1987 (10) TMI 368 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for exemption under Section 4-A of the U.P. Sales Tax Act.
2. Definition and interpretation of "new unit" and "date of starting production."
3. Impact of reconstitution of a partnership firm into a private limited company on eligibility.
4. Validity of power connection and machinery purchase dates in determining eligibility.
5. Legal interpretation of Section 4-A and its explanations.

Detailed Analysis:

1. Eligibility for Exemption under Section 4-A of the U.P. Sales Tax Act:
The petitioner, a private limited company, sought exemption from sales tax under Section 4-A of the U.P. Sales Tax Act. The application was initially rejected by the District Level Committee and subsequently by the Divisional Level Committee. The company's repeated petitions were based on the argument that they met the criteria for exemption as a new unit.

2. Definition and Interpretation of "New Unit" and "Date of Starting Production":
Section 4-A and its explanations define a "new unit" and the "date of starting production." According to the statute, a "new unit" should not use machinery previously used in any other factory, and the "date of starting production" is determined by the later of the first purchase of raw material or the installation of a power connection. The court emphasized that these statutory definitions must be strictly adhered to, irrespective of the factual circumstances.

3. Impact of Reconstitution of a Partnership Firm into a Private Limited Company on Eligibility:
The court addressed whether the reconstitution of the partnership firm into a private limited company affected the eligibility for exemption. It was held that the ownership change did not alter the nature of the unit as a "new unit." The emphasis was on the unit's production capability and not on the ownership structure. The court cited previous judgments affirming that the reconstitution of a firm does not disqualify it from being considered a new unit eligible for tax exemption.

4. Validity of Power Connection and Machinery Purchase Dates in Determining Eligibility:
The Divisional Level Committee had rejected the application partly because the power connection and machinery purchases were in the name of the old partnership firm. The court clarified that the relevant date for determining the "date of starting production" should be based on the statutory explanation, which considers the later of the first raw material purchase or power connection installation. The court found that the committee had erred by not adhering to this statutory requirement.

5. Legal Interpretation of Section 4-A and its Explanations:
The court reiterated that the statutory definitions provided in Section 4-A and its explanations must be strictly followed. The explanations are considered substantive legislation, and any determination must be based on the factors mentioned therein. The court referenced Supreme Court judgments to support this interpretation, emphasizing that the legislative intent must be respected.

Conclusion:
The court quashed the Divisional Level Committee's order dated June 2, 1987, and directed it to reconsider the petitioner's application within one month. The court also awarded costs of Rs. 500 to the petitioner, acknowledging the repeated legal errors by the respondents that compelled the petitioner to approach the court multiple times. The petition was allowed on these terms.