TMI Blog2005 (8) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... that the real benefit under this notification is to some extent denied to the petitioner by the condition imposed therein, which condition is one linking the concession or benefit to payment or non-payment of the amount which was the average tax liability of the petitioner's sales turnover in existing units at the place, computed on the average of the last three years tax liability of the existing unit or the actual tax liability, whichever is higher. The petitioner-company has approached this court for the relief on the premise that the authorities purporting to implement the condition as envisaged in the proviso to clause (iv) of the condition in this notification have been demanding and collecting the tax at an amount higher than the actual liability on the part of the petitioner in respect of its earlier unit and such collection of the tax over and above the actual liability of the petitioner in respect of his existing unit is bad in law; that assuming for the purpose of arguments, the condition so provides, the condition is an illegal condition, the condition which is at variance with the exemption and concession granted to persons like the petitioners in the new indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. of years Ceiling Rs. No. of years Ceiling Rs. No. of years Ceiling Rs. I Developed(1) areas 4(6) 150% of value of fixed assets. 4(6) 100% of value of fixed assets. 4(6) 100% of value of fixed assets. II Developing areas 6(8) 150% of value of fixed assets. 6(8) 100% of value of fixed assets. 5(7) 100% of value of fixed assets. III Growth centres 7(8) 150% of value of fixed assets. 7(8) 100% of value of fixed assets. 6(8) 100% of value of fixed assets. Note: Figures in brackets indicate number of years for sales tax deferment in lieu of sales tax exemption if opted. The above benefits shall also be available for existing units which undertake an expansion project in a new location. However, tax payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e calculation of the average tax liability of the existing units, i.e., average for the last three years prior to the production in the new unit and seeking for (1)only the specified cate gories as in appendix II such benefit, without linking it to the liability to keep paying taxes as at the earlier average tax liability for the production/sale in the existing unit. Petitioner's grievance is not so much that it is denied the benefit of concession available to its new unit, but while extending the benefit, the authorities have been demanding and collecting from the petitionerompany the amount of tax which is over and above the actual tax liability in respect of the existing units on the strength of the condition imposed under the exemption notification. It is this part of the action on the part of the authorities, which is complained of in the present writ petition and the relief sought for is in this context. The exemption notification that has been issued in favour of the petitioner under the provisions of section 19C of the Act is the one dated June 5, 2000. It is the proviso to the condition (iv) of this notification, which is objected to by the petitioner, and reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for examination of this condition, both under the Government Order of the year 1998 and the exemption notification of the year 2000. Notices had been issued to the respondents. The respondents are represented by Ms. Niloufer Akbar, learned Additional Government Advocate. Statement of objections has also been filed on behalf of the respondents State of Karnataka and the Commissioner of Commercial Taxes. It is urged in the statement of objection that the petitioner is not entitled for the relief sought for; that the petition is hit by laches; that there is nothing wrong with either the Government order dated September 5, 1998 or with the exemption notification dated June 5, 2000; that the condition imposed therein is the condition which the petitioner can avail of or not; that the condition is fully justified; that the petitioner even at the stage of setting up of its plant had been apprised of the condition; that it was a condition which was within the knowledge of the petitioner and the petitioner having accepted the condition and having availed of the tax concession in respect of its expanded unit, cannot now turn around and seek for annulment of the condition; that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrialisation policy and certain changes are sought to be brought about; that the Government in order to give effect to the policy had issued Government order dated March 15, 1996; that annexure I and II to this Government order contained the incentives and packages in furtherance of the policy; that the petitioner induced by this incentives scheme had embarked upon setting up the new manufacturing unit to manufacture PPC brand cement at its existing unit at Wadi; that the incentives provided in respect of the sales tax concessions, etc., to such units is as envisaged under the heading 5 of annexure II to this Government order, which has a main heading as Package of Incentives and Concessions 1996-2001, and a sub-heading for item No. 5, being sales tax concessions for new units, quoted earlier; that the concession given in respect of the sales tax liability of such new units or even in respect of the existing units as in the case of the petitioner under clause (d) of the subheading 5, it is not hedged by any conditions other than the stipulation that the existing production on this tax liability would continue as earlier and the concessions would be confined to the production ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the clarifications sought for as to the sales tax liability of the existing unit in terms of remarks to point (e), it had been clarified as under: Points raised Remarks (e) Clarification regarding whether the sales tax payable would be limited to tax on actual sales quantity from the It is clarified that the sales tax payable would be limited to tax on actual quantity of sales from the existing plant at Wadi existing plant at Wadi (manufacturing OPC grade) or the average quantum referred to above, whichever is higher. (manufacturing OPC grade) or the average quantum referred to above, whichever is higher (in other words, if the OPC production increases in the exiting plant, full ST on such production has to be paid. That it had been indicated that the liability was on the actual basis and not on any fictional basis, but nevertheless, the respondents had followed up the matter by issuing an exemption notification in terms of section 19C of the Act in respect of the petitioner's unit, as per the Government Notification No. FD 187 CSL 2000 (I), (II) and III dated June 5, 2000, a copy of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e added for the implementation of the concession/benefits as held out in the policy notification and therefore the condition is bad; that the Government order as well as notification of the year 2000 should read as without such a condition in which event the petitioner can avail of the benefit of concession without complying with the requirements of artificially paying the sales tax in respect of the production of the existing unit at the average sales tax for the past three years and on the other hand can still seek the benefit of the exemption by paying the actual tax liability in respect of the production attributable to the existing unit. In support of the submission, the learned Senior Counsel appearing for the petitioner has placed reliance on the decision of the Supreme Court in the case of State of Bihar v. Suprabhat Steel Ltd. [1999] 112 STC 258. Submission of the Senior Counsel is that the condition which the petitioner has objected to and challenged in this writ petition is akin to the conditions which had come to the adverse notice at the hands of the Supreme Court in the case of Suprabhat Steel Ltd. [1999] 112 STC 258; that the Supreme Court having held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive of the article 265 of the Constitution and on such premise also, the condition should be read down as one not permitted under law. Submission of the learned Senior Counsel appearing for the petitioner is that if the benefit of the notification can still be sustained by separating the condition, the court can definitely do that and following the ratio in Suprabhat Steel Ltd. [1999] 112 STC 258, it should be done in the present case also. Learned Senior Counsel appearing for the petitioner submits that though the respondents have already collected the tax from the petitioner, on determination of the liability in respect of its existing units as though it is a liability equivalent to sales tax liability in respect past three years average liability and the petitioner had not questioned either levy or collection of such tax liability by filing an appeal or otherwise, it is always open to the petitioner to seek for a declaration that the collection itself was not authorised in law; that the petitioner had paid the tax due to a mistaken impression of law that the petitioner was liable, but in reality and as per the legal provision, the petitioner is not so liable and if the payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the defence put up by the respondents, pointing out that the petitioner's expanded unit is a unit which has to be characterised as a mega project; that such a stand is being aired for the first time in the statement of objections filed in response to the writ petition and therefore not much credence should be given to this stand that the expanded unit is a mega project and therefore not governed by the concessions/benefits as are available to new units in terms of the heading 5 of annexure II to the industrial policy notification of the year 1996. Further submission of the learned Senior Counsel appearing for the petitioner is that having regard to the certificate dated April 9, 2002 (vide annexure N) issued for the purpose of availing sales tax exemption, wherein it has been specifically indicated that M/s. ACC company is a newly established industry at Wadi, Gulbarga district, as found in the very first paragraph of this certificate, it is no more open to the respondents to contend that the petitioner's unit is not a new unit, as under heading 5 of the annexure II to the policy notification, but is covered under heading 7 of the policy notification. Learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be tested on the touchstone of the concession or incentive as extended in respect of the new units, as envisaged under heading 5 of annexure II to the Government order, but the condition which is independently imposed for the first time on the petitioner in terms of the Government order and the Government notification. Sub-heading 7 of the policy reads as under: 7. Mega projects: The projects which have investment in fixed assets in excess of Rs.100 crores shall be considered for a special incentives package depending on the merits of each case, and according to range of investment, scope for downstream industrial development, employment potential, etc. Elaborating the submissions, learned Additional Government Advocate, submits that the industrial policy for the years 1996-2001 itself has classified different categories of industries to which the sales tax concessions/ incentives are available; that the industries for such purpose are categorised into (a) tiny sector/village industry; (b) small-scale industry; (c) medium scale industry; (d) large industries; and (e) mega project; that even in terms of the definition of the mega project as per the very policy, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on itself and the entire notification is in the nature of a package in the sense that the petitioner gets the benefit subject to the condition and therefore if the condition cannot be dealt with independently and if the condition is not fulfilled, the very benefit also cannot be claimed. In this regard, the learned Government Advocate places reliance on the decision of the Madras High Court in the case of Tamil Nadu Newsprint Papers Ltd. [2003] 129 STC 420 and submits that as it was the policy of the Government to give incentive for new units, additional investment, extension of the industrial unit in backward areas, etc., at the same time the Government was also keen on sustaining its revenue from such units which had already enjoyed the benefit of concession and additional benefits were sought to be given only over and above the existing revenue levels in the sense the benefit was given only after fulfilling the revenue inflow from such units; that the condition was to ensure that the sales tax liability in respect of the dealer as a whole inclusive of existing unit and expanded unit was maintained to be not less than at the average of the last three years. With regard to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city of the existing unit; (b) It is the general tendency of different entrepreneurs to avail maximum benefits of incentives in their new industries and after exhausting the full availment of said benefits, the industrialists concerned abandon that unit and set up another unit engaged in the manufacture of the same or a similar product. Such a course of action defeats the very purpose for which the incentives were given to the industrialists when they started the new industry in the first instance. The State sacrificed its revenues for a certain number of years with the expectation that thereafter that unit would have become a fully viable unit and it will pay tax to the State at the full rates and such tax will keep on accruing year after year to the State. If the entrepreneurs are permitted to abandon their original units and go in for new units, immediately after availing the full benefits of incentives in the original unit, then there is a drain of revenue by way of incentives offered which is not in return for any anticipated economic benefit. Such a course will defeat the very purpose of the Government orders granting incentives to the industries set up in the State or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue and would be charge based on the average tax liability of three years period prior to the commissioning new plant or actual tax liability based on the actual production of ordinary portland cement after commissioning of the new plant, whichever is higher (annexure D); (b) Quash and set aside the notification dated June 5, 2000 to the extent that it provides that the existing industrial unit shall be liable to pay the taxes on the existing production of ordinary portland cement manufactured and sold by the existing unit based on the average tax liability of three years prior to the commissioning of the new plant (pozzolana portland cement plant) or based on the actual production of ordinary portland cement after commissioning of the new plant, whichever is higher (annexure K1) (c) direct the respondents to amend the exemption certificate dated April 9, 2002 in accordance therewith; (d) restrain the respondents from making any demand on the petitioners and/or recovering any amount on the basis of the above referred impugned conditions in prayers above as contained as in the G.O. No. CI 22 SPI 97 dated September 5, 1998 and Notification No. FD 187 CSL 2000(I) dated Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... categories of industries, as noticed earlier while examining the submissions on behalf of the respondents by the learned Government Advocate. Mega project is one of the categories. Here again it is not in dispute that having regard to the amount invested in the petitioner's expanded unit, it definitely fits into this description of mega project, but what is contended for the petitioner is that the petitioner as well as the respondents had proceeded on the premise that the petitioner's expanded unit is a new unit and even the certificate issued by the respondents themselves confirms this position. An examination of the correspondence particularly the letter dated April 9, 1997 (annexure B) from the petitioner addressed to the Principal Secretary to Government, Department of Industries and Commerce, leaves one with no doubt that the petitioner had also understood that the expanded unit is a mega project, as is indicated in last paragraph of this letter, which reads thus: You will appreciate that ACC has been a pioneer cement manufacturer which has been associated with the State for the last several decades and has contributed in a large way to its economic development. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be borne in mind is that both headings 5 and 7 are under the very policy statement of the Government and if the petitioner's case is covered by heading 7, the petitioner has to claim the benefit in terms of the same and not with reference to the benefits and concessions extended for some other units as under heading 5. With regard to the second contention that the condition is one which creates an artificial liability in respect of the sales tax liability on the production in the existing unit and therefore it is bad in law as violative of article 265 of the Constitution of India, one has to look into the exemption notification in a comprehensive manner. The condition occurs in the notification, which seeks to extend certain benefits and to what extent the benefit or concession can be extended, is a matter within the discretion of the Government and in the instant case also was the subject-matter of a bargain between the petitioner and the Government. The Government has extended the benefits with certain conditions. If the benefit can be worked out in understanding the condition in such a manner and the benefit can be sustained or retained that has to be done so like that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er from out of the production in the expanded unit. In fact, the petitioner having not placed before the court the manner in which the sales tax liability is either actually worked out or computed and the manner in which the authorities have understood and implemented the concession in the context of overall liability of the petitioner, it is not possible to examine the question as is sought to be urged by the learned Senior Counsel appearing for the petitioner that a separate levy is created in respect of the sales turnover attributable to the production in the existing unit through the condition imposed on the petitioner for availing the benefit of tax concession on the production in the expanded unit. Condition of this nature cannot be characterised as one either imposing a tax by itself or a condition by which the tax is imposed. Ultimately, even after fulfilling the condition, the petitioner stands to gain in the sense the petitioner gets the benefit in respect of the balance turnover in the expanded unit. Even otherwise, a condition of this nature can only be understood in such a manner, so that it not only saves the notification but also extends the benefit to the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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