2014 (1) TMI 777 - HC - VAT and Sales Tax

Exemption under section 4-A of UPTT Act, 1948 - Disallowance of premium on land - Disallowance of UPSIDC as interest - Disallowance of establishment of Fly Ash Extraction System at N.T.P.C. - Held that - it is evident that without the Railway, the Factory cannot function and earned in profit as the Transportation cost by road will increase the price of the product tremendously. The assessee has already entered into an agreement with the Railway Department and the work was in progress. The assessee has taken the land for 90 years lease from UPSIDC. So, no ownership is lying with the assessee but the fact remains that the premium was paid for the entire land. The Railway Siding / line is in the interest of the business of the assessee. Similarly three Silos were used for storing the raw materials and at later stage, the same can be used for finished goods. So, it is also in the interest of the assessee s factories - there is a difference between the development and approval of the land drawing. The charges paid for approval of the land drawing cannot be equated towards the land development charges. Assessee is pertaining to the dis-allowance of ₹ 26,25,100/- paid to UPSIDC as interest on the deferred payment of installment of the premium. The Tribunal has rightly allowed the same as it is a certain liability - grievance of the assessee towards the dis-allowance of ₹ 2,86,91,129/-, which was claimed for establishment of Fly Ash Extraction System at N.T.P.C. Unchahar-Rae Bareli. The Fly Ash is the basic component of the cement. The assessee has claimed this amount towards FCI. The Ash received free of cost in the wet form. By this system, the assessee made the Ash dry and transported to the factory but the fact remains that the site/land was provided by the NTPC free of cost. Towards it, an agreement between the NTPC and the assessee was examined by the Tribunal. For running the Plant, the electricity was available on the payment from the NTPC. Thus, the Fly Ash was available to the assessee without any cost. To run the Plant, electricity was available on payment basis - Decided against assessee.

Issues:
1. Disallowance of premium on land.
2. Disallowance of charges for approval of land drawing.
3. Disallowance of interest on deferred payment of premium.
4. Addition of lease rent/occupancy charges of the land.
5. Disallowance of establishment of Fly Ash Extraction System.
6. Disallowance of expenditure on Tempo Travellor.
7. Disallowance of expenditure on "Technical Study."
8. Disallowance of pre-operative expenses for fixed assets.
9. Disallowance of investment in preparation of layout and drawing for railway side.

1. Disallowance of premium on land:
The Tribunal upheld the claim of the assessee regarding the premium paid for land earmarked for railway siding and silos, emphasizing the necessity of the railway for factory operations and the strategic value of the silos for raw material storage. The Tribunal deemed the premium payment as justified and essential for business interests, ultimately allowing the claim.

2. Disallowance of charges for approval of land drawing:
The Tribunal rejected the claim for charges related to the approval of land drawing, distinguishing between land development charges and approval charges. It concluded that the charges for land drawing approval did not qualify as development charges, hence dismissing the claim.

3. Disallowance of interest on deferred payment of premium:
The Tribunal approved the inclusion of interest on deferred premium payments as a certain liability, sustaining the decision based on the clear liability nature of the payment.

4. Addition of lease rent/occupancy charges of the land:
The Tribunal supported the inclusion of lease rent/occupancy charges in the fixed capital investment (FCI) as a certain liability, emphasizing the necessity of payment and the definite obligation associated with the expense.

5. Disallowance of establishment of Fly Ash Extraction System:
The Tribunal disallowed the claim for the establishment of the Fly Ash Extraction System, highlighting that the availability of the fly ash and electricity without cost negated the need for the claimed investment. The Tribunal upheld the rejection of the claim due to the provided resources from NTPC.

6. Disallowance of expenditure on Tempo Travellor:
The Tribunal rejected the claim for expenditure on transporting workers via Tempo Travellor, categorizing it as a revenue expenditure without capital formation, hence denying its inclusion in the FCI.

7. Disallowance of expenditure on "Technical Study":
The Tribunal upheld the disallowance of expenses for "Technical Study," determining them as not directly related to the existing factory's establishment and operations, thus excluding them from the FCI.

8. Disallowance of pre-operative expenses for fixed assets:
The Tribunal disallowed a portion of the pre-operative expenses claimed by the assessee, allowing only specific expenses related to staff salary, office rent, power connection, and other essential pre-production costs. The Tribunal justified the disallowance of unelaborated expenses, sustaining the decision.

9. Disallowance of investment in preparation of layout and drawing for railway side:
The Tribunal rejected the claim for investment in the preparation of layout and drawing for the railway side, reasoning that such activities should be undertaken by the railway itself. The Tribunal upheld the disallowance, emphasizing the responsibility of the railway for such tasks.

In conclusion, the Tribunal's order was upheld, dismissing both revisions based on the detailed analysis and reasoning provided for each issue presented in the case.

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