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Judgment
M.L. Pendse, C.J.-This batch of appeals can be conveniently disposed of by common judgment as the appeals are directed against common order dated January 3, 1991 (Hallur Halappa and Co. v Commercial Tax Officer, IV Circle, Davangere, 1991(35) Kar. L.J. 117), passed by learned Single Judge in batch of writ petitions.
The facts which gave rise to filing of the petitions are not in dispute and it would be convenient to refer to the facts in W.A. No. 2208 of 1991 to appreciate the contentions raised on behalf of the appellants.
The respondent is engaged in the business of manufacture and sale of rice, and is registered as dealer under the provisions of the Karnataka Sales Tax Act, 1957 (hereinafter referred to as ''the Act''). The respondent purchases paddy and converts the same into rice. The respondent set up industry in the year 1977 and the production commenced from December 19, 1977. It is not in dispute that the respondent was recognised as new industrial unit in terms of orders issued by the Government on June 30, 1969 and which was modified on January 12, 1977. Order dated June 30, 1969 provided for incentives to new industries by way of refund of sales tax on raw materials. The relevant portion of the order reads as follows:
"A cash refund will be allowed on all sales tax paid by new industry on raw materials purchased by it for the first 5 (five) years from the date the industry goes into production, eligibility to the concession being determined on the basis of a certificate to be issued by the Department of Industries and Commerce".
The Government Order was modified on January 12, 1977 and the relevant portion reads as follows:
"The concession of refund of sales tax on raw materials used by new enterprises should be limited to 10 per cent of the cost of fixed assets per year, thus not exceeding the total of 50 per cent, over a period of five years for which the concession is available".
As mentioned hereinabove, the respondent which is a new industry commenced production on December 19, 1977 after securing the requisite certificate from the Joint Director, Department of Industries and Commerce. The respondent filed return for the Assessment Year 1980-81 and the Assessing Authority issued a pre-notice to the respondent as the authority was not inclined to accept the contention of the respondent that sales tax is not payable on the rice manufactured by the respondent from the paddy procured. The respondent filed objections, but the Commercial Tax Officer, IV Circle, Davangere, completed the assessment by rejecting the contention that duty was not leviable on rice manufactured by the respondent. The rejection of the claim gave rise to filing of petition in this Court under Article 226 of the Constitution".
The respondent claimed that a plain reading of the notifications dated June 30, 1969 and January 12, 1977 along with Explanation I to Item 9 of IV Schedule to the Act, makes it clear that duty is not leviable on the rice manufactured by the respondent from the paddy procured. The contention urged by the respondent found favour with the learned Single Judge and by the impugned order it was declared that the incentive notification would not have any bearing on the construction of Explanation I to Item 9 of IV Schedule to the Act. The order of the learned Single Judge is under challenge.
Defence adverting to the controversy raised in the appeals it would be appropriate to refer to the decision of the Supreme Court in Assistant Commissioner of Commercial Taxes (Assessment), Dharwar and Others v Dharmendra Trading Co, 1988(32) Kar. L.J. 168 (SC), The Supreme Court held that the benefit granted by way of refund of sales tax paid under the two Government Orders was in the nature of exemption or reduction which the State Government is empowered to grant under Section 8-A of the Act. Entry 9 of Act No. 18 of 1978 reads as follows:
Sl. No. Description of the goods Period for which applicable Rate of tax
Cereals, that is to say, rice, wheat, jowar or milo, bajra, maize, ragi, kodon, kutki and barley 1-9-1978 to31-3-1984 4%
Explanation I to IV Schedule reads as follows:
"Where a tax has been levied under this Act in respect of the sale or purchase of any paddy referred to in Serial No. 9, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy".
The respondent contends that tax was exempted in respect of paddy purchased by the respondent and therefore it is open to levy tax in respect of rice procured out of such paddy. The appellants on the other hand claimed that the two Government Orders dated June 30, 1969 and January 12, 1977 gave exemption from payment of tax on paddy procured by new industrial units, but there is no exemption in respect of tax payable on the rice procured out of such paddy. The short question which falls for determination is whether the two Government Orders grant exemption both in respect of tax leviable on paddy as well as rice. The learned Single Judge held, and in our judgment, very rightly, that in case the contention urged on behalf of the appellant is accepted, then the exemption granted by the two Government Orders would be nugatory. The tax leviable both in respect of paddy as well as rice procured from such paddy is at the rate of 4%. Explanation I provides that in case the tax is paid on the paddy then, tax on rice procured out of such paddy shall be reduced by the amount of tax paid on paddy. As the tax both on paddy and rice is at identical rate of 4%, in case the tax is paid on paddy then no tax is leviable on the rice. The appellant claimed that as no tax is levied on paddy because of the Government Order, the appellant is entitled to levy tax on rice, because the contingency of reduction of amount of tax paid on paddy does not arise. The submission is misconceived. Exemption from payment of sales tax duty is provided by the two Government Orders as an incentive for setting up new industries. The Government Orders prescribed that incentive of exemption from payment of sales tax is available to those manufacturers, who set up new industries and who manufacture rice out of paddy procured. In case of such new industries are to be levied tax in respect of rice procured out of such paddy then the grant of exemption is illusory. There would be no difference between new industries and ordinary manufacturers. In our judgment, if the exemption granted under two Government Orders is to be made available and benefit is to be conferred on industries, then exemption must be read in a manner which would entitle the manufacturers to claim benefit both in respect of procuring of paddy and the procuring of rice out of such paddy. In these circumstances, in our judgment, the learned Single Judge was perfectly justified in holding in favour of the respondent and granting the requisite relief. The denial by the Assessing Authority was entirely incorrect.
The appeals must therefore fail.
Accordingly all appeals stand dismissed, but without any order as to costs.