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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. 274     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               276               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