2006 (3) TMI 313 - SC - VAT and Sales Tax

Whether the two notifications Nos. 478 and 479 are repugnant to the incentive policy? Held that - Appeal dismissed. As noted the ratio of the decision of this Court in the case of State of Bihar v. Suprabhat Steel Ltd. reported in (1998 (11) TMI 530 - SUPREME COURT OF INDIA) in which it has been held that the notifications meant for implementing the Industrial Policy of the State Government, cannot override the incentive policy. On the facts of the present case, we need not examine the question as to whether the said two Notifications Nos. 478 and 479, quoted hereinabove, are repugnant to the incentive policy. Thus vide order dated March 26, 2004, this Court, by way of interim measure, directed the appellant herein to adjust the refundable amount of Rs. 40 crores, for the accounting year commencing from April 1, 2004, the balance amount was ordered to be refunded to Tata Cummins Ltd. who undertook to pay back to the appellant the balance payment with interest at the rate of 9 per cent in the event of the State succeeding in this civil appeal. However, since we are dismissing the appeal filed by the State, the question of refund by Tata Cummins Ltd. to the State, of the balance amount, i.e., Rs. 14.5 crores with interest, does not arise.

Issues Involved:
1. Eligibility for sales tax exemption under the Industrial Policy, 1995.
2. Validity of lease agreements and ownership of the building.
3. Interpretation of Notifications Nos. 478 and 479 in light of the Industrial Policy.
4. Compliance with procedural requirements for exemption claims.

Detailed Analysis:

1. Eligibility for Sales Tax Exemption under the Industrial Policy, 1995:
The core issue revolves around whether Tata Cummins Ltd. is entitled to the sales tax exemption benefits under the Industrial Policy, 1995, as implemented by Notifications Nos. 478 and 479 dated December 22, 1995. According to the policy, new industrial units were allowed the facility of either "set-off" or "exemption" on the purchase of raw materials and sales tax on finished goods. The High Court concluded that Tata Cummins Ltd. fulfilled the criteria for exemption as it was the exclusive owner of the building where its factory was located.

2. Validity of Lease Agreements and Ownership of the Building:
The High Court found that Tata Cummins Ltd. had established its factory on land sub-leased from TELCO, which in turn had a lease from TISCO. The Deputy Commissioner initially rejected the exemption claim due to the expiration of the head lease from the Government to TISCO. However, the lease was later renewed. The High Court emphasized that Tata Cummins Ltd. was the owner of the building, thereby meeting the notification requirements for tax exemption.

3. Interpretation of Notifications Nos. 478 and 479 in Light of the Industrial Policy:
The Supreme Court highlighted that the notifications should be interpreted in the context of the Industrial Policy, which aimed to incentivize industrial investment and development in the State. The Court noted that the notifications should be read liberally to align with the policy's objectives, rather than strictly as tax exemption notifications. The Court agreed with the High Court's interpretation that the first part of the notifications did not require ownership of the land, only the building.

4. Compliance with Procedural Requirements for Exemption Claims:
The Deputy Commissioner's rejection of Tata Cummins Ltd.'s claim was initially done without the required approval from the Joint Commissioner. The Supreme Court directed the Joint Commissioner to review the case afresh, leading to a conclusion that Tata Cummins Ltd. did not have a registered lease for 15 years or more, which was a pre-condition for exemption. However, the High Court later ruled in favor of Tata Cummins Ltd., recognizing its substantial investment and contribution to the State's industrial growth.

Conclusion:
The Supreme Court dismissed the state's appeal, upholding the High Court's judgment that Tata Cummins Ltd. was entitled to the sales tax exemption benefits under the Industrial Policy, 1995. The Court emphasized the importance of interpreting the notifications in light of the policy's objectives and confirmed that Tata Cummins Ltd. met the necessary criteria for exemption. The procedural lapses by the Deputy Commissioner were also noted, but ultimately did not affect the final decision in favor of Tata Cummins Ltd. The appeal was dismissed with no order as to costs.

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