REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3186 OF 2011
[Arising out of S.L.P. (C) No. 560 of 2011]
Commissioner of Trade Tax, U.P. ..Appellant
Versus
Varun Beverages Limited ..Respondent
JUDGMENT
Dr. Mukundakam Sharma, J.
1. Leave granted.
2. This appeal is directed against the Judgment and Order
dated 19.01.2010 passed by the Allahabad High Court
whereby the High Court allowed the revision petition preferred
by the respondent holding that values of “bottles” and “crates”
are to be treated as part of “Fixed Capital Investment” as they
are essential apparatus for manufacture of Soft Drinks and
therefore could be governed and covered within the meaning of
explanation 4(b)(i) to Section 4-A of the U.P. Trade Tax Act
(hereinafter referred to as `the Act’).
3. The issue, therefore, which falls for our consideration is
as to whether or not bottles and crates used by the respondent
could be said to be essential apparatus or equipments or
components for the establishment and running of the factory
of the respondent.
4. The respondent is engaged in manufacturing and sale of
soft drink and beverages. The assessee – respondent applied
for the grant of eligibility certificate under Section 4A of the
U.P. Trade Tax Act read with notification No. 640 dated
21.02.1997. Pursuant to the aforesaid request, the
respondent/assessee was granted an eligibility certificate on
26.5.2000 by the Divisional Level Committee constituted
under section 4A of the Act. The exemptions were granted to
the assessee for a period of ten years running from 15.4.1999
to 14.4.2009 or to the extent of 200% of the fixed capital
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investment of Rs.53,79,49,612/-, whichever was earlier. The
exemption certificate granted on 26.5.2000 stipulates that it
was granted for the goods, which were manufactured by the
assessee as mentioned in the eligibility certificate. Towards the
end of the eligibility certificate the goods manufactures by the
respondent are described, which are as under: –
1. Carbonate Soft Drinks/Aerated Drinks, including
syrups and beverages packed in a sealed container.
2. Sealed and no unsealed soft drinks packed in sealed
glass containers carbonated drinks and aerated
water including sweated and non sweated drinks,
mineral water packed in pet bottles and pet pre
forms to be used in fillings of beverages and liquids
articles.
5. Subsequently the assessee applied for a review of the
eligibility certificate and sought extension of the period from
ten years to fifteen years. In the said review application, the
assessee also sought exemptions for fixed capital investment
made by it in glass bottles and crates claiming that these
items were essential for the manufacture of soft drinks and for
running a beverage unit. In that application it was also stated
that while computing the fixed capital investment, an amount
equal to Rs. 5,73,62,277/- invested by the assessee towards
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purchases of bottles and crates should also be included in the
fixed capital investment.
6. The Divisional Level Committee vide its order dated
10.04.2001 allowed the review application and ordered that
the aforesaid amount of Rs. 5,73,62,277/- be included while
computing the fixed capital investment of the assessee. By the
aforesaid order dated 10.04.2001 the eligibility certificate was
also granted to the assessee for a period of 15 years.
7. Being aggrieved by the aforesaid order dated 10.04.2001
the appellant filed an appeal before the UP Tribunal, Trade,
Tax, Lucknow. The Tribunal by its order dated 14.05.2002
allowed the said appeal filed by the appellant holding that the
bottles and crates are neither directly nor indirectly used in
the manufacture of beverages and therefore the same cannot
be treated as “Apparatus” as used in the said entry in
explanation (4) to Section 4-A of the Act.
8. Being aggrieved by the said order passed by the UP
Tribunal, Trade, Tax, Lucknow, the respondent assessee filed
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a revision petition before the Allahabad High Court which was
registered as Trade Tax Revision No. 337 of 2002. The High
Court by its order dated 19.01.2010 allowed the said revision
petition holding that for the manufacture of soft drink, the
bottles and crates are essential apparatus especially in a
captive industry where the liquid which is prepared and
collected by way of a continuous process in the bottles and
thereafter kept it in crates and therefore both bottles and
crates are to be accepted as “apparatus” within the meaning of
Explanation (4) (b) (i) to section 4-A of the U.P. Trade Tax Act.
9. The question of law that was framed by the High Court
was answered in favour of the assessee holding that such
bottles and crates are to be treated as fixed capital investment.
It was also held that the period of exemption was for 15 years.
10. The aforesaid order passed by the High Court was
challenged by the appellant by filing the present appeal in
which we heard learned counsel appearing for the parties. By
way of clarification it has to be stated at this stage that in the
present appeal what is specifically challenged is first part of
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the order with regard to bottles and crates forming part of
fixed capital investment and not that part of the order granting
exemption for a period of 15 years. The appeal, therefore, is
restricted to the aforesaid limited issue.
11. The counsel appearing for the appellant during the
course of his arguments had taken us through the provisions
of Section 4-A of the Act. He submitted that in the light of
aforesaid provisions, the State Government granted exemption
from payment of trade tax in certain cases.
12. The aforesaid provision relied upon is Section 4A of the
Act which lays down that where the State Government is of the
opinion that it is necessary so to do for increasing the
production of any goods or for promoting the development of
any industry in the State, it may on the application or
otherwise declare that the turnover of sales in respect of such
goods by the manufacturer thereof shall, during such period
not exceeding fifteen years is exempted from payment of trade
tax provided that goods manufactured in the new unit has a
fixed capital investment of five crore rupees or more. The said
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section further provides in sub-section (4) of Section 4-A of the
Act as to what is the meaning of the expression “Fixed Capital
Investment”. It is provided therein that “Fixed capital
investment” means value of land and building and such plants
including captive power plant, machinery, equipment,
apparatus, components, moulds, dyes, jigs and fixtures. It is
mentioned in sub-clause (b) inserted in the proviso to sub-
section (4) of Section 4-A of the Act that for the purposes of
determining value of plant including captive power plant,
machinery, equipment, apparatus, components, moulds, dyes,
jigs and fixtures only the following shall be taken into
account:-
(i) investment, whether by means of purchases, hire or
lease in such plant, equipment, apparatus, components
and machinery, as is necessary for the establishment or
running of the factory or workshop.
13. Relying on the aforesaid provisions the counsel appearing
for the appellant submitted that bottles and crates cannot be
held to be ‘Fixed Capital Investment’ either for establishment
or running of the factory or workshop of the respondent and
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therefore the value of the same cannot be included within the
expression “fixed capital investment” and, therefore, the High
Court was not justified in directing for inclusion of the value of
the aforesaid bottles and crates to be read within the
expression of “fixed capital investment”. Counsel appearing for
the appellant further submitted that the impugned order is
contrary to the ruling of this Court in State of Bihar and
Others vs. Steel City Beverage Limited and another
reported in (1999) 1 SCC 10. It was held by this Court that in
respect of an industry manufacturing soft drinks and
beverages, it can be said that plant would mean that
apparatus which is used for manufacturing soft drinks or
beverages and not articles like crates and bottles used for
storing the manufactured goods. It was also submitted by the
counsel that the High Court erred in enlarging the scope of the
definition of the word “Fixed Capital Investment” ignoring the
specific words used in the said definition. It was also
submitted that the use of word “Apparatus” in the definition of
“Fixed Capital Investment” is restricted to such apparatus
which are actually used in the manufacture of finished
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product and that it cannot be extended to such apparatus
which are used for storing of finished products.
14. Counsel appearing for the respondent, however, not only
refuted the aforesaid submissions but also submitted that the
above referred decision of this Court is clearly distinguishable
from the facts of the present case in view of the clear
distinction between the provision of law upon which the above
referred decision was rendered by this Court and the provision
of law which is applicable to the facts of the present case. He
also submitted that the definition of fixed capital investment
as per sub-section (4) of Section 4-A of the Act would indicate
that respondent is entitled to exemption for all the fixed
capital investment which not only include within its ambit the
value of the land and building but also such apparatus,
components and equipments, which are necessary for the
establishment or running of the factory or workshop. He
further submitted that provisions of the Act includes not only
plants, machinery but also includes apparatus, components,
moulds, dyes, jigs and fixtures. He also submitted that the
glass bottles and creates are absolutely necessary for the unit
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of soft drink as without the use of these apparatus, the
manufacture of soft drink would not be complete.
15. In the light of the submissions made by counsel appearing
for the parties, we heard learned counsel appearing for the
parties and considered the scope and ambit of the question
which falls for our determination.
16. This Court in the case of CST v. Industrial Coal
Enterprises, reported at (1999) 2 SCC 607, observed that as
under: –
“6. Admittedly the provisions for exemption from
sales tax have been introduced in the Act for the
purpose of increasing the production of goods and for
promoting the development of industries in the State.
In fact, when the scheme called “Grant of Sales Tax
Exemption Scheme 1982 to industrial units under
Section 4-A of the Sales Tax Act” was originally
framed, it was expressly stated that the Government
granted the facility of exemption in order to
encourage the capital investment and establishment
of industrial units in the State. The Scheme
contained various rules for grant of such
exemption……..
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11. In CIT v. Straw Board Mfg. Co. Ltd. this Court
held that in taxing statutes, provision for
concessional rate of tax should be liberally
construed. So also in Bajaj Tempo Ltd. v. CIT it was
held that provision granting incentive for promoting
economic growth and development in taxing statutes1
should be liberally construed and restriction placed
on it by way of exception should be construed in a
reasonable and purposive manner so as to advance
the objective of the provision.
12. We find that the object of granting exemption
from payment of sales tax has always been for
encouraging capital investment and establishment of
industrial units for the purpose of increasing
production of goods and promoting the development
of industry in the State. If the test laid down in Bajaj
Tempo Ltd. case is applied, there is no doubt
whatever that the exemption granted to the
respondent from 9-8-1985 when it fulfilled all the
prescribed conditions will not cease to operate just
because the capital investment exceeded the limit of
Rs 3 lakhs on account of the respondent becoming
the owner of land and building to which the unit was
shifted…………………”
17. The aforesaid object of the relevant provision in the light
of other provisions of the Act, makes it crystal clear that the
value of investment for equipments, apparatus and
components for running the factory and workshop has also to
be considered as investment and such value is required to be
included within the ambit of fixed capital investment. The
wordings of the provision of law which call for our
interpretation are not identical and similar which were
considered and interpreted by this court in the decision in
State of Bihar and Others (supra).
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18. This Court in the case of State of Bihar v. Steel City
Beverages Ltd., reported as (1999) 1 SCC 10, observed that
as under: –
“8. It is also relevant to refer to the two notifications
of the Government of India in the Ministry of Industry
(Department of Industrial Development) dated 2-4-
1991 and 1-1-1993 issued under Section 11-B of the
Industries (Development & Regulation) Act, 1951.
Notification No. 232 dated 2-4-1991 while stating
what has to be included under fixed assets while
ascertaining whether a small-scale industrial unit’s
investment has exceeded the limit of Rs 60 lakhs has
clarified that the cost of storage tanks which store
raw material or finished products is to be excluded.
The 1993 notification has amended the notification of
2-4-1991 and clarified by adding Note 2 that in
calculating the value of plant and machinery, the
cost of storage tanks which store raw
materials/finished products only and which are not
linked with the manufacturing process shall be
excluded. On 8-5-1995, the Government of India
again issued a circular, after having received
representations from the industry seeking
clarification whether bottles and crates are to be
taken into account for determining the SSI status of
the units engaged in manufacture of soft
drinks/concentrates, clarifying that investment in
bottles and crates in such units is in the nature of
storage of finished products and, therefore, such
investment has to be excluded while computing the
value of plant and machinery.
9. As pointed out in the affidavit-in-rejoinder, the
Company had applied for an Eligibility Certificate
claiming the status of a small-scale industry. It is, in
fact, registered as a small-scale industrial unit. While
declaring its investment at the time of seeking
registration as a small-scale industrial unit, it did not
include investment in bottles and crates under the
head “Plant and Machinery”. The investment in
bottles and crates was shown under a separate
head. It is further pointed out in the said affidavit
that if the investment of the Company in bottles and1
crates is included under the head “Plant” then its
total fixed capital investment will reach the level of
137.36 lakhs and it can no longer be regarded as a
small-scale industrial unit. As the Company had
applied as a SSI unit, the District Level Committee
had to verify the status of the Company as SSI unit
and, therefore, it was bound to take into account the
above-referred two notifications of the years 1991
and 1993. If under these circumstances, the District
Level Committee came to the conclusion that the
Company is not entitled to the benefit of deferment in
respect of its investment in bottles and crates, it
cannot be said that it has acted contrary to law.”
19.A careful reading of the ratio of the aforesaid decision
would reveal that expression plant and machinery in the
said case was intended to take such articles which are
required for the purpose of manufacture and not for
storage. Besides, the said decision was rendered in the
context of the two notifications which specifically excluded
value of bottles and crates to be included in the expression
“plant and machinery” as the same are used for the
purpose of storage of finished products and not used for
the purpose of manufacture of finished products.
20.However, in this case, not only the wordings of the Act are
wider but there is also no such notification issued by the
State Government giving a restricted meaning to the
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expression “fixed capital investment” which as per
provision enacted also includes all such investment made
for equipment, apparatus, components and machinery
which are necessary for running of the factory or workshop.
21. In that view of the matter and considering the wording of
the provision itself, it is quite necessary to give full and
complete effect to the provision in a purposive manner so
as to advance the objective of the provision. So in the
instant case all those apparatus, equipments and
components which are necessary for running of the factory
would also be considered as investment and would
therefore be part of the definition of fixed capital
investment. Besides, as laid down in the decision of this
Court in CIT v. Straw Board Mfg. Co. Ltd. reported as
1989 Suppl. (2) SCC 523, in taxing statutes, provisions for
concessional rate of tax should be liberally construed.
22. The respondents are engaged in the manufacture of soft
drink and beverages which are required to be bottled and
thereafter sealed, which are essential part of running of the
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factory and therefore the same will have to be included
within the aforesaid extended meaning of the word
`investment’ as appearing from the words `fixed capital
investment’. To that extent, facts of the present case are
distinguishable from the facts of State of Bihar and
Others (supra) on which reliance was placed by the
counsel appearing for the appellant.
23. Considering the facts and circumstances, we hold that so
far bottles are concerned, they are essential part of
components and equipments necessary for the running of
the factory and therefore such value of the investment
would form part of the fixed capital investment and would
be entitled to exemption as provided for. But so far crates
are concerned they are used by the respondent only for the
purpose of marketing. Use of crates is necessary for taking
out the bottled beverages out of the factory and while doing
the marketing of the sealed bottled beverages. The
aforesaid view taken by us also receives support from the
contents of the eligibility certificate given by the appellant
and therefore crates have no user so far as running of the
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factory of the respondent. Therefore, the value of crates in
our considered opinion cannot be deemed to be investment
for the purpose of including it within the meaning of
expression “Fixed Capital Investment” as per sub-section
(4) of Section 4-A of the Act.
24. Having held thus, we allow this appeal partly to the
aforesaid extent. We uphold the order passed by the High
Court so far bottles are concerned but set aside the same so
far crates are concerned. In terms of the aforesaid order and
observations, this appeal stands disposed of but there will be
no order as to costs.
……………………………………J.
[Dr. Mukundakam Sharma]
……………………………………J.
[Anil R. Dave]
New Delhi,
April 11, 2011
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