TaxTMI 
TaxTMI 
2006 (12) TMI 462
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....pite the fact that the production of the existing unit and diversified unit are totally different and the existing unit was subsequently sold to a third party, is the issue that arises for our consideration in W. P. Nos. 37042, 40030, 40031 and 44733 of 2002 and 3230, 3231, 3232, 3233, 3234 and 21162 of 2003. II. GOVERNMENT ORDERS THAT ARE RELEVANT TO DECIDE THE CONTROVERSIES Before touching the facts and circumstances pertaining to these two batches of writ petitions, it is apt to refer the Government Orders which are relevant to decide the controversies referred to above, based on which, both the petitioners, viz., India Cements and Hindustan Motors claim the benefit under the deferral of sales tax in the case of India Cements and waiver of sales tax in the case of Hindustan Motors. The Government of Tamil Nadu, with a view to promote industrialisation, introduced an Interest-free Sales Tax Deferral Scheme in G. O. Ms. No. 500, Industries (MIG-II) Department, dated May 14, 1990, as per which the State Industries Promotion Corporation of Tamil Nadu Ltd., the second respondent herein (in short, "SIPCOT") is the authorised agency to receive applications, sanction and....
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....l estates developed by any of the Government agencies including Madras Export Processing Zone, Madras Metropolitan Development Authority, the scheme of interest-free sales tax loan/deferral ordered in the Government order first, third and fourth read above is modified as follows: (i) For the existing units undertaking expansion or diversification, deferral of sales tax will be given for nine years and the total amount thus given shall not exceed 80 per cent of the additional investment made in fixed assets. (ii) For the new units, the total amount of deferral of sales tax will be given for nine years to the full extent of the total investment made in fixed assets. (b) The interest-free sales tax deferral scheme is extended to the expansion (Part-I) as well as to the starting of new industries (Part-II) in the other areas also, where this scheme was not in vogue hitherto. The deferral of sales tax for the industries in these areas will be for five years subject to a maximum of 60 per cent of the total investment made in fixed assets in the case of new industries and 50 per cent of the additional investment in fixed assets made in the case of expansion/diversification of ....
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....y the units. But the tax payable for the year will be deferred/waived within the overall ceiling for which the eligibility certificate issued by the authority. The deferred instalments shall be payable by the assessed units after the completion of the period of deferral together with the sales tax of the current year, without any interest thereon. In case the unit avails the complete deferral/waiver benefit before the completion of specified deferment period of five years or nine years, as the case may be, the unit has to pay the normal sales tax immediately after the date of full availment of eligible deferral amount. The assessee of the unit for which the sales tax has been waived will start paying the current sales tax dues after the comple tion of the waiver period or immediately after the full availment of eligible waiver amount, whichever is earlier. However, the deferred amount of sales tax for five years or nine years, as the case may be, has to be paid after the completion of the deferral period along with the current dues, i.e., in the case of deferral of nine years the amount deferred in the first year being payable along with the sales tax due in the 10th year, the amou....
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....General Manager, District Industries Centre in the case of small-scale industries and by the SIPCOT in the case of medium and major industries. In the same G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 1991, in respect of the existing industries in the abovesaid most backward taluks and in three industrial complexes, the Government granted remission of sales tax on the sale of products manufactured by the capacity created by expansion/diversification only for a period of five years from the date of commencement of production on or after May 14, 1990 subject to the ceiling of the total investment made in fixed assets under expansion/diversification subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small-scale industries and by the SIPCOT in the case of medium and major industries and it is made clear that such remission shall be granted for only one expansion or diversification of the existing unit, if carried out in the same taluk where the original project is located. Similarly, by the same G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 19....
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.... total investment or additional investment made in fixed assets after deducting the quantum of tax under the CST Act for the same period subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small-scale industries and by the SIPCOT in the case of medium and major industries and on condition that the tax so deferred shall be paid after the completion of the deferral period along with the tax assessed for that year and that the deferral of sales tax shall be eligible for only one expansion/diversification of the existing unit, if carried out in the same taluk where the original project is located. Thereafter, by notification in G. O. P. No. 396, Commercial Taxes and Religious Endowments, dated September 10, 1991, the Government in exercise of the powers conferred by sub-section (1) of section 17A of the TNGST Act granted deferral of payment of tax payable by any industry having an investment of Rs. 100 crores and above to be set up anywhere in Tamil Nadu on the sale of the products manufactured by the industry for a period of twelve years from the date of commencement of production on or after July 18, 1991 up to....
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....will become recoverable in one lump sum. Similar condition may be incorporated in the agreement form in respect of deferral of sales tax. (iii) It may be prescribed that the assessing officers must keep a close watch over the performance of the industry and foreclose the scheme and enforce the recovery of the tax assessed for all the years covered by the scheme if the monthly returns or check of accounts during assessment or otherwise show that the industry has stopped production in excess of the permitted period. (iv) Special arrangements may be made in the offices of the Commissioner of Commercial Taxes and Deputy Commissioners to ensure that the relief given in each case is entirely in terms of the eligibility certificate issued, that the terms and conditions are complied with and recoveries when due, strictly enforced. (v) The benefit of deferral of sales tax may be restricted to diversification only where the end-products can be distinguished from the products of the old unit." (emphasis(1) supplied) Then, the Government, by G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994, in order to protect the revenue and also to inc....
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....les tax by M/s. Ashok Leyland Limited for their expansion schemes. As these clauses protect the past revenue of the Commercial Taxes Department before the expansion, it was considered that the above conditions, i.e., fixing of base production volume and base sales volume may be insisted in all industries seeking the benefits of deferral of sales tax to their taking up of expansion projects. The Special Commissioner and Commissioner of Commercial Taxes, Madras has now reported that while issuing eligibility certificate for expansion cases, SIPCOT alone adds a clause that past revenue before the expansion should be protected as other organisations, particularly District Industries Centre, do not seem to be aware of this system and issue very open-ended eligibility certificates, which often cause problems to the Commercial Taxes Department, especially when some industries tend to take on more and more of the manufacture in the expanded units and decrease it in the old units. Accordingly, Commissioner of Commercial Taxes, for the reason stated above, has recommended that the principles laid down for Ashok Leyland Limited, referred to in Government Letter Ms. No. 113, Industries dated M....
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....ndia Cements, which is already having existing units of manufacturing cement at Sankari and Sankar Nagar, by letters dated March 13, 1996, March 4, 1997 and September 24, 1997 proposed to set up an expanded unit at Dalavoi village, Sendurai taluk to avail the benefit of Sales tax Deferral Scheme under G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 and addressed to the SIPCOT for the issue of eligibility certificate and made an application to that effect in prescribed form. The SIPCOT issued an eligibility certificate under Interest-free Sales Tax Deferral Scheme/Expansion on February 13, 1998 which reads as follows: "STATE INDUSTRIES PROMOTION CORPORATION OF TAMIL NADU LIMITED, 19A, RUKMANI LAKSHMIPATHY ROAD, EGMORE, Chennai - 600 008 Eligibility Certificate Under IFST Deferral Scheme-Expn. Eligibility Certificate No.: 4/XII/D/E. Date of issue: 13-2-1998 This eligibility certificate is hereby granted to M/s. The India Cements Ltd., located at Dalavoi Village, Sendurai Taluk, Perambalur District, manufacturing cement under the new Interest-free Sales Tax Deferral Scheme of the Government of Tamil Nadu. 2.. Subjec....
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....t. 5.3. The company is eligible for deferral of sales tax only on the increased volume of production/sale. For the purpose of determining the increased volume of production, the base figure would be the highest of the volume of production/sale in the company in any one of the years during the last 3 years. Till reaching the volume of production/ sale specified earlier the company would continue to pay tax and any liability in excess of the production/sale specified above alone will be eligible for deferment. The highest production/sales achieved by the company prior to the proposed expansion/diversification in the last three years is: Portland cement - production in lakh tonnes - 25.86 (95-96)/ S.T.O. - Rs. 72,882 lakhs (1996-97). Production details: Cement plant Location Quantity in lakh tonnes Sankar Nagar Tamil Nadu 10.60 Sankari Durg Tamil Nadu 6.09 Chilamkur Andhra Pradesh 9.21 25.86 Sales turnover details: Cement plant location Sales within Tamil Nadu Sales outside Tamil Nadu Rs. in lakh Total Sankar Nagar, Tamil Nadu 10,926 19,970 30,896 Sankari Durg, Tamil Nadu 7,7....
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.... DEFERRED SALES TAX-DEEMED RELOANING AND RECOVERY OF LOAN This deed of agreement is made at Chennai on this twelfth day of April, two thousand between the Government of Tamil Nadu, represented by the Territorial Assistant Commissioner of Commercial Taxes represented by Sri. S. Paranthaman, on the first part; and M/s. The India Cements Ltd., having their registered office at Dhun Building, 827, Anna Salai, Chennai 600 002 represented by Sri. N. Srinivasan, Managing Director, on the second part; both parties herein shall include their respective successors, legal representatives, executors, administrators, nominees, assignees, etc. Whereas M/s. The India Cements Ltd., have established a new industrial unit at Dalavoi Village, Sendurai Taluk, Perambalur District, a notified most backward block of Senthurai and have commenced production of their products at the new unit. 1. Here italicised. Whereas the Government have by their G. O. P. No. 92 Commercial Taxes and Religious Endowments Departments dated February 22, 1991, directed that deferral of sales tax will be given for new industries as well as existing industries while undertaking expansion/ diversification of unit....
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....Rs. 270.21 crores (rupees two hundred and seventy crores and twenty one lakhs only) interest-free for twelve years from the month in which the holder's unit commenced its commercial production, i.e., from July 1, 1997 to May 31, 2009. 2.. The total amount of tax to be deferred shall not exceed the total investment made in fixed assets under expansion/diversification or the amount specified in the eligibility certificate issued by the District Industries Centre/SIPCOT, whichever is lower. 3.. The party of the second part agrees to repay the Government loan in instalments: The first year's loan in the thirteenth year along with tax payable for the corresponding months of (on or before 20th of the month) that year, the second year's loan in the fourteenth year April month for April along with tax payable for the corresponding months of that year, and so on as per G. O. P. No. 92, Commercial Taxes and Religious Endowments Department dated January 22, 1991 read with G. O. Ms. No. 48, Commercial Taxes and Religious Endowments Department, dated February 11, 1994. In case of default in payment of Government loan, the party of the second part undertake that: &nbs....
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....ase thereafter. 10 (a) Party of the second part certifies that: (i) Promoters/partners/directors have not made any default to commercial tax department. (ii) that they have not wound up any firm/company for which they have availed sales tax concession in the past and, (iii) that they have not transferred the fixed assets of any concern/ firm/company for which they have availed sales tax concessions previously to any other person. (b) In the case of any specific proof to the effect that the promoter/ partner/director of the firm or company has grossly and habitually defaulted payment of tax or attempted to derail the tax recovery proceedings by changing the constitution of the existing firm/company or by transferring of fixed assets to another, etc. while doing business now or earlier in any other name, Commercial Tax Department has full rights to cancel the proceedings and agreement that has been entered under interest-free sales tax deferral/waiver scheme and to recall the sales tax already deferred in one lump sum from the beneficiary. 11.. In case of default of any of the conditions mentioned in paras 3, 4, 5, 6, 7, 8, 9, 10(a) and 10(b) above, the defer....
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....ity certificate dated February 13, 1998 and in addition to the conditions mentioned in the agreement dated April 12, 2000. It is also emphasised that the deferral scheme will be applicable to the company only as long as it manufactures products for which the eligibility certificate dated February 13, 1998 has been issued. If the company fails to manufacture the product for which the eligibility certificate dated February 13, 1998 has been issued or manufactures any other goods under the guise of the products for which the certificate has been issued or if the Commercial Taxes Department is of the opinion that the company is not manufacturing the product for which the eligibility certificate dated February 13, 1998 has been issued, the eligibility certificate dated February 13, 1998 issued shall stand cancelled and the Commercial Taxes Department shall have the right to demand and collect the tax assessed for all the years covered by the scheme and the company is liable to pay the same in one lumpsum. M/s. India Cements was remitting the sales tax up to the level it reached the base sales volume, viz., the highest of the actual annual sales in the last three years prior to the ex....
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....sioner, Commercial Taxes on March 26, 2002, submitting that: (i) G. O. Ms. No. 119 dated April 13, 1994 cannot be read as completely nullifying the purpose and purport and effect of G. O. P. No. 92, Commercial Taxes and Religious Endowments Department dated February 22, 1991; (ii) the aim of G. O. Ms. No. 119 dated April 13, 1994 was to ensure that the entrepreneur maintains the tax payment obligation prior to the new industry so that only incremental sale volume is entitled to deferral. By construing the new industry at Dalavoi as an expansion (which itself is artificial) the G. O. Ms. No. 119 dated April 13, 1994 would purport to say that the industry (consisting of the base production infrastructure + expansion infrastructure) pays tax up to the base sale volume and enjoys deferral thereafter; and (iii) the new industry, which is a separate industrial undertaking, with the sole investment infrastructure utilities, management and work force already determined, had suffered by treating this as an expansion and even if it were an expansion, logically tax can only be collected on the base sale volume and further sale volume beyond the base volume should be treated as....
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....cation prescribed in the eligibility certificate dated February 13, 1998 in paragraph 5.3 and the corresponding terms and conditions incorporated in the agreement dated April 12, 2000 entered into between M/s. India Cements and the Zonal Assistant Commissioner, Commercial Taxes pursuant to the eligibility certificate, are contrary to the spirit and object of the deferral of sales tax scheme, if the qualification prescribed and the conditions imposed in G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994, the eligibility certificate dated February 13, 1998 as well as the terms and conditions of the agreement dated April 12, 2000 are construed as though the holder of the eligibility certificate would be eligible for the benefit of deferral scheme only if they achieve both BSV/BPV but not otherwise. It is also contended that the benefit of deferral of sales tax scheme conferred by the statutory notifications issued under section 17A of the TNGST Act and section 9(2) of the CST Act cannot be whittled down by the directions issued in G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994, qualifications ....
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....lternative it means that if the base sale volume had been reached earlier, but the base production volume had not been reached, the petitioner will not be entitled to get the deferral facility. It is only after the base production volume is reached that the right of deferral accrues. Vice-versa, if the base production volume had been reached later, it is only after the base sale volume is reached that the petitioner will be entitled to get the deferral facility. This in effect means whichever condition is reached later, then alone the petitioner gets the right to defer the payment of sales tax." (emphasis(2) supplied) 1. Reported [2006] 143 STC 208 (TNTST). 2. Here italicised. According to the Revenue, the only interpretation that can be given to clause 3(ii) of G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 is that both base production volume and base sales volume should have to be reached before the industry could claim deferral of sales tax. Accepting the arguments of the Revenue, the Tribunal, by common order dated April 19, 2002 held that the scheme contemplates that both base production volume and base sales volume shoul....
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.... be ascertained from the books of the dealers and eligibility certificate got amended to incorporate the particulars to avoid any dispute. As per decision of Tamil Nadu Taxation Special Tribunal in O.P. No. 1229 1230 and 1231 of 1998 dated November 23, 1998, Mercury Fittings (P) Ltd., it was held that G.O.1998/CTRE/ April 13, 1992 contemplated the liability to pay tax with reference to base production volume or base sales volume, whichever is reached earlier and the liability for deferral is only with reference to volume of sales and not with reference to taxes paid on sales for the base year. Thus all Deputy Commissioners and Assistant Commissioners shall thoroughly verify all expansion cases and satisfy themselves that taxes have been paid until the BPV/BSV has been achieved. . . . Thus, the Assistant Commissioners shall monitor constantly with reference to each dealer availing deferral that there is no violation of any of the conditions of agreement as detailed in this circular and taxes are correctly paid by original and expansion units." (emphasis(1) supplied) PART B (M/s. Hindustan Motors Waiver of Sales Tax Cases) For the purpose of convenience, the petitioner....
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....uary 22, 1991 and G. O. Ms. No. 119, Commercial Taxes and Religious Endowment Department dated April 13, 1994 and G. O. Ms. No. 43, Inds. (MIG.2) Department dated February 13, 1992. 3.. Based on the above, the holder of this eligibility certificate will be eligible for waiver of sales tax for a sum not exceeding Rs. 8428.94 lakhs (rupees eight thousand four hundred and twenty eight lakhs and ninety four thousand only) under the waiver scheme for the five years from the month in which the holder's unit commenced its commercial production, i.e., from October 1, 1998 to September 30, 2003. 4.. The actual amount waived shall, however, be the least of the amounts mentioned in 4.1. and 4.2. below: 4.1. Notional sales tax liability on account of Tamil Nadu general sales tax, Central sales tax, additional sales tax, surcharge and additional surcharge which would have accrued during the period of waiver in favour of Government, but for the waiver on the sales of finished goods manufactured by the unit. 4.2. 100 per cent of the value of initial gross fixed assets, i.e., Rs. 8428.94 lakhs (Rupees eight thousand four hundred and twenty eight lakhs and ninety four thousand only)....
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....pplicable to the unit/company only as long as it manufactures products for which the eligibility certificate has been issued. If the unit/company fails to manufacture the product for which the eligibility certificate has been issued or manufactures any other goods under the guise of the products for which the certificate has been issued or if the Commercial Tax Department is of the opinion that the unit/company is not manufacturing the products for which the eligibility certificate has been issued, the eligibility certificate issued shall stand cancelled. The Commercial Tax Department shall have the right to demand and collect the tax assessed for all the years covered by the scheme and the unit/company is liable to pay the same in one lump sum. Nil 13. Violation of any of the conditions in the eligibility certificate and connected Government Orders will result in withdrawal of waiver entirely. Sd/for Managing Director" (Emphasis(1) supplied) Consequently, M/s. Hindustan Motors Ltd., entered into an agreement with the Assistant Commissioner, Commercial Taxes on March 23, 2000, which reads as follows: "WAIVER OF SALES TAX (DEED OF AGREEMENT) ....
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....r after 14th May, 1990. 2.. The total amount of tax/surcharge/additional surcharge/additional tax to be waived shall not exceed the total investment made in fixed assets. 3.. The party of the second part shall not alienate/or dispose of or encumber or lease out the said fixed assets until the period of waiver nor shall he/they remove the fixed assets from the unit's premises. 4.. The party of the second part shall insure the fixed assets at a value not less than the value certified by the SIPCOT/G.M., District Industries Centre, and keep the insurance policies alive by renewing it every year until the period of waiver is completed and shall produce the policy for inspection by the party of the first part on or before 30th June of every year. 5.. The party of the second part shall maintain the fixed assets in good condition so that the market value of the assets is maintained from time to time. 6.. The party of the second part shall obtain the permission of the party of the first part before the sale of the fixed assets. 7.. The party of the second part shall furnish to the party of the first part the audited balance sheet and profit and loss account cer....
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....igibility certificate deleting the production and sales figures of the Earth Moving Equipment Division stating that the Lancer Car Unit was a new unit and not an expansion as found mentioned in the eligibility certificate. M/s. Hindustan Motors Ltd., started its commercial production on October 1, 1998. On the basis of eligibility certificate dated December 22, 1998, M/s. Hindustan Motors Ltd., started claiming sales tax waiver benefit from January 1, 1999 on all sales of Lancer cars effected both inside Tamil Nadu and inter-State from Tamil Nadu. The first respondent on the basis of sales of M/s. Hindustan Motors Ltd., in Earth Moving Equipment Division and Power Products Division for the period 1999-2000 and 2001-02, fixed the benchmark in the eligibility certificates dated January 29, 2001, February 26, 2001 and October 18, 2001. On August 6, 2002, the officials of the Enforcement Wing of the Commercial Taxes Department, during the course of inspection, informed M/s. Hindustan Motors Ltd., that before enjoying the waiver benefit, M/s. Hindustan Motors Ltd., should comply with clause 10 of the eligibility certificate in which base production volume and base sales ....
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....66 and 1095 of 2002 on the ground that para 10 of the eligibility certificate dated December 22, 1998 issued to M/s. Hindustan Motors Ltd., is ultra vires, that the rights conferred under the statute cannot be taken away or whittled down by an executive order and that no restriction can be superimposed by SIPCOT which is ultra vires the statutory notification. The Revenue, on the other hand, justified the demand notices referred to above contending that M/s. Hindustan Motors Ltd., is bound by the conditions prescribed in the eligibility certificate dated December 22, 1998 issued to them as well as the terms and conditions of the agreement entered by them with the Zonal Assistant Commissioner which are made pursuant to clause 3(v) of G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 and that G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 is not in conflict with the Sales Tax Waiver Scheme as the Government is well within its power to issue G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 invoking executive power under article 162 of the Constitut....
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....ve order, and the same is not concededly notified in the gazette as contemplated under section 53(5) of the TNGST Act and therefore, shall not have any statutory force as against the G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 and therefore, G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 being an executive order should give way to G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 in view of article 265 of the Constitution of India; (ii) the clauses mentioned in G. O. Ms. No. 119, Industries (MIG.II) dated April 13, 1994 as well as para 5.3 of the eligibility certificate and related conditions are to be read into the Deferral of Sales Tax Scheme governed by a statutory notification issued in G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 and therefore, the terms prescribed in the eligibility certificate dated February 13, 1998 and the agreement dated April 12, 2000 made in pursuance of the....
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....er, in that financial year. It is, therefore, argued that if BSV is achieved earlier and BPV is reached later in the financial year, the benefit of sales tax deferral should date back to the earlier date of achieving BSV, similarly if the BPV is achieved earlier and BSV is achieved later, it should date back to the earlier date of achieving BPV and only then, the object of the deferral scheme governed under the statutory notifications with an authority of law as per article 265 of the Constitution of India can be achieved. Any other interpretation would frustrate the object of the scheme; (vi) the word "when" mentioned in clause 3(ii) of G. O. Ms. No. 119, Industries (MIG.II) dated April 13, 1994 should be read as "if" and therefore, expansion/diversified unit would be eligible for the benefit of deferral scheme for the sales made in the financial year in excess of BSV provided the actual production of the industry exceeds the BPV in that year; (vii) even if the word, "when" is read as "after", the M/s. India Cements Ltd., would be eligible for deferral of sales tax on the sales in excess of BSV after the actual production of the industry in the financial year exceeds the BPV....
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.... was not an issue before the division Bench of this court and hence, the dismissal of the writ petition in W. P. No. 18199 of 1999 by the division Bench of this court by judgment dated December 5, 2001 and the observation made thereunder with reference to the division of the taxable sales turnover for the whole year into 12 parts to allow the assessee therein to get the deferral benefit in excess of the taxable sales turnover for each month are all not relevant to decide the present controversy; and 1. Reported as Madras Cements Ltd. v. State of Tamil Nadu [2006] 143 STC 208. (x) the Revenue having issued a circular is bound by the same, as held by the apex court as well as the division Bench of this court in a catena of decisions. PART-B (Contentions made on behalf of the Revenue/SIPCOT) Per contra, Mr. P. S. Raman, learned Additional Advocate-General appearing for the Revenue justifying the demand notices, reiterated the reasons that weighed the Special Tribunal in the order dated April 19, 2002 contends that: (i) G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 are nothing but the source....
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.... Endowments Department, dated April 13, 1994, it is submitted that only in the year where the industry reaches both the basic sales volume/basic production volume, the industry would be eligible for the benefit of sales tax deferral. Therefore, the industry would be eligible for the benefit of the scheme only from the time when it achieves both BPV/ BSV and not otherwise and hence, the word, "when" denotes the starting time of the benefit. (v) It is argued that the circular dated May 1, 2000 issued by the first respondent is inapplicable in view of the order of the Special Tribunal dated November 5, 1999 in O.P. Nos. 1347 and 1348 of 1999 in Madras Cements Ltd. v. State of Tamil Nadu [2006] 143 STC 208 (TNTST), whereunder it is held that "The only interpretation that could be given to the said clause which is reflected in the eligibility certificate and the agreement entered into by the petitioner is, that both the base production volume and base sale volume should have to be reached before the petitioner could claim deferral of sales tax. In the alternative it means that if the base sale volume had been reached arlier, but the base production volume had not been reached, the pe....
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.... TNGST Act and section 8(5) of the CST Act, has the authority of law within the meaning of article 265 of the Constitution of India, inasmuch as the exemption notifications are also legislative in character and operate as a part of the Act. The Government having granted such benefit of waiver of sales tax, the same cannot be restricted by way of an executive order passed under G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994, invoking article 162 of the Constitution of India, and the consequential eligibility certificate dated December 22, 1998 and the agreement dated March 23, 2000. Therefore, any direction prescribed under the executive orders, much less the conditions provided under the eligibility certificate as well as the agreement, should give way to achieve the object intended under the waiver scheme; (iii) the G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 as well as the qualifications prescribed in the eligibility certificate dated December 22, 1998 as well as the terms and conditions provided in the agreement dated March 23, 2000 are not applicable to the diversificat....
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....ion of non reaching of BSV/ BPV is arbitrary, unreasonable and illogical. PART-B (Contentions made on behalf of the Revenue/SIPCOT) In the case of Hindustan Motors Ltd., in addition to the submissions made in India Cements' cases and also sustaining the reasons that weighed the Special Tribunal justifying the impugned demand in the common order dated January 24, 2003 in O. P. Nos. 866, 867, 965, 966 and 1095 of 2002, Mr. P. S. Raman, learned Additional Advocate-General appearing for the Revenue contends that, (i) as in the case of deferral of sales tax scheme, G. O. P. No. 92, Commercial Taxes and Religious Endowments, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 is a source for notifying the waiver of sales tax scheme. Since the source of the scheme does not provide the method and machinery for implementing the waiver scheme, even though the said scheme is statutory in character in view of article 265 of the Constitution of India, the Government is well within its power to pass independent executive order in G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 invoking article 162 of the Constitution of....
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....n February 9, 2001 cannot be a ground that alleged violation to the condition with regard to non-achieving of BPV/BSV had become unworkable and therefore, the consequential denial of benefit of the scheme is neither arbitrary nor unreasonable; and (v) even though the production of the BPV/BSV of the then existing industry cannot be the basis for granting benefit of the waiver scheme for the goods manufactured by the unit, which is construed as a new industry manufacturing different goods, it is not proper for the assessee to claim the benefit of the scheme before this court, particularly invoking the power of judicial review conferred under article 226 of the Constitution of India, as it is for the Government to pass orders after looking into the relevant criteria. Mr. Devaraj, learned counsel appearing for the SIPCOT, while adopting the arguments of Mr. P. S. Raman, learned Additional Advocate-General appearing for the Revenue, also contends that the eligibility certificate derives the statutory status by virtue of G. O. Ms. No. 119 Industries (MIG-I) dated April 13, 1994 read with G. O. P. No. 92, Commercial Taxes and Religious Endowments dated February 22, 1991 and G. O. M....
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.... In the process of meeting the challenges that come across the globalization of economy, industry, trade and commerce, the Government have come forward with liberalisation schemes such as, granting certain exemptions in respect of tax payable on the turnover of the sale of goods produced and sold by the new or expanded or diversified industrial units, of course, subject to the directions, qualifications and the terms and conditions prescribed in the scheme, eligibility certificate and the consequential agreements, with a view to boost the industrialisation by (i) deregulating Indian industry, (ii) allowing the industry freedom and flexibility in responding to market forces, and (iii) providing a policy regime that facilitates and fosters growth of Indian industry. The power to maintain economic unity includes the power to grant exemptions or to reduce the rate of interest or defer or waive the sales tax as a special case for achieving the industrial development and to provide certain tax incentives which are also intended to attain the economic equality in the growth and development. The economic development of the State to bring it into equality with all other State....
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....f the production exceeds the base production volume (in short, "BPV") for the sales made in that year in excess of the base sales volume (in short, "BSV"), is the issue that arises for our consideration in W. P. Nos. 13697 and 13698 of 2002. (ii) In the case of diversified unit of an existing industry, whether the industry will be eligible for sales tax waiver in any financial year if the production exceeds the base production volume (in short, "BPV") for the sales made in that year in excess of the base sales volume (in short, "BSV"), despite the fact that the production of the existing unit and diversified unit are totally different and the existing unit was subsequently sold to a third party, is the issue that arises for our consideration in W. P. Nos. 37042, 40030, 40031 & 44733 of 2002 and 3230, 3231, 3232, 3233, 3234 and 21162 of 2003. For the purpose of clarity, we propose to discuss the contentions made by both the sides, based on the issues that arise supplementary to the above controversies. VII-(B). IS THERE ANY CONFLICT BETWEEN THE PROVISIONS WHICH CONFER JURISDICTION TO GRANT THE BENEFITS OF THE SCHEMES AND THE PROVISIONS WHICH REGULATE THE PROCEDURE FOR THE I....
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....nflict between them? With the risk of repetition, we briefly refer that by way of G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992, the Government invoking section 17-A of the TNGST Act and section 9(2) of the CST Act notified the deferral scheme and invoking section 17(4) of the TNGST Act and section 8(5) of the CST Act notified the waiver scheme and therefore, G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 are nothing but the source of power which confer the jurisdiction on the Government to sanction the scheme. Since the said G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 were issued by exercise of statutory power, the same have the authority of law under article 265 of the Constitution of India, because it is a settled law that a notification of the State Government granting exemption, either by the Deferral of Sales Tax Scheme or Waiver of Sales Tax Scheme under the rule-making power conferred on th....
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....ed April 13, 1994, much less the qualifications prescribed in the eligibility certificates and the terms and conditions incorporated in the consequential agreements in the respective cases are inroads into the field occupied by the Scheme of Deferral/Waiver of Sales Tax, which has got the authority of law under article 265 of the Constitution of India, as noticed earlier. A careful and comparative reading of the G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G. O. Ms. No. 376, dated October 27, 1992 on the one hand and the G. O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 and the eligibility certificates issued thereunder and the consequential agreements entered into between the parties on the other hand, would lead to a distinction arising between the provision which confers the jurisdiction and the provision which regulates the procedure. While the former is a source of power to grant the exemption, the latter speaks about the method and machinery to implement the scheme and thus, provides a regulatory procedure for the same. Therefore, while G. O. P. No. 92, Commercial Taxes and Re....
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....ethod and machinery appointing the SIPCOT as authorised agency for issuing eligibility certificate and to work out BPV/BSV and also to impose such other conditions, we do not see any conflict between the schemes provided under the G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G.O. Ms. No. 376, dated October 27, 1992 and the regulatory measures provided under G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 including the qualifications prescribed in the eligibility certificate and the terms and conditions incorporated in the consequential agreements. VII-(C). HARMONIOUS CONSTRUCTION OF THE PROVISIONS RELATING TO THE SOURCE OF THE SCHEMES, VIDE G. O. P. NO. 92, COMMERCIAL TAXES AND RELIGIOUS ENDOWMENTS DEPARTMENT, DATED FEBRUARY 22, 1991 AND G.O. MS. NO. 376, DATED OCTOBER 27, 1992 AND THE PROVISIONS OF THE REGULATORY PROCEDURE IN G.O. MS. NO. 119, COMMERCIAL TAXES AND RELIGIOUS ENDOWMENTS DEPARTMENT, DATED APRIL 13, 1994 AND THE QUALIFICATION PRESCRIBED IN THE ELIGIBILITY CERTIFICATES AND THE TERMS AND CONDITIONS INCORPORATED IN THE CONSEQUENTIAL AGREEMENTS It is a settled law that....
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....l or waiver, the cardinal principle is that the same must be exercised in the public interest and not otherwise [vide: State of Rajasthan v. J. K. Udaipur Udyog Ltd. [2004] 137 STC 438 (SC); [2004] 7 SCC 673]. G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G.O. Ms. No. 376, dated October 27, 1992, which are the sources of the schemes do not provide the procedure for implementing the schemes and the Government has the power to prescribe the regulatory procedure for implementing the schemes and to prescribe the method as well as machinery and issue conditions and directions related thereto, such exercise of power, by itself cannot be complained that the Government by way of executive order proposed to cancel or modify the benefit granted by the Legislature. When G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G.O. Ms. No. 376, dated October 27, 1992 do not provide any method and machinery for the implementation of the schemes, the Government is well within its power to pass G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 pres....
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....uary 22, 1991 and G.O. Ms. No. 376, dated October 27, 1992, which form the source of the deferral of sales tax scheme or waiver of sales tax scheme and confer jurisdiction for the Government for sanction of the benefits under the schemes, G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 prescribes the regulatory procedure. The distinction, therefore, is sharp but glaring because, the same arises between the provisions which confer the jurisdiction and the provisions which regulate the procedure. It is a settled law that jurisdiction can neither be waived nor created by consent, but, on the other hand, a procedural provision may be waived by conduct or agreement [Superintendent of Taxes v. Onkarmal Nathmal Trust AIR 1975 SC 2065]. Therefore, the question of comparing and contrasting the two will not arise as both stand on different plane, independently, of course, to achieve the same object. Hence, to contend that the directions in G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 and the qualifications in the eligibility certificates and the terms and conditions incorporated in the consequential ....
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....le for deferral of sales tax for sales made in that year in excess of the base sales volume under the Tamil Nadu General Sales Tax Act, which is the highest of the actual annual sales in the last 3 years prior to expansion. into one reading both the clauses (directions) of course, eschewing certain words, which is inevitable in the public interest as follows: "The industry will be eligible for sales tax deferral only if in a financial year production exceeds the base production volume for sales made in that year in excess of the base sales volume under Tamil Nadu General Sales Tax Act." Otherwise, either of the clauses, i.e., 3(i) or 3(ii) would become redundant. VII-(D) THE PUBLIC INTEREST ENSHRINED UNDER THE SCHEMES: Under both the Schemes, as already observed, the Government, in the public interest without compromising with the revenue of the State, notified certain incentives for deferral or waiver of sales tax on certain conditions including that of obtaining eligibility certificate from the District Industries Centre/SIPCOT, by exercising the statutory power referred to above, with a view to boost industrialisation in both the economically backward and most backwa....
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....or sales tax deferral only if in a financial year production exceeds the base production volume which is the highest annual production in the 3 years prior to expansion. (ii) When the actual production in the industry in any financial year exceeds the base production volume, the industry would be eligible for deferral of sales tax for sales made in that year in excess of the base sales volume under Tamil Nadu general sales tax, which is the highest of the actual annual sales in the last 3 years prior to expansion. (iii) The above conditions are applicable in cases where expansion units is a separate unit located elsewhere or a part of the existing plant. (iv) The specification of base production/sales volumes are applicable even in the case of allegedly new unit having been started by the same management or ownership or where the substantial controlling capital is put in by the same group of companies. (v) The base production volume and the base sales volume will have to be worked out and incorporated in the eligibility certificates at the time of issue by SIPCOT and District Industries Centres." (b) Relevant paragraphs of the eligibility certificates: (in the matter....
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....ver Rs. (in lakhs) Earth Moving Equipment Division at Thiruvallur 646 34,143.45 Power Products Division at Hosur (c) Relevant clauses of the agreements: 940 3,449.60 1,586 37,593.05 (in the matter of M/s. India Cements - Agreement dated April 12, 2000): (i) the company is eligible for deferral of sales tax on the increased volume of production. For the purpose of determining the increased volume of production, the base figure shall be the highest of the volume of production/sales in the company in any one of the years during the last 3 years preceding the date of commencement of deferral. (ii) the company has to go on paying the tax to the level of base volume of production/sales and once it reaches this level, then any further tax liability will be eligible for deferral of sales tax. (iii) based on the above, the holder of this eligibility certificate will be eligible for deferral of sales tax not exceeding Rs. 270.21 crores (rupees two hundred and seventy crores and twenty one lakhs only) interest-free for twelve years from the month in which the holder's unit commenced its commercial production, i.e. from July 1, 1997 to....
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....ts Department, dated April 13, 1994 and qualifications prescribed in the eligibility certificate and the terms and conditions incorporated in the consequential agreement. The qualifications prescribed in the eligibility certificates and the terms and conditions mentioned in the consequential agreements entered between the dealers and the Revenue which are issued in consonance with the directions of G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 are nothing but the regulatory procedures, prescribing the method and machinery to implement the object behind the Schemes, whether it is deferral or waiver issued in G. O. P. No. 92, Commercial Taxes and Religious Endowments Department, dated February 22, 1991 and G.O. Ms. No. 376, dated October 27, 1992 which has the statutory force. A combined reading of clauses 3(i) and (ii) of G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 and paragraph 5.3 of eligibility certificate dated February 13, 1998 in the case of M/s. India Cements Ltd., and para 10 of eligibility certificate dated December 22, 1998 in the case of M/s. Hindustan Motors Limited and ....
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....ON OF THIS COURT IN W. P. NO. 18199 OF 1999, DATED DECEMBER 5, 2001. (BETWEEN TVL. MADRAS CEMENTS LTD., AND STATE OF TAMIL NADU REP. BY SECRETARY TO GOVERNMENT, COMMERCIAL TAXES AND RELIGIOUS ENDOWMENT DEPARTMENT, FORT ST. GEORGE, CHENNAI 600 009 AND THREE OTHERS); Yet another point which has to be answered is the relevancy and the applicability of the decision of this court in between Tvl. Madras Cements Ltd., and State of Tamil Nadu W. P. No. 18199 of 1999, dated December 5, 2001, rep. by Secretary to Government, Commercial Taxes and Religious Endowment Department, Fort St. George, Chennai 600 009 and three others), to the cases on hand. The Writ Petition No. 18199 of 1999 arose against the order of the Taxation Special Tribunal dated November 5, 1999 in O.P. Nos. 1347 1348 of 1999 (between Tvl. Madras Cements Ltd., and State of Tamil Nadu rep. by Secretary to Government, Commercial Taxes and Religious Endowment Department, Fort St. George, Chennai 600 009 and three others), whereunder the Special Tribunal held as follows: ". . . The only interpretation that could be given to the said clause which is reflected in the eligibility certificate and the agreement entered into....
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.... been said on this subject by the division Bench of the Madras High Court. The petitioner, by not following the deferral scheme in letter and spirit, availed of deferral in excess to the tune of Rs. 5,873.51 lakhs for which the respondent issued a notice. The Sales Tax Deferral Scheme is a beneficial scheme meant for promotion of industry and correction of regional imbalance in economic growth. The petitioner cannot take undue advantage of the beneficial scheme and seek to derive unextended benefits by taking advantage of the beneficial scheme. " The view taken in M/s. India Cements Ltd., deferral of sales tax case was also incidentally referred to and applied by the Tribunal in Hindustan Motors Limited case, but a careful analysis of the issue in Madras Cements Case, referred supra, with the cases on hand would reveal that the issue in the present case is totally different from that of the Madras Cements Case, referred supra. The question agitated and decided by the division Bench of this court by order dated December 5, 2001, in Madras Cements Ltd. v. State of Tamil Nadu W. P. No. 18199 of 1999 was whether a dealer is entitled to estimate his turnover for the whole year at ....
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....rification issued by the Revenue by way of circular is binding on them. In Mohan Breweries and Distilleries Ltd. v. Commercial Tax Officer [2005] 139 STC 477, a division Bench of this court in which one of us was a party (P. D. Dinakaran J.), interpreting the power of issuing clarifications under section 28-A of the TNGST Act, held as follows: ". . . the law is well-settled on the point in the light of the following decisions, which are discussed hereunder: 1. Reported in [2006] 143 STC 208. 8.6.2. The apex court in State Bank of Travancore v. Commissioner of Income-tax [1986] 158 ITR 102 held that even though the clarifications issued by the Revenue being executive in character cannot alter the provisions of the Act, since they are in the nature of concessions, they can always be prospectively withdrawn. In the instant case, even though the clarification dated November 9, 1989 is executive in nature, the concessions given to the assessee could be withdrawn only prospectively, but not retrospectively because, such executive circulars are binding on the authorities, as held by the apex court in Keshavji Ravji & Co. v. Commissioner of Income-tax [1990] 183 ITR 1. I....
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....plication of a particular provision of the statute in certain situations by applying a beneficial interpretation to the provision in question. 8.6.6. In Commissioner of Sales Tax, U. P. v. Indra Industries [2001] 122 STC 100, the apex court held that a circular issued by the sales tax authorities is binding on the taxing authorities and the taxing authority cannot be heard to advance an argument that is contrary to that interpretation. 8.6.7. In Commissioner of Income-tax v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi), it was held that the Board has power to issue circulars under section 119 of the Income-tax Act and it is trite that circulars which are issued by the Central Board of Direct Taxes are legally binding on the Revenue. 8.6.8. The Constitution Bench of the apex court in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries [2002] 126 STC 122, held that if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue. Similar view was taken by the apex court in Collector of Central Excise, Vadodara v. Dhire....
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.... 1, 2000, and tilting on the decision of the Special Tribunal in O. P. Nos. 1347 and 1348 of 1999 (Madras Cements Ltd. v. State of Tamil Nadu), dated November 5, 1999(2), which we have already held as inappropriate, in our considered opinion, is a total misconception. Therefore, as per the circular dated May 1, 2000, the holder of the eligibility certificate shall be entitled to the benefit of the Schemes on reaching the BPV or BSV, whichever is reached earlier, which again supports the harmonious and reasonable construction by blending of clauses 3(i) and 3(ii) of G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994, as held above. VII-(H) QUANTIFICATION OF THE BENFITS UNDER THE WAIVER SCHEME IN THE CASE OF DIVERSIFIED UNITS MANUFACTURED DIFFERENT PRODUCTS: Even though the legal and logical conclusion derived by harmonious construction of the statutory provisions relating to the deferral of sales tax 1. Since reported in [2007] 6 vst 100. 2. Since reported in [2006 143 stc 208. in the case of expansion units is equally applicable to diversified units as well as new units for waiver of sales tax, the case of M/s. Hindustan Motors ....
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....e was itself subject to the consideration of equity and public interest. Once the Government have come forward with clear and unambiguous new industrial policy to achieve the goal as referred to above, such policy and Scheme framed exercising statutory powers is undisputably in the public interest [State of Rajasthan v. J. K. Udaipur Udyog Ltd. [2004] 137 STC 438 (SC); [2004] 7 SCC 673]. Therefore the Government in the same public interest is under obligation to pass appropriate orders in the case of M/s. Hindustan Motor Limited to modify or revoke the grant. However, the fact remains that M/s. Hindustan Motors Limited has chosen to sell the earth moving equipment division to M/s. Caterpillar Pvt. Ltd., after availing the benefit of waiver, but, during the period of waiver Scheme and thereby committed a violation of the terms and conditions of the consequential agreement. Once we are convinced that the BPV/BSV of the existing industry that manufactured earth moving equipment cannot be the basis for the diversified unit manufacturing Lancer cars, there is no other option except to treat the diversified unit as new unit, set up for manufacturing a totally new product which is also....
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.... on merits, treating the diversified unit as a new unit and to grant appropriate relief, because such an exercise cannot be done by this court while exercising the power of judicial review conferred under article 226 of the Constitution of India, because power to grant such appropriate relief requires to be decided based on several materials and details, both relating to production and sale, which are sought to be achieved under the new industrial policy and also requires a careful appreciation of the same before taking appropriate decision in the matter, which power, in our considered opinion is fully within the domain of the State and cannot be usurped by us, by exercising the power of judicial review, whatever the reason may be. [State of Rajasthan v. J. K. Udaipur Udyog Ltd. [2004] 137 STC 438 (SC); [2004] 7 SCC 673]. VII-(I) INTEREST On the submissions made on both the sides regarding interest on the tax payable by the dealer or the interest on the amount refundable by the Revenue, as the case may be, it is apt to refer to the following provisions of the TNGST Act and the CST Act. TNGST Act: Section 24. Payment and recovery of tax.-(1) to (2) . . . (3) On any am....
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....de order passed in such appeal, revision or review with direction to make fresh assessment order. CST Act: Section 9. Levy and collection of tax and penalties.-(1) . . . (2) Subject to the other provisions of this Act and the Rules made thereunder, the authorities for the time being empowered to assess, reassess, collect and enforce payment of any tax under the general sales tax law of the appropriate State, shall, on behalf of the Government of India, assess, reassess, collect and enforce payment of tax, including any interest or penalty payable by a dealer under this Act as if the tax, or interest or penalty payable by such a dealer under this Act is a tax or interest or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm ....
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....isions of the CST Act provide for interest in the case of default of either of the parties. But in view of the submissions made on behalf of both sides that the dealer as well as the Revenue would forego the interest on the tax payable by the dealer or on the amount refundable by the Revenue, as the case may be, we do not propose to pass any orders in this regard. VIII - FINDINGS PART-A (In the matter of M/s. India Cements Ltd.) In view of the elaborate discussions made above, we are of the considered opinion that the benefit of deferral of sales tax for the sales made in excess of the base sales volume cannot be denied to the holder of the eligibility certificate if the actual production of the industry in any financial year during the period of deferral exceeds the base production volume. Therefore, the directions in clauses 3(i) and 3(ii) of G.O. Ms. No. 119, Commercial Taxes and Religious Endowments Department, dated April 13, 1994 and para 5.3 of eligibility certificate dated February 13, 1998, if read harmoniously, the only conclusion that would follow is that the dealer will be eligible for sales tax deferral in any financial year if the production e....