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Punjab High Court · body

2007 DIGILAW 852 (PNJ)

Multivac India Pvt. Ltd. v. State Of Haryana

2007-04-17

M.M.KUMAR, RAJESH BINDAL

body2007
Judgment M.M.Kumar, J. 1. The short issue raised in this petition filed under Article 226 of the Constitution is whether investment of two sums of Rs. 1,34,17,558/- and Rs. 1,26,15,609/- would qualify for grant of sales tax deferment as envisaged by Rule 28-B read with Rule 28-A of the Haryana General Sales Tax Rules, 1975 (for brevity, the Rules). The petitioners have challenged order dated 20.6.2006 (Annexure P-26) passed by the High Level Screening Committee (for brevity, the HLSC)-respondent No. 3 which has been conveyed to them by the General Manager, District Industries Centre, Gurgaon - respondent No. 5. 2. Brief facts of the case, necessary for disposal of the aforementioned controversy, are that the petitioner company is engaged in manufacture of automobile components such as moulded roof headliners of automobiles as also other parts and accessories of motor vehicles. It is registered with secretariat for Industrial Assistance, Ministry of Industry, Government of India. The State of Haryana-respondent No. 1 introduced Sales Tax Incentive Scheme for industries under the Industrial Policy issued on 13.6.1988. Accordingly, the Excise & Taxation Department notified Chapter-IVA comprising Rule 28-A of the Rules which were made applicable with effect from 1.4.1988 as per notification No. G.S.R.46/H.A.20/73/S.64/89 dated 17.5.1989. It was announced that the sales tax exemption/deferment was to be given to the eligible new industrial unit/expanded unit/diversified unit. 3. In the year 1997, the State-respondent No. 1 again introduced new Industrial Policy with effect from 1.8.1997 vide notification issued on 14.8.1997. Accordingly, the Excise & Taxation Department added a new Chapter-IVB in the Rules 28-B containing Rule vide notification dated 18.5.1999 which was to take effect from 1.8.1997. According to the aforementioned notification, sales tax exemption/deferment was to be given to the new eligible industrial unit/expanded unit/diversified unit. 4. On 30.6.1997, the petitioner applied for sale tax deferment for the manufacturing of automobile components under Rule 28-A for their original unit to the General Manager, District Industries Centre, Gurgaon-respondent No. 5. The petitioner had obtained Industrial Entrepreneur Memorandum (I.E.M.) for their original unit from Government of India vide I.E.M. No. 47/SIA/NRI/95 dated 20.4.1995. On land, building, plant and machinery, the total claim made by the unit was Rs. 3,28,70,015/-. The HLSC in its 47th meeting held on 8.1.1998 approved the latest benefits of Rs. The petitioner had obtained Industrial Entrepreneur Memorandum (I.E.M.) for their original unit from Government of India vide I.E.M. No. 47/SIA/NRI/95 dated 20.4.1995. On land, building, plant and machinery, the total claim made by the unit was Rs. 3,28,70,015/-. The HLSC in its 47th meeting held on 8.1.1998 approved the latest benefits of Rs. 2,62,26,853/- for a period of nine years from the date of going into commercial production from 1.2.1996 to 31.1.2005 under Rule 28-A and accordingly eligibility certificate was issued on 18.2.1998. 5. However, some controversy has been raised when the petitioner unit started claiming that it has expanded their original industrial unit at Plot No. 75-C, HUDA, Industrial Area, Sector 18, Gurgaon. It has applied for sales tax deferment under Rule 28-A read with Rule 28-B of the Rules to respondent No. 5. The respondent No. 5 sent the application Form ST-70 along with relevant documents on 26.2.2000 which were received by the head office on 1.3.2000. It was claimed by one document i.e. I.E.M., for enhancement of capacity for their expanded unit which was bearing No. 647/SIA/IMO/98 dated 31.3.1998. The unit has submitted claim in application Form ST-70 for Rs. 2,39,61,147/-for their expanded unit under the head "plant & machinery" only. The date of commercial production claimed in the application Form ST-70 is 9.8.1997 (Annexure P5). As such the petitioner had claimed that the expanded unit was covered under the new Industrial Policy of 1997 which came into operation with effect from 1.8.1997 and its claim deserves acceptance under Rule 28-B. The HLSC-respondent No. 3 considered the case of the petitioner in its 72nd meeting held on 5/6.2.2001 after serving a notice on the petitioner on 24.1.2001 (Annexure P15). After hearing the learned Counsel for the petitioner and the Executive Director, the HLSC reached the following conclusion: In the meeting it has been noticed by the committee, that the unit does not fulfil all the three conditions of the proviso whereby it can claim the benefit under Rule 28-A and decided that the applicant can claim tax benefits under Rule 28-B only with respect to expansion. In order to satisfy that the applicant has invested 25% of the F.C.I. of the existing unit an evidence is required about the investment on moulds borrowed from M/s Maruti Udyog Ltd. For this purpose, the unit is afforded an opportunity to lead evidence. In order to satisfy that the applicant has invested 25% of the F.C.I. of the existing unit an evidence is required about the investment on moulds borrowed from M/s Maruti Udyog Ltd. For this purpose, the unit is afforded an opportunity to lead evidence. The case is deferred in the next meeting. 6. The aforementioned decision was communicated to the petitioner on 23.3.2001 (Annexure P16), which shows that the petitioner was afforded an opportunity to adduce evidence by showing that the unit had invested 25% of the Fixed Capital Investment of the existing unit. Accordingly, some documents were received by the HLSC which were considered in its 84th meeting held on 9.6.2003. The case was again deferred for affording time to the petitioner to produce some more documents concerning finance of moulds by M/s Maruti Udyog Limited, Gurgaon. The decision of the Committee was conveyed to the petitioner on 7.1.2004 and the minutes of 84th meeting have been placed on record as Annexure R1. The case of the petitioner was again considered by the HLSC in its 85th meeting held on 15.9.2003. After hearing both the sides, the HLSC rejected the request made by the petitioner and the decision was conveyed to the unit on 7.2.2004 (Annexure P22). 7. Against the decision of the HLSC dated 7.1.2004, the petitioner filed an appeal by invoking sub-rule 6(g) of Rule 28-B of the Rules before the Member, Tax Tribunal, Haryana, which was availed by the petitioner. On 15.4.2004, the Tribunal set aside the order dated 7.1.2004 passed by the HLSC and observed as under: In our opinion, the order of HLSC which this industrial unit has impugned through this appeal is gravely laconic inasmuch as the HLSC did not consider the evidences which had concrete bearing rather were decisive of the industrial units claim to deferment from payment of sales tax. We, therefore, allow this appeal, set aside the order of HLSC passed in its 85th meeting held on 15.9.2003 under the Chairmanship of Dr. Harbaksh Singh, I.A.S., Managing Director, Haryana State Industrial Development Corporation Limited, Panchkula and remand the case to (HLSC) for decision afresh after considering whether the investment of Rs. We, therefore, allow this appeal, set aside the order of HLSC passed in its 85th meeting held on 15.9.2003 under the Chairmanship of Dr. Harbaksh Singh, I.A.S., Managing Director, Haryana State Industrial Development Corporation Limited, Panchkula and remand the case to (HLSC) for decision afresh after considering whether the investment of Rs. 1,34,17,558/- did qualify this industrial unit for being considered under Rule 28 A or 28B for the purpose of grant of deferment of payment of sales tax to it and also for further verification of two investments i.e. of Rs. 1,26,15,609/- and Rs. 8,01,949/-. 8. According to the directions issued by the Tribunal, the case was remanded to HLSC for deciding the controversy afresh and it was to consider whether the investment of Rs. 1,34,17,558/- did qualify for being considered under Rule 28-A or Rule 28-B for the purpose of grant of deferment of payment of sales tax to it and also further verification of two investments i.e. Rs. 1,26,15,609/- and Rs. 8,01,949/- (Annexure P24). In its 93rd meeting held on 9.5.2006, the HLSC again considered the case of the petitioner and it rejected its claim by observing as under: The Committee has examined the application in the light of the decision of HTT. The fact on record reveals that the two investments that totals Rs. 1,34,17,558/- were not paid for within sixty days of the date of commercial production. The investment of Rs. 1,26,15,609/- represents the value of moulds and trimming tools etc. purchased on credit from Maruti Udyog Limited (MUL). The agreement of Hypothecation was made on 31.3.1998 between the applicant company and the Maruti Udyog Ltd. The company hypothecated the moulds and trimming tools in favour of MUL by way of security against these credit purchases of Rs. 1,26,15,609/-. As per agreement, MUL is also entitled to recover this amount by seizing and taking possession of hypothecated tools and moulds and later its sale/lease/transfer to any other party. Thus, it cannot be considered that this investments is paid for within 60 days of date of commercial production. The payment of Rs. 8,01,949/- for other machinery has been made after 60 days of commercial production. In this way investment totalling Rs. 1,34,17,558/- does not qualify to be considered as "fixed capital investment" (FCI) in view of the definition of FCI under sub-rule 3(g) of 28-B read with explanation appended to the said sub-rule. The payment of Rs. 8,01,949/- for other machinery has been made after 60 days of commercial production. In this way investment totalling Rs. 1,34,17,558/- does not qualify to be considered as "fixed capital investment" (FCI) in view of the definition of FCI under sub-rule 3(g) of 28-B read with explanation appended to the said sub-rule. The applicant has not submitted any document to establish the fulfillment of proviso to sub-rule 3(a) of Rule 28B. The HTT has also not held its fulfillment in favour of the applicant in the said order. The committee therefore decides this application under Rule 28B. Since the investment of Rs. 1,34,17,558/- does not qualify to be counted for the reasons stated above, the eligible FCI remains at Rs. 31,12,674/-that is much below the 25% of F.C.I. in the existing unit. As such in view of the definition of expansion under sub-rule 3(d) of Rule 28B, the applicant does not qualify to be an expansion eligible for tax benefit. Committee, therefore, decided to reject the application. 9. It is, thus, obvious that the Committee rejected the claim of the petitioner on the ground that it failed to answer any of the three conditions envisaged by Rule 28-A or Rule 28-B of the Rules. It observed that no investment while effecting expansion was made in land and building and the expanded facility is housed in the land and building of the existing unit. Out of the claim for investment in plant and machinery made at Rs. 239.61 lacs the eligible investment was verified during the operative period of Rule 28-B and it was found to be Rs. 31,12,674/- as per the report submitted by the Deputy Excise & Taxation Commissioner, Gurgaon (East) which was less than 25% of the investment in the existing unit. With regard to the investment, it has been observed that first amount of Rs. 1,34,17,558/- was not paid for within 60 days from the date of commercial production. The other amount of Rs. 1,26,15,609/- represents the value of the moulds and trimming tools, which were purchased on credit from M/s Maruti Udyog Limited. The agreement of hypothecation was made on 31.3.1998 between the petitioner and M/s Maruti Udyog Limited. The company had hypothecated the moulds and trimming tools in favour of M/s Maruti Udyog Limited by way of security against these credit purchases of Rs. 1,26,15,609/-. The agreement of hypothecation was made on 31.3.1998 between the petitioner and M/s Maruti Udyog Limited. The company had hypothecated the moulds and trimming tools in favour of M/s Maruti Udyog Limited by way of security against these credit purchases of Rs. 1,26,15,609/-. According to the agreement, M/s Maruti Udyog Limited is also entitled to recover this amount by seizing and taking possession of hypothecated tools and moulds and later it could sell/lease/transfer the same to any other party. Therefore, it has been concluded that the investment has not been paid for within 60 days of the date of commercial production. The payment of Rs. 8,01,949/- for the other machinery has been made after 60 days of the commercial production. Therefore, it has been concluded that the amount of Rs. 1,34,17,558/- did not qualify to be considered as Fixed Capital Investment (FCI) as per the definition of FCI under sub-Rule 3(g) of Rule 28-B read with explanation. The Committee also observed that the petitioner did not submit any document to establish that it fulfilled the conditions envisaged by proviso to sub-Rule 3(a) of Rule 28-B of the Rules nor the Tribunal had held that the petitioner fulfilled the aforementioned condition. After rejecting the claim of the petitioner in respect of sum of Rs. 1,34,17,558/- the eligible Fixed Capital Investment outstanding was Rs. 31,12,674/- which was much below 25% of the Fixed Capital Investment of the existing unit. 10. Mr. Ashwani Chopta, learned senior counsel for the petitioner has argued that the petitioner fulfills all the essential conditions laid down by Rule 28-A read with Rule 28-B of the Rules and, therefore, is entitled to issue of eligibility certificate entitling deferred payment of sale tax. According to the learned Counsel, the unit of the petitioner fulfilled the requirement of making additional investment of 25% of the fixed capital investment of the existing unit which resulted into increase of annual production by 25% of the installed capacity. He has then argued that the investment of Rs. 1,26,15,609/- and Rs. 8,01,949/- were made by the petitioner for expansion of the existing unit. He has made a detailed reference to the agreement to sell, dated 31.5.1997 executed between the petitioner Company and Maruti Udyog Ltd. to emphasis that as per the terms of the agreement the petitioner is owner of the moulds and tools for a consideration of Rs. 1,26,15,609/-. 8,01,949/- were made by the petitioner for expansion of the existing unit. He has made a detailed reference to the agreement to sell, dated 31.5.1997 executed between the petitioner Company and Maruti Udyog Ltd. to emphasis that as per the terms of the agreement the petitioner is owner of the moulds and tools for a consideration of Rs. 1,26,15,609/-. The amount stand paid to M/s Beneform GmbH of Germany, the supplier of the machinery, although it is a different matter that the petitioner has taken loan from Maruti Udyog Ltd. 11. Learned Counsel has submitted that the land for the project had already been purchased in 1994-95, the building plans were approved by the HUDA and the cost of civil work of the approved plans of the building stood paid by 31.7.1997. The building has been completed. He has pointed out that 50% of the machinery was booked by placing confirmed order before 31.7.1997 and all the conditions envisaged by Sub-rule (3) of Rule 28-B of the Rules have been fulfilled. Learned Counsel has found fault with the impugned order dated 20.6.2006 (P-26) because it has illegally ignored the investment made by the petitioner amounting to Rs. 1,34,17,558/- and has refused to consider the same as an amount which did qualify for fixed capital investment. He has highlighted that the payment has been made to M/s Beneform GmbH of Germany, which is usual mode adopted by the financial institutions including banks, leasing companies and non-banking financial institutions, in that case the payment is made directly by the financial institutions to the party who supplies the goods and the account of purchasing company is debited to be paid by easy installments along with interest. Therefore, the impugned order dated 20.6.2006 (P-26) is liable to be set aside. 12. Ms. Ritu Bahri, learned State counsel on the other hand submitted that the petitioner does not fulfill the conditions as envisaged by Sub-rule (3)(a)(d) of Rule 28-B of the Rules. She has drawn our attention to Sub-rule (3)(b) of Rule 28-B and argued that the fixed capital investment is to cover all the assets of the unit as erected at site and paid for as on any day falling within 60 days after the date of commencement of commercial production. She has pointed out that the unit went into commercial production on 9.8.1997 and till 60 days later the amount of Rs. She has pointed out that the unit went into commercial production on 9.8.1997 and till 60 days later the amount of Rs. 1,34,17,558/- was not paid up and according to own saying of the petitioner this amount was yet to be paid to the Maruti Udyog Ltd. Therefore, the petitioner did not satisfy the requirement of Sub-rule (3)(g) explanation of Rule 28-B. Therefore, it was merely a loan which was being paid even after the expiry of period of 60 days. 13. We have thoughtfully considered the rival submissions made by the learned Counsel for the parties and are of the view that this petition deserves to be accepted. A reference may be made to Sub-rule (2)(a)(d)(f)(g) and (h) of Rule 28-A and the same reads as under: (2) For the purpose of this Chapter, unless the context otherwise requires. (a) "operative period" means the period starting from the 1st day of April 1988 and ending on the date on which new policy for incentive to industry is announced by the government of Haryana in Industries department. xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx xxx (d) "expansion/diversification of industrial unit" means a capacity set up or installed during the operative period which creates additional productions/manufacturing facilities for manufacture of the same product/products as of the existing unit (expansion) or different products (diversification) at the same or new location, and (i) in which the additional fixed -capital investment made during the operative period exceeds 25% of the fixed capital investment of the existing unit, and (ii) which results into increase in annual production by 25% of the installed capacity of the Existing Unit in case of expansion, xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx xxx xx (f) eligible industrial unit means: (i) a New Industrial Unit or expansion or diversification of the existing unit, which- (I) has obtained certificate of registration under the Act; (II) is not a public sector undertaking where the Central Government held 51% or more shares; (III) is not availing incentive of interest free loan from the Industries Department for investment after the 1st day of April, 1988. (IV) is not included in Schedule III appended to these rules. (V) is not availing or has availed of exemption under Section 13 of the Act. (IV) is not included in Schedule III appended to these rules. (V) is not availing or has availed of exemption under Section 13 of the Act. (ii) a sick industrial unit recommended by the High Powered Committee for the grant of fiscal either in the form of exemption from the payment of sales tax or purchase tax or both or deferment of tax. (g) "fixed capital investment" means investment in- (i) land under use; (ii) new construction; (iii) new plant and machinery (including generating set), tools and equipment. (iv) directly imported (into the territory of India) second hand machinery and equipment; (v) installation expenditure capitalized for plant and machinery; (vi) capitalized interest during construction exceeding 5% of the total fixed capital investment of items listed at Serial No. (iii), (iv) and (v); and (vii) technical know-how fees or drawing fees paid as lump sum to foreign collaborations or foreign supplier as approved by Government of India or paid to laboratories of State Government or Central Government. Explanation:- Fixed capital investment will cover all the assets of the unit as erected at site and paid for as on any day falling within 60 days after the date of commencement of commercial production, (h) "additional fixed capital investment" means fixed capital investment made in expansion or diversification after the 1st day of April, 1988. 14. The aforementioned rule was notified on 17.5.1989. The basic object appears to be to attract the industry in the respondent State of Haryana by granting exemption/deferment from payment of sales tax. 15. On the declaration of new industrial policy, Chapter IV-B was added by incorporating Rule 28-B by keeping in view the same object of attracting industry in the respondent State of Haryana by giving them exemption/deferment from payment of tax. In order to avoid repetition it is suffice to pay that the provisions of both the rules are substantially same although the operative period is different. 16. In order to avail the benefits of the notification, certain conditions are required to be fulfilled as is evident from perusal of Sub-rule (2)(f) of Rule 28-A of the Rules, which defines eligible industrial unit. It is evident from the perusal of the aforementioned sub-rule 2(f) that the petitioner is eligible industrial unit and does not suffer from any disability. It is also undisputed that if the sum of Rs. It is evident from the perusal of the aforementioned sub-rule 2(f) that the petitioner is eligible industrial unit and does not suffer from any disability. It is also undisputed that if the sum of Rs. 1,34,17,558/- is considered as the amount of investment qualified for the purposes of expansion of the industrial unit then the additional fixed capital investment during the operative period would exceed 25% of the fixed capital investment of the existing unit and the annual production could also increase by 25% of the installed capacity of the existing unit. Therefore, sub-rule 2(g) of Rule 28-A, which deals with fixed capital investment, as noticed above, would need to be interpreted. There is no dispute that the petitioner fulfill the conditions with regard to land, new construction and new plant and machinery. The petitioner has purchased the moulds and trimming tools on loan basis from the Maruti Udyog Ltd., which are worth Rs. 1,34,17,558/-. The payment on behalf of the petitioner was made to M/s Beneform GmbH of Germany by Maruti Udyog Ltd. and the petitioner was to repay that amount in installments. It is also undisputed that the petitioners unit went into commercial production on 9.8.1997 and the sale of tools/dyes/moulds etc. was effected on 31.5.1997. According to the agreement to sell, dated 31.5.1997, the petitioner has agreed to buy tools/moulds subject to various terms and conditions, namely, (a) the tools were to be used by the buyer for exclusive manufacturing of components/parts for the seller and were not to be used for manufacturing of components or parts for any other company/firm/individual without written permission from the seller. The petitioner being the buyer was to discharge the obligation and fulfillment of any condition for importing, assessment and clearance of goods under various Acts and Statutes. The Maruti Udyog Ltd. the seller had agreed to sell the tools for an amount of Rs. 1,26,15,609/-, which were to be paid by the petitioner over a period of 60 months in easy installments. The aforementioned Clause (3) reads as under: 3. The seller agrees to sell the tools on making down payment of Rs. Nil and balance amount of Rs. 1,26,15,609/- (rupees one crore twenty six lakhs fifteen thousand six hundred and nine only) will be paid over a period of 60 months. The aforementioned Clause (3) reads as under: 3. The seller agrees to sell the tools on making down payment of Rs. Nil and balance amount of Rs. 1,26,15,609/- (rupees one crore twenty six lakhs fifteen thousand six hundred and nine only) will be paid over a period of 60 months. The buyer authorizes the seller to recover the balance amount form (from?) the amounts payable to the buyer for the supplies made to the seller or any amounts that become due to the buyer. 17. It is significant to notice that the liability of the company to pay for the tools, dyes, moulds stood discharged as the payment has been made to M/s Beneform GmbH of Germany. It is a different matter that the amount has been given on loan basis to the petitioner company, which is to be paid by it in easy installments. The Maruti Udyog Ltd. is merely playing a role of a financer whereas the payment has been made by the petitioner company to M/s Beneform GmbH of Germany. Therefore, it cannot be said that the amount of Rs. 1,34,17,558/- would not qualify to be treated as fixed capital investment. We are of the view that the aforementioned amount would not suffer any disability for being added in the fixed capital investment merely because the petitioner has borrowed the amount from Maruti Udyog Ltd. and is making repayment over a period of 60 months. According to explanation to Sub-rule (2)(g) of Rule 28A, fixed capital investment is to cover all the assets of the unit as erected at site and paid for as on any day falling within 60 days after the date of commencement of commercial production. The commercial production in this case has started on 9.8.1997. The bill of entry was presented on 23.5.1997 and the amount to M/s Beneform GmbH of Germany stood paid by that date through Maruti Udyog Ltd. Therefore, the reasoning adopted by HLSC suffers from inherent legal infirmity and is, thus, liable to be set aside. 18. In view of the above, the writ petition succeeds. Order dated 20.6.2006 (P-26) passed by HLSC and communicated by respondent No. 5, is hereby "quashed. A direction is issued to the respondents to consider the amount of Rs. 18. In view of the above, the writ petition succeeds. Order dated 20.6.2006 (P-26) passed by HLSC and communicated by respondent No. 5, is hereby "quashed. A direction is issued to the respondents to consider the amount of Rs. 1,34,17,558/- as fixed capital investment and include the same for the purposes of exempting/deferring the petitioners unit from payment of sales tax as permissible by law. An appropriate order in that regard be passed by the competent authority within two months from the date of receipt of certified copy of this order.