1996 (1) TMI 390 - HC - VAT and Sales Tax

Summary

Issues:
- Denial of exemption under section 4-A of the U.P. Trade Tax Act to a petitioner-company due to one of the directors owning an existing unit engaged in the same business.

Analysis:
The judgment of the High Court of Allahabad addressed the issue of whether a petitioner-company could be denied exemption under section 4-A of the U.P. Trade Tax Act simply because one of its directors owned an existing unit engaged in the same business. The court examined the Explanation to section 4-A, which stated that a new unit manufacturing the same goods as an existing unit, where the person has interest in the existing unit, would not be eligible for exemption. However, the court emphasized that the petitioner-company is a separate legal entity, and unless it can be proven that the company itself had an interest in the existing unit, it should not be denied the exemption.

The court highlighted that the mere fact that one of the directors of the petitioner-company also owned the existing unit did not automatically imply that the petitioner-company had an interest in the existing unit. The court interpreted the provision to mean that the new unit would only be disentitled to exemption if it had an interest in the existing unit. Since it was established that only the director, not the petitioner-company, had an interest in the existing unit, the denial of exemption was deemed erroneous.

Furthermore, the court emphasized that the underlying principle was to prevent the same person from benefiting repeatedly from the exemption for owning both the new and existing units. However, in this case, as the petitioner-company did not have an interest in the existing unit, the denial of exemption was unwarranted. The court also noted that while the corporate veil could be lifted in certain circumstances, there was no evidence to suggest that the director controlling the existing unit also controlled the petitioner-company.

Ultimately, the court allowed the petition, quashed the order denying exemption, and directed the respondents to issue the eligibility certificate to the petitioner within a specified timeframe. The judgment clarified the distinction between the interests of the director and the petitioner-company, emphasizing that the latter should not be penalized for the former's ownership of the existing unit.