2007 (1) TMI 525 - HC - VAT and Sales Tax

Issues Involved:
1. Eligibility for sales tax exemption under S.R.O. No. 790/1990 for a 100% Export Oriented Unit (EOU).
2. The role of the Director of Industries in issuing eligibility certificates.
3. The relationship between the EOU resolution and sales tax exemption.
4. The determination of "installed capacity" for sales tax exemption purposes.
5. The impact of export sales on eligibility for sales tax exemption.

Detailed Analysis:

1. Eligibility for Sales Tax Exemption Under S.R.O. No. 790/1990:
The petitioner, M/s. Indian Charge Chrome Limited (ICCL), argued that the benefit of sales tax exemption under S.R.O. No. 790/1990 is available to 100% EOUs and units that do not export at all. They contended that the exemption is not dependent on whether the assessee has made exports or not. The State opposed this, asserting that the exemption is only for transactions admitted as sales under the Orissa Sales Tax Act (OST) or Central Sales Tax Act (CST), and not for export transactions.

2. Role of the Director of Industries in Issuing Eligibility Certificates:
ICCL sought a direction to the Director of Industries to rectify the eligibility certificate to reflect the actual "installed capacity" of their factory. The State argued that the eligibility certificate should be based on the actual sales transactions liable to tax under OST or CST, not merely on the installed capacity.

3. Relationship Between the EOU Resolution and Sales Tax Exemption:
ICCL contended that conditions laid down in the EOU resolution issued by the Central Government should not be imported into the sales tax notification issued by the State Government. The State maintained that the S.R.O. stands on its own and does not depend on the EOU resolution. Both have their own schemes and explicit provisions.

4. Determination of "Installed Capacity" for Sales Tax Exemption:
The petitioner argued that the eligibility certificate should indicate the "installed capacity" as per the Industrial Policy Resolution (IPR) 1989. The State countered that exemption is linked to the actual sales transactions and not merely the installed capacity. They emphasized that the eligibility certificate should reflect the actual production capacity based on scrutiny and verification.

5. Impact of Export Sales on Eligibility for Sales Tax Exemption:
ICCL argued that the exemption should be available irrespective of whether the goods are sold domestically or exported. The State contended that sales outside the Domestic Tariff Area (DTA) are outside the scope of exemption under the S.R.O. and that the exemption is only for admitted sales within the DTA.

Judgment:
The court addressed the primary issue of whether the determination of the quantum/extent of exemption under the 1989 IPR should be limited to sales transactions under the OST Act or CST Act, or if exported goods should also be considered. The court concluded that:

- The exemption under S.R.O. No. 790/1990 (1989 IPR) is based on the "installed capacity" of the industrial unit as determined by the Director of Industries.
- There is no requirement under the notification that goods must be sold domestically to qualify for exemption.
- The eligibility certificate should reflect the actual "installed capacity" as determined by proper capacity assessment guidelines.

The court directed the following:
1. Capacity assessment should be conducted as per the guidelines/instructions of the Director of Industries.
2. The eligibility certificate should indicate the actual "installed capacity" based on this assessment.
3. This process should be completed within two months, and the eligibility certificate issued within one month thereafter.
4. Connected sales tax proceedings should remain in abeyance for four months to comply with these directions.

The court emphasized that the exemption should be determined based on the clear language of the notification, without importing any supposed intention of the exempting authority. The judgment was agreed upon by both judges, with no order as to costs.

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