2006 (12) TMI 462 - HC - VAT and Sales Tax

Issues Involved:
1. Eligibility for sales tax deferral for expansion units.
2. Eligibility for sales tax waiver for diversified units.
3. Validity and applicability of government orders and eligibility certificates.
4. Relevance and applicability of judicial precedents.
5. Binding effect of government circulars.
6. Interest on tax payable or refundable.

Detailed Analysis:

I. Eligibility for Sales Tax Deferral for Expansion Units:
The primary issue in W.P. Nos. 13697 and 13698 of 2002 is whether an industry is eligible for sales tax deferral in any financial year if the production exceeds the base production volume (BPV) for the sales made in that year in excess of the base sales volume (BSV). The court held that the benefit of deferral of sales tax cannot be denied if the actual production in any financial year during the deferral period exceeds the BPV. The directions in G.O. Ms. No. 119 and the eligibility certificates should be read harmoniously to mean that the industry will be eligible for sales tax deferral if the production exceeds the BPV for sales made in that year in excess of the BSV or BPV, whichever is earlier.

II. Eligibility for Sales Tax Waiver for Diversified Units:
In W.P. Nos. 37042, 40030, 40031, 44733 of 2002, and 3230, 3231, 3232, 3233, 3234, and 21162 of 2003, the issue is whether a diversified unit is eligible for sales tax waiver if the production exceeds the BPV for sales made in that year in excess of the BSV, despite the production of the existing and diversified units being different and the existing unit being sold to a third party. The court held that the BPV/BSV of the existing industry manufacturing earth-moving equipment cannot be the basis for the diversified unit manufacturing Lancer cars. The diversified unit should be considered a new unit, and the government is directed to pass appropriate orders treating the Lancer car unit as a new unit.

III. Validity and Applicability of Government Orders and Eligibility Certificates:
The court analyzed whether the directions in G.O. Ms. No. 119 and the qualifications in the eligibility certificates and agreements are an inroad into the field occupied by G.O. P. No. 92 and G.O. Ms. No. 376. It was held that G.O. Ms. No. 119 provides the method and machinery for implementing the schemes and stands on a different plane from the source notifications, which confer jurisdiction. Therefore, there is no conflict between them, and the directions in G.O. Ms. No. 119 are binding.

IV. Relevance and Applicability of Judicial Precedents:
The decision in W.P. No. 18199 of 1999 (Madras Cements Ltd. v. State of Tamil Nadu) was analyzed. The court found that the issue in the present cases is different from that in the Madras Cements case. The issue in the present cases is whether the holder of the eligibility certificate is entitled to the benefit of deferral or waiver if they achieve the BPV in any financial year during the period of deferral or waiver for sales made in excess of the BSV. This issue was not raised in the Madras Cements case, and therefore, the decision in that case is not a binding precedent for the present cases.

V. Binding Effect of Government Circulars:
The court held that the circular dated May 1, 2000, issued under section 28-A of the TNGST Act, is binding on the Revenue. The circular clarifies that the benefit of deferral or waiver is available when either the BPV or BSV is reached, whichever is earlier. This supports the harmonious construction of clauses 3(i) and 3(ii) of G.O. Ms. No. 119.

VI. Interest on Tax Payable or Refundable:
The court noted the submissions from both sides that they would forego interest on the tax payable by the dealer or on the amount refundable by the Revenue. Therefore, no orders regarding interest were passed.

Findings:

Part-A (M/s. India Cements Ltd.):
1. The industry is eligible for sales tax deferral if the production exceeds the BPV for sales made in that year in excess of the BSV or BPV, whichever is earlier.
2. The government is directed to refund the deposit made by M/s. India Cements Ltd. pursuant to the interim orders after appropriating any dues payable.

Part-B (M/s. Hindustan Motors Limited):
1. Para 10 of the eligibility certificate is not applicable to M/s. Hindustan Motors Limited as the production in the diversified unit is different from the existing industry.
2. The government is directed to treat the Lancer car unit as a new unit and pass appropriate orders giving the benefit of the waiver scheme.
3. The government is also directed to refund the deposits made by M/s. Hindustan Motors Limited pursuant to the interim orders after appropriating any dues payable.

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