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CASE NO.: Appeal (civil)  1760-1761 of 2001

PETITIONER: Commissioner of Trade Tax, U.P

RESPONDENT: M/s. Modipan Fibres Company

DATE OF JUDGMENT: 02/08/2006

BENCH: ASHOK BHAN & MARKANDEY KATJU

JUDGMENT: J U D G M E N T With CIVIL APPEAL NO. 1762-1765 OF 2001

BHAN, J.

       This order shall dispose of Civil Appeal Nos.  1760-1761 of 2001 and 1762-1765 of 2001 as the  point involved in all these appeals is common.  The  High Court had also disposed of the revision  petitions by a common order.  These appeals are  directed against a common order passed by the High  Court of judicature at Allahabad in Trade Tax  Revision No.1071-1072 of 1997 whereby the High  Court allowed the revision filed by the respondent- assessee (hereinafter referred to as "the  respondent") and set aside the order of the Trade  Tax Tribunal \026 Bench-2, Ghaziabad (for short "the  Tribunal"). Before adverting to the facts, it is  necessary to mention a few preliminary facts on the  statutory provision of the U.P. Trade Tax Act, 1948  (for short "the Act") and the Notification No. 1093  dated 27.7.1991 issued under Section 4-A of the  Act.   

Section 4-A interalia empowers the State  Government to exempt from tax on the sale or  purchase of such goods by such person or class of  persons, as the State Government may by  notification in the gazette exempt.  In pursuance  to the powers vested in it under Section 4-A, the  State Government issued Notification No. S. T.-2- 1093/XI-7(42)-68 U.P. Act XV-48-Order-90 dated  27.7.1991.  Under the notification the State  Government for the purpose of promoting the  development of certain industries in the State  granted exemptions from or reduction in rate of tax  to new units and also to units which have  undertaken expansion, diversification or  modernization.  To appreciate the submissions  advanced by the counsel for the parties it would be  appropriate to reproduce the relevant provisions of  the Notification dated 27.7.1991, which are as  under:          "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

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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 4-A 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 \026

(1-A)  .......................................... ..........................

       (I-B) In respect of any goods  manufactured in a unit other than the  units of the type mentioned in Annexure  II, which ’has undertaken expansion,  diversification or modernization’ on or  after April 1, 1990 but not later than  March 31, 1995, in the areas mentioned in  column 2 of Annexure I, 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 I, by  the manufacturer thereof for the period  specified in column 3 of the said Annexure  I, or till the maximum amount of tax  relief by such exemption from or reduction  in rate of tax as specified in column 5 of  Annexure I is achieved, whichever is  earlier, on the turnover of sales\027

(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 \026

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

(ii)    of the goods manufactured in  excess of the base production in  the case of units undertaking  expansion or modernization.

5.      Base production of a unit undertaking  expansion or modernization shall be  deemed to be-

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(a)     maximum production achieved during  any of the preceding five  consecutive assessment year, 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 base  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 exemption  from or reduction in the rate of  tax." FACTS         Facts are taken from Civil Appeal Nos. 1760- 1761 of 2001.   Respondent, M/s. Modipan Fibres Company, deals  in production and sale of Nylon and Polyester yarn.   It was granted an eligibility certificate under  Section 4-A of the Act in terms of Notification  No.1093 dated 27.7.1991.  For the assessment year  under consideration, the respondent disclosed total  production at 12,222,827 metric tones.  It  disclosed sales of 313.206 metric tones in the  State of U.P. and 1008.55 metric tones as  interstate sales.  10,461.189 metric tones of goods  were shown as stock transfer.  The assessee thus  claimed that total sale of the goods was 11782.945  metric tones.  The base production according to the  eligibility certificate granted to the dealer was  9460 metric tones.  It claimed exemption from  payment of tax on turnover (for the entire year) of  sale of goods weighing 2,322.945 metric tones i.e.  after reducing the base production from the total  sale of goods in a year.  The Assessing Authority,  however, granted exemption to the extent of  turnover on the sale of 1,321.756 metric tones of  goods.  The claim of the respondent was restricted  on the ground that the base production was achieved  on 4.1.1993 and the exemption from payment of tax  can be granted on the sale of goods after the base  production is achieved.   

\       Aggrieved against the order passed by the  Assessing Authority, respondent filed two appeals,  i.e., one under the State Sales Tax Act and t he  other under the Central Sales Tax Act  before the  Deputy Commissioner (Appeals), which were accepted  by the order dated 4.2.1997.  The order passed by  the Assessing Authority was set aside and the  respondent was granted exemption on the goods as  claimed by it.  Feeling aggrieved by the order  passed by the Deputy Commissioner (Appeals), the  Commissioner of Trade Tax, U.P. (for short "the  appellant") filed two appeals being Appeal Nos.

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70/97 and 71/97, before the Tribunal, which by its  order dated 24.9.1997 accepted the appeals, set  aside the order passed by the First Appellate  Authority and restored the order passed by the  Assessing Officer.  Aggrieved by the order passed  by the Tribunal, the respondent filed revision  petition in the High Court which have been accepted  b\y the impugned order.  The High Court has set  aside the order passed by the Tribunal as well as  the Assessing Authority and restored that of the  First Appellate Authority.  

       Although before the High Court number of points  were raised but the only submission advanced before  us is:  as to whether the assessee is entitled to  avail of the exemption on the basis of the turnover  of sale of goods in an assessment year minus the  base production or on the sale of goods after  achieving the base production.   

       Dr. Padia, learned senior counsel appearing for  the appellants contends that the base production  has to be achieved first, and it is only thereafter  the question of exemption on the turnover of sale  of goods in excess of base production can be  considered.    To support his submission Dr. Padia  has referred to the provisions of Section 7 (1)  read with Rule 41(1) and submitted that the dealer  is required to file monthly return on the basis of  actual turnover and not on hypothetical basis.  The  dealer is also required to deposit the admitted tax  at the time of filing of monthly return.  That in  case the contention of the assessee is accepted  then the provisions of Section 7(1) read with Rule  41 (1) and the notification under consideration  cannot be interpreted harmoniously.   As against  this, Shri Ganguli, learned senior counsel  appearing for the respondents contends that the  facility of exemption can be availed on the  turnover of sale of goods in an assessment year in  excess of the quantity referred to in sub-clause  (a) of Clause 6 of the Notification.    According  to him, exemption is to be granted after taking  into consideration the turnover of sale of goods of  the entire assessment year.   

       Purpose of granting exemption under the  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)

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of the Notification, the facility of exemption can  be availed on the turnover of goods in "any  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) & (b)  makes it clear that the dealer is entitled to claim  exemption in respect of the turnover of sale of  goods of an assessment year 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 year in excess of the base production.  We do not find any substance in the submission  advanced on behalf of the appellants.  

       For the reasons stated above, we do not find  any merit in these appeals and dismiss the same,  leaving the parties to bear their own costs.