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2009 DIGILAW 669 (ORI)

LUIS PACKAGING PVT. LTD. v. STATE OF ORISSA

2009-08-28

B.P.DAS, I.MAHANTY

body2009
JUDGMENT B. P. DAS, J. - This sales tax revision has been filed under section 24(1) of the Orissa Sales Tax Act, challenging the order dated April 15, 2002 passed by the Full Bench, Orissa Sales Tax Tribunal in S.A. No. 617 of 2001-02 for the assessment year 1998-99, confirming the order of assessment dated January 27, 2001 passed under section 12(4) of the Act by the Sales Tax Officer, Circle II, Cuttack and the first appellate order dated July 20, 2001 passed by the Assistant Commissioner of Sales Tax, Cuttack II Range, Cuttack. The facts of the case are as follows : The petitioner, which is a private limited company incorporated under the Indian Companies Act, established a new small-scale industrial unit to manufacture corrugated cardboard boxes, which in common parlance are understood by the Department of Industry and the Sales Tax Officers, as "packing materials". Hundred per cent of the petitioner's buyers are registered dealers, whose registration certificates disclose that they are not only entitled to purchase and sell goods but are also entitled to purchase packing/packaging materials to be used for packing the goods dealt in by them, whose rate of tax is four per cent against furnishing of form IV. The packing materials are used for packing different types of goods for various other manufacturers and producers such as, liquor, medicines, spices, vermicelli, prawns, day old chicks and many more products. According to the petitioner, he established the aforesaid company basing on the assurance held out in the IPR, 1996 supported by the latest notifications for exemption under the Sales Tax Act for new small-scale industrial units like that of the petitioner. According to him, the IPR 1996 came into effect on March 1, 1996, exempting new small-scale industrial units from payment of sales tax on purchase of raw materials and packing materials and on sale of finished products up to a ceiling of 100 per cent of the fixed capital investment within a period of five years. The petitioner made an investment of Rs. 26.20 lakhs as fixed capital, for which the petitioner was entitled to the benefit of exemption from payment of sales tax on purchase of raw materials and packing materials and on sale of finished products for a sum of Rs. 26.20 lakhs in five years. The petitioner started its commercial production on April 1, 1997. 26.20 lakhs as fixed capital, for which the petitioner was entitled to the benefit of exemption from payment of sales tax on purchase of raw materials and packing materials and on sale of finished products for a sum of Rs. 26.20 lakhs in five years. The petitioner started its commercial production on April 1, 1997. The District Industries Centre, Jagatpur issued an eligibility certificate on July 9, 1997 stating that the petitioner is eligible for exemption from payment of sales tax on machinery spare parts, raw materials, packing materials and finished products for a sum of Rs. 26.20 lakhs with effect from April 1, 1997 to March 31, 2002. The chart showing exemption claimed by the petitioner is given hereinbelow : -------------------------------------------------------------------------------------------------- Year Exempted sales Tax exempted Tax at 4% Tax @ 4% on Total tax Cumulative as per IPR purchases on sales purchase on sales total tax (in Rs.) (in Rs.) and purchase liability (in Rs.) (in Rs.) -------------------------------------------------------------------------------------------------- 1997-98 1,14,68,567 16,37,583 4,56,746 65,503 5,28,240 5,28,240 -------------------------------------------------------------------------------------------------- 1998-99 68,92,446 10,11,936 2,75,556 40,478 3,16,456 8,44,696 -------------------------------------------------------------------------------------------------- 1999-00 1,31,69,587 5,59,011 5,26,784 22,848 5,49,632 13,94,328 -------------------------------------------------------------------------------------------------- 2000-01 1,50,13,133 21,93,022 6,00,526 87,721 6,88,247 20,82,575 -------------------------------------------------------------------------------------------------- 2001-02 87,92,030 46,32,748 3,51,681 1,85,310 5,36,991 26,19,566 -------------------------------------------------------------------------------------------------- According to the petitioner, as per the aforesaid calculation, it is entitled to get Rs. 26,19,566 till March 31, 2002 as against Rs. 26.20 lakhs. But the assessing authorities while making the assessment have calculated the sales tax exemption, at a higher rate, i.e., 12 per cent in case of finished goods and eight per cent and 12 per cent in case of raw materials and concluded the assessment. Against the aforesaid order of assessment, the petitioner preferred first appeal, which was carried to the Tribunal in second appeal, which confirmed the order of assessment as well as the appeal. The following questions of law are raised to be answered before this court : "(A) Whether for the purpose of computing the ceiling for exemption of sales tax, the authorities are correct to compute it at a rate of tax for goods, (which it does not purchase or sell) which is higher and reject the rate applicable to it (for what it purchases and sells) ? (B) Whether the two issues in para A above are correct and if so the one that favours the assessee was correct to be rejected ?" The undisputed facts are : (a) The petitioner is eligible to get benefit under the IPR 1996. (b) The petitioner is a new industry and started commercial production after April 1, 1997 and was granted permanent registration certificate on May 14, 1997. (c) It has invested Rs. 26.20 lakhs. (d) Entry 48 provided the rate of tax at 4 per cent on : "Goods of the class or classes, specified in certificate of registration of the registered dealer purchasing of goods as being intended for use by him in the manufacture or processing or packing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power, subject to the production of true declaration by the purchasing registered dealer or his authorized agent in form IV (July 1, 1990 to March 31, 2001)" and by Notification No. 14687-CTA-37/2001 (Ct) I dated March 31, 2001 with effect from April 4, 2001 wherein entry 81 on : "goods of the class or classes other than (petrol, cement, stationery goods, ginger, tincture, cosmetic perfumes) air conditioner, furniture, carpet, telephones, India made foreign liquor (IMFL) or any liquor specified in the certificate of registration of the registered dealer purchasing the goods as being intended for use by him in the manufacture or processing of goods for sale or in mining or in the generation or distribution of electricity or any other form of power subject to the production of true declaration by the purchasing registered dealer or his authorized agent in form IV. Subs. for 'paper, petrol, diesel oil' with effect from March 1, 2002 (MIN 270)" (e) The petitioner purchases raw material either against form IV under the OST Act or against form C under the Central Sales Tax Act and the said raw materials, from which it manufactures the cardboard boxes and which are used as packing material by purchasers in packing their goods bears the tax item of four per cent. The computation of the petitioner is noted in the foregoing paragraphs. Now, let us have a look at the order of the Sales Tax Officer for the aforesaid assessment year. The computation of the petitioner is noted in the foregoing paragraphs. Now, let us have a look at the order of the Sales Tax Officer for the aforesaid assessment year. The finding of the Sales Tax Officer is that a person availing of the benefits of exemption under one notification cannot avail of the benefits of concession coming under another section, i.e., to say, according to the Sales Tax Officer, when an assessee claims exemption as per the IPR 1996 and purchases raw material against declaration in form IV and also sells his finished product against the declaration in the same form, the claim for adoption of tax at the rate of four per cent against his purchase and sale for calculation of tax amount is impermissible. So far as the sales and purchase made against the declaration form IV are subject to concessional rate of tax at four per cent under entry 48 of the List C of the rate chart made under the OST Act. According to him, two tax benefits cannot be granted simultaneously. It is alleged that an assessee while enjoying the tax holiday under the IPR cannot be permitted to claim concessional rate under entry 48 of List C of the rate chart, while computing the rate of tax against which he availed of exemption. Therefore the Revenue has adopted the full rate of tax, i.e., eight per cent and 12 per cent on purchase/sale respectively. The aforesaid order was confirmed by the appellate court, so also by the Tribunal. In paragraph 5(b), the Tribunal held that : "There is no provision in the OST Act or in the Rules made thereunder to restrict a dealer from availing of the benefit of a concessional rate of tax while enjoying exemption under IPR, 1996. If the Revenue finds that concessional rate of tax cannot legally be claimed by or granted to a dealer while he enjoys a tax holiday under the IPR, the Revenue should cite provisions of law for such restriction, basing on which the claim of the appellant shall be denied. If the Revenue finds that concessional rate of tax cannot legally be claimed by or granted to a dealer while he enjoys a tax holiday under the IPR, the Revenue should cite provisions of law for such restriction, basing on which the claim of the appellant shall be denied. But since the denial of the claim is based on no legal provision, the finding in this regard of the fora below is quashed." The petitioner has placed reliance upon a judgment of the Gujarat High Court in the case of Ardeec Engineering (Saurashtra) Pvt. Ltd. v. State of Gujarat [2000] 117 STC 178. In the facts of the present case, we have to consider the basis on which the assessee is entitled to claim exemption, what is the mode and scope of the provision under which the demand of exemption availed of is to be worked out with reference to different provisions of the OST Act. In the aforesaid case, the self-same stand, as taken by the Revenue herein, was raised for consideration. It is worthwhile to note the conclusion reached by the Gujarat High Court in paragraphs 25 and 26 of the judgment which are quoted hereinbelow : "25. The law is also settled that if on plain reading a larger relief is granted on a subject, the same cannot be restricted merely on the ground that it results in obtaining a double advantage though, as will be presently seen, that the interpretation which has commended us does not result in any double advantage. On the contrary, if any other view is taken, it would result in creating two different classes with different advantage under the incentive scheme which was not even envisaged. Under sales tax incentives envisaged under Resolution No. INC-1580-1766/PPD of Industries, Mines and Power Department dated August 27, 1980, vide its clause 6 to all industrial units eligible as per its terms had option to choose one of the two sales tax incentives, (i) sales tax exemption incentive, (ii) sales tax deferment incentive. Under sales tax incentives envisaged under Resolution No. INC-1580-1766/PPD of Industries, Mines and Power Department dated August 27, 1980, vide its clause 6 to all industrial units eligible as per its terms had option to choose one of the two sales tax incentives, (i) sales tax exemption incentive, (ii) sales tax deferment incentive. Common feature apart from eligibility is that incentive under both the schemes is available to a maximum limit of amount fixed under it and such limit is to be fixed with reference to prescribed percentage of fixed capital investment in the case of new industrial undertaking or in case of expansion or diversification with reference to new investment in fixed assets and that a time-limit is fixed within which such incentive is available. If a unit reaches the admissible amount before the time-limit fixed, it will not be eligible for incentive thereafter. With these common conditions, it is for the eligible industrial unit to exercise option in writing before availing of the incentive benefit. The eligibility and the conditions of tax advantage has been equally envisaged on the same basis in the case whether the assessee opts for deferment scheme or for exemption scheme. The extent of advantage offered in both the scheme is the same except that in one case the assessee collects the tax payable by him on the transactions, keeps it with him and hands over the same to public exchequer at a later stage at a point of time envisaged under the scheme without interest charge thereon whereas in the case of exemption scheme the assessee is not subjected to tax leviable on him and he cannot collect the same. In either case dealer enjoys benefit to the extent tax collected by him or tax leviable from him. Assuming other factors to be same, result cannot lend to different extent up to which exemption is availed by the dealer on the basis of option exercised by him. 26. We may examine the issue from yet another angle. The assessee has either to accept a tax deferment scheme or exemption from tax payment. In case he opts for exemption, the assessee enjoys exemption from payment of tax altogether and he cannot collect the tax on taxable events until reaching exemption limit. 26. We may examine the issue from yet another angle. The assessee has either to accept a tax deferment scheme or exemption from tax payment. In case he opts for exemption, the assessee enjoys exemption from payment of tax altogether and he cannot collect the tax on taxable events until reaching exemption limit. However, in the case of deferment scheme assessee does not enjoy exemption from payment but merely enjoys the benefit of retaining the amount of tax collected by him on his turnover for eligible period and thereafter he has to hand it over to the public exchequer as per the instalments contemplated under the scheme. Conditions which make a dealer eligible for benefit of incentive scheme are the same in either case. If he opts for deferment scheme, his regular assessment takes place and tax leviable from him is determined in accordance with provisions of the Act. But the same is not collected from him immediately. He is granted exemption only in respect of tax leviable and collected by him in accordance with regular assessments. Any benefit enjoyed by him during that period whether by way of permissible deductions from the taxable turnover or exemptions under various notifications, the same are duly taken into account and are not left out of consideration for the purpose of computing what is the amount of tax found to be paid by the assessee. That is the tax leviable from a specified manufacturer on his turnover without considering exemption under entry 118. It cannot be said that for the purpose of computing benefit under deferment scheme, tax leviable from the specified manufacturer on his sales would be different in the case of an assessee who has opted for deferment scheme than the one who has opted for tax exemption scheme by treating in the course of assessment turnover covered under section 7(iii) differently. This will lead to a situation where benefit limit availed of will differ in two cases in same set of facts concerning turnover of sales of specified manufacturer. The result emanating from accepting the Revenue's contention would be to make the two exemptions operating on the same plain differently in the case of two different assessees in the manner of computing the adjustment of taxable income depending on exercise of their option, when there is no such foundation for different treatment in the scheme itself. The result emanating from accepting the Revenue's contention would be to make the two exemptions operating on the same plain differently in the case of two different assessees in the manner of computing the adjustment of taxable income depending on exercise of their option, when there is no such foundation for different treatment in the scheme itself. That obviously cannot be the outcome of a fair and harmonious interpretation of a statute. On principle, unless there is clear provision, a construction which leads to such dichotomy has to be avoided." We have further come across a Division Bench judgment of the Kerala High Court on the self-same issue in the case of P. Narendra Menon v. State of Kerala [2009] 23 VST 66. In view of the facts and submissions noted hereinabove and in the light of the case law cited, we are of the considered opinion that when the State Government issues a notification for providing concession in tax, it would be assumed that the Government is well aware of the concessions otherwise available to the dealer under the Act and whatever is given under the notification is over and above what is provided under the statute. In other words, when the benefit under the IPR, 1996 was promulgated with new industries becoming entitled to exemption from sales tax on sales and purchases, it has to be assumed that the State Government was well aware of the concessions otherwise available to dealers under the OST Act, 1947 and that the benefits under the IPR, 1996 were over and above what was provided for under the OST Act. We are of the considered view that if we accept the contention of the Revenue, then the alternative benefit of either exemption or deferment, would result in differing benefits to the assessee who have opted for alternative benefit of exemption or deferment. The result emanating from accepting the Revenue's contention is to make two exemptions "exemption or deferment" operate differently depending on their option. We are of the view that there exists no foundation for different treatment under the scheme itself, i.e., exemption or deferment. Therefore, in the absence of clear provision permitting different treatment to persons who opted for "exemption or deferment" on a fair and harmonious interpretation of statute such dichotomy has to be avoided. We are of the view that there exists no foundation for different treatment under the scheme itself, i.e., exemption or deferment. Therefore, in the absence of clear provision permitting different treatment to persons who opted for "exemption or deferment" on a fair and harmonious interpretation of statute such dichotomy has to be avoided. Accordingly, we allow this tax revision in favour of the assessee by holding that the tax liability of the petitioner has to be reassessed and determined afresh in accordance with the provisions of the OST Act, requiring computation of taxable turnover, in accordance with law, without reference to the exemption under the IPR, 1996. The re-computation be done in terms of our directions within a period of three months from the date of receipt of certified copy of this judgment. I. MAHANTY, J. - I agree.