1995 (2) TMI 421 - AT - VAT and Sales Tax

Issues Involved:
1. Eligibility for grant of Eligibility Certificate (E.C.) under rule 3(66a) of the Bengal Sales Tax Rules, 1941.
2. Interpretation of clause (v)(b) of the Explanation to rule 3(66a)(i).
3. Whether the provision in clause (v)(b) is mandatory or directory.
4. Constitutionality of clause (v)(b) in light of Articles 14 and 19(1)(g) of the Constitution.
5. Eligibility for E.C. from a subsequent date after becoming the owner of the plant and machinery.

Detailed Analysis:

1. Eligibility for Grant of Eligibility Certificate (E.C.) Under Rule 3(66a) of the Bengal Sales Tax Rules, 1941:
The applicant, a small-scale industrial unit, sought an E.C. for the period from October 14, 1991, to October 13, 1992. The application was rejected by the Assistant Commissioner and the Additional Commissioner on the grounds that the applicant had obtained plant and machinery on lease from Canbank Financial Services Ltd., which was not one of the specified sources under rule 3(66a). The rule stipulated that the plant and machinery must be obtained from either the West Bengal Small Industries Corporation or the National Small Industries Corporation.

2. Interpretation of Clause (v)(b) of the Explanation to Rule 3(66a)(i):
Clause (v)(b) of the Explanation to rule 3(66a)(i) specifies that a "newly set up small-scale industry" must not be established substantially with plant and machinery obtained on hire, lease, rent, or loan from any source other than the West Bengal Small Industries Corporation or the National Small Industries Corporation. The applicant argued that this clause should be interpreted to include all financial institutions, but the Tribunal found the language of the clause to be clear and unambiguous, limiting the sources strictly to the specified corporations.

3. Whether the Provision in Clause (v)(b) is Mandatory or Directory:
The Tribunal examined whether the stipulation in clause (v)(b) was mandatory or directory. The applicant contended that the clause should be treated as directory, citing the Supreme Court's decision in Mangalore Chemicals & Fertilisers Limited v. Deputy Commissioner of Commercial Taxes. However, the Tribunal concluded that the provision was mandatory, as it was a substantive condition for qualifying as a "newly set up small-scale industry" and thus must be strictly construed.

4. Constitutionality of Clause (v)(b) in Light of Articles 14 and 19(1)(g) of the Constitution:
The applicant argued that clause (v)(b) was arbitrary and violated Articles 14 and 19(1)(g) of the Constitution by excluding other financial institutions. The Tribunal held that the specific inclusion of the West Bengal Small Industries Corporation and the National Small Industries Corporation was reasonable and had a nexus with the objective of promoting small-scale industries. Therefore, the clause was not arbitrary or unconstitutional.

5. Eligibility for E.C. from a Subsequent Date After Becoming the Owner of the Plant and Machinery:
The applicant became the owner of the plant and machinery on July 19, 1993, and argued that E.C. should be granted from that date. The majority opinion of the Tribunal held that an industry that does not qualify as a "newly set up small-scale industry" at the initial stage cannot qualify from a subsequent date. This was based on the principle that the initial disqualification could not be cured by subsequent compliance.

However, the Chairman dissented, citing previous Tribunal decisions and arguing that the applicant should be eligible for E.C. from the date it became the owner of the plant and machinery. The Chairman emphasized that the objective of the exemption was to assist newly set up small-scale industries and that denying the E.C. for subsequent periods would result in injustice.

Conclusion:
The application for the grant of E.C. was dismissed by the majority opinion of the Tribunal, with no order for costs. The operation of the judgment was stayed for eight weeks upon the applicant's request.

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