M/S.P.M.KELUKUTTY AND BROTHERS ENGINEERING CONTRACTORS v STATE OF KERALA

**IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI FRIDAY, THE 11[TH] DAY OF NOVEMBER 2022 / 20TH KARTHIKA, 1944** **OT.REV NO. 63 OF 2021** **AGAINST THE ORDER IN TA VAT 238/2017 OF KERALA VALUE ADDED TAX/AGRL. INCOME AND TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE** ## **REVISION PETITIONER:** M/S.P.M.KELUKUTTY AND BROTHERS ENGINEERING CONTRACTORS, PANTHEERANKAVU, KOZHIKODE, REPRESENTED BY ITS MANAGING PARTNER, P.M. KELUKUTTY. BY ADVS. HARISANKAR V. MENON SMT.MEERA V.MENON ## **RESPONDENT:** STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. ## **OTHER PRESENT:** SR. GP V.K. SHAMSUDHEEN/ M. M. JASMIN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 11.11.2022, ALONG WITH OT.Rev.74/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OT.Rev Nos.63/2021, 74/2021 -2- **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI FRIDAY, THE 11[TH] DAY OF NOVEMBER 2022 / 20TH KARTHIKA, 1944** **OT.REV NO. 74 OF 2021** **AGAINST THE ORDER/JUDGMENTTAVAT 239/2017 KERALA VALUE ADDED TAX/AGRL. INCOME AND TAX AND SALES TAX APPELLATE TRIBUNAL, ADDITIONAL BENCH, KOZHIKODE** ## **REVISION PETITIONER:** P.M.KELUKUTTY AND BROTHERS ENGINEERING CONTRACTORS, PANTHEERANKAVU, KOZHIKODE, REPRESENTED BY ITS MANAGING PARTNER, P.M.KELUKUTTY. BY ADVS. HARISANKAR V. MENON MEERA V.MENON ## **RESPONDENT:** STATE OF KERALA REPRESENTED BY ITS SECRETARY, TAXES DEPARTMENT, GOVT.SECRETARIAT, THIRUVANANTHAPURAM. SR. GP V.K. SHAMSUDHEEN/ M. M. JASMIN THIS OTHER TAX REVISION (VAT) HAVING COME UP FOR ADMISSION ON 11.11.2022, ALONG WITH OT.Rev.63/2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: OT.Rev Nos.63/2021, 74/2021 -3- ## **O R D E R** [OT.Rev Nos.63/2021, 74/2021] ## S.V.Bhatti, J. We have heard Mr Harishankar V. Menon for the petitioner, and Mr Shamsudheen V.K learned Senior Government Pleader for the respondent. 2. The revisions are filed against the orders in TA (VAT) No.239/2017 and 238/2017 dated 20.01.2021 of the Kerala Value Added Tax/Agrl. Income Tax and Sales Tax Appellate Tribunal, Kozhikode (for short, ‘the Tribunal’). The issues are identical, hence are disposed of by the common order. 3. The petitioner is a dealer registered under the Kerala Value Added Tax Act (for short, 'the Act') and engaged in the business of construction and execution of civil and electrical and allied works having global recognition. M/s. Uralungal Labour Contract Co-operative Society IT Infrastructure (P) Ltd/developer has set up a Special Economic Zone at Nellikode, OT.Rev Nos.63/2021, 74/2021 -4- Kozhikode District. The developer has entrusted the developmental activities to M/s. Uralungal Labour Contract Cooperative Society, Vadakara (for short, 'ULCCS'). The ULCCS, under sub-contract, entrusted to the dealer the work of execution or establishment of a Special Economic Zone. The dealer claimed exemption from tax payment under the Act by referring to Section 6 (7) (b) of the KVAT Act. All three authorities rejected the claim of the dealer. Hence, the revision petitions at the instance of the dealer. The questions raised for consideration read thus: - “a) Whether on the facts and in the circumstances of the case, has not the appellate tribunal erred in holding that the petitioner is not entitled to the benefits available under section 6 (7) (b) to the KVAT Act 2003? - b) Ought not the learned tribunal has held that the proviso to Section 6 (7) (b) inserted by the Finance Act 2014 is to be given retrospective operation since the same is only a clarificatory provision? - c) Ought not the learned tribunal has held that the transfer of property in goods in the works contract executed by the petitioner is from the side of the petitioner to the developer of SEZ and hence entitled for the benefits under Section 6 (7)(b) to the KVAT Act?” OT.Rev Nos.63/2021, 74/2021 -5- 4. Adv. Harishankar V. Menon argues that Section 6 (7), as it stood before amendment by the Kerala Finance Act, 2014 stood thus: “(7) Notwithstanding anything contained in sub-section (1).- (a) any authorised retail or wholesale distributor dealing [xxx] in rationed articles, namely, rice, wheat and kerosene under the Kerala Rationing Order, 1966, shall not be liable to pay tax on the turnover of such goods; (b) Sale of any building materials, industrial inputs, plant and machinery, including components, spares, tools and consumables in relation thereto to any developer or industrial unit or establishments situated in any Special Economic Zone in the State for setting up the unit or use in the manufacture of other goods shall, subject to such conditions or restrictions, as may be prescribed, be exempted from tax. (c) Sale of medicines and drugs falling under the Third Schedule, in respect of which tax had been paid under the Kerala General Sales Tax Act, 1963 (15 of 1963) and which are held as opening stock on the 1[st] day of April, 2005 shall, subject to conditions and restrictions, as may be prescribed, be exempted from tax.” Through Kerala Finance Act, 2014 the following proviso is incorporated. “Provided that the exemption covered by this clause shall be applicable to a deemed sale in involved in a works OT.Rev Nos.63/2021, 74/2021 -6- contract executed through a sub-contractor also.” The speech of the Hon’ble Minister for Finance has stated thus: ## **Simplification of procedures** 383. As per the existing provision, the sale of building materials, industrial inputs and plant and machinery etc. to SEZ is exempted from tax. But lack of clarity exist with regard to work contracts done in SEZ. It will be made clear that the exemption to SEZ will be available to the sub contractor also, if the work is done by them. 5. From the above scheme of things, it is argued that the proviso is curative and must also apply to the subject assessment years. He relies on the judgments reported in _Union of India vs VKC Footsteps India Pvt. Ltd[1] , Allied Motors (P) Ltd. Vs. Commissioner of Income Tax[2] , CIT v. Vatika Township (P). Ltd_[3] . The relevant portions are excerpted hereunder: ## Union of India vs. VKC Footsteps India Pvt. Ltd “Construing the proviso. 91. Provisos in a statute have multi-faceted personalities. As interpretational principles governing statutes have evolved, certain basic ideas have been recognised, while heeding to the text and context. Justice G.P. Singh, in his > 1 (2021) 93 GSTR 160 (SC) 2 (1997) 224 ITR 677 (SC) > 3 > (2015) 1 SCC 1 OT.Rev Nos.63/2021, 74/2021 -7- seminal text, Principles of Statutory Interpretation formulates the governing principles of interpretation which have been adopted by courts while construing a statutory proviso. The first rule of interpretation is that: "The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by Lush, J.; . ‘…. When one finds a proviso to the section, the natural presumption is that but for the proviso the enacting part of the section would have included the subject-matter of the proviso. In the words of Lord Macmillan. ‘... The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. The proviso may, as Lord Macnaghten laid down, be a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. The general rule has been stated by Hidayatullah, 1.2, in the following words: 9…. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule. And in the words of Kapur. J. ...The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment...." (emphasis supplied) 92. But then these principles are subject to other principles of statutory interpretation which may supplement or even substitute the above formula. These other rules which have been categorised by Justice G.P. Singh are summarised as follows: 92.1. A proviso is not construed as excluding or adding something by implication: "Except as to cases dealt with by it. a proviso has no repercussion on the interpretation of the enacting portion of the section so as to exclude something by implication which is embraced by clear words in the enactment." OT.Rev Nos.63/2021, 74/2021 -8- 92.2. A proviso is construed in relation to the subjectmatter of the statutory provision to which it is appended: "The language of a proviso even if general is normally to be construed in relation to the subject-matter covered by the section to which the proviso is appended. In other words, normally a proviso does not travel beyond the provision to which it is a proviso. It is a cardinal rule of interpretation", observed Bhagwati, J., "that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. " 92.3. Where the substantive provision of a statute lacks clarity, a proviso may shed light on its true meaning: "If the enacting portion of a section is not clear, a proviso appended to it may give an indication as its true meaning. As stated by Lord Herschell : "Of course a proviso may be used to guide you in the selection of one or other of two possible constructions of the words to be found in the enactment, and shew when there is doubt about its scope, when it may reasonably admit of doubt as to its having this scope or that, which is the proper view to take of it:" 92.4. An effort should be made while construing a statute to give meaning both to the main enactment and its proviso bearing in mind that sometimes a proviso is inserted as a matter of abundant caution: "The general rule in construing an enactment containing a proviso is to construe them together without making either of them redundant or otiose. Even if the enacting part is clear effort is to be made to give some meaning to the proviso and to justify its necessity. But a clause or a section worded as a proviso, may not be a true proviso and may have been placed by way of abundant caution." 92.5. While ordinarily, it would be unusual to interpret the proviso as an independent enacting clause, as distinct from its main enactment, this is true only of a real proviso and the draftsperson of the statute may have intended for the proviso to be, in substance, a fresh enactment: "... To read a proviso as providing something by way OT.Rev Nos.63/2021, 74/2021 -9- of an addendum or as dealing with a subject not covered by the main enactment or as stating a general rule as distinguished from an exception or qualification is ordinarily foreign to the proper function of a proviso. However, this is only true of a real proviso. The insertion of a proviso by the draftsman has not always strictly adhered to its legitimate use and at times a section worded as a proviso may wholly or partly be in substance a fresh enactment adding to and not merely excepting something out of or qualifying what goes before." 93. Perhaps the most comprehensive and oft-cited precedent governing the interpretation of a proviso is the decision of this Court in S. Sundaram Pillai v. V.R. Pattabiraman, S. Murtaza Fazal Ali, J. speaking for a threeJudge Bench of this Court held: ‘43. ………….To sum up, a proviso may serve four different purposes: (1) qualifying or excepting certain provisions from the main enactment: (2) it may entirely change the very concept of the intendment of the enactment by insisting on certain mandatory conditions to be fulfilled in order to make the enactment workable: (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision." 94. While enunciating the above principles, S. Sundaram Pillai" took note of the decision in Hiralal Rattanlal v. State of U.P. where K.S. Hegde, J... speaking for a four-Judge Bench of this Court observed that while ordinarily, a proviso is in the nature of an exception, the precedents indicate that sometimes a proviso is in the nature of a separate provision, with a life of its own. The Court held: (Hiralal Rattanlal case.. (Emphasis supplied) "22. ... Ordinarily a proviso to a section is OT.Rev Nos.63/2021, 74/2021 -10- intended to take out a part of the main section for special treatment. It is not expected to enlarge the scope of the main section. But cases have arisen in which this Court has held that despite the fact that a provision is called a proviso, it is really at separate - provision and the so called proviso has substantially altered the main section. In CIT v. Bipinchandra Maganlal & Co. Ltd this Court held that by the fiction in Section 10(2)(vii) second proviso read with. Section 2(6-C) of the Indian Income Tax Act. 1922 what is really not income is, for the purpose of computation of assessable income, made taxable income." ……………………… (Emphasis supplied) Besides the decision in CIT v. Bipinchandra Maganlal & Co. Ltd. the Court in Hiralal Rattantal adverted to the earlier decisions in State of Rajasthan v. Leela Jain and Bihta Coop. Development Cane Mktg. Union Ltd. v. Bank of Bihar.” ## Allied Motors (P) Ltd. Vs. Commissioner of Income Tax 3. *** The proviso, however, was not on the statute book when the assessments were made in respect of these assessees since the assessments pertain to assessment years prior to the insertion of the proviso in section 43B. The assessees, however, contended that the proviso should be given effect to retrospectively from the date when section 43B became a part of the Act, as it is intended to obviate unexpected hardships in the application of section 43B. *** *** *** 6. Looking to the curative nature of the amendment made by the Finance Act, 1987 it has been submitted before us that the proviso which is inserted by the amending Finance Act, 1987 should be given retrospective OT.Rev Nos.63/2021, 74/2021 -11- effect and be read as forming a part of section 4313 from its inception. This submission has taken support from decisions of a number of High Courts before whom this question came up for consideration. The High Courts of Calcutta, Gujarat, Karnataka, Orissa, Gauhati, Rajasthan, Andhra Pradesh, Patna and Kerala appear to have taken the view that the proviso must be given retrospective effect. Some of these High Courts have held that 'sum payable' under section 43B(a) refers only to the sum payable in the same accounting year, thus excluding salestax payable in the next accounting year from the ambit of section 43B(a). The Delhi High Court has taken a contrary view holding that the first proviso to section 43B operates only prospectively. We will refer only to some of these judgments. *** *** *** 10. Therefore, in the well-known words of Judge Learned Hand, one cannot make a fortress out of the dictionary: and should remember that statutes have some purpose and object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning. In the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570, this Court said that one should apply the rule of reasonable interpretation. A proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.” ## CIT v. Vatika Township (P). Ltd 32. Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labelled as OT.Rev Nos.63/2021, 74/2021 -12- "declaratory statutes". The circumstances under which provisions can be termed as "declaratory statutes" are explained by Justice G.P. Singh in the following manner: "Declaratory statutes The presumption against retrospective operation does not apply to declaratory statutes. As stated in CRAIES and approved by the Supreme Court: "For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a Preamble, and also the word "declared" as well as the word "enacted". But the use of the words "it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language shall be deemed always to have meant is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the preamended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into OT.Rev Nos.63/2021, 74/2021 -13- force, the amending Act also will be part of the existing law." 6. Therefore, he argues that the reasoning of the Tribunal is erroneous, illegal, and unsustainable. Once this Court decides the amended provision's application, the Tribunal must consider the other aspects. 7. We have perused the judgments on which the learned counsel for the dealer places strong reliance. From a reading of the proviso, it is clear that it is either clarificatory or curative. As such, no other circumstance or expression is available in Section 6 to make the amended provision prospectively. Mr Shamsudheen has argued that the Tribunal rightly held that the benefit of proviso could not be extended to the dealer. 7.1 We cannot accept the contention, particularly bearing in mind our conclusion on whether the proviso introduced through the Kerala Finance Act, 2014 is prospective or retrospective or whether it is curative or clarificatory. We OT.Rev Nos.63/2021, 74/2021 -14- hold that the amendment introduced through the Finance Act 2014 is curative in nature, and in principle, there is no restriction for applying such curative provision retrospectively. Accepting the principal objection raised by the dealer, the orders under revisions are set aside, and matters are remitted to the Tribunal for consideration afresh on merits. O.T. Revisions are allowed. Sd/- **S.V.BHATTI JUDGE** Sd/- **BASANT BALAJI JUDGE** JS OT.Rev Nos.63/2021, 74/2021 -15- ## **APPENDIX OF OT.REV 63/2021** PETITIONER’S ANNEXURES ANNEXURE A COPY OF AGREEMENT EXECUTED BETWEEN ULCCS AND THE PETITIONER DATED 20.06.2011. ANNEXURE B COPY OF ASSESSMENT ORDER ISSUED BY THE COMMERCIAL TAX OFFICER, WORKS CONTRACT, COMMERCIAL TAXES, KOZHIKODE DATED 09.12.2014. ANNEXURE C COPY OF CLARIFICATION O. C3-20525/2008/CT DATED 21.10.2008. ANNEXURE D COPY OF ORDER ISEUD BY THE DY. COMMISSIONER (APPEALS) -1, KOZHIKODE I KVATA O. 49/2015 DATED 05.05.2017. ANNEXURE E COPY OF ARGUMENT NOTE FILED BY THE APPELLANT BEFORE THE KERALA VAT APPELLATE TRIBUNAL, KOZHIKODE. ANNEXURE F ORIGINAL ORDER OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL, KOZHIKODE IN TA (VAT), NO. 238/2017 & 239/2017 DATED 20.01.2021. OT.Rev Nos.63/2021, 74/2021 -16- ## **APPENDIX OF OT.REV 74/2021** PETITIONER’S ANNEXURES Annexure A COPY OF AGREEMENT EXECUTED BETWEEN ULCCS AND THE PETITIONER Annexure B C0PY OF ASSESSMENT ORDER ISSUED BY THE COMMERCIAL TAX OFFICER,WORKS CONTRACT, COMMERCIAL TAXES,KOZHIKODE. Annexure C COPY OF CLARIFICATION NO.C3-20525/2008/CT Annexure D COPY OF THE ORDER ISSUED BY THE DY.COMMISSIONER (APPEALS)-I,KOZHIKODE INKVATA NO.49/2015. Annexure E COPY OF ARGUMENT NOTE FILED BY THE APPELLANT BEFORE THE KERALA VAT APPELLATE TRIBUNAL,KOZHIKODE Annexure F ORIGINAL ORDER OF THE KERALA VALUE ADDED TAX APPELLATE TRIBUNAL,KOZHIKODE IN TA(VAT)KNO.238/2017 & 239/2017.