2009 (6) TMI 1007 - HC - VAT and Sales Tax

Sales tax benefits - package scheme - eligibility certificate - Circular no.2 of 1998 dated 17.1.1998 - Certificate of Entitlement dated 16.1.2001 - Held that - from 01.12.2000 onwards the production to the extent of 78.95% of the total production shall be apportioned as production of a Unit in Expansion relevant for this Entitlement Certificate. The Entitlement Certificate is based on the ratio of investments for prorata computation the benefits shall be available till the time period or the monetary ceiling whichever gets exhausted early. The production to the extent of 21.05% shall be apportioned to the Existing Unit. Corresponding to this production at 21.05% when the sales takes place the liability for payment of taxes shall be discharged by making payment of taxes into Govt. Treasury and the same shall be admitted in returns furnished thereafter. The same proportion is available for procuring raw-material without payment of taxes to suppliers on finishing declarations in respect of Expansion Unit. The Deputy Commissioner of Sales tax could not impose the conditions as per paras 4 and 5 of the Trade Circular dated 17.1.1998 and the above referred conditions in the Entitlement Certificate and therefore to that extent the said Circular and the conditions in the Certificate of Entitlement are liable to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Validity of conditions imposed in the Certificate of Entitlement and Trade Circular.
2. Applicability of proportionate benefits theory to expansion units under the 1993 Package Scheme of Incentives.

Analysis:
Issue 1: Validity of conditions imposed in the Certificate of Entitlement and Trade Circular
The petitioners applied for sales tax benefits under the Package Scheme of Incentives, 1993, and received an Eligibility Certificate from SICOM. Subsequently, they sought to include additional products and expand their unit. The Sales Tax Incentives were calculated based on Circular No.2 of 1998, which the petitioners challenged as being without jurisdiction and violative of promissory estoppel. The conditions imposed in the Certificate of Entitlement dated 16.1.2001 were based on this Circular, requiring identification of production and maintenance of accounts for claiming benefits. The High Court held that the conditions imposed were invalid and set them aside, citing a similar judgment in a related case.

Issue 2: Applicability of proportionate benefits theory to expansion units
The Trade Circular dated 17.1.1998 introduced conditions for claiming sales tax benefits, including a proportionate calculation method for expansion units under the 1993 Scheme. The conditions in the Certificate of Entitlement dated 16.1.2001 incorporated these provisions. However, in a previous case involving M/s Pee Vee Textiles Ltd., the Tribunal had declared the conditions in the Certificate of Entitlement to be deleted. The High Court, following the precedent set in the Pee Vee Textiles case, held that the proportionate benefits theory was not applicable to expansion units covered under the 1993 Scheme. Consequently, the Court quashed and set aside the conditions in the Trade Circular and the Certificate of Entitlement.

In conclusion, the High Court ruled in favor of the petitioners, finding the conditions imposed in the Certificate of Entitlement and Trade Circular to be invalid and not applicable to expansion units under the 1993 Package Scheme of Incentives. The judgment set a precedent based on a previous case, emphasizing the importance of consistent application of rules and regulations in such matters.