2002 (5) TMI 837 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Refund of sales tax on purchase of raw materials.
2. Determination of the date of commercial production.
3. Entitlement to tax exemption for incremental production.
4. Applicability of Section 42 of the Bihar Finance Act, 1981.
5. Interpretation of Industrial Policy, 1995 and related notifications.

Issue-wise Detailed Analysis:

1. Refund of sales tax on purchase of raw materials:
The petitioner sought a writ of certiorari to quash the orders of the JCCT, which disallowed the refund of sales tax for the year 1996-97 and allowed tax-free purchase for only 9889 MT of raw materials for 1997-98. The JCCT concluded that the petitioner was entitled to exemption only for incremental production above 60,000 MT, not the full amount claimed. The petitioner argued that it was entitled to full exemption for the entire purchase of raw materials used for manufacturing a new product, TMBP coils, under the Industrial Policy and S.O. No. 478.

2. Determination of the date of commercial production:
The JCCT determined that the petitioner commenced production on October 1, 1996, instead of April 5, 1996, thus denying the exemption for the earlier period. The petitioner contended that it started production on April 5, 1996, as certified by the Director of Technical Development, and that the JCCT's finding was incorrect and against the weight of the evidence.

3. Entitlement to tax exemption for incremental production:
The JCCT held that the petitioner was only entitled to exemption for incremental production above 60,000 MT. The petitioner argued that the principle of incremental production did not apply in the case of diversification, as it was producing a new product not previously manufactured. The court found that in cases of diversification, the exemption should apply to the entire production of the new product, not just incremental production, as per the Industrial Policy and S.O. No. 478.

4. Applicability of Section 42 of the Bihar Finance Act, 1981:
The JCCT stated that the refund procedure should be guided by Section 42, which routes the refund through the seller companies (TISCO and SAIL). The petitioner argued that Section 42, which pertains to refunds after assessment proceedings, did not apply since the refund claim was based on the Industrial Policy and not an assessment proceeding. The court agreed with the petitioner, stating that Section 42 was not applicable in this case.

5. Interpretation of Industrial Policy, 1995 and related notifications:
The petitioner contended that the JCCT misinterpreted the Industrial Policy and S.O. No. 478 by limiting the exemption to incremental production. The court examined the relevant clauses of the Industrial Policy and S.O. No. 478, concluding that in cases of diversification, the exemption applies to the entire production of the new product. The court emphasized that the policy aimed to encourage industrial activity and should be liberally construed.

Conclusion:
The court allowed the writ petition, set aside the JCCT's order, and directed the JCCT to reconsider the refund claim strictly according to the directions of the earlier division bench. The JCCT was instructed to verify the payment of sales tax by the petitioner and ensure that TISCO and SAIL had paid the amounts to the state government. The JCCT was to pass a reasoned order for the refund of sales tax paid on raw materials from April 5, 1996, to March 31, 1998.

Petition allowed.