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REPORTABLE  

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1410 OF 2007

M/s. CASIO India Co. Pvt. Ltd. ...  Appellant

                               Versus

State of Haryana         ... Respondent

With

Civil Appeal No. 1411 of 2007

Civil Appeal No. 5450 of 2013

J U D G M E N T

Dipak Misra, J.

Regard being had to the similitude of the issue in all

the appeals, they were heard together and disposed of by a

common  judgment.  As  the  principal  principle  that

constitutes the bedrock of the decision in the subject matter

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of assail in Civil Appeal No. 1410 of 2007, we shall advert to

the  facts  exposited  therein  and also  dwell  upon the  legal

issue and, needless to say, that would govern the fate of all

the appeals.

2. Presently to the layout of facts in Civil Appeal No. 1410

of 2007. The appellant-company is engaged in the business

of manufacture and sale of Radio Pagers having its unit at

plot  No. 4, Phase-I,  Udyog Vihar, Gurgaon, Haryana. It  is

registered  under  the  provisions  of  Haryana General  Sales

Tax Act, 1973 (for short, “the Act”), Haryana General Sales

Tax  Rules,  1975  (for  short,  “the  Rules”)  and  the  Central

Sales Tax Act, 1956 (for brevity,  “CST Act”)  In the  year

1995-96,  the  assessee-company  after  purchase  of  Radio

Pagers from M/s Bharati Telecom Limited was also engaged

in inter-state sale of the said Radio Pagers and in course of

the said transaction, did not charge any sales tax from the

purchasers  on  the  basis  of  Notification  No.  SO

89/CA.74/56/S.8/95  dated  04.09.1995  issued  under

Section 8(5) of the CST Act read with Rule 28A(4)(c) of the

Rules. The appellant filed its return and claimed exemption

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placing reliance on the said notification,  but the claim of

exemption put forth by the assessee was not accepted by the

assessing officer  vide assessment order dated October 05,

2001.  Being  aggrieved  by  the  order  of  assessment,  the

appellant preferred an appeal  before the Joint Excise and

Taxation Commissioner (Appeal), Rohtak Circle, Rohtak who

dismissed the appeal vide order dated May 2, 2002.

3. Being dissatisfied with the order passed in appeal, the

appellant knocked at the doors of the Sales Tax Tribunal,

Chandigarh  (for  short  ‘the  tribunal’)  which  dismissed  the

appeal by its order dated September 9, 2002.  The dismissal

of  the  appeal  by  the  tribunal  compelled  the  appellant  to

prefer Writ Petition No. 2346 of 2003, seeking a direction to

the tribunal to make a reference to the High Court. The High

Court  accepting  the  prayer  of  the  assessee  called  for  a

reference from the tribunal, and the tribunal vide its order

dated  14.10.2003  in  S.T.M.  No.  82  of  2002-03  made  a

reference to the High Court for its opinion.  

4. After  stating  the  case,  the  tribunal  referred  the

following questions for the opinion of the High Court:-

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“(i)  Whether  the  notification  dated  04.09.1995

issued  under  Section  8(5)  of  the  CST  Act  is

relatable to the exemption of goods or the person

selling it?

(ii)  Whether  in  view  of  the  notification  dated

04.09.1995 issued under Section 8(5) of  the CST

Act and Rule 28A of the Rules, the inter-state sales

of the goods manufactured by an “exempted unit”,

even by any other dealer, is exempted from the levy

of the Central Sales Act?”

5. Before the High Court it was contended by the assessee

that the notification dated 04.09.1995 issued by the State

Government provides for grant of exemption on the sale of

goods manufactured in the State of Haryana by any dealer

holding  valid  exemption  certificate  under  Rule  28  of  the

Rules and not to the dealer and, therefore, the goods sold by

the assessee in the course of inter-state trade were not liable

to be taxed.  In support of the said proposition, reliance was

placed  on  International  Cotton Corporation (P)  Ltd.  v.

Commercial  Tax  Officer,  Hubli1,  Pine  Chemicals  Ltd. 1 (1975) 35 STC 1

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and others v.  Assessing Authority and others2,  Khadi

and Village Soap Industries Association and another v.

State  of  Haryana and others3,  State  of  Rajasthan v.

Sarvotam  Vegetables  Products4 and  Commissioner  of

Sales Tax v. Industrial Coal Enterprises5.   

6. On  behalf  of  the  revenue,  it  was  urged  that  the

notification in question provided for grant of exemption only

on the sale of goods manufactured in the State by a dealer

holding  valid  exemption  certificate  under  Rule  28  of  the

Rules,  subject  to  the  condition  that  such  dealer  had  not

charged  tax  under  the  CST  Act  on  the  sale  of  goods

manufactured by it, and not in respect of the sale of goods

by other dealers in the course of inter-state trade.  It was the

stand of the revenue that the assessee had not been granted

exemption certificate under Rule 28A of the Rules and as

such, the goods sold by it in course of inter-state trade were

not  exempted  from  the  tax  under  the  CST  Act  merely

because the same had been purchased from M/s Bharati

Telecom  Limited  which  possesses  a  valid  exemption

2 (1992) 85 STC 432 3 (1992) 85 STC 432 4 (1996) 101 STC 547  5 (1999) 114 STC 365

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certificate.  Reliance was placed on the decision of this Court

in  State  Level  Committee  and  another  v.

Morgardhsammar India Ltd.6.  

7. The High Court referred to Section 8(2A) and 5 of the

CST  Act  and  Rule  28A(2)(n)  and  (4)(c)  of  the  Rules  and

notification dated 04.09.1995; distinguished the authorities

cited by the assessee and came to hold that the expression

“notional sales tax liability” as used in Rule 28A(2)(n) takes

within its fold not only the amount of tax payable on the

sales of finished goods of the eligible industrial unit under

the Act but also the amount of tax payable under the CST

Act on the sales of finished products of the eligible industrial

units made in the course of inter-state  trade or commerce

and branch transfers or consignment sales outside the State

of Haryana. Reference was made to clause (c) of sub-rule (4)

of  Rule  28A  of  the  Rules  to  opine  that  the  scope  of

exemption was extended to the goods manufactured by an

eligible industrial unit availing exemption under Rule 28A at

all  successive  stage(s)  of  sale  or  purchase  subject  to  the

condition that  the  dealer  effecting successive  purchase or

6 (1996) 101 STC 1

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sale  furnishing  a  certificate  in  form  ST-14A  which  is

required to be obtained from the assessing authority duly

filled in and signed by the registered dealer to whom such

goods were sold.  Thereafter, the High Court analysed the

Rules and in that context stated thus:-

“A reading of  the provisions reproduced above shows that  the  expression  “notional  sales  tax liability”  takes  within  its  fold  not  only  the amount of tax payable on the sales of finished goods of  the eligible industrial  unit  under the State Act, but also the amount of tax payable under the Central Act on the sales of finished products of the eligible industrial unit made in the course of inter-state trade or commerce and branch transfers or consignment sales outside the State of Haryana (Rule 28A (2) (n)). Clause (c) of  sub-rule (4) of Rule 28A extends the scope of exemption to the goods manufactured by an eligible industrial unit availing exemption under Rule  28A at  all  successive  stage(s)  of  sale  or purchase  subject  to  the  condition  that  the dealer  effecting  successive  purchase  or  sale furnishes to the Assessing a certificate in form ST-14A which is required to be obtained from the Assessing Authority duly filled in and signed by the Registered dealer  to whom such goods were sold. Sub-rule (6) of Rule 28A lays down the  mechanism  for  grant  of exemption/entitlement  certificate.  Sub-rule  (7) envisages renewal of  exemption certificate and lays down the procedure for grant of  renewal. Section  8(2A)  of  the  Central  Act  contains  a non-obstante  clause.  It  lays  down  that notwithstanding anything contained in Section 6(1A)  or  sub-section  (1)  or  clause  (b)  of

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sub-Section  (2)  of  Section  8,  the  tax  payable under  the  Central  Act  by  a  dealer  on  his turnover  in  so  far  as  the  turnover  or  a  part thereof relates to the sale of any goods, the sale or  purchase  of  which  is  exempted  from  tax under the State Act or is subjected to tax at a rate  lower  than  4%  shall  be  nil  or  shall  be calculated at the lower rate.  Sub-section (5) of Section  8  also  begins  with  a  non-obstante clause.  It  empowers the State Government to grant exemption from payment of tax or levy of tax  at  a  lower  rate  on  the  dealer  having  his place of business in respect of the sales made by  him  in  the  course  of  inter-State  trade  or commerce.  It  also  empowers  the  State Government  to  direct  that  no  tax  shall  be payable under the Central  Act or tax shall  be calculated at lower rates in respect of all sales of goods or classes of goods as may be specified in the notification which are made in the course of inter-State  trade  or  commerce  by  any  dealer having  his  place  of  business  in  the  State  or class  of  dealers  specified  in  the  notification. Notification dated 4.9.1995 declares that no tax shall  be  payable  under  the  Central  Act  w.e.f. 1.4.1988 on the sale of goods manufactured in the  State  of  Haryana by any dealer  holding a valid  exemption  certificate  under  Rule  28A  of the  Rules,  provided  that  such  dealer  has  not charged tax under the Central Act on the sale of goods manufactured by him.”

8. After  so  stating,  the  High  Court  referred  to  the

notification dated 04.09.1995 and observed that it was not

happily worded and thereafter, it proceeded to hold that the

tribunal was correct in following its earlier order for arriving

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at the conclusion that the notification did not exempt the

goods sold in the course of inter-state trade by dealer other

than  those  who  held  valid  exemption  certificate  granted

under Rule 28A of the Rules.  It further ruled that if  the

State Government wanted to extend the benefit of exemption

from payment of tax under the CST Act to the sale of goods

effected  by  a  dealer  in  the  course  of  inter-state  trade

irrespective of the fact that such dealer did not hold valid

exemption certificate under Rule 28A of the Rules, then it

would have incorporated the language of Rule 28A(4)(c) of

the Rules in the notification and would not have put a rider

that such dealer should not have charged tax under the CST

Act on the sale of goods manufactured by it.

9. Thus,  the  ultimate  conclusion  recorded  by  the  High

Court  is  that  successive  sales  of  goods  manufactured  by

dealer holding valid exemption certificate were exempt from

payment of sales tax so long as they were inter-state sales

but  in  respect  of  sale  of  goods  by  a  dealer  not  holding

exemption  certificate  under  Rule  28A  in  the  course  of

inter-state trade, the benefit of exemption envisaged under

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notification  dated  04.09.1995  was  not  available  to  such

dealer.   The  Division  Bench  proceeded  to  clarify  that  in

respect of stages of sale which are exempt from payment of

tax  under  the  Act  are  covered  by  Rule  28A(4)(c)  but

notification dated 04.09.1995 was applicable only to sale of

goods  manufactured  by  the  exempted  unit.  Being  of  this

view, it answered the reference in favour of the revenue and

against the assessee.

10. Mr. Balbir Singh, learned senior counsel appearing for

the  appellant,  has submitted that  though the notification

was made under the CST Act, it exempts goods as well as

manufacture.  Learned senior counsel would submit that on

a plain reading of the notification, it is demonstrable that

the  exemption  is  on  the  sale  of  goods  and  there  is  no

reference to unit or category of dealers for the purpose of

extending  the  exemption.  Once  the  language  is  clear,

submits  Mr.  Singh,  there  is  no  scope  of  searching  for

intendment and, in fact, a bare perusal of the notification is

sufficient to determine its applicability or non-applicability.

To sustain the submission, he has drawn our attention to

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the authority in Govt. of A.P & others. v. P. Laxmi Devi7;

Ranbaxy  Laboratories  Ltd.  v.  Union  of  India  and

others8;  Bansal  Wires  Industries  Ltd.  &  another  v.

State of Uttar Pradesh and others9 and  Parle Biscuits

(P)  Ltd.  v.  State  of  Bihar  & others10.   Learned  senior

counsel  has  further  contended  that  the  High  Court  has

committed an error in noting that in the notification, there

is no similar expression as used in Rule 28A(4) of the Rules.

According to him, the reasoning given by the High Court is

fallacious on two scores,  namely,  (i)  Rule 28A(4)(c)  of  the

Rules exempts all  subsequent sales made in the State of

Haryana, as one product can be sold any number of times

within the State, whereas there can be only one inter-state

sale from the State of Haryana, and consequently there is

no  requirement  of  any  reference  to  subsequent  sale  in

notification dated 04.09.1995; and (ii) Rule 28A(4)(c) of the

Rules  provides  a  mechanism  to  confirm  that  goods  are

manufactured by a person holding exemption certificate in

terms of Rule 28A by providing the requirement to furnish

7 (2008) 4 SCC 720 8 (2011) 10 SCC 292 9 (2011) 6 SCC 545 10 (2005) 9 SCC 669

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a certificate in the form of certificate ST-14A.  Section 8(5) of

the CST Act mandates the requirement of issuance of Form

C by the buying dealer which is to be issued by the sales tax

authorities of purchasing State and, therefore, there is no

requirement  for  such  mechanism  to  be  provided  in  the

notification.  It  is  highlighted  by  him  that  if  the

interpretation placed by the High Court is accepted, it would

tantamount  to  making exempted goods chargeable  to  tax

and  further,  the  goods  manufactured  by  eligible

manufacturer  would  not  remain  competitive  in  spite  of

exemption  being  given  to  such  manufacturer  unless  all

subsequent  stages  including  inter-state  sales  are  exempt

from  payment  of  tax.  The  emphasis  is  on  exemption  at

subsequent stages including inter-state sale. Mr. Singh has

drawn  immense  inspiration  from  the  proviso  to  the

notification dated 04.09.1995 to bolster the submission that

it restrains the eligible manufacturer from charging any tax

on  its  sales  as  otherwise  it  would  amount  to  unjust

enrichment.  

11. Mr.  Sanjay  Kumar  Visen,  learned  counsel  for  the

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respective  respondent(s),  per  contra,  while  supporting  the

order passed by the High Court, would submit that benefit

of exemption has been granted for promoting new industry

in the State and this is in consonance with Rule 28A of the

Rules  which  provides  unit  holding  a  valid  exemption

certificate  which sells  goods purchased by it  in the State

without charging any tax and the said Rule also exempts all

subsequent intra-state sales as such. Elaborating further, it

is  urged  that  notification dated 04.09.1995 issued  under

sub-section (5) of Section 8 of the CST Act can extend the

benefit  of  tax exemption to only  such inter-state  sales  of

goods  which  are  purchased  inside  the  State  by  a  unit

holding  valid  exemption  certificate  and  hence,  the

exemption from CST Act is subject to the condition that the

dealer  effecting  inter-state  sale  should  hold  a  valid

exemption certificate irrespective of  the goods sold in the

course of inter-state trade and commerce and purchased by

him inside the State.   Learned counsel would submit that

while interpreting a notification of the present nature, strict

interpretation has to be followed as per law laid down by

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this  Court  in  NOVOPAN  India  Ltd.,  Hyderabad  v.

Collector of Central Excise and Customs, Hyderabad11.

12. To understand the controversy in proper perspective, it

is necessary to refer to Section 8(2A) and 5 of the CST Act.

They read as follows:-

“(2A)  Notwithstanding  anything  contained  in sub-section (1-A)  of  Section 6 or  sub-section (1)  or  clause  (b)  of  sub-section  (2)  of  this Section, the tax payable under this Act by a dealer on his turnover in so far as the turnover or any part thereof relates to the sale of any goods,  the  sale  or,  as  the  case  may  be,  the purchase of which is, under the sales tax law of  the  appropriate  State,  exempt  from  tax generally or subject to tax generally at a rate which  is  lower  than  four  percent  (whether called a tax or fee or by any other name), shall be  nil,  or  as  the  case  may  be,  shall  be calculated at the lower rate.

    xx     xx     xx      xx

(5) Notwithstanding anything contained in this Section,  the  State  Government  may,  if  it  is satisfied that it is necessary so to do in the public  interest,  by notification in the official gazette,  and  subject  to  such  conditions  as may be specified therein, direct

(a) that no tax under this Act shall be payable by any dealer having his place of business in the State in respect of the sales by him, in the course of inter-state trade or commerce, from any such place of business of any such goods

11 (1994) Suppl. 3 SCC 606

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or classes of goods as may be specified in the notification,  or  that  the  tax  on  such  sales shall  be calculated at such lower rates than those  specified  in  sub-section  (1)  or sub-section(2)  as  may  be  mentioned  in  the notification.

(b) That in respect of all sales of goods or sales of such classes of goods as may be specified in the notification, which are made in the course of inter-state trade or commerce, by any dealer having his place of business in the State or by any class of such dealers as may be specified in the notification to any person or to such class of  persons  as  may  be  specified  in  the notification,  no  tax  under  this  Act  shall  be payable  or  the  tax  on  such  sales  shall  be calculated  at  such  lower  rates  than  those specified in sub-section(1) or sub-section (2) as may be mentioned in the notification.”  

The  aforesaid  provision  clearly  enables  the  State

Government to exempt the tax payable under the CST Act in

public interest by issuing appropriate notification.  For the

said purpose, the State Government has to be satisfied and

is  also  entitled  to  impose  conditions  which  have  to  be

specified in the notification.

13. Keeping  in  view  the  aforesaid  provision  and  the

notification which we shall refer to hereinafter, the factual

score  is  to  be  appreciated.  It  is  not  in  dispute  that  the

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appellant  had  sold  the  goods  in  question  which  were

manufactured  by  M/s  Bharati  Telecom Limited  that  was

holding a valid exemption certificate under Rule 28A of the

Rules.   The  appellant  had  claimed  central  sales  tax

exemption  of  such  goods  in  terms  of  notification  dated

04.09.1995 by urging that such exemption was in respect of

sale of goods which were manufactured by any dealer in the

State of Haryana who held a valid exemption certificate. The

core controversy pertains to the interpretation of notification

dated 04.09.1995 which has been issued by the competent

authority in exercise of power under Section 8(5) of the CST

Act. It reads as follows:-

“  Notification dated 4.9.1995”

“No.S.O.89/CA. 74/56/S.8/95 dated 4.9.1995 –  In  exercise  of  the  powers  conferred  by sub-section  (5)  of  Section  8  of  the  Central Sales Tax Act, 1956 the Governor of Haryana being satisfied that it is necessary so to do in the public interest, hereby directs that no tax under the said Act shall be payable with effect from  1.4.1988,  on  the  sale  of  goods, manufactured in the State of Haryana by any dealer  holding  a  valid  exemption  certificate under Rule 28-A of the Haryana General Sales Tax  Rules,  1975  during  the  period  of exemption: provided that no tax under the said Act has been charged by such dealer on the

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sale of goods manufactured by him.”

14. The above notification has been issued in exercise of

powers conferred by sub-section (5) to Section 8 of the CST

Act by the Governor of Haryana in public interest.  As per

the notification, no tax is payable under the aforesaid Act

w.e.f. 1st April, 1988 on sale of goods during the period of

exemption that are manufactured in the State of Haryana by

any dealer, who holds a valid exemption certificate under

Rule  28A  of  the  Rules.  Proviso  to  the  said  notification

stipulates that the dealers should have also not charged any

tax under the Central Sales Tax Act on the sale of goods

manufactured by him.

15. As mentioned earlier,  sub-section (5) to Section 8 of

the  CST  Act  begins  with  the  non-obstante clause  and

empowers State Governments to issue a notification in the

official  gazette  subject  to  the  condition(s)  as  may  be

specified and under clause (a)  direct that no tax shall  be

payable by any dealer having his place of business in the

State in respect of sale in the course of inter-state trade or

commerce, etc. and under clause (b) in respect of all sales of

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goods or classes of goods, etc. In this context, Rule 28A is

extremely relevant.  The said Rule, as per heading relates to

class  of  industries,  period  and  other  conditions  for

exemption/deferment from payment of tax.  Sub-rule 1, 2(f),

(j), (k), (l), (n) clauses (i), (ii), (iii), (4)(a) and sub-rule 4(2)(c) of

Rule 28A are relevant and reproduced below:-

“Sub-Rule  (1):  The  industries  covered  under this rule shall not be entitled to any deferment or exemption from payment of  tax under any other provisions of these rules.

Rule 2(f): ‘Eligible industrial unit’ means:

(i)  a  new  industrial  unit  or  expansion  or diversification of the existing unit, which- (I) has obtained certificate of registration under the Act; (II) is not a public sector undertaking where the Central Government held 51 per cent or more shares;

2(j):  “eligibility  certificate”  means  a  certificate granted  in  Form  ST-72  by  the  appropriate screening  committee  to  an  eligible  industrial unit  for  the  purpose  of  grant  of  exemption deferment;

(k)  “exemption  certificate”  means  a  certificate granted in Form ST-73 by the Deputy Excise and Taxation Commissioner  of  the  district  to the  eligible  industrial  unit  holding  eligibility certificate  which  entitles  the  unit  to  avail  of exemption  from  the  payment  of  sales  or

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purchase tax or both, as the case may be;

(l) “entitlement certificate” a certificate granted in  Form  ST-72  by  the  Deputy  Excise  and Taxation  Commissioner  of  the  district  to  the eligible  industrial  unit  holding  eligibility certificate which entitles it to get deferment of sales tax.

(n) “notional sales tax liability” means –  

(i)  amount  of  tax  payable  on  the  sales  of finished products of the eligible industrial unit under  the  local  sales  tax  law  but  for  an exemption  computed  at  the  maximum  rates specified  under  the  local  sales  tax  law  as applicable from time to time; and

Explanation:  The sales  made on consignment basis  within  the  State  of  Haryana  or  branch transfer within the State of Haryana shall also be deemed to be sales made within the State and liable to tax;

(ii)  amount  of  tax  payable  under  the  Central Sales Tax Act,  1956, on the sales of  finished products of the eligible industrial unit made in the  course  of  inter-State  trade  or  commerce computed at the rate of tax applicable to such sales as if these were made against certificate in  Form  C  on  the  basis  that  the  sales  are eligible to tax under the said Act.

Explanation:  The  branch  transfers  or consignment sales outside the State of Haryana shall  be  deemed  to  be  sale  in  the  course  of inter-State trade or commerce.

Note:-  The  expression  and  terms,  if  any appearing in this rule not defined above shall

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unless the context otherwise requires carry the same meaning as assigned to them under the Act and rules made there under.

(3) Option – An eligible industrial unit may opt either  to  avail  benefit  of  tax  exemption  or deferment.  Option once exercised shall be final except  that  it  can  be  changed  once  from exemption  to  deferment  for  the  remaining period and balanced quantum of benefit.

(4)(a)  Subject to other provisions of  this rule, the benefit of tax exemption or deferment shall be given to an eligible industrial  unit  holding exemption or entitlement certificate, as the case may be to the extent, for the period, from year to  year  in  various  zones  from  the  date  of commercial  production  or  from  the  date  of issue  of  entitlement  exemption  certificate  as may be opted as under.  

4(2)(c) The goods manufactured by an eligible industrial  unit  availing  exemption  under  this rule shall be exempt from the levy of tax at all the  successive  stage(s)  of  sale  or  purchase subject  to  the  condition  that  the  dealer affecting  the  successive  purchase  or  sale furnishes  to  the  assessing  authority  a certificate in Form ST-14A to be obtained from the assessing authority as against payment of such  sum  as  may  be  fixed  by  the  State Government  from time to  time,  duly  filled  in and signed by the registered dealer  by whom such goods were purchased.”

16. Sub-rule (1) makes it clear that industries are covered

under this rule and the said industries would not be entitled

to any deferment or exemption from payment of tax under

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any other provisions of these rules.  The expression ‘eligible

industrial  unit’  is  defined  in  clause  (f)  to  sub-rule  (2).

Similarly,  ‘eligibility certificate’, ‘exemption certificate’, etc.

are defined in clauses (j) and (k) to sub-rule (2).  Clause (n)

to  sub-rule  (2)  defines  the  expression  ‘notional  sales  tax

liability’ and clause (ii) states that the amount of tax payable

under the CST Act on sales of finished product of eligible

industrial  unit  made in the course of  inter-state trade or

commerce shall be computed at the rate of tax applicable as

if  the sales were made against form ‘C’.   In other words,

inter-state trade or commerce of finished products of eligible

industrial units will be treated as notional sales tax liability.

The reference in this clause is to the eligible industrial unit

and  sales  of  finished  products  made  by  the  said  units,

which  are  sold  in  the  course  of  inter-state  trade  or

commerce.

17. The purport and impact of Rule 28-A is with reference

to  eligible  industrial  unit,  is  not  only  clear  from  the

definition  clauses  which  define  eligibility  certificate,

exemption  certificate,  etc.  but  also  from  sub-rule  (4)(a)

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which  stipulates  that  the  benefit  of  tax  exemption  or

deferment  shall  be  given  to  an  eligible  industrial  unit

holding exemption or entitlement certificate for the period

specified.  Clause (c) to sub-rule (4)(2) postulates that goods

manufactured  by  an  eligible  industrial  unit  availing  of

exemption under this Rule shall be exempt from levy of tax

on all successive stage/stages of sale or purchase, subject

to the dealer affecting the said purchase or sale furnishing a

certificate in the form of ST-14A obtained from the assessing

authority.  This clause has the effect of granting exemption

from levy of tax at all successive stages of sale and purchase

in  intra-state  trade  or  commerce  i.e.  within  the  State  of

Haryana.  To put it differently, it extends the benefit granted

under  clause  (n)(ii)  which  relates  to  inter-state  trade  or

commerce to intra-state sale or purchase.  Such sales may

be one or successive and tax at all stages is exempt.  The

exemption, therefore, is good specific, subject of course to

other conditions being satisfied.

18. It is not disputed that on all intra-state sales no tax

has been charged as the said transactions were treated as

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exempt by the tax authorities.  However, in the course of

inter-state  sales,  it  is  submitted by  the  revenue  that  the

exemption  would  be  limited  and  available  only  if  the

manufacturer i.e. the eligible industrial unit makes sale in

inter-state trade or commerce, but if a third party, who had

procured the goods from the eligible industrial unit makes

inter-state  sale,  such  trade  or  commerce  would  not  be

exempt. The contention of the State suffers from incorrect

appreciation and understanding of the purport and objective

behind Rule 28A and the notification in question.  The basic

objective and purpose is to exempt the goods manufactured

in the State when they are further transferred in the course

of inter-state or intra-state trade or commerce.  Therefore,

reference is made to the eligible industries and the goods

manufactured by the said industries, which are entitled to

exemption. The exemption notification refers to the sale of

goods manufactured by a dealer holding a valid exemption

certificate.  The  emphasis  is  on  the  goods  manufactured.

However,  it  is  confined  by  the  condition  that  the  said

manufacture should be within the exemption period and by

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a dealer holding an exemption certificate.

19. We have reproduced the exemption notification above

and referred to the language employed.  At this juncture, it

is  absolutely  necessary  to  understand  the  language

employed in the proviso to the notification.  If there was no

proviso  to  the  notification  there  would  have  been  no

difficulty whatsoever in holding that the exemption is qua

the goods manufactured and was not curtailed or restricted

to the sales made by the manufacturer dealer and would not

apply to the second or subsequent sales made by a trader,

who buys the goods from the manufacturer-dealer and sells

the same in the course of inter-state trade or commerce.  It

is pertinent to note that, clause (ii) of sub-rule (n) refers to

sale of finished products in the course of inter-state trade or

commerce where the finished products are manufactured by

eligible industrial unit.  There is no stipulation that only the

first sale or the sale by the eligible industrial unit in Inter

State or Trade would be exempt. The confusion arises, as it

seems to us, in the proviso to the notification which states

that the manufacturer-dealer should not have charged tax.

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It needs no special emphasis to mention that provisos can

serve various purposes.  The normal function is to qualify

something enacted therein but for the said proviso would

fall within the purview of the enactment.  It is in the nature

of  exception.  [See :  Kedarnath Jute Manufacturing Co.

Ltd v. Commercial Tax Officer12].  Hidayatullah, J. (as his

Lordship then was) in Shah Bhojraj Kuverji Oil Mills and

Ginning  Factory  v.  Subhash  Chandra  Yograj  Sinha13

had  observed  that  a  proviso  is  generally  added  to  an

enactment to qualify or create an exception to what is in the

enactment, and the proviso is not interpreted as stating a

general rule.  Further, except for instances dealt with in the

proviso, the same should not be used for interpreting the

main provision/enactment, so as to exclude something by

implication.  It is by nature of an addendum or dealing with

a subject matter which is foreign to the main enactment.

(See :  CIT,  Mysore etc.  v  Indo Mercantile  Bank Ltd14).

Proviso should not be normally construed as nullifying the

enactment or as taking away completely a right conferred.

12 AIR 1966 SC 12 13 AIR 1961 SC 1596 14 AIR 1959 SC 713

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20. Read  in  this  manner,  we  do  not  think  the  proviso

should  be  given  a  greater  or  more  significant  role  in

interpretation of the main part of the notification, except as

carving out an exception.   It  means and implies that the

requirement  of  the  proviso  should  be  satisfied  i.e.

manufacturing dealer should not have charged the tax.  The

proviso would not scuttle or negate the main provision by

holding  that  the  first  transaction  by  the  eligible

manufacturing  dealer  in  the  course  by  way of  inter-state

sale would be exempt but if the inter-state sale is made by

trader/purchaser, the same would not be exempt.  That will

not be the correct understanding of the proviso.  Giving over

due and extended implied interpretation to the proviso in

the  notification  will  nullify  and  unreasonably  restrict  the

general  and  plain  words  of  the  main  notification.   Such

construction is not warranted.

21. Quite  apart  from the  above,  Rule  28A(4)(c)  supports

the interpretation and does not counter it.  The said rule

exempts  all  intra-state  sales  including  subsequent  sales.

The  reason  for  enacting  this  clause  is  obvious.   The

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intention is to exempt all subsequent stages in the State of

Haryana and the eligible product can be sold a number of

times, without payment of tax.  Intra-state sales refer to sale

between two parties within the State of Haryana. Inter-state

transaction  results  in  movement  of  goods  from  State  of

Haryana to another State.  Thus, clause (ii) of sub-rule 2(4)

refers to inter-state trade or commerce and the notification

does not refer to subsequent sales as in case of Rule 28A(4)

(c).   Whether  or  not  tax  should  be  paid  on  subsequent

sales/purchase in the other State cannot be made subject

matter of Rule 28A or the notification. Inter-State sale from

the State of Haryana will be only once or not a repeated one.

Therefore,  there  is  no  requirement  of  reference  to

subsequent sale.  In this context, it is rightly submitted by

the assessee that there is only one inter-State sale from the

State of Haryana and the interpretation as suggested by the

revenue would tantamount to making the exempted goods

chargeable to tax, and the said goods would cease to enjoy

the competitive edge given to the manufacturer in the State

of Haryana.  It will be counter-productive.  

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22. In view of aforesaid analysis, we allow the appeals and

set aside all the impugned orders and hold that assessees

shall reap the benefit of the notification dated 04.09.1995

as interpreted by us.  There shall be no order as to costs.  

...............................J.         [Dipak Misra]

...............................J.     [Shiva Kirti Singh]

New Delhi. March 29, 2016.

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