1991 (4) TMI 426 - AT - VAT and Sales Tax

Issues Involved:
1. Eligibility for tax exemption under rule 3(66) of the Bengal Sales Tax Rules, 1941.
2. Interpretation of "plant and machinery" in the context of investment limits.
3. Validity and applicability of Reserve Bank of India circulars on sales tax authorities.
4. Deductibility of various costs from the total investment on plant and machinery.

Detailed Analysis:

1. Eligibility for Tax Exemption under Rule 3(66):
The applicant-company challenged the rejection of its application for an eligibility certificate under rule 3(66) of the Bengal Sales Tax Rules, 1941. The Assistant Commissioner, Additional Commissioner, and Commissioner of Commercial Taxes all denied the application on the grounds that the company's investment in plant and machinery exceeded the prescribed limit of Rs. 10 lakhs up to June 30, 1980. The applicant argued that certain costs should be excluded from the total investment calculation, which would bring the investment below the limit.

2. Interpretation of "Plant and Machinery":
The primary issue was the interpretation of "plant and machinery" under rule 3(66). The applicant contended that costs such as losses due to flood and fire, costs of erection and installation, wiring for electricity, and the curing oven should not be included in the investment calculation. The respondents argued that all these costs should be included, and the total investment was Rs. 13,36,796.61, exceeding the limit.

3. Validity and Applicability of Reserve Bank of India Circulars:
The applicant relied on circulars issued by the Reserve Bank of India (RBI) to support its claim for deductions. However, the Tribunal held that these circulars, issued in connection with the credit guarantee scheme for small-scale industries, were not binding on the sales tax authorities. The RBI's authority to regulate and instruct did not extend to the sales tax authorities, and therefore, the circulars could not be used to influence the interpretation of rule 3(66).

4. Deductibility of Various Costs:
The Tribunal examined the specific costs claimed by the applicant for deduction:

- Losses Due to Flood and Fire: The Tribunal found no provision in rule 3(66) for deducting losses due to flood or fire from the total investment. The applicant failed to establish these losses with sufficient evidence before the authorities.

- Cost of Erection and Installation: Following guidelines from the Government of India, the Tribunal held that the cost of erection and installation, amounting to Rs. 2,49,089, should be excluded from the investment calculation.

- Electrical Equipments and Special 440 Voltage Line: The Tribunal excluded Rs. 1,12,556, representing the cost of electrical equipment and transformer, from the total investment, as per the Government guidelines.

- Bitumen Storage Tank: The Tribunal rejected the claim for excluding Rs. 51,000 for the bitumen storage tank, as it was considered part of the process plant and essential for manufacturing activity.

Conclusion:
The Tribunal concluded that the total investment on plant and machinery, after excluding the permissible costs, amounted to Rs. 9,75,151.61, which was below the prescribed limit of Rs. 10 lakhs. Therefore, the applicant's prayer for an eligibility certificate was allowed. The impugned orders were set aside, and the Assistant Commissioner was directed to issue the eligibility certificate within four weeks.

Judgment:
Application allowed. The Tribunal directed the issuance of the eligibility certificate based on the recalculated investment amount.

← Previous Next →