TMI Blog2003 (1) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... Manager, District Industries Centre, Patna, having its permanent registration certificate granted to it vide memo No. 2353 dated December 20, 1997. The petitioner No. 1 is also a registered dealer under the provisions of the Bihar Finance Act, 1981 ("the Finance Act", for short) as well as the Central Sales Tax Act, 1956. 4.. The petitioners say that the State Government for accelerating the slow pace of industrial and economic development and in order to boost industrialisation in the State allowed time to time various incentives for setting up new industries in Bihar. 5.. The State Government to achieve its policy and goal announced the Industrial Policy in the year 1993 which was made applicable to the industries commencing their production with effect from April 1, 1993 to March 31, 1998. Yet another Industrial Policy was announced in the year 1995. According to the petitioners, the present matter relates to the Industrial Policy Resolution, 1993. The policy was approved by the cabinet. 6.. Undisputedly as per different clauses of the Industrial Policy Resolution, a new industrial unit which commenced its commercial production between April 1, 1993 to March 31, 1998 is en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly required that the owner/proprietor of the industrial unit will be under obligation to issue serially printed cash/credit memos on sale of its finished products, containing name and address of the purchaser, description of the goods, tax exemption certificate number, period of its validity which must also bear the signatures of the seller. The petitioner says that a conjoint reading of clause (18) and clause (21) of the Notification S.O. No. 96 would make it clear that the sale of products specified in the notification is exempted from sales tax and all subsequent sales of the product are not under liability of sales tax nor the exemption can be restricted to a sale between the industries and the first purchaser. The petitioner says that form Ch a part of the Notification S.O. No. 96, in fact, is a declaration by selling dealer who is effecting sale of the exempted goods manufactured by the unit which possesses the exemption certificate and that would also show that the exemption is granted to the products of the industrial unit and the same is not confined to the manufacturer of the product. The petitioner No. 1 says that it made huge investment in setting up its industrial uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Circle in-charge of Patliputra Circle, Patna issued directions to the dealerpetitioners Nos. 3, 4 and 5 to deposit tax on sale of the product manufactured by the petitioner No. 1. 10.. The petitioners say that a fair reading of S.O. No. 96 would make it clear that the sales tax exemption cannot be restricted to a sale effected between the manufacturer and the first purchasercum-dealer because according to the Policy and form Ch, the product is exempt from sales tax and every sale of the said product shall be exempt from the sales tax to the extent of sale price paid by the first purchaser to the industrial unit. 11.. The petitioners say that the Notification S.O. No. 85 dated July 17, 2002 deals with the point of taxation and does not deal with the exemption notification nor can it control the scope of and the benefits flowing from the Industrial Policy and S.O. No. 96. According to the petitioners, S.O. No. 85 would not have any overriding effect on the exemption certificate issued under section 7(3)(b) of the Finance Act or the Industrial Policy but shall govern the ordinary sales of unexempted products or at best can control the levy of sales tax on basis of the value adde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otification S.O. No. 96 cannot be nullified by saying that the petitioners are pseudo producers for the big and international companies. The petitioners say and submit that S.O. No. 85 dated July 17, 2002 be declared that the same in no way can take away the exemption on sale of finished products of the petitioner's industry and finished products of the petitioner's industry cannot be subjected to tax on its subsequent sales by the aforesaid notification. They have also prayed that S.O. No. 85 be declared not to have overriding/superseding effect over the exemption granted to the petitioner No. 1 under Notification S.O. No. 96. They have also asked for a writ against the respondentCommissioner of Commercial Taxes that his letter No. Bikri Kar/ Vividh/254/2002-5015 dated October 18, 2002 be declared as wholly without jurisdiction and not binding. The petitioners have also prayed that the respondents be restrained from raising any demand of tax on sale of products of the petitioner by its dealers. 15.. The respondents in their return have referred to the scheme of the Act and have tried to submit that a notification issued under section 7(3)(b) of the Act in fact is in favour of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the petitioner cannot seek such a direction from this Court. According to them, in a case of multi-point taxation, the tax paid is to be adjusted but if no tax is paid then there is nothing to be adjusted and any subsequent sale would be subject to levy of full sales tax. It is also contended that the manufacturing unit is still enjoying the benefit of sales tax exemption, therefore, the subsequent Notification S.O. No. 85 is valid and being a valid piece of legislation cannot be held to be invalid or illegal. 18.. We have heard the parties at length and have perused the pleadings of the parties and the documents annexed with their pleadings. 19.. As both the parties have interpreted section 7 and section 11 of the Act, according to their benefits and are placing hard reliance on clause 10.2 of the Industrial Incentive Policy, 1993, it would be profitable to refer to the said provision. Even before referring to the arguments of the parties, we would prefer to look into the scheme of the Act. 20.. Section 3 of the Finance Act is the charging section. It refers to incidence and levy of tax. It requires every dealer whose turnover is above a particular amount so specified, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions are outside the legislative competence of the State Legislature. 23.. Sub-section (2) of section 7 stipulates and lays down the modalities for determining whether a transaction falls within subsection (1) of section 7 or not. 24.. Sub-section (3) of section 7 contrary to sub-section (1) gives a discretion to the State Government to exempt from sales tax or purchase tax by issuing notification and subject to such conditions or restrictions as it may impose. 25.. Sub-section (3) of section 7 has four clauses. Clause (a) empowers the State Government to exempt sales of any goods or class or description of goods. Clause (a) can be read to mean that the State Government can exempt from the sales tax or purchase tax sales of any goods or sales of any class of goods or sales of any description of goods. 26.. Clause (b) says that the State Government may exempt from the sales tax or purchase tax sales of any goods or class or description of goods to or by any class of dealers. We shall mainly be dealing with clause (b) later on. Clause (c) of sub-section (3) says that the State Government may exempt from the sales tax or purchase tax any sale or category of sale or descri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the prescribed authority under section 17, original copy of cash memo, invoice or bill issued to him and files true and complete declaration in the form and in the manner prescribed. (3) Where by a notification published under sub-section (1) the State Government specifies in respect of any goods or class or description of goods that the sales tax shall be levied at more than one point or on all the points, the amount of sales tax paid at each preceding stage of sale shall be adjusted against the amount of tax payable at each subsequent stage of sale in the prescribed manner. (4) Where no specification is made in respect of any goods or class or description of goods under sub-section (1), the sales tax shall be levied at the point of sale by a registered dealer to a person other than a registered dealer. Each preceding sale by a registered dealer to another registered dealer in whose registration certificate such goods or class or description of goods are specified as being required for resale by him shall not be levied to tax, if the selling dealer produces a declaration from the buying dealer in the prescribed form and manner to the authority prescribed under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Act envisages no third factor for determining the point of levy. 34.. For purposes of attraction of sales tax, the taxable event is the sale by dealer of goods. In the course of the business, every transaction would be liable to tax as a matter of course/routine. It cannot be disputed that section 11 of the Act determines the point of levy and provides for its specifications. The parties would be right and justified in saying that under the scheme of the Act, if the goods are notified to be taxed at the first point of sale then the said goods cannot be taxed at subsequent point or points of sale. The State Government submits that the essential difference between a general exemption of goods as envisaged under clause (a) of sub-section (3) of section 7 and a conditional exemption as provided under clause (b) of sub-section (3) of section 7 is that while in the former, the goods are exempt in general while under the latter, only sales to or by such dealers who qualify for it by virtue of fulfilling the conditions laid down in this regard are entitled to the exemption. According to the State, the additional exemption is restricted to the person to whom it is granted while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State. The object was that some incentive be given by the State Government so that the new industries are installed or set up and after achieving the industrial growth not only the revenue is earned but the public at large is benefited and the hands are given work to achieve the constitutional obligations of the State. 37.. Clause 10.2 of the Industrial Incentive Policy, 1993 reads as under: "10.2. Facility of sales tax exemption/deferment on finished products: The facility of exemption from payment of sales tax on finished products in lieu of deferment shall be admissible only to the industrial units mentioned in annexure VI of this policy. This facility would be available to those units only which have capital investment of not more than Rs. 15 crores in plant and machinery. The sales tax exemption benefit for the districts under category 'A' (para 10.1) would be for 10 years and for the districts under category 'B' (para 10.1) would be for 8 years. All other industrial units which enter into production between April 1, 1993 to March 31, 1998 will get only this facility of deferment of sales tax payable on finished goods. It means that the units going into production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 crores on April 1, 1993 shall be entitled to this facility for a period of 7 years from April 1, 1993. This facility was in relation to sales tax exemption on the purchase of raw material. The State Government later on finding that the policy was not happily worded in relation to clause 10.4(i)(b) issued a notification withdrawing certain benefits from the said policy. The said notification was challenged in the High Court of Patna. The High Court allowed the writ application and quashed the notification. The State being aggrieved by the judgment of this Court took up the matter in appeal to the Supreme Court. The Supreme Court while affirming the decision of the High Court observed that while generally the incentives under the 1993 policy would be available to the industrial units coming into production between April 1, 1993 and March 31, 1998, so far as sales tax exemption on the purchase of raw material was concerned, which was provided under clause 10.4, old units, whose investment on plant and machinery did not exceed Rs. 15 crores on April 1, 1993 even though they had started production prior to April 1, 1993 would be entitled to the facility for a period of 7 years. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to promissory estoppel would also assume importance at this stage. In the matter of Usha Martin Industries Ltd. v. Additional Superintendent of Commercial Taxes [1984] 55 STC 380 (Pat), the question of estoppel came up for consideration. The Government of Bihar in the Industries Department adopted a resolution dated September 29, 1973 which was duly published in the Bihar Gazette, this was amended by resolution dated June 29, 1976 and November 28, 1976 by which the State Government decided to grant certain incentives to new large and medium industrial units. The question in the said matter was that the petitioner of the said matter would be entitled to the incentives or not. The Supreme Court in the said matter observed that in view of the letter written by the Directorate of Industries the said petitioner was entitled to incentives for 10 years therefore the petitioner certainly would be entitled to exemption for 10 years on basis of the said resolution. It was submitted before the High Court that the State was overburdened with overdraft and deficit budget, therefore, the public interest was shown in issuing the notification in question under the Sales Tax Act. Negativing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l-scale industries was considered in detail. In the said matter the Government of the State of Kerala on April 11, 1979 passed an order to the effect that new industrial units under small-scale industries set up after April 1, 1979 would be exempted from payment of sales tax for a period of five years from the date of production. The order was passed without reference to statutory provision and no limits were placed on the exemption. On October 21, 1980, the Government published a notification under section 10 of the Kerala General Sales Tax Act, 1963 granting exemption but some limits were imposed on the concession. The units were required to obtain eligibility certificate and the cumulative sales tax concessions were not to exceed 90 per cent of the gross fixed capital investment of the unit. Any tax calculated was to be paid over to the Government and any tax already paid was not to be refunded. The notification was deemed to have come into force with retrospective effect from April 1, 1979. The Supreme Court observed that the order dated April 11, 1979 was covered by the provisions of section 10 and was made under that section, though there was no reference therein to secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession or control thereof. Such person can be exempted from the payment of the tax so levied only by a notification issued under section 9(1) of the Act. A notification issued under section 9 being a statutory instrument can be cancelled or modified in the manner prescribed by the Act and in no other way. It is significant that any notification issued under section 9(1) of the Act either granting exemption or cancelling or varying such exemption has got to be placed on the table of the Legislative Assembly. Both the notification issued under section 3 of the Act and the notification issued under section 9(1) thereof fall within the meaning of the expression 'law' referred to in article 265 of the Constitution. The State Government can grant exemption from payment of tax or cancel an exemption already granted only in accordance with section 9(1) of the Act. That is the legislative mandate. In the instant case, admittedly no notification is issued as provided by clause (b) of section 9(1) of the Act either cancelling or withdrawing or varying the exemption granted earlier by the notification issued under section 9(1)." 48.. It would thus be clear from the catena of authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sales tax on such goods shall be levied at the point or points in the series of sales as may be specified by the State Government. Section 11 cannot fix the rate of tax nor can it deal with the exemption nor with the incidence of taxation. It only has to fix the point/points for levy of the sales tax. 52.. Section 3 of the Act provides that subject to the provisions of that part of the Act, the sales tax or the purchase tax, as the case may be, shall be paid by every dealer. Section 3 is the charging section. Section 7 is contra-indication of section 3 of the Act. Though section 3 says that sales tax or the purchase tax, as the case may be, shall be paid by every dealer, but the mandate contained under subsection (1) of section 7 prohibits levying or recovery of the sales tax under that part of the Act on sales or purchases of goods which have taken place in the course of inter-State trade or commerce; outside the State; in the course of import of goods into, or export of the goods out of the territory of India. The charging section cannot be invoked by the State Government to say that because section 3 empowers the State Government to charge sales tax or purchase tax, sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commenced its production after coming into force of the 1993 Industrial Policy and the goods produced by it do fall within the sweep of annexure VI annexed to the Industrial Policy, 1993. When the petitioner No. 1 comes under a particular class and is producing a particular description of goods then the exemption notification has to be given its full effect. It cannot be argued that the exemption is granted to the industrial unit and not to the goods. 53.. In our considered opinion, the State Government would be absolutely unjustified in holding that the S.O. No. 85 of 2002 would cover different fields. In our opinion, S.O. No. 85 is making a trespass over the exemption when it is interpreted to mean that the exemption is in relation to the industrial unit and not in relation to the goods. 54.. The effect of S.O. No. 85 as understood by the Commissioner of Commercial Taxes is that it is requiring all its subordinates to charge sales tax on all subsequent sales. In our opinion, if sales tax is charged on any subsequent sale effected by dealer, who has purchased the sales tax exempted goods from the manufacturer then it would nullify the exemption and would be contrary to the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and would not become ultra vires. The submission of the State that multi-point levy would be attracted to any tax exempted goods cannot be accepted. 57.. So far as the submission of the State Government that the petitioner No. 1 is manufacturing goods for multi-national or big companies is concerned, we must say that the Industrial Policy is for the benefit of the small-scale industries. These small-scale industries cannot work as underdog for multi-national companies. The policy is for the development of the industrial units and not for securing the sales tax exemption only. It would be too much to say that an industrial unit after exploiting the fullest investments, if closes itself then too industrial growth would be benefited. In fact the industrial growth would be benefited and the State in its revenue would also be benefited that after availing of the entire exemption for the fixed period the industrial unit continues to operate and starts paying revenue. It is the development of the industrial unit for the rapid growth of industrialisation and not the avoidance of the sales tax under the exemption clause. The State Government certainly would be justified in saying that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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