2015 (7) TMI 346 - SC - VAT and Sales Tax

Denial of exemption claim - sales tax exemption - Violation of Rule 28A (11) (a) (i) - failure to maintain, without convincing reasons, the requisite production - non-maintenance of average production after the expiry of the benefit period inasmuch as it had drastically come down to ₹ 9.06 crores from 17.52 crores. - Held that - The concept of exemption has been introduced for development of industrial activity and it is granted for a certain purpose to a unit for certain types of good. Exemption can be granted under the Rules or under a notification with certain conditions and also ensure payment of taxes post the exemption period. The concept of exemption is required to be tested on a different anvil, for it grants freedom from liability. In the case at hand, as we understand, it is unit specific. The term unit has not been defined. The grant of exemption unit wise can be best understood by way of example. An entrepreneur can get an exemption of a unit and thereafter establish number of units and try to club together the production of all of them to get the benefit for all. It would be well nigh unacceptable, for what is required is that each unit must meet the condition to avail the benefit. A statutory rule or an exemption notification which confers benefit to the assessee on certain conditions should be liberally construed but the beneficiary should fall within the ambit of the rule or notification and further if there are conditions and violation thereof are provided, then the concept of liberal construction would not arise. Exemption being an exception has to be respected regard being had to its nature and purpose. There can be cases where liberal interpretation or understanding would be permissible, but in the present case, the rule position being clear, the same does not arise. - clubbing is not permissible. It amounts to a violation of the conditions stipulated under Rule 11(a)(i) of Rule 28A and, therefore, the consequences have to follow and as a result, the assessee has to pay the full amount of tax benefit and interest. The approach of the High Court is absolutely erroneous and it really cannot withstand close scrutiny.- Decided in favour of Revenue.

Issues Involved:
1. Validity of High Court's decision quashing the Sales Tax Tribunal's order.
2. Compliance with Rule 28A (11) (a) (i) of the Haryana General Sales Tax Rules, 1975.
3. Interpretation of production levels and tax exemption eligibility.
4. Consideration of production from expansion units.
5. Applicability of liberal construction of exemption provisions.

Issue-wise Detailed Analysis:

1. Validity of High Court's Decision Quashing the Sales Tax Tribunal's Order:
The Supreme Court scrutinized the High Court's decision, which had overturned the Sales Tax Tribunal's order. The High Court held that the tribunal's approach was erroneous and based on conjecture, asserting that the tribunal should have set aside the orders of the Deputy Excise and Taxation Commissioner and Joint Excise and Taxation Commissioner. The Supreme Court found this reliance misplaced, as the High Court's decision was based on a misinterpretation of the relevant rule and precedent, particularly the case of R.K. Mittal Woolen Mills v. State of Haryana.

2. Compliance with Rule 28A (11) (a) (i) of the Haryana General Sales Tax Rules, 1975:
The Supreme Court emphasized that the conditions under Rule 28A (11) (a) (i) mandated the industrial unit to maintain production levels for five years post-exemption. The rule stipulated that non-compliance would result in the unit being liable to repay the tax benefits with interest. The respondent-assessee failed to maintain the required production level, thus violating the rule. The Court highlighted that the High Court's interpretation was flawed, as it did not consider the clear stipulation of the rule.

3. Interpretation of Production Levels and Tax Exemption Eligibility:
The Court examined the production levels before and after the exemption period. The adjudicating authority noted a significant drop in production, from an average Gross Turn Over (GTO) of Rs. 17.52 crores to Rs. 9.06 crores. The tribunal found that the production of Electronic Push Button Telephones (EPBT) decreased in the first unit while increasing in the second (expansion) unit. The Supreme Court agreed with the tribunal's conclusion that the assessee had deliberately reduced production in the first unit to shift it to the second unit, thereby violating the rule.

4. Consideration of Production from Expansion Units:
The Supreme Court rejected the argument that production from the expansion unit should be considered in assessing compliance with Rule 28A (11) (a) (i). The Court clarified that the exemption was unit-specific and combining production from different units was impermissible. The Court held that each unit must independently meet the conditions to avail the tax benefit.

5. Applicability of Liberal Construction of Exemption Provisions:
The respondent argued for a liberal interpretation of the exemption provisions. The Supreme Court acknowledged that while exemption notifications should be construed liberally, this principle does not apply when there is a clear violation of stipulated conditions. The Court cited precedents, including Hansraj Gordhanadas v. H.H. Dave and Commissioner of Sales Tax v. Industrial Coal Enterprises, to emphasize that the beneficiary must fall within the plain terms of the exemption and comply with all conditions.

Conclusion:
The Supreme Court concluded that the High Court erred in its judgment by misinterpreting the rule and failing to appreciate the factual matrix. The appeal by the State of Haryana was allowed, the High Court's judgment was set aside, and the orders of the tribunal and other authorities were restored. The decision reinforced the principle that tax exemptions must be strictly construed and compliance with all conditions is mandatory.

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