2010 (1) TMI 1136 - HC - VAT and Sales Tax

Court grants tax exemption for machinery bought after production started, emphasizing setup's continuous nature.

The court ruled in favor of the assessee, granting tax exemption for machinery purchased after the commencement of commercial production. The court ... Non entitlment to exemption from tax in respect of two machines purchased by it for setting up of a new industrial unit for manufacture of marble slabs and tiles Held that:- The Tax Board has erred in rejecting the claim of the petitioner-assessee of tax exemption in respect of part of plant and machinery delivered to it after a few days from the date of commencement of commercial production on December 2, 1996 and the process of setting up of a new industrial unit cannot be said to be over merely on the date of commencement of commercial production, as certified by competent authority, particularly when the order for the said plant and machinery in question was placed during the process of setting up of the said industrial unit and the said plant and machinery were procured and installed for the same industrial unit. Revision petition of the petitioner-assessee is allowed Issues Involved:1. Entitlement to tax exemption for machinery purchased after commencement of commercial production.2. Interpretation of the notification dated March 27, 1995.3. Continuous process of setting up an industrial unit.4. Applicability of judicial precedents.Issue-wise Detailed Analysis:1. Entitlement to Tax Exemption for Machinery Purchased After Commencement of Commercial Production:The primary issue was whether the assessee was entitled to a tax exemption on two machines purchased after the commencement of commercial production. The Tax Board had denied this exemption on the grounds that the machines were bought 20 days after commercial production began. The court, however, noted that the orders for these machines were placed before the production commenced, and the delay in delivery was beyond the control of the assessee. The court concluded that the process of setting up an industrial unit is continuous and not limited to a single point in time. Therefore, the assessee was entitled to the exemption.2. Interpretation of the Notification Dated March 27, 1995:The notification exempted the sale of plants and machinery for setting up new industries in Rajasthan, provided certain conditions were met. The court emphasized that the notification should be interpreted broadly to benefit new industries. The court referenced the Supreme Court's stance that while exemption notifications should be strictly construed, once an industry qualifies, a liberal interpretation is warranted. The court found that the assessee met the conditions of the notification, as the machinery was integral to the project and purchased within the notification's validity period.3. Continuous Process of Setting Up an Industrial Unit:The court recognized that setting up an industrial unit is a continuous process that spans a period of time, rather than a single event. It held that obtaining a certificate for commencement of commercial production does not mark the end of the setup process. The court cited previous judgments supporting the view that the setup process can continue even after commercial production begins, provided the machinery is part of the original project plan and purchased within the notification period.4. Applicability of Judicial Precedents:The court relied on several precedents to support its decision. In particular, it referenced the Supreme Court's judgment in Tamil Nadu Electricity Board v. Status Spinning Mills Ltd., which advocated for a broad interpretation of beneficial notifications. The court also cited its own previous rulings in ACTO v. Shri Vijaya Industries and Commercial Taxes Officer v. Shri Rolex Marbles Pvt. Ltd., which held that the process of setting up an industry is continuous and that machinery purchased within the notification period qualifies for exemption, even if delivered after commercial production begins.Conclusion:The court ruled in favor of the assessee, setting aside the orders of the lower tax authorities. It held that the assessee was entitled to the tax exemption for the two machines purchased after the commencement of commercial production, as the process of setting up the industrial unit was continuous and the machinery was part of the original project plan. The court ordered a refund of any tax collected from the assessee, with interest.