2005 (5) TMI 620 - HC - VAT and Sales Tax

Issues Involved:
1. Eligibility for tax exemption under Section 4-A of the U.P. Trade Tax Act, 1948.
2. Interpretation of the base production and its impact on tax exemption.
3. Timing of the applicability of tax exemption.

Detailed Analysis:

1. Eligibility for Tax Exemption under Section 4-A of the U.P. Trade Tax Act, 1948:
The applicant, a private limited company engaged in the manufacture of bulk drugs, was granted an eligibility certificate under Section 4-A of the U.P. Trade Tax Act, 1948. This certificate provided an exemption to the extent of 125% of the fixed capital investment on the turnover of goods manufactured in excess of the base production in an assessment year. The base production was fixed at 172.8 M.T. The applicant claimed exemption on the turnover of production exceeding this base production during the assessment year 1992-93.

2. Interpretation of the Base Production and Its Impact on Tax Exemption:
The dispute arose regarding the interpretation of the base production and its impact on tax exemption. The Assistant Commissioner, Trade Tax, restricted the claim of exemption to 70.325 M.T., whereas the applicant claimed 140.75 M.T. The Deputy Commissioner (Appeals) and the Tribunal held that the exemption could only be claimed after achieving the base production turnover, i.e., from the fourth month if the base production was achieved in the third month. The Tribunal determined that the base production was achieved on September 23, 1992, and thus, the applicant was entitled to exemption only for sales made after this date.

3. Timing of the Applicability of Tax Exemption:
The core issue was whether the exemption was permissible from the date the unit achieved the base production or whether it should be considered for the entire assessment year. The applicant argued that the turnover of the base production should be considered for the whole assessment year, and if the unit exceeded the base production within the year, it should be entitled to the exemption for the entire excess production. The applicant contended that considering the exemption only after the base production was achieved would frustrate the purpose of promoting industrial growth.

Legal Provisions and Interpretation:
Section 4-A and the relevant notification aimed to promote industrial growth by granting tax exemptions. The notification specified that no tax shall be payable on the turnover of sales of goods manufactured in excess of the base production for units undertaking expansion. The base production was defined as the maximum production achieved during any one of the preceding five consecutive assessment years or 80% of the installed annual production capacity, whichever was higher.

The court examined the history of the exemption provision, noting that initially, it was available only to new units but was later extended to old units undertaking expansion or diversification. The intent was to incentivize additional investment and increased production. The court referred to previous judgments, including Modipon Fibres Co. v. Commissioner of Trade Tax, which held that the exemption should be considered at the end of the assessment year and not from the date the base production was achieved.

Conclusion:
The court concluded that the object of granting the exemption was to encourage industrial growth and should be liberally construed. The exemption should be considered for the entire assessment year based on the production in excess of the base production. The court set aside the Tribunal's order, allowing the applicant's claim for exemption for the entire excess production over the base production for the assessment year 1992-93.

Judgment:
The revisions were allowed, and the order of the Tribunal was set aside. The applicant's petitions were allowed, granting them the claimed tax exemption for the entire assessment year.

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