesseeassuming that the said principle      is good  and sound  - does  not apply to      the construction  of an  exception or an      exempting provision;  they  have  to  be      construed strictly. A person invoking an      exception or  an exemption  provision to      relieve him  of the  tax liability  must      establish clearly  that he is covered by      the said  provision. In case of doubt or      ambiguity, benefit  of it must go to the      State. This  is for the reason explained      in   Mangalore    Chemical   and   other      decisions,     viz.,      each      such      exception/exemption  increases  the  tax      burden on other members of the community      correspondingly. Once,  of  course,  the      provision is  found applicable  to  him,      full effect  must be  given  to  it.  As      observed by a Constitution Bench of this      Court in Hansraj Gordhandas v. H.H. Dave      [(1969) 2 SCR 253: AIR 1970 SC 755] that      such   a    notification   has   to   be      interpreted in  the light  of the  words      employed by  it and  not  on  nay  other      basis. This  was so  held in the context      of  the   principle  that  in  a  taxing      statue,  there   is  no   room  for  any      intendment, that  regard must  be had to      the clear  meaning of the words and that      the matter  should be governed wholly by      the language  of the notification, i.e.,      by the plain therms of the exemption."      The learned counsel for the respondent, however, relied upon the  decision in Collector of Central Excise. Bombay v. M/s.Parle Exports (P) Ltd. (1989 (1) S.C.R. 345) rendered by a Bench  of this  Court comprising  Sabyasachi Mukharji  and S.Ranganathan,JJ. The  observations in  paras 17  and 18 are particularly relied upon by the learned counsel:      "17. How then should the courts proceed?      The expressions  in the  Schedule and in      the notification for exemption should be      understood  by   the  language  employed      therein bearing  in mind  the context in      which the  expressions occur.  The words      used in the Provision, imposing taxes or      granting exemption  should be understood      in the  same  way  in  which  these  are      understood in  ordinary parlance  in the      area in  which the law is in force or by      the  people  who  ordinarily  deal  with      them. It  is, however, necessary to bear      in   mind    certain   principles.   The      notification in  this  case  was  issued      under R.8  of the  Central Excise  Rules      and should  be read  along with the Act.      The notification  must be  read as whole      in the  context of  the  other  relevant      provisions.  When   a  notification   is      issued   in    accordance   with   power

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    conferred  by   the  statute,   it   has      statutory   force   and   validity   and      therefore,  the   exemption  under   the      notification is, as if it were contained      in  the   Act  itself.   See   in   this      connection  the   observations  of  this      Court in  Orient Weaving  Mills (P) Ltd.      v. Union  of India,  [1962 Supp  (3) SCR      481  :  (AIR  1963  SC  98)].  See  also      Kailash Nath  v. State of U.P. (AIR 1957      SC 790).  The principle  is well settled      that when  two views  of a  notification      are possible,  it should be construed in      favour of the subject as notification is      part of  a fiscal enactment. But in this      connection, it  is well  to remember the      observations of  the Judicial  Committee      in  Coroline  M.  Armytage  v.  Frederic      Wilkinson, [(1878)  3 AC at p. 370] that      it is  only, however,  in the  event  of      there  being   a  real   difficultly  in      ascertaining the meaning of a particular      enactment  that   the      question   of      strictness   or    of   liberality    of      construction   arises.    The   Judicial      Committee   reiterated   in   the   said      decision at  pate 369 of the report that      in a  taxing Act Provisions establishing      an exception  to  the  general  rule  of      taxation are  to be  construed  strictly      against those  who invoke  its  benefit.      While interpretation  should be imparted      to the  language  thereof,  provided  no      violence  is   done  to   the   language      employed. It  must, however, be borne in      mind that absurd results of construction      should be avoided. 18. In  Hindustan Aluminium  Corporation Ltd. v. State  of Uttar  Pradesh,  [(1982)  1  SCR 139]:  (AIR   1981  SC   1649)   this   Court emphasised that  the notification  should not only  be   confined  to  its  grammatical  or ordinary  parlance  but  it  should  also  be constroced in  the light of the context. This court reiterated  that the  expression should be construed  in a  manner in  which  similar expressions have  been employed  by those who framed  relevant   notification.  The   court emphasised the need to derive the intent from a contextual scheme."      We agree with the above statement of law except insofar as  it   states  that   where  two  view  of  the  exemption notification are  possible, it should be construed in favour of the  subject since it is contrary to the decisions afore- mentioned  including   the  three-Judge  Bench  decision  in Novopan India  Limited. It  may be  noted that this decision was referred  to in  Mangalore Chemical  and Fertilizers and yet a  slightly different  principle enunciated.  So far  as decision in  Hindustan Alumunium Corporation (referred to in Parle Export),  rendered by  a Bench  comprising Tulzapurkar and R.S.Pathak,JJ.,  is concerned,  it only  holds that  the expression "mental"  occourring  in  a  notification  issued under U.P.Sales  tax Act should be understood in its primary sense, i.e.,  in the  form in  which  it  is  marketable  as primary  commodity.   The  learned   Judges  held  that  the

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subsequent forms  evolved from  the primary from constituted distinct commodities marketable as such and must be regarded as new  commercial commodities  and not  included within the four corners  of  the  notification.  This  decision  cannot therefor  be    understood  as  supporting  the  proposition enunciated in  Parle Export with which we have disagreed. Be that  as   it  may,  the  occasion  for  appaying  the  said proposition arises  only where there is "real difficulty, in ascertaining  the   meaning  of   a  particular   enactment" (statement in  Parle Exports).  In the case before us, there is neither any ambiguity in the language nor does the clause in question  present a  real difficulty  in ascertaining its meaning.      Sri Dhaon,  learned counsel  for the  respondent,  then contended that  the words  "acquired for  use in  any  other factory or workshop in India" must be read and understood as "acquired for  use in any other existing factory or workshop in India".  The learned  counsel says  that it  should be so read to  give effect to the idea underlying the said clause. We are  unable to  agree. The  very definition  contained in Explanation  (i)   uses  both  the  expression  "factory  or workshop" and  "existing factory  or workshop"  at more than one place which fact would be evident from a bare perusal of the said  definition. Wherever  the  Legislature  wanted  to refer to an existing factory or workshop, it is not possible to read  the words "acquired for use in any other factory or workshop in  India" to  mean "acquired  for use in any other existing factory  or workshop in India". We see no reason to add any  words to  those employed  in the  clause. It cannot also be  said that such addition of word(s)_ is necessary to avoid an absurdity.      Lastly, Sri  Dhaon submitted  that the  respondent unit has substantially  complied with the requirement of the said clause in  the definition  inasmuch  as  the  value  of  the machinery acquired from M/s.Modi Steels is only about Rs.4.5 lakhs as  against the value of the entire machinery at Rs.25 lakhs.  In  our  opinion,  there  is  no  room  for  such  a contention in  view of  the specific language of clause (a). The clause uses all the three words - machinery, accessories or components.  The use  of the word "or" indicates that use of either  of them,  which are  already used or acquired for use in  any  other  factory  or  workshop  in  India,  would disqualify the  factory or workshop from being called a "new unit" within the meaning of Section 4-A. The clause does not say or  indicate in  any manner  that only  where the entire machinery installed  in the  unit (claiming to the new unit) has already  been used  or was acquired for use in any other factory or  workshop in  India, that  the   disqualification contained therein  gets attracted.  In the face of the clear language of  the clause, it is not possible to entertain the submission of substantial compliance urged Sri Dhaon.      For the  above reasons,  the appeal  is allowed and the judgment of  the High  Court is set aside. The writ petition filed by  the respondent  in the High Court is dismissed. No costs.