TMI Blog2006 (3) TMI 751X X X X Extracts X X X X X X X X Extracts X X X X ..... itions were initially filed against show cause notices issued by the authorities - (i) calling upon the petitioner-Company to show cause why the assessment orders passed in favour of the petitioner Company for the years 1995-96, 1996-97, 1997-98 and 2000-01 should not be revised by the Commissioner of Sales-tax in suo motu revision under Section 67 of the Act, (ii) calling upon the petitioner- Company to show cause why the assessment orders passed by the Assessing Officer in favour of the petitioner-Company for the years 1998-99 and 1999-2000 should not be taken up under Section 50 of the Act for withdrawing the benefits of exemption availed of by the petitioner -Company for the relevant years. (iii)calling upon the petitioner- Company to show cause why the petitioner- Company should not be denied the benefit of exemption for the years 2001-02 to 2004-05. This Court (Coram: Hon'ble Mr Justice RS Garg Hon'ble Mr Justice KM Mehta) entertained the petitions by issuing notice and granted ad-interim protection, subject to the condition that the petitioner- company deposits ₹ 75 crores. The petitioner- Company complied with the said condition, but during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany's Hazira plant for commercial production of Hot Rolled Coils (HRC) wherein HBI was an intermediate product. For manufacturing HRC in unit No.2, the petitioner used HBI manufactured in unit No.1 as well as in unit No.2. Under the Scheme for Special Incentives to Prestigious Units issued by the State Government on 26.7.1991, the petitioner Company was also granted eligibility certificate dated 15.12.1993 (which was subsequently amended) for availing of exemption under Entry 255 of the Scheme for Prestigious Units in respect of unit No.2 for the period from 22.2.1993 to 21.2.2007 for an amount of ₹ 2050 crores. 3.4 The commercial production of unit No.2 manufacturing HRC commenced in 1995-96. The petitioner- Company purchased Naptha and natural gas for the purpose of generating electricity for use in the HRC plant (unit No.2). The said inputs were converted into equivalent units of electricity at the power plant of Essar Power Ltd. situated next to the factory of the petitioner and such units of electricity were used for manufacturing HRC. The petitioner availed of exemption from payment of purchase tax on the aforesaid purchase of raw materials by submitting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner Company and that, therefore, there was no breach of Entry 118. As regards the use of Naptha and natural gas purchased by the petitioner Company for the benefit of unit No.2, it was stated that Naptha and natural gas were used for getting electricity generated by Essar Power Ltd. and that use of such electricity by unit No.2 was an integral part of the process of manufacturing HRC in unit No.2; that the benefit of exemption was availed of only for that part of Naptha and natural gas which was used by Essar Power Ltd. for supplying electricity to the petitioner Company and that no exemption was claimed on the Naptha and natural gas used by Essar Power Ltd. for generating electricity for GEB which was one of the conditions permitting Essar Power Ltd. to generate electricity through captive power plant for the petitioner- Company. 3.8 On 13.6.2002, the Sales-tax Officer, Surat issued notice under Section 50 of the Act demanding ₹ 71.48 crores on the ground that exemption was wrongly availed of by unit No.1 which transferred HBI to unit No.2 instead of selling the same. Similarly, the Sales-tax Officer, Surat demanded ₹ 199.73 crores on the ground th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad issued notice to unit No.2 under Section 50 of the Act demanding an amount of ₹ 480.99 crores as the amount of exemption wrongly availed of by the petitioner in respect of purchases of Naptha and natural gas for the period from 1996-97 to 2004-05. (iii)1.6.2005 : calling upon the petitioner Company to show cause why interest at the statutory rate and penalty at the rate of 150% of the sales-tax / purchase tax should not be recovered from the petitioner for the period from 1995-96 to 2004-05. (iv) 12.7.2005 : The Sales-tax Commissioner issued notices for revision under Section 67 of the Act to unit No.2 seeking to revise assessment orders for assessment years 1995- 96, 1996-97, 1997-97 and 2000-01 on the ground that the petitioner had wrongly availed of the exemption by converting Naptha and natural gas into electricity outside the factory of production. Similar notices for the same years were also issued to unit No.1 for revision of assessment orders. 4. The petitioners filed the present petitions on 14.7.2005 challenging the notice dated 4.2.2005 in respect of unit No.1 and notice dated 30.5.2005 in respect of unit No.2 as being wholly without jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s granted the benefit of exemption under the Pioneer Status Incentive Scheme as per the eligibility certificate dated 16.7.1991. The question of earmarking the said benefits to unit No.1 or unit No.2 did not arise because when the Company was granted the benefit of Pioneer Status, only one unit was in existence. The scheme intended to confer on the Company the benefit of exemption from payment of purchase tax on raw materials purchased for manufacturing whatever product the unit ultimately manufactured and sold within the State of Gujarat and the Company was accordingly manufacturing HBI from the raw materials purchased without payment of tax and the Company was also selling the HBI within the State of Gujarat. However, when the Company set up its additional plant or unit No. 2, the HBI manufactured in unit No.1 was being sent to unit No.2 as raw material for manufacturing HRC and HRC was admittedly being sold within the State of Gujarat. 6.2 It is vehemently submitted by Mr Nanavati that the Company is a legal entity and merely because for the convenience of manufacturing purposes, there are two units and HBI manufactured in one unit is sent to the other unit as raw material fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 could not have been cancelled or withdrawn without giving the petitioner a show cause notice and a reasonable opportunity of being heard. 7.2 It is also submitted that the proceedings under Section 50 cannot be initiated unless reassessing or revisional authority had reasons to believe that any turnover of sales or turnover of purchase of any goods chargeable to tax under the Act had escaped assessment or has been under-assessed or assessed at the lower rate. Strong reliance is placed on the decision of the Apex Court in Calcutta Discount, (1961) 41 ITR 191 in support of the contention that where the notice is issued by the authority without any objective material for arriving at such satisfaction, the Court would issue a writ of prohibition under Article 226 of the Constitution. 7.3 As regards assessment years 1995-96, 1996-97 and 1997-98, it is submitted that the notices were issued by the Commissioner under Section 67 of the Act on 12.7.2005 and within a period of ten days, not only the final revisional orders were passed, but when the petitioner raised objections on 12.7.2005, the Commissioner issued notices for penalty on 19.7.2005 and passed the orders of penalty on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l other details were always furnished and the department has also not been able to show that the petitioner has done anything clandestinely to evade payment of sales-tax or to avail of the benefits of the two incentive schemes. CONTENTIONS ON MERITS REGARDING UNIT No.2 9. As far as unit No.2 is concerned, on merits of the matter, it is submitted that the purchase of Naphtha and natural gas for generation of electricity was in order to ensure that the electricity is made available for heating the raw material for the purpose of manufacturing HRC. Strong reliance is placed on the decisions in case of Tata Oil Mills Co. Ltd. vs. Collector of Central Excise, (1989) SCC 541, Indian Farmers Fertilizer Co-op. Ltd. vs. Collector of Central Excise, Ahmedabad, (1996) 5 SCC 488 and Unichem Laboratories Ltd. vs. Collector of Central Excise, (2002) 7 SCC 145 in support of the proposition that electricity can be an important raw material for a plant like this where electricity is not merely used as captive power, but also as an integral part of the manufacturing process. Reliance is also placed on the decision in Telco case in support of the contention that if an ingredient or raw mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Sales-tax, Corporate Cell itself as a specified officer is designated for each individual assessee in the Corporate sector. As regards the years 1995-96 to 2000-01, reliance is placed on the delegation order dated 14.6.2005 specifically transferring the cases to the Deputy Commissioner of Sales-tax, Corporate Cell. 14. On the question of alleged violation of principles of natural justice, it is submitted that the notices were issued on 4.2.2005 for unit No. 1 and 30.5.2005 for unit No. 2 giving detailed reasons for invoking the power under Section 50 and sufficient time and opportunity was given to the petitioner to meet with the same. 15. As regards the notices issued by the Commissioner under Section 67 of the Act, it is submitted that such notices were issued on 12.7.2005 and the orders were passed on 22.7.2005. It is submitted that since the breach of conditions was detected on 24.7.2001, the revenue could not have taken the risk of getting the assessment orders or other orders time barred in view of the time limit of four years (three years + one year as stipulated in Section 50 of the Act). The notice dated 4.2.2005 is required to be read with the communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities i.e. for manufacturing HRC. The doubt, if any, was subsequently removed by the amendment made on 14.11.2000 which specifically provided that the raw materials shall be used by the eligible unit to manufacture all its products. 18. As regards the order dated 16.8.2002, the learned Advocate General submitted that it was merely a communication between two officers of the department. Apart from the fact that it was never communicated to the petitioner, it was neither an order under Section 41 nor an order under Section 50 nor an order under Section 67 of the Act and, therefore, there was no question of issuing any notice to the petitioner before withdrawing the same. When it was realized that under some misconception, the communication was sent on 16.8.2002 which permitted the petitioner to evade its tax liabilities and use the incentive schemes for which such incentives were never intended to be given, the Commissioner was justified in cancelling the communication dated 16.8.2002 as illegal and void ab initio. Reliance placed by the Assessing Officers on the said communication in the orders dated 13.5.2005 and 27.5.2005 cannot be justified because the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for reassessment, time bar or unreasonable delay in issuance of notice for reassessment. The decision of the Apex Court in the case of Calcutta Discount Co. Ltd. vs. ITO, (1961) 41 ITR 191 laying down the following principle will, therefore, be required to be borne in mind while considering whether the question of predeposit should be considered by this Court :- That though the writ of prohibition or certiorari would not issue against an executive authority, the High Courts had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority, acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. When the Constitution conferred on the High Courts the power to giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the only dispute is whether despite the uncontroverted facts that unit No.1 manufactured HBI with the raw materials purchased tax free and thereafter the HBI so manufactured was transferred to unit No.2 and unit No.2 manufactured HRC with such HBI and the petitioner Company having and running both these Units sold the HRC within State of Gujarat - the petitioner can be said to have committed breach of the conditions stipulated in Entry 118. In other words, can it be said that product manufactured with the tax free purchase of raw materials HBI was not sold within the State of Gujarat in any form ? 24 Entry 118 reads as under :- (2) Sales of raw materials, consumable stores, or packing matrials by a registered dealer to a specified manufactures. Whole of tax (1) (2) .... (3) If the specified manufacture has actually used the goods within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of any goods for sale by him which shall not take place outside the State of Gujarat or as packing materials in the packing of the goods so manufactured. (4) If the specified Manufacturer furnishes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be considered with amendment to the conditions in Entry 255, particularly the amendment made by Government notification No. 49(322) dated 14.11.2000. Entry 255 before amendment read as under :- 255(1) .... (2)Sales of raw materials, processing materials, consumable stores or packing materials by a registered dealer, to an eligible unit. To the extent to which the amount of Sales Tax exceeds one fourth of one percent and to the extent to which the amount of general Sales Tax exceeds one fourth of one percent : Provided that if on the same goods sales tax is leviable no general sales tax be levied. (1) If the eligible unit furnishes to the selling dealer a certificate in form 26 appended hereto, obtain from the registering authority, declaring interalia that the goods are required for use by him within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in the packing of the goods so manufactured. Entry 255 after the amendment amendment reads as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raw material for generating electricity which is then supplied by Essar Power Limited to the petitioner Company under a separate power purchase agreement and also having regard to the fact that the conditions in Entry 255 underwent a substantial amendment on 14.11.2000 and having regard to the authorities cited at the bar and preliminary contentions raised, the matter requires detailed scrutiny in revision/appeals. Hence, we are inclined to direct the petitioner Company to make pre-deposit of 50% of only the tax amount without making predeposit of any interest or penalty, in so far as unit No.2 is concerned. DIRECTIONS A. It is directed that till final hearing and disposal of the appeals/revisions filed by the petitioner Company, the respondents authorities shall not make any recovery of any tax, interest or penalty in respect of unit No. 1 of the petitioner Company for the period from 1995-96 till 2004-05 on the ground that HBI manufactured by the petitioner Company in its unit No. 1 at Hazira with the tax free purchase of raw materials was transferred to unit No.2 of the petitioner Company for the purpose of manufacturing HRC, if ultimately the final product was sold wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions, we direct that the appeals/revisions already filed in the month of October, 2005 shall be decided by the appellate authority/Tribunal on merits after duly considering the applications, if any, made for condonation of delay. (iii) At the request of Mr Nanavati and Mr Joshi for the petitioner, it is clarified that it will be open to the petitioner to request the Joint Commissioner of Sales-tax, the appellate authority, to stay the hearing of the appeals till the Tribunal decides the revisions or to transfer the appeals themselves before the Tribunal. Such applications may be considered in accordance with law. E. It is clarified that the revisional/appellate authority is at liberty to decide the matters in accordance with law without being influenced by any observations made in this order or the directions regarding pre-deposit. The observations have been made for the limited purpose of considering the request for predeposit and the directions regarding pre-deposit have also been made having regard to the questions of prima facie case and financial hardship. This Court may not be treated to have expressed any final opinion on any of the controversies between the part ..... 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