2023 (7) TMI 1012 - SC - VAT and Sales Tax

Supreme Court affirms tax exemption calculation method for multiplexes under tourism incentives scheme.

THE STATE OF GUJARAT & ORS. Versus MULTIPLEX ASSN. OF GUJARAT THROUGH ITS PRESIDENT

The Supreme Court upheld the High Court's decision regarding the method of calculating tax exemptions for multiplexes under the New Package Scheme of ... Method of calculation or the method of determining the exemption limits under the scheme, extended by the State, to multiplexes, who had put up capital infrastructure - Denial of extension of New Package Scheme of Incentives for Tourism Projects - invocation of doctrine of promissory estoppel - HELD THAT:- It is evident from the terms of the Scheme and the exemption notification which gave effect to it, fixed to limits i.e. (1) a time limit and (2) quantification of the exemption. The latter could be subject to the first i.e., in the event, the amount reached the exemption limit were achieved, before the expiry of the period in question (5-10 years), no further exemption could be claimed. The state, however, omitted to provide any mechanism to determine how the exemption limits could be worked out for the purpose of notional calculation of the quantified limit. This meant that a reasonable workable method of calculation had to be applied. The state’s contention is founded on the assumption that the amount collected during the exemption period by the multiplex owners, also included in element of tax. This assumption, in the opinion of this court is flawed because there could have been no collection which amounted to tax. Furthermore, multiplex/theatre-owners were under an obligation to file monthly returns in terms of the enactment. This would have taken care of any allegation of abuse. The state’s additional argument was that since the element of tax was notionally included in the collections – by multiplexes, -during the exempted period, a further amount equivalent to the tax collectable had to be added. As the High Court concluded- and in the opinion of this Court correctly so, this contention was bereft of any logic and was plainly unreasonable. There is concededly, a gap in the manner how tax exemption limits can be discerned. Undoubtedly, the law is now settled that exemption notifications have to be interpreted strictly, and against assesses in case of ambiguity. A reasonable method of calculating benefit of tax exemption, for the purpose of considering (whether the 100% limit equivalent to capital expenditure) was reached or not is to notionally determine the tax amounts payable during the relevant period, when the multiplexes enjoyed tax exemption. This is possible, having regard to the returns filed by them during the time when they sought and were granted exemption. The outer limit (100% investment) is a discernible amount, which the units would be able to furnish, with appropriate proof in their books of accounts, and valuations furnished by them. Clearly enunciating this principle and applying to the facts of this case, High Court has followed a reasonable method which cannot, in this court’s opinion, be faulted. This court holds that there is no merit in this appeal - Appeal dismissed. Issues Involved:1. Method of calculating tax exemptions for multiplexes under the New Package Scheme of Incentives for Tourism Projects, 1995-2000.2. Whether the entire ticket value should be considered for setting off eligible capital investment.3. Validity of the State's method of calculating exemption limits.4. Interpretation of the exemption notification and its application.Detailed Analysis:1. Method of Calculating Tax Exemptions for Multiplexes:The primary issue was the method of calculating or determining the exemption limits under the New Package Scheme of Incentives for Tourism Projects, 1995-2000. The scheme provided tax exemptions to multiplexes for a specified period, up to 100% of capital investment. The court had to decide the proper manner of construing paras 8 and 8.1 of the scheme, which outlined the tax holiday and the quantum of incentives.2. Consideration of Entire Ticket Value:The appellants argued that the calculation of total exemption should be based on a notional exercise, where the entire ticket value, including the tax element, should be considered for setting off the eligible capital investment. The High Court, however, held that the amount collected by multiplexes did not include any tax element since they were exempted from collecting taxes. Therefore, only the actual ticket collection should be considered for determining the exemption limit.3. Validity of the State's Method:The State contended that the multiplex owners should add the tax element to the actual amount collected for calculating the exemption limits. This was based on the assumption that the ticket price included an element of tax. The High Court disagreed, stating that since multiplexes did not collect any tax, the calculation should be based on the actual ticket collection. The court found the State's method to be unreasonable and without logic.4. Interpretation of the Exemption Notification:The court emphasized that the exemption notification and the scheme were clear in their terms regarding the time limit and the quantification of the exemption. However, there was no prescribed mechanism for calculating the monetary limit of the exemption. The court applied the doctrine of substantial compliance, stating that a reasonable method should be used to calculate the exemption limits. It concluded that the High Court's method of using actual ticket collections for determining the exemption limit was reasonable and could not be faulted.Conclusion:The Supreme Court upheld the High Court's decision, stating that the State's method of including a notional tax element was flawed. The court held that the exemption should be calculated based on actual ticket collections, and the High Court's method was reasonable and appropriate. The appeal was dismissed, affirming the High Court's judgment.