TaxTMI 
TaxTMI 
2017 (8) TMI 1336
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....t the subsidy was given to the assessee to enhance the production, employment and the sale in the State of Rajasthan, which are all post operational activities." 3. Counsel for the appellant has submitted that the view taken by the tribunal reversing the view on the question which has been framed by the court is contrary to well reasoned orders passed by the assessing officer as well as the CIT(A). 3.1 She has taken us to the order of the AO where AO after considering the evidence on record observed as under:- "Further on perusal of the Exemption Scheme of the Sales Tax, it is found that an industrial unit may either opt for exemption from tax both under the RST Act and CST Act, or deferment of tax under the said two Acts and exemption from tax in one Act and deferment of tax in another Act shall not be permissible. No industrial unit shall be permitted to claim benefits under this scheme if it is availing benefits, under any other specific or general scheme of tax exemption or tax deferment. In the case of the assessee company, the basis for eligibility for exemption was expansion which means the increase in the value of fixed capital investment by not less than 25% of....
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....sales are inclusive of sales tax incentive amounting (Rs.19,93,84,040/- -Rs.1,44,95,534/-)= Rs. 18,48,88,506/- which means the aforesaid amount of sales tax incentive has been collected by the assessee as a part of sales proceeds but has not been deposited in the Sales Tax Deptt. account due to remission of liabilities by virtue of incentive scheme. The amount otherwise payable under the sales tax Act is not recovered from assessee by virtue of exemption under incentive scheme, as a result of which assessee could keep him sale proceeds/trading receipts intact which he otherwise would have parted with as sales tax liability payment. What the assessee gained, the answer is simple, because of incentive scheme he was not required to reduce his sale proceeds/trading receipts which otherwise would have reduced by way of payment of sales tax liability. Hence net effect of such incentive scheme is on sale proceeds/trading receipts only and thus the situation is very clear, trading receipts are revenue receipts and cannot be taken as alternative of cash disbursement as contended by the appellant. 9.22 The perusal of details of scheme filed by the assessee with reference to above speaks a....
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....emphasis is that such exemption of sales tax is not for capital investment but to give the employment of the residents of the state and not to make sales out of state and increase the level of production which are clearly shows that the final result of incentive subsidy is meant for the operational part of the unit and thus the nature of the benefit is distinguished from the RIL case which was not tied with similar conditions and is of revenue in nature, not capital. If source of fund is not taken to be the only determinative of the nature of benefit, then in this case the purpose of exemption which is operation part of unit become important to decide the nature of benefit and in this case it is revenue and not capital. The appellant has mainly relied up on RIL by Special bench of Hon'ble lTAT in which It is emphasised that character of subsidy in the hands of recipient will have to be judged by having regards to purpose for which subsidy is given. In view of the above facts if viewed from the parameters established by special bench of ITAT Bombay it is concluded that the benefit of exemption of sales tax in the instant is given for operational purpose of the industrial u....
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....n the ayacut areas of Nagarjunasagar, Pochampad and K.C. Canal in the Ramagundam-Kothagudem areas and in the following eight backward districts: XXX XXX XXX XXX 2. The salient features of the scheme formulated by the Andhra Pradesh Government was that the incentives were not available unless and until production had commenced. i.e. availability of the incentives would be limited to a period of five years from the date of commencement of production. The incentives were to be given by way of refund of sales tax and also by subsidy on power consumed for production to the extent stated in the notification. Exemptions were given also from payment of water rate. Refund was also provided for water rate in respect of water drawn from Government sources. There were certain additional incentives with which we are not concerned in this case. 3. The important point to note is that all the incentives are production incentives in the sense that the Company will be entitled to these incentives only after it goes into production. The scheme was not to make any payment directly or indirectly for setting up of the industries. It is only after the industries had been set up and production ha....
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....ndustries to run more profitably for a period of five years from the date of the commencement of production. In other words, a helping hand was being provided to the industries during the early days to enable them to come to a competitive level with other established industries. 16. In the case before us, the payments were made to assist the new industries at the commencement of business to carry on their business. The payments were nothing but supplementary trade receipts. It is true that the assessee could not use this money for distribution as dividend to its shareholders. But the assessee was free to use the money in its business entirely as it liked and was not obliged to spend the money for a particular purpose like extension of docks as in the Seaham Harbour Dock Company's Case. 18. This precisely is the question raised in this case. By no stretch of imagination can the subsidies whether by way of refund of sales tax or relief of electricity charges or water charges can be treated as an aid to setting up of the industry of the assessee. As we have seen earlier, the payments were to be made only if and when the assessee commenced its production. The said payments we....
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....enue receipts. In that case, 75 per cent of the sales tax paid in a year for a period of five years from the day of starting of production was to be given back by the Government to the industry concerned. The High Court was of the view that obviously the subsidy was given by way of an incentive for capital investment and not by way of addition to the profits of the assessee as was clear from the facts and circumstances of the case. The Madhya Pradesh High Court, however, failed to notice the significant fact that under the scheme framed by the Government, no subsidy was given until the time production was actually commenced. Mere setting up of the industry did not qualify an industrialist for getting any subsidy. The subsidy was given as help not for the setting up of the industry which was already there but as an assistance after the industry commenced production. The view taken by the Madhya Pradesh High Court is erroneous." 3.5 She has also taken us to the judgment in Ponni Sugar (supra) relevant para of which reads as under:- "5. That matter concerns the 1980 Scheme. The dispute pertains to Assessment Year 1986-87. In this matter both the above questions arises for determ....
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.... equity capital. According to the Committee, the factory should be able to generate sufficient funds to repay the installments of the term loans. Under Para 21.0 the said Committee stated that five possible incentives for making a sugar plant economically viable unit could be provided for, namely, capital subsidy, allowing a larger percentage of free sale sugar, high levy sugar price, allowing rebate on excise duty and remission of purchase tax. In this case, we are concerned with allowability of a larger percentage of free sale sugar and rebate on excise duty. Following the said Report of the Sampat Committee, the above Schemes came to be formulated. 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel and Press Works Ltd. (supra). In that case, on behalf of the assessee, it was contended that the subsidy given was up to 10% of the capital investment calculated on the basis of the quantum of investment in capital and, therefore, receipt of such subsidy was on capital account and not on revenue account. It was also urged in that case that subsidy granted on the basis of refund of sales t....
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....her hand, if the object of the assistance under the subsidy scheme was to enable the assessee to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is irrelevant." 3.6 She contended that the purpose for which the scheme was created was employment and not capital investment, therefore, it should be considered as revenue expenses. 3.7 She also contended that the view taken by the CIT(A) is required to be restored. 4. Counsel for the respondent Mr. S. Ganesh, Sr. Adv. appearing with Mr. Anant Kasliwal, Mr. Neeraj Seth, Ms. Charu Pareek and Mr. Nitin Jain contended that the scheme which has been declared by the State Government on 7.4.1998, going through the scheme the following provisions are relevant for the purpose of appreciating the controversy which are reproduced as under:- Rule 9 Registration. - (1) Every person, who produces, manufactures, carries on trade, holds private store-room or warehouse or otherwise uses excisable goods....
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....s leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and (xa) the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and (xi) the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005 ) Provided that the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of notification No. 22/2003-Central Excise, published in the Gazette of India, part II, Section 3,sub-section(i),vide number G.S.R. 265(E), dated, the 31st March,2003. paid on- (i) any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004, including the said duties, or tax, or cess paid on any input or input service, as the case may be, used in the manufacture of int....
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....NVAT credit of the duty, or service tax, paid on the inputs, or input services, used in the manufacture of final products cleared after availing of the exemption under the following notifications of Government of India in the Ministry of Finance (Department of Revenue),- (i) No. 32/99-Central Excise, dated the 8th July, 1999 [G.S.R. 508(E), dated 8th July, 1999]; (ii) No. 33/99-Central Excise, dated the 8th July, 1999 [G.S.R. 509(E), dated 8th July, 1999]; (iii) No. 39/2001-Central Excise, dated the 31st July, 2001 [G.S.R. 565 (E), dated the 31st July, 2001]; (iv) No. 56/2002-Central Excise, dated 14th November, 2002 [G.S.R. 764(E), dated the 14th November, 2002]; (v) No. 57/2002-Central Excise, dated 14th November, 2002 [G.S.R.. 765(E), dated the14th November, 2002]; (vi) No. 56/2003-Central Excise, dated the 25th June, 2003 [G.S.R. 513 (E), dated the 25th June, 2003]; and (vii) No. 71/2003-Central Excise, dated the 9th September, 2003 [G.S.R. 717 (E), dated the 9th Sep, 2003] shall, respectively, be utilized only for payment of duty on final products, in respect of which exemption under the said respective notifications is availed of : Provided also that n....
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....on which CENVAT credit has been taken is written off fully or where any provision to write off fully has been made in the books of account, then the manufacturer or service provider, as the case may be, shall pay an amount equivalent to the CENVAT credit taken in respect of the said input or capital goods: Provided that if the said input or capital goods is subsequently used in the manufacture of final products or the provision of taxable services, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules. (5C) Where on any goods manufactured or produced by an assessee, the payment of duty is ordered to be remitted under rule 21 of the Central Excise Rules, 2002, the CENVAT credit taken on the inputs used in the manufacture or production of said goods shall be reversed. (6) The amount paid under sub-rule (5) and sub-rule (5A) shall be eligible as CENVAT credit as if it was a duty paid by the person who removed such goods under sub-rule (5) and sub-rule (5A). (7) Notwithstanding anything contained in sub-rule (1) and subrul....
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.... 136 read with section 138 of the Finance Act, 2007, on the excise duty referred to in (A), shall be the aggregate of - (I) that portion of excise duty referred to in (A), as is equivalent to - (i) the additional duty leviable under sub-section (1) of section 3 of the Customs Tariff Act, which is equal to the duty of excise under clause (a) of sub-section (1) of section 3 of the Excise Act; (ii) the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act; and (II) the Education Cess and the Secondary and Higher Education Cess referred to in (B). (b) CENVAT credit in respect of - (i) the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978); (ii) the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001); (iii) the education cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004); (iiia) the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007); (iv)....
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....the Secondary and Higher Education Cess on excisable goods or for the payment of the Secondary and Higher Education Cess on taxable services Explanation - For the removal of doubts, it is hereby declared that the credit of the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 (58 of 1957) paid on or after the 1st day of April, 2000, may be utilised towards payment of duty of excise leviable under the First Schedule or the Second Schedule to the Excise Tariff Act. (c) the CENVAT credit, in respect of additional duty leviable under section 3 of the Customs Tariff Act, paid on marble slabs or tiles falling under tariff items 2515 12 20 and 2515 12 90 respectively of the First Schedule to the Excise Tariff Act shall be allowed to the extent of thirty rupees per square meter; Explanation.- Where the provisions of any other rule or notification provide for grant of whole or part exemption on condition of non-availability of credit of duty paid on any input or capital goods, or of service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of thes....
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....FICATE EXEMPTION SCHEME, 1998 BOTH UNDER THE RST ACT AND THE CST ACT (Under Sanction No.F.5/Acctt/7/(2)(415)/STE/98/SLO dt. 31-7-02 Issue by the Commissioner, Industries, Rajasthan, Jaipur. 8. Details for Exemption from Tax, As per column No.3 S.No.1 of Annexure 'B' A. Percentage of exemption from tax liability as above B. Eligible fixed capital investment on Rs. Rs. 15721.66 lacs C. Maximum limit of years eleven years D. Quantum of exemption from sales tax Rs. 15727.66 lacs Place :- Ajmer Dated:- 12-09-2002 4.3 He further contended that the contention which has been raised by the assessee is further supported by the speech delivered by the Finance Minister on the relevant date while introducing the Bill 1998-99 relevant part of which reads as under:- "14 राज्य के औद्योगिक विकास को बढावा देने, उद्यमियों को राज्य मे....
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....ve objectives, a new industrial policy has been formulated this year. Through this new industrial policy, we are trying to develop & encourage small industries and handiworkers. Further the development of new industries in the backward areas, shall also generate more employment opportunities. Through the mode of infrastructure development, capital investment is being made attractive." 4.4 He relied upon the decision of Sahani Steel in para no.14,16 & 18 as reproduced above and contended that Sahani Steel is explained by the Supreme Court and after considering the same in Pony Steel the Supreme Court held which we have discussed hereinabove. 5. The tribunal has also relied on the observations as under: "5.13 In the present case, the appellant has been granted eligibility certificate, as it has fulfilled all the above criteria as specified below:- (i) It has made a fresh capital investment of Rs. 157 Crs. at its units in Beawar. (ii) The above capital investment has resulted in 'Expansion' of its existing unit (as specified in the scheme) (iii) The unit of the appellant is not in banned area but it is in eligible area, non developed area, as specified in the sch....
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.... up before the Jammu and Kashmir High Court in the case of Shree Balai Alloys vs CIT (2011) 333 TR 335 (J&K), which case then travelled to the Supreme Court. That was a case of a subsidy scheme, where the subsidy was granted only to a new unit or a substantially expanded unit, and the subsidy started only after the new expanded unit had started commercial production. Further there was no requirement in the scheme that the subsidy amount should be utilized in a particular manner. The Revenue relied strongly on these factors for contending that the subsidy was a revenue receipt. However, the J&K High Court, relying on the Ponni sugars Judgment, held in favour of the assessee that the subsidy was a capital receipt, applying the "purpose" test laid down in Ponni sugars. The Revenue's Appeals to the Supreme Court were dismissed by the Supreme Court which upheld the High Court Judgment and specifically held that the case was covered by Ponni Sugars. The detailed Judgment of the High Court thus merged fully into the Judgment and order of the Supreme Court (Civil Appeals nos. 10061 of 2011), Judgment and order dated 19/4/2016). As the sales-tax Subsidy Scheme in the present case is sub....
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....Rai) where it was held that the subsidy was a capital receipt. This Judgment also fully covers the present case. (8) The subsidy received by the Respondent is also very similar in all material respects to that considered in the following various High Court Judgments in each of which, on the basis of the Ponni sugars case, it was held to be a capital receipt:- (a) CIT vs Nirma Ltd - Tax Appeal No 226 of 2010 - Judgment dated 8/6/2016 (Guj). (b) CIT vs Indian Petrochemicals Corporation Ltd - Tax Appeal No. 1774 of 2008 Judgment dated 19/7/2016(Guj). (c) C.I.T vs Chaphalkar Bros - (2013) 351 ITR 309 (Bom) (d) CIT vs Rasoi Ltd - (2011) 335 ITR 438 (Cal) (e) CIT vs Kirloskar Oil Engines Ltd - (2014) 364 ITR 88 (Bom) (f) CIT vs Siya Ram Garg HUF - (2011) 237 CTR 321 (P&H) 6. We have heard counsel for the parties. 6.1 In view of the contentions which have been raised by the counsel for the department and discussions made by the AO as well as CIT(A) in our considered opinion, the tax liability, we have considered original purpose for which the Scheme has been floated by the State Government by going through the Scheme. 6.2 I....