1995 (9) TMI 288 - SC - VAT and Sales Tax

Whether respondents were entitled to exemption from octroi or not because of what has been stated in clause (i) of the clarification? Held that - Appeal dismissed. If the new undertaking by separate and independent production units were to come in existence in the sense of producing a distinct commercial product and the undertaking could be carried on separately the same would not be treated as being formed by reconstruction of the old business. From the material on record we are satisfied that unit No. 2 did meet these requirements and so exemption could not have been denied by taking a view that unit No. 2 was not a new industry because of what has been stated in clause (i) of the clarification.

Summary

Issues:
Exemption from octroi on initially imported plant and machinery for new industrial undertakings.

Analysis:

The judgment by the Supreme Court of India dealt with the issue of exemption from octroi on initially imported plant and machinery for new industrial undertakings. The case involved a resolution adopted by the Chinchwad New Township Municipal Council in 1970, permitting exemption for new industrial undertakings. The respondents, represented by M/s. Century Enka Ltd., claimed exemption under this resolution, which was initially denied. The Bombay High Court granted the prayer, leading to the appeals before the Supreme Court.

The primary contention raised against granting exemption was that the importation of plant and machinery was by existing undertakings, not for a "new industrial undertaking" as per the resolution. The High Court clarified this aspect, emphasizing that the new unit set up for manufacturing polyester filament yarn was not a result of reconstructing an existing business but was established for substantial expansion. The Court highlighted previous decisions, including Textile Machinery Corporation Ltd. v. Commissioner of Income-tax, to establish the legal position that a new industrial undertaking must be a separate and independent production unit, not formed by reconstructing an old business.

The Court analyzed the evidence, including communications from the Government of India regarding the manufacturing capacity and expansion plans of the respondent-company. It concluded that the new unit met the requirements of being a distinct commercial product and could operate independently, thus qualifying for exemption under the resolution. The Court cited Commissioner of Income-tax v. Indian Aluminium Co. Ltd. and Commissioner of Income-tax v. Orient Paper Mills Ltd. to support its decision.

Ultimately, the Supreme Court upheld the High Court's judgment, dismissing the appeals and directing each party to bear their own costs. The decision rested on the interpretation of the resolution's clauses and the legal principles established in previous cases regarding the formation of new industrial undertakings.