2014 (11) TMI 877 - HC - VAT and Sales Tax

Capital Investment Incentive (General) Scheme 1995-2000 - sales tax incentives as measures to attract investments into such backward areas with a view to generate greater employment in less industrially developed areas - Gujarat Sales Tax Act, 1959 - recovery of sales tax - Held that - When it has been found by the State Level Committee that by condoning the break in production to the petitioner, the purpose and object of the scheme is not likely to be achieved i.e. generating employment in the backward area and thereafter when the application of the petitioner for condonation of break in production has been rejected, the same is not required to be interfered with in exercise of power under Article 226 of the Constitution of India. Now, so far as the contention on behalf of the petitioner that impugned decision / communication dated 28.6.2006 is contrary to the interim direction issued by this Court issued in its order dated 5.5.2006 is concerned, the aforesaid has no substance. It is the case on behalf of the petitioner that while directing the State Level Committee to reconsider its earlier decision, the Division Bench in its interim direction / order dated 5.5.2006 specifically directed the State Level Committee not to consider the factum of stoppage of production subsequently and the unit being closed subsequently and despite the same while taking the decision which has been communicated on 28.6.2006 the State Level Committee has taken into consideration the subsequent closure of the unit and therefore, the same is not permissible and therefore, the impugned order / decision is against the interim direction issued by this Court. Decision of Supreme Court in the case of Mangalore Chemicals and Fertilizers Limited 1991 (8) TMI 83 - SUPREME COURT OF INDIA distinguished wherein it was held that, non fulfillment of requirement for benefit of exemption was only formal and procedural and not fatal to the application for grant of permission. - In the present case non compliance of the conditions cannot be said to be formal or procedural. - Decided against the assessee.

Summary

Issues Involved:
1. Legality of the State Level Committee's decision in not extending the benefits of the Capital Investment Incentive (General) Scheme 1995-2000 to the petitioner.
2. Legality of the impugned orders dated 19.04.2005, 2.6/7.2005, and 28.6.2006.
3. Compliance with the conditions for availing sales tax incentives under the scheme.
4. Condonation of break in production by the State Level Committee.
5. Legality of the recovery of sales tax from the petitioner.

Issue-wise Detailed Analysis:

1. Legality of the State Level Committee's decision in not extending the benefits of the Capital Investment Incentive (General) Scheme 1995-2000 to the petitioner:
The petitioner challenged the State Level Committee's decision, arguing it was arbitrary and illegal. The scheme required continuous production for eligibility, and the petitioner had breaks in production from July 2000 to August 2001 and from February 2004. The State Level Committee applied a uniform policy requiring units to be in production at least at 25% capacity when seeking condonation of breaks. The Committee found the petitioner did not meet these criteria, and thus, the decision to deny benefits was not arbitrary but based on uniform policy application.

2. Legality of the impugned orders dated 19.04.2005, 2.6/7.2005, and 28.6.2006:
The petitioner sought to quash these orders, which communicated the denial of benefits under the scheme. The orders were based on the Committee's findings that the petitioner stopped production and did not meet the scheme's conditions. The High Court upheld the Committee's decision, stating that it was based on a thorough application of the scheme's provisions and uniform policy.

3. Compliance with the conditions for availing sales tax incentives under the scheme:
The scheme required continuous production and other conditions such as pollution control measures, local employment, and security against deferred sales tax. The petitioner's production breaks violated these conditions. The Committee's decision to deny benefits was based on these non-compliances, which the Court found justified.

4. Condonation of break in production by the State Level Committee:
The petitioner argued that breaks in production were due to reasons beyond their control, such as recession in ship-breaking activities. However, the Committee required units to be in production at least at 25% capacity when applying for condonation. The petitioner did not meet this criterion, and the Court found the Committee's decision to not condone the break justified and in line with the scheme's objectives.

5. Legality of the recovery of sales tax from the petitioner:
The petitioner sought to prevent the recovery of sales tax, arguing they were entitled to incentives under the scheme. However, due to non-compliance with the scheme's conditions, the Committee's decision to deny benefits and proceed with tax recovery was upheld by the Court.

Conclusion:
The High Court dismissed the petition, upholding the State Level Committee's decisions. The Court found the Committee's actions were based on a uniform policy and thorough application of the scheme's provisions, and the petitioner's non-compliance with the conditions justified the denial of benefits and recovery of sales tax.