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Friday, December 18, 2015

the respondent though covered by exemption notification under Section 8(3) of the Act could be at a disadvantage because finally when the subsequent sale is made by a non-exempted dealer or tax stands paid on the non-exempted transfer, the goods, i.e., asbestos cement sheet, would suffer the tax on the entire sale consideration. This would place an exempted manufacturer-dealer at a disadvantageous position and make his products uncompetitive inspite of the exemption notifications under Section 8(3) of the Act.=where the appellant wanted to restrict the benefit of ITC when a particular dealer or transaction was exempted, it was so stipulated in the exemption notification issued under Sections 8(3) and 8(4) of the Act. Such notifications admittedly do exist and were issued by the appellant. They are also right in drawing support from the note sheets relating to Finance Bill 2007 as also the communications issued by Commissioner of Commercial Taxes. The note sheets and the communication of the Commissioner draw a clear distinction between exemptions when the goods were not taxable as they do fall under the First Schedule and when an exemption was granted under the Second Schedule, which relates to specified transaction of sale or exempted dealers even when the goods were taxable goods. In latter cases, subsequent dealers undertaking sale of goods would be liable to pay tax on sale of such products. There can be no shadow of doubt that subsequent dealers undertaking sale of goods manufactured and sold by the respondent company would be liable to pay tax on such products.

                                 Reportable

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 2806 OF 2015



Commercial Taxes Officer                     ...   Appellant

                                   Versus

A Infrastructure Ltd.                                ...    Respondent


                                    WITH
                        CIVIL APPEAL NO. 2807 OF 2015
                        CIVIL APPEAL NO. 2808 OF 2015
                        CIVIL APPEAL NO. 2809 OF 2015
                        CIVIL APPEAL NO. 2810 OF 2015


                               J U D G M E N T


Dipak Misra, J.


      This batch of appeals, by special leave, calls in question  the  legal
acceptability of the common order dated 19th December, 2013  passed  by  the
learned Single Judge of the High  Court  of  Judicature  for  Rajasthan,  at
Jodhpur in a batch of revision petitions filed  by  the  assessee-respondent
assailing the judgment dated 23.11.2011 passed by the Rajasthan  Tax  Board,
Ajmer (for short ‘the Board’) in Appeal No. 680 of 2009 and other  connected
appeals whereby it had affirmed the decision  rendered  in  appeals  by  the
Deputy Commissioner (Appeals) who had upheld the  assessment  orders  passed
by the Commercial Taxes Officer in respect of various quarters of the  years
2006-2007, 2007-2008 and  2008-2009  disallowing  the  claim  of  Input  Tax
Credit (ITC) and charging interest under Sections 18, 22 and  55(4)  of  the
Rajasthan Value Added Tax Act, 2003 (for brevity “the 2003Act”).
2.    The facts giving rise to this batch of appeals are that the  assessee-
company  is  engaged  in  the  business  of  manufacturing  Asbestos  Cement
Pressure Pipe and Asbestos Cement Sheets and  it  had  availed  ITC  on  the
purchase of raw material used  in  the  manufacture  of  A.C.  Sheets.   The
assessing authority issued  notice  to  the  assessee  for  the  purpose  of
disallowing ITC on purchase of  raw  material  used  in  manufacturing  A.C.
Sheets for the period mentioned hereinabove and pursuant to the  show  cause
notice the assessee filed a detailed  reply  and  eventually  the  assessing
authority passed orders under Section 22 of the Act disallowing the ITC  and
charged interest.  The  said  orders  were  assailed  before  the  Appellate
Authority which declined to interfere  with  the  orders  appealed  against,
compelling the assessee to  file  second  appeals  before  the  Board  which
placed reliance on ACTO v. M/s. Suncity Trade Agency[1]  and  dismissed  the
appeals. The Board while dismissing the appeals opined  that  the  assessee-
Company, a manufacturing unit, had not been charged  on  the  sales  of  its
product, as per the notification which squarely fall  under  the  definition
of exempted goods and hence, the final product was exempted, but it was  not
entitled to avail ITC  as  the  notification  clearly  postulated  that  the
units/institution was not exempted from the tax but the sales of  its  goods
were exempted from tax as per the definition of “Exempted Goods”.
3.    The grievance of  dismissal  constrained  the  assessee  to  file  the
revision petitions before the High Court, and seeking  interference  in  the
revision petition it was contended that the scheme of Section 8 of  the  Act
which deals with exemption of tax and  the  notification  issued  under  the
Rajasthan Sales Tax Act, 1994 (for short, ‘the 1994 Act’)  and  the  various
notifications issued under the said Act from time to  time  deal  with  A.C.
Sheets and in view of the postulates laid down  in  the  notification  dated
09.03.2007,  issued  under  sub-section  (3A)  of  Section  8  wherein   the
manufacturer of asbestos cement sheets and bricks have  been  exempted  and,
therefore, it could not  be  said  that  A.C.  Sheets  manufactured  by  the
assessee were exempted goods which is  the  pre-requisite  for  denying  ITC
under Section 18 of the Act.  Reliance was placed on the  judgment  of  ACTO
v. Abishek Granites Ltd.[2] to buttress the proposition  that  exemption  to
unit is different from the exemption to  the  transaction  of  sale  of  the
commodity.  It was also highlighted before the  High  Court  that  when  two
views are possible, the view in favour of the assessee  should  be  accepted
and for the  said  purpose  reliance  was  placed  on  CIT  v.  Kulu  Valley
Transport Co. (P) Ltd[3].  The  background  of  the  issue  of  notification
dated  09.03.2007  and  the  communication  issued  by   the   Commissioner,
Commercial Taxes, Rajasthan, Jodhpur were stressed upon to bolster the  plea
that assessee was exempted from tax and not the A.C. Sheets manufactured  by
it.
4.    The stand of the assessee was controverted by the revenue  contending,
inter alia, that vide notification S.O. 372, manufacturers of A.  C.  Sheets
and Bricks were included at S. No. 20 in  Schedule-II,  which  entitles  the
units  to  claim  exemption  on  the  sale  of  manufactured  goods  on  the
fulfillment of certain conditions and in view  of  the  specific  conditions
stipulated in Section 18(1)(A) of the Act, ITC was  not  allowed.   Reliance
was placed on notification S.O. 377, dated 09.03.2007 issued  under  Section
8(3) of the Act to harp that A.C. Sheets clearly fall  within  the  category
of exempted goods.  Reference  was  made  to  the  definition  of  ‘exempted
goods’ and ‘goods’ contained in Section 2(13) & (15) of  the  Act.   It  was
further submitted that irrespective of whether the notification  was  issued
under sub-Section (1) or (3) or (3A) or (4), the  goods  would  fall  within
the definition of exempted goods and consequently the assessee would not  be
entitled to ITC.  For the said purpose, reliance  was  placed  on  M/s.  Sun
City Trade Agency (supra).
5.    The High Court referred to the  dictionary  clause  as  enumerated  in
Section 2(13) which deals with “exempted goods”, Section 2(15) that  defines
the terms “goods”, Section 8 which  provides  for  “exemption  of  tax”  and
Section 18 which deals with “Input Tax Credit and  thereafter,  referred  to
the notification dated 16.03.2005 under the 1994 Act and  the  notifications
dated 01.06.2006, 05.07.2006,  09.03.2007  and  the  amendment  notification
issued on the same day  by  the  Finance  Department  (Tax  Division).   The
learned  Single  Judge  analysed  the  provisions  of  the   Act   and   the
notifications and took note of the fact that under the  1994  Act  exemption
granted  related  to  sale  of  A.C.  Sheets  and  Bricks,  subject  to  the
conditions indicated  therein.   The  High  Court  further  noted  that  the
notification dated 01.06.2006 which had been issued  in  exercise  of  power
under Section 8(2) and Schedule-I which was  amended  and  A.C.  Sheets  and
Bricks having contents of fly ash 25% more than by weight  was  inserted  as
entry 60A, and further adverted to the notification issued  under  the  same
provision, on 05.07.2006 vide which the Schedule-I  was  amended  and  entry
60A was substituted. After so stating, the learned Single Judge referred  to
the notifications issued on 09.03.2007 that deals with A.C. Sheets and  also
noted the fact that vide S.O. 371 issued under Section 8(2) of the Act,  the
existing entry 60A was deleted from  Schedule-I  and  further  by  S.O.  377
issued under Section 8(3A) of the Act which pertained to  “manufacturers  of
asbestos cement  sheets  and  bricks”  were  added  in  Schedule-II  and  it
provides the conditions for availing exemption for sale of A.C.  Sheets  and
Bricks manufactured in the state.
6.    On the aforesaid basis, the Court proceeded to  further  observe  that
by notification dated 16.03.2005 under the 1994 Act  and  the  notifications
dated 16.02.2006 and 05.07.2006  read  with  notification  dated  09.03.2007
A.C. Sheets and Bricks were exempted.  The goods, that is,  A.C. Sheets  and
Bricks were taken out by S.O. 371 and the manufacturers of A.C.  Sheets  and
Bricks were exempted by inclusion in Schedule-II by S.O. 372 and  conditions
for availing such exemption by the  manufacturers  were  indicated  by  S.O.
377. On the basis of the aforesaid analysis,  the  revisional  Court  opined
that it is significant that while S.O. 371 had  been  issued  under  Section
8(2) of the Act, S.O. 372 and 377 had been issued under  Section  8(3A)  and
(3) respectively, which provisions,  as  noticed  hereinbefore,  dealt  with
Schedule-I under Section 8(2) and Schedule-II under Sections 8(3) and  (3A),
which in turn related  to  exemption  of  goods  and  exemption  of  persons
respectively, therefore, it was apparent from the  notifications  issued  on
09.03.2007 that the intention of the State was to exempt  the  manufacturers
of A.C. Sheets and Bricks subject to fulfillment of conditions as  indicated
in S.O. 377 and to take away exemption available to A.C. Sheets  and  Bricks
as goods, as was available before the said date on account of its  inclusion
in Schedule-I.
7.    As the impugned order would show, the  High  Court  distinguished  the
judgment rendered in Sun City Trade Agency (supra), on the ground  that  the
said decision dealt with a  situation  wherein  the  exemption  notification
pertaining to stainless steel flats, ingots and billets were  exempted  from
tax on the conditions indicated in the notification and  it  had  been  held
therein that merely because the exemption is conditional  or  given  subject
to fulfillment of certain conditions it does not mean that such goods  would
fall outside the definition of exempted goods.
8.    The learned Single Judge  referred  to  the  definition  contained  in
Section 2(13) of the Act which  deals  with  exempted  goods  and  not  with
exemption of person or class as indicated in Section 8(3) of  the  Act,  and
observed that the intention of  the  legislature  in  incorporating  Section
18(1)(e) of the Act takes away the exempted goods from the  purview  of  the
ITC and not the person or class of persons exempted under Section  8(3)  and
the intention of the legislature was not to include exempted  goods  in  the
category of exempted persons as mentioned in Section 18(1)(e)  of  the  Act,
and hence, it was demonstrable  that  the  goods  and  dealers  are  treated
separately and the same was also evident from the provision of Section 5  of
the Act.
9.    As is evident, the High Court further  proceeded  to  opine  that  the
goods included in Schedule-II were entitled for ITC  inasmuch  as  the  said
conditions indicated for exemption related to  Self-Help  Groups  and  those
who had been registered with the Khadi and Village Industries Commission  or
Rajasthan Khadi and Village Industries Board by the notifications  S.O.  376
and S.O. 378 issued on 09.03.2007 wherein a specific  stipulation  had  been
made to the extent that no  input  tax  credit  shall  be  claimed  by  such
dealers in respect of purchase of raw  materials  used  for  manufacture  of
aforesaid goods.  Thereafter, the High Court proceeded to observe:-
“If the persons included in Schedule-II were  not  entitled  to  claim  ITC,
there was no reason to include the  said  conditions  for  the  above  noted
persons. Apparently, it is the sale of  goods  made  by  person  or  persons
included in Schedule-II, which is exempt and not the goods  manufactured  by
them, whereas, for  denying  ITC,  the  requirement  is  that  of  ‘exempted
goods’.”


10.   Being of this view the learned Single Judge held that:-
“In view of express language of Section 18(1)(e) of the  Act,  notifications
S.O. 371 and  S.O.  372  read  with  S.O.  377,  the  petitioner  who  is  a
manufacturer of A.C. Sheets is entitled to avail  ITC  and  the  authorities
below were not justified in denying  Input  Tax  Credit  to  the  petitioner
based on interpretation put by  them  on  inclusion  of  the  petitioner  in
Schedule-II under Section 8(3A) and notification S.O. 377  dated  09.03.2007
issued under Section 8(3) of the Act.”

11.   The expression of the said view and the ultimate setting aside of  the
orders of the Court below, as stated  earlier,  is  the  subject  matter  of
assail in these appeals.

12.  We have heard Mr. Shovan Mishra and Mr. Milind Kumar,  learned  counsel
for the appellant and Mr.  Paras  Kuhad,  learned  senior  counsel  for  the
respondent.

13.   To appreciate the controversy at hand, it is necessary  to  scrutinize
the various provisions of the Act  and  the  notifications  that  have  been
issued from time to time. Section 2(13) and 2(15)  define  “exempted  goods”
and “goods” respectively, and they are extracted below:-
“Section 2(13) “Exempted  goods”  means  any  goods  exempted  from  tax  in
accordance with the provisions of this Act;

      xxx        xxx         xxx
Section 2(15) “goods” means all kinds of movable property, whether  tangible
or intangible, other than  newspapers,  money,  actionable  claims,  stocks,
shares and securities, and  includes  materials,  articles  and  commodities
used in any form in the execution  of  works  contract,  livestock  and  all
other things attached to or forming part of the land which is agreed  to  be
served before sale or under the contract of sale.”

14.   Section 8 deals with exemption of tax and Section  18  lays  down  the
method, the manner and the conditions prescribed for availing the input  tax
credit. Section 8 and the relevant portion  of  Section  18  are  reproduced
below:-

“Section 8 – Exemption of tax –

(1)   The goods specified in  the  Schedule-I  shall  be  exempt  from  tax,
subject to such conditions as may be specified therein.

(2)   Subject to such conditions as it  may  impose,  the  State  Government
may, if it  considers  necessary  so  to  do  in  the  public  interest,  by
notification in the Official Gazette, add to  or  omit  from,  or  otherwise
amend or  modify  the  Schedule-I,  prospectively  or  retrospectively,  and
thereupon the Schedule shall be deemed to have been amended accordingly.

(3)   The State Government in the public interest, by  notification  in  the
Official Gazette, may exempt whether prospectively or  retrospectively  from
tax the sale or purchase by any person or class of persons as  mentioned  in
Schedule-II, without  any  condition  or  with  such  condition  as  may  be
specified in the notification.

(3A)  Subject to such conditions as it  may  impose,  the  State  Government
may, if it  considers  necessary  so  to  do  in  the  public  interest,  by
notification in the Official Gazette, add to  or  omit  from,  or  otherwise
amend or modify  the  Schedule-II,  prospectively  or  retrospectively,  and
thereupon the Schedule shall be deemed to have been amended accordingly.

(4)   The State Government may, if it  considers  necessary  in  the  public
interest so to do, notify grant of exemption from payment of  whole  of  tax
payable under this Act in respect of any class of  sales  or  purchases  for
the purpose of promoting the scheme of Special Economic Zones  or  promoting
exports,  subject  to  such  conditions  as  may  be  laid   down   in   the
notification.

(5)   Every notification issued under this section shall be  laid,  as  soon
as may be after it is so issued, before the House of the State  Legislature,
while it is in session for a period of not less  than  30  days,  which  may
comprised in one session or in two successive sessions  and  if  before  the
expiry of the sessions and if before the expiry of the sessions in which  it
is so laid or of the session immediately following the House  of  the  State
Legislature makes any modification in such  notification  or  resolves  that
any such notification should not be  issued,  such  notification  thereafter
have effect only in such modified form or be of no effect, as the  case  may
be, so however, that any such modification or  annulment  shall  be  without
prejudice to the validity of anything previously done thereunder.”

Section 18 – Input Tax Credit:-
(1)   Input tax credit shall be allowed, to registered dealers,  other  than
the dealers covered by sub-section  (2)  of  Section  3  or  Section  5,  in
respect  of purchase of any taxable goods  made  within  the  State  from  a
registered dealer to the extent and in such manner  as  may  be  prescribed,
for the purpose of :-

(a)   sale within the State of Rajasthan or;

(b)   sale in the course of Inter-State trade and commerce; or

(c)   sale in the course of export outside the territory of India; or

(d)   being used as packing material of goods, other  than  exempted  goods,
for sale; or

(e)   being used as raw material except those as  may  be  notified  by  the
State Government in the manufacture of goods other than exempted goods,  for
sale within the State or in the course of Inter-State trade or commerce; or

(f)   ........

(g)   ........”


15.   As has been stated earlier, the High Court  has  referred  to  various
notifications. The notification dated 16th  March,  2005  was  issued  under
Section 15 of the Rajasthan Sales Tax Act, 1994. It is as under:-
“Notification dated 16.03.2005 under the Act of 1994:-

S. No. 1874; F.4(78)FD/Tax/2004-168 dated 16.03.2005

      In exercise of the powers conferred by section  15  of  the  Rajasthan
Sales Tax Act 1994 (Rajasthan Act No. 22 of 1995)  and  in  supersession  of
this Department’s Notification No. F.4/(68)FD/Tax-Div/99-271  (S.No.  1147),
dated,  January  24,  2000  (as  amended  from  time  to  time),  the  State
Government being of the opinion that it is expedient in the public  interest
so to do, hereby exempts form tax the sale of  asbestos  cement  sheets  and
bricks, manufactured in the State by an industrial unit having  fly  ash  as
its main raw material on the following conditions, namely:-

that such fly ash shall constitute  twenty  five  percent  or  more  in  the
contents by weight of such asbestos cement sheets and bricks; and

that such unit commences commercial production by 31.12.2006.

This notification shall remain in force upto 23.1.2010.”

16.   The said notification as mentioned therein  was  to  remain  in  force
upto  23.1.2010.  When  the  said  notification   was   in   vogue   another
notification dated 1.6.2006 was issued under Section 8 of the 2003 Act.  The
said notification is as under:-
                       “Notification
                                                  Jaipur, Dated : 01.06.2006

In exercise of the powers conferred by sub-section (2) of Section 8  of  the
Rajasthan Value Added Tax Act, 2003 (Rajasthan  Act  No.  4  of  2003),  the
State Government being of the opinion that it is  expedient  in  the  public
interest so  to  do,  hereby  makes  the  following  further  amendments  is
SCHEDULE-I appended to the said Act; namely :-
                                 AMENDMENTS

After the existing S.No. 60 and before S.No. 61, the following  new  S.  No.
and entries thereto shall be inserted, namely :-







17.   On 05.07.2006 another notification  was  issued  in  exercise  of  the
powers conferred by sub-section (2)  of  Section  8  of  the  2003  Act.  On
09.03.2007, S.O. 371 was issued by the  Finance  Department  (Tax  Division)
vide which S. No. 68A from Schedule-I appended to the Act (2)  deleted.  May
it  be  noted  that  S.  No.  60A  was  substituted  by  notification  dated
05.07.2006 which has been referred to hereinbefore.

18.   The notification dated 09.03.2007, S.O. 372 was issued by the  Finance
Department (Tax Division)  and  the  said  department  also  issued  another
notification on the same day which is relevant. Both the  notifications  are
reproduced below:-

                  “Notification dated 09.03.2007 S.O. 372:-
                             FINANCE DEPARTMENT
                               (TAX DIVISION)

                       NOTIFICATION
                  Jaipur, March 9, 2007

S.O. 372 – In exercise of  the  powers  conferred  by  sub-section  (3A)  of
Section 8 of the Rajasthan Value Added Tax Act, 2003 (Rajasthan  Act  No.  4
of 2003), the State Government being of the opinion that it is expedient  in
the public interest so to do,  hereby  makes  the  following  amendments  is
Schedule-II appended to the said Act, namely :-

                                 AMENDMENTS

In Schedule-II appended to the said Act:-

(1)   ........
(2)   After the existing S.No.18  and  entries  thereto  the  following  new
S.Nos. and entries thereto shall be added; namely :-

|19  |Self Help Group                            |    |
|20  |Manufacturers of asbestos cement sheets and|    |
|    |bricks                                     |    |


                   Notification dated 09.03.2007, S.O. 377

                             “FINANCE DEPARTMENT
  (TAX DIVISION)

                                NOTIFICATION
                              Jaipur, March 9, 2007

S.O. 377 – In exercise  of  the  powers  conferred  by  sub-section  (3)  of
Section 8 of the Rajasthan Value Added Tax Act, 2003 (Rajasthan  Act  No.  4
of 2003), the State Government being of the opinion that it is expedient  in
the public interest so to do, hereby exempts from payment of tax,  the  sale
of asbestos cement sheets and  bricks  manufacturers  in  the  State  having
contents of fly ash  twenty  five  per  cent  or  more  by  weight,  on  the
following conditions, namely :-

(1)   that the goods shall be entered in  the  registration  certificate  of
the selling dealer;

(2)   that the exemption shall be for such goods manufactured by the  dealer
who commenced commercial production in the State by 31.12.2006; and

(3)   that the exemption shall be available up to 23.01.2010.”

19.   As we find the High Court in the impugned order has  referred  to  the
provisions of the Act and the notifications.   On a careful scrutiny of  the
order passed by the High Court, it is perceivable that it has  proceeded  on
the foundation that there is a distinction between the  exempted  units  and
exempted  sales,  and  finally  manufactured  sales  area,  or  to  put   it
differently, the final transactions of goods or a sale when it takes  place.
Thus, the distinction as laid down by the learned Single Judge is  based  on
exemption of unit and exemption on transaction or sale.
20.   On an analysis of the scheme of the Act, it is manifest that there  is
difference between exempted goods, i.e., goods on which no Value  Added  Tax
is payable  and  are,  therefore,  not  taxable  and  other  cases  where  a
particular transaction when it satisfies specific condition is not  taxable.
 In this regard reference to the authority in State of Tamil  Nadu  v.  M.K.
Kandaswami & others[4], would be seemly, for  this  Court  had  adverted  to
three distinct concepts; taxable persons, taxable goods and  taxable  events
and how they were distinguished.  It was observed in the said case  that  if
the said distinction  is  overlooked,  it  may  lead  to  serious  error  in
construction and application of a taxing provision  or  enactment.   In  the
case of taxable or non-taxable/exempted  goods,  the  focal  point  and  the
focus is  on  the  character  and  class  of  goods  in  relation  to  their
exigibility.  Referring to the provisions  of  Section  7-A  of  the  Madras
General Sales Tax, 1959, the expression in the Act “taxable goods”,  it  was
opined as regards the goods mentioned in the First Schedule of the Act  that
the sale and purchase was liable to  tax  at  the  rate  and  at  the  point
specified therein.  It was further held that the  goods  which  were  exempt
were not taxable goods and, therefore, could not be brought  to  charge  and
taxed.  However, notwithstanding the goods being taxable goods, there  could
be circumstances in a given case by reason of which  a  particular  sale  or
purchase would not attract sales tax.
21.   Be it noted, in the said decision, Section 7-A of the  Madras  General
Sales Tax Act, 1959, which reads as under, fell for consideration:-
“(1) Every dealer who in  the  course  of  his  business  purchases  from  a
registered dealer or from any other person, any goods (the sale or  purchase
of which is liable to tax under this Act) in circumstances in which  no  tax
is payable under Sections 3, 4 or 5, as the case may be, and either-

(a) consumes such goods in the  manufacture  of  other  goods  for  sale  or
otherwise; or

(b) disposes of such goods in any manner other than by way of  sale  in  the
State; or

(c) dispatches them to a place outside the State except as a  direct  result
of sale or purchase in the course of inter-State trade  or  commerce,  shall
pay tax on the turnover relating to  the  purchase  aforesaid  at  the  rate
mentioned in Sections 3, 4 or 5 as the case may be whatever be  the  quantum
of such turnover in a year:

Provided that a dealer (other than a  casual  trader  or  agent  of  a  non-
resident dealer) purchasing goods the sale of which is liable to  tax  under
sub-section (1) of Section 3 shall not be liable to pay tax under this  sub-
section, if his total turnover for a year is less than twenty-five  thousand
rupees.”

      Section 7-A, it was observed, provided for such situations  where  the
goods were taxable goods in the hands of the purchasing dealer,  if  any  of
the conditions (a), (b) and (c)  of  sub-section  (1)  of  Section  7-A  was
satisfied.  In the facts of the case, it  was  noticed  that  the  goods  in
question were chargeable to tax as they were taxable  goods  under  Schedule
I, but exemption had been granted.   Reversing  the  decision  of  the  High
Court, reference was made to an earlier decision of  the  Supreme  Court  in
Ganesh Prasad Dixit Vs. Commissioner of  Sales  Tax[5]  and  a  decision  of
Kerala High Court in Malabar Fruit  Products  Co.  Vs.  Sales  Tax  Officer,
Palai[6] (1972) 30 STC 537 (Ker).
22.   With reference to the decision in Ganesh Prasad Dixit (supra) and  the
language in Madhya Pradesh General Tax Act, 1959, it was observed:
“29. The impugned Section 7-A is based on Section 7 of  the  Madhya  Pradesh
Act.  Although the language  of  these  two  provisions  is  not  completely
identical, yet their substance and object are  the  same.   Instead  of  the
longish phrase, “the goods, the sale or purchase of which is liable  to  tax
under this Act” employed in Section 7-A of the Madras Act, Section 7 of  the
Madhya Pradesh Act conveys the very connotation  by  using  the  convenient,
terse expression, “taxable goods”.  The ratio  decidendi  of  Ganesh  Prasad
(supra)  is  therefore,  an  apposite  guide  for  construing  Section  7-A.
Unfortunately, that decision, it seems, was not brought  to  the  notice  of
the learned Judges of the High Court.”

23.   With reference to Kerala General Sales Tax,  1963,  this  Court  noted
the following reasoning given by the Single Judge of the Kerala  High  Court
:-
“32.  Holding that  Section  5-A,  was  valid  and  intra  vires  the  State
Legislature, the learned Judge explained the scheme of the section, thus:-

      Though normally a sale by a registered dealer or by a dealer  attracts
tax, there may be circumstances under which the seller  may  not  be  liable
as, for example, when his turnover is below the specified minimum.  In  such
cases the “goods” are liable to be taxed,  but  the  sales  takes  place  in
circumstances in which no tax is payable  at  the  point  in  which  tax  is
levied under the Act.  If the goods are  not  available  in  the  State  for
subsequent  taxation  by  reason  of  one  or  other  of  the  circumstances
mentioned in clauses (a), (b) and (c) of Section 5A(1) of the Act  then  the
purchaser is sought to be made liable under Section 5A.

                                   *  *  *

      Another instance I can conceive of is  a  case  of  a  dealer  selling
agricultural or horticultural produce grown by him or grown in any  land  in
which he has interested, whether as owner,  usufructuary  mortgagee,  tenant
or otherwise.  From the definition of “turnover” in  Section  2  (xxvii)  of
the Act it is evident that the proceeds of such sale would be excluded  from
the turnover of a person who sells goods produced  by  him  by  manufacture,
agriculture, horticulture or otherwise,  though  merely  by  such  sales  he
satisfies the definition of ‘dealer’  in  the  Act.   Thus,  such  a  person
selling such produce is treated as a dealer within the meaning  of  the  Act
and the sales are of goods which are taxable  under  the  Act  but  when  he
sells these goods, it is not part of his turnover.  Therefore, it is a  case
of a dealer selling goods liable to tax under the Act  in  circumstances  in
which no tax is payable under the Act.  In such a  case,  the  purchaser  is
sought to be taxed under Section 5A provided the conditions  are  satisfied.
The case of growers selling  goods  to  persons  to  whom  Section  5A  thus
applies is covered by this example.”

24.   In CST v. Pine Chemicals Limited[7], this Court  posed  the  following
question:-
“7.   The simple question before us is whether the Bench which decided  Pine
Chemicals is right in holding that the benefit of the  said  sub-section  is
available even where the goods are exempted  with  reference  to  industrial
unit and for a specified period, viz., period of five years  from  the  date
the relevant unit goes into production.  In other  words,  the  question  is
whether an exemption of the nature granted under Government  Order  No.  159
dated 26-03-1971 is an exemption available “only in specified  circumstances
or under specified conditions” within the  meaning  of  the  Explanation  to
Section 8(2-A), as contended by the State or is it a case  where  the  goods
are exempt from the tax ‘generally’ within the meaning  of  Section  8(2-A),
as contended by the respondents/dealers? We are  of  the  opinion  that  the
respondents/dealers’ contention cannot be accepted in view of the clear  and
unambiguous language of the sub-section.”

25.   Thus, the Court drew a distinction  between  goods,  generally  exempt
from tax after noticing that Section 8(2A) of  the  Central  Sales  Tax  Act
specifically uses the expression “exempt from tax generally  or  subject  to
tax generally at a rate which is lower than 4%”,  and  accordingly  observed
that when the goods are exempt under certain specified circumstances  alone,
the  exemption  is  not  a  general,  but  a  conditional  one.    In   such
circumstances, it cannot  be  said  that  the  goods  are  exempt  from  tax
generally for the exemption may vary from unit  to  unit  and  would  depend
upon date of commencement of production of each unit.   Reference  was  made
to  earlier  decision  in  Indian  Aluminium  Cables  Limited  v.  State  of
Haryana[8], wherein it has been held that exemption from tax when  conferred
by conditions or in certain circumstances, there was no exemption  from  tax
generally.
26.   At this juncture, we are required to  understand  the  effect  of  the
principles spelt out in above decisions especially in  K.N.  Kandaswami  and
Others (supra) on the facts of the present case.  There is no doubt  that  a
distinction has to be drawn between exempted  goods,  which  means  complete
exemption for the specified goods, and when the  goods  are  taxable  goods,
but a transaction or a person is granted  exemption.   When  the  goods  are
exempt, there would be no taxable transactions or  exemption  to  a  taxable
person.  In other cases, goods might be  taxable,  but  exemption  could  be
given  in  respect  of  a  taxable  event,  i.e.,  exemption  to   specified
transactions from liability of tax or exemption to a taxable person,  though
the goods are taxable.  Such exemptions operate in circumscribed  boundaries
and not as expansive as in the  case  of  taxable  goods.   Exemptions  with
reference to taxable events or taxable persons would not  exempt  the  goods
as such, for a  subsequent  transaction  or  when  the  goods  are  sold  or
purchased by a non-specified  person,  the  subsequent  transaction  or  the
taxable person would be liable to pay tax.  It is, in this context,  it  has
been  highlighted  by  the  respondent  and,  in  our  opinion,   absolutely
correctly that Section 4 of the Act provides for levy of tax in a  situation
where the goods,  which  were  not  exempted  but  could  otherwise  not  be
subjected to tax on account of  exemption  granted  to  a  person  or  to  a
transaction.  The  goods  remain  taxable  goods  through  exemption  stands
granted to a particular individual or a specified transaction.   That  being
so, all subsequent transactions in those goods, which are  not  specifically
exempt and not undertaken by  an  exempted  person  could  be  subjected  to
taxation.  Therefore, the appellant though exempted  from  payment  of  tax,
subsequent transactions of sale of asbestos cement sheets would be  taxable.
The transaction of sale by the manufacturer/dealer covered by the  exemption
notifications issued under Section 8(3) of the Act would be protected or  an
exempted transaction, but the  goods  not  being  exempted  goods  would  be
taxable and could be taxed on the happening of a taxable or charging  event.
 It is simply because the goods are not exempt from tax or  exempted  goods,
but are taxable.  As a logical corollary it follows  that  the  Value  Added
Tax would have to be paid on the taxable goods in a  subsequent  transaction
by the purchasing dealer.
27.   As a sequitur, we are obliged to observe that  if  the  contention  of
the appellant is to be accepted, the respondent though covered by  exemption
notification under Section 8(3) of  the  Act  could  be  at  a  disadvantage
because finally when the subsequent sale is made by  a  non-exempted  dealer
or tax stands paid on the non-exempted transfer, the goods,  i.e.,  asbestos
cement sheet, would suffer the tax on the entire sale  consideration.   This
would place an exempted manufacturer-dealer at  a  disadvantageous  position
and make his products uncompetitive inspite of the  exemption  notifications
under Section 8(3) of the Act.
28.   In the context of the issue in question, the respondents have  rightly
highlighted that where the appellant wanted to restrict the benefit  of  ITC
when a particular dealer or transaction was exempted, it was  so  stipulated
in the exemption notification issued under Sections 8(3)  and  8(4)  of  the
Act.  Such  notifications  admittedly  do  exist  and  were  issued  by  the
appellant.  They are also right in drawing  support  from  the  note  sheets
relating  to  Finance  Bill  2007  as  also  the  communications  issued  by
Commissioner of Commercial Taxes.  The note sheets and the communication  of
the Commissioner draw a clear distinction between exemptions when the  goods
were not taxable as they do fall  under  the  First  Schedule  and  when  an
exemption was granted under the Second Schedule, which relates to  specified
transaction of sale or exempted dealers even when  the  goods  were  taxable
goods.  In latter cases, subsequent dealers undertaking sale of goods  would
be liable to pay tax on sale of such products.  There can be  no  shadow  of
doubt that subsequent dealers undertaking sale  of  goods  manufactured  and
sold by the respondent company would be liable to pay tax on such products.
29.   In view of the aforesaid premised reasons, we do not  find  any  merit
in these appeals and accordingly they stand dismissed.  There  shall  be  no
order as to costs.



                                             .............................J.
                                                               [Dipak Misra]



                                             ..........................., J.
                                                          [Prafulla C. Pant]
New Delhi
November 24, 2015
-----------------------
[1]    (2006) 147 STC 405
[2]    23 Tax-world 285
[3]    (1970) 2 SCC 192
[4]    (1975) 4 SCC 745
[5]     (1969) 1 SCC 492
[6]     (1972) 30 STC 537 (Ker)
[7]    (1995) 1 SCC 58
[8]    (1976) 4 SCC 27

-----------------------
|“60A.   |Asbestos cement     |Subject to the condition|
|        |sheets and bricks   |of entry in Registration|
|        |having contents of  |Certificate of the      |
|        |fly ash 25% or more |selling dealer.”        |
|        |by weight.          |                        |





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