1990 (3) TMI 356 - HC - VAT and Sales Tax

Issues Involved:
1. Entitlement to tax exemption extent.
2. Interpretation of the notification.
3. Validity of exhibits P2 and P3.

Issue-wise Analysis:

1. Entitlement to Tax Exemption Extent:
The petitioner, Giri Oil Mills, established on December 14, 1985, claimed tax exemption based on S.R.O. No. 968/80 under the Kerala General Sales Tax Act. The petitioner initially invested Rs. 6,77,000 and received a tax exemption of Rs. 5,10,163, representing 90% of the total fixed capital investment. Subsequently, an additional investment of Rs. 7,81,344 was made between August and December 1988, for which an additional tax exemption of Rs. 6,82,492 was granted. The petitioner argued that this additional exemption should be spread over the entire period from December 1985 to December 1990. However, the court held that the sales tax concession cannot exceed 90% of the cumulative gross capital investment and that the additional exemption can only be claimed in the year of investment, not retroactively. The court emphasized that each year is a unit of assessment under the Sales Tax Act, and exemptions can only be granted for sales pertaining to that specific year.

2. Interpretation of the Notification:
The petitioner argued for a liberal interpretation of S.R.O. No. 968/80, suggesting that the exemption should be spread over the five-year period regardless of when the investment was made. The court rejected this argument, stating that exemptions from taxation must be strictly construed. The court cited the Division Bench decision in Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Carmel Book Stall, emphasizing that exemptions should not be extended beyond the express language of the provision. The court held that the notification should be interpreted to mean that the exemption is available only for the year in which the investment is made, and not spread over multiple years.

3. Validity of Exhibits P2 and P3:
The court examined the notification in detail and concluded that the cumulative sales tax concession granted to a unit at any point within the five-year period should not exceed 90% of the cumulative gross fixed capital investment. The court found that the petitioner had already utilized the exemption granted under exhibit P1 in the first two years and that the additional investment made in the fourth year entitled the petitioner to an additional exemption only for the period after the investment. The court held that exhibit P2, which granted the additional exemption from December 1988 to December 1990, was valid and in accordance with the law. The court also upheld exhibit P3, which required the petitioner to pay sales tax for the years 1987-88 and 1988-89, as the petitioner was not entitled to the exemption for those years.

Conclusion:
The court dismissed the appeal, holding that the petitioner is not entitled to avail tax exemption to an extent of 90% of the capital investment in each of the five years. The total exemption is limited to 90% of the cumulative capital investment for the entire five-year period. The court upheld the validity of exhibits P2 and P3, and directed the sales tax authorities to consider the petitioner's explanation regarding the penalty in light of the Supreme Court decision in Cement Marketing Co. of India Ltd. v. Assistant Commissioner of Sales Tax. The writ appeal was dismissed with costs.

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