Kerala Building Tax Act, 1975. Under Section 3(1)(b) buildings that are used principally for religious, charitable or educational purposes or as factories or workshops are exempted from building tax under the Act.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 202 OF 2012
GOVERNMENT OF KERALA & ANR. …APPELLANT
VERSUS
MOTHER SUPERIOR ADORATION CONVENT …RESPONDENT
WITH
CIVIL APPEAL NO. 6589 OF 2015
CIVIL APPEAL NO. 10298 OF 2016
CIVIL APPEAL NO. 10297 OF 2016
CIVIL APPEAL NO. 10881 OF 2016
CIVIL APPEAL NO. 203 OF 2012
CIVIL APPEAL NO. 204 OF 2012
CIVIL APPEAL NO. 207 OF 2012
CIVIL APPEAL NO. 206 OF 2012
CIVIL APPEAL NO. 205 OF 2012
1
CIVIL APPEAL NO. 745 OF 2021
(ARISING OUT OF SLP (CIVIL) NO.905 OF 2012)
CIVIL APPEAL NO. 5036 OF 2015
CIVIL APPEAL NO. 8351 OF 2014
CIVIL APPEAL NO. 746 OF 2021
(ARISING OUT OF SLP (CIVIL) NO.12235 OF 2014)
CIVIL APPEAL NO. 747 OF 2021
(ARISING OUT OF SLP (CIVIL) NO.13874 OF 2014)
CIVIL APPEAL NO. 8352 OF 2014
CIVIL APPEAL NO. 4445 OF 2015
CIVIL APPEAL NO. 4446 OF 2015
CIVIL APPEAL NO. 4447 OF 2015
CIVIL APPEAL NO. 7368 OF 2016
J U D G M E N T
R.F. Nariman, J.
1. Leave granted.
2. All these appeals pertain to an exemption provision contained
in the Kerala Building Tax Act, 1975. Under Section 3(1)(b) buildings
2
that are used principally for religious, charitable or educational
purposes or as factories or workshops are exempted from building
tax under the Act. All of the appeals, except one, are by the State of
Kerala against a judgment dated 22.11.2007 passed by a Division
Bench of the Kerala High Court in Government of Kerala & Anr v.
Mother Superior Adoration Convent (Civil Appeal No.202 of 2012)
and a Full Bench judgment in State of Kerala & Ors v. Unity Hospital
(P) Ltd. (Civil Appeal No. 207 of 2012), being a judgment dated
21.12.2010. Both judgments decided to exempt the buildings in
question. The other appeals by the State contain judgments which
follow either or both of these judgments. The only appeal by an
assessee namely, Administrator, Jos Giri Hospital v. Government of
Kerala (Civil Appeal No.204 of 2012), is from a judgment of the
Division Bench of the Kerala High Court deciding the case in favour
of the State. However, this judgment was referred to the Full Bench
which decided the judgment in State of Kerala & Ors v. Unity
Hospital (P) Ltd. (Civil Appeal No. 207 of 2012) and has been stated
to have reached an incorrect conclusion.
3
3. On facts, there is a similarity in most of the cases before us.
Either there are residential accommodations for nuns as in the first
appeal before us or there are hostel accommodations which are
attached to various educational institutions. In both cases, the State
claims that no exemption should be granted as residential
accommodation for nuns and hostels for students would be for
residential as apart from religious or educational purposes and
would not therefore be covered by the exemption contained in
Section 3(1)(b) of the Act.
4. We may take up the facts in Civil Appeal No.202 of 2012. In
this case, by an order of assessment dated 14.03.2002, building tax
was levied on residential accommodation for nuns who underwent
religious training to become nuns in a convent. Against the
aforesaid assessment to tax, the respondent filed O.P. No.11246 of
2002 and the High court vide its judgment and order dated
29.5.2002 quashed the aforesaid assessment order and directed the
Tehsildar to refer the case to the Government for its decision. A
representation was made to the Government by the respondent on
10.2.2004 in which it was stated:
4
“2. At present we the 8 sisters residing here are
deputed to render services in religious as well as
charitable needs of the Vinjan Matha Church, East
Thodupuzha and the people around the Church,
irrespective of caste, creed and community.
xxx xxx xxx
In order to become sisters, we had undergone 8
years rigorous religious education and training and
then decided to lead a life of a SANYASINI
throughout our life.
xxx xxx xxx
8. The vow of obedience, is intended to make use of
the individual sisters by their elected superior
sisters, where their services are most needed. It
means, we the present sisters attached to this
convent at present are not permanent members
here. We have come from different places, and each
one of us will be individually transferred to other
places, as our Superior’s Council decides.
9. So much so, the convent is a permanent set up
here to render the religious and charitable needs of
the locality, whereas the members are individually
deputed to render the services for a period found
proper.
xxx xxx xxx
11. The convent was established by the Council
decision of the St. Mary’s Province of the
Congregation of the Sisters of Adoration of the
Blessed Sacrament.
12. The building is also intended for accommodating
the junior sisters who are undergoing their college
education in the nearby Newman College -
5
Thodupuzha. Thus, at present 8 students-sisters
also are residing here.
13. The Building is two storeyed and measures
approximately 5000sq.ft. The ground floor contains a
prayer hall, kitchen, refectory, study hall and small
rooms for sisters. The upper floor contains 5 rooms
for sisters, a dormitory and study hall.
14. The building is not at all given for amount at any
time, and it will not be given so in the future also. It
will be used only as a religious house.”
5. This representation was turned down by the Government’s
order dated 11.09.2006 as follows:
“The Government has examined the matter in detail.
The petitioner was heard on 16.9.2004 and he
claimed that the building is exclusively used for
accommodating the nuns who are engaged in
religious and charitable activities. No part of the
building is rented out or used for any other purpose.
On perusal of the records the documents produced
at the time of hearing it has become evident that the
convent is not principally used for any religious or
charitable purpose. The District Collector, Idukki as
per letter read as fourth paper above has also
informed that no charitable activities are undertaken
in the convent and the building is used for the
residential purpose of nuns.
xxx xxx xxx
It includes professing once used in public expressing
it by private and public worship, practicing rituals
and ceremonies. It also includes observances,
ceremonies and functions which are being
customarily performed by members of a particular
religion. If the main use of the major portion of a
6
building is for the above then that building can be
said to be used principally for religious purposes.
xxx xxx xxx
In the above circumstances, Government Order that
the building in Survey No. 206 Thodupuzha village,
Thodupuzha Taluk having plinth area of 903.24 M2
owned by the Adoration Convent, Shanti Bhavan,
Thodupuzha is not eligible for exemption under
Section 3 of the Kerala Building Tax Act, 1975.”
6. A writ petition being Writ Petition No.27108 of 2006 was filed
against the said order before a learned Single Judge who then
referred the matter to a Division Bench as he did not agree with an
earlier judgment of a learned Single Judge of the Kerala High Court.
By the impugned judgment dated 22.11.2007, a Division Bench of
the Kerala High Court held as follows:
“8. If the activities that are going on in the convent
are predominantly religious, then, normally, buildings
of the convent used for the said purpose should also
qualify for exemption. Of course, if any particular
building is used for any commercial activity, such
buildings could be segregated. It is not in dispute
that a chapel is used for religious purposes.
Attached to that, there may be a room for the
Chaplain for taking rest etc. Can that room be
segregated and said that it is not used for religious
purposes. We feel that the answer should be in the
negative. If the buildings of convents are generally
used for religious purposes and one of the buildings
is used for residence of an inmate there, it shall also
be treated as one, used for religious purposes. Any
7
interpretation to the contrary will be irrational. So, we
are of the view that the buildings, used for the
residence of the nuns in a convent, is principally
used for religious purposes and therefore, should
also qualify for exemption. We are in respectful
agreement with the views expressed by
C.N. Ramachandran Nair, J., in Writ Petition (C)
No.27250/06. The judgment in W.A.2424/05 deals
with the case of a boarding and lodging house for
students run by a convent where rooms are let out
collecting a fee. If the convent is running a
commercial or industrial unit, the building housing
that establishment will not qualify for exemption.
That principle cannot be applied in the case of the
building used for accommodating nuns in the
convent. The decision of the Apex Court relied on by
the learned Government Pleader also does not have
any application to the facts of this case. The point
considered therein was whether the building used
for accommodating a school can be treated as a
building used for charitable purposes or religious
activities. The principle stated therein does not have
any application to the facts of this case.”
7. The Full Bench judgment of 2010 contained in Civil Appeal
No.207 of 2012 was as a result of a Division Bench doubting the
correctness of the Division Bench judgment in Administrator, Jos Giri
Hospital v. Government of Kerala that is contained in Civil Appeal
No.204 of 2012. Paragraphs 2 and 3 of the Full Bench posed the
question raised thus:
“2. The question raised is whether hostel building of
an educational institution is entitled for exemption
8
from building tax under Section 3(1)(b) of the Kerala
Building Tax Act, 1975 (hereinafter referred to as the
Act for short), which provides for building tax
exemption for buildings used for “educational
purposes”.
3. While the building involved in Writ Appeal
No.1648/2009 is a hostel building owned by a
nursing school, the building involved in Writ Appeal
No.2495/2009 is a hostel building attached to a
Residential Higher Secondary School owned by a
private management.”
The Full Bench held:
“6. The short question that arises for consideration is
whether “educational purposes” referred to in the
above Section has only a restricted meaning
covering buildings, where students are imparted
education; or whether it has a wider meaning
covering hostel buildings owned by educational
institutions to provide accommodation to students in
the premises of the educational institutions. The
Division Bench of this Court in the above referred
judgment held that “educational purposes” cover
only purposes which have integral, immediate and
proximate connection to education. In the reference
order, another Division Bench of which one of us is a
member [CNR(J)], took the view that the above test
laid down by the other Division Bench in the earlier
judgment is satisfied at least in respect of hostels
run by nursing schools and medical educational
institutions and probably mistake is there only in the
conclusion drawn in that judgment. What we notice
is that the Division Bench while deciding the matter
did not consider the educational Regulations of the
Medical Council of India and Nursing Council of
India, which make it mandatory that in order to get
approval for a medical college or a nursing college,
9
hospital for patients and hostel facilities for students
are mandatory. The State also does not controvert
this position and in fact all the medical colleges and
nursing colleges run in the State including those run
by the Government have hospitals of their own or
attached hospitals, and have hostels providing
accommodation to all students. Except probably few
students who hail from the areas very close to the
colleges, all the nursing and medical students reside
in the hostels attached to their colleges. The
students of both medical and nursing colleges
require clinical training in hospitals, and students in
senior classes are deployed on a turn basis in
hospitals. Unless accommodation is provided to the
students in the college campus or nearby, it would
not be possible for them, particularly for girls, to
reach the hospitals attached to the medical and
nursing colleges for duty at odd hours in the night.
Therefore, the Medical Council of India and Nursing
Council of India have made it mandatory for every
medical college and nursing college to have hostel
facilities, and without such facility no medical or
nursing college will get approval from the Medical
Council or Nursing Council of India, and only on their
approval, the medical educational institution can get
affiliation to the University. So much so, in our view,
the test laid down by the Division Bench i.e. integral,
immediate and proximate connection of the hostel
building with education, is squarely satisfied in the
cases of hostels attached to nursing schools and
other medical educational institutions which require
compulsory hostel facility for students for their
approval. We, therefore, hold that wherever hostel is
compulsory for approval of a course study or an
educational institution by the regulatory body as in
the case of medical and nursing colleges, hostel
building is an integral part of the educational
institution, and so much so, accommodation to
students provided in the hostel building is for
10
educational purpose and therefore the hostel
building qualifies for exemption from building tax. In
view of the above finding, we are unable to agree
with the conclusion drawn by the Division Bench i.e.
denial of exemption to hostel building attached to the
nursing school.
7. The next question to be considered is whether
hostel facility to students provided by other
educational institutions, which are not compulsorily
required under the educational regulations to
provide accommodation to students, is an
educational purpose qualifying the hostel buildings
for tax exemption. In this context, we have to
necessarily consider the object and scope of the
exemption clause provided in the statute. While
learned counsel for the appellants have relied on
Section 235 of the Kerala Municipalities Act, which
provides for exemption to buildings used for
educational purposes including hostel buildings
owned by the same educational institutions, learned
Government Pleader has relied on the decision of
the Supreme Court in Municipal Corporation of Delhi
v. Children Book Trust, reported in AIR 1992 SC
1456, where the Supreme Court held that school
buildings are not entitled to exemption from
municipal tax under the Delhi Municipal Corporation
Act. On going through the judgment of the Supreme
Court, we notice that the provision for exemption
from property tax under the Delhi Municipal
Corporation Act is not similar to the provisions of the
Kerala Building Tax Act, and so much so, in our view,
the decision cannot be applied while deciding the
claim of exemption made by the appellants in these
cases. Even though Section 235 of the Kerala
Municipalities Act specifically provides for property
tax exemption for hostel buildings owned by the very
same educational institutions, there is no specific
exemption for hostel buildings in Section 3 (1)(b) of
11
the Kerala Building Tax Act. Therefore, we have to
examine whether “educational purposes” referred to
in Section 3(1)(b) has only restricted meaning or it
has a wider meaning covering all buildings directly
or indirectly catering to the needs of student
community. In this context, we have to necessarily
consider the general pattern of hostel facility
provided by education institutions in the State. In the
recent past, large number of educational institutions,
particularly engineering colleges are established all
over Kerala including remote areas and hill stations,
where the students admitted are not from local area
and they have to necessarily depend on hostel
facility to be provided by the educational institution.
In fact admissions to medical and engineering
colleges are given on central allotment basis and
hardly any student can get admission in a college
near to his/her house. Therefore, necessarily, the
students have to depend on hostel accommodation
to pursue their studies. Colleges will not get students
if they do not provide hostel accommodation to
students near to the College. Therefore, hostel
buildings are constructed by educational institutions
to attract students to their institutions. Many
educational institutions provide only basic facilities
like building, electricity and water connections for
hostels and in fact, students are running mess on
sharing basis. So much so, the State’s contention
that hostels attached to educational institutions are
commercial ventures intended to make profit, in our
view, is unacceptable. In order to consider whether
hostel provided by an educational institution is for
educational purpose or not, we have to consider the
consequences if such educational institution does
not have hostel facility to provide accommodation to
its students. Obviously, such educational institutions
have to source students locally, which may be
possible only in the case of Schools. In fact,
thousands of schools and colleges in the State do
12
not have hostel facility because they depend on
students from the local area only. However,
wherever an educational institution has students
from different parts of the State, and Non Resident
Indians sending their children for studies in Kerala,
necessarily the educational institution has to provide
hostel facility to the students. In fact, without hostel
facility, many educational institutions will not have
required number of students to run it. We, therefore,
feel accommodation is a necessary facility, which an
educational institution is required to provide to it's
students; and so long as the purpose of stay of
students in the hostel is to study in the educational
institution, the purpose of such building, which is
used for accommodation of students, qualifies as
educational purpose.
xxx
9. We are therefore of the view that buildings owned
by educational institutions for providing hostel
accommodation to students qualify for building tax
exemption under clause (b) of Section 3(1) of the
Act. However all buildings accommodating students
do not qualify for building tax exemption because
there are so many lodge buildings constructed by
various people around educational institutions which
do not have hostel facility, to rent out to students in
such educational institutions. Letting out of buildings
by private agencies is a commercial activity whether
tenants are students or not. In other words, only
hostel buildings owned by educational institutions for
accommodating it's own students in such hostels will
qualify for exemption under clause (b) of Section
3(1) the Act.”
13
8. Shri Jaideep Gupta, learned senior advocate appearing on
behalf of the State of Kerala, assailed the correctness of these
judgments. According to him, an exemption provision contained in a
fiscal statute must be construed strictly and in the case of doubt or
ambiguity must be construed in favour of the State. For this
proposition, he cited a number of judgments. He then analysed
Section 3(1)(b) of the Act and argued that a building used principally
for religious or educational purposes can only be a building that is
used for religious/educational activity and not for activity which has
no direct connection with religious/educational activity, such as
residential quarters for nuns, priests or hostel accommodation for
students. He argued that even assuming that there is ambiguity in
Section 3(1)(b), in that a purpose connected with the
religious/educational activity may be included, yet the ambiguity has
to be resolved in favour of the State and this being so, on this short
ground, the judgment of the Division Bench and the judgment of the
Full Bench are incorrect. He further went on to argue that the term
“building” has been defined in Section 2(e) of the Act as meaning a
separate house, out-house, etc. and that in the present case as no
religious/educational activities are carried on at all in the buildings
14
which house nuns and hostel accommodation which houses
students, such buildings, not being principally used for religious
purposes, cannot possibly be exempt under the Act.
9. Learned counsel for the respondents supported the judgment
of the Division Bench and the Full Bench, arguing that on facts, a
beneficial legislation which is meant to further religious, charitable
and educational purposes should not be construed in a narrow
fashion, and should be construed in accordance with the object
sought to be achieved, and this being the case, the aforesaid
judgments do not require to be disturbed.
10. Having heard learned counsel appearing for all parties, we
must first set out the relevant provisions of the Kerala Building Tax
Act, 1975:
“2. Definitions - In this Act, unless the context
otherwise requires,
(e) "building" means a house, out-house, garage, or
any other structure, or part thereof, whether of
masonry, bricks, wood, metal or other material, but
does not include any portable shelter or any shed
constructed principally of mud, bamboos, leaves,
grass or thatch or a latrine which is not attached to
the main structure.
15
(i) "owner" includes a person who for the time being
is receiving, or is entitled to receive, the rent of any
building, whether on his own account or on account
of himself and others or as an agent, trustee,
guardian or receiver for any other person or who
should so received the rent or be entitled to receive
it if the building or part thereof were let to a tenant;
(l) "residential building" means a building or any
other structure or part thereof built exclusively for
residential purpose including outhouses or garages
appurtenant to the building for the more beneficial
enjoyment of the main building but does not include
hotels, boarding places, lodges and the like.]
3. Exemptions - (1) Nothing in this Act shall apply
to-
(a) buildings owned by the Government of Kerala or
the Government of India or any local authority; and
(b) buildings used principally for religious, charitable
or educational purposes or as factories or
workshops.
Explanation. - For the purposes of this sub-section,
"charitable purpose" includes relief of the poor and
free medical relief.
5. Charge of building tax - (1) Subject to the other
provisions contained in this Act, there shall be
charged a tax (hereinafter referred to as "building
tax") based on the plinth area at the rate specified in
the Schedule on every building the construction of
which is completed on or after the appointed day.
5A. Charge of luxury tax - [1) Notwithstanding
anything contained in this Act, there shall be
charged a luxury tax based on the plinth area at the
rate specified in Schedule II, annually on all
16
residential buildings having a plinth area of 278.7
square metres completed on or after the 1st day of
April, 1999.”
11. Before coming to the case law that has been cited before us, it
is important to first analyse Section 3(1)(b) with which we are
directly concerned. First and foremost, the subject matter is
“buildings” which as defined, would include a house or other
structure. Secondly, the exemption is based upon user and not
ownership. Third, what is important is the expression “principally”,
showing thereby that the legislature decided to grant this exemption
qua buildings which are “principally” and not exclusively used for the
purposes mentioned therein. Dominant object therefore is the test to
be applied to see whether such building is or is not exempt.
Fourthly, religious, charitable or educational purposes are
earmarked by the legislature as qualifying for the exemption as they
do not pertain to business or commercial activity. Fifthly, what is
important is that even factories or workshops which produce goods
and provide services are also exempt, despite profit motive, as the
legislature obviously wishes to boost production in factories and
services in workshops. What is important to note is that the
17
expression “used principally for” is wider than the expression “as”
which precedes the words “factories or workshops”.
12. A reading of the provision would show that the object for
exempting buildings which are used principally for religious,
charitable or educational purposes would be for core religious,
charitable or educational activity as well as purposes directly
connected with religious activity. One example will suffice to show
the difference between a purpose that is directly connected with
religious or educational activity and a purpose which is only
indirectly connected with such activity. Take a case where, unlike
the facts in Civil Appeal No. 202 of 2012, nuns are not residing in a
building next to a convent so that they may walk over to the convent
for religious instruction. Take a case where the neighbouring building
to the convent is let out on rent to any member of the public, and the
rent is then utilised only for core religious activity. Can it be said that
the letting out at market rent would be connected with religious
activity because the rental that is received is ploughed back only into
religious activity? Letting out a building for a commercial purpose
would lose any rational connection with religious activity. The indirect
18
connection with religious activity being the profits which are
ploughed back into religious activity would obviously not suffice to
exempt such a building. But if on the other hand, nuns are living in a
neighbouring building to a convent only so that they may receive
religious instruction there, or if students are living in a hostel close to
the school or college in which they are imparted instruction, it is
obvious that the purpose of such residence is not to earn profit but
residence that is integrally connected with religious or educational
activity.
13. A reading of the other provisions of the Act strengthens the
aforesaid conclusion. “Residential building” is defined separately
from “building” in Section 2(l). A “residential building” means a
building or any other structure or part thereof built exclusively for
residential purpose. It is important to note that “residential building”
is not the subject matter of exemption under Section 3 of the Act.
Quite the contrary is to be found in Section 5A of the Act, which
starts with a non-obstante clause, and which states that a luxury tax
is to be charged on all residential buildings having a plinth area of
278.7 square meters and which have been completed on or after
19
1.4.1999. If we were to accept the contention of the State, buildings
in which nuns are housed and students are accommodated in
hostels which have been completed after 1.4.1999 and which have a
plinth area of 278.7 square meters would be liable to pay luxury tax
as these buildings would now no longer be buildings used principally
for religious or educational purposes, but would be residential
buildings used exclusively for residential purposes. This would turn
the object sought to be achieved in exempting such buildings on its
head. For this reason also, we cannot countenance a plea by the
State that buildings which are used for purposes integrally
connected with religious or educational activity are yet outside the
scope of the exemption contained in Section 3(1)(b) of the Act. We
may now examine the case law.
14. In Union of India v. Wood Papers Ltd (1990) 4 SCC 256 the
rule as to exemption notifications in tax statutes was felicitously laid
down as follows:
“4. Entitlement of exemption depends on
construction of the expression “any factory
commencing production” used in the Table extracted
above. Literally exemption is freedom from liability,
tax or duty. Fiscally it may assume varying shapes,
specially, in a growing economy. For instance tax
20
holiday to new units, concessional rate of tax to
goods or persons for limited period or with the
specific objective etc. That is why its construction,
unlike charging provision, has to be tested on
different touchstone. In fact an exemption provision
is like an exception and on normal principle of
construction or interpretation of statutes it is
construed strictly either because of legislative
intention or on economic justification of inequitable
burden or progressive approach of fiscal provisions
intended to augment State revenue. But once
exception or exemption becomes applicable no rule
or principle requires it to be construed strictly. Truly
speaking liberal and strict construction of an
exemption provision are to be invoked at different
stages of interpreting it. When the question is
whether a subject falls in the notification or in the
exemption clause then it being in nature of exception
is to be construed strictly and against the subject but
once ambiguity or doubt about applicability is lifted
and the subject falls in the notification then full play
should be given to it and it calls for a wider and
liberal construction. Therefore, the first exercise that
has to be undertaken is if the production of packing
and wrapping material in the factory as it existed
prior to 1964 is covered in the notification.”
15. This statement of the law was followed in a number of
judgments. Suffice it to say that in Star Industries v. Commr. of
Customs (Imports) (2016) 2 SCC 362, a large number of
judgments are referred to for the same proposition (see paragraphs
32 to 34).
21
16. However, there is another line of authority which states that
even in tax statutes, an exemption provision should be liberally
construed in accordance with the object sought to be achieved if
such provision is to grant incentive for promoting economic growth
or otherwise has some beneficial reason behind it. In such cases,
the rationale of the judgments following Wood Papers (supra) does
not apply. In fact, the legislative intent is not to burden the subject
with tax so that some specific public interest is furthered. Thus, in
CST v. Industrial Coal Enterprises (1999) 2 SCC 607, this Court
held:
“11. In CIT v. Straw Board Mfg. Co. Ltd. 1989 Supp
(2) SCC 523 this Court held that in taxing statutes,
provision for concessional rate of tax should be
liberally construed. So also in Bajaj Tempo Ltd. v.
CIT (1992) 3 SCC 78 it was held that provision
granting incentive for promoting economic growth
and development in taxing statutes should be
liberally construed and restriction placed on it by
way of exception should be construed in a
reasonable and purposive manner so as to advance
the objective of the provision.
12. We find that the object of granting exemption
from payment of sales tax has always been for
encouraging capital investment and establishment of
industrial units for the purpose of increasing
production of goods and promoting the development
of industry in the State. If the test laid down in Bajaj
22
Tempo Ltd. case (1992) 3 SCC 78 is applied, there
is no doubt whatever that the exemption granted to
the respondent from 9-8-1985 when it fulfilled all the
prescribed conditions will not cease to operate just
because the capital investment exceeded the limit of
Rs 3 lakhs on account of the respondent becoming
the owner of land and building to which the unit was
shifted. If the construction sought to be placed by
the appellant is accepted, the very purpose and
object of the grant of exemption will be defeated.
After all, the respondent had only shifted the unit to
its own premises which made it much more
convenient and easier for the respondent to carry on
the production of the goods undisturbed by the
vagaries of the lessor and without any necessity to
spend a part of its income on rent. It is not the case
of the appellant that there were any mala fides on
the part of the respondent in obtaining exemption in
the first instance as a unit with a capital investment
below Rs 3 lakhs and increasing the capital
investment subsequently to an amount exceeding
Rs 3 lakhs with a view to defeat the provisions of
any of the relevant statutes. The bona fides of the
respondent have never been questioned by the
appellant.”
17. Likewise, in State of Jharkhand v. Tata Cummins Ltd (2006)
4 SCC 57 in dealing with a tax exemption for setting up an industry
in a backward area, this Court held as follows:
“16. Before analysing the above policy read with the
notifications, it is important to bear in mind the
connotation of the word “tax”. A tax is a payment for
raising general revenue. It is a burden. It is based on
the principle of ability or capacity to pay. It is a
manifestation of the taxing power of the State. An
23
exemption from payment of tax under an enactment
is an exemption from the tax liability. Therefore,
every such exemption notification has to be read
strictly. However, when an assessee is promised
with a tax exemption for setting up an industry in the
backward area as a term of the industrial policy, we
have to read the implementing notifications in the
context of the industrial policy. In such a case, the
exemption notifications have to be read liberally
keeping in mind the objects envisaged by the
industrial policy and not in a strict sense as in the
case of exemptions from tax liability under the taxing
statute.”
18. Similarly, in Pondicherry State Coop. Consumer Federation
Ltd. v. Union Territory of Pondicherry (2008) 1 SCC 206 this
Court held:
“5. Learned Senior Counsel Shri Venkatraman
appearing for the appellant assessee submitted that
this question was no more res integra and was
covered by the judgment of this Court in Vadilal
Chemicals Ltd. v. State of A.P. (2005) 6 SCC 292. It
was pointed out that in that case an identical
question fell for consideration under the similar
circumstances. There also, the question was as to
whether the small-scale industry which was engaged
in bottling of anhydrous ammonia could be said to
be entitled to the exemption from payment of sales
tax on the ground that it was manufacturing such
goods since there was a general exemption offered
by the Andhra Pradesh Government by GOMs No.
117 dated 17-3-1993 to the small-scale industry.
There also it was found on inspection that the
24
assessee industry was allowed irregular tax
exemption on the first sales of anhydrous liquefied
ammonia as it was found that the commodity that
was purchased and sold was one of the same and
there was no new commodity that had emerged and
that the assessee had only done bottling of
ammonia. The show-cause notices were issued to
the assessee in that case suggesting therein that the
activity of bottling/packing of gases into unit
containers from bulk quantities was not recognised
as “manufacture” even under the Central Excise Act.
In that view the question which fell for consideration
before this Court was as to whether under the
circumstances the assessee could claim the
exemption. This Court firstly held that the exemption
certificate was granted by the authorities after due
consideration. It was then noted that though the
exemption was available on the products
“manufactured” in industrial units, the interpretation
put forth by the authorities on the word
“manufacture” was incorrect. This Court took the
view that the authorities had based the interpretation
of word “manufacture” on the law relating to excise
and that it was erroneous to do so. It was observed
that in the State Sales Tax Act there was no
provision relating to “manufacture” and the concept
was to be found only in the 1993 G.O. which had
provided the exemption. The Court further took the
view that the exemption was granted with a view to
give a fillip to the industry in the State and also for
the industrial units of the State. The Court, therefore,
took the view that a liberal interpretation of the term
“manufacture” should have been adopted by the
State authorities, more particularly, when the State
authorities had granted the certificate of eligibility
after due consideration of the facts.
6. In our view the law laid down in this decision is
applicable to the present case on all fours. Here also
25
the authorities had firstly certified the assessee's
industry to be small-scale industry and had then
proceeded to grant exemption to it from payment of
sales tax on the goods manufactured. The said
certificate was not found to have been erroneously
issued and was very much in vogue when the showcause notices came to be served on the assessee.
The G.O. providing exemption clearly suggested that
such exemption was given in the public interest.
Therefore, it is obvious that the decision in Vadilal
Chemicals case (2005) 6 SCC 292 would be equally
applicable as even in that case what the industry did
was to bottle the ammonia gas purchased in bulk. In
the present case it is palmolive oil which is
purchased in bulk and is repacked so as to facilitate
its sale in the retail market.
7. Shri T.L.V. Iyer, Senior Advocate appearing on
behalf of the Union Territory of Pondicherry,
however, tried to suggest that the exemption from
payment of tax granted on 19-5-1989 was granted
by the Director of Industries and it was clear from
that exemption that it was only on the basis of
GOMs No. 15/74 dated 25-6-1974. Our attention
was invited to the last lines of the aforementioned
G.O. dated 19-5-1989. The last portion is as under:
“The unit is exempted from payment of sales
tax for five years vide GOMs No.
15/74/FIN(CT) dated 25-6-1974.”
On this the learned Senior Counsel argued that,
therefore, it had to be proved that the goods were
manufactured by the assessee and in the present
case since the palmolive oil did not change its
character on its being repacked by the assessee, it
could not be said that the assessee had
manufactured any goods. Learned counsel also
urges that in the absence of any definition of
26
“manufactured goods” in the Sales Tax Act, we
would have to fall back upon either the dictionary
meaning of the term or to borrow it from the Central
Excise Act. We are afraid, the contention cannot be
accepted in the wake of clear law laid down by this
Court in Vadilal Chemicals case (2005) 6 SCC 292.
We have already shown as to how the decision in
that case is applicable to the present situation. In
that view we are of the clear opinion that since in the
present case the exemption was granted to all smallscale industrial units registered with the Director of
Industries and since the assessee was recognised
and certified as a small industrial unit, engaged in
the activity of repacking of edible oil and further
since the exemption was granted with the open eyes
to this particular industry, the State cannot be
allowed to turn around and take a stance that the
appellant assessee was not entitled to the
exemption on the ground that it did not manufacture
any goods. We are in respectful agreement with the
view taken in Vadilal Chemicals case (2005) 6 SCC
292 which is more particularly reflected in paras 19
and 20 of that decision where this Court observed as
under: (SCC p. 298, para 20)
“20. In this case the State Sales Tax Act
contains no provision relating to ‘manufacture’.
The concept only finds place in the 1993 G.O.
issued by the Department of Commerce and
Industries. It appears from the context of the
other provisions of the 1993 G.O. that the word
‘manufacture’ had been used to exclude
dealers who merely purchased the goods and
resold the same on retail price. What the State
Government wanted was investment and
industrial activity. It is in this background that
the 1993 G.O. must be interpreted. (See CST v.
Industrial Coal Enterprises (1999) 2 SCC 607).
The exemption was granted in terms of the
27
1993 G.O. the thrust of which was to increase
industrial development in the State.”
8. We respectfully agree with the aforesaid
observations and would choose to take the same
view by accepting the contention of the appellant
that a liberal view of GOMs No. 15/74 dated 25-6-
1974 would have to be taken. We accordingly allow
the appeal, set aside the order passed by the High
Court and restore that of the Tribunal but without any
order as to costs.”
19. While construing an exemption in a sales tax statute, this
Court in CST v. Amara Raja Batteries Ltd (2009) 8 SCC 209 held:
“21. An exemption notification should be given a
literary (sic literal) meaning. Recourse to other
principles or canons of interpretation of statute
should be resorted to only in the event the same
give rise to anomaly or absurdity. The exemption
notification must be construed having regard to the
purpose and object it seeks to achieve. The
Government sought for increase in industrial
development in the State. Such a benevolent act on
the part of the State, unless there exists any
statutory interdict, should be given full effect. (See
Vadilal Chemicals Ltd. v. State of A.P. (2005) 6 SCC
292)”
20. Likewise, even under the Customs Act, this Court in Commr.
of Customs (Preventive) v. M. Ambalal & Co. (2011) 2 SCC 74
made a clear distinction between exemptions which are to be strictly
interpreted as opposed to beneficial exemptions having as their
28
purpose - encouragement or promotion of certain activities. This
case felicitously put the law thus follows:
“16. It is settled law that the notification has to be
read as a whole. If any of the conditions laid down in
the notification is not fulfilled, the party is not entitled
to the benefit of that notification. The rule regarding
exemptions is that exemptions should generally be
strictly interpreted but beneficial exemptions having
their purpose as encouragement or promotion of
certain activities should be liberally interpreted. This
composite rule is not stated in any particular
judgment in so many words. In fact, majority of
judgments emphasise that exemptions are to be
strictly interpreted while some of them insist that
exemptions in fiscal statutes are to be liberally
interpreted giving an apparent impression that they
are contradictory to each other. But this is only
apparent. A close scrutiny will reveal that there is no
real contradiction amongst the judgments at all. The
synthesis of the views is quite clearly that the
general rule is strict interpretation while special rule
in the case of beneficial and promotional exemption
is liberal interpretation. The two go very well with
each other because they relate to two different sets
of circumstances.”
21. This judgment was followed in CCE v. Favourite Industries
(2012) 7 SCC 153 (see paragraph 42).
22. A recent 5-Judge Bench judgment was cited by Shri Gupta in
Commr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1. The 5-
Judge Bench was set up as a 3-Judge Bench in Sun Export
29
Corporation v. Collector of Customs 1997 (6) SCC 564 was
doubted, as the said judgment ruled that an ambiguity in a tax
exemption provision must be interpreted so as to favour the
assessee claiming the benefit of such exemption. This Court after
dealing with a number of judgments relating to exemption provisions
in tax statutes, ultimately concluded as follows:
“66. To sum up, we answer the reference holding as
under:
66.1. Exemption notification should be interpreted
strictly; the burden of proving applicability would be
on the assessee to show that his case comes within
the parameters of the exemption clause or
exemption notification.
66.2. When there is ambiguity in exemption
notification which is subject to strict interpretation,
the benefit of such ambiguity cannot be claimed by
the subject/assessee and it must be interpreted in
favour of the Revenue.
66.3. The ratio in Sun Export case [Sun Export
Corpn. v. Collector of Customs, (1997) 6 SCC 564]
is not correct and all the decisions which took similar
view as in Sun Export case stand overruled.”
23. It may be noticed that the 5-Judge Bench judgment did not
refer to the line of authority which made a distinction between
exemption provisions generally and exemption provisions which
30
have a beneficial purpose. We cannot agree with Shri Gupta’s
contention that sub-silentio the line of judgments qua beneficial
exemptions has been done away with by this 5-Judge Bench. It is
well settled that a decision is only an authority for what it decides
and not what may logically follow from it (see Quinn v. Leathem
[1901] AC 495 as followed in State of Orissa v. Sudhansu Sekhar
Misra (1968) 2 SCR 154 at 162,163)
24. This being the case, it is obvious that the beneficial purpose of
the exemption contained in Section 3(1)(b) must be given full effect
to, the line of authority being applicable to the facts of these cases
being the line of authority which deals with beneficial exemptions as
opposed to exemptions generally in tax statutes. This being the
case, a literal formalistic interpretation of the statute at hand is to be
eschewed. We must first ask ourselves what is the object sought to
be achieved by the provision, and construe the statute in accord with
such object. And on the assumption that any ambiguity arises in
such construction, such ambiguity must be in favour of that which is
exempted. Consequently, for the reasons given by us, we agree with
31
the conclusions reached by the impugned judgments of the Division
Bench and the Full Bench.
25. The matter can also be seen from a slightly different angle.
Where a High Court construes a local statute, ordinarily deference
must be given to the High Court judgments in interpreting such a
statute, particularly when they have stood the test of time (see State
of Gujarat v. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 at
paragraph 10, Bishamber Dass Kohli v. Satya Bhalla (1993) 1
SCC 566 at paragraph 11, Duroflex Coir Industries Ltd. v. CST
1993 Supp (1) SCC 568 at paragraph 2, State of Karnataka v. G.
Seenappa 1993 Supp (1) SCC 648 at paragraph 3 and Bonam
Satyavathi v. Addala Raghavulu 1994 Supp (2) SCC 556 at
paragraph 4). This is all the more applicable in the case of tax
statutes where persons arrange their affairs on the basis of the legal
position as it exists.
32
26. In the result, the appeals filed by the State of Kerala are
dismissed. The appeal filed in Civil Appeal No.204 of 2012 is
allowed and the judgment of the Division Bench is set aside.
……………..………………J.
(R. F. Nariman)
………………………………J.
(B.R. Gavai)
New Delhi.
March 01, 2021.
33
