2005 (11) TMI 481 - HC - Companies Law

Summary

Issues Involved:
1. Eligibility for tax exemption under Section 4-A of the U.P. Trade Tax Act.
2. Definition and criteria of a "new unit" under the Act.
3. Usage of old machinery and its impact on exemption eligibility.
4. Interpretation of relevant legal provisions and precedents.

Issue-Wise Detailed Analysis:

1. Eligibility for Tax Exemption under Section 4-A of the U.P. Trade Tax Act:
The applicant, a company incorporated under the Companies Act, 1956, sought exemption under Section 4-A of the U.P. Trade Tax Act for a new unit established for manufacturing paints and adhesives. The exemption was sought for a period of five years from the date of the first sale, i.e., from 27th October 1992 to 25th October 1997. The Divisional Level Committee initially granted the exemption but curtailed it to 2nd March 1994 upon discovering the use of an old mixer machine in the unit.

2. Definition and Criteria of a "New Unit" under the Act:
The provisions of Section 4-A (6) Explanation 1 and Explanation 2 were examined. Explanation 1 defines a "new unit" during the period ending 31st March 1990, requiring all machinery, accessories, or components to be new. Explanation 2, applicable post-31st March 1990, allows for the use of old boilers, generators, moulds, and dyes, but excludes other old machinery, plant, equipment, or components unless sold by a government entity.

3. Usage of Old Machinery and Its Impact on Exemption Eligibility:
The applicant argued that the old mixer machine, purchased for Rs. 1,500/-, was used solely in the laboratory for research and not in the manufacturing process. Supporting documents from S.K. Ahuja and Associates confirmed this. The Tribunal, however, held that the laboratory is part of the manufacturing unit, thereby disqualifying the unit from exemption for the entire period. The court reviewed similar cases, such as M/S Kanta Granites Pvt. Ltd. and others, where exemptions were granted despite the use of minor old machinery that was not essential to the manufacturing process.

4. Interpretation of Relevant Legal Provisions and Precedents:
The court referred to various precedents, including:
- M/S Mansarovar Bottling Company Ltd. vs. Commissioner of Trade Tax: Emphasized a liberal interpretation of tax exemptions to promote industrialization.
- Bajaj Tempo Ltd. vs. Commissioner of Income Tax: Highlighted that minor old machinery should not disqualify a unit from tax benefits aimed at encouraging new industrial undertakings.
- H.M. Industries vs. STO: Reiterated that exemptions should not be denied for minor old machinery not integral to the manufacturing process.

Conclusion:
The court concluded that the old mixer machine, used only in the laboratory and not essential to the manufacturing process, should not affect the eligibility for the full exemption period. The Tribunal's decision was set aside, and the Divisional Level Committee was directed to grant the exemption for the entire period from 27th October 1992 to 25th October 1997.

Order:
The revision was allowed, and the Divisional Level Committee was instructed to modify the eligibility certificate accordingly.