2007 (9) TMI 576 - HC - VAT and Sales Tax

Deferral of interest-free sales tax - Held that - As already come to the conclusion that the deferral granted is nothing but postponing the payment of sales tax liable to be paid for the current period to a future period. Unless the petitioner is generating the sales tax for the current period, the petitioner is not entitled to have tax benefit under the IFST deferral. Hence, we do not find any illegality or irregularity in the order passed by the Tamil Nadu Taxation Special Tribunal. Accordingly, the writ petition fails and the same is dismissed.

Summary

Issues Involved:
1. Validity of the cancellation of the agreement by the Assistant Commissioner of Commercial Taxes.
2. Compliance with the conditions of the Interest-Free Sales Tax (IFST) Deferral Scheme.
3. Interpretation of the deferral scheme and its applicability to the petitioner's business activities.

Detailed Analysis:

1. Validity of the Cancellation of the Agreement by the Assistant Commissioner of Commercial Taxes:
The petitioner challenged the order of the Assistant Commissioner of Commercial Taxes, which canceled the agreement for the IFST Deferral Scheme due to alleged breaches of the agreement's covenants. The petitioner argued that the cancellation was unjustified as the conditions cited in the show cause notice had been rectified except for one, which was not a valid ground for cancellation.

2. Compliance with the Conditions of the IFST Deferral Scheme:
The petitioner was required to comply with several conditions under the agreement, including filing an insurance policy and audited balance sheets annually and maintaining continuous production. The petitioner contended that the non-compliance issues regarding the insurance policy and balance sheets were rectified, and the explanation for the alleged cessation of production was valid. The petitioner argued that the shift from purchasing LPG from Reliance to refilling LPG for HPCL did not constitute a cessation of production but a minor deviation in business operations.

3. Interpretation of the Deferral Scheme and Its Applicability to the Petitioner's Business Activities:
The court examined the deferral scheme as outlined in G.O. Ms. No. 500, Industries (MIG. II) Department, dated May 14, 1990. The scheme granted deferral benefits subject to the sales tax payable on products manufactured by the capacity created by expansion or diversification units. The court noted that from 2002 onwards, the petitioner's business activities did not generate sales tax revenue as it shifted to job work for HPCL, which did not involve the sale of taxable goods.

The court concluded that the deferral scheme's benefits were contingent on generating sales tax revenue. Since the petitioner's activities from 2002 did not involve sales tax generation, the petitioner was not entitled to the deferral benefits. The court held that the shift to job work constituted a violation of the agreement, justifying the cancellation by the Assistant Commissioner.

The petitioner cited previous judgments to support their case, but the court found these cases distinguishable. The cited cases did not address the specific requirement of generating sales tax revenue under the deferral scheme. The court emphasized that the deferral scheme was intended to postpone the payment of sales tax, which was not applicable to the petitioner's activities post-2002.

Conclusion:
The court dismissed the writ petition, affirming the cancellation of the agreement by the Assistant Commissioner and the order of the Tamil Nadu Taxation Special Tribunal. The court found no illegality or irregularity in the cancellation, as the petitioner's activities did not meet the conditions of the deferral scheme. Consequently, the connected miscellaneous petition was also dismissed, and no costs were awarded.