Capital investment for sales tax exemption included pre-sale machinery advances, securing the longer exemption period.

For eligibility under section 4-A of the U.P. Sales Tax Act, capital investment had to be reckoned up to the date of first sale, and advances paid before that date toward machinery were includible even if the machinery had not yet been installed or used. The court rejected the department's exclusion of such advances, holding that all investment made before the first sale formed part of the capital investment for deciding the exemption period. On that basis, the investment crossed the Rs. 3,00,000 threshold, so the petitioner qualified for the five-year exemption benefit rather than the three-year period.

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Issues: Whether, for grant of an eligibility certificate under section 4-A of the U.P. Sales Tax Act, the petitioner's capital investment had to be reckoned only upto the date of first sale, and whether advances paid before that date but towards machinery not yet installed were to be included so as to determine entitlement to exemption for five years instead of three years.

Analysis: The exemption notification prescribed a five-year benefit where capital investment exceeded Rs. 3,00,000 and the relevant date for reckoning the benefit was tied to the date of first sale. The record showed that the department had excluded advances paid before the date of first sale merely because the machinery had not been used by that date. That approach was found unsatisfactory. The Court held that all investment made before the date of first sale, including advances paid towards machinery, had to be included in capital investment. On that basis, the petitioner's investment exceeded Rs. 3,00,000.

Conclusion: The petitioner was entitled to the eligibility certificate for five years and not three years, and the order restricting the benefit to three years was unsustainable.

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