1996 (1) TMI 405 - AT - VAT and Sales Tax

Summary

Issues:
Eligibility for Interest Free Sales Tax Deferral Scheme under the Tamil Nadu Industrial Investment Corporation Limited; Interpretation of condition No. 9 of the agreement between the petitioner and the Commercial Taxes Department; Validity of the notice issued by the Deputy Commercial Tax Officer regarding cessation of benefit under the scheme; Requirement of manufacturing products exigible to sales tax for availing benefits under the scheme; Compliance with conditions of the deferral scheme to maintain viability of the new industrial unit.

Analysis:
The petitioner applied for an eligibility certificate under the Interest Free Sales Tax Deferral Scheme as a new industry in Krishnagiri Village Industrial Estate, manufacturing gram dhall flour. The eligibility certificate was issued, stating a sales tax deferral not exceeding Rs. 7.89 lakhs from the commencement of commercial production. The issue arose when the Deputy Commercial Tax Officer alleged that the petitioner was ineligible for the scheme due to a continuous 6-month cessation of production in the year 1994-95, based on condition No. 9 of the agreement, which referred to stopping normal production. The officer's interpretation of "stopped normal production" as "stopped average production" was contested by the petitioner, who claimed continuous production since October 1991 with an average annual production of Rs. 3 lakhs.

The Deputy Commercial Tax Officer subsequently passed orders forfeiting the scheme benefits, citing that the product manufactured in 1994-95 (maize flour) was not exigible to sales tax in Tamil Nadu. The Tribunal noted the absence of a requirement in the scheme that the unit should manufacture only sales tax exigible products. The purpose of the condition to maintain normal production for viability was emphasized to prevent the unit from becoming unviable, safeguarding government interests in tax recovery. The Tribunal held that the petitioner, who continued manufacturing activities without a 6-month cessation, was entitled to the scheme benefits, overturning the impugned orders.

The Tribunal highlighted that the eligibility certificate's mention of manufacturing gram dhall flour was descriptive and not restrictive, allowing the petitioner to engage in other manufacturing activities. Upholding the petitioner's compliance with the scheme's conditions, the Tribunal set aside the impugned orders, emphasizing the scheme's intent to support new industries for a sustained period. The judgment clarified that the scheme aimed to ensure commercial viability and tax recovery, rather than restricting the type of products manufactured by the new industrial unit.

In conclusion, the Tribunal allowed the petition, reinstating the petitioner's eligibility for the Interest Free Sales Tax Deferral Scheme and emphasizing the importance of maintaining normal production to sustain the viability of new industries benefiting from the scheme.