2012 (4) TMI 543 - HC - VAT and Sales Tax

Validity of IFST deferral scheme upheld; non-taxable sales exclude from turnover for eligibility.

The court upheld the validity of the demand notice and paragraph 5.3 of the eligibility certificate in a case concerning the IFST deferral scheme. The ... Eligibility certificate challenged - notice to the petitioner to repay the unauthorised availment of deferral to an extent of ₹ 21.79 crores - Held that:- In the present case, the fact that the petitioner themselves have come forward to challenge paragraph 5.3 of the eligibility certificate (after 10 years) will show that they are bound by the eligibility certificate. Secondly, the delay in challenge was not explained to this court. Even further clarifications were issued by the SIPCOT reiterating their earlier stand. If the petitioner's contentions are accepted, it will go contrary to the incentive provided under the said scheme. In the light of the above, there is no case made out to interfere with the impugned demand notice. There is no illegality in paragraph 5.3. of the eligibility certificate issued by the SIPCOT. Hence both writ petitions will stand dismissed. Issues Involved:1. Eligibility and conditions for availing IFST deferral scheme.2. Determination of increased volume of production/sales for tax deferral.3. Inclusion of Central Sales Tax and other non-taxable sales in turnover.4. Challenge to paragraph 5.3 of the eligibility certificate after 10 years.5. Validity of the demand notice for unauthorized availment of deferral scheme.Issue-wise Detailed Analysis:1. Eligibility and Conditions for Availing IFST Deferral Scheme:The petitioner-company, an assessee under the Tamil Nadu General Sales Tax Act, availed the IFST deferral scheme under the diversification scheme aimed at promoting industries in backward areas. The scheme, governed by Section 17A of the TNGST Act, 1959, allows the State Government to defer tax payments for new industrial units or sick units. The petitioner was granted an eligibility certificate by SIPCOT to defer sales tax payments from March 1, 1995, to February 28, 2005, with a repayment period from March 1, 2005, to March 31, 2015. Paragraph 5.2 of the eligibility certificate required the petitioner to enter into an agreement with the Assistant Commissioner (Commercial Taxes).2. Determination of Increased Volume of Production/Sales for Tax Deferral:The controversy arose from paragraph 5.3 of the eligibility certificate, which stipulated that the deferral of sales tax was only on the increased volume of production/sales. The base figure for determining the increased volume was the highest production/sales in any one of the last three years, with the highest being Linear Alkyl Benzene at Rs. 34,981.84 lakhs for 1993-94. The petitioner entered into an agreement for manufacturing epichlorohydrin under the diversification scheme, with the eligibility certificate rescheduled to defer tax from April 1, 2000, to March 31, 2010, and repay from April 1, 2010, to March 31, 2020.3. Inclusion of Central Sales Tax and Other Non-Taxable Sales in Turnover:The petitioner-company included Central Sales Tax within its turnover to show increased volume, which was not permissible. The turnover for deferral did not include consignment sales, branch transfers, and export sales. For instance, in the assessment year 2002-03, the total stock transfer was Rs. 362.03 crores, and export sales were Rs. 94.78 crores, which, if excluded, resulted in a turnover of Rs. 273.50 crores, less than the stipulated BSV of Rs. 349.82 crores. Therefore, the company was not eligible for the deferral facility since 2000-01.4. Challenge to Paragraph 5.3 of the Eligibility Certificate After 10 Years:The petitioner challenged paragraph 5.3 of the eligibility certificate, dated December 28, 1999, after 10 years, questioning the communication dated October 20, 2009, demanding repayment of unauthorized deferral. The challenge was made despite the SIPCOT's clarification on November 7, 2008, which was not contested. The court noted the delay in challenging the eligibility certificate and the petitioner's failure to explain the delay.5. Validity of the Demand Notice for Unauthorized Availment of Deferral Scheme:The Deputy Commissioner issued a notice to the petitioner to repay Rs. 21.79 crores for unauthorized deferral. The court found no illegality in paragraph 5.3 of the eligibility certificate and dismissed the writ petitions, stating that the petitioner was bound by the eligibility certificate and had attempted to circumvent the terms by including non-taxable sales in the turnover. The court referenced judgments from the Allahabad High Court and the Supreme Court, emphasizing strict interpretation of tax deferral schemes and excluding non-taxable sales from turnover calculations.Conclusion:The court dismissed both writ petitions, upholding the validity of the demand notice and paragraph 5.3 of the eligibility certificate, and closed the connected miscellaneous petition without costs.