2013 (11) TMI 107 - HC - VAT and Sales Tax

Capital investment - Whether petitioner is eligible for incentive/subsidy as existing functional industrial unit or loss making, existing and functional industrial unit - Held that - crucial date for qualification to get sales tax and other incentives as category (II) or Category III unit is the date of information to the State Government regarding expansion / diversification / modernization. It is specifically mentioned in Clause 8 to Annexure-1 of the Industrial Policy that in order to qualify for sales tax and other incentives, a unit should undertake expansion/diversification/modernization and should sent prior intimation before undertaking expansion/ diversification/ modernization programme to concern officer of Industry Department. Order as contained in memo no.1885 dated 16.06.2003 also laid down the guidelines and it is mentioned that proposal from Industrial Units will be processed according to the said guideline. Thus, for categorising an industrial unit, which is undertaking expansion/ diversification/ modernization, it is necessary to see whether on the date of intimation, said unit is a loss making unit or is a profit making unit. Thus, if on the date of intimation the industrial unit is a loss making existing and functional unit from last two years, then the same falls under Category (III) of the Mega Industrial Unit - the action of the State Government in changing the status of the petitioner s unit from loss making unit to profit making unit is not correct, because on the date of intimation for expansion/diversification/ modernization, petitioner s unit was a loss making unit, because it incur cash losses since last five years. Thus, I hold that petitioner s unit entitled to get capital investment incentive/subsidy as Category (III) Mega Industrial Unit i.e. loss making, existing and functional industrial unit - Decided against Revenue. Tax relief - Sale of clinker or sale of clinker - Whether plea of the State Government that petitioner is entitled to get tax relief only on the sale of clinker and not on the sale of cement is sustainable - Held that - final product of the petitioner s unit at Chaibasa is cement, manufactured from clinker. Under the aforesaid circumstance, contention of the State Government that petitioner is entitled to incentive on the amount paid to the State Government as sales tax on the sale of clinker and not on the sales of cement is hereby rejected . Accordingly, I concluded that petitioner is entitled to get capital investment subsidy on the amount paid to the State Government as incremental sales tax on the sale of clinker and cement - Decided against Revenue. Whether petitioner is entitled to get capital investment subsidy on the amount paid to the State Government as additional incremental sales tax on the sale of cement produced both by the Chaibasa and Sindri units or only by Chaibasa Unit - Held that - petitioner is knowing that according to industrial policy only those units are entitled to get incentive on payment of sales tax, which undertake expansion/ diversification/ modernization. From perusal of Annexure-9, it is clear that the State Government had written to the petitioner to clarify as to how it claims subsidy on the amount paid as additional sales tax to the State Government on the sale of cement by Sindri unit because it is the Chaibasa Clinker Plant which undertaken expansion/diversification/ modernization eligible for incentive and not the Sindri Grinding Pant. It appears that petitioner gave its reply to the aforesaid letter. Under the said circumstance, right to fair hearing before taking a decision for negativing the promise had been given to the petitioner - since the promise to pay aforesaid incentive on the sales tax to the Sindri Unit is against the Industrial Policy, petitioner can not claim the same on the basis of principle of legitimate expectation. Accordingly, aforesaid contention raised on behalf of the petitioner is hereby rejected - Decided against Revenue.

Issues Involved:
1. Eligibility for incentive/subsidy as an existing functional industrial unit or a loss-making, existing, and functional industrial unit.
2. Entitlement to tax relief on the sale of clinker versus the sale of cement.
3. Entitlement to capital investment subsidy on additional incremental sales tax on the sale of cement produced by both Chaibasa and Sindri units or only by Chaibasa Unit.

Issue-Wise Detailed Analysis:

1. Eligibility for Incentive/Subsidy:
The court examined Clause 29.11 and Clause 22 of the Jharkhand Industrial Policy, 2001, which provides incentives for mega units undertaking expansion/diversification/modernization. The State Government had categorized units into three categories: new industrial units, existing industrial units undertaking expansion/diversification/modernization, and loss-making existing and functional industrial units. The petitioner, ACC Limited, had applied for incentives as a loss-making existing and functional industrial unit. The court noted that the crucial date for determining eligibility for incentives is the date of intimation to the State Government regarding the expansion/diversification/modernization. Since the petitioner's unit was incurring cash losses for the last five years at the time of intimation, it qualified as a Category III unit. The court held that the State Government's decision to change the status of the petitioner's unit from loss-making to profit-making based on the financial status at the time of commercial production was incorrect. Therefore, the petitioner's unit is entitled to capital investment incentive/subsidy as a Category III Mega Industrial Unit.

2. Entitlement to Tax Relief on Clinker vs. Cement:
The court reviewed the petitioner's applications and the sanction letter, which indicated that incentives were requested and approved for the modernization of the Chaibasa clinker and cement grinding plant. The final product of the petitioner's unit at Chaibasa is cement, manufactured from clinker. The court rejected the State Government's contention that the petitioner is entitled to incentives only on the sale of clinker and not cement. The court concluded that the petitioner is entitled to capital investment subsidy on the amount paid to the State Government as incremental sales tax on the sale of both clinker and cement.

3. Entitlement to Subsidy for Chaibasa and Sindri Units:
The court examined Clause 22 of the Jharkhand Industrial Policy, which states that incentives are admissible only to units undertaking expansion/diversification/modernization. Since no such activities took place in the Sindri unit, it is not entitled to incentives. The court acknowledged the petitioner's argument based on promissory estoppel and legitimate expectation but emphasized that such doctrines cannot compel the State Government to act against the law. The court noted that the State Government had given the petitioner a fair hearing before deciding to restrict the incentives to the Chaibasa unit. Therefore, the court held that the petitioner is not entitled to capital investment subsidy on the amount paid as additional incremental sales tax on the sale of cement by the Sindri unit. The subsidy is limited to the amount paid on the sale of cement and clinker by the Chaibasa unit.

Conclusion:
The writ applications were partly allowed. The State Government was directed to pay capital investment subsidy to the petitioner treating it as a loss-making, existing, and functional mega industrial unit, as promised in the sanction letter. The State Government was also directed to provide capital investment subsidy on the amount paid as additional incremental sales tax on the sale of cement and clinker by the Chaibasa unit. The petitioner's request for subsidy on the sales tax paid by the Sindri unit was rejected. The petitioner was instructed to file an application in the prescribed form for the capital investment subsidy, and the State Government was directed to process the incentive within three months from the date of the application.

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