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CASE NO.: Appeal (civil)  10272 of 2003

PETITIONER: State of Jharkhand & Others              

RESPONDENT: Tata Cummins Ltd. & Another              

DATE OF JUDGMENT: 24/03/2006

BENCH: ASHOK BHAN & S.H. KAPADIA

JUDGMENT: J U D G M E N T

KAPADIA, J.         This civil appeal by grant of special leave is  directed against the judgment and order dated  31.07.2003 passed by a Division Bench of the High  Court of Jharkhand by which it has been declared  that Tata Cummins Ltd., an assessee under Bihar  Finance Act, 1981, is entitled to the benefit of the  Industrial Policy, 1995 read with the notifications  no.478 and 479 both dated 22.12.1995.  By the  impugned judgment the appellant-State and  Commercial Taxes Department under the Bihar  Finance Act are directed to adjust the refundable  amount of Rs.54.5 crores towards sales tax dues  from the assessee for the accounting year  commencing on and from 1.4.2004.

       The facts giving rise to this civil appeal, briefly,  are as follows:  

       In the year 1993, the Government of Bihar had  announced an Industrial Policy with a view to  attract investments and setting up of industries in  the State.  In the year 1995, the policy was modified  partially.  In its introduction, the policy set out the  aims and objectives of the policy as to create an  environment for optimum utilization of the State  resources, to provide quality infrastructure for rapid  industrialization, to attract investments to generate  economic activities, reviving potentially viable and  closed industries, to boost exports of goods  manufactured in the State and to simplify  procedures of decision making.  As part of the  incentives, the policy envisaged allotment of land in  Growth Centres to corporates for setting up  industrial units on lease for 99 years with option for  renewal.  It also envisaged sales tax exemptions to  attract investment and to sustain industrial  development in the State.  Accordingly, new units  were allowed the facility of either "set off" or  "exemption" at their choice, of sales tax on  purchase of raw materials during the period  envisaged in clause 16(1) of the policy.  Similarly,  by clause 16(2), the benefit of exemption/set off on  sales tax on sale of finished goods was allowed with  option to the new units either to choose deferment  of payment of sales tax or exemption of sales tax for  the period mentioned therein.  This policy regarding

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sales tax incentive was sought to be implemented  by two notifications, SO nos.478 and 479 both  dated 22.12.1995.  One of the pre-conditions for the  grant of the benefit of the Industrial Policy, 1995  under the above notifications was that the  proprietor/partner/holding company must have its  exclusive ownership over the building in which the  factory of the unit is situated.  However, if the  factory of the unit was installed on a leased land or  in a building taken on lease, exemption would be  admissible when such land or building or both have  been acquired by way of a registered lease for a  minimum period of 15 years.  The lease was to be in  favour of the proprietor of the unit or any partner of  the firm or in favour of the holding company.

       According to Tata Cummins Ltd, it had taken a  lease of the land from TELCO, its partner in the  joint venture, though a formal lease had not been  executed.  TELCO had a registered lease for a term  of 99 years from TISCO which had a valid lease  from the government at the time when lease was  granted by TISCO to TELCO.  Since the land was  held by TELCO, which had 50% interest in Tata  Cummins Ltd., the unit was eligible for the benefit.   Its more important claim was that it was the owner  of the building in which its factory was set up and  under the first part of the notification, the exclusive  ownership of the building being with Tata Cummins  Ltd., it was entitled to the benefit of exemption  regarding sales tax as envisaged in clauses 16.1  and 16.2 of the policy.  

       Tata Cummins Ltd. applied to the Deputy  Commissioner of Commercial Taxes claiming the  benefit of exemption under the above two  notifications.

       On 2.12.1998, the Deputy Commissioner  rejected the claim of Tata Cummins Ltd. on the  ground that the Head lease from the government in  favour of TISCO had expired and until and unless  the Head lease in favour of TISCO stood renewed,  Tata Cummins Ltd. was not entitled to claim the  benefit of exemption from payment of sales tax.   Consequently, the claim made by Tata Cummins  Ltd. was rejected.  Since then, the Head lease has  been renewed.

       Thereafter, Tata Cummins Ltd. challenged the  decision of the Deputy Commissioner in writ  petition no.2689 of 2000.  The Division Bench held  that Tata Cummins Ltd. not having a valid lease  from the State Government or from TELCO, it could  not claim the benefit of the exemption under the  above two notifications.  Thus, the order of Deputy  Commissioner was upheld.   

       Tata Cummins Ltd. thereafter challenged the  decision of the Division Bench in this Court by way  of petition for special leave to appeal nos.20375 and  20376 of 2000.         During the pendency of the petitions for  special leave to appeal, it was found that the  Deputy Commissioner had passed the above order

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without the approval of the Joint Commissioner as  required under the above two notifications.   Therefore, the Joint Commissioner called for the  records of the case to examine the question of  exemption afresh after issuing notices to the Deputy  Commissioner and Tata Cummins Ltd.

       When the Supreme Court, thus, took up the  petitions for special leave to appeal for final  decision, the proceedings initiated by the Joint  Commissioner (Administration) were brought to its  notice.  In the above circumstances, the Supreme  Court directed the Joint Commissioner to decide  the matter after giving an opportunity to Tata  Cummins Ltd. to make a representation and file  necessary documents and to decide the matter  without being influenced by the impugned decision  of the High Court which was challenged in appeal  before this court.

       Vide order dated 24.5.2003, the Joint  Commissioner after noticing the above arguments of  Tata Cummins Ltd. held that the land on which the   factory was constructed by Tata Cummins Ltd. was  sub-leased land of TELCO from TISCO; that, TELCO  had allotted a portion of its leased land to Tata  Cummins Ltd.; that, as per the agreement between  TISCO and TELCO, the latter had no right to allot  part of the land to any other company; and that,  Tata Cummins Ltd. had requested TISCO to execute  a lease but the lease agreement had not been  executed.  In the circumstances, the Joint  Commissioner came to the conclusion that the  assessee had neither legal title nor ownership over  the land on which the factory was established and  nor was it in a position to produce a registered lease  deed for a term of 15 years or more for getting the  benefit of exemption under the above two  notifications.

       This order of the Joint Commissioner dated  24.05.2003 was challenged by Tata Cummins Ltd.  and TELCO vide writ petition no.2587 of 2003. By  the impugned judgment, the Division Bench of the  High Court held that Tata Cummins Ltd. was the  exclusive owner of the building in which the factory  was located and consequently the assessee had  fulfilled/complied with clause 6 of the said  notification no.478 read with clause 8 of the said  notification no.479.  The Division Bench also  noticed the contention of the assessee having  invested Rs.302 crores in the project and having  paid taxes to the tune of about Rs.600 crores.    

       By the impugned judgment, Tata Cummins  Ltd. was declared to be entitled to the benefit of the  Industrial Policy, 1995 read with the above two  notifications no.478 and 479 both dated  22.12.1995.  Accordingly, the State government and  the Commercial Tax Department have been directed  to adjust the refundable amount of Rs.54.5 crores  towards sales tax liability of Tata Cummins Ltd. for  the accounting year commencing from 1.4.2004.

       The facts found by the High Court are, that,

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after obtaining 37.19 acres of land from TELCO, out  of the lands held by TELCO from TISCO under a  sub-lease, Tata Cummins Ltd. established its  factory in its building.  The building was  constructed by Tata Cummins Ltd.  The industry  started its production on and from 1.1.1996.   TELCO was the 50% owner in the Joint Venture  known as Tata Cummins Ltd.  The object of  insisting on the ownership of the building or a lease  for 15 years, was only to ensure that the industry  did not run away after taking the advantage of the  benefit granted under the Policy and that the  company was really a bona fide investor of capital  in the industry intended to be run in the State for a  reasonable length of time.  It is in this background  that one has to see the investments made by Tata  Cummins Ltd..  As stated above, Rs.302 crores were  invested by Tata Cummins Ltd. which employs  more than 800 workmen and which has paid taxes  of about Rs.600 crores.  In the context of these  facts, we are of the view that the assessee herein is  not a fly-by-night operator.  We are confining this  judgment to the facts of the present case.  The  above figures are not disputed.   We are satisfied on  the basis of the above figures that the industry set  up by the Tata Cummins Ltd. will contribute to the  industrial growth and development of the State.

       However, in order to understand the scheme of  the Industrial Policy, 1995 read with the above two  notifications, we quote herein below clause 16 of  the Policy as also clause 6 and clause 8 of the above  two notifications: "16.1 Sales   Tax  on   purchase  of    Raw            Materials:

New Units will be allowed the facility  of either "set off" or "exemption" at  their choice, on purchase of raw  materials within the State.  New Units  opting for deferment of sales tax on  sale of finished goods (vide para 16.2)  will, however, be eligible for "set off"  only on purchase of raw materials.   The period of exemption for new units  will be limited to 10 years for category  ’A’ and 8 years for category ’B’  Districts from the date of  commencement of production of the  unit.

16.2 Sales   Tax   on   Sale   of  Finished          Goods for New Units:

New Units, in addition to the benefit of  "Exemption"/set off of sales tax on  purchases, will also have the option to  choose deferment or exemption of  Sales Tax (both Bihar Sales Tax (BST)  and Central Sales Tax (CST) on sale of  finished goods for a period of 10 years  for category ’A’ and 8 years for  category ’B’ Districts from the date of  production of the unit with a ceiling of  100% of the fixed investment made by

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the unit.  However, those industries  which are considered ’Thrust  Industries’ as listed earlier in Para 15  (excluding Telecommunication,  Computers, software/hardware &  Electronics Industries) as also  industries located in ’A’ category  Backward Districts the ceiling or  deferment would be 150% of the fixed  investment.  The ceiling for deferment  linked to the fixed investment in  regard to Telecommunication,  Computers, Software/Hardware &  Electronics Industries would be 300%  of the fixed investment made by the  unit.

       The amount of sales tax collected  under Sales Tax deferment option  would require to be returned in equal  six monthly instalments in such a  manner so that the entire amount is  returned by the 13th year from the  commencement of deferment option."

"NOTIFICATIONS: SO 478 dated 22.12.1995:

6.      For getting this facility it shall be  necessary that a unit should be  installed in such a building which is in  exclusive ownership of the  proprietor/entrepreneur of the unit or  in the ownership of any of its partner  or holding company.  If the factory or  workshop of a unit is installed on the  land or building taken on lease,  exemption will be granted only when  such land or building or both have  been acquired by way of a registered  lease for a period of minimum 15  years or more.  That lease should be in  favour of the proprietor of the unit or  any partner of the firm, or holding  Company.

SO 479 dated 22.12.1995:

8.      For getting this facility it shall  be necessary that a unit should be  installed in such a building which  is in exclusive ownership of the  proprietor/entrepreneur of the unit  or in the ownership of any of its  partner or promoter or holding  company.  If the factory or  workshop of a unit is installed on a  land or building taken on lease,  exemption will be granted only  when such land or building or both  have been acquired by way of a  registered lease for a period of 15  years or more.  That lease should  be in favour of the proprietor of the

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unit or any partner of the firm or  holding Company of the unit/firm."

        On behalf of the appellants it was argued by  the learned Additional Solicitor General that the  first limb of the notification applied only to  assessees who were the absolute owners of the  lands and the buildings, in contra-distinction to an  assessee, who was a lessee of the land and the  building covered by the second part of the  notification and since Tata Cummins Ltd had no  ownership over the land wherein the buildings were  constructed, it could not claim to be eligible for  concession in terms of the said notifications.  That,  the so-called further lease by TELCO to Tata  Cummins Ltd. was invalid in law.   In the context of  this last submission, it is important to note that the  Head lease in favour of TISCO has since been  renewed and the lease from TISCO to TELCO is not  in dispute.  That TELCO is 50% partner in the Joint  Venture is not denied.

       Before analyzing the above Policy read with the  notifications, it is important to bear in mind the  connotation of the word "tax".  A tax is a payment  for raising general revenue.  It is a burden.  It is  based on the principle of ability or capacity to pay.   It is a manifestation of the taxing power of the  State.   An exemption from payment of tax under an  enactment is an exemption from the tax liability.   Therefore, every such exemption notification has to  be read strictly.  However, when an assessee is  promised with a tax exemption for setting up an  industry in the backward area as a term of the  industrial policy, we have to read the implementing  notifications in the context of the Industrial Policy.   In such a case, the exemption notifications have to  be read liberally keeping in mind the objects  envisaged by the Industrial Policy and not in a strict  sense as in the case of exemptions from tax liability  under the taxing statute.    

       Applying the above tests to the facts of the  present case, the object behind enactment of the  Industrial Policy, 1995 was to confer incentives on  industries set up in the State.  As part of the  incentives, the Industrial Policy envisaged allotment  of land/building in growth centres to companies for  setting up industrial units on lease for 99 years  with an option for renewal.  As a part of the  incentives, it was also envisaged under clause 16  that sales tax benefit/exemption shall be granted to  attract investments in order to sustain industrial  development in the State.  It is in this background,  that we have to consider clause 16.1 and clause  16.2 of the Industrial Policy, 1995.  The two  notifications are merely instruments giving effect to  the policy envisaged under the Industrial Policy,  1995.    

       Under clause 16.1 of the Policy, all new units  were given the facility of "set off" or "exemption" on  purchase of raw-material within the State.  The  period of exemption was 10 years for industries

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situated in category "A" districts and 8 years for  industries situated in category "B" districts.  Under  clause 16.2, new units were given an option to  choose deferment or exemption of sales tax on sale  of finished goods for a period of 10 years for  category "A" districts and 8 years for category "B"  districts from the date of production of the unit with  a ceiling of 100% of the fixed investment made by  the unit.  However, those industries which were  considered as "Thrust Industries" located in "A"  category backward districts, the ceiling of  exemption or the deferment envisaged was 150% of  the fixed investment.   

       Thus, "investment" constituted the basis of  clause 16 of the Industrial Policy. That, the  eligibility criterion for conferment of tax incentive  was the Fixed Investment by the assessee which is  clear if one reads the two notifications dated  22.12.1995 in the context of clause 16 of the  Industrial Policy 1995 and which criterion is  satisfied by Tata Cummins Ltd. in this case,  namely, that, it is the owner of the building in  which its factory is situated.  The underlying  rational behind the notification(s) is that the  assessee must deploy funds in the ownership of the  building in which the factory is located or by  deployment of funds in the building(s) taken on  lease for the minimum period of 15 years so that  bogus companies without fixed investments are not  set up only with the intention of getting tax  exemptions.  

SCOPE OF THE NOTIFICATION NOS.478 & 479:

       At the outset we reiterate that if one reads the  notification(s) in the light of the incentive policy it is  clear that incentive is admissible to the unit which  is the owner of the building in which it is located  from which the industrial production commences or  it (unit) is located in a leasehold premises (building  or land or both), provided that the lease shall be of  the minimum period of 15 years.  As stated above,  the eligibility criterion is that of a fixed investment  by a genuine investor.  In the present case, as  stated above, we have to go by the interpretation of  the notification(s) in the light of the policy.   However, even if one goes by the strict  interpretation of the notification(s) we are in  agreement with the view expressed by the High  Court that the first part of the notification(s), as  distinct from the second part, does not refer to the  "land".  If the argument of the department is  accepted that the first part of the notification would  apply only if Tata Cummins Ltd. is the owner of the  land and building in which its factory is located  then we are not only giving a narrow interpretation  to the notification which would defeat the object  underlying the incentive policy but also it would be  against the very text of the said notification(s) which  omits the word ’land" from the first part of the  notification.  

       Before concluding, we may reiterate that at  one stage of the matter the department had taken

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the position that Tata Cummins Ltd. was not  entitled to the benefit as the Head lease in favour of  TISCO was pending renewal by the State  Government and till such time as the State renews  the lease in favour of TISCO, Tata Cummins Ltd.  was not entitled to the benefit of concession.  We  are now informed that the State Government has  renewed the Head lease in favour of TISCO who in  turn has sub-leased a portion thereof to TELCO,  which has 50% interest in the joint venture,  namely, Tata Cummins Ltd.

       In the circumstances, we are not required to  consider whether the above two notifications are   repugnant to the incentive policy.  We have,  however, noted the ratio of the decision of this court  in the case of State of Bihar & others etc.  v.   Suprabhat Steel Ltd. & others etc.  reported in  (1999) 1 SCC 31, in which it has been held that the  notifications meant for implementing the Industrial  Policy of the State government, cannot override the  incentive policy.

       On the facts of the present case, we need not  examine the question as to whether the said two  notifications no.478 and 479, quoted hereinabove,  are repugnant to the incentive policy.    

       Before concluding, we may point out that vide  order dated 26.3.2004, this court, by way of interim  measure, directed the appellant herein to adjust the  refundable amount of Rs.40 crores, for the  accounting year commencing from 1.4.2004, the  balance amount was ordered to be refunded to Tata  Cummins Ltd. who undertook to pay back to the  appellant the balance payment with interest at the  rate of 9% in the event of the State succeeding in  this civil appeal.  However, since we are dismissing  the appeal filed by the State, the question of refund  by Tata Cummins Ltd. to the State, of the balance  amount i.e. Rs.14.5 crores with interest, does not  arise.

       Accordingly, we find no merit in this civil  appeal and the same is dismissed, with no order as  to costs. CIVIL APPEAL NO.1006 OF 2004: [Tata Cummins Ltd. & Anr. v. State of Jharkhand & Ors.]

       In view of the above judgment, we are not  required to examine the validity of clauses 6 and 8  of notification nos.478 and 479 respectively and  accordingly, civil appeal no.1006 of 2004 is also  disposed of, with no order as to costs.