1998 (10) TMI 551 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether 'toffee' is classified as 'sweetmeat' or a commodity of like nature under the Uttar Pradesh Sales Tax Act, 1948.
2. Eligibility of new industrial units manufacturing toffees for sales tax exemption under the notification dated 27.7.1991.

Issue-Wise Detailed Analysis:

1. Classification of 'Toffee' as 'Sweetmeat':
The primary issue is whether 'toffee' falls under the category of 'sweetmeat' or commodities of a similar nature as per the notification issued under Section 4A of the Uttar Pradesh Sales Tax Act, 1948. The High Court considered several factors:
- Dictionary Meanings: The court referenced dictionary definitions where 'sweetmeat' includes any food rich in sugar, such as candy or crystallized fruit. 'Toffee' was defined as a candy made by boiling sugar and butter, thus fitting the broad definition of sweetmeat.
- Commercial Understanding: The court examined how 'toffee' is understood in commercial parlance and concluded that it is considered a sweetmeat.
- Scope of Entry No.18: The entry includes 'sweetmeat', 'namkin', 'reori', 'gazak', and commodities of like nature. The court noted that the inclusion of these items expands the scope to cover similar commodities.
- Discrimination Concerns: The court considered potential discrimination if toffee was not classified as a sweetmeat, given that items like 'reori' and 'gazak' are included.
- Manufacturer Descriptions: Some manufacturers describe toffees as 'sweets', reinforcing their classification as sweetmeats.

2. Eligibility for Sales Tax Exemption:
The notification aimed to promote industrial growth by granting sales tax exemptions to new units and those undertaking expansion, diversification, or modernization. However, units making sweetmeats and similar commodities were specifically excluded from this benefit.
- Notification Conditions: The notification required new units to be established on land or buildings owned or leased for at least fifteen years and to obtain an eligibility certificate from the General Manager, District Industries Centre.
- Rejection of Applications: The Joint Director of Industries rejected the applications for eligibility certificates on the grounds that toffees are sweetmeats, thus falling under the excluded category.
- Tribunal and High Court Decisions: Both the Trade Tax Tribunal and the High Court upheld the rejection, agreeing that toffees are sweetmeats.

Supreme Court's Interpretation:
- Popular Parlance Test: The Supreme Court emphasized that the words used in tax provisions should be understood as they are in ordinary parlance in the area where the law is in force. The court noted that in India, and specifically in Uttar Pradesh, toffees are not commonly considered sweetmeats.
- Legislative Intent: The court analyzed the notification's intent to promote substantial industrial investments and noted that sweetmeats, namkins, and similar items are typically produced by small shopkeepers, not industrial units.
- Exclusionary Clause: The court stressed that exclusionary parts of exemption notifications should be strictly construed. The words 'commodities of like nature' were meant to include items similar to those listed but not to broaden the definition of 'sweetmeat'.
- Subsequent Legislation: The court considered subsequent notifications that excluded confectionery units registered under the Factories Act, indicating a clearer legislative intent.

Judgment:
The Supreme Court concluded that the word 'sweetmeat' and the phrase 'commodities of like nature' in the notification did not encompass toffees manufactured by industrial units. It held that the Joint Director of Industries, the Tribunal, and the High Court erred in their interpretation. The court allowed the appeals, set aside the previous judgments, and directed the authorities to grant the eligibility certificates and extend the sales tax exemption benefits to the appellants. No order as to costs was made.