2014 (1) TMI 100 - HC - VAT and Sales Tax

Tax on the turnover upto the level of base production - Section 4-A of the U.P. Trade Tax Act, on prescribed Form 46 under Rule 25 of the U.P. Trade Tax Rules - Non inclusion of stock transfer and consignment - Exemption on turnover of sales - Under Section 4-A of the Act and the notifications issued thereunder the benefit of exemption to the existing units, which have undergone expansion, diversification or modernisation is contemplated on the quantity of the goods in excess of the base production. The quantity of base production is determined only once on the consideration of the capacity of the production and maximum production of any one year of preceding five consecutive years. Such determined quantity of base production is the basis for the exemption for the period, for which the unit is entitled for exemption. The unit which has undergone expansion is thus entitled for the exemption on the turnover of the quantity in excess of the quantity of base production plus stock of the base production of the previous years - assessment/reassessment/penalty/deferment proceedings will be decided by the Assessing Authority in accordance with law laid down by the Full Bench - Following decision of Ambika Steels Pvt Ltd Vs. State of U.P. & others 2007 (9) TMI 541 - ALLAHABAD HIGH COURT .

Summary

Issues:
Challenge to circular dated 25.1.2003 amending earlier decisions under U.P. Trade Tax Act.

Analysis:
The petitioner challenged a circular issued by the Principal Secretary, Government of U.P. on 25.1.2003, amending previous decisions under the U.P. Trade Tax Act related to tax payment by Industrial Units on expansion, diversification, and modernization schemes. This circular led to assessment/reassessment/penalty/deferment proceedings under both U.P. and Central Sales Tax. A Division Bench referred the matter to a Larger Bench due to conflicting interpretations of relevant clauses and decisions. The Full Bench concluded that the exemption for units undergoing expansion is based on the turnover of quantity exceeding the base production, including stock transfer/consignment transactions.

The Full Bench overturned previous decisions that determined exemption based on sales turnover, emphasizing that the objective was not to grant exemption beyond base production to avoid tax obligations. The Full Bench clarified that the benefit of exemption extends to existing units undergoing expansion based on production quantity exceeding the base production, which includes stock transfer/consignment quantities. The State Government filed an appeal against the Full Bench's decision, but no interim order was issued by the Supreme Court. Consequently, the Court directed authorities to decide pending proceedings as per the Full Bench's interpretation, revoking the circular dated 25.1.2003.

In conclusion, the judgment clarified the basis for exemption under the U.P. Trade Tax Act for units undergoing expansion, emphasizing production quantity exceeding the base production as the criteria. The Full Bench's decision overturned previous interpretations, focusing on avoiding tax obligations beyond base production and ensuring that exemptions are granted lawfully. The Court directed authorities to adhere to the Full Bench's interpretation and expedite pending proceedings, setting aside the circular issued on 25.1.2003.