Holding

Exemption under the U.P. Trade Tax Act is available only for paper used exclusively as packing material, and the appellant failed to prove such exclusive use.

Summary

Khatema Fibres Ltd., a manufacturer of craft paper, obtained a Recognition Certificate under Section 4‑B of the U.P. Trade Tax Act, 1948 to claim exemption on the basis that its craft paper was used as packing material. The Allahabad High Court, relying on a Full Bench decision in Mis. Lalji Board Industries v. State of U.P., held that craft paper is "paper" and not "packing material" because the appellant failed to prove exclusive use for packing, and ordered the deletion of the exemption. The appellant appealed to the Supreme Court, contending that the exemption should apply if the paper is used solely for packing. The Supreme Court observed that the Act does not define "paper" or "packing material" and therefore the terms must be given their ordinary commercial meaning, placing the burden on the claimant to demonstrate exclusive packing use. Since no evidence was adduced to show such exclusive use, the Court set aside the High Court order and remitted the matter for a fresh decision after allowing the parties to present necessary material.

Issues considered

Whether craft paper manufactured by the appellant qualifies as "packing material" within the meaning of the exemption provision of the U.P. Trade Tax Act, 1948.
Whether the burden of proof to establish exclusive use as packing material lies on the claimant seeking exemption.

Legislation cited

U.P. Trade Tax Act, 1948s. 4-8, s. 4-B

Subjects

trade taxexemptionpacking materialcraft paperdefinition of termsburden of proofcommon parlancerecognition certificateUttar Pradesh

Judgment

A KHATEMA FIBRES LTD.
\
\..
v.
ST ATE OF UTT AR PRADESH AND ANR.

DECEMBER 12, 2000

B [S. RAJENDRA BABU AND R.C. LAHOTI, JJ.]

U.P. Trade Tax Act, 1948-Section 4-8-Exemption for paper used as
packing material-Craft paper-Packing material or paper- -Held, exemption
C is available on paper used only as packing material and since appellants
failed to prove the fact, matter remitted back to High Court.

Appellants are manufactures of craft paper. They applied for Recognition
Certificate under Section 4-B of U.P. Trade Tax Act, 1948 to avail exemption
claiming the craft paper as packing material. The appellants were granted
D the Recognition Certificate, which enabled them to purchase raw materials,
packing materials or machinery without payment of tax or at concessional
rate of tax. Subsequently, a Full Bench decision of the High Court held that
craft paper is paper and not packing material and the manufactures of craft
paper are not entitled for the exemption under the ·Act. The authorities issued
notices to the appellants for deleting craft paper from the Recognition
E Certificate and withdrawing exemption. The appellants filled writ petitions
before the High Court against the notices, which were dismissed on the basis
of the Full Bench judgment. Hence these appeals.

Disposing of the appeals, the Court

F HELD: I.I. 'Paper' or 'packing material' has not been defined under
the U.P. Trade Tax Act, 1948. The High Court in the Full Bench decision
proceeded to State that the common parlance meaning or commercial sense
of the term is to be taken for determination whether the craft paper is a
packing material or a paper. The High Court further observed that the
G petitioner did not prove that the craft paper manufactured by it is used
exclusively as packing material and not as paper. The word 'paper' in the
exclusionary clause of the notification is used in its generic sense and the
term as understood in the common parlance and commercial sense includes
craft paper manufactured by the appellants. Paper, in common parlance and

H 568
KHA TEMA FIBRES LTD. v. ST A TE 569

commercial sense, can be used for writing, printing, packing and wrapping A
purposes and therefore the craft paper does not cease to be a paper merely
because it is also used for packing purposes. Any type of paper can be used
for the purpose of packing am.I packing material used in the notification refers
to a product, which by its manufacturing process or adaptation is used only
as packing material. (570-F, G, H; 571-A, B]
B
1.2. The High Court in its Full Bench decision observed that the
petitioner did not prove that the craft paper manufactured by it is used
exclusively for packing and not for writing or other purposes. Therefore, the
High Court held that the craft paper manufactured by the petitioner was paper
and not a packing material. The Full Bench decision of the High Court is C
based on the pleadings arising in the case and material placed before the Court.
The High Court observed that the burden is on the petitioner claiming the
exemption or concessional rate to establish the fact and in the absence of any
pleading and material to show the manufacturing process involved and its
usage not being clear took the view that craft paper does not cease to be paper
merely because it is also used for packing purposes. It is shown that craft D
paper can be used only for packing purpo5es and in commercial parlance
understood to be packing material and if the facts can be established the
concessions arising under the law can be claimed. The Full Bench decision
of the High Court does not come in the way of the appellants claiming and
establishing this fact. (571-C, D, El E·
1.3. The order of the High Court is set aside and is remitted back for a
fresh decision in accordance with law after, allowing the parties to place the
necessary material before the Court. (571-F(

Mis. lalji Board Industries v. State of UP., (W.P. No. 763of1994 decided
F
on 11.12.1997 by the Allahabad High Court, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4658 of 1998.

From the Judgment and Order dated 4.3.98 of the Allahabad High Court
in C.M.W.P. No. 1841of1993.
G
WITH

Civil Appeal Nos. 7308-7309 of2000.

Joseph Ve!lapally, Sr. Adv. Manish Garg, Srilok Nath Rath, Tarun Gulati,
I R. Sasiprabhu, K.R. Sasiprabhu, Aruneshwar Gupta, R.C. Verma and H
\
570 SUPREME COL:RT REPORTS [2000) SUPP. 5 S.C.R.

A C. Siddharth for the appearing parties.

The Judgment of the Court was delivered by

RAJENDRA BABU, J. Leave granted in S.L.P. (C) No. 7302-7303 of
B 1999.

The appellants manufacture 'craft papers' which is claimed to be used
as packing/wrapping material. The appellants applied for Recognition Certificate
under Section 4-B of the U.P. Trade Tax Act, 1948 [hereinafter referred to as
'the Act'] to avail of the exemption provided thereunder. The appellants were
C granted the Recognition Ce;"tificate which enabled them to purchase raw
material and packing material without payment of any tax in respect of
machinery for which the purchase was to be made at concessional rate. On
the basis of a Full Bench of the Allahabad High Court in Mis. Lalji Board
Industries v. State ofU.P. in Civil Miscellaneous Writ Petition No. 763of1994
decided on December 11, 1997 held that 'craft paper' is not a 'packing
D material' and it is a 'paper' and, therefore, the manufactures are not entitled
to any exemption thereof, respondent No. 2 issued notice to delete 'craft
paper' from the Recognition Certificate as it was not packing material. Against
the said notice writ petition- was filed which was dismissed on the basis of
the Full Bench decision in Mis lalji Board Industries (supra). The parties in
E Full Bench case did not challenge the correctness of the decision.

The question is whether the craft paper manufactured by the petitioner
is a 'packing material' or it is 'paper'. If it is the former the petitioner would
be entitled to purchase ·raw ·materials and packing materials or machinery
without payment of tax or at concessional rate of tax and the Recognition
F Certificate could have been properly issued, and if it is the latter then the
petitioner was not entitled to any exemption from payment of tax and the
Recognition Certificate was liable to be cancelled. 'Paper' or 'packing material'
has not been defined under the Act. Therefore, the High Court proceeded to
state that the common parlance meaning or commercial sense of the term is
G to be taken for determination of the question and referred to certain
dictionaries. The High Court noticed that the petitioner had not laid any
foundation in pleading to show that the manufacturing process of the craft
paper manufactured by it or had made any averment that the product is so
adopted that it is meant to be used exclusively as packing material and cannot
be used as paper. The word 'paper' in the exclusionary clause of the notification
H dated 31.12.1976 is used in its generic sense and the term as understood in
KHATEMA FIBRES LTD. v. STATE [RAJENDRA BABU, J.] 571

the common parlance and commercial sense includes 'craft paper' A
manufactured by the appellants. 'Paper' as understood in common parlance
and commercial sense can be used for writing, printing, packing and wrapping
purposes and, therefore, 'craft paper' does not cease to be 'paper' merely
because it is also used for packing purposes. Indeed, any type of paper can
be used for the purpose of packing and packing material as used in the B
notification in question is such a product which by its manufacturing process
or adaptation is meant to be used only as packing material.

The Full Bench in the case of Mis Lalji Board Industries (supra) took
the view that there were no pleadings in the case set out to show that the
manufacturing process of the craft paper manufactured by the petitioner nor C
as to its adaptation or exclusive use in respect of packing and further that
it cannot be used for writing or other purposes. The question formulated by
the petitioner in that case was, therefore, answered that the 'paper'
manufactured by the petitioner was 'paper' and not packing material. Therefore,
the whole decision of the Full Bench in Mis lalji Board Industries (supra)
rested on the pleading arising in that case and material placed before the D
Court. The court took the view that the burden lay upon the person claiming
the exemption or concessional rate to establish that fact and in the absence
of any pleading and material to show the manufacturing process involved and
its usage not being clear took the view that the 'craft paper' does not cease
to be 'paper' merely because it is also used for packing purposes. If it is E
shown that 'craft paper' can be used only for packing purposes or mainly for
packing purposes and in commercial parlance understood to be packing
material and if the facts can be established the concessions arising under the
law can be claimed. In that view of the matter we think that the view taken
by the High Court in Mis lalji Board Industries (supra) does not come in the
way of the appellants claiming and establishing this fact. F
In the circumstances, we set aside the order made by the High Court
in the case of appellants and remit the matter to it for a fresh decision in
accordance with law after allowing the parties to place the necessary material
before the Court to take the view one way or the other. as indicated by us
above. CJ

The appeals are disposed of accordingly.

B.S. Appeals disposed of.

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