Kerala High Court
Kitex Garments Ltd vs State Of Kerala on 27 November, 2024
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
WA NO.597/2017 1
2024:KER:89076
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR.JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE SYAM KUMAR V.M.
WEDNESDAY,THE 27TH DAY OF NOVEMBER 2024/6TH AGRAHAYANA,1946
WA NO.597 OF 2017
ARISING OUT OF THE JUDGMENT DATED 17.01.2017 IN WP(C)
NO.3231 OF 2012 OF HIGH COURT OF KERALA
APPELLANT/PETITIONER:
KITEX GARMENTS LTD.
KIZHAKKAMBALAM, ALWAYE-683562,
REPRESENTED BY ITS MANAGING DIRECTOR-
SABU.M.JACOB.
BY ADV SRI.MILLU DANDAPANI
RESPONDENTS/RESPONDENTS:
1 STATE OF KERALA
REPRESENTED BY PRINCIPAL SECRETARY TO
GOVERNMENT,TAXES(H)DEPARTMENT,GOVERNMENT
SECRETARIAT,THIRUVANANTHAPURAM-695001.
2 THE DEPUTY TAHSILDAR(REVENUE RECOVERY)
TALUK OFFICE, KUNNATHUNADU,
PERUMBAVOOR-683542.
BY ADV.SRI.V.K.SHAMSUDHEEN, SR.GOVERNMENT PLEADER
THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 28.10.2024,
THE COURT ON 27.11.2024 DELIVERED THE FOLLOWING:
WA NO.597/2017 2
2024:KER:89076
JUDGMENT
Dated this the 27th day of November, 2024 Syam Kumar V.M., J.
This Writ Appeal is filed against the judgment dated 17.01.2017 in W.P.(C) No.3231 of 2012. Appellant was the petitioner in the said W.P.(C).
Brief Facts:
2. Appellant is a Public Limited Company engaged in the manufacture and export of garments. It has around 1000 employees, around 750 of whom are women. Most of the women so employed are speech and hearing impaired, who had joined in response to an advertisement placed by the appellant offering work and free accommodation. The women employees have come from across the State and beyond and live and work within the factory premises.
Adjacent and contiguous to the factory building wherein these women work, the appellant has constructed a building that houses the resting areas, shelters, canteen/lunch rooms, toilets etc. for the women employees. Whether the appellant can claim exemption from tax for the said building invoking Section 3(1) (b) of the Kerala Building Tax Act, 1975 (hereinafter referred to as 'the Act of 1975') which envisages such exemption for a 'factory' is the short question WA NO.597/2017 3 2024:KER:89076 that comes up for concentration in this Writ Appeal.
3. In the Writ Petition, the appellant had challenged Ext.P8 order passed by the Government which declined tax exemption to the said building. Ext.P8 order was based on an inspection report (Ext.P7) submitted by the Tahsildar which in turn was pursuant to a judgment of this Court (Ext.P5) in an earlier O.P.No.20032 of 1999 filed by the appellant. This Court had in Ext.P5 judgment made some observations based on Sections 42 to 48 of the Factories Act, 1948 concerning the scope of tax exemption to be afforded under the Act of 1975 to a building situated within factory precincts. Ext.P5 directed the Government to consider the matter afresh after obtaining an inspection report from the Tahsildar. In his report submitted in furtherance thereof, the Tahsildar concluded that the relevant building is a 'hostel' in so far as the employees had been recruited through advertisements that specifically stated they would be provided with free accommodation and food. This act of providing accommodation to the employees, according to the Tahsildar, was not a statutory mandate under the Factories Act. The report further stated that the women employees of the Company work only during the daytime and they spend the rest of their time inside the impugned building which consists of well-furnished halls with beds arranged in dormitory style. Personal cupboards were attached to every bed, the key of which was kept by the person who regularly WA NO.597/2017 4 2024:KER:89076 used the bed. The toilets in the building were found to suit a hostel rather than a factory. It was further reported that the management of the appellant-Company was deliberately trying to term the building as a 'shelter' by stating that no registers are maintained to record the details of the employees staying therein. The conclusion thus drawn by the Tahsildar after inspection was that the building was for all purposes a hostel and cannot be termed as a part of a factory entitling it to be exempted from tax. Based on the said report, the Government passed Ext.P8 order inter alia holding that since the major portion of the relevant building is being used for accommodation of the female staff of the Company and that facilities like canteen, places for washing, drying and storing of clothes, dormitory with beds, lockers etc., within the building rendered it more a hostel than a factory premise. It was thus concluded in Ext.P8 that the building is a hostel that does not come under the exemption class. Ext.P8 order of the Government was sought to be quashed by the appellant filing the above W.P.(C) No.3231 of 2012.
4. The learned Single Judge, taking note of Ext.P7 report as well as the observations in Ext.P5 judgment concluded that there is no reason to interfere with Ext.P8 order for the reason that entitlement to tax exemption envisaged for a 'Factory' under the Act of 1975 will be attracted only to those mandatory requirements as provided under the Factories Act, 1948 without which the running of WA NO.597/2017 5 2024:KER:89076 a factory would attract penal proceedings as against the occupier of such factory. Since there is no legal mandate to provide a hostel for the employees under the Factories Act, a hostel facility provided for the employees does not come under the exemption granted to a building used as a Factory. Since the Government had rendered Ext.P8 order after obtaining a factual report from the Tahsildar and after satisfying the nature of the building and the use to which it is put, the learned Judge concluded that there was no cause or reason to interfere with the same. The Writ Petition was dismissed and the aggrieved appellant is before us with this Writ Appeal.
5. Heard Sri.Millu Dandapani, learned counsel appearing for the appellant and Sri.V.K.Shamsudheen, learned Special Government Pleader for the respondents.
6. Contentions of the appellant:
● The taxing authority ought to have considered whether the building is used principally for factory purposes or not. If the building is predominantly and principally used for factory purposes, some areas that are used ancillary to the main purpose cannot be excluded from the purview of Section 3 (1)
(b) of the Act of 1975.
● In Ext.P7 report, the Tahsildar has clearly mentioned the interconnected nature of the impugned building and that the employees could pass from one building to another without WA NO.597/2017 6 2024:KER:89076 going outside. Though numbered separately, the building used as the factory's working area and the building housing the dormitory, restrooms, canteen, and toilets are interconnected by a passage and thus form a composite whole structure. The building is thus used principally for factory purposes and some areas thereof are used ancillary to the main purpose. This satisfies the mandates for tax exemption under the Act of 1975. ● The word principally used in Section 3 (1) (b) of the Act of 1975 has to be assigned some meaning. If the predominant purpose is as a factory, then the ancillary purposes carried out in relation to the factory in a part of the building that houses the factory cannot be excluded from the exemption of payment of building tax. Reliance is placed on the dictum laid down by this Court in the judgment dated 02.11.2023 in W.P.(C) No.10799 of 2023 in Mathrubhumi Printing & Publishing Co. Ltd. v. State of Kerala and another.
● Chapter V of the Factories Act, under Sections 42 to 48, inter alia stipulates that every factory shall have washing facilities, facilities for sitting, canteens, shelters, rest rooms and lunch rooms, creches, first aid appliances, etc. Appellant, by constructing the impugned dormitory building and providing a passage to it from the factory building, was only complying with the statute's mandates.
WA NO.597/2017 7
2024:KER:89076 ● There is no case for the respondents that the appellant had been permitting persons other than the employees to use the impugned dormitory building. Since the shelter and allied facilities were being used only by the employees in the factory of the appellant, the said building which is an integral part of the factory had to be treated so and exempted from taxation.
7. Contentions of the respondents :
● The judgment of the learned Single Judge does not require any interference as it lays down the correct law. ● The factory building and the building that houses the dormitory stand are numbered separately. The former bears No.497 and the latter has been assigned No.498. Thus, the two buildings are distinct and separate, the former being the factory proper and the impugned building which is exclusively used as a hostel facility. The tax exemption that is envisaged for the former cannot be extended to the latter.
● By prefixing the word 'principally' to the exempted categories of building including factories, Section 3 (1) (b) of the Act of 1975 has specifically excluded allied facilities, if any. Hence the building used for ancillary activities of a 'factory' cannot be excluded from tax relying on Section 3 of the said Act. ● The preposition 'as' used before the word 'factories' in Section 3 (1) (b) of the Act of 1975 has a specific intent and purpose. It WA NO.597/2017 8 2024:KER:89076 emphasizes that the relevant building or its premises have to be used 'as a factory' and nothing else. Since the relevant building is not being used 'as a factory', the exemption under Section 3 of the Act cannot be extended to the said building.
● 'manufacturing process' is integral to the definition of 'factory' has been defined in Section 2 (m) of the Factories Act. Admittedly no 'manufacturing process' whatsoever is being carried out in the impugned building for which exemption is claimed.
● The definition of 'factory' in Section 2 (m) refers to the place where workers are 'working'. Admittedly the employees are residing and not working in the impugned building. ● The intention of the legislature while defining 'factory' in Section 2 (m) has been to exclude anything that is not a factory and where no 'manufacturing process' is being carried on. The term 'precincts' used in the definition of 'factory' in Section 2
(m) cannot be stretched to include an activity or premise wherein no 'manufacturing' is carried out. The crucial test to be satisfied is the connection between the 'factory' and the 'manufacturing process'. This test is not satisfied by the impugned building of the appellant thus disentitling any exemption.
● There is no reason to interfere with the judgment of the WA NO.597/2017 9 2024:KER:89076 learned Single Judge as it essentially follows the observations in Ext.P5 judgment, which has not been challenged or varied. ● In Ext.P5 judgment, it was categorically observed that if the impugned building is found to be a hostel for accommodating the appellant's employees, it is not eligible for exemption. Since Ext.P5 judgment has not been challenged, the finding therein that a hostel cannot be termed a factory precinct has become final in view of Ext.P7 inspection report which unequivocally finds it to be a hostel. The appellant is thus estopped from re-agitating the matter.
● The contention that hearing-impaired women workers are being accommodated in the impugned building does not carry any legal weight in so far as if it is charity that the appellant is aiming at as a ground for exemption from tax, the same ought to be claimed under a different head and not under Section 3 (1) (b) of the Act of 1975.
● Being a provision that exempts a category of buildings, Section 3 (1) (b) of the Act of 1975 ought to be construed in favour of the revenue. Reliance is placed on Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others [(2018) 9 SCC 1] and Government of Kerala and another v. Mother Superior Adoration Convent [(2021) 5 SCC 602].
WA NO.597/2017 10
2024:KER:89076 Discussion and findings:
8. The Act of 1975 was enacted to provide for the levy of tax on buildings and luxury tax on certain residential buildings. 'Building' has been defined under Section 2 (e) of the Act to mean:
"...a house, out-house, garage, or any other structure, or part thereof, whether of masonry, bricks, wood, metal or other material, but does not include any portable shelter or any shed constructed principally of mud, bamboos, leaves, grass or thatch or a latrine which is not attached to the main structure."
Section 3 of the said Act provides that nothing in the Act shall apply to certain categories of buildings specifically mentioned therein. Section 3 to the extent relevant to the discussion at hand is reproduced as follows:
3. Exemptions - (1) Nothing in this Act shall apply to -
(a) xxxx
(b) buildings used principally for religious, charitable or educational purposes or as factories or workshops or cattle/pig/poultry farms or poly houses. (emphasis added) Hence a building, used 'principally' as a 'factory' is exempted from the building tax. The term 'factory', however, is not defined in the Act of 1975. So to understand its scope and ambit, one must refer to the definition of the said term in the Factories Act, 1948. A reference to the dictionary meaning of the term may not suffice as there exists a specific statute that defines the very term from a legal perspective.
Further, while examining a tax statute, we cannot be oblivious to the other regulatory statutes operating in the same field. The relevant WA NO.597/2017 11 2024:KER:89076 portion of Section 2 (m) of the Factories Act that defines the term 'Factory' thus reads as follows:
"factory" means any premises including the precincts thereof--
(i) whereon ten or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on with the aid of power, or is ordinarily so carried on, or
(ii) whereon twenty or more workers are working, or were working on any day of the preceding twelve months, and in any part of which a manufacturing process is being carried on without the aid of power, or is ordinarily so carried on,--
but does not include a mine subject to the operation of the Mines Act, 1952 (35 of 1952), or a mobile unit belonging to the armed forces of the Union, a railway running shed or a hotel, restaurant or eating place. (emphasis added)
9. Being a welfare statute, the Factories Act in Chapter V under Sections 42 to 48, inter alia stipulates that every factory shall have washing facilities, facilities for storing and drying clothing, facilities for sitting, canteens, shelters, rest rooms and lunch rooms, creches, first aid appliances, etc. Thus the 'factory' that has been exempted from tax under the Act of 1975 is a factory as defined under the Factories Act and that meets all its welfare mandates. Having thus defined our terms, we now proceed to examine the contentions put forth by both sides and to answer whether the impugned building of the appellant meets the requisite mandates to WA NO.597/2017 12 2024:KER:89076 earn an entitlement for tax exemption.
10. The appellant's building for which exemption is claimed, as reported by the Tahsildar, lies contiguous to the working area or the factory and possesses an interconnected structure. The employees could pass from one building to another without going outside. Though numbered separately, the building used as the factory's working area and the building housing the dormitory, restrooms, canteen, and toilets are situated as a composite whole structure. If so, as pointed out in the contentions put forth, can it be said to be used 'principally' used as a 'factory'? Can incidental or ancillary premises be included in the term factory as used in the Act of 1975? Does the fact that a 'manufacturing process' is not carried out in that portion of the building debar it from claiming exemption? The Supreme Court had occasion to consider the first question in Mother Superior Adoration Convent' s case (supra). It was held therein that:
"What is important is the expression "principally", showing thereby that the legislature decided to grant this exemption qua buildings which are "principally" and not exclusively used for the purposes mentioned therein."
11. So the term 'principally' cannot be equated with 'exclusively'. It could only denote the principal or main purpose to be carried out in the relevant building. Such an interpretation supports logical consistency too because, to constitute a 'factory' in its full WA NO.597/2017 13 2024:KER:89076 and real sense under the Factories Act, the premises/ precincts ought to comprise the welfare facilities mandated therein viz., facilities for sitting, canteens, shelters, restrooms, lunch rooms etc. Excluding any of these welfare facilities and assessing them dehors the factory building, especially if they lie contiguous and as a composite structure, as it does in the case of the appellant's building, would be incongruous and would militate against the intention of the framers. It follows that the term factory as used in the Act of 1975 can include within it incidental or ancillary premises too, provided they together constitute a wholesome structure. This reasoning arrived at based on factual details is supported by the general normative concepts in taxation too.
12. When confronted with the question as to whether an exemption notification or provision must be interpreted strictly and in case of ambiguity should it be decided in favour of the revenue or the exemptee, the line of authority has made a distinction between exemption provisions generally and exemption provisions which have a beneficial purpose. Taking cue therefrom, when a provision in a taxing statute exempts a category of buildings from the purview of taxation with a beneficial intent to augment and support industry and commerce, such a provision ought to be construed in favour of the assessee and not in favour of the revenue since such an interpretation furthers the objectives of the framers. In Mother WA NO.597/2017 14 2024:KER:89076 Superior Adoration Convent's case (supra), the Supreme Court referred to this context and held as follows:
"..it is obvious that the beneficial purpose of the exemption contained in S.3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being the line of authority which deals with beneficial exemptions as opposed to exemptions generally in tax statutes. This being the case, a literal formalistic interpretation of the statute at hand is to be eschewed. We must first ask ourselves what is the object sought to be achieved by the provision, and construe the statute in accord with such object. And on the assumption that if any ambiguity arises in such construction, such ambiguity must be in favour of that which is exempted." (emphasis added) Even if the general rule of interpreting exemption provisions of a statute strictly against the beneficiary is to be taken note of, it merits mention that it is only at the entry stage that the provision is to be interpreted strictly. Once the subject falls within the scope of the exemption provision, the provision is thereafter to be widely interpreted to try and obtain the full benefit of the exemption for the subject. In the instant case, there cannot be any dispute that the premises housed a factory and was therefore entitled to the exemption. That being the case, an ancillary building attached to the main building and providing facilities therein in compliance with the mandate of the Factories Act had to be seen as entitled to the benefit of the exemption.
13. Thus once a taxing statute stipulates exemptions, it ought to be given the widest possible meaning and import, so as to WA NO.597/2017 15 2024:KER:89076 maximize the benefit that the drafters had in mind while incorporating the exemption. Picking out a word or a term from one statute and construing and interpreting it in a manner to negate the intention of another statute, especially a taxing statute, would be a rather myopic view of understanding and furthering an exemption clause in the latter. The mere fact that two separate building numbers had been assigned to each portion of an integrated structure cannot be the determining factor for the use of the building or to decide the nature of the activity carried on therein and to thus stifle the exemption that is otherwise available to the owner assessee.
14. It follows that the question of whether the absence of a 'manufacturing process' in the relevant portion of the building will nullify an exemption claim, will have to be answered in the negative. It is so since the open-endedness and the nebulous nature of the term 'factory' as used in the Act of 1975, coupled with the compositeness of the structure wherein the activity of a factory is carried out as well as the dormitory facility is situated, excludes the need for any insistence on 'manufacturing process' to be carried out from the impugned building.
15. The learned Single Judge in Ext.P5 had correctly concluded that the existence of the word 'principally' would show that if a building is principally used as a factory, the ancillary WA NO.597/2017 16 2024:KER:89076 buildings attached to the factory would also be eligible for exemption. We concur with the finding in Ext.P5 judgment that the strict interpretation of the definition of factory cannot be applied to deciding whether certain other buildings provided as ancillary to a factory are also eligible for exemption. The same will have to be adopted on a case-to-case basis depending on the relevant factual details at hand and by adopting a holistic approach towards ascertaining which of the interpretations augment and would further the legislative intent.
In view of the above, this appeal is allowed. Judgment dated 17.01.2017 in W.P.(C) No.3231 of 2012 is set aside. It is declared that the building of the appellant bearing No.497 in Ward No.6, Kizhakkambalam, which comprises the ladies' rest place and dormitory shall be entitled to exemption as envisaged under Section 3 (1) (b) of the Act of 1975.
Sd/-
DR.A.K.JAYASANKARAN NAMBIAR JUDGE Sd/-
SYAM KUMAR V.M. JUDGE csl