The Commissioner of Income Tax-IV, vs. Shri Inderjeet Singh Makhija,

6) On 20.03.2014, the Assistant Excise and Taxation Commissioner-cum- Assessing Authority, District Solan, passed an order of “Scrutiny of Returns” under Section 60 of the HP VAT Act, 2005, for the period from April, 2013 to January, 2014, denying exemption from Central Sales Tax to the petitioners’ industrial units. 7) Challenging the same, the petitioners filed Appeal nos.98 of 2015, 97 of 2015 & 99 of 2015, before the Additional Excise & Taxation Commissioner-cum- Appellate Authority (South Zone), Shimla (in short the “Appellate Authority”), on 19.05.2014. 8) The said appeals were disposed of on 15.07.2015, confirming the order of the Assistant Excise & Taxation Commissioner-cum-Assessing Authority, District Solan. 9) This order dt. 15.07.2015 of the Appellate Authority was challenged by the petitioners on 22.12.2015 before the Himachal Pradesh Tax Tribunal (in short the “Tribunal”) by filing Appeal nos.100 of 2015, 101 of 2015 and 102 of 2015. 10) The Tribunal also upheld the orders of the Assessing Authority and dismissed the appeals. 11) Challenging the same, these Revisions have been filed and the same were admitted to consider the following substantial questions of law:- “(i) Whether the provisions of the Notification No.EXN-F(9)2/99-III (i) dated 5.8.2002, as amended by notification No.EXN-F(5)-5/2006 dated

29th July, 2006 having been notified in exercise of the statutory power conferred by section 8(5) (b) of the CENTRAL SALES TAX Act, 1956 has statutory force and validity and the exemption is as if it is contained in the parent Act itself, and, therefore, Whether the said notification was required to be interpreted strictly in terms of its language and full effect must have been given to every word thereof without brushing aside any word used in that notification?

(ii) Whether the Ld. Tribunal has erred by holding that “the law settled in the cases of Anjum M.H. Ghaswala, Ramchandra Keshav Adke and J.B. Bhatt supra pertains exercise of powers vested in a authority as per the prescribed procedure in a judicious manner is also not applicable as the Ld. AETC has exercised the powers vested in him as per the provisions of the HP VAT Act, 2005 and, therefore, the same is not being relied upon” because the Ld. Tribunal has omitted to consider that the statutory procedure of scrutiny of returns and issuance of “notice” enacted under section 60(2) read with Rule 44(1) and (2) and the recommendation of audit under Rule 44(2) were mandatory requisites of procedure of scrutiny of returns under the Act and the Rules?

(iii) Whether denial of exemption of CENTRAL SALES TAX for full notified period of 6 years and 8 months in the case of the Petitioner but grant of such exemption for the said full notified period to the existing Information Technology units (which obviously cannot be rebutted cogently) under the same notification amounts to be arbitrary and discriminatory and thereby offending equality clauses of Article 14 of the Constitution?”

12) Before we consider these substantial questions of law, we deem it appropriate to take note of the Notification dt. 05.08.2002, which was initially issued by the

Excise and Taxation Department of the Government of Himachal Pradesh under Section 42(1) of the HP GST Act, 1968 to the extent relevant. 13) The said Notification issued under Section 8(5) of the Central Sales Tax Act, 1956, is as under:- “2. Now, therefore, in exercise of powers conferred by clause (b) of sub- section(5) of section 8 of Central Sales Tax Act, 1956 (Act No.74 of 1956) the Government of Himachal Pradesh is pleased to direct that no tax under this Act shall be payable on the sale of goods manufactured by the existing and new Information Technology Industrial units situated in H.P., in the course of inter- state trade or commerce for the period and subject to all the terms and conditions (including Explanation) as specified in this department notification No.EXN-F(9)2/99-III, dated 5th August, 2002 issued under section 42 of the Himachal Pradesh General Sales Tax Act, 1968 (Act No.24 of 1968).”

14) The amendments brought to it by the later Notification on 29.07.2006, are as under:- “3. The Governor is further pleased to direct that subject to compliance with the provisions of the Central Sales Tax Act, 1956, the incentives contained in para 2 of Notification No.EXN-F(9)-2/99-III(i), dated 5th August, 2002,as amended shall be available: (i) to the existing information technology industrial units availing of such incentives under Notification No.EXN-F(9)/99-III(i), dated 5th August, 2002, for the unexpired period; (ii) to the new information technology industrial units, from the date of commencement of commercial production on or after 1st August, 2006 up to 31.3.2013. 4. The Governor is further pleased to direct that notwithstanding anything contained in para 3, the total period of incentive in any case of the “existing

information technology industrial unit” or “the new information technology unit” shall not exceed 6 years and 8 months.”

Explanation.-For the purposes of this notification, (a) “existing information technology industrial unit” means a unit which,- (i) has already gone into commercial production before 1st August, 2006; and (ii) on 1st August, 2006 is availing the incentives notified vide Notification No.EXN-F(9)-2/99-III-(i), dated 5th August, 2002; (b) “New Information Technology industrial unit” means a unit which comes into commercial production on or after 1st August, 2005; and (c) “unexpired period” means the balance period of incentive as on 1st August, 2006 arrived at by deducting the period of incentive availed of up to 31st July, 2006 from the total period of 6 years and 8 months specified in para 4. For instance, in case of an existing information technology industrial unit which came into commercial production on 1st August, 2003, the un-expired period of incentive shall be calculated as follows, namely:- (i) Total period of incentive

6 years 8 months (ii) Period of incentive availed 3 years from 1st August, 2003 to 31st July, 2006.

(iii) Unexpired period of

3 years 8 months incentive as on 1st August, 2006.”

(emphasis supplied)

15) Admittedly, the petitioners’ industrial units had come into production on 31.03.2010, which fact is not disputed by the respondents.

Contentions of the parties 16) The petitioners contend that they are entitled to the benefit of exemption from Central Sales tax under the Notification dt. 29.07.2006 for a period of 6 years and 8 months, i.e. upto 30.11.2017, but the stand of the respondents is that the benefit of exemption from Central Sales Tax was granted under the Notification dt. 29.07.2006 only upto 31.03.2013 in view of the language employed in Para- 3, as amended. 17) Petitioners contend it would be hard to believe that a unit which would come into existence after the issuance of the Notification dt. 29.07.2006, could be denied the exemption because it would take more than two years for the unit to establish itself, in which event, no unit would practically avail the benefit for 6 years and 8 months, as mentioned in Para-4 of the Notification dt. 29.07.2006, by 31.3.2013, and the very purpose of the incentive notification would be defeated. 18) The petitioners contend that the only conclusion which can be drawn is that the State Government intended to and has given the benefit of exemption from payment of Central Sales tax for a period of 6 years and 8 months for the existing units as well as for new units which have come into commercial production after 01.08.2006, and since the petitioners had come into existence on 31.03.2010 and had not availed full benefit of 6 years and 8 months, the Notice for Scrutiny of Return under Section 60 of H.P. VAT Act, 2005, could

not have been issued validly, and the petitioners cannot be held liable to pay tax. The order of the Assessing authority 19) In the order passed by the Assessing Authority, he noticed only Para-3(ii) of the Notification dt. 29.07.2006, which states that the incentives contained in Para-2 of the Notification dt. 05.08.2002, as amended, would be available to the new Information Technology Industrial Units from the date of commencement of commercial production on or after 01.08.2006 upto 31.03.2013; but he did not refer to Para-4 thereof which directed that notwithstanding anything contained in Para-3, the total period of incentive in any case of existing Information Technology Industrial Units or the new Information Technology Industrial Units, shall not exceed 6 years and 8 months. 20) Therefore, he took an erroneous view that the petitioners units, which are new Information Technology Industrial Units, can avail incentive only upto 31.03.2013. The order of the first appellate authority 21) The same view appears to have been taken by the Appellate Authority in its order dt. 15.07.2015 though the said order is not placed before this Court by the parties. The order of the Tribunal 22) The Tribunal, in its order dt. 30.08.2016, took the view by placing reliance on the minutes of a meeting held between the Secretary (Information Technology)

to the State Government and the Excise & Taxation Commissioner, Himachal Pradesh, on 31.05.2006, and also proposal placed before the Council of Ministers by the Secretary (IT) for granting the incentives, which was approved on 05.06.2006, on the basis of which, the amendment Notification dt. 29.07.2006 was issued, amending the previous Notification dt. 05.08.2002 and concluded as under:- “16. It is quite clear from the minutes of the meeting dated 31-05-2006 and the Cabinet Memorandum that the Information Technology Department had sought approval for extending the incentive of exemption from the payment of CENTRAL SALES TAX for the existing and new IT industrial units only up to 31-03-2013. This is also apparent from para 3 of the minutes of the meeting that the incentive was made available approximately for a period of 5 years which however, was extended for a period of 6 years and 8 months through the proposal submitted to the Cabinet. At no stage the IT Department had sought approval for extending this benefit to those new Information Technology industrial units which were to come into production upto 31-03-2013 or till the period upto 30-11.2019 i.e. for 6 years and 8 months, as has been claimed by the appellants. There is no ambiguity in the approval sought by the Information Technology Department and it is absolutely clear from the perusal of its proposal that the incentive was to remain operative till 31-03-2013 only, even if a new Information Technology industrial unit commenced commercial production on 31-03-2013. Accordingly, the appellants who had commenced commercial production w.e.f. 31-03-2010 are entitled to the incentive of exemption from the payment of CENTRAL SALES TAX under the notification dated 29.07.2006, only up to 31-03-2013 i.e. for a period of 3 years and not up to 30-11-2016 for a period of 6 years and 8 months as has been claimed by them.”

Consideration by the Court

23) Admittedly Paras-3 & 4 of the amended notification, state as under:-

“3. The Governor is further pleased to direct that subject to compliance with the provisions of the Central Sales Tax Act, 1956, the incentives contained in para 2 of Notification No.EXN-F(9)-2/99-III(i), dated 5th August, 2002, as amended shall be available,- (i) to the existing information technology industrial units availing of such incentives under Notification No.EXN-F(9)/99-III(i), dated 5th August, 2002, for the unexpired period; (ii) to the new information technology industrial units, from the date of commencement of commercial production on or after 1st August, 2006 up to 31-3-2013. 4. The Governor is further pleased to direct that notwithstanding anything contained in para 3, the total period of incentive in any case of the “existing information technology industrial unit or the new information technology unit” shall not exceed 6 years and 8 months.”

Explanation.-For the purposes of this notification, (a) “existing information technology industrial unit” means a unit which,- (i) has already gone into commercial production before 1st August, 2006; and (ii) on 1st August, 2006 is availing the incentives notified vide Notification No.EXN-F(9)-2/99-III-(i), dated 5th August, 2002; (b) “New Information Technology industrial unit” means a unit which comes into commercial production on or after 1st August, 2005; and

(c) “unexpired period” means the balance period of incentive as on 1st August, 2006 arrived at by deducting the period of incentive availed of up to 31st July, 2006 from the total period of 6 years and 8 months specified in para 4. For instance, in case of an existing information technology industrial unit which came into commercial production on 1st August, 2003, the un- expired period of incentive shall be calculated as follows, namely:- (i) Total period of incentive

6 years 8 months

(ii) Period of incentive availed 3 years from 1st August, 2003 to 31st July, 2006.

(iii) Unexpired period of

3 years 8 months incentive as on 1st August, 2006.”

24) The amended notification also defined the expression “new Information Technology Industrial Unit” as a unit which came into commercial production on or after 01.08.2005. 25) After reading Paras-3 & 4, we are of the opinion that Para-3 is applicable for deciding which new Information Technology Industrial Units would be entitled to the benefit of exemption and it mandates that only those units which commenced commercial production on or after 01.08.2006 upto 31.03.2013 would be entitled for the incentives mentioned in the Notification dt. 05.08.2002.

26) Since the petitioners’ units commenced commercial production on 31.03.2010 (between the dates 01.08.2006 upto 31.03.2013), they would be entitled to the incentives contained in the Notification dt. 05.08.2002. 27) We are also of the opinion that para-4 over-rides para-3 in view of the non- obstante clause contained therein; and para 4 indicates the period for which incentives would be enjoyed by both existing and new Information Technology Industrial Units, as mentioned therein, i.e. that such period will not exceed 6 years and 8 months. 28) Para-3, in our opinion, does not deal at all with the period for which the incentives can be enjoyed by eligible existing and new Information Technology Industrial Units. 29) The Supreme Court in Jugalkshore Saraf vs. Raw Cotton Company Limited1 declared that the cardinal rule of construction of statutes is to read the statute literally, that is by giving to the words used by the legislature their ordinary, natural and grammatical meaning; if, however, such a reading leads to absurdity and the words are susceptible of another meaning, the Court may adopt the same. But if no such alternative construction is possible, the Court must adopt the ordinary rule of literal interpretation. 30) This was reiterated in C.W.S. (India) Ltd. vs. C.I.T.2 by the Supreme Court while interpreting the provisions of the Income Tax Act, that literal construction

1 AIR 1955 SC 376 2 1994 Supp (2) SCC 296

would be the general rule in construing taxing enactments, and only when such interpretation leads to absurd or unintended result, the language of the statute can be modified to accord with the intention of the Parliament and to avoid absurdity. 31) Similar view was also expressed in Compack (P) Ltd. vs. C.C.E.3 32) In our view, had the State intended to confine the benefit granted to New Information Technology Industrial Units only upto 31.03.2013 as is contended by the respondents the language in para-4 would have been different, and it would have stated that for such units the period of incentive is only up to 31.03.2013, but that is not the case. Para-4 specifically says that total period of incentive in case of New Information Technology Industrial Units also would not exceed 6 years and 8 months. 33) In our view the specific language used in para-4 cannot be ignored on the basis of minutes of a meeting said to have been held between the Secretary (Information Technology) to the State Government of Himachal Pradesh and the Excise & Taxation Commissioner on 31.05.2006 or the proposal placed before the Council of Ministers, as has been done by the Tribunal. 34) As held by the Constitution Bench of the Supreme Court in Hansraj Gordhandas vs. H.H. Dave Ltd.4, if the tax-payer is within the plain terms of the exemption, it cannot be denied its benefit by calling in aid any supposed

3 (2005) 8 SCC 300 4 AIR 1970 SC 755

intention of the exempting authority. If such intention can be gathered from the construction of the words of the notification or by necessary implication there from, the matter would be different, but that is not the case here. 35) Therefore, since the petitioners fall within the plain terms of the exemption granted in para-3 having commenced production on 31.03.2010, which is between 01.08.2006 and 31.03.2013 (as mentioned in para-3), they are entitled as per Para 4 for the incentive mentioned in the Notification dt. 05.08.2002 for a period not exceeding 6 years and 8 months, i.e. up to 30.11.2016. 36) This apart, Section 60 authorizes the Assessing Authority to undertake scrutiny of returns filed for any return/tax period under Section 16 (3 & 4) and to inter- alia check correctness of application and calculation of rates of tax etc. 37) The Corresponding Rule 44 requires every appropriate Assessing Authority to scrutinize every return to check mistakes, and in case of mistake of less payment, the Assessing Authority can only serve a notice upon the dealer concerned to rectify the mistake and pay the tax paid less, or inform the dealer by sending a notice within one month of completion of scrutiny, in case of excess payment. 38) In both situations, only power of the Assessing Authority is to issue notice only and it cannot pass any order of the nature done by the Assessing Authority in the instant case.

39) We are also of the view that the statutory procedure of scrutiny of returns filed to check correctness of application an calculation of rates of tax, penalty and interest, and issuance of notice enacted under Section 60(2) if a mistake is detected, read with Rule 44 (1) & (2), and the recommendation for audit under Rule 44(2) are mandatory requisites of procedure of scrutiny of returns under the Act and this fact had not been appreciated by the Tribunal. 40) Consequently, the Revision Petitions are allowed and the substantial questions of law, referred to above, are answered in favor of the assessee. It is declared that all the petitioners are entitled to Central Sales Tax exemption upto 30.11.2016. 41) No costs. 42) Pending miscellaneous application(s), if any, shall also stand disposed of.

(M.S. Ramachandra Rao)

Chief Justice

(Jyotsna Rewal Dua) October 17, 2023

Judge (Yashwant)