Capital investment for sales tax exemption is measured on the first sale date, including assets bought before that sale.

For exemption under section 4-A of the U.P. Sales Tax Act, capital investment is to be assessed as on the date of first sale where that date governs commencement of the exemption period. A diesel set purchased after production began but before the first sale was therefore includible in the capital investment, because the relevant test was the position on the first sale date. On that basis, the unit's total investment crossed the statutory threshold and it qualified for the five-year exemption period rather than three years.

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Issues: Whether the cost of a diesel set purchased after commencement of manual production but before the first sale could be included in the capital investment for determining the period of sales tax exemption under section 4-A of the U.P. Sales Tax Act, 1948, and whether the unit was therefore entitled to exemption for five years instead of three years.

Analysis: Section 4-A and the relevant notification fixed the commencement of the exemption period at the date of first sale, where that sale occurred within six months of starting production. The date of first sale was 30 March 1985, and the date of starting production was 1 March 1985. The diesel set was purchased on 4 March 1985, which was prior to the first sale. Since the relevant capital investment had to be tested with reference to the position on the date of first sale, the cost of the diesel set was includible in the capital investment. On that basis, the total investment exceeded Rs. 3,00,000.

Conclusion: The petitioners were entitled to treat the diesel set cost as part of the capital investment and were eligible for exemption for five years from 30 March 1985.

Final Conclusion: The claim for a three-year exemption was rejected and the industrial unit was held entitled to the higher exemption period under the statutory scheme.

Ratio Decidendi: For determining the duration of exemption under section 4-A, capital investment is to be assessed as on the date of first sale where that date governs commencement of exemption, and assets purchased before the first sale are includible in that investment even if purchased after production began.

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