2007 (11) TMI 573 - HC - VAT and Sales Tax

Exemption from payment of sales tax in terms of S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000 denied Held that - The activity carried on by the petitioner in its unit at Kanjikode, Palakkad, engaged in the production of soft drinks is a manufacturing activity within the meaning of S.R.O. No. 1729 of 1993. In terms of the scheme for exemption from payment of tax as contained in S.R.O. No. 1729 of 1993, the certificate of eligibility to be issued by the Director is intended only to certify the actual commencement of commercial production of the unit before the cut-off date and the monetary limit of tax exemption that the unit would be eligible for. At the same time the Director of Industries is not required to certify the entitlement of the unit for tax exemption. The entitlement of the unit for exemption from payment of tax is to be certified by the Deputy Commissioner of Sales Tax, in S.R.O. No. 1729 of 1993. Such certification of the entitlement is to be contained in the exemption certificate issued by the Deputy Commissioner. Exhibit P24 order passed by the Deputy Commissioner cannot be said to be without jurisdiction. It is with jurisdiction and the finding therein to the effect that the petitioner has not satisfied the conditions mentioned in S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000 is correct and justified. The said finding does not require any interference. Exhibit P24 is therefore upheld subject to the finding in para (i) above, viz., the activity carried on by the petitioner in its unit for the production of soft drinks is a manufacturing activity within the meaning of S.R.O. No. 1729 of 1993.

Summary

Issues Involved:
1. Eligibility for sales tax exemption under S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000.
2. Jurisdiction of the Deputy Commissioner (General) to determine eligibility for tax exemption.
3. Definition of "manufacture" under the relevant notifications.
4. Compliance with the conditions for placing firm orders for necessary plant and machinery before the cut-off date.

Detailed Analysis:

Issue 1: Eligibility for Sales Tax Exemption
The petitioner challenged the order by the Deputy Commissioner denying their application for sales tax exemption under S.R.O. No. 1729 of 1993. The petitioner argued that their decision to set up a unit in Kerala was influenced by the tax exemption schemes announced by the Government of Kerala. The amendments to S.R.O. No. 1729 of 1993 by S.R.O. No. 1092 of 1999 and S.R.O. No. 295 of 2000 restricted the exemption to units set up or having taken effective steps before January 1, 2000. The petitioner claimed to have taken effective steps by placing firm orders for necessary plant and machinery before this cut-off date.

Issue 2: Jurisdiction of the Deputy Commissioner
The petitioner contended that the Deputy Commissioner overstepped his jurisdiction by re-evaluating the eligibility for tax exemption, which had already been certified by the Director of Industries. The court held that the Deputy Commissioner had the jurisdiction to determine whether the unit met the conditions for exemption, as the eligibility certificate issued by the Director only certified the commencement of commercial production and the monetary limit of exemption. The Deputy Commissioner's role was to issue the actual tax exemption certificate, which included verifying the unit's entitlement to the exemption.

Issue 3: Definition of "Manufacture"
The Deputy Commissioner had proposed to reject the application on the grounds that the activities carried out by the petitioner did not amount to "manufacture" as defined in S.R.O. No. 1729 of 1993. The court examined the manufacturing process and concluded that the petitioner's activities did constitute manufacturing, as the final product was commercially different from the raw materials used. The court noted that the process involved more than mere packing or mixing and was recognized as manufacturing under the Central Excise Act.

Issue 4: Compliance with Conditions for Placing Firm Orders
The Deputy Commissioner found that the petitioner had not placed firm orders for all necessary plant and machinery before January 1, 2000. The petitioner argued that they had placed orders and made advance payments for certain items. However, the court upheld the Deputy Commissioner's finding that the orders placed were not comprehensive enough to meet the requirement for "necessary plant and machinery" for the entire production process. The petitioner failed to demonstrate that firm orders had been placed for all essential equipment required for their manufacturing process.

Conclusion:
1. The petitioner's manufacturing activities qualified as "manufacture" under S.R.O. No. 1729 of 1993.
2. The Deputy Commissioner had the jurisdiction to determine the petitioner's entitlement to tax exemption.
3. The petitioner did not meet the conditions for placing firm orders for all necessary plant and machinery before the cut-off date.
4. The Deputy Commissioner's order denying the tax exemption was justified and upheld by the court.

The writ petition was dismissed, and the court upheld the Deputy Commissioner's order, subject to the finding that the petitioner's activities constituted manufacturing.