2014 (3) TMI 738 - SC - VAT and Sales Tax

Fixed capital investment - assessee had sought for exemption under diversification, modernization/expansion programme - UPTT, 1948 - Whether preoperative expenses in the form of payment of interest towards the advance loan taken from the financial institution would form part of additional fixed capital investment (FCI) - Held that - Judgment in Commissioner of Trade Tax, U.P. & Anr. vs. M/s.Kajaria Ceramics Limited 2005 (7) TMI 351 - SUPREME COURT OF INDIA followed The legislature has consciously used the expression means immediately after the expression fixed capital investment to imply and ensure that the definition is exhaustive. Further, the Court has observed that the language employed by the legislature while defining the meaning of the expression fixed capital investment is unambiguous and therefore, no inclusion can be made in the definition by means of interpretation - That portion of the order wherein the High Court had granted relief to the assessee requires to be set aside Decided in favour of revenue. Whether the transformer/C.V.T. installed for regulating voltage for running of the machinery in the factory premises would fall within the meaning of the expression fixed capital investment - Held that - Explanation 4(b) (i) of Section 4-A speaks of investment made on machinery/apparatus, components etc. for establishment or running of the factory would fall within the meaning of the expression fixed capital investment - The appellant has purchased the aforesaid machinery used by the respondent for the purpose of controlling the fluctuation in the supply of electrical energy to the machinery/equipment installed in the factory premises Thus, the investment that is made by the assessee would certainly fall within explanation (4)(b)(i) of Section 4-A - Appeal allowed in part and set aside the judgment and order of High Court insofar as the relief that is granted to the respondent in payment of interest - Judgment and order passed by the High Court insofar as the purchase of the transformer for erection in the business premises for running of the machinery confirmed Decided partly in favour of revenue.

Summary

Issues:
- Interpretation of preoperative expenses as part of additional fixed capital investment (FCI)
- Determining if the transformer/C.V.T. falls within the definition of "fixed capital investment"

Analysis:
1. The case involved an appeal by the revenue against the High Court's judgment allowing the revision petition filed by the respondent, a public limited company, regarding eligibility for exemption under the Uttar Pradesh Trade Tax Act, 1948. The dispute centered around the calculation of fixed capital investment for exemption purposes.

2. The Tribunal initially allowed the assessee's claim, including expenses on construction and equipment, which was partially upheld by the High Court. The High Court disallowed certain expenses like the temple construction cost but allowed others like the transformer installation expenses and interest payment on loans.

3. The Supreme Court considered two main legal questions:
i) Whether preoperative expenses, including interest on loans, constitute part of additional fixed capital investment.
ii) Whether the transformer/C.V.T. purchased for factory operations qualifies as "fixed capital investment" under the Act.

4. The appellant argued that preoperative expenses, including interest, should not be considered part of fixed capital investment based on a previous judgment. The respondent contended that the transformer purchase is essential for factory operations and falls within the definition of fixed capital investment.

5. Referring to the previous case law, the Court concluded that preoperative expenses, including interest, do not qualify as fixed capital investment. However, the transformer purchase for controlling electrical energy fluctuations in the factory premises aligns with the Act's definition of fixed capital investment.

6. Consequently, the Court set aside the High Court's decision on granting relief for interest payment but upheld it for the transformer purchase. The judgment emphasized the importance of adhering to the statutory definition of fixed capital investment for tax exemption purposes.

7. The appeal was partially allowed, with costs not awarded. The Court's decision clarified the treatment of specific expenses in calculating fixed capital investment under the Uttar Pradesh Trade Tax Act, providing guidance for future tax assessments.