2007 (9) TMI 389 - SC - VAT and Sales Tax

Interpretation of an exemption notification in regard to payment of sales tax - Held that - Appeal dismissed. In view of the clear legal provision as also the aforementioned notification dated September 23 1992 there cannot be any doubt whatsoever that the exemption in respect of deferment of sales tax having been provided for under the Orissa Sales Tax Act as also the notification issued thereunder the High Court in our opinion is correct in taking its view.

Issues Involved:
1. Interpretation of an exemption notification regarding payment of sales tax.
2. Validity of operational guidelines vis-`a-vis the Industrial Policy Resolution (IPR), 1992.
3. Determination of eligibility and period for sales tax exemption.
4. Entitlement to capital investment subsidy.

Detailed Analysis:

1. Interpretation of an Exemption Notification Regarding Payment of Sales Tax:
The core issue in this appeal was the interpretation of an exemption notification concerning the payment of sales tax. The respondent, a large industrial unit, claimed benefits under the Industrial Policy Resolution (IPR), 1992, which provided for exemption or deferment of sales tax on finished products and capital investment subsidy, contingent upon expansion, modernization, or diversification of the unit.

2. Validity of Operational Guidelines Vis-`a-vis the Industrial Policy Resolution (IPR), 1992:
The appellant argued that the operational guidelines issued under IPR, 1992, limited the period for obtaining sales tax benefits to five years for new industries and seven years for pioneer industries. However, the High Court held that these operational guidelines, being subordinate legislation, could not impose conditions that were not in consonance with the IPR itself. It was stated:
> "If we accept the contention advanced by the learned counsel for the Revenue that the 'operational guidelines' provide a 'limitation' or 'time period' for sales tax incentives, it would tantamount to accepting a principle that by sub-delegated legislation, a delegate may also effectively amend or supplant the legislation, which it is clearly incompetent to do."

The High Court found that the operational guidelines could not override the IPR, 1992, which did not specify a time limit for the sales tax exemption under paragraph 7.5.

3. Determination of Eligibility and Period for Sales Tax Exemption:
The respondent contended it was entitled to deferment of sales tax on incremental sales over the preceding year up to Rs. 49.45 crores, being 75% of the fixed capital investment in plant and machinery. The High Court directed the Director of Industries, Orissa, to reconsider the respondent's application for re-evaluation of its investment and determine the extent of sales tax incentives, stating:
> "The stipulation of a 'time period' in the certificate of eligibility granted to the petitioner in form No. II-A under annexure 4 to the writ petition is declared ultra vires the IPR, 1992 and shall have no effect."

The Supreme Court upheld this view, noting that the exemption notification under the Orissa Sales Tax Act did not specify a period for the sales tax exemption. The Court emphasized that exemption notifications must be liberally construed, citing precedents such as Commissioner of Customs (Imports), Mumbai v. Tullow India Operations Ltd. and Tata Iron & Steel Co. Ltd. v. State of Jharkhand.

4. Entitlement to Capital Investment Subsidy:
The High Court also directed the reconsideration of the respondent's application for a capital investment subsidy, mandating the release of the subsidy due within two months. This direction was based on the respondent's entitlement under the IPR, 1992, and the need for the State to adhere to its policy commitments.

Conclusion:
The Supreme Court dismissed the appeal, affirming the High Court's judgment. The Court concluded that the operational guidelines could not impose additional conditions not stipulated in the IPR, 1992, and that the respondent was entitled to the sales tax exemption and capital investment subsidy as per the policy. The appeal was dismissed with costs, emphasizing the principle of liberal interpretation of exemption notifications.

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