2008 (3) TMI 462 - SC - VAT and Sales Tax

Whether the respondent herein was entitled to addition of colour monitors in the eligibility certificate dated February 23, 1995 entitling it to sales tax exemption under rule 28A of the Haryana General Sales Tax Rules, 1975 for the manufacture of monochrome monitors and black and white TV sets? Whether the respondent was entitled to claim addition of a new item (colour monitor) in the eligibility certificate given to it, which certificate was restricted to the manufacture of monochrome monitors and black-and-white TV sets? Held that - Department appeal allowed. remit the matter to the High Court for fresh consideration in accordance with law. The High Court had erred in relying upon the fact that modified eligibility certificate stood granted as it was granted pursuant to the impugned judgment of the Tribunal. Similarly, the High Court has relied upon its earlier judgment in Bharti Teletech Ltd. C.W.P. No. 11884 of 2003, in which the writ petition filed by the Department stood dismissed on the ground of laches. Therefore, in our view, both the above circumstances were irrelevant. As stated above, the High Court should have considered the matter on interpretation of rule 28A of 1975 Rules. It has not considered the said rule. It has not considered the above arguments.

Summary

Issues:
Whether the respondent was entitled to addition of colour monitors in the eligibility certificate for sales tax exemption under rule 28A of the Haryana General Sales Tax Rules, 1975 (the 1975 Rules) for the manufacture of monochrome monitors and black and white TV sets.

Analysis:
The respondent was initially granted an eligibility certificate on February 23, 1995, for the manufacture of monochrome monitors and black-and-white TV sets, excluding colour monitors. Subsequently, the respondent applied for tax benefits for investing in the manufacturing of colour monitors. This application was allowed, leading to a new eligibility certificate in September 1997, specifically including colour monitors. However, a later application to insert "colour monitor" in the original certificate was rejected by the competent authority in 1999.

The case involved the interpretation of rule 28A of the 1975 Rules, particularly sub-rule (2)(d) regarding the expansion/diversification of an industrial unit. The High Court considered whether the addition of colour monitors was permissible under the rule. The department argued that the certificate should be limited to the manufacture of the same product, while the respondent contended that colour monitors were an improved version of monochrome monitors, justifying the modification.

The High Court's decision, affirming the Tribunal's ruling in favor of the respondent, was based on a liberal interpretation of the rule. However, the Supreme Court found that the High Court did not adequately analyze the rule, failing to consider key aspects such as the requirement for the same product manufacture, capital investment limits, and different tax benefit scales for new units and expansions.

The Supreme Court set aside the High Court's judgment and remitted the matter for fresh consideration, emphasizing the need for a proper interpretation of rule 28A. The Court criticized the High Court for not addressing the arguments and relying on irrelevant circumstances, directing the restoration of the case for further examination.

In conclusion, the Supreme Court allowed the department's civil appeal, highlighting the importance of interpreting tax exemption rules strictly and ensuring a comprehensive analysis of the legal provisions involved in such cases.