(Prayer in TC(A) No. 24 of 2013 : Appeal filed under Section 38 of the TNGST Act, 1959 against the order of Sales Tax Appellate Tribunal (Main Bench), Chennai dated 18.10.2012 passed in STA No. 272 of 2007.)

Common Judgment:

Dr. Anita Sumanth, J.

1. These are three appeals by two assessees under the provisions of the Tamil Nadu General Sales Tax Act, 1959 (in short ‘Act’) for the period 2003-04 [TC(A)No.22 of 2013] in the case of one assessee, and for the periods 2003-04 and 2002-03 [TC(A)Nos.23 and 24 of 2013] in the case of the other assessee.

2. Both assessees admittedly hold the status of 100% Export Oriented Undertakings (EOU). Returns of turnover were filed by the assessees seeking exemption in respect of certain sales made to each other, of aluminium sole moulds and cutting dyes. Exemption was claimed under Serial No.386 of G.O.Ms.528, CT&RE, dated 21.11.1997, gazetted on 17.12.1997.

3. The assessments came to be completed by orders dated 22.06.2005, 18.03.2005 and 11.05.2004 accepting the claim for exemption. Thereafter proceedings for revision of assessment were initiated under Section 16 of the Act as the assessing authority of the view that there has been escapement of turnover.

4. The revision of assessments came to be concluded on 27.07.2006 and 11.07.2006. Before the assessing authority, the consistent stand of the assessees was based on Notification dated 21.11.1997 that would require the supply to be of the nature of either raw materials, packing materials or consumable goods.

5. The exemption claimed was ultimately disallowed on the ground that neither the moulds nor the dyes were of the nature of raw materials, packing materials or consumable goods. This order was reversed by the first appellate authority and, in appeals filed at the instance of the revenue, there was a cleavage of opinion, one member accepting the position that the dyes and moulds were consumables, and the other member dissenting from that view.

6. The present appeals have been filed by the assessees assailing that opinion adverse to them. We are hence called upon to decide the eligibility of the assessees to exemption as claimed, and the correctness of the imposition of penalty under Section 16(2) of the Act. Questions of law admitted for resolution on 19.09.2013 read thus:

                   ‘1.Whether the Appellate Tribunal was justified in overlooking the written submissions dated 01.02.2010 along with documents filed under Regulation 12 of the Tamilnadu Sales Tax Appellate Tribunal Regulation, 1959 dated 25.01.2011 in TMP.No.4 of 2011 and detailed typed-set of papers of 174 pages enclosing the judgments and clarifications.

                   2.Whether the Appellate Tribunal overlooked the law that reassessment under Section 16 of the Tamilnadu General Sales Tax Act, 1959 ought not to be made on a mere change of opinion without any other materials other than the one produced and adjudicated upon by the assessing officer at the time of the original assessment.

                   3.Whether in the absence of any specific definition in the Tamilnadu General Sales Tax Act, 1959, the words “consumables” or “raw materials” should be interpreted as per the “EXIM” Policy pursuant to which the Notification No.G.O.Ms.No.528-II(1)/CTRE/100/97 dated 21.11.1997 issued which was subsequently amended by G.O.Ms.No.104-II(1)/CTRE/43(a-3)/98 dated 01.04.1998.’

7. We have heard Mr.V.Sundareswaran, learned counsel for the appellants and Mr.C.Harsha Raj, learned Special Government Pleader for the revenue.

8. Before the authorities, the Appellant/Asseesse’s have relied upon Notification dated 21.11.1997, and the exemption provided thereunder, that is couched in the following terms:

                   ‘386.Exemption in respect of the tax payable by any dealer on the sale of raw materials, packing materials and consumable goods to the registered 100% Export oriented units in this State and units located in the Chennai Export Processing Zone.’

9. Before us, however Mr.Sundareswaran would prefer to rely instead on exemption under Serial No.340 of G.O.Ms.No.102, CT&RE, dated 31.03.1994 in Notification No.II(1)/CTRE/41/94 gazetted on 04.05.1994, with effect from 01.04.1994 that reads as follows:

                   ‘340.Exemption on and from the 1st day of April 1994, the tax payable on the sale by any unit located within the Madras Export Processing Zone to any other unit located within the Madras Export Processing Zone (inter-unit sales) provided that the ultimate sale shall be an export sale.’

10. Learned counsel for the assessees submits that both the units are engaged in export sales only and they hold green cards issued by the Development Commissioner attesting to the position that they are 100% EOU’s. Hence they are entitled to exemption on all sales that take place inter se.

11. Learned counsel relies on the decision in Government of Kerala and Another v. Mother Superior Adoration Convent [(2021) 5 SCC 602] and Commissioner of Income Tax, Amritsar v. Straw Board Manufacturing Co. Ltd. [1989 Supp (2) SCC 523]. Both decisions are cited for the proposition that a beneficial exemption should be interpreted liberally.

12. Per contra, revenue counsel would point out that an entirely new case has been argued before this Court. Notification dated 31.03.1994 had never been pressed into service by the assessees before the authorities, and the only reliance had been on Notification dated 21.11.1997.

13. On merits, it is submitted that dyes and moulds could never be taken to be either raw materials, packing materials or consumables. Hence, the exemption that had been granted originally had rightly been reversed in the revision proceedings. He relies on the judgment in the case of Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company and others [(2018) 9 SCC 1] to the effect that an exemption Notification must be construed strictly.

14. We have heard both the learned counsel and perused the material papers, Notifications and cases cited. The case of the assessees from inception has been premised only on Notification dated 21.11.1997. However, a claim of exemption, if the facts are admitted, may be decided based on any number of extenuating factors, one such factor being the applicability or otherwise of available Notifications/Circulars/ Government Orders. That would constitute a pure question of law.

15. Hence, in circumstances where the facts are admitted, such a question may be considered at any stage in the proceedings, and had we been of the view that the assessees satisfied the contours of serial No.340 Notification dated 31.03.1994, nothing would have prevented us from granting the exemption even at this stage. However in the present cases, we do not believe that the assessees satisfy that condition.

16. Serial No.340 in Notification dated 31.03.1994 is specific to inter unit sales in respect of those units that are situated within the Madras Exports Processing Zones (MEPZ). Though the assessee may be 100% EOU’s, admittedly they are not located within the MEPZ. We are unable to accept the contention of Mr.Sundareswaran that Serial No. 340 must encompass even 100% EOU’s as such an interpretation does not flow from the clear language of that Notification.

17. Barring Section 4E of TNGST Act, there is no other provision under the TNGST Act 1959 that exempts all sales inter se units engaged in export sales from the levy of tax, and even Section 4E grants an exemption only in very specific circumstances, relating to purchases of consumables, packing materials and labels, qua units located in MEPZ.

18. Hence, the interpretation urged by the Appellant would strain the plain language of Notification dated 31.03.1994 and we reject the contention that Notification dated 31.03.1994 would have any applicability to the present cases.

19. As far as Notification dated 21.11.1997 is concerned, though it applies to ‘all’ dealers, the benefit granted is specific to the sale of raw materials, packing materials and consumables. In our considered view, dyes and moulds cannot be construed to be either raw materials, packing materials or consumables and hence we reject this argument as well. Notification dated 21.11.1997 is also of no assistance to them.

20. Our attention has been drawn to the definition of ‘consumables’ under the EXIM policy. In our view, this definition, extracted below, would rather support the revenue’s case:

                   ‘9.15

                   “Consumables” means any item, which participates in or is required for a manufacturing process, but does not necessarily form part of end-product. Items, which are substantially or totally consumed during a manufacturing process, will be deemed to be consumables.’

21. Hence, a consumable is any item which, as the term suggests, would be consumed in the process of manufacturing, either substantially or partly. Both dyes and moulds used in the present cases are not consumed, but are only aids/implements used in the manufacturing process itself. Hence the arguments of the assessee on this score are rejected.

22. As far as the levy of penalty is concerned, the provision pressed into service by the revenue is Section 16(2) of the Act which requires the assessing authority to establish that the escapement of turnover was on account of ‘willful non-disclosure of assessable turnover by the dealer’.

23. In this case, this condition has not been met by the revenue. All facts necessary to decide the issue have been produced by the assessees, and are on record. The issue turns only on an interpretation of the Notifications and this constitutes a pure question of law. In fact, the case of the assessees has been accepted by an assessing authority originally and even at the stage of the Tribunal, one of the members of the Tribunal has been persuaded to accept the case put forth by it. The levy of penalty is thus set aside.

24. Learned counsel for the Appellants makes an endorsement to the effect that the assessees do not press substantial questions No. 1 and 2, and the same are dismissed as not pressed. In light of the discussion as above, substantial question No.3 is answered in favour of the revenue.

25. Theses appeals are partly allowed, to the extent of setting aside the levy of penalty alone. No costs. Connected miscellaneous petitions are closed.