ORDER
S.R. Rajasekhara Murthy, J.
1. In these cases the construction of Notification No. FD 34 CSL 87 (III) dated 28th March, 1987, issued by the Government under section 8-A of the Karnataka Sales Tax Act, 1957 (“the Act”), is involved. It is necessary to reproduce the said notification for ready reference. It reads :
“In exercise of the powers conferred by section 8-A of the Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), the Government of Karnataka hereby exempts with effect from the 1st day of April, 1987, the tax payable under section 5 of the said Act, by a dealer on ‘groundnuts/seeds’ as the last purchaser liable to tax, if such groundnuts/seeds are consumed by him in the manufacture of non-refined groundnut oil in the State and produces the proof of payment of tax on the sales of such oil made within the State or in the course of inter-State trade or commerce inside the State.”
2. By Notification V No. FD 51 CSL 83(V) dated 31st March, 1983, issued by the Government under section 8-A(1)(b) of the Act, the turnover of the sale of goods manufactured in Karnataka and sold by all the tiny sector industrial units was exempted for a period of five years. That all the petitioners in these cases are tiny sector units eligible for exemption of tax under the said notification is not in dispute and it is also a fact that all the units covered by the Notification of 1983 are enjoying the benefit of such exemption.
3. The Notification dated 31st March, 1983, is reproduced below :
“In exercise of the powers conferred by clause (b) of Sub-section (1) of section 8-A of Karnataka Sales Tax Act, 1957 (Karnataka Act 25 of 1957), The Government of Karnataka hereby exempts, with effect from first day of April, 1983, The tax or taxes payable under the said Act, on the turnover of the goods manufactured in karnataka and sold by all tiny sector industrial units as defined hereafter, for a period of 5 years from the respective date of commencement of their commercial production, subject to the following restrictions and conditions :
1. (i) to (iv) …….
(v) The quantum of sales tax exemption available to the unit on its finished products within the aforesaid period of 5 years, under this notification together with that under Notification VI No. FD 51 CSL 83 (VI) dated 31st March, 1983, granting similar concessions under the Central Sales Tax Act, 1956 (Central Act 74 of 1956), shall be limited to the total value of the fixed assets (in land, buildings, plant and machinery) created by the unit, as on the date of commencement of commercial production;
………………”.
4. The dispute arises only with reference to the Notification of 1987, and the question is whether the said notification applies to the tiny sector units as well and whether they are entitled to the benefit of exemption under the said notification ?
5. The controversy arose as a result of a clarification issued by the Commissioner of Commercial Taxes dated 29th October, 1987, in the following terms :
“the Notification of 1987 specifically lays down that only where tax is paid on the resultant oil only then the groundnuts out of which such oil is extracted is exempt and not under any other circumstances. Hence the view expressed by you is in order that is where the resultant oil is exempt from tax by virtue of the tiny sector enjoying 100 per cent tax concession, no exemption is available in respect of the purchase tax payable on groundnut”.
6. It is not disputed on behalf of the respondents that all the assessing officers are following the above clarification while dealing with similar claims.
7. The claim of the petitioners who are all tiny sector units is, that the 1987 Notification is also applicable to them, and the Commissioner’s circular insisting on the production of proof for having paid the purchase tax on groundnuts in order to avail of the exemption from payment of tax on their purchase turnover under the 1987 Notification, is an erroneous interpretation which deprives the petitioners of the exemption under the 1987 Notification.
8. All the petitioners are manufacturers of groundnut oil and cake, which is exigible to tax under section 5(4) of the Act at the point of first purchase. By virtue of the Notification dated 31st March, 1983, their sale turnover of the finished products, is exempt from tax for a period of five years.
9. By virtue of the 1987 Notification, the purchase turnover of groundnuts which is liable to tax under section 5 of the Act, is eligible for exemption from the levy of tax if the dealer products proof of payment of tax on the turnover of sale of such oil made within the State or in the course of inter-State trade or commerce inside the State.
10. The effect of the Commissioner’s circular is that in case of tiny sector units whose sale turnover is exempt from tax, they are not again eligible for exemption on their purchase turnover under the 1987 Notification.
11. As a result of the said circular, the petitioners, who are all the tiny sector units, are thus deprived of the exemption granted under the 1987 Notification since they have not paid tax on their sale turnover and, consequently, they are not in a position to produce proof of payment to claim exemption of tax on their purchase turnover of groundnuts.
12. The argument of the petitioners is that the 1987 Notification should not be literally interpreted leading to the deprivation of the exemption of tax on their purchase turnover. The first contention is that under the 1987 Notification the tiny sector units are not specifically excluded from the application of the notification. The second contention is that the term “payable” occurring in 1983 Notification should be understood as “paid” or “liable to be paid” and thus construed, the petitioners would be entitled for the benefit of exemption under the 1987 Notification. It is argued that the expression “paid” need not mean always as paid in cash, and so understood, the circular of the Commissioner, insisting on proof of payment, is liable to be declared as ultra vires the notification.
13. It is also argued that the intention of the Government is not to exclude the tiny sector units from its application and deny this additional benefit to them and the circular of the Commissioner should be struck down on this ground.
14. It is argued on behalf of the State by Sri H. L. Dattu, the learned Government Pleader, that the 1987 Notification is not meant to apply to manufacturers whose sale turnover is exempt from payment of tax. It is also argued that the two notifications are made applicable to two different classes of dealers and the condition for claiming exemption on the purchase turnover under the second notification is that the dealer must have paid the tax on the sale turnover and it is only on production of such proof that he becomes entitled to the exemption on his purchase turnover. The circular of the Commissioner is, therefore, justified on these grounds and it is argued that the consequences of such interpretation affecting adversely to the interests of tiny sector units covered by 1983 notification, are immaterial and cannot be helped. It is the case of the department that the circular must be enforced on its literal interpretation and admits of no argument to the contrary.
15. These writ petitions involve the construction of the 1987 Notification as to whether, on a proper construction, the petitioners are entitled to get the exemption from payment of tax as specified therein ?
16. Before dealing with the decision cited before me, it would be necessary to advert to the notifications, in the first instance. As already stated there are two notifications, which arise for interpretation and construction in these cases.
17. Under the first notification of 31st March, 1983, issued under section 8-A(1)(b) of the Act, the Government conferred tax exemption on all tiny sector industrial units for a period of five years. This exemption was in respect of tax or taxes payable under the Act on the turnover of goods manufactured in Karnataka and sold by all tiny sector industrial units. This exemption was, however, subject to certain restrictions and conditions referred to therein. That the exemption specifically related to the tax payable on the sale turnover of the manufactured goods, is clear from clause (v) of the notification.
18. While all the tiny sector units enjoyed the benefit of exemption under the said notification, the Government issued the second Notification on 28th March, 1987, under section 8-A of the Act conferring the benefit of exemption of tax payable under section 5 of the Act on the purchase of groundnut seeds made by a dealer. This exemption is available and could be claimed only on producing the proof of payment of tax on the sales of non-refined groundnut oil produced out of the groundnuts, the purchase turnover of which is liable to tax under section 5 of the Act.
19. In the course of the assessment proceedings under the Act against the petitioners before me in W.P. Nos. 1155 and 1156 of 1988, the assessing officer completed the assessment levying tax on the purchase turnover on the ground that the assessee failed to produce proof of payment of tax on the sale of non-refined oil, as required to be produced under the Notification dated 28th March, 1987.
20. In W.P. Nos. 14359 and 14360 of 1988 the Deputy Commissioner of Commercial Taxes declined to exempt the purchase tax payable by the petitioners since they pleaded inability to produce proof of payment of tax on the sale of oil.
21. In W.P. Nos. 1781 to 1783 of 1988, notices issued by the assessing authority calling upon the petitioner to pay tax on the purchase of oil-seeds, are challenged.
22. In W.P. Nos. 7103 and 7104 of 1989, similar notices issued calling upon the petitioner to pay tax on the purchase turnover of groundnuts, groundnut seeds and sun-flower seeds for the years 1987-88 and 1988-89, are challenged.
23. As already stated all the petitioners before me are engaged in the business of manufacture and sale of non-refined groundnut oil and are recognised as tiny sector industrial units. It is also the undisputed position that by virtue of the Notification dated 31st March, 1983, their sale turnover of the goods manufactured is exempted from levy of tax. However, the purchase turnover of these units is taxed in their hands. What is exempt under the notification is their sale turnover for a period of five years from the date of commercial production. This exemption is granted by the Government in exercise of its power on it under section 8-A(1)(b) of the Act. Under this provision the Government is empowered to exempt the tax payable under the Act :
(a) on the sale or purchase of any specified goods or class of goods;
(b) by any specified class of persons, incurred wholly or any part of their turnover.
24. The controversy arose after the Notification of 28th March, 1987, was issued by the Government under which the tax payable under section 5 of the Act on the purchase turnover of groundnut/groundnut seeds was also exempt from the levy. But this exemption was subject to production of proof of payment of tax on the sale of such oil by the dealers. As already state, the Commissioner issued a circular making it mandatory that the dealer who claims exemption of tax on the purchase turnover, should produce proof for having paid the tax on its sale turnover. The said circular has been reproduced earlier in this order.
25. The question that therefore arises pursuant to the circular is :
26. Whether the petitioners whose sale turnover is exempt from payment of tax under the 1983 Notification are entitled to exemption of tax on their purchase turnover also under the 1987 Notification ?
27. It is the contention of the petitioners that their units being recognised as tiny sector industrial units, the sale turnover of finished products is exempt by virtue of the 1983 Notification. While the petitioners are enjoying the exemption on their sale turnover, the Government by its Notification dated 28th March, 1987, exempted the purchase turnover of groundnut/seeds of all the manufacturers of non-refined groundnut oil in the State. But, this was made subject to the production of proof of payment of tax on the sales of such oil by the manufacturers.
28. The contention of the petitioners is that it is impossible, besides being unreasonable, to insist on production of proof of payment of tax on the sales of manufactured oil since their sales are exempt under the 1983 Notification. It is, therefore, argued that by the insistence on production of proof of payment of tax by the department on a literal construction of the Notification of 1987, the petitioners would be deprived of the benefit of the 1987 Notification.
29. It is also their case that on a harmonious interpretation of both the notifications, the additional benefit conferred on all the manufacturers of non-refined oil, should not be denied to the petitioners.
30. It is also demonstrated by the petitioners that as a result of the interpretation placed by the department, the petitioners who are all tiny sector industrial units, would be placed in a worst position or in no better position than the other manufacturers of non-refined groundnut oil. It is also demonstrated that the petitioners would be paying higher tax on their sale turnover while all other manufacturers would be paying a lower tax by virtue of the exemption granted to them under the 1987 Notification.
31. Sri E. R. Indra Kumar, learned counsel for the petitioners, who lead the arguments has relied upon the following decisions in support of his contentions :
(1) Innamuri Gopalam and Maddala Nagendrudu v. State of Andhra Pradesh .
32. Their Lordships were interpreting in that case the effect of the notification issued by the Government of Andhra Pradesh under section 9 of the Andhra Pradesh General Sales Tax Act. The question arose in that case reads thus : (sic)
“………………….
3. (1) There shall be levied and collected in respect of the following goods, namely, sugar, tobacco, cotton fabrics, rayon or artificial silk fabrics and woollen fabrics produced or manufactured in India and on all such goods lying in stock within the precincts of any factory, warehouse or other premises where the said goods were manufactured, stored or produced, or in any premises appurtenant thereto, duties of excise at the rates specified in the First Schedule to this Act”.
The appellants before the Supreme Court were dealers in textiles liable to pay sales tax on their turnover. Under the notification issued under section 9, the Government of Andhra Pradesh exempted from tax payable under the Act, the sale or purchase of goods on which the Central Government had levied additional duty of Central excise. Clause 3 of the notification referred to the goods on which the Central excise was levied, the relevant clause reads thus : (sic)
“In other words it cannot be that the proviso excludes the exemption but in circumstances in which the conditions cannot be fulfilled. The conditions themselves would thus throw light upon the words of the proviso, and when the proviso is read with conditions of which they are an integral part, the conclusion is inescapable that the word ‘leviable’ used in the proviso means that in respect of the goods specified as regards which he claims exemption from the payment of sales tax there was a liability upon him to pay the additional excise duty under clause 3 of the Bill for it was only in that event that he would be able to prove to the assessing authorities that additional duty has been levied and collected from him ……………… ”
If the tax-payer is within the plain terms of the exemption he cannot be denied its benefit by calling in aid any supposed intention of the exempting ……………..”.
Relying on this condition, the State Government interpreted the notification to mean that the dealers were not entitled to exemption in view of the specific condition imposed under clause 3 about the situs or the location of the goods. The question that arose out of the order of the Government was : whether the dealers were not entitled to the exemption from levy of sales tax on cotton textile goods ?
The Supreme Court held on a construction of the exemption clause 3 of the notification, the dealers were entitled to the exemption. The Supreme Court held that the notification should not be made applicable to the dealers since they were admittedly not bound to pay additional excise duty as contemplated under clause 3 of the notification under which it was stipulated that only the goods lying in stock within the precincts of any factory, warehouse or other premises whether the said goods were manufactured, stored or produced, were liable to duty of excise.
The petitioners being the dealers who sold the cotton textile goods, the Supreme Court held, that the construction of the notification by the High Court was erroneous and held that on a plain reading of the term, “exemption”, the sale turnover in cotton textile goods was exempt from payment of sales tax and taking in aid clause 3 of the notification which referred to a separate class of goods, it was not open to the authorities insisting on proving that the goods of the assessee satisfy the description contained in clause 3.
Relying on the observations made by the Supreme Court in the above decision, it is argued by the learned counsel that having regard to the intention of the Government to extend the benefit of exemption on the tiny sector units, from payment of tax on their sale turnover, the 1987 Notification on a proper construction and by necessary implication does extend the benefit on the petitioners.
(2) Tata Yodogwa Limited v. Union of India [1987] 32 ELT 521 (Pat).
The learned counsel has relied upon the interpretation placed by the Patna High Court in the notification issued under the Central Excise Act. Reliance is placed on the observation of their Lordships contained in paragraph 13 of the judgment :
“13. We have already noticed that it is not in dispute that TISCO is an integrated steel plant and the scraps were used in the manufacture of steel ingots with the aid of electric furnace both by TAYO and by TISCO. Although Notification No. 150/77 is not a general exemption for all fresh unused steel melting scraps, the petitioners may have a claim if they satisfy the condition that the duty leviable on the scraps had already been paid. Since the scraps so used by the petitioners were also exempted from the duty by Notification No. 150/77, the scraps were assessed to nil duty payment. The question thus naturally arises whether on such exemption and nil assessment, the ingots manufactured from the scraps by the petitioners, are liable to any excise duty or not. It is in this context that a clarification was needed and it was so needed to clarify the Notification No. 150/77 as also the Notification No. 66/73. The clarification came, but in it however, the words used in Notification No. 150/77 were taken for interpretation and, as noticed above, it was said that the assessment included nil duty and the expression ‘paid’ had to be construed to mean ‘contracted to be paid’ and it was not necessary that the same amount of duty had actually been assessed and actually been paid. The petitioners have asserted and the respondents have not denied that accepting the said interpretation to apply to the ingots manufactured by them, they (the petitioners) were exempted from payment of any duty until they received demand notices and it was only when further advice came from Central Board of Excise and Customs to the Collector of Central Excise, Patna on 18th August, 1980, that they were asked to pay duty on the ingots”.
33. The expression “paid” was construed to mean, “contracted to be paid”, and it was further observed that it was not necessary that the amount of duty should have been actually assessed and paid in the circumstances in which the expression “already been paid” was used in the notification.
34. Their Lordships relied upon the decision of the Supreme Court in the case of N. B. Sanjana, Assistant Collector of Central Excise v. Elphinstone Spinning and Weaving Mills Co. Ltd. , in considering the expression “paid”. Their Lordships were interpreting the word, “paid” occurring in rule 10 of the Central Excise Rules. It was contended on behalf of the appellants that the word “paid” means “actually paid”, whereas, according to the respondents (assessees), it should mean, “ought to have been paid”.
35. Taken literally the word, “paid” does mean “actually paid in cash”. Their Lordships held, on a construction of the word used in rule 10 that on a proper interpretation placed on that expression, “paid” should mean, “ought to have been paid”. Their Lordships also referred to the earlier decision of the Supreme Court in the case of Gursahai Saigal v. Commissioner of Income-tax, Punjab , wherein their Lordships had occasion to interpret the provisions of section 18A of the Income-tax Act. Adopting the reasoning in the case of Gursahai Saigal , the Supreme Court observed as follows : [See : (N. B. Sanjana’s case) ] :
“…….. (1) though the expression used was ‘paid’ it is open to read as ‘ought to have been paid’ having regard to the context in which it appears and to make the provision of law in which that expression appears workable; …….”
(3) Collector of Central Excise, Bombay v. Parle Exports (P.) Ltd. .
This decision is relied upon by the learned counsel in support of his contention that the notification granting the exemption should be literally interpreted. Paras 17 and 20 of the said decision are relied upon for this proposition. Justice S. Mukharji, observed in paragraph 20 (page 117 of STC), that while interpreting and determining the meaning of statutory words, the intention of the Parliament or the law-maker, should not be ignored. Quoting from Cross’s “Statutory Interpretation” (Second Edn.) at page 21, it was observed that the Judge must seek to harmonise the two. There are two units of enquiry in statutory interpretation, viz., the statutory text and the intention of the Parliament. However, on the facts of the said case, his Lordship held “that the fairest and most rational method to interpret the will of the law-maker is by exploring his intentions at the time when the law was made”.
36. However, the observations of his Lordship are very much relied upon for purpose of this case that when two views of a notification are possible, it should be construed in favour of the subject (See para 17) (page 116 of STC). The observations of his Lordship in the same paragraph, “that while interpreting an exemption clause, the literal interpretation should be imported to the language thereof, though the language in a taxation provision indicating exception to the general rule on tax, should be construed strictly”, is relied upon by the learned Counsel.
37. The other decisions relied upon by the learned counsel are these :
(4) Nyadar Singh v. Union of India .
38. The observations made by his Lordship M. N. Venkatachaliah, J., in the said decision contained in paragraph 9 are relied upon. Reference was made to certain passages from the “Statutory Interpretation” by Francis Bennion, and applied in the context of the appeal they were dealing with.
39. It was a case of a “reduction in rank” and the context was with reference to article 311. Dealing with the situation, on hand, their Lordships quoted from Francis Bennion’s “Statutory Interpretation”, referring to the nature of the task of the court in weighing the relevant factors. It is useful to reproduce what his Lordship (M. N. Venkatachaliah, J.) said about this aspect :
“9 …………
The meaning to be given to a particular statutory language depends on the evaluation of a number of interpretative criteria. Shorn of the context, the words by themselves are ‘slippery customers’. The general presumption is that these criteria do not detract or stand apart from, but are to be harmonised with, the well accepted legal principles. In a difficult case, the number of relevant interpretation criteria may be so high that the task of the court in assessing their effect is, correspondingly, difficult. Even the statutory language apparently free from the sins of semantic ambiguity might not, in the context of the purpose, connote or convey its lexicographic thrust; but would acquire a different shade or colour imparted to it by the variations of the interpretation-criteria. The ambiguity need not necessarily be a grammatical ambiguity, but one of appropriateness of the meaning in a particular context. Francis Bennion in his ‘Statutory Interpretation’ refers to the nature of the task in weighing the factors :
‘….. It is necessary for the interpreter to assess the respective weights of the relevant interpretative factors and determine which of the opposing constructions they favour on balance …’
‘We may speak of the factors tending in a certain direction as a bundle of factors. This is figurative, but then so is the idea of factors being “weighed”. The court is unlikely even to consider the factors one by one, and certainly will not proceed in any mechanistic way ….’
‘We find that one bundle of factors favours one of the opposing constructions of the enactment, while the other bundle favours the other construction. (As to opposing constructions see section 84 of this Code). There may be factors drawn from a single interpretative criterion in both bundles …..’
(See ‘Statutory Interpretation’ by Francis Bennion, 1984 Edn. page 390).
It is true that where statutory language should be given its most obvious meaning – ‘to accord with how a man in the street might answer the problems posed by the words’ – the statute must be taken as one finds it. Considerations relevant to interpretation are not whether a differently conceived or worded statute would have yielded results more consonant with fairness and reasonableness. Consequences do not alter the statutory language, but may only help to fix its meaning.”
40. Apart from the passages relied upon by their Lordships, Sri Indra Kumar pointed out certain other passages in the same book by Francis Bennion at page 330, paragraph 140, which reads thus :
“140. Presumptions : that regard to be had to consequences of a constructions.
It is presumed to be the legislator’s intention that the court, when considering, in relation to the facts of the instant case, which of the opposing constructions of the enactment corresponds to its legal meaning, should assess the likely consequences of adopting each construction, both to the parties in the case and (where similar facts arise in future cases) for the law generally. If, on balance the consequences of a particular construction are more likely to be adverse than beneficent this is a factor telling against that construction.”
41. Elaborating the principles of interpretation as to presumptions referred to above, the learned author says thus, in relation to opposing constructions :
“Opposing constructions : As explained above, the court is usually concerned to decide between opposing constructions of the enactment which are advanced by the parties in relation to the facts of the instant case. Consequential construction requires the consequences of adopting each of the constructions to be assessed.”
42. Dealing with the adverse and beneficent consequences the learned author says :
“……… The test covers a very wide field. For example, a result is ‘adverse’ if it frustrates the purpose of the Act, or works injustice, or is contrary to public policy, or is productive of inconvenience or hardship, and so on. Parliament is presumed not to intend such consequences.”
43. Sri Dattu, the learned Government Pleader, has relied upon the passage extracted from the same book – Francis Bennion at page 334 in support of his contention, it reads thus :
“But we can only take the intention of Parliament from the words which they have used in the Act, and therefore the question is whether these words are capable of a more limited construction. If not, then we must apply them as they stand, however reasonable or unjust the consequences, and however strongly we may suspect that this was not the real intention of Parliament.”
44. The learned Government Pleader has also relied upon the decision of the Bombay High Court reported in [1980] ELT 102 [Kaushalya Narayanan v. Dadajee Dhackjee & Co. (Pvt.) Ltd.] : para 12. Dealing with the canons of interpretation of notifications and trade notices under the Central Excises Act, Sri Justice Kantawala, C.J., held as follows :
“Notifications and trade notices-Canons of interpretation. – In construing the provisions of a notification or trade notice regard should be had to the dominant intention of those who issued the trade notices or who granted the exemption under the notification, even though the words used therein are general in nature and are without restriction or limitation. The principles that govern the interpretation of statutes should be applied while construing the provisions of a trade notice and notifications.”
45. Sri Indra Kumar has also relied upon the observations made in paragraph 6 by the Supreme Court in K. P. Varghese v. Income-tax Officer .
46. Dealing with section 52 of the Income-tax Act, 1961, in support of his contention that a literal construction which leads to manifestly unreasonable and absurd consequences should be avoided.
47. The other decisions cited by Sri Indra Kumar – namely :
48. Commissioner of Income-tax v. J. H. Gotla and Commissioner of Income-tax v. Satellite Engineering Ltd. .
49. This was a case of an incentive given to a new industrial undertaking in the form of a tax holiday. The observations at page 216, that, “any interpretation of a provision extending benefits to new industrial undertaking must be in consonance with the avowed aim and object of the legislature and not such as would defeat the same”, is the only portion that is relevant to be noticed.
50. Sri Dattu has relied upon the following decisions in support of his contention :
1. (Chhotabhai Jethabhai Patel and Co. v. State of Utter Pradesh).
2. [1969] 24 STC 20 (All.) (Anwar Khan Mehboob Co. v. Commissioner of Sales Tax, U.P.).
3. (Commissioner of Income-tax, West Bengal-I v. Vegetable Products Ltd.).
The word, “Payable in section 271(1)(a)(i) of the Income-tax Act, was interpreted to mean, “assessed”. In that context, the Supreme Court held :
“the tax payable is not the same thing as the tax assessed and further that the tax payable is that the amount for which the demand notice is issued under section 156 of the Act”.
4. (State of Tamil Nadu v. Kandaswami).
That was a case arising under the Madras General Sales Tax Act. The interpretation and scope of section 7-A came up for consideration. The interpretation placed by the Supreme Court on the expression, “liable to tax” under this Act occurring in section 7-A of the Madras Act is not of much assistance to the case of the respondents.
5. (Hansraj Gordhandas v. H. H. Dave, Assistant Collector of Central Excise and Customs, Surat).
The learned counsel has relied upon the observations of the Supreme Court made as to the interpretation of the notification at para 5, Head Note (B) :
” The operation of the notifications has to be judged not by the object which the rule-making authority had in mind but by the words which it has employed to effectuate the legislative intent. It is well-established that in a taxing statute there is no room for any intendment. The entire matter is governed wholly by the language of the notification. If the tax-payer is within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority.”
These observations were made by the Supreme Court in the context of interpreting a notification issued under the Central Excise Act, which provides for claiming exemption. It is well-settled that a provision providing for exemption should be construed strictly and these observations have no relevance to the interpretation involved in the present case, which relates to a benefit though the word, “exemption” is used in the Notification of 1987.
6. (1976) 1 Kar LJ 56 (Sha Kanji Devji v. Additional Commercial Tax Officer).
This Court was interpreting the expression, “has been paid” in section 5(4) of the Karnataka Sales Tax Act, and held, that it cannot be read as either “is payable” or “is imposed”.
The observation made by his Lordship – E. S. Venkataramiah, J. (as he then was) in the context of claiming reimbursement of the tax paid by the dealer under section 5(4) of the Act, and is, therefore, no relevance to the facts of the present case.
7. (D. R. Kohli v. Atul Products Ltd.) .
The observation made in paragraph 12 is relied upon by the learned Government Pleader.
51. That was a case of voluntary payment of excise duty on dyes which were not liable for such payment during the relevant period. The Supreme Court, therefore, held on facts, that such payment would not earn any exemption under the notification. In this decision, therefore, it was held on facts, that such payment would not earn any exemption under the notification. This decision is, therefore, of no assistance to the respondents.
52. I have considered carefully the arguments advanced by the learned counsel for the petitioners and the learned Government Pleader.
53. The question that arises in these cases is one of construction of the second notification issued by the Government on 28th March, 1987. The question is not free from difficulty. Unless both the notifications are considered together and an attempt is made to give a purposeful meaning to both the notifications, the benefit under the second notification would not be available to the petitioners. If the literal interpretation and construction is given to the 1987 Notification, as argued by the learned Government Pleader, the petitioners would be excluded from the purview of the said notification, and cannot, on the plain reading of it, apply to them. The petitioners would be confronted with such a situation if the 1987 Notification is construed literally and the petitioners would not be in a position to, and it would be impossible for them to, produce proof if payment of tax on the sale turnover of the oil.
54. Faced with this situation, it is argued for the petitioners that the court should come to their rescue by placing such an interpretation on 1987 Notification and placing a harmonious construction on both the notifications, the additional benefit conferred on all the manufacturers of non-refined groundnut oil, is extended to all the petitioners and they should not be deprived of the exemption by placing an artificial and literal construction on the said notification.
55. Sri Indra Kumar after a thorough and pains-taking study of this difficult question that arises in these writ petitions has, in my opinion, succeeded in bringing home his point that the circular of Commissioner should be declared as not binding on the assessing authorities under the Act.
56. I agree with the contention of Sri Indra Kumar, who advanced leading arguments in the cases that the Commissioner was not justified in insisting on production of proof of payment of tax by the petitioners. In order to appreciate this contention, it is necessary to advert to the object and intendment of exempting the sale turnover of the tiny sector units under the 1983 Notification. No doubt, their sale turnover is entitled to exemption for a period of five years subject to satisfying the other conditions and requirement of the notification.
57. But the question that arises for consideration is whether the exemption conferred on all the manufacturers of non-refined groundnut oil, under the 1987 Notification, is available and could be claimed by the tiny sector industrial units, who are also manufacturers of non-refined groundnut oil ?
58. The purchase turnover of groundnuts/seeds is taxable under Schedule IV of the Act at 4 per cent at the relevant point of time. The sale turnover of the groundnut oil is taxable under item 47 Schedule II at 3 per cent. No doubt, the petitioners, as tiny sector industrial units are exempt from payment of tax on their sale turnover, but the further question that arises is whether or not, they are entitled to and can claim the additional benefit of exemption of tax on their purchase turnover of the raw material under the 1987 Notification ?
59. For deciding this question, I have to examine, whether the petitioners, whose sale turnover is exempt under the 1983 Notification, can be insisted upon to produce proof of payment of tax on their sales in order to get the benefit under the 1987 Notification ? On the very undisputed factual position, the Petitioners do not pay the tax on their sales. But, at the same time, they claim the benefit of exemption on their purchase turnover, and are pleading inability to produce proof of payment of tax on their sales, since the sale of oil by them is exempt under the 1983 Notification.
60. The object of 1983 Notification, it cannot be disputed, is to encourage the small industrial units in their initial stages of existence.
61. As held by the Gujarat High Court in the case of Commissioner of Income-tax, Gujarat-I v. Satellite Engineering Ltd. [1987] 113 208, any interpretation of a provision extending exemption from payment of tax on a new industrial undertaking should not frustrate or defeat the object of the Government to encourage the setting-up of new industries, and, more so, to help the tiny sector industrial units whose total investment does not exceed Rs. 2 lakhs in any year.
62. The observations placed by the Supreme Court in N. B. Sanjana’s case , on the expression, “paid” to mean and should be read as “ought to have been paid” should be taken as the guideline on the facts of the present case in order to render the Notification of 1987, workable.
63. The interpretation placed by the High Court of Patna in Tata Yodogwa Ltd. [1987] 32 ELT 521, also supports the contention of the petitioners. It was held in that case that the expression “already been paid” should be understood as “contracted to be paid” or “required to be paid”.
64. The contention of Sri Indra Kumar is that, but for the exemption granted under the 1983 Notification the petitioners would have to pay tax on their sale turnover and that, therefore, this Court should place such a construction on the 1987 Notification as would not result in deprivation of the exemption of tax payable on their purchase turnover as well.
65. In this context, reliance is placed by the learned counsel on the principles of construction as enunciated by Francis Bennion in his book “Statutory Interpretation”, which is very apposite to the facts and circumstances of the present cases.
66. The construction that is required to be placed in these cases is one of “beneficent construction” and not a construction which would be adverse to the subject. The consequences 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 is 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.
67. 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.
68. The petitioners who had the benefit of exemption from payment of tax on their sale turnover of oil, as tiny sector units, cannot be expected to produce proof of payment of tax on their sales for getting the additional benefit of exemption of tax on their purchase turnover under the 1987 Notification. The very fact and circumstance that they were not liable to pay tax on their sale turnover under an earlier notification, should be construed in their favour and the insistence on proof of payment of tax on their sale turnover, would be impossible of compliance, besides being unreasonable.
69. The proper construction to be placed in such a situation is one of “beneficent construction”, the application of which will avoid hardship and injustice to the tiny sector units. The literal application of the 1987 Notification in the manner it is sought to be interpreted by the Commissioner, will lead to deprivation of the additional benefit which is available to all manufacturers of non-refined groundnut oil.
70. For the above reasons, I agree with the arguments advanced by Sri Indra Kumar and other counsel. I do not find any justifiable reason why the 1987 Notification should not apply to the tiny sector units who are also manufacturers of non-refined groundnut oil.
71. In the result, the writ petitions are allowed and the notices, assessment orders and the demands made against the petitioners relying upon the circular instructions of the commissioner of Commercial Taxes, are set aside. It is further declared that the Commissioner’s circular is not binding on the assessing authorities under the Act.
72. It is further directed that a mandamus be issued to the assessing authorities to give effect to the 1987 Notification in the light of this order so far as the petitioners and other tiny sector industrial units, similarly situated, are concerned.
73. Writ petitions allowed.