1998 (3) TMI 670 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the assessing authority to scale down the quantum of exemption entitlement.
2. Competence of the assessing authority vis-a-vis the Director of Industries and Commerce in certifying investment amounts.
3. Interpretation and application of the notification issued under section 8-A of the Karnataka Sales Tax Act, 1957.

Issue-wise Detailed Analysis:

1. Jurisdiction of the assessing authority to scale down the quantum of exemption entitlement:
The appellant-company's industrial units underwent expansion/modernisation during the financial year 1993-94, evidenced by certificates from the Joint Director (ID). The investments were certified as Rs. 86,29,000 and Rs. 2,12,19,000 respectively. At the time of assessment under the Karnataka Sales Tax Act, 1957, and the Central Sales Tax Act, 1956, the appellant claimed exemption based on these certificates. However, the assessing authority disallowed part of the exemption, limiting it to Rs. 1,58,84,000, arguing that some investments did not qualify as fixed assets. The appellant challenged this decision, questioning the jurisdiction of the assessing authority to override the certified amounts.

2. Competence of the assessing authority vis-a-vis the Director of Industries and Commerce in certifying investment amounts:
The appellant contended that under Notification S.O. No. 1371 dated June 21, 1991, the Director of Industries and Commerce or his authorised nominee are the sole authorities to certify investment amounts for expansion, diversification, or modernisation. The assessing authority lacked the jurisdiction to alter these certified amounts. The notification specified that the certification by the Director of Industries and Commerce is final and binding for determining the upper limit of tax exemption. The appellant argued that the assessing authority's reduction of the certified investment amounts was beyond its jurisdiction.

3. Interpretation and application of the notification issued under section 8-A of the Karnataka Sales Tax Act, 1957:
The notification under section 8-A of the State Act provides for tax exemptions based on investments certified by the Director of Industries and Commerce. The notification did not define "amount spent on investment," leaving it to the Director of Industries and Commerce to certify eligible amounts. The Commissioner of Industrial Development stated that the certification process includes aggregating values of land, building, plant, machinery, and other production-related assets. Conversely, the Commissioner of Commercial Taxes argued that the assessing authority could verify and potentially reject certificates lacking material factual aspects.

The court noted the conflicting positions of the government departments and emphasized the need for harmony in implementing industrial incentives. It concluded that the assessing authority must accept the certified investment amounts unless the certificates lack necessary factual information. If discrepancies are found, the assessing officer can request rectification or refer the matter to the State Level Committee for a final decision. The court allowed the appeal, directing that the assessing authority must adhere to the certified amounts and providing a mechanism for resolving any factual errors in the certificates.

Conclusion:
The court held that the assessing authority is bound to accept the investment amounts certified by the Director of Industries and Commerce for tax exemption purposes. The assessing authority can only challenge the certificates if they lack material factual information or contain apparent errors, in which case they must seek rectification from the certifying authority or refer the matter to the State Level Committee. The appeal was allowed, with the appellant permitted to raise other factual or legal issues before the appellate authority.