STATE OF JHARKHAND AND ORS. versus TATA CUMMINS LTD. AND ANR.

Citation: [2006] 3 S.C.R. 443 · Decided: 24-03-2006 · Supreme Court of India · Bench: ASHOK BHAN · Disposal: Dismissed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

STATE OF JHARKHAND AND ORS. 
A 
V. 
TATA CUMMINS LTD. AND ANR. 
MARCH 24, 2006 
[S.H. KAPADIA AND ASHOK BHAN, JJ.] 
B 
Industrial Policy-Sales tax exemption to attract investment and to sustain 
industrial development in State-Pre-condition for its grant being claimant 
having either exclusive ownership over building in which factory was situated, C 
or in case it was on a leased land or building was taken on lease, land or 
building or both being acquired by registered lease for a minimum period of 
I 5 years-Rejection of claim of benefit by joint venture company with factory 
being on land sub-leased by their partner from another company-High 
Court allowing benefit on finding that claimant was exclusive owner of building D 
in which fact01y was located, and had substantial amounts not only invested 
in the unit but also paid as taxes-On appeal, held: The object ownership of 
building or a lease for 15 years, was to ensure that indus//y did not run away 
after taking the advantage of benefit-In view of substantial amounts invested 
and paid as taxes, claimant could not be said to be a flyby night operator, and 
would contribute to industrial growth and development-Benefit of exemptions E 
allowed especially as even by strict interpretation of exemption notification it 
was to be given if claimant was exclusive owner of building in which factory 
was located. 
Interpretation of statutes-Exemption from payment of tax under an 
enactment-ft is an exemption from the tax liability-Such exemption F 
notification has to be read strictly-However, when an asses.see is promised 
a tax exemption for setting up industry in backward areas as a term of industrial 
policy, implementing notifications have to be read in the context of industrial 
policy-Jn such a case, exemption notifications have to be read liberally keeping 
in mind objects envisaged by the Industrial Policy and not in a strict sense as G 
in the case of exemption from liability under taxing statute. 
Words and phrases-Tax-Nature of-Explained. 
Appellant announced an Industrial Policy envisaging sales tax 
H 
443 
444 
SUPREME COURT REPORTS 
(200oj 3 S.C.R. 
A exemptions to attract investments and sustain industrial development in the 
State. This policy was sought to be implemented by two notifications, SO nos 
478 and 479 both dated 22-12-1995. One of the pre-conditions for the grant 
of the benefit of the Industrial Policy under theses notifications was that the 
proprietor/partner/holding rompany must have its exclusive ownership over 
B the building in which the factory of the unit is situated. However, if the factory 
of the unit was installed on a leased land or in a building taken on lease, 
c 
exemption would be admissible when such land or building or both have been 
acquired by way of registered lease for a minimum period of IS years. The 
lease was to be in favour of the proprietor of the unit or any partner of the 
firm or in favour of the holding company. 
Respondent claimed the benefit of these exemptions. However, it was 
found that the land on which factory was constructed by them was sub-
leased land of their joint venture partner from another company, and as 
per the agreement between the latter two, the joint venture partner had 
D no right to allot part of that land to any other company. Therefore their 
claim for exemptions was rejected as they had neither legal title nor 
ownership over the land on which the factory was established; nor were 
they in a position to produce a registered lease deed for a term of 15 years 
or more. 
E 
Respondent contested rejection of their claim in High Court which 
found that it was the exclusive owner of the building in which the factory was 
located. The conditions of the exemption notifications were found to be 
complied with entitling respondent to grant of their benefit. It was also 
found that respondent had invested Rs 302 crores in the project and paid 
F taxes to the tune of about Rs 600 crores. Against this, appellants have filed 
the present appeal. 
Dismissing the appeals, the Court 
HELD: 1. A tax is a payment for raising general revenue. It is a 
G burden: It is based on the principle of ability or capacity to pay. It is a 
manifestation of the taxing power of the State. An exemption from 
payment of tax under an enactment is an exemption from the tax liability. 
Therefore, every such exempt ion notification has to be read strictly. 
However, when an assessee is promised with a tax exemption fo

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