2015 (2) TMI 610 - HC - VAT and Sales Tax

Rejection of request for substituting appellant s name as successor manufacturer in place of Pashupati Bottling Pvt. Ltd. in the eligibility certificate issued under section 4-A - exemption of certain goods from sales tax - Section 4-A was amended by U.P. Act no. 28 of 1991. The word manufacturer defined under section 2(ee) was also amended - Amendment retrospective or prospective - whether the amend to sub-section (2-B) of Section 4-A by U.P. Act No.11 of 1997 is retrospective or prospective in nature. - Held that - Government had invoked its power under latter part of section 4-B, which empowers it to exempt sales tax on goods manufactured by new units, set up in particular area, in order to promote development of industries in such areas. - reconstitution of a partnership firm will not mean that the machinery in its possession are old machineries, purchased by the erstwhile firm. Its application for exemption is to be considered on the basis of first sale, irrespective of the person constituting the firm. Government in the past, had often invoked power under section 4-A to provide impetus to setting up of industries in various backward areas, which it felt could be developed by attracting capital investment in form of new industrial units. It not only creates new job avenues for the local populace, but also results in strengthening of the infrastructure in the area, as a result of increased industrial activity. The Government, while attracting capital investment, is not concerned with the person or individual who sets up the industry, as the object is to promote the development of industries in the State, generally and in certain district and parts of district in particular , as mentioned in the opening lines of notification dated 29.1.1985 itself. The provision to extend tax benefits for certain years, is thus, linked to the new unit irrespective of the person who runs it. The judgement of this Court in the case of M/s. Jagat Industries (1987 (10) TMI 368 - ALLAHABAD HIGH COURT) and M/s. Panchsheel Industries (2005 (1) TMI 670 - ALLAHABAD HIGH COURT) when takes the view that the change in constitution of partnership firm will not defeat the entitlement to exemption from tax with respect to goods manufactured in the new unit, is in recognition of the above proposition of law. Section 8(c) of U.P. Act No.28 of 1991 provides that sub-section (2-B) shall be deemed to be inserted to Section 4-A on 12.10.1983. The relevance of 12.10.1983 is that the provision of exemption in substantially its existing form was substituted w.e.f. such date, by U.P. Act 22 of 1984. Thus, to cover all past transfers, it is made retrospective since 12.10.1983. The use of words is deemed to have been inserted on 12.10.1983 , is suggestive of the fact that the amendment is merely curative or declaratory of the previous law, and is thus to be applied retrospectively. It has been passed to supply an obvious omission, i.e. it provides the procedure for extending tax holiday to successor manufacturers, a meaning which was otherwise implicit in the existing legislation itself. Sub-section (2-B) which extends benefits to all past successions, reinforces the aforesaid legislative intendment. The only rider is that application in this regard is to be made by 25.9.1990, which time was extended to 31.12.1991, vide U.P. Act no.8 of 1992. Even thereafter, the Commissioner of Sales Tax is invested with power to entertain application for adequate and sufficient reasons. Sub (2-B) thus only provides for the mechanism for availing tax holiday by a successor manufacturer. It does not create any new right, but only clarifies and declares the existing provisions of law. It thus fulfills the object of enactment viz remove difficulty experienced by successor manufacturer in availing benefit of exemption, clarifies existing position of law that tax exemption is linked to a new unit, irrespective of the person running it. Sub section (2-B) of section 4-A was further amended by U.P. Act no. 11 of 1997. Amendments seeks to define the words successor manufacturer which was hitherto not defined anywhere in the Act, thus removing confusion regarding its extent and scope. It is a inclusive illustrative definition and comprehends the entire gamut of possibilities by which transfer could take place. Even where title is not being transferred, like in case of license, contract, lease, or managing agency, the benefit shall be available. The common thread which brings them under one genus is the change of management by any one of the modes of transfer stipulated irrespective of whether title is being transferred or not. The use of phrase in any other manner exhausts all cognate modes of transfer, where there is change of management and not necessarily the title. Exemption is thus linked to new units and its benefits devolves on the successor, running the unit. Amendment has to be applied retrospectively, otherwise, the object of amendment will stand defeated. So construed, there is no scope from the conclusion that the revisionist herein will be covered by the phrase successor manufacturer and would thus, be entitled to benefit of tax exemption for the remaining period under the eligibility certificate. The questions of law are answered accordingly. The view taken by the Tribunal is illogical, irrational, leading to consequences never intended by the legislation and cannot be accepted. - that impugned orders cannot be sustained and are hereby set aside. The State Level Committee or whoever be the Competent Authority, is directed to issue the eligibility certificate to the revisionist for remaining period, treating it to be successor manufacturer and extend all benefits flowing out of such exemption to the revisionist. - Decided in favour of Appellants.

Summary

Issues Involved:
1. Definition and interpretation of the term "manufacturer" under Section 2(ee) and Section 4-A(2-B) of the U.P. Trade Tax Act, 1948.
2. Eligibility for tax exemption for the "successor manufacturer" under Section 4-A(2-B).
3. Retrospective or prospective application of the amendment to Section 4-A(2-B) by U.P. Act No. 11 of 1997.
4. Legality of the rejection of the revisionist's application for substitution as a "successor manufacturer."

Issue-wise Detailed Analysis:

1. Definition and Interpretation of "Manufacturer":
The judgment examines the definition of "manufacturer" under the U.P. Trade Tax Act, 1948, particularly Section 2(ee) and Section 4-A. Initially, Section 2(ee) defined "manufacturer" as the dealer who makes the first sale of goods after their manufacture. The amendment by U.P. Act No. 28 of 1991 expanded this definition to include dealers selling bicycles in completely knocked down form. The court noted that the term "manufacturer" should be interpreted in the context of promoting industrial development and increasing production, rather than focusing on the ownership of the unit.

2. Eligibility for Tax Exemption for "Successor Manufacturer":
Section 4-A(2-B) of the Act, as amended by U.P. Act No. 28 of 1991, allows a "successor manufacturer" to apply for the unexpired portion of the tax exemption period if the original manufacturer discontinues business. The court highlighted that the amendment aimed to extend benefits to successor manufacturers, including those who succeed by means of sale, license, lease, or managing agency. The judgment emphasized that the objective of Section 4-A is to promote new industrial units, irrespective of ownership changes.

3. Retrospective or Prospective Application of the Amendment:
The court analyzed whether the amendment to Section 4-A(2-B) by U.P. Act No. 11 of 1997, which clarified the definition of "successor manufacturer," is retrospective or prospective. The court concluded that the amendment is retrospective, as it is clarificatory in nature and intended to remove ambiguity. The judgment cited several precedents, including Allied Motors (P) Ltd. vs. Commissioner of Income Tax, to support the view that amendments designed to clarify existing provisions should be applied retrospectively.

4. Legality of the Rejection of the Revisionist's Application:
The court found the rejection of the revisionist's application for substitution as a "successor manufacturer" to be erroneous. The tribunal had refused to extend the benefit of the amendment to the revisionist, considering it prospective. However, the court held that the amendment should be applied retrospectively, allowing the revisionist to be recognized as a "successor manufacturer" and entitled to the remaining period of tax exemption. The judgment directed the State Level Committee to issue the eligibility certificate to the revisionist for the remaining period, treating it as a successor manufacturer.

Conclusion:
The court allowed the revision, set aside the impugned orders, and directed the competent authority to issue the eligibility certificate to the revisionist, extending all benefits of tax exemption for the remaining period. The judgment emphasized that the legislative intent behind the amendments was to promote industrial development and should be interpreted to achieve this objective.