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 statutes   

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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 and  

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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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