JUDGMENT Rajes Kumar, J.
1. Present revision under Section 11 of U.P. Trade Tax Act (hereinafter referred to as "Act") is directed against the order of Tribunal dated 19.01.2000. The dispute relates to the exemption under Section 4-A of the Act.
2. Applicant is a company incorporated under the Indian Companies Act, 1956 Applicant had set up a manufacturing unit for cutting and polishing granite rocks into various shapes and sizes in the year 1996. It was alleged in a New unit machineries required for cutting and polishing were installed and they were admittedly new. The total fixed capital investment in the unit was Rs. 40.58.322,20p which comprises of the value of the machinery for Rs. 23.80,950.20p Applicant had one zip crane valuing Rs. 62.400/- which was purchased from Ms R.K Marbles Limited against sale bill No. D-1020 dated 09.10.1995. Applicant applied for exemption on the manufactured product under Section 4-A of the Act. Divisional Level Committee rejected the exemption application on the ground that one of the machine namely zip crane valuing Rs. 62,400- was old/Applicant filed review application, which was also dismissed by the Divisional Level Committee vide order dated 07.01.1998. Applicant filed an appeal before the Tribunal, which was also dismissed by the impugned order dated 19.01.2000. Tribunal has rejected the appeal on the ground that in the unit one zip crane valuing Rs. 62,400/- was admittedly old, therefore, unit of the applicant was not a new unit as defined in the Explanation to Section 4-A of the Act.
3. Heard learned counsel for the parties.
4. Learned counsel for the applicant contended that Explanation of Section 4-A contemplates only those machines, which were essential and integrally connected to the process of manufacturing of final product land value of those machines could only be included in a fixed capital assets. He submitted that the zip crane was required for transportation of boulders from one place to another and for putting the boulders on cutting slicing machine, which could also be done manually. He submitted that only those machines, which are essential, necessary and integrally connected to the process of cutting slicing and polishing should be, considered and not a machine like zip Crane, which was required only transportation of big boulders from one place to the cutting machine. He submitted that even thought the value of the zip crane was included in the list of the machine but being old one, the same should be excluded from the list for the purpose of the determination of fixed capital assets. He submitted that in substance unit was new unit in as much as all the essential machines for cutting and polishing were new and merely because zip crane, which was not essential and necessary in the manufacturing of boulders, the exemption can not be refused.
5. Learned Standing Counsel supported the order of the Tribunal.
6. The provisions of Section 4-A (6 Explanation 1 and Explanation 2) are extracted below:
"Explanation-For the purpose of this Section-
(1) "New Unit" during the period ending with 31st March, 1990, means an industrial undertaking set-up by a dealer on or after October 1, 1982 but not later than March 31, 1990-
(a) ...
(b)(i) ...
(ii) ...
(iii) ...
(c) ...
(d) Using machinery, accessories or components not already used, or acquired for use, in any factory or workshop in India.
(e) ...
And includes on industrial undertaking fulfilling the conditions laid down in Clauses (a) to (e) set up by a dealer.
(i) ...
(ii) ...
(i) ...
(ii) ...
(i) ...
(ii) ...
(iii) ...
(iv) ...
(2) "New Unit" after 31st March, factory or workshop set up by a dealer after such date and satisfying the conditions laid down under this Act or Rules or Notification made thereunder with regard to such factory or workshop and includes an industrial unit manufacturing the same goods at any other place in the State or an industrial unit manufacturing any other goods on or adjacent to the site of an existing factory or workshop, but does not include-
(a) any factory or workshop using machinery, plant, equipment, apparatus, or components already used or acquired for use in other factory or workshop in India other than boilers, generators, moulds and dyes and other than any machinery, plant, equipment, apparatus or components sold to it by any government Company or any Corporation owned or controlled by the Central Government or State Government: or
(b) ...
(c) ... "
7. Relevant notification No. TT-2-780/XI-9(226)94-UP Act-15/48-Order-95 dated 31.03.1995 reads as follows:
"Whereas, the State Government is of the opinion that for promoting the development of certain industries in the State, it is necessary to grant exemption from or reduction in rate of tax to new units and also to units which have undertaken expansion, diversification, modernization or backward integration.
NOW, THEREFORE, in exercise of the powers under Section 4-A of the Uttar Pradesh Trade Tax Act, (UP Act NO. XV of 1948), hereinafter referred to as the Act, the Governor is pleased to declare that:-
1(A) In respect of any goods manufacture in a 'new unit', other than the units of the type mentioned in Annexure II, established in the areas mentioned in column 2 of Annexure I, the 'date of starting production' whereof falls on or after first day of April, 1995 but not later than 31st day of march, 2000, no tax shall be payable, or , as the case may be, the tax shall be payable at the reduced rates, as specified in column 4 of Annexure I, by the manufacturer thereof on the turnover of sales of such goods, for the period specified in column 3 of the said Annexure I, or till the maximum amount of tax relief by Such exemption from or reduction in the rate of tax as specified in column 15 of Annexure I is achieved, whichever is earlier. The period specified in column 3 of the said Annexure shall be reckoned from the date of the first sale or the date following the expiration of six months from the date of starting production, whichever is earlier.
1(B) In respect of any goods manufactured in a unit, other than the units of the type mentioned in Annexure II, which has undertaken 'expansion, diversification or modernization' on or after April 1, 1995 but not later than march $1, 2000 in the areas mentioned in column 2 of Annexure I, no tax shall be payable or, as the case may he, the tax shall be payable at the reduced rates specified in column 4 of Annexure I, by the manufacturer thereof for the period specified in column 3 of the Annexure I, or till the maximum amount of tax relief by such exemption from or reduction in rate of tax as specified in column 5 of Annexure I is achieved, whichever is earlier on the turnover of sales:
(a) of the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernization: and
(b) of goods manufactured by the unit which are of a nature different from those manufactured earlier by such unit in the case of units undertaking diversification.
1(c)...
2. ...
3. ...
4. ...
5. 'fixed Capital Investment' or, as the case may be, additional fixed, capital investment may, unless otherwise established, be determined in the case of ah industrial undertaking financed by a term loan advanced by a public financial institution or a Scheduled Hank according to the certificate to that effect issued by such institution or the Bank and in any other case, according to-
(a) the value of the land certified by the Collector in accordance with the procedure laid down for determination of the value of laid for the purpose of payment of stamp duty under the Indian Stamp Act, 1899.
(b) the value of building certified by an evaluator approved by the Income Tax Department for the purpose.
(c) the value of plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures certified by a Chartered Accountant.
6. In determining the 'fixed capital investment' in case of 'new units' or 'additional capital investment' referred to in clause (d) of Explanation (5) or Clause (ii) of Explanation (7) of Section 4-A in case of units which have undertaken expansion, diversification or modernization or backward integration, the investment in only, such land, building, plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures shall he, taken into account as were acquired on or before the relevant date of] commencement of the period of facility notified under Sub-section (1) of Section 4-A of the Act.
7. (a) turnover of sale of goods in any assessment year to the extent of the quantity covered by base production of that year and the stock of base production of previous years shall be deemed to be the turnover of base production.
(b) only the turnover of goods in any assessment year in excess of the quantity referred to in clause (a) shall be entitled to the facility of exemption from or reduction in the rate of tax.
ANNEXURE-I
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2. "Small scale unit", means an industrial undertaking certified by the Director of Industries. Uttar Pradesh in accordance with the guidelines, issued in this behalf by the Government of India to be:-
(a) a small scale industrial undertaking the fixed capital investment whereof does not exceed sixty lakh rupees:
(b) an ancillary industries undertaking the fixed capital investment whereof does not exceed seventy lakh rupees.
3. "Greater NOIDA Industrial Development Area" means the area declared as such by Government Notification No. 7436 Bhau/XVIII-II-11-107-Bha-85, dt. January 28, 1991.
4. For the purposes of this notification the expression "Other Backward Classes of Citizens" shall have the meaning assigned to it in the Uttar Pradesh Public Services (Reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes) Act, 1994 and the expression "Minorities" shall have the meaning assigned to it under Article 30 of the Constitution."
8. Perusal of Explanation 1 and 2 shows that there is difference in the definition of the new unit established prior to 31.03.1990 and the unit established after 31.03.1990. From the perusal of the definition of the new unit for the purpose of the present case. Explanation 1 says that-new unit during the period ending with 31.03.1990 means an industrial i undertaking set-up by a dealer on or after 31.03.1990 using machinery accessories or components, not, already used, acquired for use in any other factor)' or workshop in India. Explanation-II defines new unit after 31.03.1990 means a factory or workshop set up but does not include any) factory or workshop using machinery, plant, equipment, apparatus or components already used or acquired for use in any other factory or workshop in India other than boiler generators, moulds and dyes and other than, any machinery, plant, equipment, apparatus or component sold to it by any Government Company or any corporation owned or controlled by the Central or State Government. In the definition of the new unit prior to 11.03.1990 all the machines, accessories or component should be new in the definition of new unit after 31.03.1990 'accessories' has been excluded and was not required to be new and those unit using old boilers, generators, moulds and (dyes have also been included in the new unit. As per the notification, the benefit of exemption to the new unit established prior to 31.03.1990 was on the total-turn over of the manufactured product in a specified period. However, to the unit established after 31.03.1990, the exemption was united to the multiple to this value of fixed capital assets as the case may be. It is not unlimited.
9. The definition of the new unit established after 31.03.1990 came up for consideration before this Court in the case of Progressive Components Private Limited v. CST, reported in 2000 UPTC, 131. This Court was of the view that the Explanation to Section 4-A covers those machines, which are essential for carrying out the manufacturing process. In that case one snuffing machine was found old since no finding was recorded that whether snuffing machine was essential for running out the manufacturing process. Matter was remanded back, therefore, it appears that learned Single Judge was of the view that under the Explanation only those machines, which are essential to carry out the manufacturing activity is to be considered and not all machines.
10. In the case of Jawahar Metal Industries (P) Ltd., Shahibabad v. State of U.P. and Ors., reported in 1995 UPTC, 812, out of the total investment towards machine for Rs. 19,24,891/-, the value of one) old machine was, of Rs. 11,325/- which was drill machine and bearings. The Division Bench of this Court held that in the circumstances unit can not be denied exemption.
11. In the case of J.K. Steels, Ghaziabad v. State of U.P. and Ors. reported in 1994 UPTC, 936 as against the total value of machines at Rs. 19,24,891/- value of old machine was Rs. 1,453/-. Division Bench of this Court held that the exemption can not be denied.
12. In the case of Neel Kamal-Oil Mills, Dadra, Ghaziabad v. State of U.P. and Ors., reported in 1994 UPTC, 606, exemption under Section 4-A was refused on the ground that the unit was using old generator taken on hire. Petitioner was engaged in the business of manufacturing of oil and oil cakes. Division Bench of this Court held that generator, which was hired by the petitioner can not be said to be an integral part of the machinery' purchased by the petitioner for the manufacture of oil and oil cakes nor can that be said to be the accessories or components of the machinery. It was held that generator, which is only a source of power, can not be said to be the part of machinery used in the manufacture of oil and oil cakes.
13. In the case of Bajaj Tempo Ltd., Bombay v. Commissioner of income Tax, reported in 1992 UPTC 857 as against the total investment of Rs. 1,04,104/- towards machine, one machine worth Rs. 1,453/- was old. Apex Court held that the exemption can not be denied.
"The section, read as a whole, was a provision, directed towards encouraging industrialization by permitting an assessee setting up a new undertaking to claim benefit of not paying tax to the extent of six percent in a year o the capital employed. But the, legislature took care to restrict such benefit only to those undertakings which were new in form and substance, by providing that the undertaking should not he, formed in any manner provided in Clause (I) of Sub-section (2) of Section 15-C. Each of these requirements, namely, formation of the undertaking by splitting up or reconstruction of an existing business or transfer to the undertaking of building, raw material or plant in any previous business results in denial of the benefit contemplated under subsection (I). Since a provision intended for promoting economic growth has to he interpreted liberally the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it, But that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to control is lost sight of. One way of reading it is that the clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when the result of reading in such plain and simple manner is analysed then it appears that literal construction would not be proper. Taking facts of this case as illustration I the inherent fallacy surfaces. The Income Tax Officer found that tools and implements worth Rs. 3,500/- used in earlier business were transferred to it. They composed of machines which were of very minor nature. But for one spotwelding machine the cost of which was Rs. 1,500/- the Mother 13 items were of value of Rs. 100/-, Rs. 200/-, Rs. 300/- or at most Rs. 400/-. On plain reading the effect of such transfer was operation of the clause and denial of benefit to the assessee. But that would be denial of very (purpose for which the provision way enacted. The Legislature by clause (i) of Sub-section (2) of Section 15-C intended to control any attempt or effort to abuse the benefit intended for new undertaking by change of label. The intention was not to deny benefit to genuine new industrial undertaking hut to control the mischief which might have otherwise taken place. The result was however just the contrary. Any use of building or plant or machinery howsoever nominal either because of compulsion or inadvertence or sheer I necessity fell in the mischief and the Departmental authorities, bound as they were with the provision of the section, refused to grant exemption. High Courts also differed in their approach. Various decisions which were placed before us leave no room. Some related to transfer of machinery to the new business and others to the building. In respect of machinery the High Courts appear to he nearly unanimous that where the value of transferred machinery was low or meager the assesses should not be denied the benefit. For instance the Calcutta High Court in Commissioner of Income Tax, West Bengal-II v. Sainthia Rice and Oil Mills, 82 ITR (1971) 778 (Cal) did not find any reason to deny the benefit to the assessee where the undertaking was formed by acquisition of part of machinery in second hand from open market but the decision which became the leading decision on transfer of machinery was rendered by Delhi High Court in Commissioner of Income Tax v. Ganga Sugar Corporation Ltd.- 92 ITR (1973) 173 (Delhi). It has been followed in nearly all the decisions, given subsequently as it was approved by this Court. It was held that use of scrap and material of the old unit of the value of a small fraction of the expenditure involved in the setting up of the new unit did not attract the concluding words of clause (i) of Section 15(2). The Calcutta High Court in 'Commissioner of Income Tax, West Bengal-I v. Electric Construction and Equipment Company Ltd. (Cal), 104 ITR (1976), was of view that where machinery previously 'used' was very small compared to the value of the machinery installed the assessee was well within Sub-section (1) of Section 15-C Same view was taken by the Bombay High Court in Commissioner of Income Tax, Bombay City-I v. Asbestos, Magnesia & Friction Materials Ltd., 106 (1977) 286 and it was observed, that the important aspect, to be considered must be the monetary value of the old assets transferred to and utilized in the new undertaking', in Commissioner of Income Tax, Bombay City-I v. Kopran Chemical Co. Ltd., the Court answered the question in favour of assessee as the machinery transferred to the new business was of 'insignificant value'. In another decision the Bombay High Court in Commissioner of Income Tax, Bombay City-II v. Sawyer's Asia Ltd., while construing analogous provision Section 14(2) of 1961 Act opined that where machinery taken on hire formed 'insignificant part of the total value' the assessee could not be denied the benefit. In the case of L.G. Balakrishnan & Bros. Ltd v. Commissioner of income Tax, Madras, the Madras High Court decided against the assessee not on proportion or value of the machinery transferred hut because lease of machinery amounted to transfer".
14. In the case of CST v. Industrial Coal, reported in 1999 UPTC, 250, Apex Court has examined Section 4-A of the Act and held as follows:
"In Commissioner of Income tax, Amritsar v. Strawboard Manufacturing Co. Ltd. this Court held that in taxing statutes, provision for concessional rate of tax should be liberally construed. So also in Bajaj Tempo Ltd. v. Commissioner of Income-tax , it was held that provision granting incentive for promoting economic, growth and development in taxing statutes should be liberally construed and restriction placed on it by way of exception should be construed in a reasonable, and purposive manner so as to advance the objective of the provision.
We find that the object of granting exemption from payment of sales tax has always been for encouraging capital investment and establishment of industrial units for the purpose of increasing production of goods and promoting the development of industry in the State. It the test laid down in Bajaj Tempo Ltd., case (supra) is applied, there is no doubt whatever that the exemption granted to the respondent from 9th August, 1985 when it fulfilled all the prescribed conditions will not cease to operate just because the capital investment exceeded the limit-of Rs. 3 lakhs on account of the respondent becoming the owner of land and building to which the unit was shifted. If the construction sought to he placed by the appellant is accepted, the very purpose and object of the grant of exemption will be defeated. After all, the respondent had only shifted the unit to its own premises which made it much more convenient and easier for the respondent to carry on the production of the goods undisturbed by the vagaries of the lessor and without any necessity to spend a part of its income on rent. It is not the case of the appellant that there was any mala fides on the part of the respondent in obtaining exemption in the first instance as a unit with a capital investment below Rs. 3 lakhs and increasing the capital investment subsequently to an amount exceeding Rs. 3 lakhs with a view to defeat the provisions of any of the relevant statutes. The bona fides of the respondent have never been questioned by the appellant. "
15. In the case of H.M. Industries and Anr. v. STO and Anr., reported in 2003 NTN (Vol.22), 354, the exemption application under Section 4-was rejected on the ground that the petitioner used old crucible. The Division Bench of this Court held that exemption can not be denied for this ground only. In this case decision of the Apex Court in the case of Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax, Bombay, (Supra), Division Bench of this Court in the case of Jawahar Metal industries (P) Ltd., Shahibabad v. State of U.P. and Ors., and CST v. Industrial Coal, reported in 1999 (Supra) have been relied upon.
16. In the case of State Level Committee and Anr. v. Morgardshammar India Ltd., reported in 1996 UPTC. 213, the word "acquired for use" was under consideration for interpretation. The question involved in the present case was not involved in that case, find therefore, the aforesaid judgment is not applicable to the present case.
17. In my opinion, the rejection of exemption under Section 4-A of the Act in the present case is not justified. Zip crane was not the machine, which was essentially required in the process of the manufacturing of cutting/slicing and polishing. It was required for transportation of boulders from one place to machine, which could also be done manually according to the applicant. But in any view of the matter Zip Crane was not required for the purpose of cutting/slicing and polishing which were process of manufacturing of granite slabs.
18. In my view, since the exemption to the new unit established after 31.09.1990 is with reference to the value of the fixed capital assets and confined to multiple of the value of the fixed capital assets. Therefore, the exemption should be confined to the value of the new machine excluding the value of old machine. What has to be seen is whether in substance a new unit has come into existence or not. If in a unit all the main machines, which are essential and required for the manufacture of final products are new, unused the exemption can not be denied, if a small machine is old.
19. In the result, revision is allowed, Order of Tribunal is set aside and Divisional Level Committee is directed to allow the exemption and issue eligibility certificate.