2016 (9) TMI 354 - HC - VAT and Sales Tax

Recovery of benefit availed - cancellation of exemption certificate eligibility certificate benefit of exemption from payment of tax - valid from 20.3.1993 to 19.3.2002 - exemption certificate was issued on 28.10.1993. Benefit of ₹ 27,95,959/- was availed of by the appellant out of the total benefit admissible ₹ 72,11,700 upto June, 2000. The unit stopped production thereafter. The benefits, which were availed of by the appellant during the period of its eligibility have been withdrawn and the amount is sought to be recovered in exercise of powers conferred under the Rules Sections 28 (4) and 28(5) of the Act - Rules 28A(2)(j)(k), (6) to 11 of the Rules. Held that - the exemption certificate issued shall be valid unless cancelled or withdrawn from the date of commercial production or from the date of issue of exemption certificate as the case may be to the 30th June next year or when notional sales tax liability first exceeds the permissible limit, whichever is earlier. Sub-rule (9) of Rule 28A of the Rules provides for cancellation of exemption/ entitlement certificate under certain specified conditions and one of them being discontinuance of its business by the unit for a period exceeding six months or closing down its business during the period of exemption/ deferment. The facts of the case are that the period of eligibility of the appellant was from 20.3.1993 to 19.3.2002. The unit had stopped production in July, 2000. Out of the total amount of Rs. 72,11,700/-, the benefit to the extent of Rs. 27,95,959/- was availed upto 30.6.2000. There was violation of Rule 28A(9)(i) of the Rules as the unit discontinued its business for a period exceeding six months during the period of exemption. Hence, the exemption certificate was liable to be cancelled for violation of the conditions of Rule 28A(11)(a). Order of Assessment - time barred Held that - a perusal of the order shows that in fact, it is not an assessment order, rather an order passed for demand of tax and interest on account of violation of conditions laid down in Rule 28A(11)(a)(i) of the Rules, which specifically provides that in case after availing the benefits, the unit does not remain in production for next five years, the entire amount of tax benefits availed of, shall be payable along with interest order of demand maintainable demand of benefit availed with interest justified

Issues involved:

1. Justification of the Tribunal's decision to uphold the demand prior to the cancellation date of the exemption certificate.
2. Whether the order of the first appellate authority operates as res judicata.
3. Violation of principles of judicial discipline by the Assessing Authority.
4. Justification of tax recovery in terms of Rule 28-A(10)(v) despite the validity of the Exemption Certificate.
5. Authority of the DETC to cancel the Exemption Certificate post its validity period.

Issue-wise detailed analysis:

1. Justification of the Tribunal's decision to uphold the demand prior to the cancellation date of the exemption certificate:

The appellant set up an industrial unit to manufacture cotton yarn and was issued an eligibility certificate valid from 20.3.1993 to 19.3.2002. The exemption certificate was issued on 28.10.1993, entitling the appellant to a tax exemption benefit of Rs. 72,11,700/-. The unit stopped production in July 2000, and the exemption certificate was cancelled with effect from 1.7.2000. Despite this, the assessing authority demanded tax for the period prior to the cancellation date. The Tribunal upheld this demand, citing that the appellant violated Rule 28A(9)(i) of the Haryana General Sales Tax Rules, 1975, which mandates that the unit must remain in production for five years after availing the benefit. Consequently, the entire amount of tax benefit availed was recoverable along with interest.

2. Whether the order of the first appellate authority operates as res judicata:

The appellant argued that the first appellate authority's order dated 21.12.2006, which held that tax is recoverable w.e.f. 1.7.2000, had attained finality and thus should operate as res judicata. However, the Tribunal noted that the eligibility certificate's cancellation and subsequent demand raised were in accordance with the provisions of Rule 28A, which stipulate that on cancellation of the exemption certificate, the entire amount of tax becomes payable. The Tribunal did not find merit in the appellant's argument that the order operates as res judicata.

3. Violation of principles of judicial discipline by the Assessing Authority:

The appellant contended that the Assessing Authority's demand was violative of judicial discipline, as it disregarded the first appellate authority's order. However, the Tribunal found that the demand was a direct consequence of the cancellation of the exemption certificate and was in line with Rule 28A(10)(v), which mandates the recovery of the entire amount of tax exempted upon cancellation of the certificate. The Tribunal upheld the assessing authority's actions as compliant with the legal provisions.

4. Justification of tax recovery in terms of Rule 28-A(10)(v) despite the validity of the Exemption Certificate:

The Tribunal justified the tax recovery under Rule 28A(10)(v), stating that the exemption certificate's cancellation led to the immediate liability of the entire tax amount. The appellant's argument that the exemption certificate was valid until 30.6.2000 was dismissed, as the unit had stopped production, violating the conditions under Rule 28A(11), which require continuous production for five years post-exemption. The Tribunal emphasized that the cancellation of the exemption certificate triggered the recovery of the entire tax amount, regardless of the certificate's initial validity.

5. Authority of the DETC to cancel the Exemption Certificate post its validity period:

The appellant questioned the DETC's authority to cancel the exemption certificate on 25.10.2006, after its validity had expired on 30.6.2000. The Tribunal clarified that Rule 28A(9) allows for the cancellation of the exemption certificate under specific conditions, such as discontinuation of production. The unit's cessation of production in July 2000 justified the cancellation, and the subsequent demand for tax recovery was in accordance with Rule 28A(10)(v). The Tribunal upheld the DETC's authority to cancel the exemption certificate and enforce the tax recovery.

Conclusion:

The Tribunal, after detailed consideration of the facts and legal provisions, upheld the demand for tax recovery from the appellant. The cancellation of the exemption certificate due to the unit's discontinuation of production justified the recovery of the entire tax amount, as mandated by Rule 28A(10)(v). The Tribunal found no merit in the appellant's arguments regarding res judicata, judicial discipline, and the validity of the exemption certificate, affirming the legality of the tax recovery actions undertaken by the authorities.

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