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CASE NO.: Appeal (civil)  1817 of 2008

PETITIONER: State of Haryana

RESPONDENT: M/s Samtel India Ltd

DATE OF JUDGMENT: 07/03/2008

BENCH: S.H. Kapadia & B. Sudershan Reddy

JUDGMENT: JUDGMENT

O R D E R

CIVIL APPEAL NO 1817 OF 2008 (Arising out of SLP(C) No.    6197 /2008 @ CC 2494/08)

       Delay condoned.                  Leave granted.

       A short point which arises for determination in this civil appeal is:  whether the respondent herein was entitled to addition of Colour Monitors in  eligibility certificate dated 23.2.1995 entitling it to sales tax exemption  under rule 28A of Haryana General Sales Tax Rules, 1975 (for short, "1975  Rules") for the manufacture of monochrome monitors and black and white  TV sets? In other words, whether the respondent was entitled to claim  addition of a new item (colour monitor) in the eligibility certificate given to  it, which certificate was restricted to the manufacture of monochrome  monitors and black and white TV sets.

       On 23.2.1995, the respondent was granted "eligibility certificate"  entitling it to avail of sales tax exemption under rule 28A of 1975 Rules to  the extent of Rs. 276.95 lakhs for a period of 7 years commencing from  23.2.1995 to 22.2.2002 for the manufacture of monochrome monitors and  black and white TV sets alone. In other words, the said eligibility certificate  did not cover colour monitors. At that time, the capital investment of the  company was Rs. 55.39 lakhs. On 13.3.1996, the respondent submitted an  application claiming tax benefit for an investment of Rs. 26.74 lakhs made  for diversification of extending the unit to manufacture "colour monitor".  The said application was allowed. Respondent was granted a new eligibility  certificate on 15.9.1997 entitling it to avail the benefit of exemption from  sales tax to the extent of Rs. 122.85 lakhs for the period commencing from  15.12.1995 to 14.12.2001.

       On 1.2.1998, however, the respondent submitted an application  requesting for insertion of "colour monitor" in the earlier eligibility  certificate dated 23.2.1995. By order dated 11.10.1999 the competent  authority rejected the application on the ground that there was no provision  under rule 28A authorizing such addition in the eligibility certificate  already  granted.

       Suffice it to state that the decision of the competent authority dated  11.10.1999 ultimately came to be challenged before Haryana Tax Tribunal.  By its order dated 30.11.2005, the Tribunal accepted the appeal inter alia on  the ground that a liberal approach needs to be taken while interpreting the  said rule 28A and, accordingly, directed the Department (appellant herein) to  add "colour monitor" to the eligibility certificate dated 23.2.1995. The  decision of the Tribunal has been affirmed by the High Court by impugned

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judgment dated 9.7.2007  in CWP No. 9764/07.

       At the outset, we quote hereinbelow sub-rule (2)(d) of rule 28A of the  1975 Rules, which reads as under:

"Expansion/diversification of industrial unit means a  capacity set up or installed during the operative period  which creates additional productions/manufacturing  facilities for manufacture of the same product/product as  of the existing unit (expansion) or different products  (diversification) at the same or new location; and  

(i)     in which the additional fixed capital investment  made during the operative period exceeds 25% of  the fixed capital investment of the existing unit;  and

(ii)    which results into increase in annual production by  25% of the installed capacity of the existing unit in  case of expansion."

       In this case, the High Court was concerned with interpretation of the  above rule. It was not concerned with interpretation of a notification. Be that  as it may, it is well settled, that, in a matter of exemption the  rule/notification is required to be interpreted strictly. The question raised by  the Department before the High Court was that the above rule confines the  certificate of eligibility to the manufacture of the same product. Before the  High Court inter alia it was contended that expansion/diversification of  industrial unit meant creation of additional manufacturing facility for the  manufacture of the same product (monochrome monitors). That, there was  no scope for addition of colour monitor in existing eligibility certificate  dated 23.2.1995, which was granted only in respect of manufacture of  monochrome monitors. Further, according to the Department, under sub-rule  (4)(a), different scales of tax benefit and different duration of exemption  period have been provided for new industrial units and units undertaking  expansion/diversification. Therefore, according to the Department, there was  no question of liberal interpretation of rule 28A.

       According to the respondent herein, colour monitor was an improved  version of monochrome monitor and, therefore, it was entitled to the  modification of eligibility certificate dated 23.2.1995. It was further urged  on behalf of the  respondent that, with the improved technology, liberal  interpretation of the rule was warranted.

       In this case we find that, while deciding the writ petition filed by the  Department, the above rule has not been analysed by the High Court. No  reason has been given by the High Court in its impugned judgment as to  what weightage should be given to the words used in the above rule,  particularly, the expression "for manufacture of the same product".  Similarly, the High Court has failed to consider the effect of a cap/ceiling  being put on the capital investment which, in the present case, stood at Rs.  276.95 lakhs vide eligibility certificate dated 23.2.1995. Similarly, the High  Court has not discussed the scope of sub-rule (4)(a) which provides for  different scales of tax benefit and different duration of exemption period. In  this case, the High Court has primarily proceeded to dismiss the  Department’s writ petition on the ground that it had already issued modified  eligibility certificate in terms of the directions given by the Tribunal.  Secondly, the High Court has proceeded on the basis of its earlier judgment  in the case of State of Haryana  v.  Bharti Teletech Ltd., Gurgaon in  CWP NO. 11884/03.  

       In our view, the High Court had erred in relying upon the fact that  modified eligibility certificate stood granted as it was granted pursuant to the  impugned judgment of the Tribunal. Similarly, the High Court has relied  upon its earlier judgment in Bharti Teletech Ltd. (supra) in which the writ

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petition filed by the Department stood dismissed on the ground of laches.  Therefore, in our view, both the above circumstances were irrelevant. As  stated above, High Court should have considered the matter on interpretation  of rule 28A of 1975 Rules. It has not considered the said rule. It has not  considered the above arguments.

       For the aforestated reasons, we set aside the impugned judgment dated  9.7.2007 dismissing the Department’s CWP No. 9764/07 and, consequently,  we remit the matter to the High Court for fresh consideration in accordance  with law. Accordingly, we direct restoration of CWP No. 9764/07 on to the  file of the High Court.

       Accordingly, the Department’s civil appeal stands allowed with no  order as to costs.