Allahabad High Court
Paswara Petrochem Limited vs Commissioner Of Trade Tax on 24 May, 2002
Equivalent citations: [2003]132STC159(ALL)
Author: R.B. Misra
Bench: R.B. Misra
JUDGMENT R.B. Misra, J.
This present trade tax revision has been filed under Section 11 of the U.P. Trade Tax Act, 1948 (in short called "the Act") against the order dated December 31, 2001 passed in Appeal No. 58 of 2001 dismissing the above appeal affirming the order dated April 3, 2001 of Divisional Level Committee, Meerut.
1. Heard Sri Bharatji Agarwal, learned Senior Advocate with Rakesh Ranjan Agarwal, learned Advocate for the applicant as well as learned Standing Counsel for the revenue-respondent.
2. The brief facts necessary for adjudication of the present revision are that the applicant, a public limited company incorporated under the Indian Companies Act, 1956, was granted exemption for a period of eight years from April 25, 1999 to April 24, 2007 on a fixed capital investment of Rs. 2,76,13,000. The first date of production was April 19, 1999 whereas, the date of first sale was April 25, 1999. The installed annual production capacity of the unit was 25,200 MT. The Divisional Level (Trade Tax Exemption) Committee, Meerut, by its order dated November 11, 1999 allowed the application of the applicant and granted exemption from payment of tax to the extent of Rs. 3,71,49,000 being 150 per cent of the fixed capital investment, i.e., Rs. 2,76,13,000. A copy of eligibility certificate dated November 11, 1999 is enclosed as annexure 1 to the revision. The applicant installed second plant for undertaking expansion with fixed capital investment of Rs. 3,04,37,000 after achieving 80 per cent production of the installed annual production capacity of 20,759.213 MT, whereas 80 per cent comes to 20,160 MT and started commercial production in the second plant on December 29, 1999 by undertaking expansion scheme as per Explanation (5) to Section 4-A of "the Act".
3. The first installed capacity of the plant was 25,200 MT per year and the installed capacity of the second plant was 42,000 MT, thus the total capacity for exemption was 67,200 MT. The production and sales of industrial solvent of the first plant from April, 1999 and continued up to March, 2000 was 34,397.658 MT, whereas, up to month of December, 1999 the applicant achieved more than 80 per cent production of the installed capacity of the first plant, therefore, the applicant applied for expansion after achieving base production under expansion scheme of the second plant. On the recommendation of the General Manager, District Industries Centre, Meerut, for the grant of eligibility certificate under the expansion scheme the Divisional Level Committee, Meerut, considered the application dated May 25, 2000 (annexure 5) of applicant to issue an eligibility certificate under expansion scheme. Along with the application, the applicant also appended copy of the chart of production of the first plant and the second plant. A true copy of the composite chart is annexed as annexure 4 to the revision. A perusal of chart it is apparent that up to December 28, 1999 the applicant had achieved production of 20,759.213 MT whereas up to March 31, 2000 the total production of the first plant was 22,680 MT. The total production of the second plant after undertaking expansion from December 29, 1999 was 11,717.195 MT. The D.L.C. rejected the application on April 3, 2000 and later on the Divisional Level Committee (DLC) by its order dated July 3, 2000 also rejected the review application preferred by the applicant under Rule 25(3)(e) of the U.P. Trade Tax Rules, 1948.
4. The main ground for dismissal of application for exemption as well as review application was based on the interpretation of the relevant provisions of the U.P. Trade Tax (Amendment) Act, 1998 (Act No. 26 of 1998) dated July 27, 1998 read with Commissioner's circular No. 439 dated September 6, 1999 and DLC was of the view that the unit made the first date of production in the first plant on April 19, 1999 and the expansion of the second plant was made on December 29, 1999, hence the applicant was not entitled to get the eligibility certificate under the expansion scheme, since one year from the date of production of the first plant had not completed. It has further been observed that since production was made under expansion scheme for nearly 8 and 1/2 months of one assessment year from April 19, 1999 to December 29, 1999 therefore the unit was not entitled for exemption under expansion scheme. The second appeal No. 58 of 2001 preferred before the learned Trade Tax Tribunal has been dismissed on December 31, 2001, affirming the order dated April 3, 2001 of Divisional Level Committee. The present revision has been preferred against the above order dated December 31, 2001.
5. In the present facts and circumstances the applicant has submitted the following questions for consideration :
(i) Whether a unit can undertake expansion even if its production period of more than one year has not expired ; and if the expansion is undertaken after 8 months and 10 days will it go out of the field of eligibility under Explanation 5 to Section 4-A of U.P. Trade Tax Act ?
(ii) Whether the learned Tribunal was legal to reject the applicant's appeal on the ground that Clauses (a) and (b) of explanation (6) to Section 4-A of "the Act" are mutually inclusive as is to be read in conjunction with each other especially when the applicant had achieved 80 per cent of installed annual capital investment before undertaking expansion on December 29, 1999 ?
(iii) Whether the Clause (b) of the amended Explanation (6) to Section 4-A of "the Act" is at all applicable in the case of the applicant when 80 per cent of the installed capacity was achieved ?
(iv) Whether the learned Tribunal was correct to interpret explanation (6) as amended by U.P. Act No. 26 of 1998 that looking into the unamended explanation (6) which in fact after interpreting that Clauses (a) and (b) of the amended explanation (6) are mutually exclusive in view of the decision of the Supreme Court in Commissioner of Sales Tax v. Industrial Coal Enterprises [1999] 114 STC 365 ; (1999) 14 NTN 210 ?
(v) Whether the Commissioner's circular dated September 6, 1999 cannot be relied upon by the Tribunal for deciding the controversy that the applicant was not entitled to get exemption since it had undertaken expansion during one assessment year specially when the Commissioner, Trade Tax, is a party in appeal and there is no such restriction placed by the amended explanation ?
(vi) When the Divisional Level Committee itself had noticed this circular in its order ?
(vii) Whether the learned Tribunal was correct not to consider that notification granting exemption for industrial development should be interpreted purposefully looking to the object of the notification of 1995 especially when all the conditions have been fulfilled ?
(viii) Whether the learned Tribunal was correct not to take into account the notification dated December 22, 2001 which was in existence prior to delivery of judgment ?
6. The learned Tribunal has observed in favour of the applicant as follows :
"At the very outset, we would like to make clear that it has not been disputed that the unit fulfilled conditions laid down under Clauses (c) and (d) of Explanation (5) to Section 4-A of the Act in as much as production capacity has increased by at least 25 per cent as a result of expansion and additional fixed investment of at least 25 per cent of original fixed capital investment was also made. It was further not disputed that the unit has achieved more than 80 per cent of the base production. The installed annual production capacity of the first unit was 25,2(10 MT. The unit has already manufactured 20,759.213 MT by December 29, 1999 when it declared expansion. The 80 per cent of the installed annual production capacity comes to 20,160 MT. Thus, the production capacity of 20,759,214 MT was more than 80 per cent of the installed production capacity."
However, relying upon the circular dated September 6, 1999 issued by the Commissioner of Trade Tax, U.P. (annexure 9) the Tribunal has held that since one complete year of production has not been completed, the applicant was not entitled to the benefit of expansion under explanation (5) to Section 4-A of the Act. Section 4-A, explanation (5) defines the meaning of the unit undertaking expansion.
7. It has been argued on behalf of the applicant/revisionist that the field of eligibility is one thing and grant of exemption under the scheme of the expansion after a certain period is absolutely another thing.
Explanation (5) to Section 4-A of the Act defines the field of eligibility as follows :
"Explanation (5) 'Unit which has undertaken expansion, diversification or modernisation' means an industrial undertaking,--
(a) of a dealer who is not defaulter in payment of any dues under this Act or the Central Sales Tax Act, 1956 or under any loan scheme administered by the Pradeshiya Industrial and Investment Corporation of Uttar Pradesh regarding trade tax on sale or purchase of goods ;
(b) whose first date of production of goods--
(i) of a nature different from those manufactured earlier by such undertaking in case of units undertaking diversification, and
(ii) manufactured in excess of base production in such undertaking in case of units undertaking expansion or modernisation, falls at any time after March 31, 1990 ;
(c) the production capacity whereof except as provided in the proviso to Sub-section (1) has increased by at least twenty-five per cent as a result of expansion or modernisation, or wherein goods of a nature different from those manufactured earlier are manufactured after diversification ;
(d) wherein an additional fixed capital investment of at least twenty-five per cent of such original fixed capital investment (without providing for depreciation) is made ; and
(e) which has been established within the same district in which the existing industrial unit is established."
In order to come within the field of eligibility a unit undertaking expansion Clauses (a) to (e) are relevant, which have been extracted above.
8. Admittedly, the applicant is not defaulter as contemplated in Clause (a). Neither the Divisional Level Committee nor the department has ever alleged that the applicant is defaulter. On the other hand, the Trade Tax Department (Assistant Commissioner) (Assessment) in his report has recommended for the grant of eligibility certificate under the scheme of expansion since the applicant has completed with all the conditions of the field of eligibility.
In the case of expansion under Clause (b)(ii) the manufacture in excess of base production means the production which falls at any time after March 31, 1990.
9. Admittedly, the manufacture in excess of base production had fallen after 31st March, 1990. So far as Clauses (c) and (d) are concerned, learned Tribunal has observed that revenue has admitted the production capacity of unit has been increased by more than 25 per cent and the additional fixed capital investment has also been made, which is more than 25 per cent of the original fixed capital investment without providing for depreciation.
It is admitted fact that original installed annual production capacity was 25,200 MT, which has been increased by more than 42,000 MT, making total production capacity of 67,2000 MT, after expansion. Similarly, the original fixed capital investment without providing for depreciation was Rs. 2,86,13,000 while the additional fixed capital investment was Rs. 3,04,37,000 which is more than 100 per cent of the original investment.
The Tribunal has also recorded a finding that 80 per cent of the original installed production capacity comes to 20,160 MT, while the applicant has manufactured 20,769.21 MT, on December 29, 1999. When the expansion was declared this production capacity was more than 80 per cent.
10. The preamble of Notification TT-2-78/XI-9(226)94-UP Act-15/ 48-Order No. 95 dated March 31, 1995 provides as follows :
"Whereas the State Government is of the opinion that for promoting the development of certain industries in the State, it, is necessary to grant exemption from or reduction in rate of tax to new units and also to units which undertaken expansion, diversification, modernisation or backward integration."
Clause 1(B) of the notification dated March 31, 1995 provides for grant of exemption to the unit which has undertaken expansion on or after April 1, 1995 but not later than March 31, 2000 shall be entitled for exemption mentioned in column 3 of annexure 1 to the said notification or till the maximum amount of monetary limit of exemption mentioned in column 5 of annexure 1 is achieved, whichever is earlier, on the turnover of sales.
Since the applicant's unit is situate in the district of Meerut, it is entitled for exemption for a period of eight years on the turnover of sales of the goods which is in excess of base production.
11. Once the applicant has fulfilled the requirement of field of eligibility, the next question will be the date from which exemption is to be granted. In order to calculate the period of facility, Clause 3(ii) of the Notification No. 780 dated March 31, 1995 is relevant which is reproduced below :
"3. The period of such facility shall be reckoned from the first date of production :
(i)...........
(ii) of goods manufactured in excess of base production in the case of units undertaking expansion or modernisation ;".
In view of Clause 3(ii), it is clear that period of eight years for exemption shall be reckoned from the first date of production of the goods manufactured in excess of base production in the case of units undertaking expansion. The aforesaid provision of the notification makes it clear that actual exemption was granted from the date of first production which shall be in excess of base production and for this purpose only explanation (6), as amended by U.P. Act No. 26 of 1998, dated July 27, 1998 (annexure 7) to the revision to Section 4-A of the "Act" is relevant.
The explanation (6) to Section 4-A of the "Act" is not relevant for determining the field of eligibility of a unit as to whether it has undertaken expansion or not.
The question whether explanation (5) to Section 4-A provides for field of eligibility was considered by this Court in Kajaria Ceramics Limited v. Trade Tax Tribunal [2000] 120 STC 117 ; 2000 UPTC 154. It was held by this Court in paragraphs 9 and 18 (at pages 130 and 138 of STC 170 and 176 respectively) as follows :
"9. Explanation (5) to Section 4-A of the Act provides for eligibility of units for availing facility of exemption on ground of undertaking expansion, diversification or modernisation."
On page 176 (page 138 of STC) in paragraph 18, this Court has held as follows :
"18......Similarly explanation (5) of Section 4-A explains what would be meant by the expression the 'unit which has undertaken expansion, diversification or modernisation'. Learned Chief Standing Counsel has drawn the attention of the court to Sub-clause (d) of the aforesaid explanation which provides that such a unit means wherein an additional fixed capital investment of at least twenty-five per cent of such original fixed capital investment (without providing for depreciation) is made. On the strength of the above provision, it is argued that Sub-clause (d) of explanation (5) clearly provides that additional fixed capital investment in case of a unit undertaking expansion should be at least twenty-five per cent of such original fixed capital investment. Shri Bharat Ji Agrawal, learned counsel for the revisionist, has rightly pointed out that the explanation as aforesaid provides only with regard to the field of eligibility. By explaining as to what would be meant by a unit which has undertaken expansion, etc., the explanation provides as to which unit shall be eligible for facility of exemption under Section 4-A of the Act. In view of the aforesaid decision, it is absolutely clear that explanation (5) is only regarding for deciding as to whether the unit comes within the field of eligibility."
12. Admittedly, the applicant's unit comes within the field of eligibility as mentioned in explanation (5) to Section 4-A of "the Act" and learned Tribunal was not justified in relying upon explanation (6), which only defines the base production for purposes of deciding the field of eligibility of the unit undertaking expansion.
13. So long as base production of unit undertaking expansion falls at any time after March 31, 1990 and before March 31, 2000, it shall be a unit within the field of eligibility. As mentioned above, the definition of the words "base production" is only relevant for determining the date from which exemption can be availed in accordance with Clause 3(ii) read with period of exemption mentioned in annexure I of Notification No. 780, dated March 31, 1995. The learned Tribunal was not justified in relying upon Explanation (6) as amended by U.P. Act No. 26 of 1998 for the purpose of disentitling the applicant on the ground that it has undertaken expansion within one year from the date of start of production.
14. As contended on behalf of the applicant/revisionist that the Trade Tax Tribunal (Full Bench) of Lucknow, itself in Appeal No. 96 of 1998, Kishan Lal Pawan Kumar Jain Pvt. Ltd. v. Additional Director of Industries and Commissioner of Trade Tax, decided on October 12, 1999, (enclosed with supplementary affidavit dated April 7, 2002), has not accepted the contention of the Revenue that the expansion undertaken within nine months from the date of start of production is not permissible. In the case of Kishan Lal, the first date of production was March 30, 1995 and it undertook expansion with the first date of production on December 25, 1995. At page 3 of the judgment dated October 12, 1999, the learned Tribunal in that case has observed as follows :
"The learned Assistant Commissioner/State Representative submitted that expansion has been made in the instant case by the applicant even before the completion of the period of one year as it has been made within nine months from the installation of the original unit. He submitted that it would not be possible to calculate the base production. This argument does not have any legal course."
15. The argument of the revenue before the Tribunal (FB) that the expansion was made before completion of the period of one year, i.e., within nine months, and therefore, it would not be possible to calculate base production for the purpose of expansion was not accepted by the Tribunal as such this argument did not have legal force. It was contended for the applicant that the calculation of "base production" will be relevant only for the purpose of determining the date from which period of exemption is to be guaranteed and is not relevant for the purpose of determining the field of eligibility of a unit undertaking expansion.
16. It has been alternatively contended and argued on behalf of the applicant-revisionist that even assuming without admitting that explanation (6) has also to be considered (as amended by U.P. Act No. 26 of 1998) still Clauses (a) and (b) are not mutually inclusive as held by the Tribunal. By, U.P. Act No. 26 of 1998 following amendment was made which is reproduced below :
"6(e) For the existing explanation (6), the following explanation shall be substituted and be deemed to have been substituted on April 1, 1990, namely :
(6) For the purposes of this section the expression 'base production' means,--
(a) eighty per cent of the installed annual production capacity ; or
(b) maximum production achieved during any one of the preceding five consecutive assessment years or if the unit were in production for less than five years, the maximum production achieved during any one of the preceding assessment years whichever is higher :
Provided that where a unit manufacturing more than one goods has not undertaken expansion or modernisation in respect of all such goods, its base production will be determined on the basis of production of goods in respect of which expansion or modernisation has been undertaken :
Provided further that where investment made during certain period is clubbed together for the purpose of determining the fixed capital investment, the production immediately prior to the date on which such investment was first started to be made in respect of expansion or modernisation shall be taken into account for determining the base production."
17. The "base production" has been defined as 80 per cent of the installed annual production capacity or maximum production achieved during any one of the five consecutive assessment years or if it was in production for less than five years, maximum production achieved during any one of the preceding assessment years, whichever is higher. Clauses (a) and (b) are mutually exclusive, and the words "whichever is higher" mentioned in Clause (b) is only for the production in any of the preceding years. For example if the unit was in production for three years, the first year production was 100 tons, second year 80 tons and third year 110 tons, 110 being higher, it shall be taken as "base production". However, in case where a unit has not completed production for more than one year, then 80 per cent of the installed annual production capacity will be taken as "base production" as provided in Clause (a) of explanation (6) mentioned above.
18. The provisions of Clauses (a) and (b) are mutually exclusive and the word "or" used after semicolon (;) of Clause (a) is disjunctive and not conjunctive inasmuch as there are two separate categories mentioned in Clauses (a) and (b). In this connection paragraph 45 of the decision of the Supreme Court in R.S. Naik v. A.R. Antuley (1984) 2 SCC 183, is relevant which is reproduced below :
"45. ..........Clause 12(a) which provides that every person in the service of the Government would be a public servant. It was urged that if even for being comprehended in the second part of the clause namely, a person would be a public servant if he is in the pay of the Government, there ought to be a master-servant or command-obedience relationship, the Legislature would be guilty of tautology and the disjunctive 'or' would lose all significance. The use of the expression 'or' in the context in which it is found in Clause (12)(a) does appear to be a disjunctive. Read in this manner, there are three independent categories comprehended in Clause (12)(a) and if a person falls in any one of them, he would be a public servant. The three categories are as held by the learned special Judge, (i) a person in the service of the Government; (ii) a person in the pay of the Government; and (iii) a person remunerated by fees or commission for the performance of any public duty by the Government. One can be in the service of the Government and may be paid for the same. One can be in the pay of the Government without being in the service of the Government in the sense of manifesting master-servant or command-obedience relationship. The use of the expression 'or' does appear to us to be disjunctive as contended on behalf of the respondent. Depending upon the context, 'or' may be read as 'and' but the court would not do it unless it is so obliged because 'or' does not generally mean 'and' and 'and' does not generally mean 'or'. (See Green v. Premier. Glynthonwy Slate Co, Ltd. [1928] 1 KB 561 at p. 568, Manmohan Das Shah v. Bishun Das [1967] 1 SCR 836 at p. 839 ; AIR 1967 SC 643 and Kamta Prasad Aggarwal v. Executive Officer, Ballabgarh [1974] 2 SCR 827 at p. 830 ; AIR 1974 SC 685 at page 687 and several others which we consider it unnecessary to enumerate here."
19. The same view has been taken by the Supreme Court in the case of Manmohan Das Shah v. Bishun Das [1967] 1 SCR 836 at 839 ; AIR 1967 SC 643 at 645 second column middle, the honourable Supremo Court has held as under :
"The ordinary rule of construction is that a provision of statute must be construed in accordance with the language used therein unless there are compelling reasons.....There is no reason why the word 'or' should be construed otherwise than in its ordinary meaning."
20. Similarly in the case of Kamta Prasad Aggrawal v. Executive Officer, Ballabgarh reported in [1974] 2 SCR 827 ; AIR 1974 SC 685 (Constitution Bench), in paragraphs 11 and 12 of Kamta Prasad case [1974] 2 SCR 827 ; AIR 1974 SC 685, while construing the provisions of Article 276 of the Constitution, the Supreme Court has held that the word "or" used in Article 276 is in a disjunctive sense. In paragraph 12, the honourable apex Court has held that the provisions arc clear in their effect and the word "or" occurring between the words "State" and "to any one municipality" cannot be road as and in conjunctive sense.
21. In those circumstances even if explanation (6) has to be seen for the purpose of determining the field of eligibility, Clauses (a) and (b) of explanation (6) are mutually exclusive and the word "or" after semicolon (;) and before Clause (b) has been used in disjunctive and non-conjunctive sense.
22. Apart from it circular dated September 6, 1999 is only an administrative instruction and it cannot override statutory provisions.
23. The explanation (5) and explanation (6) are piece of legislation which have been enacted by Legislature and not by the Government. Hence, if the circular has been issued by the Commissioner of Trade Tax on the opinion of the State Government, it cannot override the statutory provisions. The circular dated September 6, 1999 being a piece of executive instruction may be binding on the department but neither on the assessee nor on the court in view of the decision of the honourable Supreme Court in the case of Commissioner of Trade Tax v. Indra Industries reported in [2001] 122 STC 100 ; 2000 UPTC 472 wherein it has been held that the circular of the Commissioner of Trade Tax even if it is erroneous, may be binding on the trade tax authorities but not on the dealer and the court.
24. The circular even if it is contrary to the notification as defined in Section 29-A of the U.P. General Clauses Act, 1904 shall be illegal what to say the circular being contrary to the legislative enactment of Explanation (5) to Section 4-A of the Act. A division Bench of this Court in Hindustan Reprographics Limited v. State of Uttar Pradesh [1989] 72 STC 424 (All.); 1988 UPTC 1232, has held that the circulars issued by the State Government dated March 17, 1988 and March 23, 1988 being contrary to the notification dated January 29, 1985 and December 26, 1985 are illegal and cannot be relied upon for reducing the period of exemption under Section 4-A of "the Act".
25. After the judgment was reserved by the learned Tribunal in the appeal on December 11, 2001 the Notification No. 3867 dated December 22, 2001 was issued, which was sent by the Assistant Commissioner of Trade Tax, Head Quarter, to the Registrar, Tribunal, Lucknow, which also provided in clause "kha" that in respect of the unit undertaking expansion "base production" must be achieved on or before March 31, 2001 in order to get exemption under the scheme of expansion.
26. Neither in the explanation (5) to Section 4-A of "the Act" which provides field of eligibility of the unit undertaking expansion nor the Notification No. 780 dated March 31, 1995 nor the Notification No. 3867 dated December 22, 2001 provided that in order to come within the field of eligibility, the production must be completed for one year only thereafter the expansion could be undertaken, therefore, the view taken by the Trade Tax Tribunal in the judgment dated December 31, 2001 and of the Divisional Level Committee dated April 3, 2001 and July 3, 2000 (annexures 16 and 12 and 8 to the revision petition) being in derogation to the spirit of exemption to be provided in this Act could not be legally sustained.
27. It may be stated here that in view of the preamble of the Notification No. 780 dated March 31, 1995 quoted above, the purpose of granting exemption to a unit undertaking expansion was to promote development of industries in the State. Hence, in view of the decision of the honourable Supreme Court in the case of Commissioner of Sales Tax v. Industrial Coal Enterprises reported in [1999] 114 STC 365; (1999) 14 NTN 210, the construction of explanation (5) and the notification issued thereunder should be reasonable and in a purposive manner so as to achieve the object of the notification dated March 31, 1995 as held in paragraphs 11 and 12 of the Industrial Coal Enterprises [1999] 114 STC 365 (SO ; (1999) 14 NTN 210.
28. In view of paragraph 10 Industrial Coal Enterprises [1999] 114 STC 365 (SC) ; (1999) 14 NTN 210, the subsequent notification dated December 22, 2001 could also be looked into for deciding the question in issue.
29. In view of above observations and analysis the question of law are dealt with and adjudicated accordingly and are answered affirmatively in favour of the applicant/revisionist and the revision is allowed and order dated December 31, 2001 of learned Tribunal in Appeal No. 58 of 2001 as well as order dated April 3, 2001 of D.L.C. is set aside and it is indicated that the applicant is entitled for the grant of eligibility certificate under the scheme of expansion and as such the Divisional Level Committee is hereby directed to consider for granting/issuing the eligibility certificate under the scheme of expansion in the light of the observations made within two months from production of the certified copy of this order.