2014 (11) TMI 879 - HC - VAT and Sales Tax

Rejection of applications for exemption from payment of sales tax - Punjab General Sales Tax Act, 1948 - Scope of the term Unit - revenue submitted that petitioner being a registered dealer has been granted exemption from payment of sales tax amounting to rupees six crores vide exemption certificate dated June 3, 1993. The applications for availment of sales tax incentive in respect of other two branches of the petitioner have been rightly rejected as they are not a unit within the meaning of clause (xxvii) of rule 2 of the 1991 Rules. Held that - The Department of Industries and Commerce having exercised its mind, and having granted the final eligibility certificate (which was valid at all material times), the Commercial Taxes Department could not go beyond the same. More so when the Commissioner, Sales Tax, had accepted the eligibility certificate issued to the appellant and had separately notified the appellant s eligibility for exemption under the 1993 G. O. In these circumstances the DCCT certainly could not assume that the exemption was wrongly granted nor did he have the jurisdiction under section 20 of the State Act to go behind the eligibility certificate and embark upon a fresh enquiry with regard to the appellant s eligibility for the grant of the benefits. - sales tax authorities had no jurisdiction to call in question grant of eligibility certificates issued by the District Industries Centre. - Decided in favor of assessee. Scope and purpose of the term Unit - Scanning of the purpose with which the 1989 Policy and 1991 Rules have been formulated - Held that - The definition of the term unit in a restrictive manner as has been sought to be canvassed by learned State counsel does not spell out from the reading of rule 2(xxvii) defining unit and justify the tenor of the policy and the rules framed. Under the circumstances, the State could not restrict the benefit of 1991 Rules to only one unit of the petitioner. - respondent No. 4 directed to issue eligibility certificate to the petitioner in respect of two other units as well - Decided in favor of assessee.

Summary

Issues Involved:
1. Justification of the Excise and Taxation Department in denying exemption certificates when the Department of Industries had issued eligibility certificates.
2. Entitlement of the petitioner to independent exemption limits for each of its three units.

Issue-wise Detailed Analysis:

1. Justification of the Excise and Taxation Department in Denying Exemption Certificates:
The petitioner, a dealer registered under the Punjab General Sales Tax Act, 1948, sought quashing of orders rejecting applications for exemption from payment of sales tax. The petitioner had established three independent industrial units and obtained eligibility certificates from the Department of Industries. The Excise and Taxation Department denied the issuance of exemption certificates for two units, arguing that separate exemption certificates could not be granted under rules 2(xxvii) and 3(1)(i) of the 1991 Rules. The court examined the relevant rules and policies, including the 1989 Policy and the 1991 Rules, which mandated that a unit registered as a dealer under the Act was eligible for sales tax incentives. The court concluded that the sales tax authorities had no jurisdiction to question the eligibility certificates issued by the District Industries Centre. The Excise and Taxation Department could only verify if the eligibility certificate was obtained fraudulently but could not re-examine or refuse to issue the exemption certificate.

2. Entitlement to Independent Exemption Limits for Each Unit:
The petitioner argued that each of its three units was entitled to a separate exemption limit of Rs. 6 crores. The court noted that the 1989 Policy and 1991 Rules were designed to incentivize entrepreneurs to establish units in backward areas. The Director of Industries had clarified that the three units were independent, manufacturing different items, and maintaining separate accounts. The court observed that the definition of "unit" under rule 2(xxvii) did not require separate registration as a dealer for each unit. The court found that the restrictive interpretation by the State was unjustified and contrary to the policy's intent. Furthermore, the State Government had later liberalized the policy to extend tax exemption benefits to each unit independently. The court concluded that the petitioner was entitled to independent exemption limits for each of its three units.

Conclusion:
The court allowed the petition, quashing the impugned orders and directing the issuance of eligibility certificates for the two other units. The judgment emphasized that the Excise and Taxation Department could not override the eligibility certificates granted by the Department of Industries and that each unit was entitled to separate exemption limits under the 1989 Policy and 1991 Rules.