Holding

Exemption notifications must be read on their own terms; circulars are not binding on the assessee, and if the conditions of the notification are met, the exemption is available.

Summary

M/s Padinjarekara Agencies Ltd., a dealer under the Kerala General Sales Tax Act and the Central Sales Tax Act, manufactures centrifuged latex from field latex (raw rubber) and claimed exemption under Government Notification SRO No. 1003/91 (later replaced by SRO No. 1727/93), which exempts "goods" made from rubber. The Assessing Officer denied the exemption, relying on a circular that treated centrifuged latex and field latex as the same commodity, thus negating any manufacturing activity. Various appellate authorities gave conflicting rulings, and the Kerala High Court upheld the denial, holding that the two were the same commodity. The Supreme Court held that the concept of tax exigibility is distinct from exemption, that exemption notifications must be interpreted on their own terms, and that circulars issued by the Commissioner are not binding on the assessee. Consequently, if the assessee satisfies the conditions of the notification, exemption is available despite the circular, and the matter was remitted to the Assessing Officer for a fresh, de novo decision.

Issues considered

Whether centrifuged latex qualifies as "goods" under Notification SRO 1003/91/1727/93 for the purpose of exemption.
Whether the Commissioner’s circulars/orders are binding on the assessee in determining entitlement to exemption.
Whether the distinction between tax exigibility and exemption/concession affects the interpretation of the notification.

Legislation cited

Subjects

exemptionsales taxclassificationnotification interpretationcentrifuged latexfield latexcircularsKGST ActCST Actde novo assessmentconcessional rate

Judgment

[2008] 2 S.C.R. 641

... M/S. PADINJAREKARA AGENCIES LIMITED A
-+
v.
STATE OF KERALA
(Civil Appeal Nos. 5700-5712 of 2007)
FEBRUARY 8, 2008
B
(S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.)

Kera/a General Sales Tax Act, 1963; Exemption
Notification No. SRO 1003191 as replaced by Notification SRO ,
No.1727193: C
Exemption Notification - Centrifuged latex and field latex
- Exigibility to Sales Tax and applicability of Notification -
Held: Exigibility to tax is different from concept of concession/
exemption - Rules of interpretation applicable to classification
of items in a taxing statute differ in appropriate cases from b
terms and conditions of an Exemption Notification -
Exemption Notification has to be interpreted on its own terms
- In the instant case, High Court while denying exemption on
the ground of classification failed to notice that the issue was
not classification of goods but interpretation of the Notification E
- Circulars/orders denying the exemption not binding on
assessee - Hence, de-hors the instructions in the Circular,
assessee could claim exemption on the basis of the
Notification if it satisfies terms and conditions thereof - Matter
remitted to High Court for de novo consideration in accordance F
with law - Interpretation of Statutes - Notifications - Central
Sales Tax Act, 1956.
Appellant-assessee, a registered dealer under the
Kerala General Sales Tax Act and the Central Sales Tax
Act, was engaged in the production of centrifuged latex. G
Assessee claimed the benefit of Exemption Notification,
. SRO No. 1003/91 which was subsequently replaced by
another Notification SRO No. 1727/93. Under the
Notification, the conditions for availing exemptions were
641 H
642 SUPREME COURT REPORTS [2008] 2 S.C.R.

A that rubber should be used for manufacture of "goods"
and that tax was leviable on the products manufactured
+"
by using such rubber. The Assessing Authority relying
on a Circular No./6/98 dated 18/05/1998, did not allow the
benefit of exemption to the assessee on the ground that
B centrifuged latex and field latex were one and the same
commodity. Appeal filed thereagainst was allowed by the
appellate authority holding that the centrifuged latex
satisfied the definition of "goods" in terms of the
Notification and, therefore, concessional rate was
c admissible to the assessee. However, in the connected
matter the first appellate authority held that the field latex
is not a rubber product and, therefore, the assessee was
not entitled to exemption under the Notification. Appeal
filed against the order of the first Appellate Authority was
0 rejected by the Tribunal on the ground that field latex and
centrifuged latex were two separate and distinct
commodities. Revision Petitions were preferred by the
assessee before the High Court. The High Court held that
since raw-rubber and centrifuged latex are one and the
same commodity, the assessee was not entitled to claim
~ concessional rate of duty under the Notificaiion. Hence
the present appeals.
Allowing the appeals, the Court
HELD: 1.1 In the earlier case of Kurian Abraham Pvt.
F Ltd. the Department had taken the view that field latex and
centrifuged latex were two different and distinct
commodities whereas, in th9 present case, the
Department has taken the view that they were one and .
the same commodity. Therefore, in the matter of exigibility
G to tax, the Department took the stand that field latex and
centrifuged latex were different commodities anci when it
came to the question of exemption/concession, the same
Department contended that the two commodities were
same. (Para - 7) [646-A, B]
H
M/S. PADINJAREKARAAGENCIES LIMITED v. STATE 643
OF KERALA

State of Kera/a & Ors. v. Mis. Kurian Abraham Pvt. Ltd. & A
Anr 2008 (2) SCALE 341 - relied on.
1.2 Exigibility to tax is different from the concept of
exemption/concession. The rules of interpretation which
apply to classification of items in a taxing statute can differ
8
in appropriate cases from the terms and conditions of
exemption notification. Interpretation adopted in a
classification dispute need not be the same as
interpretation of Exemption Notification under the same
Act. Every Exemption Notification has to be read on its
own terms. One cannot confuse the terms used in the C
Notification by comparing the language of the Notification
with the language of the taxing statute. In the present case,
the Government Notification SRO No. 1003/91 (preceded
by Government Notification SRO No. 585/80) uses the
word "goods". Because of the use of the word "goods'· u
the first appellate authority came to the conclusion that
.... centrifuged latex can be considered as an item of "goods"
for the purposes of the Notification. According to the first
appellate authority, there was no difference of opinion on
the point that centrifuged latex satisfied the definition of E
the word "goods" in the KGST Act. According to the first
appellate authority, centrifuged latex as an item of goods
stood manufactured from field latex and, therefore, the
assessee was entitled to i::laim the benefit of exemption.
(Para - 12) [647-E-H, 648-A-C] F
1.3 In this case, this Court is not concerned with
classification but concerned with the words and
expressions used in the Notification(s). This point has
been missed by the High Court in its impugned judgment.
(Para -13) [648-E] G
1.4 It is no doubt true that, the AO is bound by the
directions issued by the Commissioner even with regard
to the terms used in the exemption Notification(s).
However, as held in the earlier judgment in the case of H
644 SUFHEME COURT REPORTS · [2008] 2 S.C.R.

,.
A Kurian Abraham Pvt. Ltd., circulars/or.ders issued by the
Commissioner are not binding on the assessee. *
Therefore, de hors the directives given by the
Commissioner, it is open to the assessee to claim the
benefit of exemption/concess!on on the basis of various ,
B exemption Notification(s) issued by the Government from
time to time. (Para - 13) [648-F, G]
1.5 If the assessee satisfies the terms and conditions
mentioned in the Exemption Notificstion, the assessee
would be entitled to the benefit under the Notifications
C notwithstanding the circular issued by the Board/
Commissioner. This is based on the principle that the
Circular does not bind the assessee if the assessee
demonstrates that it fulfils the conditions mentioned in
the Exemption Notification. Hence, the impugned
D judgments of the High Court in Sales Tax Revision Nos.
177-189/07, 192/2007, 117/07 and 126-138/07 are set aside
and the matters are remitted to the AO for de novo
consideration in accordance with law. AO will look into ·~

the contentions of the assessee uninfluenced by the
E observations of the High Court and de:.;ide the claim for
exemption on the bctsis of the words used in the
Exemption Notification(s) and the terms and conditions
mentioned therein.(Parc:s -13 & 14) [649-A, 8 1 C, DJ ,
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
F 5700-57~2 of 2007.
From the Judgment and Order dated 08.06.2007 of the
High Court of Kerala at Ernakulam in S.T. Rev. Nos. 177-189 of
2007.
G WITH
Civ!I f..ppeal Nos. 5699 and 5713-5726 of 2007.
R.F. Nariman, E.M.S. Anam, Fazlin Anam and Ramesh
Babu M.R. for the Appellant
H
MIS. PADINJAREKARAAGENCIES LIMITED v. STATE 645
OF KERALA [KAPADIA, J.]
-,
---> '' -f G. Prakash and Beena Prakash for the Respondent. A
(

The Judgment of the Court was delivered by
KAPADIA, J. 1. For the sake of convenience we state the
facts occurring in Civil Appeal Nos. 5700-5712/07.
8
2. This batch of civil appeals is filed by the assessee. It is
directed against common judgment dated 8.6.2007 in Sales
~ Tax Revision Nos. 177-189/07 decided by the Division Bench
of the High Court of Kerala. By the impugned judgment, the High
Court dismissed revisions filed by the appellant-assessee in
limine at the admission stage. C
3. These matters are a sequel to the lead matter in which
we have delivered our judgment in the case of State of Kerala
& Ors. v. M/s Kurian Abraham Pvt. Ltd. & Anr. (Civil Appeal
Nos. 7965-7966/2004). o
4. Assessee, Mis Padinjarekara Agencies Ltd., is
.. -
engaged in production of sale of centrifuged latex. It is a
registered dealer under Kerala General Sales Tax Act, 1963
("KGST Act") and Central Sales Tax Act, 1956 ("CST Act"). The
assessee's unit is registered as a SSI Unit. E
5. In this batch of civil appeals we are concerned with
•· assessment years 1982-83 to 1996-97. Assessee is the
processor of centrifuged latex from field latex (raw-rubber).
6. Assessee herein claimed the benefit of exemption F
provided in the Government Notification SRO No. 1003/91 which
was subsequently replaced by Government Notification SRO
No. 1727/93. Under Government Notification SRO 1003/91, the
conditions for availing exemptions were that rubber should be
used for manufacture of "goods" and that tax was leviable on G
. the products manufactured by such rubber.
7. The Assessing Authority did not allow the benefit of
exemption to the assessee under .the above Government
Notifications on the ground that centrifuged latex and field latex
were one and the same commodity. It may be noted that in the H
646 SUPREME COURT REPORTS [2008] 2 S.C.R.

A earlier case of Kurian Abraham Pvt. Ltd. (supra) the +"
Department had taken the view that field latex and centrifuged
latex were two different and distinct commodities whereas, in
the present case, the Department has taken the view that they
were one and the same commodity. Therefore, in the matter of
B exigibility to tax, the Department took the stand that field latex
and centrifuged latex were different commodities and when it
came to the question of exemption/concession, the same )...

Department contended that the two commodities were same. •
8. To continue the narration of events, it may be stated
c that, aggrieved by the decision of the AO, the matter was carried >

in appeal by the assessee to the first appellate authority, who
took the view that the centrifuged latex satisfied the definition of
"goods" in the Government Notification SRO No. 1003/91 and,
therefore, concessional rate was admissible to the assessee.
D (see page 96 of the Paper Book in Civil Appeal Nos. 5700-
5712/07). ,.l, .
~I

9. The above Government Notification SRO No. 1003/91
was superseded by Government Notification SRO No. 1727/
.. "

93, which came into effect w.e .f. 1 .1 .1994. Here, the AO once
E
again did not allow the claim of exemption on the ground that
field latex and centrifuged latex were one and the same .....
commodity falling under Entry 110 of the First Schedule to the
KGST Act. The AO relied on circular No. 16/98 dated 28.5.1998.
This time, in appeal, the first appellate authority held that, field
F latex is not a rubber product and, therefore, the assessee was
>- '
not entitled to exemption vide Notification SRO NO. 1727/93.
(see page 98 of the Paper Book in Civil Appeal Nos. 5700-
5712/07).
10. In the appeals relating to assessment years 1988-89
G
to 1993-94, the assessee contended before the Tribunal that
they were entitled to concessional rate of 3°/ci", which was rejected r
by the Tribunal on the ground that field latex and centrifuged
latex were two separate and distinct commodities by placing
reliance on the judgment of the Kera la High Court in the case of
H
M/S. PADINJAREKARAAGENCIES LIMITED v. STATE 641
OF KERALA '[KAPADIA, J.]

... ~ Padinjarekara Agencies Ltd. v. Asst. Commissioner A
reported in 1996 (2) KLT 641.
11. Aggrieved by the decision of the Tribunal, the matter
was carried in revision to the High Court being Sales Tax
Revision Nos. 177-189/07. The High Court took the view that it
B
had limited revisional powers under Section 41 of the KGST
Act. By the impugned judgment, it was held that there was no .
error committed by the Appellate Tribunal in its judgment nor
t had the Tribunal failed to decide any question of law. The High
Court further held that the AO was right in denying the benefit of .
exemption/concession to the assessee in view of the c
clarification issued by the Board/Commissioner, which was
binding on him, to the effect that there was no manufacturing
activity involved in conversion of raw-rubber into centrifuged latex ·
as both the commodities were same. According to the High
Court, since raw-rubber and centrifuged latex are one and the D
same commodity under Entry 110 {preceded by Entry 161) the
A
assessee was not entitled to claim concessional rate of duty
•· under Government Notification SRO 1727/93, hence these civil
appeals by the assessee.
12. Exigibility to tax is a concept which is different from E
the concept of exemption/concession. As stated above, when it
came to exigibility, the Department contended that after
1.4.1988, field latex and centrifuged latex were two distinct and
separate commodities and, at the same time, when it came to
exemption, the same Department contended that field latex and F
........
centrifuged latex are one and the same commodities, hence,
assessee was not entitled to claim concessional rate of duty
under circular No. 16/98 dated 28.5.1998. Exigibility to tax is
different from the concept of exemption/concession. The rules
of interpretation which apply to classification of items in a taxing G
statute can differ in appropriate cases f~om the terms and
'4f
conditions of exemption notification. Interpretation adopted in
a classification dispute need not be the same as interpretation
of Exemption Notification under the same Act. Every Exemption
Notification has to be read on its own terms. One cannot confuse H
648 SUPREME COURT REPORTS [2008] 2 S.C.R.

A the terms used in the Notification by comparing the language of
the Notification with the language of the taxing s"tatute. In the
present case, the Government Notification SRO No. 1003/91
(preceded by Government Notification SRO No. 585/80) uses
the word "goods". Because of the use of the word "goods" the
B first appellate authority came to the conclusion that centrifuged
latex can be considered as an item of "goods" for the purposes
of SRO No. 1003/91 . According to the first appellate authority,
there was no difference of opinion on the point that centrifuged
latex satisfied the definition of the word "goods" in the KGST '
C Act. According to the first appellate authority, centrifuged latex L
"
as an item of goods stood manufactured from field latex and,
therefore, the assessee was entitled to claim the benefit of
exemption.
13. In our view, the High Court has failed to consider the
D question of law, which arose for determination before it in Sales
Tax Revision Nos. 177-189/07. As stated above, in this case,
we are concerned with interpretation of various Exemption
Notifications. We are not concerned with interpretation of circular
No. 16/98 dated 28.5.1998. We do not wish to express our views
E at this stage on the interpretation of the Exem·ption
Notification(s). Suffice it to state that, in this case, we are not
concerned with classification. In this case, we are concerned
with the words and expressions used in the Notification(s). This
point has been missed by the High Court in its impugned
F judgment. It is no doubt true that, the AO is bound by the
directions issued by the Commissioner even with regard to the
terms used in the exemption Notification(s). However, as held
>-- l

I
in our earlier judgment in the case of Kurian Abraham Pvt.
Ltd. (supra), circulars/orders issued by the Commissioner are
r
G not binding on the assessee. Therefore, de hors the directives
given by the Commissioner, it is open to the assessee to claim '
,1-
the benefit of exemption/concession on the basis of various
exemption Notification(s) issued by the Government from time
r )

to time. vVe express no opinion on the interpretation of those ?-
Notification(s). Suffice it to state that, the assessee was not
H
MIS. PADINJAREKARAAGENCIES LIMITED v. STATE 649
OF KERALA [KAPADIA, J.]

bound by the orders/directions issued by the Commissioner to A
the AO, therefore, on the scope and effect of each of the above
exemption Notifications, the matter needs to be remitted to the
AO for fresh decision in accordance with law. In other words, if
the assessee satisfies the terms and conditions mentioned in
the Exemption Notification, the assessee would be entitled to B
the benefit thereund.er notwithstanding the circular issued by the
Board/Commissioner. This is on the principle mentioned
hereinabove that such Circular does not bind the assessee if
the assessee demonstrates that it fulfils the conditions
mentioned in the Exemption Notification. c
14. For the reasons given hereinabove, we set aside the
impugned judgments of the High Court in Sales Tax Revision
Nos. 177-189/07, 192/2007, 117/07 and 126-138/07 and remit
the matters to the AO for de novo consideration in accordance
with law. AO will look into the contentions of the assessee D
uninfluenced by the observations of the High Court and decide
the claim for exemption on the basis of the words used in the
<I • Exemption Notification(s) and the terms and conditions
mentioned therein.
15. Accordingly, the civil appeals filed. by the assessee E
are allowed with no order as to costs.
S.K.S. Appeals allowed.