2014 (6) TMI 829 - HC - VAT and Sales Tax

Grant of loan equal to VAT / CST - whether amount to Refund of VAT - fiscal incentives to the Tata Motors Limited for Nano project - Resolution passed to grant loan equivalent to amount of VAT Paid - Whether the Government Resolution dated 1st January, 2009, providing for a loan equal to the gross value of VAT and Central Sales Tax payable to the State Government, amounts to refund of tax, which could be termed as contrary to law or against the public interest - Held that - A bare perusal of the preamble would indicate the object and the intention behind passing of such resolution. The Government of Gujarat took notice of the fact that the auto sector in the States like Maharashtra, Tamil Nadu and at the outskirts of the State of Delhi has been doing very well over a period of time and all the three States have been dominating in the auto sector. On the other hand, the State of Gujarat has only one such project. Although the State of Gujarat has a strong engineering base and there are number of engineering units in the MSME sector, yet the same are engaged in the supply of auto components as OEMs to the auto manufacturers. The Government of Gujarat noticed that no major industry had been set up in the State during the recent past. As the respondent No.3, Tata Motors Limited is a leading vehicle manufacturing company and has extensive sales network through out the territory of India, the Government of Gujarat found that the investment by the respondent No.3, Tata Motors Limited would provide the State with opportunities for infrastructure development, growth of allied industries and development of the local economy, by providing employment opportunities for skilled and unskilled workers. This appears to be the main objective behind the issuance of the Resolution dated 1st January, 2009. Loan advanced in the instant case by the Government in favour of the respondent No.3 is with a view to encourage the establishment of the automobile industries in the State as a part of its industrialization policy and the establishment of the project in question has encouraged establishment of other industries like Ford India Private Limited and Maruti Suzuki India Limited. - The quantum of VAT and Central Sales Tax recovered is only a measure for determining the quantum of loan to be advanced. We have noticed that the maximum amount of loan, which can be advanced on an year to year basis is made dependent on the sales effected by the respondent No.3. The respondent No.1 State of Gujarat instead of giving a lump-sum loan, has made the entitlement of loan dependent upon the performance of the respondent No.3. No legal bar under any of the provisions of the Motor Vehicles Act, 1988, in transferring a vehicle to a distribution and logistic company so that such a company can in turn transfer the vehicle to the dealers in other parts of the country. We are of the view that this itself would not make the vehicle a secondhand vehicle in the hands of the ultimate purchaser - it appears that the TML Distribution Company Limited was incorporated in March, 2008 as a wholly owned subsidiary with a view to look after the outbound logistic needs of the respondent No.3. It is evident that the said distribution and logistic company was established even before the impugned Resolution dated 1st January, 2009 was passed. The object, according to the respondent No.3 of establishing such a distribution company, is to improve the service levels in respect of logistics and distribution and reduction in chain costs in the longer run. It has been brought to our notice that not only the respondent No.3, but various other companies have also such distribution companies. Amount of loan paid by the Government to the respondent No.3 does not amount to refund of tax. As observed by the Supreme Court itself in Amrit Banaspati Co.Ltd. (supra), that exemption from tax to encourage industrialization should not be confused with refund of tax. In the same manner, deferment of tax to encourage industrialization should not be confused with refund of tax. The amount in the present case paid by the Government to the respondent No.3 is a loan and not refund of tax. There is a fine distinction between the two. - No merit in PIL - Decided against assessee.

Summary

Issues Involved:
1. Legality of the Government Resolution dated January 1, 2009.
2. Whether the loan provided to Tata Motors Limited amounts to a refund of VAT.
3. Alleged misuse of the incentive policy by Tata Motors Limited.
4. Delay and laches in filing the petition.
5. Public interest and the overall impact of the project.

Detailed Analysis:

1. Legality of the Government Resolution dated January 1, 2009:
The petitioner, a practicing advocate, challenged the Government Resolution dated January 1, 2009, which provided a loan to Tata Motors Limited (TML) equal to the gross value of VAT and Central Sales Tax payable to the State Government. The petitioner argued that this resolution was passed to favor TML and was per se illegal and against public interest. The State Government defended the resolution, stating it was part of its Industrial Policy, 2009, aimed at attracting mega projects to the state and promoting industrialization. The court observed that the resolution was in line with the government's policy to encourage industrial projects and did not find it unconstitutional or illegal.

2. Whether the loan provided to Tata Motors Limited amounts to a refund of VAT:
The petitioner argued that the loan provided to TML was essentially a refund of VAT, which was impermissible under the law. The court examined the nature of the loan and concluded that it was not a refund of tax but a repayable loan given to promote industrialization. The court noted that the loan was to be repaid with interest and was secured by a subservient charge over TML's project assets. The court distinguished between a tax refund and a loan, stating that the latter was permissible as an industrial incentive.

3. Alleged misuse of the incentive policy by Tata Motors Limited:
The petitioner alleged that TML was misusing the incentive policy by showing sales to its wholly-owned subsidiary in Gujarat and then indirectly selling the cars across the country, thereby inflating the sales figures to claim a larger loan. The court found no legal bar under the Motor Vehicles Act, 1988, against such a practice and noted that the sales to the subsidiary were supported by invoices and proper payment of VAT. The court also observed that such distribution models were common in the industry and did not amount to misuse of the policy.

4. Delay and laches in filing the petition:
The court noted that the petitioner filed the petition in April 2013, challenging a resolution passed in January 2009. The court found that there was a significant delay in filing the petition without any satisfactory explanation. The court emphasized that the petition suffered from gross delay and laches, which was a sufficient ground for its dismissal.

5. Public interest and the overall impact of the project:
The court considered the broader impact of the Nano project on the state's industrialization, employment generation, and economic development. The court observed that the project had attracted other major automobile manufacturers to Gujarat and had a positive multiplier effect on the local economy. The court emphasized that the project should be viewed holistically and noted that the government's policy aimed at overall growth and industrial development. The court found that the petition lacked merit and did not serve the public interest.

Conclusion:
The court dismissed the petition, finding no merit in the arguments presented by the petitioner. The court upheld the legality of the Government Resolution dated January 1, 2009, and concluded that the loan provided to TML did not amount to a refund of VAT. The court also rejected the allegations of misuse of the incentive policy and noted the significant delay in filing the petition. The court emphasized the positive impact of the Nano project on the state's industrialization and economic development.