1998 (12) TMI 598 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction of the Industries Commissioner to review its own order.
2. Interpretation of "diversification" under the Sales Tax Incentive Scheme for Industries, 1986.
3. Validity of the amended exemption certificate issued to the petitioner.

Detailed Analysis:

1. Jurisdiction of the Industries Commissioner to Review Its Own Order:
The petitioner, a private limited company, was initially granted an exemption certificate in 1991 under the Sales Tax Incentive Scheme for Industries, 1986. However, the Additional Industries Commissioner amended this certificate in 1997, reducing the exemption limit without affording the petitioner an opportunity for a hearing. The petitioner challenged this amendment, and the court held that the order was in violation of the principles of natural justice. Upon reconsideration, the Industries Commissioner again reduced the exemption limit, treating the case as one of diversification rather than a new unit. The court found that the determination of eligibility and fixing the exemption limit is a quasi-judicial function. It emphasized that the power of review is a statutory creature and cannot be exercised by the Industries Commissioner in the absence of explicit statutory authority. The court concluded that the Industries Commissioner had no jurisdiction to revise its own order, which effectively modified the exemption certificate issued by the Commissioner of Sales Tax.

2. Interpretation of "Diversification" under the Sales Tax Incentive Scheme for Industries, 1986:
The petitioner contended that the term "diversification" should only refer to new products connected with the existing line of business, not altogether new products. The court agreed, noting that the scheme's provisions clearly differentiate between new units, expansions, and diversifications. The court highlighted that diversification involves the commencement of manufacturing a new product by the specified manufacturer, provided the total fixed capital investment in such diversification exceeds at least 25% of the value of the net fixed assets of the original project. The court emphasized that both expansion and diversification must have an integral link with the original project, and they do not apply to independent industries. The court found that the manufacture of paper and PVC materials by the petitioner were entirely unconnected, and thus, the new paper manufacturing unit should be considered a new industry eligible for full exemption.

3. Validity of the Amended Exemption Certificate Issued to the Petitioner:
The court scrutinized the definitions and provisions under the scheme, concluding that the petitioner's new paper manufacturing unit was wrongly categorized as diversification. The court noted that the scheme's definition of diversification requires a connection to the original project, which was absent in this case. The court also referred to the government's resolution and the notification under section 49(2) of the Sales Tax Act, which supported the petitioner's interpretation. The court found that the amended exemption certificate, which reduced the exemption limit, was invalid. Consequently, the court quashed the impugned order dated December 23, 1997, and allowed the petition, restoring the petitioner's entitlement to the full exemption as a new industrial unit.

Conclusion:
The court allowed the petition, quashing the impugned order and restoring the petitioner's entitlement to the full exemption under the Sales Tax Incentive Scheme for Industries, 1986. The court emphasized that the Industries Commissioner had no jurisdiction to review its own order and that the petitioner's new paper manufacturing unit should be considered a new industry, not a diversification, thus eligible for full exemption.