Diversification under sales tax incentive scheme upheld for distinct product line and qualifying investment threshold.

A sales tax incentive scheme treating diversification as a new product line with additional fixed capital investment was applied to a manufacturer of forged rings. The Court held that forged rings were distinct from rolled rings because they required different licences, machinery, raw materials, and production capacity, and the petitioner had crossed the prescribed investment threshold. The authority's refusal rested on an unreasoned technical report unsupported by material, which could not displace the factual showing of a new line of manufacture. The petitioner was therefore entitled to the eligibility certificate and the exemption benefit under the scheme.

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Issues: Whether the petitioner-company was entitled to an eligibility certificate under the sales tax incentive scheme on the ground that manufacture of forged rings amounted to diversification and not mere expansion or production of the same product.

Analysis: The entitlement claimed by the petitioner fell to be examined under the scheme framed in exercise of the powers under section 49(2) of the Gujarat Sales Tax Act, 1969 and the relevant Government resolution defining diversification as launching of a new product line with additional fixed capital investment exceeding 25 per cent of the original net fixed assets. The Court found that rolled rings and forged rings were different products, as they required different licences, different machinery, different raw materials, and were supported by separate production and capacity figures. The technical report relied upon by the authorities was found unreasoned and unsupported by material. On the facts, the petitioner had launched a new product line and had invested more than the prescribed threshold.

Conclusion: The petitioner-company was held entitled to the eligibility certificate and the refusal by the authority could not be sustained.

Final Conclusion: The writ petition succeeded, and the authority was directed to issue the eligibility certificate so that the petitioner could obtain the benefit of exemption under the scheme.

Ratio Decidendi: Where a benefit scheme defines diversification by reference to a new product line and enhanced fixed capital investment, a unit establishing that the later product is distinct in manufacture, licensing, raw material, machinery and capacity is entitled to the incentive notwithstanding a contrary unsupported technical note.

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