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2011 DIGILAW 1220 (KER)

Victory Paper Board India Ltd v. State of Kerala

2011-12-23

P.R.RAMACHANDRA MENON

body2011
JUDGMENT P.R. Ramachandra Menon, J. 1. Denial of Sales Tax exemption as per S.R.O.1729/93 issued in exercise of the power under S.10 of the K.G.S.T. Act, in respect of capital investment towards 'plant and machinery', holding that the 'second-hand' machinery 'imported from abroad' is not eligible for such exemption, is the subject matter of challenge in these cases. 2. The relevant orders passed by the Original and Appellate Authorities, followed by Ext.P12 Demand Notice in respect of the assessment years 1999-2000 to 2004-05, are under challenge in W.P.(C) 6561 of 2007; while Ext.P14 Demand Notice in respect of the claim for deferment of tax for the assessment year2005-06, pursuant to enactment of K.V.A.T. Act and the enabling provision under S.32 therein, is sought to be challenged by the very same petitioner in the other Writ Petition - W.P.(C) 7206 of 2007. Reference is made to the parties and documents, as described in W.P.(C) 6561 of 2007, except where it is mentioned otherwise. 3. The petitioner is a Public Limited Company incorporated under the relevant provisions of the Indian Companies Act, 1956, which is a Medium Scale Industrial unit engaged in the manufacture of paper and paper boards used for writing, printing and such other purposes and is an assessee under the K.G.S.T. Act, 1963 and K.V.A.T. Act, 2003. 4. In exercise of the power under S.10 of the KGST Act, Notification bearing No S.R.O.1729/93 was issued by the first respondent/Government, providing for exemption from sales tax for the fixed capital investments of the newly set up industrial units, enabling such units to enjoy the benefit to the extent as prescribed therein. As per the said Notification, in the case of new industrial units under Medium and Large Scale Industries. there shall be an exemption for a period of 'seven years' from the date of commencement of commercial production, in respect of the tax payable by such units under the K.G.S.T. Act, 1963 on the turnover of the sale of goods manufactured and sold by them within the State and on the turnover of the goods taxable at the point of last purchase in the State, which are used by such units for manufacturing other goods for sale within the State or interstate and the aggregate exemption in respect of sales tax, purchase tax, surcharge and central sales tax together shall not exceed 100% of the fixed capital investment. As per clause 11 (vii) of the aforesaid Notification, the 'Fixed Capital investment of a Unit' means the total investment of land (including land development cost), building, plant and machinery, power generating system, delivery vehicles and the like "required for the industrial purpose". 5. The petitioner Industrial Unit was set up and commercial production was commenced on 18.05.1999. By virtue of the benefit provided under the Notification S.R.O.1729/93, the petitioner submitted Ext.P1 application for tax exemption in respect of a total sum of ` 9,52,66,694/- under 7' items, which are stated as included in the definition of 'Fixed Capital Investment' of the Notification. However, the third respondent reckoned the eligibility of the petitioner only to an extent of ` 3,15,46,833/- vide Ext. P2; aggrieved of which Ext. P6 appeal was preferred before the State Level Committee headed by the second respondent, on 13.08.2003. It was contended among other things, that the petitioner was entitled to have exemption in respect of the entire value of the machinery certified by the Chartered Accountant to an extent of ` 4,46,47,211/-, in the light of relevant bills and documents certified by the auditor, as produced along with the application. The case of the petitioner was that, exemption allowed by the Notification contemplates only the investments of the industry and the fact that the machinery was a 'second hand' one has no significance, as the value of the same to the extent as certified was liable to be counted as capital investment for setting up the unit. Since nothing transpired after filing the appeal, the petitioner approached this Court by filing W.P.(C) No. 1065 of 2004, which was disposed of as per Ext.P7 judgment directing to have the matter considered and finalized by the appellate authority. The appeal was rejected by the second respondent holding that the value of the 'second hand' machinery, whether imported or indigenous, was not admissible. But subsequently, on filing review, the matter was re-considered by the appellate authority, whereby additional exemption to an extent of ` 68,74,748/- was allowed as borne by Ext. P11 Revised Eligibility Certificate; by virtue of which, the petitioner was granted exemption to a total extent of ` 3,88,84,481/- and the rest was denied. The petitioner was served with Ext. But subsequently, on filing review, the matter was re-considered by the appellate authority, whereby additional exemption to an extent of ` 68,74,748/- was allowed as borne by Ext. P11 Revised Eligibility Certificate; by virtue of which, the petitioner was granted exemption to a total extent of ` 3,88,84,481/- and the rest was denied. The petitioner was served with Ext. P12 demand notice referring to the figures, as above and the balance tax of ` 55,97,433/- was demanded as the arrears for the period from 1999-2000 to 2004-05, which is under challenge in the former Writ Petition. In respect of the subsequent year, by virtue of the mandate under S.32 of the K.V. A.T. Act, brought into force with effect from 1.3.2005, the petitioner contended that he was eligible for deferment. But in view of sequence of events leading to rejection of the claim in respect of the imported 'second hand' machinery, leading to Ext.P 12 demand notice for the period 1999-2000 to 2004-05, the balance liability for the year 2005-06 was demanded as per Ext.P 14 in W.P.(C) 7206/2007, which in turn is under challenge in the said Writ Petition. 6. The second respondent has filed counter affidavit in both the Writ Petitions, while the 4th respondent has filed a separate counter affidavit in W.P.(C) 7206 of 2007. The crux of the counter affidavit filed from the part of the respondents is that the petitioner is not entitled to have exemption in respect of 'imported second hand machinery" under S.R.O.1729/93 and that as per para 10' of the Manual (G.O.(Ms)169/95/ID dated 1.11.1995), it is stated that all brand new identifiable item of plant and machinery including tools, jigs, dies and moulds shall be eligible for Sales Tax Exemption; while the second hand machinery items will not qualify for the same. 7. Mr. Raju Joseph, the learned Sr. Counsel appearing for the petitioner submits that the case of the petitioner in both these cases will stand confined to the claim only in respect of the machinery imported (second hand), and used for setting up the unit. The learned Sr. Counsel submits that there is absolutely no basis for rejection of the claim in so far as the Notification S.R.O.1729/93 does nowhere stipulate that exemption is not available in respect of second hand machinery of Medium and Large Scale Industrial units. The learned Sr. Counsel submits that there is absolutely no basis for rejection of the claim in so far as the Notification S.R.O.1729/93 does nowhere stipulate that exemption is not available in respect of second hand machinery of Medium and Large Scale Industrial units. It is also stated that the adverse entry in this regard specified in the notification is only in respect of such second hand machinery of "sick industrial units". The learned Sr. Counsel also submits that no reliance can be placed by the respondents on the Manual for the obvious reason that the Notification S.R.O.1729/93 is a statutory notification, which cannot be overridden or re-written or watered down by a Circular or Manual or by such other proceedings. Reliance is mainly sought to be placed on the decisions rendered by the Supreme Court in (2008) 14 SCC 336 (Sandur Micro Circuits Limited v. Commissioner of Central Excise, Belgaum), (2007) 2 SCC 743 {State of Karnataka v. Balaji Computers & Ors.). It is further submitted that the Manual (G.O.(Ms) 169/95/ID dated. 01.11.1995) was never notified and that the same cannot bar the way of the petitioner in claiming exemption under any circumstance. 8. The learned Government Pleader appearing for the respondents submits that the petitioner is not entitled to have any relief. It is pointed out that S.R.O.1729/93 does never provide to reckon the capital investment in respect of 'second hand' machinery and it has been clarified in para 10 of the Manual as aforesaid. It is also stated that the Manual was issued as early as on 01.11.1995 and since the petitioner commenced commercial production only in the year 1999, the party was very much aware of the position as above. It is further stated that the State, by virtue of the power under Art. 162 of the Constitution of India, is entitled to prescribe the conditions for granting the benefit of exemption and in the said circumstance, the Manual issued in this regard is well within the power and competence of the authorities concerned. Reliance is sought to be placed on the decision rendered by the Supreme Court in 2007 (2) KLT 680 (SC)=2007(2) KHC 803, (Secretary to Government & Ors. Reliance is sought to be placed on the decision rendered by the Supreme Court in 2007 (2) KLT 680 (SC)=2007(2) KHC 803, (Secretary to Government & Ors. v. M/s. Peekay Re-Rolling Mills (P) Ltd), wherein it has been held that the State Government has the authority to issue comprehensive Government Orders withdrawing the tax exemption on account of acute power shortage in the State. 9. Going by the materials on record including the undisputed pleadings, there is no controversy with regard to the factual aspects, particularly as to the machinery or the value thereof, which were imported by the petitioner from abroad and the nature as of a 'second hand' one. The relevant bills of entry and such other documents pertaining to the customs duty, the valuation certificate issued by the auditors, etc., have been produced before the concerned respondents. The only dispute for granting exemption for the machinery is that, 'second hand machinery' whether imported or indigenous, is not liable to be reckoned as within the purview of S.R.O.1729/93. A copy of the said notification is placed before this Court for perusal. Despite an exhaustive analysis, no specific provision in the said notification excluding value of 'second hand machinery' imported from abroad in respect of Medium and Large Scale industrial Units is brought to the notice of this Court from the part of the respondents. 10. Clause 11 of S.R.O. 1729/93 deals with "Explanations" and sub-cl. (vii) thereunder defines the "Fixed Capital Investment of a Unit" which reads as follows: "(vii) 'Fixed capital investment of a Unit' shall mean the total investment of land including land development cost, building, plant and machinery, power generating system, facilities and equipments for Research and development and quality control, standby equipments like standby generator, standby steam boiler, pollution control system delivery vehicles and the like required for the industrial purpose." On the other hand, the only stipulation wherein exemption is stated as not available in respect of 'second hand machinery', is in the case of 'Sick Small Scale Industrial units', as given under sub-cl.(viii) of Cl. 11, which reads as follows: "In computing the cumulative gross fixed capital investment of Sick Small Scale Industrial Units, second hand machinery and equipments procured within the State shall not be considered." From the above, it is clear that incorporation of the clause excluding the 'second hand' machinery in respect of Sick Small Scale Industrial units was pursuant to a conscious exercise pursued by the Government, who did not think it fit, proper or necessary to have incorporated any such clause in respect of 'Medium and Large Scale' industries. It has also to be borne in mind that the above notification was issued as a matter of policy, with an intent to promote more and more industries and to bring in more and more investments in the industrial sector. Since no such exclusion clause was there in respect of 'Medium and Large Scale' industries and if beneficiaries like the petitioner have invested amounts for setting up such industries, availing the benefit of tax exemption for the stipulated term of seven years as per the notification, it is not correct or proper for the respondents to contend that no such benefit of exemption will be given to persons like petitioner for want of any specific provision in the notification enabling to reckon second hand machinery as well. The question to be considered is whether the 'statutory notification' debars the value in respect of 'second hand machinery' from being reckoned. It can be answered only in the negative. 11. The scope of exemption under different notifications relating to 'turn over tax' under the Karnataka Sales Tax Act had come up for consideration before the Apex Court in State of Karnataka v. Balaji Computers ( (2007) 2 SCC 743 ). The observation made by the Apex Court in paragraph 35 is relevant, which is extracted below: "From the principle enunciated by this Court in the decisions referred to above, it is clear that the language employed in the exemption notifications and items in respect of which exemption had been given, had to be understood in the context in which exemption notification came to be issued. In case there is any doubt that if the language employed in exemption notification admits of two views and is not clear and ambiguous, the Division Bench in the impunged judgment aptly observed, the view which is beneficial to the assessee, will have to be taken." As made clear the Apex Court, if there is any doubt in the language employed in the exemption notification and two views are possible because of ambiguity or obscurity, only the views beneficial to the assessee has to be taken and as such, the scale tilts more in favour of the petitioner herein. 12. True, Cl.10 of the Manual bearing G.O.(Ms) 169/95/ID Dated 01.11.1995 suggest something contrary, which reads as follows: "All brand new identifiable items of plant and machinery including tools, jigs, dies, and moulds shall be eligible for tax exemption. All claims in this regard shall be supported by a certificate by the Chartered Accountant. In case if items where materials are bought and fabricated in house, the cost should be certified by the Chartered Accountant with regard to cost of materials and fabrication charges and by a Chartered Engineer with regard to the value of the fabricated plant and minimum of these shall be taken (plant and machinery on hire purchase from NSC shall be eligible for tax exemption on the basis of original value.). No vehicles, other than delivery vehicles, items of office equipment and furniture, crates, pallets and consumable stores will be eligible for tax exemption. Second hand machinery items will not qualify for tax exemption." But the question to be considered is whether the said Manual can have any overriding effect on the statutory notification. G.O. (Ms) No. 169/95/ID dt. 1.11.1995 approving the Manual for Sales Tax Exemption reads as follows: "The Director of Industries and Commerce, Thiruvananthapuram in his letter read above has forwarded a draft Manual for Sales Tax Exemption for approval by Government. The Manual for Sales Tax Exemption is meant to those connected with the matter including industrialists to have an awareness of the concessions available etc." From the above, it is clear that the purpose of the Manual was only to make an awareness of the concessions available under the Notifications. It was in the said circumstance, that approval was given by the Government in respect of the contents of the letter written by the Director of Industries, Thiruvananthapuram in this regard. It was in the said circumstance, that approval was given by the Government in respect of the contents of the letter written by the Director of Industries, Thiruvananthapuram in this regard. In other words, this Court cannot re-write the notification issued by the Government or modify or water down the different heads of exemption contained in the statutory notification issued in exercise of the power conferred under S. 10 of the K.G.S.T. Act. This Court finds support from the law laid down by the Apex Court in this regard, as per the decision reported in (2008) 14 SCC 336 (Sandur Micro Circuits Limited v. Commissioner of Central Excise Belgaum), the operative portion of which, at paragraph 6', is extracted below: "6. The issue relating to effectiveness of a circular contrary to a notification statutorily issued has been examined by this Court in several cases. A circular cannot take away the effect of notifications statutorily issued. In fact in certain cases it has been held that the circular cannot whittle down the exemption notification and restrict the scope of the exemption notification or hit it down. In other words, it was held that by issuing a Circular a new condition thereby restricting the scope of the exemption or restricting or whittling it down cannot be imposed. The principle is applicable to the instant cases also, though the controversy is of different nature." That apart, it has never been brought to the notice of this Court from the part of the respondents whether the aforesaid Manual was ever published in any manner, to make the beneficiaries like the petitioner to be aware of its contents. 13. In the above circumstances, this Court finds that the petitioner is entitled to succeed. The impugned orders - Exts.P8 and P12 in W.P.(C)No.6561 of 2007 and Ext.P14 in W.P.(C) No.7207 of 2007 - are set aside. It is declared that the petitioner is entitled to have exemption provided under the Notification S.R.O. No. 1729/93 in respect of 'Plant and Machinery', notwithstanding the fact that the Machinary purchased and installed is a 'second hand' item; to the extent its value is duly certified as correct. The respondents are directed to re-fix the liability, if any, granting the benefit of exemption to the above extent as well. The respondents are directed to re-fix the liability, if any, granting the benefit of exemption to the above extent as well. The proceedings in this regard shall be finalised in accordance with law, as expeditiously as possible, of course after giving an opportunity of hearing to the petitioner and the outcome shall be communicated to the petitioner within three months from the date of receipt of a copy of the judgment. Both the Writ Petitions are allowed. No cost.