Holding

The exemption under s.5(2)(a)(iv) is available when the goods are intended for use in generation or distribution of electrical energy; actual use need not be proved.

Summary

The appellant State of Haryana sought to recover sales tax on cement supplied by Dalmia Dadri Cement Ltd. to the Punjab State Electricity Board in 1964-65 and 1965-66. The cement was sold on the basis of certificates from the Board stating that it was required for use in the generation or distribution of electrical energy, and the original assessment granted exemption under s.5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948. The Deputy Commissioner later reopened the assessment, held that the exemption did not apply, and demanded additional tax, which was upheld by the Sales Tax Tribunal. The High Court, on reference, held that the seller need not prove actual use of the cement, only that it was intended for such use as reflected in the certificates. The Supreme Court affirmed this view, interpreting "for use" to mean "intended for use" and held that the exemption was available even if some of the cement was later used for non‑energy purposes, provided the certificates were not false. Consequently, the State's appeal was dismissed.

Issues considered

Whether the exemption under s.5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948 requires proof of actual use of the goods by the electricity board in generation or distribution of electrical energy
Whether a certificate issued by the electricity board indicating intended use is sufficient to claim the exemption

Legislation cited

Indian Electricity Act, 1910
Punjab General Sales Tax Act, 1948s. 21, s. 22, s. 5(2)(a)(iv)

Subjects

Sales tax exemptionInterpretation of "for use"Electricity boardCement supplyPunjab General Sales Tax ActCertificates of intended useTax reassessment

Judgment

)
STATE OF HARYANA A
v.
DALMIA DADRI CEMENT LTD.

NOVEMBER 20, 1987
B
[M.H. KANIA AND S. RANGANATHAN, JJ.]

Puniab General Sales Tax Act, 1948: s. 5(2)(a) (iv)-Cement-
Sale of to Electricity Board for use in generation or distribution of
~. energy-Deduction of from dealer's gross turnover-Whether permis-
sible.
i c
J'· Words & Phrases: Expression "for use" must mean "intended
for use"-s.5(2)(a)(iv), Punjab General Sales Tax Act, 1948.

Section 5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948
exempted goods sold to any undertaking supplying electric energy to
public, for use by it in the generation or distribution of such energy. D

The assessee-respondent was sought to be reassessed to sales
tax, in respect of supply of cement to the Punjab State Electricity
Board in the years 1964·65 and 1965·66 on the basis of the certificates
issued by the Board to the effect that it was required for use in the

.. generation or distribution of electrical energy, on the ground of non·
user of the goods for the said purpose. The Tribunal dismissed the
E

appeal of the assessee.

On a reference the High Court came to the conclusion that the
assessee who made sales to the Board on the basis of the certificates
was not required to prove further that the cement was actually so F
used.

Dismissing the State's appeal by special leave,

' • HELD: The assessee-respondent is entitled to exemption under
s. 5(2)(a)(iv) of the Punjab General Sales Tax Act, 1948. [4G] G

·'r The mere fact that some of the cement supplied was, in fact used
by the Punjab State Electricity Board for activities not directly con·
nected with the generation or distribution of electrical energy, cannot
make any difference regarding the availability of the exemption. [4D·El
H

1
2 SUPREME COURT REPORTS [ 1988] 2 S.C.R.

A In order to get exemption it need not be shown that the goods in
question were actually used in the generation or distribution of electri-
cal energy. On a plain reading of Cl. (a)(iv) of sub-s. (2) of s. 5 of the
Act it is clear that the expression "for use" therein must mean "inten-
ded for use". If the intention of the legislature was to limit th1: exemp-
tion only to such goods sold as were actually used by the untertaking
IB in the generation and distribution of electrical energy, the phraseology ·
used in the exemption clause would have been different, as, for exam-
ple, "goods actually used" or "good used". [4H; SA-BI

In the instant case, the certificates issued by the Board clearly
showed ·that the intention of the Board was that the cement should be
used for a purpose directly connected with the generation or distribu-
C tion of electrical energy. There is no material to show that the certi-
ficates were false certificates given by the Board, having another use
in mind, or that they were fraudulently obtained by the assessee in
collusion with the Board. [SH; 6A-B]

D Associated Cement Co. Ltd. Kymore M.P. v. Assistant Commis-
sioner of Sales Tax, Jabalpur Region, Jabalpur & Anr; [1971] 28
S.T.C. 629 and Spedding Dinga Singh & Co. v. The Punjab State,
11968] 22 S.C.C. 319 distinguished.

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 937- 'i -
E 38 of 1975.

From the Judgment and Order dated 4.11.1974 of the Punjab
and Haryana High Court in Govt. Sales Tax Reference No. 37 of
1973.

F Ravinder Bana and C.V. Subba Rao for the Appellants.

Serv Mitter and Madan Gopal Gupta for the Respondent.

The Judgment of the Court was delivered by

G KANIA, J. These appeals by special leave are directed against
the decision of a Division Bench of the High Court of Punjab & . _J
Harvana on a reference under Section 22 of the Punjab General Sales \
Tax· Act (hereinafter referred to as 'the Act'). The short facts neces-
sary for the disposal of these appeal are as follows:

H The respondent-assessee supplied cement in the years 1964-65
STATEOFHARYANAv. DALMIADADRICEMENTLTD. [KANIA, J.J 3

and 1965-66 to the Punjab State Electricity Board (referred to A
hereinafter as 'the Board') on the basis of the certificates issued
by the Board to the effect that the cement was required for use
in the generation or distribution of electrical energy. In the
initial assessment proceedings on the basis of these certificates
the sales of cement by the asscsscc to the Board were exemp-
ted. The exemption wa5. granted under section 5(2)(a)(iv) of the B
Act.

Section 5(2)(a)(iv) of the Act reads as under:
'i. "5(2). In this Act the expression 'taxable turnover' means
that pan of the dealer's gross turnover during any period c
which remains after deducting therefrom-

(a) x x xxxx x

(i) xx xxx xxx xx
(ii) xx xxx xxx D
(iii) x x x x

(iv) Sales to any undertaking supplying electrical
energy to the public under a licence or sanction
granted or deemed to have been granted under
the Indian Electricity Act, 1910 (IX of 1910) of E
goods for use by it in the generation or distribu-
• tion of such energy; xxx".
,
{ There is no dispute that the Board was an undertaking supply-
I
ing the electrical energy to the public and that it held a licence or a
sanction under the Indian Electricity Act, 1910. The assessing autho- F
rity on the basis of the certificates took the view that the cement was
sold by the assessee to the Board for use by it in the generation or
distribution of electricity energy.

Thereafter on the basis of an audit report, the assessment was
re-opened by the Deputy Excise and Taxation Commissioner (Appe- G
als). The Deputy Commissioner started suo moto proceedings under
Section 21 of the Act and issued a show cause notice to the assessee
and, after giving a hearing to the assessee, he came to the conclusion
that the exemption was not attracted and the deductions which had
been granted by the original assessing authority, to the tune of Rs. l
lac for the year 1964-65 and Rs.2 lacs for the year 1965-66, had been H
4 SUPREME COURT REPORTS [1988] 2 S.C.R.

A granted wrongly and issued additional demands aggregating to
Rs. 18,000.

The assessee challenged the additional demands made before
the Sales Tax Tribunal, Haryana but the challenge was replaced by
the Tribunal and the appe•l of the assessee dismissed.
B
Therafter a referenc~ was made _by the Tribunal to the Punjab
& Haryana High Court under Section 22 of the Act. The Division
Bench of the High Court while disposing of the reference came to the
conclusion that on a true construction of the provisions of Section
5(2)(a)(iv) of the Act the assesee, who made sales to the said Board
C on the basis of the certificates that the cement was required for use in
the generation and distribution of electrical energy, is not required to
prove further that the cement was actually so used and, on the basis
of this conclusion, it decided the reference in favour of the assessee.
It is this decision which is challenged before us.

D The submission of Mr. R. Bana, learned counsel for the appel-
lant is that in order to get the benefit of the exemption it is required
that it should be established before the Tax Authorities that the
cement supplied by the assessee was actually used by the Board in an
activity directly connected with the generation or distribution of
electrical energy. In the present case, the inquiry held by the Deputy -,
E Commissioner showed that the assessee was not in a position to
establish such actual use by the Board and it appeared that a part of ,.
the cement supplied was used by the Board in the construction of
staff quarters and other constructions which could not be said to be >
\_
directly connected with the generation or distribution of electrical -\
energy.
F
It was, on the other hand, submitted by the learned counsel for
r
the respondent that there was nothing to show that the certificates
issued were false certificates as such, that is, certificates given with
the knowledge that the cement purchased was to be used partly in
activities not directly connected with the generation or distribution of l
G electrical energy nor were the certificates obtained by the assessee
in collusion with the Board. The assessee was entitled to rely on the
certificates and get the exemption. -{
We are unable to accept the submission of Mr. Bana that, in
order to get the exemption it must be shown that the goods in ques-
H tion, namely, the cement supplied by the assessee in this case was
STATEOFHARYANAv. DALMIADADRJCEMENTLTD. [KANIA, J.I 5

actually used in the generation or distribution of electrical energy. It A
must be noted that the important words used in the relevant provi-
sions are "goods for use by it in the generation or distribution of such
energy" (emphasis supplied by us). On a plain reading of tile relevant
clause it is clear that the expression "for use" must mean "intended
for use". If the intention of the legislature was to limit the exemption
only to such goods sold as were acti.tally used by the undertaking in B
the generation and distribution of electrical energy, the phraseology
used in the exemption clause would have been diferent as, for exam-
ple, "goods actually used" or "goods used.".
-·
A Mr. Bana, in support of his submission, drew our attention to
the decision of the High Court of Madhya Pradesh in Associated C
Cement Co. Ltd., Kymore, M.P. v. Assistant Commissioner of Sales
j
Tax, Jabalpur Region, Jabalpur and Another, (1971] 28 S.'t.C. 629.
In that case the exemption provision was in pari materia with the
exemption provision before us. It was held by the Madhya Pradesh
High Court that everything sold to the Electricity Board for its use
did not fall within the exemption under Section 2(j)(a)(iii) of the Act. D
It was only when there was direct use of the goods in the generation
or distribution of electrical energy that the goods sold to the Board
could fall within the exemption.
We may point out that this decision is not of any assistance in
the case before us as the dispute in that case centred on the question

- whether, in order to attract the exemption, the goods supplied must E
be directly used in the generation or distribution of electrical energy
or whether indirect use of the goods for the aforesaid purpose was
enough. It appears that the Division Bench which decided that case
did not consider at all the question whether the expression "for use"
in the exemption clause meant "intended for use" or it meant "actu-
F
ally used". The same is the position regarding the decision of the
High Court of Punjab & Haryana in Spedding Dinga Singh & Co. v
The Punjab State, (1968] 22 S.'f.C. 319 which dealt with the very sub-
clause in question which dealt with the very sub-clause in question
before us.
We are, therefore, of the view that the real question which we G
are called upon to determine is whether, in the present case, the
cement supplied was intended for use directly in the generation or
distribution of electrical energy. If it was so intended, the exemp~ion
was attracted but nsrt otherwist~. The certificates which we have refer-
red to earlier issued by the Board clearly show that the intention of
the Board was that the cement should be used for a purpose directly H
6 SUPREME COURT REPORTS [1988] 2 S.C.R.

A connected with the generation or distribution of electrical energy.
There is no material to show that the certificates were false certifi-
cates given by the Board, having another use in mind, or that they
were fradulently obtained by the assessee in collusion with the
Board. 'The mere fact that some of the cement supplied was, in fact,
B used by the Board for activities not directly connected with the
generation or distribution of elecirical energy cannot make any
difference regarding the availa:.iility of the exemption.

In view of the conclusion set out in the previous paragraph, we
do not feel called upon to go into the question whether certificates
granted by the Board must be regarded as conclusive in a matter of
C granting exemption. We may, however, point out that the certificate y

contemplated under Section 5(2)(a)(iv) of the Act cannot compare
with the certificate in Form 'C' which is a statutory certificate nor can
it be regarded as completely conclusive. We are not called upon in
this case to consider in what circumstance the assessing authority can
go behind the certificate. It is clear that in the present case no such
D circumstances existed.

In the result, the appeals must fail and are dismissed with costs.

P.S.S. Appeals dismissed.