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Judgment
G. Rajasuria, J.—The prayers in these Writ petitions are for the issuance of a Writ of Certiorari to call for the records of the second
respondent in respect of the order in MTSA No. 10/2002 and 11 of 2002 dated 11.2.2003 and quash the same.
Heard both sides.
The facts in nutshell which are absolutely necessary and germane for the disposal of these writ petitions would run thus:
The interpretation of the Notification in G.O.Ms. No. 122, CT&RE dated 20.3.92 (Notn. No. II(1)/CTRE/55(a-2)/92-Gazette dated 20.3.91 -
Effective from 20.3.92) has become the subject matter of interpretation in this case and hence it is extracted here under:
Exemption in respect of the tax payable on the sale of all products of Village Industries specified in the Schedule to the Khadi and Village
Industries Commission Act, 1956 (Central Act 61 of 1956), effected by the institutions certified for the purpose by the Khadi and Village
Industries Commission, Bombay and its regional office at Madras.
The Notification shall come into force on the 20th March, 1992.
The first respondent herein indubitably and incontrovertibly a Khadi and Village Industries Unit certified by the Khadi and Village Industries
Commission Act, 1956 (Central Act 61 of 1956), within the meaning of the aforesaid Government Order. The first respondent effected sales of
various products specified IN THE schedule to the said Khadi and Village Industries Commission Act, 1956. Even though, the authorities
concerned treated that the Government Order is exempting such goods from Tamil Nadu Government Sales Tax Act, yet such a facility was not
accorded to while collecting Central Sales Tax on the same goods. In fact, the lower authority refuses to give the benefit of Section 8(2-A) of the
Central Sales Tax Act, 1956 by interpreting that the exemption contemplated under the aforesaid Government Order is not a general one, but a
conditional one.
Being aggrieved by the decision taken by the Appellate Assistant Commissioner (CT), Virudhunagar, the respondent No. 1 herein preferred the
appeal before the Appellate Assistant Commissioner, who dealt with the matter and gave a finding to the effect that the Assessing Officer was
wrong in levying such Central Sales Tax, ignoring the purport of the said Government Order cited supra. Being aggrieved by the said order, the
State preferred the appeal before the Tamil Nadu Tax Appellate Tribunal, which confirmed the order of the first appellate authority.
Challenging and impugning the said order, these writ petitions are focused on the ground that the exemption contemplated in the said
Government Order cannot be construed as a general one. The same products manufactured by the institutions other than the certified institutions,
cannot be exempted from TNGST Act as per the G.O. and hence the exemption is not a general one. Accordingly, the State prayed for setting
aside the order of the Tamil Nadu Sales Tax appellate Tribunal.
The learned Special Government Pleader would reiterate the grounds as found set out in the appeal and the main grounds are extracted here
under for ready reference:
The Tribunal has erred in proceeding as though under G.O.Ms. No. 122 dated 20.3.1992 sale of hand made matches are generally exempt from
tax. It is submitted that the said exemption is only conditional and not a general exemption and hence the inter-state sales of hand made matches
are liable to be taxed. The order of the appellate tribunal is not sustainable and hence liable to be set aside (Vide the decisions of the Supreme
Court reported in State of Uttar Pradesh and another Vs. M/s. Hindustan Safety Glass Works (P) Ltd., , Commissioner of Sales Tax, J and K and
Others Vs. Pine Chemicals Ltd. and Others, , Hindustan Paper Corpn. Ltd. and Others Vs. State of Kerala and Others, , Industrial Cables (I)
Ltd. and Another Vs. Assessing Authority and Others, and 38 STC 108).
d. It is submitted that the exemption granted in G.O.Ms. No. 122 is not with reference to goods or a class or category of goods but with reference
to the industrial unit producing them and their sale effected by a particular class of dealer. For the purpose of the G.O., the nature, class or
category of goods is irrelevant. It may be any goods; It is concerned only with the units producing them and the institution effecting the sale. So
long as the product was manufactured by the Khadi and Village Industries Commission Act, 1956 and the sale is effected by the Institution
certified by the Khadi and Village Industries Commission, Bombay and its regional office at Madras, the sale of such goods is exempted
irrespective of the nature of 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.
The learned Special Government Pleader would develop his arguments to the effect that in the Government Order concerned, there was no
reference to the goods, but only there is reference to certain certified industrial units and accordingly it cannot be construed as a general exemption
to the goods in general. It is also the contention of the learned Special Government Pleader that the said Government order does not exempt the
similar goods manufactured by the other industries and in such a case it cannot be considered as a general exemption.
Per contra, the learned Counsel for the first respondent would convincingly argue to the effect that in the Government Order, the goods
contemplated are the goods specified in the Schedule to the Khadi and Village Industries Commission Act, 1956 and as such the Government
Order refers to certain specific class of goods without any condition generally and simply because the other institutions other than the ones certified
by the Khadi and Village Industries Commission might be manufacturing similar type of goods and they are not enjoying that facility, it cannot be
construed that the Government Order is only a conditional exemption.
The learned Counsel for the first respondent would cite the decision of the Hon''ble Apex Court in Commissioner of Sales Tax, Jammu and
Kashmir and Ors. v. Pine Chemicals Ltd. and Ors. reported in 1996 STC 355 and the decision of the Karnataka High Court in Preston Industries
v. Commercial Tax Officer, District Circle III, Bangalore and Anr. reported in 103 STC 417.
An excerpt from the decision of the Hon''ble Apex Court in Commissioner of Sales Tax, Jammu and Kashmir and Ors. v. Pine Chemicals Ltd.
and Ors. reported in 1995 STC 355 would run thus:
The simple question before us is whether the Bench which decided Pine Chemicals Ltd. and Others Vs. Assessing Authority and Others, , is right
in holding that the benefit of the said sub-section is available even where the goods are exempted with reference to industrial unit and for a
specified period, viz., period of five years from the date the relevant unit goes into production. In other words, the question is whether an
exemption of the nature granted under Government Order No. 159 dated March 26, 1971, is an exemption available ""only in specified
circumstances or under specified conditions"" within the meaning of the Explanation to Section 8(2-A), as contended by the State or is it a case
where the goods are exempt from the tax ""generally"" within the meaning of Section 8(2-A), as contended by the respondents-dealers? We are of
the opinion that the respondent-dealers'' contention cannot be accepted in view of the clear and unambiguous language of the sub-section.
The idea behind Sub-section (2-A) of Section 8 of the Central Sales Tax Act, which we have analysed herein before, 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 in as much 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 (2-
A) 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 sales 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
purpose 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 an 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(2-A).
As such, the Hon''ble Apex Court highlighted the true purport of Section 8(2-A) of Central Sales Act, 1956, as per which, it is clear that once
there is general exemption under the local Sales Tax Act relating to class of goods, then it could be taken that under the Central Sales Tax Act also
such goods are exempted from tax. An excerpt from one other decision of the Karnataka High Court in Preston Industries v. Commercial Tax
Officer, District Circle III, Bangalore and Another reported in 103 STC 417 would run thus:
The question that falls for our consideration is that whether the goods sold by the appellant in this case are exempted from tax generally under the
Karnataka Sales Tax Act. The test applicable to verify whether the exemption granted is general in nature or arose in specific circumstance or
subject to conditions, could be illustrated with reference to the decision of Commissioner of Sales Tax v. Pine Chemicals Ltd. (1995) 96 STC
355, wherein the Supreme Court has stated that in ascertaining the true meaning of Section 8(2-A) of the Act, providing for exemption of Central
sales tax on sale or purchase of goods where the sale or purchase of such goods is exempt generally under the State sales tax law, the expression
generally"" which occurs in the said provision, will have to be ascertained with reference to the class of goods dealt with by the dealer. As long as
the reference is to a class or category of goods, the exemption must be treated as general and if it is with reference to either manufacture or the
circumstances under which the manufacturer sold the goods to the dealer or customer, then it would not be general and if it is with reference to the
goods then such exemption, it is treated as general. In that case, the exemption provided by the Government was not with reference to the goods
or class or category of goods, but with reference to the industrial unit producing them and their manufacture and sale within a particular period. At
more than one place in the said decision, the learned Judges referred to this aspect of the matter and stated that the exemptions was with reference
to the unit manufacturing goods and not with reference to the goods. It was emphasised that general exemption means the goods should be totally
exempted from tax before similar exemption from the levy of Central Sales tax can become available. Where the exemption from taxation is
conferred by conditions or in certain circumstances there is no exemption from tax generally. The specific circumstances and specific conditions
referred to therein should be with reference to the transactions and not with reference to the goods. If it is subject of exemption, qua the dealer or
qua the manufactured goods then exemption would not be available, but if it is with reference to the goods, such benefit would be available.
The intention of the Government in exempting goods by bringing the same under the Fifth Schedule to the Karnataka Sales Tax Act is to exempt
cheap variety of footwear and the same may be identified with reference to its cost and in this case, it is less than Rs. 30. The Legislature classified
the goods in two categories-one costing more than Rs. 30 and the other less than Rs. 30. Thus, if the Legislature makes classification into two
categories of goods, one category attracts tax and the other does not attract the tax, this is with reference to description of goods and not with
reference to any specific conditions or circumstances. This is the essence of the matter. The learned Judge no doubt, adverted to the decision of
the Supreme Court and copiously extracted different portions to which we have made reference. After quoting the decision in Commissioner of
Sales Tax, J and K and Others Vs. Pine Chemicals Ltd. and Others, , he missed to appreciate the point raised by the appellant. No doubt, it is
true that the learned Judge did refer to another decision of this Court in W.P. No. 32104 of 1994, disposed of on 15th November, 1994
(reported as Shashtha Industries v. Additional Deputy Commissioner of Commercial Taxes 1995) 98 STC 219, to which one of us (Raveendran,
J), is a party. But, in that decision, it is held that the exemption is not with reference to footwear in general, but the goods are exempted under
specific condition or circumstance. The Supreme Court has clearly and categorically stated in Pine Chemicals'' case (1995) 96 STC 355, that as
long as such exemption is with reference to goods, the exemption could be treated as general in nature. Hence, whatever views might have been
expressed earlier by this Court will be of no benefit or use. Therefore, that view expressed, being contrary to the decision of the Supreme Court in
Pine Chemicals'' case (1995) 96 STC 355 we think required reconsideration and in our view, therefore, for the reasons put forth earlier, when the
goods are classified into two categories, and the description is only with reference to the goods, we do not think that we can say Section 8(2-A) of
the Act is not attracted.
The ratio decedendi of the cited decisions is to the effect that the exemption to the goods concerned should not be encumbered by conditions,
as it was encumbered relating to the goods involved in that case decided by the Hon''ble Apex Court. The Hon''ble Apex Court took into
considerations, the time limit prescribed relating to the manufactured goods and also for sales of the same within that period. As such considering
all these factors, the Hon''ble Apex Court held that such sort of exemptions cannot be termed as general exemptions, but it should be considered
only as conditional in nature. The said decision of the Hon''ble Apex Court has been followed by the Karnataka High Court in the decision
reported in Preston Industries v. Commercial Tax Officer, District Circle III, Bangalore and Anr. reported in 103 STC 417.
As such the Division Bench of the Karnataka High Court adhered to the decision of the Hon''ble Apex Court and expressed its view that the
Hon''ble Apex Court posited that as long as exemption to goods without any condition is there, it could be termed as general in nature. Even
though, in the Government Order referred to supra in this matter, the products manufactured by the institutions certified by the Khadi and Village
Industries Commission are found exempted, yet it covers the sale of products of village industries specified in the Schedule to the Khadi and
Village Industries Commission Act, 1956 without specifying any condition relating to the period of manufacture or period of sale or some such
things.
The Tamil Nadu Sales Tax Appellate Tribunal also in paragraph No. 5 of its order convincingly stated thus:
It is an admitted fact that the respondent company is the unit approved by Khadi and Village Industries Commission, Bombay. As per G.O. 122,
dt. 20.3.92 issued by the CT & RE Department, the institutions certified by the Khadi and Village Industries Commission and the sale of products
approved by Khadi and Village Industries Commission, Bombay manufactured and sold by certified units are eligible for exemption. There is no
dispute about the commodities that they are not falling under the list of products approved by Khadi and Village Industries Commission, Bombay.
So now the point to be verified is whether the exemption given by the G.O. is a general exemption which can be applied for the transactions under
CST Act or is a conditional exemption applicable for transactions effected under the local sales tax law. The learned Appellate Assistant
Commissioner is of the view that according to Section 8(2-A) of the CST Act, 1956, shall be ''Nil''. Therefore, he contended that since the rate of
tax fixed under the local Act is ''Zero'', tax to be adopted u/s 8(2-A) of the CST Act, 1956 is also at Zero in respect of that dealer. In support of
his view, he relied on the decision reported in 30 STC 108. The learned Counsel at the time of argument also brought to our notice that as per the
decision of the Hon''ble High Court of Madras in the case of State of Tamil Nadu v. State Trading Corporation wherein the Hon''ble High Court
held that ""Section 8(2-A) of the CST Act, 1956 provides that where under the sales tax law of the State, the turnover of sales in respect of
particular commodity is exempted from tax generally when the tax payable by the dealer under the CST Act on such part of the turnover was also
be ''Nil"". The exemption granted by the notification in question was general"". We found that in this case also, the exemption granted to the village
industries products manufactured by the assessees are exempted under the local Act. Therefore, the rate of tax for the commodities dealt by the
assessees which are approved by the Khadi and Village Industries Commission, Bombay is also liable for exemption. In the case law relied on by
the appellant/revenue in the case of preston Industries v. Commercial Tax officer, District Circle-III, Bangalore and another reported in 103 STC
417, the Honourable High Court of Karnataka held that ""as long as the reference is to a class or category of goods, the exemption must be treated
as general and if it is with reference to either manufacture or the circumstances under which the manufacturer sold the goods to the dealer or
customer, then it would not be general"". In the case the respondent, are eligible for exemption on the sales of commodities which is approved by
the Khadi and Village Industries Commissioner, Bomaby as per the G.O. under the Local Act. Therefore the interestate sales of the above
commodities are also liable for exemption at the hands of the represents. We are of the view that the Appellate Assistant Commissioner is correct
in taking the above view, which is agreeable for us also. Therefore, we sustain the order of the learned Appellate Assistant Commissioner for both
the years and the order of the in respect of the above portion allowed by Appellate Assistant Commissioner is confirmed.
Here, even though in the said Government Order, the type of manufacturers are contemplated yet the predominating factor and the dominant
intention is that all products found specified in the Schedule to the Khadi and Village Industries Commission Act, 1956 should be exempted
without any condition and be sold at lesser prices, so as to give impetus to Khadi Movement and simply because certified institutions are
contemplated therein, it cannot be taken that the exemption was not general in nature relating to the goods for which no restrictions were imposed.
It is therefore clear that once exemption of the products specified in the schedule to the Khadi and Village Industries Commission Act, 1956
without any condition relating to goods, are granted in favour of certain institutions under the Tamil Nadu Governemnt Sales Tax Act, such
institutions are also deemed to be enjoying the same benefit of exemption under the Khadi and Village Industries Commission Act, 1956 by virtue
of Section 8(2-A) of Central Sales Act, 1956.
The contention of the writ petitioner that if similar goods are manufactured by institutions other than the certified, then they may not be enjoying
the same benefit is not germane for understanding the term ''generally'' as contemplated u/s 8(2-A) of the Central Sales Act. The object of the very
exemption would get frustrated if such narrow interpretation is taken as canvassed by the writ petitioner. The object behind the Government Order
is that certain worthy Khadi and Village Industries, should be benefited by that exemption and there is no rhyme or reason in contending that such
benefit should not be availed by such institutions under the Central Sales Act.
Perused the reasoned orders of the Tamil Nadu Sales Tax Appellate Tribunal and the Appellate Assistant Commissioner and there is nothing
to disagree with the reasons cited by them. Hence, in these circumstances, there is no merit in these writ petitions and they may be liable to be
dismissed.
In the result, these writ petitions are dismissed and the orders of the Tamil Nadu Sales Tax Appellate Tribunal and the Appellate Assistant
Commissioner are confirmed. No costs.