2010 (2) TMI 1098 - HC - VAT and Sales Tax

Cancellation of eligibility certificate under section 4A of the U.P. Trade Tax Act - Held that - In this case there are no allegations of any misuse of eligibility certificate. There are also no finding that there has been any mistake or error of law and fact and has it been considered by the State that it did not file an appeal under section 10(2) of the U.P. Trade Tax Act. The inevitable conclusion is that the impugned order passed by the Tribunal is not justified in the facts of this case. It is therefore, set aside. The revision is allowed. The eligibility certificate shall be restored to the assessee.

Issues:
1. Validity of exercise of power under section 4A(3) of the U.P. Trade Tax Act.
2. Allegations of misuse of eligibility certificate.
3. Consideration of technical reports in decision-making.
4. Misuse through production of diversified products.
5. Interpretation of circular No. 3307 dated December 28, 1985.
6. Binding nature of circular in light of Supreme Court decision.
7. Justifiability of orders passed by the Commissioner and Tribunal.

Issue 1: Validity of exercise of power under section 4A(3)
The revision was filed against the Tribunal's order under section 4A(3) of the U.P. Trade Tax Act. The key contention was whether the Commissioner's exercise of power under this section was valid. The argument put forth was that the Commissioner's powers under section 4A(3) are akin to those under section 22 of the Act, limited to rectifying apparent mistakes of law or facts and addressing misuse of eligibility certificates. The counsel for the assessee contended that since the conditions under section 4A were not violated, the Commissioner's invocation of section 4A(3) was unwarranted.

Issue 2: Allegations of misuse of eligibility certificate
The Commissioner cancelled the eligibility certificate based on three reasons, including the use of old machinery and the alleged misuse of billets for production through another entity. The assessee argued that there was no evidence of misuse and that the Divisional Level Committee had thoroughly scrutinized the application before granting the certificate. The absence of findings on misuse and the failure of the Department to file an appeal under section 10(2) of the Act supported the assessee's position.

Issue 3: Consideration of technical reports
The case involved technical reports from prestigious institutes regarding the difference in properties and end use of products. The question arose whether a non-technical person, like the Commissioner, could overlook such reports. The argument was that the Commissioner's decision disregarded crucial technical findings, raising concerns about the decision-making process.

Issue 4: Misuse through production of diversified products
The Commissioner alleged misuse based on the diversification of products and subsequent processing in another unit. The assessee countered that no contravention of section 4A conditions occurred and that the cancellation lacked justification. The absence of misuse allegations and errors in law or fact further weakened the Commissioner's position.

Issue 5: Interpretation of circular No. 3307
The Tribunal's interpretation of circular No. 3307 dated December 28, 1985 was challenged. The Tribunal's decision that the circular did not benefit the applicant was disputed, citing the binding nature of the circular as per a Supreme Court decision. The relevance and applicability of the circular in the context of job-work done by the applicant were pivotal in the judgment.

Issue 6: Binding nature of circular in light of Supreme Court decision
The binding nature of the circular in light of a Supreme Court decision was emphasized. The argument was that the circular should have been considered binding on the Department, especially concerning job-work done by the applicant. The Supreme Court precedent was pivotal in determining the applicability and relevance of the circular in the present case.

Issue 7: Justifiability of orders passed by the Commissioner and Tribunal
The final issue pertained to the justifiability of the orders passed by the Commissioner and Tribunal. The absence of misuse allegations, errors of law or fact, and the failure to file an appeal under section 10(2) of the U.P. Trade Tax Act led to the conclusion that the impugned orders were not justified. Consequently, the Tribunal's decision was set aside, and the eligibility certificate was restored to the assessee.

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