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NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4231 OF 2006

EVEREADY INDUSTRIES INDIA LTD. .....APPELLANT(S)

VERSUS

STATE OF KARNATAKA .....RESPONDENT(S)

J U D G M E N T A.K. SIKRI, J.

The  appellant  herein  (earlier  known as  BPL Soft  Energy  

Systems Limited) has challenged the legality and validity of the  

order dated 12.01.2005 rendered by the High Court of Karnataka  

whereby three petitions of the appellant, after clubbing together,  

were heard and decided against it,  by the said common order.  

Those  petitions  were  preferred  under  Section  15A  of  the  

Karnataka Tax on Entry of Goods Act, 1979 (hereinafter referred  

to as the 'KST Act') against the order which was passed by the  

Karnataka Appellate Tribunal, Bangalore.  The necessity of filing  

three  petitions  arose  because  of  the  reason  that  three  

Assessment Years i.e. 1997-1998, 1998-1999 and 1999-2000 are  

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involved,  though the question raised in  all  these petitions was  

identical which pertains to the levy of entry tax under the KST Act.  

All  the  authorities  below  including  the  Karnataka  Appellate  

Tribunal took the view that the appellant is liable to pay the tax  

under the provisions of KST Act and is not entitled to exemption  

from  payment  of  entry  tax  on  raw  material  under  

Notification/Government  Order  No.CI.92.SPI.1997  dated  

25.06.1997.  The High Court has, vide the impugned judgment,  

affirmed the said view of the authorities below.   

2. Some of the seminal facts which require a mention to determine  

the lis, are recapitulated below:

2.1 The  appellant  is  a  company  incorporated  under  the  

provisions  of  the  Companies  Act,  1956.   It  is  also  a  dealer  

registered under the provisions of the KST Act.  The appellant is  

engaged in the manufacture of Dry Manganese Dioxide Batteries  

(DMD batteries).   It  has its manufacturing Unit  at Somanahalli,  

Maddur Taluk, which falls under  Zone-II of the notification dated  

23.06.1997 issued by the State Government.  Before establishing  

its  manufacturing  Unit  at  Somanahalli,  Maddur  Taluk,  the  

appellant-company  had  approached  the  State  Government  for  

grant of incentive and exemption under the provisions of the KST  

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Act and also under the provisions of the Karnataka Sales Tax Act,  

1957.  Pursuant to the request so made, the State Government  

had  issued  a  Notification/Government  Order  in  No.  

CI.92.SPI.1997 dated  25.06.1997  inter  alia  granting  exemption  

from payment of entry tax on raw materials and component parts  

for  a  period  of  six  years  from the  date  of  commencement  of  

commercial production.  In the Notification/Government Order, it  

was  made  clear  that  the  appellant-company  should  make  an  

investment of a sum of Rs.111 crores, to claim benefit under the  

notification dated 25.06.1997.  After obtaining the said exemption  

from the State Government, the appellant-company established  

its  manufacturing  Unit  at  Somanahalli,  Maddur  Taluk.   But  for  

various  reasons,  the  appellant-company  could  not  make  

investment of a sum of Rs. 111 crores, as envisaged under the  

notification dated 25.06.1997.  Therefore, the appellant-company  

was  ineligible  to  claim  the  “Tax  Holiday”  under  the  aforesaid  

notification.   

2.2 For the Assessment Year 1997-1998, initially, the Assessing  

Authority had passed an order under the provisions of the Entry  

Tax Act,  granting exemption from payment of  entry tax on raw  

materials, components and machinery parts brought into thelocal  

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area (Somanahalli) for use in the manufacture of DMD batteries.  

Subsequently, the Assessing Authority had initiated reassessment  

proceedings and had passed the order and in  that,  has levied  

entry  tax  on  the  causing  of  entry  of  raw  materials  and  

components into the local area, on the ground that the appellant-

company could not have availed tax exemption, since it did not  

fulfill  the  primary  condition  stipulated  in  the  notification  dated  

25.06.1997 and it was also held by the Assessing Authority that  

since Government Order/Notification dated 25.06.1997 had been  

specifically issued granting entry tax exemption to the appellant-

company  subject  to  fulfilling  certain  conditions,  the  appellant-

company is ineligible to seek exemption under general notification  

No. FD.11.CET.93(3) dated 31.03.1993.  The Assessing Authority  

while framing the reassessment order under Section 6 of the Act,  

had also levied penalty under Section 6(2) of the KST Act.   

2.3 Aggrieved  by  the  aforesaid  order  passed  by  the  

Assessing Authority, the assessee had preferred the first appeal  

before the Deputy Commissioner of Commercial Taxes (Appeals)  

in KTEG.AP.25/02-03.  The First Appellate Authority by his order  

dated  18.03.2003  had  partly  allowed  the  appeal  filed  by  the  

assessee.

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2.4 For the Assessment Years 1998-1999 and 1999-2000,  

the Assessing Authority  had also passed reassessment  orders  

under Section 6(1) of the KST Act and also had levied penalty  

under Section 6(2) of the KST Act.  Aggrieved by the said order,  

the  assessee had filed  first  appeals  before  the  First  Appellate  

Authority  in  Appeal  Nos.KTEG.AP.24/02-03  (1998-1999)  and  

25/02-03 (1999-2000),  who by his order dated 20.01.2003 had  

rejected the appeals so filed.

2.5 The assessee aggrieved by the orders passed by the  

Assessing Authority under Sections 6(1) and 6(2) of the KST Act  

had also under Section 5(5) of the KST Act for the Assessment  

Years  1997-1998  and 1999-2000 had  filed  appeals  before  the  

Karnataka Appellate Tribunal and they were registered as STA  

Nos.  571/2001,  709,  329  and  330/2003.   The  Tribunal  by  its  

common order dated 23.01.2004 had allowed STA No. 571/2001  

and had partly allowed STA No. 709/2003 and had rejected STA  

Nos.  329 and 330/2003 for  the  Assessment  Years  1997-1998,  

1998-1999  and  2000-2001.   In  its  order,  the  Tribunal  has  

concluded  that  the  assessee  is  not  entitled  to  benefit  of  the  

Notification No.FD.11.CET.93(III)  dated  31.03.1993;  insertion of  

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clause  (g)  to  the  explanation  to  KST  Notification  No.  

FD.239.CSL.90(I) dated 31.03.1993; no penalty can be imposed  

under Section 5(5) of the KST Act on the assessee company for  

the relevant Assessment Years.

3. Not  satisfied  with  the  aforesaid  outcome,  the  appellant  filed  

revision petitions under Section 15A of the KST Act before the  

High Court which has dismissed all the three petitions. Though,  

various arguments have been discussed by the High Court in the  

impugned judgment, a perusal of the judgment of the High Court  

would  reflect  that  these  arguments  were  advanced  by  the  

appellant to contend that it was not liable to pay entry tax under  

the  Entry  Tax  Act  and  was  entitled  to  exemption  in  terms  of  

general  Notification  dated  31.03.1993.   The  High  Court  has  

rejected the plea by holding that due to amendment of notification  

dated 19.06.1991 by notification dated 31.03.1993, the appellant  

was excluded from getting the benefit of general Notification.  In  

this behalf, it has concluded that subsequent insertion of clause  

(g)  to  Explanation  III  of  notification  dated  19.06.1991  was  

applicable to the general exemption issued under Section 11-A of  

Entry Tax Act.   While  so holding,  the High Court  has made a  

distinction  between  legislation  by  reference  and  legislation  by  

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incorporation and has held that in case of legislation by reference  

of  subsequent  amendments  to  the  legislation  referred  to  will  

become  applicable  whereas  in  case  of  legislation  by  

incorporation, subsequent amendments to the legislation referred  

to do not apply.  As per the High Court, in the present case, there  

was  legislation  by  reference  and  not  by  incorporation  and,  

therefore,  the  newly  inserted  clause  (g)  to  Notification  dated  

19.06.1991  would  be  applicable  while  implementing  general  

exemption notification dated 31.03.1993.  The aforesaid principle  

stated by the High Court in the impugned judgment was severely  

criticised and attacked by the learned counsel for the appellant on  

the  ground  that  in  the  present  case  there  was  legislation  by  

incorporation and not by reference.  However, we feel that it may  

not even be necessary to go into this aspect, having regard to the  

discussion that follows hereinafter.

4. As pointed out above, the order dated 25.06.1997 was passed  

granting exemption to the appellant from payment of entry tax on  

raw materials and component parts for a period of six years from  

the date of commencement of commercial products.  However, it  

was subject to the condition that the appellant should make an  

investment in the sum of Rs.111 crores in order to enable itself to  

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claim the benefit of the aforesaid notification.  It is an admitted  

fact that due to certain reasons, the appellant could not fulfill this  

condition  as  it  did  not  invest  Rs.111  crores  in  the  project,  as  

envisaged in the notification dated 25.06.1997. Therefore, insofar  

as  exemption  notification  dated  25.06.1997  which  was  issued  

specifically in the case of the appellant, the appellant cannot be  

held  entitled  to  the  benefit  thereof  as  it  failed  to  fulfill  the  

conditions.   

5. The appellant,  however,  still  claims the exemption by virtue of  

general Notification dated 31.03.1993 issued under the Entry Tax  

Act.  This notification was issued under Section 11A of the Entry  

Tax  Act.   Vide  this  notification,  the  Government  of  Karnataka  

exempted the tax payable under the Entry Tax Act on the entry of  

raw materials, component parts and inputs and machinery and its  

parts into a local area for use in the manufacture of an immediate  

or finished product by the new industrial units.  This notification  

contains a 'Table' which enlists type of industries and location of  

industries which are entitled to exemption as well as the period of  

exemption.  It is not in dispute that the appellant industry stands  

covered by one such category of industry the description whereof  

is given in the notification.  It is also located at a place which is  

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stipulated in the said notification.  However, the exemption was  

available to the new Industrial Units.  The question arises as to  

whether the appellant falls within the ambit of “new industrial unit”  

as defined therein.  Explanation in the notification defines “a new  

industrial unit” which reads as under:

“Explanation  –  (1)   For  the  purpose  of  this  notification “a new industrial unit” shall have the  same  meaning  assigned  to  it  in  Notification  No.FD 239 CSL 90(1),  dated  19th  June,  1991  issued under Section 8-A of the Karnataka Sales  Tax Act, 1957.

(2) The provisions of this notification shall not  apply  to  a  unit  to  which  the  provisions  of  Notification  No.FD  239  CSL 90(I),  dated  19th  June  1991  issued  under  section  8-A  of  the  Karnataka Sales Tax Act, 1957 shall not apply.

(3) The procedure specified in Notification No.  FD 239 CSL 90(I) dated 19th June 1991 issued  under  Section  8-A of  the  Karnataka  Sales  Tax  Act,  1957  for  claiming  exemption  under  that  notification  shall  mutatis  mutandis apply  to  a  industrial  unit  claiming  exemption  under  notification.”

6. Reading of the aforesaid definition clearly suggests that “a new  

industrial unit” is given the same meaning which is assigned in  

the notification dated 19.06.1991.  For this purpose, one needs to  

look into the meaning that is given to “a new industrial unit” in the  

notification dated 21.06.1991.  A scan through the said notification  

leads us to the definition given to a “new industrial  unit”.   We  

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reproduce this Explanation in its entirety:

“Explanation  I.  –  (a)  For  the  purpose  of  this  Notification;

(i) A  “Tiny  Industrial  Unit”  or  “Small  Scale  Industrial Unit” or “Medium Scale Industrial Unit”  or  “Large  Scale  Industrial  Unit”  means  a  unit  which is registered as such with the Director of  Industries  and  Commerce  or  the  Ministry  of  Industries, Government of India.

(ii)  A Khadi and Village Industrial Unit as defined  under the Karnataka Khadi & Village Industries  Act, 1956 from time to time. [See Note 3]

(b)   “A New Industrial  Unit”  means  any  of  the  units described in Clause (a) above, which are  certified to be eligible for  exemption under this  Notification,  by  the  authorities  mentioned  in  Clauses  (a)  and  (b)  of  Para  (1)  under  “Procedure” below.”

7. In  order  to  qualify  to  be “A New Industrial  Unit”,  the  following  

conditions need to be fulfilled:

(i)   It  has  to  be  either  a  Tiny  Industrial  Unit  or  Small  Scale  

Industrial  Unit  or  Medium Scale  Industrial  Unit  or  Large Scale  

Industrial  Unit  of  the  type  of  industries  mentioned  in  Table  

contained in notification dated 21.06.1991 or else it has to be a  

Khadi or Village Industrial Units as defined under the Karnataka  

Khadi & Village Industries Act, 1956.  (We are not concerned with  

this later category in the present case.)

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(ii)   Such  a  Unit  has  to  be  registered  with  the  Director  of  

Industries  and  Commerce  or  the  Ministry  of  Industries,  

Government of India.

(iii)  Such a Unit has to be certified to be eligible for exemption  

under the said notification by the authorities mentioned therein.

8. What is significant for our purposes is that such a Unit has to be  

certified to be eligible for exemption under the notification dated  

21.06.1991.  That is an essential  requirement for a Unit  to fall  

within  the  definition  of  “A  New  Industrial  Unit”  under  the  

notification dated 31.03.1993 as it is assigned the same meaning  

as contained in  the notification dated 21.06.1991.   Notification  

dated 31.03.1993 further makes it clear that this notification is not  

to apply to a Unit to which notification dated 19.06.1991 does not  

apply.  So much so, the procedure prescribed in the notification  

dated 19.06.1991 for claiming exemption is also made applicable  

to the Industrial  Units seeking exemption under the notification  

dated 31.03.1993.  In the instant case, it  was admitted by the  

appellant itself that the Department of Industries and Commerce  

issued eligibility certificate in terms of industrial policy G.O. No. CI  

30 SPC 96 dated 15.03.1996 and notification dated 15.11.1996  

issued  under  Section  19-C  of  the  KST  Act.  Such  eligibility  

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certificate would not be of any consequence in as much as, in  

order to get the benefit of the notification dated 31.03.1993, the  

appellant was required to get certification under the notification  

dated 19.06.1991.  Obviously, therefore, the appellant does not  

fulfill the requirement of the notification dated 31.03.1993 as well.

9. It is trite that exemption notifications require strict interpretation. In  

order to get benefit of any exemption notification, assessee has to  

satisfy that it fulfills all the conditions contained in the notification  

This  is  so  held  by  this  Court  in  Rajasthan  Spinning  and  

Weaving  Mills,  Bhilwara,  Rajasthan  v.  Collector  of  Central   

Excise, Jaipur, Rajasthan1, wherein this principle was stated in  

the following manner:

“16.   Lastly,  it  is  for  the assessee to establish  that the goods manufactured by him come within  the ambit of the exemption notification. Since, it  is  a  case of  exemption  from duty,  there  is  no  question of any liberal construction to extent the  term and the scope of the exemption notification.  Such  exemption  notification  must  be  strictly  construed and the assessee should bring himself  squarely within the ambit of the notification. No  extended meaning can be given to the exempted  item to enlarge the scope of exemption granted  by the notification.”  

10. In  Novopan India Ltd.  v.  CCE and Customs2,  this Court held  

1 (1995) 4 SCC 473 2 1994 Supp. (3) SCC 606

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that a person, invoking an exception or exemption provisions, to  

relieve him of tax liability must establish clearly that he is covered  

by the said provisions and,  in  case of  doubt  or  ambiguity,  the  

benefit of it must go to the State.  A Constitution Bench of this  

Court in  Hansraj Gordhandas v.  CCE and Customs3 held that  

(Novopan India Ltd. Case, SCC p. 614, para 16):

“16...such a notification has to be interpreted in  the light of the words employed by it and not on  any other basis. This was so held in the context  of the principle that in a taxing statute, there is  no room for any intendment,  that regard must  be had to the clear meaning of the words and  that  the matter  should  be governed wholly  by  the language of the notification, i.e., by the plain  terms of the exemption.”

11. It is a different matter that once the conditions contained in the  

exemption  notification  are  satisfied  and  the  assessee  gets  

covered by the exemption notification, for the purpose of giving  

benefit notification has to be construed liberally.  However, in the  

present  case,  the  appellant  has  not  been  able  to  cross  the  

threshold and to find entry under notification dated 31.03.1993 for  

the reasons mentioned above. Therefore, we have no option but  

to hold that the appellant was not entitled to exemption from entry  

tax.   

3 (1969) 2 SCR 253 : AIR 1970 SC 755

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12. We,  therefore,  agree  with  the  conclusions  contained  in  the  

impugned  order   and  dismiss  the  instant   appeal   finding  

no merit therein.  There shall be no order as to costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI APRIL 13, 2016.

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