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2010 DIGILAW 3330 (ALL)

HINDUSTAN LEVER LIMITED v. STATE OF U. P.

2010-10-27

AMITAVA LALA, PANKAJ MITHAL, RAJES KUMAR

body2010
JUDGMENT Hon’ble Rajes Kumar, J.—In all the above writ petitions, a common issue is involved. The Writ Petition No. 1664 of 2004, M/s Hindustan Lever Limited v. State of U.P. and others, is treated as the leading case and for the purposes of the decision the facts of only the leading case are being referred herein below. 2. The petitioner M/s Hindustan Lever Limited is a Public Limited Company incorporated under the Indian Companies Act, established a unit at Orai for the manufacture of toilet soap, fatty acid, etc. The unit had undergone expansion by making an additional investment of more than Rupees 50 crores. 3. The petitioner filed an application on 14.8.1997 under Section 4-A of the U.P. Trade Tax Act (hereinafter referred to as “Act”) in the prescribed Form 46 under Rule 25 of the U.P. Trade Tax Rules (hereinafter referred to as “Rules”) for grant of benefit of expansion under the Notification No. 640 dated 21.2.1997. 4. The Divisional Level Committee granted eligibility certificate on 30.11.1998. The eligibility certificate granted the benefit of exemption from tax in respect of toilet soap under the expansion Scheme while in respect of fatty acid exemption from tax was granted under the diversification Scheme. 5. The exemption from tax under the expansion Scheme was granted for the period of 27.2.1995 to 26.2.2010 or to the extent of Rs. 68,41,51,230/- whichever is earlier on the turn over of toilet soap and under the diversification Scheme the exemption from tax on the fatty acid was granted from 1995 to 26.2.2010. 6. In the present case we are concern with the exemption under the Expansion Scheme. 7. Under the expansion Scheme exemption from tax was available under Section 4-A of the Act on the production in excess of the base production which was to be determined in accordance to the Notification dated 21.2.1997. Under Section 4-A of the Act and the notification, base production is defined as the maximum production of one assessment year of preceding five consecutive assessment years or 80% of the annual production capacity whichever is higher. In the case of petitioner, the base production was determined at 35,658 metric tonnes for which there is no dispute. 8. During the course of assessment proceedings for the year 1999-2000 and 2000-01 the petitioner claimed exemption from tax on the quantity of the production in excess of the base production. In the case of petitioner, the base production was determined at 35,658 metric tonnes for which there is no dispute. 8. During the course of assessment proceedings for the year 1999-2000 and 2000-01 the petitioner claimed exemption from tax on the quantity of the production in excess of the base production. It appears that the petitioner had sold its manufactured product inside the State of U.P. as well as out side U.P. and had also transferred the goods outside the State of U.P. by way of stock transfer and by consignment sale. It may be mentioned here that the stock transfer/consignment transactions are not liable to tax under the State Act as well as under the Central Sales Tax Act (hereinafter referred to as the “Central Act”) as they do not fall within the purview of sale. 9. The assessing authority was of the view that the petitioner was liable to tax on the turnover of the quantity of the base production and was entitled for the exemption only on the quantity over and above the production in excess of the base production and the goods transferred by way of stock transfer and by consignment sale would not be included in the base production. With the aforesaid view the assessing authority calculated the quantity and the turnover of exemption. 10. Being aggrieved by aforesaid view of the assessing authority the petitioner filed the present writ petition. The writ petition was entertained and an interim order was granted in the year 2004. 11. During the pendency of the aforesaid writ petition, the Writ Petition No. 278 (Tax) of 2004, Ambika Steel Private Limited v. State of U.P. and others, came up for consideration before a Division Bench involving similar issue. The said writ petition was decided on 28.9.2007 wherein it has been held that stock transfer and branch transfer are not included in the “turnover of sales” under the notification and the contention of the assessee that the “turnover of sales” used in the notification do include stock transfer and transfer of goods from one branch to another cannot be accepted. The object of the State Government in issuing these notifications is to tax the base production and realise Trade Tax and the Central Sales Tax thereon as the case may be and by way of incentive grant exemption from or rate of reduction in tax on the excess production beyond the base production. In effect, it has been held that exemption under Section 4-A of the Act is applicable with reference to “turnover of sales” and does not include despatches of goods outside the State of U.P. and, therefore, exemption in trade tax is applicable only to such excess production beyond the base production which does not include stock transfer or consignment sale. The aforesaid decision has been followed by another Division Bench in Writ Petition No. 1715 (Tax) of 2007, M/s IFFCO Ltd. v. State of U.P. and others, decided on 16.12.2007. The decision of the Apex Court in the case of Commissioner of Trade Tax, U.P. v. Modipan Fibres Co., 2006 (6) SCC 577 , was considered. 12. The Division Bench did not agree with the view taken by the Division Bench in the case of Ambika Steel Private Limited v. State of U.P. and others (Supra) and M/s IFFCO Ltd. v. State of U.P. and others (Supra) and referred the matter to the larger Bench for consideration of the following question: “Whether the view taken by the Division Benches of this Court in Ambika Steels (Supra) and IFFCO’s Case (Supra) with regard to the interpretation of clauses 1 (B) and 7 (a) and 7 (b) of the notification dated 31.3.1995 is in conflict with the decision of the Supreme Court in Modipan Fibres (Supra), and consequently requires reconsideration? 13. We have heard Sri C.S. Lodha, and Sri Bharat Ji Agrawal, Senior Advocates appearing on behalf of the petitioner in the leading case and Sri S.P. Kesarwani, learned Additional Chief Standing Counsel for the respondents. The counsel for the petitioners in other cases have adopted the arguments of the above two Senior Advocates. Legislative History / Relevant Provisions 14. With a view to increase the production of the goods and to promote the industries, State of U.P. granted exemption to the new units established after 1st October, 1982 by the Government Order dated 30.9.1982. The counsel for the petitioners in other cases have adopted the arguments of the above two Senior Advocates. Legislative History / Relevant Provisions 14. With a view to increase the production of the goods and to promote the industries, State of U.P. granted exemption to the new units established after 1st October, 1982 by the Government Order dated 30.9.1982. Subsequently, Section 4-A of the Act was amended by the U.P. Ordinance No. 46 of 1983 which was replaced by U.P. Ordinance No. 5 of 1984 and finally by Act No. 22 of 1984 granting exemption to the new units established after 1.10.1982 upto 31st March, 1990 and under the aforesaid provisions, the notifications have been issued time to time. 15. Section 4-A of the Act has undergone to a major change by Act No. 28 of 1991. Initially an amendment was made by Ordinance but subsequently it has been finally made by Act No. 28 of 1991. The amended Section 4-A of the Act provided exemption to the new units as well as to the existing units undertaking expansion, diversification or modernization and for this purposes the notifications have been issued. The first notification was notification No. 1093 dated 27.7.1991 granting certain exemption to such unit which has undertaken expansion, diversification or modernization on or after 1st April, 1990 but not later than March 31st, 1995. This was followed by notification No. 780 dated 31st March, 1995. By this notification the benefit under Section 4-A of the Act was conferred on such units which have undertaken expansion, diversification or modernization on or after 1st of April, 1995 but not later than 31st of March, 2000 in the areas mentioned in column-2 of Annexure-1 of the notification. The latest notification is dated 21st of February, 1997 being notification No. 640. It provides besides other things that an unit making additional fixed capital investment of Rs. 50 crores or more in expansion, diversification or modernization, backward integration was entitled to exemption or reduction in rate of tax on the fulfilment of the conditions specified therein. 16. It would be appropriate to refer the extract of the relevant provisions and notifications for adjudication of the issue: Section 4-A. Exemption from trade tax in certain cases. 50 crores or more in expansion, diversification or modernization, backward integration was entitled to exemption or reduction in rate of tax on the fulfilment of the conditions specified therein. 16. It would be appropriate to refer the extract of the relevant provisions and notifications for adjudication of the issue: Section 4-A. Exemption from trade tax in certain cases. “(1) Notwithstanding anything contained in any other provisions except the provisions of Section 3-H of this Act, where the State Government is of the opinion that it is necessary so to do for increasing the production of any goods or for promoting the development of any industry in the State generally or in any districts or parts of districts in particular, it may on application or otherwise, in any particular case or generally, by notification, declare that the turnover of sales in respect of such goods by the manufacturer thereof shall, during such period not exceeding fifteen years from such date on or after the date of starting production as may be specified by the State Government in such notification which may be the date of the notification or a date prior or subsequent to the date of such notification and where no date is so specified from the date of first sale by such manufacturer, if such sale takes place within six months from the date of starting production and in any other case from the date following the expiration of six months from the date of starting production, and subject to such conditions as may be specified, be exempt from trade tax on sale of goods whether wholly or partly or be liable to tax at such reduced rate as it may fix: Provided that in respect of goods manufactured in a new unit having a fixed capital investment of five crore rupees or more or in an existing unit which may make fixed capital investment of five crore rupees or more in expansion, diversification, modernization and backward integration or in any one of them, within such period not exceeding five years as may be specified in the notification, the exemption from or reduction in the rate of tax may be granted. (2) It shall be lawful for the State Government to specify in the notification under sub-section (1) that the exemption from, or reduction in the rate of tax, shall be admissible- (a) generally in respect of all such goods manufactured subsequent to the date of such notification: or (b) in respect of such of those goods only as are manufactured in a new unit the date of starting production whereof falls on or after the first day of October, 1982: or and in either case (bb) in respect of those finished goods which are manufactured in a unit which has undertaken backward integration; or (c) in respect of those goods or which are manufactured in a unit which has undertaken expansion, diversification or modernization on or April 1, 1990 and which in the case of diversification, are different from the goods manufactured before diversification, and in the case of expansion or modernization are additional production as a result of such expansion or modernization: and (d) only if the manufacturer furnishes to the assessing authority an Eligibility Certificate granted by such officer, in accordance with such procedure as may be specified. (e) ......................................... (2-A) ...................................... (2-B) ...................................... (3) ......................................... (4) ......................................... (e) ......................................... (2-A) ...................................... (2-B) ...................................... (3) ......................................... (4) ......................................... (5) A manufacturer shall be entitled to the facility of exemption from, or reduction in the rate of tax, notified under sub-section (1),- (a) if he applies for such facility within six months from the relevant date of commencement of the period of facility referred to in that sub-section or within six months from the date of notification issued under that sub-section or by September 30, 1992 whichever expires later, for the entire period notified under that sub-section; (b) if he applies for such facility later than the date specified in clause (a) only for a part of the period notified under sub-section (1), which shall be computed from the date of the application and not from the relevant date of commencement of the period of facility referred to in sub-section (1) till the end of the period of facility; (c) in relation to a new unit referred to in explanation (1), where the conditions specified in clauses (a) to (d) of the said Explanation (1) are fulfilled on a date later than the date of commencement of the period of facility notified under sub-section (1), then subject to the provisions of clause (b), only for part of the period, notified under sub-section (1), which shall be computed from the date on which all the conditions referred to in the said clauses (a) to (d) have been fulfilled on July 20, 1992 whichever is later till the end of the period of such facility, so, however, that a manufacturer who was eligible for such facility under clause (c) as it stood prior to July 20, 1992 and had applied for the facility prior to the said date shall be entitled to the facility in accordance with the said clause (c) ; (d) in relation to a new unit manufacturing same goods established on or adjacent to the site of an existing factory or workshop by a person who has interest in the existing factory or workshop as proprietor or partner or agent or managing director or promote-director or as holding company or subsidiary, if the production of the existing factory or workshop is not less than the base production. Provided that if the production of the existing factory or workshop falls short of the base production the turnover of the sale of the new unit to the extent of the quantity covered by such short fall from base production shall be liable to tax. Explanation.— .................................................. (6)................................................ Explanation ................................................ (1) ................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... (e) ................................................................... (i) ................................................................... (ii) ................................................................... ....................................................................... (i) ................................................................... (ii) ................................................................... ....................................................................... (i) ................................................................... (ii) ................................................................... (iii) ................................................................... (iv) ................................................................... (2) ................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... (3) ................................................................... (a) ................................................................... (b) ................................................................... (4) ................................................................... (a) ................................................................... (i) ................................................................... (ii) ................................................................... (iii) ................................................................... (iv) ................................................................... (v) ................................................................... (b) ................................................................... (i) ................................................................... (ii) ................................................................... (iii) .................................................................. (c) ................................................................... (d) ................................................................... (e) ................................................................... (5) “Unit which has undertaken expansion, diversification or modernization” means an industrial undertaking— (a) of a dealer who is not a defaulter in payment of any dues under this Act or the Central Sales Tax Act, 1956 or under any loan scheme administered the Pradeshiya Industrial and Investment Corporation of Uttar Pradesh regarding trade tax on sale or purchase of goods; (b) whose first date of production of goods,- (i) of a nature different from those manufactured earlier by such undertaking in case of units undertaking diversification, and (ii) manufactured in excess of base production in such undertaking in case of units undertaking expansion or modernization, falls at any time after March 31, 1990. (c) the production capacity whereof except as provided in the proviso to sub-section (1) has increased by at least twenty five per cent, as a result of expansion or modernization, or wherein goods of a nature different from these manufactured earlier are manufactured after diversification; (d) wherein an additional fixed capital investment of at least twenty five per cent, of such original fixed capital investment (without providing for depreciation) is made. (e) which has been established within the same district in which the existing industrial unit is established (6) for the purposes of this section, the expression “base production” means. (e) which has been established within the same district in which the existing industrial unit is established (6) for the purposes of this section, the expression “base production” means. (a) eighty per cent of the installed annual production capacity; or (b) maximum production achieved during any one of the preceding five consecutive assessment years or if the unit were in production for less than five years, the maximum production achieved during any one of the preceding assessment years, whichever is higher: Provided that where a unit manufacturing more than one goods has not undertaken expansion or modernization in respect of all such goods, its base production will be determined on the basis of production of goods in respect of which expansion or modernization has been undertaken: Provided further that where investment made during certain period is clubbed together for the purpose of determining the fixed capital investment, the production immediately prior to the date on which such investment was first started to be made in respect of expansion or modernization shall be taken in to account for determining the base production. Notification No. ST-II-1093/XI-7 (42)-86-U.P. Act-XV/48-Order-91, dated 27.7.1991 “WHEREAS the State Government is of the opinion that for promoting the development of certain industries in the State, it is necessary to grant exemption from or reduction in rate of tax to new units and also to units which have undertaken expansion, diversification or modernization; NOW, THEREFORE, in exercise of the powers under Section 4-A of the Uttar Pradesh Sales Tax Act, 1948 (U.P. Act No. XV of 1948), hereinafter referred to as the ‘Act’ the Governor is pleased to declare that : 1(A).............. (B) (1). (B) (1). in respect of any goods manufactured in a unit other than the units of the type mentioned in Annexure II, which ‘has undertaken expansion, diversification or modernization’ on or after April 1, 1990 but not later than March, 31, 1995, in the areas mentioned in Column 2 of Annexure I, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates specified in Column 4 of Annexure I, by the manufacturer thereof for the period in Column 3 of the said Annexure I, or till the maximum amount of tax relief by such exemption from or reduction in rate of tax as specified in Column 5 of Annexure I is achieved, whichever is earlier, on the turnover of sales: (a) of the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernization; and (b) of goods manufactured by the unit which are of a nature different from those manufactured earlier by such unit in the case of units undertaking diversification. (2) the period of such facility shall be reckoned from the first date of production : (i) of goods of a nature different from those manufactured earlier by such unit in case of diversification: and (ii) of goods manufactured in excess of the base production in the case of units undertaking expansion or modernization. 2. ................................................................... (i) ................................................................... (ii) .................................................................. (iii) ................................................................. (iv) ................................................................. 3. ................................................................... (a) .................................................................. (b) .................................................................. (c) .................................................................. 4. ................................................................... 5. Base production of unit undertaking expansion or modernization shall be deemed to be- (a) maximum production achieved during any one of the preceding five consecutive assessment years, or (b) 80 per cent of the installed annual production capacity, whichever is higher. 6.(a) Turnover of sale of goods in any assessment year to the extent of the quantity covered by production of that year and the stock of base production of previous years shall be deemed to be the turnover of base production. (b) Only the turnover of goods in any assessment year in excess of the quantity referred to in clause (a) shall be entitled to the facility of exemption from or reduction in the rate of tax. Notification N0. (b) Only the turnover of goods in any assessment year in excess of the quantity referred to in clause (a) shall be entitled to the facility of exemption from or reduction in the rate of tax. Notification N0. TT-2-780/XI-9(226)/94-U.P. Act-15/48- Order-95, dated 31.3.1995 WHEREAS, the State Government is of the opinion that for promoting the development of certain industries in the State, it is necessary to grant exemption from or reduction in rate of tax to new units and also to units which have undertaken expansion, diversification, modernization or backward integration; 1(A)................................................ 1(B) in respect of any goods manufactured in a unit, other than the units of the type mentioned in Annexure II, which has undertaken ‘expansion, diversification or modernization’ on or after April 1, 1995 but not later than March 31, 2000 in the areas mentioned in column 2 of Annexure I, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates specified in column 4 of Annexure-I, by the manufacturer thereof for the period specified in column 3 of the Annexure I, or till the maximum amount of rate relief by such exemption from or reduction in rate of tax as specified in column 5 of Annexure I is achieved, whichever is earlier, on the turnover of sales: (a) of the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernization; and (b) of goods manufactured by the unit which are of a nature different from those manufactured earlier by such unit in the case of units undertaking diversification. 1 (C) ................................................................ 2. .................................................................... (i) ................................................................... (ii) ................................................................... 3. .................................................................... (i) ................................................................... (ii) ................................................................... (iii) .................................................................. 4. ................................................................... (i) ................................................................... (ii) ................................................................... (ii) ................................................................... (iv) ................................................................... 5. .................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... 6. .................................................................... 7.(a) turnover of sale of goods in any assessment year to the extent of the quantity covered by base production of that year and the stock of base production of previous years shall be deemed to be the turnover of base production; (b) only the turnover of goods in any assessment year in excess of the quantity referred to in clause (a) shall be entitled to the facility of exemption from or reduction in the rate of tax. NOTIFICATION MISCELLANEOUS No. TT-2-640/94-Act-15-48-Order-97 dated February 21, 1997 (460) WHEREAS the State Government is of the opinion that it is necessary for increasing the production of certain goods in the State, manufactured by industrial units, having a fixed capital investment of rupees fifty crore or more as new units, or making an additional fixed capital investment of rupees fifty crore or more in expansion, modernization, diversification or backward integration, to grant exemption from or reduction in rate of tax to such units; Now, therefore, in exercise of the powers under Section 4-A of the Uttar Pradesh Trade Tax Act, 1998 (U.P. Act No. XV of 1948), hereinafter referred to as the Act, the Governor is pleased to declare that : (a) in response of goods manufactured in a new established in the areas mentioned in column -2 of the Annexure the date of the starting production whereof falls on or after December 1, 1994 but not later than March 31, 2000, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates by the manufacturer thereof on the turnover of sales of such goods for the period of twelve years or till the maximum amount of tax relief by such exemption from, or reduction in the rate of tax as specified in column-3 of the Annexure is achieved, whichever is earlier. The period shall be reckoned from the date of the first sale or the date following the expiration of six months from the date of starting production, whichever is earlier; (b) In respect of goods manufactured in a unit which has undertaken expansion, modernization or diversification on or after December 1, 1994 but not later than March 31, 2000, in the areas mentioned in column-2 of the Annexure, no tax shall be payable or, as the case may be, the tax shall be payable at a reduced rate by the manufacturer thereof for the period of twelve years or till the maximum amount of tax relief by such exemption from, or reduction in rate of tax as specified in column-3 of the Annexure is achieved, whichever is earlier, on the turnover of sales— (i) of the quantity of goods, manufactured in excess of the base production in the case of unit undertaking expansion or modernization; and (ii) of goods manufactured by the unit which are of a nature different from these manufactured earlier by such unit in the case of unit undertaking diversification. (c) ................................................................... 2. ................................................................... 3. .................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... (d) ................................................................... (e) ................................................................... (f) ................................................................... (g) ................................................................... (h) ................................................................... (i) ................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... (i) ................................................................... 4. .................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... 5. .................................................................... (a) ................................................................... (b) ................................................................... (c) ................................................................... 6. .................................................................... 7 (1) Turnover of sale of goods in any assessment year to the extent of the quantity covered by base production of that year and the stock of base production of previous years shall be deemed to be the turnover of base production. (2) Only the turnover of goods in any assessment year in excess of the quantity referred to in sub-para (1) shall be entitled to the facility of exemption from, or reduction in the rate of tax.” SUBMISSIONS 17. Learned counsel for the petitioner submitted that the object of Section 4-A of the Act and the notification issued thereunder is to increase the production and to promote the development of industries in the State of U.P. 18. The exemption is on the turnover of the quantity of the goods produced with reference to capital investment. In case of expansion, exemption is available on the quantity of production in excess of base production. Clause (b) of the notification dated 21.2.1997 provides exemption. The exemption is on the turnover of the quantity of the goods produced with reference to capital investment. In case of expansion, exemption is available on the quantity of production in excess of base production. Clause (b) of the notification dated 21.2.1997 provides exemption. Clause (b) (i) and Clauses 7(a) and (b) are to be read together and if they are read together it is clear that it entitles the exemption on the turnover of the “quantity” of the goods in excess of the quantity referred to in clause 7(a) which is the quantity in excess of the base production and stock of base production of the previous years. 19. Reliance has been placed on the principle laid down by the Apex Court in the case of Modipan Fibres (Supra), which has been followed in the case of Commissioner of Trade Tax, U.P. v. M/s Malviya Chemical and Pharmaceutical Private Limited, Ghaziabad, (2008) 1 SCC 275 . 20. In the case of Ambika Steel Private Limited v. State of U.P. and others (Supra), the Division Bench has wrongly observed that the object of the State Government by issuing these notifications is to tax the ‘base production’ and realize Trade Tax and the Central Sales Tax thereon as the case may be and by way of incentive grant exemption from tax or reduction in rate of tax on the excess production beyond the ‘base production’. The Division Bench in the case of Ambika Steel Private Limited v. State of U.P. and others (Supra) has wrongly held that the stock transfer and branch transfer are not included in the base production. 21. Sri S.P. Kesarwani, learned Additional Chief Standing Counsel submitted that the exemption under Section 4-A of the Act can only be granted on a strict compliance of the conditions mentioned therein. He submitted that the object of the State is to levy tax and augment the revenue. The scheme of granting exemption to the unit undergone expansion is that the unit must pay the tax on the quantity of base production and get the exemption only on the turnover of the quantity in excess of the base production. Clauses 7(a) and (b) speak about the turnover of sales of goods. Stock transfer does not fall within the purview of turnover of sales of goods. Clauses 7(a) and (b) speak about the turnover of sales of goods. Stock transfer does not fall within the purview of turnover of sales of goods. He submitted that the issue involved in Modipan Fibres (Supra) and Commissioner of Trade Tax, U.P. v. M/s Malviya Chemical and Pharmaceutical Private Limited, Ghaziabad (Supra) was entirely different than the facts and issue involved in the present case. In the said case the issue involved was whether the production in excess of the base production is to be computed with the reference to the entire assessment year or not, while in the present case the dispute is whether the “base production” includes the stock transfer/consignment transaction. He submitted that the observation of the Apex Court in the case of Modipan Fibres (Supra), namely, a conjoint reading of Clauses (1-B) (a), Clause 6(2) & (b) makes it clear that the dealer is entitled to claim exemption in respect of the turnover of sale of goods of an assessment year of the base production and further, the exemption is to be given on the turnover of sale of goods in an assessment year in excess of the base production, are to be read in the light of the issue involved and cannot be taken as a precedent laying down the law for the purposes of the present case. He placed more emphasis on the wording of Clause 7 (a) & (b) of the notification that the turnover of the goods in excess of quantity referred to in Clause (a) is entitled for the facility of the exemption. Clause (a) provides turnover of sale of goods to the extent of the quantity covered by the base production of that year and the stock of base production of previous years. According to him, only that quantity of base production which is covered by the turnover of sale, shall be considered as the quantity for the purposes of granting exemption under Clause 7(b) of the notification and the Division Bench in the case of Ambika Steel Private Limited v. State of U.P. and others (Supra) and in the case of M/s IFFCO Ltd. v. State of U.P. and others, laid down the correct law. DECISION 22. DECISION 22. A bare perusal of Section 4-A of the Act shows that it has been introduced with a view to increase production of the goods and for promoting the development of industries and with this view exemption has been provided to the new unit and to the existing unit undergone expansion, diversification or modernization. 23. The object of Section 4-A of the Act has been considered by the Apex Court in the case of Commissioner of Sales Tax v. Industrial Coal Enterprises, (1999) 2 SCC 607 , the Apex Court has held that Section 4-A of the Act provides exemption from tax for the purposes of encouraging “production of goods” and promoting development of industry. The construction should be reasonable and purposive and should be liberally construed. 24. In the case of Bajaj Tempo Ltd. Bombay v. Commissioner of Income Tax, Bombay City-III, Bombay, (1992) 3 SCC 78 , the Apex Court has held that a provision in taxing Statute granting incentives for promoting growth and development should be construed liberally. A provision intending for promoting economic growth has to be interpreted liberally and the object for granting the exemption should not be defeated. 25. In Commissioner of Income Tax, Amritsar v. Straw Board Manufacturing Co. Ltd., 1989 Supp (2) SCC 523, the Apex Court has observed that it is necessary to remember that when a provision is made in context of law providing for concessional rate of tax for the purpose of encouraging an industrial activity, a liberal construction should be put upon language of the Statute. 26. In the case of State of Punjab v. Punjab Fibres Ltd., 2004 AIR SCW 6988, dealing with the similar nature of the notification it has been held that party must strictly comply with the conditions of the notification. This situation is not available in the present case as it is not the case that the condition of the notification has not been complied with. 27. It is true that the facts and the issue involved in the case of Modipan Fibres (Supra) and Commissioner of Trade Tax, U.P. v. M/s Malviya Chemical and Pharmaceutical Private Limited, Ghaziabad (Supra) were different than the facts and issue involved in the present case but undoubtedly the Apex Court has examined the language of the notification in these cases. It is true that the facts and the issue involved in the case of Modipan Fibres (Supra) and Commissioner of Trade Tax, U.P. v. M/s Malviya Chemical and Pharmaceutical Private Limited, Ghaziabad (Supra) were different than the facts and issue involved in the present case but undoubtedly the Apex Court has examined the language of the notification in these cases. The clause 1(B) (a), clauses (6) (a) and (b) of Notification No. 1093 dated 27.7.1991 (which are similar to clause (b) and 7 (a) & clause 7(b) of the notification No. 780 dated 31.3.1995 and notification No. 640 dated 21.2.1997 were under consideration. On the consideration of the aforesaid clauses, the Apex Court observed as follows: “A conjoint reading of Clauses (1-B) (a), Clause 6(2) & (b) makes it clear that the dealer is entitled to claim exemption in respect of the turnover of sale of goods of an assessment year of the base production” and further “exemption is to be given on the turnover of sale of goods in an assessment year in excess of the base production.” 28. The aforesaid observation of the Apex Court is the interpretation of clause (1-B) (a), clauses 6 (a) & (b) which amounts to laying down the law and, therefore, is binding upon this Court under Article 141 of the Constitution of India. 29. Section 4-A (5) of the Act defines “unit” undergone for expansion, eligible for exemption. It says that “unit” means an industrial undertaking manufactured in excess of base production in such undertaking in case of unit undertaking expansion or modernization falls at any time after March, 1990. Clause (b) of the notification dated 27.2.1997 says that no tax shall be payable on the turnover of sales of the quantity of the goods, manufactured in excess of the base production in case of unit undertaking expansion or modernization. Clause 7 (2) also refers to the turnover of the goods in excess of the “quantity” referred in sub-para-1. Sub-para-1 says about the “quantity” covered by base production and the stock of the base production of the previous years. Therefore, if clause (b) and clauses 7 (1) and (2) of the notification are read together it leads to, that the exemption under the notification is available on the “quantity” in excess of base production plus the quantity of the stock of base production of the previous years. Therefore, if clause (b) and clauses 7 (1) and (2) of the notification are read together it leads to, that the exemption under the notification is available on the “quantity” in excess of base production plus the quantity of the stock of base production of the previous years. The quantity of base production and quantity of the goods manufactured in excess of the base production is only relevant for the purposes of the exemption. The turnover of the base production has no relevance. If the turnover of the base production would have any relevance then in clause 7(2) instead of word “in the excess of the quantity referred in sub-para-1” the word “in excess of the turnover of the base production referred to in sub-para-1 would be there.” It appears that clauses 7 (1) & (2) are only for the purposes, to deal with the situation where some stock of the base production of the previous years has been left which are to be added in the quantity of the base production and to provide exemption on the “quantity” in excess of the “quantity of base production” plus “quantity of the stock of base production of the previous years”. 30. In the notification nowhere the exemption is contemplated with reference to the turnover. It is contemplated only with reference to the “quantity” of the goods manufactured in excess of the “quantity of the base production”. Any other interpretation of clause 7 of the notification will be in conflict of clause (b) of the notification. 31. There is nothing in the notification which provides that in the quantity of base production, the quantity of production disposed of otherwise than by way of sale, would not be included. namely, the quantity transferred by way of stock transfer or consignment transaction, would not be included. The value of the quantity transferred by way of stock transfer or for consignment sale is not liable to tax under the Act as well as Central Act as they are not sale by operation of law. The exemption is not provided under Section 4-A and the notification issued thereunder. 32. The value of the quantity transferred by way of stock transfer or for consignment sale is not liable to tax under the Act as well as Central Act as they are not sale by operation of law. The exemption is not provided under Section 4-A and the notification issued thereunder. 32. The object of granting the benefit of exemption to the existing unit, which has undergone expansion after making an additional investment, is to allow the exemption on the excess production over and above its production which was the maximum production in one of the year of five preceding consecutive years, which the unit has achieved. The object behind is that the existing unit may increase the production over and above what has been achieved in the earlier five years. In case if the quantity of the goods disposed of by way of stock transfer/ consignment would not be included in the base production it amounts to, that despite achieving base production and having produced more quantity over and above the base production the unit would not be entitled for the exemption on the quantity of excess production. In other words it amounts to asking the unit to pay the tax on the quantity of stock transfer to get the benefit of exemption on the quantity of production in excess of base production. This would frustrate the very object of granting exemption. 33. The Division Bench in the case of Ambika Steel Private Limited v. State of U.P. and others (Supra) has misdirected itself in determining the exemption with reference to the turnover of sales, while under the notification the exemption is on the quantity of the goods produced in excess of the base production and stock of base production of the previous years. Further the Division Bench has wrongly observed that the object of the State Government by issuing these notifications is to tax the base production and realize Trade Tax and Central Sales Tax thereon as the case may be and by way of incentive exemption or reduction has been granted in excess of the production beyond the base production. The object of Section 4-A of the Act and notification issued thereunder does not say so. The object of Section 4-A of the Act and notification issued thereunder does not say so. The Division Bench is further wrong in saying that if the interpretation suggested by the learned counsel for the petitioner is accepted in that event the unit will be entitled to exemption on branch transfer as well as on consignment sale without paying any trade tax either in State of U.P. or Central and would also at the same time be entitled to the exemption from, or reduction in trade tax on the production over and above the base production which was not the intention of the notification. The exemption on the stock transfer or transfer of goods for consignment sale is by the operation of law inasmuch as they do not fall within the purview of sale. This benefit was available even to the existing units. Under Section 4-A of the Act and notifications issued thereunder exemption to the existing units undergone expansion, the benefit of exemption is contemplated on the quantity of the goods in excess of the base production. Therefore, the conclusion drawn by the Division Bench is not legally correct. 34. It is to be noted, that the quantity of base production is determined only once on the consideration of the capacity of the production and maximum production of one year of preceding five consecutive years. Such determined quantity of base production is the basis for the exemption for the period for which the unit is entitled for exemption. Conclusion 35. In view of the foregoing discussion, we are of the view that under the notification No. 640 dated 21.2.1997 the unit undergone expansion is entitled for the exemption on the turnover of the “quantity” in excess of the “quantity of base production” plus stock of the base production of the previous years. The base production includes the quantity of the stock transfer/consignment transaction. 36. In view of above, we are of the considered opinion that the view taken by the Division Bench in the case of Ambika Steel Private Limited v. State of U.P. and others (Supra) and in the case of M/s IFFCO Ltd. v. State of U.P. and others, does not lay down the correct law and as such both the aforesaid decisions stand overruled. 37. The reference is answered accordingly. 38. 37. The reference is answered accordingly. 38. Let this judgment be placed before the appropriate Division Bench for the disposal of individual writ petition in the light of the law laid down as above. Hon’ble Amitava Lala, J.—I agree. Hon’ble Pankaj Mithal, J.—I agree. —————