Holding

The exemption under paragraph 7.5 of IPR 1992 and Notification SRO No.1091 of 1992 is available to the extent of 75% of the additional capital investment and is not subject to any prescribed time‑limit.

Summary

The State of Orissa appealed a High Court order that had allowed Mis. Tata Sponge Iron Ltd. to claim sales‑tax exemption under the Industrial Policy Resolution (IPR) 1992 and Notification SRO No.1091 of 1992. The company, classified as a large‑scale unit, had expanded its plant in 1997 and sought exemption on the basis of paragraph 7.5 of IPR 1992, which provides a 75% exemption of additional capital investment for existing units but is silent on the time‑limit. The State argued that the exemption was only for new units and was limited to five years. The Supreme Court examined the wording of the IPR, the notification and the principle that exemption notifications must be liberally construed. It held that the notification did not prescribe any period of limitation, that the exemption was available to the extent of 75% of the investment, and that the High Court’s view was correct. Consequently, the appeal was dismissed.

Issues considered

Whether paragraph 7.5 of the Industrial Policy Resolution 1992 confers a sales‑tax exemption on existing units without a specified time‑limit.
Whether the operational guidelines imposing a five‑year period are binding on the exemption under paragraph 7.5.
Whether the exemption notification SRO No.1091 of 1992 must be interpreted liberally and whether it contains any period of limitation.

Subjects

sales tax exemptionIndustrial Policy Resolution 1992interpretation of statutesliberal constructionperiod of exemptionnotificationOrissaTata Sponge Iron

Judgment

f
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I

STATE OF ORISSA AND ORS. A .
V.
MIS. TATA SPONGE IRON LTD.

SEPTEMBER 18, 2007
B
[S.B. SINHA AND H.S. BEDI, JJ.]

Orissa Sales Tax Act-s. 6-Sales Tax-Exemption from-
Provided under Industrial Policy Resolution (IPR) 1992-ln the IPR
as well as in consequent Notification no period provided, limiting the C
exemption-Claim ofexemption by Industry-Denied by Authorities-
In Writ Petition allowed by High Court-On appeal, held: The industry
was entitled to the exemption to the extent of 75% of the amount
invested in Plant and Machinery-In view ofthe legal provisions and
the Notification, no period of /imitation for seeking exemption D
prescribed
Interpretation of Statutes-Taxing statutes-Exemption
Notification-Interpretation of-Held: Such Notification must be
liberally construed.
E
Respondent was declared a large scale industry in terms of
Industrial Policy Resolution (IPR), 1980. By IPR, 1989 benefits of
exemption from payment of sales tax on finished products were
granted to the industries classified under IPR, 1980. Before availing
of benefits by the respondent, IPR, 1992 was announced whereby F
the existin~ industrial units could obtain exemption or deferment of
sales tax on finished products and capital investment subsidy subject
to the condition that it had undergone an expansion/modernization/
diversification in its unit. According to Para 7.4 of the IPR, period
of the exemption benefit was provided for 5 years. However, in Para G
7.5 no period was mentioned. The limitation thereunder was that only
75% of the additional capital investment in Zone B would be allowed.
In furtherance ofIPR, 1992, Orissa Sales Tax Act was amended.
Consequently, Notification SRO No.1091 of1992 dated 23.9.1992
29 H
30 SUPREME COURT REPORTS [2007] 10 S.C.R.

A was passed and therein also no period was specified. Respondent
made expansion of its undertaking in the year 1997. It claimed
exemption relying on Para 7.5 oflPR, 1992. The same was denied.
Writ Petition challenging the denial was allowed by High Court.
Hence the present appeal.
B
Revenue interalia contended that the respondent was not
entitled to the exemption as the same was only for a period of 5 years
for new industries.

Dismissing the appeal, the Court
c HELD: l. In terms of Clause 5 oflndustrial Policy Resolution
(IPR) 1992, the respondent became entitled to exemption from
payment of sales tax on finished products for an amount to the extent
of75% of the amount invested in plant and machinery.
[Para 12] (39-E-F]
D
2. A bare perusal of the Notification bearing SRO No.1091 of
1992 dated 23.9.1992 would clearly show that whenever the period
upto which the exemption, could be obtained was required to be
stated had specifically been done therein. Against the Entry 44,
E however, what is mentioned is the extent to which such exemption
would be granted. No period during which such exemption is to be
obtained was stated. In other words, no period of limitation was fixed
· thereby. [Para 13] (39-F-H; 40-A]
3. In view of the clear legal provision as also the Notification
p dated 23.09.1992, there cannot be any doubt whatsoever that the
exemption in respect of deferment of sales tax having been provided
for under the Orissa Sales Tax Act as also the Notification issued
thereunder, the High Court, is correct in taking its view. It is
furthermore a well settled principle of law that an Exemption
G Notification must be liberally construed. · ·
[Paras14 and 15] .(40-A-C]
Commissioner of Customs (Imports), Mumbai v. Tullow India
Operations Ltd., [2005] 13 SCC 789; Tata lronand Steel Co. Ltd. v.
State ofJharkhand and Ors., [2005] 4 SCC 272; Government ofIndia
H and Ors. v. Indian Tobacco Association, (2005] 7 SCC 396; Commnr.

,
I

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STATEv. MIS. TATASPONGEIRONLTD. [SINHA,J.] 31

..,.... of Central Excise, Raipur v. Hira Cement, JT (2006) 2 SC 369 and A
P.R. Prabhakar v. Commnr. of Income Tax, Coimbatore, (2006) 7
SCALE 191, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4342 of
2007.
B
From the Judgment and Order dated 09.08.2006 of the High Court
ofOrissa, Cuttack in O.J.C. 2213 of2001.
j Vikas Singh, ASG., Nischal Kumar, S.S. Mishra and Sibo Sankar
Mishra for the Appellants.
c
A.K. Ganguli, Sunil Kumar Jain, Bibek Mohanti and S. Borthakur
for the Respondent.
The Judgment of the Court was delivered by
S.B. SINHA, J. 1. Leave granted.
D:
2. Interpretation of an exemption notification in regard to payment
of sales tax is involved in this appeal which arises out of a judgment and
order dated 9.8.2006 passed by the High Court ofOrissa in O.J.C. No.
2213 of 2001.
3. Before embarking upon the said question, we may notice the E
basic fact of the matter.
Respondent herein which is a large industrial unit had set up a Sponge
.Iron Factory at Bileipada, Joda in the district of Keonjhar, Orissa.
!
Indisputably, it is classified as a large scale industry in terms oflndustrial
Policy Resolution (IPR), 1980 adopted by the State. In or about 1989, .F
IPR was adopted for existing industries classified under IPR, 1980 wherein
benefits for exemption from payment of sales tax on finished products were
to be granted subject to the terms and conditions laid down therein
including repayment of loan availed under IPR, 1980. Before the benefits
of the said IPR could be obtained by the respondent, the Government of G
Orissa announced IPR, 1992 in terms whereof the existing industrial units
could obtain exemption or deferment of sales tax on finished products
and capital investment subsidy provided it had undergone an expansion/
modernization/diversification of its unit.
H
32 SUPREME COURT REPORTS [2007] 10 S.C.R.

A For our purpose, we may only notice paragraphs 7.4 and 7.5 of
IPR, 1992 which are in the following terms:
"7.4 Exemption/Deferment of Sales Tax on raw materials, spare
parts, and finished products of small, medium large scale and
Pioneer Industrial Units.
B
New Small, medium & Large scale industrial units including,
pioneer units will be eligible for exemption of sales tax on raw
materials, spare parts, & finished products for a period of 5 years 1_
subject to a ceiling of 100 per cent of fixed capital investment if
c the unit is located in zone-A 75 per cent.
--t
Iflocated in zone - B and 60 per cent iflocated in zone-C. New
medium and large industrial units may also opt to defer payment
of sales tax on their finished products for a period of 5 years
D subject to a maximum of 100 per cent of fixed capital investment
if the unit is located in zone-A 75 per cent iflocated in zone-B
and 60 per cent iflocated in zone-C from the date of commercial
production. Deferred amounts in respect of each year will be
repaid in full after the expiry of the period of deferment annually.
Period of exemption/deferent allowed for different zones shall be
E
extended by two years for Pioneer units. However, defaulters of
OSFC/IPI COL dues shall be eligible only after they clear such
dues.

7.5 Exemption/Modernization/Diversification. ..,-
F
The incentive by way of exemption or deferment of sales tax
on finished products shall be available for expansion/
modernization/diversification of existing units taken up after the
effective date subject to a limit of 60 per cent of the additional
G capital investment in plant and machinery only in zone-C, 75 per
cent in zone-B and 100 per cent in zone-A provided that such ~.
expansion/modernization/diversification has been undertaken on the
basis of separate project report duly appraised by the financial
institutions and provided further that subject to the provisions of
the Sales Tax Act, the benefit of exemption/deferment shall not
H
J

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STATEv. MIS. TATASPONGEIRONLTD. [SINHA,J.] 33

have the effect of reducing the sales tax paid by the unit prior to! A
commencement of the expansion I modernization I diversification
programmes. In other words, the benefit shall be applicable to,
incremental sales."

4. Respondent contended that in view of paragraph 7.5 of IPR, 1992 B
it was entitled to the benefit of deferment of payment of sales tax on,
finished products in respect of incremental sale over and above tile
immediate preceding year as it existed prior to expansion of the industrial 1

unit upto a limit of Rs. 49.45 crores being 75% of the fixed capital
investment in the plant and machinery. It was furthermore claimed to be, C
entitled to capital investment subsidy. As the said benefits were denied
to the respondent, it filed a writ petition before the High Court of Orissa,
Cuttack which was marked as O.J.C. No. 2213 of2001.
5. By reason of the impugned judgment, a Division Bench of the
Orissa High Court allowed the said writ petition directing: D
"1. Opposite party No.2 - The Director oflndustries, Orissa is
directed to reconsider the petitioner's application for re-evaluation 1

of its investment for expansion of the unit and determine afresh,
the extent to which the petitioner is entitled to the sales tax incentives , E
and also to make necessary amendment to the eligibility certificate
granted by it in accordance with the IPR, 1992.

2. The stipulation of a 'time period' in the certificate of eligibility .
granted to the petitioner in Form No.II-A under Annexure-4 to '
the writ petition is declared ultra vires the IPR, 1992 and shall F
have no effect. Necessary amended "Eligibility Certificate" in terms ·
of directions in Paragraphs 1 & 2, be issued to the petitioner,
within two months from the date of communication of this
judgment.
'G
3. After issue of the revised eligibility certificate as directed above,
the petitioner company is directed to produce the same before the 1

Sales Tax Officer, Keonjhar Circle, who on receipt of the same
along with the revised returns that may be filed by the petitioner '
as a consequence of revision of the eligibility certificate, shall pass H
I
34 SUPREME COURT REPORTS [2007] 10 S.C.R.

A appropriate order of assessment and direct refund of excess tax
deposited on ascertainment of the assertion of the petitioner that
it has not collected sales tax from the purchasers but had paid
the same from its own re-source, within a period of two months
from the date of production of the "Revised Eligibility Certificate".
B
4. Opposite part No. I is directed to reconsider the petitioner-
company's application for grant of capital investment subsidy in
terms of the direction contained herein and release the "Capital
Investment Subsidy" as is due to the petitioner within a period of
c two months from the date of communication of this order."

6. Mr. Vikas Singh, learned Additional Solicitor General appearing
on behalf of the appellant, restricted his submissions only in regard to
the exemption for payment of sales tax. The learned counsel submitted
that although no period for obtaining the benefit thereof had been fixed
D in the original policy, the operational guidelines issued in that behalf will
clearly point out that the said benefit was to be granted for a period of
five years in case of new industries and for a period of seven years in
case of pioneer industries. In this behalf, our attention has been drawn
to paragraph 5 of operational guidelines in respect of grant of sales tax
E concession under IPR, 1992, which reads as under:
"The Sales Tax exemption/deferment certificate for raw
material, spare parts and finished products shall be issued for a
period of 517 year at a time. The Director of Industries Orissa
F and Director of H & CI can however, inspect the unit and
withdraw the certificate in case of non-fulfillment of the conditions.
The beneficiary unit should also maintain necessary records and
registers for this purpose as may be prescribed by the Director
of Industries, Orissa."
G It was pointed out that the purported operational guidelines had been
circulated by reason of a circular letter dated 8.02.1993 by the
Government of Orissa to all concerned which is in the following terms:
"I am directed to enclose herewith a set of "operational
H guidelines" relating to Sales Tax concessions admissible under
STATEv. M/S. TATASPONGEIRONLTD. [SINHA,J.] 35

Industrial Policy Resolution 1992 (IPR 1992) effective from 1.8.92 . A
for your infonnation and necessary action.
You are requested kindly to bring it to the notice of all
concerned for proper implementation of the provisions ofIPR
1992"
B
The learned Additional Solicitor General would submit that the
respondent herein made expansion of its undertaking in the year 1997
and it having asked the benefit in tenns of IPR, 1992 for a period of five ·
years only as would be evident from its application filed in prescribed
Fonn II-A dated 26.05.1999 which is in the following tenns: C
"This certificate is issued for 5 (five) years ofits commercial
production or expansion /modernization/diversification and is valid
from the date of7.9.98 to 6.9.2003.";
it is estopped and precluded from contending otherwise, and, thus, it D
cannot be pennitted to change its stand by seeking an amendment therefor
as has been sought to be done by its letter dated 7.04.2000 and, thus, it
was rightly rejected by the Government of Orissa in tenns of its letter
dated 17.05.2000.
E
The said letter dated 17.05.2000 reads as under:
"Paragraph 7.4 and 7.5 (Part II) of IPR'92 are co-related.
Though paragraph 7.5 is silent about the period of sales tax benefit, ,
it refers to the previous paragraph of 7.4. Moreover, while
considering to extend the S.T. benefit, one has to go by the F
provisions of paragraph 6.1 (partrll) of the IPR'92 which states
as follows:
"Subject to operational guidelines/instructions and procedure, sales
tax incentives shall be allowed after the unit has gone into G
commercial production and from the date of commercial
production."

In the operational guidelines, issued to Industries Deptt. vide
Letter No.4068 dtd. 8.2.93 under the IPR'92 the period of
exemption/defennent for E/M/D has been clearly mentioned as 5 B
36 SUPREME COURT REPORTS [2007] 10 S.C.R.

A years. Accordingly the Director of Industrie$, Orissa has issued
eligibility certificate for a period of 5 years w.e.f.7.9.98 to
6.9.2003.
I trust that the above clarification will remove your doubt."
B 7. Mr. A.K. Ganguli, learned senior counsel appearing on behalf
of the respondent, on the other hand, submitted that the exemption
benefit was limited to the finished products and not to the raw-materials
and, thus, there is no infirmity in the impugned judgment. i,_
8. The High Court passed the impugned judgment inter alia on
C the premise that operational guidelines being in the nature of a
subordinate sub-delegated legislation, the same was required to be in
consonance with the IPR and by reason thereof no other or further
condition could have been stipulated.so as to prevail over the policy
decision itself holding:
D . '
".. .If we accept the contention advanced by the learned Counsel
for the Revenue that the 'operational guidelines' provide a
"limitation" or "time period" for sales tax incentives, it would
tantamount to accepting a principle that by sub-delegated
E legislation, a delegatee may also effectively amend or supplant
legislation, which it is clearly incompetent to do. On a reading
of the said 'operational guidelines' and the terms thereof would
clearly indicate that the stipulations regarding time period find
mention in Clause-5 of the 'operational guidelines'. It would be 'f
clear that the said stipulation would relate only to those industries
F
covered under Para 7.3 and 7.4 of the IPR 1992 and would
·be limited to apply to those industries only to which "time
periods" have been stipulated in the IPR itself and not to the
industries/activities covered under Paragraphs - 7.2 and 7.5.
Since the petitioner's industry is covered in the EMD category
G
under Para-7.5 of the IPR 1992 read with Entry No. 44 of SRO
No. l 091 of 1992, Clause 5 of the 'operational guidelines' cannot
be said to apply to it. We are of the view that Clause-5 of the
'operational guidelines' and stipulation in the Eligibility Form (the
eligibility certificate), to the extent that it provides for a period
H
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STATEv. MIS. TATASPONGEIRONLTD. [SINHA,J.] 37

of time is not in consonance with the IPR, 1992, is clearly without A
jurisdiction/without sanction oflaw and is also ultra vires to the IPR
1992.

(c) The operational guideline and/or instructions were made for
administration of incentive contained in the Policy and not for the B
purpose of imposing any new stipulation and/or conditions alien
to and/or not in consonance with the passing of the 1992 Policy.
Such a stipulation cannot be ih law be read into and allowed to
operate since it would frustrate the very objective sought to be
achieved by the 1992 Policy Declaration." C
It was furthermore held:

"Drawing an analogy from the aforesaid principles oflaw, we
are of the view that for the incentive under paragraph 7.5 read with
entry No.44 as notified in S.R.O No. 1019of1992, exemption D
of tax did not provide any period oflimitation. Neither the IPR,
1992 nor the Finance Department Notification in SRO No.1019
of 1992 provided any stipulation as to how long the exemption
from sales tax would remain in force and therefore, the position
that emerges therefrom, is that, such exemption granted under the E
Notification was to remain operative till the industry utilizes/exhausts
the incentive granted to it. The petitioner is entitled to such benefit
till such time such exemption is allowed to remain in force without
being withdrawn by the subsequent notification. It is important to
point out here that no such notification withdrawing such exemption F
has been brought to our notice in course of hearing."

9. Indisputably, pursuant to or in furtherance of the aforementioned
IPR, 1992, the State Government amended the provisions of the Orissa
Sales Tax Act. Section 6 of the said Act reads as under:
G
"6. Tax Free Goods- The State Government may, by notification,
subject to such conditions and exceptions, if any, exempt from tax
the sale or purchase of any goods, or class of goods and likewise
withdraw any such exemption."
H
\

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38 SUPREME COURT REPORTS [2007] 10 S.C.R.

A 10. Indisputably, again pursuant to or in furtherance of the
aforementioned provision, the Finance Department of the State of Orissa
had issued notification bearing SRO No. 1091of1992 dated 23.09.1992
and inserted Entry 44 in terms whereof the respondent became entitled
to exemption. Entry 44 of the said notification reads as under:
B
"44. Sale of finished products of an existing industrial unit, located
in Orissa i.e. an industrial unit which has gone into production before
1st August, 1992, and wl:ich has undertaken expansion/ _l
modernization/diversification of the said unit after the 1st day of -
c August, 1992 on the basis of separate project report duly
appraised by the financial institution, and a certificate to this effect
that is, regarding expansion/modernization/diversification of the unit
is produced from the concerned General Manager, Project
Manager, District Industries; Centre in case of Small Scale Units
and a certificate in Form E (92) is produced from the Director of
D
Industries, Orissa in case of Medium, Large and pioneer Units.
...__
The exemption of sales tax shall be limited to 60 per cent of
the additional capital investment, in plant and machinery only in
Zone-C, 75 per cent of the additional capital investment in plant
E and machinery only in Zone-B and 100 per cent of additional capital
investment in plant and machinery only in Zone-A.

Explanation -I:- Additional capital investment in plant and
machinery means additional investment of 50 per cent of more of
F the undepreciated book value of fixed capital investment of an
existing unit in acquisition of plant and machinery for expanding/
modernization/diversifying the production of the said unit.

Provided that the benefit of exe1nption is admissible only on the
incremental sales arising out of such expansion/modernization and
G diversification.
---\
Provided further that no exemption as indicated above shall be
allowed to the following categories of industries, namely:

1. Rice Hullers and Rice Mills.
H
STATEv. MIS. TATASPONGEIRONLTD. [SINHA,J.] 39

y 2. Flour Mills including manufacture ofBesan, Pulse Mill and A
chuda mills.
3-47 .................................................................. "
5. Further, the eligibility certificate granted for sales tax concession
on sale of finished products categorically states that exemption may B
be available as per Finance Department Notification No. SRO
1091 of 1992 as amended from time to time up to a ceiling amount
of
1. 100% of the additional capital
investment in plant and machineries c
being located in ...... Zone-'A'
2. 75% -do- ....... Zone-'B'
3. 60% -do- ........ Zone-'C'
11. It is not in dispute that in the said entry, during which the same D
would remain operative, no period far less the period of five or seven
years had been mentioned. The only limitation prescribed thereby was
that only 75% of the additional capital investment in Zone B would be
allowed where the unit of the respondent is situate.
E
12. In terms of Clause 5 ofIPR, 1992, the respondent became
entitled to exemption from payment of sales tax on finished products for .
an amount of Rs. 49.45 crores being 75% of Rs. 63.95 crores invested
in plant and machinery.
13. We may notice that the Finance Department of the State of F
Orissa passed a consequential order in IPR, 1992 bearing SRO No. I091
of 1992 dated 23 .09 .1992 which was given effect from 1.08.1992.
A bare perusal of the said notification would clearly show that
whenever the period upto which the exemption, could be obtained was G
J... required to be stated had specifically been done therein, as for example
SL Nos. 30A, 41, 42A and 43A etc. We may, furthermore, notice that
against the Entry 44, however, what is mentioned is the extent to which
such exemption would be granted. No period during which such
exemption is to be obtained was stated. In other words, no period of H
40 SUPREME COURT REPORTS [2007] 10 S.C.R.

A limitation was fixed thereby.
14. In view of the clear legal provision as also the aforementioned
notification dated 23 .09 .1992, there cannot be any doubt whatsoever that
the exemption in respect of deferment of sales tax having been provided
for under the Orissa Sales Tax Act as also the notification issued
B
thereunder, the High Court, in our opinion, is correct in taking its view.
15. It is furthermore a well settled principle of law that an exemption
notification must be liberally construed. [See Commissioner ofCustoms
(Imports), Mumbai V. Tullow India Operations Ltd, [2005] 13 sec
C 789, Tata Iron & Steel Co. Ltd v. State ofJharkhand and Ors., [2005]
4 sec 272, Government of India and Ors. V. Indian Tobacco
Association, [2005] 7 SCC 396, Commnr. Of Central Excise, Raipur
v. Hira Cement, JT (2006) 2 SC 369. and P.R. Prabhakar v. Commnr.
ofIncome Tax, Coimbatore, (2006) 7 SCALE 191 ]. The said principle,
D therefore, applies in all fours in the present case.
16. For the reasons aforementioned, there is no merit in this appeal
which is dismissed accordingly with costs. Counsel's fee asgessed at Rs.
25,000/-.
E K.K.T. Appeal dismissed.