Manufacturing company not liable for taxes on sales to eligible units under Industrial Policy

The Court held that the petitioner, a manufacturing company, was not liable to pay taxes on sales to eligible units under the Industrial Policy of 1991. The Court emphasized that the Scheme did not address cases where taxes were not paid by eligible units based on eligibility certificates. The petitioner's failure to collect tax from eligible units did not justify the recovery notices issued by the State. The Court quashed the demand notices without costs, allowing the petitioner's writ petition.

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Issues:
Challenge to recovery notices for tax exemption under Industrial Policy of 1991.

Analysis:
The petitioner, a public limited company engaged in manufacturing polymers and rubber chemicals, challenged recovery notices dated May 8, 1997, July 15, 1997, and September 2, 1997, seeking to recover certain amounts under the Industrial Policy of 1991. The Industrial Policy provided sales tax exemption on raw materials and finished products for eligible units. The petitioner sold goods to eligible units based on eligibility certificates without charging sales tax. The State issued notices demanding tax from the petitioner, even though no tax was collected from the eligible units. The Scheme under the Industrial Policy did not address cases where taxes were not paid by eligible units based on eligibility certificates. The Court noted that the spirit of the Scheme and Industrial Policy was clear: eligible units were not liable to pay sales tax on raw materials or finished products.

The Court emphasized that the matter concerned the purchase of raw materials by eligible units from the petitioner, not the sale of finished products. The notices issued covered the period from April 1, 1991, to August 16, 1995. The petitioner did not collect tax from eligible units as per the Scheme. Even if tax had been collected, the Scheme mandated refunds to eligible units. The Court held that the absence of specific provisions in the Scheme did not justify making a technical demand for taxes. If directed to deposit taxes, the petitioner could claim reimbursement from eligible units, who could, in turn, seek refunds under the Scheme. The Court concluded that the petitioner was not liable to pay taxes on sales to eligible units and allowed the writ petition, quashing the demand notices without costs.

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