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2010 (10) TMI 945 - HC - VAT and Sales TaxExemption under the Expansion Scheme - Section 4A of UPTT - Whether stock transfers and consignment sales have to be included in calculating the base production - The assessing authority was of the view that the petitioner was liable to tax on the turnover of the quantity of the base production and was entitled for the exemption only on the quantity over and above the production in excess of the base production and the goods transferred by way of stock transfer and by consignment sale would not be included in the base production. With the aforesaid view the assessing authority calculated the quantity and the turnover of exemption. Held that - under the notification no. 640 dated 21.2.1997 the unit undergone expansion is entitled for the exemption on the turnover of the quantity in excess of the quantity of base production plus stock of the base production of the previous years. The base production includes the quantity of the stock transfer/consignment transaction. The view taken by the Division Bench in the case of Ambika Steel Private Limited Vs. State of U.P. and others 2007 (9) TMI 541 - ALLAHABAD HIGH COURT and in the case of M/s IFFCO Ltd. does not lay down the correct law and as such both the aforesaid decisions stand overruled.
Issues Involved:
1. Whether the exemption under Section 4-A of the U.P. Trade Tax Act includes stock transfer and consignment sales in the base production. 2. Interpretation of clauses 1(B), 7(a), and 7(b) of the notification dated 31.3.1995 in light of the Supreme Court's decision in Modipan Fibres. Issue-wise Detailed Analysis: 1. Inclusion of Stock Transfer and Consignment Sales in Base Production: The petitioner, a public limited company, claimed exemption from tax under the expansion scheme for production exceeding the base production. The assessing authority excluded stock transfer and consignment sales from the base production, leading to the petitioner's grievance. The court noted that the legislative intent of Section 4-A and related notifications is to encourage production and industrial development, granting exemptions to units undergoing expansion, diversification, or modernization. The court referred to the apex court's interpretation in Commissioner of Trade Tax, U.P. Vs. Modipan Fibres Co., which emphasized that exemptions are to be granted on the turnover of goods produced in excess of the base production. The court concluded that the base production includes the quantity of stock transfer/consignment transactions, as excluding them would frustrate the objective of the exemption scheme. 2. Interpretation of Notification Clauses in Light of Supreme Court Decision: The court considered whether the Division Bench's interpretation in Ambika Steels and IFFCO cases conflicted with the Supreme Court's decision in Modipan Fibres. The Division Bench had held that stock transfers and branch transfers are not included in the "turnover of sales" under the notification, thus not qualifying for tax exemption. The larger bench examined the legislative history and relevant provisions, emphasizing a liberal and purposive construction to promote industrial growth. The court found that the Division Bench misdirected itself by focusing on the turnover of sales rather than the quantity of goods produced. The notification's language indicates that exemptions are based on the quantity of goods produced in excess of the base production, including stock transfers and consignment sales. Conclusion: The court concluded that under notification no. 640 dated 21.2.1997, the unit undergoing expansion is entitled to exemption on the turnover of the "quantity" in excess of the "quantity of base production" plus stock of the base production of previous years. The base production includes stock transfer/consignment transactions. Consequently, the views in Ambika Steels and IFFCO were overruled, and the reference was answered accordingly. The judgment was directed to be placed before the appropriate Division Bench for disposal of individual writ petitions in light of this interpretation.
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