9911796707
TMI Blog2004 (1) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... e second respondent in this original petition, who is the competent authority under the notification. The said company was subsequently renamed as Aradhana Beverages Manufacturing Company in August 2001 and later amalgamated with the petitioner-company in October, 2002. This original petition is thus filed by the petitioner-company for reliefs in respect of the application for sales tax exemption (exhibit P8). 3.. The petitioner had applied for and obtained sales tax registration both under the Kerala General Sales Tax Act, 1963 and under the Central Sales Tax Act, 1956 and is an assessee to sales tax under respondents Nos. 5 to 7. The petitioner, as already noted, commenced commercial production from March 6th/7th, 2001. Provisional assessment under rule 21(9) of the Kerala General Sales Tax Rules, 1963, was made for the month of April, 2001 denying exemption since no orders were passed on exhibit P8 application. The company then filed writ petition, O.P. No. 20675 of 2001 and obtained an interim order dated July 13, 2001 (exhibit P11) staying the recovery proceedings. Later, the writ petition itself was disposed of by judgment dated September 7, 2001 (exhibit P12). The second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said notifications. 6.. During the pendency of the writ petition, the second respondent passed an order dated June 8, 2003 (exhibit P26) on the petitioner's application for sales tax exemption (exhibit P8). The application was rejected. By way of amendment of the writ petition, the following reliefs are also sought for. (iv)(a) To call for the records leading to exhibit P26 order of the 2nd respondent and quash the same by the issuance of a writ of certiorari or such other writ, order or direction. (iv)(b) To grant a stay of operation of exhibit P26 order, pending disposal of the original petition. 7.. In essence, it is the legality of the order (exhibit P26) passed by the second respondent which is the issue now to be decided. 8.. The second respondent has filed a counter-affidavit justifying the decision (exhibit P26) taken by him on the application (exhibit P8) submitted by the petitioner. The relevant portions of the counteraffidavit are extracted hereinbelow (paragraphs 6, 7, 8 and 9): As already submitted, this unit had not acquired the necessary plant and machinery prior to January 1, 2000. It claims to have taken the notified effective step of ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R.O. No. 1729/93 as amended by S.R.O. No. 29/99 stipulates that the competent authority to clarify doubts about the scheme of granting sales tax exemption will be the State Level Committee. The Government have authorised under section 10 of the KGST Act the S.L.C. to do so. Hence the Director of Industries and Commerce placed the matter before the State Level Committee to clarify the case of the petitioner-unit on the basis of Notification S.R.O. No. 1092/99 and 295/2000. The State Level Committee examined the case in detail and made it clear that the purchase orders and other documents related to payment of advance to machinery suppliers do not show that the company has fully satisfied the definition of 'effective steps' as required by the said notification. It was only based on this clarification and the provisions in the said notifications that the unit's application for eligibility certificate was rejected by the 2nd respondent. 9.. It is also stated that the petitioner-unit is a self financing unit, that in the case of a self financing unit mere acquisition of 50 acres of land for setting up the project does not help the unit in any way to be regarded as satis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be left unsatisfied. The S.R.Os. are very specific about this. In cases where only firm orders are placed, it cannot be limited to one or two items of the machinery, leaving the major portion of the machinery not arranged for, without placing firm orders for the purchase of the same in the manner specified in the notifications. When there is a stipulations that the necessary plant and machinery have to be acquired or purchased prior to January 1, 2000 as one of the eligibility conditions, by no stretch of imagination it can be understood or concluded that firm orders need be placed only for any two or three items of the several items constituting the plant and machinery necessary for the project. 12. The petitioner had filed a detailed reply affidavit refuting the stand taken by the second respondent in regard to the scope of Notifications S.R.O. No. 1092 of 1999 and S.R.O. No. 295 of 2000. Petitioner reiterated the stand that it had taken effective steps as contemplated under the above two notifications. The petitioner had also filed I.A. No. 115784 of 2003 for accepting additional documents, exhibits P27 and P28, containing all the details regarding firm orders placed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advance payment must be a substantial portion of the sale consideration is due to a misreading of the said sub-clause. Senior Counsel further took me to various communications commencing from May 11, 1999 (exhibit P1) with regard to company's proposal to make substantial investment of over Rs. 50 crores in setting up the new industrial unit in Kerala for the manufacture of soft drinks with the full range of Pepsi products, confirmation sought for regarding the available sales tax exemption benefit and allotment of land for setting up new unit, the communications received from the Kerala Industrial Infrastructure Development Corporation (exhibit P2), giving information in that regard and the various materials and documents produced before the authorities (exhibits P3, P4 and P7 to P28) to establish that the petitioner had taken effective steps as contemplated in sub-clauses (ii) and (iii) of clause 1 of Notification S.R.O. No. 1092 of 1999 for setting up the industrial unit at Palakkad. Senior Counsel further submitted that the Government had clearly understood the scope of Notifications S.R.O. Nos. 1092 of 1999 and 295 of 2000 and expressed their view in clear terms to the St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an idea about the background of sales tax exemption granted under section 10 of the Act. The Government for the first time as an incentive for setting up new industries in the State had issued a Government Order dated April 11, 1979 granting exemption from payment of sales tax to new industrial units under small-scale industries set up after April 1, 1979 for a period of 5 years. This order was not one passed with specific reference to section 10 of the Act. Government, subsequently, modified the exemption by issuing a statutory Notification S.R.O. No. 968 of 1980. The exemption under the said notification was limited to 90 per cent of the fixed investment in plant and machinery. The notification also contemplated production of eligibility certificate issued by the General Manager, District Industries Centre of the concerned district. Unlike under the Government Order dated April 11, 1979, this notification contemplated an assessment under the Act, regarding the liability to tax for each year. Once the eligibility is determined, the tax due as per the said assessment order will have to be adjusted against the amount of exemption specified in the eligibility certificate. 17.. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1980, obviously would not be entitled to that benefit as they had notice of the curtailment in the exemption before they came to set up their industries. The Supreme Court in this decision has applied the rule of estoppel otherwise known as the principle of promissory estoppel laid down in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); (1979) 2 SCC 409. 18.. This notification was later superseded by another Notification S.R.O. No. 499 of 1990 which also granted exemption from payment of sales tax payable under the Act by the said industrial units under small-scale industries and by such of the existing industrial units which effect diversification/expansion/modernisation on the turnover of sale of goods manufactured and sold by such units and on the turnover of goods taxable at the point of last purchase in the State and used by such units in the manufacture of goods intended for sale within the State or inter-State, subject to conditions. The word manufacture used in the notification is defined; the eligibility certificate has to be issued by the District Level Committee, etc., are some of the features. This notification has no re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the first day of January, 2000; and (4) sick small-scale industrial units which have been registered as sick units before the Director of Industries and Commerce prior to the first day of January, 2000. 22.. The Notification S.R.O. No. 1729 of 1993, inter alia, granted tax exemption to new industrial units in respect of the tax payable on the sale or purchase of goods by such industrial units subject to conditions and restrictions specified therein. Clause (4) of the said notification dealing with new industrial units under medium and large scale industries provided as follows: 4. In the case of new industrial units under medium and large scale industries, there shall be an exemption for a period of seven years from the date of commencement of commercial production (a) in respect of the tax payable by such units under the Kerala General Sales Tax Act, 1963 (i) on the turnover of sale of goods manufactured and sold by them within the State; and (ii) on the turnover of goods, taxable at the point of last purchase in the State, which are used by such units for manufacturing other goods for sale within the State or inter-State; Sub-clause (iii) not relevant; henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial Taxes, Managing Director, Kerala Financial Corporation, Managing Director, Kerala State Industrial Development Corporation and Director of Industries and Commerce (Member Secretary). Any of the three members of the committee shall form quorum for its meeting. The above State Level Committee shall also be competent to issue clarifications, wherever necessary, regarding the scheme of the tax exemption. (g) Appeal against orders of the Deputy Commissioner (General), Commercial Taxes shall lie to a State Level Committee consisting of the Secretary to Government (Finance Taxes), (Chairman), Commissioner of Commercial Taxes and the Director of Industries and Commerce (Member Secretary). Any of the two members of the committee shall form quorum for its meeting. (h) The State Level Committee mentioned in clause (f) or (g) can revise any order of the District Level Committee or the Deputy Commissioner (General), Commercial Taxes, as the case may be, after giving due notice to the industrial unit if in the opinion of the committee, the order of the District Level Committee or the Deputy Commissioner (General), Commercial Taxes, is not in accordance with this notification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No. 1729 of 1993 from January 1, 2000. 28.. As already noted, the petitioner-company had set up the industrial unit (medium scale) and commenced commercial production only after January 1, 2000. Thus Notification S.R.O. No. 1092 of 1999 is pivotal in deciding the claim for sales tax exemption made by the petitioner, for, unless the petitioner's case falls within any one of the four sub-clauses of clause 1 of this notification petitioner cannot claim the benefits of the Notification S.R.O. No. 1729 of 1993. Admittedly, sub-clauses (i) and (iv) of S.R.O. No. 1092 of 1999 have no application. The case of the petitioner is that it will fall under subclause (ii). Sub-clause (iii) is also relevant since the latter part of this sub-clause inserted by Notification S.R.O. No. 295 of 2000 is common to sub-clauses (ii) and (iii). Hence it is necessary to extract subclauses (ii) and (iii) of clause 1 of the said notification, which read as follows: Sub-clause (ii). New industrial units other than public sector undertakings which have taken effective steps for setting up new industrial unit prior to the 1st day of January, 2000. An industrial unit shall be considered to have taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and the inten ion of the State Government in granting exemption are to be taken into account for interpreting the words used in the notification. In Bajaj Tempo Ltd. v. Commissioner of Income-tax [1992] 196 ITR 188; (1992) 3 SCC 78 the Supreme Court held that provision granting incentive for promoting economic growth and development in taxing statutes should be liberally construed and restrictions placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the object of the provision. This principle is applied by the Supreme Court in Commissioner of Sales Tax v. Industrial Coal Enterprises [1999] 114 STC 365 also. 30.. Now I will come to the crucial aspect focussed in the opening paragraph of this judgment, viz., the scope and ambit of the expression taken effective steps for setting up new industrial unit prior to January 1, 2000 . By virtue of sub-clause (ii) above, new industrial units other than public sector undertakings which have taken effective steps (emphasis supplied) for setting up new industrial unit prior to the first day of January, 2000 are entitled to apply for exemption under the Notification S.R.O. No. 172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an industrial unit can be considered to have taken effective steps, if it has owned or acquired or has been allotted land for establishing the industrial unit and also applied for loan from any regular financial institution/ Government before January 1, 2000. Similarly, in the case of self financed units acquired or placed firm orders for the purchase of necessary plant and machinery before January 1, 2000, it can be considered to have taken effective steps provided the unit commences commercial production on or before December 31, 2001. Regarding the third situation, it is stated that a unit shall be deemed to have placed firm orders for the purchase of plant, machinery and equipments if such units had made any (emphasis supplied) advance payments therefor by means of demand draft or cheque which have been credited to the account of the seller prior to the first day of January, 2000. Here it must be noted that sub-clauses (ii) and (iii) provide for the circumstances under which an industrial unit can be considered/deemed to have taken effective steps but it is not exhaustive. The burden is on the industrial unit to establish that the unit had placed firm orders for purchase of pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case the respondents do not seem to have taken steps which can be considered as effective steps for starting a new unit prior to the notification of May 7, 1990, thereby entitling them to invoke the doctrine of promissory estoppel. The respondents rely upon the following for the purpose of invoking promissory estoppel: 1.. The respondent-firm got its provisional registration certificate on February 15, 1990. This is merely a provisional registration issued by the Directorate of Industries. 2.. They applied for allotment of land and land was allotted to them by RIICO Limited, by its letter dated February 19, 1990. Possession of the land was handed over on March 7, 1990 and lease agreement was executed in March, 1990. For this land, only an amount of Rs. 30,849 was invested. 3.. The respondent-firm was registered as a partnership firm with the Registrar of Firms on March 6, 1990. 4.. On April 2, 1990, the respondent-firm applied for registration under the Rajasthan Sales Tax Act which was granted on April 17, 1990. 5.. A loan of Rs. 7.5 lakhs was sanctioned by the Rajasthan Financial Corporation in favour of the respondents on April 17, 1990. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... January 1, 2000, this notification is issued keeping in mind the principle of promissory estoppel. 36.. The meaning of the words set up was considered by a division Bench of this Court in John v. State of Kerala (1996) 2 KLT 315. It was held that the words set up have to be taken as equivalent to the word established and that it is only when a unit is ready to go into business and starts production it can be considered as set up. The Orissa High Court in Crystal Towers v. Commissioner of Commercial Taxes, Orissa [1998] 110 STC 161, Karnataka High Court in Nandi Dall Industries v. State of Karnataka [1994] 92 STC 206 and the Andhra Pradesh High Court in State of Andhra Pradesh v. Godavari Plywoods Ltd. [1991] 83 STC 289, have also taken the same view. In view of the above, the expression have taken effective steps for setting up new industrial unit must be understood as a stage prior to the setting up of the industrial unit. The only question then is, at what stage of the steps taken for setting up of the industrial unit it can be said that effective steps are taken . The principles regarding interpretation of an exemption provision in a taxing statue laid down by the Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, should have taken serious steps for setting up the unit and that there is a bona fide effort on the part of the unit to set up the unit and to start commercial production. Here it must be noted that the time given to such units for availing the benefit of Notification S.R.O. No. 1729 of 1993 is also relevant. Notification S.R.O. No. 1092 of 1999 was published in the Kerala Gazette extraordinary No. 1122 dated 4th November, 1999. Time was granted up to January 1, 2000, approximately two months for taking effective steps and further, to a case attracting sub-clause (ii)(c), 12 months' time was granted to the party to set up the unit and for commencing commercial production. Thus, it would appear that the intention of the Government in issuing Notification S.R.O. No. 1092 of 1999 containing subclauses (ii) and (iii) is to find out the bona fides of the industrial unit in setting up and commencing commercial production. 38.. Now the question to be considered is as to whether the second respondent had considered the question of eligibility of the petitioner for tax exemption with reference to sub-clauses (ii) and (iii) of clause 1 of Notification S.R.O. No. 1092 of 1999 as ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated therein that the petitioner qualifies for tax exemption contemplated in Notification S.R.O. No. 295 of 2000 provided all other conditions are complied with. A direction was also given to dispose of the applications in accordance with the procedure stipulated. Second respondent thereafter issued a communication dated January 8, 2002 (exhibit P17) stating that a hearing is fixed to January 14, 2002 and the petitioner was directed to produce evidence to link the advance payments made as per certificate dated September 29, 2000 (exhibit P14) with the actual invoices/purchase orders from the suppliers. It was specifically stated therein that the issue of eligibility certificate will be based on the petitioner producing the required evidence to the satisfaction of the second respondent. Petitioner then gave a letter dated January 14, 2002 (exhibit P18) to the second respondent enclosing the copies of relevant purchase orders, invoices from the suppliers, confirmation regarding payment of advances, certificates from the company's statutory auditors regarding the correctness of the informations furnished. The State Level Committee on Sales Tax Exemption met on July 29, 2002 and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21) dated February 14, 2003 filed before this Court in O.P. No. 20675 of 2001. In the affidavit the second respondent has stated that as per the direction of the State Level Committee a request was made to the Government to issue a general clarification to the expression necessary plant and machinery prescribed in S.R.O. No. 295 of 2000 and that the matter is pending consideration before the Government. Petitioner's representations before the Government are dated September 11, 2002, September 13, 2002, October 9, 2002 and January 4, 2002 (exhibit P22). 42.. The second respondent had ultimately passed the order dated June 8, 2003 (exhibit P26) rejecting the petitioner's application. In the said order the second respondent, after narrating the circumstances mentioned in the proceedings dated July 29, 2002 (exhibit P19) and extracted in paragraph 40 supra had stated as follows: In turn, vide letter No. 29815/B2/02/ID dated December 23, 2002, Government have clarified that there is no need to issue a general clarification for S.R.O. Nos. 1092/99 and 295/2000 regarding STE. This position was reported to the State Level Committee held on March 15, 2003 for clarification. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1993. In the present case though the second respondent who is the authorised officer to consider the eligibility of the unit for sales tax exemption had stated in exhibit P17 communication that it is his satisfaction on the basis of evidence to be produced by the petitioner that is relevant, he had abdicated the jurisdiction vested in him to decide the issue and had acted only as a mouthpiece of the State Level Committee. The decision on the petitioner's application was taken by the State Level Committee and the second respondent has only communicated the decision of the said Committee to the petitioner; (2) The State Level Committee does not appear to have given any opportunity to the petitioner to substantiate its claim before the said Committee; (3) Though there is reference to the documents produced by the petitioner to establish that firm orders have been placed for purchase of plant and machinery prior to the first day of January, 2000, there is no independent consideration of all those documents to find out as to whether the petitioner had satisfied the requirements of taking effective steps for setting up the industrial unit prior to the first day of January, 2000. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate Level Committee which is the appellate forum but by the State Level Committee constituted under clause 10(f) of Notification S.R.O. No. 1729 of 1993 for hearing appeals against the orders of the District Level Committee on the application of S.S.I. units. Of course, power is conferred on the said Committee to issue clarifications in regard to the scheme of the tax exemption. According to me the decision taken by the State Level Committee in the case of the petitioner cannot be considered as a clarification of the nature mentioned above. Further any such clarification with reference to individual case can, if at all, be issued only after hearing the affected person. The State Level Committee which took the decision did not hear the petitioner at all. The decision of the State Level Committee in the above circumstances is without jurisdiction; and (5) Above all, there is no consideration of all the relevant matters for a proper understanding of the provisions of subclauses (ii) and (iii) of clause 1 of Notification S.R.O. No. 1092 of 1999 as amended by Notification S.R.O. No. 295 of 2000. Irrelevant matters (the facts stated in paragraphs 6 to 9 of the counter-affidavits extract ..... X X X X Extracts X X X X X X X X Extracts X X X X
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