2007 (4) TMI 351 - SC - VAT and Sales Tax

Whether Premium Ferro Alloys Ltd. is entitled to claim tax exemption on additional investments made after November 24, 1998? Held that - There is no merit in the contention raised on behalf of Premium Ferro Alloys Ltd. that the said G.O. dated November 24, 1998 is prospective and not retrospective. However, the issues, which we have remitted to the division Bench in the earlier matters (Civil Appeal Nos. 8031 of 2004 and 8032-8033 of 2004), also arise in the present case. In the circumstances, we remit this case also to the division Bench.

Issues Involved:
1. Tax exemption eligibility for Peekay Re-Rolling Mills (P) Ltd. under the Kerala General Sales Tax Act, 1963.
2. Interpretation and applicability of Government Orders (G.O.) dated November 26/27, 1993, and April 19, 1994.
3. Interpretation of clause 7 of G.O. dated November 26/27, 1993.
4. Retrospective application of G.O. dated November 24, 1998, for Premium Ferro Alloys Ltd.

Issue-wise Detailed Analysis:

1. Tax Exemption Eligibility for Peekay Re-Rolling Mills (P) Ltd.:
Peekay Re-Rolling Mills (P) Ltd. was registered as an industrial unit on September 6, 1991, and commenced commercial production on March 31, 1995. The company claimed tax exemption under section 10 of the Kerala General Sales Tax Act, 1963, based on a notification dated November 4, 1993, which granted tax exemption to medium-scale units for seven years. However, the Government issued a G.O. on November 26/27, 1993, which included "power intensive units" in the negative list, thereby making them ineligible for tax exemption if their power requirement exceeded 2,500 KVA or if the cost of power exceeded 25% of the cost of production.

2. Interpretation and Applicability of Government Orders:
The respondent argued that the clarificatory G.O. dated April 19, 1994, stated that tax exemption would continue for units provisionally registered before December 31, 1993. The Director of Industries initially granted tax exemption based on the initial investment but rejected further exemption for additional investments made after the commencement of production. The learned single Judge held that the G.O. dated November 26/27, 1993, was valid and applicable, thus rejecting the respondent's claim for additional tax exemption.

3. Interpretation of Clause 7 of G.O. Dated November 26/27, 1993:
Clause 7 of the G.O. defined "power intensive units" and was interpreted by the learned single Judge to mean that the conditions of exceeding 2,500 KVA of contract load and the cost of power being more than 25% of the cost of production should be read disjunctively. The division Bench, however, did not examine this interpretation in detail and instead held that the specific notification dated November 4, 1993, would override the general G.O. dated November 26/27, 1993.

4. Retrospective Application of G.O. Dated November 24, 1998, for Premium Ferro Alloys Ltd.:
Premium Ferro Alloys Ltd. claimed tax exemption for additional investments made after November 24, 1998. The company argued that the G.O. dated November 24, 1998, which modified the negative list to include all types of steel re-rolling mills, should operate prospectively. However, the Court held that the G.O. was clarificatory and thus retrospective, applying to investments made after November 26/27, 1993.

Conclusion:
The Supreme Court held that the State Government had the authority under Article 162 of the Constitution to issue the G.O. dated November 26/27, 1993, withdrawing tax exemptions due to acute power shortage. However, the division Bench failed to examine the scope of the clarificatory G.O. dated April 19, 1994, and the interpretation of clause 7 of the G.O. dated November 26/27, 1993. The matter was remitted to the division Bench for further consideration of these aspects. Additionally, the Court held that the G.O. dated November 24, 1998, was clarificatory and thus retrospective, applying to Premium Ferro Alloys Ltd. The appeals were allowed, and the cases were remitted to the division Bench for further examination.

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