IMPORTANT POINT
An exception or an exemption provision in a taxing statute should be construed strictly and it is not open to the Court to ignore the conditions prescribed in the Industrial Policy.

Headnote:Bihar Finance Act, 1981-Section 7(3)(b)-Industrial Promotion Policy, 1995-Governor of Bihar granted exemption to those new industrial units which start production between the period 1.9.1995 to 31.8.2000 who have obtained Registration Certificate from the Competent Authority-Respondent, a small scale industry had obtained temporary Registration Certificate-Respondent unit applied for eligibility certificate-Whether temporary Registration Certificate can be treated as prior permission from the State Government (Industries Department) for the purpose of the Notification-(No)-Respondent has deliberately ignored the direction of the Department to meet the statutory binding obligation-Requirement, in the instant case, of obtaining prior permission is mandatory-Non compliance of this requirement must result in canceling the concession made in favour of the grantee.
       Held : In our opinion, the certificate issued by the Industries Department cannot be considered as prior permission within the meaning of the amended definition of new industrial unit . It will be manifest from the said notifications that in addition to the temporary registration, a separate prior permission of the Industries Department before 31.8.2000 is an important condition precedent for any unit to become eligible to be deemed as new industrial unit for the purpose of exemption. It is wholly misconceived for the respondent herein to suggest that the temporary registration certificate issued by the Industries Department should be construed as prior permission within the meaning of the amended definition of new industrial unit vide S.O. 478/479 dated 22.12.1995. From the reading of the statutory Notification, it will be manifest that a separate prior permission of the Industries Department before 31.8.2000 is an important condition precedent for any unit to become eligible for the purpose of exemption. It is an admitted position in this case that the respondent has not obtained the prior permission of the State Government in the Industries Department before 31.8.2000 and as such the Industrial unit of the respondent cannot be deemed to be a new industrial unit eligible for tax exemption under S.O. 478 & 479 dated 22.12.1995 read with S.O. 57 & 58 dated 2.3.2000. In our opinion, the application for exemption of the respondent has been rightly rejected by the authorities concerned for non-fulfillment of the statutory obligation on the part of the respondent by not obtaining prior permission of the State Government. In our view, the condition prescribed by the authorities for grant of exemption are mandatory for availing the exemption and the High Court exercising jurisdiction under Article 226 of the Constitution cannot direct the grant of exemption in favour of the respondent overlooking the statutory conditions prescribed for such grant and that too in the absence of any challenge to the validity of such condition. (Paras 19 and 20)
       It is a matter of fact that the respondent has set up its establishment in the year 2000 and started its commercial production from 2.4.2001 only. It is seen from the Bihar Industrial Policy Resolution, 1995 and the statutory Notification issued by the Commercial Tax Department, the new industrial units was defined as those industrial units which went into production between 1.9.1995 and 31.8.2000 and which have been granted license/memorandum/letter of intent or registration certificate from the competent industries Department or Industrial Area Development Authority or Directorate of Industry or competent authority of the Government of India. As already noticed, the statutory notifications were amended retrospectively vide S.O. 57 and 58 dated 2.3.2000. It will thus be seen from the aforesaid amended Notifications that three conditions are stipulated for pipeline industries to be treated as new industrial units for the purposes of exemption under S.O. 478 & 479. (Para 22)
       In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the Court to ignore the conditions prescribed in the Industrial Policy and the exemption Notifications. In our view, the failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way. It is also settled rule of interpretation that where a statute is penal in character, it must be strictly construed and followed. Since the requirement, in the instant case, of obtaining prior permission is mandatory, therefore, non-compliance of the same must result in canceling the concession made in favour of the grantee-the respondent herein. (Paras 25 to 27)

Judgement Key Points

Based on the provided legal document, here are the key points:

Strict Construction of Tax Exemptions: An exception or an exempting provision in a taxing statute should be construed strictly, and it is not open to the Court to ignore the conditions prescribed in the Industrial Policy and exemption Notifications (!) (!) (!) .
Mandatory Nature of Conditions: The conditions prescribed by the authorities for the grant of exemption are mandatory for availing the same; substantial compliance suffices only for directory rules, not mandatory ones (!) (!) .
Requirement of Separate Prior Permission: A separate prior permission from the State Government (Industries Department) before 31.8.2000 is an important condition precedent for a unit to be deemed a "new industrial unit" eligible for tax exemption, distinct from a temporary Registration Certificate (!) (!) (!) (!) .
Rejection of Temporary Registration as Prior Permission: It is wholly misconceived to treat the temporary Registration Certificate issued by the Industries Department as the "prior permission" required under the amended definition of a new industrial unit (!) (!) .
Consequences of Non-Compliance: Failure to comply with the mandatory requirement of obtaining prior permission disentitles the respondent from the grant of exemption and results in the cancellation of the concession made in their favor (!) (!) .
High Court Jurisdiction Limits: The High Court exercising jurisdiction under Article 226 of the Constitution cannot direct the grant of exemption in favor of a respondent while overlooking statutory conditions prescribed for such grant, especially in the absence of a challenge to the validity of those conditions (!) (!) .
Specific Statutory Requirements for Pipeline Industries: For pipeline industries to be treated as new industrial units for exemption purposes under the relevant Notifications, three conditions must be met: (i) obtaining a registration certificate, (ii) obtaining prior permission from the State Government before 31.8.2000, and (iii) commencing production within 5 years of obtaining that prior permission (!) (!) (!) (!) .
Outcome of the Case: The Supreme Court allowed the appeal, set aside the High Court's judgment, and held that the application for exemption by the respondent (Ambay Cements) was rightly rejected due to non-fulfillment of the statutory obligation to obtain prior permission (!) (!) .

JUDGMENT

Dr. AR. Lakshmanan, J.-This appeal is preferred by the State of Jharkhand through the Commissioner of Commercial Taxes, Ranchi, Jharkhand and five others against the final judgment and order dated 15.1.2003 passed by the Division Bench of the High Court of Jharkhand at Ranchi in Writ Petition (T) No. 5712 of 2002 allowing and remitting back the same to the Joint Commissioner of Commercial Taxes (Admn.), Dhanbad Division, Dhanbad for passing a fresh order in view of the observations and directions made in the judgment. The short facts are as follows:

2. The erstwhile Government of Bihar came out with an Industrial Policy 1995 providing certain incentives to the newly set up industrial units in the small scale sector. Clause 16.1 and Clause 6.2 of the said Industrial Policy provided for exemption from Sales Tax on purchase of raw material and exemption of Sales Tax on sale of finished products. The Commercial Taxes Department of the State Government issued statutory Notifications for implementation of the said Industrial Policy vide S.O. 478/479 dated 22.12.1995. The said Industrial Policy was amended vide Notification No. 5680 dated 27.8.1997 for providing certain reliefs to the pipeline industries. The Industrial Policy 1995 was amended with a view to provide extension of time limit for the date of start of commercial production in case of pipe line industries where substantial investment capital has been made subject to the condition that such pipe line industrial unit shall seek prior permission of the State Government in the Industries Department before 31.8.2000 and commercial production shall be started within five years from the date of obtaining such prior permission. On 2.3.2000, the Commercial Taxes Department issued Notification No. S.O. 57 and 58 dated 2.3.2000 pursuant to the above amendment in the Industrial Policy 1995. As per the Industrial Policy 1995 and Notifications issued for the implementation of the Industrial Policy 1995, that is, S.O. 478 and S.O. 479 dated 22.12.1995 newly set up small scale industries were entitled to tax free purchase of raw material as also tax free sale of finished products provided that the date of start of such industries were between 1.9.1995 and 31.8.2000. The statutory Notifications S.O. 57 and S.O. 58 dated 2.3.2000 amended the Notification Nos. S.O. 478 and S.O. 479 dated 22.12.1995 accordingly to provide for prior permission of the Industries Department which will have to be obtained by the pipe line industrial unit before 31.8.2000 for availing of the tax incentive under Notification Nos. S.O. 478 and S.O. 479 of 22.12.1995.

3. It is seen from S.O. 478 and S.O. 479, as amended vide S.O. 57 and S.O. 58 dated 2.3.2000 that industrial units having obtained registration from Industries Department/Industrial Area Development authority/Director of Industries or having obtained from competent Authority of the Government of India Registration Certificate/Letter of Intent etc., and desirous of availing tax incentive benefit under Industrial Policy 1995 will also obtain prior permission of the State Government in the Industries Department before 31.8.2000.

4. The respondent herein - M/s Ambey Cements, a small scale industry has obtained temporary Registration Certificate from the General Manager, District Industries Centre, Dhanbad dated 5.5.2000 applied before the Joint Commissioner of Commercial Taxes (Admn.) for grant of exemption. The joint Commissioner vide his order dated 26.8.2000 granted the same with a condition that it will obtain prior permission from the State Government in the Industries Department. The Joint Commissioner, after examining the application for issue of the eligibility certificate, rejected the application on the ground that the respondent did not obtain the prior permission from the Industries Department in accordance with the provisions laid down in the statutory Notification Nos. S.O. 57 and S.O. 58 dated 2.3.2000. The respondent unit, on 2.4.2001,

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2004 Supreme(SC) 1421

IMPORTANT POINTAn exception or an exemption provision in a taxing statute should be construed strictly and it is not open to the Court to ignore the conditions prescribed in the Industrial Policy.

Cases Referred (3)

IMPORTANT POINT
An exception or an exemption provision in a taxing statute should be construed strictly and it is not open to the Court to ignore the conditions prescribed in the Industrial Policy.