Holding

The exemption is contingent upon a separate prior permission from the Industries Department before 31 August 2000, and a temporary registration certificate does not fulfil this mandatory condition, so the High Court could not lawfully direct the grant of exemption.

Summary

The State of Jharkhand appealed against a Jharkhand High Court order that had treated a temporary registration certificate issued to Ambay Cements as the "prior permission" required for sales‑tax exemption under the Bihar Industrial Promotion Policy, 1995. The policy, as amended by Notifications S.O. 57 and 58 dated 2 March 2000, mandated that pipeline industries obtain a separate prior permission from the Industries Department before 31 August 2000, in addition to a registration certificate, to be deemed a "new industrial unit" eligible for exemption. The Court examined whether the condition was mandatory and whether the High Court could override it in a writ proceeding. It held that the temporary registration certificate does not satisfy the statutory requirement of prior permission, that the condition is mandatory, and that the High Court cannot direct the grant of exemption contrary to the statutory scheme. Consequently, the appeal was allowed and the High Court judgment set aside, leaving the exemption application of the respondent rejected.

Issues considered

Whether the conditions prescribed by the authorities for grant of exemption are mandatory for availing the same?
Whether the High Court, exercising writ jurisdiction, can direct the grant of exemption contrary to the statutory conditions in the absence of any challenge to their validity?

Legislation cited

Bihar Finance Act, 1981s. 7(3)(b)
Constitution of Indias. Article 226

Subjects

Industrial Promotion PolicySales Tax exemptionStatutory interpretationMandatory conditionPrior permissionHigh Court jurisdictionArticle 226Tax lawTemporary registrationPipeline industries

Judgment

STATE OF JHARKHAND AND ORS. A
v.
AMBA Y CEMENTS AND ANR.

NOVEMBER 17, 2004

B
[S.N. VARIAVA, DR. AR. LAKSHMANAN AND
S.H. KAPADIA, JJ.]

Bihar Industrial Promotion Policy, 1995-New pipeline industrial unit
in small scale sector-Exemption from sales tax-Grant of-Requirement
of obtaining prior permission of State Government in the Industries C
Department before 31.8.2000 in addition to temporary registration for
seeking exemption as new industrial unit as per the Notifications-Nature
of-Held : Such condition prescribed by the Authorities is mandatory for
availing exemption-On facts, small scale industrial unit obtained temporary
Registration Certificate which cannot be construed as prior permission of D
Industries Department-Hence, industrial unit cannot be deemed to be a
new industrial writ and non-compliance thereof would disentitle them from
grant of exemption-Also High Court cannot direct grant of exemption
overlooking the statutory conditions prescribed, that too in the absence of
any challenge to the validity of such condition-Bihar Finance Act, 198 ]-
Section 7(3)(b)-Constitution of India, 1950-Article 226. E

Interpretation of statutes :

Taxing statutes-Exemption clause-Providing concessional rate of
tax-Construction of-Held : Such clause should be strictly construed- F
Court should not ignore the conditions prescribed in the Industrial Policy
and the exemption Notifications since it is the cardinal rule of interpretation
that when statute prescribes particular act to be done in a particular
manner, it should be done in the manner prescribed-Industrial Promotion
Policy, 1995-Bihar Finance Act, 1981.
G
The erstwhile State of Bihar framed Industrial Promotion Policy,
1995 and gtanted exemption to newly set up small scale industries from
Sale Tax on a purchase of raw materials and sale of finished products.
Notification No. S.O. 478/479 dated 22.12.1995 were issued for
implementation of the policy and exemption from sale tax was granted H
125
126 SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

A to those new industrial units which started production between 1.09.1995
and 31.08.2000 and obtained Registration Certificate from the competent
Authority. Industrial Policy was then amended and certain reliefs were
provided to pipeline industries. Thereafter, Notifications S.O. 57 and 58
dated 2.3.2000 were issued which amended Notification No. S.O. 478/
B 479 dated 22.12.1995 providing that the pipeline industries to be treated
as new industrial units for the purposes of exemption under S.O. 478
and 479 should obtain prior permission of the State Government
Industries Department before 31.8.2000 and should commence
production within 5 years from the date of obtaining prior permission
in addition to obtaining registration certificate from the competent
C Authority.

Respondent, a small scale industry obtained temporary registration
from the General Manager of the Industries Centre on 5.5.2000 and
applied for grant of exemption. Joint Commissioner rejected the
D application on 11.9.2000 since the respondent did not obtain the prior
permission from the State Government Industries Department.
Respondent started its commercial production from 2.4.2001 and applied
for eligibility certificate under the S.O. 478/479 dated 22.12.1995 read
with Notifications S.O. 57 and 58 dated 2.3.2000 on 2.4.2001 which was
rejected. Aggrieved respondent filed writ petition. High Court allowed
E the petition holding that the temporary registration certificate can be
treated as prior permission of the State Government and remitted back
the matter to the Joint Commissioner. Hence the present appeal.

Appellant-State contended that obtaining a separate prior
p permission from State Government Industries Department to be eligible
for exemption as contemplated in the notification is a mandatory
condition and non-compliance of the same would disentitle the respondent
from grant of exemption; and that the High Court erred in directing
the grant of exemption in favour of the respondent overlooking the
statutory conditions prescribed more so, in the absence of any challenge
G to the validity of such conditions.

Respondent No. 1 contended that the temporary Registration
Certificate granted by the Industries Department of the State Government
is in fact a prior permission as contemplated under Notifications S.O.
H 478/479 dated 22.12.1995 read with Notifications S.O. 57 and 58 dated
STATE v.AMBA Y CEMENTS 127

2.3.2000 and there is nothing to show in the said Notifications that a A
separate prior permission was required for being eligible for the grant
of exemption and as such the respondent is entitled to get exemption;
that the respondent has set up its establishment in the year 2000 and
started its commercial production from 2.4.2001 and accordingly applied
for grant of exemption of sale tax on purchase of raw materials and on B
sales of finished goods on 2.4.2001; that respondent no. 1 was issued
permanent Registration Certificate on 30.4.2001; and that in taxing
statutes, provision of concessional rate of tax should be liberally
construed.

Allowing the appeal, the Court c
HELD : 1.1. The temporary registration certificate issued by the
Industries Department cannot be considered as prior permission of the
State Government in the Industries Department within the meaning of
the amended definition of new industrial unit under Notifications S.O. D
478/479 dated 22.12.1995 read with Notifications S.O. 57 and 58 dated
2.3.2000. From the reading of the statutory Notification, it will be manifest
that in addition to the temporary registration, a separate prior permission
of the State Government Industries Department before 31.8.2000 is an
important condition precedent for any unit to become eligible to be deemed
as new industrial unit for the purpose of exemetion. Therefore, the E
condition presaibed by the authorities of obtaining prior permission is
mandatory for availing the exemption. Furthermore, it is an admitted
position that the respondent has not obtained the prior permission of the
State Government before 31.8.2000 and as such the Industrial unit of the
respondent cannot be deemed to be a new industrial unit eligible for tax F
exemption under S.O. 478 & 479 dated 22.12.1995 read with S.O. 57 & 58
dated 2.3.2000. The authorities concerned rightly rejected the application
for exemption of the respondent for non-fulfilment of the statutory
obligation on the part pf the respondent by not obtaining prior permission
of the State Government. (136-G-H; 137-A, BJ
G
1.2. High Court while exercising Jurisdiction under Article 226 of
the Constitution cannot direct the grant of exemption in favour of the
respondent overlooking the statutory conditions prescribed for such grant
and that too in the absence of any challenge to the validity of such condition.
The order of the High Court that the grant of temporary registration H
128 SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

A certificate in favour of respondent No. 1 was sufficient and the same was
equivalent to prior permission as prescribed under the Notifications is
not correct. It failed to appreciate the provisions laid down in the statutory
Notifications S.O. 57 and S.O. 58 dated 2.3.2000 which expressly provided
for obtaining prior permission separately. (137-D, E, F)

B 2. It is the cardinal rule of interpretation that where a statute
provides that a particular thing should be done in a particular manner,
it should be done in the manner prescribed and not in any other way.
It is also settled rule of interpretation that where a statute is penal in
character, it lays down that failure to comply with the said requirement
C leads to severe consequences, such requirement would be mandatory
and must be strictly construed and followed. Therefore, an exception or
an exempting provision in a taxing statute should be construed strictly
and it is not open to the Court to ignore the conditions prescribed in
the Industrial Policy and the exemption Notifications. If the condition
D under which the exemption was granted stood changed on account of
any subsequent event the exemption would not operate. Furthermore,
whHe.mandatory rule must be strictly observed substantial compliance
might suffice in the case of a directory rule. (139-C, D, A, B)

Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax Bombay
E City-Ill, Bombay, [1992) 3 SCC 78; Commissioner ofSales Tax v. Industrial
Coal Enterprises, 11999] 2 SCC 607 and State of Bihar v. Suprabhat Steel
Ltd. & Ors., (1999) 1 SCC 31, referred to.

CIVIL APPELLATE JURISDICTION Civil Appeal No. 7994 of
2003.
~F
From the Judgment and Order dated 15.1.2003 of the Jharkhand High
Court at Ranchi in W.P.(T) No. 5712 of 2002.

A. Saran, Additional Solicitor General, Rajesh Pathak and Ashok
G Mathur for the Appellants.

A. Gopichand Bharukha, Ajit Kumar Sinha, S.D. Sanjay and Devashish
Bharukha for the Respondents.

H The Judgment of the Court was delivered by
STATE v.AMBAY CEMENTS [AR. LAKSHMANAN, J.] 129

DR. AR. LAKSHMANAN, J. : This appeal is preferred by the State A
of Jharkhand through the Commissioner of Commercial Taxes, Ranchi,
Jharkhand and five others against the final judgment and order dated 15.1.2003
passed by the Division Bench of the High Court of Jharkhand at Ranchi in
Writ Petition (T)No. 5712 of 2002 allowing and remitting back the same
to the Joint Commissioner of Commercial Taxes (Admn.), Dhanbad Division, B
Dhanbad for passing a fresh order in view of the observations and directions
made in the judgment. The short facts are as follows:

The erstwhile Government ofBihar came out with an Industrial Policy
1995 providing certain incentives to the newly set up industrial units in the·
small scale sector. Clause 16.1 and Clause 16.2 of the said Industrial Policy C
provided for exemption from Sales Tax on purchase of raw material and
exemption of Sales Tax on sale of finished products. The Commercial Taxes
Department of the State Government issued statutory Notifications for
implementation of the said Industrial Policy vide S.0.478/479 dated
22.12.1995. The said Industrial Policy was amended vide Notification No. D
5680 dated 27.8.1997 for provkiing certain reliefs to the pipeline industries.
The Industrial Policy 1995 was amended with a view to provide extension
of time limit for the date of start of commercial production in case of pipe
line industries where substantial investment capital has been made subject
to the condition that such pipe line industrial unit shall seek prior permission
of the State Government in the Industries Department before 31.8.2000 and E
commercial production shall be started within five years from the date of
obtaining such prior permission. On 2.3.2000, the Commercial Taxes
Department issued Notification No. S.O. 57 and 58 dated 2.3.2000 pursuant
to the above amendment in the Industrial Policy 1995. As per the Industrial
Policy 1995 and Notifications issued for the implementation of the Industrial F
Policy 1995, that is, S.O. 478 and S.O. 479 dated 22.12.1995 newly set up
small scale industries were entitled to tax free purchase of raw material as
also tax free sale of finished products provided that the date of start of such
industries were between 1.9.1995 and 31.8.2000. The statutory Notifications
S.O. 57 and S.O. 58 dated 2.3.2000 amended the Notification Nos. S.O. 478
and S.O. 479 dated 22.12.1995 accordingly to provide for prior permission G
of the Industries Department which will have to be obtained by the pipe line
industrial unit before 31.8.2000 for availing of the tax incentive under
Notification Nos. S.O. 478 and S.O. 479 of 22.12.1995.

It is seen from S.O. 478 and S.O. 479, as amended vide S.O. 57 and H
130 SUPREME COURT REPORTS [2004) SUPP. 6 S.C.R.

A S.O. 58 dated 2.3.2000 that industrial units having obtained registration
from Industries Department/Industrial Area Development authority/Director
oflndustries or having obtained from competent Authority of the Government
oflndia Registration Certificate/Letter oflntent etc., and desirous of availing
tax incentive benefit under Industrial Policy 1995 will also obtain prior
B permission of the State Government in the Industries Department before
31.8.2000.

The respondent herein-Mis Ambey Cements, a small scale industry
has obtained temporary Registration Certificate from the General Manager,
District Industries Centre, Dhanbad dated 5.5.2000 applied before the Joint
c Commissioner of Commercial Taxes (Admn.) for grant of exemption. The
joint Commissioner vide his order dated 26.8.2000 granted the same with
a condition that it will obtain prior permission from the State Government
in the Industries Department. The Joint Commissioner, after examining the
application for issue of the eligibility certificate, rejected the application on
D the ground that the respondent did not obtain the prior permission from the
Industries Department in accordance with the provisions laid down in the
statutory Notification Nos. S.O. 57 and S.O. 58 dated 2.3.2000. The respondent
unit, on 2.4.2001, applied for the eligibility certificate under the provisions
of S.O. 478 and S.O. 479 dated 22.12.1995 read with S.O. 57 and S.O. 58
dated 2.3.2000 issued under the provisions of Industrial Policy 1995 on
E 2.4.200 I without obtaining the prior permission of the State Government
in the Industries Department.· The Joint Commissioner, by order dated
11.9.2000 rejected the application filed by the respondent for exemption
from payment of sales tax on purchase of raw materials and exemption from
payment of sales tax on sale of finished products under the provisions of
F the concerned Notifications. The Joint Commissioner rejected the application
on the ground that no prior permission from the Department of Industries
has been issued.

Aggrieved by the order passed by the Joint Commissioner, the
G respondent filed a writ petition before the High Court of Jharkhand which
was opposed by the appellant herein by filing a counter affidavit wherein
it was contended that the statutory Notifications were not complied with by
the respondent herein. However, the High Court allowed the writ petition,
inter alia, and directed the authorities concerned that the temporary
Registration Certificate issued by the General Manager, District Industry
H Centre can be treated as prior permission of the State Government as
STATE v.AMBA Y CEMENTS [AR. LAKSHMANAN, J.] 131

. contemplated under the Notification issued for the purpose. A

Being aggrieved by the order passed in the writ petition, the State of
Jharkhand preferred S.L.P.(C) No. 10169/2003 before this Court. The order
of the High Court was also stayed by this Court on 10.7.2003. Leave was
granted on 22.9.2003 and the special leave petition was renumbered as Civil
B
appeal No. 7994 of 2003.

We heard Mr. A Saran, learned Additional Solicitor General, appearing
for the appellants and Mr. Gopichand Bharukha, learned senior counsel,
appearing for respondent No. l.
c
Before proceeding further, it is useful to reproduce paragraphs 10 and
11 of the judgment passed by the High Court which read thus:

"10. It could not be explained before us as to how and on that
consideration, a temporary registration Certificate is granted or can D
be rejected. It could not be explained either as to how and on that
considerations, the said prior permission is granted or rejected. In
other words, it could not be explained to us as to what is the
difference between the temporary registration Certificate granted
by the Industries Department of the Government for setting up a
new industrial unit and a prior permission granted by the State E
Government (Industries Department), as contemplated in the said
notification, as aforesaid. One has also to keep in mind the object
and purpose of the said Industrial Policy and the incentives granted
thereunder which should not be frustrated on mere technicalities.
We are left with no alternative than to hold that the temporary F
registration Certification (Annexure-5) can be treated as prior
permission of the State Government (Industries Department) as
contemplated under the aforesaid notificatfon.

11. In the result, the matter is remitted back to the Respondent No. G
3 Joint Commissioner of Commercial Taxes (Admn.), Dhanbad
Division, Dhanbad for passing a fresh order in view of the
observations and directions made herein above within a period of
two months from the date of receipt of a copy of this order."

Learned Additional Solicitor General appearing for the appellants H
132 SUPREME COURT REPORTS (2004) SUPP. 6 S.C.R.

~A submitted that the High Court erred in allowing the writ petition filed by '
respondent No. l and directing the grant of exemption in favour of the same
overlooking the fact that respondent No. I had admittedly not complied with
the statuto~ conditions prescribed under the Notifications issued by the
State Government in terms of the Industrial Policy 1995 for such grant.
..
B According to him, the conditions prescribed by the Authorities for grant of I
exemption are mandatory and that the High Court directed the grant of I-
exemption in favour of the respondent overlooking the statutory provisions
prescribed more so, in the absence of any challenge to the validity of such
conditions. It was further submitted that non-compliance of the provisions
laid down in the statutory provisions would disentitle the respondent from
c grant of exemption.

Mr. Gopichand Bharukha, learned senior counsel, appearing for
respondent No. I, submitted that the Temporary Registration Certificate
granted by the Industries Department of the State Government is in fact a
D prior pern1ission as contemplated under the aforesaid Notifications and there
is nothing to show in the said Notifications that a separate prior permission
was required for being eligible to the incentives/exemption granted under
the said Notifications. He would further submit that the Department of
Industries, government of Bihar came up with Industrial Policy granting
various incentives to such an industry including the 'exemption of sales tax
E with a view to accelerate the growth of industries in the State. This policy
enunciated by the Bihar State was duly adopted by the State of Jharkhand
and the Notifications issued pursuant thereto.

Mr. Bharukha invited our attention to the Registration Certificate
F issued by the General Manager, District Industries Center for production of
Cement. This Certificate snows that it was valid for five years. As per the
Registration Certificate, the respondent is entitled to get exemption as the
same is nothing but a prior permission of the State Government granted prior
to 3.8.2000. He invited our attention to the relevant portion of the said
G Notification which is reproduced hereunder:

"I. In place of the present entries of Clause l(a) of the aforesaid
notification the following entries should be substituted:-

lA. By a new Industrial unit is meant such unit in which the
H production work has commenced between I st September I 995 and
STATE v.AMBAY CEMENTS [AR. LAKSHMANAN, J.] 133

31st August, 2000 and which has got sanction letter/advertisement A
letter/letter of intent/Registration Certificate from Industrial
Department/Industrial Area Development Authority/Director of
Industries and Competent Officer of the Government of India:

But all such units in which 500 crores or more capital will be B
invested for expansion then they shall be considered as new units
for the purpose of this Notification;

But it is also that for the purpose of this Notification all those
units shall be considered as new units which has commenced
production within 5 years after taking prior permission from the C
Industry Department of the State Government before 3 lst August,
2000 even if those units which commence production after 3 lst
August, 2000."

Mr. Bharukha further submitted that the respondent has set up its D
establishment in the year 2000 and started its commercial production from
2.4.200 I and the permanent Registration Certificate to respondent No. I was
issued on 30.4.200 I wherein it was stated that the respondent has started
its production on 2.4.2001. Accordingly, after the commercial production
had started, the respondent applied for exemption certificate on the requisite
application form for granting sales tax exemption on purchasing raw materials E
and on sales of finished goods on 2.4.2001. Mr. Bharukha also submitted
that on the respondent filing an application for exemption before the Deputy
Commissioner of Commercial Taxes, the said Deputy Commissioner taking
into consideration all the relevant document had recommended the case of
the respondent to the Joint Commissioner of Commercial Taxes (Admn.) F
and the said order was also based on the inspection made in the respondent's
premis~s and after checking of the documents by the Assistant Commissioner
of Commercial Taxes and that from the perusal of the order passed by the
Deputy Commissioner of Commercial Taxes, it is evident that he has
considered the second proviso to S.O 58 dated 2.3.2000 and stated that by
way of prior permission, the General Manager, District Industries Center, G
Dhanbad has issued a temporary Registration Certification issued under the
provisions of the Industrial Policy. In support ofhis.contentions, Mr. Bharukha
relied on three rulings of this Court in the case of Bajaj Tempo Ltd., Bombay
v. Commissioner of Income Tax, Bombay City-Ill, Bombay, [1992] 3 SCC
78, Commissioner ofSales Tax v. Industrial Coal Enterprises, [ 1999] 2 SCC H
134 SUPREME COURT REPORTS [2004) SUPP. 6 S.C.R.

A 607 and State of Bihar & Ors. V. Suprabhat Steel Ltd. & Ors., [1999) 1 sec
31.

We have perused the pleadings and the annexures filed along with the
appeal and also the judgment passed by the High Court.
B
The facts of this case are not in dispute. The only dispute is as to
whether the temporary Registration Certificate can be treated as prior
permission from the State Government (Industries Department) for the
purpose of the Notification. As already noticed, learned Additional Solicitor
General appearing for the appellant submitted that a separate prior permission
C was required to be eligible for the purpose of the Notification in question.
On the other hand, learned counsel for the respondent submitted that the
prior permission contemplated in the said Notification is for setting up an
industry which was granted vide Annexure 5 filed in the writ petition.

D In the above background, the following questions of law would arise
for consideration in this appeal:

I) Whether the conditions prescribed by the Authorities for
grant of exemption are mandatory for availing the same?

E 2) Whether the High Court can in exercise of writ jurisdiction
can direct grant of exemption contrary to the terms thereof
and overlooking the statutory conditions prescribed for
such grant in the absence of any challenge to the validity
of such conditions?
F
The Industrial Promotion Policy 1995 (S.O. 478/479 dated22.12.1995)
was issued by the State Government in exercise of powers conferred under
Clause (b) of sub-section (3) of Section 7 of the Bihar Finance Act, 1981
(Bihar Act No. 5 of 1981) by which the Governor ofBihar granted exemption
to those new industrial units which start production between the period Ist
G September, 1995 to 3 lst August, 2000 who have obtained the Registration
Certificate from the competent Authority under the aforesaid Act and the
tax exemption certificate after making information in Form T.E. (Purchase
II) and with this Notification from levy of sales t~x payable on purchase
direct raw material required manufacturing of goods under the terms and
H conditions noted in the said policy. The "New Industrial Unit" is defined ,
\
STATE v.AMBAY CEMENTS [AR. LAKSHMANAN, J.] 135
-;
under Clause l(a) of the Act. Under S.O. 479 dated 22.12.1995, the Governor A
granted exemption to those new units/started function in between the period
from Ist September, 1995 to 31st August, 2000 and obtained Registration
Certificate from the competent authority under the aforesaid Act. By S.O.
57 and 58 dated 2nd March, 2000, a Notification was issued in exercise of
the power conferred in sub-section 3(b) of Section 7 of the Bihar Finance B
Act, 1981 (Bihar Act No. 5 of 1981) incorporating certain amendments in
the previous Notification S.O. 479 dated 22nd December, 1995 issued by
the Department of Commercial Taxes. Under Clause l(a), New Industrial
Unit has been defined to mean such a new unit where production has been
started between 1st September, 1995 and 31st August, 2000 which has
obtained a letter of permission/memo of acceptance letter/letter of authority/ c
registration certificate from the Department of Industries/Authority of
Industrial Development Area/Director of Industries or from a competent
Authority of the Government of India. The proviso to the said clause
provides that the Industrial Unit which has obtained prior permission before
31st August, 2000 from the State Government (Industry Department) and D
has started production within five years from the date of permission shall
also be treated as new Unit under this Notification even though they have
started production after 31st August, 2000. Clause 2 of the amended
Notification provides as follows:

"For the purpose of prior approval of the Govt. in regard to small E
units, prior approval of the General Manager, District Industrial
Centre or Managing Director, Industrial Area Development
Authority and Circle, Incharge of commercial Taxes shall also have
to be obtained. In regard to medium and large industries, prior
approval shall be granted by committee headed by Commissioner F
of Commercial tax which consisted of the Director, Industries and
Director, Technical Development as members. The prior approval
shall be issued by the official of the Industry Department if the
Committee does not communicate its decision within 60 days from
the date of application. An application may be filed before
Commissioner, Industrial Development who shall communicate his G
decision within 60 days after consultation with Commissioner,
Commercial Taxes."

Consequent on the application made by the respondent herein,
provisional registration of small scale industrial unit was allotted to the H
136 SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

.A respondent Unit which shall be valid for a period of five years from the date
of the issue of the said registration. The Joint Commissioner, Commercial
Taxes on 26.8.2000 passed the following order :

"Appearance filed. Prior permission is being given on the condition
that production will be commenced soon. Besides, prior permission
B
of the Industries Department shall be taken.

Sd/-
Sh. J.N. Pandey,
Joint Commissioner, Commercial
c Taxes (Admn.) Dhanbad Division,
Dhanbad.

Memo No. 959/Dhanbad dated 26th August, 2000."

D On 11.9.2000, the Joint Commissioner, Commercial Taxes in the
concluding portion of his order stated as under:

"Prior permission from the Industries Department has not been
taken by the Industrial unit. Their contention is that it is provisionally
registered as a Small Scale Industrial Unit in the Industries
E Department and afterwards permanently registered. This should be
considered as permission letter prior to the registration certificate.
Prior permission and registration in the Industries Department are
two different aspects. Keeping this point in view the Department
of Commercial Taxes at the time of according prior permission on
F dated 19.08.2000 had also imposed a condition that Proprietor of
the Unit shall also get prior permission from the Industries
Department. But in this regard there is no document on record.
Therefore, recommendation sent from the Division is not approved."

We have carefully considered the rival submissions made by the
G respective counsel appearing on either side. In our opinion, the certificate
issued by the Industries Department cannot be considered as prior permission
within the meaning of the amended definition of new industrial unit. It will
be manifest from the said notifications that in addition to the temporary
registration, a separate prior permission of the Industries Department before
H 31.8.2000 is an important condition precedent for any unit to become
- .J STATE v.AMBA Y CEMENTS [AR. LAKSHMANAN, J.] 137

eligible to be deemed as new industrial unit for the purpose of exemption. A
It is wholly misconceived for the respondent herein to suggest that the
temporary registration certificate issued by the Industries Department should
be construed as prior permission within the meaning of the amended definition
of new industrial unit vide S.O. 478/479 dated 22.12.1995. From the reading
of the statutory Notification, it will be manifest that a separate prior permission B
of the Industries Department before 31.8.2000 is an important condition
precedent for any unit to become eligible for the purpose of exemption. It
is an admitted position in this case that the respondent has not obtained the
prior permission of the State Government in the Industries Department
before 31.8.2000 and as such the Industrial unit of the respondent cannot
be deemed to be a new industrial unit eligible for tax exemption under S.O. C
478 & 479 dated 22.12.1995 read with S.O. 57 & 58 dated 2.3.2000. In our
opinion, the application for exemption of the respondent has been rightly
rejected by the authorities concerned for non-fulfilment of the statutory
obligation on the part of the respondent by not obtaining prior permission
of the State Government. D
In our view, the condition prescribed by the authorities for grant of
exemption are mandatory for availing the exemption and the High Court
exercising jurisdiction under Article 226 of the Constitution cannot direct
the grant of exemption in favour of the respondent overlooking the statutory
conditions prescribed for such grant and that too in the absence of any E
challenge to the validity of such condition.

The observations made by the High Court that the grant of temporary
registration certificate in favour of respondent No. l was sufficient and the
same was equivalent to prior permission as prescribed under the Notifications F
is not correct. We are of the opinion that the High Court has failed to
appreciate the provisions laid down in the statutory Notifications S.O. 57
and S.O. 58 dated 2.3.200Q which expressly provide for obtaining prior
permission separately. N~p.-com;iliance thereof would disentitle the
respondent from grant of exemption.
G
It is a matter of fact that the respondent has set up its establishment
in the year 2000 and started its commercial production from 2.4.2001 only.
It is seen from the Bihar Industrial Policy Resolution, 1995 and the statutory
Notification issued by the Commercial Tax Department, the new industrial
units was defined as those industrial units which went into production H
138 SUPREME COURT REPORTS [2004] SUPP. 6 S.C.R.

A between 1.9.1995 and 31.8.2000 and which have been granted licence/
memorandum/letter of intent or registration certificate from the competent
industries Department or Industrial Area Development Authority or
Directorate of Industry or competent authority of the Government of India.
As already noticed, the statutory notifications were amended retrospectively
vide S.O. 57 and 58 dated 2.3.2000. It will thus be seen from the aforesaid
B
amended Notifications that three conditions are stipulated for pipeline
industries to be treated as new industrial units for the purposes of exemption
under S.O. 478 & 479 which read as follows:

"(I) Industrial unit should obtain registration certificate from the
c competent Authority of the Industries Department.

(II) It should also have obtained prior permission from the State

-
Government in the Industries Department before 31st August, 2000.

D (III) Industrial unit should commence production within 5 years
from the date of obtaining prior permission."

We have already noticed that the respondent has applied for exemption
and the Department granted permission to the respondent with a condition
that the prior permission from the Industries Department should be obtained
E within the stipulated time. However, the respondent has deliberately ignored
the direction of the Department to meet the statutory binding obligation. It
is an admitted position in the writ petition that the respondent has not
obtained the prior permission of the State Government before 31.8.2000 and
as such the Industrial Unit of the respondent cannot be deemed to be a new
F Industrial Unit eligible for tax exemption under the Notifications dated
22.12.1995 read with Notifications dated 2.3 ..2000.

Mr. Bharukha further submitted that in taxing statutes, provision of
concessional rate of tax should be liberally construed and in respect of the
above submission, he cited the judgment of this Court in Commissioner of
G Sales Tax v. Industrial Coal Enterprises (Supra) and in the case of Bajaj
Tempo Ltd., Bombay v. Cpmmissioner of Income Tax, Bombay City-Ill,
Bombay (Supra). We are unable to countenance the above submission. In
our view, the provisions of exemption clause should be strictly construed
and if the condition under which the exemption was granted stood change
H on account of any subsequent event the exemption would not operate.
STATE v.AMBAY CEMENTS [AR. LAKSHMANAN, J.] 139

In our view, an exception or an exempting provision in a taxing statute A
should be construed strictly and it is not open to the Court to ignore the
conditions prescribed in the Industrial Policy and the exemption Notifications.

In our view, the failur~ to comply with the requirements renders the
writ petition filed by the respondent liable to be dismissed. While mandatory B
rule must be strictly observed, substantial compliance might suffice in the
case of a directory rule.

Whenever the statute prescribes that a particular act is to be done in
a particular manner and also lays down that failure to comply with the said
requirement leads to severe consequences, such requirement would be c
mandatory. It is the cardinal rule of the interpretation that where a statute
provides that a particular thing should be done, it should be done in the
manner prescribed and not in any other way. It is also settled rule of
interpretation that where a statute is penal in character, it must be strictly
construed and followed. Since the requirement, in the instant case, of D
obtaining prior permission is mandatory, therefore, non-compliance of the
same must result in canceling the concession made in favour of the grantee-
the respondent herein.

For the foregoing reasons, we hold that the High Court has erred in
allowing the writ petition filed by the respondent herein and directing the E
grant of exemption in favour of the respondent. We, therefore, have no
hesitation in setting aside the judgment and order passed by the High Court
and allowing this appeal.

The appeal is allowed. There shall be no order as to costs. F
NJ. Appeal allowed.