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2012 (11) TMI 1060 - HC - VAT and Sales TaxCondition to sales tax exemption grant - State laid down a condition that this incentive of sales tax exemption to the second unit would be available to the company only if the production of the first unit does not fall below the level of 922692 MT of cement Held that - Benefit of sales tax exemption was granted only under the notification issued under section 42 of the Himachal Pradesh General Sales Tax Act, 1968 and not under the incentive policies issued by the State. The State by the same notification also imposed a condition that the benefit to the petitioner-industry would be available only if the old unit maintained production at a certain level. This condition, as held is reasonable. Thus no merit in the petition which is accordingly dismissed.
Issues Involved:
1. Jurisdiction of the State to impose conditions on sales tax exemption. 2. Alleged discrimination between different companies in granting tax benefits. 3. Applicability of incentive policies to the exemption notification under section 42 of the Himachal Pradesh General Sales Tax Act, 1968. 4. Validity of the condition requiring the old unit to maintain a certain production level. Issue-wise Detailed Analysis: 1. Jurisdiction of the State to Impose Conditions on Sales Tax Exemption: The main dispute in this case revolves around the condition that the sales tax exemption for the second unit would be available only if the production of the first unit does not fall below 922692 MT of cement. The company argued that the State had no jurisdiction to impose such a condition. However, the court held that the notification dated December 31, 1994, issued under section 42(1) of the Himachal Pradesh General Sales Tax Act, 1968, empowered the State to exempt industries from payment of tax and to impose conditions on such exemptions. The court found that the condition was just and reasonable to prevent the company from reducing production in the old unit to transfer it to the new unit solely to avail of tax benefits. 2. Alleged Discrimination Between Different Companies in Granting Tax Benefits: The company claimed invidious discrimination by comparing its situation with M/s. Gujarat Ambuja Cement, which was granted full benefits without similar conditions. The court noted that M/s. Gujarat Ambuja Cement was a new unit without any older unit, whereas the petitioner-company already had an existing unit. Therefore, the two companies stood on different footing, and the imposition of the condition on the petitioner-company was justified to maintain fairness and prevent misuse of tax benefits. 3. Applicability of Incentive Policies to the Exemption Notification: The company argued that the incentive policies should be read into the exemption notification under section 42 of the Act. The court clarified that the benefit of sales tax exemption was granted solely under the notification issued under section 42 and not under the incentive policies. The incentive policies provided for sales tax deferment and not exemption. The court emphasized that the exemption notification was a separate legal instrument with its own conditions and should not be conflated with the incentive policies. 4. Validity of the Condition Requiring the Old Unit to Maintain a Certain Production Level: The court examined whether the condition for the old unit to maintain a production level of 922692 MT was valid. It held that the condition was reasonable and necessary to ensure that the old unit did not reduce production to transfer it to the new unit for tax benefits. The court reasoned that the purpose of granting incentives was to encourage industrialization and generate employment, which would not be achieved if the old unit reduced its production. The court found the condition to be a fair measure to prevent potential misuse of the tax exemption. Conclusion: The court concluded that the benefit of sales tax exemption was granted under the notification issued under section 42 of the Himachal Pradesh General Sales Tax Act, 1968, and not under the incentive policies. The condition requiring the old unit to maintain a certain production level was reasonable and justified. The petition was dismissed with no costs.
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