2008 (12) TMI 693 - HC - VAT and Sales Tax

Court Upholds Decision Denying Sales Tax Exemption in Writ Appeal

The court dismissed the appellant's writ appeal, upholding the Deputy Commissioner's decision to reject the application for sales tax exemption. The court ... Whether the finding that firm order had not been placed for necessary plant and machinery is correct, and whether what is the interpretation to be placed on the said words in a notification of this nature? Held that:- Going by the principle of purposeful interpretation, we may not be justified in accepting the extreme positions canvassed by the appellant on the one hand and the respondents on the other hand. We would think that the purport of the clause would be that if the party had acquired a substantial portion of the necessary plant and machinery or placed firm orders in this regard before January 1, 2000 alone, it could be held entitled to the benefit of exemption. As far as the facts of this case are concerned, as already noted, in our view, the appellant has succeeded in proving that it has placed firm orders in respect of plant and machinery worth only ₹ 1,05,00,000, when the total value of the plant and machinery is in the region of ₹ 32 crores. Even if we were to include installation and commissioning of the blow-moulding machine stated to be worth ₹ 15,00,000 as plant and machinery, the total amount would still be only ₹ 1,20,00,000. In such circumstances, there is absolutely no merit in the contention of the appellant and the writ appeal deserves to be dismissed, and we do so. Issues Involved:1. Interpretation of 'necessary plant and machinery' under the Kerala General Sales Tax Act.2. Validity of the appellant's application for sales tax exemption.3. Authority and binding nature of eligibility certificates issued by the Director of Industries and Commerce.4. Applicability of the doctrine of promissory estoppel.5. Interpretation of exemption notifications and their conditions.Issue-wise Detailed Analysis:1. Interpretation of 'necessary plant and machinery' under the Kerala General Sales Tax Act:The essential question revolves around the interpretation of the words 'necessary plant and machinery.' The court examined whether the appellant had placed firm orders for all the necessary plant and machinery required for running the unit before January 1, 2000. The court concluded that the term 'necessary plant and machinery' implies that a substantial portion of the plant and machinery required for the unit must be ordered before the cutoff date. The appellant had only placed firm orders for machinery worth Rs. 1,05,00,000 out of a total of Rs. 32 crores, which was deemed insufficient to meet the condition.2. Validity of the appellant's application for sales tax exemption:The appellant challenged the rejection of its application for sales tax exemption by the Deputy Commissioner (General), who found that the appellant had not fulfilled the conditions mentioned in the relevant notifications. The court upheld the Deputy Commissioner's decision, noting that the appellant had not placed firm orders for the necessary plant and machinery as required by the notifications. The court emphasized that the exemption notifications must be construed strictly, and the appellant had failed to meet the eligibility criteria.3. Authority and binding nature of eligibility certificates issued by the Director of Industries and Commerce:The court examined whether the eligibility certificate issued by the Director of Industries and Commerce was binding on the Deputy Commissioner (General). It found that the notification contemplated a two-tier system where the Deputy Commissioner has the authority to independently verify the eligibility for tax exemption. The eligibility certificate issued by the Director was conditional and did not bind the Deputy Commissioner, who had the final say in granting the exemption.4. Applicability of the doctrine of promissory estoppel:The court considered the appellant's argument based on the doctrine of promissory estoppel, which contends that the government should be bound by its promise of tax exemption. The court acknowledged that the exemption notifications were issued to attract investment and promote industrial development. However, it held that the doctrine of promissory estoppel could not override the specific conditions laid down in the exemption notifications. The appellant had not met these conditions, and thus, the doctrine did not apply.5. Interpretation of exemption notifications and their conditions:The court analyzed the exemption notifications, particularly S.R.O. No. 1729 of 1993, as amended by S.R.O. No. 1092 of 1999 and S.R.O. No. 295 of 2000. It noted that these notifications were issued to phase out exemptions while protecting those who had genuinely taken effective steps to set up industrial units. The court emphasized that the conditions for exemption must be strictly interpreted and fulfilled. The appellant's failure to place firm orders for a substantial portion of the necessary plant and machinery before the cutoff date meant it did not qualify for the exemption.Conclusion:The court dismissed the appellant's writ appeal, upholding the Deputy Commissioner's decision to reject the application for sales tax exemption. The court concluded that the appellant had not fulfilled the conditions required for exemption, particularly the requirement to place firm orders for the necessary plant and machinery before January 1, 2000. The eligibility certificate issued by the Director of Industries and Commerce was not binding on the Deputy Commissioner, who had the authority to independently verify the eligibility for tax exemption. The doctrine of promissory estoppel did not apply as the appellant had not met the specific conditions laid down in the exemption notifications.