2008 (10) TMI 616 - HC - VAT and Sales Tax

Whether on the facts and circumstances of the case the Tribunal was justified in law in declaring that the conditions in paragraph (i) and (m) of the certificate of entitlement dated January 25 2000 be deleted ab initio? Whether on the facts and circumstances of the case the Tribunal was justified in law in going a step further in declaring that proportionate benefits theory is not applicable to expansion units covered under 1993 Package Scheme of Incentives when it was not asked for by the applicant (appellant sic) and their prayer was simply to delete the conditions from the certificate of entitlement? Held that - In the absence of any provision under the 1993 scheme and alternatively in the absence of any ratio prescribed by the State Government by framing Rules it was not open to the Deputy Commissioner of Sales Tax to direct the assessee to avail of the incentives under the 1993 scheme in proportion to the production attributable to the newly acquired fixed assets. The decision of the Tribunal in holding that the impugned conditions are contrary to the 1993 Scheme and accordingly directing the sales tax authorities to delete condition Nos. (i) and (m) incorporated in the entitlement certificate issued to the assessee cannot be faulted. The second question raised by the Revenue is also without any merit because the conditions (i) and (m) imposed in the entitlement certificate could be directed to be deleted only after recording a finding that the 1993 scheme did not empower the Deputy Commissioner of Sales Tax to impose such conditions. In the result both the questions are answered in the affirmative i.e. in favour of the assessee and against the Revenue.

Issues Involved:
1. Justification of deleting conditions (i) and (m) from the entitlement certificate.
2. Applicability of proportionate benefits theory to expansion units under the 1993 Package Scheme of Incentives.

Detailed Analysis:

Issue 1: Justification of Deleting Conditions (i) and (m) from the Entitlement Certificate
The Tribunal was asked to consider whether the Deputy Commissioner of Sales Tax was justified in imposing conditions (i) and (m) in the entitlement certificate, which limited the utilization of the quantum of incentives to 59.84% of the total quantity of finished products produced each year until the incentives were exhausted or the specified date was reached. The Tribunal found that these conditions were not consistent with the 1993 scheme as amended on July 6, 1994.

The court noted that the 1993 scheme initially applied to new units/pioneer units/prestigious units in backward areas. However, the scheme was amended to allow existing units acquiring new fixed assets, not less than 25% of the gross fixed capital investment, to be eligible for incentives. The newly substituted para 3.8(I)(i)(c) of the 1993 scheme did not provide for proportionate incentives based on production capacity, but rather on the acquisition of new fixed assets.

The court found that the Deputy Commissioner had no authority to impose conditions requiring the utilization of incentives on a pro-rata basis, as there was no such provision in the 1993 scheme or the BST Act/CST Act. The court emphasized that the basis for granting incentives under the 1993 scheme was the acquisition of new fixed assets, not the increase in production capacity. Therefore, the conditions (i) and (m) were contrary to the 1993 scheme and were rightly deleted by the Tribunal.

Issue 2: Applicability of Proportionate Benefits Theory to Expansion Units Under the 1993 Package Scheme of Incentives
The Tribunal also addressed whether the proportionate benefits theory was applicable to expansion units under the 1993 scheme. The court noted that the 1993 scheme, as amended, provided incentives based on the acquisition of new fixed assets, irrespective of an increase in production capacity. The scheme did not require the incentives to be availed proportionately to the production attributable to the newly acquired fixed assets.

The court rejected the applicant's contention that the incentives should be availed on a pro-rata basis due to the lack of separate books of account for identifying finished products attributable to the new fixed assets. The court found no merit in this argument, as the 1993 scheme did not contain any provision for availing incentives on a pro-rata basis.

The court also dismissed the reliance on the decision in Commissioner of Trade Tax, U.P. v. Kajaria Ceramics Ltd., as it was distinguishable on facts. In Kajaria Ceramics, the scheme required an increase in production capacity for incentives, which was not the case under the 1993 scheme.

The court further noted that the newly inserted section 41BB in the BST Act, which empowers the State Government to prescribe ratios for different classes of dealers under different schemes, had not been utilized to frame rules prescribing such ratios. Therefore, the Deputy Commissioner was not justified in imposing a ceiling on the utilization of incentives on a pro-rata basis.

Conclusion
The court upheld the Tribunal's decision to delete conditions (i) and (m) from the entitlement certificate, finding them inconsistent with the 1993 scheme. The court also ruled that the proportionate benefits theory was not applicable to expansion units under the 1993 scheme. Both questions were answered in favor of the assessee and against the Revenue, with the reference disposed of with no order as to costs.

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