IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 5638 of 2011 For Approval and Signature:
HONOURABLE MR.JUSTICE AKIL KURESHI & HONOURABLE MS JUSTICE SONIA GOKANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to civil judge ?
========================================================= SHAIFALI ROLLS LIMITED & 1 - Petitioner(s) Versus STATE OF GUJARAT THROUGH PRINCIPAL SECRETARY & 3 - Respondent(s) ========================================================= Appearance :
Mr TANVISH BHATT with Ms. GARGI VYAS for M/S WADIA GHANDY &CO for Petitioners Ms MAITHLI MEHTA AGP for Respondent(s) : 1, NOTICE SERVED for Respondent(s) : 1 - 4.
========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI 13th January 2012 CAV JUDGMENT (Per : HONOURABLE MS JUSTICE SONIA GOKANI) The petitionerCompany has challenged the action of the respondent authorities by way of the present writ petition alleging the action of the respondents contrary to the objects and provisions of the Scheme for Economic Development of Kutch District, 2001 [“Scheme” for short] and the Gujarat Sales Tax Act, 1969 {“Act” for short}.
2. The facts, bereft of the details, need to be recapitulated thus :
2.1 The petitionerCompany is conducting its business of manufacturing and trading of Steel products. The petitioner no.2 is the shareholder of the petitioner no. 1Company, and therefore, is concerned with the daytoday affairs of the petitioner no.1Company.
2.2 On 26th January 2001, the State of Gujarat, the district of Kutch in particular, was hit hard by the devastating earthquake bringing the economic activities of the entire district to a standstill. The State Government vide its Resolution no. INC102009031, had promulgated the Scheme for the economic development of Kutch district encouraging the new industrial units to establish their units in the notified area of Kutch district, entitling them to various incentives including Sales Tax exemptions, or Sales Tax Deferment, or offering composite scheme under the provisions of Section 49 (2) of the Gujarat Sales Tax Act, 1969. Initially, the period of the Scheme was notified from 31st July 2001 to 31st October 2004, which was later on extended till 31st December 2005.
3. The petitioner no.1 proposed to establish an industry for manufacturing and trading of steel products at village Tuna of Taluka Anjar, DistrictKutch and had applied for registration with the Industries Commissioner, which was granted on 13th July 2005 and it had accordingly commenced its commercial production on 27th December 2005.
3.1 A provisional/ad hoc Eligibility Certificate for an investment in fixed assets was granted by the respondent No. 3 to the tune of Rs. 942.00 lacs (Rupees Nine Crores and forty two lacs only) for the purpose of tax benefits. The respondent No. 3 considered the amount of Rs. 3767.99 lacs as eligible investment for the purpose of availing the benefits under the Scheme. A certificate issued by the Chartered Accountant was submitted by the petitioner confirming the total investment at Rs. 47,25,82,038/.
3.2 It is the grievance of the petitioner that the said eligible investment has been completely disregarded by the respondent while issuing final eligibility certificate which came to be granted only for a sum of Rs 2873.10 lacs so much so that the investment considered earlier for grant of provisional certificate also was ignored while finalizing issuance of the final eligibility certificate issued on 20th July 2009.
4. A request was made on 3rd December 2009 by the petitioner No.1 company to the respondent No. 3 bringing these aspects to its notice and with further request to reassess the eligible investment vide communication dated 2nd February 2011. It was conveyed to the petitioner No.1 that the eligible investment in case of the petitioner company was final by the joint scheme and Rs. 2873.10 lacs cannot be considered for the grant of incentive under the scheme.
4.1 Being apprehensive of coercive action, as the sanction limit was already exhausted, the petition is preferred with a request to direct the respondent to consider the entire amount invested as the eligible investment for the purpose of sales tax benefits. It is also further urged to quash and set aside the final Eligibility Certificate dated 28th July 2009 and to consider the actual investment at Rs. 4725 lacs, as eligible investment for the purpose of sales tax benefits.
5. On issuance of notice, the respondents appeared and filed affidavit in reply, inter alia, urging that the unit is entitled to sales tax incentive for the assets acquired and paid upto 18 months from the date of commercial production or 31st December 2005 whichever is earlier, and therefore, any assets acquired subsequent to 31st December 2005 would not be entitled for considering for the purpose of sales tax incentive. It is also the say of the respondents that ad hoc eligibility certificate was granted upto 25% of the assets to the tune of Rs. 942 lacs, for the period from 27th December 2005 to 26th December 2012, without verification of the assets at actual site. On the basis of certificate of Chartered Accountant, however, after detailed verification as per the government resolution by the team of officers the recommendation for the purpose of final eligibility certificate was made to the tune of Rs. 2873.10 lacs as the resolution dated 9th November 2001 clarifies the definition of eligible investment and ineligible investment. Considering those parameters this final eligibility certificate has been granted and therefore, there is no scope of interference in the conclusion arrived at by the authority which is authorised under the scheme to finalize this eligibility.
6. Rejoinder on behalf of the petitioner to the affidavit in reply is also brought on record, wherein it has challenged the decision of the respondent in finalizing the amount of investment eligible for the purpose of sales tax benefits. According to the petitioner, the reasons provided in the report are very vague, and substantial expenditures have been disallowed only on the ground of unpaid expenses while some investment have been disallowed on the ground of advanced payments incurred towards phase II, which is a pipeline project under the Scheme. It is further stated that all those units could commence commercial production on 31st December 2005. But if it is done on or before 31st December 2006, the pipeline project under the Scheme would permit such extension. Headwise details discussed in the report as well as in the affidavit in reply are disputed, which will be dealt with at an appropriate stage.
7. An additional affidavit is filed by the Joint Commissioner of Industries placing on record particularly the details with regard to the Unit II of the petitioner company. It is reiteratively stated that after finalization of eligibility of the unit of the petitioner at Rs. 2873.10 lacs, a representation was made by the petitioner on 3rd December 2009 and 1st December 2010 alleging therein that the total investment made by the company was to the tune of Rs. 4725.78 lacs and requested to give credit of the balance amount treating the same as Capital Investment. Yet another letter was addressed by the petitioner on 28th January 2011 urging therein that the company made investment of Rs. 9449.84 lacs and to treat the additional amount of investment made upto 18 months from the date of production as per the para 3.8 of the Scheme as pipeline case. It is further contended that the first unit is engaged in manufacturing of M.S Ingots and other products. The stand taken by the petitioner of treating manufacturing of forging steel ingot as Phase II unit is contrary to its initial stand taken on 15th December 2005. There is only one registration certificate for the entire project and for unitII, there is no separate registration. Those companies who applied and requested for separate registration before 31st December 2005 have been granted such registration..
7.1 It is emphatically contended that as per para 3.8 of the Government Resolution, the unit is entitled to Sales Tax incentives for the assets acquired and paid upto 18 months from the date of commencement of production, or 31st December 2005; whichever is earlier, and therefore, any acquisition of assets in post 31st December 2005 period could not be considered for the purpose of availing sales tax benefit. The total investment of Rs. 4825.82 lacs has been considered by the team out of which the eligible investment was Rs. 2873.10 lacs and the proposed capital investment as per registration certificate was Rs. 5525 lacs and the total investment in fact was made upto 31st December 2005 is Rs. 4725 lacs and petitioner has thus almost exhausted the ceiling mentioned at the time of proposal.
8. It is also contended further that the petitioner company made application in the prescribed format on 16th September 2005 for the investment of Rs 5685 lacs and on 15th December 2005, it has further bifurcated the said investment in Phase I and Phase II specifying the sum at Rs. 4572 lacs and Rs. 1705 lacs respectively for Phase I and Phase II. The company commenced the production with the captive power plant before 31st December 2005, and thus, the phasing of the project would mean single project in more than one components. In short, there is a categorical denial of pipeline case with specific emphasis that there is no registration of second unit [UnitII].
9. Mr. Tanvish Bhatt, learned Counsel appearing with Ms. Gargi Vyas have made their submissions fervently in support of the petition. It is emphasized that all along the very objective of the scheme have been completely disregarded by the respondents while finalizing the Eligibility Certificate and as laudable objects would get frustrated on account of such actions of the respondents, it is a fit case for the Court to interfere with.
10. As against that, learned Addl. Government Pleader Ms. Maithli Mehta strenuously objected to the averments made in the petition and insisted that for Phase II never there has been any application for a separate registration. It is only the extension of same unit and in absence of any registration prior to 31st December 2005 any investment made subsequent to 31st December 2005 can have no bearing while considering the investment in the fixed assets under the scheme and entire stand, according to learned AGP, is an afterthought and therefore, Court should refrain from interfering in the matter where petitioner choses not to come out with clean hands.
11. On carefully examining rival contentions raised in this petition and on giving thoughtful consideration to the submissions of both the sides, this petition is partly allowed in the following manner.
12. Before adverting to the rival contentions of the parties, the scheme pronounced by the State Government inviting business community for the economic development of the Kutch district in post earthquake period requires a closer look.
12.1 As can be noted from the record, this was meant to be an incentive scheme for economic development of Kutch district where not only creation of new assets was contemplated, but, the scheme also envisaged additional employment opportunities for the people of Kutch. Pronouncement of the scheme granting sales tax incentive was either for exemption or for deferment of sales tax on eligible fixed capital investment. Such sales tax benefits were granted under section 49(2) of the Gujarat Sales Tax Act, 1969 as mentioned hereinabove. Initially, as per declaration, the scheme was notified from 31st July to 2001 to 31st October 2004, however, the applicability of the scheme was extended upto 31st December 2005 by issuance of the notification dated 13th September 2004 and 7th January 2004. Thus those industrialists who were desirous to avail the benefit of either deferment or exemption were required to put forth and get themselves registered. Whenever industrial houses, or individual industrialists chose to set up a unit in Kutch district, it would be necessary for it to get itself registered and as per the different clauses of the scheme, when such specified fixed capital investments may provide under the scheme the same was to be held eligible for the benefit of sales tax exemption or sales tax differment. The scheme states thus
12.2 Clause 2 provides for operative period and states that the scheme shall come into force from 31st July 2001 and shall remain in force till 31st October, 2004. Time initially given was periodically extended and for making eligible expenditure, the cut off date is extended upto 31.12.2005.
12.3 The term 'Commercial Production' defined in clause 3.3 says that the date of first sale bill shall mean the date of commercial production.
12.4 It also further emerges from clause 3.6 that fixed capital investment are broadly divided under various heads like land, new constructions, other constructions, machineries etc. For the purpose of dispute before the Court, this clause would be relevant.
12.5 Clause 3.6 (b) is suggestive of office building, store building, and other such buildings meant for plants and machineries excluding those meant for residence of Director and guest house.
12.6 Clause 3.6 (c) permits investment in constructing compound walls, internal roads, bore wells, water tanks and other such constructions as are to be made permissible by the State Committee.
10.7 Clause 3.6 (d) pertains to purchase of plant & machineries dyes, moulds transformers for the purpose of industry treating them as capital assets.
12.8 Clause 3.6 (e) pertains to Technical Knowhow and Engineering DrawingDesign Fees.
12.9 Clause 3.7 pertains to Investment made on internal facilities related to the project.
12.10 What is relevant for the purpose of present petition is eligible investment to be considered upto 18 months from the date of production since the project cost is above Rs. 10 Crores.
12.11 Clause 4 speaks of 'sales tax benefits' [giving option to the party to chose (a) sales tax exemption; (b) Deferment in the payment of sales tax and (c) composite scheme for those industrial units having investment more than 100 Crore rupees.]
12.12 Clause 6.1 of the Scheme speaks of Committees sanctioning the incentives.
12.13 Clause 7 details the procedure for availing benefits of exemptions and reads thus :
13. Procedure :
[a] In order to avail of the incentives that the unit will have to apply in the prescribed format and obtain registration from District Industries Center/Industries Commissioner before going into production. On the basis of this registration, unit will be able to avail of sales tax incentives for 120 days.
[b] After commencement of commercial production, the unit will have to apply in the prescribed format within a period of 120 days from the date of commencement of production. Alongwith the application, details of fixed capital assets installed up to the date of commencement of commercial production will have to be furnished.
[c] In the case of the unit applying later than 120 days from the date of commencement of commercial production, such period will be considered as the period of delay and the amount of eligible incentives will be reduced in proportion and the eligibility period will be reduced to the extent of delay. However, the units will have the option to avail of the benefit either from the date of commencement of commercial production or from the date of application.
[d] If the project of the unit is not completed, the Industries Commissioner / General Manager, District Industries Center shall issue provisional eligibility upto 25% of the eligible amount after considering installation of fixed assets.
[e] On completion of the project, the industrial unit shall have to furnish all the details to Industries Commissioner/General Manager, District Industries Center. The fixed assets will be inspected at the location.”
13.2 Clause 8 provides for various conditions claiming exemptions and clause 9 pertains to State Level Committee and provides that the Committee shall resolve the issues of interpretation and disputes arising in relation to grant of benefit under the Scheme.
14. It can be seen from clauses of the Scheme that registration for setting up of new industrial undertaking was a must. Moreover, applicability of the scheme was till 31st December 2005. It is not in dispute that the petitioner proposed to set up an industry for manufacturing and trading steel products at village Tuna, Taluka Anjar. Registration of which was applied for with the Industries Commissioner and it was granted. While the sales tax registration was granted on 13th July 2005 and pursuant thereto, the petitioner commenced its commercial production on 27th December 2005.
15. The respondents granted provisional eligibility certificate of Rs 3767.99 lacs as “eligible investment” for availing the tax benefits and Chartered Accountant of the petitioner certified and confirmed the total investment of petitioner upto 31st December 2005 at Rs 47,25,82,038/ (Rupees forty seven crores twenty five lacs eighty two thousand and thirty eight only). However, when the final eligibility certificate came to be issued the same was further reduced to Rs 2873.10 lacs (Rupees Twenty Eight Seventy three lacs and Ten thousand only), and thus at the first glance, it can be noted that the final eligibility certificate reflects less tax benefits than the ad hoc eligibility certificate. It is not in dispute that the petitioner has made actual investment of Rs 4725.78 lacs upto 31st December 2005 out of the said total investment, inspecting team did not consider a sum of Rs 1852.18 lacs as eligible amount for the purpose of sales tax benefits. It would be worthwhile to reproduce entire chart reflecting the total investment as per certificate of Chartered Accountant and the investment in the capital assets held to be eligible and the investment treated as ineligible amount for the purpose of sales tax benefit briefly, taking note of different heads envisaged in which it is treated as ineligible by the State Inspecting team. These, details are given as under : This discussion concerns UnitI i.e manufacturing of M.S Ingot and with regard to the investment made for setting up Unit II, the same will be deliberated separately.
(A) Land :
The total investment made under these head as per the certificate is Rs 4.82 lacs and the entire amount has been paid off, out of which Rs 1.88 lacs is treated as eligible investment as per the eligibility certificate, whereas a sum of Rs 2.94 lacs is termed as ineligible. The report is indicative that the petitioner acquired land of village Pune admeasuring 98746 Sq. Mts at the total cost of Rs. 3.54 lacs. It also got permission for use of the same for nonagricultural purpose from the competent authority or the total built up area of 142742 sq.mts. Of course here, the land development cost is not considered eligible for the purpose of incentive. The report mentions that the eligible land area can be worked out as 52575.36 sq mtrs. (51067.96X4 +1507.40 sq mtrs.) based on fourtimes of approved plan area. Hence, Rs. 1.82 lacs is considered eligible for the incentive.
There appears to be no reason why the land development cost is not considered eligible for incentive. If one looks at the objective of the scheme, the land development for setting up of the industry is a vital component. However, while denying the amount spent on land development, it was expected of the Committee to specify the grounds on which remaining sum has been treated as ineligible for the purpose of tax benefits particularly when there is no dispute to the factum that the petitioner has spent a sum of Rs. 4.82 lacs for the development of the land.
The objections with regard to not treating the entire amount eligible for the purpose of tax benefit were raised along with the request for reconsidering these amounts vide communication dated 3rd December 2009 and 1st December 2010. There also, it was insisted that the total ineligible amount is 39.20% of the total investment and this has been so done even though the remaining unpaid amount has already been paid to the suppliers. For the first time as can be reflected from Annexure R2 as also from the contents of the additional affidavit, that vide communication dated 23rd January 2011 sent to the respondent on 28th January 2011, the petitioner had spoken about the pipeline unit and requested further that the Committee should consider all the investment made upto 31st December 2007 as eligible investment and the total investment made is of Rs. 9449.84/ lacs.
(B) Building : The total investment is of Rs.298.18 lacs and advanced payment was made to the tune of Rs.34.78 lacs. Out of this, total amount of Rs.
298.18 lacs, only sum treated as eligible is Rs 270.33 lacs. Whereas, Rs. 27.85 lacs and the advanced payment given for the building to the tune of Rs. 34.78 lacs has been denied. Thus, the total sum under this heading which becomes ineligible is the sum of Rs. 62.63 lacs. The committee has bifurcated this head under “construction plants” “building” and “nonplant machinery”. It treated the eligibility for the construction of plant building in the main factory building. It can be noticed that a sum of Rs. 27.85 lacs out of the total investment in the building of Rs. 298.18 lacs is considered to be ineligible. However, the advanced payment made for the building in its entirety is treated as ineligible, Unpaid amount of Rs. 19.84 lacs and Rs. 8.08 lacs, per government resolution, are considered ineligible.
No reasons are given as to why Rs. 8.08 lacs is treated as ineligible nor has it been specified as to why the advanced payment is also considered ineligible. We are therefore of the opinion that for both the heads “the land” and “building” the absence of reasons for considering these amounts as ineligible cannot be upheld and it is insisted that respondents shall have to furnish reasons for such denial. Moreover, as submitted to us the amount of Rs. 19.84 lacs which was treated as unpaid amount is already paid by the petitioner company.
As far as the cost of land development is concerned it would be impossible to comprehend the use of land without the basic development of the same, particularly when the fact is not in dispute that the petitioner has already spent all these amounts.
(C) Plant and Machinery :
Under this head, the total amount disallowed is Rs. 16,49,30,000/=.
The advanced payment made towards the machinery is not considered eligible for not having come to the site which is to the tune of Rs. 4103.70 lacs. This amount has been spent and machineries as per the say of the petitioner were at the Port. Amount of Rs. 628.84 lacs is held ineligible for being unpaid on 31st December 2005. This amount is admittedly paid after 31st December 2005 and the same is declared to be investment towards PhaseII. Thus, the only amount considered eligible is Rs. 2600.89 lacs which includes the plant and machinery and electrification.
As can be noted from this report, the amount of Rs. 41,03,70,000/= is considered ineligible only on account of the fact that the advanced payment was made of this amount. And, the mode of payment was not provided to the team. It is pointed out by learned counsel that in subsequent correspondence made to the respondent, these details have already been provided and the petitioner is further ready to prove the mode of payment of both the sum of Rs. 41,03,70,000/ and Rs. 34.78 lacs.
16. From the above discussion, it can be noted that there is a considerable amount of investment which is treated as ineligible on account of nonavailability of details of mode of payment. Moreover, the land development also the cost is not considered eligible for the purpose of incentive. And again towards the plant and machinery, a huge amount of Rs 1299.69 lacs is found ineligible and the petitioner lamented before this Court that despite there being no doubt with regard to the investment being made of such huge amount, by giving cryptic finding, this huge sum has been held ineligible. It is further pointed out that the vouchers may not have been made available at the relevant point of time, but the petitioner is in possession of all those vouchers and can be produced which had also been communicated to the respondents.
17. In light of the discussion held hereinabove, as far as the first Unit of M.S Ingots is concerned, we are of the opinion that when the unit had started production within the stipulated time period and when there is no doubt with regard to making of investment merely on technical grounds, the denial on the part of the respondent to treat such investment as ineligible for the purpose of tax benefit requires reconsideration. This of course is not to suggest that those investments which are not falling within the stipulations made under the scheme or which are considered ineligible specifically by virtue of government resolution are not to be treated as eligible. However, on technical ground or on nonproduction of the document when eligibility is denied that requires the direction of reconsideration.
18. As far as unit II is concerned, which pertains to forging steel, there appears to be a major dispute between the parties. According to the version of the petitioner, it is an independent unit which is to be treated as a pipeline unit and it has fulfilled all the criterion necessary for the pipeline unit. Whereas, according to the respondents, for treating forging steel plant as an independent unit II, there ought to be a separate registration for this purpose and unless there was a registration within the time frame, any investment made subsequent to stipulated time period could have no bearing on the sales tax exemption or benefit. It is the say of the petitioner that the time limit which is initially was given upto 31st December 2005 which is extended upto 31st December 2006 and the first unit had already started functioning by 31st December 2005 and it had also started production within the stipulated period.
19. Clause V of the incentive scheme speaks of the pipeline units and it was necessary for getting such unit registered on or before 31st December 2004 with necessary application for investment with the bank or financial institutions and before 31st December 2004, the land also was required to be acquired for such pipeline unit before the said date and the investment of 50% of the investment of the total project ought to have been done before 31st December 2004. On having so done the time limit would get extended. Such time period was extended upto 31st May 2005 and from that to 31st December 2006, as per the notification dated 13th September 2004. However, the rest of the conditions continued to be the same. However, if the same undertaking is to be set up in two phases, no separate registration is required. There appears to be no separate registrations for forging steel and at the same time eligibility certificate reflects at serial no.6 mention of forging steel. And thus, this goes to indicate that this was also intended to be produced and production was meant in phases.
20. Thus, from the materials available with us and from the pleadings of the parties, it can be deduced that the petitioner for the first time has come out with the averment that the total investment made by the petitioner is of Rs. 9449.84 lacs and not Rs. 4725.78 lacs in January 2011. Till the report of the State Level Committee was submitted and communications made subsequent thereto, petitioner reiteratively spoke of grievances concerning non eligibility of Rs.1852.68 lacs out of the total investment made in fixed assets of Rs. 4725.78 lacs. Although the Scheme insists on pipeline unit to be separately registered within the time period as mentioned hereinabove, it does not speak of separate registration for the same undertaking, if the unit chooses to get the same set up in two phases. As can be noted from record, MS Ingot and other products are mentioned in final eligibility certificate, likewise at Sr. No. 6 in this certificate, forging Steel is also mentioned and on the basis thereof, even if it is presumed that production of forging steel is only an extension of earlier setup plant, petitioner is required to fulfill the criteria setout in the Scheme for investing in fixed capital, for such investment to be held eligible for the purpose of tax benefit by the authority.
21. In light of the discussion made hereinabove, as can be further seen from the record and submissions of the learned counsel for the petitioner, the amount disallowed being [i] GEB [Rs. 3,20,42,000/=] deposit [ii] second hand indigenous machineries [Rs. 1,23,78,000/=]; [iii] furniture, office equipments and other such expenditure [Rs. 77,30,000/=] are not insisted for by the petitioner in this petition, for being treated as eligible under the incentive scheme. It is admitted in terms that no claim for reconsideration can be made concerning these items.
22. However, barring these aforementioned heads at para 19, remaining investment can be reconsidered by the competent authority. It is not desirable for us to deal with any of those items at a micro level for the purpose of deciding its eligibility.
23. In the aforementioned premise, the petition succeeds partially. Final Eligibility Certificate issued by the respondent on 22nd September 2009 is hereby quashed and setaside with the following final directions :
23.1 The respondents shall consider the investment made in the fixed capital and held ineligible other than those made under the head GEB deposit, second hand indigenous machinery and furniture, office equipments, etc., on the basis of documents made available by the petitioner and those evidences to be further made available within four weeks of this Order.
23.2 The respondent shall also relook at the request for considering the investment made under PhaseII of the undertaking; particularly for production of forging steel and only if, the petitioner is found to have fulfilled the criteria provided under the Scheme, the same may be considered for the purpose of tax incentives.
23.3 The Final Eligibility Certificate on the basis of this scrutiny shall be prepared within twelve weeks of receipt of this Order and the same shall be communicated to the petitioner.
24. This petition shall stand disposed of. Rule is made absolute to the above extent.
{Akil Kureshi, J.} {Ms. Sonia Gokani, J.} Prakash*