SAHU STONE CRUSHING INDUSTRIES Vs. DIVISIONAL LEVEL COMMITTEE

JUDGEMENT

(1.) This writ petition has been filed with a prayer that the respondent No. 1 be directed to modify the eligibility certificate granted to the petitioner under section 4-A of the U. P. Sales Tax Act, 1948 and to direct that the said certificate should be treated as effective from the date of first sale. We have heard the learned counsel for the parties. The facts of the case are that the petitioner is a proprietorship firm registered under the U. P. Sales Tax Act. It established a unit for manufacturing of stone grits. The production in the said unit started on November 30, 1986 and the date of first sale was December 3, 1986. It is alleged in paragraph 3 of the writ petition that since the number of workers in the said unit were less than 10 at the time of starting of production the petitioner could not apply for registration under the Factories Act since under section 2 (m) of the Factories Act only those factories can be registered in which the number of workers are 10 or more. It is alleged in paragraph 4 of the writ petition that when the number of workers in the petitioner's unit exceeded 10, the petitioner applied for registration under the Factories Act on November 24, 1988 and the said registration was granted with effect from the said date. Since the petitioner's unit was a new unit it applied for exemption under section 4-A of the U. P. Sales Tax Act. The respondent No. 1 granted the eligibility certificate, a true copy of which is annexure 1 to the writ petition. However, while the eligibility certificate has been granted for seven years from the date of first sale, i. e. , December 3, 1986 up to December 2, 1993, the effective exemption from sales tax has been granted from November 24, 1988, i. e. , the date of registration under the Factories Act. Accordingly, assessment order under the Sales Tax Act for the assessment years 1986-87 and 1987-88 have been passed against the petitioner. Aggrieved the petitioner has filed this petition in this Court. A counter-affidavit has been filed but there is no serious denial of the factual allegations in the writ petition. Learned counsel for the department, however, urged that in view of the amendment to the U. P. Sales Tax Act by U. P. Act No. 28 of 1991 which has inserted sub-section (5) (c) in section 4-A, the petitioner is not entitled to any relief. U. P. Act No. 28 of 1991 substituted a new sub-section (5) with effect from September 13, 1985. The relevant part of the said sub-section (5) reads as follows : " (5) A manufacturer shall be entitled to the facility of exemption from, or reduction in the rate of tax, notified under sub-section (1) - (a ). . . . . . . . . . . (b ). . . . . . . . . . . (c) in relation to a new unit referred to in clause (1) of the Explanation, where the application for registration under the Factories Act, 1948 is made on, and the registration is granted with effect from, a date later than the date of commencement of the period of facility notified under sub-section (1), then subject to the provisions of clause (b), only for part of the period, notified under sub-section (1), which shall be computed from the date from which such registration becomes effective, till the end of the period of such facility. " Learned counsel for the department has placed reliance on several decisions of this Court in which it has been observed that the effective exemption can only be granted from the date of registration under the Factories Act, vide Sagar Jute Udyog v. State of U. P. 1993 UPTC 898, Rainbow Engineering and Forging Works v. Divisional Level Committee 1993 UPTC 747, Poonam Oil Industries v. Divisional Level Committee 1992 UPTC 745, J. V. Pack Company (Pvt.) Ltd. v. State of U. P. 1991 UPTC 622, Writ Petition No. 34 of 1992, Neat Biotic Drugs and Pharmaceutical Laboratories v. State of U. P. decided on July 15, 1992, etc. We have perused the above decisions but in none of them the question whether sub-section (5) (c) of section 4-A is mandatory or directory has been considered. Learned counsel for the petitioner has urged that sub-section (5) (c) is violative of article 14 of the Constitution of India for two reasons. Firstly he has submitted that sub-section (5) (c) discriminates between those units in which registration is granted under the Factories Act quickly, and those units in which there is delay in granting registration. Secondly he has submitted that sub-section (5) (c) is wholly arbitrary and unreasonable and hence it is violative of article 14 of the Constitution of India. Prima facie, it seems to us that there is a discrimination between those persons to whom registration under the Factories Act is granted quickly and those to whom it is granted with considerable delay. While the former will enjoy the full period of exemption, the effective period of exemption for the latter will be considerably curtailed for no fault of theirs. However, it is not necessary for us to declare clause (c) of sub-section (5) as ultra vires as in our opinion the said clause (c) is only directory and not mandatory. In Kuchchal Industries v. Divisional Level Committee 1990 UPTC 481 the facts of the case were that though the unit started production in October, 1984, the registration under the Factories Act was granted only in September, 1987. The court held that the exemption under section 4-A should be granted from 1984 (i. e. , when the production started) and not from 1987. Against the aforesaid decision a special leave petition was filed in the Supreme Court being S. L. P. (Civil) No. 117 of 1991 which was dismissed on January 16, 1991. Subsequently Act No. 28 of 1991 retrospectively amended section 4-A and introduced a new Explanation in the Act defining a new unit. A Division Bench of this Court in Maheshwari Industries (P) Ltd. v. State of U. P. being Civil Misc. Writ Petition No. 40 of 1992 decided on February 25, 1993, held that the ratio of the decision in Kuchchal Industries case 1990 UPTC 481 still holds good even after the aforesaid amendment. The ratio of the said decision applies to this case also and we agree with the decision in Maheshwari Industries (P) Ltd. v. State of U. P. (Civil Misc. Writ Petition No. 40 of 1992 decided on February 25, 1993 - Allahabad High Court ). In Mangalore Chemicals and Fertilizers Limited v. Deputy Commissioner of Commercial Taxes [1991] 83 STC 234; 1992 UPTC 123 the Supreme Court has held that in a provision for exemption from sales tax it cannot be said that all the conditions for claiming the exemption are mandatory. The court held : "the consequence which Shri Narasimhamurthy suggests should flow from the non-compliance would, indeed, be the result if the condition was a substantive one and one fundamental to the policy underlying the exemption. Its stringency and mandatory nature must be justified by the purpose intended to be served. The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve". From the aforesaid judgment of the Supreme Court it is clear that not all the conditions in the provision for exemption from tax have to be held to be mandatory. It has to be seen what is the precise nature of the condition and its relation to the main object sought to be achieved by the provision for exemption. We have held in Writ Petition No. 312 of 1989, Amit Plastic Industry v. Divisional Level Committee decided on November 10, 1993 [reported in [1995] 96 STC 538] that all the conditions in section 4-A must not be interpreted literally. We reiterate the said view, which is in line with the decision of the Supreme Court in Bajaj Tempo Ltd. v. Commissioner of income-tax [1992] 196 ITR 188; AIR 1992 SC 1622 which held that a provision in a taxing statute granting incentives for promoting the growth of industry should be construed liberally. The question whether a provision in a statute is directory or mandatory has been considered in several decisions which we may now deal. In Rubber House v. Excellsior Needle Industries Pvt. Ltd. AIR 1989 SC 1160, the Supreme Court quoted with approval the following well-known observation of Lord Cambell : " No universal rule can be laid down for the construction of statutes as to whether mandatory enactment shall be considered directory only or obligatory with an implied nullification for disobedience. It is the duty of Courts of Justice to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be construed. " The Supreme Court also quoted with approval the following observation of Lord Penzance : " I believe, as far as any rule is concerned, you cannot safely go further than that in each case you must look to the subject-matter; consider the importance of the provision that has been disregarded, and the relation of that provision to the general object intended to be secured by the Act; and upon a review of the case in that aspect decide whether the matter is what is called imperative or only directory. " In the aforesaid decision the Supreme Court observed as follows : " The word 'shall' in its ordinary import is obligatory. Nevertheless, the word 'shall' need not be given that connotation in each and every case and the provisions can be interpreted as directory instead of mandatory depending upon the purpose which the Legislature intended to achieve as disclosed by the object, design, purpose and scope of the statute. While interpreting the concerned provisions, regard must be had to the context, subject-matter and object of the statute in question. " From the aforesaid observations of the Supreme Court it is evident that the question whether the provision is mandatory or directory depends on the purpose of the legislation as disclosed by its object, design and scope. Hence when we examine whether any of the conditions in section 4-A are mandatory or directory we must pay due regard to the object of section 4-A. In B. P. Khemka Pvt. Ltd. v. Birendra Kumar Bhowmick AIR 1987 SC 1010, the Supreme Court quoted with approval the following passage in Crawford on "statutory Construction" : " The question as to whether a statute is mandatory or directory depends upon the intent of the Legislature and not upon the language in which the intent is clothed. The meaning and intention of the Legislature must govern, and these are to be ascertained, not only from the phraseology of the provision, but also while considering its nature, its design, and the consequences which would follow construing it the one way or the other. " In the aforesaid decision the Supreme Court held that the words "shall order the defence against delivery of possession to be struck out" in section 17 (3) of the West Bengal Premises Tenancy Act have to be construed as directory and not mandatory. In State of Uttar Pradesh v. Babu Ram Vpadhya AIR 1961 SC 751 the Supreme Court observed : " The relevant rules of interpretation may be briefly stated thus : When a statute uses the word 'shall', prima facie, it is mandatory, but the Court may ascertain the real intention of the Legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the Legislature the court may consider, inter alia, the nature and the design of the statute, and the consequences which would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance, namely that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, above all, whether the object of the legislation will be defeated or furthered. " The above observation of the Supreme Court in the aforesaid case makes it clear that in deciding whether a provision is mandatory or directory one of the important questions which has to be considered is whether the object of the legislation will be defeated or furthered in holding the provision to be mandatory or directory. We have also to see the consequences which would follow from construing the provisions one way or the other. In the present case if we hold clause (c) of sub-section (5) of section 4-A to be mandatory it will go against the object of the provision, viz. , to encourage the setting up of new industries in the State. It is well-known that there is often bureaucratic delay in disposing of the application for registration under the Factories Act, and hence to treat the above provision as the mandatory would go against the intention of the Legislature. The conditions in section 4-A are after all only to ensure that there is a genuine new unit and not a fictitious one. Hence to insist on registration under the Factories Act as a sine qua non would be taking an over-technical view of the matter. In fact, Explanation 1 (b) (ii) of section 4-A makes it clear that even though the new unit is not registered under the Factories Act but only an application for registration has been made still it has to be treated as a new unit. In Biswanath Khemka v. King Emperor AIR 1945 FC 67 the Federal Court held section 256 of the Government of India Act to be directory on the ground that any other view would lead in many cases to results which could not have been intended by Parliament and would entail general inconvenience and injustice to persons who have no control over those entrusted with the duty of making recommendations for the grant of magisterial powers. The ratio of this decision would apply to the present case also because a person who applies for registration under the Factories Act has no control over the proceedings thereafter for grant of registration, and hence to hold sub-section (5) (c) to be mandatory would entail great inconvenience and injustice to such persons. In State of Mysore v. V. K. Kangan AIR 1975 SC 2190, the Supreme Court observed : " In determining the question whether a provision is mandatory or directory one must look into the subject-matter and consider the importance of the provision disregarded and the relation of that provision to the general object intended to be secured. No doubt, all laws are mandatory in the sense they impose the duty to obey on those who come within its purview. But it does not follow that every departure from it shall taint the proceedings with a fatal blemish. The determination of the question whether a provision is mandatory or directory would, in the ultimate analysis, depend upon the intent of the law-maker. And that has to be gathered not only from the phraseology of the provision but also by considering its nature, its design and the consequences which would follow from construing it in one way or the other. " The above observation makes it abundantly clear that in deciding whether a provision is mandatory or directory one must look at the general object intended to be served. Since the general object of section 4-A is to encourage industrialisation in the State, we have to construe sub-section (5) (c) of the Act to be directory otherwise it will come in the way of the aforesaid object. In Kuchchal Industries case 1990 UPTC 481, it was held by a Division Bench of this Court that the requirement of registration under the Factories Act cannot always be complied with because a new unit which has less than 10 employees does not come within the definition of "factory" in section 2 (m) of the Factories Act and hence to insist upon such registration would deprive such small-units of the benefit of exemption under section 4-A. The special leave petition against the said decision was dismissed by the Supreme Court. The ratio of the said decision is obviously that the requirement of registration under the Factories Act is only directory and not mandatory. The purpose of requirement of registration is only to ensure that there is a genuine new unit and hence this condition need not be insisted upon when by other materials it can be demonstrated that a genuine new unit has been set up. The requirement of registration under the Factories Act has, hence, to be treated as directory and not mandatory. In Montreal Street Rly. Co. v. Normandin 1917 AC 170 the Privy Council observed : "if by holding the provision to be mandatory serious general inconvenience will be created to innocent persons without very much furthering the object of the enactment, the provision should be held directory". This observation has been approved by the Supreme Court in State of U. P. v. Manbodhan Lal Srivastava AIR 1957 SC 912 and in Banwarilal Agarwalla v. State of Bihar AIR 1961 SC 849. We are of the opinion that to hold sub-section (5) (c) of section 4-A of the Act to be mandatory would cause serious general inconvenience to the applicants for exemption without furthering the object of section 4-A of the Act, viz. , to encourage setting up of a new industry. It is well-known that many industrialists are reluctant to set up industries in U. P. because of the over-technical approach of the authorities which discourage such persons and this frustrates the very object of section 4-A (1 ). Thus, the view which we are taking is in consonance with the aforesaid object. In view of the above, we are clearly of the view that sub-section (5) (c) of section 4-A of the U. P. Sales Tax Act is directory and not mandatory and hence the petitioner is entitled to exemption from the date of first sale, i. e. , December 3, 1986. Accordingly, we direct the respondents to rectify the eligibility certificate, true copy of which is annexure 1 to the writ petition, within three weeks of production of a certified copy of this judgment before the appropriate authority and we further direct the respondents to rectify/cancel the assessment orders for the relevant years in accordance with the rectified eligibility certificate. The petition is accordingly allowed. No order as to costs. Petition allowed. .