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Judgment
K. Shivashankar Bhat, J.-Identical questions are involved in all these Writ Petitions. For the sake of convenience the facts in W.P. No. 10326 of 1988 arc referred.
The petitioner is engaged in the business of manufacture and sale of rice and is registered as a dealer under the provisions of Karnataka Sales Tax Act, 1957 (for short the ''Act''). The petitioner purchases paddy from others and converts the same into rice by hulling. Having regard to the nature of the activity the petitioner was recognised as a ''New Industrial Unit'' in terms of the relevant Government Orders dated 30th June, 1969 and 12th January, 1977. Certain concessions or benefits arc conferred by way of incentives to the New Industrial Units by the Government. One such incentive is the refund of tax paid on the raw-materials used by a New Industrial Unit. This notification is referred herein as the incentive notification. According to the petitioner the tax paid on the purchase of paddy, which is the raw-material for the rice, will have to be refunded to the petitioner under the incentive notification. The assessing authority however did not refund the tax paid on the paddy on the ground that the petitioner had availed of the benefit of the reduced rate of tax on the rice under Item-9 of IV Schedule to the Act read with Explanation-I thereto. Consequently, petitioner seeks a mandamus to the respondent to refund the tax paid on the paddy which was purchased by him earlier.
In a few Writ Petitions, the concerned petitioner had availed of the benefit of incentive notification and either did not pay any tax on the paddy purchased or obtained a refund of such a tax paid. Therefore, the assessing authority refused the benefit of reduced rate of tax on the rice sold by such a petitioner. Such orders are also under challenge.
Therefore, the question to be considered is the effect of the incentive notification on the rate of lax payable by the New Industrial Unit when the New Industrial Unit converts the paddy into rice and sells the same.
Explanation I to Item-9 of IV Schedule reads thus:
"Where a tax has been levied under this Act in respect of the sale or purchase of any paddy referred to in Sl. 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 essence of the problem posed before me is to find out whether the benefit of incentive notification affects the levy of tax on sale of ''Rice'' under IV Schedule to the Act. As per the Explanation I to Item-9, where lax has been levied in respect of the sale or purchase of any paddy, the tax leviable on rice procured out of such paddy shall be reduced by the amount of lax on such paddy. In other words, the tax leviable on rice stands reduced by an amount equivalent to the tax levied on paddy out of which the said rice is procured.
The Revenue contends that, by virtue of the incentive notification tax levied on paddy out of which the New Industrial Unit procured the rice is either refunded or not collected; therefore, there has been no lax on paddy; if so, the rice procured therefrom should bear the full rate of tax without any reduction under the explanation. The petitioner, however contends that, the field of incentive notification is independant and its purpose is totally different; it has been issued to confer certain benefit on the New Industrial Units in respect of raw-material purchased by them; the interpretation sought to be applied by the Revenue defeats the purpose of this notification; what is given by one hand is sought to be taken back by the other; the explanation found in IV Schedule, is not to be construed as a ''set off in its technical sense; the intention is to reduce tax burden on the rice which is an essential commodity; this is a statutory deduction and operates by its own force. The dealer in rice who is also a New Industrial Unit, if made to pay lax at the full rate because, he had the benefit of the incentive notification regarding paddy, cannot be discriminated on that ground; the resultant discrimination by levy of full tax on such a rice is not based on any rational differentiation between the two sets of dealers.
The incentive Notification is issued under Section 8-A. Its object is to encourage setting up of New Industrial Units by grant of such a tax benefit as referred in the notification; it is applicable to all new industrial units; the tax collected in respect of the raw-material used by the New Industrial Unit is refunded, obviously, to reduce the cost of production by the New Industrial Unit.
In Assistant Commissioner of Commercial Taxes (Asst.), Dharwar and Others v Dhar- mendra Trading Company etc., AIR 1988 SC 1247, the Supreme Court affirmed the decision of this Court, by holding that, limiting the applicability of the incentive notification and reducing the benefit of the tax-incentive, contrary to the original notification, was impermissible. It was held that the State Government was estopped from resiling from its promise held out in the incentive notification.
It is clear that the incentive notification is applicable to a dealer by virtue of the status as a New Industrial Unit. The operation of this notification is entirely on a different field. If this notification is to be clubbed with the explanation to the IV Schedule, and is to be read as influencing its construction, the benefit conferred by this notification would stand abrogated. The incentive held out to a New Industrial Unit, will be a passing shadow; the New Industrial Unit will be on par with an established Industrial Unit when the industrial out put is rice; the resultant position will be, that if the industrial activity is the production of rice, no incentive will be available by way of tax concession to the said unit. Unless the language used by the legislation is clear and unambiguous, such a construction of the law cannot be permitted. Observation of Justice Rajasekhara Murthy, Sri Virupaksha Enterprises v Commercial Tax Officer, ILR 1989(4) Karnataka 3163 at page 3189 is quite apposite here:
"The construction that is required to be placed in these cases is one of ''beneficient construction'' and not a construction which would be adverse to the subject. The consequence of a construction, will have to be borne in mind by the Court while interpreting a notification like the 1987 notification. The test, as observed by the learned author, Francis Bennion, should not result in frustrating the purpose of the Act, or should not work injustice, or contrary to public-policy, or is productive of inconvenience or hardship and so on. The Parliament or the law maker is presumed, the learned author proceeds to observe, not to intend such consequences.
In a case like the present-one where the consequences tend both ways, and if the result of a literal construction is sufficiently adverse to the subject, the Court should balance the relevant factors and should not be weighed in a narrow juristic sense, but from the view point of the community at large. The various approaches and opposing constructions which the learned author has compiled and put forward with his own views are very useful in deciding as to the correct line of construction that should be adopted in such cases".
In the said case, there was a notification exempting tax payable on the purchase of groundnut seeds by a dealer, provided, the dealer produced proof of payment of tax on the sales of non-refined groundnut oil produced out of said groundnut seeds. The dealer was a "tiny-sector undertaking", and was enjoying the benefit of another earlier notification, whereby, its turnover was exempted for a period of 5 years; therefore, the dealer could not produce proof of payment of tax on its sales of groundnut oil. It was held that, the second notification should not be read-literally, because, it was not possible for the dealer, who belonged to the tiny-sector to produce proof of tax payment in view of the exemption; the Court further held that, even without such a proof, the dealer who is a tiny- sector was eligible to the benefit of exemption in respect of the purchases of groundnut seeds; such a reading of the two notifications was necessary to effectuate the real purpose of the two notifications and preserve the benefit of tax concessions. This decision was upheld by the Division Bench in W.A. No. 237 of 1989 (D.D. 5-7-1990).
The question may be approached from a slightly different angle. Under the explanation in the IV Schedule, where tax has been levied under the Act, in respect of the sale or purchase of any paddy, then, the tax leviable on the rice procured out of such paddy shall be "reduced by the amount of lax levied on such paddy". If there is one levy, the other levy gets reduced. Though the word ''levy of tax'' comprises within itself the concept of ''assessment'' and ''collection'' of tax, on occasions, the phrase may bear a limited meaning, to convey imposition of tax by the law; while assessment of tax is quasi-judicial in its nature, collection of tax is an executive function; but the levy of tax is exclusively a legislative responsibility, if this distinction is borne in mind, while interpreting the explanation in question, the answer will be direct and clear. Wherever the legislature has imposed the tax on paddy, to that extent, the legislative impost on the rice procured out of such paddy would stand reduced, to that extent; the Act has levied tax on paddy; to that extent, the levy on the rice under the Act should be reduced.
Mr. Indra Kumar, also cited the decision of the Supreme Court in Union of India v Wood Papers Ltd., 47 ELT 500. The Supreme Court pointed out that, a strict construction is necessary to identify the beneficiary of a beneficient notification, but, once, such an identification is made, the benefit of the notification should be liberally extended. The Supreme Court observed at page 503 that:
"Literally 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 either because of legislative intention or on economic justification of inequitable burden or progressive approach of 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 arc 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".
Again, while concluding at page 504:
"Do not extend or widen the ambit at the stage of applicability. But once that hurdle is crossed construe it liberally".
Therefore, the petitioner being the New Industrial Unit, as identified, here (regarding which there is no dispute), the benefits available to the petitioner should not be taken away by resort to a rigid construction of the law.
For the reasons stated above, these Writ Petitions are entitled to succeed. Writ Petitions arc accordingly allowed. It is declared that the incentive notification would not have any bearing on the construction of the Explanation-I to Item-9 of IV Schedule to the Act. The respondent in each of the Writ Petition is directed to re-do the relevant orders in the light of this decision. Rule made absolute.
Writ Petition allowed.