2003 (3) TMI 683 - HC - VAT and Sales Tax

Summary

Issues:
1. Withdrawal of interest-free sales tax deferral scheme without issuing a show-cause notice.
2. Interpretation of the judgment in State of Tamil Nadu v. O.P. Aliyar [1992] 87 STC 339.
3. Legal requirement of issuing a show-cause notice before withdrawing an eligibility certificate.

Issue 1: Withdrawal of interest-free sales tax deferral scheme without issuing a show-cause notice

The petitioner, an industry involved in processing stone boulders into "Blue Metal Jelly," was availing the benefits of the interest-free sales tax deferral scheme. The respondents withdrew the scheme without issuing a show-cause notice, citing the judgment in State of Tamil Nadu v. O.P. Aliyar [1992] 87 STC 339 as the basis for their decision. The petitioner challenged this withdrawal, claiming non-compliance with the principle of natural justice due to the absence of a show-cause notice. The Court held that the withdrawal without a show-cause notice was a violation of natural justice, leading to the quashing of the proceedings.

Issue 2: Interpretation of the judgment in State of Tamil Nadu v. O.P. Aliyar [1992] 87 STC 339

The withdrawal of the interest-free sales tax deferral scheme was based on the interpretation of the judgment in State of Tamil Nadu v. O.P. Aliyar [1992] 87 STC 339. The first respondent concluded that the petitioner's activity did not amount to manufacturing, leading to the cancellation of the eligibility certificate. However, the Court refrained from delving into the merits of whether the petitioner's activity constituted manufacturing. The critical point of contention was the failure to issue a show-cause notice before passing the impugned orders, as mandated by principles of natural justice.

Issue 3: Legal requirement of issuing a show-cause notice before withdrawing an eligibility certificate

The petitioner's counsel cited judgments from the Punjab & Haryana High Court emphasizing the necessity of issuing a show-cause notice before withdrawing an eligibility certificate. The Court noted that the absence of a show-cause notice in the present case was a procedural flaw, rendering the impugned proceedings invalid. Both the petitioner and the government advocate agreed that a show-cause notice should have been provided before withdrawing the deferral scheme. Consequently, the Court allowed the writ petition, quashed the proceedings, and directed the respondents to issue a show-cause notice before proceeding further.