2015 (9) TMI 1212 - HC - VAT and Sales Tax

Cancellation of eligibility certificate - exemption from sales tax - new industries to be established within the State of Assam after April 1, 1991 as per industrial policy - commercial production commenced from February 5, 1996. The finished product was washed clean coal and the raw materials used were raw coal, lump coal and medium coal - eligibility certificate was valid from February 5, 1996 to February 4, 2003, i.e., for a period of seven years. Held that - it is not a case of obtaining eligibility certificate by fraud or by furnishing of wrong information. Nothing has been pointed out regarding violation of any of the conditions mentioned in the eligibility certificate. It is quite clear that the eligibility certificate granted to respondent No. 1 was cancelled because of change of opinion as to the eligibility of respondent No.1 to get the benefit. This is not permissible. - Decided against the revenue.

Summary

Issues Involved:
1. Whether the writ appeal is maintainable in its present form.
2. Whether cancellation of the eligibility certificate was justified.
3. Whether the process of conversion of raw coal, lump coal, or medium coal into washed clean coal involves a manufacturing process.

Issue-wise Detailed Analysis:

1. Maintainability of the Writ Appeal:
The eligibility certificate was issued by the Industries Department, Government of Assam, and the cancellation orders were issued by the General Manager, District Industries and Commerce Centre, Kamrup, Guwahati. The writ appeal was filed solely by the Commissioner of Taxes, Assam, without including the State of Assam or the General Manager as appellants. The court referenced the apex court's decisions in *Vadilal Chemicals Ltd. v. State of Andhra Pradesh* and *Pondicherry State Cooperative Consumer Federation Ltd. v. Union Territory of Pondicherry*, which emphasized that eligibility certificates should be handled by the Industries Department, not the Sales Tax Department. Additionally, Article 300 of the Constitution and Section 79 of the Civil Procedure Code mandate that the State must be a party in legal proceedings involving state property. The court found the application to add the State and the General Manager as appellants to be belated and unsupported by proper authorization. Consequently, the writ appeal filed by the Commissioner of Taxes was deemed not maintainable.

2. Justification of Cancellation of Eligibility Certificate:
The show-cause notice cited two grounds for cancellation: (i) no manufacturing process was involved in converting raw coal into washed clean coal, and (ii) respondent No. 1 did not install any plant and machinery. The court noted that the eligibility certificate was issued after due inquiry, and the cancellation was based on a change of opinion rather than any new evidence or violation of conditions. The court agreed with the single judge's finding that the absence of plant and machinery was not a valid ground for cancellation, as the process could be conducted manually. The court referenced the apex court's decision in *Pondicherry State Cooperative Consumer Federation Ltd.*, which held that the State cannot revoke an exemption granted with full knowledge of the facts. The court also cited *Sunil Kumar Taparia v. State of Assam* and *Jai Chemical Industries v. State of Assam*, which held that eligibility certificates cannot be canceled based on a mere change of opinion. The court concluded that the cancellation of the eligibility certificate was unjustified and upheld the single judge's decision to quash the cancellation orders.

3. Manufacturing Process:
Given the findings on the first two issues, the court deemed it unnecessary to address whether the process of converting raw coal into washed clean coal constitutes manufacturing. The court noted that this issue was debatable and had been previously considered in the context of the wide definition of "manufacture" under Section 2(22) of the Assam General Sales Tax Act, 1993.

Conclusion:
The writ appeal was dismissed on the grounds that it was not maintainable and that the cancellation of the eligibility certificate was unjustified. The court did not find it necessary to address the manufacturing process issue. No costs were awarded.