By TIOL News Service

NEW DELHI, FEB 21, 2014: THE respondent-assessee is a new industrial unit manufacturing cement situated within Panchayat Samiti, Pindwara, Rajasthan . It is an admitted fact that it started its commercial production on 27.05.1997. It is also not disputed that the respondent-assessee has fixed capital investment ("FCI") exceeding Rs.500 Crores and employs more than 250 employees.

The core issue arises out of the respondent-assessee's application for grant of eligibility certificate for exemption from payment of Central Sales Tax and Rajasthan Sales Tax to the State Level Screening Committee, Jaipur under the "Sales Tax New Incentive Scheme for Industries, 1989" ("the Scheme").

The Scheme for exemption from payment of sales tax was notified by the State of Rajasthan in exercise of its powers under sub- section( 2) of Section 4 of the Rajasthan Sales Tax Act, 1954. The scheme exempts certain industrial units from payment of tax on the sale of goods manufactured by them within the State. It specifies and categorizes the districts, types of units, the extent of exemption from tax (in percentage), the maximum exemption available in terms of percentage of fixed capital investment (FCI) and the maximum time limit for availing such exemption from tax . By introducing a deeming clause, the scheme is deemed to have come into operation with effect from 05.03.1987 and to remain in force upto 31.03.1992. An amendment to the aforesaid notification was brought in by issuing notification – S. No.763: F.4(35) FD/ Gr.IV/87-38, dated 06.07.1989 and was made operative/effective with effect from 05.03.1987 and to remain in force upto 31.03.1995. Yet another amendment was introduced by the State Government by issuing notification No.763: F.4( 35)FD/Gr.IV/87-38 dated 06.07.1989. Once again by introducing a deeming clause, the notification was made operative with effect from 05.03.1987 and to remain in force upto 31.03.1997. The State Government has issued another subsequent notification amending the earlier notification in exercise of its power under Section 4(2) of the Act in 763: F.4( 35)FD/Gr.IV/87-38, dated 06.07.1989 which is deemed to have come into operation with effect from 05.03.1987 and to remain in force upto 31.03.1998. Clause 1 of the scheme notification provides for its operation. Clause 2 is the dictionary clause which provides for meaning of the expressions like "New Industrial Unit", "Sick Industrial Unit", "Eligible Fixed Capital Investment" etc. For the purpose of this case, we require to notice the definitions of New Industrial Unit, Eligible Fixed Capital Investment, Prestigious Unit and Very Prestigious Unit.

Clause 2(a) defines the meaning of the expression ‘New Industrial Unit' to mean an industrial unit which commences commercial production during the operative period of the scheme. The definition provides an exclusion of certain industries from the purview of New Industrial Unit. They are industrial units established by transferring or shifting or dismantling an existing industry and an industrial unit established on the site of an existing unit manufacturing similar goods.

It is neither in dispute nor could be disputed by the revenue that the respondent is not a ‘New Industrial Unit'.

The respondent-assessee had applied to the State Level Screening Committee for claiming benefit of exemption at 75% under the Scheme. The Committee rejected the claim of the respondent-assessee and observed that since the respondent-assessee is a large scale unit covered under the specific provision of Item 1E of Annexure ‘C', it is entitled to 25% exemption, by its order dated 15.01.1998.

Being aggrieved by the said order, the respondent-assessee filed appeal before Rajasthan Tax Board, Ajmer in respect of the calculation of eligible FCI as well as the exemption under the Scheme. The Board while remanding the matter to the State Level Screening Committee held that the respondent-assessee is entitled to 75% tax exemption by holding the respondent-unit as Prestigious Unit under the Scheme.

The revenue being aggrieved by the decision of the Board, filed Tax Revision Petition before the High Court under Section 86(2) of the Act. The High Court dismissed the revision petition filed by the revenue and upheld the decision of the Board by holding that the respondent-unit is a Prestigious Unit and therefore, entitled to 75% tax exemption under the Scheme.

Aggrieved by the order so passed by the High Court, the Revenue is before the Supreme Court in this appeal.

The Supreme Court observed,

The facts which are not in dispute are that the respondent-assessee (‘the Company') established a new cement unit within Panchayat Samiti, Pindwara and commenced commercial production some time in the year 1997. It engaged itself in the manufacture of cement. The total capital investment – (FCI) in the new industrial unit claimed by the Company was Rupees 53252.87 Lakhs (Rs.532.52/- crores)

The Company had applied for grant of Eligibility Certificate for exemption from payment of Central Sales Tax and Rajasthan Sales Tax before the State Level Screening Committee, Jaipur, under the Scheme. However, the Screening Committee accepted only Rs.5553.72 Lakhs (Rs.55.32 crores) as FCI eligible for availing the benefits under the Scheme. On the aforesaid basis the State Level Screening Committee certified that the company is entitled to avail exemption of tax to the extent of 25% of the tax liability by treating the same to be a Large Scale Industry. In the appeal, the Board took the view since the Company had invested more than Rs.25 crores and has employed more than 250 workmen, it has the status of 'New Prestigious Unit' and thus, falls within the definition of a Prestigious Unit and should be governed by Item 4 of Annexure `C' being entitled to avail 75% of total tax liability. This view, is accepted by the High Court, while dismissing the tax revision petition filed by the revenue.

At the outset, we would observe that the High Court has erred in reaching its conclusion by holding that (a) the respondent-company would fall into all the three categories of industries referred to in the Scheme, that is to say it is a new unit which is a ‘Large Scale Unit', a "Prestigious New Unit" and also a "Very Prestigious Unit"; (b) the classification of a new unit, viz. small scale, medium scale and large scale under item 1E on the basis of scale of investment does not denude a new industrial unit of any type of the special status of "Pioneer", "Prestigious" and "Very Prestigious" unit under items 4 and 5 to also exclude operation of General entry; and (c) the special entry would not exclude the applicability of general entry in context of the Scheme so as to exclude the operation of items 4, 6 and 7. Thereby implying that though there exists an overlap between the general and special provision, the general provision would also be sustained and the two would co-exist.

Before we deal with the fact situation in the present appeal, we reiterate the settled legal position in law, that is, if in a Statutory Rule or Statutory Notification, there are two expressions used, one in General Terms and the other in special words, under the rules of interpretation, it has to be understood that the special words were not meant to be included in the general expression. Alternatively, it can be said that where a Statute contains both a General Provision as well as specific provision, the later must prevail.

In the instant case, the item 1E is subject specific provision introduced by an amendment in 1996 to the Scheme. The said amendment removed "new cement industries" from the non-eligible Annexure-B and placed it into Annexure-C amongst the eligible industries. It classified the cement units for eligibility of tax exemption into three categories: small, medium and large. The said categories are comprehensive whereby small and medium cement units have been prescribed to have maximum FCIs of Rs.60/- lakhs and Rs.5/- crores, respectively and large to be over the FCI of Rs.5/- crores. The maximum ceiling for large cement units has been purposefully left open and thereby reflects that the intention clearly is to provide for an all-inclusive provision for new cement units so as to avoid any ambiguity in determination of appropriate provision for applicability to new cement units to seek exemption.

It leaves no doubt that what is specific has to be seen in contradistinction with the other items/entries. The provision more specific than the other on the same subject would prevail. Here it is subject specific item and therefore as against items 1, 4, 6 and 7, which deal with units of all industries and not only cement, item 1E restricted to only cement units would be a specific and special entry and thus would override the general provision.

The proposition put forth by the respondent-Company that the construction which is most beneficial to the assessee must be applied and adopted fails to impress upon us its application in this case. Howsoever, it is true that the canons of construction must be applied to extract most beneficial re-conciliation of provisions. In case of fiscal statute dealing with exemption, it would require interpretation benefiting the assessee. But here the introduction of the subject specific entry vide amendment into general scheme of exemption speaks volumes in respect of intention of the legislature to restrict the benefit to cement industries as available only under Item 1E, which categorically classified them into three as per their FCI. The specific entries being mutually exclusive have been placed so systematically arranged and classified in the Scheme. The construction of provisions must not be divorced from the object of introduction of subject specific provision while retaining other generalized provision that now specifically exclude the new cement industries, which could otherwise fall into its ambit, lest such interpretation would be not ab absurdo (i.e., interpretation avoiding absurd results).

Therefore, in our considered view the respondent-Company would only be eligible for grant of exemption under Item 1E as a large new cement unit in accordance with its FCI being above Rs.5/- crores. In light of the aforesaid, we are of the considered opinion that the judgment and order passed by the High Court ought to be set aside and the appeals of the Revenue requires to be allowed.

In the result, the appeal is allowed and the judgment and order passed by the High Court is set aside.

(See 2014-TIOL-15-SC-CT)