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CASE NO.: Appeal (civil)  5252 of 2007

PETITIONER: Commissioner of Trade Tax, U.P.

RESPONDENT: Malviya Chemical and Pharmaceutical Private Limited, Ghaziabad

DATE OF JUDGMENT: 15/11/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T (Arising out of S.L.P. (C) No. 7291 of 2006)

Dr. ARIJIT PASAYAT, J.

1.      Leave granted.

2.      Challenge in this appeal is to the order passed by a  learned Single Judge of the Allahabad High Court disposing of  two revision petitions, i.e. Trade Tax Revision No.723 of 1996  and Trade Tax Revision No.724 of 1996 preferred by the  respondent (hereinafter referred to as ’the Assessee\022) under  Section 11 of the Uttar Pradesh Trade Tax Act, 1948 (in short  ’the Act’). The revision petitions related to the assessment year  1992-93 in respect of assessments  framed under the Act and  the Central Sales Tax, 1956 (in short ’the Central Act’). By the  impugned order, the High Court held that the turnover of the  base production in accordance with Clause (6) of the  Notification No.1093 dated 27.07.1991 (hereinafter referred to  as ’the Notification’) has to be taken up for the whole of the  assessment year. 3.      Stand of the Assessee before the High Court was that  such turnover has to be taken for the whole of the assessment  year and if it is found that the Unit undertaking expansion has  exceeded the base production turnover in the whole of the  assessment year, then the Unit shall be entitled to avail the  benefit of exemption from payment of tax in respect of the  turnover which is in excess of the base production for the  whole of the assessment year which has to be declared under  Rule 41 (8) of the Uttar Pradesh Trade Tax Rules, 1948 (in  short the \021Rules\022).

4.      Stand of the revenue, on the other hand, was that such  interpretation goes against the very object of Section 4-A of the  Act.

5.      Brief facts giving rise to the present revisions are that the  assessee is a Private Limited Company incorporated under the  Companies Act, 1956 having its registered office at B-67,  South Extension, Part-II, New Delhi, and factory at Plot No.34- A/2, Site No.4, Sahibabad in the district Ghaziabad. Applicant  was engaged in the business of manufacture of bulk drugs. It   was granted eligibility certificate under Section 4A of the Act  under Notification No. ST-II-1093/XI-7(42)-86-UP Act-XV/48- Order 91, dated 27.07.1991 in respect of the expansion  undertaken by the assessee to manufacture paracetamole,  which is bulk drug. The exemption was granted to the extent  of 125% of the fixed capital investment, invested by the  assessee in the extension on the turnover of the goods

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manufactured in excess of the base production in an  assessment year. The base production was fixed at 172.8 MT.  thus, the assessee was entitled for the benefit of exemption  under Section 4-A of the Act in assessment year on the  production exceeding the base production of 172.8 MT. During  the assessment year 1992-93 total sales made by the assessee  from 01.04.1992 to 31.03.1993 was 382.125 MT. both within  the State of the UP as well as outside the State of UP including  the central sales. Thus, according to the assessee,  it was  entitled for the benefit of exemption under Section 4-A of the  Act on the turnover of the production of 209.325 MT. It   claimed that during the assessment year in dispute, returns  had been filed disclosing the total sales made by it and had  claimed exemption from payment of tax both under the Act  and Central Act only to the extent of sales made by it to the  extent of 140.75 MT. during the whole year. Assistant  Commissioner, Trade Tax Ghaziabad, vide his assessment  order dated 01.03.1995 accepted the books of account and the  disclosed turnover but restricted the claim of exemption to the  extent of 70.325 MT instead of 140.75 MT. Aggrieved by the  order of the assessing authority, assessee filed appeals before  Deputy Commissioner (Appeals), who vide order dated  31.07.1995 dismissed both the appeals. Deputy Commissioner  (Appeals) held that the exemption cannot be claimed from  payment of tax upto the period till the base production  turnover has not been achieved. He was of the view that  exemption was available only after the date on which base  production is achieved, i.e. if the base production is achieved  in third month then the applicant would be entitled for  exemption from the fourth month. Aggrieved by the orders of  the Deputy Commissioner (Appeals), assessee filed appeals  before the Trade Tax Tribunal, Ghaziabad (in short the  \021Tribunal\022) which were partly allowed vide order dated  23.07,1996. Tribunal held that base production has been  achieved on 23.09.1992 and, therefore, whatever the sale was  made by the applicant upto 23.09.1992 shall not be entitled  for exemption and the applicant was entitled for exemption  only after 23.09.1992 on the production in excess of the base  production. Against Tribunal\022s order, assessee moved the High  Court in revision.  6.      The High Court found substance in the plea of the  assessee and as noted above, set aside the order of Tribunal.        7.      In support of the appeal learned counsel for the appellant  submitted that the interpretation given by the High Court goes  against the very object of the Notification and Section 4-A of  the Act. Learned counsel for the respondent-Assessee, on the  other hand, supported the judgment of the High Court.

8.      To adjudicate the issue involved in the appeal, it is  necessary to refer to Section 4A, Section 7(1-A) of the Act,  Notification No.ST-II-1093/XI-7(42)-86-U.P. Act-XV/48-Order- 91, dated 27.7.1991 and Rule 41. They read as follows: \023Section 4A. Exemption from Trade Tax in certain cases.

(1)     Notwithstanding anything contained in this  Act, where the State Government is of the  opinion that it is necessary so to do for  increasing the production of any goods or for  promoting the development of any industry in  the State generally or any District or part of  District in particular, it may on application or  otherwise, in any particular case or generally  by notification, declare that the turnover of  sales in respect of such, goods by the

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manufacturer thereof shall, during such period  not exceeding twelve years from such date on  or after the date of starting production as may  be specified by the State Government in such  notification, which may be date of the  notification or a date prior or subsequent to  the date of such notification, and where no  date is so specified from the date of first sale  by such manufacturer if such sale takes place  within six months from the date of starting  production and in any other case from the date  following the expiration of six months from the  date of starting production, and subject to  such conditions as may be specified be exempt  from trade tax on sale of goods whether wholly  or partly or be liable to tax at such reduced  rate as it may fit:

    Provided that no exemption shall be  granted where the facility of concession or  exemption has been availed under Section 4- AAA. (2)     It shall be lawful for the State Government to  specify in the notification under sub-Section  (1) that the 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 falls on or  after the first day of October, 1982; or (bb) in respect of those finished goods which  are manufactured in a unit which has  undertaken backward integration; or (c)     in respect of those goods only which are  manufactured in a unit which has  undertaken expansion, diversification or  modernization on or after April 1st, 1990,  and which, in case of diversification are  different from the goods manufactured  before such diversification, and in the  case of expansion or modernization are  additional production as a result of such  expansion or modernization; and (d)     only if the manufacturer furnishes to the  assessing authority and Eligibility  Certificate granted by such officer, in  accordance with such procedure, as may  be specified;

(e)     with effect from a date prior to the date of  the notification. (5)     "Unit which has undertaken expansion  diversification or modernization" means an  industrial undertaking \026 (a)     of a dealer who is not a defaulter in  payment of any dues under this Act or  the Central Sales Tax Act, 1956 or under  any loan, scheme, administered by the  Pradeshiya Industrial and Investment  Corporation of Uttar Pradesh regarding  trade tax sale or purchase of goods; (b)     whose first date of production of goods -

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(i)     of a nature different from those  manufactured earlier by such  undertaking in case of units  undertaking diversification, and

(ii)    manufactured in excess of base  production in such undertaking in  case of units undertaking expansion  or modernization, falls at any time after March 31st, 1990 (c)     the production capacity whereof has  increased by at least twenty five percent  as a result of expansion or  modernization, or wherein goods of a  nature different from those manufactured  earlier are manufactured after  diversification; (d)     wherein an additional fixed capital  investment of at least twenty five percent  of such original fixed capital investment  (without providing for depreciation) is  made. Notification No. ST-II-1093/X1-7(42)-86-U.P.  Act- XV/48Order-91, dated 27.2.1991:      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 or modernization: Now, therefore, in exercise of the powers under  Section 4A of the Uttar Pradesh Sales Tax Act, 1948  (U.P. 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 manufactured in a \021new  unit\022, other than the units of the type mentioned n  Annexure II established in the areas mentioned in  Column 2 of Annexure I, the \021date of starting  production’ whereof falls on or after first day of  April, 1990 but not later than 31st day of March,  1995, 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  manufacture thereof on the turnover of sales of  such goods, for the period specified in Column 3 of  the said Annexure 1, or till the maximum amount of  tax relief by such exemption from or reduction in  the rate of tax as specified in Column 5 of annexure  1 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, which ever is earlier. (B) (1) in respect of any goods manufactured in a  unit other than the units of the type mentioned in  Annexure II, which \021has undertaken expansion,  diversification or modernization’ or of after April 1,  1990 but no later than March 31st, 1995, in the  areas mentioned in Column 2 of annexure 1, no tax  shall be payable or, as the case may be, the tax  shall be payable at the reduced rates specified in  Column 4 of Annexure 1, by the manufacturer  thereof for the period in Column 3 of the said  Annexure 1, or till the maximum amount of tax

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relief by such exemption from or reduction in rate of  tax as specified in Column 5 of annexure 1 is  achieved, which ever 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. (2)     the period of such facility shall be  reckoned from the first date of  production.

(i)     of goods of a nature different from  those manufactured earlier by such  unit in case of diversification; and

(ii)    of goods manufactured in excess of  the base production in the case of  units undertaking expansion or  modernization. 2.      The facility of exemption from or reduction in  the rate of tax shall be subject to the following  conditions in addition to the conditions referred to  in Section 4A of the Act.

(i)     that the \021new unit\022 is licensed or in  respect whereof a letter or intent has  been issued, or which is registered,  permanently or otherwise, by the  appropriate authority in accordance with  any law for the time being in force  relating to licensing or registration of  such units; (ii)    that the new unit is established on land  or building or both owned or taken on  lease for a period of not less than fifteen  years by such unit or allotted to such  unit by the State or the Central  Government or any Government  Company or any Corporation owned or  controlled by the Central or the State  Government;

(iii)  that the exemption from tax or, as the  case may be, reduction in the rate of tax  shall be admissible only in respect of  such goods manufactured by the unit  and such by-products and waste  products as are mentioned in the  eligibility certificate issued to such unit  under Section 4A of the Act;

(iv)    that the said unit furnishes to the  assessing authority concerned and  eligibility certificate granted in this behalf  by the General Manager, District  Industries Centre, Area Development  Officer (Industry) of the concerned  industrial Development Authority,

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Additional or Joint Director of Industries  of the range or Additional or Joint  Director of Industries of the concerned  Industrial Development Authority, as the  case may be. 3.      \021Fixed capital investment’ may, unless  otherwise established, be determined in the  case of an industrial undertaking financed by  a term loan advanced by a public financial  institution or a Schedule Bank 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 land 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 and components certified by a  Chartered Accountant. 4.      In determining the fixed capital investment as  defined in clause (4) of the Explanation in case  of \021new units’ or \021additional fixed capital  investment’ referred to in sub clause (d) of  clause (5) of the Explanation in case of \021units  which have undertaken expansion,  diversification or modernization’ the  investment in only such land, building, plant,  machinery, equipment, apparatus and  component or, as the case may be, such  additional land, building, plant, machinery,  equipment, apparatus and component shall be  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 4A of the Act. 5.      Base production of unit undertaking  expansion or modernization shall be deemed to  be - (a)     maximum production achieved during any one  of the preceding five consecutive assessment  years, or (b)     80 per cent of the installed annual production  capacity, whichever is higher.

6.(a)   Turnover of sale of goods in any assessment  year to the extent of the quantity covered by  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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                    ANNEXURE II  ................................................................................. .......                       

RULE  41- Submission of returns and assessment of tax

(1)     Every dealer liable to tax, the aggregate of  whose turnover, of purchases and sales in any  assessment year exceeds rupees five lakhs, shall  before the expiry of the next succeeding month,  submit to the Trade Tax Officer a monthly return of  his turnover in Form IV, giving Annexure I and II  thereof, detailed information, according to Code  numbers notified by the State Government from time  to time, in respect of each category of goods in which  he carries on business: Provided that the return for the month of  February shall be submitted to the Trade Tax  Officer on or before the twentieth day of  March:

Provided further that the dealer may, instead  of submitting a return as aforesaid, estimate  his turnover for the years on the basis of the  turnover admitted by him in his return, or  disclosed in his account books, whichever is  greater, for the immediately preceding year,  calculate the amount of tax payable thereon  and deposit a sum equal to one twelfth thereof  during each of the first two months of every  quarter, and deposit the balance of tax due on  the turnover admitted by him in his return for  the relevant quarter, which shall be prepared  and submitted in the manner laid down in this  rule. (8)     Upon the expiry of the assessment year, the  Assessing Authority shall, after such enquiry,  as he may deem necessary, determine the  turnover of sales or of purchases, or both, as  the case may be, of the dealer in respect of the  assessment year and shall assess the tax  payable thereon;

Provided that in the case of a dealer to whom  sub-section (1) of Section 18 applies or owner  or incharge of the vehicle to whom sub-section  (1) of Section 28-B applies, the assessing  authority may make an assessment order and  assess the tax payable thereon before the  expiry of the assessment year: Provided further that, before determining the  turnover of the dealer to the best of his  judgment, the assessing authority shall cause  a notice to be served on the dealer, stating the  reasons, for non-acceptance of the turnover of  sales or purchases or both, as disclosed in the  returns, if any, submitted by him and shall  give him a reasonable opportunity of  furnishing his reply thereto.

Section 7.-Determination of turnover and  assessment of tax.

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(1-A) Before submitting the return under sub- Section (1) or alongwith such return, the  dealer shall deposit, in such manner as may  be prescribed, the amount of due on the turn-  over shown in such return.\024

9.      A similar issue came up for consideration in  Commissioner of Trade Tax, U.P. Vs. Modipan Fibres Co.  (2006 (6) SCC 577).  In that case, this Court was considering  an appeal filed by the present appellant where challenge lay to  the decision rendered by the High Court in Modipan Fibres Co.   Vs. C.T.T. (2000 UPTC 319). 10.     The said case was relied upon by the High Court in  support of its conclusions which are challenged in the present  appeal. In the said case, this Court inter-alia observed as  follows:

    "Purpose of granting exemption under the  Notification dated 27.7.1999 was to promote  the development of certain industries in the  State. By the said Notification exemption from  payment of tax or reduction in rate of tax was  granted to new units as also to the units which  had undertaken expansion, diversification or  modernization. The units of dealers in all the  revisions are units, which had undertaken  expansion/modernization. The units of the  dealers (respondents) are covered by Clause (1- B) (a) of the Notification. Exemption granted is  on the turnover of sales of quantity of goods  manufactured in excess of base production.  Under clause 6(a) of the said Notification,  turnover of sale of goods in any assessment  year to the extent of quantity covered by the  base production of that year and balance stock  of base production of’ previous years, shall be  deemed to be turnover of the base production.  Under clause 6(b) of the Notification, the  facility of exemption can be availed on the  turnover of goods in \023any assessment year" in  excess of the quantity referred to in sub-clause  (a) of clause 6.  A conjoint reading of Clause (1- B) (a), clause 6(a) and 6 (b) makes it clear that  the dealer is entitled to claim exemption in  respect of the turnover of sale of goods of an  assessment near in excess of the base  production. "Assessment Year" has been  defined in Section 3 (j) to mean the twelve  months ending on March 31. If that be the  case then the extent of entitlement to  exemption will depend on the sale of goods in  the assessment year minus the base  production determined under the Act. Simply  because dealer has to file returns from month  to month and deposit the admitted tax at the  time of filing of the return does not mean that  question of exemption on the turnover of the  production in excess of the base production  can be considered only after the base  production is achieved. Returns filed every  month and the tax paid would be subject to  adjustment at the time of the finalization of the  assessment. Intention of the legislature is clear  and unambiguous. Exemption is to be given on  the turnover of sale of goods in an assessment

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year in excess of the base production. We do  not find any substance in the submission  advanced on behalf of the appellants.\024  

11.     In view of what has been stated in Modipan\022s case (supra)  while dismissing the appeal, the inevitable result is that the  present appeal is without merit and deserves dismissal which  we direct.  No costs.