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VAT (Value Added Tax)

 

Judgements relating to Value Added Tax

full text

SUPREME COURT- State of Haryana Versus M/s. A.S. Fuels Pvt. Ltd. - dated August 20, 2008

Under sub-rule 8(b) when the eligibility certificate is withdrawn, the exemption/entitlement certificate is also deemed to have been withdrawn from the first day of its validity and the unit shall be liable to payment of tax, interest or penalty under the Act as if no entitlement certificate had been ever granted to it. The only other question which is required to be examined is the benefit of Rule 11(a). A bare reading of the same shows that the benefit of tax exemption/deferment under the Rule shall be subject to the condition that the beneficiary/industrial unit after having availed all the benefit shall continue its production for at least next five years not below the average production for the preceding five years. Clause (b) of the sub rule is of considerable significance; it shows that in case the unit violates any of the conditions laid down in clause (a) it shall be liable to make in addition to the full amount of the benefit availed of by it during the period of exemption/deferment, payment of interest chargeable under the Act as if no tax exemption/deferment was ever available to it. The proviso is also of significance. It provides that the provisions of clause (b) shall not come into play if the loss in production is explained to the satisfaction of the DETC concerned as being due to reasons beyond the control of the unit. Thus there are several conditions which are relevant; firstly there is a requirement of continuing the production of at least next five years; secondly consequences flowing in case of violation of the conditions laid down in clause (a). In other words, in case of non-continuance of production for next five years, the result is that it shall be deemed as if there was no tax exemption/entitlement available to it. The proviso permits to the dealers to explain satisfactorily to the DETC that the loss in production was because of the reasons beyond the control of the unit. The materials have to be placed in this regard by the party. The High Court seems to have completely lost sight of Rule 11(b). So the demand even for the period of production was rightly created. The order of the High Court reversed.

 

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5386 OF 2002

State of Haryana & Ors. ...Appellants

Versus

M/s. A.S. Fuels Pvt. Ltd. & Anr. ...Respondents

With
CIVIL APPEAL NO.5149 /2008
(Arising out of SLP (C ) No. 26523 of 2004)

with

CIVIL APPEAL NO. 676 OF 2005

JUDGMENT

Dr. ARIJIT PASAYAT, J.

 

1. Leave granted in SLP (C) No. 26523 of 2004.

 

2. Challenge in these appeals is to the order of a Division

Bench of the Punjab and Haryana High Court holding that the

cancellation of exemption certificate after its validity period
was over on 30.6.1997 did not attract the provisions of clause

(v) of sub Rule 10 of Rule 28 (A) of the Haryana General Sales

Tax Rules, 1975 (hereinafter referred to as the `Rules').

According to the High Court, it was clearly not a case of

cancellation of exemption certificate because it was done after

expiry of the period. In that view of the matter, it was held

that the Deputy Excise and Taxation Commissioner (in short

the `DETC') was not justified in directing the respondent to

deposit an amount of Rs.40,45,324/- in respect of the

exemption availed of by it for the period up to 30th June, 1997.

The High Court did not think it necessary to examine whether

sub rule 10(v) of Rule 28(A) in so far as it empowers the

department to withdraw the tax exemption certificate was

valid or not. However, liberty was granted to the present

appellants, if there was a case for withdrawal of the eligibility

certificate under sub-rule (8) of Rule 28A of the Rules, to

proceed in accordance with law.

 

3. The State of Haryana has filed the appeals in respect of

orders of the High Court in writ petition filed by the
2
respondent in each case. The first judgment was rendered in

case of M/s A.S. Fuels Pvt. Ltd. The judgment in that case was

the primary foundation for decision in the other cases.

 

4. Background facts in Civil Appeal No.5386 of 2002 are

essentially as follows:

 

Under Rule 28A appearing in Chapter IVA certain class

of industrial units are entitled to exemption/deferment from

payment of tax for a specified period and subject to fulfillment

of certain conditions. The benefit of sales tax exemption was

granted for the period from 13.12.1994 to 12.12.2003.

Necessary eligibility certificate entitling the respondent to avail

the sales tax exemption for a period of nine years was granted.

On the basis of the eligibility certificate unit was granted

exemption certification for the period ending 30th June, 1995,

The same was renewed at the first instance till 30.6.1996 and

thereafter till 30.6.1997. An application for further renewal of

the exemption certificate was filed on 31.7.1997. This was

rejected by order dated 15.12.1997 on the ground that the
3
same was not complete in certain respects and despite grant

of opportunities the respondent failed to furnish the necessary

documents. While processing the application for renewal, the

DETC noticed that the unit of the respondent was out of

production since January, 1997 and as such the exemption

certificate was also liable to be cancelled under sub rule 9(1)

of Rule 28A of the Rules. Therefore, a show cause notice was

issued on 5.12.1997 fixing the date for submission of

explanation on 15.12.1997. Respondent neither appeared

nor furnished any explanation. Therefore, the DETC cancelled

the exemption certificate by order dated 14.1.1998. In appeal

the matter was remanded to the Prohibition Excise and

Transport Commissioner, Haryana. During assessment

proceedings, it was again found that the Industrial unit was

non-functional since January, 1997 and almost the entire

plant and machinery had been removed from the factory

premises and taken to some other places out of Haryana

without any information to the Department. Even the factory

shed and other structures were found to be dismantled and

business was totally closed. By order dated 30.6.1998 again
4
an application for renewal was rejected and the exemption

certificate already granted was cancelled by invoking sub rule

9(i) of Rule 28(A). The respondent was directed to deposit

the tax in respect of the exemption as has already been

availed and also to pay the interest. Stand of the present

respondent in the writ petition was that since the unit had

remained closed on account of non-availability of coal which

was a factor beyond its control there was no question of any

non-renewal. It was contended that even if the cancellation of

the exemption certificate was to be upheld under sub-rule 9(i)

of Rule 28 (A) the same cannot operate retrospectively and the

respondent cannot be asked to deposit the amount. This

amount pertains to the period when the industrial unit was in

production.

 

Stand of the State, which is the appellant in this appeal,

was that since there is no production since January, 1997 the

exemption certificate was liable to be cancelled in terms of

sub rule ((i) of Rule 28(A). There was no exceptional

circumstances provided under which consequence could be
5
availed. It was pointed out that after the eligibility certificate

is granted, the dealer is required to obtain an exemption

certificate which is valid up to a certain date. Thereafter the

exemption certificate is required to be renewed on year to year

basis as per the procedure provided in sub-rule (7) of Rule

28A. Reference was also made to sub rule (9) which provides

the circumstances under which exemption certificate granted

was liable to be cancelled. It was therefore argued that once

the exemption certificate is cancelled it necessarily follows

that the exemption of tax already availed would be without

authority of law and was liable to be recovered. Reference was

made in this context to clause (v) of sub rule (10) of the Rules.

 

The High Court was of the view that the exemption

certificate has rightly been cancelled under sub-rule (9) of

Rule 28A of the Rules. It, however, did not accept the

Revenue's stand that there was provision for consequential

action. Reference was made to sub rule 10(v) of Rule 28A. On

a comparative reading of sub rules (8) & (9) it was held that if

a unit discontinues its business or closes it down for a period
6
of six months, action can be taken under both the provisions.

Under sub-rule (8) the eligibility certificate can be withdrawn

whereas under sub rule (9) the exemption/entitlement

certificate can be cancelled. It was observed that there are no

exceptions provided in sub-rule 9(1)(i) which is the position in

clause (ii) of sub rule 8(a). Accordingly it was held that the

cancellation of exemption/entitlement certificate can relate

only to the year in respect of which the said certificate is still

to expire and it is only the benefit of tax exemption availed by

the dealer, for that year alone which becomes payable in lump

sum. It was held that if after the expiry of an

exemption/entitlement certificate it is found that unit had dis-

continued its business or closed it down for a period of

exceeding six months, the department is not without remedy.

It can always take action for withdrawal of the eligibility

certificate as provided in sub-rule (8) of the Rule 28(A) of the

Rules. The High Court held that once the eligibility certificate

has been withdrawn, without there being any recourse to the

procedure laid down under Rule (8) of Rule 28A of the Rules,

the same is impermissible. It was however held that if the
7
authorities have a case for withdrawal of the liability

certificate under sub-rule (8) of Rule 28A of the Rules they

shall be free to proceed in accordance with law and nothing

observed in the judgment of the High Court shall prejudice

their rights under that provision.

 

5. Learned counsel for the appellant-State submitted that

after having held that the cancellation was right, High Court

was not correct to say that it can only be withdrawn for the

period concerned. Reference is made to sub-rule (11). It

provides that the benefit of tax exemption/deferment after it is

availed shall continue for the next five years. Sub-rule 10(v)

deals with currency of the certificate and sub rule 11(1)(b)

proviso that DETC has the authority to ask for deposit of the

amount in respect of which exemption has been availed if

there is violation of any of the conditions stipulated.

 

6. Learned counsel for the respondents on the other hand

submitted that once certificate has lost its currency and the

application was made after the expiry of the period, there
8
could not have been any cancellation and there was also no

question of any renewal. It is also pointed out that pursuant

to the directions of the High Court, the eligibility certificate

has been withdrawn by the concerned authority and the

eligibility certificate has been cancelled with effect from

27.6.2007, an appeal has already been dismissed on 8.6.2006

and the writ petition was pending.

 

7. Rule 28(A) so far as relevant reads as follows:

"28(A) - Class of industries, period and other
conditions for exemption/deferment from payment
of tax- (1) The industries covered under this rule
shall not be entitled to any deferment or exemption
from payment of tax under any other provisions of
these rules.

 

xx xx xx

(6). (a) An eligible industrial unit which has
been issued with an eligibility certificate
(hereinafter referred to as the applicant unit), shall,
within sixty days of its receipt make an application
for the grant of exemption or entitlement certificate
as the case may be, in Form S.T. 71 to the Deputy
Excise and Taxation Commissioner of the District
in which his unit is located. The application shall
be accompanied with an attested copy of the
9
eligibility certificate and other documents
mentioned in the application.

No application shall be entertained if not
received within time. An application with
incomplete or incorrect particulars including the
documents required to be attached therewith shall
be deemed as having been not made if the
applicant fails to complete it on an opportunity
afforded to him in this behalf. On receipt of
application, the Deputy Excise and Taxation
Commissioner shall ask the applicant unit seeking
benefit of :-

(i) tax deferment to either execute a mortgage
deed in Form S.T. 74 creating a pari-passu
first charge alongwith financial
institutions/banks on the assets of the unit,
or to furnish a bank guarantee for 15% of the
total benefit to be availed of in a year, and a
surety bond in Form S.T. 50 for the balance
amount of 85%. The mortgage
deed/agreement or-bank guarantee shall be
valid till the recovery of the entire deferred
amount of tax. The bank guarantee, if
expiring early or if furnished, on annual basis
shall be renewed two months before the date
of expiry failing which the unsecured deferred
tax shall become due for payment
immediately;

(ii) tax exemption, to either execute a surety
bond in Form S.T. 50 equivalent to 15% of the
amount of notional sales tax liability sought
to be exempted for a bank guarantee for that
amount in a year, which shall be valid for the
period extending to five year, which shall be
10
valid for the period extending to five years
after the expiry of total period of tax
exemption;

(b) The Deputy Excise and Taxation Commissioner
shall after satisfying himself that the applicant unit
is holding a genuine and valid eligibility certificate,
has furnished adequate security and that his
application is in order will issue him the
exemption/entitlement certificate as the case may
be within thirty days of the receipt of the
application. One copy of the certificate shall be
sent to the Director of Industries or The General
Manager, District Industries Centre as the case
may be and one copy shall be retained in the
record. The certificate issued shall he valid unless
cancelled or withdrawn from the date of
commercial production or from the date of issue of
entitlement/ exemption certificate as the case may
be to the 30th June next or when notion sales tax
liability first exceeds the quantum of tax
exemption/deferment fixed for the unit, whichever
is earlier.

Note:-- The agreement or the mortgage deed or the
bank guarantee, as the case may be, is an
important document and shall be entered in a
register to be maintained in Form S.T. 75 by the
Deputy Excise and Taxation Commissioner
concerned in his personal custody. At the time of
transfer of the charge of his office, the Deputy
Excise and Taxation Commissioner shall hand over
the register as well as the documents to his
successor personally against proper receipt and
shall send a certified copy of the same to the Excise
and Taxation Commissioner by name who will
acknowledge its receipt to both the officers.

11
(7)(a) The exemption certificate or the entitlement
certificate as the case may be, shall be renewed
from year to year for which the industrial unit
shall make an application to the Deputy Excise
and Taxation Commissioner incharge of the
District by the 31st May in Form S.T. 71. The
application shall be accompanied with
exemption/entitlement certificate, additional
security as specified in sub clauses (i) and (ii) of
clause (a) of sub-rule (6) equal to fifteen per cent of
the declared notional sales tax liability of the
current year and the difference between the actual
and the declared notional sales tax liability of the
previous year in the case of sales tax exemption
and equivalent to the extent of estimated tax
liability of the current year and difference between
actual and estimated tax liability of previous year
in case of tax deferment, as also other documents
mentioned in the application.

The Deputy Excise and Taxation Commissioner
after making such enquiries as are necessary, and
after satisfying himself that the applicant is a
bonafide industrial unit and has not misused the
exemption/entitlement certificate, shall renew the
exemption/ entitlement certificate within 30 days
of the making of the application for renewal failing
which the certificate shall remain valid until the
renewal is refused or the certificate otherwise
expires. The exemption/ entitlement certificate on
renewal shall unless cancelled or withdrawn be
valid from lst of July of the year in which the
application is made if it is in time or otherwise
from the date of application to 30th June, next or
when the eligibility certificate expires or the
cumulative notional sales tax liability first exceeds
the quantum of tax exemption/deferment fixed for
the unit, whichever is earlier.

12
(b) If the Deputy Excise and Taxation
Commissioner incharge of the district finds that
the application for renewal of exemption/
entitlement certificate is not in order or the
particulars contained in the application are not
correct and complete or the applicant is not a
bonafide industrial unit or has misused
exemption/entitlement certificate or has note
complied with any of the directions given to it by
him within the specified time; he may reject the
application after giving the applicant an
opportunity of being heard.

(c) An appeal against the order passed by the
Deputy Excise and Taxation Commissioner under
clause (b) of this sub-rule shall lie to the Excise
and Taxation Commissioner, Haryana, if preferred
within thirty days of the communication of the
order appealed against.

(8)(a) The eligibility certificate granted to an
industrial unit shall be liable to be withdrawn at
any time during its currency by the appropriate
screening committee, in the following
circumstances

(i) if it is discovered that it has been obtained by
fraud, deceit, misrepresentation, mis-statement or
concealment of material facts;

(ii) discontinuance of its business by the unit or
closing down of its business for a continuous
period exceeding six months except in case of fire,
flood and other natural calamities, riots, strike or
lock-out which in the opinion of the committee
concerned is beyond the control of the unit;

13
(iii) disposal or transfer by the unit of any off its
fixed assets adversely affecting its manufacturing
or production capacity:
Provided that no order of withdrawal of the
eligibility certificate shall be made without
affording a reasonable opportunity of being heard
to the affected unit.
(b) When the eligibility certificate is withdrawn, the
exemption/entitlement certificate shall be deemed
to have been withdrawn from the 1st day of its
validity and the unit shall be liable to payment of
tax, interest or penalty under the Act as if no
entitlement certificate had ever been granted to it.

(9) The exemption/entitlement certificate granted
to an eligible industrial unit shall be liable to be
cancelled by the Deputy Excise and Taxation
Commissioner concerned in the following
circumstances, after affording an opportunity of
being heard to the unit:-

(i) discontinuance of its business by the unit at any
time for a period exceeding six months or closing
down of its business during the period of
exemption/deferment.

(ii) disposal by the unit of any of its fixed assets
mortgaged with the Government in the Excise and
Taxation Department;

(iii) failure to furnish adequate security by the unit
as required under the rules;

(iv) failure of the unit to make payment of the
deferred amount on the date of payment;

(v) contravention of any of the provisions of the Act
and/or the rule, or conditions of the eligibility
14
certificate or the exemption/ entitlement certificate
by the unit;

(vi) when the appropriate committee, which
sanctions eligibility certificate recommends that the
exemption /entitlement, certificate of the unit be
cancelled for reasons to be recorded in writing.

 

(10) (i) The eligible industrial unit shall continue to
be liable to file the returns in the manner
prescribed under the Act, and the rules and its
failure to do so shall expose it to penalty as
provided in the Act;

(ii) The assessment of an eligible industrial unit
holding exemption/entitlement certificate shall be
framed in accordance with the provisions of the Act
and Rules framed thereunder as early as possible
and shall be completed by the 31st December, in
respect of the assessment year immediately
preceding thereto and the additional demand so
determined, if any, shall be paid as per the
provisions of the Act and the Rules;

(iii) The State Government may appoint special
assessing authority for framing assessment of
units mentioned in the preceding clause;

(iv) Notwithstanding the provisions relating to
payment of tax due, according to returns, the
eligible industrial unit which has availed of the
benefit of sales tax deferment shall make payment
of the deferred amount after the expiry of a period
of five years to the extent of the amount deferred,
every quarter or month, as the case may be, within
the period specified in the rules:
15
(v) On cancellation eligibility certificate or
exemption/entitlement certificate before it is due
for expiry, the entire amount of tax
exempted/deferred shall become payable
immediately, in lump sum, and the provisions
relating to recovery of -tax, interest and imposition
of penalty shall be applicable in such cases.

11 (a) The benefit of tax-exemption/deferment
under this rule shall be subject to the condition
that the beneficiary/industrial unit after having
availed of the benefit:-

(i) shall continue its production at least for the next
five years not below the level of average production
for the preceding five years; and

(ii) shall not make sales outside the State for next
five years by way of transfer or consignment of
goods manufactured by it.

(b) In case the unit violates any of the conditions
laid down in clause (a), it shall be liable to make an
addition to the full amount of tax benefit availed of
by it during the period of exemption/deferment
payment of interest chargeable under the Act as if
no tax exemption/deferment was ever available to
it:

Provided that the provisions of this clause shall not
come into play if the loss in production is explained
to the satisfaction of the Deputy Excise and
Taxation Commissioner concerned as being due to
the reasons beyond the control of the unit:

Provided further that a unit shall not be called
upon to pay any sum under this clause without

16
having been given reasonable opportunity of being
heard.

 

8. As the scheme of Rule 28A shows that there are two

certificates provided for. One is the eligibility certificate and

the other is the exemption certificate. Clause 4(a)

deals with the benefit of tax exemption or deferment to an

eligible industrial unit holding exemption or entitlement

certificate. In Clauses 2 (j), (k) & (l) the certificates are

defined:

"(j) "eligibility certificate" means a
certificate granted in Form S.T. 72 by the
appropriate Screening Committee to an
eligible industrial unit for the purpose of
grant of exemption/deferment.

(k) "exemption certificate" means a
certificate granted in Form S.T. 73 by the
Deputy Excise and Taxation Commissioner of
the District to the eligible industrial unit
holding eligibility certificate which entitles the
unit to avail of exemption from the payment
of sales or purchase tax or both, as the case
may be;

(l) "entitlement certificate" a certificate
granted in Form S.T. 72 by the Deputy Excise
and Taxation Commissioner of the district to

17
the eligible industrial unit holding eligibility
certificate which entitles it to get deferment of
sales tax;"

 

9. The eligibility certificate is issued by the appropriate

screening committee while the exemption certificate and the

entitlement certificate are issued by the DETC in Forms 73

and 72 respectively. As the High Court has rightly observed,

that there is scope for automatic cancellation in view of the

fact that after January, 1997 there was no production. Sub

rule (8) deals with the withdrawal of the eligibility certificate.

Under sub-rule 8(b) when the eligibility certificate is

withdrawn, the exemption/entitlement certificate is also

deemed to have been withdrawn from the first day of its

validity and the unit shall be liable to payment of tax, interest

or penalty under the Act as if no entitlement certificate had

been ever granted to it. The only other question which is

required to be examined is the benefit of Rule 11(a). A bare

reading of the same shows that the benefit of tax

exemption/deferment under the Rule shall be subject to the

condition that the beneficiary/industrial unit after having
18
availed all the benefit shall continue its production for at least

next five years not below the average production for the

preceding five years. Clause (b) of the sub rule is of

considerable significance; it shows that in case the unit

violates any of the conditions laid down in clause (a) it shall be

liable to make in addition to the full amount of the benefit

availed of by it during the period of exemption/deferment,

payment of interest chargeable under the Act as if no tax

exemption/deferment was ever available to it. The proviso is

also of significance. It provides that the provisions of clause (b)

shall not come into play if the loss in production is explained

to the satisfaction of the DETC concerned as being due to

reasons beyond the control of the unit. Thus there are several

conditions which are relevant; firstly there is a requirement of

continuing the production of at least next five years; secondly

consequences flowing in case of violation of the conditions laid

down in clause (a). In other words, in case of non-

continuance of production for next five years, the result is that

it shall be deemed as if there was no tax

exemption/entitlement available to it. The proviso permits to

the dealers to explain satisfactorily to the DETC that the loss

in production was because of the reasons beyond the control

of the unit. The materials have to be placed in this regard by

the party. The High Court seems to have completely lost sight

of Rule 11(b). In any event, we find that the High Court had

permitted the authorities to go before the Screening

Committee to get the eligibility certificate cancelled.

Undisputedly that has been done, and the appeal against

cancellation has been dismissed.

 

10. It is stated that a writ petition is pending before the High

Court. As in the instant case the writ petition filed by the

respondent has been allowed without examining effect of Rule

11, the order of the High Court cannot be maintained. It is to

be noted that in terms of clause (b) of Rule11 if the conditions

stipulated in clause (a) are not fulfilled, it shall be deemed that

exemption/entitlement was not ever availed. Therefore, the

High Court was not justified in its view that demand cannot be

maintained. In view of the conclusions, Civil Appeal No. 676

20
of 2005 is without merit and is dismissed, while the other

appeals are allowed.

 

...........................................J
(Dr. ARIJIT PASAYAT)

 

...........................................J
(P. SATHASIVAM)
New Delhi,
August 20, 2008