GOVERNMENT OF KERALA & ANR. versus MOTHER SUPERIOR ADORATION CONVENT on 1 March 2021

[2021] 3 S.C.R.

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GOVERNMENT OF KERALA & ANR.

v.

MOTHER SUPERIOR ADORATION CONVENT

(Civil Appeal No. 202 of 2012)

BMARCH 01, 2021

[R. F. NARIMAN AND B. R. GAVAI, JJ.]

Kerala Building Tax Act, 1975 – s.3(1)(b) – Exemption frombuilding tax – The State claims that no exemption from building taxshould be granted to residential accommodation for nuns, priestsCor hostel accommodation for students, as these have no directconnection with religious/educational activity – It was contendedthat assuming there is ambiguity in s.3(1)(b), in that a purposeconnected with the religious/educational activity may be included,yet the ambiguity has to be resolved in favour of the State – Held: ADreading of s.3(1)(b) would show that the object for exemptingbuildings which are used principally for religious, charitable oreducational purposes would be for core religious, charitable oreducational activity as well as purposes directly connected withreligious activity – Nuns living in a neighbouring building to aconvent only so that they may receive religious instruction there, orEif students are living in a hostel close to the school or college inwhich they are imparted instruction, it is obvious that the purposeof such residence is not to earn profit but residence that is integrallyconnected with religious or educational activity – An exemptionprovision should be liberally construed in accordance with the objectFsought to be achieved if such provision is to grant incentive forpromoting economic growth or otherwise has some beneficial reasonbehind it – One must first ask what is the object sought to be achievedby the provision, and construe the statute in accord with such object– And on the assumption that any ambiguity arises in suchconstruction, such ambiguity must be in favour of that which isGexempted – Therefore, the buildings in question exempted frombuilding tax.

Disposing the appeals, the Court

HELD: 1. A reading of the provision would show that theHobject for exempting buildings which are used principally for religious, charitable or educational purposes would be for corereligious, charitable or educational activity as well as purposesdirectly connected with religious activity. One example will sufficeto show the difference between a purpose that is directlyconnected with religious or educational activity and a purposewhich is only indirectly connected with such activity. Take a casewhere, unlike the facts in Civil Appeal No. 202 of 2012, nuns arenot residing in a building next to a convent so that they may walkover to the convent for religious instruction. Take a case wherethe neighbouring building to the convent is let out on rent to anymember of the public, and the rent is then utilised only for corereligious activity. Can it be said that the letting out at marketrent would be connected with religious activity because the rentalthat is received is ploughed back only into religious activity?Letting out a building for a commercial purpose would lose anyrational connection with religious activity. The indirect connectionwith religious activity being the profits which are ploughed backinto religious activity would obviously not suffice to exempt sucha building. But if on the other hand, nuns are living in aneighbouring building to a convent only so that they may receivereligious instruction there, or if students are living in a hostelclose to the school or college in which they are impartedinstruction, it is obvious that the purpose of such residence isnot to earn profit but residence that is integrally connected withreligious or educational activity. [Para 12][40-E-H; 41-A-B]

2. A reading of the other provisions of the Act strengthensthe aforesaid conclusion. “Residential building” is definedseparately from “building” in Section 2(l). A “residential building”means a building or any other structure or part thereof builtexclusivelyfor residential purpose. It is important to note that“residential building” is not the subject matter of exemptionunder Section 3 of the Act. Quite the contrary is to be found inSection 5A of the Act, which starts with a non-obstante clause,and which states that a luxury tax is to be charged on all residentialbuildings having a plinth area of 278.7 square meters and whichhave been completed on or after 1.4.1999. If the contention ofthe State is accepted, buildings in which nuns are housed andstudents are accommodated in hostels which have been AB

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Acompleted after 1.4.1999 and which have a plinth area of 278.7square meters would be liable to pay luxury tax as these buildingswould now no longer be buildings used principally for religiousor educational purposes, but would be residential buildings usedexclusively for residential purposes. This would turn the objectsought to be achieved in exempting such buildings on its head.BFor this reason also, this Court cannot countenance a plea by theState that buildings which are used for purposes integrallyconnected with religious or educational activity are yet outsidethe scope of the exemption contained in Section 3(1)(b) of theAct. [Para 13][41-C-F]

C3. This being the case, it is obvious that the beneficialpurpose of the exemption contained in Section 3(1)(b) must begiven full effect to, the line of authority being applicable to thefacts of these cases being the line of authority which deals withbeneficial exemptions as opposed to exemptions generally in taxDstatutes. This being the case, a literal formalistic interpretationof the statute at hand is to be eschewed. One must first ask whatis the object sought to be achieved by the provision, and construethe statute in accord with such object. And on the assumptionthat any ambiguity arises in such construction, such ambiguitymust be in favour of that which is exempted. Consequently, this ECourt agrees with the conclusions reached by the impugnedjudgments of the Division Bench and the Full Bench that thebuildings in question should be exempted from building tax.[Para 24][48-H; 49-A-C]

Union of India v. Wood Papers Ltd (1990) 4 SCC 256 : [1990]F2 SCR 659; CST v. Amara Raja Batteries Ltd (2009) 8 SCC209 : [2009] 11 SCR 953; Commr. of Customs (Preventive) v.M. Ambalal & Co. (2011) 2 SCC 74 : [2010] 15 SCR 937;CST v. Industrial Coal Enterprises (1999) 2 SCC 607 : [1999]1 SCR 871; State of Jharkhand v. Tata Cummins Ltd (2006)G4 SCC 57 : [2006] 3 SCR 443; Pondicherry State Coop.Consumer Federation Ltd. v. Union Territory of Pondicherry(2008) 1 SCC 206 : [2007] 11 SCR 1118 – relied on.

Star Industries v. Commr. of Customs (Imports) (2016) 2 SCC362 : [2015] 11 SCR 570; CCE v. Favourite Industries (2012)H7 SCC 153; Commr. of Customs v. Dilip Kumar & Co. (2018)

GOVERNMENT OF KERALA & ANR. v. MOTHER SUPERIORADORATION CONVENT

9 SCC 1 : [2018] 7 SCR 1191; Sun Export Corporation v.Collector of Customs 1997 (6) SCC 564 : [1997] 1 Suppl.SCR 434; Quinn v. Leathem (1901) AC 495; State of Orissav. Sudhansu Sekhar Misra [1968] 2 SCR 154; State ofGujarat v. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 :[1972] 2 SCR 686; Bishamber Dass Kohli v. Satya Bhalla(1993) 1 SCC 566 : [1993] 1 SCR 171; Duroflex CoirIndustries Ltd. v. CST (1993) Supp 1 SCC 568; State ofKarnataka v. G. Seenappa (1993) Supp 1 SCC 648; BonamSatyavathi v. Addala Raghavulu (1994) Supp 2 SCC 556 –referred to.

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ACIVIL APPELLATE JURISDICTION : Civil Appeal No. 202 of2012.

From the Judgment and Order dated 22.11.2007 of the High Courtof Kerala at Ernakulam in WP(C) No. 27108 of 2006(B).

WithB

Civil Appeal Nos. 6589 of 2015, 10298 of 2016, 10297 of 2016,10881 of 2016, 203 of 2012, 204 of 2012, 207 of 2012, 206 of 2012, 205of 2012, 745 of 2021, 5036 of 2015, 8351 of 2014, 746 of 2021, 747 of2021, 8352 of 2014, 4445 of 2015, 4446 of 2015, 4447 of 2015, 7368 of2016.C

Jaideep Gupta, Sr. Adv., C. K. Sasi, Atul Shankar Vinod, M. P.Vinod, Krishnamohan K. Menon, Ms. Dania Nayyar, PawanshreeAgrawal, Radha Shyam Jena, P.A. Noor Muhamed, Ms. Giffara S.,Bilal Niamathulla, Ms. Ruxana PN, Rameshwar Prasad Goyal, A.Venayagam Balan, Sajith. P, T. G. Narayanan Nair, Roy Abraham, Ms.DReena Roy, Akhil Roy, Himinder Lal, Nishe Rajen Shonker, Ms. LizMathew, A.M. Pattiyani, Ms. Manju Pattiyani, Ms. Akshara Pattiyani,Jose Abraham, Mrs. Priyanka Prakash, Mrs. Beena Prakash, G. Prakash,Advs. for the appearing parties.

The Judgment of the Court was delivered byER. F. NARIMAN, J.

1. Leave granted.

2. All these appeals pertain to an exemption provision containedin the Kerala Building Tax Act, 1975. Under Section 3(1)(b) buildingsFthat are used principally for religious, charitable or educational purposesor as factories or workshops are exempted from building tax under theAct. All of the appeals, except one, are by the State of Kerala against ajudgment dated 22.11.2007 passed by a Division Bench of the KeralaHigh Court in Government of Kerala & Anr v. Mother Superior AdorationConvent (Civil Appeal No.202 of 2012) and a Full Bench judgment inGState of Kerala & Ors v. Unity Hospital (P) Ltd. (Civil Appeal No. 207of 2012), being a judgment dated 21.12.2010. Both judgments decided toexempt the buildings in question. The other appeals by the State containjudgments which follow either or both of these judgments. The onlyappeal by an assessee namely, Administrator, Jos Giri Hospital v.HGovernment of Kerala (Civil Appeal No.204 of 2012), is from a judgment of the Division Bench of the Kerala High Court deciding the case infavour of the State. However, this judgment was referred to the FullBench which decided the judgment in State of Kerala & Ors v. UnityHospital (P) Ltd. (Civil Appeal No. 207 of 2012) and has been stated tohave reached an incorrect conclusion.

3. On facts, there is a similarity in most of the cases before us.Either there are residential accommodations for nuns as in the first appealbefore us or there are hostel accommodations which are attached tovarious educational institutions. In both cases, the State claims that noexemption should be granted as residential accommodation for nuns andhostels for students would be for residential as apart from religious oreducational purposes and would not therefore be covered by theexemption contained in Section 3(1)(b) of the Act.

4. We may take up the facts in Civil Appeal No.202 of 2012. Inthis case, by an order of assessment dated 14.03.2002, building tax waslevied on residential accommodation for nuns who underwent religioustraining to become nuns in a convent. Against the aforesaid assessmentto tax, the respondent filed O.P. No.11246 of 2002 and the High courtvide its judgment and order dated 29.5.2002 quashed the aforesaidassessment order and directed the Tehsildar to refer the case to theGovernment for its decision. A representation was made to theGovernment by the respondent on 10.2.2004 in which it was stated:

“2. At present we the 8 sisters residing here are deputed to renderservices in religious as well as charitable needs of the Vinjan MathaChurch, East Thodupuzha and the people around the Church,irrespective of caste, creed and community.

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In order to become sisters, we had undergone 8 years rigorousreligious education and training and then decided to lead a life ofa SANYASINI throughout our life.

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8. The vow of obedience, is intended to make use of the individualsisters by their elected superior sisters, where their services aremost needed. It means, we the present sisters attached to thisconvent at present are not permanent members here. We have A

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Acome from different places, and each one of us will be individuallytransferred to other places, as our Superior’s Council decides.

9. So much so, the convent is a permanent set up here to renderthe religious and charitable needs of the locality, whereas themembers are individually deputed to render the services for aBperiod found proper.

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11. The convent was established by the Council decision of theSt. Mary’s Province of the Congregation of the Sisters ofAdoration of the Blessed Sacrament.

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12. The building is also intended for accommodating the juniorsisters who are undergoing their college education in the nearbyNewman College - Thodupuzha. Thus, at present 8 students-sistersalso are residing here.

13. The Building is two storeyed and measures approximately5000sq.ft. The ground floor contains a prayer hall, kitchen,refectory, study hall and small rooms for sisters. The upper floorcontains 5 rooms for sisters, a dormitory and study hall.

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14. The building is not at all given for amount at any time, and itwill not be given so in the future also. It will be used only as aEreligious house.”

5. This representation was turned down by the Government’s orderdated 11.09.2006 as follows:

“The Government has examined the matter in detail. The petitionerFwas heard on 16.9.2004 and he claimed that the building isexclusively used for accommodating the nuns who are engagedin religious and charitable activities. No part of the building isrented out or used for any other purpose. On perusal of the recordsthe documents produced at the time of hearing it has becomeevident that the convent is not principally used for any religious orGcharitable purpose. The District Collector, Idukki as per letter readas fourth paper above has also informed that no charitable activitiesare undertaken in the convent and the building is used for theresidential purpose of nuns.

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It includes professing once used in public expressing it by privateand public worship, practicing rituals and ceremonies. It alsoincludes observances, ceremonies and functions which are beingcustomarily performed by members of a particular religion. If themain use of the major portion of a building is for the above thenthat building can be said to be used principally for religiouspurposes.

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In the above circumstances, Government Order that the buildingin Survey No. 206 Thodupuzha village, Thodupuzha Taluk havingplinth area of 903.24 M2 owned by the Adoration Convent, ShantiBhavan, Thodupuzha is not eligible for exemption under Section 3of the Kerala Building Tax Act, 1975.”

6. A writ petition being Writ Petition No.27108 of 2006 was filedagainst the said order before a learned Single Judge who then referredthe matter to a Division Bench as he did not agree with an earlier judgmentof a learned Single Judge of the Kerala High Court. By the impugnedjudgment dated 22.11.2007, a Division Bench of the Kerala High Courtheld as follows:

“8. If the activities that are going on in the convent arepredominantly religious, then, normally, buildings of the conventused for the said purpose should also qualify for exemption. Ofcourse, if any particular building is used for any commercialactivity, such buildings could be segregated. It is not in disputethat a chapel is used for religious purposes. Attached to that, theremay be a room for the Chaplain for taking rest etc. Can that roombe segregated and said that it is not used for religious purposes.We feel that the answer should be in the negative. If the buildingsof convents are generally used for religious purposes and one ofthe buildings is used for residence of an inmate there, it shall alsobe treated as one, used for religious purposes. Any interpretationto the contrary will be irrational. So, we are of the view that thebuildings, used for the residence of the nuns in a convent, isprincipally used for religious purposes and therefore, should alsoqualify for exemption. We are in respectful agreement with theviews expressed by C.N. Ramachandran Nair, J., in Writ Petition(C) No.27250/06. The judgment in W.A.2424/05 deals with the AB

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Acase of a boarding and lodging house for students run by a conventwhere rooms are let out collecting a fee. If the convent is runninga commercial or industrial unit, the building housing thatestablishment will not qualify for exemption. That principle cannotbe applied in the case of the building used for accommodatingnuns in the convent. The decision of the Apex Court relied on byBthe learned Government Pleader also does not have any applicationto the facts of this case. The point considered therein was whetherthe building used for accommodating a school can be treated as abuilding used for charitable purposes or religious activities. Theprinciple stated therein does not have any application to the factsCof this case.”

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7. The Full Bench judgment of 2010 contained in Civil AppealNo.207 of 2012 was as a result of a Division Bench doubting thecorrectness of the Division Bench judgment in Administrator, Jos GiriHospital v. Government of Kerala that is contained in Civil Appeal No.204Dof 2012. Paragraphs 2 and 3 of the Full Bench posed the question raisedthus:

“2. The question raised is whether hostel building of an educationalinstitution is entitled for exemption from building tax under Section3(1)(b) of the Kerala Building Tax Act, 1975 (hereinafter referredEto as the Act for short), which provides for building tax exemptionfor buildings used for “educational purposes”.

3. While the building involved in Writ Appeal No.1648/2009 is ahostel building owned by a nursing school, the building involved inWrit Appeal No.2495/2009 is a hostel building attached to aFResidential Higher Secondary School owned by a privatemanagement.”

The Full Bench held:

“6. The short question that arises for consideration is whether“educational purposes” referred to in the above Section has onlya restricted meaning covering buildings, where students areimparted education; or whether it has a wider meaning coveringhostel buildings owned by educational institutions to provideaccommodation to students in the premises of the educationalinstitutions. The Division Bench of this Court in the above referredjudgment held that “educational purposes” cover only purposes G

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which have integral, immediate and proximate connection toeducation. In the reference order, another Division Bench of whichone of us is a member [CNR(J)], took the view that the abovetest laid down by the other Division Bench in the earlier judgmentis satisfied at least in respect of hostels run by nursing schoolsand medical educational institutions and probably mistake is thereonly in the conclusion drawn in that judgment. What we notice isthat the Division Bench while deciding the matter did not considerthe educational Regulations of the Medical Council of India andNursing Council of India, which make it mandatory that in orderto get approval for a medical college or a nursing college, hospitalfor patients and hostel facilities for students are mandatory. TheState also does not controvert this position and in fact all the medicalcolleges and nursing colleges run in the State including those runby the Government have hospitals of their own or attachedhospitals, and have hostels providing accommodation to all students.Except probably few students who hail from the areas very closeto the colleges, all the nursing and medical students reside in thehostels attached to their colleges. The students of both medicaland nursing colleges require clinical training in hospitals, andstudents in senior classes are deployed on a turn basis in hospitals.Unless accommodation is provided to the students in the collegecampus or nearby, it would not be possible for them, particularlyfor girls, to reach the hospitals attached to the medical and nursingcolleges for duty at odd hours in the night. Therefore, the MedicalCouncil of India and Nursing Council of India have made itmandatory for every medical college and nursing college to havehostel facilities, and without such facility no medical or nursingcollege will get approval from the Medical Council or NursingCouncil of India, and only on their approval, the medical educationalinstitution can get affiliation to the University. So much so, in ourview, the test laid down by the Division Bench i.e. integral,immediate and proximate connection of the hostel building witheducation, is squarely satisfied in the cases of hostels attached tonursing schools and other medical educational institutions whichrequire compulsory hostel facility for students for their approval.We, therefore, hold that wherever hostel is compulsory for approvalof a course study or an educational institution by the regulatorybody as in the case of medical and nursing colleges, hostel building AB

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is an integral part of the educational institution, and so much so,accommodation to students provided in the hostel building is foreducational purpose and therefore the hostel building qualifies forexemption from building tax. In view of the above finding, we areunable to agree with the conclusion drawn by the Division Benchi.e. denial of exemption to hostel building attached to the nursingschool.

7. The next question to be considered is whether hostel facility tostudents provided by other educational institutions, which are notcompulsorily required under the educational regulations to provideaccommodation to students, is an educational purpose qualifyingthe hostel buildings for tax exemption. In this context, we have tonecessarily consider the object and scope of the exemption clauseprovided in the statute. While learned counsel for the appellantshave relied on Section 235 of the Kerala Municipalities Act, whichprovides for exemption to buildings used for educational purposesincluding hostel buildings owned by the same educationalinstitutions, learned Government Pleader has relied on the decisionof the Supreme Court in Municipal Corporation of Delhi v. ChildrenBook Trust, reported in AIR 1992 SC 1456, where the SupremeCourt held that school buildings are not entitled to exemption frommunicipal tax under the Delhi Municipal Corporation Act. On goingthrough the judgment of the Supreme Court, we notice that theprovision for exemption from property tax under the DelhiMunicipal Corporation Act is not similar to the provisions of theKerala Building Tax Act, and so much so, in our view, the decisioncannot be applied while deciding the claim of exemption made bythe appellants in these cases. Even though Section 235 of theKerala Municipalities Act specifically provides for property taxexemption for hostel buildings owned by the very same educationalinstitutions, there is no specific exemption for hostel buildings inSection 3 (1)(b) of the Kerala Building Tax Act. Therefore, we have to examine whether “educational purposes” referred to inSection 3(1)(b) has only restricted meaning or it has a widermeaning covering all buildings directly or indirectly catering to theneeds of student community. In this context, we have to necessarilyconsider the general pattern of hostel facility provided by educationinstitutions in the State. In the recent past, large number ofeducational institutions, particularly engineering colleges are

established all over Kerala including remote areas and hill stations,where the students admitted are not from local area and theyhave to necessarily depend on hostel facility to be provided by theeducational institution. In fact admissions to medical andengineering colleges are given on central allotment basis and hardlyany student can get admission in a college near to his/her house.Therefore, necessarily, the students have to depend on hostelaccommodation to pursue their studies. Colleges will not getstudents if they do not provide hostel accommodation to studentsnear to the College. Therefore, hostel buildings are constructedby educational institutions to attract students to their institutions.Many educational institutions provide only basic facilities likebuilding, electricity and water connections for hostels and in fact,students are running mess on sharing basis. So much so, the State’scontention that hostels attached to educational institutions arecommercial ventures intended to make profit, in our view, isunacceptable. In order to consider whether hostel provided by aneducational institution is for educational purpose or not, we haveto consider the consequences if such educational institution doesnot have hostel facility to provide accommodation to its students.Obviously, such educational institutions have to source studentslocally, which may be possible only in the case of Schools. In fact,thousands of schools and colleges in the State do not have hostelfacility because they depend on students from the local area only.However, wherever an educational institution has students fromdifferent parts of the State, and Non Resident Indians sendingtheir children for studies in Kerala, necessarily the educationalinstitution has to provide hostel facility to the students. In fact,without hostel facility, many educational institutions will not haverequired number of students to run it. We, therefore, feelaccommodation is a necessary facility, which an educationalinstitution is required to provide to it’s students; and so long as thepurpose of stay of students in the hostel is to study in theeducational institution, the purpose of such building, which is usedfor accommodation of students, qualifies as educational purpose.

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9. We are therefore of the view that buildings owned byeducational institutions for providing hostel accommodation to ABC

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Astudents qualify for building tax exemption under clause (b) ofSection 3(1) of the Act. However all buildings accommodatingstudents do not qualify for building tax exemption because thereare so many lodge buildings constructed by various people aroundeducational institutions which do not have hostel facility, to rentout to students in such educational institutions. Letting out ofBbuildings by private agencies is a commercial activity whethertenants are students or not. In other words, only hostel buildingsowned by educational institutions for accommodating it’s ownstudents in such hostels will qualify for exemption under clause(b) of Section 3(1) the Act.”

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8. Shri Jaideep Gupta, learned senior advocate appearing on behalfof the State of Kerala, assailed the correctness of these judgments.According to him, an exemption provision contained in a fiscal statutemust be construed strictly and in the case of doubt or ambiguity must beconstrued in favour of the State. For this proposition, he cited a numberDof judgments. He then analysed Section 3(1)(b) of the Act and arguedthat a building used principally for religious or educational purposes canonly be a building that is used for religious/educational activity and notfor activity which has no direct connection with religious/educationalactivity, such as residential quarters for nuns, priests or hostelaccommodation for students. He argued that even assuming that thereEis ambiguity in Section 3(1)(b), in that a purpose connected with thereligious/educational activity may be included, yet the ambiguity has tobe resolved in favour of the State and this being so, on this short ground,the judgment of the Division Bench and the judgment of the Full Benchare incorrect. He further went on to argue that the term “building” has Fbeen defined in Section 2(e) of the Act as meaning a separate house,out-house, etc. and that in the present case as no religious/educationalactivities are carried on at all in the buildings which house nuns andhostel accommodation which houses students, such buildings, not beingprincipally used for religious purposes, cannot possibly be exempt underthe Act.G

9. Learned counsel for the respondents supported the judgmentof the Division Bench and the Full Bench, arguing that on facts, abeneficial legislation which is meant to further religious, charitable andeducational purposes should not be construed in a narrow fashion, andshould be construed in accordance with the object sought to be achieved,H

and this being the case, the aforesaid judgments do not require to bedisturbed.

10. Having heard learned counsel appearing for all parties, wemust first set out the relevant provisions of the Kerala Building Tax Act,1975:

“2. Definitions - In this Act, unless the context otherwise requires, (e) “building” means a house, out-house, garage, or any otherstructure, or part thereof, whether of masonry, bricks, wood, metalor other material, but does not include any portable shelter or anyshed constructed principally of mud, bamboos, leaves, grass orthatch or a latrine which is not attached to the main structure.

(i) “owner” includes a person who for the time being is receiving,or is entitled to receive, the rent of any building, whether on hisown account or on account of himself and others or as an agent,trustee, guardian or receiver for any other person or who shouldso received the rent or be entitled to receive it if the building orpart thereof were let to a tenant;

(l) “residential building” means a building or any other structureor part thereof built exclusively for residential purpose includingouthouses or garages appurtenant to the building for the morebeneficial enjoyment of the main building but does not includehotels, boarding places, lodges and the like.]

3. Exemptions - (1) Nothing in this Act shall apply to- (a) buildings owned by the Government of Kerala or theGovernment of India or any local authority; and (b) buildings used principally for religious, charitable or educationalpurposes or as factories or workshops.

Explanation. - For the purposes of this sub-section, “charitablepurpose” includes relief of the poor and free medical relief.

5. Charge of building tax - (1) Subject to the other provisionscontained in this Act, there shall be charged a tax (hereinafterreferred to as “building tax”) based on the plinth area at the ratespecified in the Schedule on every building the construction ofwhich is completed on or after the appointed day.

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5A. Charge of luxury tax - [1) Notwithstanding anythingcontained in this Act, there shall be charged a luxury tax based onthe plinth area at the rate specified in Schedule II, annually on allresidential buildings having a plinth area of 278.7 square metrescompleted on or after the 1st day of April, 1999.”

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B11. Before coming to the case law that has been cited before us,it is important to first analyse Section 3(1)(b) with which we are directlyconcerned. First and foremost, the subject matter is “buildings” whichas defined, would include a house or other structure. Secondly, theexemption is based upon user and not ownership. Third, what is importantis the expression “principally”, showing thereby that the legislatureCdecided to grant this exemption qua buildings which are “principally”and not exclusively used for the purposes mentioned therein. Dominantobject therefore is the test to be applied to see whether such building isor is not exempt. Fourthly, religious, charitable or educational purposesare earmarked by the legislature as qualifying for the exemption as theyDdo not pertain to business or commercial activity. Fifthly, what is importantis that even factories or workshops which produce goods and provideservices are also exempt, despite profit motive, as the legislature obviouslywishes to boost production in factories and services in workshops. Whatis important to note is that the expression “used principally for” is widerthan the expression “as” which precedes the words “factories orEworkshops”.

12. A reading of the provision would show that the object forexempting buildings which are used principally for religious, charitableor educational purposes would be for core religious, charitable oreducational activity as well as purposes directly connected with religiousFactivity. One example will suffice to show the difference between apurpose that is directly connected with religious or educational activityand a purpose which is only indirectly connected with such activity. Takea case where, unlike the facts in Civil Appeal No. 202 of 2012, nuns arenot residing in a building next to a convent so that they may walk over toGthe convent for religious instruction. Take a case where the neighbouringbuilding to the convent is let out on rent to any member of the public, andthe rent is then utilised only for core religious activity. Can it be said thatthe letting out at market rent would be connected with religious activitybecause the rental that is received is ploughed back only into religiousactivity? Letting out a building for a commercial purpose would lose anyH

rational connection with religious activity. The indirect connection withreligious activity being the profits which are ploughed back into religiousactivity would obviously not suffice to exempt such a building. But if onthe other hand, nuns are living in a neighbouring building to a conventonly so that they may receive religious instruction there, or if studentsare living in a hostel close to the school or college in which they areimparted instruction, it is obvious that the purpose of such residence isnot to earn profit but residence that is integrally connected with religiousor educational activity.

13. A reading of the other provisions of the Act strengthens theaforesaid conclusion. “Residential building” is defined separately from“building” in Section 2(l). A “residential building” means a building orany other structure or part thereof built exclusivelyfor residential purpose.It is important to note that “residential building” is not the subject matterof exemption under Section 3 of the Act. Quite the contrary is to befound in Section 5A of the Act, which starts with a non-obstante clause,and which states that a luxury tax is to be charged on all residentialbuildings having a plinth area of 278.7 square meters and which havebeen completed on or after 1.4.1999. If we were to accept the contentionof the State, buildings in which nuns are housed and students areaccommodated in hostels which have been completed after 1.4.1999and which have a plinth area of 278.7 square meters would be liable topay luxury tax as these buildings would now no longer be buildings usedprincipally for religious or educational purposes, but would be residentialbuildings used exclusively for residential purposes. This would turn theobject sought to be achieved in exempting such buildings on its head. Forthis reason also, we cannot countenance a plea by the State that buildingswhich are used for purposes integrally connected with religious oreducational activity are yet outside the scope of the exemption containedin Section 3(1)(b) of the Act. We may now examine the case law.

14. In Union of India v. Wood Papers Ltd (1990) 4 SCC 256the rule as to exemption notifications in tax statutes was felicitously laiddown as follows:

“4. Entitlement of exemption depends on construction of theexpression “any factory commencing production” used in the Tableextracted above. Literally exemption is freedom from liability, taxor duty. Fiscally it may assume varying shapes, specially, in agrowing economy. For instance tax holiday to new units, AB

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Aconcessional rate of tax to goods or persons for limited period orwith the specific objective etc. That is why its construction, unlikecharging provision, has to be tested on different touchstone. Infact an exemption provision is like an exception and on normalprinciple of construction or interpretation of statutes it is construedstrictly either because of legislative intention or on economicBjustification of inequitable burden or progressive approach of fiscalprovisions intended to augment State revenue. But once exceptionor exemption becomes applicable no rule or principle requires it tobe construed strictly. Truly speaking liberal and strict constructionof an exemption provision are to be invoked at different stages ofCinterpreting it. When the question is whether a subject falls in thenotification or in the exemption clause then it being in nature ofexception is to be construed strictly and against the subject butonce ambiguity or doubt about applicability is lifted and the subjectfalls in the notification then full play should be given to it and itcalls for a wider and liberal construction. Therefore, the firstDexercise that has to be undertaken is if the production of packingand wrapping material in the factory as it existed prior to 1964 iscovered in the notification.”

15. This statement of the law was followed in a number ofjudgments. Suffice it to say that in Star Industries v. Commr. ofECustoms (Imports) (2016) 2 SCC 362, a large number of judgmentsare referred to for the same proposition (see paragraphs 32 to 34).

16. However, there is another line of authority which states thateven in tax statutes, an exemption provision should be liberally construedin accordance with the object sought to be achieved if such provision isFto grant incentive for promoting economic growth or otherwise has somebeneficial reason behind it. In such cases, the rationale of the judgmentsfollowing Wood Papers (supra) does not apply. In fact, the legislativeintent is not to burden the subject with tax so that some specific publicinterest is furthered. Thus, in CST v. Industrial Coal EnterprisesG(1999) 2 SCC 607, this Court held:

“11. In CIT v. Straw Board Mfg. Co. Ltd. 1989 Supp (2) SCC523 this Court held that in taxing statutes, provision for concessionalrate of tax should be liberally construed. So also in Bajaj TempoLtd. v. CIT(1992) 3 SCC 78 it was held that provision grantingincentive for promoting economic growth and development in taxing H

statutes should be liberally construed and restriction placed on itby way of exception should be construed in a reasonable andpurposive manner so as to advance the objective of the provision.

12. We find that the object of granting exemption from paymentof sales tax has always been for encouraging capital investmentand establishment of industrial units for the purpose of increasingproduction of goods and promoting the development of industry inthe State. If the test laid down in Bajaj Tempo Ltd. case (1992) 3SCC 78 is applied, there is no doubt whatever that the exemptiongranted to the respondent from 9-8-1985 when it fulfilled all theprescribed conditions will not cease to operate just because thecapital investment exceeded the limit of Rs 3 lakhs on account ofthe respondent becoming the owner of land and building to whichthe unit was shifted. If the construction sought to be placed by theappellant is accepted, the very purpose and object of the grant ofexemption will be defeated. After all, the respondent had onlyshifted the unit to its own premises which made it much moreconvenient and easier for the respondent to carry on the productionof the goods undisturbed by the vagaries of the lessor and withoutany necessity to spend a part of its income on rent. It is not thecase of the appellant that there were any mala fides on the part ofthe respondent in obtaining exemption in the first instance as aunit with a capital investment below Rs 3 lakhs and increasing thecapital investment subsequently to an amount exceeding Rs 3 lakhswith a view to defeat the provisions of any of the relevant statutes.The bona fides of the respondent have never been questioned bythe appellant.”

17. Likewise, in State of Jharkhand v. Tata Cummins Ltd(2006) 4 SCC 57 in dealing with a tax exemption for setting up an industryin a backward area, this Court held as follows:

“16. Before analysing the above policy read with the notifications,it is important to bear in mind the connotation of the word “tax”. Atax is a payment for raising general revenue. It is a burden. It isbased on the principle of ability or capacity to pay. It is amanifestation of the taxing power of the State. An exemptionfrom payment of tax under an enactment is an exemption fromthe tax liability. Therefore, every such exemption notification hasto be read strictly. However, when an assessee is promised with AB

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Aa tax exemption for setting up an industry in the backward areaas a term of the industrial policy, we have to read the implementingnotifications in the context of the industrial policy. In such a case,the exemption notifications have to be read liberally keeping inmind the objects envisaged by the industrial policy and not in astrict sense as in the case of exemptions from tax liability underBthe taxing statute.”

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18. Similarly, in Pondicherry State Coop. ConsumerFederation Ltd. v. Union Territory of Pondicherry (2008) 1 SCC206 this Court held:

C“5. Learned Senior Counsel Shri Venkatraman appearing for theappellant assessee submitted that this question was no more resintegra and was covered by the judgment of this Court in VadilalChemicals Ltd. v. State of A.P. (2005) 6 SCC 292. It was pointedout that in that case an identical question fell for considerationunder the similar circumstances. There also, the question was asDto whether the small-scale industry which was engaged in bottlingof anhydrous ammonia could be said to be entitled to the exemptionfrom payment of sales tax on the ground that it was manufacturingsuch goods since there was a general exemption offered by theAndhra Pradesh Government by GOMs No. 117 dated 17-3-1993Eto the small-scale industry. There also it was found on inspectionthat the assessee industry was allowed irregular tax exemptionon the first sales of anhydrous liquefied ammonia as it was foundthat the commodity that was purchased and sold was one of thesame and there was no new commodity that had emerged andthat the assessee had only done bottling of ammonia. The show-Fcause notices were issued to the assessee in that case suggestingtherein that the activity of bottling/packing of gases into unitcontainers from bulk quantities was not recognised as“manufacture” even under the Central Excise Act. In that viewthe question which fell for consideration before this Court was asGto whether under the circumstances the assessee could claim theexemption. This Court firstly held that the exemption certificatewas granted by the authorities after due consideration. It wasthen noted that though the exemption was available on the products“manufactured” in industrial units, the interpretation put forth bythe authorities on the word “manufacture” was incorrect. This C

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Court took the view that the authorities had based the interpretationof word “manufacture” on the law relating to excise and that itwas erroneous to do so. It was observed that in the State SalesTax Act there was no provision relating to “manufacture” and theconcept was to be found only in the 1993 G.O. which had providedthe exemption. The Court further took the view that the exemptionwas granted with a view to give a fillip to the industry in the Stateand also for the industrial units of the State. The Court, therefore,took the view that a liberal interpretation of the term “manufacture”should have been adopted by the State authorities, moreparticularly, when the State authorities had granted the certificateof eligibility after due consideration of the facts.

6. In our view the law laid down in this decision is applicable tothe present case on all fours. Here also the authorities had firstlycertified the assessee’s industry to be small-scale industry andhad then proceeded to grant exemption to it from payment ofsales tax on the goods manufactured. The said certificate wasnot found to have been erroneously issued and was very much invogue when the show-cause notices came to be served on theassessee. The G.O. providing exemption clearly suggested thatsuch exemption was given in the public interest. Therefore, it isobvious that the decision in Vadilal Chemicals case (2005) 6 SCC292 would be equally applicable as even in that case what theindustry did was to bottle the ammonia gas purchased in bulk. Inthe present case it is palmolive oil which is purchased in bulk andis repacked so as to facilitate its sale in the retail market.

7. Shri T.L.V. Iyer, Senior Advocate appearing on behalf of theUnion Territory of Pondicherry, however, tried to suggest that theexemption from payment of tax granted on 19-5-1989 was grantedby the Director of Industries and it was clear from that exemptionthat it was only on the basis of GOMs No. 15/74 dated 25-6-1974. Our attention was invited to the last lines of theaforementioned G.O. dated 19-5-1989. The last portion is as under:

“The unit is exempted from payment of sales tax for five yearsvide GOMs No. 15/74/FIN(CT) dated 25-6-1974.”

On this the learned Senior Counsel argued that, therefore, it hadto be proved that the goods were manufactured by the assessee ABC

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and in the present case since the palmolive oil did not change itscharacter on its being repacked by the assessee, it could not besaid that the assessee had manufactured any goods. Learnedcounsel also urges that in the absence of any definition of“manufactured goods” in the Sales Tax Act, we would have tofall back upon either the dictionary meaning of the term or toborrow it from the Central Excise Act. We are afraid, the contentioncannot be accepted in the wake of clear law laid down by thisCourt in Vadilal Chemicals case (2005) 6 SCC 292. We havealready shown as to how the decision in that case is applicable tothe present situation. In that view we are of the clear opinion thatsince in the present case the exemption was granted to all small-scale industrial units registered with the Director of Industriesand since the assessee was recognised and certified as a smallindustrial unit, engaged in the activity of repacking of edible oiland further since the exemption was granted with the open eyesto this particular industry, the State cannot be allowed to turn aroundand take a stance that the appellant assessee was not entitled tothe exemption on the ground that it did not manufacture any goods.We are in respectful agreement with the view taken in VadilalChemicals case (2005) 6 SCC 292 which is more particularlyreflected in paras 19 and 20 of that decision where this Courtobserved as under: (SCC p. 298, para 20)

“20. In this case the State Sales Tax Act contains no provisionrelating to ‘manufacture’. The concept only finds place in the1993 G.O. issued by the Department of Commerce andIndustries. It appears from the context of the other provisionsof the 1993 G.O. that the word ‘manufacture’ had been usedto exclude dealers who merely purchased the goods and resoldthe same on retail price. What the State Government wantedwas investment and industrial activity. It is in this backgroundthat the 1993 G.O. must be interpreted. (See CST v. IndustrialCoal Enterprises (1999) 2 SCC 607). The exemption wasgranted in terms of the 1993 G.O. the thrust of which was toincrease industrial development in the State.”

8. We respectfully agree with the aforesaid observations and wouldchoose to take the same view by accepting the contention of theappellant that a liberal view of GOMs No. 15/74 dated 25-6-1974

would have to be taken. We accordingly allow the appeal, setaside the order passed by the High Court and restore that of theTribunal but without any order as to costs.”

19. While construing an exemption in a sales tax statute, this Courtin CST v. Amara Raja Batteries Ltd (2009) 8 SCC 209 held:

“21. An exemption notification should be given a literary (sic literal)meaning. Recourse to other principles or canons of interpretationof statute should be resorted to only in the event the same giverise to anomaly or absurdity. The exemption notification must beconstrued having regard to the purpose and object it seeks toachieve. The Government sought for increase in industrialdevelopment in the State. Such a benevolent act on the part of theState, unless there exists any statutory interdict, should be givenfull effect. (See Vadilal Chemicals Ltd. v. State of A.P. (2005) 6SCC 292)”

20. Likewise, even under the Customs Act, this Court in Commr.of Customs (Preventive) v. M. Ambalal & Co. (2011) 2 SCC 74made a clear distinction between exemptions which are to be strictlyinterpreted as opposed to beneficial exemptions having as their purpose- encouragement or promotion of certain activities. This case felicitouslyput the law thus follows:

“16. It is settled law that the notification has to be read as a whole.If any of the conditions laid down in the notification is not fulfilled,the party is not entitled to the benefit of that notification. The ruleregarding exemptions is that exemptions should generally be strictlyinterpreted but beneficial exemptions having their purpose asencouragement or promotion of certain activities should be liberallyinterpreted. This composite rule is not stated in any particularjudgment in so many words. In fact, majority of judgmentsemphasise that exemptions are to be strictly interpreted while someof them insist that exemptions in fiscal statutes are to be liberallyinterpreted giving an apparent impression that they arecontradictory to each other. But this is only apparent. A closescrutiny will reveal that there is no real contradiction amongst thejudgments at all. The synthesis of the views is quite clearly thatthe general rule is strict interpretation while special rule in thecase of beneficial and promotional exemption is liberal A

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Ainterpretation. The two go very well with each other becausethey relate to two different sets of circumstances.”

21. This judgment was followed in CCE v. Favourite Industries(2012) 7 SCC 153 (see paragraph 42).

22. A recent 5-Judge Bench judgment was cited by Shri Gupta inBCommr. of Customs v. Dilip Kumar & Co. (2018) 9 SCC 1. The 5-Judge Bench was set up as a 3-Judge Bench in Sun ExportCorporation v. Collector of Customs 1997 (6) SCC 564 was doubted,as the said judgment ruled that an ambiguity in a tax exemption provisionmust be interpreted so as to favour the assessee claiming the benefit ofCsuch exemption. This Court after dealing with a number of judgmentsrelating to exemption provisions in tax statutes, ultimately concluded asfollows:

“66. To sum up, we answer the reference holding as under:

66.1. Exemption notification should be interpreted strictly; theDburden of proving applicability would be on the assessee to showthat his case comes within the parameters of the exemption clauseor exemption notification.

66.2. When there is ambiguity in exemption notification which issubject to strict interpretation, the benefit of such ambiguity cannotEbe claimed by the subject/assessee and it must be interpreted infavour of the Revenue.

66.3. The ratio in Sun Export case [Sun Export Corpn. v. Collectorof Customs, (1997) 6 SCC 564] is not correct and all the decisionswhich took similar view as in Sun Export case stand overruled.”F

23. It may be noticed that the 5-Judge Bench judgment did notrefer to the line of authority which made a distinction between exemptionprovisions generally and exemption provisions which have a beneficialpurpose. We cannot agree with Shri Gupta’s contention that sub-silentiothe line of judgments qua beneficial exemptions has been done awayGwith by this 5-Judge Bench. It is well settled that a decision is only anauthority for what it decides and not what may logically follow from it(see Quinn v. Leathem [1901] AC 495 as followed in State of Orissav. Sudhansu Sekhar Misra (1968) 2 SCR 154 at 162,163)

24. This being the case, it is obvious that the beneficial purpose ofHthe exemption contained in Section 3(1)(b) must be given full effect to, the line of authority being applicable to the facts of these cases being theline of authority which deals with beneficial exemptions as opposed toexemptions generally in tax statutes. This being the case, a literalformalistic interpretation of the statute at hand is to be eschewed. Wemust first ask ourselves what is the object sought to be achieved by theprovision, and construe the statute in accord with such object. And onthe assumption that any ambiguity arises in such construction, suchambiguity must be in favour of that which is exempted. Consequently,for the reasons given by us, we agree with the conclusions reached bythe impugned judgments of the Division Bench and the Full Bench.

25. The matter can also be seen from a slightly different angle.Where a High Court construes a local statute, ordinarily deference mustbe given to the High Court judgments in interpreting such a statute,particularly when they have stood the test of time (see State of Gujaratv. Zinabhai Ranchhodji Darji (1972) 1 SCC 233 at paragraph 10,Bishamber Dass Kohli v. Satya Bhalla (1993) 1 SCC 566 at paragraph11, Duroflex Coir Industries Ltd. v. CST 1993 Supp (1) SCC 568 atparagraph 2, State of Karnataka v. G. Seenappa 1993 Supp (1) SCC648 at paragraph 3 and Bonam Satyavathi v. Addala Raghavulu 1994Supp (2) SCC 556 at paragraph 4). This is all the more applicable in thecase of tax statutes where persons arrange their affairs on the basis ofthe legal position as it exists.

26. In the result, the appeals filed by the State of Kerala aredismissed. The appeal filed in Civil Appeal No.204 of 2012 is allowedand the judgment of the Division Bench is set aside.

Ankit Gyan

Appeals disposed of.

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