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TMI Blog2007 (11) TMI 573X X X X Extracts X X X X X X X X Extracts X X X X ..... ertificate issued by the Deputy Commissioner. Exhibit P24 order passed by the Deputy Commissioner cannot be said to be without jurisdiction. It is with jurisdiction and the finding therein to the effect that the petitioner has not satisfied the conditions mentioned in S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000 is correct and justified. The said finding does not require any interference. Exhibit P24 is therefore upheld subject to the finding in para (i) above, viz., the activity carried on by the petitioner in its unit for the production of soft drinks is a manufacturing activity within the meaning of S.R.O. No. 1729 of 1993. - W.P. (C). No. 3115 of 2007 - - - Dated:- 30-11-2007 - GIRI V. , J. V. GIRI J. The petitioner challenges exhibit P24 order passed by the Deputy Commissioner (General), Department of Commercial Taxes, Thiruvananthapuram, declining its application for exemption from payment of sales tax in terms of S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000. Though S.R.O. No. 1729 of 1993 has been considered and discussed by this court as also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the surcharge payable under section 3 of the Kerala Surcharge on Taxes Act, 1957. Clause 10 of exhibit P1 notification enumerates the conditions and restrictions in relation to grant of exemption in the case of new industrial units. The aggregate exemption in respect of sales tax, purchase tax, surcharge and Central sales tax payable together shall not exceed 100 per cent of the fixed capital investment. Clauses 10(b) and 10(c) deal with the issuance of an eligibility certificate and orders of exemption. The same read as follows: 10(b). Eligibility certificate for medium and large scale industries assisted by the Kerala State Industrial Development Corporation or the Kerala Financial Corporation will be issued by the Corporation which render assistance and in other cases by the Director of Industries and Commerce, on application by such units and orders of exemption will be issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram. 10(c). Eligibility certificate and orders on exemption will be issued by the authorities mentioned in sub-clause (b) above, if the unit is eligible for exemption or deferment of taxes and the unit satisfies the conditions for the exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial unit prior to the 1st day of January, 2000. An industrial unit shall be considered to have taken such effective steps if it has, (a) obtained provisional registration (applicable only in the case of SSI units), (b) owned or acquired or has been allotted land for establishing the industrial unit and applied for financial support from any regular financial institution/Government before January 1, 2000 or (c) in the case of self-financed units, acquired or placed firm orders for the purchase of the necessary plant and machinery, before January 1, 2000 provided that the unit commences commercial production on or before the December 31, 2001. ... A unit shall be deemed to have placed firm orders, for the purchase of plant, machinery and equipment if such unit had made any advance payments therefor by means of demand draft or cheque which has been credited to the account of the seller prior to January 1, 2000. The onus of proving that an industrial unit had placed firm order for purchase of such plant, machinery and equipment prior to January 1, 2000 shall be on such industrial unit. The amendment brought about by exhibits P1(a) and P1(b) notifications thus stood inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution/Government before January 1, 2000 (c) in the case of self-financing units, acquired or has placed firm orders for the purchase of necessary plant and machinery before January 1, 2000. For all the aforementioned categories it is necessary that the unit commences commercial production on or before December 31, 2001. The deeming provision inserted by S.R.O. No. 295 of 2000 provides that the units have placed firm orders for the purchase of plant and machinery and equipment if such unit had made any advance payments therefor, by means of demand draft or cheque which has been credited to the account of the seller prior to January 1, 2000. The onus of proving that an industrial unit had placed firm orders in the manner aforementioned shall be on such industrial unit. As noted above the amendment notification restricts the benefit of exemption otherwise granted under S.R.O. No. 1729 of 1993 to certain categories of units as enumerated above. The curtailment of the benefit of exemption otherwise promised under S.R.O. No. 1729 of 1993 could have been challenged on the premise that such curtailment is hit by the principles of promissory estoppel, if such curtailment had come abou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the petitioner, a copy of the said certificate was made available to it only when it was produced as exhibit R1(a) along with the counteraffidavit filed on February 22, 2007. On June 20, 2005 the third respondent-Deputy Commissioner (General), the competent authority to issue the certificate of exemption proposed to reject the petitioner's claim for sales tax exemption on the premise that the petitioner has not satisfied the conditions in the notification. The gist of the notice is to the effect that only a new industrial unit which had taken effective steps for setting up a new industrial unit prior to January 1, 2000 is eligible for exemption. The petitioner had claimed that effective steps were taken by it and this was indicated by the placement of firm orders for the supply of plant and machinery. The total claim of investment in plant and machinery is Rs. 3210.13 lakhs. Thus the total cost of plant and machinery of the unit as claimed by the petitioner is Rs. 32,10,13,534; that is necessary plant and machinery required for each and every stage of production. In the case of the company which is engaged in the production of soft drinks, necessary plant and machinery wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee also contended that the proposal as per exhibit P13 seems to be in violation of the judgment of the High Court and therefore the assessee can attend a personal hearing only if a hearing is posted pursuant to the notice issued in accordance with the judgment. Nevertheless a further reply was sent on July 13, 2006 as exhibit P18. Apart from contending that the issue of eligibility has been decided by the Director of Industries and therefore the jurisdiction available with the Deputy Commissioner of Sales Tax is only to issue a certificate of exemption quantifying the exemption as such, the following facts were pleaded by the petitioner both in exhibits P14 and P18 reply: (i) Filed IEM with SIA vide SIA ACFK/2655/SIA/IMO/1999 dated December 28, 1999. (ii) Acquired 50 acres of land in Kanjikode, Palakkad District from Western India KINFRA on December 28, 1999 by executing a lease agreement dated December 28, 1999 and paying the entire consideration amount of Rs. 2,77,64,000 to Western India KINFRA vide DD dated December 24, 1999. (iii) Obtained the necessary consent from the Kerala State Pollution Control Board on December 20, 1999. (iv) Placed orders for the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for necessary plant and machinery had been placed before the cut-off date, on January 1, 2000 only in respect of items 1 and 2 mentioned in the tabular statement extracted above. Obviously firm orders were not placed for necessary plant and machinery , namely plant and machinery required for each and every stage of its activity, commencing from the purification of the bottles ending with the ultimate bottling, labeling and inspection of the product. There is also a contention that the activity carried on by the petitioner does not amount to manufacture and therefore the unit is not entitled to sales tax exemption. The petitioner has filed a reply affidavit. I heard the learned Senior Counsel for the petitioner Sri. Joseph Vellappally and the Special Government Pleader for Taxes Sri. Vinod Chandran. Mr. Vellappally contended that exhibit P24 order suffers from the following fundamental infirmities: (1) The petitioner's eligibility for sales tax exemption was certified by the Director as per exhibit R1(a) and consequently it was not open to the Deputy Commissioner of Commercial Taxes, the third respondent to again consider that question. The third respondent had the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsustainable. Regarding contention No. (1) The next aspect to be considered is whether the third respondent had exceeded his jurisdiction while passing exhibit P24 order finding that the petitioner has not satisfied the conditions laid down in S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000. Mr. Vellapally contends that the jurisdiction of the third respondent in terms of S.R.O. No. 1729 of 1993 is only to quantify the exemption that the assessee would be entitled to. The petitioner's eligibility for tax exemption has already been certified by the Director as evidenced by exhibit R1(a) order. The scheme of the notification contemplates the eligibility to be first verified by the Director and once the Director certifies that, the Deputy Commissioner is to proceed from the stage where the unit is found eligible for tax exemption and quantify the exemption that the petitioner is entitled to. He contends that apart from the fact that this is what the notification suggests even from a plain reading thereon, in so far as the present case is concerned, exhibit P2See [2006] 144 STC 409 (Ker). judgment of this court as affirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fixed capital investment made by the unit. What is certified in exhibit R1(a) is fixed capital investment eligible for sales tax exemption and this is mentioned in para 8 of the certificate exhibit R1(a) in form 4. This is what is contemplated by the second respondent under the notification. Once a Director certifies the exemption limit then the issue as to whether the unit is entitled to exemption as such in terms of the statutory notification will have to be decided by a competent authority in the Taxes Department, the Deputy Commissioner of Commercial Taxes. This is what is contemplated under the notification and this is what has been done by the Director while issuing exhibit R1(a). This court had in exhibit P2See [2006] 144 STC 409 (Ker). judgment directed the fourth respondent to reconsider the petitioner's application for exemption. The direction can only be construed as one which required the fourth respondent to exercise his power in terms of the notification. An application submitted by the unit for tax exemption is finally disposed of only when the Deputy Commissioner of Commercial Taxes considers the question of tax exemption. A decision on the question of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of exemption will be issued by the Secretary, Board of Revenue (Taxes), Thiruvananthapuram. . . . 10(d) The eligibility certificate referred to in sub-clause (b) above shall contain the date of commencement of commercial production and the monetary limit of exemption the unit is eligible for. The eligibility certificate issued in respect of existing medium and large scale industrial units which undertake expansion, modernisation or diversification shall also contain date of commencement as well as the date of completion of such expansion, modernisation or diversification. The eligibility certificate for medium scale unit will have to be issued by the Kerala State Industrial Development Corporation or the Kerala Financial Corporation, if the unit is rendered assistance by either one of those corporations. In other cases the eligibility certificate will have to be issued by the Director. The petitioner being a self-financing unit, the eligibility certificate in relation to the petitioner will have to be issued by the Director. Should the certificate of eligibility issued by the competent authority necessarily be a certificate of exemption? Firstly clause 10(d) states t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the said two agencies as competent to decide even a crucial question of entitlement of the unit for tax exemption. Ejusdem generis, the Director will have to be considered on par with the competent authority in KSIDC or KFC as the case may be, in the context of issuance of an eligibility certificate. In my view the certification of eligibility of a unit for sales tax exemption in terms of clauses 10(b) and 10(d) of S.R.O. No. 1729 of 1993 means only that unit has made a fixed capital investment to the extent of the ascertained figure and it started commercial production before the cut-off date mentioned in the notification. In the event of the unit being found entitled to sales tax exemption, then the monetary limit for exemption is as certified therein. The certificate of eligibility cannot be treated as a certificate of entitlement for sales tax exemption. That comes at the second stage. Exemption is dependant on the entitlement of the unit for sales tax exemption which is to be certified by the Deputy Commissioner of Commercial Taxes, the competent authority. I am fortified in coming to this conclusion by a decision of the learned judge of this court in Tamil Nadu Ammonia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner is entitled to exemption. I do not think that exhibit P2 judgment in any manner provided for a different scenario as far as the jurisdiction exercised by the second respondent on one hand and the third respondent on the other hand are concerned. There is no direction or finding or observation in exhibit P2(1) judgment which would suggest that in deciding the question of eligibility, the second respondent would also decide the question of exemption nor does exhibit P2(1) judgment suggest that the third respondent-Deputy Commissioner, while deciding the question of exemption would not be required to consider whether the unit is entitled to exemption in terms of the statutory notification. This court had considered the correctness of the proceedings of the Director of Industries which was impugned in the earlier writ petition (exhibit P10 marked in this writ petition). This court found that the Director had acted as the mouth piece of the State Level Committee and apparently the decision to reject the petitioner's application for exemption was taken by the Committee and expressed through the Director. This court found that the Director is the competent authority and he w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligibility and to decide the question of exemption as well. He contends that this will amount to the State Government, which is ultimately vested with the authority to issue a certificate of exemption to probably speak in two voices on the same issue. He refers to the judgment of the Supreme Court in Vadilal Chemicals Ltd. v. State of Andhra Pradesh [2005] 142 STC 76; [2005] 6 SCC 292. In Vadilal [2005] 142 STC 76; [2005] 6 SCC 292 the Supreme Court was construing the contents of the incentive scheme floated by the Andhra Pradesh Government for setting up new industries within the State. In para 22 of the judgment, construing the incentive scheme in question the Supreme Court held that there was only one method of verifying the eligibility for the various incentives granted including sales tax exemption. The procedure was for the matter to be (1)See [2006] 144 STC 409 (Ker). scrutinised and recommended by the State Level Committee and District Level Committee and the certification by the Department of Industries and Commerce by issuing an eligibility certificate. There was no other method prescribed under the scheme for determining an industrial unit's eligibility for the benef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onditions. To (1)See [2006] 144 STC 409 (Ker). exhibit P13 notice issued in this regard, a reply was given by the petitioner's advocate as exhibit P14 and a further reply was given on exhibit P14. Thereafter on September 20, 2006 a fresh notice was issued by the third respondent intimating the petitioner that the application for exemption is proposed to be rejected on the additional ground that the activitiescarried on by the petitioner's unit does not amount to manufacturing activity within the meaning of S.R.O. No. 1729 of 1993. A further reply was given by the petitioner as exhibit P22. Exhibit P23 is a written submission made by the petitioner before the Deputy Commissioner subsequent to a personal hearing on November 23, 2006. It is thereafter that exhibit P24 impugned order was passed. In exhibit P13 notice issued by the third respondent he noticed that the question which ultimately arises for decision is whether the company had placed firm orders for the purchase of necessary plant and machinery before January 1, 2000. He noticed that the plant and machinery contemplated are those which are required for the company to commence commercial production. Necessary plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urification, blending of the soft drink concentrate with treated liquid sugar, transfer of the product after blending to the filling unit for treatment with carbon dioxide are obviously the necessary plant and machinery required in the manufacturing process of the unit. Apart from the same, the plant and machinery required for drawing of water and then for water purification which according to the petitioner itself consists of primary purification involving coagulation, reverse osmosis and ion exchange, primary disinfection followed by particle filtration using carbon and silica, ultimately ending with final disinfection using ultra violet rays for water purification are necessary plant and machinery. Even according to the petitioner, the equipment used in this regard are high cost equipment. The petitioner further claims that stringent process controls are employed to ensure that the product conforms to the requisite standard which the petitioner maintains. If each one of the aforesaid activities are part of the manufacturing process undertaken by the petitioner, then it is only reasonable to construe that the plant and machinery deployed for the same are necessary plant and mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced exhibit P27 along with the reply affidavit. Exhibit P27 purports to be the details of the firm purchase orders placed before December 31, 1999. The first item mentioned therein is sub-lease of property and obviously it is irrelevant as far as sub-clause (c) of the notification is concerned. Items 2, 3, 4 and 6 are already noted in exhibit P13 order. Item No. 5 in exhibit P27 is a building foundation, roads, boundary walls and these are obviously not part of necessary plant and machinery. Item No. 7 is described as unscrambler and air conveyor and item No. 8 is a gripper, rinser, warmer and case packer and item No. 9 is described as filler/capper. It is not very clear whether item 7 is part of necessary plant and machinery and if so, in which part of the manufacturing process it is integrally used. In so far as items Nos. 8 and 9 are concerned it is not clear whether it is already part of the items which have been taken note of by the third respondent. At any rate it is difficult to place any reliance on items 7, 8 and 9 mentioned in exhibit P27 for the reason that they were never indicated in any of the replies submitted by the petitioner before the third respondent. Mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ector, there was nothing else to be done by the Deputy Commissioner except to quantify the exemption and issue an exemption certificate to the petitioner. That does not seem to be the purport of the scheme for exemption. The Director had noted the above aspects in exhibit R1(a) and it is not the case of the petitioner that the Director had no jurisdiction to note the requisite facts in paras 3 to 10 of exhibit R1(a). Accordingly, I hold that (i) the activity carried on by the petitioner in its unit at Kanjikode, Palakkad, engaged in the production of soft drinks is a manufacturing activity within the meaning of S.R.O. No. 1729 of 1993. (ii) In terms of the scheme for exemption from payment of tax as contained in S.R.O. No. 1729 of 1993, the certificate of eligibility to be issued by the Director is intended only to certify the actual commencement of commercial production of the unit before the cut-off date and the monetary limit of tax exemption that the unit would be eligible for. At the same time the Director of Industries is not required to certify the entitlement of the unit for tax exemption. (iii) The entitlement of the unit for exemption from payment of tax is to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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