2000 (7) TMI 959 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Cancellation of Sales Tax Exemption Certificate
2. Validity of Tax Recovery for Periods Prior to Cancellation
3. Procedural Compliance and Grounds for Non-Renewal
4. Legal Interpretation of Rule 28A of the Haryana General Sales Tax Rules, 1975

Detailed Analysis:

1. Cancellation of Sales Tax Exemption Certificate:

The primary issue was whether the cancellation of the sales tax exemption certificate granted to the petitioner was justified. The petitioner, a private limited company, had set up an industrial unit in a backward area and was granted a sales tax exemption certificate valid for nine years under Rule 28A of the Haryana General Sales Tax Rules, 1975. The exemption certificate was initially granted and subsequently renewed until June 30, 1997. However, the application for further renewal filed on July 31, 1997, was rejected due to incomplete particulars, specifically the surety bond. Additionally, it was discovered that the unit had ceased production since January 1997, leading to the cancellation of the exemption certificate under subrule (9)(i) of Rule 28A.

The petitioner contended that the unit's closure was due to non-availability of coal, a factor beyond its control, and argued against the cancellation. However, the court observed that subrule (9)(i) of Rule 28A mandates the cancellation of the exemption certificate if the unit discontinues its business for a period exceeding six months, without any exceptions for uncontrollable circumstances. Therefore, the court upheld the cancellation of the exemption certificate, stating that the discontinuance of business for more than six months justified the action under subrule (9)(i).

2. Validity of Tax Recovery for Periods Prior to Cancellation:

The second issue was whether the petitioner could be required to deposit the tax benefits availed of for all previous years upon the cancellation of the exemption certificate. The court examined the relevant provisions of Rule 28A, particularly subrules (8), (9), and (10). Subrule (8) deals with the withdrawal of the eligibility certificate, while subrule (9) addresses the cancellation of the exemption certificate. Subrule (10)(v) specifies the consequences of such cancellation, stating that the entire amount of tax exempted shall become payable immediately if the certificate is cancelled before its due expiry.

The court clarified that subrule (10)(v) applies only if the exemption certificate is cancelled while it is still in force. Since the petitioner's exemption certificate had expired on June 30, 1997, and the application for renewal was filed late on July 31, 1997, the cancellation did not fall under the purview of subrule (10)(v). Consequently, the court held that the petitioner could not be required to deposit the tax benefits availed of up to June 30, 1997, as the cancellation occurred after the certificate had already expired.

3. Procedural Compliance and Grounds for Non-Renewal:

The court also addressed the procedural compliance related to the renewal application. The petitioner's application for renewal was rejected due to incomplete particulars, specifically the surety bond. The court noted that subrule (6) of Rule 28A requires the submission of a complete application, including the necessary security documents, for the grant or renewal of the exemption certificate. The failure to comply with these requirements justified the rejection of the renewal application.

4. Legal Interpretation of Rule 28A of the Haryana General Sales Tax Rules, 1975:

The court provided a detailed interpretation of Rule 28A, emphasizing the distinction between the eligibility certificate and the exemption certificate. The eligibility certificate is valid for a specified period, while the exemption certificate requires annual renewal. The court highlighted that the cancellation of the exemption certificate under subrule (9) does not automatically lead to the recovery of tax benefits for all previous years unless the eligibility certificate is withdrawn under subrule (8). The court also noted that the department could still take action under subrule (8) for withdrawal of the eligibility certificate if justified, which would entail the recovery of tax benefits from the first day of validity.

Conclusion:

The writ petition was disposed of with the court upholding the cancellation of the exemption certificate but modifying the orders of the authorities below to the extent that the petitioner was not required to deposit the tax benefits availed of up to June 30, 1997. The court also clarified that the department could proceed under subrule (8) for withdrawal of the eligibility certificate if warranted. No order as to costs was made.