By TIOL News Service

NEW DELHI, MAR 30, 2016: THE Notification under dispute directs that no tax under the said Act shall be payable with effect from 1.4.1988, on the sale of goods, manufactured in the State of Haryana by any dealer holding a valid exemption certificate under Rule 28-A of the Haryana General Sales Tax Rules, 1975 during the period of exemption: provided that no tax under the said Act has been charged by such dealer on the sale of goods manufactured by him.

The question is Whether the notification is relatable to the exemption of goods or the person selling it?

On behalf of the revenue, it was urged that the notification in question provided for grant of exemption only on the sale of goods manufactured in the State by a dealer holding valid exemption certificate under Rule 28 of the Rules, subject to the condition that such dealer had not charged tax under the CST Act on the sale of goods manufactured by it, and not in respect of the sale of goods by other dealers in the course of inter-state trade.

The assessee's contention is that the exemption is on the sale of goods and there is no reference to unit or category of dealers for the purpose of extending the exemption.

The Supreme Court held that the exemption is good specific, subject of course to other conditions being satisfied.

The Supreme Court observed,

It is not disputed that on all intra-state sales no tax has been charged as the said transactions were treated as exempt by the tax authorities. However, in the course of inter-state sales, it is submitted by the revenue that the exemption would be limited and available only if the manufacturer i.e. the eligible industrial unit makes sale in inter-state trade or commerce, but if a third party, who had procured the goods from the eligible industrial unit makes inter-state sale, such trade or commerce would not be exempt. The contention of the State suffers from incorrect appreciation and understanding of the purport and objective behind Rule 28A and the notification in question. The basic objective and purpose is to exempt the goods manufactured in the State when they are further transferred in the course of inter-state or intra-state trade or commerce. Therefore, reference is made to the eligible industries and the goods manufactured by the said industries, which are entitled to exemption. The exemption notification refers to the sale of goods manufactured by a dealer holding a valid exemption certificate. The emphasis is on the goods manufactured. However, it is confined by the condition that the said manufacture should be within the exemption period and by a dealer holding an exemption certificate .

Why Proviso? Provisos can serve various purposes. The normal function is to qualify something enacted therein but for the said proviso would fall within the purview of the enactment. It is in the nature of exception. A proviso is generally added to an enactment to qualify or create an exception to what is in the enactment, and the proviso is not interpreted as stating a general rule. Further, except for instances dealt with in the proviso, the same should not be used for interpreting the main provision/enactment, so as to exclude something by implication. It is by nature of an addendum or dealing with a subject matter which is foreign to the main enactment.

Read in this manner, we do not think the proviso should be given a greater or more significant role in interpretation of the main part of the notification, except as carving out an exception. It means and implies that the requirement of the proviso should be satisfied i.e. manufacturing dealer should not have charged the tax. The proviso would not scuttle or negate the main provision by holding that the first transaction by the eligible manufacturing dealer in the course by way of inter-state sale would be exempt but if the inter-state sale is made by trader/purchaser, the same would not be exempt. That will not be the correct understanding of the proviso. Giving over due and extended implied interpretation to the proviso in the notification will nullify and unreasonably restrict the general and plain words of the main notification. Such construction is not warranted.

Inter-State sale from the State of Haryana will be only once or not a repeated one. Therefore, there is no requirement of reference to subsequent sale. In this context, it is rightly submitted by the assessee that there is only one inter-State sale from the State of Haryana and the interpretation as suggested by the revenue would tantamount to making the exempted goods chargeable to tax, and the said goods would cease to enjoy the competitive edge given to the manufacturer in the State of Haryana. It will be counter-productive .

Assessee's appeals allowed

(See 2016-TIOL-36-SC-CT)