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Prakash Shrivastava, J.—The petitioner is aggrieved with the denial of exemption from payment of entry tax under the Notification No. A-3-9-95-ST-V(57) dated July 5, 1995 for the period April 1, 1996 to March 31, 1997. The petitioner''s case for grant of the said benefit has been rejected by the revisional authority by impugned order dated January 12, 2005 (annexure P15). In brief the petitioner''s case is that it is engaged in various activities, including the manufacture and sale of re-rolled products in its rolling mill at Pithampur District, Dhar. The petitioner manufactures various type of steel structures of iron and steel. The raw material used by the petitioner-company falls in category (ii) of section 14(iv) of the Central Sales Tax Act, 1956 and the finished products manufactured by the petitioner fall in category (v) of the said section. On establishing the new industrial undertaking, the petitioner was granted exemption from payment of sales tax initially for a period of five years from July 1, 1991 to June 30, 1996 under the exemption notification dated October 23, 1981 and June 29, 1982. The exemption period under the sales tax was extended for two years, i.e., up to June 30, 1998 and the eligibility certificate was accordingly amended. Similar exemption was granted to the petitioner under the Entry Tax Act (Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam) for a period of five years from June 21, 1991 to June 20, 1996. Thereafter the petitioner became liable to pay entry tax for the period under consideration. The assessing authority had granted the benefit of exemption under the Sales Tax Act vide order dated December 30, 1999 but by another order passed on the same day, the assessing authority had levied the entry tax since the exemption period for the entry tax had expired on June 20, 1996. In revision the order of the assessment was set aside and matter was remanded. The fresh assessment was done vide order dated February 13, 2004, whereby the entry tax for the period in question was again levied. In the second round of litigation, the petitioner before the revisional authority had raised the issue that in view of Notification No. A-3-9-95-ST-V(57), dated July 5, 1995 (for short, Notification No. 57, dated July 5, 1995) and Notification No. A-3-9-95-ST-V(55), dated July 5, 1995 (for short, Notification No. 55 dated July 5, 1995), the petitioner is not liable to pay any entry tax. The revisional authority has rejected the said contention. Being aggrieved with the same, the petitioner has filed the present writ petition.
The learned counsel appearing for the petitioner submits that under the notification dated October 23, 1981, the petitioner is exempted from payment of sales tax as a dealer but the tax liability on the goods is not extinguished and under Notification No. 55, dated July 5, 1995, the rate of sales tax was reduced to two percent and therefore, under the Notification No. 57, dated July 5, 1995, the petitioner became entitled for exemption from payment of entry tax for the period under consideration.
The learned counsel for the respondent/State has submitted that since the petitioner was exempted from payment of sales tax by virtue of the notification dated October 23, 1981, therefore, no question of reduction of the rate of sales tax to two percent under Notification No. 55, dated July 5, 1995 arises in his case and since Notification No. 55, dated July 5, 1995 is not attracted, therefore, the petitioner cannot be granted the benefit of Notification No. 57 dated July 5, 1995 and the revisional authority has not committed any error in rejecting the petitioner''s revision.
We have heard learned counsel for the parties and have minutely perused the record of the case.
Undisputedly, the petitioner has been granted the eligibility certificate for exemption from payment of sales tax from July 1, 1995 to June 30, 1998 under the exemption notification No. A-3-41-81 (35) ST-V, dated October 23, 1981, which is a notification issued u/s 12 of the M.P. General Sales Tax Act, 1958 granting exemption to certain class of dealers specified in the Schedule to the notification on establishing the new industrial unit and on satisfying certain conditions. The relevant extract of the notification is reproduced as under:
(1) Notification No. A3-41-81(35)-ST-V, dated October 23, 1981 notification exemption new units.
In exercise of the powers conferred by section 12 of the Madhya Pradesh General Sales Tax Act, 1958 (No. 2 of 1959), the State Government hereby exempts the class of dealers specified in column (1) of the Schedule below who establish new industrial units for the manufacture of automobiles or agricultural machinery in any of the districts in Madhya Pradesh specified in annexure I and commence commercial production before May 6, 1994, or such dealers having taken any two of the following effective steps before the said date but have commenced commercial production on or after the said date, but before April 1, 1995:
(i) Possession of land has been taken;
(ii) at least fifty percent of the expenditure on building as per project report has been incurred;
(iii) firm orders of atleast fifty percent of the plant and machinery as per project report has been placed.
from payment of tax under the said Act for the period specified in column.
The Schedule to the notification provides for the restrictions and conditions subject to which the exemption is granted to the different categories of dealers and the periods for which exemption is granted.
The case of the petitioner is that the aforesaid exemption has been granted to him as a dealer but by the said notification the liability to pay the sales tax on the goods produced by the petitioner is not extinguished, and therefore, the Notification No. 55, dated July 5, 1995 applies by which the rate of tax on those goods is reduced to two percent. The relevant clause of the said notification is extracted as under:
(24) Notification No. A-3-9-95-St-V(55) dated July 5, 1995
Part/full exemption on various categories of iron and steel....
In exercise of the powers conferred by section 17 of the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994 (No. 5 of 1995), the State Government hereby exempts the class of goods specified in column (2) of the Schedule below from payment of tax under the said Adhiniyam to the extent specified in column (3), for the period specified in column (4) subject to the restrictions and conditions specified in column (5) of the said Schedule:
The further case of the petitioner is that since by the Notification No. 55 dated July 5, 1995, rate of sales tax on the goods produced by him is reduced to two percent, therefore, under Notification No. 57, dated July 5, 1995, the petitioner is exempted from payment of entry tax. The relevant extract of Notification No. 57, dated July 5, 1995 is as under:
(43) Exemption on different categories of iron and steel
Notification No. A3-9-95-ST-V(57), dated July 5, 1995
In exercise of the powers conferred by section 10 of the Madhya Pradesh Sthaniya Kshetra Me Mal Ke Pravesh Par Kar Adhiniyam, 1976 (No. 52 of 1976), the State Government hereby exempts in whole from payment of entry tax under the said Adhiniyam, the class of goods specified in column (1) of the Schedule below, for the period specified in column (2) subject to the restrictions and conditions specified in column (3) of the said Schedule:
In simple words, the petitioner case is that under the notification dated October 23, 1981, he as a dealer is exempted from payment of sales tax but the goods are not exempted therefore, liability to pay the sales tax on the goods continued and the rate of sales tax on goods was reduced to two percent under the Notification No. 55 dated July 5, 1995 and therefore, in terms of the Notification No. 57, dated July 5, 1995, the petitioner is entitled for exemption from payment of entry tax.
The Supreme Court in the matter of A.V. Fernandez Vs. The State of Kerala, , has considered the distinction between the exemption from tax or rebate of tax as against the non-liability or non-imposing of tax by observing as under:
The appellant, however, forgets that the three stages in the imposition of a tax which are laid down here predicate, in the first instance, a declaration of liability as the starting point. If there is a liability to tax, imposed under the terms of the taxing statute, then follow the provisions in regard to the assessment of such liability. If there is no liability to tax there cannot be any assessment either. Sales or purchases in respect of which there is no liability to tax imposed by the statute cannot at all be included in the calculation of turnover for the purpose of assessment and the exact sum which the dealer is liable to pay must be ascertain without any reference whatever to the same.
There is a broad distinction between the provisions contained in the statute in regard to the exemptions of tax or refund or rebate of tax on the one hand and in regard to the non-liability to tax or non-imposition of tax on the other. In the former case, but for the provisions as regards the exemptions or refund or rebate of tax, the sales or purchases would have to be included in the gross turnover of the dealer because they are prima facie liable to tax and the only thing which the dealer is entitled to in respect thereof is the deduction from the gross turnover in order to arrive at the net turnover on which the tax can be imposed. In the latter case, the sales or purchases are exempted from taxation altogether. The Legislature cannot enact a law imposing or authorising the imposition of a tax thereupon and they are not liable to any such imposition of tax. If they are thus not liable to tax, no tax can be levied or imposed on them and they do not come within the purview of the Act at all. The very fact of their nonliability to tax is sufficient to exclude them from the calculation of the gross turnover as well as the net turnover on which sales tax can be levied or imposed.
Present is a case where the petitioner is liable to pay sales tax and entry tax under the relevant statute but he has been granted exemption from payment of sales tax and dispute is about exemption from payment of entry tax.
In the matter of Associated Cement Companies Ltd. Vs. State of Bihar and Others, , the Supreme Court has examined the meaning of phrase exemption and has held that the exigibility to tax is not the same thing as liability to tax. It has been held by the Supreme Court as under:
The stand of the respondents appears to be that since there was no liability in respect of a portion of sales because of notification of the State Government S.O. No. 479 dated December 12,1995 as part of the Industrial Policy, 1995 granting exemption from payment of sales tax on production of extended industrial unit which undertakes expansion of their capacity, no question of adjustment arises. To put differently stand of the respondent is that when there was no tax liability on such sales, there was no liability to pay any tax and, therefore, the benefit of adjustment available under clause (2) of the Notification S.O. No. 37, dated February 25, 1993 does not arise. The interpretation put forward by the respondent found acceptance by the High Court.
Crucial question, therefore, is whether the appellant had any ''liability'' under the Act. The answer to this lies in section 3 of the Act which is extracted above and is the charging section. In sub-section (1) subject of the provisions of the Part (i.e., Part I) sales tax or purchase tax, as the case may be, shall be paid by every dealer as provided in the section itself. Section 7 speaks of exemption. Sub-section (3) of section 7 stipulates that State Government may, by notification and subject to such conditions or restrictions as it may impose, exempt from sales tax or purchase tax certain sales or purchases as the case may be. The question of exemption arises only when there is a liability. Exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the statute and the latter on computation in accordance with the provisions of the statute and Rules framed thereunder if any. It is to be noted that liability to pay tax chargeable u/s 3 of the Act is different from quantification of tax payable on assessment. Liability to pay tax and actual payment of tax are conceptually different. But for the exemption the dealer would be required to pay tax in terms of section 3. In other words, exemption pre-supposes a liability. Unless there is liability question of exemption does not arise. Liability arises in term of section 3 and tax becomes payable at the rate as provided in section 12. Section 11 deals with the point of levy and rate and concessional rate.
The word ''liable'' in the Concise Oxford Dictionary means, ''legally bound, subject to a tax or penalty, under an obligation''. In Black''s Law Dictionary (Sixth Edition) the word ''liable'' means, ''bound or obliged in law or equity; responsible; chargeable; answerable; compellable to make satisfaction, compensation, or restitution.... Obligated; accountable for or chargeable with''. The above position was noted in Zunjarrao Bhikaji Nagarkar Vs. U.O.I. and Others, .
Tax at the appropriate rate would have become payable but for the exemption. Decision in Australian Mutual Provident Society v. I.R.C. [1962] AC 135 (PC) has stated the position as follows:
The phrase "exempt from taxation" Land and income tax Act, 1954 (No. 6701) (New Zealand) section 86(1) does not cover income that is not at all within the reach of the New Zealand tax laws. It refers to income that would, had it not been for the exemption, otherwise have been so taxable.
Therefore, it cannot be said that as tax was not paid on portion of the turnover of the scheduled goods, i.e., cement, the assessee-appellant had no liability under the Act. It was definitely liable to pay tax under the Act, but for the exemption. There is no dispute that the assessee-appellant was liable to pay tax under sub-section (3) of the Entry Tax Act. Therefore, it was entitled to reduction to the extent of tax paid under the Entry Tax Act while working out tax payable by it under the Act.
The Supreme Court in the matter of Commissioner of Sales Tax, J and K and Others Vs. Pine Chemicals Ltd. and Others, , considered the distinction between general and conditional exemption and has held as under:
The idea behind sub-section (2A) of section 8 of the Central Sales Tax Act, which we have analysed hereinbefore, is to exempt the sale/purchase of goods from the Central sales tax where the sale or purchase of such goods is exempt generally under the State sales tax law. We must give due regard and attach due meaning to the expression ''generally'' which occurs in the sub-section and which expression has been defined in the Explanation. If the said expression had not been there, it could probably have been possible to argue that inasmuch as the goods sold by a particular manufacturer-dealer are exempt from the State tax in his hands, they must equally be exempt under the Central Act. But sub-section (2A) requires specifically that such exemption must be a general exemption and not an exemption operative in specified circumstances or under specified conditions. Can it be said that the goods sold by the dealers in this case are exempt from tax generally under the State tax enactment? The answer can only be in the negative. Such goods are exempt from tax only when they are manufactured in a large or medium scale industrial unit within five years of its commencement of production and sold within the said period, i.e., in certain specified circumstances alone. The exemption is not a general one but a conditional one. The exemption under the Government Order No. 159 is not with reference to goods or a class or category of goods but with reference to the industrial unit producing them and their manufacture and sale within a particular period. For the purposes of the Government order, the nature, class or category of goods is irrelevant; it may be any goods. It is concerned only with the industrial unit producing them and the period within which they are manufactured and sold. Can it be said in such a case that it is instance where the sale is of goods, the sale or purchase of which is under sales tax law of the appropriate State, exempt from tax generally? Certainly not. Exemption provided by Government Order No. 159, to repeat, is not with reference to goods but with reference to the industrial unit. So long as it is (i) a large or medium scale industry and (ii) it manufactures and sells goods within the five years of its going into production, the sale of such goods is exempt irrespective of the nature or classification of goods. Similar goods may be manufactured by another unit but if it does not satisfy the above two requirements, the goods manufactured and sold by it would not be entitled to exemption from tax. Indeed, the goods manufactured by that very unit would not be eligible for exemption if they are manufactured after the expiry of five years from the date it goes into production and/or sells them beyond the said period. The period of exemption may also vary from unit to unit depending on the date of commencement of production in each unit. For the above reasons, we are of the opinion that the exemption granted under the aforesaid Government order does not satisfy the requirements of section 8(2A).
The Division Bench of the Kerala High Court in the matter of Sales Tax Officer and Others Vs. Ragam Plastics and Others, , while considering the issue if a new unit entitled to exemption from payment of tax on the turnover of the goods could avail of the benefit of lower rate of tax on raw material under the Act although no tax was payable by such new unit because of exemption, has held that:
In order to attract the proviso, the finished products should not be liable to tax either under the Kerala General Sales Tax Act or under the Central Sales Tax Act or when such finished products are exported out of the territory of India. The words ''liable to tax under this Act'' mentioning along with the liability under the Central Sales Tax Act or liability under export sale would indicate that the proviso will apply to exclude section 5(3) only in the case of a non-applicability of ''the Act'', as in the case of liability under the Central Act or liability for export sale. Since the assessees are given limited exemption by the notification from payment of sales tax in respect of their turnover, it cannot be construed that there is ''no liability'' to tax under ''the Act''. The second proviso to the notification states that the cumulative sales tax concession granted to a unit at any point of time within this period shall not exceed 90 percent of the cumulative gross fixed capital investment of the unit. Therefore, section 5(3) of the Act would apply to the assessees and the goods manufactured by them are liable to tax under the Act though tax is not payable by virtue of the notification exempting the small-scale industrial units for a limited period on complying with certain conditions.
The Division Bench of the Rajasthan High Court in the matter of Commercial Taxes Officer Vs. Gadia Textiles and Another, , has considered the issue in respect of the continuation of the liability to pay tax inspite of exemption and following the Supreme Court judgment in the matter of A.V. Fernandez Vs. The State of Kerala, , the Rajasthan High Court has held as under:
On a careful perusal of the various provisions of the Act and the Rules referred to hereinabove the two expressions ''liable to pay tax under the Act'' and ''tax shall be payable'' deserve our pointed attention. In rule 42 the words used in both sub-rules (1) and (2) are ''liable to pay tax under the Act''. We shall first examine the connotation of the word ''liable''. The word ''liable'' is generally/normally interpreted to mean, ''exposed to a certain contingency or casualty, i.e., it means a future possibility, probability, happening which may or may not actually occur''. The word ''liable'' ordinarily denotes (1) ''legally subject or amenable to'', (2) ''exposed or subject to or likely to suffer from (something prejudicial)'', (3) ''subject to the possibility of (doing or undergoing something undesirable)''. According to Webster''s New World Dictionary also the word ''liable'' denotes ''something external which may befall us''. It is not in dispute that the cloth that was manufactured by the manufacturer during the periods under consideration was exempt from payment of tax either u/s 4(1)or section 4(2) of the Act and since the cloth which is a cotton fabric which the manufacturer was dealing was exempt from payment of tax, he was not required to pay any tax on it or in other words the tax was not payable by him. But none-the-less when non-petitioner No. 1 is a manufacturer (dealer within the meaning of section 2(f) of the Act) and does the business as defined in section 2(cc) of the Act having a turnover which is taxable u/s 3 of the Act, can still be said to be not liable to pay tax under the Act though the tax is not payable on the cloth manufactured by him by virtue of the exemption u/s 4(1) or 4(2) of the Act....?
The above question has been answered by the Rajasthan High court as under:
But for the exemption, the manufacturer in this case was required to pay tax under the Act on the cloth dyed and printed by him or in other words on the cloth manufactured by him, the tax was payable. Section 3 to our mind is a provision for levy of tax, if the conditions laid down therein are satisfied, then the dealer/manufacturer is liable to pay tax under the Act. It is a charging section. The liability to pay tax is dependent on the turnover and the tax is payable on the taxable turnover. The word ''turnover'' in section 3 of the Act is significant, for, section 3 lays down that every dealer whose gross turnover exceeds the limit laid down therein, he is liable to pay tax on his taxable turnover, within the gross turnover could be included the entire turnover of goods on which the tax could be imposed and it is immaterial whether tax has been imposed or not. Liability to pay tax springs on the basis of turnover and tax becomes payable on taxable turnover. u/s 3, the sales of printed and dyed cloth by the manufacturer were required to be included in his gross turnover but on account of the exemption u/s 4(1) or 4(2), he was not required to pay tax on the cloth, i.e., cotton fabrics. The tax may not be payable by the dealer/manufacturer, nevertheless, if section 3 is attracted, he will be said to be liable to pay tax. The words used in rule 42(1) and (2) are ''liable to pay tax under the Act''. The conditions laid down in section 3 are satisfied in the case of the assessee, but the tax is not payable by him, for the cloth, i.e., the cotton fabrics are exempted from payment of tax. Rule 42(2) of the Rules provides that a manufacturer who is liable to pay tax under the Act has to maintain a stock book of the raw materials and of finished goods. The manufacturer in this case admittedly did not maintain the stock book of the raw materials, i.e., of the cloth purchased by him. The manufacturer was not required to pay tax as cloth was exempt from payment of tax. But, on this ground alone it cannot be said that he was not liable to pay tax under the Act as envisaged by rule 42(2) of the Rules, keeping in view of the scheme of the various sections of the Act referred to hereinabove. The basis of the view taken by the Board is that only those dealers or manufactures are required to maintain stock books under rule 42(2) of the Rules from whom tax is payable. The Board has construed ''liable to pay tax under the Act'', as tax payable under the Act. In doing so, the Board ignored the distinction and difference between the two expressions ''liable to pay tax'' and ''tax shall be payable'', for, a manufacturer may be liable for payment of tax but on account of exemption, tax is not payable by him. We have already given reasons that ''liable to pay tax'' does not mean that tax is payable by the dealer/manufacturer under the Act. From a dealer/manufacturer tax may not be payable because of exemption under the Act, none-the-less it cannot be said that he is not liable to pay tax under the Act....
The Kerala High Court in the matter of Ragam Plastics and Others Vs. Sales Tax Officer and Others, , has held that partial exemption of sales tax does not mean sale of finished goods was not liable to tax under the Act by holding as under:
It is clear from the above authorities that the taxable event is the sale or purchase of goods and the sale of the finished products referred to in the first proviso to section 5(3) does not cease to be liable to tax for the reason of the partial exemption provided for in the Notification SRO No. 968/80. The mere fact that in the matter of computation of tax payable the benefits of exemption will be available to the small-scale industrial units is not a ground to hold that the sale of its finished products is not liable to tax under the Act.
The Division Bench of the Allahabad High Court in the matter of Deep Chand Goyal and Another Vs. The Sales Tax Officer and Another, , has considered the distinction between the exemption and non-liability to pay tax and has held as under:
It is thus settled that transactions or sales which enjoy exemption have to be included in the gross turnover but they are exempted when the net turnover is calculated and as for nonliability to tax, the turnover in respect of such transactions or sales is not included in the gross or the net turnover. An exemption can be granted only in respect of goods which are liable to tax : See Commissioner, Sales Tax Vs. Rita Ice Cream, ....
Thus from the aforesaid judgments, it emerges that if no tax is charged on goods in the taxing statute then there is no liability to pay tax but if in terms of the taxing statute the goods are liable to tax and the conditional exemption is granted from payment of tax, then the liability to pay the tax continues even if no tax is paid. In the present matter the petitioner was liable to pay the sales tax under the provisions of the M.P. General Sales Tax Act, 1958 but as a dealer conditional exemption was granted by the Notification dated October 23, 1981. Therefore, though no sales tax was paid by the petitioner for the period in question, its liability to pay the sales tax continued and under the Notification No. 55 dated July 5, 1995, his liability to pay the sales tax was reduced to two percent, therefore, in terms of the Notification No. 57 dated July 5, 1995, the petitioner was entitled to claim exemption from payment of entry tax on the goods in question on satisfaction of the other conditions, which have been specified in the Notification No. 57 dated July 5, 1995.
In view of the aforesaid, we are of the considered view that the impugned orders of the assessing authority dated February 13, 2004 as well as the revisional authority dated January 12, 2005, cannot be sustained and are hereby set aside. The assessing authority is directed to pass a fresh order of assessment by treating that the Notification No. 57 dated July 5, 1995 is attracted in the case of the petitioner, since the petitioner is liable to tax at two percent on the sale under item No. 2 of the Notification No. 55 dated July 5, 1995, and extend him the benefit accruing from the exemption Notification No. 57 dated July 5, 1995, if the petitioner satisfies all other relevant conditions of the said notification. The petition is allowed to the extent indicated above.