2011 (11) TMI 608 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Requirement of registration under the Factories Act, 1948 for sales tax exemption.
2. Validity of the Divisional Level Committee's decision to reduce the exemption period.
3. Applicability of the Factories Act to units with less than 10 workers.
4. Interpretation of section 2(m) of the Factories Act, 1948.
5. Ultra vires challenge to clause (c) of sub-section (5) of section 4A of the U.P. Trade Tax Act.

Summary:

1. Requirement of Registration under the Factories Act, 1948 for Sales Tax Exemption:
The petitioner, a newly established industrial unit, applied for exemption of sales tax on a graded basis from the date of the first sale of its production on December 3, 1986. The competent authority granted the recognition certificate u/s 4A of the U.P. Trade Tax Act for exemption from December 3, 1986, to December 2, 1993. One condition for the exemption certificate was obtaining registration under the Factories Act, 1948.

2. Validity of the Divisional Level Committee's Decision to Reduce the Exemption Period:
The Divisional Level Committee, considering the registration under the Factories Act as mandatory, reduced the exemption period from the date of registration, i.e., December 3, 1986, to December 2, 1993. The petitioner filed a writ petition seeking modification of the eligibility certificate to grant effective exemption from the date of the first sale.

3. Applicability of the Factories Act to Units with Less than 10 Workers:
The petitioner argued that since the number of workers was less than 10 at the time of starting production, registration under the Factories Act was not required as per section 2(m) of the Act. The unit applied for registration only when the number of workers exceeded 10 on November 24, 1988.

4. Interpretation of Section 2(m) of the Factories Act, 1948:
The High Court initially held that the requirement of registration under the Factories Act is directory and not mandatory, ensuring that a genuine new unit is set up. The Supreme Court, however, remitted the matter back to the High Court for fresh consideration, emphasizing that the High Court missed the real thrust of the challenge regarding units with less than 10 workers.

5. Ultra Vires Challenge to Clause (c) of Sub-section (5) of Section 4A of the U.P. Trade Tax Act:
The Supreme Court directed the High Court to reconsider whether clause (c) of sub-section (5) of section 4A is ultra vires because it discriminates between new units registrable under the Factories Act and those that are not. The High Court, upon reconsideration, concluded that where a unit employs less than 10 workers at the time of production, it would not require registration under the Factories Act. Thus, the requirement of registration for such units is directory and not mandatory.

Conclusion:
The writ petition was allowed, declaring that the period of eligibility certificate for exemption starts from December 3, 1986, and not November 24, 1988. The impugned orders of the Divisional Level Committee curtailing the exemption period were set aside.