17 November 2004
Supreme Court
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STATE OF JHARKHAND Vs AMBAY CEMENTS

Bench: S.N. VARIAVA,DR. AR. LAKSHMANAN,S.H. KAPADIA
Case number: C.A. No.-007994-007994 / 2003
Diary number: 5800 / 2003
Advocates: ASHOK MATHUR Vs


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CASE NO.: Appeal (civil)  7994 of 2003

PETITIONER: State of Jharkhand & Ors.                                                   

RESPONDENT: Ambay Cements & Anr,                                                

DATE OF JUDGMENT: 17/11/2004

BENCH: S.N. Variava,Dr. AR. Lakshmanan & S.H. Kapadia  

JUDGMENT: J U D G M E N T

Dr. AR. Lakshmanan, J.

       This appeal is preferred by the State of Jharkhand through the Commissioner of  Commercial Taxes, Ranchi, Jharkhand and five others against the final judgment and  order dated 15.1.2003 passed by the Division Bench of the High Court of Jharkhand at  Ranchi in Writ Petition (T)No.5712 of 2002 allowing and remitting back the same to the  Joint Commissioner of Commercial Taxes(Admn.), Dhanbad Division, Dhanbad for  passing a fresh order in view of the observations and directions made in the judgment.   The short facts are as follows:

       The erstwhile Government of Bihar came out with an Industrial Policy 1995  providing certain incentives to the newly set up industrial units in the small scale sector.    Clause 16.1 and Clause 16.2 of the said Industrial Policy provided for exemption from  Sales Tax on purchase of raw material and exemption of Sales Tax on sale of finished  products.  The Commercial Taxes Department of the State Government issued  statutory Notifications for implementation of the said Industrial Policy vide S.O.478/479  dated 22.12.1995.  The said Industrial Policy was amended vide Notification No.5680  dated 27.8.1997 for providing certain reliefs to the pipeline industries.  The Industrial  Policy 1995 was amended with a view to provide extension of time limit for the date of  start of commercial production in case of pipe line industries where substantial  investment capital has been made subject to the condition that such pipe line industrial  unit shall seek prior permission of the State Government in the Industries Department  before 31.8.2000 and commercial production shall be started within five years from the  date of obtaining such prior permission.  On 2.3.2000, the Commercial Taxes  Department issued Notification No. S.O. 57 and 58 dated 2.3.2000 pursuant to the  above amendment in the Industrial  Policy 1995.  As per the Industrial Policy 1995 and  Notifications issued for the implementation of the Industrial Policy 1995, that is, S.O.  478 and S.O. 479 dated 22.12.1995 newly set up small scale industries were entitled to  tax free purchase of raw material as also tax free sale of finished products provided that  the date of start of such industries were between 1.9.1995 and 31.8.2000.   The  statutory Notifications S.O. 57 and S.O. 58 dated 2.3.2000 amended the Notification  Nos. S.O. 478 and S.O. 479 dated 22.12.1995 accordingly to provide for prior  permission of the Industries Department which will have to be obtained by the pipe line  industrial unit before 31.8.2000 for availing of the tax incentive under Notification Nos.  S.O. 478 and S.O. 479 of 22.12.1995.   

       It is seen from S.O. 478 and S.O. 479, as amended vide S.O. 57 and S.O. 58  dated 2.3.2000 that industrial units having obtained registration from Industries  Department/Industrial Area Development authority/Director of Industries or having  obtained from competent Authority of the Government of India Registration  Certificate/Letter of Intent etc., and desirous of availing tax incentive benefit under  Industrial Policy 1995 will also obtain prior permission of the State Government in the  Industries Department before 31.8.2000.   

       The respondent herein \026 M/s Ambey Cements, a small scale industry has  obtained temporary Registration Certificate from the General Manager, District

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Industries Centre, Dhanbad dated 5.5.2000 applied before the Joint Commissioner of  Commercial Taxes(Admn.) for grant of exemption.  The joint Commissioner vide his  order dated 26.8.2000 granted the same with a condition that it will obtain prior  permission from the State Government in the Industries Department.  The Joint  Commissioner, after examining the application for issue of the eligibility certificate,  rejected the application on the ground that the respondent did not obtain the prior  permission from the Industries Department in accordance with the provisions laid down  in the statutory Notification Nos. S.O. 57 and S.O. 58 dated 2.3.2000.  The respondent  unit, on 2.4.2001, applied for the eligibility certificate under the provisions of S.O. 478  and S.O. 479 dated 22.12.1995 read with S.O. 57 and S.O. 58 dated 2.3.2000 issued  under the provisions of Industrial Policy 1995 on 2.4.2001 without obtaining the prior  permission of the State Government in the Industries Department.  The Joint  Commissioner, by order dated 11.9.2000 rejected the application filed by the  respondent for exemption from payment of sales tax on purchase of raw materials and  exemption from payment of sales tax on sale of finished products under the provisions  of the concerned Notifications.   The Joint Commissioner rejected the application on the  ground that no prior permission from the Department of Industries has been issued.

       Aggrieved by the order passed by the Joint Commissioner, the respondent filed  a writ petition before the High Court of Jharkhand which was opposed by the appellant  herein by filing a counter affidavit wherein it was contended that the statutory  Notifications were not complied with by the respondent herein.  However, the High  Court allowed the writ petition, inter alia, and directed the authorities concerned that the   temporary Registration Certificate issued by the General Manager, District Industry  Centre can be treated as prior permission of the State Government as contemplated  under the Notification issued for the purpose.   

Being aggrieved by the order passed in the writ petition, the State of Jharkhand  preferred S.L.P.(C) No. 10169/2003 before this Court.  The order of the High Court was  also stayed by this Court on 10.7.2003.  Leave was granted on 22.9.2003 and the  special leave petition was renumbered as Civil appeal No. 7994 of 2003.

We heard Mr. A Saran, learned Additional Solicitor General, appearing for the  appellants and Mr. Gopichand Bharukha, learned senior counsel, appearing for  respondent No.1.

Before proceeding further, it is useful to reproduce paragraphs 10 and 11 of the  judgment passed by the High Court which read thus: "10. It could not be explained before us as to how and on that consideration,  a temporary registration Certificate is granted or can be rejected.  It could not  be explained either as to how and on that considerations, the said prior  permission is granted or rejected.  In other words, it could not be explained to  us as to what is the difference between the temporary registration Certificate  granted by the Industries Department of the Government for setting up a new  industrial unit and a prior permission granted by the State Government  (Industries Department), as contemplated in the said notification, as aforesaid.   One has also to keep in mind the object and purpose of the said Industrial  Policy and the incentives granted thereunder which should not be frustrated  on mere technicalities.  We are left with no alternative than to hold that the  temporary registration Certification (Annexure-5) can be treated as prior  permission of the State Government (Industries Department) as contemplated  under the aforesaid notification.   

11. In the result, the matter is remitted back to the Respondent No.3 Joint  Commissioner of Commercial Taxes (Admn.), Dhanbad Division, Dhanbad for  passing a fresh order in view of the observations and directions made herein  above within a period of two months from the date of receipt of a copy of this  order."  

Learned Additional Solicitor General appearing for the appellants submitted that  the High Court erred in allowing the writ petition filed by respondent No.1 and  directing   the grant of exemption in favour of the same overlooking the fact that respondent No.1  had admittedly not complied with the statutory conditions prescribed under the  Notifications issued by the State Government in terms of the Industrial Policy 1995 for

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such grant.  According to him, the conditions prescribed by the Authorities for grant of  exemption are mandatory and that the High Court directed the grant of exemption in  favour of the respondent overlooking the statutory provisions prescribed more so, in the  absence of any challenge to the validity of such conditions.  It was further submitted  that non-compliance of the provisions laid down in the statutory provisions would  disentitle the respondent from grant of exemption.

Mr. Gopichand Bharukha, learned senior counsel, appearing for respondent  No.1, submitted that the Temporary Registration Certificate granted by the Industries  Department of the State Government is in fact a prior permission as contemplated  under the aforesaid Notifications and there is nothing to show in the said Notifications  that a separate prior permission was required for being eligible to the  incentives/exemption granted under the said Notifications.  He would further submit that  the Department of Industries, government of Bihar came up with Industrial Policy  granting various incentives to such an industry including the exemption of sales tax with  a view to accelerate the growth of industries in the State.  This policy enunciated by the  Bihar State was duly adopted by the State of Jharkhand and the Notifications issued  pursuant thereto.

Mr. Bharukha invited our attention to the Registration Certificate issued by the  General Manager, District Industries Center for production of Cement.  This Certificate  shows that it was valid for five years.   As per the Registration Certificate, the  respondent is entitled to get exemption as the same is nothing but a prior permission of  the State Government granted prior to 3.8.2000.  He invited our attention to the relevant  portion of the said Notification which is reproduced hereunder: "1. In place of the present entries of Clause 1 (a) of the aforesaid notification  the following entries should be substituted:-

1A. By a new Industrial unit is meant such unit in which the production work  has commenced between 1st September 1995 and 31st August, 2000 and  which has got sanction letter/advertisement letter/letter of intent/Registration  Certificate from Industrial Department/Industrial Area Development  Authority/Director of Industries and Competent Officer of the Government of  India:

But all such units in which 500 crores or more capital will be invested  for expansion then they shall be considered as new units for the purpose of  this Notification;

But it is also that for the purpose of this Notification all those units  shall be considered as new units which has commenced production within 5  years after taking prior permission from the Industry Department of the State  Government before 31st August, 2000 even if those units which commence  production after 31st August, 2000."    

Mr. Bharukha further submitted that the respondent has set up its establishment  in the year 2000 and started its commercial production from 2.4.2001 and the  permanent Registration Certificate to respondent No.1 was issued on 30.4.2001  wherein it was stated that the respondent has started its production on 2.4.2001.   Accordingly, after the commercial production had started, the respondent applied for  exemption certificate on the requisite application form for granting sales tax exemption  on purchasing raw materials and on sales of finished goods on 2.4.2001.   Mr.  Bharukha also submitted that on the respondent filing an application for exemption  before the Deputy Commissioner of Commercial Taxes, the said Deputy Commissioner  taking into consideration all the relevant document had recommended the case of the  respondent   to the Joint Commissioner of Commercial Taxes (Admn.) and the said  order was also based on the inspection made in the respondent’s premises and after  checking of the documents by the Assistant Commissioner of Commercial Taxes and  that from the perusal of the order passed by the Deputy Commissioner of  Commercial  Taxes, it is evident that he has considered the second proviso to S.O 58 dated 2.3.2000  and stated that by way of prior permission, the General Manager, District Industries  Center, Dhanhad has issued a temporary Registration Certification issued under the  provisions of the Industrial Policy.  In support of his contentions, Mr. Bharukha relied on  three rulings of this Court  in the case of  Bajaj Tempo Ltd., Bombay vs.

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Commissioner of Income Tax, Bombay City-III, Bombay, (1992) 3 SCC 78,  Commissioner of Sales Tax vs. Industrial Coal Enterprises, (1999) 2 SCC 607 and   State of Bihar & Ors. vs. Suprabhat Steel Ltd. & Ors.,  (1999) 1 SCC 31. We have perused the pleadings and the annexures filed along with the appeal  and also the judgment passed by the High Court.

The facts of this case are not in dispute.  The only dispute is as to whether the  temporary Registration Certificate can be treated as prior permission from the State  Government (Industries Department) for the purpose of the Notification.  As already  noticed, learned Additional Solicitor General appearing for the appellant submitted that  a separate prior permission was required to be eligible for the purpose of the  Notification in question.  On the other hand, learned counsel for the respondent  submitted that the prior permission contemplated in the said Notification is for setting up  an industry which was granted vide Annexure 5 filed in the writ petition.   

In the above background, the following questions of law would arise for  consideration in this appeal: 1)      Whether the conditions prescribed by the Authorities for  grant of exemption are mandatory for availing the same? 2)      Whether the High Court can in exercise of writ jurisdiction  can direct grant of exemption contrary to the terms thereof  and overlooking the statutory conditions prescribed for such  grant in the absence of any challenge to the validity of such  conditions? The Industrial Promotion Policy 1995 (S.O. 478/479 dated 22.12.1995) was  issued by the State Government in exercise of powers conferred under Clause (b) of  sub-section(3) of Section 7 of the Bihar Finance Act, 1981 (Bihar Act No.5 of 1981) by  which the Governor of Bihar granted exemption to those new industrial units which start  production between the period Ist September, 1995 to 31st August, 2000 who have  obtained the Registration Certificate from the competent Authority under the aforesaid  Act and the tax exemption certificate after making information in Form T.E. (Purchase  II) and with this Notification from levy of sales tax payable on purchase direct raw  material required manufacturing of goods under the terms and conditions noted in the  said policy.  The "New Industrial Unit" is defined under Clause 1(a) of the Act.  Under  S.O. 479 dated 22.12.1995, the Governor granted exemption to those new units/started  function in between the period from Ist September, 1995 to 31st August, 2000 and  obtained Registration Certificate from the competent authority under the aforesaid Act.   By S.O.  479 dated 2nd March, 2000, a Notification was issued in exercise of the power  conferred in sub-section 3(b) of Section 7 of the Bihar Finance Act, 1981 (Bihar Act  No.5 of 1981) incorporating certain amendments in the previous Notification S.O. 479  dated 22nd December, 1995 issued by the Department of Commercial Taxes.  Under  Clause 1(a), New Industrial Unit has been defined to mean such a new unit where  production has been started between Ist September, 1995 and 31st August, 2000  which  has obtained a letter of permission/memo of acceptance letter/letter of  authority/registration certificate from the Department of Industries/Authority of Industrial   Development Area/Director of Industries or from a competent Authority of the  Government of India.  The proviso to the said clause provides that the Industrial Unit  which has obtained prior permission before 31st August, 2000 from the State  Government (Industry Department)  and has started production within five years from  the date of permission shall also be treated as new Unit under this Notification even  though they have started production after 31st August, 2000.  Clause 2 of the amended  Notification provides as follows: "For the purpose of prior approval of the Govt. in regard to small units, prior  approval of the General Manager, District Industrial Centre or Managing  Director, Industrial Area Development Authority and Circle, Incharge of  commercial Taxes shall also have to be obtained.  In regard to medium and  large industries, prior approval shall be granted by committee headed by  Commissioner of Commercial tax which consisted of the Director, Industries  and Director, Technical Development as members.  The prior approval shall  be issued by the official of the Industry Department if the Committee does not  communicate its decision within 60 days from the date of application.  An  application may be filed before Commissioner, Industrial Development who  shall communicate his decision within 60 days after consultation with  Commissioner, Commercial Taxes."     

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Consequent on the application made by the respondent herein, provisional  registration of small scale industrial unit was allotted to the respondent Unit which shall  be valid for a period of five years from the date of the issue of the said registration.  Th e  Joint Commissioner, Commercial Taxes on 26.8.2000 passed the following order : "Appearance filed.  Prior permission is being given on the condition that  production will be commenced soon.  Besides, prior permission of the  Industries Department shall be taken.  

                                                          Sd/-                                                 Sh. J.N. Pandey,                                         Joint Commissioner, Commercial                                          Taxes (Admn.) Dhanbad Division,                                         Dhanbad.

Memo No. 959/Dhanbad dated 26th August, 2000."   

On 11.9.2000, the Joint Commissioner, Commercial Taxes in the concluding  portion of his order stated as under: "Prior permission from the Industries Department has not been taken by the  Industrial unit.  Their contention is that it is provisionally registered as a Small  Scale Industrial Unit in the Industries Department and afterwards permanently  registered.  This should be considered as permission letter prior to the  registration certificate.  Prior permission and registration in the Industries  Department are two different aspects.  Keeping this point in view the  Department of Commercial Taxes at the time of according prior permission on  dated 19.08.2000 had also imposed a condition that Proprietor of the Unit  shall also get prior permission from the Industries Department.  But in this  regard there is no document on record.  Therefore, recommendation sent  from the Division is not approved."

We have carefully considered the rival submissions made by the respective  counsel appearing on either side.  In our opinion, the certificate issued by the Industries  Department cannot be considered as prior permission within the meaning of the  amended definition of new industrial unit.  It will be manifest from the said notifications  that in addition to the temporary registration, a separate prior permission of the  Industries Department before 31.8.2000 is an important condition precedent for any unit  to become eligible to be deemed as new industrial unit for the purpose of exemption.     It is wholly misconceived for the respondent herein to suggest that the temporary  registration certificate issued by the Industries Department should be construed as prior  permission within the meaning of the amended definition of new industrial unit vide S.O.  478/479 dated 22.12.1995.  From the reading of the statutory Notification, it will be  manifest that a separate prior permission of the Industries Department before 31.8.2000  is an important condition precedent for any unit to become eligible for the purpose of  exemption.  It is an admitted position in this case that the respondent has not obtained  the prior permission of the State Government in the Industries Department before  31.8.2000 and as such the Industrial unit of the respondent cannot be deemed to be a  new industrial unit eligible for tax exemption under S.O. 478 & 479 dated 22.12.1995  read with S.O. 57 & 58 dated 2.3.2000.  In our opinion, the application for exemption of  the respondent has been rightly rejected by the authorities concerned for non-fulfillment  of the statutory obligation on the part of the respondent by not obtaining prior  permission of the State Government.

  In our view, the condition prescribed by the authorities for grant of exemption  are mandatory for availing the exemption and the High Court exercising jurisdiction  under Article 226 of the Constitution cannot direct the grant of exemption in favour of  the respondent overlooking the statutory conditions prescribed for such grant and that  too in the absence of any challenge to the validity of such condition. The observations made by the High Court that the grant of temporary  registration certificate in favour of respondent No.1 was sufficient and the same was  equivalent to prior permission as prescribed under the Notifications is not correct.  We  are of the opinion that the High Court has failed to appreciate the provisions laid down  in the statutory Notifications S.O. 57 and S.O. 58 dated 2.3.2000 which expressly  provide for obtaining prior permission separately.  Non-compliance thereof would

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disentitle the respondent from grant of exemption.

It is a matter of fact that the respondent has set up its establishment in the year  2000 and started its commercial production from 2.4.2001 only.  It is seen from the  Bihar Industrial Policy Resolution, 1995 and the statutory Notification issued by the  Commercial Tax Department, the new industrial units was defined as those industrial  units which went into production between1.9.1995 and 31.8.2000 and which have been  granted license/memorandum/letter of intent or registration certificate from the  competent industries Department or Industrial Area Development Authority or  Directorate of Industry or competent authority of the Government of India.  As already  noticed, the statutory notifications were amended retrospectively vide S.O. 57 and 58  dated 2.3.2000.  It will thus be seen from the aforesaid amended Notifications that three  conditions are stipulated for pipeline industries to be treated as new industrial units for  the purposes of exemption under S.O. 478 & 479 which read as follows: "(I) Industrial unit should obtain registration certificate from the competent  Authority of the Industries Department.

(II) It should also have obtained prior permission from the State Government  in the Industries Department before 31st August, 2000.

(III) Industrial unit should commence production within 5 years from the date  of obtaining prior permission."  

We have already noticed that the respondent has applied for exemption and the  Department granted permission to the respondent with a condition that the prior  permission from the Industries Department should be obtained within the stipulated  time.  However, the respondent has deliberately ignored the direction of the Department  to meet the statutory binding obligation.  It is an admitted position in the writ petition t hat  the respondent has not obtained the prior permission of the State Government before  31.8.2000 and as such the Industrial Unit of the respondent cannot be deemed to be a  new Industrial Unit eligible for tax exemption under the Notifications dated 22.12.1995  read with Notifications dated 2.3.2000.

Mr. Bharukha further submitted that in taxing statutes, provision of concessional  rate of tax should be liberally construed and in respect of the above submission, he  cited the judgment of this Court in Commissioner of Sales Tax vs. Industrial Coal  Enterprises (Supra) and in the case of Bajaj Tempo Ltd., Bombay vs.  Commissioner of Income Tax, Bombay City-III, Bombay (Supra).  We are unable to  countenance the above submission.  In our view, the provisions of exemption clause  should be strictly construed and if the condition under which the exemption was granted  stood change on account of any subsequent event the exemption would not operate.   

In our view, an exception or an exempting provision in a taxing statute should be  construed strictly and it is not open to the Court to ignore the conditions prescribed in  the Industrial Policy and the exemption Notifications.

In our view, the failure to comply with the requirements renders the writ petition  filed by the respondent liable to be dismissed.  While mandatory rule must be strictly  observed, substantial compliance might suffice in the case of a directory rule.   

Whenever the statute prescribes that a particular act is to be done in a particular  manner and also lays down that failure to comply with the said requirement leads to  severe consequences, such requirement would be mandatory.  It is the cardinal rule of  the interpretation that where a statute provides that a particular thing should be done, it  should be done in the manner prescribed and not in any other way.  It is also settled  rule of interpretation that where a statute is penal in character, it must be strictly  construed and followed.  Since the requirement, in the instant case, of obtaining prior  permission is mandatory, therefore, non-compliance of the same must result in  canceling the concession made in favour of the grantee-the respondent herein.         

       For the foregoing reasons, we hold that the High Court has erred in allowing the  writ petition filed by the respondent herein and directing the grant of exemption in favour  of the respondent.  We, therefore, have no hesitation in setting aside the judgment and  order passed by the High Court and allowing this appeal.  

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        The appeal is allowed.  There shall be no order as to costs.