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TMI Blog1995 (2) TMI 421X X X X Extracts X X X X X X X X Extracts X X X X ..... tries of the Government of West Bengal. The first sale out of the production of goods from the newly set up unit took place on October 14, 1991. It is the case of the applicant that, when the unit was set up, due to paucity of funds, the plant and machineries of the unit were obtained under a lease agreement with Canbank Financial Services Ltd. with the agreement that as soon as the entire payment towards the cost of plant and machinery would be repaid in full, the applicant would become the owner of the plant and machinery in terms of an agreement in this regard on November 1, 1991. Earlier, the applicant had approached the West Bengal Small Industries Corporation and the National Small Industries Corporation for leasing out or for getting loan for purchase of the plant and machineries. However, since the applicant did not have any movable or immovable asset which could be secured for the amount to be financed as demanded by these two organisations, the deal fell through and the applicant had finalised the arrangement with Canbank Financial Services Ltd. After completion of all necessary formalities, an application for grant of eligibility certificate ("E.C.", for short) for the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is clause needed alteration to prevent misuse by reason of the fact that a person, who uses on rent, lease or hire, etc., the plant or machinery of another established industry at the same site, who was not a dealer under the Act could also claim E.C. Since this afforded scope for evasion of tax by enabling an established industrialist to set up a dummy industry on the pretext of granting him lease on his own land and the machinery on hire, clause (v)(b) was substituted with effect from June 1, 1990 to read as follows: "3(66a)(i)(v)(b).........obtained on hire, lease, rent or loan from any source other than the West Bengal Small Industries Corporation or the National Small Industries Corporation." Allegedly, it could never have been intended that a genuine person like the applicant approaching a financial institution or bank for loan for purchasing machinery would be ineligible for grant of E.C., if the financial institution for its own business convenience purchases the plant and machinery with its own fund and gives such plant and machinery on lease or hire, which had within a short while thereafter been purchased by the applicant. In such facts and circumstances, the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision is mandatory. Since the applicant was not eligible for the first year not having qualified as a newly set up small-scale industry, it became disentitled to avail of the aforesaid benefit of exemption for the subsequent periods also and the Additional Commissioner (respondent No. 3) had rightly held so. Further, both the West Bengal Small Industries Corporation and the National Small Industries Corporation having been specifically set up for the development of small-scale industry, there was a reasonable nexus and their specific inclusion to the exclusion of all other agencies, cannot be said to be arbitrary and violative of articles 14 and 19(1)(g) of the Constitution. 5.. In the affidavit-in-reply, it has been iterated that the provision of clause (v)(b) of the Explanation to rule 3(66a)(i) is merely directory and that ownership of the plant and machinery is not the criterion for the purpose of the said rule. 6.. There is no dispute that the plant and machinery was on lease during the period October 14, 1991, namely, the date of first sale, to October 13, 1992, the year for which E.C. was applied for, the applicant having become the absolute owner only from July 19, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new industrial unit to qualify as a "newly set up small-scale industry", the fulfilment of which was, therefore, mandatory and not directory. 8.. In the case of Mangalore Chemicals Fertilisers Limited [1991] 83 STC 234; 1991 AIR SCW 2851; AIR 1992 SC 152 referred to above, it is no doubt true as argued by Mr. Bose that the Supreme Court had held that there are conditions and conditions, some of which may be substantive, mandatory and based on considerations of policy while some others may merely belong to the area of procedure and that it will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve. The Supreme Court had further held that a distinction between the provisions of statute which are of substantive character and were built in with certain basic objectives of policy on the one hand and those which are merely procedural and technical in their nature on the other must be kept clearly distinguished. However, the Supreme Court went on to add that the choice between a strict and a liberal construction arises only in case of doubt in regard to the intention of the Legislature manifest on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Enforcement v. Dipak Mahajan reported in AIR 1994 SC 1775 to contend that in given circumstances it is permissible for the courts to have functional approaches and look into the legislative intention and sometimes may be even necessary to go behind the words and enactment and take other factors into consideration to give effect to the legislative intention and to the purpose and spirit of the enactment so that no absurdity or practical inconvenience may result and the legislative exercise and its scope and object may not become futile. However, the case referred to was one under the Foreign Exchange Regulation Act (46 of 1973) and does not have, in our view, any real bearing on the present case. Moreover, the court had also observed: "Normally courts should be slow to pronounce the Legislature to have been mistaken in its constantly manifested opinion upon a matter resting wholly within its will and take its plain ordinary grammatical meaning of the words of the enactment as affording the best guide but to winch up the legislative intent, it is permissible for courts to take into account the ostensible purpose and object and the real legislative intent". As we have already noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in error in holding that the applicant cannot be granted E.C. from a subsequent date when it became the owner of the plant and machinery. In support, Mr. Bose referred to decisions of this Tribunal in the case of Kalyan Kr. Chatterjee v. State of West Bengal reported in [1991] 82 STC 173, Bharat Rolling Mills v. A.C.C.T., Siliguri Circle, reported in [1992] 85 STC 188; (1992) 25 STA 212 and Srimati Bharati Khara v. Commercial Tax Officer, Ezra Street reported in [1996] 100 STC 197 supra; (1993) 26 STA 448. In the case of Kalyan Kr. Chatterjee [1991] 82 STC 173 (WBTT), the applicant had been granted E.C. for the period from January 24, 1981 to June 30, 1982 but the prayer for renewal for the period ending June, 1983, was rejected on the ground that the economic viability of the newly set up industry had been adversely affected from 1986-87 onwards when there was no manufacturing activity whatsoever by the industry. The question in that case, therefore, related to renewal for a subsequent period after the unit had been granted the E.C. and the Tribunal had held that the ground taken for rejection of the prayer for renewal of E.C. was not justified. In the case of Bharat Rolling Mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... newly set up small-scale industry" when it first started sale on October 14, 1991, the date from which it should have been entitled for the E.C. had it qualified in terms of the rule. Since it became the owner only from July 19, 1993, it cannot be treated as a new unit in the second year when it was not a new unit ab initio in the first year. All the various conditions laid down in rule 3(66a) are not of identical effect. Some are fundamental in character, while others are not so fundamental. Clause (v)(b) of the Explanation is of the first category which does not admit of relaxation by way of substantial compliance or merciful latitude. Non-compliance of clause (v)(b) of the Explanation to rule 3(66a)(i) at the initial stage, keeps a new industrial unit out of the bounds of rule 3(66a) for good, because clause (v) of the Explanation relates to establishment of such a unit. Once there is such a disqualification at the establishment stage, it cannot be cured by subsequent compliance. It is a cureless congenital deformity. It is not like subsequent curing of defect, say, regarding keeping of separate accounts, as required by the first proviso to rule 3(66a)(i). Having considered all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Small Industries Corporation. This order of the respondent No. 2 was affirmed by the revisional authority, the respondent No. 3, the concerned Additional Commissioner on December 19, 1993. The respondent No. 3, however, made observations in the body of this order dated December 19, 1993 to the effect that the position for not granting eligibility certificate did not alter when the applicant became the absolute owner of the machineries on and from July 19, 1993. It was observed by the respondent No. 3 that an industry which could not qualify as a "newly set up industrial unit" at the initial stage could not be stated to be "newly set up industrial unit " from a subsequent date on fulfilling certain conditions. These observations of the learned Additional Commissioner have been accepted by my learned brother in the draft judgment prepared by him with the result that the applicant cannot get any eligibility certificate, inspite of becoming the owner of the machineries from July 19, 1993. I am unable to agree with this view. In the case of Hooghly Extrusions v. Commercial Tax Officer [1993] 88 STC 517 this Tribunal followed the view of the Calcutta High Court in the case of Dwarkesh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rules of 1941 from October 14, 1991 to July 18, 1993, the applicant will thereafter cease to be newly set up industrial unit. The reason for the applicant's approaching the Canbank Financial Services Limited for lease of the machineries was the failure of the applicant to comply with the condition of the West Bengal Small Industries Corporation or the National Small Industries Corporation for granting lease of the machineries, or rendering financial assistance on condition of securing sufficient movable or immovable assets, which the applicant did not have. When paucity of funds for purchase of machineries was the sole reason for infraction of clause (v)(b) of the Explanation to rule 3(66a)(i) of the Rules of 1941, it cannot be stated that the applicant will cease to be a newly set up industrial unit because it could not comply with the condition imposed by the institutions mentioned in clause (v)(b) of the Explanation to rule 3(66a)(i) for lease of the machineries. A car could be sold as a "new car" without infringing section 1 of the Trade Descriptions Act, 1968, even though the car had suffered damage whilst in the care of the forwarding agents, and had been subsequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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