1998 (11) TMI 125 - SC - VAT and Sales Tax

Whether an assessee-company which manufactures and sells soft drinks, can claim deferred payment in respect of bottles and crates used by it and the company is entitled for the same, as the bottles and crates must be deemed to be plant for the purpose of the Acts and Rules? Held that - As pointed out in the affidavit in rejoinder, the company had applied for an eligibility certificate claiming the status of a small-scale industry. It is, in fact, registered as a small scale industrial unit. While declaring its investment at the time of seeking registration as a small-scale industrial unit, it did not include investment in bottles and crates under the head Plant and machinery . The investment in bottles and crates was shown under a separate head. It is further pointed out in the said affidavit that if the investment of the company in bottles and crates is included under the head Plant then its total fixed capital investment will reach the level of ₹ 137.36 lakhs and it can no longer be regarded as a small scale industrial unit. As the company had applied as an SSI unit, the District Level Committee had to verify the status of the company as an SSI unit and, therefore, it was bound to take into account the abovereferred two notifications of the years 1991 and 1993. If under these circumstances, the District Level Committee came to the conclusion that the company is not entitled to the benefit of deferment in respect of its investment in bottles and crates, it cannot be said that it has acted contrary to law. Appeal allowed, set aside the judgment of the High Court and dismiss the writ petition filed by the company..

Issues Involved:
1. Whether bottles and crates constitute "plant" under the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990.
2. Whether the District Level Committee erred in denying the benefit of deferment of tax for investments in bottles, crates, electrification, and tools.

Detailed Analysis:

1. Whether bottles and crates constitute "plant" under the Bihar Sales Tax Supplementary (Deferment of Tax) Rules, 1990:

The primary issue revolves around whether the investment made by the company in bottles and crates can be considered as investment in "plant" under the Deferment Rules. The company argued that bottles and crates should be treated as "plant" and relied on various judicial precedents under the Income-tax Act, 1961, which broadly define "plant." The High Court, adopting a wide interpretation, held that bottles and crates are essential tools for the company's trade and should be considered as "plant."

However, the Supreme Court disagreed with this interpretation, emphasizing that the context of the Deferment Rules requires a narrower understanding of "plant." The Court noted that the Deferment Rules aim to incentivize fixed capital investment in assets like land, building, plant, and machinery, which are essential for production and have a degree of permanency. The Court highlighted that the word "plant" in the Deferment Rules should be construed in a manner consistent with the scheme's objective, which does not align with the broader definition used in the Income-tax Act.

The Court further referred to government notifications clarifying that investment in storage items like bottles and crates does not qualify as "plant" for determining the status of small-scale industrial units. Therefore, the Supreme Court concluded that bottles and crates used for storing the manufactured product do not fall under the definition of "plant" within the meaning of the Deferment Rules.

2. Whether the District Level Committee erred in denying the benefit of deferment of tax for investments in bottles, crates, electrification, and tools:

The District Level Committee had granted the company the benefit of deferred payment of sales tax for 90% of its investment in fixed assets but denied the benefit for investments in bottles, crates, electrification, and tools. The company challenged this decision, arguing that these items should be included as "plant" and thus qualify for deferment.

The High Court initially sided with the company, stating that bottles and crates should be treated as "plant" based on their business use. However, the Supreme Court overturned this decision, stating that the Deferment Rules and the broader industrial policy context do not support such an interpretation. The Court emphasized that the investment in fixed capital assets envisaged by the Deferment Rules pertains to assets directly involved in the manufacturing process, not storage items.

The Supreme Court also noted that the company had applied for an eligibility certificate as a small-scale industrial unit, which necessitated adherence to specific investment limits. Including bottles and crates as "plant" would result in the company exceeding these limits, thereby disqualifying it from small-scale industry benefits.

In conclusion, the Supreme Court allowed the appeal, set aside the High Court's judgment, and upheld the District Level Committee's decision to exclude bottles and crates from the benefit of tax deferment. The Court directed that the company's writ petition be dismissed, reinforcing that the investment in bottles and crates does not qualify as "plant" under the Deferment Rules.

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