1989 (12) TMI 345 - HC - VAT and Sales Tax

Court Upholds Tax Exemption Period Determined by Law

The court held that the authority could not alter the period for which the unit was entitled to exemption under the U.P. Sales Tax Act, as it was ... - Issues:Interpretation of eligibility certificate grant under section 4A of U.P. Sales Tax Act, 1948.Analysis:The judgment addressed the question of whether the authority empowered to grant an eligibility certificate could reduce or curtail the statutory period of exemption for a new unit based on the date of registration under the Factories Act. The unit in question was established in 1984, with machinery purchased in July 1984 and production starting in October 1984. The unit obtained registration under the Factories Act in September 1987 and was granted an eligibility certificate in March 1988. The exemption period granted was from September 1987 to October 1989, despite the unit being entitled to exemption from 1984. The court held that the authority could not alter the period for which the unit was entitled to the exemption, as it was determined under the Act and applicable notification from the date of production, as specified in section 4A of the Act.The judgment further delved into the nature of exemptions granted under the U.P. Sales Tax Act, emphasizing that exemptions should be construed liberally in favor of the entity, especially when conditions or restrictions are placed on them. The purpose of the Act was to provide incentives for increasing production, commonly known as 'tax holidays.' The court highlighted that the notifications issued under section 4A were aimed at encouraging industrialization in backward areas, and the authorities granting eligibility certificates should operate on the premise that promoting new units is essential for industrial development. The court emphasized that technical flaws should not lead to the rejection of applications, and the notifications should be interpreted in the context of encouraging new units to establish factories in backward areas.Regarding the procedure for obtaining an eligibility certificate, the judgment referenced the criteria specified in section 4A(2) for new units, which must have started production on or after October 1, 1982, without discontinuing it for six months. The court highlighted the importance of adhering to the statutory requirements for grant of exemptions, as outlined in the Act and relevant notifications. The judgment also discussed the absence of specific rules under the Act and the reliance on notifications to specify procedures for obtaining eligibility certificates.In conclusion, the court allowed the petition, quashed the part of the eligibility certificate that curtailed the exemption period, and invalidated the assessment proceedings for the relevant period. The petitioner was awarded costs in the matter, emphasizing the importance of adhering to statutory provisions and ensuring that new units are not unfairly deprived of entitlements under the Act.