Rana Papers Limited vs State of U.P. and Others

We have heard Sri Bharat Ji Agrawal, senior advocate, assisted by Sri Piyush Agarwal for the petitioner. Sri S.P. Kesarwani, Additional Chief Standing Counsel appears for the Central Excise Department. The petitioners are manufacturers of paper, meant for packing purposes. By this writ petition, they have prayed for the following directions:

(i) issue a suitable writ, order or direction in the nature of certiorari quashing the circular dated September 7, 2006 (annexure 1 to the writ petition) issued by the Commissioner of Trade Tax, U.P., Lucknow.

(ii) issue a suitable writ, order or direction in the nature of mandamus or prohibition, restraining/prohibiting the Deputy Commissioner (Assessment), Trade Tax, Muzaffanagar, respondent No. 3, from taking any action for realization of State development tax from the petitioner for the period April 2006 to November 2006.

(iii) issue a suitable writ, order or direction in the nature of certiorari quashing the notices dated October 6, 2006 and December 11, 2006 (annexures 8 and 10 to the petition) for the assessment year 2006-07 demanding State development tax for the period April 2006 to November 2006.

(iv) issue any other suitable writ, order or direction, which this honourable court may deem fit and proper in the facts and circumstances of the case.

The entry tax was levied in the relevant years, for which rebates in State development tax is claimed under the U.P. Tax on Entry of Goods Act, 2000. In Indian Oil Corporation Limited and Another Vs. State of Uttar Pradesh and Others, , this court declared the entry tax levied by the U.P. Tax on Entry of Goods Act, 2000 to be ultra vires, and violative of articles 301, 304(b) of the Constitution of India. In a special appeal filed against the judgment, an interim order was passed by the Supreme Court providing that 50 per cent of the due tax was to be paid, and for the balance 50 per cent, a bank guarantee was to be submitted. The entry tax was imposed again by the U.P. Tax on Entry of Goods Act 2007, the validity of which has been upheld by the court in 972111--> .

It is submitted that when the entry tax is paid on the goods, the rebate is allowed to the extent of the amount of tax on the payment of trade tax. The notification dated March 7, 2005, allows rebate on trade tax on the sale of such paper to the extent of the amount of entry tax, paid by dealer on paper meant for writing, printing or packing purpose, excluding news print under the Uttar Pradesh Tax on Entry of Goods Act 2000, subject to the conditions that: (i) the amount of rebate shall not exceed the amount of trade tax paid; and (ii) the rebate shall be allowed only in relation to such paper on which Central excise duty has been paid. The notification dated March 7, 2005, is quoted as under:

Uttar Pradesh Shasan, Kar Avam Nibandhan Anubhag-2.

The Governor is pleased to order the publication of English translation of Government Notification No. KA.NI-2-732/XI- 9(37)/97-U.P. Act-15-48-Order-(15)-2005, dated March 7, 2005 for general information:

Notification

KANI-2-732/XI-9(37)/97-U.P. Act-15-48-Order-(15)-2005 Dated: Lucknow:, March 7, 2005

WHEREAS, the State Government is satisfied that it is expedient in public interest so to do:

Now, Therefore, in exercise of the powers u/s 5 of the U.P. Trade Tax Act, 1948 (U.P. Act No. 15 of 1948) the Governor is pleased to allow with effect from March 7, 2005, a rebate to the extent of the amount of tax, paid by dealer (whether by himself or through the manufacturer) on paper meant for writing, printing or packing purpose excluding news print under the U.P. Tax on Entry of Goods Act, 2000 (U.P. Act No. 12 of 2000) from the tax levied under the U.P. Trade Tax Act, 1948 on the sale of such paper subject to the following conditions:

(i) The amount of rebate shall not exceed the amount of trade tax paid;

(ii) Rebate shall be allowed only in relation to such paper on which Central excise duty has been paid.

By order (Shekhar Agarwal) Pramukh Sachiv.

A rebate on payment of tax, on certain purchases or sales may be provided by the State Government u/s 5 of the U.P. Trade Tax Act, 1948.

Rebate of tax on certain purchases or sales.--(1) Where the State Government is satisfied that it is expedient in the public interest so to do, it may by notification, and subject to such conditions and restrictions as may be specified therein, allow a rebate up to the full amount of tax levied on any specified point on,--

(a) the sale or purchase of any goods; or

(b) the sale or purchase of such goods, by such person or class of persons as may be specified in the said notification.

(2) The rebate under sub-section (1) may be allowed with effect from a date prior to the date of the notification.

By a notification dated April 28, 2005, issued in exercise of powers under clause (d) of sub-section (4) of section 3H of the U.P. Trade Tax Act, 1948, the Governor was pleased to notify that the State development tax shall not be leviable on the goods, on which trade tax rebate, is allowed to the full extent. The notification dated April 28, 2005, is quoted as below:

KA.NI-2-1307/XI-9(81)/91-U.P. Act-15-48-Order-(23)-2005 Lucknow: Dated: April 28, 2005

In exercise of the powers under clause (d) of sub-section (4) of section 3H of the U.P. Trade Tax Act, 1948 (U.P. Act No. 15 of 1948), the Governor is pleased to specify that the State development tax shall not be leviable on the goods--

(i) which are sold to or purchased by manufactures holding recognition certificate u/s 4B;

(ii) on which general rate of trade tax u/s 3A or section 3D is two per cent or below two per cent;

(iii) on which trade tax rebate is allowed to the full extent;

(iv) on which exemptions are granted u/s 4C.

It is submitted by Sri Bharat Ji Agarwal that since entry tax on the paper meant for packing purposes, was notified at five per cent, vide notification dated February 10, 2005, and that the trade tax was also notified at five per cent vide notification dated March 7, 2005, the petitioners were entitled, and were allowed rebate on the trade tax in the assessment proceedings to the full extent of five per cent, in view of notification dated March 7, 2005, issued u/s 5 of the U.P. Trade Tax Act, 1948, allowing rebate to the extent of the amount of entry tax paid by dealer. He submits that since the rate of trade tax and entry tax were same, and that the trade tax rebate to the full extent was allowed, the petitioners were entitled to the benefit of notification dated April 28, 2005, and thus State development tax shall not be leviable on such goods purchased, manufactured and sold by the petitioner.

Sri Agarwal has relied upon the decision of the learned single judge in Dayalji Industries Vs. Commissioner, Commercial Tax, U.P., Lucknow, , in which it was held in para 12 in UPTC as follows (para 11 at pages 273 and 274 in 49 VST ):

Having examined the notification I find that the conclusion drawn by the Tribunal is completely misplaced. Each and every clause of the notification refers to a separate category of commodity and can stand on its own. The Tribunal has wrongly come to the conclusion that one condition is connected to the other, that cannot be the case because every clause refers to specific benefits under specific sections and gives specific relief. The case of the assessee is covered under clause (iii) of the said notification, as his case was a payment of rebate being allowed to the full extent at the rate of five per cent. This was allowed to him for having paid entry tax at the rate of five per cent. Because the assessee had paid entry tax at the rate of five per cent he was given the benefit of not having to pay the State development tax. The other clauses are not connected with the rebate factor at all.

Sri S.P. Kesarwani, appearing for the State, would submit that the notification dated 28th April, 2005, providing for exemption from State development tax, has to be given a strict interpretation. The State development tax is not leviable on the goods on certain conditions, and that in all the events, except event No. (ii), exemptions are provided by the State Government or by competent authority under delegated powers of State Government by way of recognition certificates or notifications. Under clause (iii) of the notification dated April 28, 2005, exemption from the State development tax is granted on the goods on which trade tax rebate is allowed to the full extent. The notification dated March 7, 2005, provides for rebate to the extent of the amount of tax paid by dealer on paper meant for writing, printing or packing purpose, excluding news print, under the U.P. Tax on Entry of Goods Act, 2000, from the tax levied under the U.P. Trade Tax Act 1948, on the sale of such paper subject to the conditions that:--(i) the amount of rebate shall not exceed the amount of trade tax paid; (ii) rebate shall be allowed only in relation to such paper on which Central excise duty has been paid. He submits that words "a rebate to the extent of the amount of tax paid by dealer" means the "rebate" by way of set-off, and not by way of notification on the goods to the full extent.

Sri S.P. Kesarwani, submits that even if the rate of entry tax and trade tax is same, the same rate of tax, which may be set-off as rebate may not work out to be the rate to the full extent to quality for exemption of State development tax.

The notification dated April 28, 2005, which has to be strictly interpreted, as it provides for exemption, would show that the words "to the full extent", has to be given a definite meaning, and it must be interpreted in the same manner in which other exemptions are provided in classes (i), (ii) and (iv). All exemptions are by way of notifications, issued by the State Government or orders to be passed by the competent authorities. Whereas clause (i) refers to recognition certificate; clause (ii) refers to two per cent or below two per cent of trade tax that are charged u/s 3A or section 3D; clause (iv) speaks of exemptions that are granted u/s 4C. Clause (iii) is thus to be interpreted in a manner, namely, the exemption from State development tax would be admissible where the trade tax rebate is allowed to the full extent. The words "a rebate to the extent of the amount of tax paid by dealer" in the notification dated March 7, 2005, is qualified to the amount of tax, and not the rate of tax. We also find that that the rebate is qualified on two conditions, namely, that the amount of rebate shall not exceed the amount of, trade tax paid, and that the rebate shall be allowed only in relation to such paper on which Central excise duty has been paid.

In taxation, there may be incidence where same rate of tax is applicable and exemptions are claimed. However, as observed above, the notification has to be given strict interpretation. The notification dated March 7, 2005, talks of rebate to the extent of the amount of tax paid by the dealer and the notification dated April 28, 2005, talks of rebate to the full extent. These different connotations have to be understood and interpreted accordingly.

In Bhai Jaspal Singh and Another Vs. Assistant Commissioner of Commercial Taxes and Others, , the Supreme Court in paras 25 to 30 in SCC (paras 21 to 26 in 35 VST) on the interpretation of the notifications under taxing statute for exemption held as follows (pages 465, 466 and 467 in 35 VST):

The second contention of the learned senior counsel for the assessee is that the notification providing for exemption should be liberally construed having regard to the purpose and object it seeks to achieve.

The conditions for availing of exemptions are generally laid down in the notifications granting exemptions. Sometimes, exemptions are granted in the Rules framed in this behalf. In Crawford''s Statutory Construction, it is stated that ''provisions'' providing for an exemption may be properly construed strictly against the person who makes the claim of an exemption. In other words, before an exemption can be recognized, the person or property claimed to be exempted must come clearly within the language apparently granting the exemption. In our opinion, the principle to be kept in view while interpreting exemption notification is that the meaning of the words given in the exemption notification is to be gathered from the language employed in the notification. Notifications by which exemption or other benefits are provided by the Government in exercise of its statutory powers normally have some purpose. Such purpose is not to be defeated nor are those who may be entitled for it to be deprived by interpreting the notification which may give it some meaning other than what is clearly and plainly flowing from it.

This court, in the case of Novopan India Ltd., Hyderabad Vs. Collector of Central Excise and Customs, Hyderabad, , has observed:

The principle that in case of ambiguity, a taxing statute should be construed in favour of the assessee--assuming that the said principle is good and sound--does not apply to the construction of an exception or an exempting provision; they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State. This is for the reason explained in Mangalore Chemicals and Fertilisers Ltd. Vs. Deputy Commissioner of Commercial Taxes and others, and other decisions, viz., each such exception/exemption increases the tax burden on other members of the community correspondingly. Once, of course, the provision is found applicable to him, full effect must be given to it.

(emphasis Here italicised supplied) (para 16).

The view expressed in Novopan India Ltd., Hyderabad Vs. Collector of Central Excise and Customs, Hyderabad, finds further approval in Tata Iron & Steel Co. Ltd. v. State of Uttarkhand [2005] 140 STC 284 (SC) : [2005] 4 SCC 272, page 289, para 42 where the court observed that:

Eligibility clause, it is well-settled, in relation to exemption notification must be given a strict meaning.

(emphasis Here italicised supplied) (para 42).

And further, in the same case:

The principle that in the event a provision of fiscal statute is obscure such construction which favours the assessee may be adopted, but it would have no application to construction of an exemption notification, as in such a case it is for the assessee to show that he comes within the purview of exemption.

(emphasis Here italicised supplied) (para 44).

In A.P. Steel Re-Rolling Mill Ltd. Vs. State of Kerala and Others, , it is stated:

The general principles with regard to construction of exemption notification are not of much dispute. Generally, an exemption notification is to be construed strictly, but once it is found that the entrepreneur fulfils the conditions laid down therein, liberal construction would be made.

(emphasis Here italicised supplied) (para 32).

The aforesaid principle is summed up by this court in G.P. Ceramics Pvt. Ltd. Vs. Commissioner, Trade Tax, U.P., , as under:

It is now a well established principle of law that whereas eligibility criteria laid down in an exemption notification are required to be construed strictly, once it is found that the applicant satisfies the same, the exemption notification should be construed liberally.

(emphasis Here italicised supplied) (para 29).

In Commissioner of C. Ex., Trichy Vs. Rukmani Pakkwell Traders, , the Supreme Court held that exemption notifications have to be strictly construed. They must be interpreted on their own wording. Wordings of some other notification are of no benefit in construing a particular notification. To be entitled to the benefits of a notification, a person has to strictly comply with the conditions of that notification. If on a plain reading of the notification the benefit is not available then merely on the basis of principles applied in infringement cases, benefit cannot be claimed.

We may also seek the aid of the rule of "ejusdem generis", which is a facet of the principle of "noscitur a sociis" and has been applied by the Supreme Court in several cases, in interpreting particular words pertaining to a class, category and or genus followed by general words. In the "interpretation of statutes" by G.P. Singh, 12th Edition, pages 504-512, the rule is explained. The rule applies when the statute contains an enumeration of specific words; the subjects of enumeration constitute a class or category; that class or category is not exhausted by the enumeration, the general terms follow the enumeration; and there is no indication of a different legislative intent. The rule of "ejusdem generis" in interpreting the statute has been applied in taxation statute as well. In cases where the particular words can belong to a broad based genus it is not open to confine them to a narrower genus so as to limit the meaning of the general words. It is essential for application of the ejusdem generis rule that enumerated things before the general words must constitute a category or a genus or a family which admits of a number of species or members. In the The State of Bombay Vs. Ali Gulshan, it was held that specific word must form a distinct genus or category.

We are of the view that the learned single judge in Dayalji Industries Vs. Commissioner, Commercial Tax, U.P., Lucknow, did not interpret the notification on the settled principles on which exemptions notifications are to be tested. All exemption notifications are to be given a strict interpretation, and that all the four classes of goods were required to be considered, to give a definite meaning, for allowing rebate. The trade tax rebate to be allowed to the full extent, has different meaning and connotation than the exemption from trade tax allowed to the extent of same amount of tax, which is paid as entry tax. The expressions "amount of tax", and "rate of tax" have different meaning.

In Maharashtra University of Health Sciences and Others Vs. Satchikitsa Prasarak Mandal and Others, , the Supreme Court explained the rule of "ejusdem generis", as a facet of the principle of "noscitur a sociis" in paras 27, 28 and 31, as follows:

The Latin expression ''ejusdem generis'' which means ''of the same kind or nature'' is a principle of construction, meaning thereby when general words in a statutory text are flanked by restricted words, the meaning of the general words are taken to be restricted by implication with the meaning of restricted words. This is a principle which arises ''from the linguistic implication by which words having literally a wide meaning (when taken in isolation) are treated as reduced in scope by the verbal context.'' It may be regarded as an instance of ellipsis, or reliance on implication. This principle is presumed to apply unless there is some contrary indication (See Glanville Williams, The Origins and Logical Implications of the Ejusdem Generis Rule 7 Conv (NS) 119).

This ejusdem generis principle is a facet of the principle of noscitur a sociis. The Latin maxim noscitur a sociis contemplates that a statutory term is recognised by its associated words. The Latin word ''sociis'' means ''society''. Therefore, when general words are juxtaposed with specific words, general words cannot be read in isolation. Their colour and their contents are to be derived from their context (See similar observations of Viscount Simonds in Attorney General v. Prince Ernest Augustus of Hanover [1957] AC 436 at 461 of the report)

. . .

This court while construing the principle of ejusdem generis laid down similar principles in the case of Kavalappara Kottarathil Kochuni and Others Vs. The State of Madras and Others, . A Constitution Bench of this court in Kavalappara Kottarathil Kochuni and Others Vs. The State of Madras and Others, speaking through Justice Subba Rao (as His Lordship then was) at paragraph 50, at page 1103 of the report opined:

50 . . . The rule is that when general words follow particular and specific words of the same nature, the general words must be confined to the things of the same kind as those specified. But it is clearly laid down by decided cases that the specific words must form a distinct genus or category. It is not an inviolable rule of law, but is only permissible inference in the absence of an indication to the contrary.

(emphasis Here italicised supplied)

In Ahmedabad Pvt. Primary Teachers'' Association Vs. Administrative Officer and Others, , the Supreme Court held in para 22, at page 765, as follows:

In construing the above-mentioned three words which are used in association with each other, the rule of construction noscitur a sociis may be applied. The meaning of each of these words is to be understood by the company it keeps. It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them. The actual order of these three words in juxtaposition indicates that meaning of one takes colour from the other. The rule is explained differently: ''that meaning of doubtful words may be ascertained by reference to the meaning of words associated with it''. (See Principles of Statutory Interpretation by Justice G.P. Singh (8th Edition), Syn. 8 at page 379).

We are thus of the view that notification dated April 28, 2005, cannot be interpreted in the manner, that where the rate of entry tax and trade tax is at five per cent, and consequently rebate has to be given on the trade tax, in view of notification dated March 7, 2005, the exemption will be applicable for State development tax.

For the aforesaid reasons, we do not find that the claim of the petitioner that since in the assessment proceedings, they have been given rebate on the trade tax to the extent of five per cent on the ground that he has paid the entry tax, they are also entitled for exemption from State development tax. The writ petitions are dismissed.