2010 (3) TMI 1027 - HC - VAT and Sales Tax

Demand for interest payment - Held that - Agreeing with the submission of the petitioner that in the absence of any benchmark fixed either as to the production or sales as a condition for enjoying the deferral and rightly so, in the context of the parent unit enjoying the deferral when the expanded unit was granted the eligibility, no hesitation in quashing the demand for interest payment from the petitioner. Having regard to the fact that the deferral conditions are binding on the petitioner as well as on the respondent, the notice levying interest under section 24(3) of the Act has to be set aside. Consequently the writ petition is allowed and the impugned order is quashed.

Summary

Issues:
1. Interpretation of eligibility certificate for interest-free sales tax deferral.
2. Compliance with base volume of production/sales for deferral eligibility.
3. Demand for interest under section 24(3) of the Act.
4. Legal validity of demand for interest based on production/sales benchmarks.

Interpretation of Eligibility Certificate:
The petitioner availed interest-free sales tax deferral under G.O. Ms. No. 500 dated May 14, 1990, for a period of nine years. Subsequently, the petitioner sought deferral for an expanded unit by making additional investments. The eligibility certificate issued by TIIC covered the period 1998 to 2007, repayable from 2007 to 2016. The petitioner claimed deferral based on turnover above the base volume production, as the certificate and agreement did not specify maintaining base volume as a condition.

Compliance with Base Volume of Production/Sales:
The first respondent demanded tax payment based on the highest production and sales in the three years preceding the expansion, stating that deferral was unavailable due to not reaching the taxable turnover threshold. The petitioner contended that they met the base volume production requirements, challenging the demand for interest under section 24(3) of the Act. The petitioner argued that the insistence on maintaining base volume production was illegal as not stipulated in the agreement or eligibility certificate.

Demand for Interest under Section 24(3) of the Act:
The petitioner's grievance was solely against the demand for interest under section 24(3) of the Act, contending it was contrary to the eligibility certificate and agreement terms. The petitioner had already remitted the tax portion but disputed the interest demand. The court scrutinized the impugned notice and found the demand based on belated tax remittance for previous assessment years.

Legal Validity of Demand Based on Production/Sales Benchmarks:
The agreement for the expanded unit specified entitlement to the deferral scheme and repayment schedule, without mandating maintenance of base volume production/sales. The absence of a benchmark for compliance made it challenging to accept the Revenue's claim of non-compliance. The court noted that since the parent unit was under deferral when the expanded unit received eligibility, there was no specified benchmark for production or sales, leading to the demand for interest being set aside.

In conclusion, the court quashed the demand for interest payment, emphasizing the absence of a fixed benchmark for enjoying deferral and the binding nature of deferral conditions on both parties. The writ petition was allowed, and the impugned order was overturned without costs.