Full Judgment Text
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PETITIONER:
JANTA MACHINE TOOLS
Vs.
RESPONDENT:
STATE OF U.P. & ORS.
DATE OF JUDGMENT19/01/1989
BENCH:
RANGNATHAN, S.
BENCH:
RANGNATHAN, S.
SHETTY, K.J. (J)
CITATION:
1989 AIR 979 1989 SCR (1) 273
1989 SCC Supl. (1) 281 JT 1989 (1) 165
1989 SCALE (1)191
ACT:
Uttar Pradesh Sales Tax Act, 1948: Section 4A and Noti-
fication dated September 30, 1982 issued thereunder--Exemp-
tion from sales tax--Determination of date of commencement
of production--Date of purchase of raw materials, obtaining
electricity connection relevant-Not trial production.
HEADNOTE:
The State Government in pursuance of Section 4A of the
Act formulated and published a scheme for grant of exemption
from Sales Tax, to encourage capital investment and estab-
lishment of new industrial units which were established
during the period from 1.10.1982 to 31.3.1985 and producing
certain categories of goods. Though the scheme referred to
units established, it actually referred to the date of
commencement of production.
The appellant, a concern engaged in the business of
electric motors, pump sets and their parts, applied for the
exemption. The appellant claimed that the date of actual
commencement of use of electricity for production was 4th
December, 1982 and that was the actual date of commencement
of production. The same was endorsed by the General Manag-
ers, District Industrial Centers and the Assistant Engineer
concerned, while recommending the application. But the
difficulty had arisen on account of a certificate attached
to the application for exemption. It was given by a firm
which had entered into an agreement with the appellant for
supply of machines and installation. According to the cer-
tificate, trial production commenced on 4.12.1981. The
Division Level Committee, before which the application was
filed, rejected it, saying that the date of trial production
was really the date of commencement of production and it
fell prior to 1.10.1982. The appellant preferred a review
claiming that trial production could not be treated as
commencement of actual production. The review application
was also dismissed and it was held that the unit was estab-
lished before 1.10.1982 and, therefore, was not entitled to
the exemption. Thereafter, the appellant filed a writ peti-
tion before the High Court. It was rejected.
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Claiming that it is entitled to the exemption, the
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appellant has preferred this appeal, by special leave.
Allowing the appeal,
HELD: 1.1 The appellant is entitled to the exemption, in
terms of the notification dated 30.9.1982. The rejection of
the application for exemption proceeds on a total misconcep-
tion of facts. The conclusion that production was commenced
on 4.12.1981 is not based on any evidence. It does not
affect the appellant’s claim even if there was any doubt
about the trial production having taken place at all. Wheth-
er trial was conducted by the other firm or the appellant
itself, the fact remains that only trial production took
place on 4.12.1981. The mere fact that the certificate is
disbelieved cannot lead to the conclusion that the appellant
had produced the goods on 4.12.1981. [279A-D]
1.2 To go by Section 4A of the Act to determine the date
of commencement of production, the date of purchase of raw
material or the date on which electricity was brought into
use would be relevant. 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 produc-
tion at any time prior to 1.10.1982. 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.
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 Gener-
al Manager, District Industries Centre 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. [279D-G]
2. As regards the amount of exemption available to the
appellant, it is a matter for consideration of the authori-
ties in respect of each of the years concerned in respect of
which the claim is made for exemption. [280B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 830 of
1988.
275
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 Re-
spondents.
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 noti-
fication issued by the State Government on 30.9.1982 under
section 4A of the Uttar Pradesh Sales Tax Act, 1948 (herein-
after 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.
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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
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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, ac-
cording 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
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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 produc-
tion by the industrial
277
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 com-
mencement of use of electricity for production was the 4th
of December, 1982, which was also the actual date of com-
mencement 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 Indus-
trial 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 applica-
tion. This purported to be a certificate by a firm known as
Krishna Trading Co. (in which the proprietor of the appel-
lant 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 applica-
tion
278
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 appli-
cation 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
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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."
279
In our opinion, the rejection of the assessee’s applica-
tion proceeds on a total misconception of the facts. The
conclusion of the Division Level Committee is that produc-
tion 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 produc-
tion 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 disbe-
lieved 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
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the electricity was brought into use for commercial produc-
tion. 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 suffi-
cient 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 pro-
duction 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 endorse-
ment of the General Manager, District Industries Centre,
which has been extracted earlier, also supports the appel-
lant’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
280
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.
281