1986 (8) TMI 437 - HC - VAT and Sales Tax

Issues Involved:
1. Eligibility for Sales Tax Exemption under Section 4AA of the West Bengal Sales Tax Act, 1954.
2. Relationship between the petitioner and Orient Industries.
3. Validity of the rejection of the eligibility certificate by the Assistant Commissioner.
4. Use of the "Orient" trade mark by the petitioner.
5. Financial arrangements of the petitioner.

Detailed Analysis:

1. Eligibility for Sales Tax Exemption under Section 4AA of the West Bengal Sales Tax Act, 1954:
The petitioner, Swadeshi Fan Industries Pvt. Ltd., claimed exemption from sales tax under Section 4AA of the West Bengal Sales Tax Act, 1954, which provides for a three-year exemption for newly set up small-scale industrial units. The petitioner asserted that all conditions mentioned in the notification dated 1st April, 1976, were met, including registration with the Cottage and Small-scale Industries Department, investment in plant and machinery not exceeding Rs. ten lakhs, and commencement of production after 31st March, 1976. The petitioner applied for an eligibility certificate as required by the amended notification dated 1st April, 1980, but the Assistant Commissioner rejected the application.

2. Relationship between the Petitioner and Orient Industries:
The Assistant Commissioner and respondents argued that the petitioner's unit was an expansion or ancillary concern of Orient Industries, using its trade mark and technical know-how. They contended that the petitioner's production was controlled by Orient Industries, and the use of the "Orient" trade mark indicated an interconnection between the two entities. However, the court found no evidence of financial interdependence, unity of management, or control by Orient Industries over the petitioner's operations. The court emphasized that using a trade mark under a commercial agreement does not imply that the petitioner was manufacturing on behalf of Orient Industries.

3. Validity of the Rejection of the Eligibility Certificate by the Assistant Commissioner:
The Assistant Commissioner rejected the eligibility certificate on the grounds that the petitioner took loans from private sources and used the "Orient" trade mark. The court found that the notification did not prohibit obtaining loans from private sources and that the petitioner's investment in plant and machinery met the prescribed limit. The court held that the Assistant Commissioner's view was not supported by any authority and that the rejection was based on irrelevant considerations.

4. Use of the "Orient" Trade Mark by the Petitioner:
The court referred to precedents, including Hind Lamps Ltd. v. Union of India and Union of India v. Cibatul Limited, to establish that manufacturing goods with a customer's trade mark does not mean the goods are manufactured on behalf of the customer. The court noted that the petitioner's use of the "Orient" trade mark under a commercial agreement did not make it an extension or branch of Orient Industries. The petitioner was liable for sales tax on its sales to Orient Industries, indicating that the petitioner was the actual manufacturer.

5. Financial Arrangements of the Petitioner:
The Assistant Commissioner questioned the petitioner's financial arrangements, particularly the loans from private sources. The court found this reasoning unjustified, as the notification did not restrict the source of loans. The court highlighted that the petitioner's investment in plant and machinery was within the permissible limit, and there was no allegation of non-compliance with this condition.

Conclusion:
The court concluded that the Assistant Commissioner erred in rejecting the petitioner's application for an eligibility certificate. The petitioner met all the conditions for exemption under the notification, and the relationship with Orient Industries did not disqualify it as a newly set up small-scale industrial unit. The court set aside the order dated 28th January, 1981, and the notice dated 14th November, 1980, directing the respondent to issue the eligibility certificate within two weeks. The writ petition was allowed with no order as to costs.

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