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2004 DIGILAW 533 (GUJ)

INDUSTEEL INDUSTRIES v. STATE OF GUJARAT.

2004-08-16

D.A.MEHTA, M.S.SHAH

body2004
ORDER M. S. SHAH, J. - What is challenged in this petition under article 226 of the Constitution is the communication dated December 23, 2002 (annexure "K") from the Assistant Industries Commissioner (Incentives) conveying the decision of the State Level Committee rejecting the petitioner's claim for sales tax incentives under the New Incentive Policy - Capital Investment Incentive (General) Scheme, 1995-2000 which is at annexure "A" to the petition. The petitioner set up an oxygen gas plant in Village Mamsa in Bhavnagar District which area is covered by the aforesaid scheme. The scheme came into operation from August 16, 1995 and remained in force up to August 15, 2000. There is no dispute about the fact that the plant was set up during the operation period of the scheme and the commercial production commenced on January 20, 1999. There is also no dispute about the petitioner's case that it is an eligible unit under the scheme. The petitioner had claimed the incentives under the scheme in respect of the following fixed capital investments :- (i) Land acquired by the petitioner on July 4, 1994 at a cost of Rs. 8,25,448. (ii) New building at a cost of Rs. 15,95,644 for which the petitioner had given the construction contract on July 1, 1995; the construction was completed in 1999 and the payment was also made for the same in the year 1999. (iii) Plant and machinery worth Rs. 63,50,476 plus electrical installations of Rs. 1,35,947. According to the petitioner, the said plant and machinery installed in the petitioner's factory was new, but the orders for the same were placed by another firm and part payment was also made by that other firm. In view of the fact that the other firm's (i.e., Asiatic Steel Industries Ltd.'s) project could not take off, it was not in a position to take delivery of the plant and machinery and, therefore, the present petitioner, which is a partnership firm having one of the directors of Asiatic Steel Industries Ltd., as its partner, took delivery of, and installed, the plant and machinery in its factory. The stand of the respondent-authorities represented by Mr. Siraj Gori, learned AGP, is that the land was acquired prior to the date of commencement of the Scheme; therefore, it would not fall within the eligible fixed capital assets as defined in clause 5(xiii)(A) read with the Explanation thereto. The stand of the respondent-authorities represented by Mr. Siraj Gori, learned AGP, is that the land was acquired prior to the date of commencement of the Scheme; therefore, it would not fall within the eligible fixed capital assets as defined in clause 5(xiii)(A) read with the Explanation thereto. As far as the plant and machinery is concerned, the respondents' case is that it was not new plant and machinery, but second hand plant and machinery because it was purchased by Asiatic Steel Industries Ltd., and not by the petitioner. As far as the building is concerned, though the reply affidavit does not specifically deal with the building, the learned AGP submits that since the construction contract for the building was entered into on July 1, 1995, i.e., before the date of commencement of the Scheme, the petitioner is not eligible to get any incentive in respect of the building also. At the hearing of the petition, Mr. Rashesh S. Sanjanwala, learned counsel for the petitioner, submits that since the plant and machinery was taken delivery of, and installed, by the petitioner at its factory site, merely because the initial orders for the plant and machinery were placed by Asiatic Steel Industries Ltd. and part payment was made by Asiatic Steel Industries Ltd., it cannot be said that the plant and machinery installed by the petitioner at its factory was not new. It is the specific case of the petitioner that new machinery was directly delivered by the manufacturer at the factory premises of the petitioner and was put to use for the first time by the petitioner after the machinery was installed at the petitioner's factory premises. The petitioner has further stated that the plant and machinery which is installed for the oxygen gas plant was not used by any other person or company including Asiatic Steel Industries Ltd., prior to its use by the petitioner and, therefore, the said machinery cannot be labelled as second-hand machinery. Mr. Sanjanwala states that the petitioner is prepared to produce all the documents in support of the said statement. Mr. Sanjanwala states that the petitioner is prepared to produce all the documents in support of the said statement. In our view, it would be in the fitness of things if the above controversy is examined afresh by the State Level Committee without being swayed by the fact that initial orders for purchase of the plant and machinery were placed by Asiatic Steel Industries Ltd. and part payment was also made by the said company. For deciding the question whether the plant and machinery in question is new, what would be material would be whether the manufacturer had supplied the same for the first time at the petitioner's premises or at the premises of Asiatic Steel Industries Ltd. and whether the same was even installed at the factory premises of Asiatic Steel Industries Ltd. Since it is not the case of the respondent-authorities that the plant and machinery was delivered, or installed, at the premises of Asiatic Steel Industries Ltd., the petitioner's case that the plant and machinery was delivered by the manufacturer at the petitioner's premises and was for the first time installed and used by the petitioner certainly deserves to be looked into by the State Level Committee, if the petitioner produces the documents in support of its case. As far as the building is concerned, it is the petitioner's case that although the construction contract was entered into on July 1, 1995 the contract was executed for a period over four years and, therefore, the contract was substantially executed during the period of operation of the scheme between August 16, 1995 and the year 1999 and the payment for the said construction was also made by the petitioner over a period of four years. Para 5(xiii)(A)(2) of the Scheme provides as under : "New building : The new building means building required for the project including administrative buildings. ...... Building acquired under lease agreement except GIDC sheds or on rental basis will not be considered as eligible fixed capital investment. Para 5(xiii)(A)(2) of the Scheme provides as under : "New building : The new building means building required for the project including administrative buildings. ...... Building acquired under lease agreement except GIDC sheds or on rental basis will not be considered as eligible fixed capital investment. Acquisition cost of old building or repairing cost will also not be eligible for consideration as fixed capital investment." Explanation to clause (xiii) reads as under : "Explanation : The eligible assets acquired and paid for up to six months from the date of commencement of commercial production in the case of SSI units, 12 months in the case of units with project cost above the SSI limit and up to Rs. 10 crores and 18 months in case of units with project cost more than Rs. 10 crores alone will be considered as eligible fixed capital investment subject to the condition that this time-limit shall be limited to the operative period of the scheme. No assets acquired, created and/or paid after the operative period of the scheme shall be considered eligible. Assets acquired under DPG scheme/hire-purchase scheme or instalment system would be considered eligible excluding the cost of interest subject to the following conditions." It is not the case of the respondents that the building in question is not new building or that some old building was acquired and repaired. The only ground for not accepting the petitioner's claim in respect of the building is that the construction contract was entered into by the petitioner on July 1, 1995, i.e., before the date of commencement of the scheme. When the building contract worth about Rs. 15 lakhs was executed over a period of four years, it would appear that substantial part of the contract was executed after the date of the commencement of the scheme and, therefore, this claim of the petitioner is also required to be considered by the State Level Committee without being obsessed by the date of execution of the construction contract. 15 lakhs was executed over a period of four years, it would appear that substantial part of the contract was executed after the date of the commencement of the scheme and, therefore, this claim of the petitioner is also required to be considered by the State Level Committee without being obsessed by the date of execution of the construction contract. As far as the land is concerned, according to the petitioner, the land can never be new and, therefore, any land acquired at any point of time prior to the date of commencement of the scheme would still form part of the eligible fixed capital investment, if the industry claims the incentive benefits on the basis of the cost of original acquisition and not market value on the date of commencement of the scheme. The respondents would, however, contend that since the land was acquired and paid for prior to the date of commencement of the scheme, it can never be considered to be eligible fixed capital asset. However, Mr. Sanjanwala for the petitioner states that the amount of sales tax incentives that the petitioner needs would be met by the incentives to which the petitioner would be entitled in respect of the new building and the new plant and machinery. In view of the above, we do not express any opinion on the controversy about the land. Mr. Siraj Gori, however, submits that even if the petitioner is held to be eligible for the benefits under the Scheme, the petitioner has not complied with the condition as stipulated in Part III of the Scheme. Clause (b) of the other conditions in Part III of the Scheme reads as under : "The industrial unit shall have to remain in production continuously at least till the expiry of the eligible period of incentive. However, in case the production is discontinued due to reasons beyond the control of the management of the unit, the State Level Committee may consider representation in individual cases and condone the period of discontinuation of production." Mr. Gori further invites our attention to the statement made in the reply affidavit which reads as under : "After going into commercial production in January, 1999 as per the data given by petitioner the unit remained non-operative during July, 2000 to August, 2001, 13 months. Again since February, 2004 the unit is out of operation till April, 2004." Mr. Gori further invites our attention to the statement made in the reply affidavit which reads as under : "After going into commercial production in January, 1999 as per the data given by petitioner the unit remained non-operative during July, 2000 to August, 2001, 13 months. Again since February, 2004 the unit is out of operation till April, 2004." Mr. Sanjanwala for the petitioner, however, submits that sales tax incentives are required to be computed on the basis of the investments made by the petitioner and the subsequent developments about any break in production cannot have a bearing on the decision whether the petitioner was eligible for incentives under the Scheme or not. In any view of the matter, Mr. Sanjanwala states that the petitioner was not in a position to operate the industry for a few months for which the petitioner is prepared to tender the explanation before the State Level Committee and the petitioner will also apply for condonation of such breaks. In our view, when the matter is being remanded back to the State Level Committee for considering the petitioners claim for sales tax incentives on the basis of the investments made in the new building and the new plant and machinery, it would be open to the petitioner to submit an application/representation to the State Level Committee for condonation of breaks in production. If the petitioner makes such an application/representation setting out all the relevant details and the documents in support thereof regarding the new building and the new plant and machinery by September 3, 2004, the State Level Committee shall consider and decide the matter afresh as expeditiously as possible and preferably by October 31, 2004. In case the State Level Committee entertains any doubts about any of the claims made by the petitioner, the State Level Committee shall afford the petitioner an opportunity of personal hearing. The petition is accordingly disposed of in terms of the aforesaid directions. Notice is discharged with no order as to costs. Petition disposed of accordingly.