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2011 (12) TMI 464 - HC - VAT and Sales TaxDenial of sales tax exemption as per SRO No. 1729/93 issued in respect of capital investment towards plant and machinery holding that the second-hand machinery imported from abroad is not eligible for such exemption Held that - this court cannot re-write the notification issued by the Government or modify or water down the different heads of exemption contained in the statutory notification issued in exercise of the power conferred under section 10 of the Kerala General Sales Tax Act. In the above circumstances this court finds that the petitioner is entitled to succeed. The impugned orders-exhibits P8 and P12 in W.P.(C) No. 6561 of 2007 and exhibit P14 in W.P.(C) No. 7206 of 2007 are set aside. It is declared that the petitioner is entitled to have exemption provided under the Notification SRO No. 1729/93 in respect of plant and machinery notwithstanding the fact that the machinery purchased and installed is a second hand item ; to the extent its value is duly certified as correct. The respondents are directed to re-fix the liability if any granting the benefit of exemption to the above extent as well.
Issues Involved:
1. Denial of sales tax exemption for second-hand machinery imported from abroad. 2. Validity and applicability of the manual (G.O. (MS) No. 169/95/ID dated November 1, 1995) versus the statutory notification SRO No. 1729/93. 3. Entitlement of the petitioner to sales tax deferment under section 32 of the Kerala Value Added Tax Act, 2003. Detailed Analysis: 1. Denial of Sales Tax Exemption for Second-Hand Machinery Imported from Abroad The central issue in this case is the denial of sales tax exemption under SRO No. 1729/93 for second-hand machinery imported by the petitioner. The petitioner, a medium-scale industrial unit, commenced commercial production on May 18, 1999, and sought tax exemption for a total sum of Rs. 9,52,66,694, which included the value of second-hand machinery. The authorities initially allowed exemption only to an extent of Rs. 3,15,46,833, later revised to Rs. 3,88,84,481 after a review, but denied the rest, leading to a demand notice for the balance tax. The court observed that the notification SRO No. 1729/93 does not explicitly exclude second-hand machinery from the definition of "fixed capital investment" for medium and large-scale industries. Clause 11(vii) of the notification defines "fixed capital investment" to include plant and machinery required for industrial purposes. The only exclusion for second-hand machinery is specified under sub-clause (viii) of clause 11, which pertains to sick small-scale industrial units. 2. Validity and Applicability of the Manual Versus the Statutory Notification The respondents argued that the manual (G.O. (MS) No. 169/95/ID dated November 1, 1995) clarifies that second-hand machinery does not qualify for tax exemption. However, the court emphasized that the statutory notification SRO No. 1729/93, issued under section 10 of the Kerala General Sales Tax Act, cannot be overridden or modified by a manual or circular. The manual's purpose was to create awareness of the concessions available and does not have the authority to alter the statutory notification. The court cited the Supreme Court's decision in Sandur Micro Circuits Limited v. Commissioner of Central Excise, Belgaum, which held that a circular cannot take away the effect of a statutory notification and cannot impose new conditions that restrict the scope of the exemption. 3. Entitlement to Sales Tax Deferment The petitioner also challenged the demand notice for the assessment year 2005-06 under the Kerala Value Added Tax Act, 2003, which denied deferment of tax. The court's decision on the primary issue of second-hand machinery exemption impacts this claim as well. Since the petitioner is entitled to exemption for the second-hand machinery, the tax deferment claim for 2005-06 should be reconsidered accordingly. Conclusion The court concluded that the petitioner is entitled to the sales tax exemption under SRO No. 1729/93 for the second-hand machinery imported from abroad. The impugned orders and demand notices were set aside, and the respondents were directed to re-fix the petitioner's tax liability, granting the benefit of exemption for the certified value of the second-hand machinery. The proceedings should be finalized within three months, with an opportunity for the petitioner to be heard. Both writ petitions were allowed without costs.
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