2001 (12) TMI 842 - HC - VAT and Sales Tax

Issues Involved:
1. Eligibility and application of the interest-free sales tax deferral scheme.
2. Execution and validity of the agreement between the petitioner and the government.
3. Alleged breach of conditions by the original unit owner.
4. Government's demand for repayment of deferred sales tax.
5. Tribunal's dismissal of the petitioner's challenge.

Detailed Analysis:

1. Eligibility and Application of the Interest-Free Sales Tax Deferral Scheme:
The State of Tamil Nadu, through a Government Order dated May 14, 1990, published a scheme of incentive for industries, offering an interest-free sales tax deferral scheme to encourage more industries in Tamil Nadu. The scheme applied to small, medium, and major industries, with the deferral/waiver commencing from the date of commercial production. The eligibility certificate for medium or major industries was to be issued by SIPCOT. The incentive given to new units in backward taluks was by way of deferral of the total sales tax for nine years to the full extent of the total investment in fixed assets.

2. Execution and Validity of the Agreement:
An eligibility certificate was granted by SIPCOT to K.C.P. Spinning Mills Pvt. Ltd. for a spinning mill in a backward taluk. The unit commenced commercial production on November 1, 1990. An agreement was executed on April 12, 1991, between K.C.P. Spinning Mills Pvt. Ltd. and the State, requiring repayment of the deferred sales tax in nine installments. The unit was later sold to the petitioner, Fenner (India) Ltd., with SIPCOT having no objection to transferring the deferral benefit to the new management, provided a new agreement was executed. The agreement was eventually executed on August 31, 1994, by the Territorial Assistant Commissioner, recognizing the petitioner's right to the deferral benefit.

3. Alleged Breach of Conditions by the Original Unit Owner:
The Secretary to the Government, in a letter dated October 31, 1998, alleged a contravention of the original agreement by K.C.P. Spinning Mills Pvt. Ltd. for not obtaining prior permission before selling the fixed assets. However, the court noted that the condition requiring prior permission for asset sale was not mentioned in the original Government Order No. 500. The purpose of the deferral scheme was to encourage industrial establishment in backward areas, and the condition was meant to protect the State's revenue interests, which could be waived by a competent authority.

4. Government's Demand for Repayment of Deferred Sales Tax:
The court found that the Secretary's demand for repayment ignored the agreement executed by the Territorial Assistant Commissioner, which was still in force. The agreement had not been canceled, and the petitioner had been allowed to enjoy the deferral benefits. The court emphasized that the purpose of the scheme was to attract industries to backward areas, and minor infractions should not deprive an industry of the benefits if the larger purpose was being served.

5. Tribunal's Dismissal of the Petitioner's Challenge:
The Tribunal dismissed the petitioner's challenge without considering the surrounding circumstances and the purpose of the scheme. The court criticized the State's handling of the matter, noting the lack of counter-affidavits from the State and the failure to address the execution of the agreement by the Territorial Assistant Commissioner. The court set aside the Tribunal's order, emphasizing that the agreement executed on August 31, 1994, was binding on the government, including the Secretary.

Conclusion:
The impugned order of the Tribunal was set aside, and the writ petitions were allowed. The court awarded costs of Rs. 2,500 to the petitioner, recognizing the validity of the agreement executed by the Territorial Assistant Commissioner and the petitioner's entitlement to the deferral benefits. The judgment underscores the importance of adhering to the purpose of incentive schemes and the binding nature of agreements executed by competent authorities.

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