1994 (11) TMI 417 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the eligibility certificate under Section 4-A of the U.P. Sales Tax Act.
2. Impact of legislative amendments on the eligibility certificate.
3. Jurisdiction of the Commissioner of Sales Tax to cancel the eligibility certificate.
4. Discretionary power of the Commissioner in exercising cancellation of the eligibility certificate.

Issue-wise Detailed Analysis:

1. Validity of the Eligibility Certificate under Section 4-A of the U.P. Sales Tax Act:
The revisionist established a new unit for manufacturing detergent cakes and chemicals and was granted an eligibility certificate by the Joint Director of Industries on September 15, 1990, entitling it to sales tax exemption for three years starting from August 25, 1987. One condition for the certificate was that the unit should be registered under the Factories Act, which was fulfilled by the revisionist from September 1, 1987. The eligibility certificate was validly granted as per the conditions existing at that time.

2. Impact of Legislative Amendments on the Eligibility Certificate:
The U.P. Sales Tax Act was amended by the U.P. Sales Tax (Amendment and Validation) Act, 1991, introducing new sub-sections and conditions, including the requirement that the land or building must be owned or leased for at least seven years. The Commissioner acted upon these amendments to cancel the eligibility certificate, contending that the revisionist did not meet the new conditions at the time of the first sale. However, the court noted that retrospective application of these amendments should not affect the eligibility certificate granted under the previous law, especially since the revisionist had already purchased the land before the amendments came into effect.

3. Jurisdiction of the Commissioner of Sales Tax to Cancel the Eligibility Certificate:
The court observed that the Commissioner's power under Section 4-A(3) of the Act, as amended, did not extend to revising the decision of the prescribed authority that initially granted the eligibility certificate. The Commissioner's power to cancel was limited to cases of misuse or breach of conditions by the unit holder, not to question the validity of the certificate itself. The court emphasized that the legislative amendments did not intend to provide the Commissioner with appellate or revisional authority over the eligibility certificate granted by the Divisional Level Committee.

4. Discretionary Power of the Commissioner in Exercising Cancellation of the Eligibility Certificate:
The court highlighted that the Commissioner's power to cancel the eligibility certificate was discretionary and should be exercised judiciously and fairly. The court noted that the eligibility certificate was lawfully granted, and the revisionist had acted in good faith based on the legislative assurance. The court referenced the Supreme Court's principles on the imposition of penalties, emphasizing that penalties should not be imposed for technical or venial breaches or where the party acted under a bona fide belief. The court concluded that the Commissioner should have considered the revisionist's bona fide intention and the subsequent compliance with the conditions before deciding to cancel the certificate.

Conclusion:
The court held that the Commissioner was not justified in cancelling the eligibility certificate granted to the revisionist, and the Tribunal erred in affirming such cancellation. The revision petition was allowed, and the Commissioner's order dated March 9, 1993, cancelling the eligibility certificate, was quashed. The court ordered that the revisionist's appeal against the cancellation stands allowed, with costs on parties.