2005 (3) TMI 733 - HC - VAT and Sales Tax

Summary

Issues:
1. Whether a certificate of exemption from sales tax granted to an industrial unit can be modified after the expiry of the exemption period?

Analysis:
The case involved a dispute regarding the modification of a certificate of exemption from sales tax granted to a dealer engaged in the manufacture, sale, and export of cashew kernels. The State Government had provided incentives and concessions for new industrial investments, including exemption from sales tax. The petitioner received a certificate of exemption in 1996, granting 100% tax exemption for five years. Subsequently, there were disputes regarding the extent of exemption claimed by the petitioner for the assessment years 1996-97 and 1998-99. The authorities attempted to restrict the exemption to the actual investment made by the petitioner, leading to legal challenges by the petitioner.

The petitioner argued that the exemption granted was not limited to the investment made on fixed assets and that they had conducted business without collecting sales tax based on the exemption certificate. The petitioner contended that after eight years, amending the certificate of exemption with retrospective effect was unjustified. The High Court considered the legal principles governing tax incentives and exemptions, emphasizing that such provisions should be liberally construed to promote economic growth and industrial development. The Court cited precedents highlighting that once an industrial unit has acted on an eligibility certificate and availed benefits, retrospective cancellation or modification of the certificate is impermissible.

The Court referred to various judgments, including those from the Supreme Court and other High Courts, to support its conclusion that modifying a certificate of exemption after the expiry of the exemption period, retrospectively, is not legally permissible. The Court held that the petitioner had conducted business based on the original certificate of exemption and had not collected sales tax during the exemption period. Therefore, the respondents were not justified in restricting the exemption to the investment made on fixed assets at a later stage. Consequently, the Court allowed the writ petition, quashing the order that sought to modify the exemption certificate.

In conclusion, the judgment reaffirmed the principle that once a certificate of exemption is granted, and the benefits are availed by the assessee, retrospective modification or withdrawal of the certificate is not permissible under the law. The Court emphasized the importance of upholding the sanctity of such certificates and ensuring that industrial units can rely on the incentives granted to them without arbitrary changes by the authorities.