State Of Haryana vs M/S Liberty Enterprises

ITEM NO. 1-A ( For COURT No.5 SECTION III Judgment )

SUPREME COURT OF INDIA RECORD OF PROCEEDINGS

Civil Appeal No......./2009 @ SLP(C) No. 23970 of 2007

State of Haryana .. Appellant(s) Versus M/s Liberty Enterprises .. Respondent(s)

WITH

CIVIL APPEAL NO....../2009 @ SLP(C) NO. 24170 OF 2007 CIVIL APPEAL NO....../2009 @ SLP(C) NO. 6975 OF 2008 CIVIL APPEAL NO....../2009 @ SLP(C) NO. 6976 OF 2008

DATE : 17/03/2009 These matters were called on for pronouncement of judgment today.

For Appellant(s) Mr. T.V. George, Adv.

For Respondent(s) Mr. M.P. Devanath, Adv.

Mr. Mohan Pandey, Adv.

---

Hon'ble Mr. Justice S.H. Kapadia pronounced the judgment of the Bench

comprising his Lordship and Hon'ble Mr. Justice H.L. Dattu.

Delay condoned.

Leave granted.

The appeals filed by the Department are dismissed in terms of the signed

judgment which is placed on the file.

[ S. Thapar ] [ Madhu Saxena ] PS to Registrar Court Master

[ Signed reportable judgment is placed on the file ] REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1618 OF 2009 (Arising out of S.L.P.(C) No.23970 of 2007)

State of Haryana ... Appellant (s)

Versus

M/s. Liberty Enterprises ... Respondent(s)

WITH

Civil Appeal No. 1619 of 2009 - Arising out of S.L.P. (C) No.24170 of 2007 Civil Appeal No. 1620 of 2009 - Arising out of S.L.P. (C) No.6975 of 2008 Civil Appeal No. 1621 of 2009 - Arising out of S.L.P. (C) No.6976 of 2008

JUDGMENT

S. H. KAPADIA, J.

1. Delay condoned.

2. Leave granted.

Facts in the Lead Matter:

3. For the sake of convenience we state the facts occurring in

Civil Appeal No. 1618 of 2009 - Arising out of S.L.P.(C) No.23970

of 2007 - State of Haryana vs. M/s. Liberty Enterprises.

4. M/s. Liberty Enterprises (assessee) is engaged in the REPORTABLE

manufacture of shoes in the State of Haryana. They availed exemption

from payment of sales tax under Section 13B of Haryana General Sales

Tax Act, 1973 read with Rule 28A of Haryana General Sales Tax Rules,

1975 respectively. Assessee was granted Exemption Certificate No.116

for an amount of Rs.533 lakhs with effect from 15.3.95 to 14.3.2002 in

terms of Rule 28A of the said 1975 Rules. The assessee availed benefit

of exemption till 31.12.96 and from 1.1.97 the assessee switched over

to the deferment tax payment scheme. Till 31.12.96 the exemption

granted to the assessee was for an amount of Rs.53.94 lakhs. On

exercising option of deferment, an entitlement Certificate No.07 for an

amount of Rs.479.06 lakhs effective for the period 1.1.97 to 14.3.2002

was issued to the assessee in place of earlier Exemption Certificate.

5. The assessment of the assessee for the year 1996-97 was

finalized vide order dated 12.3.01; from the total gross turnover the

Assessing Authority allowed the deduction of Export Sales against the

Declaration Forms. However, the assessment was revised by the

Revisional Authority, Karnal, which assessed the Export Sales made

during the period of exemption (1.4.96 to 31.12.96) at 4% for the

purpose of Rule 28A of the 1975 Rules. Since the exempted quantum

of the assessee fixed at Rs.53.94 lakhs stood exhausted, the excess

amount was ordered to be recovered by the Revisional Authority. REPORTABLE

Against the said order of the Revisional Authority, the assessee

appealed before the Haryana Tax Tribunal. Vide Order dated 13.1.04

the Tribunal set aside the order of the Revisional Authority which was

challenged by the State of Haryana (Department) by way of civil writ

petition before the High Court of Punjab & Haryana at Chandigarh. By

the impugned Order dated 26.5.06, the High Court dismissed the said

writ petition in terms of its earlier judgment rendered in the case of

M/s. Kagaz Print-N-Pack (India) Pvt. Ltd. v. State of Haryana-

(G.S.T.R.No.10 of 2004)

ISSUE

6. The short question which arises for determination in this civil

appeal is : whether Export Sales are includible in "notional tax liability"

of a unit as defined in Rule 28A(2)(n) of the 1975 Rules.

CONTENTIONS

7. Mr. Anoop G. Choudhary, learned senior counsel appearing on

behalf of the State, submitted that in terms of the proviso to Rule 28A

(4)(a) of the 1975 Rules, the benefit of exemption on payment of tax was

available to a unit on its `gross turnover' which was defined to mean

the total receipt on account of sales made by a dealer, which included

even the Export Sales. In this connection, reliance was placed on the REPORTABLE

proviso to Rule 28A(4)(a) which inter alia states that the benefit of

exemption shall extend to tax on `gross turnover', which according to

learned counsel would cover total sales receipts (including Export

Sales).

8. On the other hand, Mr. Monish Panda, learned counsel

appearing on behalf of the assessee, submitted that exemption from

payment of sales tax stood provided for under Section 13B of the said

1973 Act. It provided for exemption from payment of sales tax to

eligible units subject to the conditions mentioned in the Rules. The

conditions for availing the exemption were provided for under Rule 28A

of the 1975 Rules. The exemption was available from the date of

commercial production. The benefit of exemption, according to learned

advocate, was available for a specified period and upto the specified

quantum. According to learned advocate, for the purpose of

calculating the quantum of exemption, the "notional sales tax liability"

was to be taken into consideration. The expression "notional sales tax

liability" stood defined in Rule 28A(2)(n) of the 1973 Rules. According

to learned advocate, on a bare reading of 28A(2)(n), it is clear that all

the incidences of sales transaction that are to be computed for arriving

at the notional sales tax liability stood incorporated in the said sub-

rule. According to learned advocate, on a bare reading of the above REPORTABLE

sub-rule, it is clear that sale made in the course of export outside India

("Export Sale", for short) was not included in "notional sales tax

liability" as defined in Rule 28A(2)(n). According to learned advocate,

such exclusion of Export Sale from the meaning of "notional sales tax

liability" under Rule 28A(2)(n) leads to the clear conclusion that Rule

28A never intended to deem "Export Sale" within "notional sales tax

liability" and, therefore, learned advocate urged that in the context of

`notional tax liability', turnover of export goods could not have been

included in the `gross turnover'.

Relevant Provisions of Law:

9. To decide the controversy we need to quote relevant provisions

of the 1973 Act and 1975 Rules which read as under:

"1973 ACT:

Section 2. Definitions: - In this Act, unless there is anything repugnant in the subject or context.-

(e) - "export" means the taking out of goods from the State to any place outside it otherwise than by way of sale in the course of inter-State trade or commerce or in the course of export out of the territory of India (gg) - "gross turnover" means the aggregate of the amounts of sales and purchases and parts of sales and purchases made by any dealer whether as principal, agent or in any other capacity during the given period less any sum allowed as cash discount according to ordinary trade practice, but including any sum charged for anything done by the dealer in respect of the goods at the time of, or before, delivery thereof;

(p) - "taxable turnover" means that part of a dealer's gross REPORTABLE

turnover which remains after allowing deductions under Section 27 of the Act.

Section 6 - Incidence of Taxation:-

(1) Subject to the provisions of Section 15 and 27 of this Act, every dealer whose gross turnover during the year immediately preceding the 27th day of May, 1971 exceeded the taxable quantum, shall from the 27th day of May, 1971 and every other dealer shall, on the expiry of thirty days after the date on which his gross turnover first exceeds the taxable quantum, be liable to pay tax under this Act on the sale or purchase of goods by him in the State at the stage hereinafter provided.-

(a) to (c) xxx xxx xxx (i) & (ii) xxx xxx xxx

Provided ... xxx xxx xxx

Provided further that in the case of a dealer, -

(a) who imports any goods for sale or for use in manufacturing or processing any goods for sale, the liability to pay tax shall commence from the date on which he imports such goods;

(b) who manufactures or processes any goods for sale, the liability to pay tax shall commence, from the date on which his gross turnover, during any year, first exceeds the taxable quantum;

(c) who exports any goods purchased within the State, the liability to pay tax shall commence from the date on which he purchases such goods;

... ... ...

Section 12 - No tax payable in case of inter-State trade, etc.-

Notwithstanding anything contained in this Act, a tax on the sale or purchase of goods shall not be imposed under this Act;

(i) where such sale or purchase takes place outside the State;

(ii) where such sale or purchase takes place in the course of import of the goods into, or export of the goods out of, the territory of India; or

(iii) where such sale or purchase takes place in the course of inter-State trade or commerce.

Section 13B.- Power to exempt certain class of industries.- REPORTABLE

The State Government may, if satisfied that it is necessary or expedient so to do in the interest of industrial development of the State, exempt such class of industries from the payment of tax, for such period and subject to such conditions as may be prescribed.

Section 27 - Taxable turnover.-

(1) In this Act, the expression, "taxable turnover" means that part of a dealer's gross turnover during any period which remains after deducting therefrom his turnover during that period

-

(a) on account of -

(i) to (iii) xxx xxx xxx

(iv) Sale and purchase of goods falling under Section 12: ... ... ..."

"1975 RULES :

Rule 28A. Class of industries, period and other conditions for exemption/deferment from payment of tax (Sections 13B and 25A) - (1) The industries covered under this rule shall not be entitled to any deferment or exemption from payment of tax under any other provisions of these rules.

(2) For the purposes of this Chapter, unless the context otherwise requires -

(n) "notional sales tax liability" means-

(i) amount of tax payable on the sales of finished products of

the eligible industrial unit under the Local Sales Tax Law but for an exemption computed at the maximum rates specified under the Local Sales Tax Law as applicable from time to time; and

Explanation:- The sales made on consignment basis within the State of Haryana or branch transfer within the State of Haryana shall also be deemed to be sales made within the State and liable to tax;

(ii) amount of tax payable under the Central Sales Tax Act, 1956, on the sales of finished products of the eligible industrial unit made in the course of inter-State trade or commerce computed at the rate of tax applicable to such sales as if these were made against certificate in form C on the basis that the sales REPORTABLE

are eligible to tax under the said Act.

Explanation:- The branch transfers or consignment sales outside the State of Haryana shall be deemed to be the sale in the course of inter-State trade or commerce.

Note : The expression and terms, if any appearing in this rule not defined above shall unless the context otherwise requires carry the same meaning as assigned to them under the Act and rules made thereunder.

Rule 28A

(3) Option - An eligible industrial unit may opt either to avail benefit of tax exemption or deferment. Option once exercised shall be final except that it can be changed once from exemption to deferment for the remaining period and balanced quantum of benefit.

Rule 28A

(4)(a) Subject to other provisions of this rule, the benefit of tax exemption or deferment shall be given to an eligible industrial unit holding exemption or entitlement certificate, as the case may be to the extent, for the period, from year to year in various zones from the date of commercial production or from the date of issue of entitlement exemption/exemption certificate as may be opted as under:-

... ... ...

Provided that in the case of exemption the benefit shall extend to tax on gross turnover and in the case of deferment, it shall extend to tax on the taxable turnover of goods manufactured by the unit.

... ... ...

Explanation:- 1. For the purpose of arriving at the limit of tax exemption/deferment, the notional sales tax liability of the unit shall be taken into consideration."

(emphasis supplied by us)

FINDINGS:

10. At the outset, we may state that there is a vital difference between REPORTABLE

the scheme of Deduction and a scheme for Exemption. Even within the

scheme of exemption there is a basic difference between the "Basis" for

computation of the quantum of benefit and the "Limit" or ceiling to be placed

on that quantum. There is no dispute that but for exemption claimed, the

assessee was a dealer, who was subject to incidence of sales tax under the

1973 Act. Its transactions were liable to be dealt with in accordance with

the provisions of the Act relating to taxability. What was exempted under

the Act and the Rules was payment of tax by a class of dealers who had been

issued eligibility/exemption certificates. This is not in dispute. Under the

provisions of 1975 Rules benefit of exemption from payment of tax was

available for a specified period and upto the specified quantum. Rule 28A

provides for calculation of the quantum of exemption upto the limit of tax

exemption and, therefore, it provides for deduction of the "notional sales tax

liability" from the total exemption limit available to a dealer during the

period of exemption.

11. Rule 28A(2)(n) included in its purview the following transactions:

(a) amount of tax payable under the local sales tax law;

(b) sales made on consignment basis within the State or the branch transfers within the State;

(c) amount of tax payable under the Central Sales Tax Act, 1956 on the sales made in the course of inter-State trade or commerce; and

(d) branch transfers or consignment sales outside the State.

12. A perusal of the above transactions, included in the "notional sales REPORTABLE

tax liability", shows that the said Rule 28A(2)(n) of the 1975 Rules included

sales which were otherwise exigible to sales tax, namely, local sales and

inter-State sales and secondly the Rule also included branch transfers or

consignment sales outside the State and sales made on consignment basis

or branch transfers within the State by treating them as deemed sales,

which two transactions were otherwise not exigible to sales tax for any other

unit not availing the exemption. In other words, a unit availing exemption

from payment of sales tax under Rule 28A had been disallowed certain

deductions which were otherwise available to an assessee if it would have

been a case of normal assessment. The assessee was eligible to avail

deductions from its `gross turnover' for transactions relating to inter-State

branch transfers or consignment sales outside the State and sales made on

consignment basis or branch transfers within the State. These deductions

stood disallowed to a unit allowing exemption for calculating the "notional

sales tax liability" as defined in Rule 28A(2)(n), as a condition for grant of

exemption. It is important, however, to note that the "notional sales tax

liability" apart from the above referred to transactions did not include even

by a deeming fiction the Export Sale(s). Export Sale(s) was not included in

`notional tax liability' by a deeming fiction or otherwise. A scheme for

Exemption has to be interpreted in the strict sense. A scheme for Deduction

provides for conditions to be specified for grant of exemption. Export Sales

were never sought to be included in the "notional sales tax liability" as

defined in Rule 28A(2)(n). The assessee was not entitled to avail tax

incentives beyond the period of exemption. The assessee was not entitled to REPORTABLE

avail exemption of tax also beyond the maximum limit of tax determined and

certified in his eligibility/exemption certificate. Therefore, the scheme

contemplated tax-limit and time-limit. The notional tax liability was

deductible from the total exemption limit available to a dealer during the

period of exemption. To the extent the notional tax liability exceeded the

total exemption limit, the Department was entitled to order the recovery of

the difference. In the present case, the Department has sought to recover

the difference on the ground that the notional tax liability exceeded the

exempted quantum during the period of exemption.

13. Rule 28A deals with computation of the quantum of tax incentive

available to a dealer in whose favour eligibility certificate is issued. In order

to regulate the exemption scheme the concept of "notional sales tax liability"

stood incorporated vide Rule 28A(2)(n) of the 1975 Rules.

14. The Department has placed heavy reliance on the proviso in Rule

28A(4)(a), which has been quoted above. The said proviso states that in case

of exemption, the benefit shall extend to tax on gross turnover and in case of

deferment it shall extend to tax on the taxable turnover of the goods

manufactured by the unit. We have quoted the definition of the word "gross

turnover" which is defined to mean the aggregate of the amount of sales and

purchases made by any dealer. The Department placed heavy reliance on

this definition of the words "gross turnover" to say that it would include

Export Sales, particularly, when Rule 28A contains a proviso to the effect REPORTABLE

that in case of exemption, the benefit shall extend to tax on "gross turnover".

There is no dispute on this proposition. However, in this case we are

concerned with the "limit" to be placed on tax exemption/deferment and for

calculating that limit/ceiling one has to take into account the notional sales

tax liability of the unit. Therefore, one has to read the proviso in Rule 28A(4)

with Explanation 1 which states that "for the purposes of arriving at the

limit of tax exemption/deferment, the notional sales tax liability of the unit

shall be taken into consideration". It is because of the said Explanation that

notional sales tax liability has been defined in Rule 28A(2)(n). Therefore, one

has to go strictly by the definition of the words "notional sales tax liability" in

the said Rule 28A(2)(n) of the 1975 Rules.

15. There is one more aspect which needs to be considered. For the

purpose of granting exemption from payment of sales tax under Section 13B

of the 1973 Act, the Legislature incorporated Rule 28B on 16.9.98 providing

conditions for availing exemption from payment of sales tax to eligible units.

Under the provisions of Rule 28B of the 1975 Rules, benefit of exemption

was available for a specified period and upto the specified quantum.

However, Rule 28B provided that for the purposes of calculating the

quantum of exemption availed by the unit upto the limit of tax exemption

allowed, the notional sales tax liability shall be taken into consideration.

Accordingly, notional sales tax liability stood defined even in Rule 28B(2)(m).

On a bare reading of the definition of "notional sales tax liability" under Rule

28B(2)(m) it is clear that the definition included within its scope "sales made REPORTABLE

in exports outside India" by deeming it to be a sale in the course of inter-

State trade or commerce. Such deeming fiction did not exist in Rule 28A(2)

(n). Rule 28B(2)(m) is not applicable to the facts of the present case.

However, in order to explain the position, we have discussed, by way of

analogy, Rule 28B(2)(m) of the 1975 Rules.

16. For the aforestated reasons, we hold that Export Sales were not

includible in the matter of calculation of "notional tax liability" during the

period in question.

17. Before concluding learned counsel for the State also raised the

question of constitutionality by stating that the Export Sales in any event

were not taxable by the State Government in view of Article 286 of the

Constitution read with Section 12 of the 1973 Act. We keep this question of

law open.

18. Suffice it to state that Export Sales were not included in the

definition of "notional sales tax liability" as defined in Rule 28A(2)(n) of the

1975 Rules. On this point alone the assessee succeeds.

19. For the aforestated reasons, the civil appeals filed by the

Department are accordingly dismissed with no order as to costs.

.................................J. (S.H. Kapadia)

................................J. (H. L. Dattu) REPORTABLE

New Delhi;

March 17, 2009.