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TMI Blog1992 (9) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... xed with gypsum and ground in a cement mill to make cement. With a view to avail of benefit of various incentives declared by the Government of Gujarat, the petitioner decided to expand its unit. Accordingly, on December 15, 1979, it applied to the Government of India for permission to dismantle the existing old wet process plant of capacity of 2,000 tonnes per day and to install a dry process plant of capacity of 6,65,000 tonnes per month. However, on technical advice, it decided not to go ahead with the expansion plan but to establish a new industrial unit using a new dry process system. This new unit is located on a separate place of land, though adjacent to the old unit. The new unit has been established with its separate raw mill, coal mill, kiln, cement mill, compressors, pre-heater, pre-calcinator, blending CF silo, electric installations and equipments, packing machines and has a separate feeding system. The process of establishing the new unit was started in 1981. 3.. On October 3, 1984, the petitioner made two applications to the State Government-one was for grant of eligibility certificate for sales tax incentive in respect of expansion and the other was for granting r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as an expansion only. The petitioner thereafter made several representations to the State Government but so far no decision has been taken thereon. Probably in view of the pending representations, the State Government directed the Sales Tax Commissioner not to recover sales tax till May, 1990, and to recover the tax which has become due thereafter. In view of the said decision of the Government, the Sales Tax Officer, Junagadh, has not initiated proceedings under section 47 of the Sales Tax Act demanding sales tax in respect of period commencing from August 1, 1980 and to also request to furnishes order section 48 of the Act (sic). The petitioners have, therefore, filed this petition. 4.. Though the petitioner have prayed for various reliefs, the learned counsel for the petitioner stated that, at this stage, the petitioner want only a declaration regarding entitlement and, if such a declaration is granted in its favour, then rest of the demands can be sorted out with the sales tax department. The petitioner s contention is that the petitioner is entitled to the benefit of sales tax exemption for its new unit, which is a pioneer unit under the Government resolution dated August ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te the benefit of sales tax deferment was made available from December 31, 1982 to December 31, 1987. The company started commercial production in April, 1985. As the company s new plant started manufacturing cement, it discontinued manufacturing operations at the old plant. On October 29, 1987, within the time-limit fixed by the Government for that purpose, the company submitted a detailed application to the Industries Commissioner for granting to its new industrial unit pioneer status. But the Joint Industries Commissioner by his letter dated April 5, 1988 refused to grant the pioneer status on the ground that the petitioner-company is an old unit in existence prior to June 1, 1980 and is located within 8 kms. and that it is a case of modernising an existing unit. The petitioners, therefore, again on April 12, 1988, wrote to the Additional Chief Secretary for granting pioneer status. This was followed up by further discussions and representations. The company had pointed out that it has spent a huge amount of Rs. 60 crore for setting up the new plant, and that it is totally a new plant using a different process of manufacturing cement. It was also pointed out that in 1980-81, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from payment of sales tax available to pioneer units to the new dry process unit of the company. It also wants this Court to quash the demand notices issued by respondent No. 3, to give a direction to the respondents to refund the amount which had been recovered from it as sales tax between April, 1983 to March, 1988 and August, 1990 to December, 1990. This petition was filed on January 18, 1991 and this Court while issuing rule, has granted ad interim relief restraining the respondents from recovering the sales tax dues from the petitioner-company. 8.. The contention raised on behalf of the petitioner is that the company is entitled to the benefit of special incentive or deferment from payment of sales tax for its new unit, which is a pioneer unit, under the Government resolution dated August 27, 1980, as amended by the subsequent resolution dated March 13, 1981. It was contended that the said benefit is wrongly denied to the company because of the circular dated November 5, 1981 and February 8, 1983. In this petition, a further contention is raised that there was extensive relaxation and waiver of some of the conditions in favour of some of the companies by the Government, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it appears that the impact of these sales tax concessions were studied and it was found that they were not adequate. The Government, therefore, came out with schemes-one described as State Cash Subsidy Scheme and the other as Exemption from Sales Tax and Interest Free Sales Tax Loan Scheme . The schemes were declared by two separate resolutions of the same date, viz., December 22, 1977. Both the schemes were made effective from November 1, 1977 for a period of five years. The twin objects of both the schemes were decongestion of industries from developed areas and cities and to achieve development of industries in rural and backward areas. To achieve this object, cities and even towns and villages with a population of more than one lakh were described as areas not available for the benefits. Cash subsidies scheme was made available to new industrial units in developed areas indicated therein. It defined new industrial unit to mean an industrial unit commissioned on or after November 1, 1977 or which had fixed capital investment during the operative period of the scheme. The word expansion was also defined. Cash subsidy was given at a certain percentage of fixed capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under this scheme in lieu of old sales tax incentive scheme. If however any such project have already obtained any sales tax benefit may be entitled under the old scheme only and will be not entitled for this scheme. Areas of applicability and the list of growth centres, etc., will remain as per old sales tax incentive scheme. The list of industries excluded from the purview of this scheme will be the same as per the old scheme..... (4) Definition: Definition and norms of new units: Expansion, diversification, fixed investment, calculation of incentives in land, building, plant, machinery, etc., and such other terms as not specifically defined in this Government resolution will be the same as per the old sales tax incentive scheme. (5) Competent authority: Industries Commissioner or the Officers authorised by him will be the competent authority to issue eligibility certificate. A joint cell consisting of Officers of Sales Tax Department and Industries Commissioner will be formed to operate and supervise the scheme and to ascertain eligibility, determining exemption limit/deferment and follow up with the concerned sales tax authority for operating these limits. (6) Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the new scheme would be required to convey its option between (A) and (B) above in writing to the concerned district industries centres in case of small units and to the Industries Commissioner, if it is medium and large scale unit (i.e., of other than smallscale industry). The option should be exercised in writing before availing of any sales tax incentive benefit. An option exercised shall be final and not subject to any change. The competent authority, General Manager, District Industries Centres or Industries Commissioner on receiving an option from an eligible unit will issue a certificate of eligibility to enable the unit to obtain either exemption or deferment. Detailed procedure for administering exemption/ deferment will be issued by the Industries Commissioner and Sales Tax Commissioner jointly. The detailed procedure including the rules for computing admissible amounts and all such related matters as prescribed by the Industries Commissioner be binding on all beneficiary units. (7) Pioneer units: Special incentives for: Recognising the need for some special incentive for large industrial units going to a completely new location in backward areas so as to compensa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maharashtra and Gujarat up to Ahmedabad and corridor 8-8 km. on both sides of other national highway passing through the State will be entitled for sales tax incentives (e.g., sales tax deferment or exemption, at the option of the eligible unit) under sales tax incentives without any ceiling limit on the amount up to 90 per cent of the investment in gross fixed assets. Certain pioneer units were made ineligible for the enlarged benefit and were to continue to get incentive as per the resolution of August 27, 1980. 16.. Then, on November 5, 1981, a circular was issued by way of clarification. Paragraph 5 thereof stated that: 5. There should be no industry having such investment or employment which had gone into commercial production before June 1, 1980 within a radius of 8 kms. 17.. On February 8, 1983, another circular was issued with a view to further clarify the position as regards recognition of a new industrial unit as a pioneer unit. It declared that: A pioneer unit should not be expansion, diversification or modernisation or renovation of an existing unit. It should also not be revival of a sick unit whether by the existing or new management, whether the revival i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch pioneer unit going to a C grade growth centre could not have benefited additionally but for the further provision made in paragraph 7. It was provided that in addition to that benefit, such pioneer units will be given extra benefit equivalent to 10 per cent of the fixed assets or Rs. 10 lakhs whichever was less. It may be stated that subsequently, this extra benefit was enhanced by changing the percentage. The requirement of paragraph 7 was that such unit should have gone to a completely new location. Which unit could be regarded as a large industrial unit was made clear by stating that it should be a project involving investment in fixed assets of at least Rs. 50 lakhs or which gave employment to 100 workers on a permanent basis. Another condition was that it should have been the 1st, 2nd or 3rd unit in such location, and area of 8 kms. around it. It would be noticed that out of four conditions, which were made applicable to pioneer units, conditions Nos. 2 and 4 apply to all new industrial units. Large industrial unit was required to be described or defined, as till then the distinction was between small-scale units on one hand and medium and large scale units on the other. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a repetition of the condition available to units other than pioneer units. It was special to pioneer units, and therefore, it had to be stated in paragraph 7. For these reasons, we cannot accept the contention raised on behalf of the respondents that the provision contained in paragraph 7 in respect of pioneer units was independent and complete provision by itself and that no part of paragraph 6 could be referred to for determining the benefits available to pioneer units. This controversy would not have assumed importance but for the fact that whereas paragraph 6 refers to expansion and diversification also, paragraph 7 is silent about it, and the petitioners have been denied benefits under paragraph 7 on the ground that what they did amounted to expansion or diversification and not setting up of a pioneer unit. 21.. It was also submitted on behalf of the respondents that the first part of paragraph 7 was really the definition part and the second part of that paragraph consists of conditions which are by way of modification of the first part. On the other hand, it was contended on behalf of the petitioners that the first part by itself was not workable and would have left many ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are referring to those cases because many decisions interpreting that word were cited before us. 23.. The learned counsel for the petitioners first drew our attention to the decision of this Court in Yeast Alco Enzymes Limited v. State of Gujarat [1990] 76 STC 462. Therein, this Court had an occasion to consider paragraph 7 of the 1980 scheme, though in a different context. The benefit of that paragraph was denied to the Yeast Alco Enzymes Ltd., on the ground that it had earlier put up a small-scale khandsari unit in that area and for that reason the new unit set up by them was not a pioneer unit. In that case, this Court held that the emphasis in paragraph 7 is on the pioneer unit and not the pioneer entrepreneur and, therefore, the same entrepreneur or owner was entitled to the benefit under paragraph 7, if the large scale unit established by him was the first of its kind in that area. 24.. Next our attention was also drawn to the decision of the Supreme Court in Textile Machinery Corporation Ltd. v. Commissioner of Income-tax, West Bengal [1977] 107 ITR 195; AIR 1977 SC 1134, wherein the Supreme Court had an occasion to consider section 15C of the Income-tax Act, 1922, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same commodities or some distinct commodities. 27.. The learned counsel also relied upon another decision of the Supreme Court in Commissioner of Income-tax, West Bengal v. Indian Aluminium Co. Ltd. [1977] 108 ITR 367, wherein also the question for consideration had arisen under section 15C of the Income-tax Act, 1922. The Supreme Court, following its earlier decision in Textile Machinery Corporation s case [1977] 107 ITR 195; AIR 1977 SC 1134, allowed the claim of the assessee. However, what was emphasised was the fact that in that case the assessee had set up new units side by side with the old ones and added to the assessee s total output of aluminium ingots. It was submitted that inspite of the fact that the new units were situated side by side and both manufactured the same product, the Supreme Court had considered it as a new industrial undertaking. 28.. It was also submitted that when incentive is given for an industrial activity such a provision is required to be liberally construed. In support, the learned counsel cited the following decisions of the Supreme Court: Here italicised. (1) Commissioner of Income-tax, Amritsar v. Strawboard Manufacturing Co. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been enacted, it is apparent that a liberal construction should be given to the language of the provision. The learned counsel for the petitioners drew our attention to the decision of the Supreme Court in Cochin Company v. Commissioner of Income-tax, Kerala [1968] 67 ITR 199. In that case, the Supreme Court was required to consider the meaning of the word new in the context of section 10(2)(vi) and (vi-a) of the Indian Income-tax Act, 1922. The Supreme Court held that the word new must be construed as meaning not existing before, new made, or brought into existence for the first time , and in contradistinction and antithesis to the word used . 32.. The learned Advocate-General distinguished these cases by submitting that these decisions cannot be regarded as of universal application and what meaning should be given to the word new would depend upon the language of the statute, which contains it. The decisions relied upon by the petitioners no doubt point out that generally speaking, in the context of tax benefits or incentives, expansion or modernisation by an existing unit is also regarded as setting up of a new industrial unit, if the new unit is found to be an inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a completely new location indicated that pioneer unit had to be an altogether new unit, which had gone to a completely new location in a backward area and thus expansion or diversification by existing unit at the same place or at an adjoining place could not be regarded as going to a completely new location. It was also emphasised that the special incentive was given to such units with a view to compensate them for the extra economic burden or handicaps involved in going to a new location in backward areas. There is no dispute in this case as regards what areas were to be considered as backward areas. Thus, what is required to be interpreted and construed is the expression going to a completely new location . By location what was meant was town and village and areas 8 kms. around it. But for the provision that first, second and third unit was also to be regarded as a pioneer unit, it would have become necessary to hold that if one unit had already gone to a particular town or village, then for another unit to be regarded as a pioneer unit, it was necessary for it to go to a place which was away from that town or village and the area 8 kms. around it. Thus, if paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kward areas, special incentives were given to such units. It cannot be said that the extra economic burden or handicaps would have been suffered only by a new entrepreneur going to the backward area or by an existing industry, if it had set up a new large industrial unit in a different location 8 kms. away from the same. The extra economic burden or handicap, which was likely to be suffered, was because of the industrial unit being situated in a backward area and not merely because it was moved to a backward area. That itself was considered as an extra economic burden or handicap. This extra economic burden or handicap had prevented large industrial units going to backward areas. It was for that reason that those special benefits were made available to such units. If this is kept in mind, we fail to appreciate how an existing industry, which had set up a new large industrial unit, just by the side of its existing industrial unit, could have been denied special benefits on the ground that the unit set up by it was not a pioneer unit, if the large industrial unit was an independent viable unit, having an identity of its own. We also see no good reason for holding that if an existing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a pioneer unit by issuing a circular. Now, there is no dispute that circulars are interdepartmental clarifications. At best, they are departmental interpretations. Obviously, by issuing circulars, the heads of the department cannot set at naught a decision of the Government contained in the resolution. This position is not disputed even by the learned Advocate-General appearing for the respondents. It was also submitted that since the circulars were neither notified nor published, persons who relied upon the 1980 resolution and acted upon it, cannot be denied the benefit of the resolution on the ground that the Government had sub-sequently issued those circulars. In support of their contention, the learned counsel for the petitioners drew our attention to rule 12 of the Gujarat Government Rules of Business and pointed out that all orders or instruments made by or executed by or on behalf of the Government of the State shall be expressed to be made by or under order of or executed in the name of the Governor. Our attention was also drawn to rule 9 which provides, that all matters affecting the finance of the State shall be brought before the Council of Ministers only after consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights of a person setting up a new industry adversely, then, obviously, such circulars cannot be regarded as applicable to such a person. They would certainly apply prospectively, i.e., they would bind those persons, who set up new industries thereafter. In the former case, the persons setting up new industries can be said to have relied upon the representation, which was there in the original resolution, and not on the resolution as it stood modified by a subsequent circular. In these two cases, this aspect has assumed importance as both the petitioners had taken a decision and had also taken steps for setting up their new industrial units and had spent considerable amount of money before those circulars were issued. 36.. By the circular dated November 5, 1981, the Government, inter alia, purported to clarify that special benefits as pioneer unit was to be given, if there was no industry having such investment or employment, and which had gone into commercial production before June 1, 1980 within a radius of 8 kms. Thus by this circular, application of paragraph 7 was sought to be restricted by making special benefit as a pioneer unit available to a new large industrial uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an existing unit. It should also not be revival of a sick unit whether by the existing or new management, whether the revival involves expansion, renovation, modernisation or diversification or not . It was submitted on behalf of the respondents that by this circular, it was made clear that if an existing industry carried out expansion, diversification, modernisation or renovation of its unit, then, it would not be entitled to the status of a pioneer unit. It was also submitted that the Government has consistently decided that expansion, etc., in an existing unit in situ would not amount to setting up a pioneer unit. Since we are not concerned with the diversification or renovation, we would only consider what was meant by expansion or modernisation of an existing unit by that circular. The circular did not define the term expansion or modernisation . Paragraph 4 of the 1980 resolution stated that the definition of the term expansion , if not specifically defined in that resolution, was the same as per the old sales tax incentive scheme. Paragraph 7 of the resolution did not define or even refer to the terms expansion or modernisation . Therefore, we will have to turn to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing capacity, but it cannot be said that the manufacturing capacity of the existing unit has been expanded. A unit which has its own independent identity will have to be regarded as a new unit, even though the owner remains the same. In this view of the matter, therefore, when the Government issued the 1980 resolution, what it represented to the entrepreneurs was that if a new large unit is set up by them in a backward area, then the new unit will be regarded as a pioneer unit. However, by using the words, completely new location it was made clear that, if it was by way of expansion of the existing unit, then the same was not to be regarded as a new and a pioneer unit. Though the circular dated February 8, 1983 can be read consistently with the said representation made in paragraph 7 of the 1980 resolution, it will have to be held that the said circular restricted the meaning of the expression pioneer unit , in view of the fact that it has been differently understood by the concerned departments of the Government. Setting up of an entirely new plant, having no connection with the old one, and having its own independent identity, came to be regarded as expansion of the existin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.. In respect of Digvijay Cement Co., it was submitted by the respondents that it had implemented the new project as an expansion and not a new unit. The permission, which the company had asked for under the Industries (Development Regulation) Act was for expansion. Only when the petitioner realised on February 20, 1986, on account of communication from the Government that it did not fulfil the criteria of eligibility for pioneer status that it approached the Government of India and obtained some amendment in its licence to get the benefits of the scheme. It had also accepted the eligibility certificate issued on the basis that it was a case of expansion and obtained incentives on that basis. It was therefore estopped from contending otherwise. Its case was also considered by the Special Review Committee and it was found that it was essentially a case of modernisation of the existing plant and not of a new large unit having gone to a new location. The company had initially thought of expansion of its existing unit. Accordingly, on December 15, 1979, it had applied to the Government of India for permission to dismantle one existing old wet process plant and to install a new pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is judgment. 43.. While reconsidering the case of Digvijay Cement Co., the respondents will have to take into consideration the following facts and circumstances: It had obtained separate industrial licence for the new unit under the Industries (Development Regulation) Act. Its assertion that it had decided to set up a new industrial unit relying upon the 1980 resolution, though, initially, i.e., before August, 1980, they wanted to go for expansion. The Central Excise Department had also granted certificate recognising the unit as a new unit and certifying that it was entitled to the benefit of partial exemption regarding payment of excise duty, because it was a new unit. The Government of India had also, by its letter dated November 27, 1976, recognised the new dry process plant as a new unit having a separate entity. It has a separate factory licence and the Government had treated that new unit as a separate factory. The sales tax department has issued a separate sales tax certificate for their new unit. The Deputy Commissioner of Industries, by his letter dated March 7, 1986, had recommended that the unit may be treated as a new unit. After inspecting the unit, he had ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as also, except within the banned distance of six metropolitan cities. Another change that was made by this resolution was that the ceiling of 10 per cent or Rs. 10 lakhs whichever was less, was removed and the sales tax incentives were to be given on the amount up to 90 per cent of the investment in gross fixed assets. But the pioneer units, which were located within the corridor prescribed by it were to get the incentives as per the resolution of 1980. It is now an admitted position that the unit set up by Saurashtra Cement Co., is within a distance of 8 kms. from National Highway No. 8-8, which originates at Porbandar and ends at Bamanbor where it joins National Highway No. 8-A. Though laying down of such a condition is challenged on the ground that it is discriminatory and arbitrary, it is not necessary to consider the said challenge as we are of the opinion that in the context of the sales tax incentive scheme and the object with which further liberalisation was made by the resolution dated March 13, 1981, the representation, which can be said to have been made to the entrepreneurs, was that the limitation of the corridor was to apply to the corridor attaching to the other por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution in a different manner in respect of those entrepreneurs, who had taken steps to establish new industries before March 13, 1981 and those, who had acted upon the representation made in the Government resolutions dated August 27, 1980 and March 13, 1981. As stated in the petition, this condition of setting up a new industry beyond the corridor was waived in some cases. That is the reason why imposition of this condition is also challenged by the company as discriminatory in addition to its challenge that it is also arbitrary. Therefore, while reconsidering the case of Saurashtra Cement Co., the respondents will have to bear those aspects also in mind. Further, the respondents will also have to consider that an entirely a new plant using different technology was set up on an adjoining land; that the process of establishing new unit was initiated in the year 1980; that though it had initially planned to go for expansion or modernisation, it had decided to establish a new industrial unit, in view of the resolution dated August 27, 1980; that the new unit was not at all connected with the old unit; that the new unit was complete by itself and had its own independent identity; that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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