2019 (11) TMI 5 - HC - VAT and Sales Tax

Court Sets Aside Tribunal Order, Remits Case for Fresh Consideration

L.G. Electronics India Pvt. Ltd. Versus Commissioner Of Commercial Taxes

L.G. Electronics India Pvt. Ltd. Versus Commissioner Of Commercial Taxes - [2020] 79 G S.T.R. 294 (All) Issues Involved:1. Eligibility for tax exemption under Section 4-A of the U.P. Trade Tax Act.2. Treatment of additional fixed capital investment for joint diversification.3. Consideration of item-wise versus total industrial undertaking investment.4. Validity of separate applications for exemption for different products.5. Tribunal’s reliance on the interpretation of Clause (d) of Explanation (5) of Section 4-A.Detailed Analysis:1. Eligibility for Tax Exemption under Section 4-A of the U.P. Trade Tax Act:The assessee, a subsidiary of L.G. Electronics, Korea, established a new unit for manufacturing various electrical and electronic appliances. The State Government issued notifications providing tax exemptions for new units and units undergoing expansion, diversification, and modernization. Initially, the assessee's new unit received an exemption based on its fixed capital investment. Later, the assessee diversified to manufacture refrigerators and PC monitors, filing separate applications for each. The Divisional Level Committee (DLC) granted exemption for refrigerators but denied it for PC monitors, claiming the investment did not meet the statutory limit of 25% of the original fixed capital investment.2. Treatment of Additional Fixed Capital Investment for Joint Diversification:The primary legal question was whether the investments in refrigerators and PC monitors should be treated as a joint diversification. The Tribunal initially found that the purchases for manufacturing both products were made simultaneously and directed the DLC to reconsider the application for PC monitors. However, the DLC again rejected the application, leading to further appeals. The Tribunal's final decision was challenged, leading to the present revision.3. Consideration of Item-wise versus Total Industrial Undertaking Investment:The Tribunal had to determine whether the additional fixed capital investment should be considered for the industrial undertaking as a whole or item-wise. The assessee argued that the diversification into manufacturing refrigerators and monitors was a single exercise, supported by simultaneous purchases of machinery and overlapping dates for starting production and sales. The Tribunal's reliance on separate applications filed by the assessee was deemed irrelevant by the court, emphasizing the need for a composite view of the investment.4. Validity of Separate Applications for Exemption for Different Products:The Tribunal initially found that filing two separate applications for different products did not affect the eligibility for exemption. This finding was not challenged by the revenue. The court noted that the assessee filed separate applications due to different treatment of electronic and electrical goods under the relevant notifications. The Tribunal's approach was criticized for overlooking material evidence supporting the claim of a single diversification exercise.5. Tribunal’s Reliance on Interpretation of Clause (d) of Explanation (5) of Section 4-A:The Tribunal's reliance on Clause (d) of Explanation (5) of Section 4-A to reject the exemption for PC monitors was found to be flawed. The court emphasized a purposive construction of the exemption provisions, favoring industrial growth and investment. The Tribunal was directed to reconsider the matter, taking into account all relevant evidence and the legislative intent behind the exemption notifications.Conclusion:The Tribunal's order was set aside, and the matter was remitted for fresh consideration, emphasizing the need for a comprehensive evaluation of the evidence and a purposive interpretation of the exemption provisions. The Tribunal was instructed to complete the reconsideration within six months, ensuring a fair and thorough assessment of the assessee's claim for tax exemption.