2008 (8) TMI 551 - SC - VAT and Sales Tax

Whether sub-rule (10)(v) of rule 28A in so far as it empowers the department to withdraw the tax exemption certificate was valid or not? Held that - Appeal allowed. The proviso permits the dealers to explain satisfactorily to the DETC that the loss in production was because of the reasons beyond the control of the unit. The materials have to be placed in this regard by the party. The High Court seems to have completely lost sight of sub-rule (11)(b). In any event we find that the High Court had permitted the authorities to go before the Screening Committee to get the eligibility certificate cancelled. Undisputedly that has been done and the appeal against cancellation has been dismissed. It is stated that a writ petition is pending before the High Court. As in the instant case the writ petition filed by the respondent has been allowed without examining effect of sub-rule (11) the order of the High Court cannot be maintained. It is to be noted that in terms of clause (b) of sub- rule (11) if the conditions stipulated in clause (a) are not fulfilled it shall be deemed that exemption/entitlement was not ever availed. Therefore the High Court was not justified in its view that demand cannot be maintained.

Issues Involved:
1. Validity of cancellation of exemption certificate after its expiry.
2. Applicability of sub-rule (10)(v) of rule 28A of the Haryana General Sales Tax Rules, 1975.
3. Justification for directing the respondent to deposit the tax amount.
4. Examination of sub-rule (8) and sub-rule (9) of rule 28A regarding eligibility and exemption certificates.
5. Interpretation of sub-rule (11) of rule 28A concerning the continuation of production and consequences of its violation.

Issue-wise Detailed Analysis:

1. Validity of Cancellation of Exemption Certificate After Its Expiry:
The High Court held that the cancellation of the exemption certificate after its validity period, which ended on June 30, 1997, did not attract the provisions of clause (v) of sub-rule (10) of rule 28A. It was not considered a case of cancellation because the period had already expired. Consequently, the Deputy Excise and Taxation Commissioner (DETC) was deemed unjustified in directing the respondent to deposit Rs. 40,45,324 for the exemption availed up to June 30, 1997.

2. Applicability of Sub-rule (10)(v) of Rule 28A:
The High Court did not find it necessary to examine the validity of sub-rule (10)(v) of rule 28A, which empowers the department to withdraw the tax exemption certificate. However, it granted liberty to the appellants to proceed according to law if there was a case for withdrawal under sub-rule (8) of rule 28A.

3. Justification for Directing the Respondent to Deposit the Tax Amount:
The State argued that since there was no production since January 1997, the exemption certificate was liable to be canceled under sub-rule (9)(i) of rule 28A. The High Court agreed with the cancellation under sub-rule (9) but did not accept the Revenue's stand on consequential action, referencing sub-rule (10)(v) of rule 28A. The High Court held that cancellation could only relate to the current year and not retrospectively.

4. Examination of Sub-rule (8) and Sub-rule (9) of Rule 28A:
The High Court compared sub-rules (8) and (9), noting that discontinuance of business for six months could lead to action under both provisions. Under sub-rule (8), the eligibility certificate could be withdrawn, while under sub-rule (9), the exemption/entitlement certificate could be canceled. The High Court concluded that cancellation could only apply to the current year and not retrospectively. However, it allowed the authorities to proceed under sub-rule (8) if necessary.

5. Interpretation of Sub-rule (11) of Rule 28A:
The Supreme Court noted that sub-rule (11)(a) requires the beneficiary to continue production for at least five years after availing the benefit. Sub-rule (11)(b) states that if this condition is violated, the unit must repay the full tax benefit with interest as if no exemption was ever granted. The High Court overlooked this provision. The Supreme Court found that the High Court's order could not be maintained as it did not consider sub-rule (11). The Supreme Court concluded that non-fulfillment of the conditions in sub-rule (11)(a) results in the deemed non-availability of exemption/entitlement.

Conclusion:
The Supreme Court held that the High Court was not justified in its view that the demand could not be maintained. The appeals were allowed except for Civil Appeal No. 676 of 2005, which was dismissed. The authorities were permitted to proceed according to law regarding the eligibility certificate.

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