2015 (12) TMI 119 - HC - VAT and Sales Tax

Levy of purchase tax - Section 15B and/or 50 - breach of Form No.26/40 - Held that - It is evident that the entire naptha purchased by the assessee for running the gas turbine was used for generating electricity used for the purposes of manufacture in its own unit. However, the steam, which was generated in the gas turbine by way of waste material was utilised by the assessee in a steam turbine which also generated the electricity. Such electricity generated in the steam turbine was mostly used by the assessee itself; however, a minuscule quantity thereof, was wheeled out to its sister concern. It is this wheeling of the electricity to the sister concern, which according to the appellant amounts to a breach of Form No.26 or 40 on the part of the assessee. From the findings recorded by the Tribunal as well as from the facts as appearing from the record, it is evident that the entire material which was purchased against Form No.26 or 40, namely, naptha, was used by the assessee for generating electricity through the gas turbine and such electricity was used solely for the purpose of manufacture in its own unit. Wheeling out of a minuscule amount of electricity generated out of the steam turbine, to its sister concern cannot in any manner be said to be a breach of Form No.26 or 40 as is sought to be contended by the appellant. It is also not the case of the appellant that any part of the naptha had been used solely for the purpose of generating steam for operating the steam turbine. Under the circumstances, it is not possible to state that the impugned order of the Tribunal suffers from any legal infirmity warranting interference. The impugned order of the Tribunal, therefore, does not give rise to any question of law, much less, a substantial question of law so as to warrant interference - Decided against Revenue.

Summary

Issues:
1. Interpretation of tax incentive schemes for new industries.
2. Breach of conditions in Form No.26 or 40.
3. Levying of purchase tax under sections 50 and 15B of the Sales Tax Act.
4. Wheeling out electricity to a sister concern and its implications on tax liability.

Analysis:

Issue 1: Interpretation of tax incentive schemes for new industries
The judgment involves a dispute regarding the interpretation of tax incentive schemes declared by the Government of Gujarat for new industries. The respondent-assessee established a unit for manufacturing cement and was granted tax incentives. The scheme allowed tax-free purchases of raw materials and tax-free sales of manufactured goods subject to certain conditions, including the use of purchased materials in the designated industrial unit.

Issue 2: Breach of conditions in Form No.26 or 40
The controversy arose when the appellant alleged that the respondent breached the conditions of Form No.26 or 40 by not using all purchased materials solely for manufacturing in its unit. Specifically, the dispute centered around the purchase and utilization of naptha for operating power plants and the subsequent generation and distribution of electricity.

Issue 3: Levying of purchase tax under sections 50 and 15B
The assessing authority and lower appellate authority imposed purchase tax under sections 50 and 15B of the Sales Tax Act, citing the alleged breach of conditions in Form No.26 or 40. However, the Tribunal overturned these levies after finding that the purchased naptha was indeed used for generating electricity solely for the assessee's manufacturing unit, thereby concluding no breach had occurred.

Issue 4: Wheeling out electricity to a sister concern and tax implications
A significant aspect of the case was the wheeling out of a small percentage of electricity generated by a steam turbine to a sister concern. The appellant argued that this action constituted a breach of the purchase declaration. However, the Tribunal and the High Court disagreed, emphasizing that the entirety of the purchased material was used for the intended purpose, and the wheeling out of a minimal amount of electricity did not violate the conditions of Form No.26 or 40.

In conclusion, the High Court upheld the Tribunal's decision, stating that no breach of the purchase declaration had occurred. The judgment emphasized that the wheeling out of a small portion of electricity to a sister concern did not constitute a violation of the conditions set forth in Form No.26 or 40. As a result, the appeals were dismissed, and the orders were upheld.