2018 (10) TMI 1003 - HC - VAT and Sales Tax

Benefit of tax remission - sales tax benefit to new industry, setting up its manufacturing unit in Kutch district - Notification dated 09.11.2001 - exemption scheme or the tax deferment scheme - switch over to the sales tax remission scheme - rejection of request for Change of option. Held that - The said Scheme envisaged sales tax incentives. The eligible unit could either opt for tax exemption in which case, on the raw material and the inputs purchased by the unit, no tax would be payable and upon sale of the petitioner's product, no sales tax would be payable. The other option was tax deferment, in which, the eligible unit would be allowed to collect sales tax otherwise payable to the Government upon the sales of the intermidiatory or final products but would not be required to deposit such tax with the Government revenue immediately. The same would be deposited at a later point of time in installments. Third scenario under the scheme was in case of a unit having eligible investment in excess of ₹ 100 crores. Such a unit could opt for a composite scheme of sales tax exemption and deferment in parts. Clause 4.4 of the Scheme provided that the option would have to be exercised by unit at the time of making the application for the benefits. However, such option could be changed once before the certificate is issued by the Sales Tax Department. This clause thus clearly envisaged one time change of option before the certificate is issued by the Sales Tax department - In case of the petitioner, final eligibility certificate was not issued till the VAT Act was introduced making major changes in existing exemption schemes. The certificate issued by the department was a provisional eligibility certificate granting exemption upto a limit of 25% of the eligible investment of the petitioner. In terms of Clause 4.4 of the said Scheme, therefore, the choice of the petitioner to change the option was not yet lost. In absence of any clear provision providing that a unit enjoying tax exemption under the earlier scheme would automatically come within the fold of tax remission benefits under the Rules, there is no reason to presume that no option could be exercised. Further, if the legislature desired that there would be no further options of either of the two classes of units, language used would have been more explicit providing that the units availing tax deferment under the earlier law shall not be allowed to change the option - In a case where, as held by us earlier, when the choice for changing the option for the petitioner in terms of clause 4.4 of the scheme had not yet been closed since final eligibility certificate was not yet issued, the introduction of the Rules of 2006 would not eliminate such option. We may recall, the Rules of 2006 brought about fundamental shift in the benefits available to such eligible units. The respondents therefore committed an error in not allowing the petitioner's request for change of option. The respondent shall allow the petitioners to switch over to the sales tax remission scheme in terms of Chapter IV of the Rules of 2006 from the date of the application and issue eligibility certificate and entitlement certificate accordingly and further work out the benefits and pass necessary orders in terms thereof - petition disposed off.

Summary

Issues Involved:
1. Challenge to the order dated 28.04.2014 by the Joint Commissioner of Industries rejecting the petitioners' request for tax remission.
2. Interpretation of the Government scheme under Notification dated 09.11.2001.
3. Application of the Gujarat Value Added Tax Act, 2006 and its Rules.
4. Authority of the State Level Committee and its recommendations.
5. Petitioners' right to change the option from tax deferment to tax remission.

Detailed Analysis:

1. Challenge to the Order Dated 28.04.2014:
The petitioners challenged the order dated 28.04.2014 by the Joint Commissioner of Industries which rejected their request for tax remission. The petitioners argued that the rejection was erroneous as it did not consider their right to change the option from tax deferment to tax remission before the final eligibility certificate was issued.

2. Interpretation of the Government Scheme Under Notification Dated 09.11.2001:
The Government of Gujarat framed a scheme to encourage industrial development in Kutch post-earthquake. The scheme provided sales tax benefits to new industries, with options for sales tax exemption or deferment. Clause 4.4 allowed eligible units to change their option once before the issuance of the certificate by the Sales Tax Department. The petitioners argued that since they were only issued a provisional certificate, they retained the right to change their option.

3. Application of the Gujarat Value Added Tax Act, 2006 and its Rules:
With the introduction of the VAT Act and the Rules of 2006, significant changes were made to the existing sales tax incentive schemes. The Rules required industrial units to apply afresh for tax incentives and provided only two options: tax remission or tax deferment. The petitioners contended that the new rules should allow them to exercise a fresh option, which they did by applying for tax remission in Form 109.

4. Authority of the State Level Committee and Its Recommendations:
The State Level Committee, under the original scheme, had the authority to interpret the scheme and resolve disputes. The Committee recommended accepting the petitioners' request for a change of option based on the Legal Department's opinion. However, the court held that post-VAT Act, the Committee's role was limited, and its recommendations were not binding on the Government.

5. Petitioners' Right to Change the Option from Tax Deferment to Tax Remission:
The court found that the provisional eligibility certificate did not preclude the petitioners from changing their option. The introduction of the VAT Act and the Rules did not eliminate this right. The court held that the respondents erred in rejecting the petitioners' request for a change of option, as the final eligibility certificate had not been issued, and the Rules did not explicitly prohibit such a change.

Conclusion:
The court set aside the impugned order dated 28.04.2014 and directed the respondents to allow the petitioners to switch to the sales tax remission scheme as per the Rules of 2006 from the date of application. The respondents were instructed to issue the necessary eligibility and entitlement certificates and work out the benefits accordingly. The petition was disposed of in favor of the petitioners.