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TMI Blog1999 (4) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... a specified manufacturer of goods manufactured by him and on purchase of prohibited goods other than declared goods for use in the manufacture of textile goods on certain terms and conditions mentioned in the notification with which we are not presently concerned. The exemption is in favour of a specified manufacturer. Under annexure I appended to the said entry specified manufacturer was defined to mean a person in the State of Gujarat who establishes the new industry after June 1, 1980 but not after March 31, 1991 in any of the designated areas. The latter date was extended from time to time up to March 31, 1993. One of the conditions for claiming exemption is that if a specified manufacturer has obtained an eligibility certificate from the Industries Commissioner or, as the case may be, the General Manager of the District Industries Centre concerned stating, inter alia, that the new industry has been commissioned on the date specified therein being any date during the period commencing on April 1, 1986 and ending on March 31, 1991 (now March 31, 1993) in any of the designated areas and after obtaining eligibility certificate he has applied for the exemption certificate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act as the lender by deferring the payment, making the outstanding against the acquisition of such capital investment, as borrowed capital for the purpose of capital investment in the new industry, expansion or diversification, as the case may be, by the petitioner. 5.. On the other hand, it has been contended by learned counsel for the revenue, Mr. Kamal Mehta, that the term capital investment has not been defined under entry 175. Entry 175 is an outcome of the Government Resoultion dated May 6, 1986 laying down the policy of the State Government for granting incentive package with a view to secure balanced development of industries in the State through acceleration of the pace of industrial development of less developed areas of the State. The package incentive includes the sales tax incentives in two forms, namely, sales tax exemption as well as sales tax deferment. In the Resolution of the State Government dated May 6, 1986 the term eligible fixed capital investment has been defined. Referring to that definition, it was pointed out by learned counsel that only those assets which are acquired and paid for during the operative period of the scheme will be eligible for sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mit of amount up to which and period within which such exemption by the assessee can be availed of by the assessee under the entry, the phrase fixed capital investment has been used in explanation (1) to clause (b) of annexure II in defining expansion and diversification with reference to which the maximum limit of monetary quantum is to be determined, which can be enjoyed by the person during the period, also fixed under different Tables of annexure V. It is not the case of either of the parties that the term capital investment in the notification includes investment in all assets which can properly be called in common parlance to be capital investment or capital expenditure, but is confined to certain specified investments. There is intrinsic evidence that the notification is in furtherance of the policy disclosed in Government Resoultion dated May 6, 1986 and that insertion of entry 175 under section 49 as well as sales tax deferment scheme are both alternate to each other which are the two tax incentives offered under the said resolution dated May 6, 1986. In Note 1 appended to entry 175, it has been stated, in option of this entry, sales tax deferment scheme is offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r excluding short-term borrowings or long-term borrowings, whether of all categories or of any particular category or categories, depending on its environmental context. 10.. To adopt the expression environmental context in the present case, the same is provided by the resolution dated May 6, 1986, from which the expression capital investment can derive its colour. Insertion of entry 175 took place on December 23, 1986. The Government Resoultion was made on May 6, 1986 which declared that with a view to secure balanced development of industries in the State through acceleration of the pace of industrial development of the less developed areas of the State and promoting the growth of industries away from cities, Government of Gujarat had approved a package of incentives. The package of incentives includes subsidy and sales tax incentives. In pursuance thereof, the scheme known as Sales Tax Incentive Scheme for Industries, 1986 was unfolded in the said resolution. Under clause 6 of the scheme it was postulated that eligible units under this scheme will have option to choose one of the two sales tax incentives, namely, (a) sales tax exemption, and (b) sales tax deferment. It fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent insertion of entry 175 vide notification under section 49(2), that inserting entry 175 was the direct result of Resolution dated May 6, 1986 for the purpose of implementing it inasmuch as exemption of the nature engrafted in entry 175 was envisaged in the said resolution as one of the alternative incentives since such exemption from tax could not have been granted except by issuing notification under section 49(2) merely by way of an executive order, whereas deferment of the collection of sales tax payable under the provisions of the Act to the extent desired by the State could have been made by dint of an executive order, the notification followed the resolution. Thus, to the extent the notification under section 49(2) has deviated from the scheme unfolded in the resolution dated May 6, 1986, either by defining itself the terms used in the notification or prescribing limits of the exemption and the conditions for availing of exemptions, the resolution may not override the Act. However, in case of any doubt about the true manner of the expression used in the notification as environmental context, it is permissible to look at the resolution dated May 6, 1986. 13.. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the estimated market value of the asset as on the date of the eligibility of the new industrial unit or the expansion or diversification in respect of which incentive is claimed. In connection with land , the actual price paid for the land to the extent needed but excluding land development charges is only to be considered as capital investment in land. New building, new plant and machinery and investment in imported second hand machinery and installation expenditure capitalised for plant and machinery, capitalised interest during construction not exceeding 5 per cent of the total fixed capital investment, technical know-how fees or drawing fees paid in lump sum to foreign collaborators or foreign suppliers as approved by Government of India or paid to laboratories recognised by the State Government or Central Government are to be considered capital investment for the purpose of computing extent of incentive as well as eligibility criterion. Other investments in any other asset or by any other method is ruled out by making it clear in Note (1) that working capital (whether raised through banks or otherwise and including working capital margin); goodwill fees, engineering fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly paid or will defer the certificate until payment is made or period of scheme expires? Then what consequence it takes, if, at the time the value of asset is included and it remains unpaid at the end of the period of operation of scheme, the scheme does not say anything about that. It cannot be envisaged that the issue of eligibility certificate or the certificate of entitlement shall await until expiry of the period of the scheme. It cannot also be envisioned that issuance of certificate, which has its purpose to serve when the new unit, or expansion of a division, begins operation, will be deferred until such payment. That will be frustrating the very object of the scheme, which promises a reduced price structure for the new producer to withstand competition of existing product in the market. Therefore, in our opinion, the interpretation suggested by the revenue founded on the literal expression of the word paid leads to such a situation which would make the scheme unworkable as shall be presently seen, cannot be accepted. 15.. The one striking feature is that if the asset is acquired on a particular date for the payment of which money is borrowed from market and the liabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond-hand machinery and installation expenses, capitalised for plant and machinery, capitalised industries during construction not exceeding 5 per cent of the total fixed capital investment and the fees paid in lump sum to foreign collaborators or foreign suppliers of the know-how or the drawing fees or the laboratory charges that are the only avenues wherein investment made is to be considered as fixed capital investment. All other investments though may be falling within the meaning of fixed capital investment in popular sense are not to be considered eligible. If that be so, the fact that these assets or the capitalised value of interest whether it comes from the borrowed capital from source other than the suppliers or by credit generated due to payments deferred by supplier would not make any expansion in the limit of eligible capital investment. A new building constructed at a cost of Rs. 5 crores, whether 5 crores is borrowed from a financial institution and paid to the constructor or Rs. 5 crores remaining outstanding to be paid to the constructor, who has agreed to defer the payment, it is only Rs. 5 crores that would be considered as capital investment for computing eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the actual price liable to be paid by the assessee on the date when he acquires it and cannot be related to any artificial sum by estimation of market value as on the date eligibility is to be considered. Such liability to payments be incurred during the currency of the scheme, in the sense during which the commencement of new industrial undertaking or expansion or diversification will be eligible for operation of incentive and not in the sense during the period for which it operates for the beneficiary. Actual payments during that period is not a condition of its treatment as capital investment. To illustrate, instead of acquiring land, the assessee brings a land which is already owned by him. If assessee himself has acquired the land by paying price for it in past, it is the actual price paid by him for land which shall be the capital investment and not the value of the land on the date on which it has been brought by way of investment in the new industry/expansion or diversification. So also any assets brought into new industrial unit, expansion or diversification, as the case may be. If the assessee has not been subjected to any liability towards its acquisition because he ..... 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