Supreme Court of India
BHAI JASPAL SINGH AND ANR.versusASSISTANT COMMISSIONER OF COMMERCIAL TAXES AND ORS.
- Citation
- 2010 INSC 722
- Decided
- 22 October 2010
- Disposal
- Dismissed
- Bench
- D K JAIN
Holding
"Investment" means the cost price/purchase price of plant and machinery, not its depreciated value, so the appellant’s investment exceeded Rs.5 lakhs and no exemption was available; interest accrues from the date of default as per Sections 10A and 31.
Summary
The appellant, a small‑scale fruit‑processing unit, claimed exemption from West Bengal sales tax on the basis of Notification No. 1428‑FT dated 26‑May‑1994, asserting that its investment in plant and machinery was below Rs.5 lakhs after accounting for depreciation. The assessing authority held that the investment exceeded the limit, disallowed the exemption and levied interest under Sections 10A of the 1941 Act and 31 of the 1994 Act. The Supreme Court examined the meaning of "investment" in the notification, the proper construction of exemption provisions, and the point from which interest becomes payable. It held that "investment" refers to the cost or purchase price of plant and machinery, not its depreciated value, and therefore the appellant’s investment was above Rs.5 lakhs, rendering it ineligible for exemption. The Court also clarified that interest on unpaid tax accrues from the date of default as prescribed in the statutes, irrespective of a demand notice. Consequently, the appeal was dismissed.
Issues considered
- The meaning of "investment" in the West Bengal sales‑tax exemption notification – whether depreciation should be taken into account.
- The proper construction of the exemption notification and whether liberal interpretation is permissible.
- The point at which interest on unpaid sales tax becomes payable – whether only after tax quantification and demand notice or from the date of default under the statutes.
Legislation cited
Subjects
sales taxexemptioninvestment definitiondepreciationstatutory constructioninterest on taxWest Bengalsmall scale industrial unit
Judgment
[2010) 14 (ADDL.) S.C.R. 41
BHAI JASPAL SINGH AND ANR. A
v.
ASSISTANT COMMISSIONER OF COMMERCIAL TAXES
AND ORS.
(Civil Appeal No. 4277 of 2002)
B
OCTOBER 22, 2010
[D.K. JAIN AND H.L. DATIU, JJ.]
Sa/es Tax:
c
West Bengal Sa/es Tax Act, 1954 - s.4AA - Exemption
Notification no. 1428-F. T. dated 26-5-1994 - Notification
providing for exemption from tax on sale of fruit juices and
concentrates manufactured in small scale industrial units
where "investment" in plant and machinery of such units did D
not exceed Rs.5 lakhs - Whether expression "investment" to
be understood as investment made by a small scale
industrial unit after depreciation on plant and machinery -
Held: "Investment" must be understood according to its
common business and commercial usage - Expression E
"investment" not subject to impact of depreciation in the value
of plant and machinery - In computing the valuation of plant
and machinery, only the cost price/purcha.se price of the
equipment invested by the assessee is to be taken into
account - On facts, assessee not entitled to exemption from
payment of sales tax as its investment was more than Rs.5 F
lakhs before the periods in question which remained
unchanged - West Bengal Sa/es Tax Rules,, 1995 - r.41 _..
Bengal Sa/es Tax Rules, 1941 - r.3(116).
West Bengal Sa/es Tax Act, 1954 - s.4AA - Exemption G
Notification no. 1428-F. T. dated 26-5-1994 - Exemption
Notification - Construction and interpretation of - Held:
Meaning of the words given in the exemption notification is
to be gathered from the language employed in the notification
41 H
42 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A - No requirement of liberal construction where the notification
does not apply to the assessee in the first place.
West Bengal Sa/es Tax Act, 1994 - s.31 - Bengal
(Finance) Sales Tax Act, 1941 - s.10A - Interest on default
of tax - Date from which payable - Difference between interest
B
and penalty - Held: Interest is compensatory in character and
is imposed on an assessee who has withheld payment of any
tax as and when it is due and payable - It is different from
penalty which is penal in character - Where tax due on the
basis of quarterly return is not paid before the expiry of the
c last date of filing of such return under the Act, it is not
necessary to issue any notice of demand but on the default
being committed by the dealer, he becomes liable to pay
interest on the amount of such tax from the last date of filing
of the return prescribed under the Act.
D
The assessee, a small scale industrial unit engaged
in manufacturing juice, jelly, jam etc., was registered as
a dealer under the Bengal Finance (Sales Tax) Act, 1941,
the West Bengal Sales Tax Act, 1954, and was later
E registered under the West Beilgal Sales Tax Act, 1994.
The assessee filed returns for the assessment periods
01.04.1995 to 30.04.1995 and 01.05.1995 to 31.03.1996 and
claimed exemption from payment of sales tax mainly
relying on the exemption notification issued by the State
F Government bearing No. 1428-F.T. dated 26.05.1994 and
Rule 41 of West Bengal Sales Tax Rules, 1995. According
to the assessee, its investment in plant and machinery
in its unit during the period from 01.04.1995 to 30.04.1995
and from 01.05.1995 to 31.03.1996 was less than Rs. 5
lakhs and accordingly, it was entitled to get the tax
G
exemption under Rule 3(116) of the Bengal Sales Tax
Rules, 1941 for the first period and by virtue of the
notification dated 26.05.1994 and Rule 41 of the 1995
Rules for the second period. The Asst. Commissioner of
Commercial Taxes disallowed the assessee's claim for
H
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 43
OF COMMERCIAL TAXES
exemption from payment of sales tax for both the periods A
and also levied interest as provided under Section 10A
of the Act, 1941 and Section 31 of the Act, 1994. He held
that the benefit of exemption from payment of sales tax
could not be granted since the assessee did not fulfill all
the conditions prescribed in the notification granting B
exemption from payment of sales tax and also the
conditions specified in Rule 41 of the 1995 Rules. The
Assessing Officer took the book value of the plant and
machinery as on 31st March, 1980 at Rs. 2,27,148.78/- and
after the addition made from 1981 to 1986-1987, took the c
value of investment of plant and machinery for the
assessment year 01.05.1995 to 31st March, 1996 as
Rs.6,58,587/- for the purpose of assessment under the
Act 1994 along with an assessment for the broken period
between 01.04.1995 to 30.04.1995. In appeal, the D
assessment order was confirmed by the Deputy
Commissioner. The assessee filed second appeal before
the West Bengal Sales Tax Tribunal. The Tribunal
confirmed the order passed by the first appellate
authority. The High Court confirmed the order passed by E
the Tribunal in exercise of its writ jurisdiction.
In the instant appeal, the assessee contended that
the term "investment" used in the Notification refers to
the actual value of the machinery after allowing
depreciation as distinct from the cost of acquisition of F
such machinery. Alternatively, the assessee submitted
that though the initial value of the plant and machinery
was more than Rs.5 lakhs, on account of successive
yearly depreciation in their value, the total value of plant
and machinery was less than Rs.5 lakhs during the G
relevant assessment periods and, therefore, appellant's
small scale industrial unit is eligible for exemption from
payment of tax in view of the notification issued by the
State Govt. and also under the Rules. The assessee
H
44 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A further contended that the purport and intent of the
Notification would be frustrated if such liberal
construction is not taken, and if costs of repairing,
overhauling and minor modification were included in
investment on cost of plant and machinery, naturally the
B investment made in plant and machinery would go
beyond the prescribed limit and that cannot be the
intention of the State Government while issuing
notification granting exemption to small scale industrial
units. The assessee also submitted that a liberal
c construction should be adopted while interpreting the
exemption notification as the purpose is to encourage
small scale industrial units. The assessee also contended
that the interest payable on tax due became payable only
on quantification of amount of tax by way of assessment
and service of demand notice and not for the period prior
0
to that.
Dismissing the appeal, the Court
HELD: 1.1. In common parlance, the term
E "investment" has been defined as "a thing worth buying
because it may be profitable or useful in the future" For
the purpose of the Rules and the notification,
"investment" must be understood according to its
common business and commercial usage. While an exact
F definition to suit all requirements will not be appropriate,
but it may be said that investment in general would be
spending money for the purpose of acquiring property
or commodities that in turn generate further income.
[Paras 14, 18) [57-G; 58-H; 59-A]
G 1.2. In the Notification issued by the State
Government and the Rules framed, the requirement is that
the investment made by the dealer in plant and machinery
in the Small Scale Industrial Unit should be less than Rs.5
lakhs. It is obvious that money spent on upgrading or
H
l.
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 45
OF COMMERCIAL TAXES
replacing the machinery is investment that would A
increase the productivity of the machinery and,
consequently, generate further income. It would thus be
equivalent to acquiring of commodities that generate
further income. Furthermore, there is no question of
reducing depreciation value, as the determination is of the B
total money spent or "invested" in plant or machinery,
and the same cannot be said to include the value of the
machinery after depreciation. A reading of the Rule or the
notification would not even suggest that while
calculating the value of plant and machinery, depreciation c
of those equipments will have to be taken into
consideration in computing the valuation of the plant and
machinery. In computing the valuation of plant and
machinery, only the cost price/purchase price of the
equipments invested by the assessee will have to be D
taken into account. The expression "investment" in plant
and machinery is not subject to the impact of depreciation
in the value of plant and machinery. Since the assessee's
investment is more than Rs. 5 lakhs before the periods
in question and since the investment continues to remain
E
unchanged, the assessee is not entitled to exemption
from payment of sales tax either under the Rules or under
the notification. [Para 19] [59-B-F]
Commissioner of Income Tax, Lucknow v. Uttar Pradesh
Cooperative Federation Ltd, AIR 1989 SC 915 - referred to. F
Inland Revenue Commissioners v. Desoutter Brothers
Ltd, (1946) ·1 All ER 58 (CA) and Inland Revenue
Commissioners v. Broadway Car Co. (Wimbledon) Ltd., [1946]
2 All E.R. 609 - referred to. G
Oxford English Dictionary, 11th egition, 2004;
Bloomsbury English Dictionary, Reprint 1985 and Ramanatha
Aiyar's Law Lexicon (Reprint Edition 1987 - referred to.
H
46 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A 2.1. The conditions for availing exemptions are
generally laid down in the notifications granting
exemptions. Sometimes, exemptions are grafted in the
Rules framed in this behalf. The "provisions" providing
for an exemption may be properly construed strictly
B against the person who makes the claim of an exemption.
In other words, before an exemption can be recognized,
the person or property claimed to be exempted must
come clearly within the language apparently granting the
exemption. The principle to be kept in view while
c interpreting exemption notification is that the meaning of
the words given in the exemption notification is to be
gathered from the language employed in the notification.
Notification by which exemption or other benefits are
provided by the Govt. in exercise of its statutory powers
D normally have some purpose. Such purpose is not to be
defeated nor those who may be entitled for it are to be
deprived by interpreting the notification which may give
it some meaning other than what is clearly and plainly
flowing from it. [Para 21) [59-H; 60-A-D]
E 2.2. The preamble of the Notification in the instant
case states, that "whereas the Governor is of opinion that
industrial unit is manufacturing certain goods in West
Bengal which are in need of financial assistance and
accordingly it is necessary to formulate a scheme of
F industrial promotion to assist such unit for the purposes
mentioned hereinabove". Clearly, the purpose of this
notification is to promote industrial activity and
development in the State of West Bengal. However, it is
a necessary pre-condition that first the assessee should
G fall within the clear wording of the notification. The
assessee in this matter falls outside the parameters of
this Notification, since his investment is over Rs.5 lakhs
and, therefore, there is no question of the Notification
applying to him. Thus, there is no requirement of liberal
H
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 47
OF COMMERCIAL TAXES
construction as the notification does not apply to the A
assessee in the first place. [Para 26] [62-B-D]
Novopan India Ltd., Hyderabad v. Collector of Central
Excise and Customs, Hyderabad, 1994 Supp (3) SCC 606;
Tata Iron and Steel Co. Ltd. v. State of Jharkhand, (2005) 4
SCC 272; A.P. Steel Re-Rolling Mills Ltd. v. State of Kera/a, B
(2007) 2 SCC 725; G.P. Ceramics Pvt. Ltd. v. Commissioner,
Trade Tax, UP. (2009) 2 SCC 90 - referred to.
Crawford's Statutory Construction - referred to.
c
3.1. From a reading of Section 10-A of the Act, 1941
and Section 31 of the Act, 1994, it is clear that there has
been a legislative amendment incorporating statutory
provision for payment of interest even before
quantification of tax liability and service of demand notice 0
pursuant to such quantification. [Para 28) [62-F-G]
3.2. Interest is compensatory in character and is
imposed on an assessee who has withheld payment of
any tax as and when it is due and payable. The interest
is levied on the actual amount of tax withheld and the E
extent of delay in paying the tax on the due date.
Essentially, it is compensatory and different from penalty
which is penal in character [Para 30] [66-D-E]
3.3. In the instant case, it is not in dispute that the F
amount of tax due on the basis of the return ·furnished
by the assessee has not been paid before the expiry of
the last date of filing of such return required by Section
1OA of the Act, 1941 and Section 31 of the Act, 19.~4.
These sections provide that where tax due on the basis G
of the return has not been paid before the expiry of the
last date of filing of such return, provision of sub-sectiqn
(2) shall apply to the recovery of such demand for the
amount of tax due. Sub-section (2) states that if the tax
H
48 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A or any other amount due under the Act is not paid by the
dealer or any other person by whom it is payable within
the period specified in the demand notice, it shall be liable
to pay interest on the tax or other amount which was
payable at the rate specified in that sub-section. The
B submission made by the assessee that interest on tax
can be charged only after quantification of tax liability (by
the Assessing Officer) and after service of demand notice,
as provided under the Act is not complied with, goes
contrary to the statutory provision provided under
c Section 10A of the Act, 1941 and Section 31 of the Act,
1994. The Section provides that tax due on the basis of
the returns shall be paid before the expiry of the last date
of filing of such return. Therefore, under Sub-Section (1 ),
the assessee would be liable to pay interest on the
amount of such tax from the date when it was payable,
0
i.e. from the expiry of the last date of filing of returns
under the Act. This Section specifically refers to notice
of demand but obviously relates to sub-section (1) where
notice of demand is required to be issued after the
assessment of tax is completed and the amount of the
E tax assessed becomes due only after the issue of notice
of demand as provided in sub-section (1) but there is no
requirement in the case of payment of tax due on the
basis of quarterly return to be filed by the dealer. It is
solely governed by sub-section (3): where the tax due on
F the basis of quarterly return is not paid before the expiry
of the last date of filing of such return under the Act, it is
not necessary to issue any notice of demand but on the
default being committed by the dealer, he becomes liable
to pay interest under sub-section (2) on the amount of
G such tax from the last date of filing quarterly returns
prescribed under the Act. In the instant case, it is the
admitted position that tax due on the basis of quarterly
return was not paid as required by sub-section (3) and
the appellant was, therefore, liable to pay interest on the
H
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 49
I
OF COMMERCIAL TAXES
amount of tax in respe..;t of which default was committed A
at the rate prescribed in sub-section (2) from the last date
prescribed for filing quarterly return under the Act upto
the date of payment. [Para 30] [66-F-H; 67-A-F]
Pratibha Processors and Ors. v. Union of India and Ors. B
AIR 1997 SC 138 - relied on.
Case Law Reference:
AIR 1989 SC 915 referred to Para 15
(1946) 1 All ER 58 (CA) referred to Para 16 C
(1946) 2 All E.R. 609 referred to Para 17
1994 Supp (3) SCC 606 referred to Para 22
(2005) 4 sec 212 referred to Para 23 o
c2001) 2 sec 125 referred to Para 24
(2009) 2 sec 90 referred to Para 25
AIR 1997 SC 138 relied on Para 30
E
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4277 Of 2002.
From the Judgment & Order dated 14.9.2001 of the High
Court at Calcutta in WPTT. No. 102 of 2000.
F
A.K. Ganguli, Sanjay Sen, Rana B. Biswas, Anurag
Sharma, Hemant Singh, Mridul Charavorty, Indra Sawhney for
the Appellants.
M. Chandrasekharn, Tara Chandra Sharma, Neelam G
Sharma for the Respondents.
The Judgment of the Court was delivered by
H.L. DATTU, J. 1. This appeal is directed against the
H
50 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A Judgment and Order passed by the High Court of Calcutta in
W.P.T.T. No. 102 of 2000 dated 14.09.2001.
2. The issues which require our consideration and decision
in this appeal are: the meaning of the expression 'Investment'
B for the purpose of notification issued by the State of West
Bengal under West Bengal Sales Tax Act and the
corresponding Rules; the construction and interpretation of an
exemption notification; and whether the interest is payable on
tax only on quantification of tax by way of assessment under
the Act or for any period prior to that.
c
3. The material facts are :-
The assessee is M/s Tulip Products Co., a partnership firm
having a fruit processing unit at 37, lmjad Ali Lane, Calcutta. It
0 is a small scale industrial unit. The Unit is engaged in
manufacturing juice, jelly, jam etc. The unit was registered as
a dealer under the Bengal Finance (Sales Tax) Act, 1941
(hereinafter to be referred as "the Act, 1941 "), the West Bengal
Sales Tax Act, 1954 (hereinafter to be referred as "the Act,
E 1954"), and was later registered under the West Bengal Sales
Tax Act, 1994 (hereinafter to be referred as "the Act, 1994").
4. The relevant assessment periods are 01.04.1995 to
30.04.1995 and 01.05.1995 to 31.03.1996. In the returns filed
for the aforesaid period, the assessee claimed exemption from
F payment of sales tax mainly relying on the exemption
notification issued by the State Government bearing No. 1428-
F.T. dated 26.05.1994 and Rule 41 of West Bengal Sales Tax
Rules, 1995 (hereinafter to be referred as "the 1995 Rules").
According to the assessee, its investment in plant and
G machinery in its unit during the period from 01.04.1995 to
30.04.1995 and from 01.05.1995 to 31.03.1996 was less than
'5 lakhs and accordingly, it was entitled to get the tax exemption
under Rule 3(116) of the Bengal Sales Tax Rules, 1941
(hereinafter to be referred as "the 1941 Rules") for the first
H period and by virtue of the notification dated 26.05.1994 and
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 51
OF COMMERCIAL TAXES [H.L. DATTU, J.]
Rule 41 of the 1995 Rules for the second period. The Asst. A
Commissioner of Commercial Taxes passed an order of
assessment for both the periods disallowing the assessee's
claim for exemption from payment of sales tax and also levied
interest as provided under Section 1OA of the Act, 1941 and
Section 31 of the Act, 1994. In the view of the Tax Officer, the B
benefit of exemption from payment of sales tax cannot be
granted since the assessee does not fulfill all the conditions
prescribed in the notification granting exemption from payment
of sales tax and also the conditions specified in Rule 41 of the
1995 Rules. The Assessing Officer took the book value of the C
plant and machinery as on 31st March, 1980 at '2,27,148.78/
- and after the addition made from 1981 to 1986-1987, took
the value of investment of plant and machinery for the
assessment year 01.05.1995 to 31st March, 1996 as
'6,58,587/- for the purpose of assessment under the Act 1994
0
along with an assessment for the broken period between
01.04.1995 to 30.04.1995.
In appeal, the assessment order passed by the Tax Officer
was confirmed by the Deputy Commissioner, Commercial
Taxes. The assessee filed Second Appeal before the West E
Bengal Sales Tax Tribunal. The Tribunal has confirmed the
order passed by the First Appellate Authority. In the writ petition
filed, the High Court of Calcutta confirmed the order passed
by the Tribunal in exercise of its writ jurisdiction.
F
5. The learned senior counsel Sri A. K. Ganguli for the
assessee submits that the term "investment" used in the
Notification refers to the actual value of the machinery after
allowing depreciation as distinct from the cost of acquisition
of such machinery. Alternatively, it is submitted that though the G
initial value of the plant and machinery was more than '5 lakhs,
on account of successive yearly depreciation in their value, the
total value of plant and machinery was less than '5 lakhs during
the relevant assessment periods and, therefore, appellant's
Small Scale Industrial Unit is eligible for exemption from Q
payment of tax in view of the notification issued by the State H
52 SUPREME COURT REPORTS (2010) 14 (ADDL.) S.C.R.
A Govt. and also under the Rules. The learned senior counsel
would further contend that the purport and intent of the
Notification would be frustrated if such liberal construction is not
taken, and if costs of repairing, overhauling and minor
modification were included in investment on cost of plant and
B machinery, naturally the investment made in plant and machinery
would go beyond the prescribed limit and that cannot be the
intention of the State Government while issuing notification
granting exemption to Small Scale Industrial Units. He also
submitted that a liberal construction should be adopted while
C interpreting the exemption notification as the purpose is to
encourage Small Scale Industrial Units. It is also contended by
the learned counsel that the interest payable on tax due shall
become payable only on quantification of amount of tax by way
of assessment and service of demand notice and not for the
period prior to that.
0
6. The learned senior counsel Sri. M. Chandrasekharan for
the respondent ably justifies the impugned Judgment. The
learned senior counsel submits that in considering the
"investment" in plant and machinery of an industrial unit for the
E purpose of the notification and also the Rules, the depreciation
in the value of such plant and machinery cannot be taken into
account. It is also contended that the liability to pay interest
under the Act automatically arises, if a dealer fails to pay any
amount of tax due under the Act.
F
7. In order to appreciate the rival submissions made by
the reamed senior counsel, we need to notice the statutory
provisions and the notification issued by the State Govt. Rule
3(116) of the 1941 Rules reads as under :-
G "116) [Sales by a dealer of-
(a) (i) jam, (ii) jelly, (iii) marmalade (iv) pickle (v) amsatta
(vi) chutney (vii) Kasundi (viii) .... (ix) ketchup
~ (b) Vinegar made from fruits or vegetables.
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 53
OF COMMERCIAL TAXES [H.L. DATTU, J.]
(c) (i) fruit pulp and (ii) fruit peels A
(d) Processed fruits, that is to say, candied, crystallized or
glaced fruits, but excluding the notified commodities
covered by this department notification No. 2252 dated the
9th June, 1969, as subsequently amended. B
(e) (i) vegetable pulp (ii) vegetable peels (iii) juice and (iv)
vegetable sarbat.
When the goods mentioned in (a) (b) (c) (d) or (e) are
manufactured in his small scale industrial unit in West c
Bengal]
Provided that the small scale industrial unit is
registered with the Directorate of Cottage and Small Scale
Industries of Government of West Bengal, and investment D
by the dealer in Plant and Machinery of such unit is less
than '5 lakhs."
8. In exercise of the power conferred by Section 4AA of
the Act, 1954, the State Government has issued Notification
No.1428 - F.T. dated 26th May, 1994. The Notification is as E
under:
"Registered No. WBISC-247 No.WB (Parl-1)194/SAR-122
The
Calcutta Gazette F
Extraordinary
Published by Authority
JAYISTHA 5] THURSDAY, MAY 26, 1994 [SAKA 1916 G
PART-I - Orders and Notifications by the Governor of West
Bengal, the High Court, Government Treasury, etc.
H
54 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A GOVERNMENT OF WEST BENGAL
FINANCE DEPARTMENT
TAXATION
No.1428- F.T. Calcutta, the 26th May, 1994
B NOTIFICATION
Whereas the Governor is satisfied that it is necessary so
to do in the public interest;
Now, THEREFORE, in exercise of the power conferred by
c section 4AA of the West Bengal Sales Tax Act, 1954
(West Bengal Act IV of 1954) (hereinafter referred to as
the said Act), the Governor is pleased hereby to direct that
no tax shall be payable under the said Act on sales by a
dealer of -
D
(a) (i) fruit juices,
(vii) fruit syrups,
viii) fruit concentrates,
E
(ix) fruit squashes,
(x) fruit cordials, and
(xi) fruit sarbat,
F
including in this department notification no.3945 - F.T.,
dated the 26th August, 1977, as subsequently amended;
(b) canned, bottled or any other preserved fruits, included
in this department notification No. 2252- F.T., dated the 9th
G June, 1969;
(c) processed food, commonly known as instant food, that
is to say, pre-cooked or curried vegetable, and vegetable
soup, included in this department notification no.1036 F.T.,
H dated the 31st March, 1988, when the notified
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 55
OF COMMERCIAL TAXES [H.L. DATTU, J.]
commodities mentioned in (a), (b) or (c) are manufactured A
in his small scale industrial unit in West Bengal registered
with the Directorate of Cottage and Small Scale Industries
of the Government of West Bengal and the investment by
the dealer in plant and machinery of such unit is less than
fivelakhrupees. B
This notification shall come into force on and from the 1st
day of June, 1994.
By order of the Governor
S. MITRA C
Jt. Secy. to the Govt. of West Bengal"
9. With a view to encourage Small Scale Industrial Units
and to step up economic growth by promoting development of
these industries in the State, the West Bengal State Govt.
decided to grant exemption from payment of sales tax to D
certain Small Scale Industrial Units. To achieve that object, it
issued notification No.1438-FT dated 26.05.1994 in exercise
of the powers conferred by Section 4AA of the Act, 1954,
granting exemption from payment of sales tax on sales by a
dealer of fruit juices, fruit concentrates, fruit cordials and fruit E
sarbat, canned, bottled or any preserved fruits (goo<;fs included
in Notification No. 2252-F.T. dated 09.06.1969) and the goods
included in Notification No. 1036-F.T. dated 31.03.1988. In the
Notification, it is further specified that the goods mentioned in
Column (a), (b) or (c), are manufactured in a Small Scale F
Industrial Unit in West Bengal registered with the Directorate
of Cottage and Small Scale Industries of the Govt. of West
Bengal and the investment by the dealer in plant and machinery
of such unit is less than '5 lakhs.
10. Section 104 of the Act, 1994 grants power to the State G
Government to make rules, with prospective or retrospective
effect, for carrying out the purposes of the Act. In exercise of
the power so conferred, the State Government has framed Rule
41 of the 1995 Rules. The Rule provides for exemption from
tax on sales of certain fruit and vegetable products etc. H
56 SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.
A manufactured in Small Scale Industrial Units in West Bengal.
The Rule is as under:-
"Exemption from tax on sales of certain fruit and vegetable
products etc. manufactured in small-scale industrial units
B in West Bengal - Where a dealer makes sales of -
(i) fruit product, that is to say, fruit juice, fruit syrup, fruit
concentrate, fruit squash, fruit cordial, fruit sarbat, fruit jam,
fruit jelly, fruit marmalade, fruit pickle, amsatta, chutney,
kasundi, fruit sauce, ketch up, fruit pulp, fruit peel,
c
(ii) processed fruit, that is to say, candied, crystallized or
glaced fruit,
(iii) caned, bottled or any other preserved fruit,
D (iv) processed food, commonly known as instant food, that
is to say, pre-cooked or curried vegetable and vegetable
soup,
(v) vegetable product, that is to say, vegetable pulp,
E vegetable peel, vegetable juice, [vegetable sauce,
vegetable pickles] or vegetable sarbat,
manufactured in his small-scale industrial unit in
West Bengal, registered with the Directorate of Cottage
and Small-Scale Industries, Government of West Bengal
F and where investment by such dealer in plant and
machinery of such unit is less than five lakh rupees, such
dealer may deduct such sales under sub-clause (xi) of
clause (a) of sub-section (3) of section 17 from his gross
turnover of sales."
G
11. Section 2 of the Act is the interpretation 'Clause. Clause
(b) of Section 2 defines 'dealer'. Section 4 is the charging
Section. Section 4AA empowers the State Government to grant
exemptions or reductions in rate of tax on the sale or purchase
H of goods by a dealer or category of dealers to be specified in
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 57
OF COMMERCIAL TAXES [H.L. DATTU, J.]
any notification to be issued by the State Oovernment in the A
pubic interest. The scheme of the Rules and the notification
issued by the State Government in exercise of the power under
Sectiori 4AA of the Act, 1954, is that the commodities specified
in the Notification must be manufactured by a Small Scale
Industrial Unit in West Bengal, it must be registered with the B
Directorate of Cottage and Small Scale Industries of the
Government of West Bengal; and the investment by dealer in
plant and machinery of such unit must be less than ·5 lakhs.
These exemptions are also provided in Rule 3(116) of the 1941
Rules and Rule 41 of the 1995 Rules. These Rules speak of c
exemption from payment of tax on sales of certain fruits and
vegetable products etc. manufactured in small-scale industrial
units in West Bengal and investment in plant and machinery
should not exceed ·5 Lakhs.
12. We will now consider the contentions raised by the D
learned senior counsel for the parties to the lis.
Contention (a):-
13. The expression "investment" in the notification is the E
main controversy in this appeal. The assessee claims that the
word "investment" requires to be understood as the investment
made by a Small Scale Industrial Unit after giving depreciation
on plant and machinery. According to the Assessing Authority,
even after allowing such a claim, which in our opinion, is not F
the correct way of understanding the expression, the investment
is more than ·5 lakhs and, therefore, the assessee is not
eligible for exemption from payment of sales tax.
14. In common parlance, the term "investment" has been
defined as "a thing worth buying because it may be profitable G
or useful in the future" (Oxford English Dictionary, 11th edition,
2004) or as the "placing of money to gain profit" (Bloomsbu,.Y
English Dictionary, Reprint, 1985).
15. Speaking of investment in the context of the Income H
58 SUPREME COURT REPORTS [2010) 14 (ADDL.) S.C.R.
A Tax Act, 1961, this Court observed in Commissioneroflncome
Tax, Lucknow v. Uttar Pradesh Cooperative Federation Ltd,
AIR 1989 SC 915, quoting P. Ramanatha Aiyar's Law Lexicon
(Reprint Editio~ 1987) that:
"The term invest is used in a sense broad enough to cover
B
the loaning of the money but is not restricted to that mode
of investment or loans made on commercial paper. The
word invest has been judicially defined as follows:-
To place property in business; to place it so that it will be
c safe and yield a profit. It is also commonly understood as
giving money, for some other property (as) investing funds
on lands and houses. Investment means in common
parlance, putting out money on interest, either by the way
of loan, or by the purchase of it;1come producing
D property... " (emphasis supplied) (Para 9).
16. In Inland Revenue Commissioners v. Desoutter
Brothers Ltd, (1946) 1 All ER 58 (CA), it is stated:
'The word 'investment' is not a word of art but has to be
E interpreted in a popular sense. It is not capable of legal
definition but a word of current vernacular. The words
'invest' and 'investment' are to be taken in the business
sense of laying out money for interest and profit."
F 17. In a slightly different context, following the Desoutter
Brothers case, it was held in Inland Revenue Commissioners
v. Broadway Car Co. (Wimbledon) Ltd., [1946] 2 All E.R. 609,
that the question whether a particular source of income was an
investment or not must be decided as it would be by
G businessmen according to ordinary commonsense principles.
18. In our view, for the purpose of the Rules and the
notification, "investment" must be understood according to its
common business and commercial usage. While an exact
definition to suit all requirements will not be appropriate, but it
H may be said that investment in general would be spendiZ~
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 59
OF COMMERCIAL TAXES [H.L. DATTU, J.]
money for the purpose of acquiring property or commodities A:
that in turn generate further income.
19. In the Notification issued by the State Government and
the Rules framed, the requirement is that the investment made
by the dealer in plant and machinery in the Small Scale 8
Industrial Unit should be less than '5 lakhs. It is obvious that
money spent on upgrading or replacing machinery is
investment that would increase the productivity of the machinery
and consequently generate further income. It would thus be
· equivalent to acquiring of commodities that generate further C
income. Furthermore, there is no question of reducing
depreciation value, as the determination is of the total money
spent or "invested" in plant or machinery, and the same cannot
be said to include the value of the machinery after depreciation.
A reading of the Rule or the notification would not even suggest
that while calculating the value of plant and machinery, D
depreciation of those equipment will have to be taken into
consideration in computing the valuatior;r' of the plant and
machinery. In our view, in computing the valuation of plant and
machinery, only the cost price/purchase price of the equipment
invested by the assessee will have to be taken into account. E
The expression "investment" in plant and machinery is not
subject to the impact of depreciation in the value of plant and
machinery. Since the assessee's investment is more than ' 5
lakhs before the periods in question and since the investment
continues to remain unchanged, the assessee is not entitled F
to exemption from payment of sales tax either under the Rules
or under the notification.
Contention {b):-
20. The second contention of learned senior counsel for G
the assessee is that the Notification providing exemption
should be liberally construed having regard to the purpose and
object it seeks to achieve.
21. The conditions for availing exemptions are generally H
60 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A laid down in the notifications granting exemptions. Sometimes,
exemptions are grafted in the Rules framed in this behalf. In
Crawford's Statutory Construction, it is stated that "Provisions"
providing for an exemption may be properly construed strictly
against the person who makes the claim of an exemption. In
B other words, before an exemption can be recognized, the
person or property claimed to be exempted must come clearly
within the language apparently granting the exemption. In our
opinion, the principle to be kept in view while interpreting
exemption notification is that the meaning of the words given
c in the exemption notification is to be gathered from the
language employed in the notification. Notification by which
exemption or other benefits are provided by the Govt. in
exercise of its statutory powers normally have some purpose.
Such purpose is not to be defeated nor those who may be
entitled for it are to be deprived by interpreting the notification
0
which may give' it some meaning other than what is clearly and
plainly flowing from it.
22. This Court, in the case of Novopan India Ltd.,
Hyderabad v. Collector of Central Excise and Customs,
E Hyderabad, 1994 Supp (3) SCC 606, has observed :-
"The principle that in case of ambiguity, a taxing statute
should be construed in favour of the assessee - assuming
that the said principle is good and sound - does not apply
F to the construction of an exception or an exempting
provision; they have to be construed strictly. A person
invoking an exception or an exemption provision to
relieve him of the tax liability must establish clearly that
he is covered by the said provision. In case of doubt or
ambiguity, benefit of it must go to the State. This is for
G
the reason explained in Mangalore Chemicals and other
decisions, viz., each such exception/exemption increases
the tax burden on other members of the community
correspondingly. Once, of course, the provision is found
H
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 61
\
I OF COMMERCIAL TAXES [H.L. DATTU, J.]
applicable to him, full effect must be given to it." (emphasi~ A
supplied) (Para 18).
23. The view expressed in Novopan India case (supra)
finds further approval in Tata Iron and Steel Co. Ltd. v. State
pf Jharkhand, (2005) 4 SCC 272, where the Court observed B
that:
"Eligibility clause, it is well settled, in relation to exemption
notification must be given a strict meaning." (emphasis
supplied) (Para 45).
c
And further, in the same case:
'The principle that in the event a provision of fiscal statute
is obscure such construction which favours the assessee
may be adopted, but it would have no application to
D
construction of an exemption notification, as in such a
case it is for the assessee to show that he comes within
the purview of exemption." (emphasis supplied) (Para 47).
24. In A.P. Steel Re-Rolling Mills Ltd. v. State of Kera/a,
(2007) 2 sec 725, it is stated :- E
"The general principles with regard to construction of
exemption notification are not of much dispute. Generally,
an exemption notification is to be construed strictly, but
once it is found that the entrepreneur fulfils the conditions
F
laid down therein, liberal construction would be made."
(emphasis supplied) (Para 22).
25. The aforesaid principle is summed up by this Court in
G.P. Ceramics Pvt. Ltd. v. Commissioner, Trade Tax, U.P.,
(2009) 2 sec 90 as under : G
"It is now a well established principle of law that whereas
eligibility criteria laid down in an exemption notification
are required to be construed strictly, once it is found that
the applicant satisfies the same, the exemption notification H
62 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A should be construed liberally." (emphasis supplied) (Para
32).
26. The preamble of the Notification in this case states that
"whereas the Governor is of opinion that industrial unit is
B manufacturing certain goods in West Bengal which are in need
of financial assistance and accordingly it is necessary to
formulate a scheme of industrial promotion to assist such unit
for the purposes mentioned hereinabove". Clearly, the purpose
of this notification is to promote industrial activity and
development in the State ofWest Bengal. However, as is clear
C from the discussed cases, it is a necessary pre-condition that
first the assessee should fall within the clear wording of the
notification. The assessee in this matter falls outside the
parameters of this Notification, since his investment is over ·5
lakhs, therefore, there is no question of the Notification applying
D to him. Thus, there is no requirement of liberal construction as
the notification does not apply to the assessee in the first place.
Contention (cl:-
. 27. The learned senior counsel Sri A.K. Ganguli contended
E that interest on tax can be charged only after quantification of
tax liability by the Assessing Officer. Therefore, respondent was
. not justified in issuing the demand notice for payment of tax by
including interest element.
F 28. There has been a legislative amendment incorporating
statutory provision for payment of interest even before
quantification of tax liability and service of demand notice
pursuant to such quantification. For ready reference, we quote
below the relevant Sections. Section 10-A of the Act, 1941 is
G as under:-
"S. 1 OA Interest payable by dealer.- (1) Where a
registered or certified dealer furnishes a [return] referred
to in section 10 in respect of any period by the prescribed
date or thereafter, but fails to make full payment of tax
H
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 63
OF COMMERCIAL TAXES [H.L. DATTU, J.]
payable in respect of such period by such prescribed date, A
he shall pay a simple interest at the rate of two per centum
for each English calendar month of default from the first day
of such month next following the prescribed date up to the
month preceding the month of full payment of such tax or
up to the month prior to the month of assessr.ient under B
section 11 in respect of such period, whichever is earlier,
upon so much of the amount of tax payable by him
according to such [returns] remains unpaid at the [end of
each of such month of default;]
Provided that where such dealer admits in writing that C
the amount of tax payable in respect of such period is an
amount which is either more or less than, what has been
originally shown as payable in the [return] and where the
Commissioner is satisfied on the point of such admission,
the interest shall be payable upon so much of the amount D
of tax payable according to such admission as remains
unpaid at the [end of each such month of default.]
(2) Where a registered or certified dealer fails to furnish
[a return] referred to in section 10 in respect of any period E
by the prescribed date or thereafter before the
assessment under section 11 in respect of such period,
and on such assessment full amount of tax payable for such
period is found not to have been paid by him by such
prescribed date, he shall pay a simple interest at the rate F
or two per centum of each English calendar month of
default from the first day of the month next following the
prescribed date up to the month preceding the month of
full payment of tax for such period or up to the month prior
to the month of assessment under section 11 in respect G
of such period, whichever is earlier, upon so much of the
amount of tax payable by him according to such
assessment as remains unpaid at the [end of each such
month of default;]
H
64 SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R.
A Provided that where an assessment under section
11 is made for more than [one period] and such
assessment does not show separately the tax payable for
the period in respect of which interest is payable under this
sub-section, the Commissioner shall estimate the tax
8 payable for such period on the basis of such assessment
after giving the dealer an opportunity of being heard.
(3) Where a dealer fails to make payment of any tax
payable after assessment by the date specified in the
notice issued under sub-section (3) of section 11 for
c payment thereof, he shall pay a simple interest at the rate
of two per centum for each English calendar month of
default from the first day of the month next following the
date specified in such notice up to the month preceding
the month of full payment of such tax or up to the month
D preceding the month of commencement of proceedings
under sub-section (4) of section 11, whichever is earlier,
upon so much of the amount of tax payable by him
according to such notice as remains unpaid at the [end of
each such month of default.]
E
· 29. Similarly, in Section 31 of the Act, 1994, it is provided
that:
"31. Interest for non-payment or delayed payment of tax
before assessment. - (1) Where a registered dealer, or
F a dealer required to furnish return under sub-section (3) of
section 30, furnishes a return referred to in that section in
respect of any period by the prescribed date or thereafter,
but fails to make full payment of the tax payable under sub-
section (4) of that section in respect of such period by such
G prescribed date, he shall pay a simple interest at the rate
of two per centum for each British calendar month of
default from the first day of such month next following the
prescribed date up to the month preceding the month of
full payment of such tax or up to the month Ji>rior to the
H month of assessment under section 45 or section 46, as
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 65
OF COMMERCIAL TAXES [H.L. DATTU, J.]
the case may be, in respect of such period, whichever is A
earlier, upon so much of the amount of tax payable by him
according to such return as remains unpaid at the end of
each such month of default:
Provided that where such dealer admits in writing that the 8
amount of tax payable in respect of such period is an
amount which is either more or less than what has been
originally shown as payable in the return and where the
Commissioner is satisfied on the point of such admission,
the interest shall be payable upon so much of the amount C
of tax payable according to such admission as remains
unpaid at the end of each such month of default.
(2) Where a registered dealer, or a dealer required to
furnish return under sub-section (3) of section 30, fails to
furnish a return referred to in that section in respect of any D
period by the prescribed date or thereafter before the
assessment under section 45 or section 46, as the case
may be, in respect of such dealing, and on such
assessment full amount of tax payable for such period is
found not to have been paid by him by such prescribed E
date, he shall pay a simple interest at the rate of two per
centum for each British calendar month of default for the
first day of the month next following the prescribed date
up to the month preceding the month of full payment of tax
for such period or up to the month prior to the month of F
assessment under section 45 or section 46, as the case
may be, in respect of such period, whichever is earlier,
upon so much of the amount of tax payable by him
according to such assessment as remains unpaid at the
end of each such month of default:
G
Provided that where an assessment under section 45 or
section 46 is made for more than one period and such
assessment does not show separately the tax payable for
the period in respect of which interest is payable under this
sub-section, the Commissioner shall apportion the tax H
66 SUPREME COURT REPORTS [2010] 14 (ADDL.) S.C.R.
A payable for such period on the basis of such assessment.
(3) A dealer liable to pay interest under sub-section {1) or
sub-section (2) of this section or sub-section (8) of section
40, as the case may be, shall, in the prescribed manner,
pay into a Government Treasury or the Reserve Bank of .
B
India the amount of interest payable by, or due from, him
by such date as may be prescribed.
(4) Interest under sub-section (1) or sub-section (2) of this
section shall be payable in respect of the returns, the
c prescribed dates for the functioning of which under sub-
section (2) or sub-section (3) of section 30 are the dates
subsequent to the appointed day."
30. Interest is compensatory in character and is imposed
D on an assessee who has withheld payment of any tax as and
when it is due and payable. The interest is levied on the actual
amount of tax withheld and the extent of delay in paying the tax
on the due date. Essentially, it is compensatory and different
from penalty which is penal in character [See Pratibha
E Processors and Ors. v. Union of India and Ors. - AIR 1997
SC 138]. In the instant case, it is not in dispute that the amount
of tax due on the basis of the return furnished by the assessee
has not been paid before the expiry of the last date of filing of
such return required by Section 10A of the Act, 1941 and
F Section 31 of the Act, 1994. These sections provide that where
tax due on the basis of the return has not been paid before the
expiry of the last date of filing of such return. provision of sub-
section (2) shall apply to the recovery of such demand for the
amount of tax due. Sub-section (2) states that if the tax or any
other amount due under the Act is not paid by the dealer or any
G other person by whom it is payable within the period specified
in the demand notice, it shall be liable to pay interest on the
tax or other amount which was payable at the rate specified in
that sub-section. The learned senior counsel Sri A.K. Ganguli
would contend that it is only after quantification of tax liability
H and service of demand notice, as provided under the Act, and
BHAI JASPAL SINGH v. ASSISTANT COMMISSIONER 67
OF COMMERCIAL TAXES [H.L. DATTU, J.]
if that is not complied, then only interest becomes payable by A
the dealer. In our view, it is difficult to accept this submission
of the learned senior counsel. This submission goes contrary
to the statutory provision provided under Section 1OA of the Act,
1941 and Section 31 of the Act, 1994. The Section provides
that tax due on the basis of the returns shall be paid before the B
expiry of the last date of filing of such return. Therefore, under
Sub-Section (1), the assessee would be liable to pay interest
on the amount of such tax from the date when it was payable,
i.e. from the expiry of the last date of filing of returns under the
Act. This Section specifically refers to notice of demand but c
obviously relates to sub-section (1) where notice of demand is
required to be issued after the assessment of tax is completed
and the amount of the tax assessed becomes due only after
the issue of notice of demand as provided in sub-section (1)
but there is no requirement in the case of payment of tax due
0
on the basis of quarterly return to be filed by the dealer. It is
solely governed by sub-section (3): where the tax due on the
basis of quarterly return is not paid before the expiry of the last
date of filing of such return under the Act, it is not necessary to
issue any notice of demand but on the default being committed
E
by the dealer, he becomes liable to pay interest under sub-
section (2) on the amount of such tax from the last date of filing
quarterly returns prescribed under the Act. In the present case,
it is the admitted position that tax due on the basis of quarterly
return was not paid as required by sub-section (3) and the
appellant was, therefore, liable to pay interest on the amount F
of tax in respect of which default was committed at the rate
prescribed in sub-section (2) from the last date prescribed for
filing quarterly return under the Act upto the date of payment.
31. In view of the above, there is no merit in this appeal. It G
is hereby rejected. No costs.
B.B.B. Appeal dismissed.
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