2001 (9) TMI 1099 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the explanatory note in clause 3 of the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990.
2. Whether the explanatory note is inconsistent with the Industrial Policy Resolution, 1989.
3. Entitlement of the petitioner to deferment of sales tax on additional production.
4. Timeliness of the challenge to the explanatory note.

Issue-wise Detailed Analysis:

1. Validity of the explanatory note in clause 3 of the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990:
The petitioner, a cement manufacturing company, challenged the explanatory note in clause 3 of the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990, which defined "incremental production" as production over and above the installed capacity. The petitioner argued that this definition was arbitrary and contrary to the Industrial Policy Resolution of 1989. The court examined whether the explanatory note was consistent with the policy and whether it was within the powers of the State Government to frame such rules.

2. Whether the explanatory note is inconsistent with the Industrial Policy Resolution, 1989:
The court analyzed the Industrial Policy Resolution, 1989, which aimed to accelerate industrial development and provided sales tax incentives for new and expanding industrial units. The policy stated that existing units undertaking expansion of 50% of their capacity with a minimum fixed capital investment of Rs. 20 lakhs would be eligible for deferment of sales tax. The Hindi version of the policy specified that the benefit would apply only to additional production resulting from expansion. The court noted that the policy did not define "additional production," leaving room for interpretation.

3. Entitlement of the petitioner to deferment of sales tax on additional production:
The petitioner contended that the benefit of deferment should apply to additional production above the production prior to expansion, not just above the installed capacity. The State argued that the rules were framed to give effect to the policy, and the explanatory note clarified that "incremental production" meant production over and above the installed capacity. The court held that the explanatory note was a valid clarification and not inconsistent with the policy. The policy laid down broad principles, and the rules provided detailed procedures and conditions for eligibility, including the definition of incremental production.

4. Timeliness of the challenge to the explanatory note:
The court observed that the explanatory note was published on February 11, 1991, and came into force on January 30, 1990. The petitioner challenged the note in the present application filed on March 30, 2000, nearly a decade later. The court noted that the rule had been in force for a long time, and rights and liabilities of parties must have been adjudicated during this period. Interference at this stage would unsettle many settled issues.

Conclusion:
The court concluded that the explanatory note in clause 3 of the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990, was not ultra vires the Industrial Policy Resolution of 1989. The rules provided a detailed procedure to give effect to the policy, and the explanatory note clarified the meaning of incremental production. The decision of the State Level Committee to grant the benefit of deferred sales tax on additional production over and above the installed capacity was upheld. The writ application was dismissed.