1992 (3) TMI 330 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for tax exemption on end-products manufactured by steel re-rolling mills located outside Tamil Nadu.
2. Compliance with conditions for exemption under Government Order dated March 17, 1986.
3. Alleged violation of Articles 301 and 304(a) of the Constitution of India.
4. Requirement for factual substantiation of tax payment on raw materials.

Detailed Analysis:

1. Eligibility for Tax Exemption on End-Products Manufactured by Steel Re-Rolling Mills Located Outside Tamil Nadu:
The petitioner sought a writ of declaration to confirm that tax exemption benefits should apply regardless of whether the steel re-rolling mills are located within or outside Tamil Nadu, provided the raw materials purchased fall within item 4 of the Second Schedule to the Tamil Nadu General Sales Tax Act. The petitioner relied on the Division Bench judgment in Bhoruka Steel Limited v. Union of India, which held that requiring re-rolling activity within Tamil Nadu for tax exemption is illegal and unconstitutional. The court in Bhoruka Steel Limited directed that the exemption should be available if the raw materials had already suffered tax under the Tamil Nadu General Sales Tax Act, irrespective of the location of the re-rolling mills.

2. Compliance with Conditions for Exemption Under Government Order Dated March 17, 1986:
The respondents argued that the Government Order dated March 17, 1986, requires that steel re-rolling mills in Tamil Nadu certify the purchase of raw materials within Tamil Nadu for manufacturing end-products. The exemption is contingent upon this certification and the production of a declaration of purchase. The petitioner contended that this requirement is discriminatory. However, the court noted that the Government Order aims to ensure tax remittance at one stage and prevent abuse and evasion. The court emphasized that the petitioner must substantiate that the end-products were manufactured from raw materials that had suffered tax under the Tamil Nadu General Sales Tax Act.

3. Alleged Violation of Articles 301 and 304(a) of the Constitution of India:
The petitioner claimed that the Government Order dated March 17, 1986, violated Articles 301 and 304(a) of the Constitution by discriminating against re-rolling mills located outside Tamil Nadu. The respondents denied any constitutional violation. The court referred to the Bhoruka Steel Limited case, which dealt with similar claims and found that the requirement for re-rolling activity within Tamil Nadu was unconstitutional. However, the court in the present case upheld the new notification, emphasizing the need for proper certification and proof to prevent tax evasion.

4. Requirement for Factual Substantiation of Tax Payment on Raw Materials:
The court highlighted that the petitioner must prove that the raw materials used in manufacturing the end-products had already suffered tax under the Tamil Nadu General Sales Tax Act. This factual issue must be substantiated before claiming exemption. The court noted that the petitioner should address these claims during assessment proceedings and provide sufficient records to substantiate their eligibility for exemption.

Conclusion:
The court dismissed the writ petition, stating that the petitioner must comply with the conditions laid out in the Government Order dated March 17, 1986, and substantiate the factual basis for claiming exemption. The court emphasized that granting a general declaration without specific factual substantiation would lead to anomalies and potential tax evasion. The petition was dismissed with costs of Rs. 1,000.