1996 (6) TMI 324 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to demands made by State Industrial and Investment Corporation of Maharashtra Limited (SICOM) under specific letters dated 25th February, 1987 and 15th February, 1988.

Detailed Analysis:

1. Background and Eligibility Certificate:
The petitioners sought to quash demands made by SICOM under letters dated 25th February, 1987 and 15th February, 1988. The petitioners, a company incorporated under the Companies Act, 1956, established a factory in a backward area of Maharashtra to avail benefits under the 1979 Package Scheme. They were granted exemption from purchase tax on raw materials and sales tax on finished goods. The eligibility certificate specified a sales tax liability limit of Rs. 54,62,100. The petitioners were issued a certificate of entitlement valid from 19th March, 1984 to 18th March, 1991.

2. Dispute Over Excess Benefits and Demands:
The petitioners were informed by SICOM that they had exceeded the entitlement limit by Rs. 8,05,087 up to December 1986 and were directed to cease availing tax benefits and repay the excess amount with interest. Despite the Sales Tax Officer certifying a lower notional sales tax liability, SICOM demanded the excess amount. The petition challenged these demands, contending that the notional sales tax liability was lower than determined by SICOM.

3. Legal Interpretation and Misconceptions:
The petitioners argued that SICOM's calculation of notional sales tax liability was erroneous, as the effective tax rate on raw material purchases was only 4%, not 10% as claimed. SICOM's demand was deemed illegal and based on misconceptions of the 1979 Package Scheme and sales tax laws. The petition sought quashing of demands and refund of wrongfully collected amounts.

4. Court Decision and Relief Granted:
The Court found in favor of the petitioners, ruling that SICOM's demands were illegal and should be set aside. The Court ordered SICOM to refund the wrongfully collected amount with interest. While the petitioners' benefit period was curtailed due to SICOM's actions, the Court directed SICOM to allow the petitioners to avail of the remaining benefit amount under the 1979 Package Scheme in the current year. The petition was allowed, and costs were awarded to the petitioners.

This detailed analysis covers the background, legal dispute, interpretation of laws, and the final judgment in the case challenging demands made by SICOM, providing a comprehensive overview of the legal issues involved.