COMMERCIAL TAXES OFFICERversusA INFRASTRUCTURE LTD.

                      [2015] 13 S.C.R. 1172


A               COMMERCIAL TAXES OFFICER
                                v.
                   A INFRASTRUCTURE LTD.
                  (Civil Appeal No. 2806 of 2015)
B
                      NOVEMBER 24, 2015
         [DIPAK MISRA AND PRAFULLA C. PANT, JJ.]
        Rajasthan Value Added Tax Act, 2003 - ss. 18, 22,
c 55(4); Notification S.0.377 dated 9.3.2007-/nput Tax Credit
  (ITC)- Disallowance of-Assessee engaged in the business
  of manufacturing Asbestos Cement (A. C.) Pressure Pipe and
  A. C. Sheets and availed ITC on the purchase of raw material
  used in the manufacture ofA. C. Sheets- Revenue disallowed
o the benefit of ITC on the ground that the final product was
  exempted- Held: As per Notification S. 0.377 dated 9. 3. 2007,
  it was the manufacturer of A. C. sheets that was exempted
  and therefore it could not be said that A. C. sheets
  manufactured by assessee were exempted goods which is
E pre-requisite for denying ITC uls. 18 of the Act- Respondent-
  assesse.e was entitled to avail ITC.

         Dismissing the appeals, the Court

       HELD: 1. On an analysis of the scheme of the Act, it
F is manifest that there is difference between exempted
  goods, i.e., goods on which no Value Added Tax is
  payable and are, therefore, not taxable and other cases
  where a particular transaction.when it satisfies specific
G condition is not taxable. There is no doubt that a
  distinction has to be drawn between exempted goods,·
  which rneans complete exemption for the specified
  goods, and when the goods are taxable goods, but a
  transaction or a person is granted exemption. When the
H goods are exempt, there would be no taxable
                               1172
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1173
                   LTD.

transactions or exemption to a taxable person. In other A
cases, goods might be taxable, but exemption could be
given in respect of a taxable event, i.e., exemption to
specified transactions from liability of tax or exemption
to a taxable person, though the goods are taxable. Such
exemptions operate in circumscribed boundaries and B
not as expansive as in the case of taxable goods.
Exemptions with reference to taxable events or taxable
persons would not exempt the goods as such, for a
subsequent transaction or when the goods are sold or
purchased by a non-specified person, the subsequent C
transaction or the taxable person would be liable to pay
tax. Section 4 of the Act provides for levy of tax in a
situation where the goods, which were not exempted but
could otherwise not be subjected to tax on account of
                                                               0
exemption granted to a person or to a transaction. The
goods remain taxable goods through exemption str nds
granted to a particular individual or a specified
transaction. That being so, all subsequent transactions
in those goods, which are not specifically exempt and E
not undertaken by an exempted person could be
subjected to taxation. Therefore, the appellant though
exempted from payment of tax, subsequent transactions
of sale of asbestos cement sheets would be taxable. The
transaction of sale by the manufacturer/dealer covered F
by the exemption notifications issued. under Section 8(3)
of the Act would be protected or an exempted
transaction, but the goods not being exempted goods
would be taxable and could be taxed on the happening
of a taxable or charging· event. It is simply because the . G
goods are not exempt from tax or exempted goods, but
are taxable. As a logical corollary it follows that the Value
Added Tax would have to be paid on the taxable goods
in a subsequent transaction by the purchasing dealer.
[Paras 20, 26] [1188-G; 1193-F-H; 1194-A-G]                   .H
1174      SUPREME COURT REPORTS                [2015] 13S.C.R.


 A        2. As a sequitur, if the contention of the appellant is
   to be accepted, the respondent though covered by
   exemption notification under Section 8(3) of the Act could
   be at a disadvantage because finally when the
   subsequent sale is made by a non-exempted dealer or
 B tax stands paid on the non-exempted transfer, the goods,
   i.e., asbestos cement sheet, would suffer the tax on the
   entire sale consideration. This would place an exempted
   manufacturer-dealer at a disadvantageous position and
   make his products uncompetitive inspite of the
 C exemption notifications under Section 8(3) of the Act.
   [Para 27) [1194-G-H; 1195-A-B]

           3. In the context of the issue in question, the
     respondents have rightly highlighted that where the
 D appellant wanted to restrict the benefit of ITC when a
     particular dealer or transaction was exempted, it was so
     stipulated in the exemption notification issued under
     Sections 8(3) and 8(4) of the Act. Such notifications
     admittedly do exist and were issued by the appellant.
 E They are also right in drawing support from the note
     sheets relating to Finance Bill 2007 as also the
     communications issued by Commissioner of
   . Commercial Taxes. The note sheets and the
     communication of the Commissioner draw a clear
 F
     distinction between exemptions when the goods were
     not taxable as they do fall under the First Schedule and
     when an exemption was granted under the Second
     Schedule, which relates to specified transaction of sale
 G or exempted dealers even when the goods were taxable
     goods. In latter cases, subsequent dealers undertaking
     sale of goods would be liable to pay tax on sale of such
     products. There can be no shadow of doubt that
     subsequent dealers undertaking sale of goods
 H
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1175
                   LTD.

manufactured and sold by the respondent company A
would be liable to pay tax on.such products. [Para 28]
[1195-C-F]

    State of Tamil Nadu v. M. K. Kanda swami & others
    (1975) 4 SCC 745: 19'76 (1) SCR 38-relied on.        B

    ACTO v. Mis. Suncity Trade Agency (2006) 147
    STC 405; ACTO v. Abishek Granites Ltd. 23 Tax-
    world 285; CIT v. Ku/u Valley Transport Co. (P)
    Ltd (1970) 2 sec 192: 1911 (1) scR 452;              c
    Ganesh Prasad Dixit vs. Commissioner of Sales
    Tax (1969) 1 sec 492 : 1969 (3) SCR 490;
    Kera/a High Court in Malabar Fruit Products Co.
    Vs. Sales Tax Officer, Palai (1972) 30 STC 537
    (Ker).; CST v. Pine Chemicals Limited (1995) 1       o
    SCC 58 : 1994 (5) Suppl. SCR 123; Indian
    Aluminium Cables Limited v. State of Haryana
    (1976) 4 SCC 27: 1976 (3) SCR 992- referred
    to.
                                                         E
                   Case Law Reference

(2006) 147 STC 405          referred to        Para2

23 Tax-world 285            referred to        Para 3
                                                         F
1971 (1) SCR 452            referred to        Para 3

1976 (1) SCR 38             relied on          Para 20

1969 (3) SCR 490            referred to        Para 21
                                                         G
(1972) 30 STC 537 (Ker)     referred to        Para 21

1994 (5) Suppl. SCR 123     referred to        Para 24

1976 (3) SCR 992            referred to        Para 25
                                                         H
1176         SUPREME COURT REPORTS                  [2015] 13 S.C.R.


 A          CIVIL APPELLATE JURISDICTION : Civil Appeal No.
       2806 of2015
            From the Judgment and Order dated 19.12.2013 of the
       High Court of Judicature for Rajasthan at Jodhpur in S. B. Civil
       (VAT) Revision Petition No. 19/2012.
 8
                                    WITH
            C.A. NOS. 2807, 2808, 2809,AND 2810 OF 2015.
            Shovan Mishra, Mil ind Kumar, Advs., for the Appellant.
.c         Paras Kuhad, Sr.Advs., Vikas Balia, Biju Matham, Tabrez
       Malawat, Jitin, Abhik Chimni, Ms. lndu Sharma, Advs., for the
       Respondent.
            The Judgment of the <;:ourt was delivered by
         DIPAK MISRA, J. 1. This batch of appeals, by special
 0
   leave, calls in question the legal acceptability of the common
   order dated 191h December, 2013 passed by the learned
   Single Judge of the High Court of Judicature for Rajasthan, at
   Jodhpur in a batch of revision petitions filed by the assessee-
 E respondent assailing the judgment dated 23.11.2011 passed
   by the Rajasthan Tax Board, Ajmer (for short 'the Board') in
   Appeal No. 680 of 2009 and other connected appeals
   whereby it had affirmed the decision rendered in appeals by
   the Deputy Commissioner (Appeals) who had upheld the
 F assessment orders passed by the Commercial Taxes Officer
   in respect of various quarters of the years 2006-2007, 2007:-
   2008 and 2008-2009 disallowing the claim of Input Tax Credit
   (ITC) and charging interest under Sections 18, 22 and 55(4)
   of the Rajasthan Value Added Tax Act, 2003 (for brevity "the
 G 2003 Act").

        2. The facts giving rise·to this batch of appeals are that
   the assessee-company is engaged in the business of
   manufacturing Asbestos Cement Pressure Pipe and Asbestos
 H Cement Sheets and it had availed ITC on the purchase of raw
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1177
            LTD. [DIPAK MISRA, J.]

material used in the manufacture of A.C. Sheets. The assessing A
authority issued notice to the assessee for the purpose of
disallowing ITC on purchase of raw material used in
manufacturing A.C. Sheets for the period mentioned
hereinabove and pursuant to the show cause notice the
assessee filed a detailed reply and eventually the assessing B
authority passed orders under Section 22 of the Act disallowing
the ITC and charged interest. The said orders were assailed
before the Appellate Authority which declined to interfere with
the orders appealed against, compelling the assessee to file
second appeals before the Board which placed reliance on C
ACTO v. Mis. Suncity Trade Agency 1 and dismissed the
appeals. The Board while dismissing'the appeals opined that
the assessee-Company, a manufacturing unit, had not been
charged on the sales of its product, as per the notification which
                                                                      0
squarely fall under the definition of exempted goods and hence,
the final product was exempted, but it was not entitled to avail
ITC as the notification clearly postulated that the units/institution
was not exempted from the tax but the sales of its goods were
exempted from tax as per the definition of "Exempted Goods". E

        3. The grievance of dismissal constrained the assessee
to file the revision petitions before the High Court, and seeking
interference in the revision petition it was contended that the
scheme of Section 8 of the Act which deals with exemption of
tax and the notification issued under the Rajasthan Sales Tax F
Act, 1994 (for short, 'the 1994 Act') and the various notifications
issued under the said Act from time to time deal with A.C.
Sheets and in view of the postulates laid down in the notification
dated 09.03.2007, issued under sub-section (3A) of Section G
8 wherein the manufacturer of asbestos cement sheets and
bricks have been exempted and, therefore, it could not be said
that A.C. Sheets manufactured by the assessee were
exempted goods which is the pre-requisite for denying ITC
1
    (2006) 147 STC 405                                               H
1178           SUPREME COURT REPORTS             [2015] 13 S.C.R.


 A under Section 18 of the Act. Reliance was placed on the
   judgment of ACTO v. Abishek Granites Ltd. 2 to buttress the
   proposition that exemption to unit is different from the
   exemption to the transaction of sale of the commodity. It was
   also highlighted before the High Court that when two views
 B are possible, the view in favour of the assessee should be
   accepted and for the said purpose reliance was placed on
   CIT v. Ku/u Valley Transport Co. (P) Ltd. 3 • The background
   of the issue of notification dated 09.03.2007 and the
   communication issued by the Commissioner, Commercial
 C Taxes, Rajasthan, Jodhpurwere stressed upon to bolster the
    plea that assessee was exempted from tax and not the A.C.
   Sheets manufactured lfy it.

         4. The stand of the assessee was controverted by the
 D revenue contending, inter a/ia, that vide notification S.O. 372,
   manufacturers of A. C. Sheets and Bricks were included at S ..
   No. 20 in Schedule-II, which entitles the units to claim exemption
   on the sale of manufactured goods on the fulfillment of certain
   conditions and in view of the specific conditions stipulated in
 E Section 18( 1)(A) of the Act, ITC was not allowed. Reliance
   was placed on notification S.O. 377, dated 09.03.2007 issued
   under Section 8(3) of the Act to harp thatA.C. Sheets clearly
   fall within the category of exempted goods. Reference was
   made to the definition of 'exempted goods' and 'goods'
 F contained in Section 2(13) & (15) of the Act. It was further
   submitted that irrespective of whether the notification was
   issued under sub-Section (1) or (3) or (3A) or (4 ), the goods
   would fall within the definition of exempted goods and
 G consequently the assessee would not be entitled to ITC. For
   the said purpose, reliance was placed on Mis. Sun City Trade
   Agency (supra).
       2   23 Tax-world 285
       3
           (1970) 2 sec 192
 H
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1179
            LTD. [DIPAK MISRA, J.]

       5. The High Court referred to the dictionary clause as      A
enumerated in Section 2(13) which deals with "exempted
goods", Section 2( 15) that defines the terms "goods", Section
8 which provides for "exemption of tax" and Section 18 which
deals with "Input Tax Credit and thereafter, referred to the
notification dated 16.03.2005 under the 1994 Act and the           B
notifications dated 01.06.2006, 05.07 .2006, 09.03.2007 and
the amendment notification issued on the same day by the
Finance Department (Tax Division). The learned Single Judge
analysed the provisions of the Act and the notifications and
took note of the fact that under the 1994 Act exemption granted    C
related to sale of A.C. Sheets and Bricks, subject to the
conditions indicated therein. The High Court further noted that
the notification dated 01.06.2006 which had been issued in
exercise of power under Section 8(2) and Schedule-I which          D
was amended and A.C. Sheets and Bricks having contents of
fly ash 25% more than by weight was inserted as entry 60A,
and further adverted to the notification issued under the same
provision, on 05.07.2006 vide which the Schedule-I was
amended and entry 60Awas substituted. After so stating, the        E
learned Single Judge referred to the notifications issued on
09.03.2007 that deals with A.C. Sheets and also noted the
fact that vide S.O. 371 issued under Section 8(2) of the Act,
the existing entry 60A was deleted from Schedule-I and further
by S.O. 377 issued under Section 8(3A) of the Act which            F
pertained to "manufacturers of asbestos cement sheets and
bricks" were added in Schedule-II and it provides the conditions
for availing exemption for sale of A.C. Sheets and Bricks
manufactured in the state.
                                                                   G
     6. On the aforesaid basis, the Court proceeded to further
observe that by notification dated 16.03.2005 under the 1994
Act and the notifications dated 16.02.2006 and 05.07.2006
read with notification dated 09.03.2007 A.C. Sheets and Bricks
                                                                   H
1180         SUPREME COURT REPORTS                [2015] 13 S.C.R.


 A were exempted. The goods, that is, A.C. Sheets and Bricks
   were taken out by S.O. 371 and the manufacturers of A.C.
   Sheets and Bricks were exempted by inclusion in Schedule-II
   by S.O. 372 and conditions for availing such exemption by the
   manufacturers were indicated by S.O. 377. On the basis of
 B the aforesaid analysis, the revisional Court opined that it is
   significant that while S.O. 371 had been issued under Section
   8(2) of the Act, S.O. 372 and 377 had been issued under
   Section 8(3A) and (3) respectively, which provisions, as noticed
   hereinbefore, dealt with Schedule-I under Section 8(2) and
 C Schedule-II under Sections 8(3) and (3A), which in turn related
   to exemption of goods and exemption of persons respectively,
   therefore, it was apparent from the notifications issued on
   09.03.2007 that the intention of the State was to exempt the
   manufacturers of A.C. Sheets and Bricks subject to fulfillment
 0
   of conditions as indicated in S.O. 377 and to take away
   exemption available toA.C. Sheets and Bricks as goods, as
   was available before the said date on account of its inclusion
   in Schedule-I.
 E       7. As the impugned order would show, the High Court
   distinguished the judgment rendered in Sun City Trade
   Agency (supra), on the ground that the said decision dealt
   with a situation wherein the exemption notification pertaining
   to stainless steel flats, ingots and billets were exempted from
 F tax on the conditions indicated in the notification and it had
   been held therein that merely because the exemption is
   conditional or given subject to fulfillment of certain conditions
   it does not mean that such goods would fall outside the
 G definition of exempted goods.

             8. The learned Single Judge referred to the definition
       contained in Section 2(13) of the Act which deals with
       exempted goods and not with exemption of person or class
       as indicated in Section 8(3) of the Act, and observed thatthe
 H
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1181
            LTD. [DIPAKMISRA, J.]

intention of the legislature in incorporating Section 18(1 )(e) of A
the Act takes away the exempted goods from the purview of
the ITC and not the person or class of persons exempted under
Section 8(3) and the intention of the legislature was ·not to
include exempted goods in the category of exempted persons
as mentioned in Section 18( 1)( e) of the Act, and hence, it was B
demonstrable that the goods and dealers are treated
separately and the same was also evident from the provision
of Section 5 of the Act.

       9.· As is evident, the High Court further proceeded to C
 opine that the goods included in Schedule-II were entitled for
 ITC inasmuch as·the said conditions indicated for exemption
 related to Self-Help Groups and those who had been
 registered with the Khadi and Village Industries Commission
·or Rajasthan Khadi and Village Industries Board by the D
 notifications S.O. 376 and S.O. 378 issued on 09.03.2007
 wherein a specific stipulation had been made to the extent
 that no input tax credit shall be claimed by such dealers in
 respect of purchase of raw materials used for manufacture of
 aforesaid goods. Thereafter, the High Court proceeded to E
 observe:-

      "If the persons included in Schedule-II were not entitled
      to claim ITC, there was no reason to include the said
      conditions for the above noted persons. Apparently, it       F
      is the sale of goods made by person or persons included
      in Schedule-II, which is exempt and not the goods
      manufactured by them, whereas, for denying ITC, the
      requirement is that of 'exempted goods'."
                                                                   G
     10. Being of this view the learned Single Judge held that:-
      "In view of express language of Section 18( 1)(e) of the
      Act, notifications S.O. 371 and S.O. 372 read with S.O.
      377, the petitioner who isa manufacturerofA.C. Sheets        H
1182         SUPREME COURT REPORTS                   [2015] 13 S.C.R.


 A            is entitled to avail ITC and the authorities below were
              not justified in denying Input Tax Credit to the petitioner
              based on interpretation put by them on inclusion of the
              petitioner in Schedule-II under Section 8(3A) and
              notification S.O. 377 dated 09.03.2007 issued under
 B            Section 8(3) of the Act."

              11. The expression of the said view and the ultimate
       setting aside of the orders of the Court below, as stated earlier,
       is the subject matter of assail in these appeals.
 c
            12. We have heard Mr. Shovan Mishra and Mr. Milind
       Kumar, learned counsel for the appellant and.Mr. Paras Kuhad,
       learned senior counsel for the respondent.

        13. To appreciate the controversy at hand, it is
 D necessary to scrutinize the various provisions of the Act and·
   the notifications that have been issued from time to time.
   Section 2(13) and 2(15) define "exempted goods" and "goods"
   respectively, and they are extracted below:-

 E            "Section 2(13) "Exempted goods" means any goods
              exempted from tax in accordance with the provisions of
              this Act;
                xxx           xxx            xxx
 F            Section 2(15) "goods" means all kinds of movable
              property, whether tangible or intangible, other than
              newspapers, money, actionable claims, stocks, shares
              and securities, and includes materials, articles and
              commodities used in any form in the execution of works
 G            contract, livestock and all other things attached to or
              forming part of the land which is agreed to be served
              before sale or under the contract of sale."

            14. Section 8 deals with exemption of tax and Section
 H     18 lays down the method, the manner and the conditions
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1183
            LTD. [DIPAK MISRA, J.]

prescribed for availing the input tax credit. Section 8 and the    A
relevant portion of Section 18 are reproduced below:-

      "Section 8 - Exemption of tax -

      (1) The goods specified in the Schedule-I shall be
                                                                   8
      exempt from tax, subject to such conditions as may be
      specified therein.

      (2) Subject to such conditions as it may impose, the
      State Government may, if it considers necessary so to
      do in the public interest, by notification in the Official C
      Gazette, add to or omit from, or otherwise amend or
      modify the Schedule-I, prospectively or retrospectively,
      and thereupon the Schedule shall be deemed to have
      been amended accordingly.
                                                                   D
      (3) The State Government in the public interest, by
      notification in the Official Gazette, may exempt whether
      prospectively or retrospectively from tax the sale or
      purchase by any person or class of persons as
      mentioned in Schedule-II, without any condition or'!lfith    E
      such condition as may be specified in the notification.

      (3A) Subject to such conditions as it may impose, the
      State Government may, if it considers necessary so to
      do in the public interest, by notification in the Official   F
      Gazette, add to or omit from, or otherwise amend or
      modify the Schedule-II, prospectively or retrospectively,
      and thereupon the Schedule shall be deemed to have
      been amended accordingly.
                                                                   G
      (4) The State Government may, if it considers necessary
      in the public interest so to do, notify grant of exemption
      from payment of whole of tax payable under this Act in
      respect of any class of sales or purchases for the
      purpose of promoting the scheme of Special Economic          H
1184   SUPREME COURT REPORTS                  [2015) 13 S.C.R.


 A     Zones or promoting exports, subject to such conditions
       as may be laid down in the notification.

       (5) Every notification issued under this section shall be
       laid, as soon as may be after it is so issued, before the
 B     House of the State Legislature, while it is in session for
       a period of not less than 30 days, which may comprised
       in one session or in two successive sessions and if
       before the expiry of the sessions and if before the expiry
       of the sessions in which it is so laid or of the session
 C     immediately following the House of the State Legislature
       makes any modification in such notification or resolves
       that any such notification should not be issued, such
       notification thereafter have effect only in such modified
       form or be of no effect, as the case may be, so however,
 D     that any such modification or annulment shall be without
       prejudice to the validity of anything previously done
       thereunder."

       Section 18 - Input Tax Credit:-
 E
       (1) Input tax credit shall be allowed, to registered
       dealers, other than the dealers covered by sub-section
       (2) of Section 3 or Section 5, in respect of purchase of
       any taxable goods made within the State from a
       registered dealer to the extent and in such manner as
 F
       may be prescribed, for the purpose of:-
       (a) sale within the State of Rajasthan or;
       (b) sale in the course of Inter-State trade. and
           commerce; or
 G
       (c) sale in the course of export outside the territory of
           India; or
       (d) being used as packing material of goods, other than
           exempted goods, for sale; or
 H
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1185
            LTD. [DIPAK MISRA, J.]

      (e) being used as raw material except those as may          A
          be notified by the State Government in the
          manufacture of goods other than exempted goods,
          for sale within the State or in the course of Inter-
          state trade or commerce; or
                                                                  B
      (f)
      (g)      "

      15. As has been stated earlier, the High Court has
referred to various notifications. The notification dated 16th C
March, 2005 was issued under Section 15 of the Rajasthan
Sales Tax Act, 1994. It is as under:-

      "Notification dated 16.03.2005 under the Act of 1994:-
      S. No. 1874; F.4(78)FD/Tax/2004-168 dated                   D
      16.03.2005
            In exercise of the powers conferred by section 15
      of the Rajasthan Sales TaxAct 1994 (RajasthanAct No.
      22of1995) and in.supersession of this Department's
      Notification No. F.4/(68)FD/Tax-Div/99-271 (S.No.           E·
      1147), dated, January24, 2000 (as amended from time
      to time), the State Government being of the opinion that
      it is expedient in the public interest so to do, hereby
      exempts form tax the sale of asbestos cement sheets
      and bricks, manufactured in the State by an industrial      F
      unit having fly ash as its main raw material on the
      following conditions, namely:-
      1. that such fly ash shall constitute twenty five percent
      or more in the contents by weight of such asbestos          G
      cement sheets and bricks; and
      2. that such unit commences commercial production by
      31.12.2006.
      This notification shall remain in force upto 23.1.201 O."   H
1186         SUPREME COURT REPORTS                       [2015] 13 S.C.R.


 A           16. The said notification as mentioned t~erein was to
       remain in force upto 23.1.2010. When the said notification was
       in vogue another notification dated 1.6.2006 was issued under
       Section 8 ef the 2003 Act. The said notification is as under:-
                                     "Notification
 B
                                            Jaipur, Dated : 01.06.2006
             In exercise of the powers conferred by sub-section (2)
             of Section 8 ofthe Rajasthan Value Added TaxAct, 2003
             (Rajasthan Act No. 4 of 2003), the State Government
 c           being of the opinion that it is expedient in the public
             interest so to do, hereby makes the following further
             amendments is SCHEDULE-I appended to the said Act;
             namely:-
 D                                AMENDMENTS
             4.After the existing S.No. 60 and before S.No. 61, the
             following new S. No. and entries thereto shall be
             inserted, namely:-
 E               "GOA.   Asbestos     cement      Subject       to      the
                         sheets and bricks        condition of entry in
                         having contents of fly   Registration Certificate
                         ash 25% or more by       of the selling deafer."
                         weiaht.

 F        17. On 05.07.2006 another notification was issued in
   exercise of the powers conferred by sub-section (2) of Section
   8 of the 2003Act. On 09.03.2007, S.O. 371 was issued by the
   Finance Department (Tax Division) vide which S. No. 68A from
   Schedule-I appended to the Act (2) deleted. May it be noted
 G that S. No. 60A was substituted by notification dated
   05.07 .2006 which has been referred to herein before.

            18. The notification dated 09.03.2007, S.O. 372 was
       issued by the Finance Department (Tax Division) and the said
 H
COMMERCIAL TAXES OFFICER v.A INFRASTRUCTURE 1187
            LTD. [DIPAK MISRA, J.]

department also issued another notification on the same day        A
which is relevant. Both the notifications are reproduced below:-
              " Notification dated 09.03.2007 S.O. 372:-
                       FINANCE DEPARTMENT
                                (TAX.DIVISION)                     B
                                 NOTIFICATION
                               Jaipur, March 9, 2007
      S.O. 372 - In exercise of the powers conferred by sub-
      section (3A) of Section 8 of the Rajasthan Value Added       c
      Tax Act, 2003 (Rajasthan Act No. 4 of 2003), the State
      Government being of the opinion that it is expedient in
      the public interest so to do, hereby makes the following
      amendments is Schedule-II appended to the said Act,
      namely:-                                                 D
                             AMENDMENTS
      In Schedule-II appended to the said Act: -
      (1) ....... .
      (2) After the existing S.No.18 and entries thereto the       E
      following new S.Nos. and entries thereto shall be added;
      namely:-
        19    S0fHelp Grup
        a>    MC11Liacturers of asrestos canent sheet~
                                                                   F
              ard bicks

          Notification dated 09.03.2007, S.O. 377
                      "FINANCE DEPARTMENT
                              (TAX DIVISION)
                              NOTIFICATION                         G
                               Jaipur, March 9, 2007
      S.O. 377 -In exercise of the powers conferred by sub-
      section (3) of Section 8 of the Rajasthan Value Added
      Tax Act, 2003 (Rajasthan Act No. 4 of 2003), the State       H
1188         SUPREME COURT REPORTS                     [2015] 13 S.C.R.


 A            Government being of the opinion that it is expedient in
              the public interest so to do, hereby exempts from
              payment of tax, the sale of asbestos cement sheets and
              bricks manufacturers in the State having contents of fly
              ash twenty five per cent or more by weight, on the
 B            following conditions, namely:-
                ( 1) that the goods shall be entered in the registration
                     certificate of the selling dealer;
               (2) that the exemption shall be for such goods
 c                 manufactured by the dealer who commenced
                   commercial production in the State by31.12.2006;
                   and
               (3) that the exemption shall be available up to
                   23.01.201 O."
 D
              19. As we find the High Court in the impugned order
       has referred to the provisions of the Act and the notifications.
       On a careful scrutiny of the order passed by the High Court, it
       is perceivable that it has proceeded on the foundation that
 E     there is a distinction between the exempted units and exempted
       sales, and finally manufactured sales area, or to put it differently,
       the final transactions of goods or a sale when it takes place.
       Thus, the distinction as laid down by the learned Single Judge
       is based on exemption of unit and exemption on transaction
 F     orsale.

          20. On an analysis of the scheme of the Act, it is manifest
   that there is difference between exempted goods, i.e., goods
   on which no Value Added Tax is payable and are, therefore,
 G not taxable and other cases where a particular transaction when
   it satisfies specific condition is not taxable. In this regard
   reference to the authority in State of Tamil Nadu v. M.K.
   Kandaswami & others4, would be seemly, for this Court had
· H • (1975) 4 sec 745
       •



 COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1189
             LTD. [DIPAK MISRA, J.]

  adverted to three distinct concepts; taxable persons, taxable A
  goods and taxable events and how they were distinguished. It
  was observed in the said case that if the said distinction is
. overlooked, it may lead to serious error in construction and
  application of a taxing provision or enactment. In the case of
  taxable or non-taxable/exempted goods, the focal point and B
  the focus is on the character and class of goods in relation to
  their exigibility. Referring to the provisions of Section 7-A of
  the Madras General Sales Tax, 1959, the expression in the
  Act "taxable goods", it was opined as regards the goods
  mentioned in the First Schedule of the Act that the sale and C
  purchase was liable to tax at the rate and at the point specified
  therein. It was furttier held that the goods which were exempt
  were not taxable goods and, therefore, could not be brought
  to charge and taxed. However, notwithstanding the goods
                                                                    0
  being taxable goods, there could be circumstances in a given
  case by reason of which a particular sale or purchase would
  not attract sales tax.

        21. Be it noted, in the said decision, Section 7-A of the
 Madras General Sales Tax Act, 1959, which reads as under,          E
 fell for consideration:-

       "(1) Every dealer who in the course of his business
       purchases from a registered dealer or from any otl)er
       person, any goods (the sale or purchase of which is          F
       liable to tax under this Act) in circumstances in which no
       tax is payable under Sections 3, 4 or 5, as the case
       may be, and either-

       (a) consumes such goods in the manufacture of other          G
       goods for sale or otherwise; or

        (b) disposes of such goods inJmy manner other than
        by way of sale in the State; or
                                                                    H
1190          SUPREME COURT REPORTS                      [2015] 13 S.C.R.


 A             (c) dispatches them to a place outside the State except
               as a direct result of sale or purchase in the course of
               inter-State trade or commerce, shall pay tax on the
               turnover relating to the purchase aforesaid at the rate
               mentioned in Sections 3, 4 or 5 as the case may be
 B             whatever be the quantum of such turnover in a year:

               Provided that a dealer (other than a casual trader or
               agent of a non-resident dealer) purchasing goods the
               sale of which is liable to tax under sub-section (1) of
 C             Section 3 shall not be liable to pay tax under this sub-
               section, if his total tu mover for a year is less than twenty-
               five thousand rupees."

            Section 7-A, it was observed, provided for such
 D situations where the goods were taxable goods in the hands
     of the purchasing dealer, if any of the conditions (a), (b} and
     (c) of sub-section (1) of Section 7-Awas satisfied. In the facts
     of the case, it was noticed that the goods in question were
     chargeable to tax as they were taxable goods under Schedule
 E I, but exemption had been granted. Reversing the decision of
     the High Court, reference was made to an earlier decision of
     the Supreme Court in Ganesh Prasad Dixit Vs.
     Commissioner of Sales Tax 5 and a decision of Kerala High
     Court in Malabar Fruit Products Co. Vs. Sales Tax Officer,
 F · Palai 6 (1972) 30 STC 537 (Ker).

             22. With reference to the decision in Ganesh Prasad
       Dixit (supra) and the language in Madhya Pradesh General
       Tax Act, 1959, it was observed:
 G
              "29. The impugned Section 7-A is based on Section 7
              of the Madhya Pradesh Act. Although the language of
              these two provisions is not completely identical, yet their
       • (1969) 1 sec 492
 H     0
         (1972) 30 STC 537 (Ker)
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1191
            LTD. [DIPAKMISRA, J.]

     . substance. and object are the same. Instead of the          A
       longish phrase, "the goods, the sale or purchase of
       which is liable to tax underthisAct" employed in Section
       7-Aofthe MadrasAct, Section 7 of the Madhya Pradesh
       Act conveys the very connotation by using the
       convenient, terse expression, "taxable goods". The ratio    B
       decidendi of Ganesh Prasad (supra) is therefore, an
       apposite guide for construing Section 7-A.
       Unfortunately, that decision, it seems, was not brought
       to the noti9e of the learned Judges of the High Court."
                                                                   c
      23. With reference to Kerala General Sales Tax, 1963,
this Court noted the following reasoning given by the Single
Judge of the Kerala High Court:-

      "32. Holding that Section 5-A, was valid and intra vires     D
      the State Legislature, the learned Judge explained the
      scheme of the section, thus:-

                                        a
         Though normally a sale by registered dealer or by
      a dealer attracts tax, there may be circumstance,~ under E
      which the seller may not be liable as, for example, when
      his turnover is below the specified minimum. In such
      cases the "goods" are liable to be taxed, b~t the sales
      takes place in circumstances in which no tax is payable
      at the point in which tax is levied under the Act. If tlie . F
      goods are not available in the State for subsequent
      taxation by reason of one or other of the circumstances
      mentioned in clauses (a), (b) and (c) of Section 5A(1)
      of the Act then the purchaser is sought to be made liable
      under Section 5A.                                           G

                                * * *

        Another instance I can conceive of is a case of a
      dealer selling agricultural or horticultural produce grown
                                                                   H
1192             SUPREME COURT REPORTS                   [201 S] 13 S.C.R.


 A               by him or grown in any land in which he has interested,
                 whether as owner, usufructuary mortgagee, tenant or
                 otherwise. From the definition of "turnover" in Section
                 2 (xxvii) of the Act it is evident that the proceeds of such
                 sale would be excluded from the turnover of a person
 B               who sells goods produced by him by manufacture,
                 agriculture, horticulture or otherwise, though merely by
                 such sales he satisfies the definition of 'dealer' in the
                 Act. Thus, such a person selling such produce is treated
                 as a dealer within the meaning of the.Act and the sales
 c               are of goods which are taxable under the Act but when
                 he sells these goods, it is not part of his turnover.
                 Therefore, it is a case of a dealer selling goods liable
                 to tax under the Act in circumstances in which no tax is
                 payable under the Act. In such a case, the purchaser is
 D
                 sought to be taxed under Section SA provided the
                 conditions are satisfied. The case of growers· selling
                 goods to persons to whom Section SA thus applies is
                 covered by this example."
 E         24. In CST v. Pine Chemicals Limitec/7, this Court
       posed the following question:-

                 "?. The simple question before us is whether the Bench
                 which decided Pine Chemicals is right in holding that
 F               the benefit of the said sub-section is available even where
                 the goods are exempted with reference to industrial unit
                 and for a specified period, viz., period offive years from
                ·the date the relevant unit goes into production. In other
                 words, the question is whether an exemption of the
 G               nature granted under Government Order No. 1S9 dated
                 26-03-1971 is an exemption available "only in specified
                 circumstances or under specified conditions" within the
                 meaning of the Explanation to Section 8(2-A), as
 H     1
           (1995) 1 sec 58
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1193
            LTD. [DIPAK MISRA, J.]

       contended by the State or is it a case where the goods   A
       are exempt from the tax 'generally' within the meaning
       of Section 8(2-A), as contended by the respondents/
       dealers? We are of the opinion that the respondents/
       dealers' contention cannot be accepted in view of the
       clear and unambiguous language of the sub-section."      B

       25. Thus, the Court drew a distinction betweefl goods,
generally exempt from tax after noticing that Section 8(2A) of
the Central Sales Tax Act specifically uses the expression
"exempt from tax generally or subject to tax generally at a rate C
which is lower than 4%", and accordingly observed that when
the goods are exempt under certain specified circumstances
alone, the exemption is not a general, but a conditional one. In
such circumstances, it cannot be said that the goods are
exempt from tax generally for the exemption may vary from D
unit to unit and would depend upon date of commencement of
production of each unit. Reference was made to earlier
decision in Indian Aluminium Cables Limited v. State of
Haryana 8 , wherein it has been held that exemption from tax
when conferred by conditions or in certain circumstances, there E
was no exemption from tax generally.

      26. At this juncture, we are required to understand the
effect of the principles spelt out in above decisions especially
in K.N. Kandaswami and Others (supra) on the facts of the F
present case. There is no doubt that a distinction has to be
drawn between exempted goods, which means complete
exemption for the specified goods, and when the goods are
taxable goods, but a transaction or a person is granted
exemption. When the goods are exempt, there would be no G
taxable transactions or exemption to a taxable person. In other
cases, goods might be taxable, but exemption could be given
in respect of a taxable event, i.e., exemption to specified
• (1976) 4 sec 21                                               H
1194        SUPREMECOURT REPORTS                    [2015] 13 S.C.R. ·


 A   transactions from liability of tax or exemption to a taxable
     person, though the goods are taxable. Such exemptions
     operate in circumscribed boundaries and not as expansive
     as in the case of taxable goods. Exemptions with reference
     to taxable events or taxable persons would not exempt the
 B goods as such, for a subsequent transaction or when the goods
     are sold or purchased by a non-specified person, the
     subsequent transaction or the taxable person would be liable
     to pay tax. It is, in this context, it has been highlighted by the
     respondent and, in our opinion, absolutely correctly that
 C Section 4 of the Act provides for levy of tax in a situation where
     the goods, which were not exempted but could otherwise not
     be subjected to tax on account of exemption granted to a
     person or to a transaction. The goods remain taxable goods
     through exemption stands granted to a particular individual or
 0
     a specified transaction. That being so, all subsequent
     transactions in those goods, which are not specifically exempt
     and not undertaken by an exempted person could be subjected
     to taxation. Therefore, the appellant though exempted from
 E payment of tax, subsequent transactions of sale of asbestos
     cement sheets would be taxable. The transaction of sale by
     the manufacturer/dealer covered by the exemption notifications
     issued under Section 8(3) of the Act would be protected or an
     exempted transaction, but the goods not being exempted
 F goods would be taxable and could be taxed on the happening
     of a taxable or charging event. It is simply because the goods
     are not exempt from tax or exempted goods, but are taxable.
     As a logical corollary it follows that the Value Added Tax would
     have to be paid on the taxable goods in a subsequent
 G . transaction by the purchasing dealer.

         27. As a sequitur, we are obliged to observe that if the
   contention of the appellant is to be accepted, the respondent
   though covered by exemption notification under Section 8(3)
 H of the Act could be at a disadvantage because finally when the
COMMERCIAL TAXES OFFICER v. A INFRASTRUCTURE 1195
            LTD. [DIPAK MISRA, J.]

subsequent sale is made by a non-exempted dealer or tax            A
stands paid on the non-exempted transfer, the goods, i.e.,
asbestos cement sheet, would suffer the tax on the entire sale
consideration. This would place an exempted manufacturer-
dealer at a disadvantageous position and make his products
uncompetitive inspite of the exemption notifications under         B
Section 8(3) of the Act.

      28. In the context of the issue in question, the
respondents have rightly highlighted that where the appellant
wanted to restrict the benefit of ITC when a particular dealer or C
transaction was exempted; it was so stipulated in the exemption
notification issued under Sections 8(3) and 8(4) of the Act.
Such notifications admittedly do exist and were issued by the
appellant. They are also right in drawing support from the note
sheets relating to Finance Bill 2007 as also the communications D
issued by Commissioner of Commercial Taxes. The note
sheets and the communication of the Commissioner draw a
clear distinction between exemptions when the goods were
not taxable as they do fall under the First Schedule and when
an exemption was granted under the Second Schedule, which E
relates to specified transaction of sale or exempted dealers
even when the goods were taxable goods. In latter cases,
subsequent dealers undertaking sale of goods would be liable
to pay tax on sale of such product~. There can be no shadow
of doubt that subsequent dealers undertaking sale of goods F
manufactured and sold by the respondent company would be
liable to pay tax on such products.

       29. In view of the aforesaid premised reasons, we do
not find any merit in these appeals and accordingly they stand     G
dismissed. There shall be no order as to costs.

Devika Gujral                                 Appeals dismissed.