2002 (5) TMI 826 - HC - VAT and Sales Tax

Issues Involved
1. Eligibility for undertaking expansion before one year of production completion.
2. Interpretation of clauses (a) and (b) of Explanation (6) to section 4-A of the U.P. Trade Tax Act.
3. Applicability of clause (b) of amended Explanation (6) to section 4-A.
4. Interpretation of Explanation (6) in light of Supreme Court decisions.
5. Reliance on the Commissioner's circular dated September 6, 1999.
6. Consideration of circular by the Divisional Level Committee.
7. Interpretation of notification granting exemption for industrial development.
8. Consideration of notification dated December 22, 2001.

Detailed Analysis

1. Eligibility for Undertaking Expansion Before One Year of Production Completion
The applicant, a public limited company, sought an exemption under the U.P. Trade Tax Act for expansion undertaken within one year of commencing production. The Tribunal held that since one complete year of production had not been completed, the applicant was not entitled to the benefit of expansion under Explanation (5) to section 4-A of the Act. However, the court found that the applicant fulfilled all conditions laid down under clauses (c) and (d) of Explanation (5), including achieving more than 80% of the base production before undertaking expansion.

2. Interpretation of Clauses (a) and (b) of Explanation (6) to Section 4-A
The Tribunal interpreted clauses (a) and (b) of Explanation (6) as mutually inclusive. The court disagreed, stating that these clauses are mutually exclusive. Clause (a) pertains to 80% of the installed annual production capacity, while clause (b) pertains to the maximum production achieved during any one of the preceding five consecutive assessment years, whichever is higher.

3. Applicability of Clause (b) of Amended Explanation (6) to Section 4-A
The court clarified that clause (b) of the amended Explanation (6) is not applicable if the unit has not completed production for more than one year. In such cases, 80% of the installed annual production capacity will be taken as "base production" as provided in clause (a).

4. Interpretation of Explanation (6) in Light of Supreme Court Decisions
The court referenced multiple Supreme Court decisions to support its interpretation that the word "or" in Explanation (6) is disjunctive and not conjunctive. This means that clauses (a) and (b) provide two separate and independent criteria for determining base production.

5. Reliance on the Commissioner's Circular Dated September 6, 1999
The Tribunal relied on the Commissioner's circular to deny the exemption. The court held that the circular, being an administrative instruction, cannot override statutory provisions. It may bind the department but not the assessee or the court.

6. Consideration of Circular by the Divisional Level Committee
The Divisional Level Committee's reliance on the circular was found to be in derogation of the statutory provisions. The court emphasized that the circular cannot legally sustain against the legislative enactment of Explanation (5) to section 4-A of the Act.

7. Interpretation of Notification Granting Exemption for Industrial Development
The court highlighted that the purpose of granting exemption is to promote industrial development. It stated that the notification should be interpreted in a reasonable and purposive manner to achieve this objective, as held by the Supreme Court in Commissioner of Sales Tax v. Industrial Coal Enterprises.

8. Consideration of Notification Dated December 22, 2001
The court noted that the subsequent notification dated December 22, 2001, which provided that base production must be achieved on or before March 31, 2001, should also be considered. This notification supports the applicant's eligibility for the exemption.

Conclusion
The court concluded that the applicant is entitled to the grant of an eligibility certificate under the expansion scheme. The Divisional Level Committee is directed to consider granting the eligibility certificate within two months from the production of the certified copy of this order. The petition is allowed, and the orders of the Tribunal and Divisional Level Committee are set aside.

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