2006 (3) TMI 751 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Jurisdiction and authority of the tax notices and assessment orders.
2. Compliance with the conditions of the Pioneer Unit Status Incentive Scheme and the Prestigious Unit Status Incentive Scheme.
3. Legality of the transfer of raw materials and intermediate products between units.
4. Imposition of penalty and interest.
5. Procedural fairness and adherence to natural justice principles.

Detailed Analysis:

1. Jurisdiction and Authority of the Tax Notices and Assessment Orders:
The petitioner, a public limited company, challenged the assessment and revisional orders under the Gujarat Sales-tax Act, 1969, arguing that the notices and orders were issued without jurisdiction and authority. The company contended that the Commissioner had already exercised powers under Section 50 of the Act in a decision dated 16.8.2002, and subsequent notices were time-barred and issued with unreasonable delay. The court noted that the Commissioner's decision on 16.8.2002, which was in favor of the petitioner, could not be canceled or withdrawn without giving the petitioner a show cause notice and a reasonable opportunity of being heard. The court also highlighted that the Deputy Commissioner, Corporate Cell, lacked jurisdiction to pass orders under Section 50 for certain years, and the notices issued were without proper delegation.

2. Compliance with the Conditions of the Incentive Schemes:
The petitioner argued that it complied with the conditions of the Pioneer Unit Status Incentive Scheme and the Prestigious Unit Status Incentive Scheme. For Unit No.1, the company contended that it manufactured Hot Briquetted Iron (HBI) using tax-free raw materials and transferred the HBI to Unit No.2 for manufacturing Hot Rolled Coils (HRC), which were sold within Gujarat, thus fulfilling the conditions of Entry 118. The court found that the petitioner company, being a single legal entity, did not breach the conditions as the final product (HRC) was sold within Gujarat. For Unit No.2, the company argued that the purchase of Naptha and natural gas for generating electricity used in manufacturing HRC was integral to the process. The court noted that the Prestigious Unit Scheme excluded electricity generation from the benefits and that the raw materials were used by a separate legal entity (Essar Power Ltd.) for generating electricity, which was then supplied to the petitioner.

3. Legality of the Transfer of Raw Materials and Intermediate Products Between Units:
The petitioner contended that the transfer of HBI from Unit No.1 to Unit No.2 was a unit transfer, not a sale, and thus did not violate the conditions of the incentive schemes. The court acknowledged that the transfer of HBI was within the same legal entity and that the final product (HRC) was sold within Gujarat, satisfying the conditions of Entry 118. The court also considered the possibility of the company raising invoices for the sale of HBI and the value addition for making HRC to address any objections.

4. Imposition of Penalty and Interest:
The petitioner argued that the imposition of penalty and interest was unjustified as there was no element of culpability involved. The court referred to the principles enunciated in Hindustan Steel Ltd. vs. State of Orissa, stating that penalty could not be imposed merely because it was lawful to do so, and there must be elements of culpability. The court found that the petitioner had disclosed all material details and did not engage in any clandestine activity to evade tax. The court concluded that the petitioner made a strong case for waiver of penalty and interest for Unit No.1.

5. Procedural Fairness and Adherence to Natural Justice Principles:
The petitioner claimed that the orders were passed without giving a reasonable opportunity of being heard and that the notices were issued with undue haste. The court noted that the Commissioner's decision on 16.8.2002 was in favor of the petitioner and that the subsequent cancellation of this decision without notice was procedurally unfair. The court emphasized the importance of adhering to natural justice principles and providing the petitioner with a fair hearing.

Conclusion:
The court directed that no recovery of tax, interest, or penalty should be made for Unit No.1 until the final disposal of the appeals/revisions. For Unit No.2, the court directed the petitioner to deposit 50% of the tax amount without interest or penalty, considering the detailed scrutiny required in the appeals/revisions. The court also set a timeline for the disposal of the appeals/revisions and emphasized that the observations made were for the limited purpose of considering the request for pre-deposit and did not constitute a final opinion on the merits of the disputes.