1987 (12) TMI 322 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Determination of the date on which the industrial unit was set up.
2. Eligibility for sales tax exemption under G.O. Ms. No. 606, Revenue (S), dated April 9, 1981.

Issue-Wise Detailed Analysis:

1. Determination of the Date on Which the Industrial Unit Was Set Up:

The core issue revolves around establishing whether the respondent's industrial unit was set up on or after December 17, 1976. The respondent company, incorporated on October 11, 1973, was granted permission to set up an industrial unit for manufacturing plywood in a scheduled area. The company installed a pilot plant in 1976 and produced and sold plywood during that period. However, the main industrial unit, equipped with imported and indigenous machinery worth Rs. 87,85,492.94, was installed during the year 1977-78, and regular production commenced on December 1, 1977, as certified by the Director of Industries.

The Government Pleader argued that the unit commenced production before December 17, 1976, citing sales of plywood from the pilot plant. However, the court emphasized that the pilot plant, used for test production on an experimental basis, cannot be equated with the regular industrial unit intended for commercial production. The court referred to the Supreme Court's interpretation of "set up" in Commissioner of Wealth-tax v. Ramaraju Surgical Cotton Mills Ltd., stating that a unit is "set up" when it is ready to discharge its intended function, not merely when preliminary operations begin.

The court concluded that the industrial unit was set up after December 17, 1976, as the substantial machinery was purchased and erected in 1977-78, and high-tension electricity was connected on September 1, 1977. The certification by the Director of Industries further corroborated that regular production started on December 1, 1977.

2. Eligibility for Sales Tax Exemption Under G.O. Ms. No. 606, Revenue (S), Dated April 9, 1981:

The eligibility for sales tax exemption hinges on whether the industrial unit was set up on or after December 17, 1976. G.O. Ms. No. 606 exempts sales of products from industrial units set up in scheduled areas from sales tax for five years from the date of regular production. The court highlighted that the Government Order consists of two parts: the setting up of the industrial unit and its commencement of regular production.

The court noted that the respondent's industrial unit, set up with substantial machinery and certified to have commenced regular production on December 1, 1977, met the criteria outlined in the Government Order. The pilot plant's operations prior to this date did not constitute regular production by the industrial unit intended for commercial purposes.

Therefore, the court upheld the Sales Tax Appellate Tribunal's decision, affirming that the respondent's industrial unit was entitled to the sales tax exemption for five years from December 1, 1977, as provided in G.O. Ms. No. 606.

Conclusion:

The court dismissed the tax revision cases filed by the State, holding that the respondent's industrial unit was set up after December 17, 1976, and was therefore eligible for sales tax exemption under G.O. Ms. No. 606, Revenue (S), dated April 9, 1981. The court emphasized that the pilot plant used for experimental production did not qualify as the industrial unit intended for regular production. The respondent's substantial investment in machinery and the certification of regular production commencing on December 1, 1977, were pivotal in establishing eligibility for the exemption.