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TMI Blog2014 (9) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners of considering this capital investment made in the fixed assets, which have been certified by the chartered accountant and substantiated by the documentary evidence before the State Level Committee, and therefore, petition is being allowed partially with the following directions. - Decided partly in favour of assessee. - Special Civil Application No. 13813 of 2010 - - - Dated:- 16-11-2011 - AKIL KURESHI AND SONIA GOKANI (MS.), JJ. For the Appellant : Tanvish Bhatt for M/s. Wadia Ghandy Co. For the Respondents : Ms. Maithli Mehta, Additional Government Pleader, The judgment of the court was delivered by MS. SONIA GOKANI J. The petitioners have challenged, by way of the present petition, action of the respondents-authorities praying for quashing of the order passed by the State Level Committee ( the Committee , for short) meant for resolution of the disputes thereby denying the benefit of sales tax incentives to the petitioners under the Scheme for Economic Development of Kutch District, by issuance of a writ of mandamus. The present petition arises in the following factual background. 2. Petitioner No. 1 is a company duly incorporated under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 193.37 crores. 5. Ad hoc sales tax eligibility certificate under the Scheme was requested for by the petitioner, pursuant to commencement of commercial production on June 10, 2004. Vide its letter dated July 6, 2004, the respondents permitted a sum of ₹ 56.1199 crores as investment eligible for benefit under the Scheme and granted provisional eligibility certificate to the extent of 25 per cent of the said amount, being ₹ 14.03 crores. This had an impact of deferring the payment of sales tax for the period from December 12, 2003 to December 11, 2010. 6. A request for enhancement of ad hoc eligibility certificate was made by the petitioners on March 10, 2005 by adducing necessary certificates of chartered accountant/accountants and the amendment in the limit was made by the respondents, enhancing the same to ₹ 22.56 crores. 7. By another letter dated January 5, 2006, the petitioner-company requested the respondents to change their option under the Sales Tax Incentives Scheme from Deferment Scheme to composite scheme, with a further request to increase the limit which was so done and enhanced the sum from ₹ 22.56 crores to 30.235 crores. 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er day only. The company has paid transportation cost for fire bricks from Dhanbad to Kutch with 5 to 6 trips a day by the same lorry, which is not possible. Hence the team has to restrict eligibility per trip to ₹ 20,000 per day. (4) The technical consultancy fees paid to technical Director of company Mr. Kunda Singh (Rs. 136.60 lacs). (5) The expenses capitalized under head of P P expenses like GEB deposit, legal fees, preheating coal, consultancy fees, etc. 10. A further attempt on the part of the petitioner for reconsidering these investments as eligible also was not acceded to, on the grounds set out in the affidavit-in-reply. It is reiteratively emphasized that the information provided by the petitioners led to decide that investment made was not allowable and on extracting the correct information by the team, it deduced that an unrealistic amount was claimed by the petitioners. Submissions: 11. Heard learned counsel Mr. Tanvish Bhatt for the petitioner and Ms. Maithli Mehta, learned Additional Government Pleader appearing for the respondents. 12. The learned counsel Mr. Bhatt vehemently contended before this court that there are absolutel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same as separate trips and this methodology was not permitted by the committee, treating the same as manipulation on the part of the company instead of appreciating its practical problems. On elaborate submissions made to this court, he urged the court to allow the petition to uphold and translate the true and real objective of the scheme. 13. As against that, the learned Additional Government Pleader Ms. Mehta appearing for the State urged before this court that though documents and other materials were called for repeatedly from the petitioner-company, it failed to supply them which had left no option with the State Level Committee but to decide the issue on the basis of material available with it. She further urged this court that the committee has not received letter dated March 15, 2008. She also further urged, by giving different dates of communications to suggest that all these communications were not replied to and the petitioners had turned deaf ear to the same. She also further urged that the State has no hesitation to extend the benefits of sales tax, provided the terms specified in the scheme are duly fulfilled by the companies which had shown its intention to cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that of original businessmen, or a party at whose instance, other party changes its condition substantially. With this note, it would be worthwhile to examine the reasons of disallowance given by the State Committee and those contentious issues raised before this court. Provisions under the Scheme: 17. Before adverting to the contentions of either side, it would be appropriate to examine the Scheme announced by the respondents for the development of economic activities in Kutch District in the aftermath of devastating earthquake in January 2001, for better understanding of issues raised in this petition. 18. Some of the provisions of the Scheme dated November 9, 2001, titled as Incentive Scheme, 2001 for the Economic Development of Kutch District are as under: 18.1 As can be seen, broadly it invites existing industries and new industries to contribute towards development of the district and in lieu thereof, the Government had announced sales tax benefits such as of sales tax exemption or sales tax deferment on eligible capital investment. This was declared to give impetus to the economic development of Kutch District which had received major set back and its growth w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of this registration, unit will be able to avail of sales tax incentives for 120 days. (b) After commencement of commercial production, the unit will have to apply in the prescribed format within a period of 120 days from the date of commencement of production. Along with the application, details of fixed capital assets installed up to the date of commencement of commercial production will have to be furnished. (c) In the case of the unit applying later than 120 days from the date of commencement of commercial production, such period will be considered as the period of delay and the amount of eligible incentives will be reduced in proportion and the eligibility period will be reduced to the extent of delay. However, the units will have the option to avail of the benefit either from the date of commencement of commercial production or from the date of application. (d) If the project of the unit is not completed, the Industries Commissioner/General Manager, District Industries Center shall issue provisional eligibility up to 25 per cent of the eligible amount after considering installation of fixed assets. (e) On completion of the project, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very good demand in the country and since the company wanted to increase its manufacturing activities, a new plant was decided to be set-up at Mundra. Looking to the locational advantage and the sales tax deferment facilities available in Kutch, the said project was set up in the name of Mahashakti Coke and it had commenced commercial production on December 12, 2003. While this was being implemented, the company decided to enhance capacity of metallurgical coke plant and also diversify by setting-up pig-iron plant and power generation plant. The total cost of project had been acknowledged by the committee. It also further noted that the project commenced commercial production after the commissioning of battery I and II, and thereafter, it also intimated the committee of progress made in III and IV battery of the project. The committee appears to have visited all the plants, utility facilities, packaging facilities for physical verification of the assets. It also verified all the original bills, vouchers, etc. The team noted that the company could not provide detailed expenditure statements of the battery I and II, despite constant reminders. 18.17 With regard to land, team noted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anywhere in the pleadings made before this court or in the extensive correspondence that has been entered into by both the sides to suggest that there was even slightest doubt with regard to such investment. What has been denied is the eligibility on the grounds enumerated in the report as well as in the correspondence, and therefore, in light of the background mentioned hereinabove, the court shall have to find out as to whether action on the part of the respondents in denying the benefit of capital investment is justifiable or not. 22.1 (a) Plant and machineries: Expenses incurred under this head is to the tune of ₹ 1,17,19,10,000. The amount which has been found eligible by the verification team is ₹ 77,29,32,000. The State Level Committee allowed sum of ₹ 58,01,83,000 and disallowed sum of ₹ 59,28,90,655. It can be noted that under this head, expenses includes electrification and other capital expenditure relating to the project. 22.2 It can be further bifurcated though a huge sum of ₹ 2,327.60 lacs has not been considered on the ground that payment is made by Saurashtra Fuels Private Limited for its unit, i.e., petitioner No. 1. As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses. As submitted extensively before this court, the transportation expenses were made by the company at the request of the transporters who did not possess the bank accounts. What had happened was that as the company is located in the remote area and as the availability of the transporters is not easy to procure, the petitioner showed its helplessness where it succumbed to the terms laid by the transporters who, on account of not having the bank account and not having agreed to deduct TDS on the payments made, chose not to accept the payments by cheque. Instead, payments were made in cash in small amounts. In other words, for one particular trip, if the payment would have been made, the same would have been of huge amount. Instead, separate invoices were made for facilitating disbursement of cashtreating each invoice as a separate trip. The committee naturally considered it as an improper and unpalatable situation as so many trips of transportation within one day would be next to impossible considering the distance and the amount of travelling the truck has to do. Although, the dispute is not with regard to the factum of goods received by the petitioner but it poses serious que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Additional Government Pleader in terms has stated that those subsequent documents have not reached the committee, and therefore, it was unable to taken into account the version of the petitioners. According to the petitioners, the apparent error in rejecting the claim of the petitioners is that for no-industrial site, construction on 100 per cent area of the land is either envisaged or permitted. The same should have to be restricted to 40 per cent of the area of the total land and the remaining portion needs to be kept open for other purposes of the business which would include for drying the coke; open space for storage and for other such ancillary activities which would also include open space for roads, parking, etc. 22.6 As rightly pointed out by learned counsel for the petitioners that the Scheme envisages eligible cost of investment with regard to acquisition of the land and it does not pre-supposes conversion to NA use nor is it a condition-precedent for considering the eligible investment in the land while considering the same for the purpose of granting the tax relief. It would be necessary to mention here that the permission had been granted converting the land into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtificate. 22.7 The land purchase expense incurred by the petitioners till June 11, 2005 is to the tune of ₹ 1,20,79,583 and for development of the land the amount spent is ₹ 22,92,062. Amount of expenditure to the extent of ₹ 92,19,006 had been allowed by the State Level Committee, and the remaining sum of ₹ 28,60,577 had been disallowed. Whereas, towards the land development cost, the total amount of ₹ 22,92,062 had been disallowed. This was, as discussed hereinabove, on the ground that nonagriculture use permission was not received, and therefore, investment could not have been considered eligible for the purpose of investment. This was with respect to Survey Nos. 166/2, 170, 269/P, 171, 37/1, 38, 39, 40/2, 44, 45, 42, 43, 50, 166/1, 165, 167 and 168 and the permission was obtained for converting the use to non-agriculture purpose before the cut-off date on June 11, 2005. Of course, with regard to parcels of land bearing Survey Nos. 23/2, 23/3, 219/2, 164 and 269-P/18, permission was though requested for, the same was received subsequently. As the issue has been discussed earlier, the same does not require any further deliberation. Suffice it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner but, that would not fit anywhere in the scheme under which this industrial unit is set-up and therefore, huge amount of ₹ 136 crores spent on consultancy charges; if has been discarded by the State Level Committee, no interference is warranted from this court in this regard. 22.9 The learned counsel for the petitioners also has not been able to point out to us in this petition as to how this huge amount fits anywhere in the Scheme published by the respondents. The entire discussion can be capsulized hereunder: 23.1 From amongst the four grounds deliberated in this judgment, barring the fourth ground of consultancy expenses, this court is of the opinion as far as rest of the three grounds are concerned that the denial of the benefit of capital investment made by the petitioner up to June 11, 2005 in various fixed assets has been discarded by the State Level Committee either on some misconception or on hyper-technical grounds disregarding the objectives and intent of the scheme. This was so done even when otherwise, the investments made by the petitioner-company is found genuine by the respondents and at no point of time, any doubt is created with regard to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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