1998 (1) TMI 502 - HC - VAT and Sales Tax

Summary

Issues:
1. Sales tax exemption granted to a small-scale industrial unit.
2. Cancellation of sales tax exemption certificate with retrospective effect.
3. Legitimate expectation and liability to pay sales tax.

Analysis:
1. The petitioner, a small-scale industrial unit, started operations in 1987 and applied for sales tax exemption for five years. The exemption was granted by the second respondent from June 1, 1987, to May 31, 1992. The petitioner did not collect sales tax based on this exemption. However, the exemption was later cancelled with retrospective effect from June 1, 1987, leading to the petitioner's challenge seeking to quash the cancellation order and a declaration of exemption entitlement for the entire period.

2. The second respondent, in response, claimed the cancellation was in line with Government directions and legal provisions. The District Level Committee cancelled the exemption due to the petitioner's failure to respond to a show cause notice. The Government argued that it has the authority to cancel exemptions if erroneously granted, citing relevant legal precedents.

3. The court considered the petitioner's reliance on the exemption certificate issued on November 1, 1989, and the legitimate expectation of exemption. It acknowledged the petitioner's non-collection of sales tax during the exemption period. However, the court found the petitioner liable to pay sales tax for the period from June 1, 1987, to October 31, 1989, but not for the period from November 1, 1989, to November 16, 1991. The court highlighted the need for compliance with legal provisions and rejected the argument of legitimate expectation beyond the date of exemption certificate issuance.

In conclusion, the court partially allowed the petition, holding the petitioner liable for sales tax for a specific period and dismissing a related application.