STATE OF HARYANA Vs BHARTI TELETECH LTD.
Bench: H.L. DATTU,DIPAK MISRA,S.A. BOBDE
Case number: C.A. No.-006791-006791 / 2004
Diary number: 25632 / 2003
Advocates: KAMAL MOHAN GUPTA Vs
BINA GUPTA
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Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6791 OF 2004
State of Haryana & Ors. … Appellant
Versus
Bharti Teletech Ltd. …Respondent
J U D G M E N T
Dipak Misra, J.
Calling in question the legal acceptability and
propriety of the judgment and order dated 08.05.2003
passed by the High Court of Punjab and Haryana at
Chandigarh in C.W.P. No. 16336 of 2002 whereby the
Division Bench has quashed the order dated 26.9.2002
passed by the Sales Tax Tribunal, Haryana which had
affirmed the orders passed by the appellate authority,
namely, Joint Excise and Taxation and that of the
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Deputy Excise and Taxation Commissioner (Gurgaon),
the original authority who had, upon initiation of a
proceeding under Rule 28 (11) (b) of the Haryana
General Sales Tax Rules, 1975 (for short “the Rules”),
come to hold that the respondent-assessee herein had
violated the provisions of Rule 28A (11) (a) (i) as it had
failed to maintain, without convincing reasons, the
requisite production and was, therefore, liable to make
full payment of tax exemption benefit availed by it
during the concessional period, i.e., 13.12.1991 to
12.12.1998 of sale of Electronic Push Button
Telephones (EPBT), the present appeal, by special
leave, has been preferred by the State of Haryana and
its functionaries.
2. The facts that are imperative to be stated are that
the respondent assessee, namely, M/s. Bharti
Teletech Limited, was allowed sales tax
exemption under Rule 28A of the Rules for the
period 13.12.1991 to 12.12.1998 for an amount of
Rs.498.80 lakhs. This benefit was granted subject
to the conditions laid down in the said sub-rule 11
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of Rule 28A of the Rules. The conditions
postulated in sub-rule 11 (a) are that the
industrial unit after availing of the benefit shall
continue its production at least for the next five
years not below the level of average production
for the preceding five years. There is also
stipulation in the sub-rule 11 that if the unit
violates any of the conditions laid down in clause
(a) of sub-rule 11, it shall be liable to make, in
addition to the full amount of tax benefit availed
of by it during the period of exemption, payment
of interest chargeable under the Act as if no tax
exemption was ever available to it. It is apt to
note that there is a proviso that provides that the
rigors of the said clause would not come into play
if the loss of production is explained to the
satisfaction of the Deputy Excise and Taxation
Commissioner concerned as being due to reasons
beyond the control of the unit.
3. As the facts would uncurtain, on 3.05.1997, the
assessee submitted an application seeking
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amendment in the eligibility certificate so as to
include certain other items but it was rejected
vide order dated 22.7.1997 by the High Level
Screening Committee. On an appeal being filed,
the Commissioner of Industries accepted the
same and remitted the matter to the High Level
Screening Committee to revise the eligibility
certificate allowing the benefit of sales tax
exemption by inclusion of additional items.
However, the period of exemption remained
unaltered. Be it noted, the assessee was granted
the full benefit of exemption for the entire period.
4. After the expiry of the period of exemption, the
Deputy Excise and Taxation Commissioner
(Gurgaon), the 2nd appellant herein, while
monitoring the production level of the respondent
unit, noticed that it was not maintaining the level
of production of the preceding five years and,
accordingly, initiated a proceeding against it on
the foundation that it had violated the conditions
enumerated under Rule 28A (11) (a) (i) and was
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thereby liable to make full payment of tax
exemption benefit already availed by it along with
interest. As required under the Rules, it issued a
notice to show cause to explain non-maintenance
of average production after the expiry of the
benefit period inasmuch as it had drastically come
down to Rs.9.06 crores from 17.52 crores. In the
course of adjudication, in reply to the show cause,
the assessee explained that it had established
another unit as an expansion unit which had
come into commercial production w.e.f. 27.3.1998
and for the purpose of determining the level of
production after 12.12.1998, the production
figures of the expansion unit were also required
to be taken into account. A contention was raised
before the 2nd appellant that the notice to show
cause was premature as it was given prior to the
expiry of twelve months from 12.12.1998, that is,
the date on which the period of benefit expired.
5. The adjudicating authority rejected the said
contention and proceeded to delve into the facts
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that had emerged before it. It came to hold that
the Gross Turn Over (GTO) during January 1999
and December 1999 was Rs.9.06 crores as
against the average GTO of Rs.17.52 crores
during the five years immediately preceding
12.12.1998. The said authority also considered
the GTO for the assessment year 1999-2000
(1.4.1999 to 31.3.2000) which reflected the
amount as Rs.4,48,05,695.00 for the year
immediately preceding, i.e., assessment year
1998-1999.
6. It may be noted that a contention was advanced
that the unit during the five years preceding
12.12.1998 had produced 40,83,246 pieces giving
yearly average of 8,16,649 pieces against which
the average production in the post benefit period
is 1898961 pieces which would show that the
production actually increased after the expiry of
the benefit period. The competent authority,
upon perusal of the production chart for the
period 13.12.1993 to 12.12.1998, analysed the
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same and arrived at the average production. The
tabular chart prepared by the adjudicating
authority is as follows:-
Average Production
Items Before on period Expiry benefit
After Expiry of benefit period
Increase (+)
Decrease (-)
ETBT 330431 163270 (-) 167161
Pagers 4405 Nil (-) 4405
Spare Parts 481813 1735691 (+) 1253878
7. The reasoning adopted by the 2nd appellant
basically was that the claim of the assessee that
production had not come down in the post benefit
period was wholly unacceptable because it could
not be given the same weightage as its individual
parts inasmuch as a complete telephone set could
not, for the exemption purpose, be equated with
its number of parts which constituted its
assembly. Being of this view, the 2nd appellant
came to hold that it was obligatory on the part of
the assessee industrial unit, having availed the
benefit of tax exemption for the specified period,
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to continue its business and to respect the
conditions enumerated in the prescription in the
rule. The said authority ruled that the assessee,
having failed to meet the production level, was
liable to be visited with the consequences and,
accordingly, directed for making full payment
along with interest.
8. Grieved by the aforesaid order, the assessee
preferred an appeal before the appellate authority
who came to hold that the explanation for loss in
production was due to outdated machinery and,
hence, the reasons for fall in production could not
be held to be beyond the control of the assessee,
for it was well within his control to replace the
outdated machinery of the old unit instead of
putting up a new unit. On the aforesaid bedrock,
the appellate authority declined to interfere in
appeal.
9. Failure in appeal led the assessee to file an
appeal before the Sales Tax Tribunal which, on
reappreciation of the factual matrix in entirety,
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came to hold that the average manufacturing of
EPBT in the subsequent three years was
approximately of 9.32 lacs as against an average
of 3.79 in the preceding five years. That apart,
the appellant had not taken the plea that the
lower production was because of factors beyond
their control. The tribunal further observed that it
was not a mere coincidence that the second unit
(expansion) became operational soon after the
expiry of benefit in the first unit from which it was
evident that the assessee had a well thought out
plan to deliberately reduce the manufacturing of
EPBT drastically in the first unit and increase the
production of the said item in the second unit.
The tribunal also took note of the fact from the
information provided by the assessee it was
obvious that the turnover in the expanded unit
had increased from Rs.65.49 lacs in 1998-1999 to
Rs.31.36 crores in 1999 but on the other hand,
the turnover in the first unit had gone down from
Rs.13.27 crore during 1998-99 to Rs.4.48 crore
during 1999-2000 and hence, it was clearly
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indicative that the expanded capacity had been
created to coincide with the expiry of the benefit
period in the first unit. Finally, the tribunal held:-
“Though increase or decrease in the turnover by itself may not be of much consequence in the scheme but the turnover does have direct relationship with the production and since the production of higher value item i.e. EPBT was reduced, the total gross turnover in terms of value was also bound to decline and the spare capacity in the first unit was utilized by increasing the production of spare parts i.e. low value items. It is, therefore, obvious from the facts of the case that the production of EPBT was deliberately reduced in the first unit and increased in the second unit as the appellant company was hoped of getting the benefit of exemption again on the expanded capacity.”
10. In view of the aforesaid analysis, the tribunal
affirmed the conclusion recorded by the forums
below. The aforesaid order of the tribunal came
to be assailed before the High Court in a writ
petition. The Division Bench of the High Court
referred to the rule position and quantity
manufactured in lacs and turnover of goods and
placed reliance on R.K. Mittal Woolen Mills v.
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State of Haryana and others1 and came to
hold that the tribunal ought to have set aside the
orders of the Deputy Excise and Taxation
Commissioner and Joint Excise and Taxation
Commissioner instead of upholding their action on
totally erroneous consideration. It opined that the
approach of the tribunal was erroneous inasmuch
as without pointing out to the violation of the
rules, it had passed the order solely on the basis
of conjecture. The High Court further observed
that even if the factum of reduction of production
as stated by the tribunal was accepted as correct,
still the exemption on tax could not have been
withdrawn as it was not a ground mentioned in
sub-rule II (a) (i) of Rule 28A for withdrawal of
exemption.
11. Questioning the defensibility of the order passed
by the High Court, Mr. Manjit Singh, learned
counsel appearing for the appellants, has
contended that the High Court in a laconic
manner has arrived at the conclusion that the 1 (2001) 123 STC 248
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authorities as well as the tribunal has fallen into
error by opining that there has been a violation of
the rule in question though on a bare reading of
the said orders there can be no shadow of doubt
that the increased production in respect of the
second unit could not have been taken into
account for the first unit since the second unit
was an individual unit having no concern with the
first unit. It is his further submission that the High
Court failed to appreciate that the respondent had
tried to take recourse to an innovative subterfuge
by establishing a new unit producing the same
items as the earlier ones and added the
production of the second unit to the first unit to
claim the benefit which is impermissible. Learned
counsel would further submit that when the
conditions enumerated under the rule had
factually been violated, there was no justification
on the part of the High Court to opine on the basis
of the decision rendered in the R.K. Mittal
Woolen Mills’ case that the exemption could not
have been withdrawn because there had been no
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violation of clauses (I) and (II) of sub-rule 11(a) of
Rule 28A of the Rules.
12. Mr. Gopal Jain, learned counsel appearing for the
respondent contended, in support of the
impugned order, that the appreciation of facts by
the High Court and the reasons ascribed by it for
annulling the orders of the forums below are
absolutely unimpeachable since the assessee was
under an obligation to apply for exemption even
in respect of expansion and in that background,
there was no justification for the forums below not
to take into consideration the production of the
expanded unit. It is also urged by him that even
assuming that there are two units, the same
would be covered under the definition of Rule 28A
(f) which defines “eligible industrial unit” and on a
proper construction of the provision, the
combined conclusion of the production of the
units cannot really be found fault with. It is also
put forth by him that the provisions relating to
exemption and the exemption notifications are
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required to be liberally construed for industrial
growth and the High Court, keeping in mind the
said principle, has dislodged the orders passed by
the forums below and, therefore, the order
impugned should not be taken exception to.
13. To appreciate the rivalised contention raised at
the bar, it is appropriate to refer to Rule 28A (11)
which reads as follows:-
“11(a) The benefit of tax- exemption/deferment under this rule shall be subject to the condition that the beneficiary/industrial unit after having availed of the benefit, -
(i) shall continue its production at least for the next five years not below the level of average production for the preceding five year; and
(ii) shall not make sales outside the State for next five years by way of transfer or consignment of goods manufactured by it.
(b) In case the unit violates any of the conditions laid down in clause (a), it shall be liable to make, in addition to the full amount of tax-benefit availed of by it during the period of exemption/deferment, payment of interest chargeable under the Act as if no tax exemption/ deferment was ever available to it;
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PROVIDED that the provisions of this clause shall not come into play if the loss in production is explained to the satisfaction of the Deputy Excise and Taxation Commissioner concerned as being due to the reasons beyond the control of the units:
PROVIDED FURTHER that a unit shall not be called upon to pay any sum under this clause without having been given reasonable opportunity of being heard.”
[Emphasis added]
14. On a bare reading of the said Rule, it is evincible
that the conditions which are imposed have been
enumerated in clause I (ii) of the said sub-rule 11 (a) of
Rule 28A to the effect that in the event of non-
maintenance of the quality of production after the
expiry of the exemption, the assessee has to pay the
tax benefit availed with interest. In the case at hand,
the revenue has pressed clause I (ii) into service. The
Division Bench has relied on the decision in R.K. Mittal
Woolen Mills (supra) wherein the High Court was
dealing with the withdrawal of eligibility of certificate as
provided in sub-rules 8 and 9 of Rule 28A. After
referring to sub-rule 8 of Rule 28A that deals with the
withdrawal of eligibility certificate under certain
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circumstances. Analysing the said Rule, it was stated
thus :-
“A perusal of the aforesaid sub-rule would show that the grounds on which the eligibility certificate and be withdrawn are mentioned therein but the ground of non-production of the change of land use permission from the Town and Country Planning Department is not one of the grounds mentioned therein. Sub-rule (8) of Rule 28A being a part of a taxing statute has, in the nature of things, to be construed very strictly and, therefore, the eligibility certificate can be withdrawn only on the grounds mentioned therein and on no other grounds. The authorities cannot add any other ground to the said sub-rule. We are, therefore, satisfied that the eligibility certificate granted to the petitioner could not be withdrawn only on the ground of non- production of the change of land use permission by the Town and Country Planning Department”
15. The said decision, as we perceive, was rendered in
a totally different context. In the present case, we are
not concerned with the withdrawal of eligibility
certificate. We are concerned with the consequences
that have been enumerated in clause (b) of sub-rule 11
of Rule 28A which clearly stipulates that in case of
violation of clause 11 (a) (i) of Rule 11, the assessee
shall be liable for making, in addition to the full amount
of tax-benefit availed of by it during the period of
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exemption/deferment, with interest chargeable under
the Act. Thus, reliance placed by the High Court on the
said decision is misconceived and inappropriate.
16. The hub of the matter is whether production of
two different units can be combined together to meet
the requirement of the postulate enshrined under the
Rule. The production of the beneficiary unit had failed
to fulfil the stipulation incorporated in sub-rule 11 (a)(i)
of Rule 28A of the Rules. It is also the undisputed
position that the production of the expanded unit has
been computed and clubbed with the first unit to reflect
the meeting of the criterion. The competent authority
has come to a definite conclusion that the expanded
capacity had been created to show that the rate of
production is maintained but it is fundamentally a
subterfuge. The authority has also taken into
consideration the different items produced and how
there has been loss of production of EPBT in the first
unit. The High Court has failed to appreciate the
relevant facts and, without noticing that the
respondent-assessee had clubbed the production of the
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units, lancinated the orders passed by the forums
below.
17. Mr. Jain, learned counsel for the respondent has
drawn our attention to clause (f) of sub-rule (2) of Rule
28A which defines ‘eligible industrial unit’. The
definition reads as follows:-
“(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;
(III) is not availing incentive of interest free loan from the Industries Department for investment after the 1st day of April, 1988;
(IV) is not included in Schedule III appended to these rules except the tiny units set up in a rural area on or after 1-4-1992, in which capital investment in plant and machinery including market price of plant and machinery taken on base or otherwise, does not exceed rupees five lakhs, shall not form part of Schedule III;
(V) is not availing or has availed of exemption under Section 13 of the Act;
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(ii) a sick industrial unit recommended by the High Powered Committee for the grant of fiscal relief either in the form of exemption from the payment of sales tax or purchase tax or both or deferment of tax.”
18. He has laid immense emphasis on the term
‘expansion’ of the existing unit. The term
‘expansion’ has been defined in clause (d) of
sub-rule (2) of Rule 28A which reads thus:-
(d) "expansion/diversification of industrial unit" means a capacity set up or installed during the operative period which creates additional productions/manufacturing facilities for manufacture of the same product/products as of the existing unit (expansion) or different products (diversification) at the same or new location -
(i) in which the additional fixed -capital investment made during the operative period exceeds 25% of the fixed capital investment of the existing unit, and
(ii) which results into increase in annual production by 25% of the installed capacity of the Existing Unit in case of expansion.
On a careful reading of the aforesaid provisions, it is
quite clear as day that they deal with the eligibility to
get the benefit of exemption/deferment from the
payment of tax. On a studied scrutiny of clause (f) (i)
(I), it is manifest that it is incumbent on the unit to
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obtain certificate of registration under the Act. The
submission of Mr. Jain is that the second unit has
obtained the registration certificate under the Act and,
hence, the production of the said unit, being eligible, is
permitted to be included. Needless to say, obtainment
of registration certificate is a condition precedent to
become eligible but that does not mean that the
production of the said unit will be taken into account for
sustaining the benefit of the first unit. They are
independent of each other as far as sub-rule 11 of the
Rule 28A is concerned. We are disposed to think so as
the grant of exemption has a sacrosanct purpose. The
concept of exemption has been introduced for
development of industrial activity and it is granted for a
certain purpose to a unit for certain types of good.
Exemption can be granted under the Rules or under a
notification with certain conditions and also ensure
payment of taxes post the exemption period. The
concept of exemption is required to be tested on a
different anvil, for it grants freedom from liability. In
the case at hand, as we understand, it is ‘unit’ specific.
The term ‘unit’ has not been defined. The grant of
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exemption unit wise can be best understood by way of
example. An entrepreneur can get an exemption of a
unit and thereafter establish number of units and try to
club together the production of all of them to get the
benefit for all. It would be well nigh unacceptable, for
what is required is that each unit must meet the
condition to avail the benefit.
19. We will be failing in our duty if we do not address
to a submission, albeit the last straw, of Mr. Jain
that any provision relating to grant of exemption,
be it under a rule or notification, should be
considered liberally. In this regard, we may
profitably refer to the decision in Hansraj
Gordhanadas v. H.H. Dave, Assistant
Collector of Central Excise and Customs,
Surat and others2 wherein it has been held as
follows:-
“...It is well established that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. If the tax-payer is
2 AIR 1970 SC 755
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within the plain terms of the exemption it cannot be denied its benefit by calling in aid any supposed intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication therefrom, the matter is different...”
20. In Commissioner of Sales Tax v. Industrial
Coal Enterprises3, after referring to CIT v.
Straw Board Mfg. Co. Ltd4 and Bajaj Tempo
Ltd. v. CIT5, the Court ruled that an exemption
notification, as is well known, should be construed
liberally once it is found that the entrepreneur
fulfills all the eligibility criteria. In reading an
exemption notification, no condition should be
read into it when there is none. If an entrepreneur
is entitled to the benefit thereof, the same should
not be denied.
21. In this context, reference to Tamil Nadu
Electricity Board and Another v. Status
Spinning Mills Limited and another6 would be
fruitful. It has been held therein :-
3 (1999) 2 SCC 607 4 (1989) Supp (2) SCC 523 5 (1992) 3 SCC 78 6 (2008) 7 SCC 353
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“It may be true that the exemption notification should receive a strict construction as has been held by this Court in Novopan India Ltd. v. CCE and Customs7, but it is also true that once it is found that the industry is entitled to the benefit of exemption notification, it would received a broad construction. (See Tata Iron & Steel Co. Ltd. v. State of Jharkhand8 and A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala9). A notification granting exemption can be withdrawn in public interest. What would be the public interest would, however, depend upon the facts of each case.”
22. From the aforesaid authorities, it is clear as crystal
that a statutory rule or an exemption notification which
confers benefit to the assessee on certain conditions
should be liberally construed but the beneficiary should
fall within the ambit of the rule or notification and
further if there are conditions and violation thereof are
provided, then the concept of liberal construction would
not arise. Exemption being an exception has to be
respected regard being had to its nature and purpose.
There can be cases where liberal interpretation or
understanding would be permissible, but in the present
case, the rule position being clear, the same does not
arise.
7 1994 Supp (3) SCC 606 8 (2005) 4 SCC 272 9 (2007) 2 SCC 725
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23. At this juncture, it is apposite to refer to the
pronouncement in State of Haryana and others v.
A.S. Fuels Private Limited and another10. In the
said case, the State of Haryana had approached this
Court as the High Court had construed the effect of sub-
rule 10 (v) of Rule 28A of the Rules which authorises
the department to withdraw the tax exemption
certificate but had granted liberty to the State to
scrutinize if it was a case for withdrawal of the eligibility
certificate under sub-rule (8) of Rule 28A of the Rules
and, thereafter, to proceed in accordance with the law.
This Court, scanning the anatomy of Rule 28A, opined
that under sub-rule (8)(b), when the eligibility
certificate is withdrawn, the exemption/entitlement
certificate is also deemed to have been withdrawn from
the first day of its validity and the unit shall be liable to
payment of tax, interest or penalty under the Act as if
no entitlement certificate had ever been granted to it.
Thereafter, the Court adverted to sub-rule 11 (a) and, in
that context, it observed thus:-
10 (2008) 9 SCC 230
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“...there are several conditions which are relevant; firstly, there is a requirement of continuing the production for at least next five years; secondly, consequences flowing in case of violation of the conditions laid down in clause (a). In other words, in case of non continuance of production for next five years, the result is that it shall be deemed as if there was no tax exemption/entitlement available to it. The proviso permits to the dealers to explain satisfactorily to the DETC that the loss in production was because of the reasons beyond the control of the unit. The materials have to be placed in this regard by the party. The High Court seems to have completely lost sight of sub-rule (11)(b).”
24. In the case at hand, as we have already held,
clubbing is not permissible. It amounts to a
violation of the conditions stipulated under Rule
11(a)(i) of Rule 28A and, therefore, the
consequences have to follow and as a result, the
assessee has to pay the full amount of tax benefit
and interest. The approach of the High Court is
absolutely erroneous and it really cannot withstand
close scrutiny.
25. In view of our aforesaid analysis and prismatic
reasoning, the appeal is allowed and the judgment
and order passed by the High Court is set aside and
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those of the tribunal and other authorities are
restored. There shall be no order as to costs.
……………………………….J. [H.L. Dattu]
……………………………….J. [Dipak Misra]
……………………………….J. [S.A. Bobde]
New Delhi; January 20, 2014.
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