2023 (5) TMI 1146 - HC - VAT and Sales Tax

Cancellation of Exemption/Entitlement Certificate for discontinuance of business by the unit during the currency of Exemption Period - activities did not totally stopped in Delhi as there were still many suppliers - Rule 28A of HGST Rules, 1975 - HELD THAT - It is not in dispute that the appellant was granted benefit of exemption from sales to the tune of Rs. 68,24,200/-for nine years, but, he availed the benefit of only Rs. 6,22,830/-, as the industry unit was closed down and he could not run the unit for next five years, as per the policy. Whether the circumstances were beyond the control of the appellant-Company? HELD THAT - After going through order dated 09.11.2017, it appears that the authorities had accepted this fact that identical units in the area closed down due to the fact that the consumers of their product started their own units and thus, their market was lost. Further the earlier yarn units also started their own woven fabrics units and are in bad shape. The appellant was allowed exemption to compete in the market but he chose to close the business, after availing the benefit of exemption. Most of the suppliers of the appellant were in Delhi and it cannot be presumed that such activities totally stopped in Delhi. The demand of the product is much more. The reasons given by the appellant were held to be not beyond its control so as to be covered under the proviso to Rule 28A (11) of the HGST Rules, 1975. In Priti fan s case, the appellant-unit suffered due to the floods directly as well as indirectly due to over all loss of economic activity in the vast flood affected region in and around Rohtak. The appeal was allowed and it was held that the adverse effects of the floods cannot be underestimated which appeared to have delivered the final crushing blow to the viability of the Unit. It was opined that the Unit, tiny as it was since its inception, deserve the benefit of first proviso to Rule 28A (11B). In the facts of the present case, it is not in dispute that the appellant had availed the benefit of 6,22,830/- during the relevant period, he was granted the benefit of exemption from sales to the tune of Rs. 68, 24,000/- for a period of nine years. This fact in itself shows that there was loss in business, which were beyond the control of the appellant. The case of the appellant cannot be discarded on the ground that the company should increase the business and invest more money in production. It is not a case where the assessee had availed the benefit of exemption beyond Rs .68,24,000/-, which was granted to it. The writ petition is allowed.

Summary

Issues involved:
The appeal under Section 36 of the Haryana Value Added Tax Act, 2003 seeks to set aside orders dated 10.03.2003, 07.05.2010, and 09.11.2017 regarding exemption certificate for sales tax on Polypropylene Filament Yarn.

Issue 1: Exemption Certificate and Business Closure
The appellant, a proprietorship concern, was granted an Exemption Certificate for sales tax exemption on Polypropylene Filament Yarn but could avail only a fraction of the benefit during the relevant period. The unit was closed down after availing the exemption, leading to disputes and legal proceedings.

Judgment: The authorities found that the appellant's closure of business immediately after the exemption period was not beyond its control, as similar units in the area closed due to market changes. The appellant's reasons for closure were deemed insufficient to fall under the proviso to Rule 28A (11) of the HGST Rules, 1975.

Issue 2: Legal Arguments
The appellant argued that circumstances beyond their control led to the closure of the unit during the exemption period. They cited judgments such as Jasson Pharma Pvt. Ltd and M/s Simra Chemical Industries to support their contention that loss of business due to uncontrollable factors should be considered for exemption benefits.

Judgment: The court examined the appellant's claim in light of precedent cases and found that the appellant's situation did not meet the criteria for exemption under Rule 28A (11) of the HGST Rules, 1975. The court emphasized that the appellant's failure to maintain production levels post-exemption was not justified by the reasons provided.

Issue 3: Compliance with Eligibility Conditions
The State counsel argued that the appellant was bound by the eligibility conditions of the Exemption Certificate and failed to comply with the requirements despite availing substantial benefits. The dispute revolved around whether the appellant's closure was justifiable under the applicable rules.

Judgment: The court noted that while the appellant had availed only a portion of the exemption benefits, the abrupt closure of the business raised questions about compliance with eligibility conditions. The court analyzed the circumstances leading to the closure and concluded that the reasons presented did not absolve the appellant from fulfilling the conditions of the Exemption Certificate.

Conclusion:
In light of the factual findings and legal arguments presented, the court allowed the writ petition and set aside the orders dated 10.03.2003, 07.05.2010, and 09.11.2017, pertaining to the appellant's Exemption Certificate for sales tax on Polypropylene Filament Yarn.