2014 (3) TMI 865 - SC - VAT and Sales Tax

Validity of High Court Order - Permissibility of clubbing production - Whether production of two different units can be clubbed to meet the requirement of the Rule - Rule 28A (11) (a) (i) of Haryana General Sales Tax Rules, 1975 - Benefit of tax exemption during concession period Failure to maintain the requisite production - Held that - The conditions which are imposed have been enumerated in the Rule 28A 11(a) I(ii) to the effect that in the event of non-maintenance of the quality of production after the expiry of the exemption, the assessee has to pay the tax benefit availed with interest - Rule 28A(11)(b) clearly stipulates that in case of violation of clause 11(a)(i) of Rule 11, the assessee shall be liable for making, in addition to the full amount of tax-benefit availed of by it during the period of exemption/deferment, with interest chargeable. The production of the beneficiary unit had failed to fulfil the stipulation incorporated in Rule 28A 11(a)(i) - The production of the expanded unit has been computed and clubbed with the first unit to reflect the meeting of the criterion - The expanded capacity had been created to show that the rate of production is maintained but it is fundamentally a subterfuge - The authority has also taken into consideration the different items produced and how there has been loss of production of EPBT in the first unit - The High Court has failed to appreciate the relevant facts and without noticing that the assessee had clubbed the production of the units, lancinated the orders passed by the forums below. Clubbing is not permissible - It amounts to a violation of the conditions under Rule 11(a)(i) of Rule 28A and the assessee has to pay the full amount of tax benefit and interest -The appeal is allowed and the judgment and order passed by the High Court is set aside and those of the tribunal and other authorities are restored Decided in favour of Revenue.

Issues Involved:
1. Validity of the High Court's quashing of the Sales Tax Tribunal's order.
2. Interpretation of Rule 28A (11) of the Haryana General Sales Tax Rules, 1975.
3. Consideration of production levels for tax exemption benefits.
4. Clubbing of production from different units for compliance with tax exemption conditions.
5. Application of liberal interpretation to exemption provisions.

Issue-wise Detailed Analysis:

1. Validity of the High Court's Quashing of the Sales Tax Tribunal's Order:
The Supreme Court examined the High Court's decision to quash the Sales Tax Tribunal's order, which had affirmed the orders of the Deputy Excise and Taxation Commissioner and the Joint Excise and Taxation Commissioner. The High Court had found the Tribunal's approach erroneous and based on conjecture, stating that the exemption could not be withdrawn merely on the basis of reduced production. The Supreme Court disagreed, emphasizing that the High Court's reliance on R.K. Mittal Woolen Mills was misplaced as it dealt with a different context. The Supreme Court reinstated the Tribunal's order, holding that the High Court's interpretation was flawed.

2. Interpretation of Rule 28A (11) of the Haryana General Sales Tax Rules, 1975:
Rule 28A (11) (a) (i) mandates that industrial units must maintain production levels for five years post-exemption at least equal to the average production of the preceding five years. The Supreme Court highlighted that any violation of this rule necessitates the repayment of the tax benefit with interest as stipulated in Rule 28A (11) (b). The Court clarified that the rule's language is clear and must be strictly followed, dismissing the High Court's lenient interpretation.

3. Consideration of Production Levels for Tax Exemption Benefits:
The Deputy Excise and Taxation Commissioner noticed that the production levels of the respondent unit drastically fell post-exemption period, leading to the initiation of proceedings against the unit. The Supreme Court upheld the findings of the lower authorities that the respondent failed to maintain the required production levels. The Court emphasized that the respondent's explanation of outdated machinery was within their control to rectify and thus not a valid reason for reduced production.

4. Clubbing of Production from Different Units for Compliance with Tax Exemption Conditions:
The respondent argued that production from an expansion unit should be considered to meet the production criteria. The Supreme Court rejected this argument, stating that the expanded unit's production cannot be combined with the original unit's production to fulfill the conditions of Rule 28A (11) (a) (i). The Court found that the respondent's attempt to club production from different units was a subterfuge to meet the exemption criteria, which is impermissible.

5. Application of Liberal Interpretation to Exemption Provisions:
The respondent contended for a liberal interpretation of the exemption provisions. The Supreme Court acknowledged that while exemption provisions should be construed liberally to promote industrial growth, such interpretation is only applicable when the beneficiary strictly falls within the ambit of the rule or notification. In this case, since the respondent violated the specific conditions of Rule 28A (11) (a) (i), a liberal interpretation was not warranted. The Court emphasized that exemptions are exceptions and must be respected as per their nature and purpose.

Conclusion:
The Supreme Court allowed the appeal, setting aside the High Court's judgment and restoring the orders of the Tribunal and other authorities. The Court held that the respondent must comply with the specific conditions of the tax exemption rule and cannot club production from different units to meet the criteria. The decision underscores the importance of strict adherence to the conditions laid out in tax exemption provisions.

← Previous Next →