Tax Holiday = The appellant is a company incorporated under the provisions of the Companies Act, 1956. It is also a dealer registered under the provisions of the KST Act. The appellant is engaged in the manufacture of Dry Manganese Dioxide Batteries (DMD batteries). It has its manufacturing Unit at Somanahalli, Maddur Taluk, which falls under Zone-II of the notification dated 23.06.1997 issued by the State Government. Before establishing its manufacturing Unit at Somanahalli, Maddur Taluk, the appellant-company had approached the State Government for grant of incentive and exemption under the provisions of the KST Act and also under the provisions of the Karnataka Sales Tax Act, 1957. Pursuant to the request so made, the State Government had issued a Notification/Government Order in No. CI.92.SPI.1997 dated 25.06.1997 inter alia granting exemption from payment of entry tax on raw materials and component parts for a period of six years from the date of commencement of commercial production. In the Notification/Government Order, it was made clear that the appellant- company should make an investment of a sum of Rs.111 crores, to claim benefit under the notification dated 25.06.1997. After obtaining the said exemption from the State Government, the appellant-company established its manufacturing Unit at Somanahalli, Maddur Taluk. But for various reasons, the appellant-company could not make investment of a sum of Rs. 111 crores, as envisaged under the notification dated 25.06.1997. Therefore, the appellant-company was ineligible to claim the “Tax Holiday” under the aforesaid notification. =It is trite that exemption notifications require strict interpretation. In order to get benefit of any exemption notification, assessee has to satisfy that it fulfills all the conditions contained in the notification= it is for the assessee to establish that the goods manufactured by him come within the ambit of the exemption notification. Since, it is a case of exemption from duty, there is no question of any liberal construction to extent the term and the scope of the exemption notification. Such exemption notification must be strictly construed and the assessee should bring himself squarely within the ambit of the notification. No extended meaning can be given to the exempted item to enlarge the scope of exemption granted by the notification.”= a person, invoking an exception or exemption provisions, to relieve him of tax liability must establish clearly that he is covered by the said provisions and, in case of doubt or ambiguity, the benefit of it must go to the State=It is a different matter that once the conditions contained in the exemption notification are satisfied and the assessee gets covered by the exemption notification, for the purpose of giving benefit notification has to be construed liberally. However, in the present case, the appellant has not been able to cross the threshold and to find entry under notification dated 31.03.1993 for the reasons mentioned above. Therefore, we have no option but to hold that the appellant was not entitled to exemption from entry tax.

                                                              NON-REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 4231 OF 2006


|EVEREADY INDUSTRIES INDIA LTD.             |.....APPELLANT(S)           |
|VERSUS                                     |                            |
|STATE OF KARNATAKA                         |.....RESPONDENT(S)          |

                               J U D G M E N T

A.K. SIKRI, J.

      The appellant  herein  (earlier  known  as  BPL  Soft  Energy  Systems
Limited) has challenged  the  legality  and  validity  of  the  order  dated
12.01.2005 rendered by the High Court of Karnataka whereby  three  petitions
of the appellant, after clubbing together, were heard  and  decided  against
it, by the said common order.  Those petitions were preferred under  Section
15A of the Karnataka Tax on Entry of Goods Act, 1979  (hereinafter  referred
to as the 'KST Act') against the order which was  passed  by  the  Karnataka
Appellate Tribunal, Bangalore.  The  necessity  of  filing  three  petitions
arose because of the reason that  three  Assessment  Years  i.e.  1997-1998,
1998-1999 and 1999-2000 are involved, though  the  question  raised  in  all
these petitions was identical which pertains to the levy of entry tax  under
the KST Act.  All the authorities below including  the  Karnataka  Appellate
Tribunal took the view that the appellant is liable to  pay  the  tax  under
the provisions of KST Act and is not entitled to exemption from  payment  of
entry   tax   on   raw   material   under   Notification/Government    Order
No.CI.92.SPI.1997 dated 25.06.1997.  The High Court has, vide  the  impugned
judgment, affirmed the said view of the authorities below.

Some of the seminal facts which require a mention to determine the lis,  are
recapitulated below:

2.1   The appellant is a company incorporated under the  provisions  of  the
Companies Act, 1956.  It is also a dealer registered  under  the  provisions
of the KST Act.   The  appellant  is  engaged  in  the  manufacture  of  Dry
Manganese Dioxide Batteries (DMD batteries).  It has its manufacturing  Unit
at  Somanahalli,  Maddur  Taluk,  which  falls   under    Zone-II   of   the
notification dated  23.06.1997  issued  by  the  State  Government.   Before
establishing its  manufacturing  Unit  at  Somanahalli,  Maddur  Taluk,  the
appellant-company  had  approached  the  State  Government  for   grant   of
incentive and exemption under the provisions of the KST Act and  also  under
the provisions of the Karnataka  Sales  Tax  Act,  1957.   Pursuant  to  the
request so made, the State Government had issued  a  Notification/Government
Order in No. CI.92.SPI.1997 dated 25.06.1997 inter alia  granting  exemption
from payment of entry tax on raw materials and component parts for a  period
of six years from the date of commencement  of  commercial  production.   In
the Notification/Government Order, it was made  clear  that  the  appellant-
company should make an investment of  a  sum  of  Rs.111  crores,  to  claim
benefit under the notification dated 25.06.1997.  After obtaining  the  said
exemption from the State Government, the appellant-company  established  its
manufacturing Unit at Somanahalli, Maddur Taluk.  But for  various  reasons,
the appellant-company could not make investment of a sum of Rs. 111  crores,
as envisaged  under  the  notification  dated  25.06.1997.   Therefore,  the
appellant-company was ineligible  to  claim  the  “Tax  Holiday”  under  the
aforesaid notification.

      2.2   For the Assessment  Year  1997-1998,  initially,  the  Assessing
Authority had passed an order under the provisions of  the  Entry  Tax  Act,
granting exemption from payment of entry tax on  raw  materials,  components
and machinery parts brought into thelocal area (Somanahalli) for use in  the
manufacture of DMD batteries.  Subsequently,  the  Assessing  Authority  had
initiated reassessment proceedings and had passed the  order  and  in  that,
has levied  entry  tax  on  the  causing  of  entry  of  raw  materials  and
components into the local area, on the  ground  that  the  appellant-company
could not have availed tax exemption, since it did not fulfill  the  primary
condition stipulated in the notification dated 25.06.1997 and  it  was  also
held by the Assessing Authority  that  since  Government  Order/Notification
dated 25.06.1997 had been specifically issued granting entry  tax  exemption
to the appellant-company  subject  to  fulfilling  certain  conditions,  the
appellant-company  is   ineligible   to   seek   exemption   under   general
notification No. FD.11.CET.93(3) dated 31.03.1993.  The Assessing  Authority
while framing the reassessment order under Section 6 of the  Act,  had  also
levied penalty under Section 6(2) of the KST Act.

2.3         Aggrieved  by  the  aforesaid  order  passed  by  the  Assessing
Authority, the assessee had preferred the first  appeal  before  the  Deputy
Commissioner of Commercial Taxes (Appeals) in KTEG.AP.25/02-03.   The  First
Appellate Authority by his order dated 18.03.2003  had  partly  allowed  the
appeal filed by the assessee.

2.4         For the Assessment Years 1998-1999 and 1999-2000, the  Assessing
Authority had also passed reassessment orders under Section 6(1) of the  KST
Act and also  had  levied  penalty  under  Section  6(2)  of  the  KST  Act.
Aggrieved by the said order, the assessee had  filed  first  appeals  before
the First Appellate Authority  in  Appeal  Nos.KTEG.AP.24/02-03  (1998-1999)
and 25/02-03 (1999-2000), who by his order  dated  20.01.2003  had  rejected
the appeals so filed.

2.5         The assessee aggrieved by the orders  passed  by  the  Assessing
Authority under Sections 6(1) and  6(2)  of  the  KST  Act  had  also  under
Section 5(5) of the KST Act for the Assessment  Years  1997-1998  and  1999-
2000 had filed appeals before the  Karnataka  Appellate  Tribunal  and  they
were registered as STA Nos. 571/2001, 709, 329 and 330/2003.   The  Tribunal
by its common order dated 23.01.2004 had allowed STA No.  571/2001  and  had
partly allowed STA No. 709/2003 and had rejected STA Nos. 329  and  330/2003
for the Assessment Years 1997-1998, 1998-1999 and 2000-2001.  In its  order,
the Tribunal has concluded that the assessee is not entitled to  benefit  of
the Notification No.FD.11.CET.93(III) dated 31.03.1993; insertion of  clause
(g) to the  explanation  to  KST  Notification  No.  FD.239.CSL.90(I)  dated
31.03.1993; no penalty can be imposed under Section 5(5) of the KST  Act  on
the assessee company for the relevant Assessment Years.

Not satisfied with the  aforesaid  outcome,  the  appellant  filed  revision
petitions under Section 15A of the KST Act before the High Court  which  has
dismissed all the three  petitions.  Though,  various  arguments  have  been
discussed by the High Court in the  impugned  judgment,  a  perusal  of  the
judgment of the High Court would reflect that these arguments were  advanced
by the appellant to contend that it was not liable to pay  entry  tax  under
the Entry Tax Act  and  was  entitled  to  exemption  in  terms  of  general
Notification dated 31.03.1993.  The High Court  has  rejected  the  plea  by
holding  that  due  to  amendment  of  notification  dated   19.06.1991   by
notification dated 31.03.1993, the appellant was excluded from  getting  the
benefit of general Notification.  In this  behalf,  it  has  concluded  that
subsequent insertion of clause (g) to Explanation III of notification  dated
19.06.1991 was applicable to the general exemption issued under Section  11-
A of  Entry  Tax  Act.   While  so  holding,  the  High  Court  has  made  a
distinction  between   legislation   by   reference   and   legislation   by
incorporation and has held that in  case  of  legislation  by  reference  of
subsequent amendments to the legislation referred to will become  applicable
whereas in case of legislation by incorporation,  subsequent  amendments  to
the legislation referred to do not apply.  As per the  High  Court,  in  the
present case, there was legislation by reference and  not  by  incorporation
and,  therefore,  the  newly  inserted  clause  (g)  to  Notification  dated
19.06.1991  would  be  applicable  while  implementing   general   exemption
notification dated 31.03.1993.  The aforesaid principle stated by  the  High
Court in the impugned judgment was severely criticised and attacked  by  the
learned counsel for the appellant on the ground that  in  the  present  case
there was legislation by incorporation and not by  reference.   However,  we
feel that it may not even be  necessary  to  go  into  this  aspect,  having
regard to the discussion that follows hereinafter.

As pointed out  above,  the  order  dated  25.06.1997  was  passed  granting
exemption to the appellant from payment of entry tax on  raw  materials  and
component parts for a period of six years from the date of  commencement  of
commercial products.  However, it was subject  to  the  condition  that  the
appellant should make an investment in the sum of Rs.111 crores in order  to
enable itself to claim the benefit of the aforesaid notification.  It is  an
admitted fact that due to certain reasons, the appellant could  not  fulfill
this condition as it did  not  invest  Rs.111  crores  in  the  project,  as
envisaged in  the  notification  dated  25.06.1997.  Therefore,  insofar  as
exemption notification dated 25.06.1997 which  was  issued  specifically  in
the case of the appellant, the appellant cannot  be  held  entitled  to  the
benefit thereof as it failed to fulfill the conditions.

The appellant, however, still claims the  exemption  by  virtue  of  general
Notification  dated  31.03.1993  issued  under  the  Entry  Tax  Act.   This
notification was issued under Section 11A of the Entry Tax Act.   Vide  this
notification, the Government of Karnataka exempted  the  tax  payable  under
the Entry Tax Act on the entry of raw materials, component parts and  inputs
and machinery and its parts into a local area for use in the manufacture  of
an immediate  or  finished  product  by  the  new  industrial  units.   This
notification contains  a  'Table'  which  enlists  type  of  industries  and
location of industries which are  entitled  to  exemption  as  well  as  the
period of exemption.  It is not  in  dispute  that  the  appellant  industry
stands covered by one such category of industry the description  whereof  is
given in the  notification.   It  is  also  located  at  a  place  which  is
stipulated in the said notification.  However, the exemption  was  available
to the new  Industrial  Units.   The  question  arises  as  to  whether  the
appellant falls within  the  ambit  of  “new  industrial  unit”  as  defined
therein.  Explanation in the notification defines “a  new  industrial  unit”
which reads as under:

“Explanation – (1)  For the purpose of this notification “a  new  industrial
unit” shall have the same meaning assigned to it in Notification  No.FD  239
CSL 90(1), dated 19th June, 1991 issued under Section 8-A of  the  Karnataka
Sales Tax Act, 1957.

The provisions of this notification shall not apply to a unit to  which  the
provisions of Notification No.FD 239 CSL 90(I), dated 19th June 1991  issued
under section 8-A of the Karnataka Sales Tax Act, 1957 shall not apply.

The procedure specified in Notification No. FD  239  CSL  90(I)  dated  19th
June 1991 issued under Section 8-A of the Karnataka Sales Tax Act, 1957  for
claiming exemption under that notification shall mutatis mutandis  apply  to
a industrial unit claiming exemption under notification.”


Reading of the aforesaid definition clearly suggests that “a new  industrial
unit” is given the same meaning which is assigned in the notification  dated
19.06.1991.  For this purpose, one needs to look into the  meaning  that  is
given to “a new industrial unit” in the notification  dated  21.06.1991.   A
scan through the said notification leads us to the  definition  given  to  a
“new industrial unit”.  We reproduce this Explanation in its entirety:
“Explanation I. – (a) For the purpose of this Notification;

A “Tiny Industrial Unit” or “Small Scale Industrial Unit” or  “Medium  Scale
Industrial Unit” or “Large Scale Industrial Unit”  means  a  unit  which  is
registered as such with the Director  of  Industries  and  Commerce  or  the
Ministry of Industries, Government of India.

(ii)  A Khadi and Village Industrial Unit as  defined  under  the  Karnataka
Khadi & Village Industries Act, 1956 from time to time. [See Note 3]

(b)  “A New Industrial Unit” means any of the units described in Clause  (a)
above,  which  are  certified  to  be  eligible  for  exemption  under  this
Notification, by the authorities mentioned in Clauses (a) and  (b)  of  Para
(1) under “Procedure” below.”


In order to qualify to be “A New Industrial Unit”, the following  conditions
need to be fulfilled:

      (i)  It has to be  either  a  Tiny  Industrial  Unit  or  Small  Scale
Industrial Unit or Medium Scale Industrial Unit or  Large  Scale  Industrial
Unit of the type of industries mentioned in Table contained in  notification
dated 21.06.1991 or else it has to be a Khadi or  Village  Industrial  Units
as defined under the Karnataka Khadi & Village Industries  Act,  1956.   (We
are not concerned with this later category in the present case.)

      (ii)   Such  a  Unit  has  to  be  registered  with  the  Director  of
Industries and Commerce or the Ministry of Industries, Government of India.

      (iii)  Such a Unit has to be certified to be  eligible  for  exemption
under the said notification by the authorities mentioned therein.

What is significant for  our  purposes  is  that  such  a  Unit  has  to  be
certified  to  be  eligible  for  exemption  under  the  notification  dated
21.06.1991.  That is an essential requirement for a Unit to fall within  the
definition  of  “A  New  Industrial  Unit”  under  the  notification   dated
31.03.1993  as  it  is  assigned  the  same  meaning  as  contained  in  the
notification dated 21.06.1991.  Notification dated 31.03.1993 further  makes
it clear that this  notification  is  not  to  apply  to  a  Unit  to  which
notification dated 19.06.1991 does not apply.  So  much  so,  the  procedure
prescribed in the notification dated 19.06.1991 for  claiming  exemption  is
also made applicable to the Industrial Units  seeking  exemption  under  the
notification dated 31.03.1993.  In the instant case, it was admitted by  the
appellant itself that the  Department  of  Industries  and  Commerce  issued
eligibility certificate in terms of industrial policy G.O. No. CI 30 SPC  96
dated 15.03.1996 and notification dated 15.11.1996 issued under Section  19-
C of the  KST  Act.  Such  eligibility  certificate  would  not  be  of  any
consequence in as much as, in order to get the benefit of  the  notification
dated 31.03.1993, the appellant was required to get certification under  the
notification dated 19.06.1991.  Obviously,  therefore,  the  appellant  does
not fulfill the requirement of the notification dated 31.03.1993 as well.

It is trite that exemption notifications require strict  interpretation.  In
order to get benefit of any exemption notification, assessee has to  satisfy
that it fulfills all the conditions contained in the  notification  This  is
so held by this Court in Rajasthan Spinning  and  Weaving  Mills,  Bhilwara,
Rajasthan v. Collector of  Central  Excise,  Jaipur,  Rajasthan[1],  wherein
this principle was stated in the following manner:
“16.   Lastly,  it  is  for  the  assessee  to  establish  that  the   goods
manufactured by him come within the ambit  of  the  exemption  notification.
Since, it is a case of exemption from duty, there  is  no  question  of  any
liberal construction to extent the term  and  the  scope  of  the  exemption
notification. Such exemption notification must  be  strictly  construed  and
the  assessee  should  bring  himself  squarely  within  the  ambit  of  the
notification. No extended meaning can be  given  to  the  exempted  item  to
enlarge the scope of exemption granted by the notification.”



In Novopan India Ltd. v. CCE and Customs[2], this Court held that a  person,
invoking an exception  or  exemption  provisions,  to  relieve  him  of  tax
liability must establish clearly that he is covered by the  said  provisions
and, in case of doubt or ambiguity, the benefit of it must go to the  State.
 A Constitution Bench of  this  Court  in  Hansraj  Gordhandas  v.  CCE  and
Customs[3] held that (Novopan India Ltd. Case, SCC p. 614, para 16):

“16...such a notification has to be interpreted in the light  of  the  words
employed by it and not on any other basis. This was so held in  the  context
of the principle that in  a  taxing  statute,  there  is  no  room  for  any
intendment, that regard must be had to the clear meaning of  the  words  and
that  the  matter  should  be  governed  wholly  by  the  language  of   the
notification, i.e., by the plain terms of the exemption.”



It is  a  different  matter  that  once  the  conditions  contained  in  the
exemption notification are satisfied and the assessee gets  covered  by  the
exemption notification, for the purpose of giving benefit  notification  has
to be construed liberally.  However, in the present case, the appellant  has
not been able to cross the threshold and to find  entry  under  notification
dated 31.03.1993 for the reasons mentioned  above.  Therefore,  we  have  no
option but to hold that the appellant was not  entitled  to  exemption  from
entry tax.

We, therefore, agree with the conclusions contained in the  impugned   order
and  dismiss  the  instant  appeal  finding        no merit therein.   There
shall be no order as to costs.


                             .............................................J.
                                                                (A.K. SIKRI)



                             .............................................J.
                                                     (ROHINTON FALI NARIMAN)

NEW DELHI
APRIL 13, 2016.

-----------------------
[1]   (1995) 4 SCC 473
[2]   1994 Supp. (3) SCC 606
[3]   (1969) 2 SCR 253 : AIR 1970 SC 755