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CASE NO.: Appeal (civil)  4944 of 2001

PETITIONER: Commercial Taxes Officer, Jodhpur

RESPONDENT: M/s Vishnu Metals

DATE OF JUDGMENT: 07/11/2006

BENCH: Ashok Bhan, Altamas Kabir & Dalveer Bhandari

JUDGMENT: J U D G M E N T WITH Civil Appeal No.     4701        /2006 (Arising out of  SLP ) No.2165/2003)

Commissioner, Commercial Taxes, Jaipur          ....Appellants Versus M/s Narpat Steels Private Ltd.                        ....Respondents

ALTAMAS KABIR,J.

       Civil Appeal No. 4944 of 2001 is directed against the  judgment of the Rajasthan High Court at Jodhpur dated 18th  January, 2000,  in S.B. Sales Tax Revision No. 1165 of 1999  under Section 86(2) of the Rajasthan Sales Tax Act, 1994.  The  said revision was directed against the judgment dated 9th  February, 1999, passed by the Rajasthan Tax Board, Ajmer,    allowing the appeal preferred by the respondent/assessee and  setting aside the decision of the District Level Screening  Committee  taken on 19th March, 1998, rejecting the  assessee’s application for Eligibility Certificate under the Sales  Tax New Incentive Scheme for Industries, 1989.           The assessee, which  is the respondent in the present  appeal, manufactures stainless steel sheets.   Its original  installed capacity was 1300 M.T. per annum prior to 16th  February, 1995.  Subsequently, the assessee expanded its  production capacity to 1600 M.T. per annum and achieved the  production of more than 85% of the installed capacity between  16th February, 1995 and 16th June, 1996.   According to the  materials on record, the production of the assessee between  April, 1994 to 15th February, 1995 was 1292.913 M.T. and  during the year following the date of expansion, the assessee  manufactured its own goods to the extent of 1447.489 M.T.   It  is the case of the assessee that apart from manufacturing its  own goods, the assessee had also manufactured goods by  doing job work for others and the entire production, taking  into account the goods manufactured for its own purposes and  the job work, would amount to a total of 2193.76 M.T.  In  other words, if the job work undertaken by the assessee for  others is also taken into consideration, along with the  production for its own purposes, such production would  constitute an increase in the production to more than 25% of  the original installed capacity. On 6th July, 1989, the Rajasthan Government, in exercise  of its powers conferred by Section 4(2) of the Rajasthan Sales  Tax Act, 1954, notified the "Sales Tax New Incentive Scheme  for Industries, 1989" which exempted the industrial units from  payment of tax on the sale of goods manufactured by them

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within the State in the manner and to the extent and for the  period as covered by the notification. Clause 2(f) dealt with  expansion of units and defined such expansion in the  following terms:-   

"2(f) Expansion means increase in the value of  fixed capital investment by not less than 25% of the  net fixed assets of the existing project and  accompanied by an increase in the production to  the extent of at least 25% of the original  licensed/registered capacity.  

Explanation:  The benefits of Sales Tax  incentive for Expansion shall be admissible to the  eligible units only after they have achieved at least  85% of their licensed/registered capacity before  expansion."    The assessee applied to the District Level Screening  Committee for grant of Eligibility Certificate under the  provisions of the said 1989 Incentive Scheme on account of  expansion of its installed capacity.   The said Committee came  to the conclusion that since the production by the assessee  had been raised during the period in question from 1292.913  M.T. to 1447.489 M.T., it had utilized more than 85% capacity,  but the production had not increased to the extent of 25% of  the licensed/registered capacity and accordingly rejected the  claim of the assessee.   Against the said decision of the District  Level Screening Committee, the assessee went before the  Rajasthan Tax Board by way of Appeal No.  798/98/S.T./Jodhpur, wherein it was contended that apart  from the production for its own purposes, the assessee had  also undertaken "job work" and that the two taken together  would far exceed the required increase in the production to the  extent of at least 25% of the licensed/registered capacity.    Accepting the submissions made on behalf of the  assessee that since the definition of the expression  "expansion" did not stipulate that the production had to be for  its own purposes, the Tax Board held that the assessee was  entitled to add the job work performed to its own production  for its own purposes to qualify for the Eligibility Certificate  under the 1989 Incentive Scheme.   The same view was reiterated by the High Court in the  revision preferred by the Department.   The question that, therefore, falls for determination in  this appeal is whether the job work performed by the assessee  in addition to its production for its own purposes can be taken  into consideration for the purposes of clause 2(f) of the 1989  Incentive Scheme, as had been held both by the Rajasthan Tax  Board and the High Court.  Although, the Rajasthan Tax  Board was of the view that the job work performed by the  assessee would have to be added to the production capacity of  the assessee’s unit, there is no reasoning in support thereof.    The said lacuna has been addressed by the High Court by  holding that the expression used in the statute did not  indicate that the manufacture of goods for sale must be by any  particular individual and that the entire production in order to  make the unit eligible for grant of benefit under the 1989  Incentive Scheme must be on its own account and not by way  of doing job work.   On such interpretation of clause 2(f) of the  1989 Incentive Scheme, the High Court affirmed the finding of  the Rajasthan Tax Board and directed the District Level  Screening Committee to issue necessary Eligibility Certificate  to the respondent-assessee.   While arriving at a conclusion that job work would also

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have to be taken into consideration for grant of eligibility  certificate under Clause 2(f), both the Rajastan Tax Board and  the High Court omitted to take into consideration the nature of  job work performed by the respondent-assessee and whether  the same would amount to production as contemplated in the  said clause.   Learned counsel appearing for the respondent- assessee was also unable to specify the nature of job work said  to have been undertaken by the respondent-assessee.   Both  the Rajasthan Tax Board and the High Court laboured under  the presumption that the job work performed by the  respondent-assessee involved manufacture of goods which  were similar in nature to its own goods for sale.   Such an  approach, in our view, was erroneous, since the very nature of  the incentive given under the aforesaid 1989 Incentive Scheme  involves calculation of the actual production of the unit in  question.   In the absence of any material to indicate the  nature of job work undertaken, it would be improper to  proceed only on the basis of presumption.   The Department’s appeal must, therefore, succeed and is  allowed and the judgment of both the Rajasthan Tax Board  and the High Court dated 18th January, 2000 and 9th  February, 1999, respectively, are set aside.   There will, however, be no order as to costs.   

Civil Appeal No.     4701        /2006 (Arising out of  SLP ) No.2165/2003)

Leave granted.   The Civil Appeal arising out of S.L.P.(Civil) No. 2165 of  2003 involves the same question as in Civil Appeal No. 4944 of  2001 and is directed against the judgment of the Rajasthan  High Court at Jodhpur dated 14th August, 2002, in S.B.   Sales Tax Revision No. 457 of 2002 under Section 86(2) of the  Rajasthan Sales Tax Act, 1994.  The said revision was directed  against the judgment dated 3rd October, 2001, passed by the  Rajasthan Tax Board, Ajmer, allowing the appeal preferred by  the respondent/assessee  and setting aside the decision of the  District Level Screening Committee taken on 7th August, 1999.   Relying on its decision in the Vishnu Metals’ case in S.B.  Sales Tax Revision No. 1165 of 1999, the High Court  dismissed the revisional application of the appellant in the  instant appeal as well.   As the issue involved is the same in both these appeals,  the decision in Civil Appeal No. 4944 of 2001 will govern this  appeal as well.   Consequently, the Department’s appeal  succeeds and the judgment of both the Rajasthan Tax Board  and the High Court dated 14th August, 2002, and 3rd October,  2001, respectively, are set aside.   There will be no order as to costs.