2005 Supreme(SC) 872

2005(4) Supreme 699
Supreme Court of India
(From Allahabad High Court)
Mrs. Ruma Pal & Arun Kumar, JJ.
Commissioner of Trade Tax, U.P. & Anr. —Appellants
versus
M/s. Kajaria Ceramics Ltd. —Respondent
Civil Appeal No. 4601 of 2000
With
C.A. No. 4602 of 2000
Both Decided on 12-7-2005
Counsel for the Parties :
For the Appellants : G.K. Banerjee, Sr. Advocate, Punit Dutt Tyagi, S. Aggarwal and Mukesh Verma, Advocates.
For the Respondent : Gopal Subramanium and Bharati Aggarwal, Sr. Advocates, Dhruv Agarwal, Praveen Kumar, Umesh Khaitan and Nishant Menon, Advocates.

Important point
Benefit of the 1991 Notification issued u/s 4A of the U.P. Trade Tax Act, as far as units undertaking expansion etc. are concerned is limited to a percentage of the additional fixed capital investment and not the original and additional fixed capital only.

Headnote:(i) U.P. Trade Tax Act, 1948—Section 4A—U.P. Trade Tax Rules, 1948—Form XLVI—Notification dated 27.7.1991—Claim of benefit of exemption from payment of trade tax granted under the 1991 notification—Conditions imposed by the notification —Benefit under the notification limited to those goods which are additionally produced as a result of expansion or modernization—Whether a unit undergoing expansion is entitled under 1991 notification to the benefit of exemption on additional fixed capital investment as a result of such expansion, or the total fixed capital investment, being the aggregate of the original as well as the additional fixed capital investment—Held, benefit of 1991 Notification as far as units undertaking expansion are concerned is limited to a percentage of additional fixed capital investment and not the original and additional fixed capital only and not to a percentage of the aggregate of the original and additional fixed capital.

       Held : The different methods of com­putation contained in paragraph 4 of the 1991 Notification serve two separate purposes and that is to determine the two relevant investments for the distinct benefits available to two different kinds of units viz. new units and established units which have undertaken expansion etc. Significantly there is no mode prescribed determination of original fixed capital investment as far as the latter kind of unit is concerned nor additional fixed capital investment in respect of the former. The High Court did not consider the logical consequences of paragraph 4 of the notification providing only for the com­putation of additional fixed capital investment as far as units undertaking an expansion etc. were concerned. In our opinion the High Court misread paragraph 4 of the notification, the only reasonable interpretation of which is that as far as new units were concerned the ‘original fixed capital investment’ would have to be computed and as far as units undertaking expansion etc. were concerned ‘additional fixed capital investment alone would have to be computed. (Para 23)

       The particulars indicate that while fixed capital investment includes original and additional investments a distinction is made between the two. The purpose is patently to enable the Department to verify the calcu­lation of the percentage of increase in the additional investment by reason of the expansion over the original. It does not mean that in respect of units undertaking expansion the percentage is to be calculated on an aggregate of both original and additional investments. (Para 24)

       The three notifications namely the one issued in 1985, 1991 and 1995 form part of a pattern. The 1985 notification granted benefit to new units provided their original investment exceeded Rs. 3 lacs of their entire turnover. The 1991 Notification extended the benefit to old units undertaking expansion and which may have already got the benefit, like the respondent, of the original investment made under the 1985 Notification subject to the old unit making a further investment and the benefit was limited to a percentage of that investment. Similarly the 1995 Notification further extended the benefit to units which had undertaken backward integration again limiting the benefit to the investment made. All three notifications were issued under the same section and for the same purpose of effecting development and were part of a chain of progress without any overlapping. Not only would the contents of each notification derive its meaning from Section 4A as each is derived from and refers back to the section, but also if a phrase used in one of the notifications is still ambiguous, then for the purpose resolving the ambiguity the contents of the previous or subsequent notifications can be looked into. Indeed that is what the High Court did. Because the 1995 notification explicitly states in Annexure 1 to that notification that the exemption is calculatable on the fixed capital investment or as the case may be ‘additional fixed capital investment’, the High Court was of the view that when the 1991 notification only used the words ‘fixed capital investment’ in Annexure 1 as the basis of calculation of benefit without making any such distinction, all units whether new or old were entitled to the benefit of the original and the additional fixed capital investment. (Para 25)

       It is patent to us therefore that the benefit of the 1991 Notification as far as units undertaking expansion etc. like the respon­dent are concerned is limited to a percentage of the additional fixed capital investment and not the original and additional fixed capital only and not to a percentage of the aggregate of the original and additional fixed capital. (Para 35)

       (ii) U.P. Trade Tax Act, 1948—Section 4A—U.P. Trade Tax Rules, 1948—Exemption Notifications issued under—Respondent manufactures and sells ceramic files in its factory at Sikandara­bad in State of Uttar Pradesh since 1988 having received an industrial ­licence from the Government of India—Annual production capacity of respon­dent’s unit was 12000 tonnes per annum—Respondent’s unit fulfilled ­conditions mentioned in 1985 notification—It was granted exemption for six years from the date of first sale i.e. from 16.8.1988 to 15.8.1994—­Capacity of respondent’s unit was increased from 12000 to 26000 tonnes per annum during the period 1.4.1990 to 15.8.1990 — Again between 16.8.1990 to 28.12.1991, respondent made an additional fixed capital investment and increased units capacity from 26000 to 40000 TPA—Finally the capacity was increased to 60,000 TPA by 28.3.1994—Respondent claiming benefit of exemption under 1991 Notification claiming that there was one ­expansion from 12.8.1988 to 28.3.1994—Whether respondent’s claim of one integrated expansion from 12000 TPA to 60000 TPA is sustain­able in fact or in law—(No)—Issue being a mixed question of law and fact—Onus to prove it is on the person asserting it—There were in fact three separate expansions.

       Held : Reading the quoted provisions of Section 4A with paragraph 1(B)(1)(a) of the Notification it is clear that the benefit under the notification must be limited to those goods which are additionally produced as a result of expansion or modernization. In other words the benefit was relatable to the expansion. We then come to Explanation (5) to Section 4A of the Act. It has been quoted verbatim earlier on. To recapitulate briefly: Explanation 5 defines a “unit which has undertaken expansion, diversification or modernization”. It contains four clauses which provide the conditions of the definition. Clause (a) requires that the dealer should not be a defaulter. Clause (b) defines “first date of production of goods”. Clause (c) refers to the minimum extension of capacity, namely 25 as a result of expansion. Clause (d) requires a minimum additional fixed capital investment of 25 . (Para 43)

       The respondent cannot in terms of this statutory scheme claim in one breath that a single expansion commenced from 1988 and was completed in 1994 and at the same time say that the base production was the figure of production in 1992-93 viz. 40038 MT. The base production as we have seen must statutorily precede the expansion and cannot be a figure taken while the expansion has already progressed. The figure of 40038 MT was accepted by the DLC as the base production as it had rejected the respondent’s claim relating to the first two expansions and limited it to the third expansion. The appellants have similarly accepted this figure of 40038 MTs. But this is in keeping with their contention that there were in fact three expansions and that the figure of 40038 MTs is the base production for the third and last expansion. (Para 53)

       We accordingly hold that there were in fact and in law three expansions and decide the issue in favour of the appellants. (Para 60)

       (iii) U.P. Trade Tax Act, 1948—Section 4A—U.P. Trade Tax Rules, 1948—Levy of trade tax—Claim of benefit of exemption notification—Respondent manufacturer claimed preoperative expenses as part of fixed capital investment which included interest to financial institutions, rights shares issue expenses, foreign techni­cian expenses and foreign travel expenses—Whether such preoperative expenses form part of ‘Fixed Capital Investment’ for the purpose of Section 4A of the Act and the 1991 Notification issued u/s 4A of the Act—(No).

       Held : Apart from the actual investment in or cost of the specific items of land, building, plant, machinery, equipment apparatus, components moulds dyes, jigs and fixtures, no other item of expense is includible under the head of fixed capital investment for the purposes of section 4A of the Act. This principle of statutory interpre­tation is reinforced not only by the particulars itemized in form XLVI of the Rules but also by the procedures for determination of fixed capital investment specified in paragraphs 3 and 4 of the 1991 notification, all of which underscore the definition’s restrictive nature. There is and indeed could be no reference either in the form or in the 1991 notification to any item outside the definition in Explanation 4 to Section 4A. (Paras 65 and 66)

       The definition of ‘fixed capital invest­ment’ in Explanation 4 talks of investment in land, building, plant, machinery etc. and not investment in relation to or in connection with them. The Tribunal and the High Court failed to construe these statutory provisions and relied upon judgments delivered in connection with the Income Tax Act, the provisions and purpose of which could hardly be said to be in pari materia with the pro­visions of the UP Act and the 1991 Noti­fication. (Para 67)

       The four items of expenditure which the High Court accepted viz. Interest paid on loans by financial institutions, expenses in connection with a rights issue of shares, expenses on foreign technicians or foreign travel do not reflect the value of the items forming part of the fixed capital investment for the purposes of this Act or 1991 Notification and cannot by any principle of statutory interpretation be brought within the definition of the phrase in Explanation 4 to Section 4A. The issue is thus decided against the respondent and in favour of the appellants. (Para 68)

       (iv) U.P. Trade Tax Act, 1948—Section 4A—Claim of benefit of exemption notification—Eligibility certificate granted pursuant to High Court’s judgment allowing the claim—Appeal—Respondent has not availed of even 50 of the total benefit under the notification in terms of the impugned judgment—Whether respondent may be called upon to pay the tax—(Yes).

       Held : Even if the dealer under the fear of punishment under section 15A (qq)(viii) does not realise amount by way of tax on the sale of its goods in compliance with the provisions of section 8A(2) during the period it is exempt from paying tax, it would still have to pay the tax under sub section (4) of section 4A if it is found that it was not entitled to such exemption. The overriding nature of this consequence follows not only from the use of the imperative word “shall” in sub ­section (4) but also from the non obstante clause with which section 4A opens. Given the clear language, it is not necessary for us to express any view on section 29A of the Act or the industrial policy underlying section 4A or the 1991 Notification. The High Court has found that the respondent had taken the benefit of the increased capacity of the unit which came about by reason of the first two expansions in the sense that the exemption on entire sales turnover relatable to such increased capacity had been enjoyed by the respondent under the 1985 Notification. The DLC had also granted tax benefit to the respondent only in respect of the third expansion excluding the preoperative expenses. Albeit for other reasons, in our opinion, having ­regard to our decision on the various issues against the respondent, this is the highest relief that the respondent could claim and which the appellants concede would be the most equitable. (Paras 77 and 78)