2010 (10) TMI 899 - SC - VAT and Sales Tax

Court clarifies 'investment' in tax exemption, strict eligibility criteria apply, interest payable from return due date. Appeal dismissed.

Bhai Jaspal Singh and another Versus Assistant Commissioner of Commercial Taxes and others

The court dismissed the appeal, holding that the term 'investment' refers to the cost price or purchase price of plant and machinery, not the depreciated ... Exemption - assessee claimed exemption from payment of sales tax - According to the assessee, its investment in plant and machinery in its unit during the period from April 1, 1995 to April 30, 1995 and from May 1, 1995 to March 31, 1996 was less than Rs. 5 lakhs and accordingly, it was entitled to get the tax exemption under rule 3(116) of the Bengal Sales Tax Rules, 1941 – Held that:- West Bengal State Government did not by Notification No. 1428-FT dated May 26, 1994, extend the exemption thereunder to small-scale industrial units which had employed more than Rs. 5 lakhs in investment in plant and machinery although the depreciated value thereof may be less than Rs. 5 lakhs, exemption not availableInterest - tax due on the basis of quarterly return was not paid as required by sub-section (3) and the appellant was, therefore, liable to pay interest on the amount of tax in respect of which default was committed at the rate prescribed in sub-section (2) from the last date prescribed for filing quarterly return under the Act up to the date of payment, no merit in this appeal, hereby rejected Issues Involved:1. Meaning of the expression 'investment' for the purpose of notification under the West Bengal Sales Tax Act and corresponding Rules.2. Construction and interpretation of an exemption notification.3. Whether interest is payable on tax only on quantification by assessment or for any period prior to that.Detailed Analysis:Issue 1: Meaning of the Expression 'Investment'The primary issue in this appeal is the interpretation of the term 'investment' as used in the notification issued by the State Government under the West Bengal Sales Tax Act and corresponding Rules. The assessee contended that 'investment' should refer to the actual value of the machinery after allowing depreciation, rather than the cost of acquisition. The court, however, held that the term 'investment' should be understood in its common business and commercial usage, which generally means spending money for acquiring property or commodities that generate further income. The court clarified that the cost price or purchase price of the equipment should be considered for assessing the investment, not the depreciated value. Since the assessee's investment exceeded Rs. 5 lakhs, it was not entitled to the exemption.Issue 2: Construction and Interpretation of an Exemption NotificationThe assessee argued that the exemption notification should be liberally construed to fulfill its purpose of promoting small-scale industrial units. The court, however, emphasized that exemption notifications should be strictly interpreted against the person claiming the exemption. The eligibility criteria laid down in the notification must be strictly met before any liberal construction can be applied. Since the assessee's investment was over Rs. 5 lakhs, it did not fall within the clear wording of the notification and thus was not eligible for the exemption.Issue 3: Interest Payable on TaxThe assessee contended that interest on tax should only be charged after the quantification of tax liability by the assessing officer. The court, however, referred to legislative amendments and statutory provisions under Section 10A of the Act, 1941, and Section 31 of the Act, 1994, which mandate interest on unpaid tax from the due date of the return, not from the date of quantification. The interest is compensatory in nature, imposed for withholding payment of tax due. Therefore, the court rejected the assessee's contention and upheld the demand for interest.ConclusionThe court dismissed the appeal, holding that:1. The term 'investment' refers to the cost price or purchase price of plant and machinery, not the depreciated value.2. Exemption notifications must be strictly construed, and the assessee did not meet the eligibility criteria for exemption.3. Interest on unpaid tax is payable from the due date of the return, not from the date of quantification by the assessing officer.The appeal was rejected with no costs awarded.