2014 (9) TMI 338 - HC - VAT and Sales Tax

Denial the benefit of sales tax incentives to the petitioners under the Scheme for Economic Development of Kutch District - Disallowance of investment for sales tax incentives - Disallowance as amount not being eligible - Held that - From amongst the four grounds deliberated in this judgment, barring the fourth ground of consultancy expenses, this court is of the opinion as far as rest of the three grounds are concerned that the denial of the benefit of capital investment made by the petitioner up to June 11, 2005 in various fixed assets has been discarded by the State Level Committee either on some misconception or on hyper-technical grounds disregarding the objectives and intent of the scheme. This was so done even when otherwise, the investments made by the petitioner-company is found genuine by the respondents and at no point of time, any doubt is created with regard to the increase of expenditure claimed by the petitioners. And therefore, in light of the observations made by this court, there is a need to have a fresh look at the request of the petitioners of considering this capital investment made in the fixed assets, which have been certified by the chartered accountant and substantiated by the documentary evidence before the State Level Committee, and therefore, petition is being allowed partially with the following directions. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Plant and machineries and transport cost
2. Site development expenses
3. Land and land development
4. Technical consultancy cost

Issue-wise Detailed Analysis:

1. Plant and Machineries and Transport Cost:
The petitioners incurred expenses of Rs. 1,17,19,10,000 under this head, but the State Level Committee allowed only Rs. 58,01,83,000, disallowing Rs. 59,28,90,655. The Committee disallowed Rs. 2,327.60 lacs paid by Saurashtra Fuels Private Limited on behalf of the petitioner, citing lack of separate entity status. The Court found this technical objection unjustifiable, as the expenditure was genuine and reflected in tax returns. Similarly, Rs. 2,03,51,187 paid by demand drafts was disallowed due to non-ascertainment, but the Court accepted a certificate from SBI confirming the payments. The Court also addressed the disallowance of Rs. 13,37,21,655 in cash transportation expenses, noting practical difficulties faced by the petitioner and the need for deeper scrutiny rather than outright rejection.

2. Site Development Expenses:
The Committee disallowed Rs. 8,35,26,969, citing lack of approach roads and non-agricultural (NA) land status. The Court noted that the Scheme did not require NA status as a pre-condition for eligibility. The petitioner had obtained NA permission before the cut-off date, and the Court found the Committee's technical approach unjustifiable. The Court emphasized the need for practical consideration of the petitioner's efforts and investments.

3. Land and Land Development:
The Committee disallowed Rs. 28,60,577 for land purchase and Rs. 22,92,062 for land development, citing lack of NA permission. The Court reiterated that the Scheme did not require NA status as a pre-condition. The petitioner had applied for NA permission in time and obtained it before the cut-off date. The Court found the Committee's hyper-technical approach unjustifiable and directed a fresh examination of the petitioner's investments.

4. Technical Consultancy Cost:
The petitioner incurred Rs. 1,36,00,000 for consultancy charges from a renowned scientist, Mr. Kundan Singh. The Committee disallowed this expense, and the Court upheld the disallowance, finding no provision in the Scheme for such consultancy charges. The Court agreed that the expense did not fit within the Scheme's framework.

Conclusion:
The Court partially allowed the petition, quashing the final eligibility certificate dated March 29, 2008, to the extent it was adverse to the petitioner. The Court directed the respondents to:
(a) Include Rs. 25,31,11,187 paid by Saurashtra Fuels Private Limited as eligible investment.
(b) Reconsider land and site development expenses after scrutinizing accounts and physical verification.
(c) Re-examine transportation expenses in light of the Court's observations.

The respondents were given four months to issue a fresh final eligibility certificate, and the demand notice dated March 21, 2011, was not to be acted upon. The petition was disposed of with no order as to costs.