1997 (3) TMI 590 - HC - VAT and Sales Tax

Issues Involved:
1. Eligibility for sales tax exemption under Notification S.R.O. No. 968 of 1980.
2. Adjustment of tax collected and remitted by the assessee.
3. Interpretation of the Notification S.R.O. No. 968 of 1980.
4. Validity of the Deputy Commissioner's order setting aside the assessment.
5. Applicability of the majority decision of the Sales Tax Appellate Tribunal.
6. Relevance of Circular No. 27 of 1993 issued by the Board of Revenue.

Detailed Analysis:

1. Eligibility for Sales Tax Exemption under Notification S.R.O. No. 968 of 1980:
The respondent, running a small-scale industrial unit, was eligible for exemption from payment of sales tax as per Notification S.R.O. No. 968 of 1980. The final assessments for the years 1985-86 and 1986-87 were completed, and despite eligibility for exemption, the respondent paid sales tax amounts for both years.

2. Adjustment of Tax Collected and Remitted by the Assessee:
The Deputy Commissioner issued a notice under section 35 of the Kerala General Sales Tax Act, 1963, alleging irregularity in the assessments and proposed to set aside the assessments for fresh disposal. The Deputy Commissioner argued that the tax collected and remitted by the assessee should not be adjusted from the eligible amount of tax exemption. The Sales Tax Appellate Tribunal, by majority, held that there was no justification for interfering with the assessment orders passed by the assessing authority, as the exemption is called for only where something is due.

3. Interpretation of the Notification S.R.O. No. 968 of 1980:
The notification grants an exemption in respect of the tax payable on the turnover of the sale of goods produced and sold by new industrial units under small-scale industries for five years. It specifies that the tax collected should be paid over to the Government and that sales tax already paid shall not be refunded. The Supreme Court in Pournami Oil Mills v. State of Kerala [1987] 65 STC 1, and the Division Bench of this Court in Deputy Commissioner of Sales Tax, (Law), Board of Revenue (Taxes), Ernakulam v. K.P. Paper Products [1989] 74 STC 16, clarified that the exemption is granted to attract new industries and to help them overcome initial difficulties, and it is limited to 90% of the cumulative gross fixed capital investment.

4. Validity of the Deputy Commissioner's Order Setting Aside the Assessment:
The Deputy Commissioner's order was based on the view that the notification is silent about the adjustment of the tax collected during the exemption period and thus, the collected tax should be paid over to the Government without any adjustment. However, the Tribunal's majority decision disagreed, stating that the assessing authority was justified in giving credit to the tax collected and remitted during the exemption period.

5. Applicability of the Majority Decision of the Sales Tax Appellate Tribunal:
The Tribunal's majority decision, which included the Chairman, held that the adjustment of tax collected and remitted by the assessee during the exemption period is permissible. The Tribunal concluded that the exemption is available for the entire eligible amount as per the certificate, provided no tax has been collected and remitted for the remaining period.

6. Relevance of Circular No. 27 of 1993 Issued by the Board of Revenue:
Circular No. 27 of 1993 clarified that the notifications granting exemption do not contemplate deduction of tax collected and remitted from the total quantum of sales tax exemption, provided the period and monetary limits are satisfied. Although issued after the Deputy Commissioner's order, the circular supports the Tribunal's majority view that the exemption notification should be honored in its letter and spirit.

Conclusion:
The Kerala High Court upheld the majority decision of the Sales Tax Appellate Tribunal, confirming that the assessing authority was correct in giving credit for the tax collected and remitted by the assessee during the exemption period. The revision cases were dismissed, and no costs were ordered. The judgment emphasizes that the exemption notification should be interpreted to allow full benefit to eligible small-scale industrial units, aligning with the intent to promote industrial development in Kerala.

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