2004 (11) TMI 319 - SC - VAT / Sales Tax

Tax exemption denied for pipeline company: failed to meet statutory conditions for new industrial unit classification, exemption overturned

The SC set aside the HC's order granting tax exemptions to the respondent, holding the respondent failed to satisfy the statutory conditions for ... Extension of time-limit for the date of start of commercial production in case of pipeline industries - exemption from payment of sales tax on purchase of raw materials and exemption from payment of sales tax on sale of finished products under the provisions of the concerned notifications Held that:- It is a matter of fact that the respondent has set up its establishment in the year 2000 and started its commercial production from April 2, 2001, only. It is seen from the Bihar Industrial Policy Resolution, 1995, and the statutory notification issued by the Commercial Tax Department, the new industrial units was defined as those industrial units which went into production between September 1, 1995, and August 31, 2000, and which have been granted licence/ memorandum/letter of intent or registration certificate from the competent Industries Department or Industrial Area Development Authority or Directorate of Industry or Competent Authority of the Government of India. As already noticed, the statutory notifications were amended retrospectively vide S.O. Nos. 57 and 58 dated March 2, 2000. It will thus be seen from the aforesaid amended notifications that three conditions are stipulated for pipeline industries to be treated as new industrial units for the purposes of exemption under S.O. Nos. 478 and 479. In our view, an exception or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in the Industrial Policy and the exemption notifications. The failure to comply with the requirements renders the writ petition filed by the respondent liable to be dismissed. While mandatory rule must be strictly observed, substantial compliance might suffice in the case of a directory rule. Thus the High Court has erred in allowing the writ petition filed by the respondent herein and directing the grant of exemption in favour of the respondent. We, therefore, have no hesitation in setting aside the judgment and order passed by the High Court. Issues Involved:1. Whether the conditions prescribed by the authorities for grant of exemption are mandatory for availing the same.2. Whether the High Court can in exercise of writ jurisdiction direct grant of exemption contrary to the terms thereof and overlooking the statutory conditions prescribed for such grant in the absence of any challenge to the validity of such conditions.Detailed Analysis:Issue 1: Whether the conditions prescribed by the authorities for grant of exemption are mandatory for availing the same.The Industrial Promotion Policy, 1995, and subsequent notifications (S.O. Nos. 478/479 dated December 22, 1995, and S.O. Nos. 57/58 dated March 2, 2000) stipulated that new industrial units must obtain prior permission from the State Government in the Industries Department before August 31, 2000, to be eligible for tax exemptions. The respondent, a small-scale industry, did not obtain this prior permission but argued that the temporary registration certificate should suffice as prior permission. The Supreme Court held that 'a separate prior permission of the Industries Department before August 31, 2000, is an important condition precedent for any unit to become eligible for the purpose of exemption.' The Court emphasized that the conditions prescribed by the authorities are mandatory and non-compliance would disentitle the respondent from the grant of exemption. The application for exemption was rightly rejected by the authorities for non-fulfillment of the statutory obligation.Issue 2: Whether the High Court can in exercise of writ jurisdiction direct grant of exemption contrary to the terms thereof and overlooking the statutory conditions prescribed for such grant in the absence of any challenge to the validity of such conditions.The High Court had allowed the writ petition filed by the respondent and directed the authorities to treat the temporary registration certificate as prior permission. The Supreme Court found this approach incorrect, stating that 'the High Court exercising jurisdiction under article 226 of the Constitution cannot direct the grant of exemption in favour of the respondent overlooking the statutory conditions prescribed for such grant and that too in the absence of any challenge to the validity of such condition.' The Court reiterated that the provisions of exemption clauses should be strictly construed, and the failure to comply with mandatory requirements renders the writ petition liable to be dismissed. The Supreme Court thus set aside the High Court's judgment and allowed the appeal, emphasizing that non-compliance with the statutory requirement of obtaining prior permission must result in the cancellation of the concession made in favor of the respondent.Conclusion:The Supreme Court concluded that the conditions prescribed for the grant of exemption are mandatory and must be strictly complied with. The High Court erred in directing the grant of exemption contrary to the statutory conditions. The appeal was allowed, and the High Court's judgment was set aside.