COMMISSIONER OF TRADE TAX, U.P.versusVARUN BEVERAGES LIMITED

•                        [2011] 4 S.C.R. 803


              COMMISSIONER OF TRADE TAX, U.P.                       A
                               v.
                VARUN BEVERAGES LIMITED
                (Civil Appeal No. 3186 of 2011)
                          APRIL 11, 2011
                                                                     B
               [DR. MUKUNDAKAM SHARMA AND
                      ANIL R. DAVE, JJ.] .

          Uttar Pradesh Trade Tax Act, 1948: s.4-A(4) - Fixed
    capital investment - Bottles and crates used by the C
    respondent in its factory for the manufacture of soft drinks and
    beverages - Inclusion of value of bottles and crates in the
    i'ixed capital investment ::... Held: Bottles are essential part of
    components and equipments necessary for the running of the
    factory of the respondent and; therefore, its value would form D
    part of the fixed capital investment and would be entitled to
    exemption - Crates are used only for the purpose of
    marketing and their use is necessary only for taking out the
    bottled beverages out of the factory - Crates having no user
    so far as running of the factory of the respondent is E
    concerned, therefore, value of crates cannot be deemed to
    be investment for the purpose of including it within the
    meaning of expression "Fixed Capital Investment" as per sub-
    section (4) of s. 4-A of the Act.

         The question which arose for consideration in the           F
    Instant appeal was whether the bottles and crates used
    by the respondent in its factory for the manufacture of
    soft drinks and beverages were to be treated as part of
    "Fixed Capital Investment" as being essential apparatus
    for the manufacture of soft drinks and, therefore, covered       G
    within the meaning of sub-section (4) of Section 4-A of
    the Uttar Pradesh Trade Tax Act.

        Partly allowing the appeal, the Court
                              803                                    H
    804     SUPREME COURT REPORTS               [2011) 4 S.C.R.

A        HELD: 1.1. Section 4A of the U.P. Trade Tax Act which
    lays down that where the State Government is of the
    opinion that it is necessary so ~ do for increasing the
    production of any goods or for promoting the
    development of any industry in the State, it may on the
B   application or otherwise declare that the turnover of sales
    in respect of_ such goods by the manufacturer thereof
    shall, during such period not exceeding fifteen years is
    exempted from payment of trade tax provide~ that goods
    manufactured in the new unit has a fixed capital
c   investment of five crore rupees or more. The said section
    further provided in sub-section (4) of Section 4-A of the
    Act as to what is the meaning of the expression "Fixed
    Capital Investment". It is provided therein that "Fixed
    capital investment" means value of land and building and
    such plants including captive power plant, machinery,
0
    equipment, apparatus, components, moulds, dyes, jigs
    and.fixtures. Sub-clause (b) inserted in the proviso to sub-
    section (4) of Section 4-A of the Act stated that for the
    purposes of determining value of plant including captive
    power plant, machinery, equipment, apparatus,
E   components, moulds, dyes, jigs and fixtures only
    investment, whether by means of purchases, hire or
    lease in such plant, equipment, apparatus, components
    and machinery, as is necessary for the establishment or
    running of the factory or workshop shall be taken into
F   account. The object of the relevant provision in the light
    of other provisions of the Act, made it crystal clear that
    the value of investment for equipments, apparatus and
    components for running the factory and workshop has
    also to be considered as investment and such value is
G   required to be included within the ambit of fixed capital
    investment. [Paras 12, 17] [809-E-F; 810-A-B; 812-G-H]
         CST v. Industrial Coal Enterprises (1999) 2 SCC 607 -
    relied on.
H
•      COMMISSIONER OF TRADE TAX, U.P. v. VARUN
                  BEVERAGES LTD.
                                                             805


        State of Bihar and Others v. Steel City Beverage Limited    A
    and another (1999) 1 sec 10- referred to.

          1.2. Considering the wording of the provision itself,
    it is quite necessary to give full and complete effect to the
    provision in a purposive manner so as to advance the            8
    objective of the provision. The respondents were
    engaged in the manufacture of soft drink and beverages
    which were required to be bottled and thereafter sealed,
    which were essential part of running of the factory and,
    therefore, the same would have to be included within the        C
    said extended meaning of the word 'investment' as
    appearing from the words 'fixed capital investment'. In the
    facts and circumstances, so far bottles are concerned,
    they are essential part of ·components and equipments
    necessary for the running of the factory and, therefore,
    such value of the investment would form part of the fixed       D
    capital investment and would be entitled to exemption as
    provided for. But so far crates are concerned they are
    used by the respondent only for the purpose of
    marketing. Use of crates is necessary for taking out the
    bottled beverages out of the factory and while doing the        E
    marketing of the sealed bottled beverages. The said view
    also received.s support from the contents of the eligibility
    certificate given by the appellant and, therefore, crates
    have no user so far as running of the factory of the
    respondent. Therefore, the value of crates cannot be            F
    deemed to be investment for the purpose of including it
    within the meaning of expression "Fixed Capital
    lnvestm~nt" as per sub-section (4) of Section 4-A of the
    Act. The order passed by the High Court so far bottles
    are concerned is upheld but the same so far crates are          G
    concerned is set aside. [Paras 21, 22, 23, 24) [815-A, D·
    H; 816-A-B]
        CIT v. Straw Board Mfg. Co. Ltd. 1989 Suppl. (2) SCC
    523 - relied on.
                                                                    H
    806       SUPREME COURT REPORTS                 [2011] 4 S.C.R.


A         State of Bihar v. Steel City Beverages Ltd. (1999) 1 SCC
    10 - distinguished.
                          Case Law Reference:
       (1999) 1 sec 10                referred to     Para 13, 17
B
       (1999) 2 sec 607               relied on       Para 16

       (1999) 1 sec 10                distinguished Para 18, 22

       1989 Suppl. (2) SCC 523        retied on       Para 21

C       CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    3186 of 2011.

         From the Judgment & Order dated 19.01.2010 of the High
    Court of Judicature at Allahabad in Trade Tax Revision No. 337
o   of 2002.

        Sunil Gupta, Shail Kumar, Dwivedi, AAG, G.
    Venkateswara Rao, Tanmay Agarwal, A. Shukla, Manoj Kumar,
    Dwivedi, Gunnam Venkateswara Rao for the Appellant.

E         Dhruv Agarwal, Praveen Kumar for the Respondent.

          The Judgment of the Court was delivered by

          DR. MUKUNDAKAM SHARMA, J. 1. Leave granted.

F        2. This appeal is directed against the Judgment and Order
    dated 19.01.2010 passed by the Allahabad High Court
    whereby the High Court allowed the revision petition preferred
    by the respondent holding that values of "bottles" and "crates"
    are to be treated as part of "Fixed Capital Investment" as they
G   are essential apparatus for manufacture of Soft Drinks and
    therefore could be governed and covered within the meaning
    of explanation 4(b)(i) to Section 4-A of the U.P. Trade Tax Act
    (hereinafter referred to as 'the Act').

H
•      COMMISSIONER OF TRADE TAX, U.P. v. VARUN
      BEVERAGES LTD. [DR. MUKUNDAKAM SHARMA, J.]
                                                                   807


         3. The issue, therefore, which falls for our consideration is    A
    as to whether or not bottles and crates used by the respondent
    could be said to be essential apparatus or equipments or
    components for the establishment and running of the factory of
    the respondent.
                                                                          B
          4. The respondent is engaged in manufacturing and sale
    of soft drink and beverages. The assessee - respondent
    applied for the grant of eligibility certificate under Section 4A
    of the U.P. Trade Tax Act read with notification No. 640 dated
    21.02.1997. Pursuant to the aforesaid request, the respondent/
    assessee was granted an eligibility certificate on 26.5.2000 by       C
    the Divisional Level Committee constituted under section 4A
    of the Act. The exemptions were granted to the assessee for
    a period of ten years running from 15.4.1999 to 14.4.2009 or
    to the extent of 200% of the fixed capital investment of
    Rs.53,79,49,612/-, whichever was earlier. The exemption               D
    certificate granted on 26.5.2000 stipulates that it was granted
    for the goods, which were manufactured by the assessee as
    mentioned in the eligibility certificate. Towards the end of the
    eligibility certificate the goods manufactured by the respondent
    are described, which are as under: -                                  E

          1.    Carbonate Soft Drinks/Aerated Drinks, including
                syrups and beverages packed in a sealed
                container.

          2.    Sealed and no unsealed soft drinks packed in              F
                sealed glass containers carbonated drinks and
                aerated water including sweated and non sweated
                drinks, mineral water packed in pet bottles and pet
                pre forms to be used in fillings of beverages and
                liquids articles.                                         G

          5. Subsequently the assessee applied for a review of the
    eligibility certificate and sought extension of the period from ten
    years to fifteen years. In the said review application, the
    assessee also sought exemptions for fixed capital investment          H
    808     SUPREME COURT REPORTS                   [2011] 4 S.C.R.      •
A made by it in glass bottles and crates claiming that these items
  were essential for the manufacture of soft drinks and for running
  a beverage unit. In that application it was also stated that while
  computing the fixed capital investment, an amount equal to Rs.
  5,73,62,277/- invested by the assessee towards purchases of
B bottles and crates should also be included in the fixed capital
  investment.

       6. The Divisional Level Committee vide its order dated
  10.04.2001 allowed the review application and ordered that the
  aforesaid amount of Rs. 5,73,62,277/- be included while
C computing the fixed capital investment of the assessee. By the
  aforesaid order dated 10.04.2001 the eligibility certificate was
  also granted to the assessee for a period of 15 years.

       7. Being aggrieved by the aforesaid order dated
D 10.04.2001 the appellant filed an appeal before the UP
  Tribunal, Trade, Tax, Lucknow. The Tribunal by its order dated
  14.05.2002 allowed the said appeal filed by the appellant
  holding that the bottles and crates are neither directly nor
  indirectly used in the manufacture of beverages and therefore
E the same cannot be treated as "Apparatus" as used in the said
  entry in explanation (4) to Section 4-A of the Act.

        8. Being aggrieved by the said order passed by the UP
  Tribunal, Trade, Tax, Lucknow, the respondent assessee filed
  a revision petition before the Allahabad High Court which was
F registered as Trade Tax Revision No. 337 of 2002. The High
  Court by its order dated 19.01.2010 allowed the said revision
  petition holding that for the manufacture of soft drink, the bottles
  and crates are essential apparatus especially in a captive
  industry where the liquid which is prepared and collected by way
G of a continuous process in the bottles and thereafter kept it in
  crates and therefore both bottles and crates are to be accepted
  as "apparatus" within the meaning of Explanation (4) (b) (i) to
  section 4-A of the U.P. Trade Tax Act.

H
•       COMMISSIONER OF TRADE TAX, U.P. v. VARUN
       BEVERAGES LTD. [DR. MUKUNDAKAM SHARMA, J.)
                                                                    809


         9.'The question of law that was framed by the High Court           A
    was answered in favour of the assessee holding that such
    bottles and crates are to be treated as fixed capital investment.
    It was also held that the period of exemption was for 15 years.

          10. The aforesaid order passed by the High Court was              8
    challenged by the appellant by filing the present appeal in which
    we heard learned counsel appearing for the parties. By way of
    clarification it has to be stated at this stage that in the present
    appeal·what is specifically challenged is first part of the ti>rder
    with regard to bottles and crates forming part of fixed capital
    investment and not that part of the order granting exemption for        C
    a period of 15 years. The appeal, therefore, is restricted to the
    aforesaid limited issue.

          11. The counsel appearing for the appellant during the
     course of his arguments had taken us through the provisions            D
     of Section 4-A of the Act. He submitted that in the light of
     aforesaid provisions, the State Government granted exemption
     from payment of trade tax in certain cases.
            12. The aforesaid provision relied upon is Section 4A of        E
      the Act which lays down that where the State Government is of
      the opinion that it is necessary so to do for increasing the
      production of any goods or for promoting the development of
      any industry in the State, it may on the application or otherwise
    . declare that the turnover of sales in respect of such goods by
      the manufacturer thereof shall, during such period not exceeding
                                                                            F
      fifteen years is exempted from payment of trade tax provided
      that goods manufactured in the new unit has a fixed capital
      investment of five crore rupees or more. The said section further
      provides in sub-section (4) of Section 4-A of the Act as to what
      is the meaning of the expression "Fixed Capital Investment". It       G
      is provided therein that "Fixed capital investment" means value
      of land and building and such plants including captive power
      plant, machinery, equipment, apparatus, components, moulds,
      dyes, jigs and fixtures. It is mentioned in sub-clause (b) inserted
                                                                            H
    810      SUPREME COURT REPORTS                 [2011] 4 S.C.R.
                                                                        •
A in the proviso to sub-section (4) of Section 4-A of the Act that
  for the purposes of determining value of plant including captive
  power plant, machinery, equipment, apparatus, components,
  moulds, dyes, jigs and fixtures only the following shall be taken
  into account:-
B
        (i) investment, whether by means of purchases, hire or
        lease in such plant, equipment, apparatus, components
        and machinery, as is necessary for the establishment or
        running of the factory or workshop.

C      13. Relying on the aforesaid provisions the counsel
  appearing for the appellant submitted that bottles and crates
  cannot be held to be 'Fixed Capital Investment' either for
  establishment or running of the factory or workshop of the
  respondent and therefore the value of the same cannot be
D included within the expression "fixed capital investment" and,
  therefore, the High Court was not justified in directing for
  inclusion of the value of the aforesaid bottles and crates to be
  read within the expression of "fixed capital investmenf'. Counsel
  appearing for the appellant further submitted that the impugned
E order is contrary to the ruling of this Court in State of Bihar and
  Others vs. Steel City Beverage Limited and another reported
  in (1999) 1 sec 10. It was held by this Court that in respect of
  an industry manufacturing soft drinks and beverages, it can be
  said that plant would mean that apparatus which is used for
F manufacturing soft drinks or beverages and not articles like
  crates and bottles used for storing the manufactured goods. It
  was also submitted by the counsel that the High Court erred in
  enlarging the scope of the definition of the word "Fixed Capital
  Investment" ignoring the specific words used in the said
G definition. It was also submitted that the use of word "Apparatus"
  in the definition of "Fixed Capital Investment" is restricted to
  such apparatus which are actually used in the.manufacture of
  finished product and that it cannot be extended to such
  apparatus which are used for storing of finished products.
H
•      COMMISSIONER OF TRADE TAX, U.P. v. VARUN
      BEVERAGES LTD. [DR. MUKUNDAKAM SHARMA, J.]
                                                                 811


          14. Counsel appearing for the respondent, however, not        A
    only refuted the aforesaid submissions but also submitted that
    the above referred decision of this Court is clearly
    distinguishable from the facts of the present case in view of the
    clear distinction between the provision of law upon which the
    above referred decision was rendered by this Court and the          B
    provision of law which is applicable to the facts of the present
    case. He also submitted that the definition of fixed capital
    investment as per sub-section (4) of Section 4-A of the Act
    would indicate that respondent is entitled to exemption for all
    the fixed capital investment which not only include within its      c
    ambit the value of the land and building but also such
    apparatus, components and equipments, which are necessary
    for the establishment or running of the factory or workshop. He
    further submitted that provisions of the Act includes not only
    plants, machinery but also includes apparatus, components,
                                                                        0
    moulds, dyes, jigs and fixtures. He also submitted that the glass
    bottles and creates are absolutely necessary for the unit of soft
    drink as without the use of these apparatus, the manufacture
    of soft drink would not be complete.

         15. In the light of the submissions made by counsel            E
    appearing for the parties, we heard learned counsel appearing
    for the parties and considered the scope and ambit of the
    question which falls for our determination.

        16. This Court in the case of CST v. Industrial Coal            F
    Enterprises, reported at (1999) 2 SCC 607, observed that as
    under: -

         "6. Admittedly the provisions for exemption from sales tax
         have been introduced in the Act for the purpose of
         increasing the production of goods and for promoting the       G
         development of industries in the State. In fact, when the
         scheme called "Grant of Sales Tax Exemption Scheme
         1982 to industrial units under Section 4-A of the Sales Tax
         Act" was originally framed, it was expressly stated that the
         Government granted the facility of exemption in order to       H
    812      SUPREME COURT REPORTS                   [2011] 4 S.C.R.
                                                                          •
A         encourage the capital investment and establishment of
          industrial units in the State. The Scheme contained various
          rules for grant of such exemption ....... .



B

          11. In CIT v. Straw Board Mfg. Co. Ltd. this Court held that
          in taxing statutes, provision for concessional rate of tax
          should be liberally construed. So also in Bajaj Tempo Ltd.
c         v. CIT it was held that provision granting incentive for
          promoting economic growth and development in taxing
          statutes should be liberally construed and restriction placed
          on it by way of exception should be construed in a
          reasonable and purposive manner so as to advance the
D         objective of the provision.

          12. We find that the object of granting exemption from
          payment of sales tax has always been for encouraging
          capital investment and establishment of industrial units for
          the purpose of increasing production of goods and
E         promoting the development of industry in the State. If the
          test laid down in Bajaj Tempo Ltd. case is applied, there
          is no doubt whatever that the exemption granted to the
          respondent from 9-8-1985 when it fulfilled all the
          prescribed conditions will not cease to operate just
F         because the capital investment exceeded the limit of Rs 3
          lakhs on account of the respondent becoming the owner
          of land and building to which the unit was
          shifted ....................."

G       17. The aforesaid object of the relevant provision in the
  light of other provisions of the Act, makes it crystal clear that
  the value of investment for equipments, apparatus and
  components for running the factory and workshop has also to
  be considered as investment and such value is required to be
H included within the ambit of fixed capital investment. The
•    COMMISSIONER OF TRADE TAX, U.P. v. VARUN
    BEVERAGES LTD. [DR. MUKUNDAKAM SHARMA, J.]
                                                                 813


wordings of the provision of law which call for our interpretation       A
are not identical and similar which were considered and
interpreted by this court in the decision in State of Bihar and
Others (supra).

    18. This Court in the case of State of Bihar v. Steel City
                                                                         8
Beverages Ltd., reported as (1999) 1 SCC 10, observed that
as under: -

     "8. It is also relevant to refer to the two notifications of the
     Government of India in the Ministry of Industry (Department
     of Industrial Development) dated 2-4-1991 and 1-1-1993 C
     issued under Section 11-B of the Industries (Development
     & Regulation) Act, 1951. Notification No. 232 dated 2-4-
      1991 while stating what has to be included under fixed ·
     assets while ascertaining whether a small-scale industrial
     unit's investment has exceeded the limit bf Rs 60 lakhs has D
     clarified that the cost of storage tanks which store raw
     material or finished products is to be excluded. The 1993
     notification has amended the notification of 2-4-1991 and
     clarified by adding Note 2 that in calculating the value of .
     plant and machinery, the cost of storage tanks which store E
     raw materials/finished products only and which are not
     linked with the manufacturing process shall be excluded.
     On 8-5-1995, the Government of India again issued a
     circular, after having received representations from the
     industry seeking clarification whether bottles and crates are F
     to be taken into account for determining the SSI status of
     the units engaged in manufacture of soft drinks/
     concentrates, clarifying that investment in bottles and crates
     in such units is in the nature of storage of finished products
     and, therefore, such investment has to be excluded while G
     computing the value of plant and machinery.

     9. As pointed out in the affidavit-in-rejoinder, the Company
     had applied for an Eligibility Certificate claiming the status
     of a small-scale industry. It is, in fact, registered as a small-
     scale industrial unit. While declaring its investment at the        H
    814       SUPREME COURT REPORTS                    [2011] 4 S.C.R.


A         time of seeking registration as a small-scale industrial unit,
          it did not include investment in bottles and crates under the
          head "Plant and Machinery". The investment in bottles and
          crates was shown under a separate head. It is further
          pointed out in the said affidavit that if the investment of the
B         Company in bottles and crates is included under the head
          "Plant" then its total fixed capital investment will reach the
          level of 137.36 lakhs and it can no longer be regarded as
          a small-scale industrial unit. As the Company had applied
          as a SSI unit, the District Level Committee had to verify
c         the status of the Company as SSI unit and, therefore, it was
          bound to take into account the above-referred two
          notifications of the years 1991 and 1993. If under these
          circumstances, the District Level Committee came to the
          conclusion that the Company is not entitled to the benefit
          of deferment in respect of its investment in bottles and
D
          crates, it cannot be said that it has acted contrary to law."

        19. A careful reading of the ratio of the aforesaid decision
  would reveal that expression plant and machinery in the said
  case was intended to take such articles which are required for
E the purpose of manufacture and not for storage. Besides, the
  said decision was rendered in the context of the two
  notifications which specifically excluded value of bottles and
  crates to be included in the expression "plant and machinery"
  as the same are used for the purpose of storage of finished
F products and not used for the purpose of manufacture of
  finished products.

       20. However, in this case, not only the wordings of the Act
  are wider but there is also no such notification issued by the
G State Government giving a restricted meaning to the expression
  "fixed capital investment" which as per provision enacted also
  includes all such investment made for equipment, apparatus,
  components and machinery which are necessary for running of
  the factory or workshop.
H
•     COMMISSIONER OF TRADE TAX, U.P. v. VARUN
     BEVERAGES LTD. [DR. MUKUNDAKAM SHARMA, J.]
                                                               ~15


          21. In that view of the matter and considering the wording. ·A
    of the provision itself, it is quite necessary to give full and
    complete effect to the provision in a purposive manner so as
    to advance the objective of the provision. So in the instant case
    all those apparatus, equipments and components which are
    necessary for ru.nning of the factory would also be considered B
    as investment and would therefore be part of the definition of
    fixed capital investment. Besides, as laid down in the decision
    of this Court in CIT v. Straw Board Mfg. Co. Ltd. reported as
    1989 Suppl. (2) SCC 523, in taxing statutes, provisions for
    concessional rate of tax should be liberally construed.            c
         22. The respondents are engaged in the manufacture of
    soft drink and beverages which are required to be bottled and
    thereafter sealed, which are essential part of running of the
    factory and therefore the same will have to be included within
    the aforesaid extended meaning of the. word 'investment' as . D
    appearing from the words 'fixed capital investment'. To that
    extent, facts of the present case are distinguishable from the
    facts of State of Bihar and Others (supra) on which reliance
    was placed by the counsel appearing for the appellant.
                                                                      E
         23. Considering the facts and circumstances, we hold that
    so far bottles are concerned, they are essential part of
    components and equipments necessary for the running of the
    factory and therefore such value of the investment would form
    part of the fixed capital investment and would be entitled to F
    exemption as provided for. But so far crates are concerned they
    are used by the respondent only for the purpose of marketing.
    Use of crates is necessary for taking out the bottled beverages
    out of the factory and while doing the marketing of the sealed
    bottled beverages. The aforesaid view taken by us also G
    receives support from the contents of the eligibility certificate
    given by the appellant and therefore crates have no user so far
    as running of the factory of the respondent. Therefore, the value
    of crates in our considered opinion cannot be deemed to be
                                                                      H
   816      SUPREME COURT REPORTS                [2011] 4 S.C.R.
                                                                     •
A investment for the purpose of including it within the meaning of
  expression "Fixed Capital Investment" as per sub-section (4)
  of Section 4-A of the Act.

       24. Having held thus, we allow this appeal partly to the
  aforesaid extent. We uphold the order passed by the High
8
  Court so far bottles are concerned but set aside the same so
  far crates are concerned. In terms of the aforesaid order and
  observations, this appeal stands disposed of but there will be
  no order as to costs.

C D.G.                                     Appeal partly allowed.