Pepsico India Holdings Pvt. Ltd vs State Of Kerala on 11 December, 2008

[Cites 35, Cited by 5]

Kerala High Court

Pepsico India Holdings Pvt. Ltd vs State Of Kerala on 11 December, 2008

Section 10 of the Kerala General Sales Tax Act (hereinafter referred to as ' the KGST Act') confers power on the Government to grant exemption from payment of tax. In exercise of the said power, SRO.1729/1993 was issued. It inter alia provided that there will be an exemption in the case of new industrial units under Small Scale Industries, and Medium and Large Scale Industries for a period of seven years from the date of commencement of commercial production in respect of tax payable under the KGST Act on the turnover of sale of goods manufactured and sold within the State and on the turnover of goods taxable at the point of last purchase in the State, which are used for manufacturing other goods for sale within the State or inter state. Exemption is also provided from payment of surcharge payable under Section 3 of the Kerala Surcharge on Taxes Act,1957 in relation to the goods mentioned in sub-clause (a). The aggregate exemption in respect of sales tax and Central Sales Act together is not to exceed 100% of the fixed capital investment of the WA.2922/2007.

unit. Later it came to be modified by Notification, SRO.1092/1999 and still later there was substitution also effected by SRO.295/2000 dated 31st March, 2000 and after the substitution it reads as follows:

"S.R.O. No.1092/99.- In exercise of the powers conferred by Section 10 of the Kerala General Sales Tax Act, 1963 (Act 15 of 1963), the Government of Kerala, having considered it necessary in the public interest so to do, hereby make the following modification to the exemptions granted in clauses 1 to 7 of the notification issued in G.O.(P) No.155/93/TD dated 3rd November, 1993 and published as S.R.O. No.1729/93 in Kerala Gazette Extraordinary No.1122 dated 4th November, 1993, namely:-

The said notification shall apply only to the following categories of industries:

(i) new industrial units other than public sector undertakings which have been set up or have commenced commercial production before 1st January, 2000:

(ii) new industrial units other than public sector undertakings which have taken effective steps for setting up new industrial unit prior to the 1st day of January, 2000. an industrial unit shall be considered to have taken such effective steps if it has, (a) obtained provisional registration (applicable only in the case of SSI units), (b) owned or acquired or has been allotted land for establishing the industrial units and applied for financial support from any regular financial institution/government before 1.1.2000 or (c) in the case of WA.2922/2007.

self-financed units acquired or placed firm orders for the purchase of the necessary plant and machinery, before 1.1.2000 provided that the unit commences commercial production on or before the 31st day of December, 2001.

(iii) and existing unit other than public sector undertaking which has taken effective steps for diversification, expansion or modernisation prior to the 1st day of January, 2000. An existing industrial unit shall be considered to have taken effective steps for diversification, expansion or modernisation, if such industrial unit has (a) or acquired necessary plant and machinery and /or equipments or (b) has owned or acquired or has been allotted land and has applied for loan from any regular financial institution and/or (c) has placed firm orders for the purchase of such plant and machinery and equipments before the 1st day of January, 2000 provided that such unit commences commercial production of such diversification, expansion or modernisation on or before the 31st day of December, 2001.

A unit shall be deemed to have placed firm orders, for the purchase of plant, machinery and equipments if such unit had made any advance payments therefor by means of demand draft or cheque which has been credited to the account of the seller prior to 1st January, 2000. The onus of proving that an industrial unit had placed orders for purchase of such plant, machinery and equipments prior to 1st January, 2000 shall be on such industrial unit.

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(iv) a sick small scale industrial unit which has been registered as a sick unit before the Director of Industries and Commerce prior to the 1st day of January, 2000.

(v) where on enquiry it is found that any industrial unit had secured exemption by furnishing false information or forged documents, the authority which issued the exemption order, shall, after affording such industrial unit a reasonable opportunity of being heard cancel the exemption.

2. Industrial units which had been sanctioned exemption/deferment as per notification SRO. No.1729/93 before 1st day of January, 2000 shall continue to enjoy the concession for the full period covered by the order of exemption/deferment.

This notification shall come into force on the 1st day of January, 2000."

2. The essential question which needs to be answered revolves around the interpretation of the words 'necessary plant and machinery'.

3. Appellant is the writ petitioner. It challenged Ext.P24 order passed by the Deputy Commissioner (General), Department of Commercial Taxes, Thiruvananthapuram, hereinafter referred to as the third respondent, rejecting its application for exemption from payment of sales tax in terms of SRO. 1729/1993 as amended by SRO.1092/1999 and aggrieved by SRO. 295/2000. The appellant further sought a writ of WA.2922/2007.

mandamus directing the third respondent to grant necessary sales tax exemption certificate to the petitioner after taking into account the effect of Exts.P2, P3 and P5 judgments and eligibility certificate issued by the Director of Industries and Commerce.

4. By Ext.P24, the third respondent took the view that the petitioner has not fulfilled the conditions mentioned in the notifications referred to for the purpose of sales tax exemption. He also found that the activities of the unit would not amount to a manufacturing process as laid down in SRO.1729/1993. The learned Single Judge found that the view of the third respondent in Ext.P24 to the effect that the activity carried on by the appellant in its unit would not amount to manufacture as laid down in SRO. 1729/1993 is unsustainable. However, the learned Single Judge upheld Ext.P24 on the reasoning that the certificate of eligibility issued by the Director of Industries is intended only to certify the actual commencement of commercial production of the unit before the cut off date and the monetary limit of tax exemption that the unit would be eligible for and that at the same time the Director of Industries was not required to certify the entitlement of the unit for tax exemption. He also found that the entitlement of the unit for exemption from payment of tax is to be certified by the Deputy Commissioner of Sales Tax in SRO. 1729/1993 and that such certification is to be contained in the exemption certificate issued by WA.2922/2007.

the Deputy Commissioner. He found that the appellant had not placed firm orders for the necessary plant and machinery as it had established only firm orders for plant and machinery for an amount of Rs.1,05,00,000/-. He also found that Ext.P24 was within jurisdiction and that the appellant had not satisfied the conditions mentioned in the notifications and consequently dismissed the writ petition. It is feeling aggrieved by the same that the appeal is filed.

5. Briefly put the case of the appellant is as follows:

The appellant is a Private Limited Company. The Company, in 1999, decided to set up a medium scale unit in Kanjikode in the State of Kerala for manufacturing soft drinks under the brand name 'Pepsi'. The decision was largely influenced by the fact that the State Government had, with a view to attracting investment into the State, announced certain tax exemption schemes for new industrial units. It was also assured that the petitioner would be entitled to the benefit of these schemes. The Schemes found expression through various notifications. (As already mentioned) Ext.P1 is the notification SRO.1729/1993 as amended by SRO. 1092/1999 and SRO 295/2000. According to the petitioner, it had complied with the requirements of the notification and it applied for exemption. According to the appellant, in particular, it has taken the following steps for fulfillment of the conditions:

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      "(i)   Filed      IEM      with       SIA     vide      SIA

      ACK/2655/SIA/IMO/1999 dated            28.12.1999.

(ii) Acquired 50 Acres of land in Kanjikode, Palakkad District from Western India KINFRA on 28.12.1999, by executing a lease agreement dated 28.12.1999 and paying the entire consideration amount of Rs.2,77,64,000/- to Western India KINFRA vide DD dated 24.12.1999.

      (iii)      Obtained the necessary consent from the

      Kerala State       Pollution Control Board on 20.12.1999.

      (iv)     Placed orders on suppliers of plant and machinery

      prior to 31 December 1999.

      (v)    Commenced commercial production by March,

      2001."

The State Level Committee took the stand that in so far as the appellant had not placed any firm orders for the entire plant and machinery required for the unit and had made advance payments only in respect of a portion of the entire plant and machinery before the stipulated date, the unit could not be said to have complied with the conditions. By order dated 8.6.2003 the Director of Industries and Commerce adopted the aforesaid view of the State Level Committee and rejected the application. The appellant had filed O.P. 8563 of 2000 challenging the recovery steps taken by the sales tax authorities. It amended the writ petition and challenged the order dated 8.6.2003. The writ petition was heard by a learned Single Judge, who WA.2922/2007.

passed a detailed judgment holding that the intention of the Government was to ensure that the unit must take serious steps and there is bonafide effort on the part of the unit to set up the unit and the matter was remanded to the Director of Industries and Commerce to take a decision in the light of the observations made in the judgment after considering the documents with regard to the placing of firm orders in respect of plant and machinery and equipments furnished by the appellant untrammeled by the view of the State Level Committee (Ext.P2). The State Government preferred an appeal and the Division Bench dismissed the appeal. Against the same, the State Government preferred a Special Leave Petition, which is produced as Ext.P4. By Ext.P5 order the Special Leave Petition came to be dismissed. The Director of Industries has thereafter issued eligibility certificate, it is stated. But it was not produced originally along with the writ petition as it was not served on the appellant. According to the appellant, it must have been issued considering the factual aspects and communications. The appellant had written a letter dated 11.5.1999 to the Government of its proposal to set up a plant vide Ext.P7. Vide Ext.P8 dated 13.5.1999 the KSIDC confirmed that the proposed manufacturing activity is not included under the negative list of units which are not eligible for incentives offered by the State Government. The appellant, by Ext.P9 dated 20.6.2001 make an application for tax exemption. By Ext.P10 dated WA.2922/2007.

8.6.2003 the application came to be rejected. The third respondent however, it is stated, with the intention to thwart the legal claims of the appellant resorted to new proceedings. Ext.P13 dated 20.6.2005 is issued by him calling upon the Company to adduce evidence in support of its claim to have placed firm orders for all necessary plant and machinery before the cut off date as required in the notification. Appellant caused Ext.P14 lawyers notice to be sent in reply. By Ext.P15 the appellant requested the fourth respondent, namely the Director of Industries and Commerce to issue the copy of the eligibility certificate. The fourth respondent vide Ext.P16 letter advised the appellant to contact the third respondent for a copy. The appellant approached the third respondent vide Ext.P17 letter. Faced with no response from the third respondent, the appellant approached the second respondent for copy of the eligibility certificate (Ext.P18). The second respondent, by Ext.P19 asked the appellant to approach the fourth respondent. The appellant again approached the fourth respondent vide Ext.P20. Vide Ext.P21, the appellant was issued with another notice dated 20.9.2006. The appellant was informed by the third respondent therein that he proposed to reject the claim for exemption on the ground that the processes carried out by the appellant's unit did not amount to manufacturing. Appellant thereupon preferred Ext. P22 reply enclosing therewith a short write up on the WA.2922/2007.

manufacturing activities carried out in the factory. Ext.P23 is the detailed written submission said to have been given before the third respondent. However, by Ext.P24, as already stated, the appellant's application came to be rejected by the third respondent.

6. The case of the respondents essentially is as follows:

By SRO.1092/1999 the operation of SRO.1729/1993 was restricted to certain categories of industries only from 1.1.2000. Accordingly, a new industrial unit, which had taken effective steps for setting up a new industrial unit prior to 1.1.2000 is eligible for exemption provided the unit commenced commercial production before 31.12.2001. The appellant, being a self financing unit, should have taken effective steps, that is acquired or placed firm orders for purchase of necessary plant and machinery prior to 1.1.2000. Necessary plant and machinery shall mean all machinery and equipments required for running the unit. As per the flow chart of the unit, it contains the functional requirements. The activities of the unit start with the shipping in of bottles, its purification, inspection at various stage on one side, and the making of the product which starts from drawing water, its treatment at various levels in the water treatment plant, storage of syrup, mixing processes at various levels, bottling, labeling, inspection etc., on the other side which are carried out simultaneously and which are all done with the aid of machinery. WA.2922/2007.

Therefore necessary plant and machinery required for each and every stage of its activities are the machineries for the various processes at various levels for making the ultimate product and machineries for bottling, labeling and inspection. It is stated that the only question before the court in O.P. 8563 of 2003 was with regard to the rejection of the application for eligibility certificate on the ground that the appellant had not complied with the requirement to take effective steps before the cut off date. Ext.R1(a) is produced as the certificate issued by the Director of Industries and Commerce. There are no conclusive findings by this court or the Supreme Court that the appellant had satisfied the requirement as specified in the notification. The appellant had not furnished details to prove that they have taken effective steps for acquiring the necessary plant and machinery for the operation of the unit. Third respondent is the authority to pass exemption order. It is also the case of the respondents that an exemption notification must be given strict interpretation.

7. A reply affidavit is filed by the appellant essentially reiterating the contentions raised in the writ petition.

8. Heard learned counsel appearing on behalf of the appellant and the learned Special Government Pleader for Taxes Sri. Vinod Chandran.

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9. Learned counsel for the appellant would contend that the third respondent has acted illegally in passing Ext.P24. He contended that the learned Single Judge, after having correctly found that there was indeed manufacturing activity, has erred in taking the view that the appellant has not fulfilled the conditions stipulated in the notifications for the reason that the appellant has not produced material to show that it had acquired or placed firm orders for the necessary plant and machinery. It is contended that the aim of the notifications is to promote industrial development of the State of Kerala and to provide incentives to those industries. The notifications in question must accordingly be construed liberally. It is further contended that the main thrust was on setting up of the new unit by 31.12.2001 and the notification provides commencement of commercial production before the said date as a condition. Principles of purposive interpretation are pressed into service. It is contended that the units which can show that they fall under clauses (a), (b) or (c) are deemed to have taken effective steps as the second part of the notification is a deeming provision. It is contended that the appellant company qualifies for exemption under both parts of the notification. The notification does not require placing orders for all the necessary plant and machinery. Such an interpretation would involve reading the word "all" prior to "necessary plant and machinery" which is impermissible. It is also contended that the WA.2922/2007.

appellant satisfies the first part having taken various other steps such as acquiring and paying for land, obtaining other clearances and placing orders and paying advances for the construction of factory building, in addition to placing firm orders for necessary plant and machinery. The doctrine of contemporanea expositio is pressed into service in the light of the interpretation given to the notifications by the authorities in the State, who are responsible for framing and implementing the industrial policy of the State. It is pointed out that no tax was collected from the customers. Relying on the views of the Principal Secretary (Tax) and the Principal Secretary (Industries), no tax has been collected from customers and the benefit is passed on by the appellant to the customers, it is contended. It is then contended that under the 1993 notification as amended it is for the Director of Industries and Commerce to examine and issue the certificate of eligibility. The Deputy Commissioner (Taxes) is only to issue the order of exemption and cannot sit in judgment over the orders of the Director. It is also pointed out that having regard to the judgments of this court, it is not open to the parties to take a contrary view.

10. It is contended that the first part is independent of the second part. Examples are given. Appellant is also qualified under Clause

(c). Appellant had placed orders for supply of paramix plant comprising of Deaeration plant, Mixing plant, Beverage Chilling plant, Carbonation plant, WA.2922/2007.

switch and control unit and frame, Blow moulder, Pet Conveyor system, Unscrambler and Air conveyor, gripper, rinser, warmer, case packer, filler and capper. It is stated that all these orders for Rs.7 Crores are necessary plant and machinery. It is further contended that even construing the matter in a very narrow manner and considering only two orders as firm orders, the requirement of Clause (c) is fulfilled, because all that the clause requires was the demonstration of having taken bonafide steps. Reliance is placed on the decision in Deepak Fertilisers Case (2007(SC2 GJX 709) to contend that it could not have been contemplated to fix different level of rigour for cases coming under clause (b) and clause (c), as under clause (b) if the appellant had simply applied for loan, it would have qualified without doing anything more. Reliance is placed on the decision of the Apex Court reported in Vadilal Chemicals v. State of A.P. (2005(6) SCC 292 to contend that once an eligibility certificate is granted after detailed deliberations, the Deputy Commissioner cannot go behind it. There is no discretion with the Deputy Commissioner, it is contended.

11. Per contra, learned Special Government Pleader for Taxes, Sri. Vinod Chandran, would submit as follows:

SRO 1729/1993 is a notification by which notification granting exemption came to be withdrawn. The Committee of Chief Ministers of all the States noting the anomalies in the administration of sales tax appointed WA.2922/2007.

the Dr.Raja Chellaiah Commission. The Commission recommended introduction of Value Added Tax. It also recommended the phasing out of the exemptions and other concessions being given to industrial undertakings under the various General Sales Tax Acts, as it created unhealthy competition and also increased the possibility of evasion of sales tax. It is in this back drop Government of Kerala decided on the basis of the decisions of the Committee of Chief Ministers to withdraw the exemption granted by SRO. 1729/1993. However, it is contended that to avoid litigations on the basis of promissory estoppel and to protect the interests of those who had substantially acted on the basis of the exemption notification it decided to give exemption to those who had taken steps. It is contended that as per SRO 1092/1999 as amended by SRO 295/2000, exemption available under SRO 1729/1993 was confined to those industrial units inter alia which took effective steps for setting up such units before 1.1.2000 as also an existing unit which had taken effective steps for diversification of the unit, expansion or modernisation prior to 1.1.2000.. In regard to new industrial undertakings, which had taken effective steps for setting up such units before 1.1.2000 the notification itself provided what was to be considered as having taken effective steps and they are contained in clauses (a) to (c). The commencement of commercial production before 31.12.2001 was a further WA.2922/2007.

condition for the grant of exemption. It is contended that a small entrepreneur desiring to start a small unit and an entrepreneur who invested money to purchase land for setting up a unit, but does have the resources to set up the industry without availing finance and a self financing unit, which has substantial resources have been categorized on a rational basis. In O.P. 8563 of 2003, it is contended the appellant had approached this court and contended that they had paid advance for four major items of machinery and placed firm orders with respect to the other plant and machineries and also contended that as per the deeming provision with respect to the items for which advance has been paid, it should be deemed to be placing of firm orders with respect to the said machineries and the quantum of advance paid is irrelevant. It is also contended that in the earlier round of litigation in respect of items for which advance had not been paid, the appellant had contended that they are ready to adduce evidence for the placing of orders. This court had taken the view that the quantum of advance is not relevant and however negligible, the fact of payment of advance would result in finding of placing of firm orders in respect of those items, for which advance has been paid. The court also took the view that the deeming provision with regard to advance payment only dispenses with the requirement of establishing that firm orders have been placed and it is open to the unit to establish by WA.2922/2007.

producing other materials that firm orders are placed before 1.1.2000 with regard to the other plant and machinery. Thus it is essentially contended that what was decided in the earlier round of litigation was with regard to the quantum of advance paid being immaterial. When the Deputy Commissioner (General) considered the matter pursuant to the decision of this court, he found that the appellant had placed firm orders only for the following items of plant and machinery. They are as follows:

"1. Pet and CSD conveyor system costing Rs.40 Lakhs.

2. Peramix plant consisting of deareation plant, mixing plant, beverage chilling plant and carbonation plant worth Rs.65 Lakhs."

The total cost of necessary plant and machinery is Rs.32,10,13,534/-. It is therefore that the Deputy Commissioner found that the appellant is not entitled to exemption. The Deputy Commissioner is the competent authority to issue the exemption certificate and it has to be issued independently of the eligibility certificate. There is no manufacturing activity. The purpose sought to be achieved by SRO. 1092/1999 is to cancel the exemption notification (SRO.1729/1993), but with exception to protect the interest of those who have genuinely taken effective steps before 1.1.2000 to set up industries. Necessary plant and machinery required are from the level of drawing water to the level of bottling soft WA.2922/2007.

drinks. There is not even partial compliance of the notification SRO. 1092/1999 as amended by SRO.295/2000 much less a substantial compliance or total compliance, it is contended.

12. 'Effective steps' in the first part of clause (ii) cannot be read in isolation, but they have been clearly defined. It is contended that Special Secretary (Taxes) and the Principal Secretary (Industries) are not authorities under the notifications and their views cannot be treated as final or conclusive. They cannot be taken in aid to interpret the notification. Also it is contended that their letters conclude with a rider that a decision has to be taken as per law.

13. The plea of resjudicata is without any merit, it is contended and what was considered in the earlier round was whether the quantum of advance is relevant or not. The specific case of the appellant was that it came squarely under sub clause (c), it is pointed out. In the case of medium and large scale industries, the eligibility certificate in the case of units assisted by the KSIDC or KFC ought to be issued by the Corporation rendering financial assistance and with respect to the self- financing units, by the Director of Industries. The eligibility certificates so issued only certifies the quantum of fixed capital investment otherwise eligible for exemption and the date of commercial production. There is a two tier system in respect of large and medium scale industries as distinct WA.2922/2007.

from SSI or Sick Industrial Units. The decision in Mahabir Oil Industries v. State of Hariyana ((2006) 3 SCC 620) relied on by the appellant is sought to be distinguished on the ground that in the said decision the dictum laid down was that exemption cannot be taken away retrospectively particularly when the parent act does not empower such a course. SRO.1092/1999 does not evidence any such retrospective effect.

14. Decisions relied on by the appellant.

The following decisions relied on by the appellant relate to the principle of promissory estoppel.

i) Pine Chemicals v. Assessing Authority (1992(2) SCC 683).

ii) Asst. Commissioner v. Dharmendra Trading (1988 (3) SCC

570).

iii) Pournami Oil Mills v. State of Kerala (1986 Suppl. SCC 728).

i) In Pine Chemicals case the court inter alia held that if representations were made to the entrepreneurs that exemption would be given if they set up industries in the State and acting on the representation the appellant established industries in the State, the principle of promissory estoppel would apply and they would be entitled to the benefit for the entire period as specified in the order.

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ii) In Asst. Commissioner's Case the Apex Court took the view that where persons acted upon the assurance till it was withdrawn or curtailed, Government would be bound by the doctrine of promissory estoppel not to go back on the assurance extended.

iii) Pournami Oil Mill's Case related to a case of exemption under Section 10 of the KGST Act. It was also related to a case of promissory estoppel arising out of the setting up of an industry on the basis of the exemption granted.

17. Petitioner relies on the following decisions for the principle that the court must resort to a purposive interpretation so as to promote the purpose of the enactment :

i) In M/s. Girdhari Lal & Sons v. Balbir Nath (AIR 1986 SC 1499) the court held that the court may even depart from the rule that plain words should be interpreted according to their plain meaning and it is open to the court to depart from the golden rule of construction so as to give effect to the object and purpose of the enactment by supplementing the written word, if necessary.

ii) In The Tata Oil Mills Co. Ltd. v. Collector of Central Excise (1989 (43) E.L.T. 183(SC)) the Apex Court was dealing with a case of exemption to soap on use of rice bran oil in its manufacture. The court WA.2922/2007.

took the view that the object and the purpose of exemption and the nature of the actual process of manufacture involved must be kept in mind. The court also took the view that the difficulty in ascertaining the fulfillment of condition of exemption could not be a criterion for refusal of exemption.

iii) In Commissioner of Income Tax v. Straw Board Manufacturing (1989 Supp. (2) SCC 523) the Apex Court was considering the case whether straw board could be said to fall within the expression 'paper and pulp'. The court took note of the fact that the provision for rebate was made for the purpose of setting up of new industries and that it was clear when the schedule referred to paper and pulp, they in fact intended to refer to paper and pulp industry. The court further held as follows:

"The expression has been used comprehensively. It is necessary to remember that when a provision is made in the context of a law providing for concessional rates of tax for the purposes of encouraging an industrial activity a liberal construction should be put upon the language of the statute."

iv) In State of Jharkhand and others v. Tata Cummins Ltd. And another ((2006) 4 SCC 57) the Apex Court was dealing with an exemption provision in a taxing statute. The court held as follows:

"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 WA.2922/2007.

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, the implementing notifications have to be read 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."

v) In Collector of Central Excise v. Neoli Sugar Factory (AIR 1993 SC 1921) the Apex Court held as follows:

"It is then argued by the learned counsel for the appellant that exemption notifications should be strictly concluded (construed-Ed.). There is no quarrel with the proposition but there is another equally valid principle that such notifications should be given their due effect, keeping in view the purpose underlying."

vi) In Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax ((1992 3 SCC 78) the court was dealing with the taxing statute, under which incentives were given for promoting economic growth and development. The court took the view that such statutes should be liberally construed and restrictions placed on it byway of exception should WA.2922/2007.

be construed in a reasonable and purposive manner so as to advance the object of the provision and not to frustrate it. On the same lines is the decision in Commissioner of Sales Tax v. Industial Coal Enterprises ((1999) 2 SCC 607).

vii) In K.R. Steel Union Ltd. v. Commissioner of Customs (2001 (4) SCC 736) the court was dealing with an exemption notification in granting exemption in respect of import of machinery for manufacturing for the purpose of export. Therein the court held as follows:

"A notification like the one under consideration (No.77/80- Cus.) cannot be read in a narrow manner so as to defeat the object of the notification because it permits the importation of certain second-hand machineries to be used in the manufacture of goods meant only for export in units situated in the defined zones. The object and purpose of such exemption notification is to encourage exports by granting exemption from customs duty on materials that are required to be imported for the purpose of manufacture of resultant products which are to be exclusively exported. The words of the notification have to be construed keeping in view the said object and purpose of the exemption. CEGAT erred in adopting a very narrow approach while construing the word "for being used in connection with the production of goods for export".

viii) In Pappu Sweets and Biscuits v. Commissioner of Trade Tax, U.P. (1998 (7) SCC 228) the question which arose was WA.2922/2007.

whether toffee is sweetmeat or a commodity of a like nature and therefore the appellants industrial unit making toffee, though newly set up was not entitled to exemption as sweetmeat was among the products not entitled to exemption. The court held as follows:

"The notification further discloses that the object of declaring exemption from payment of sales tax was to increase industrial activity within the State by encouraging setting up of new industrial units or expansion, diversification or modernisation by the existing industrial units. At the same time, the State did not desire to extend that benefit to all such industries . It was therefore specifically stated in the notification that industries mentioned in Annexure II shall not be entitled to the benefit of exemption from payment of tax or reduction in rate of tax. Presumably, the State did not desire further growth of such industries by suffering loss of revenue. What is however necessary to note is that Annexure II is an exclusionary part of the exemption notification. The High Court did not examine the issue from this angle and also failed to appreciate that exclusionary part of an exemption notification has to be construed rather strictly. Even though the word used in the exclusionary part of an exemption notification has a wide dictionary meaning or connotation, only that meaning should be given to it which would achieve rather than frustrate the object of granting exemption and which does not lead to uncertainty or unintended results."

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ix) In Commissioner of Sales Tax v. Crown Re-Roller (P) Ltd. ((2007) 3 SCC 659) the court took the view that State cannot resile from the statutory provisions of exemptions made by it and in equity in a situation therein the State must act in letter and spirit of the Act. The court also drew a distinction between exemption and refund. The court referred to the decision reported in Amrit Banaspati Co. Ltd. v. State of Punjab ((1992) 2 SCC 411), wherein the Apex Court had held inter alia that the object of tax holiday or concession is to enable the industry to stand up and compete in the market, and if an industry is exempt from tax, the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others.

x) In U.P. Power Corporation v. Sant Steels and Alloys Ltd. ((2008) 2 SCC 777) the court took the view that when the State Government makes representations and invites entrepreneurs by giving benefits for promoting investing in backward areas or hill areas, and investments are made on the basis of the representation, it would be unfair and arbitrary to resile from such benefits and consideration of public interest and the fact that there cannot be estoppel against a statute are exceptions.

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xi) Appellant also relies on the decisions reported in Ayurveda Pharmacy v. State of Tamil Nadu ((1989) 2 SCC 285) and State of U.P. v. Deepak Fertilizers ( 2007 (SC2) GJX 0709 SC) for the proposition that the notification cannot discriminate. In the latter case except NPK 23:23:0 all other phosphatic fertilizers of NPK were exempt. The court found it discriminatory. In the first case, namely, Ayurveda Pharmacy's case, the court frowned upon denial of the concessional rate to Ayurvedic medicines containing alcohol it being subjected to higher rate of tax while all other medicinal preparations were taxed at a lower rate.

xii) The decision in K.P. Varghese v. Income Tax Officer, Ernakulam ((1981) 4 SCC 173) is relied on for the principle of contemporanea expositio. The court held as follows:

"The rule of construction by reference to contemporanea expositio is a well established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statute is plain and unambiguous."

xiii) The decision in Ajay Gandhi v. B. Singh ((2004) 2 SCC

120) is relied on to draw support from the letters issued by the Government officers. Petitioner also relies on the decision reported in State of Karnataka v. Balaji Computers ((2007) 2 SCC 743) for the proposition WA.2922/2007.

that contemporaneous interpretation. Therein reliance was placed on the interpretation by the assessing authority and also the clarification by the Commissioner.

xiv) Reliance is placed on the decision in Vadilal Chemicals v. State of A.P. ((2005) 6 SCC 292) to contend that once the Director of Industries has granted the eligibility certificate, it is not open to the Deputy Commissioner(General) Taxes to veto it. The decision in Pondicherry State Co-op. Consumer Federation Ltd. v. Union Territory of Pondicherry ((2008) 1 SCC 206) is also cited for the same purpose. In Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner of Commercial Taxes (1992 Supp (1) SCC 21) the court took note of the distinction between provisions of statute which are substantive in character and built in with certain policy object on the one hand and those which are merely procedural and technical in their nature. The consequence of the former are mandatory while the latter may not require the same significance. The court also took the following view:

"The choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the legislature manifest on the statutory language. The need to resort to any interpretative process arises only where the meaning is not manifest on the plain words of the statute. If the words are WA.2922/2007.

plain and clear and directly convey the meaning, there is no need for any interpretation."

xv) In Union of India v. Arviva Industries (I) Ltd. (2007 (209) E.L.T. 5 (SC)) the Apex Court was dealing with the effect of the circular issued by the Central Board of Excise and Customs and it was held that the department cannot be permitted to contend that such circulars are not binding on it.

15. Decisions relied on by respondents.

Learned Government Pleader placed reliance on the decision of the Supreme Court reported in Union of India and others v. Wood Papers Ltd. And another ((1991) 83 STC 251). In the said decision the court inter alia held as follows:

"Entitlement of exemption depends on construction of the expression "any factory commencing production" used in the table extracted above. Liberally exemption is freedom from liability, tax or duty. Fiscally it may assume varying shapes, specially in a growing economy. For instance tax holiday to new units, concessional rate of tax to goods or persons for limited period or with the specific objective, etc. That is why its construction, unlike charging provision , has to be tested on different touchstone. In fact an exemption provision is like an exception and on normal principle of construction or interpretation of statutes it is construed strictly WA.2922/2007.

either because of legislative intention or on economic justification of inequitable burden or progressive approach or fiscal provisions intended to augment State revenue. But once exception or exemption becomes applicable no rule or principle requires it to be construed strictly. Truly speaking, liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. Therefore, the first exercise that has to be undertaken is if the production of packing and wrapping material in the factory as it existed prior to 1964 is covered in the notification."

i) In State Level Committee and another v.

Morgardshammar India Ltd. ((1996) 101 STC 1) a question arose whether the industrial unit was disentitled to exemption for the reason that a part of the machinery installed in the unit was acquired for use in a factory or workshop proposed to be set up, but not set up. The terms of the provisions providing for exemption provided that it would be a disqualification if the unit uses machinery/accessories/components which were acquired for use in any other factory or workshop in India. The court WA.2922/2007.

held that a provision in a taxing statute providing for an exemption or an exception has to be construed strictly and that all words used have to be given their meaning.

ii) In Tata Iron and Steel Co. Ltd. v. State of Jharkhand ((2005) 140 STC 284) the court held as follows:

"The principle that, in the event of a provision of a fiscal statute being obscure, such construction which favours the assessee may be adopted, will have no application to the construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of the exemption thereunder. Eligibility clause, it is well-settled, in relation to an exemption notification must be given a strict meaning."

16. Learned Government Pleader relies on the decision reported in Commissioner of Central Excise, Raipur v. Hira Cement ((2006) 145 STC 264) for the proposition that the criteria for determining eligibility for entitlement to exemption must be construed strictly.

i) In Grasim Industries Ltd. v. Collector of Customs, Bombay ((2002) 128 STC 349) the Apex Court reiterated that no words or expressions in a statute can be said to be redundant or superfluous. It is further held as follows:

WA.2922/2007.

"Where the words are clear and there is no obscurity and the intention of the Legislature is clearly conveyed, there is no scope for the court to take upon itself the task of amending or altering the statutory provisions. Wherever the language is clear the intention of the Legislature is to be gathered from the language used. While doing so what has been said in the statute and what has not been said has to be noted. A construction which requires for its support addition or substitution or words which results in rejection of words has to be avoided. The court cannot aid the Legislature's defective phrasing of an Act, the court cannot add or mend and by construction make up deficiencies which are left there."

ii) In State of Rajasthan and another v. J.K.Udaipur Udyog Ltd. ((2004) 137 STC 438) the court dealing with an exemption scheme under the Sales Tax Act held as follows:

"An exemption is by definition a freedom from an obligation which the exemptee is otherwise liable to discharge. It is a privilege granting an advantage not available to others. An exemption granted under a statutory provision in a fiscal statute is a concession granted by the State Government so that the beneficiaries of such concession are not required to pay the tax or duty they are otherwise liable to pay under such statute. The recipient of the concession has no legally enforceable right against the Government to grant a concession except to enjoy the benefits of the concession during the period of its grant. The right to enjoy is a defeasible WA.2922/2007.

one in the sense that it may be taken away in exercise of the very power under which the exemption was granted."

Therein the Apex Court also held that it was open to the State to issue a corrigendum notification effecting reduction in the rates of exemption for conforming to the policy. The court also proceeded to hold in the said case that there was no discrimination involved, by which the sick industrial units were treated on par with new industries.

iii) In Rom Industries Ltd. v. State of Jammu and Kashmir ((2006) 147 STC 575 (SC)) under the industrial policy of the State exemption was granted reserving right to withdraw the exemption. Exemption was granted to edible oils. Subsequently Apex Court declared that exemption granted in favour of edible oils was not valid. Thereafter, the Government put edible oils in the negative list. The court held that the right, if any, of the dealers to exemptions under the Government Order was a precarious one and could not found a claim for promissory estoppel and the Government was free to withdraw the exemption with effect from 1.3.1999. Government Pleader, apparently, in answer to the plea based on the doctrine of contemporaneous expositio relied on the decision of the Bombay High Court in Varun Polymol Organics Ltd. v. State of Maharashtra ((1995) 97 STC 55) for the proposition that by an executive order the provision of the notification could not be modified. The executive WA.2922/2007.

order purported to deem consignments and branch transfers as sales for computing notional sales tax liability to be set off against exemption. The court also took note of the fact that there is no power with the State Government to provide so. Government Pleader also relies on the decision of the Andhra Pradesh High Court in P.P.P. Industries v. Commissioner of Industries ( (1994) 92 STC 110). The court therein held that it is not open to restrict substantive provision of exemption by way of instructions. In the same lines the respondents relied on the decision in Dr. Pragna R. Jambusaria v. State of Gujarat ((1998) 109 STC 124). The Government in the said case attempted to alter the scope of the notified exemption. This was found to be impermissible.

17. In response to the contention of the appellants that the notification does not contemplate a two tier system, where once the Director issues eligibility certificate, it becomes binding on the Tax Department, reliance is placed by the respondents on the decision of a learned Single Judge reported in M/s. Tamil Nadu Ammonia Pvt. Ltd., Ernakulam v. Secretary (Taxes) II, Board of Revenue (Taxes) and others ((1998) 6 KTR 644 (Ker)) . Therein the learned Judge took the view that in view of the provision contained in Clause 3(b) of Notification SRO.521/1992, the Board of Revenue has got the power and jurisdiction WA.2922/2007.

to consider the claim for exemption independently.

18. Whether the findings against the appellant is impermissible in view of res judicata and/or constructive res judicata arising out of the judgment in O.P. No. 8563 of 2000 as confirmed by the Division Bench?

Answer to this question involves considering the question which was raised in the said writ petition. The appellant therein challenged the decision passed by the Director on the basis of the view taken by the State Level Committee. The learned Single Judge found that it was the Director, who was to take a decision in the matter and the decision impugned in the case had been taken by the Director essentially abdicating his independent function and merely reflecting the views of the State Level Committee. That apart in the merits of the matter it was contended before the learned Single Judge that in order to satisfy the requirements of the notification the amount of advance is irrelevant. The learned Single Judge accepted the contention of the appellant that the amount of advance paid would be irrelevant. Even if a negligible amount was paid as advance, it would not detract from the availability of the deeming provision, it was held. Though on a perusal of the judgment, we find that there are observations made that what is important is that effective steps are taken, as regards the specific question which is raised in this WA.2922/2007.

case, namely, what is the import of the words 'necessary plant and machinery', we are of the view that it cannot be held that the decision in O.P. 8563 of 2000 could be treated as res judicata. The court held as follows:

"It would appear from a reading of the relevant portion of the proceedings of the State Level Committee dated 29.7.2002 and reiterated in the impugned order that the State Level Committee was taking the view that only if the petitioner had made advance payments in respect of the purchase orders for the entire plant and machinery ad that too representing a substantial portion of the sale price, it can be considered, to have taken effective steps for setting up the industrial unit. This view, it would appeal, was taken by the second respondent keeping in mind paragraph 17 of the judgment of the Supreme Court in Mahaveer Oil Industries Case (supra). As already observed, the said view does not appear to be the correct legal position under the Notification. Even in cases where no advance payments had been effected, it can be established by other means that firm orders have been placed with the sellers prior to the first day of January, 2000."

Thereafter, the court proceeded to direct the second respondent to independently consider the appellant's application in the light of the observations contained in the judgment and after considering the documents with regard to the placing of firm orders in respect of plant and WA.2922/2007.

machinery and equipments furnished by the appellant untrammelled by the view taken by the State Level Committee as well as in Ext.P26. Thus while pronouncing the decision as vitiated, the learned Judge proceeded to specifically state that even in cases no advance payments had been effected, it can be said that firm orders were placed with the sellers prior to the first date of January, 2000. If it were a case where nothing remained to be done, in the light light of the view taken by the learned Single Judge, it was unnecessary for the court to further direct a decision to be taken in the light of the documents to be produced and in accordance with law. We take this view despite the averments taken in the Special Leave Petition no doubt where the impression is created that as the judgment stood, they would be bound to give the exemptions. We cannot also say that having regard to the stand taken by the respondents, there is any bar by constructive resjudicata.

19. What is the effect of the eligibility certificate issued by the Director and thus the notification contemplate two tier system?

In order to appreciate this question, the relevant provisions contained in Clause 10 (b) (c) and (d) are to be considered, they are as under:

"(b) Eligibility Certificate for Medium and Large Scale Industries assisted by the Kerala State Industrial Development WA.2922/2007.

Corporation or the Kerala Financial Corporation will be issued by the Corporation which render assistance and in other cases by the Director of Industries and Commerce, on application by such units, and orders of exemption will be issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram.

(c) Eligibility Certificate and orders on exemption will be issued by the authorities mention in sub-clause (b) above, if the unit is eligible for exemption or deferment of taxes and the unit satisfies the conditions for the exemptions or deferment of taxes.

(d) The eligibility certificate referred to in sub-clause (b) above shall contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for. The Eligibility Certificate issued in respect of existing Medium and Large Scale Industrial Units which undertake expansion, modernisation or diversification shall also contain date of commencement as well as the date of completion of such expansion, modernisation or diversification."

On a perusal of the aforesaid provisions, we would think that they contemplate a power with the Deputy Commissioner (General) to refuse to issue an order of exemption. The provisions clearly empower the Deputy Commissioner to consider the actual eligibility. In this regard, we are of the view that the view taken by the learned Single Judge of this court in M/s. Tamil Nadu Ammonia Pvt. Ltd., Ernakulam's case represents the WA.2922/2007.

correct view. The decision of the Apex Court in Deepak Fertilizers and Petro Chemicals' case and in Pondicherry State Co-op. Consumer Federation Ltd.'s case cannot be applied to the facts of the present case. The dicta in the said two decisions cannot apply having regard to the terms of the notification, which we have extracted above. Hence we reject the said contention.

20. Ext.R1(a) is a certificate of eligibility. No doubt as found by the learned Single Judge it is not challenged in the writ petition. No doubt it was not served on the appellant. At least when it came to be produced along with the counter affidavit, it could have been made the subject matter of the challenge. In Ext.R1(a) eligibility certificate it is stated that the eligibility certificate is issued on the condition that the Deputy Commissioner (General) Commercial Taxes, which is the sanctioning authority shall decide on the eligibility of the unit for the sales tax exemption under the relevant notification vide general procedure in this regard clarified by the State Level Committee in the meeting held on 15.2.2003. Thus even the eligibility certificate as it stood granted and which is a premise of the appellant's contention is conditional and does not militate against the authority of the Deputy Commissioner, but on the contrary declares that it is the Deputy Commissioner to decide on the WA.2922/2007.

question of eligibility. No doubt learned counsel for the appellant made an attempt to contend that it is beyond the power of the Director of Industries to provide so as he is only to issue the eligibility certificate.

21. We are of the view that in the first place there is no challenge to the condition. Further, we would think that even otherwise on the view we have taken on the effect of the notification, the Deputy Commissioner (General), Commercial Taxes as the competent authority is not bound by the eligibility certificate issued by the Director.

22. Whether the finding that firm order had not been placed for necessary plant and machinery is correct, and whether what is the interpretation to be placed on the said words in a notification of this nature?

             There      cannot    be    any   doubt     that     by notification,

SRO.1729/1993 exemption was granted from payment of tax.                    The

circumstances, which led to the issuance of notification, SRO.1092/1999, have been set out by us earlier. Apparently the grant of exemptions were found undesirable, and a conscious decision was taken to put an end to the exemption regime. However, it is also felt that when exemption is withdrawn, care had to be taken to deal with complaints founded on the doctrine of promissory estoppel. In other words on the one hand while the notification contemplates withdrawal of exemption for all those who did not set up the industry before 1.1.2000, the State went further and took care WA.2922/2007.

also to protect those who had genuinely taken effective steps for the setting up of the industry apparently on the basis of the assurance of the State contained in SRO.1729/1993. Therefore as emphasised by Sri.Vinod Chandran, learned Government Pleader, the notification, SRO.1092/1999 as subsequently amended by SRO.295/2000 were notifications which purported to withdraw the benefit of exemption. They do not purport to per se grant exemptions. Undoubtedly the said notifications while withdrawing the exemptions provided for the exceptional cases in which units though not set up prior to 1.1.2000 were declared eligible for the benefit of exemption provided the conditions set out therein were satisfied.

23. As far as the contention of the appellant that as long as it is established by a person that he had taken effective steps having regard to the totality of circumstances present in this case, it is entitled to the benefit of exemption within the meaning of clause (b) is concerned, though it is attractive at first blush, we would think that having regard to the scheme of the notification flowing as it does from the words used, the contention does not contain any merit. There cannot be any doubt that even treating notification, SRO.1092/1999, in so far as permits the grant of exemption in the exceptional cases as an exemption notification, it is settled law that such an exemption notification must be construed strictly. In a notification granting exemption as held by the Apex Court, WA.2922/2007.

consideration of the question falls into two parts. The first stage is when the court considers whether the party has satisfied the eligibility criteria, the question is whether the subject falls in the exemption clause and being in the nature of an exception, it has to be construed strictly. Once an ambiguity or doubt regarding applicability is removed, then full effect has to be given and it calls for a wider and liberal construction. No doubt, there is also the principle that when a court is considering a notification as providing for the benefits for the development of a backward area, an interpretation which is purposeful and breathes meaning into the provisions may be adopted.

24. We are of the view that the notifications read together yield the following inevitable results: The benefit available under notification, SRO.1729/1993, is denied to the units which have not been set up prior to 1.1.2000. However, if such units commenced production on or before 31.12.2001 and also the units have taken effective steps for the setting up of the units before 1.1.2000, such units would also be entitled to enjoy the exemption. Undoubtedly, this is premised on the principle of promissory estoppel as acting upon the earlier notification namely SRO.1729/1993, the Government felt that if a person has taken effective steps for setting up the unit before the cut off date, namely, 1.1.2000, it would be arbitrary and unfair to deny the benefit of the exemption to them. WA.2922/2007.

Apparently this appears to be premised on the dictum of the decision of the Apex Court in Mahavir's Case. We are of the view that the appellants may not be justified in contending that the first part of clause (b) can be said to be fulfilled without reference to the requirements under clauses (a), (b) and

(c). In other words, we feel that the Government felt that it should lay down the circumstances in which and which alone it would be considered that a party has taken effective steps within the meaning of clause (ii). In other words, classifying units into three, the Government have taken care to lay down the criteria upon satisfaction of which alone it intended that a party would be treated as having taken effective steps. The apparent purpose of laying down such criteria would be that the Government wanted to eliminate any controversy or further disputes and consequential inquiry as to whether a party has taken effective steps within the meaning of the notification. The liability to tax is a liability which afflicts every person otherwise liable. An exemption is an exception. It frees a person from the obligation to pay tax just as much as it burdens the Government so much more as is proportional to the exemption granted. There cannot be any legal right to an exemption unless such right flows from the terms of the exemption. We also notice in this connection that in clause (ii) the word used is 'considered'. When it comes to the latter part to clause (iii), which applies to Clauses (ii) and (iii), Government had advisedly used a deeming WA.2922/2007.

fiction by employing the word 'deemed'. In other words, Government took care to use two expressions to convey a different meaning. In short, when it uses the word 'considered' in clauses (ii) and (iii), it contemplated that it was only if the conditions which were laid down therein were satisfied that it could be taken that a person has taken effective steps. The purport of the word 'deemed' was to put an end into any inquiry that may have otherwise been called for to ascertain whether effective steps were taken. In other words, if a party shows that advance has been paid, however negligible it may be, it suffices to attract the deeming provision and to demand the benefit of exemption provided other conditions are satisfied. Thus, we are not impressed by the argument based on the general words in the opening paragraph of clause (ii). We are supported in the view that it is open to the State to place conditions, so as to foreclose any controversy and consequential inquiry. In the decision reported in State Level Committee and another v. Morgardshammar India Ltd. ((1996) 101 STC 1) the provision provided that if a unit used machinery, accessories or components already used or acquired for use, it would stand disqualified. Interpreting the said provision, the Apex Court held as follows:

"There is good reason behind the use of both the expressions. The Legislature wanted to avoid enquiries into the factual issue of actual user where the machinery, accessories or WA.2922/2007.

components is or are acquired for use in any other factory or workshop in India: the idea was to lessen room for factual controversies and free the authorities in-charge of issuing eligibility certificates from being caught in endless factual disputes."

25. We also take note of the fact that there is no challenge to the notification as such on the ground that the eligibility criteria for persons falling in clauses (a), (b) and (c) of Clause (ii) of notification, SRO.1092/1999 is irrational or discriminatory. No such contention was raised before the learned Single Judge. No doubt, the eligibility criteria may not be perfect. It may vary from category to category. It is possible also that going by some of the examples which are given it could even be said that it may produce results which may appear anomalous. No doubt, learned Government Pleader sought to justify the categorisation. It is pointed out that one should not compare a small scale industry or a person who may own or acquire land but requires financial support from financial institutions or Government and finally a person falling in the category (as the appellant) who has the necessary financial wherewithal. Apparently the Government did not want the pandora's box to be opened frustrating the smooth functioning of the exemption scheme. We are not called upon to sit in judgment over the wisdom of the scheme, nor can we be called upon to do so. In the absence of a challenge to the scheme as such, it WA.2922/2007.

may not be open to us to consider grant relief on the foundation that it is irrational to have provided three different conditions in clauses (a), (b) and

(c). Apparently in Deepak Fertilizer's case there was a challenge to the notification dated 15.5.1995 on the ground that it was discriminatory in so far as it exempted all categories of fertilizers except NPK 23:23:0. Deepak Fertilizer's case was rendered following the decision in Ayurveda Pharmacy v. State of Tamil Nadu (1989(2) SCC 285). In Ayurveda Pharmacy's case also the appellants had filed writ petitions in the High Court or Madras challenging the levy of 30% on Arishtams and Asavas which contained alcohol on the ground that it was discriminatory.

26. The further question to be considered is whether what is the import of the words 'plant and machinery', and what is the effect of the letters issued by the Secretary, Taxes and Government of Kerala in the context of the doctrine of contemporanea expositio. This is the crucial question, which falls for our decision. Clause (c) undoubtedly mandates that a person must have placed firm orders for the necessary plant and machinery before 1.1.2000 to entitle it to the benefit of exemption. Two rival theories are pressed into service, each vying with the other for our acceptance. On the one hand it is contended by the learned counsel for the appellant being a clause which is embedded in a notification providing WA.2922/2007.

for an incentive in the form of an exemption for setting up a unit in a State with little industrial development the clause calls for a purposeful interpretation. Exemption notifications may be issued in two different circumstances. They may be the regular exemption notification not with a specific avowed object of removing backwardness in the State on account of lack of development. An exemption notification may be a legislative device to regulate economic activity, provide for advantages and disadvantages to various groups within the economy as a regulatory measure. On the other hand an exemption notification may be brought out with the object of taking a State out of the economic backwardness in which it is placed. Such notifications, it is submitted, calls for a different interpretation. The interpretation should be one which carries out the object of the maker. He poses the question whether it could be the law that whether every machinery, without which the industry cannot start producing the goods should be the subject matter of a firm order prior to 1.1.2000? He would submit that this is hardly the interpretation which should be placed as it frustrate the object and what is more produces grave inequity.

27. Learned counsel for the appellant stresses that the word 'all' is conspicuous by its absence before the words 'necessary plant and machinery' and this bears out the case of the appellant that it is not the intention of the framer of the notification that placing of firm orders of 'all WA.2922/2007.

plant and machinery' was essential to found a claim for exemption.

28. Per contra, learned Government Pleader would contend that being a condition, which a party must fulfill to acquire the legal right to exemption, the condition must be strictly construed. Government Pleader reiterates that the total value of the plant and machinery is in the region of Rs.32 Crores and that orders which could be treated as firm orders prior to 1.1.2000 constituted only a small percentage of the plant and machinery. Learned Government Pleader reiterates that it is the view of the respondents that it is not sufficient that even a substantial portion of the plant and machinery are the subject matter of firm orders prior to 1.1.2000, but the firm orders must be placed in respect of the entire plant and machinery.

29. The appellant has produced Ext.P27 along with the reply affidavit. It contains, according to it, the details of purchase orders, which is called as firm orders, prior to 31.12.199. It consists of nine items. Item No.1 is the sub lease of 50.48 acres of land. Item No.2 is the Pet conveyor system. The order is stated to be placed on 24.12.1999 with Selvel, Mumbai. The amount shown is Rs.40,00,000/-. Item No.3 is the Machinery Blow Moulder. The order is stated to be dated 20.12.1999 and the order is placed with Sidel Industry, Malaysia. The amount is shown as Rs.3,09,62,065/-. Item No.4 is Installation and commissioning of blow WA.2922/2007.

molding machine. The amount is Rs.15,00,000/-. The order is on 20.12.1999. item No.5 is placed with Skyline engineering Contracts (India) Pvt. Ltd., and it relates to building foundation, roads, boundary walls, open storage, drainage, ETP and other miscellaneous infrastructure. Item No.6 is shown as plant and machinery paramix plant, CMX-18, deaeration plant, mixing plant, beverage chilling plant, carbonation plant, switch and control unit and frame. The order is placed with KHS Machinery Pvt. Ltd. Ahamedabad. The amount shown is Rs.65,00,000/-. Item No.7 is shown as unscrambler and air conveyor with Lanfranchi, Italy. The amount shown is Rs.57,47,300/-. Item No.8 is shown as gripper, rinser, warmer and case packer. The order is stated to be placed with Linker Equipment Corporation, USA for Rs.55,26,250/-. Lastly, item No.9 is shown as filler/capper. The order is stated to be placed with Krones, AG, Germany for Rs.1,67,41,760/-. As far as item Nos. 2 and 6 are concerned, there does not appear to be any dispute about the same. The total amount comes to Rs.1,05,00,000/-. No doubt, as far as item Nos.3, 7, 8 and 9 are concerned, it is to be noted that no advance has been paid. Third respondent issued Ext.P13. In Ext.P13 reference is made to items 2, 4, 5 and 6. The learned Single Judge was in error in referring to item No.3 also as referred to in Ext.P13. The appellant caused to be issued Ext.P14 reply. The appellant did not in the reply refer to the items which are WA.2922/2007.

mentioned in Sl. Nos. 3, 7, 8 and 9. No doubt the case set up by the appellant is that it was already in the files. It was for the appellant to establish that it had placed firm orders without the aid of the deeming provision, which would arise only if advance were paid and acknowledged by the supplier. The appellant had a duty to establish that it had placed firm orders without the aid of advance in respect of the items in question. A perusal of Ext.P14 reply would show that the appellant did not even make an attempt in doing so, instead in Ext.P14 reply it is stated inter alia that in particular the steps taken by the appellant were as follows:

i) Filed IEM with SIA dated 28.12.1999.

ii) Acquired 50 Acres of land by executing a lease agreement dated 28.12.1999 and paid the entire consideration of Rs.2,77,64,000/-.

iii) Obtained consent from the Pollution Control Board.

iv) Placed orders on suppliers of plant and machinery and effected payments through cheques drawn on the said suppliers between 28th and 30th December, 1999. The fact of said amounts having been credited to the accounts of the suppliers prior to 1.1.2000 was also confirmed by the Deutsche Bank by their letter dated 29.9.2000.

v) It commenced commercial production by March, 2001.

Thereafter reference is made only to the circumstances which led to the WA.2922/2007.

filing of the earlier writ petition, the writ appeal and the Special Leave Petition and it is stated that it is not open to the Commercial Tax Department to adopt a stand contrary to the judgments.

30. In the view we have taken on the powers of the Deputy Commissioner, we are of the view that it is open to the Deputy Commissioner to issue Ext.P13. It was the bounden duty of the appellant to produce and satisfy the Commissioner that appellant was eligible for exemption and therefore entitled to an order of exemption within the meaning of clause 10(c), which we have already extracted.

31. As far as item No.5 is concerned, it relates to building foundation, roads and boundary walls. The learned Judge took the view that these are not part of the necessary plant and machinery. In this context, we have to notice the definition of the words 'fixed capital investment of a unit' in Ext.P1 notification (SRO.1729/1993). It is defined as follows:

"'Fixed Capital investment of a Unit' shall mean the total investment of land including land development cost, building, plant and machinery, power generating system, delivery vehicles and the like required for the industrial purpose."

A perusal of the definition of 'Fixed Capital Investment of a Unit' would show that while both investment in land and land development cost and building would be fixed capital investment of a unit, it cannot be part of WA.2922/2007.

plant and machinery as it is treated separately even in the definition of Fixed Capital Investment of a Unit. There was otherwise no need to cull out investment in land including land development cost and building and there was no need to separately enumerate the same. Thus the learned Judge was right in taking the view he did in regard to item No.5 in Ext.P27 as they would not certainly be plant and machinery.

32. It is to be noted that this court had already taken the view as early as in April, 1998 that it is open to the Deputy Commissioner to consider the claim for exemption independently. (See the decision in M/s. Tamil Nadu Ammodia Pvt. Ltd. Ernakulam's Case). Incidentally this judgment was rendered by the learned Judge, who rendered Ext.P2 judgment. By Ext.P13 petitioner was called upon to produce materials to show that it placed firm orders of all the necessary plant and machinery. As already noticed, no attempt was made by the appellant in this regard as is very clear from Ext.P14.

33. The further controversy to be settled of course is what is the true import of the words 'necessary plant and machinery'. The words 'plant and machinery' is undoubtedly preceded by the word 'necessary'. As correctly pointed out by the learned Government Pleader no word can be rendered superfluous or redundant. It was intended to bear meaning and it is the duty of the court to find the meaning as it perceives. Learned WA.2922/2007.

counsel for the appellant is equally right in pointing out that the words 'necessary plant and machinery' are not preceded by the word 'all'. On the one hand the appellant contends that as long as the appellant has placed firm orders for some items of plant and machinery, which are necessary for the purpose of running the unit, the conditions stand fulfilled. In this regard he draws support from the stand taken by the authorities in the State. He refers to letter dated 15.11.2001 written by the Special Secretary to Government to the Commissioner of Commercial Taxes. Therein it is stated as follows:

"I am to invite your attention to the letter cited and to inform that M/s. Pepsi Cola India Manufacturing Company has remitted the amounts for Plants and Machinery before the stipulated time (vide certificate dated 29.9.2000 from Deutshe Bank) and hence the company qualifies for the tax exemption contemplated in G.O.(P) 57/2000/T.D dated 31.3.2000 provided all other conditions are complied with . The case may be disposed of in accordance with the procedure stipulated."

34. Reliance is also placed on the communication dated 21.12.2001 by the Principal Secretary (Industries) to the Director of Industrial and Commerce. It is stated as follows:

"In response to a clarification sought by the Commissioner, Commercial Taxes as per his letter dated 12.10.2001, WA.2922/2007.

Government had clarified that the Pepsi Cola Company satisfies the eligibility criteria for having paid the advance and the amount getting credited into the sellers account for the purchase of equipment. The SRO 295/2000 generally prescribes the criteria for tax exemption. The SRO being in general nature, you can take a view on other variations of the request and the SRO cannot prescribe specific condition for all possible situations. In the above circumstances, I am to request you to take a view and decide the matter."

Further reliance is placed on the letter written by the Principal Secretary, Industries to the Director of Industries and Commerce dated 25.7.2002. It is stated as follows:

"I am to invite your attention to the letter cited. Government is of the view that the wording 'necessary plant and machinery' would only mean that whatever plant and machinery which the company procures before the stipulated dates should only be the plant and machinery necessary for the unit and need not be the entire plant and machinery. The Pepsicola Company in this case can be held to have taken effective steps by buying the entire required land and placing firm orders on some machinery and making advance payments for the same before the stipulated dated of 1.1.2000. They have also started commercial production on 31.3.2001 well before the stipulated time of 31.12.2001."

35. No doubt SRO. 1092/1999 is dated 31.12.1999. Two of the communications relied on are in the year 2001 and the last one is in WA.2922/2007.

2002. The principle of contemporanea expositio can be an effective tool in decoding the intention of the maker. The Principal Secretary, Industries, and Secretary, Taxes, as pointed out by the learned Government Pleader, are not authorities under the notification. In the decision in K.P.Varghese v. Income Tax Officer, Ernakulam ((1981) 4 SCC 173) circulars were issued by the Central Board of Direct Taxes. The court took the view that apart from the binding character, they were in the nature of contemporanea expositio. The court also held that it must give way where the language of the statute is plain and unambiguous. The principle would appear to be that the construction placed of a contemporaneous nature by executive authorities charged with executing a statute should be palpably erroneous before the court declines to recognise its effectiveness. In State of Karnataka v. Balaji Computers ((2007(2) SCC 743) relied on by the appellant, the Apex Court noted that all the assessing authorities in the State except one from the year 1997-1998 had taken the view that till the issuance of the Circular on 31.12.2004 the parts of computer and computer peripherals were exempted from turnover tax. Applying the principle of contemporanea expositio to a notification, it must be exposition by an executive or administrative officer charged with administering or implementing it. It is undoubtedly true that under the doctrine of contemporanea expositio, the views of the executive officer administering WA.2922/2007.

the act has high persuasive effect. But when the language is clear then the court would not hesitate to ignore the views of the executive.

36. The contention of the appellant is that, the fact that appellant has placed firm orders admittedly for certain items suffices to fulfill the criteria. He submits that what is relevant is whether the machineries in respect of which firm orders are placed are plant and machineries necessary for the running of the unit. In considering the acceptability of this contention, we must not forget that the theory of effective steps is incorporated in the notification in order to meet the challenge based on the doctrine of promissory estoppel. Promissory estoppel is an equitable principle. Apparently, SRO. 1092/1999 is not a notification which grants exemption. It is a notification by which the exemption granted by SRO.1729/1993 was withdrawn. No doubt exceptional circumstances are enumerated and those exceptional circumstances are based on cases of bonafide acts of persons falling in different categories, which would entitle them for continued exemption.

37. On the other hand, the contention of the learned Government Pleader is that unless each and every machinery for running of the unit are subject matters of firm orders, the exemption would not be available.

38. Let us examine the logical conclusion which can be WA.2922/2007.

reached if the contention of the appellant is accepted. Obviously very many items would constitute plant and machinery necessary for running the unit of the appellant. If the appellant's contention is accepted, we must ascribe to the framer of the notification the intention that if the appellant places an order for any one item of machinery or plant which may be necessary, however, insignificant the investment may entail, then it would become entitled to the benefit of exemption. Had it been the intention of the framer of the notification that upon a person acquiring or placing firm order for any one or more of the items of plant and machinery, he would be entitled to the benefit of exemption, the wording would have been as follows: 'If a unit acquires or places a firm order for any of the necessary plant and machinery.' The case of the respondents on the other hand is that unless firm orders have placed in respect of each and every plant and machinery, which are necessary for the entire process from start to finish for the production of the commodity in question, it will not be entitled to exemption. Take an example where the unit has either acquired or placed firm orders for a very substantial portion which is atleast above 50% of the value of the plant and machinery. Having regard to the purpose of the clause, could it not be said that it should not be denied the benefit of exemption. These clauses were admittedly made on the basis of the doctrine of promissory estoppel. We also note that in Ext.P4 Special WA.2922/2007.

Leave Petition filed before the Apex Court two grounds are seen taken. They are as follows:

"5.11. Because admittedly the total requirement of investment towards Plant and Machinery/equipments of the Project was Rs.32.10 crores. Against this Rs.21.75 lakhs was paid as advance payment by the respondent Company before 1.1.2000. It is submitted that the advancements made by the respondent Company represents not even 1% of the cost of 'total Plant and Machinery'. As per the provisions expressly contained in the Notification, the Respondent Company has to pay advances for such Plant and Machinery necessary for the whole project. It is submitted that the term used in the Notification is 'necessary Plant and Machinery' and 'such Plant and Machinery and Equipments', which in other words would necessarily imply whatever Plant and Machinery essential for the Project and not any or some of the Plant and Machinery necessary for the Project.

5.12. Because both the SROs are very specific that 'firm orders' are to be placed, not related to one or two items of the Machinery, but should relate to major portion of the machinery in the manner specified in the Notification. The stipulation categorically states that the necessary Plant and Machinery have to be acquired or purchased prior to 1.1.2000 as one of the eligibility conditions. It is submitted that industrial units that have taken effective steps only to a make believe extent cannot be granted the benefit of exemption which results in a huge revenue loss to the State Exchequer."

WA.2922/2007.

We would think that going by the principle of purposeful interpretation, we may not be justified in accepting the extreme positions canvassed by the appellant on the one hand and the respondents on the other hand. We would think that the purport of the clause would be that if the party had acquired a substantial portion of the necessary plant and machinery or placed firm orders in this regard before 1.1.2000 alone, it could be held entitled to the benefit of exemption. As far as the facts of this case are concerned, as already noted, in our view, the appellant has succeeded in proving that it has placed firm orders in respect of Plant and Machinery worth only Rs.1,05,00,000/=, when the total value of the plant and machinery is in the region of Rs.32 Crores. Even if we were to include installation and commissioning of Blow Molding Machine stated to be worth Rs.15,00,000/= as plant and machinery, the total amount would still be only Rs.1,20,00,000/=. In such circumstances, there is absolutely no merit in the contention of the appellant and the Writ Appeal deserves to be dismissed, and we do so.




                                                      H.L. DATTU,
                                                    CHIEF JUSTICE



                                                     K.M. JOSEPH,
sb.                                                     JUDGE

WA.2922/2007.
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sb.

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