2009 (11) TMI 872 - HC - VAT and Sales Tax

Incentives and concessions announced by the State of Himachal Pradesh as per the Industrial Policy Scheme of 1999 and the notification dated July 23, 1999 issued for grant of incentives and concessions under the Himachal Pradesh General Sales Tax Act, 1968 questioned Held that - If the argument made on behalf of the State is accepted then the result would be that the unit would have to pay sales tax on the entire sales of ₹ 61 lacs at the full prescribed rate whereas on sales up to ₹ 60 lacs it will not have collected any sales tax from the customers. It will make the units totally uneconomic and unviable. How can an assessee who has not collected sales tax be directed to deposit the sales tax? The only logical interpretation which can be given to sales tax notification to make it workable in accordance with the incentive policy is that the eligible units will be entitled to the exemption/concession up to the prescribed limit of ₹ 60 lacs and ₹ 45 lacs and if the turnover exceeds the aforesaid prescribed limits then it will have to pay full sales tax on the sales exceeding the prescribed limit. This will lead to certainty in the mind of the entrepreneur. He knows that up to ₹ 45 lacs or ₹ 60 lacs, he is entitled to either a concessional rate of sales tax or full exemption. Thereafter, he has to pay full sales tax on the sales exceeding over and above the prescribed limit.

Summary

Issues:
Interpretation of incentives and concessions under the Industrial Policy Scheme of 1999 and the notification dated July 23, 1999 under the Himachal Pradesh General Sales Tax Act, 1968.

Analysis:
The main issue in this writ petition was the interpretation of the incentives and concessions provided by the State of Himachal Pradesh under the Industrial Policy Scheme of 1999 and the notification dated July 23, 1999 issued for grant of incentives and concessions under the Himachal Pradesh General Sales Tax Act, 1968. The Industrial Policy aimed to encourage industrial units by offering exemptions and concessional rates on sales tax. The petitioner argued that the benefits should be available up to the prescribed annual turnover, while the State contended that once the turnover exceeded certain limits, the unit would be liable to pay full sales tax. The court examined the language of the policy and the notification to determine the correct interpretation.

The court analyzed the specific clauses of the Industrial Policy and the notification under the Himachal Pradesh General Sales Tax Act. It noted that the intention was to provide exemptions or concessional rates to units for a specified period up to certain turnover limits. Units in priority sectors and industrially backward areas were entitled to exemptions for a longer period compared to other units. The State's argument that units exceeding the turnover limits should pay full sales tax would render the incentive policy ineffective. The court emphasized that sales tax is collected from customers and expecting units to pay tax on turnover exceeding the limit, where no tax was collected, would make the units economically unviable.

The court rejected the State's contention and provided a logical interpretation to make the notification workable in line with the incentive policy. It ruled that eligible units would be entitled to exemptions or concessional rates up to the prescribed turnover limits, beyond which they would have to pay full sales tax. This approach aimed to provide certainty to entrepreneurs regarding their tax obligations. The court directed assessing authorities to decide cases accordingly, ensuring that the notification is interpreted in a manner consistent with the court's analysis. The writ petition was disposed of with no costs awarded.