TaxTMI 
TaxTMI 
2014 (9) TMI 338
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.... which shook the entire State of Gujarat, and more particularly, the district of Kutch and consequently, the economic development of the Kutch district had come to a major halt. In an attempt to give impetus to the economic development and for creating better opportunities of employment and an environment of industrial activities, respondent No. 1-State vide its Resolution dated November 9, 2001 announced a scheme of sales tax incentives titled as, "Incentive Scheme 2001 for Economic Development of Kutch District" ("the Scheme", for short) and thereby invited existing industrial undertakings and new industries to set-up units in the said district, by promising the benefit of sales tax exemption or sales tax deferment of eligible fixed capital investment under section 49(2) of the Gujarat Sales Tax Act, 1969. 3. The period of the Scheme was initially notified from July 31, 2001 to October 31, 2004, which was extended further by two notifications dated September 13, 2004 and January 7, 2005 by which applicability of the Scheme was extended to December 31, 2005. 4. The petitioner-company is a unit of Saurashtra Fuels Private Limited, which is engaged in the manufacture of low ash me....
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.... undertake the exercise of issuing final eligibility certificate and these communications were aptly replied to by the petitioner-company. As averred in the petition, the petitioners furnished phase-wise expenditure for the period which is inclusive of the expenditure on land; site-development, plant and machinery, etc. The report submitted to the State Level Committee for consideration of eligibility under the Scheme reflected that the company made actual investment of Rs. 1,31,29,90,074. As the team chose not to regard entire sum of this expenses and investment as genuine on various grounds, and thereby disallowed the same before treating it for the purpose of eligible investment, this action of the State Level Committee is under challenge in the present petition. It emerges that the eligible amount of investment for sales tax incentives recommended is only to the tune of Rs. 63.04 crores by the respondents. 9. On issuance of the notice to the respondents, it filed its appearance and affidavit-in-reply is brought on the record, wherein, it is contended that there were justifiable grounds for the State Level Committee to discard the request of the petitioners to treat the entire ....
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....bility certificate on the basis of such investment made by the petitioners. It is further contended that the real intent and spirit of the Incentive Scheme for Kutch district has been misconceived and disregarded by the team. It is further his say that the company has acted on the promise extended by the Government and thereby, contributed to the economic development of the State, however, on the frivolous grounds, the State Level Committee has rejected the claim of sales tax benefits. He also further pointed out that the petitioner-company is a unit of Messrs. Saurashtra Fuels Private Limited-which has three units in the State of Gujarat and the initial payments made, were made from the bank account of Messrs. Saurashtra Fuels Private Limited and not from Mahashakti Company Private Limited made towards plant and machinery and this entire amount has been disallowed despite the fact that there is not iota of doubt with regard to the incurring of the expenditure to the extent claimed. He further urged that the certificate had been produced confirming the payment drawn from Messrs. Saurashtra Fuels Private Limited through State Bank of India and yet, the amount of Rs. 2,03,51,187 has ....
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....ined by the committee which was specifically meant for availing of enduring benefits in the field of sales tax. Object of scheme and approach of stakeholders: 14. On considering submissions of both the sides and on closely scrutinizing the materials placed before this court, the present petition is required to be allowed partially with the following reasonings. 15. At the outset, what needs to be emphasized is that the scheme announced by the Government was with a laudable objective and intent for the betterment of Kutch district and its overall economic growth, contemplating participation of established industrial undertakings and all those citizen who were willing to establish new industries for the said purpose. Their participation was intended not only as a call to contribute towards the cause of humanity for those fellow citizen who experienced untold miseries due to fury of the nature, but, this also essentially meant business by extending large number of benefits of sales tax exemptions for those who came forward. And thus, willingness of participation of business community when was secured by the State promising sales tax benefit or deferment in tax benefits on the capit....
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....uly 31, 2001 and shall remain in force till October 31, 2004. Time initially given was periodically extended and for making eligible expenditure, the cut-off date is extended up to December 31, 2005. 18.3 The term "commercial production" defined in clause 3.3 says that the date of first sale bill shall mean the date of commercial production. 18.4 It also further emerges from clause 3.6 that fixed capital investments are broadly divided under various heads like land, new constructions, other constructions, machineries, etc. For the purpose of dispute before the court, this clause would be relevant. 18.5 Clause 3.6(b) is suggestive of office building, store building, and other such buildings meant for plants and machineries excluding those meant for residence of Director and guest house. 18.6 Clause 3.6(c) permits investment in constructing compound walls, internal roads, bore wells, water tanks and other such constructions as are to be made permissible by the State Committee. 18.7 Clause 3.6(d) pertains to purchase of plant and machineries dyes, moulds transformers for the purpose of industry treating them as capital assets. 18.8 Clause 3.6(e) pertains to technical know-how an....
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..../General Manager, District Industries Center. The fixed assets will be inspected at the location." 18.14 Clause 8 provides for various conditions claiming exemptions and clause 9 pertains to State Level Committee and provides that the committee shall resolve the issues of interpretation and disputes arising in relation to grant of benefit under the scheme. 18.15 Thus, it can be noted from the very glance at the scheme that this had come into being, providing for exemption notification as the economic activities in the district of Kutch had required a fresh lease of life after a large scale devastation on account of massive earthquake. To ensure creation of new employment opportunities as also to facilitate the overall economic development of the district, the State Government had decided to announce these sales tax incentives. Hence, the central idea, as mentioned hereinabove also was to revitalize the district by allowing inflow of investment by creating new opportunities of employment by bringing the industries and granting them sizeable sales tax exemptions. The petitioners, actuated by this industrial policy of the State and the Scheme announced under its banner, chose to app....
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....ot considered for incentives. It also further took note of the fact that the total built-up area; including various plants, as per the approved plan was 1,52,485 sq.m. and 2,81,942 sq.mtrs. area covered by RCC road and CC work as flooring to move heavy earth movers. Therefore, it concluded that the eligible land area comes to 1737708 sq.m. and the total cost which was considered was 92.19 lacs only. Thus, sum of Rs. 28,60,577 and Rs. 22,92,062 being the total expenditure incurred by the company towards land and land development, respectively, was not considered eligible by the committee. 19. With regard to building, the committee reported that expenses towards building construction found eligible was Rs. 576.98 lacs out of total investment of Rs. 674.89 lacs. It had also given comparative statement of eligible investments in the building. 20. With regard to plant and machineries also, it found that the company incurred total expenses of Rs. 11,719.10 lacs from which, only Rs. 7,729.32 lacs were found to be eligible on verification. After detailed notings, the team recommended the eligible investment of Rs. 6,104.03 lacs for availing of the sales tax benefits under the Kutch Econo....
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....is a unit of Saurashtra Fuels Private Limited which is a company having different units in the State of Gujarat and since petitioner No. 1 is not a separate entity and a unit operating in Kutch district, the objection raised is neither justifiable nor acceptable. As also mentioned before this court that this payment has also been reflected before the tax authorities in the return filed. No doubt is raised with regard to the expenditure made. Till the bank account in the name of the present petitioner was opened and till the same started operating, the initial payments were made from the bank account of Saurashtra Fuels Private Limited. This say of the petitioners on affidavit as well as, as reflected in the correspondence would lead this court to note that when there is neither any clandestine design nor doubtful transactions, the parent company making payment for its unit per se would not make the same ineligible investment. More so when expenses incurred is found to be genuine, this technical approach on the part of the State Level Committee of discarding huge sum of investment on the ground of payment having been made by Saurashtra Fuels Private Limited is not found acceptable b....
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....keeping in mind particularly the distance a truck had to cover for transporting the goods. The petitioner's practical difficulty was put forth before this court, and as also was argued, the same was communicated to the committee. However, it can be noted that though this would appear to be a manipulative design ostensibly for benefit of the truck operators but the said modus would help both the truck owners and the petitioner as well as for circumventing the statutory provisions as deduction of TDS also is must. In our opinion, the detailed inquiry into this aspect was necessary, instead of straightway rejecting the claim of such huge amount. There is a consolidated balance sheet and P & L account of both the units, i.e., of Messrs. Mahashakti Coke and that of M/s. Saurashtra Fuels Private Limited. As Messrs. Mahashakti Coke is shown as an entity of Saurashtra Fuels Private Limited. To put it differently, for the purpose of the Income-tax Act and the Companies Act, as well as under the accounting norms, for both Porbandar and Mundra units, the consolidated balance sheets and P & L account are prepared and the tax return of both are also filed prima facie reflecting these paymen....
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.... up to December 31, 2005 and thus prior to expiry of the stipulated period, the permission was already obtained by the petitioners. The relevant documents granting the NA status to the land on which the industry exists also is brought on the record for our perusal. Certificate issued by the Collector-Kutch is suggestive of bona fide industrial use of the land under section 65B of the Bombay Land Revenue Code, 1879. Director of petitioner No. 1-company is shown as a habitant of village-Bariya of Taluka Mundra and is occupant of the land admeasuring 95,200.97 sq.mtrs. It is also certified that the use of the said land for bona fide industrial purpose under section 65B of the Code is valid; subject to the provisions of the said Code. It also further specifies that the land is used for industrial purpose, i.e., low ash metallurgical code and pig-iron. It is also indicative of the fact that the application has been made by the petitioners on June 24, 2003. Therefore, as is rightly pointed out by the learned counsel for the petitioners that all that was needed to be done by the petitioners for conversion of the land into non-agriculture use was already done and as the request was pending....
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.... time permitted and permission also had been obtained by the petitioners before the cut-off date for large area of land whereas for some of the survey numbers; as mentioned hereinabove, permission was received subsequent to the cut-off date, but as the request was already made to the appropriate authority well in time, this investment cannot be disregarded merely on the ground of non-obtaining of the NA permission by the petitioners. Not only there is a complete absence of such prerequisite in the scheme but the intent of the scheme also cannot allow the committee to take such a hyper technical view as any industry which needs to set up its unit will have to buy land which would require permission for putting the same for the purpose of industrial use. It is in a remote earthquake devastated area where such a permission for land was sought, the only requirement on the part of the petitioner could be to acquire or purchase land in time and to make a request within reasonable period with substantive material following due procedure but otherwise the time spent or consumed in receiving grant of the permission cannot be regarded as a fault on the part of the petitioners so as to disent....
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....t, there is a need to have a fresh look at the request of the petitioners of considering this capital investment made in the fixed assets, which have been certified by the chartered accountant and substantiated by the documentary evidence before the State Level Committee, and therefore, petition is being allowed partially with the following directions. 24. Resultantly, this petition is being allowed quashing and setting aside the final eligibility certificate dated March 29, 2008 issued by the respondents to the extent it is adverse to the petitioner with the following specific directions: (a) Final eligibility certificate dated March 29, 2008 issued in connection with the petitioners granting sales tax benefits under the Scheme to the extent it is adverse to the petitioner is hereby quashed. (b) The respondents are further directed to treat payment made by Saurashtra Fuels and certified by the SBI (Rs. 23,27,60,000 plus Rs. 2,03,51,187 totalling Rs. 25,31,11,187) as eligible investment under the scheme and to include the said sum as eligible capital investment for the purpose of final eligibility certificate. ....