M/s Martin and Harris Pvt. Ltd. Naya Tola v. The State of Bihar

Judgment

3. Patna High Court MA No. 342 of 2013 dt. 13-09-2023 ====================================================== M/s Martin and Harris Pvt. Ltd., Naya Tola, P.S.- Kadam Kuan, P.O. -Bankipore, in the town and district of Patna through its Branch Manager, Sri Sanjay Kumar S/o Late Shyam Sundar Pd., resident of Naya Tola, P.S.- Kadam Kuan, P.O.-Bankipore, in the town and district of Patna. Versus ... ... Appellant/s The State of Bihar. The Commercial Taxes Tribunal, Patna Bench, Patna. Joint Commissioner of Commercial Taxes (Appeals), Central Division, Patna. ... ... Respondent/s

3. ====================================================== Appearance : (In all the Miscellaneous Appeals ) For the Appellant/s :

Mr. H.L. Tikku, Sr. Advocate Mr. M.S. Smith, Advocate Mr. Amish Kumar, Advocate Mr. Shankar Kumar Choudhary, Advocate Mr. P.K. Shahi, Sr. Advocate Mr. Vikash Kumar, Advocate For the Respondent/s : ====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE HONOURABLE MR. JUSTICE PARTHA SARTHY CAV JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE) Date : 13 -09-2023 The assessment years with which the appeals are concerned are 2001-02, 2002-03, 2003-04 and 2004-05.

2. The following questions of law were framed for consideration in the appeal :- (1) Whether the provision granting exemption has to be interpreted keeping in mind the objective and the legislative intent behind the said exemption and not by adopting the literal meaning? (2) Whether it was permissible for the Tribunal to deviate from the view taken in Patna High Court MA No. 342 of 2013 dt. 13-09-2023 the previous years and deny exemption in absence of any material change in the facts and circumstances of the appellant's case and act contrary to the law settled by the Hon'ble Supreme Court in the case reported in 193 ITR 321 (SC) followed by the Delhi High Court in 264 ITR 276 (Del)?

3. The aforesaid questions arise in the context of the exemption granted by the State Government under Section 7 of the Bihar Finance Act, 1981(for brevity ‘the Act of 1981’). Sub-section (3) of the Section 7 empowers the State Government by notification and subject to such conditions or restrictions as it may impose, to exempt sale or purchase of any goods or class of description of goods or dealers from payment of tax. The State Government has brought out a notification dated 01.09.1993, including Serial No. 29 under the Schedule of the Act of 1981, wherein ‘condoms and all types of oral contraceptives pills’ were granted exemption from payment of tax.

4. The assessee is concerned with two variants of an Intrauterine Device (for brevity, IUD) used by females for the purpose of contraception with the commercial nomenclature of ‘Multiload’. The appellant is also engaged in the sale of contraceptive pills which have been granted exemption by the tax authorities. In fact, in the earlier years the appellant was Patna High Court MA No. 342 of 2013 dt. 13-09-2023 granted exemption for the sale of Multiload also and the subsequent denial of exemption in the instant assessment year being 2001-02, without any change in circumstances, gave rise to the second question raised in the appeal. The first question has been raised insofar as the established principles for considering an exemption from tax and the relevance of the object and intention of the Legislature in granting such exemption.

5. Learned Senior Counsel Shri. H.M.Tiku appeared for the appellant and emphatically pointed out that the intention behind the exemption was population control and any contraceptive device should fall within the exemption. In the earlier assessment years, there was an exemption granted for the very same product, which was introduced in the market sometime in the year 1997, by the appellant. The Multiload used for contraception merely for the reason that it is used in females cannot be denied such exemption which would be applicable to all devices used for contraception; when the exemption itself is aimed at ensuring population control.

6. Considering the legislative intent behind the exemption, the tax authority cannot take a different view. It is also pointed out that even in the impugned order the minority Patna High Court MA No. 342 of 2013 dt. 13-09-2023 view was in favour of the appellant. As far as the change in opinion of the tax authority, declining exemption, contrary to the earlier assessment years, without any change in circumstances, the learned Senior Counsel relies on Radhasoami Satsang, Saomi Bagh, Agra v. CIT, (1992) 1 SCC 659, Commissioner of Income-Tax v. A.R.J. Security Printers, (2003) 264 ITR 276 (Delhi), and Prem Kumar Chopra v. Assistant Commissioner of Income Tax, Circle 46(1) and Ors. [2023] 456 ITR (Delhi). It is argued that consistency as has been held by the Delhi High Court is an antidote to the vice of arbitrariness and if there are not sufficient reasons to deviate from a decision taken by the coordinate authorities, then it would suffer from the vice of arbitrariness.

7. CCE v. Parle Exports (P) Ltd., (1989) 1 SCC 345, is relied on to contend that an exemption has to be looked at in accordance with the purpose and provisions of the Act and when there are two views possible, the authority should lean in favour of the assessee and also in the context of difference of opinion from the earlier years, the benefit should go to the subject. For further buttressing the contention of purposive interpretation reliance is placed on Abhiram Singh v. C.D. Commachen, (2017) 2 SCC 629 and Commr. of Customs v. Patna High Court MA No. 342 of 2013 dt. 13-09-2023 Dilip Kumar & Co., (2018) 9 SCC 1.

8. The learned Advocate General Shri. P.K. Shahi appearing for the State cautions this Court from transgressing beyond the scope and ambit of the words employed in the exemption notification. An exemption notification as has been held by the Hon’ble Supreme Court has to be construed very strictly and only if, the subjects fall under it would the benefit of exemption be conferred. In the present case the contraceptive pills sold by the assessee has been granted exemption and in the earlier years the Assessing Officers had erroneously granted exemption to the assessee for the device used by females for contraception; which was not included in the exemption notification. The submission of the learned Senior Counsel of the assessee that the product was introduced in 1997, would put to peril the argument raised of purposive interpretation based on the intent of the Legislature in granting exemption. The particular device used by females was never in the contemplation of the Legislature at the time when the notification was issued and exemption was restricted to condoms and oral contraceptive pills; invoking the power under the Act of 1981.

9. Every contraceptive device introduced later to Patna High Court MA No. 342 of 2013 dt. 13-09-2023 the exemption notification cannot be granted the benefit of exemption unless it falls under either the description of a condom or a contraceptive pill. In understanding the words employed; dictionary meaning and purposive interpretation should be adopted only when there is an anomaly in the words employed and if it is clear and specific there is no reason to resort to aids of interpretation. Condoms and oral contraceptive pills are a class apart from the device sold by the appellant is the forceful contention. Reliance is also placed on Dilip Kumar (supra) to contend that a very strict interpretation has to be given to an exemption notification.

10. We have to first look at the decisions placed before us. In Radhasoami Satsang Saomi Bagh (supra), questions came up regarding the nature & character of the assessee to decide on the exemption claimed under Section 11 and 12 of the Income tax Act, 1961. The refund applications of the assessee were accepted by the Department in various years and in the relevant assessment years, for the first time refund was not allowed, treating the assessee as an Association of Persons and not a trust, entitled to exemption. The specific contention raised by the assessee was that in the absence of any change in circumstances, the Revenue should have felt bound by Patna High Court MA No. 342 of 2013 dt. 13-09-2023 the previous decisions and no attempt should have been made to reopen the question. The Hon’ble Supreme Court after reiterating the principle that res judicata does not strictly apply to income-tax proceedings, held that when a fundamental aspect permeating through the different assessment years has been found as a fact, one way or the other, and the parties were allowed to maintain the same position, it would not be appropriate to allow the position to be changed in a subsequent year. If there is no material change justifying the Revenue to take a different view, then there is no reason why the question should be reopened and a contrary decision taken from that taken in the earlier years. We have to specifically notice that the question raised was exemption, with respect to the nature and constitution of the assessee. The authorities had over the years found the assessee to be entitled to an exemption and there has been no change in circumstances; in the nature of the activities carried on by the trust or in its constitution, which led to the said dictum being laid down. As is trite there can be no dictum, completely divorced from the facts.

11. The decision in A.R.J. Security Printers (supra) by the Delhi High Court, was also on whether the printing of lottery tickets, can be said to be an industrial undertaking Patna High Court MA No. 342 of 2013 dt. 13-09-2023 entitled to a deduction under Section 80-I of the Act, which again is on the aspect of the nature of the industry carried on. Prem Kumar Chopra (supra) was a decision in which two inconsistent decisions on the same subject matter were passed for the successive years which fact is distinct from the present case and will not be applicable, herein.

12. Herein, the question raised is of the interpretation of the specific words employed in the exemption notification. The principle which would be applicable is that every assessment year gives rise to a separate cause of action. When a patently erroneous decision has been taken, based on a wrong interpretation of the words employed in the notification, in the earlier years, there could be no review of the same in those relevant years, especially since that would result in a mere change of opinion. However, when assessment proceedings are taken up in a subsequent assessment year, the Assessing Officer is entitled to give his own interpretation to the words employed in the exemption notification, which if found to be correct and the earlier interpretation wrong, it cannot be set at naught merely on the ground that the Department had erroneously allowed the exemption in the earlier years, contrary to the plain meaning coming out of the words employed in the notification Patna High Court MA No. 342 of 2013 dt. 13-09-2023 by the Legislature. There is then, no cause to ferret out the intention of the Legislature, to read into the words employed, those things that would apparently not be included.

13. Parle Exports (P) Ltd. (supra) considered the question whether the non-alcoholic beverages manufactured by the assessee should be included under the exemption granted to ‘food products and food preparations’. We specifically refer to paragraph 20 and extract the same hereunder :- “20. The question of interpretation involves determining the meaning of a text contained in one or more documents. Judges are often criticised for being tied too closely to the statutory words and for failing to give effect to the intention of the Parliament or the lawmaker. Such language, it has been said, in Cross's “Statutory Interpretation” (Second Edn.) at page 21, appears to suggest that there are two units of enquiry in statutory interpretation — the statutory text and the intention of the Parliament — and the Judge must seek to harmonise the two. This, however, is not correct. According to the tradition of our law, primacy is to be given to the text in which the intention of the law-giver has been expressed. Cross refers to 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 either the words, the context, the subject-matter, the effects and consequences, or the spirit and reason of the law. We have no doubt, in our opinion, that having regard to the language used it would not be in consonance with the spirit and the reason of law to give exemption for non-alcoholic beverage bases under the notification in question. Bearing the aforesaid purpose, in our opinion, it cannot be contended that expensive items like Gold-Spot base, Limca-base or Thums up - Patna High Court MA No. 342 of 2013 dt. 13-09-2023 base were intended to be given exemption at the cost of public exchequer.” (Emphasis by underlining, supplied by us)

14. We emphasize the declaration made by the Hon’ble Supreme Court that having regard to the language used in the exemption notification, it would not be in consonance with the spirit and the reason of law to give exemption to non- alcoholic beverage bases, under the notification in question. It has to be observed that the said finding was rendered after noticing the well settled principle that when two views regarding a notification are possible, it should be construed in favour of the subject. However, when there is an exception to the general rule of taxation, it has to be construed strictly against those who invoke its benefit, but once the assessee or the goods fall under the exemption, there should be a liberal interpretation; ensuring that no violence is done to the language employed and that this does not result in an absurd construction of the exemption notification.

15. Dilip Kumar and Company (supra) relied on by both parties, puts into proper prospective, the principles of interpretation of statutes and that of exceptions to the taxing statute, after dealing with a number of precedents. The issue referred to the Constitution Bench was as to the interpretative Patna High Court MA No. 342 of 2013 dt. 13-09-2023 rule to be applied, while interpreting a tax exemption; provisions/notifications when there is an ambiguity as to its applicability, with reference to the entitlement of the assessee or the rate of tax to be applied. The referring Bench doubted the correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564. In the said decision, a three-Judge Bench ruled that ambiguity in a tax exemption provision or notification must be always interpreted to favour the assessee, claiming the benefit of exemption. The decision in Collector and Customs and Central Excise, Guntur and Ors v. Surendra Cotton Oil Mills and Fertilizers Co. And Ors. (2001) 1 SCC 578, regarding the interpretation of an exemption notification was quoted with approval, in the matter of interpretation of charging section of a taxation statue. It was reiterated that the strict rule of interpretation is mandatory and if there are two views possible in the matter of interpretation of a charging section, the one favourable to the assessee need to be applied. However, it was noticed that there is some confusion regarding the matter of interpretation of an exemption notification published under the taxation statute; which was held to be quite distinct and different from interpreting a taxing provision. Patna High Court MA No. 342 of 2013 dt. 13-09-2023

16. While emphasizing the need to construe a statute strictly by its literal or plain meaning, it was held that the contextual or purposive interpretation cannot be applied nor any resort be made to look to other supporting material, even in a taxation statute; where there is no room for any intendment. Copiously referring to the various authorities, it was categorically stated that there exists ‘unsatisfactory state of law’ in relation to interpretation of exemption clauses. On the one hand, while ambiguity in the taxing statute should inure to the benefit of the subject/assessee, any ambiguity in the exemption clause in a notification should lean in favour of the revenue; unless the assessee clearly demonstrates that it squarely falls within the parameters enumerated in the exemption notification and satisfies all the conditions precedent, for availing such exemption.

17. The declaration in Sun Export Corporation (supra), that the ambiguity in an exemption notification should be interpreted in favour of the assessee was held to be contrary to the binding precedents on the subject. Novopan India Ltd. v. Collector of Central Excise and Customs, (1994) Supp (3) SCC 606, a three-Judge Bench decision was extracted from. It was held: “The principle that in case of ambiguity, a taxing Patna High Court MA No. 342 of 2013 dt. 13-09-2023 statute should be construed in favour of the assessee — assuming that the said principle is good and sound — does not apply to the construction of an exception or an exempting provision, they have to be construed strictly. A person invoking an exception or an exemption provision to relieve him of the tax liability must establish clearly that he is covered by the said provision. In case of doubt or ambiguity, benefit of it must go to the State.” The reference was answered holding as under in paragraph 66:- “66.1. Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.

66.2. When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the Revenue.