Holding

The Kerala exemption is a general exemption under section 8(2A), so the inter‑state sales of newsprint are exempt from Central Sales Tax.

Summary

Hindustan Paper Corporation Ltd. entered into an agreement with the Kerala Government in 1974 that exempted its newsprint turnover from Kerala's sales tax for two years from the start of production. The company sold most of the newsprint in inter‑state trade and claimed a corresponding exemption from Central Sales Tax under section 8(2A) of the Central Sales Tax Act, 1956. The State Sales Tax Officer accepted the state exemption but rejected the central exemption; the appellant’s appeals were dismissed by the Sales Tax Appellate Tribunal and the Kerala High Court. The Supreme Court examined whether the Kerala notification constituted an "exemption from tax generally" within the meaning of section 8(2A). Relying on Pine Chemicals Ltd. v. Assessing Authority, the Court held that the exemption identified the dealer and the goods but did not impose conditions on the transaction, and therefore qualified as a general exemption. Consequently, the inter‑state sales of newsprint were exempt from Central Sales Tax. The Court allowed the appeals.

Issues considered

Whether the exemption granted under Kerala Notification RSO 415 of 1971 is a 'general exemption' within the meaning of section 8(2A) of the Central Sales Tax Act, 1956.
Whether inter‑state sales of newsprint by Hindustan Paper Corporation are liable to Central Sales Tax.

Legislation cited

Central Sales Tax Act, 1956s. 3(a), s. 6(1), s. 8(1), s. 8(2), s. 8(2A)
Kerala General Sales Tax Act, 1963s. 10

Subjects

Central Sales TaxSection 8(2A)general exemptioninter‑state salesKerala General Sales Tax Actnewsprinttax exemption

Judgment

HINDUSTAN PAPER-CORPN. LTD. ETC. ETC. A
V,

STATE OF KERALA AND OTHERS

MARCH 26, 1993

[B.P. JEEVAN REDDY AND N. VENKATACHALA, JJ.] B

Central Sales Tax Act 1956: Section 8(2A).

Kera/a General Sales Tax Act 1963: Section JO & Notification RSO
415 of 1971,
c
Central Sales TaJt-Exemptiott-Whether available for inter state sales
a/sir-Exemption contained in the 1971 Notificatiott-Wliether an exemption
from tax 'generally'.

The State of Kerala issued Notification RSO 415 of 1971 under D
Section 10 of the Kerala General Sales Tax Act providing for an exemption
in respect of tax in regard to the tum over of the sales of newsprint for a
period of two years from the date of starting production of the newsprint
plant. The appellant entered into an agreement with the State Government
in 1974 giving the said exemption.
E
A major portion of the newsprint manufactured at the factory lo-
cated within the State was sold in the course of inter-state trade and
- commerce, and during the assessment years relevant to the period of the
two years from the date of the commencement of the production, the-
appellant claimed exemption not only from the State Sales Tax, by virtue
of the 1971 Notification and the 1974 agreement but also from the Central F
Sales Tax under and by virtue of sub-section (2A) of Section 8 of the
Central Sales Tax Act.

The Sales Tax Officer accepted the claim under the State Sales Tax
Act but rejected the claim under the Central Sales Tax Act. G
-y Appeals preferred by the appellant to the Appellant Assistant Com-
missioner and the Sales Tax Appellant Tribunal were dismissed, and when
the appellant approached the High Court by way of revision under Section
41 of the State Sales Tax Act the High Court also dismissed the revisions
petitions. H
655
656 SUPREME COURT REPORTS (1993) 2 S.C.R.

A In the appeals to this Court It was contended on behalf of the
appellant relying on Pine Chemicals Limited v. Assessing Authority, (1992)
2 S.C.C. 683 that the exemption granted to It by the 1971 State Government
notification Issued under the Kerala Sales Tax Act Is a general exemption
within the meaning of Section 8(2A) and, therefore, the inter- state sales ~-
B effected by it are equally exempt from Central Sales Tax by virtue of
Section 8(2A).

The Staie contested the appeals by contending that the exemption
granted to the appellant under the State Sales Tax Is not a general
exemption but a conditional one, and that the exemption operates only In
C certain specified circumstances, and that the provision contained In Sec·
lion 8(2A) does not go to exempt the Inter-state sales of the appellant. -----.?""

On the question whether the exemption granted under the 1971 State
notification exempting the produce oflhe appellant factory manufacturing
D newsprint from the State Sales Tax for a jleriod of two years from the date
of commencement of production in the factory can be called iln exemption
from tax 'generally'.

Allowing the appeals, this. Court,

E HELD: 1. The inter-state sales effected by the appellant are those
falling under Section 3(a) of the Central Sales Tax Act. The liability to pay
Central Sales Tax on inter-state sales arises by virtue of sub-section (1) of
Section 6. Sub section (2A) of section 8 seeks to provide exemption to a
•
dealer with respect to his turnover. The explanation appended to the sub·
F section is couched in negative terms and seeks to define the words 'exempt . ,...__,
from tax generally", and indicates when a sale or purchase .of any goods
shall not be deemed to be exempt from tax generally under the State Sales
Tax Law. [659 B, 660 B-C)

2. An inter-state sale or purchase of a commodity shall not be
G deemed as exempt from State Tax generally If the exemption is given only
(1) in specified circumstances or under specified conditions or (2) the tax
is leviable on the sale or purchase of such goods at specified stages or (3)
otherwise than with reference to the turnover of the goods. These condl·
lions or limitations are with reference to the transaction of sale or pur·
H chase. [663 F -GI
HINDUSTANPAPERCORPN. v. STATE[REDDY,J.] 657

3. The existence or otherwise or the aforesaid three limitations OD A
claiming exemption the explanation under Section S(2·A) or the Central
Sales T1<x Acfwill have to be tested with reference to the transaction or sale
or purchase as the case may be or the dealer who claims the exemption in
respect of his intrastate sale or purchase orthe same goods. (663 H, 664 A]

4. The facts which the dealer has to prove to get the benefit or the B
government orders are intended only to identify the dealer and the goods in
respect or which the exemption is sought and they are not conditions or
specifications or circumstances relating to the turnover sought to be ex-
empted from payment of tax within the meaning or Section 8(2-A). (664 El
c
5, The conditions relating to identity or the goods and the dealer are
always there in every exemption and that cannot be put as a condition or
sale. (664 GI

Pine Chemicals Limited v. Assessing Authority, (1992] 2 S.C.C. 683,
explained and followed. (660 HJ D

India11 Aluminium Cables v. State ofHaryana, 38 S.T.C.108,111dustrial
Cables Corporatio11 v. Commercial Tax Officer 35 S.T.C. 1, distinguished.
[662 A]
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5073- E
75/1985

From the Judgment and Order dated 9.9.1985 of the Kerala High
Court in T.R.C. Nos. 29, 30 and 31 of 1985.

AS. Nambiar, Mrs. Shanta Vasudevan, P.K. Manohar and C.N. F
Sreekumar for the Appellants.

G. Vishwanatha Iyer and M.A. Firoz for the Respondents.

The Judgment of the Court was delivered by.
G
B.P. JEEVAN REDDY, J. Civil Appeal Nos. 5073-75/85.

These appeals arise from a common judgment of the Kerala High
Court in a batch of three tax revision cases. The question relates to the
interpretation of Section 8(2A) of the Central Sales Tax Act, 1956. H
"'(

658 SUPREME COURT REPORTS (1993] 2 S.C.R.

A In exercise of the power conferred upon it by Section 10 of the ~.
Kerala Sales Tax Act, the State of Kerala issued a notification RS0-415 of
1971 providing for "an exemption in respect of the tax payable under the
said Act in regard to the turn-over of the sales of newsprint by the
newsprint plant in the State for the period of two years from the date o[
starting production of the newsprint by the said plant."
B ~-
·The appellant-Hindustan Paper Corporation Limited entered into an
agreement with the Government of Kerala in the year, 1974 reiterating the
said exemption. The relevant portion of the agreement reads thus:

c "The Government of Kerala, with a view to help the
project to tide over the difficulties in the initial stages and
to establish itself, agree to exempt the turnover relating
to the sale, of the products by the corporation from the ~-
payment of sales tax for a period of two years from the
date of starting of production of the newsprint."
D
A major portion of the newsprint manufactured at the factory located
within Kerala is sold in the course of inter-state trade and commerce.
During the assessment years relevant to the period of the two years from
the date of commencement of production at the Kerala Factory, the
E appellant claimed exemption not only from the State sales tax by virtue of ...__ -
the aforesaid notification and agreemel\t but also from Central Sales Tax
under and by virtue of sub-section (2A) of Section 8 of the Central Sales
Tax Act. The Sales Tax Officer accepted the claim under the State Sales
Tax Act but rejected the claim under the Central Sales Tax Act. " .
The
F appeals preferred by the appellant to the Appellate Assistant Commis-
sioner and the Sales Tax Appellate Tribunal were dismissed whereupon it
approached the High Court by way of revisions under Section 41 of the
State Sales Tax Act. The High Court too disagreed with the contentions
urged by the appellant and dismissed the tax revision cases. Hence, these
appeals.
G
The dispute between the parties, in brief, is thus: the appellant says
that exemption granted to it by the aforesaid notification issued under the
Kerala Sales Tax Tax is a general exemption within the meaning of Section
8(2A) and, therefore, the inter- state sales effected by it are equally exempt
·1
H from Central Sales Tax.by virtue of Section 8(2A). On the other hand, the
' 'r

HINDUSTANPAPERCORPN. v. STATE[REDDY,J.] 659

.>-A case of the Government of Kerala is that the exemption granted to the A
appellant under the State Sales Tax Act is not a general exemption but a
conditional one; further the exemption operates only in certain specified
circumstances. Accordingly, they say, the provision contained in Section
8(2A) does not go to exempt the inter-state sales of the appellant.
B
!he inter-state sales effected by the appellant are those falling under
Section 3(A) of the Central Sales Tax Act. The liability to pay Central Sales
Tax on inter-state sales arises by virtue of sub-section (1) of Section 6.
Sub-section (lA) of Sec. 6 says that a dealer shall be liable to pay tax under
the Central Act on sale of goods effected by him in the course of inter-state
trade or commerce notwithstanding that no tax would have been leviable C
under the Sales Tax law of the appropriate State if such sale. had taken
place inside the State. Sub-section (1) of Section 8 prescribes the rate at
which the Central Sales Tax is chargeable where the goods are sold to
persons and authorities mentioned therein while sub-section (2) prescribes
the rate in cases other than those falling under sub-section (1). Sub-section D
(2A) of Section 8, which is material for our purpose reads thus:

"(2A) Notwithstanding anything contained in sub-section
(lA) of Section 6 or sub-section (1) or clause (b) of
sub-section (2) of this section, the tax .payable. under this
-x Act by a dealer on his turnover in so far as the turnover
or any part thereof relates to the sale of any goods, the
E

sale or, as the· case may be, the purchase of which is under
the sales tax law of the appropriate State, exempt from
tax generally or subject to tax generally at a rate which is
lower than four per cent. (Whether. called a tax or fee or F
by any other name), shall be nill or, as the case may be,
shall be calculated at the lower rate.

Explanation:- For the purpose of this sub- section a sale
or purchase of any goods shall not be deemed to be
exempt from tax generally under the sales tax law of the G
appropriate State if under that law the sale or purchase
of such goods is exempt only in special circumstances or
under specified conditions or the tax is levied on the sale
or purchase of such goods at specified stages or otherwise
than with reference to the turnover of the goods." H
660 SUPREME COURT REPORTS [1993) 2S.C.R.

A What does sub-section·(2A) says? It opens with a non-obs/ante clause
which gives it an overriding effect over the provisions contained in Sections
6(1A) and over sub-section (1) as well as clause (b) of sub-section (2) of
Section 8. The sub-section seeks to provi-le exemption to a dealer with
respect to his turnover in so far as his turnover or any part thereof relates .
B to (a) sale of any goods, the sale or, as the case may be, the purchase of
which is under the sales tax law of the appropriate State, exempt from tax
generally or (b) where his turnover or any part thereof relates to the sale
of any goods the sale or purchase of which is subject to tax generally at a
rate which is lower than four per cent. In a case covered by (a) the Central
Sales Tax will be nil while in a case falling under (b), Central Sales Tax -
C shall. he chargeable at the same lower rate at which the State sales tax is
chargeable. The explanation appended to sub-section seeks to define the
words "exempt from tax generally.'' The.explanation is couched in negative
terms. It says that for the purposes of the said sub-section, a sale or
purchase of any goods shall not be deemed to be exempt from tax generally
D under the State Sales Tax law if (i) under the State law the sale or purchase
of such goods is exempt only in specified circumstances or (ii) if under the·
State law the sale or purchase of such goods is exempt only under specified
conditions or (iii) if under the State law the tax is levied on the sale or
purcha5e of~ such goods at specified stages or (iv) where under the State
E law the tax is levied otherwise than with reference to the turnover of the
goods.

The sole question in this case is whether the exemption granted
under the aforesaid notifieation exempting the produce of a factory
F · manufacturing newsprint from the State sales tax for a period of two years
from the date of commencement of prodi.ction in the factory can be called
-
an exemption from tax generally. To put it differently, the question is
whether the said exemption is one operative only in specified circumstances
or whether the exemption is one which is operative only under specified
G conditions in which case it cannot be said to be an exemption "generally".

The learned counsel for the appellant relies upon the decision of this
Court in Pine Chemicals Limited v. Assessing Authority, (1992] 2 S.C.C. 683,
a decision rendered by S. Ranganathan, V. Rarnaswami and N.D. Ojha, )J.
H According to him, the said decision is conclusive on the question.
'(

HINDUSTAN PAPER CORPN. v. STATE[REDDY,J.] (,61

_,.,---'.
The counsel for the State of Kerala, on the other hand, seeks to A
distinguish the said decision. According to him, the said decision does not
consider the precise q_uestion and aspect which really arises in these
·appeals. The learned counsel for the State of Kerala, Sri G. Vishwanath
Iyer, puts his case thus: if one is asked whether the exemption granted
under the aforesaid notification is a general exemption, his obvious answer
->-- would be, no. It is not an exemption which operates generally but an
B
~ exemption limited to two years from the date of commencement of the
production of newsprint in the factory. Similarly, if a person is asked
whether newsprint is exempt generally from the State sales tax in Kerala,
none would answer in the affirmative. He would say that the sale of
newsprint in Kerala is exempt only in certain circumstances or subject only c
to a condition viz., that that neWsprint is produced within two years of the
commencement of the production in the factory located in Kerala. It is,
~ therefore, idle to contend, says Sri Iyer, that the sale of newsprint within
Kerala is exempt generally from the State sales tax. In such a case, says the
counsel, the provision contained in sub-section (2A) does not come into
D
operation and the inter-state sales of such newsprint cannot be said to be
exempt from the Central Sales Tax. Mr. Iyer further says that the exemp-
tion notification issued by the Government of Kerala under Section 10 of
the State Act does not exempt newsprint from the State sales tax al-
together. It grants exemption only in a specified situation viz., in respect of
-~ the newsprint produced within the period of two years froin the date of E
commencement of production by a factory manufacturing newsprint in the
State of Kerala. The exemption would thus operate for different periods in
the case of different assessees inasmuch as the date of commencement of
production by all the manufacturers of newsprint may not be the same.
Moreover, the benefit of the said notification is available only where a
F
factory goes into production after the commencement of the said notifica-
tion, says Sri Iyer, He elaborates his submission saying that the exemption
'~
granted by the said notification is only in favour of certain dealers or a
class of dealers, in certain circumstances and is not in the nature of a
general exemption. An exemption given under Section 10 of the State Act
with reference to dealers or a class of dealers i.e., referable to clause (ii) G
of sub-section (1), says the counsel, can never be called a general exemp·
tion nor can it be characterised as an exemption operating 'generally'. A
general exemption, according to the learned counse~ means a general,
unqualified/unconditional exemption. Counsel says that the decisions of
H
662 SUPREME COURT REPORTS (1993] 2 S.C.R.

A this Court in Indian Aluminium Cables v. State of Haryana 38 S.T£.. 108
and in Industrial Cables Corporation v. Commercial Tax Officer 35 S.T.C. 1
support his contention. The learned counsel places strong reliance Upon
the object and reasons appended to the bill proposing the substitution of
sub-section (2A) in the year 1972. The objects and reasons relied upon by
the learned counsel read thus:
B
'Clause 5 Sub-Clause (a) of this clause seeks to substitute
a new .sub-section for the existing sub-section (2A) of
Section 8 of the Principal Act. The new sub-section seeks
to bring out more clearly that an exemption or lower rate
c of levy under the local sales tax law of the appropriate
State would be available in respect of an inter-state sale
of goods only if such exemption or lower levy is available
generally with reference to such goods or such class of
goods under the local sales tax law.'

D According to Sri Iyer the said statement of objects and reasons puts
the meaning, purpose and object of the sub-section beyond any doubt.

On the other hand, Sri A.S. Nambiar, learned counsel for the appel-
lant-corporation submits, adopting the reasoning in Pine Chemicals that the
E circumstances or conditions contemplated by the explanation to sub-sec-
tion must be the circumstances and conditions attaching to the sale and
not to the dealer. The exemption notification merely serves to identify the
dealer and the goods entitled to exemption but it does not lay down any
circumstances .or conditions attaching tci the sale of goods (Newsprint). Sri
Nambiar says that once the goods are identified viz., that it is a newsprint
F
manufactured by a factory within two years· of its commencing production,
there is no further condition attaching to the exemption; the goods are
exempt generally. It is not a case where the exemption is hedged in by
certain conditions nor is it a case where the exemption operates only in
certain circumstances. The learned counsel submits that the decisions of
G this court in Indian Aluminium and Industrial Cables have been considered
and explained by this Court in Pine Chemicals and, therefore, the principle
of those decisions cannot be read as supporting the State's submissions.

Whtie we see the force in the submissions of Sri Iyer, learned counsel
H for the State of Kerala, we cannot give effect to ·the same in the light of
HINDUSTAN PAPER CORPN. v. STATE [REDDY,J.] 663

the binding decision in Pine Chemicals which deals with an almost similar A
exemption notification. The Government of Jammu & Kashmir had issued
orders providing for exemption "from the State sales tax both on raw-
materials and finished products for a period of five years from the date the
unit goes into production." Question had arisen whether the said exemption
attracts the exemption contai.ned in Section 8(2A) of the Central Act? The B
said question was answered in the affirmative by V. Ramaswami, J. speak-
ing for the Bench. The learned Judge examined the scheme of sub-section
(1) and (lA) of Section 6 as well as of sub-sections (1), (2) and (2A) of
Section 8 and then observed:

"On a plain reading of Section 8(2-A) of the Central Sales c
Tax Act it deals with the liability of a dealer to pay tax
under the Act on his incerstate sales turnover relating to
any goods on the turnover relating to such goods if the
sale had taken place inside the State is exempt from
payment of sales tax under the sales tax law of the ap- D
propriate State. ·It provides that if an intrastate sale or
purchase of a commodity by the dealer is exempt from tax
generally or subject to tax generally at a rate which is lower
than 4 per cent than his liability to tax under the Central
Sales Tax Act when such commodity is sold on inter-state
trade would be ·either nil or as the case may be shall be E
calculated at a lower rate. Explanation states as to when
the sale or purchase shall not be deemed as to be exempt
from tax generally under the sales tax law. That is to say
an intrastate sale or purchase shall not be deemed as to
be exempt from tax generally under the sales tax law. That F
is to say an intrastate sale or purchase of a commodity
shall not be deemed as exempt from State tax generally if
the exemption is given only ( 1) in specified circumstances
or under specified conditions or (2) the tax is leviable on
the sale or purchase of such goods at specified stages or
(3) otherwise than with reference to the turnover of the G
goods. These conditions or limitations are therefore with
reference to the transaction of sale or purchase. The main
clause deals with the turnover o~ 'a dealer' which term
would include 'any dealer' or 'any class of dealers' The
existence or otherwise of the three Limitations under the H
664 SUPREME COURT REPORTS (1993] 2 S.C.R.

A explanation above referred to on claiming exemption under
Section 8(2-A) of the Central Sales Tax Act will therefore
have to be tested with reference to the transaction of sale or
purchase ~ the case may be of the dealer who claims the
exemption in respect of his intrastate sale or purchase of the
same goods. Thus the specified circumstances and the
B specified conditions referred to in the explanation should --~-
be With reference to the local turnover of the same dealer
who claims exemption under Section 8(2-A) of the Central
Sales Tax Act.

c ' The learned Advocate-General for the State con-
tended that the conditions that the industry should have
been set up and commissioned subsequent to the Govern-
ment Orders 159 and 414 above referred to and the
commodity sold by him in order to claim the exemption
D under the said government order, shall be those manufac-
tured by that industry are conditions or specified cir-
cumstances within the meaning of the explanation and,
therefore, the dealer (Pine Chemicals) is not entitled to
any exemption under Section 8(2-A) of the Central Sales
Tax Act. We are unable to agree with this submission of
p the learned counsel for the State. The
facts which the
dealer has to prove to get the benefit of the government
orders are intended only to identify the dealer and the goods
in respect of which the exemption is sought and they are not
conditions or specifications of circumstances relating to the
F turnover sought to be exempted from payment of tax within
the meaning of those provision. The specified circumstan-
ces and the specified conditions referred to in the explana-
tion should relate to the transaction of sale of the
commodity and not identification of the dealer or the
commodity in respect of the exemption is claimed. These
G conditions relating to identity of the goods and the dealer
are always there in every exemption and that cannot be put
as a condition of sale. We have already held that not only
sale ·by the manufacturer to dealer that is exempt under
•
the government orders but since the General Sales Tax
H Act had adopted only a single point levy, even the sub-
HINDUSTAN PAPER CORPN. v. STATE [REDDY,J.] 665

sequent sales would be covered by the exemption order. A
Therefore, the question whether the tax is levi~ble on the
sale or purchase at "specified stage" does not arise for
consideration. This is not also a case where the exemption
is with reference to something other than the turnover of
the goods."
B
(emphasis added)

The learned Judge then dealt with the decisions of this Court in
Indian Aluminium and Industrial Cables· and distinguished them pointing
out that the exemption concerned in those cases was clearly a conditional
one. The learned Judge pointed out that the exemption concerned therein C
was with re:;pect to 'sales of an undertaking supplying electrical energy to
the public under a licence or sanction granted or deemed to have been
granted under the Indian Electricity Act, 1910 (9 of 1910), of goods for use
by it in generation or distribution of such energy.' The learned Judge
pointed out that the two conditions mentioned in the said notification D
related to purchaser-company being a licenced undertaking supplying
electrical energy to the public and further that the goods sold to it are for
use by the said undertaking in generation or distribution of such energy.

Following the decision in Pine Chemicals, we must and accordingly
we do allow these appeals. No orders as to costs. E
N.V.K. Appeals allowed.