2001 (10) TMI 1107 - HC - VAT and Sales Tax

Court invalidates separate account requirement for tax incentives under 1996 Policy

The court held that the provisions of rule 4(3) and (4) of the 1991 Rules could not be applied to the incentives granted under the 1996 Policy. ... Incremental production - benefit of sales tax exemption linked to additional fixed capital investment - non obstante clause overriding earlier rule provisions - ultra vires application of conditionality in exemption certificateIncremental production - benefit of sales tax exemption linked to additional fixed capital investment - non obstante clause overriding earlier rule provisions - Applicability of rule 4(3) and (4) of the 1991 Rules and the requirement to maintain separate accounts for existing and expansion units when exemption is granted under the 1996 Policy and Incentive Code, 1996. - HELD THAT: - The court analysed the 1996 Policy and the Incentive Code, 1996 and held that the 1996 scheme abandoned the concept of incremental production and instead made entitlement to sales tax deferment/exemption relatable to additional fixed capital investment. Rule 4-B was inserted into the 1991 Rules to give effect to that change and begins with a non obstante clause. Applying the settled principles concerning the effect of non obstante clauses, the court concluded that the non obstante clause in rule 4-B overrides not only rule 4-A but also the earlier provisions embodied in rule 4(3) and (4). Consequently, the concept of incremental production under rule 4(3) and (4) cannot be invoked for expansion undertaken after April 1, 1996 where the 1996 Policy/Incentive Code is the operative scheme. The condition in the exemption certificate requiring the dealer to maintain separate accounts for the existing unit and the expansion unit was imposed by respondents on the basis of rule 4(3) and (4); since those sub-rules are not applicable to incentives under the 1996 Policy, that condition is inconsistent with the 1996 Policy and the Incentive Code, 1996 and is therefore ultra vires as applied to the petitioner. [Paras 10, 11, 12]The condition in the exemption certificate requiring maintenance of separate accounts for existing and expansion units is illegal and quashed; rule 4(3) and (4) of the 1991 Rules cannot be applied to grants made under the 1996 Policy read with the Incentive Code, 1996.Final Conclusion: Writ petition allowed; the condition in Annexure P2 requiring separate accounts for existing and expansion units is struck down and respondents directed to grant exemption benefits without insisting on that condition. Issues Involved:1. Validity of sub-rules (3) and (4) of rule 4 of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991.2. Legality of the condition imposed in the exemption certificate requiring separate accounts for existing and expansion units.3. Applicability of the 1991 Rules in light of the 1996 Industrial Policy.Detailed Analysis:1. Validity of sub-rules (3) and (4) of rule 4 of the 1991 Rules:The petitioner challenged the validity of sub-rules (3) and (4) of rule 4 of the Punjab General Sales Tax (Deferment and Exemption) Rules, 1991, arguing that these provisions could not be invoked while granting exemption under the 1996 Policy. The petitioner contended that these sub-rules were ultra vires to the 1996 Policy and articles 265 and 300A of the Constitution of India. The court referred to a previous judgment in C.W.P. No. 5726 of 2000 (Oswal Fats and Oils, Ludhiana v. State of Punjab), which had already considered and answered this issue in the negative, stating that the 1996 Policy did not incorporate the concept of incremental production, which was central to these sub-rules.2. Legality of the condition imposed in the exemption certificate:The petitioner argued that the condition requiring the maintenance of separate accounts for the existing and expansion units, imposed by the Assistant Excise and Taxation Commissioner, was unjustified. This condition was based on rule 4(4) of the 1991 Rules, which the petitioner claimed was not applicable under the 1996 Policy. The court observed that the 1996 Policy and the Incentive Code, 1996, did not include the concept of incremental production, which was central to the 1991 Rules. Therefore, the imposition of such a condition was deemed ultra vires to the provisions of the 1996 Policy and the Incentive Code, 1996.3. Applicability of the 1991 Rules in light of the 1996 Industrial Policy:The court analyzed the differences between the 1989 Policy and the 1996 Policy, noting that the latter introduced a new concept of granting benefits based on additional fixed capital investment rather than incremental production. The court highlighted that rule 4-B of the 1991 Rules, inserted to give effect to the 1996 Policy, contained a non obstante clause, which indicated that the provisions of rule 4(3) and (4) of the 1991 Rules were overridden by the new rules. The court further emphasized that the non obstante clause in rule 4-B was intended to override any conflicting provisions in the earlier rules, including rule 4(3) and (4). Consequently, the court held that the respondents could not apply these sub-rules to the incentives granted under the 1996 Policy.Conclusion:The court concluded that the provisions of rule 4(3) and (4) of the 1991 Rules could not be applied to the incentives granted under the 1996 Policy. As a result, the condition in the exemption certificate requiring the petitioner to maintain separate accounts for the existing and expansion units was declared illegal and quashed. The respondents were directed to grant the benefit of exemption without insisting on the compliance of the said condition. The writ petition was allowed, and the court did not find it necessary to pronounce on the validity of rule 4(3) and (4) of the 1991 Rules.Writ petition allowed.