2003 (8) TMI 487 - HC - VAT and Sales Tax

Summary

Issues involved:
1. Legality of the department's action in declining the appellant's request for exemption from payment of tax.
2. Conformity of the impugned order with the statutory Notification dated November 4, 1993.
3. Validity of the rejection of the claim based on the order dated November 26, 1993, as clarified by the letter dated July 5, 2000.

Issue-wise detailed analysis:

1. Legality of the department's action in declining the appellant's request for exemption from payment of tax:
The appellant was registered as a medium-scale unit and initiated steps for setting up the unit for the manufacture of iron rods and bars. The unit started production on March 31, 1995, and the sale of iron rods and bars was exigible to the levy of tax under the Kerala General Sales Tax Act, 1963. The appellant was granted exemption for a total amount of Rs. 2,65,70,965, which could be availed during the period from March 31, 1995, to March 30, 2002. However, the appellant's request for enhancement of the limit of exemption based on additional investment was rejected by the General Manager, District Industries Centre, Kozhikode, on the ground that the power requirements had exceeded 2,500 KVA, placing the unit under the negative list. This rejection was challenged and quashed by the court, but the claim was again rejected based on a clarification issued by the Government on July 5, 2000.

2. Conformity of the impugned order with the statutory Notification dated November 4, 1993:
The Notification dated November 4, 1993, issued under section 10 of the Kerala General Sales Tax Act, 1963, provided exemption from payment of tax to new industrial units for seven years from the date of commencement of commercial production. The exemption was also available for diversification, expansion, or modernization. The appellant's unit, having started commercial production on March 31, 1995, was entitled to the exemption based on its capital investment. However, the impugned order rejected the claim based on a clarification issued on July 5, 2000, which was not in conformity with the statutory notification.

3. Validity of the rejection of the claim based on the order dated November 26, 1993, as clarified by the letter dated July 5, 2000:
The notification dated November 27, 1993, issued by the Department of Industries, did not refer to the statutory notification regarding the reduction in the rate of tax to industrial units. It was primarily concerned with the grant of State investment subsidy and did not have the authority to amend the statutory notification issued under the Kerala General Sales Tax Act. The appellant's claim was rejected based on a clarification that units with power requirements exceeding 2,500 KVA were included in the negative list, even if the cost of power was less than 25% of the cost of production. This clarification was not a decision of the Government and could not modify the statutory notification.

Conclusion:
The impugned order dated October 21, 2000, did not conform to the statutory notification dated November 4, 1993, and was based on an invalid clarification. The appellant's case did not fall within the mischief of clause 7 of the notification dated November 27, 1993, as the expense on electricity did not exceed 25% of the total cost of production. The appeals were allowed, and the respondent-authority was directed to consider the appellant's claim for exemption in accordance with the statutory notification within three months. The parties were left to bear their own costs.