CIVIL APPELLATE JURISDICTION: Civil Appeal No. 830 of 1988.
From the Judgment and Order Dated 7.12.1987 of the Allahabad High Court in Civil Misc. No. Nil 1987. A.K. Ganguli and Sunil Kumar Jain for the Appellant.
Gopal Subramanium and Ashok K. Srivastava for the Respondents. The Judgment of the Court was delivered by
RANGANATHAN, J. The petitioner is a concern engaged in the business of manufacture of electric motors, pump sets and their parts. It applied for exemption from sales tax in respect of the goods manufactured by it in terms of a notification issued by the State Government on 30.9.1982 under section 4A of the Uttar Pradesh Sales Tax Act, 1948 (hereinafter called the ’Act’). This application was rejected by a Division Level Committee by an order dated 9.2. 1987 and a further review application was also dismissed on 27.10.1987. Thereupon the appellant filed a writ petition which was also rejected by the High Court by a short order dated 7.12.1987. Aggrieved by this denial of the exemption, which it claims it is entitled to, the appellant has preferred this appeal.
Section 4A of the Act reads as under:
"4-A. Exemption from sales tax of certain
goods for specified period--
(1) Notwithstanding anything co-
tained in section 3 or section 3-A, where the
State Government is of the opinion that it is
necessary so to do for increasing the produc-
tion of any goods or for promoting the devel-
opment of in any districts or parts of dis-
tricts in particular, it may on application or
otherwise, by notification, declare that the
turnover of sales in respect of such goods by
the manufacturer thereof shall, during such
period not exceeding seven years from the date
of starting production by such manufacturer,
and subject to such conditions as may be
specified, be exempt from sales tax or be
liable to tax at such reduced rate as it may
fix.
(2)It shall be lawful for the State
Government to specify in the notification
under sub-section (1) that the
exemption from, or reduction in, the rate of
tax shall be admissible--
(a) generally in respect of all such goods
manufactured subsequent to the date of such
notification; or
(b) in respect of such of those goods only as
are manufactured in a new unit, the date of
starting production whereof fails on or after
the first day of October, 1982; or
(c) only if the manufacturer had not discon-
tinued production of such goods for a period
exceeding six months at a stretch in any
assessment year.
Explanation--For the purposes of this
section--
(i) ’new unit’ means a factory or workshop
using machinery, accessories or components not
already used or acquired for use in any other
factory or workshop in India but does not
include any factory or workshop established on
the site of an existing factory or workshop
manufacturing the same goods or any addition
to or extension of an existing factory or
workshop; and
(ii) ’date of starting production’ means the
date on which any raw material required for
use in the manufacture or packing of the
specified goods is purchased for the first
time or the date of installation of power
connection, where needed, whichever is later.
In pursuance of the above section, the State Government published a scheme for the grant of exemption from sales tax to certain industrial units in the State. The scheme, according to its introduction, had been introduced "in order to encourage capital investment and establishment of new industrial units in the State". It granted exemption to the industrial units established in certain areas of the State during the period from 1.10.1982 to 31.3.1985 and producing certain categories of goods. It is not necessary to refer in detail to the provisions of the scheme or other conditions of exemption. It is sufficient to say that this exemption was conferred only on units established on or after 1.10.1982 but before 31.3.1985. The scheme also makes it clear that though it referred to units "established" this really is a reference to the date of commencement of production by the industrial unit. This is also in accord with the terms of the statute and in particular sub-section (2) of 4A. The appellant’s claim to exemption has been rejected on a very short ground, namely, that it had not commenced production after 1.10.1982.
In the application filed by the appellant for exemption the appellant had mentioned that the date of actual commencement of use of electricity for production was the 4th of December, 1982, which was also the actual date of commencement of production. The appellant also claimed that upto 30.9.1984 it had produced and sold electric motor parts for Rs.2,70,590. The General Managers of the District Industrial Centers at Deoband and Saharanpur and the Assistant Engineer of the Industrial State of Roorkee endorsed the following recommendation on the application:
" ....... I have checked with the use of
power and other sources that the unit started
actual production from 4.12.1982 and the
production made is self manufactured and is
within the prescribed production capacity. 1
am fully satisfied with the facts produced by
the Unit and I recommend that this unit is
eligible to get exemption from sales tax/inter
state sales tax ...... with effect from date
of production commencement for 5-6-7 years
under section 4-A of the Sales Tax Act vide
G.O. No. 8244-Bha/18-11-231(A)Bha/39, dated
30.9.82."
The difficulty in the appellant’s way appears to have been created by a certificate which had been produced by it before the Division Level Committee along with its application. This purported to be a certificate by a firm known as Krishna Trading Co. (in which the proprietor of the appellant was a partner). This certificate dated 4.12. 1981 reads as follows:
"It is certified that the Trial Production of
Kupla Bhatti was made today is 4.12.1981
expenses for which were incurred by our compa-
ny by purchasing raw material for its own ex-
penses under the agreement dated 15.5.1981
entered into. M/s Janta Machine Tools was
assured by the company to supply very soon all
the remaining machines and installing them and
making its trial production at its own ex-
penses." The Division Level Committee, while rejecting the application dated 9.2.1987, essentially gave only one reason for the rejection. It was stated that the date of the alleged trial production was really the date of commencement of production and this fell prior to 1.10.1982.
As stated earlier the assessee preferred a review application pointing out that the trial production could not be treated as commencement of actual production. This review application was disposed of on 27.10.1987. In its order the Committee observed:
"On joint inquiry into the reality of your
unit being conducted by the General Manager
and sales tax officer of Deoband Industries
Department they have reported that Shri Suresh
Datt Sharma the proprietor of M/s Janta Ma-
chine Tools is partner of one third share in
M/s Krishna Trading Company also. No purchase
of raw material was declared by M/s Krishna
Trading Company in the year 198 1-82, and
therefore, the certificate of trial production
issued by M/s Krishna Trading Company on 4.12.
1981 is baseless and untrue. In joint inquiry
report it is also clear that your unit has
purchased from M/s Krishna Trading Company
Kupla etc. of Rs.69,000 on 21.5.81, whereas
M/s Krishna Trading Company have declared sale
of Rs. 13,035 only in 198 1-82 as per file of
the Sales Tax Department. In the joint inquiry
Report it is also mentioned that your unit got
electricity on 21.11.1982 and on inquiry the
unit informed that the trial production was
done with the help of a generator. Your unit
could not give any certificate for purchasing
or hiring a generator and now it has declared
to have hired the generator for 4-5 hours from
M/s Mitra Industries Deoband. In the inquiry
report it is also made clear that a unit
cannot use a generator of other unit without
prior permission of the electricity depart-
ment.
xx xx
xx
On the above discussion it is concluded that
the unit in question wants to (get) illegal
benefit of exemption from sales tax by produc-
ing wrong facts. The trial production done by
M/s. Krishna Trading Company on 4.12. 1981 is
proved to have been done by the unit in ques-
tion itself and not by them. Thus, the unit
was established before l. 10.82. The unit
established before 1.10.82 is therefore not
entitled to exemption from sales tax."
In our opinion, the rejection of the assessee’s application proceeds on a total misconception of the facts. The conclusion of the Division Level Committee is that production was commenced by the appellant on 4.12.81 but this conclusion is based on no evidence. It is true that the appellant produced a certificate showing that some production was done on 4.12. 1981 but the appellant’s case was that this was merely a trial production. It is not quite clear whether the District Level Committee completely doubts any trial production having taken place at all, or whether its conclusion is that there was a trial production, on 4.12.1981. If its conclusion is the former one, it does not affect the appellant’s claim. Assuming that the Committee has come to the conclusion that the production on 4.12.81 was conducted not by M/s Krishna Trading Company but by the appellant itself, the fact still remains that what had happened on that date was only trial production. The mere fact that a certificate by M/s Krishna Trading is disbelieved cannot lead to the conclusion that the assessee had produced goods on 4.12.81. If one is to go by the definition contained in the explanation to section 4A for determining when the production started, one has to concentrate on the date of purchase of raw materials or on the date on which the electricity was brought into use for commercial production. The appellant’s claim that it had manufactured goods by 30.9.1984 is not denied. Production had, therefore, commenced before 31.3. 1985. There is no suggestion by the Department or the Committee, and there is no material to show that the appellant had purchased raw materials sufficient to carry out normal commercial production at any time prior to 1.10.82. It is an admitted fact that the assessee was able to obtain electricity for use for commercial production only in November 1982. This lends support to the appellant’s contention that the production could not have been effected by the assessee prior to that date. In fact, this is a point on which emphasis is laid in the order dated 27.10.1987. That being so, there is no iota of evidence or material on the basis of which the appellant’s claim that it had started production in December 1982 could have been rejected. On the other hand, the recommendation and endorsement of the General Manager, District Industries Centre, which has been extracted earlier, also supports the appellant’s contention that it had started production on 4.12.1982 and this report was given after verifying the actual position on the spot.
For the reasons above mentioned we are of the opinion that the denial of the exemption to the appellant under the notification dated 30.9.82 was not justified. The rejection of the appellant’s application in this regard is quashed and the appellant is declared entitled to the exemption in terms of the notification. We should not be understood, however, to have expressed any opinion as to the amount of exemption available to the appellant under the notification. That will be a matter for consideration of the authorities in respect of each of the years concerned in respect of which the claim is made for exemption.
The appeal stands allowed, but in the circumstances, we make no order as to costs. G.N. Appeal allowed.