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Judgment
R. Jayasimha Babu, J.—The assessment years with which we are concerned are 1989-90, 1990-91 and 1991-92. The question raised
before us by the petitioner, who during these assessment years functioned as independent contractor to factories or other establishments and ran a
canteen in those establishments, is as to whether its turnover in relation to the sales effected in those canteens is exempt from sales tax by reason of
a notification dated 1st September 1964 or by another notification dated 25th March 1989.
The notification dated 1st September 1964 issued u/s 17 of the Madras General Sales Tax Act 1959 exempted, with effect on and from 1st
September 1964, the tax payable under the said Act, on the sales by a canteen run by an employer, or by the employees on co-operative basis on
behalf of the employer under a statutory obligation without profit motive, provided that the employer subsideses atleast twenty five per cent of the
total expenses incurred in running the canteen.
The notification of 25th March 1989 granted exemption ""in respect of the tax payable on the sale of food and drinks other than falling under the
first schedule to the said Act at any hotels, restaurants, sweat stalls or any eating houses whose total turnover does not exceed Rs. 10 lakhs per
annum."" It may be noticed here that this notification of 25.03.1989 was amended on 30.05.1990 enhancing the limit to Rs. 15 lakhs and by a
subsequent notification dated 5.9.1990 those two notifications were cancelled and a fresh notification was issued which granted exemption on
similar terms with an increased limit on the turnover at Rs. 18,25,000/- and making the enhanced limit applicable retrospectively from 1st April
1990. The petitioner claims exemption under both the notifications. Some of the canteens run by the petitioner were for employers who were under
a statutory obligation to provide canteens for the benefit of their employees, while the other employers, for whom the canteens were run, are not
under such statutory obligation.
Petitioner did not file any returns for these years. There was an inspection by the enforcement wing of the business premises of the petitioner on
13.11.1991 after which, notices were issued to it calling upon the petitioner to file it''s returns. Such returns not having been filed, and the books of
accounts also not having been produced, the assessing officer proceeded to make assessments on best judgment basis, levied tax and also levied
penalty at the rate of 150 percent.
Those orders of assessments were carried in appeal. The appellate authority negatived the assessee''s claim that it was not liable to pay tax by
reason of the two exemption notifications relied upon by it. The appellate authority, however, held that the assessee was entitled to an opportunity
to present its books of accounts before the assessing officer and have the assessments made on the basis of the records maintained by it. With a
view to enable the assessee to produce those records before the assessing officer, he set aside the orders of assessment and remanded the matters
to the assessing officer with a direction to make fresh assessments on the basis of the books to be produced before him by the assessee. The
penalty that had been levied on the assessee was also set aside.
The assessee carried the matter on further appeal to the Appellate Tribunal, without success. Thereafter it approached the Taxation Special
Tribunal, with the same disappointing result. The order of that Tribunal has now been impugned before us in these writ petitions.
Mr. Sriprakash learned counsel for the petitioner, submitted that the notifications have not been properly construed by the authorities below.
Counsel submitted that exemption notifications have to be construed having regard to their object and purpose, that they should be construed
reasonably and that the full scope of the exemption provided must be made available to those for whose benefit the exemption had been granted.
Counsel submitted that if the exemption notifications were properly construed, the petitioner would not be liable to pay tax on the sale of the food
stuffs effected by it in the canteens run by it for the employers who had engaged it to run those canteens, wherein the persons employed by such
employers were given the benefit of subsidised food and which canteens, from the point of view of those employers, were not run with any profit
motive, as those employers provided subsidy for the food provided to their employees in those canteens.
Counsel in this context referred us to several decisions of the Apex Court and of this Court. Attention was invited to the decision of the Apex
Court in the case of M/s. Pappu Sweets and Biscuits Vs. Commissioner of Trade Tax U.P Lucknow, as also to the decision of the Apex Court in
the case of Tata Oil Mills Co. Ltd. vs. Collector of Central Excise reported in Vol.82 (1991) S.T.C. 225, wherein it was held that the exemption
notifications must be construed having regard to the object sought to be achieved by those notifications and should be so construed as to effectuate
such object and purpose. It was also held in the later decision that while literal construction was required to be adopted such construction had to
be reasonable.
Attention was also invited to the decision of the Apex Court in the case of Indian Farmers Fertiliser Cooperative Limited Vs. Collector of
Central Excise, Ahmedabad, wherein it was held that words not found in the notifications are not to be read into those notifications. Counsel also
referred us to the decision of the Supreme Court in the case of Commissioner of Agricultural Income Tax, Bengal Vs. Sri Keshab Chandra
Mandal, wherein it was held that common law is to be regarded as being part of the law, unless the law itself either expressly or by implication
excluded the application of the common law.
Lastly, counsel relied on the decision of the Apex Court reported in the case of VST Industries Ltd. vs. VST Industries Workers'' Union and
another 2001 S.C.C. (1) 298 wherein it was held, in a case brought at the instance of the employees of canteens run in factories owned by private
sector establishments, writ could not be issued to regularise their services. While so holding the Court observed that the engagement of
independent contractors to run the canteens was in the circumstances, from the point of view of the employees, to be regarded as to be not of
much consequence and that the running of those canteens, from their point of view is to be regarded as having been run by the employer himself.
The construction of any notification depends upon the terms employed in that notification, the source of power which enables the authorities
issuing the notification to issue the same, its object and purpose, the scope of enactment as also of the notification, and the fair meaning of the
words used in the notification. Words are not to be added nor are they to be ignored, if on a fair construction of the notification effect can be given
to its terms so as to subserve the object for achieving which the notification had been issued.
Before examining the terms of those notifications, we must take note of the submission made by the learned counsel for the revenue who
submitted that the notifications have to be construed having regard to the provisions of the parent enactment under which the notifications were
issued, and that the expressions used in the notifications which had been defined in the parent enactment are required to be read into and in any
event be taken due note of, while determining the true scope of the notifications. Counsel for the revenue invited our attention to the decision of the
Apex Court in the case of Collector of Central Excise, Bombay and another vs. Parle Exports (P) Ltd. 75 (1989) STC 105 wherein the learned
Judges have quoted Blackstone''s observations that the fairest and most rational method to interpret the will of the law-maker is by exploring his
intentions at the time when the law was made, by signs the most natural and probable and these signs are consequences, or the spirit and reason of
the law. It was held therein that the notifications having been issued in accordance with the powers conferred, it has statutory force and validity as if
it was contained in the enactment itself. He invited our attention also to the decision in the case of Rajasthan Spinning & Weaving Mills Ltd. vs.
Collector of Central Excise, Jaipur, Rajasthan, 102 (1996) S.T.C. 476 wherein it was held, inter-alia that, no extended meaning can be given to
the exempted item to enlarge the scope of the exemption.
We may now examine the first of the two notifications on which the petitioner rely. Under the first of these notifications relied upon by the
petitioner which is dated 1st September 1964, the exemption granted is for the sales by all canteens run ""by an employer and/or by the employees
on co-operative basis on behalf of the employer"". The further requirement to be satisfied before the benefit of that notification can be claimed is
that, running of such canteen must be under a statutory obligation, that the canteen is run without a profit motive, and further that the canteen is
subsidised by the employer to the extent of atleast 25% of the total expenses incurred in running the canteen.
The notification does not refer to the particulars of the statute under which the employer may have been under an obligation to run the canteen.
The terms of the statute, which creates an obligation, therefore are not material for the purpose of testing the scope of the exemption. What is
essential is that there must be an employer who has employees for whose benefit a canteen is run, the running of such canteen being an obligation
imposed on the employer by a statute, and that canteen is run by the employer or by the employees on a co-operative basis, without profit motive,
with the employer subsidising to an extent of atleast 25% of the total expenses incurred in running the canteen.
Reliance placed by the counsel on the provisions of the Factory Rules in support of his argument that the words "" run by an employer "" should
be considered in such a manner as to take within its fold even the running of the canteen by independent contractors employed by such employers
cannot be said to be well placed. The provisions of the Factories rules cannot be an aid in interpreting the provisions of this notification having
regard to the fact that the notification is not intended only for factories which are under an obligation to provide a canteen. Even otherwise these
rules are not of any assistance to the petitioner and do not advance it''s case any further.
Rules 65 of the Tamil Nadu Factories Rules, 1950 in Sub Rule 2 requires an owner or an occupier of every factory where more than 250
persons are ordinarily employed to provide a canteen. The terms employed in that rule are ""such employer shall provide in or near the factory an
adequate canteen according to the standards prescribed in these rules"". Rule 67 which deals with the equipment employs similar terminology. Rule
67 (1) provides that ""There shall be provided and maintained sufficient utensils, crockery, cutlery, furniture and any other equipment necessary for
the efficient running of the canteen"". The Factories Rules thus do not mandate that the employer shall himself run the canteen. It is silent as who
shall run the canteen. All that it requires is that the employer should provide an adequate canteen according to the standards prescribed in the
Rules. The running of such canteen can be by the employer himself by directly engaging the workmen, or by engaging an independent contractor to
run it or by permitting the employees to run it on a co-operative basis or such other basis that the employer and employee may agree upon.
The notification issued by the State under the provisions of the Sales Tax Act has provided the exemption only for the sales effected in
canteens ''run'' by an employer or is run by the employees on a co-operative basis on behalf of the employer. These are the only two situations in
which the benefit of the exemption can be claimed. The running of the canteen by an independent contractor, even though can be regarded as
running of the canteen on behalf of the employer, would not meet the requirements of this notification as the running of the canteen on behalf of the
employer would be relevant for the purposes of this notification, only if such running of the canteen is by the employees on a co-operative basis.
The two situations contemplated under the notifications are, therefore, the running of the canteen by the employer directly or by the employees on a
co-operative basis on behalf of the employer.
It is well settled that the benefit of the exemption notification is not to be extended unless the plain language employed in the notification
reasonably requires its application to the situation which is brought before the Court. The words used in the notification are to be given their natural
meaning and are to be construed in the context of the words actually used in other parts of the notification. The notification, so considered, does
not contemplate the extending of the exemption contemplated under that notification to sales in canteens run by independent contractors.
The running of the canteen by such contractor is not without profit motive. Such contractor who is in business in order to make a profit, agrees
to run the canteen for the employer on such terms would as would ensure a profit to the contractor. The running of the canteen so far as such
contractor is concerned is only with a profit motive. This fact would further underscore the scope of the notification as being limited in its
application to the employer or the employees running it on co-operative basis, as the possibility of the canteen being run without a profit motive
would be real only in their case, as an employer does not normally seek to make a profit of his own employees nor would the employees, who run
a canteen on co-operative basis for the benefit of their members, seek to make a profit at the cost of their members. In case the employer who
runs a canteen or the co-operative of the employees who run it for the employer, run the canteen with a profit motive, they would be ineligible to
claim the benefit of this notification.
The petitioner, therefore, is not entitled to claim exemption provided under the notification dated 1st September, 1964 as it did not satisfy the
essential requirements laid down in the notification for claiming the benefit therefor.
Coming to the second notification on which the petitioner relies, that notification grants exemption in respect of tax payable on the sale of food
and drinks other than those falling under the first schedule to the Act by any hotels, restaurants, sweat stalls or any other eating houses whose total
turnover does not exceed Rs. 18,25,000/- per annum. The exemption granted under this notification is in respect of the tax payable on the food
and drinks sold in the hotels, restaurants, sweat stalls or other eating houses. The notification does not use the word ''dealer'' anywhere. However,
it does refer to total turnover for the purpose of determining the liability of the dealer for claiming the benefit of this notification. Total turnover has
not been defined in the notification but its definition is to be found in Section 2(q) of the Tamil Nadu General Sales Tax Act. That definition reads
thus,
2 (q) ''total turnover'' means the aggregate turnover in all goods of a dealer at all places of business in the State, whether or not the whole or any
portion of such turnover is liable to tax;
Though the notification uses the words ''by any hotel'' the reference to the total turnover would clearly indicate that the turnover referred to
therein is the turnover of a dealer and that the total turnover is the aggregate turnover of all goods of such dealer ""at all places of business in the
State"". The limit of Rs. 18,25,000/- specified in that notification for the total turnover is therefore the limit on the amount of the total turnover of the
dealer. The total turnover of a dealer under the Act is the aggregate of his turnover at all his places of business and in all goods dealt with by the
dealer in the State. The necessary consequence is that if a dealer runs hotels or restaurants or sweat stalls or eating houses in more than one
location, the total turnover of that dealer would include the turnover at all locations; and it is the turnover so determined that would be material for
deciding as to whether such dealer is entitled to the exemption provided for in this notification.
More over, it has been found by the appellate authority in the course of his order that all the purchases made by the petitioner are centralised
and are consolidated together, and that they employ a common labour force, which deployed at different locations. The business run by the
petitioner is one, namely that of providing of canteen services to employers who enter into contract with them for the provision of such services.
The total turnover of the petitioner at all such locations therefore has to be determined for the purpose of deciding whether they are eligible to claim
this exemption.
The decision rendered by the Courts with respect to the language used in other notifications cannot be of much assistance while interpreting the
notifications before us as the interpretation depends not only upon the the words used, but also in the manner in which those words are used, the
context, the purpose of these notifications and other factors. There is no single universal rule as to how the words used should be construed. The
fact that the word, ""whose"" has been added to qualify the word ''dealer'' in another notification cannot be determinative of the way in which this
notification should be considered. It is clear from the actual words in this notification, ""whose total turnover"" that the reference there is to the
dealer"" and what is provided by way of exemption is for ""the tax payable"". Tax is payable only by the dealer and the total turnover of that dealer
which is not to exceed the sum specified in that notification. For ascertaining the meaning of ''total turnover'' the definition given in the parent Act
must be the guide.
So construed, the only possible interpretation that can be given reasonably to this notification is that the benefit granted under the notification is
confined to such dealers who are liable to pay tax on the sale of food and drink in hotels, restaurants, sweat stalls and other eating houses, whose
total turnover does not exceed Rs. 18,25,000/-. The word ''whose'' in the context in which it is used in the notification, qualifies the person who is
liable to pay the tax and does not qualify the actual turnover in a specified location where the hotel, restaurant, sweat stall or eating house is run.
The notification could have been more happily worded. However, it is to be construed in the way it is now before us and the construction which
we have placed on it is one which is a reasonable and fulfils the purpose for which that notification was issued.
The purpose for which the notification was issued evidently was to exempt the relatively small dealers-small in the sense all these dealers whose
total turnover is less than the sum specified, and where the articles dealt with by those dealers were food and drink, and the sales of such food and
drinks were effected at the places specified in the notification. That object is ill served if the turnover is determined with reference to each different
location and the benefit extended to a dealer who runs such business in several different locations and the aggregate turnover in all such locations
far exceeds the amounts specified in the notification.
It must, therefore, be held that the petitioner is not entitled to the benefit of this notification also, and that the sales of food and drink effected by
it in the canteens run by it for the employers with whom they have entered into contracts, are taxable and they are liable to pay the tax.
So far as the imposition of penalty is concerned, though the penalty is leviable under the provisions of the Act in the event of a dealer not filing
a return, the levy of that penalty is discretionary, and while exercising that discretion, the assessing officer is required to take note of the bonafides
of the assessee. The assessing officer in this case, when he imposed the penalty, did not address himself to that factor. The appellate authority had
set aside the levy of penalty while making the remand. As to whether the assessee should be subjected to a penalty should be examined afresh by
the assessing officer having regard to the law laid down by this Court in the case of State of Madras vs. M/s. Fairmacs Trading & Co. (1975) 35
S.T.C. 177) and other later decisions including the one in the case of Appollo Saline Pharmaceuticals (P) Ltd. vs. Commercial Tax Officer (Fac)
and others 125 (2002) S.T.C. 505.
We are informed by counsel at the bar that during the pendency of these petitions, the assessing officer has completed the assessments
pursuant to the order of the appellate authority remanding the matter for the purpose of making fresh assessments and that in those assessment
orders, penalty has been levied at the rate of 150% which is the maximum. The assessing officer has proceeded on the basis that he is bound to
levy the penalty as, in his reading of the order of the Tribunal which is now impugned before us, the levy of penalty had been upheld. Counsel also
informs us that, that orders of assessment have been appealed against unsuccessfully.
As these orders of fresh assessments were made pursuant to the order of remand which order itself was the subject matter of the appeal
before the Taxation Special Tribunal whose order is now being examined by us, we consider it just to set aside that order levying penalty in the
fresh orders of assessment, leaving the other parts of that order undisturbed, with a direction to the assessing officer to re-examine the question of
penalty in the light of the law referred to by us in the course of this order. Petitioner is entitled to the reliefs to this extent. The writ petitions are
disposed of accordingly. Connected miscellaneous petitions are closed.