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PETITIONER: VIJAY ENTERPRISES AND ORS.

       Vs.

RESPONDENT: SALES TAX OFFICER AND ORS.

DATE OF JUDGMENT11/02/1992

BENCH: REDDY, K. JAYACHANDRA (J) BENCH: REDDY, K. JAYACHANDRA (J) PATNAIK, R.C. (J)

CITATION:  1992 AIR  760            1992 SCR  (1) 594  1992 SCC  (2)  55        JT 1992 (1)   579  1992 SCALE  (1)304

ACT:               Uttar Pradesh Sales Tax Act, 1948:      Section 4-A and Notification dated  29.1.1985-Exemption of   Sales  tax  to  new  industrial  units-First sale   of manufactured  goods  made  within six months  from  date  of production-Diesel  set purchased before date of first  sale- Whether  cost  of  diesel  set to  be  included  in  capital investment and exemption granted for five years from date of first sale.

HEADNOTE:      The  petitioners  were a small  scale  industrial  unit manufacturing  cycle stands and carriers.  They applied  for power connection in December, 1984, but it was given only on 20.5.86,  though it was sanctioned on  19.1.86.   Meanwhile, the petitioners started production manually with effect from 1.3.85 and effected first sale of the manufactured goods  on 30.3.85.   On  their  application  for  exemption  from  the payment of sales tax under Section 4-A of the U.P. Sales Tax Act, 1948, and the Notifications issued thereunder from time to  time,  the Divisional Joint Director of  the  Sales  Tax Department  granted  exemption for a period of  three  years only commencing from 1.3.85.      The  petitioners filed a review application  contending that  the exemption should be with effect from  20.5.86,  on which  date  the power connection was given  and  production commenced  with  the  help  of  electricity  and  that   the exemption  should be for five years from 20.5.86,  since  on that date their capital investment was more than Rs.3,00,000 including  Rs. 72,800, the cost of diesel set  purchased  by them.   The  petitioners’ plea that 30.3.85 as the  date  of first  sale  was accepted, but their plea that the  date  of starting  of  production  should be  20.5.86  was  rejected. Hence the petitioners filed a Writ Petition before the  High Court.      Rejecting  the  petitioners’  pleas that  the  date  of getting  power connection, i.e. 20.5.86 should be  taken  as the  date  of  starting production,  and  that  the  capital investment in the unit was more than Rs. 3,00,000 during                                                        595 the  period  between  1.3.85  i.e.  the  date  of   starting

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production,  and 30.3.85, i.e. the date of first  sale,  the High Court held that the first sale, i.e. 30.3.1985,  should be taken as date of commencement of the period of  exemption and  that the petitioners were entitled for  exemption  only for  a  period  of three years from that  date  in  view  of Section 4-A of the Act and the relevant notifications.      In  the special leave Petition before this  Court,  the petitioners  contended  that once it was accepted  that  the date  of  first sale was 30.3.85, the cost  of  diesel  unit amounting  to  Rs.  72,800 should also be  included  in  the capital   investment,  in  which  case  the  total   capital investment  would be above Rs. 3 lakhs and accordingly,  the exemption  should  be  for five years as  per  the  relevant provisions.      Disposing of the Special Leave Petition, this Court,      HELD:  1.  The petitioners are entitled  for  exemption under Section 4-A of the U.P. Sales Tax Act, 1948, for  five years  from 30.3.1985 and accordingly they should  be  given the benefit.      2.1.  Section  4-A  of the Act  provides  for  granting exemption  to  the  new  industrial units  with  a  view  to increase  the  production  of any goods and  the  period  of exemption  should be from the date of first sale within  the six  months’ time from the date of starting production.  The Notification dated 29.1.1985 issued by the State  Government under Section 4-A specified the date of commencement of  the period of exemption as the date of first sale, if such  sale took  place  not  later than six months  from  the  date  of starting  production,  or,  in other cases,  from  the  date following  the  expiration of six months from  the  date  of starting production.  Column 3 of the Table appended to  the Notification  shows that in respect of the  units  mentioned therein in Serial  No. 3, the exemption should be for  three years  if the total capital investment does not  exceed  Rs. 3,00,000  and if it exceeds Rs. 3,00,000 it should  be  five years.  [598A-B, E]      2.2 In the instant case, the petitioners’ case has been that they purchased and installed a diesel unit on  4.3.1985 amounting  to Rs. 72,800 and as such, it must be  held  that the  cost  of  the diesel unit should  be  included  in  the capital   investment,  in  which  case  the  total   capital investment  would be more than Rs. 3,00,000 on the  date  of first sale, namely, 30.3.1985, and therefore, the  exemption should be for five years.  The Joint                                                        596 Director  rejected the claim to include the cost  of  diesel unit on the sole ground that it was purchased after starting production.   However,  before  the  High  Court  the  State Government  alongwith their counter-affidavit  have  annexed the bill dated 4.3.1985, which shows that the diesel set was purchased  by the petitioners for total cost of Rs.  72,800. Therefore,  it cannot be in dispute that the diesel set  was purchased by the petitioners on 4.3.1985.  [598E, 601D]      2.3.  In  view of the categorical finding of  the  High Court  that  the  date of  commencement  of  production  was 1.3.1985 and the date of first sale was 30.3.1985, the  date of  purchase  of diesel set which is 4.3.1985,  was  clearly prior to the date of first sale, and, therefore, the cost of the  diesel  set  should also be  included  in  the  capital investment  as on 30.3.1985, and then it would be more  than Rs.  3,00,000.  Thus, it is clear that the exemption  should be for five years from 30.3.1985 i.e. date of first sale, as per the relevant provisions.  [601E-F]

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JUDGMENT:      CIVIL  APPELLATE JURISDICTION : Special Leave  Petition (Civil) No. 8543 of 1990.      From  the  Judgment and Order dated 25.5. 1990  of  the Allahabad  High  Court in Civil Misc. Writ No. 36  (Tax)  of 1989.      P.P Rao and A.S. Pundir for the Petitioners.      Ashok K. Srivastava for the Respondents.      The following Order of the court was delivered:      The  matter  is  being  disposed of  at  the  stage  of admission after hearing both sides.      The petitioners in these appeals have filed the  S.L.P. against  the  order  of  the  Allahabad  High  Court.    The petitioners   belong   to  a  re-established   small   scale industrial unit for manufacturing cycle stands and  carriers during the year 1984-85.  They applied for power  connection in  December,  1984  but  it  was  sanctioned  on   19.1.86. Meanwhile  the  petitioners,  however,  started   production manually with effect from 1.3.85.  They effected their first sale of the manufactured goods on 30.3.85. It is their  case that  they  purchased  a diesel unit  and  installed  it  on 4.3.85.   According to them the total  investment  including the cost diesel unit                                                        597 was  more  than Rs. 3,00,000 as on 30.3.85, when  the  first sale  was effected.  The petitioners applied  for  exemption from the payment of sales tax under Section 4-A of the  U.P. Sales  Tax Act and the Notifications thereunder issued  from time  to time.  The Divisional Joint Director by  his  Order dated 26.4.1988 informed the petitioners that exemption  was granted  under Section 4-A for a period of three years  only commencing   from  1.3.85.   A  review  was  filed  by   the petitioners  contending  that the exemption should  be  with effect  from 20.5.86 on which date the power connection  was given and production commenced with the help of  electricity and on that date their capital investment was more than  Rs. 3,00,000  and  therefore the exemption should  be  for  five years.  By proceedings dated 23.12.1988 the petitioners were informed that 30.3.85 has been accepted as the date of first sale, but their plea that the date of starting of production should be 20.5.85 was rejected.  Questioning the same a Writ Petition was filed before the High Court.      The  High  Court accepted the  petitioners’  plea  that 30.3.85 is the date of first sale manufactured goods by  the petitioners.  However, the plea of the petitioners that  the date  of  getting power connection i.e.  20.5.86  should  be taken as the date of starting production was rejected.   The High Court also observed that the date of first sale, namely 30.3.85, should be taken as the date of commencement of  the period  of  exemption.  Having thus found, the  High  court, however  was  not prepared to accept the  petitioners’  plea that  the capital investment in the unit was more  than  Rs. 3,00,000 during the period between 1.3.85, i.e. the date  of starting  production,  and 30.3.85, i.e. the date  of  first sale.   In the result, it was declared that the  petitioners were entitled for exemption only for a period of three years from  the  date of first sale, namely 30.3.85,  in  view  of Section 4-A of the Act and the relevant notifications.      The learned counsel for the petitioners contended  that when  once  it is accepted that the date of  first  sale  is 30.3.85,  then the exemption should be on the basis  of  the capital  investment as it stood on that date and  since  the petitioners  have already installed the diesel unit and  the cost of diesel unit   amounting to Rs. 72,800 should also be

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included  in the capital investment, then the total  capital investment  would  be above Rs. 3,00,000 and  on  which  the exemption  should  be  for five years as  per  the  relevant provisions.   To  appreciate  this  contention  it   becomes necessary  to  refer  to  some of  the  provisions  and  the notifications thereunder.                                                        598      Section 4-A of the Act provides for granting  exemption to  the  new industrial units with a view  to  increase  the production  of any goods and the period of exemption  should be  from the date of the first sale within the  six  months’ time  from the date of starting production.  A  Notification was issued by the State Government on 29.1.85 under  Section 4-A  of the Act specifying the date of commencement  of  the period of exemption as "the date of first sale, if such sale takes  place  not  later than six months from  the  date  of starting  production,  or,  in other cases,  from  the  date following  the  expiration of six months from  the  date  of starting production".  In the light of the above  provisions and  the notifications thereunder, the date of exemption  in the  instant case should be taken as 30.3.1985,  namely  the date  of first sale.  This aspect is not in  dispute.   Then the  question is whether the exemption should be  for  three years or five years? It depends upon the question as to what was  the total capital investment on 30.3.1985; was it  less than Rs. 3,00,000 or more?      Column  3  of the Table appended  to  the  Notification dated  29.1.1985 issued under Section 4-A of the  Act  shows that in respect of the units mentioned therein in Serial No. 3, the exemption should for three years if the total capital investment  does not exceed Rs. 3,00,000 and if  it  exceeds Rs. 3,00,000 it should be five years.  The petitioners’ case throughout  has  been that they purchased  and  installed  a diesel  unit  on 4.3.1985 amounting to Rs. 72,800  and  that since  the  same is not in dispute at all, it must  be  held that  the cost of the diesel unit should be included in  the capital  investment, and then the total  capital  investment would be more than Rs. 3,00,000 as on the date of first sale namely 30.3.1985, in which case the exemption should be  for five  years.   We may mention here that this point  was  not considered  by the High Court in the manner it is  submitted by  the  petitioners. No doubt, before the  High  Court  the petitioners’ contention was that the date 20.5.86, when  the power  was  supplied,  should be the  date  of  starting  of production  and from that date the exemption should  be  for five  years.  The  High  Court  rejected this contention  by observing:          "The  petitioners  did not aver  specifically  that          even  on 1.3.1985/30.3.1985, their  investment  was          more than rupees three lacks.  In such a situation,          we  cannot  find fault with the authority  for  not          recording a clear find on this issue".      In   observing  so,  the  High  Court  relied  on   two paragraphs in the                                                        599 review petition filed before the Sales Tax Authorities.      The  learned counsel submitted that even if the  period of  exemption cannot be reckoned from 20.5.86 (the  date  on which  the  power  was supplied), yet  the  same  should  be reckoned  atleast  from 30.3.1985, on which date  the  total capital investment was above Rs. 3,00,000 undoubtedly.   The learned  counsel  for  the  State  submitted  that  such   a contention was not put forward by the petitioners before the High Court and, therefore, the petitioners cannot raise  the same before this Court.

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    The  High  Court  has given a  categorical  finding  as under:          "In the circumstances of the present case, we  find          that  the  date  of  starting  production  in   the          petitioners  unit is 1.3.1985 and in view  of  sub-          section  (1) of section 4-A, the date of the  first          sale, i.e., 30.3.1985, should be taken as the  date          of  commencement  of the period of  exemption,  the          same  falling  within  six months of  the  date  of          starting production". (emphasis supplied)      Therefore, 30.3.1985 should be the date of commencement of  the period of exemption.  In the review  petition  filed before  the  Joint Director of Industries, no doubt,  it  is clearly  mentioned that on 19.4.1986 the capital  investment was  Rs.  5,26,273  and that the Sales  Tax  Officer  cannot reduce  the  capital  investment by excluding  the  cost  of diesel set.  But in the counter-affidavit filed by the State Government before the High Court, it is mentioned thus:          "The  dealer filed a review application before  the          Joint Director of Industries stating that exemption          should be granted w.e.f. 30.3.85, the date of first          sale.  It was also stated that  capital  investment          upto  30.3.85  was  more  than  3  lacks  including          generator  for  Rs. 72,800 purchase vide  Bill  No.          107/84-85  dt. 4.3.85.  Regarding this  application          enquiries  were made and it was found  that  dealer          started production from 1.3.85 manually and he  had          not  purchased any machine driven by  power  before          1.3.85  and  generator  was  purchased  locally  on          4.3.85  i.e. after the date of starting  production          vide Bill No. 107/84-85 dated 4.3.85 for Rs. 72,800          by   transfer  of  documents  against   form   ‘C’.          Therefore,  investment in the generator  cannot  be          included  in the machinary investment  because  the          generator was not used                                                        600          for production."      Relying  on  these  admissions,  the  learned   counsel submitted  that it is an admitted fact that the  Bill  dated 4.3.85 which is for Rs. 72,800 in respect of the diesel  set purchased  should be included in the capital investment  and that  the Joint Director excluded that amount on  the  wrong assumption that the exemption period should be counted  from the  date of production and the total investment as on  that day  alone is relevant which is erroneous.  From  the  above material  it  cannot  be said that this aspect  was  not  an issue   before  the  High  Court  but  the  same  lost   its significance  in  view  of  the larger  claim  made  by  the petitioners that the exemption should be from 20.5.86.   The learned  counsel  for the State, however, submits  that  the matter may be remanded.  We do not think it is necessary  to do so in view of the cogent and clear material, which cannot be controverted.      Before  proceeding we may extract the order  which  was impugned before the High Court: "Letter No. 8971                        DS/8/Sales Tax/88-89                              Office                              Joint Director Industries(D.S.)                              Dated: 29th Dec. 1988 M/s. Vijay Enterprises, 93, A Cooperative Ind. Estate Kanpur.      Kindly refer to your letter dated 16.6.1988 which is on the  subject  of reconsideration of relief of  exemption  of Sales Tax granted to your unit.

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    The  Division of committee in meeting dated  23.12.1988 having considered in this respect has decided as follows:      1.  Sales Tax exemption is hereby amended  with  effect from  date  of  first  sale 30.3.1985  instead  of  date  of production  1.3.1985 for 3 years.  The other terms  relating to  exemption shall be according to eligibility  certificate dated 26.4.1988.      2.  Investment on land/building exceeds the  necessity. The  generator is not utilised for starting  production  and the permission of the Electricity                                                        601 Department  for this is also not there.  The  Generator  has been purchased after starting production hence investment of generator amounting to Rs. 72,800 till the date of  starting production is not acceptable as capital investment.  Thus on the date of starting production investment on  Land/Building and Machines is less than Rs. 3 lakhs.  Hence the demand for 5 years tax exemption is rejected.                                            sd/-                              Joint Director Industries (DS)"                                    [emphasis supplied]      The  last  few  lines  in the  above  Order  which  are underlined  show that the Joint Director rejected the  claim to  include the cost of diesel unit on the sole ground  that it was purchased after starting production.  Before the High Court the State Government alongwith their counter-affidavit have annexed the Bill dated 4.3.1985 which shows that the diesel  set was purchased by the petitioners for total  cost of  Rs.  72,800.   If we take into  the  account  the  above admission  made  in  the  counter-affidavit  by  the   State Government  and  the contents of this bill it cannot  be  in dispute that the diesel set was purchased by the petitioners on 1.3.1985.  Now, in view of the categorical finding of the High  Court that the date of commencement of production  was 1.3.1985 and the date of first sale was 30.3.85, the date of purchase  of diesel set which is 4.3.1985 was clearly  prior to  the date of first sale, and therefore, the cost  of  the diesel set should also be included in the capital investment as  on  30.3.1985,  and  then it  would  be  more  than  Rs. 3,00,000.    Thus  the  position  becomes  clear  that   the exemption  should  be  for  five  years  from  the  date  of 30.3.1985  as per the relevant provisions  mentioned  above. We  are  satisfied  that the petitioners  are  entitled  for exemption  under Section 4-A of the U.P. Sales Tax  Act  for five  years  from 30.3.1985 and accordingly they  should  be given the benefit.      With  this  direction  the Special  Leave  Petition  is disposed of.  There will be no order as to costs. N.P.V.                                 Petition disposed of.                                                        602