2017 (5) TMI 377 - HC - VAT and Sales Tax

Benefit of Sales Tax Exemption - Notification dated 28th July 2016 - exemption limit - Eligibility Certificate - economic development of District of Kutch - investment in purchase of assets - relevant date of investment - typing error in Gujarati version - interpretation - Whether the petitioner-Company is entitled to Incentives/Sales Tax Exemption under the Scheme on the investment made/expenditure incurred after 31st December 2005, but within a period of 18 months from the date of commencement of the commercial production? - Held that - in case of Small Scale Industrial Units, Medium and Large scale Industrial Units, the assets acquired upto the period of six months or within 1 year from the date of commencement of commercial production or till the date of completion of the said Scheme ie., 31st December 2005; whichever is earlier between the two, shall be considered eligible for the purpose of Incentives. However, in the Gujarati version of the Incentive Scheme, the expression whichever is earlier between the two is missing in case of Industrial Units having project cost exceeding ₹ 10 Crores. The aforesaid seems to be an inadvertent mistake in publication/typing - even the petitioners also understood that the assets acquired within a period of 18 months from the commencement of commercial production or till the Scheme ends on 31st December 2005 whichever is earlier between the two shall be considered eligible for the purpose of the incentive. - when the petitioners and all other Industrial Units/ Undertakings/Projects 105 in number understood the Scheme, the manner in which the State Government had pleaded and all are treated equally and in case of all Industrial Undertakings/Projects, the assets acquired only upto 31st December 2005 are considered eligible for the purpose of incentive, the petitioners are not entitled to incentive on the assets acquired subsequently after commencement of commercial production or after 3.12.2005 - claim of petitioner rejected. Whether the petitioner-Company is entitled to Incentives/Sales Tax Exemption under the Scheme on the investment/expenditure incurred after 31st December 2005 with respect to Phase II project? - Held that - only those Units/Industries/Projects which had not gone in production before 31st December 2005 are considered as pipeline projects. In the present case, the petitioner-Company had already gone in production w.e.f 27th December 2005, and therefore, as per the Scheme/Government Resolutions amended from time to time and lastly amended vide G.R dated 7th January 2005, the case of the petitioners shall not fall under the category of pipeline project - petition dismissed. Whether the petitioner-Company is entitled to Incentive/Sales-tax exemption under the Scheme on the plant and machineries installed in the Project by 31st December 2005 but the actual payment is made subsequently ie., after 31st December 2005? - Held that - the petitioner-Company is entitled to the benefit of Incentive Scheme/Sales Tax Exemption on the expenses incurred/investment made on purchasing the land, constructing building and installing the plant and machineries prior to 31st December 2005 but the payment might have been made subsequently ie., after 31st December 2005 - partly decided in favor of petitioner. Petition dismissed - decided partly in favor of petitioner.

Summary

Issues Involved:
1. Eligibility for Sales Tax Exemption on investments made after 31st December 2005 but within 18 months from the date of commercial production.
2. Eligibility for Sales Tax Exemption for Phase-II project investments.
3. Eligibility for Sales Tax Exemption on plant and machinery installed before 31st December 2005, but paid for afterward.

Detailed Analysis:

Issue 1: Eligibility for Sales Tax Exemption on Investments Made After 31st December 2005 but Within 18 Months from the Date of Commercial Production

The petitioners argued that under Clause 3.8 of the Incentive Scheme, they should be eligible for Sales Tax exemption on investments made within 18 months from the date of commercial production, even if these investments were made after 31st December 2005. They contended that the phrase "whichever is earlier between the two" was missing in the clause for units with project costs exceeding ?10 Crores, unlike the clauses for Small and Medium Industrial Units.

The State countered that the Scheme's intention was to grant incentives only for investments made up to 31st December 2005 or within 18 months from the date of commencement of commercial production, whichever is earlier. The omission of the phrase in the Gujarati version was an inadvertent mistake. The State also emphasized that none of the 105 similar projects had received benefits for investments made after 31st December 2005.

The court agreed with the State's interpretation, noting that the Scheme's intention was clear and that the phrase "whichever is earlier" should be implied even if it was missing in one version. The court also noted that the petitioners themselves had initially applied for eligibility certificates based on investments made only up to 31st December 2005. Therefore, the court held that the petitioners were not entitled to incentives for investments made after 31st December 2005 but within 18 months from the date of commercial production.

Issue 2: Eligibility for Sales Tax Exemption for Phase-II Project Investments

The petitioners claimed that their Phase-II project should be considered a pipeline project, thus making them eligible for incentives for investments made up to 31st December 2007. The State argued that the Scheme did not recognize phase-wise projects and that once commercial production had started, the unit could not be considered a pipeline project.

The court sided with the State, stating that the Scheme clearly defined what constituted a pipeline project and that the petitioners' unit, having started commercial production on 27th December 2005, did not qualify. Therefore, the petitioners were not eligible for incentives on investments made for the Phase-II project.

Issue 3: Eligibility for Sales Tax Exemption on Plant and Machinery Installed Before 31st December 2005, but Paid for Afterward

The petitioners argued that they should be eligible for incentives on plant and machinery installed before 31st December 2005, even if the payment was made afterward. They cited the decision in Vishal Lines Private Limited, where the court held that the acquisition of assets should be considered for incentives even if the payment was deferred.

The court agreed with the petitioners, holding that there was no justification for denying incentives for assets acquired before 31st December 2005 but paid for afterward. The court directed the State to reconsider these expenses and grant the appropriate incentives.

Conclusion:

The court dismissed the petition regarding the first two issues but partly allowed it regarding the third issue. The court directed the State to grant incentives for investments made in acquiring land, buildings, and machinery before 31st December 2005, even if the payment was made afterward. The State was instructed to complete this exercise within two months and grant the actual benefits within three months.