2012 (1) TMI 280 - HC - VAT and Sales Tax

Incentive scheme - Eligibility Certificate - substantial expansion - Commercial Production - ineligible investment - Held that - when the unit had started production within the stipulated time period and when there is no doubt with regard to making of investment merely on technical grounds, the denial on the part of the respondent to treat such investment as ineligible for the purpose of tax benefit requires reconsideration. This of course is not to suggest that those investments which are not falling within the stipulations made under the scheme or which are considered ineligible specifically by virtue of government resolution are not to be treated as eligible. However, on technical ground or on nonproduction of the document when eligibility is denied that requires the direction of reconsideration - appeal allowed by way of remand.

Issues Involved:
1. Eligibility of investments for tax benefits under the Scheme for Economic Development of Kutch District, 2001.
2. Discrepancies between provisional and final eligibility certificates.
3. Consideration of investments made post-31st December 2005.
4. Separate registration requirement for Phase II of the project.
5. Denial of tax benefits for specific investments.

Detailed Analysis:

1. Eligibility of Investments for Tax Benefits:
The petitioner challenged the respondent's action, claiming it was contrary to the Scheme for Economic Development of Kutch District, 2001, and the Gujarat Sales Tax Act, 1969. The petitioner company, involved in manufacturing and trading steel products, argued that the eligible investment amount was disregarded by the respondents when issuing the final eligibility certificate.

2. Discrepancies Between Provisional and Final Eligibility Certificates:
The provisional eligibility certificate granted an investment of Rs. 942.00 lacs, which was later considered as Rs. 3767.99 lacs for tax benefits. However, the final eligibility certificate issued on 20th July 2009 only recognized Rs. 2873.10 lacs as eligible investment, ignoring earlier considerations. The petitioner requested a reassessment, arguing that the final certificate did not reflect the actual investment of Rs. 4725.78 lacs.

3. Consideration of Investments Made Post-31st December 2005:
The respondents contended that investments made after 31st December 2005 were ineligible for tax incentives. They argued that the unit was entitled to incentives only for assets acquired and paid for within 18 months from the date of commercial production or by 31st December 2005, whichever was earlier. The petitioner argued that substantial expenditures were disallowed on vague grounds, including unpaid expenses and advanced payments towards Phase II, which was a pipeline project under the Scheme.

4. Separate Registration Requirement for Phase II of the Project:
The respondents emphasized that Phase II of the project, involving the manufacturing of forging steel, required separate registration, which was not obtained by the petitioner before 31st December 2005. The petitioner argued that the Scheme allowed for extensions and that the first unit had commenced production within the stipulated period. The court noted that the Scheme required separate registration for pipeline units but not for the same undertaking set up in two phases.

5. Denial of Tax Benefits for Specific Investments:
The court scrutinized the denial of tax benefits for various investments:
- Land: The total investment of Rs. 4.82 lacs was partially considered eligible (Rs. 1.88 lacs), with the remaining Rs. 2.94 lacs termed ineligible. The court found no reason for excluding land development costs from eligibility.
- Building: Out of Rs. 298.18 lacs, only Rs. 270.33 lacs were considered eligible, with Rs. 27.85 lacs and an advanced payment of Rs. 34.78 lacs deemed ineligible. The court found the reasons for ineligibility insufficient.
- Plant and Machinery: A significant amount of Rs. 1649.30 lacs was disallowed, including Rs. 4103.70 lacs for advanced payments and Rs. 628.84 lacs for unpaid amounts by 31st December 2005. The court noted that the petitioner was ready to provide payment details.

Court's Decision:
The court partially allowed the petition, directing the respondents to reconsider the investments made in fixed capital, excluding specific heads like GEB deposit, second-hand indigenous machinery, and furniture. The court instructed the respondents to:
1. Reassess the eligible investments based on documents provided by the petitioner.
2. Reevaluate the request for considering Phase II investments, particularly for forging steel, if the petitioner met the Scheme's criteria.
3. Issue a revised final eligibility certificate within twelve weeks of the order.

The petition was disposed of, and the rule was made absolute to the specified extent.

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