Holding

The exemption under the notification should be deemed to accrue from the date of application for registration, subject to a factual determination by the Tribunal on the nature of the applications.

Summary

The respondent, a manufacturer of cooling towers, applied for registration as a small‑scale industry on 3 December 1986 but the application remained pending. A second application was filed in February 1988 and permanent registration was granted on 31 March 1988. The dispute centred on whether the exemption under the Central Excise Notification of 1 March 1986 should accrue from the date of issuance of the registration certificate or from the date of the original application for registration. The Supreme Court held that, where an industry qualifies as a small‑scale unit, a liberal approach permits the exemption to be back‑dated to the date of application, provided this does not contravene the language of the notification. However, because the Tribunal had not definitively ruled on whether the 1986 application was a provisional or permanent one, the Court remitted the matter to the Tribunal to determine the correct effective date. The appeal was dismissed, and the Tribunal was directed to record a clear finding on the factual issue.

Issues considered

The date from which the exemption under the 1 March 1986 notification becomes effective for a small‑scale industry
Whether the exemption should be linked to the issuance date of the registration certificate or the date of application for registration
Whether the 3 December 1986 application was a provisional or permanent registration and if the 1988 application was supplemental or a fresh application

Legislation cited

Central Excise Rules, 1944s. Rule 8, Sub‑rule I

Subjects

exemptionsmall scale industryregistration certificatecentral excisedate of benefitliberal constructiontribunal remand

Judgment

A COMMISSIONER OF CENTRAL EXCISE
v.
MIS M.P.V. & ENGG. IND!JST!U~S

MARCH I I, 2003

B [S.N. VARIAVA AND B,P. SINGH, JJ.)

Central Ewise Rules, 1944: Sub-rule I of Rule 8.

Exemption Notification d(Jted March J,[98(i-8enefit pf exemption-
C Registered Small Scale Industries-Effective dat(! ofentitlement to-Held: When
the Industry qualifies as small scale industry, a liberal approach is permissible
in granting benefits of exemption provided it does no violence to the language
of notification-Since the industry was regi~ter(!d as small scale industry,
benefit of exemption accrues with effect from the qate on which application
D for registratio11 was made before the competent authority-Since Tribunal did
not record clear .finding as to whether second application for registration was
in continuation of the first application for registration, the matter is remitted
•
to Tribunal to record its finding on the issue-Directions issued.

Respondent-manufacturer commenced production of cooling towers
E and had applied for griwt of registration to th~ competent !1Uthority in
December, l 986. The application was QOt disposed of. In the meanwhile,
respondent applied afresh for permanent registration of the industry as
small scale ipdustry in February, 1988 and the authority gra1Jted
permanent registration to the respondent as small scale industry on March
p 31,1988, Respondent applied to the Revenue for availing benefit of certain
exemption coptained in the Notification dated March 1,1986. Revenue
granted benefit of the Notification with effect froIIJ 31.3.1988 when
registration certificate was issued to th~ responaent. On appeal, Tribunal
held tlu1t the respondent was eligible to the be11efit of exemption in terms
G of the Notific11tion with effect from the date of l!pplication for rf!gistration
of the industry as small scale industry.

It was i;pntended f()r the respondent that since the notification does
not prescribe the date from which a certificate pf registration becomes
effective, the right to claim exemption under the Notificatiop !lows from
H sta(µs as small scale industry; the competent authority by issuance of
924
C.C.E. v. M.P.V. & ENGG. INDUSTRIES 925
''
registration certification merely recognised the status of the respondent A
.~
as small scale industry on the date of such application.

Disposing of the appeal, the Court

HELD: 1.1. With a view to give some relief to small scale industries,
certain exemptions were provided vide notification dated March 1,1986. B
The exemption was meant to benefit an industry which qualified as a small
scale industry. With a view to avoid any controversy as to their status as
a small scale industry, the notification recognised the certificate issued by
the Director of Industries to this effect. Once it is found by the Director
of Industries that the industry qualifies as a small scale industrial unit, C
he is bound to issue the certificate of registration. [928-E, F)

1.2. It would be unreasonable to deprive a small scale industry of
the benefit under the notification particularly when the notification does
not in terms provide that the certificate shall become effective from the
date of its issuance. [928-G, H] D
1.3. The competent registration authority must examine the claim
of the respondent to be a small scale industry strictly and in accordance
with the rules. However, once it is found that the industry qualifies as a
small scale industry, in the matter of grant of exemption a liberal approach
is permissible provided it does no violence to the language of the E
notification. In a case of this nature it is only reasonable to take the view
that the benefit of exemption will accrue to a unit found to be a small scale
industrial unit from the date on which the application was made for grant
of registration certificate. Such a unit should not be deprived of the benefit
to which it is otherwise entitled as a small scale industrial unit merely p
because the authorities concerned took their own time in disposing of the
application. Therefore, the benefit of exemption under the notification in
question should be extended to the respondent with effect from the date
on which the application for grant of registration was made by it before
the competent authority. (931-B, DJ
G
Collector of Central Excise v. Parle Exports (Pvt.) Ltd., (1988) 38 ELT
741; State of UP. and Anr. v. Haji Ismail Noor Mohammad and Co., (1988)
3 SCC 398; Union of India v. Wood Papers ltd., (1990) 47 ELT 500 and
The Assessing Authority and Ors. v. Patiala Biscuits Manufacturers Pvt. ltd.,
(1977) Sales Tax Cases (39) 381, relied on~
H
926 SYPREME COURT REPORTS [2003) 2 S.C.R.
--
A 2. In tile abseqce of clear finding by the Tribunal as to the effective
date of registration of respondent as small scale industry, the matter is
remitted to the Tribunal to hear the parties and record a clear finding as
to whether the first application was an application for registration whether
provisional or permanent, and whether the second application made
B sometime in February/March,1988 was ·an application which was
supplemental in nature or in continuation of the first application. If the
Tribunal comes to the conclusion that the application made on the 3rd of
December, 1986 was rejected, then the benefit of exemption should be
extended to the respondent only with effect from the date of the second
~pplication. However, if the Tribunal comes to the finding that the first
C application made on 3rd December, 1986 remained pending and the second
application made subsequently was merely a continuation of the first
application, being supplemental in nature, then the respondent would be
entitled to the benefit of exemption with effect .from the date of the first
application i.e. from 3rd December, 1986. The Tribunal will dispose of the
D appeal accordingly. [932-D, F]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5831 of 1999.

From the Judgment and Order dated 22.4.1999 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, Kolkata in A. No. E (SB)
E 524/898 in F.O. No. A-249/Kol/1999.

Raju Ramachandran, Additional Solicitor General, Rajiv Nanda and B.
Krishna Prasad for the Appellant.

Dr. D.P. Pal, Ms. Priya Hingorani for Mis. Hingorani & Associates for
F the Respondent.

The Judgment of the Court was delivered by

B.P.. SINGH, J. The short question which arises for consideration in
this appeal is as to the date from which the respondent is entitled to the
G benefit of exemption contained in the notification dated March I, 1986,
issued by the: Govt. of India in exercise of powers conferred by sub rule I
of Rule 8 of the Central Excise Rules, 1944. While the appellant contends
that the benefit of exemption can be availed 011ly with effect from the date
on which the certificate of registration is issued by the Director of Industries
in any State, the respondent contends that the benefit of such exemption must
H be extended from the date of the application for registration and the respondent
C.C.E. v. M.P.V. & ENGG. INDUSTRIES [B.P. SINGH, J.] 927

should not be deprived of the benefit of such exemption merely because on A
account of administrative delays the certificate of registration is issued much
later.

Briefly stated the facts of the case are that the respondent is engaged
in the business of manufacturing cooling towers. It commenced production
with effect from June, 1986. On December 3, 1986 it applied to the Director B
of lrtdustries; West Bengal, for grant of registration. There is some dispute as
I
L to whether this application was for grant of registration or for the grant of
provisional registration, a question on which we wish to express no opinion.
It appears that the said application was not disposed of and therefore sometime
after February, 1988 as contended by the appellant, the respondent applied C
afresh for permanent registration which was granted by order dated March
S 1, 1988. The question, which arises for consideration, is whether the
respondent is entitled to the benefit of exemption under the aforesaid
notification with effect from the date of application or with effect from March
31, 1988, the date on which registration was granted.
D
The Collector by his order dated January 31, 1989 took the view that
benefit of the exemption can be granted only with effect from the date on
which the registration certificate was issued. He observed that the respondent
had applied for provisional registration on 3.12.1986: which was not granted
to it. Later a pennanent registration certificate as a small scale Industrial unit E
was issued to it on 31.3.1988 in response to another application rriade for
grant of permanent registration. Thus the Respondent was given permanent
registration pursuant to a fresh application made subsequently, and not pursuant
of its earlier application submitted on 3 .12.1986 for provisional registration.

In the appeal before the Customs, Excis.e and (Gold) Appellate Tribunal, F
Eastern Bench, Calcutta, the Members of the Tribunal took differing views.
While the judicial member held that the respondent was entitled to the benefit
of exemption with effect from the date of application, the technical member
..-- took the view that the benefit of exemption could be extended only with
effect from the date of registration. The matter was therefore referred to a G
third member who agreed with the judicial member and held that the
respondent was entitled to the benefit of exemption under the notification in
question with effect from the date of application.

The Learned Addi. Solicitor General appearing for the appellant
commended for our acceptance, the view of the technical member and laid H
928 SUPREME COURT REPORTS [2003) 2 S.C.R.

A emphasis on the language of the notification particularly paragraph 4 thereof
which reads as under :

"The exemption contained in this notification shall be applicable
only to a factory which is an undertaking registered with the Director
of Industries in a.1y State or the Developmental Commissioner (Small
B Scale Industries) as a small scale industry under the provisions of the
Industries (Development and Regulations) Act, 1951 (65 of 1951)."

· On the other hand, Dr. Debi Pal, learned Sr. counsel appearing on
behalf of the Responden't contends that paragraph 4 does not prescribe the
date with effect from which the certificate becomes effective. He submitted
c that the certificate issued by the Director of Industries merely recognises the
status of an industry as a small scale industry and the right to claim exemption
under the notification flows from such status. He has relied upon decisions
of this Court in support of his contention which we shall consider hereafter.

D Paragraph 4 of the notification does not m terms specify the date with
effect from which the certificate becomes effective. We have therefore to
consider the notification as a whole to ascertain its true intent. So considered
it would appear that with a view to give some relief to small scale industries,
certain exemptions were provided under the said notification. The exemption
was meant to benefit an industry which qualified as a small scale industry.
E With a view to avoid any controversy as to their status as a small scale
industry, the notification recognized the certificate issued by the Directof of
Industries to this effect. Once it is found by the Director of Industries that the
industry qualifies as a small scale industrial unit, he is bound to issue the
certificate of registration. However, no time bound procedure has been
p provided. It may at times take several months or years for the competent
authority to issue the certificate envisaged in paragraph 4 of the notification.
In such a situation can it be said that the small scale industry should be
deprived of the benefit which would have accrued to it had the application
for registration been disposed of immediately. In our view it would be
unreasonable to deprive a small scale industry of the benefit under the
G notification particularly when the notification does not in terms provide that
the certificate shall become effective from the date of its issuance, which is
the view of the member (judicial) and the third member who held in favour
of the respondent.

H We may usefully refer to the decisions of this Court in Slate of U.P.
and Anr. v. Haji Ismail Noor Mohammad and Co., [ 1988] 3 SCC 398 wherein
C.C.E. v. M.P.V. & ENGG. INDUSTRIES [B.P. SINGH, J.] 929

this Court considered the provisions of Section 4-B and Rule 25-A(5): B the A
U.P, Sales tax Act, 1948. Though Section 4 (B)(l)(a) did employ the words
"holds a recogttitidll certificate issued under sub section (2) in respect thereof' .
. Rule 25-A provided that such certificate shall take effect from date of its
issue. No doubt, itt that case the question of vires of the rules was raised, but
in dealing with the ftillttef the Court made certain observations which support
the respondents' case, 'this Court negatived the contention urged on behalf B
of the appellant-State af U.P, that the High Court had virtually introduces a
fiction that under certain citctnti§tilrices where there had been a delay in
issuing the certificate, the dealer mtiSt be deemed to have held the certificate.
Noticing the submission urged on behalf of the State that the clear intendment
of the provision was that the dealer should hold the registration certificate at C
the time of the purchases and that it would not be sufficient compliance with
the statues if the dealer comes to hold it subsequently, the Court observed
that it was merely a matter of construction of the language of Section 4-B;
whether the dealer should hold a registration certificate at the time the
putcha§es were made or whether the requirements of the section should be
held to be satisfied if the dealer holds such a "recognition certificate" at the D
time of the assessment of the turnover in question. This Court approved the
view of the High Court that the requirements of the section are substantially
complied with if the certificate is available to the dealer at the time the
liabilitY to tax of the turnover in question is sought to be determined, subject
to the requirement that the turnover is after the date of the application filed E
by the dealer for issue of a certificate. lt was further observed:.

"On a consideration of the matter we are persuaded to the view
that the construction placed on the provision by the High Court is an
eminently plausible one. There is nothing basically wrong in the
approach of the High Court that the statutory language does not insist F
upon the contemporaneity of the holding' of the certificate with the
purchases and that it is sufficient if the dealer, subsequently, comes
to hold certificate "in respect thereof'. It seems possible to say that
to insist up a contemporaneity of the purchases and the certificates
would also amount to qualifying the word 'holds' in the section by G
adding the words "at the time of the purchases."

In The Assessing Authority and Ors. v. Patiala Biscuits Manufacturers
Pvt. Ltd., [1977) Sales Tax Cases (39) 381 this Court was called upon to
interpret Rule 5 as it existed before its amendment in October I 966. The
earlier rule provided for registration of a dealer and issuance of a certificate H
930 SUPREME COURT REPORTS [2003) 2 S.C.R.

A of registration in the prescribed fonn. By amendment of October 10, 1966
some of the words were deleted and the following was added towards the end
of Rule 6 :

" .... .in form S.T. IV Which shall be valid from the date of receipt
of application for registration by the Assessing Authority or from the
B date of commencement of the liability to pay tax, whichever is Later."

The submission before this Court was that as from the date of the
amendment, the benefit of notification could be extended to the assessees
from the date of the r~ceipt of application for registration by the assessing
authority, but the same did not apply to a dealer having taxable turnover
C before that date, unless he was actually registered and was in physical
possession of registration certificate issued under Section 7. The submission
was negatived and this Court held that the amendment of Rule 5 on October,
10, 1966 did not confer any new or additional power on the registering
authority. The power to grant the registration certificate with effect from the
D date of application was already there. The amendment was only clarificatory
of the law as it stood prior to it. It only made explicit which was formerly
implicit. The Court observed :

"Be that as it may, the words" has been registered and possesses
a registration certificate used in sub-section (I) of section 7 have to
E be construed in accord with the general tenor of the section as a
whole, and in a manner which would avoid oppressive, unreasonable
and anomalous results. As rightly pointed out in Chandra Industries
v. Punjab State, it could never be the intention of the legislature that
a dealer liable to pay tax who has in compliance with the requirements
of sub-sections (2) and (3) of section 7." done all which lay in his
F power to obtain the registration certificate should pull down his shutters
and keep his business closed under pain of being punished under
section 23( 1) and await indefinitely the pleasure and leisure of the
prescribed authority in issuing the registration certificate. Adoption
of such a construction would be to make the applicant liable to
G punishment for the !aches and delays of the authority and its office".

It was then submitted by the Appellant that in construing a notification
granting exemption, the notification must be strictly construed without
stretching the language of the notification to confer any unintended benefit.
Similar argument was advanced before the Tribunal. In dealing with the
H submission the Tribunal noticed the decision of this Court in Collector of
C.C.E. v. M.P.V. & ENGG. INDUSTRIES [B.P. SINGH, J.] 931

Central Excise v. Parle Exports (Pvt.) Ltd., reported in [1988) 38 ELT 741 A
wherein this Court held that exemption should be strictly construed although
the exemption clause in the notification may be construed liberally. In other
words, eligibility criteria should be construed strictly but a liberal approach
may be adopted in construing other conditions. Reliance was also placed in
U.0.1. v. Wood Papers Ltd. reported in [1990) 47 ELT 500. We may apply B
this principle to the case in hand. No doubt, so far the authorities are concerned
they must examine the claim of the respondent to be a small scale industry
strictly and in accordance with the rules. However, once it is found that the
industry qualifies as a small scale industry, in the matter of grant of exemption
a liberal approach is permissible if it does no violence to the language of the
notification. In a case of this nature it is only reasonable to take the view that C
the benefit of exemption will accrue to a unit found to be small scale industrial
unit from the date on which the application was made for grant ofregistration
certificate. Such a unit should not be deprived of the benefit to which it is
otherwise entitled as a small scale industrial unit merely because the authorities
concerned took their own time in disposing of the application. We therefore,
agree with the majority view of the Tribunal and hold that the benefit of D
exemption under the notification in question should be extended to the
respondent with effect from the date on which the application for grant of
registration was made by it before the competent authority. This is also in
accord with the principle which found favour with this Court in State of U.P.
and Anr. v. Haji Ismail Noor Mohammad & Co. and The Assessing Authority E
and Ors. v. Patiala Biscuits Ma~zifacturers Pvt. Ltd., (Supra).

The question then arises as to whether the date 3rd December, 1986 or
some date in February, 1988 should be reckoned as the date on which the
application for registration was made. In this regard the factual position is not
very clear. While the Collector in his impugned order has observed that the F
respondent had applied for provisional registration on 3rd December. 1986,
which was not granted, and that the respondent was granted permanent
registration on the basis of a second application, which was submitted later,
the learned Judicial member in paragraph I of the impugned order has observed
that the respondent had moved a provisional application on 3rd December, G
1986, but no action was taken on this application by the Directorate of
Cottage and Small Scale Industries, and it was only after lot of persuasion
that the officer visited the factory of the respondent during the early part of
·1988 and informed the respondent to move an application for permanent
registration. In these circumstances another application was filed by the
respondent in continuation of, or as a supplementary to their earlier application H
932 SUPREME COURT REPORTS (2003] 2 S.C.R.

A filed Ofl 3rd December, 1986. On the basis of the record before us we are not
in a position to record a categorical finding on this aspect of the matter.
Learned Addi. Solicitor General rightly submitted that since the collector has
recorded a finding in clear terms that the first application made by the
respondent was not granted and that it was only the second application which
B was granted, if the respondents wished to challenge this finding, the same
should have been specifically urged before the Tribunal, and it was open to
the Tribunal to record its finding on this aspect of the matter; Unfortunately .
there is no clear finding on this question, but in view of the observations in
the order of the judicial member which do not appear to have been controverted
in the other two orders of the members of the Tribunal, the factual position
C is quite confusing and we therefore do not wish to express any opinion in the
matter. We therefore remit the matter to the Tribunal to hear the parties and
record a clear finding as to whether the first application made on 3rd
December, 1986 was an application for registration whether provisional or
permanent, and whether the second application made sometime in February/
March, 1988 was an application which was supplemental in nature or in
D continuation of the first application made on 3rd December, 1986. If the
Tribunal comes to the conclusion that the application made on the 3rd of
December, 1986 was rejected, then the benefit of exemption should be
extended to the respondent only with effect from the date of the second
application made sometime in February, 1988. However ifthe Tribunal comes
E. to the finding that the first application made on 3rd December, 1986 remained
pending and the second application made sometime in February/March, 1988
was merely a continuation of the first application, being supplemental in
nature, then. the respondettt would be entitled to the benefit of exemption
with effect from the date of the first application i.e. frotn 3rd December,
1986. The Tribunal will dispose of the appeal accordingly.
F
The bank guarantee furnished by the respondent pursuant to the
Judgment and order dated 7th February, 2000 shall be kept alive till the
matter is decided by the Tribunal.

G costs.
This appeal stands disposed of in the above terms. No. order as to -
S.K.S. Appeal dismissed.