1996 (10) TMI 480 - HC - Indian Laws

Summary

Issues Involved:
1. Legality and validity of the notice dated 8th March 1988, demand notice dated 21st April 1988, and Trade Circular dated 14th July 1986.
2. Entitlement of the petitioners to claim benefits under the Package Scheme of Incentives for turnover tax and additional tax.

Detailed Analysis:

1. Legality and Validity of Notice and Trade Circular:

The petitioners challenged the notice dated 8th March 1988, the demand notice dated 21st April 1988, and the Trade Circular dated 14th July 1986 issued by the respondent. The contention was that these notices and circulars were not aligned with the benefits promised under the Package Scheme of Incentives. The petitioners argued that the incentives under the scheme should extend to turnover tax and additional tax as well.

2. Entitlement to Benefits Under the Package Scheme of Incentives:

The core issue was whether the petitioners were entitled to claim benefits under the Package Scheme of Incentives for turnover tax and additional tax. The petitioners, a private limited company engaged in manufacturing grey iron castings, set up an industrial unit in Solapur in 1982, relying on the incentives promised under the scheme. They were granted an eligibility certificate for seven years from 1st October 1982 to 30th September 1989, opting for the deferral scheme of sales tax.

The petitioners argued that the turnover tax and additional tax were essentially sales taxes and thus should be covered under the deferral scheme. The respondents contended that the scheme specifically mentioned only sales tax, purchase tax, and general tax, and therefore did not extend to turnover tax or additional tax.

Analysis of the Scheme:

The court analyzed the original and modified Package Scheme of Incentives, noting that the scheme aimed to promote industrialization in underdeveloped areas by offering various tax incentives. The scheme's preamble and subsequent modifications indicated a broad objective to attract industries to backward areas.

Legal Precedents:

The court referred to Supreme Court decisions, including S. Kodar v. State of Kerala and State of Karnataka v. Sunagar Brothers, which held that additional tax and turnover tax are essentially sales taxes. These precedents supported the petitioners' argument that these taxes should be covered under the scheme.

Discrimination Argument:

The petitioners also argued that not extending the benefits to turnover tax and additional tax would result in discrimination between entrepreneurs who opted for exemption and those who opted for deferral. The court found merit in this argument, noting that such discrimination was not the objective of the scheme.

Arbitrariness and Unreasonableness:

The court agreed with the petitioners that the respondents' actions were arbitrary and unreasonable. The deferral scheme was intended to postpone tax payments, not to exempt them entirely. The respondents' demand for immediate payment of turnover tax and additional tax contradicted the scheme's objective and the assurances given to the petitioners.

Conclusion:

The court concluded that the petitioners were entitled to the benefits under the Package Scheme of Incentives for turnover tax and additional tax. The court held that these taxes were facets of sales tax and should be covered by the scheme. The petitioners had fulfilled all eligibility conditions and had acted to their detriment based on the respondents' assurances. Therefore, the respondents could not back out of their promises.

Judgment:

The petition was made absolute in terms of prayers (a), (b), and (c), with no order as to costs. The court ruled in favor of the petitioners, granting them the reliefs sought.