TaxTMI 
TaxTMI 
2010 (10) TMI 945
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....upees 50 crores. The petitioner filed an application on 14.8.1997 under Section 4-A of the U.P. Trade Tax Act (hereinafter referred to as "Act") in the prescribed Form 46 under Rule 25 of the U.P. Trade Tax Rules (hereinafter referred to as "Rules") for grant of benefit of expansion under the Notification No. 640 dated 21.2.1997. The Divisional Level Committee granted eligibility certificate on 30.11.1998. The eligibility certificate granted the benefit of exemption from tax in respect of toilet soap under the expansion Scheme while in respect of fatty acid exemption from tax was granted under the diversification Scheme. The exemption from tax under the expansion Scheme was granted for the period of 27.2.1995 to 26.2.2010 or to the extent of Rs. 68,41,51,230/- whichever is earlier on the turn over of toilet soap and under the diversification Scheme the exemption from tax on the fatty acid was granted from 1995 to 26.2.2010. In the present case we are concern with the exemption under the Expansion Scheme. Under the expansion Scheme exemption from tax was available under Section 4-A of the Act on the production in excess of the base production which was to be determined in accord....
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....ax the base production and realise Trade Tax and the Central Sales Tax thereon as the case may be and by way of incentive grant exemption from or rate of reduction in tax on the excess production beyond the base production. In effect, it has been held that exemption under Section 4-A of the Act is applicable with reference to "turnover of sales" and does not include despatches of goods outside the State of U.P. and, therefore, exemption in trade tax is applicable only to such excess production beyond the base production which does not include stock transfer or consignment sale. The aforesaid decision has been followed by another Division Bench in Writ Petition N0. 1715 (Tax) of 2007, M/s IFFCO Ltd. Vs. State of U.P. & others, decided on 16.12.2007. The decision of the apex Court in the case of Commissioner of Trade Tax, U.P. Vs. Modipan Fibres Co. 2006 (6) SCC 577 was considered. The Division Bench did not agree with the view taken by the Division Bench in the case of Ambika Steel Private Limited Vs. State of U.P. and others (Supra) and M/s IFFCO Ltd. Vs. State of U.P. & others (Supra) and referred the matter to the larger Bench for consideration of the following question: "Wheth....
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....aking additional fixed capital investment of Rs. 50 crores or more in expansion, diversification or modernization, backward integration was entitled to exemption or reduction in rate of tax on the fulfilment of the conditions specified therein. It would be appropriate to refer the extract of the relevant provisions and notifications for adjudication of the issue: Section 4-A. Exemption from trade tax in certain cases. "(1) Notwithstanding anything contained in any other provisions except the provisions of Section 3-H of this Act, where the State Government is of the opinion that it is necessary so to do for increasing the production of any goods or for promoting the development of any industry in the State generally or in any districts or parts of districts in particular, it may on application or otherwise, in any particular case or generally, by notification, declare that the turnover of sales in respect of such goods by the manufacturer thereof shall, during such period not exceeding fifteen years from such date on or after the date of starting production as may be specified by the State Government in such notification which may be the date of the notification or a date prior ....
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....xemption from, or reduction in the rate of tax, notified under sub-section (1),- (a) if he applies for such facility within six months from the relevant date of commencement of the period of facility referred to in that sub-section or within six months from the date of notification issued under that sub-section or by September 30, 1992 whichever expires later, for the entire period notified under that sub-section; (b) if he applies for such facility later than the date specified in clause (a) only for a part of the period notified under sub-section (1), which shall be computed from the date of the application and not from the relevant date of commencement of the period of facility referred to in sub-section (1) till the end of the period of facility; (c) in relation to a new unit referred to in explanation (1), where the conditions specified in clauses (a) to (d) of the said Explanation (1) are fulfilled on a date later than the date of commencement of the period of facility notified under sub-section (1), then subject to the provisions of clause (b), only for part of the period, notified under sub-section (1), which shall be computed from the date on which all the conditions re....
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................................ (c) ............................................................... (3).................................................................................. (a)....................................................................... (b)..................................................................... (4)................................................................................. (a).................................................................... (i).................................................................. (ii)................................................................... (iii).................................................................. (iv)..................................................................... (v)..................................................................... (b)............................................................................... (i)................................................................... (ii).................................................................. (iii)................................................................ (c) ........................................
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.... first started to be made in respect of expansion or modernization shall be taken in to account for determining the base production. Notification No. ST-II-1093/XI-7 (42)-86-U.P. Act-XV/48-Order-91,dated 27.7.1991 "WHEREAS the State Government is of the the opinion that for promoting the development of certain industries in the State, it is necessary to grant exemption from or reduction in rate of tax to new units and also to units which have undertaken expansion, diversification or modernization; NOW, THEREFORE, in exercise of the powers under Section 4-A of the Uttar Pradesh Sales Tax Act, 1948 (U.P. Act No. XV of 1948), hereinafter referred to as the 'Act' the Governor is pleased to declare that:- 1(A).............. (B) (1). in respect of any goods manufactured in a unit other than the units of the type mentioned in Annexure II, which 'has undertaken expansion, diversification or modernization' on or after April 1, 1990 but not later than March, 31, 1995, in the areas mentioned in Column 2 of Annexure I, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates specified in Column 4 of Annexure I, by the manufacturer there....
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....h have undertaken expansion, diversification, modernization or backward integration; 1(A)................................................ 1(B) in respect of any goods manufactured in a unit, other than the units of the type mentioned in Annexure II, which has undertaken 'expansion, diversification or modernization' on or after April 1, 1995 but not later than March 31, 2000 in the areas mentioned in column 2 of Annexure I, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates specified in column 4 of Annexure-I, by the manufacturer thereof for the period specified in column 3 of the Annexure I, or till the maximum amount of rate relief by such exemption from or reduction in rate of tax as specified in column 5 of Annexure I is achieved, whichever is earlier, on the turnover of sales: (a) of the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernization; and (b) of goods manufactured by the unit which are of a nature different from those manufactured earlier by such unit in the case of units undertaking diversification. 1 (C) .............................................
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....tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates by the manufacturer thereof on the turnover of sales of such goods for the period of twelve years or till the maximum amount of tax relief by such exemption from, or reduction in the rate of tax as specified in column-3 of the Annexure is achieved, whichever is earlier. The period shall be reckoned from the date of the first sale or the date following the expiration of six months from the date of starting production, whichever is earlier; (b) In respect of goods manufactured in a unit which has undertaken expansion, modernization or diversification on or after December 1, 1994 but not later than March 31, 2000, in the areas mentioned in column-2 of the Annexure, no tax shall be payable or, as the case may be, the tax shall be payable at a reduced rate by the manufacturer thereof for the period of twelve years or till the maximum amount of tax relief by such exemption from, or reduction in rate of tax as specified in column-3 of the Annexure is achieved, whichever is earlier, on the turnover of sales- (i) of the quantity of goods, manufactured in excess of the base production in the case of ....
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.... investment. In case of expansion, exemption is available on the quantity of production in excess of base production. Clause (b) of the notification dated 21.2.1997 provides exemption. Clause (b) (i) and Clauses 7(a) and (b) are to be read together and if they are read together it is clear that it entitles the exemption on the turnover of the "quantity" of the goods in excess of the quantity referred to in clause 7(a) which is the quantity in excess of the base production and stock of base production of the previous years. Reliance has been placed on the principle laid down by the apex Court in the case of Modipan Fibres (Supra), which has been followed in the case of Commissioner of Trade Tax, U.P. Vs. M/s Malviya Chemical and Pharmaceutical Private Limited, Ghaziabad, reported in (2008) 1 SCC 275. In the case of Ambika Steel Private Limited Vs. State of U.P. and others (Supra), the Division Bench has wrongly observed that the object of the State Government by issuing these notifications is to tax the 'base production' and realize Trade Tax and the Central Sales Tax thereon as the case may be and by way of incentive grant exemption from tax or reduction in rate of tax on....
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....production of previous years. According to him, only that quantity of base production which is covered by the turnover of sale, shall be considered as the quantity for the purposes of granting exemption under Clause 7(b) of the notification and the Division Bench in the case of Ambika Steel Private Limited Vs. State of U.P. and others (Supra) and in the case of M/s IFFCO Ltd. Vs. State of U.P. & others laid down the correct law. DECISION A bare perusal of Section 4-A of the Act shows that it has been introduced with a view to increase production of the goods and for promoting the development of industries and with this view exemption has been provided to the new unit and to the existing unit undergone expansion, diversification or modernization. The object of Section 4-A of the Act has been considered by the apex Court in the case of Commissioner of Sales Tax Vs. Industrial Coal Enterprises, reported in (1999) 2 SCC 607, the apex Court has held that Section 4-A of the Act provides exemption from tax for the purposes of encouraging "production of goods" and promoting development of industry. The construction should be reasonable and purposive and should be liberally construed. I....
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....Article 141 of the Constitution of India. Section 4-A (5) of the Act defines "unit" undergone for expansion, eligible for exemption. It says that "unit" means an industrial undertaking manufactured in excess of base production in such undertaking in case of unit undertaking expansion or modernization falls at any time after March, 1990. Clause (b) of the notification dated 27.2.1997 says that no tax shall be payable on the turnover of sales of the quantity of the goods, manufactured in excess of the base production in case of unit undertaking expansion or modernization. Clause 7 (2) also refers to the turnover of the goods in excess of the "quantity" referred in sub-para-1. Sub-para-1 says about the "quantity" covered by base production and the stock of the base production of the previous years. Therefore, if clause (b) and clauses 7 (1) and (2) of the notification are read together it leads to, that the exemption under the notification is available on the "quantity" in excess of base production plus the quantity of the stock of base production of the previous years. The quantity of base production and quantity of the goods manufactured in excess of the base production is only rel....
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....e entitled for the exemption on the quantity of excess production. In other words it amounts to asking the unit to pay the tax on the quantity of stock transfer to get the benefit of exemption on the quantity of production in excess of base production. This would frustrate the very object of granting exemption. The Division Bench in the case of Ambika Steel Private Limited Vs. State of U.P. and others (Supra) has misdirected itself in determining the exemption with reference to the turnover of sales, while under the notification the exemption is on the quantity of the goods produced in excess of the base production and stock of base production of the previous years. Further the Division Bench has wrongly observed that the object of the State Government by issuing these notifications is to tax the base production and realize Trade Tax and Central Sales Tax thereon as the case may be and by way of incentive exemption or reduction has been granted in excess of the production beyond the base production. The object of Section 4-A of the Act and notification issued thereunder does not say so. The Division Bench is further wrong in saying that if the interpretation suggested by the learn....