IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5386 OF 2002                 

State of Haryana & Ors. …Appellants

Versus

M/s. A.S. Fuels Pvt. Ltd. & Anr. ...Respondents

With CIVIL APPEAL NO.5149 /2008

(Arising out of SLP (C ) No. 26523 of 2004)

with

CIVIL APPEAL NO. 676 OF 2005

J U D G M E N T

Dr. ARIJIT PASAYAT, J.

1. Leave granted in SLP (C) No. 26523 of 2004.

2. Challenge in these appeals is to the order of a Division

Bench of the Punjab and Haryana High Court holding that the

cancellation  of  exemption  certificate  after  its  validity  period

was over on 30.6.1997 did not attract the provisions of clause

(v) of sub Rule 10 of Rule 28 (A) of the Haryana General Sales

Tax  Rules,  1975  (hereinafter  referred  to  as  the  ‘Rules’).

According  to  the  High  Court,  it  was  clearly  not  a  case  of

cancellation of exemption certificate because it was done after

expiry of the period.  In that view of the matter,  it was held

that the Deputy Excise and Taxation Commissioner (in short

the ‘DETC’)  was not  justified in directing the respondent  to

deposit  an  amount  of  Rs.40,45,324/-  in  respect  of  the

exemption availed of by it for the period up to 30th June, 1997.

The High Court did not think it necessary to examine whether

sub  rule  10(v)  of  Rule  28(A)  in  so  far  as  it  empowers  the

department  to  withdraw  the  tax  exemption  certificate  was

valid  or  not.  However,  liberty  was  granted  to  the  present

appellants, if there was a case for withdrawal of the eligibility

certificate  under  sub-rule  (8)  of  Rule  28A  of  the  Rules,  to

proceed in accordance with law.  

3. The State of Haryana has filed the appeals in respect of

orders  of  the  High  Court  in  writ  petition  filed  by  the 2

respondent in each case. The first judgment was rendered in

case of M/s A.S. Fuels Pvt. Ltd. The judgment in that case was

the primary foundation for decision in the other cases.  

4. Background facts  in Civil  Appeal  No.5386 of  2002 are

essentially as follows:

Under Rule 28A appearing in Chapter IVA certain class

of industrial units are entitled to exemption/deferment from

payment of tax for a specified period and subject to fulfillment

of certain conditions.  The benefit of sales tax exemption was

granted  for  the  period  from  13.12.1994  to  12.12.2003.

Necessary eligibility certificate entitling the respondent to avail

the sales tax exemption for a period of nine years was granted.

On  the  basis  of  the  eligibility  certificate  unit  was  granted

exemption certification for the period ending 30th June, 1995,

The same was renewed at the first instance till 30.6.1996 and

thereafter till 30.6.1997.  An application for further renewal of

the  exemption  certificate  was  filed  on  31.7.1997.  This  was

rejected  by order  dated  15.12.1997  on the  ground that  the 3

same was not complete in certain respects and despite grant

of opportunities the respondent failed to furnish the necessary

documents. While processing the application for renewal, the

DETC  noticed  that  the  unit  of  the  respondent  was  out  of

production since January, 1997 and as such the exemption

certificate was also liable to be cancelled under sub rule 9(1)

of Rule 28A of the Rules. Therefore, a show cause notice was

issued  on  5.12.1997  fixing  the  date  for  submission  of

explanation  on  15.12.1997.   Respondent  neither  appeared

nor furnished any explanation.  Therefore, the DETC cancelled

the exemption certificate by order dated 14.1.1998.  In appeal

the  matter  was  remanded  to  the  Prohibition  Excise  and

Transport  Commissioner,  Haryana.   During  assessment

proceedings, it was again found that the Industrial unit was

non-functional  since  January,  1997  and  almost  the  entire

plant  and  machinery  had  been  removed  from  the  factory

premises  and  taken  to  some  other  places  out  of  Haryana

without any information to the Department. Even the factory

shed and other structures were found to be dismantled and

business was totally closed. By order dated 30.6.1998 again 4

an  application  for  renewal  was  rejected  and  the  exemption

certificate already granted was cancelled by invoking sub rule

9(i)   of Rule 28(A).  The respondent was directed to deposit

the  tax  in  respect  of  the  exemption  as  has  already  been

availed  and  also  to  pay  the  interest.  Stand  of  the  present

respondent in the writ petition was that since the unit  had

remained closed on account of non-availability of coal which

was a factor beyond its control there was no question of any

non-renewal.  It was contended that even if the cancellation of

the exemption certificate was to be upheld under sub-rule 9(i)

of Rule 28 (A) the same cannot operate retrospectively and the

respondent  cannot  be  asked  to  deposit  the  amount.   This

amount pertains to the period when the industrial unit was in

production.  

Stand of the State, which is the appellant in this appeal,

was that since there is no production since January, 1997 the

exemption certificate  was liable  to be cancelled in terms of

sub  rule  ((i)  of  Rule  28(A).  There  was  no  exceptional

circumstances  provided  under  which consequence  could  be 5

availed.   It was pointed out that after the eligibility certificate

is  granted,  the  dealer  is  required  to  obtain  an  exemption

certificate which is valid up to a certain date. Thereafter the

exemption certificate is required to be renewed on year to year

basis as per the procedure provided in sub-rule  (7)  of  Rule

28A.  Reference was also made to sub rule (9) which provides

the circumstances under which exemption certificate granted

was liable to be cancelled.  It was therefore argued that once

the  exemption  certificate  is  cancelled  it  necessarily  follows

that the exemption of  tax already availed  would be without

authority of law and was liable to be recovered.  Reference was

made in this context to clause (v) of sub rule (10)  of the Rules.

The  High  Court  was  of  the  view  that  the  exemption

certificate  has  rightly  been  cancelled  under  sub-rule  (9)  of

Rule  28A  of  the  Rules.   It,  however,  did  not  accept  the

Revenue’s  stand  that  there  was  provision  for  consequential

action.  Reference was made to sub rule 10(v) of Rule 28A.  On

a comparative reading of sub rules (8) & (9) it was held that if

a unit discontinues its business or closes it down for a period 6

of  six months, action can be taken under both the provisions.

Under sub-rule (8) the eligibility certificate can be withdrawn

whereas  under  sub  rule  (9)  the  exemption/entitlement

certificate can be cancelled.  It was observed that there are no

exceptions provided in sub-rule 9(1)(i) which is the position in

clause (ii) of sub rule 8(a).  Accordingly it was held that the

cancellation  of  exemption/entitlement  certificate  can  relate

only to the year in respect of which the said certificate is still

to expire and it is only the benefit of tax exemption availed by

the dealer, for that year alone which becomes payable in lump

sum.  It  was  held  that  if  after  the  expiry  of  an

exemption/entitlement certificate it is found that unit had dis-

continued  its  business  or  closed  it  down  for  a  period  of

exceeding six months,  the department is not without remedy.

It  can  always  take  action  for  withdrawal  of  the  eligibility

certificate as provided in sub-rule (8) of the Rule 28(A) of the

Rules.  The High Court held that once the eligibility certificate

has been withdrawn, without there being any recourse to the

procedure laid down under Rule (8) of Rule 28A of the Rules,

the same is impermissible.  It was however held that if  the 7

authorities  have  a  case  for  withdrawal  of  the  liability

certificate  under sub-rule (8)  of  Rule  28A of the Rules they

shall be free to proceed in accordance with law and nothing

observed in the judgment of  the High Court  shall  prejudice

their rights under that provision.

5. Learned counsel  for the appellant-State submitted that

after having held that the cancellation was right, High Court

was not correct to say that it can only be withdrawn for the

period  concerned.  Reference  is  made  to  sub-rule  (11).  It

provides that the benefit of tax exemption/deferment after it is

availed shall continue for the next five years.  Sub-rule 10(v)

deals  with  currency  of  the  certificate  and  sub  rule  11(1)(b)

proviso that DETC has the authority to ask for deposit of the

amount  in  respect  of  which  exemption  has  been  availed  if

there is violation of any of the conditions stipulated.  

6. Learned counsel for the respondents on the other hand

submitted that once certificate has lost its currency and the

application  was  made  after  the  expiry  of  the  period,  there 8

could not have been any cancellation and there was also no

question of any renewal.  It is also pointed out that pursuant

to the directions of  the High Court,  the eligibility  certificate

has  been  withdrawn  by  the  concerned  authority  and  the

eligibility  certificate  has  been  cancelled  with  effect  from

27.6.2007, an appeal has already been dismissed on 8.6.2006

and the writ petition was pending.

7. Rule 28(A) so far as relevant reads as follows:

“28(A)  –  Class  of  industries,  period  and  other conditions for exemption/deferment from payment of tax- (1) The industries covered under this rule shall not be entitled to any deferment or exemption from payment of tax under any other provisions of these rules.

xx xx xx

(6). (a) An  eligible industrial  unit  which  has been  issued  with  an  eligibility  certificate (hereinafter referred to as the applicant unit), shall, within sixty days of its receipt make an application for the grant of exemption or entitlement certificate as the case may be, in Form S.T. 71 to the Deputy Excise and Taxation Commissioner of the District in which his unit is located. The application shall be  accompanied with  an  attested  copy  of  the

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eligibility  certificate  and  other  documents mentioned in the application.

No  application  shall  be  entertained  if  not received  within  time.   An  application  with incomplete  or  incorrect  particulars  including  the documents required  to be attached therewith shall be  deemed  as  having  been  not  made  if  the applicant  fails  to  complete  it  on  an  opportunity afforded  to  him  in  this  behalf.   On  receipt  of application, the  Deputy  Excise  and  Taxation Commissioner shall ask the applicant unit seeking benefit of :-

(i) tax  deferment  to  either  execute  a  mortgage deed  in  Form S.T.  74  creating  a pari-passu first  charge  alongwith  financial institutions/banks on the assets of the unit, or to furnish a bank guarantee for 15% of the total benefit to be availed of in  a year,  and a surety bond in Form S.T. 50 for the balance amount  of  85%.  The  mortgage deed/agreement  or-bank  guarantee  shall  be valid  till  the  recovery  of  the  entire  deferred amount  of  tax.  The  bank  guarantee,  if expiring early or if furnished, on annual basis shall be renewed two months before the date of expiry failing which the unsecured deferred tax  shall  become  due  for  payment immediately;

(ii)  tax  exemption,  to  either  execute  a  surety bond in Form S.T. 50 equivalent to 15% of the amount of notional sales tax liability sought to be exempted for a bank guarantee for that amount in a year, which shall be valid for the period extending to five year, which shall be

10

valid  for  the  period  extending  to  five  years after  the  expiry  of  total  period  of  tax exemption;

(b) The Deputy Excise and Taxation Commissioner shall after satisfying himself that the applicant unit is holding a genuine and valid eligibility certificate, has  furnished  adequate  security  and  that  his application  is  in  order  will  issue  him  the exemption/entitlement certificate as the case may be  within  thirty  days  of  the  receipt  of  the application.  One  copy  of  the  certificate  shall  be sent to the Director of Industries  or The General Manager,  District  Industries  Centre  as  the  case may  be  and  one  copy  shall  be  retained  in  the record. The certificate issued shall he valid unless cancelled  or  withdrawn  from  the  date  of commercial production or from the date of issue of entitlement/ exemption certificate as the case may be to the 30th June next or when notion sales tax liability  first  exceeds  the  quantum  of  tax exemption/deferment fixed for the unit, whichever is earlier.

Note:-- The agreement or the mortgage deed or the bank  guarantee,  as  the  case  may  be,  is  an important  document  and  shall  be  entered  in a register to be maintained in Form S.T.  75 by  the Deputy  Excise  and  Taxation  Commissioner concerned in his personal custody. At the time of transfer  of  the  charge  of  his  office,  the  Deputy Excise and Taxation Commissioner shall hand over the  register  as  well  as  the  documents  to  his successor  personally  against  proper  receipt  and shall send a certified copy of the same to the Excise and  Taxation  Commissioner  by  name  who  will acknowledge its receipt to both the officers.

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(7)(a)  The exemption certificate or the entitlement certificate  as  the  case  may be,  shall  be  renewed from year  to  year  for  which  the   industrial  unit shall  make  an  application  to  the  Deputy  Excise and  Taxation  Commissioner  incharge  of  the District  by  the  31st May  in  Form  S.T.  71.  The application  shall  be  accompanied  with exemption/entitlement  certificate,  additional security as specified  in sub clauses (i)  and (ii)  of clause (a)  of sub-rule (6) equal to fifteen per cent of the  declared  notional  sales  tax  liability  of  the current year and the difference between the actual and the declared notional sales  tax  liability of the previous  year  in the case  of  sales  tax exemption and   equivalent  to  the  extent  of  estimated  tax liability of the current year and difference between actual and estimated tax liability of previous year in case of tax deferment, as also other documents mentioned in the application.

The  Deputy  Excise  and  Taxation  Commissioner after making such enquiries as are necessary, and after  satisfying  himself  that  the  applicant  is  a bonafide industrial unit and has not misused the exemption/entitlement certificate,  shall  renew the exemption/ entitlement  certificate  within 30 days of the making of the application for renewal failing which the  certificate  shall  remain  valid  until  the renewal  is  refused  or  the  certificate  otherwise expires. The exemption/ entitlement certificate on renewal  shall  unless  cancelled  or  withdrawn  be valid  from  lst  of  July of  the  year  in  which  the application is  made  if  it  is  in time  or  otherwise from the date of application to 30th June, next or when  the  eligibility  certificate  expires  or  the cumulative notional sales tax liability first exceeds the quantum of tax exemption/deferment fixed for the unit, whichever is earlier.

12

(b)  If  the  Deputy  Excise  and  Taxation Commissioner  incharge  of  the  district  finds  that the  application  for  renewal  of  exemption/ entitlement  certificate  is  not  in  order  or  the particulars  contained  in  the  application  are  not correct  and  complete  or  the  applicant  is  not  a bonafide  industrial   unit  or  has  misused exemption/entitlement  certificate  or  has  note complied with any of the directions given to it by him within the  specified  time;  he  may reject  the application  after  giving  the  applicant  an opportunity of being heard.

(c)  An  appeal  against  the  order  passed  by  the Deputy Excise and Taxation Commissioner under clause  (b)  of  this sub-rule  shall  lie  to  the Excise and Taxation Commissioner, Haryana, if preferred within  thirty  days  of  the  communication  of  the order appealed against.

(8)(a)  The  eligibility  certificate  granted  to  an industrial unit shall   be  liable to  be withdrawn at any  time  during  its  currency  by  the  appropriate screening  committee,  in  the  following circumstances

(i) if it is  discovered that it has been obtained by fraud, deceit, misrepresentation, mis-statement or concealment of material facts;

(ii) discontinuance of its business by the unit or closing  down  of  its  business  for  a  continuous period exceeding six months except in case of fire, flood and other natural calamities, riots, strike or lock-out  which  in  the  opinion  of  the  committee concerned is beyond the control of the unit;

13

(iii)  disposal or transfer by the unit of any off its fixed  assets  adversely  affecting its  manufacturing or production capacity:

Provided  that  no  order  of  withdrawal  of  the eligibility  certificate  shall  be  made  without affording a reasonable opportunity  of  being heard to the affected unit.

(b) When the eligibility certificate is withdrawn, the exemption/entitlement certificate shall be deemed to  have  been  withdrawn  from  the  1st  day  of  its validity and the unit shall be liable to payment of tax,  interest  or  penalty  under  the  Act  as  if  no entitlement certificate had ever been granted to it.

(9)  The  exemption/entitlement  certificate  granted to an eligible industrial  unit  shall  be liable to be cancelled  by  the  Deputy  Excise  and  Taxation Commissioner  concerned  in  the  following circumstances,  after  affording  an  opportunity  of being heard to the unit:-

(i) discontinuance of its business by the unit at any time for a period exceeding six months or closing down  of  its  business  during  the  period  of exemption/deferment.

(ii) disposal by the unit of any of its fixed assets mortgaged with the Government in the Excise and Taxation Department;

(iii) failure to furnish adequate security by the unit as required under the rules;

(iv)  failure  of  the  unit  to  make  payment  of  the deferred amount on the date of payment;

(v) contravention of any of the provisions of the Act and/or  the  rule,  or  conditions  of  the  eligibility

14

certificate or the exemption/ entitlement certificate by the unit;

(vi)  when  the  appropriate  committee,  which sanctions eligibility certificate recommends that the exemption /entitlement,  certificate  of  the  unit  be cancelled for reasons to be recorded in writing.

(10) (i) The eligible industrial unit shall continue to be  liable  to   file  the  returns  in  the  manner prescribed  under  the  Act,  and  the  rules  and  its failure  to  do  so  shall  expose  it  to  penalty  as provided in the Act;

(ii)  The  assessment  of  an  eligible  industrial  unit holding exemption/entitlement certificate  shall  be framed in accordance with the provisions of the Act and Rules framed thereunder as early as possible and shall be completed by the 31st December, in respect  of  the  assessment  year  immediately preceding  thereto  and  the  additional  demand  so determined,  if  any,  shall  be  paid  as  per  the provisions of the Act and the Rules;

(iii) The  State  Government  may  appoint  special assessing authority for framing assessment of units mentioned in the preceding clause;

(iv)  Notwithstanding  the  provisions  relating  to payment  of  tax  due,  according  to  returns,  the eligible  industrial  unit  which  has  availed  of  the benefit of sales tax deferment shall make payment of the deferred amount after the expiry of a period of five years to the extent of the amount deferred, every quarter or month, as the case may be, within the period specified in the rules:

15

(v)   On  cancellation  eligibility  certificate  or exemption/entitlement  certificate  before  it  is  due for  expiry,  the  entire  amount  of  tax exempted/deferred  shall  become  payable immediately,  in  lump  sum,  and  the   provisions relating to recovery of -tax, interest and imposition of penalty shall be applicable in such cases.

11  (a)  The  benefit  of  tax-exemption/deferment under  this  rule  shall  be  subject  to the  condition that  the  beneficiary/industrial  unit  after  having availed of the benefit:-

(i) shall continue its production at least for the next five years not below the level of average production for the preceding five years; and

(ii) shall not make sales outside the State for next five  years  by  way  of  transfer  or  consignment  of goods manufactured by it.

(b) In case the unit violates any of the conditions laid down in clause (a), it shall be liable to make an addition to the full amount of tax benefit availed of by  it  during  the  period  of  exemption/deferment payment of interest chargeable under the Act as if no tax exemption/deferment was ever available to it:

Provided that the provisions of this clause shall not come into play if the loss in production is explained to  the  satisfaction  of  the  Deputy  Excise  and Taxation Commissioner concerned as being due to the reasons beyond the control of the unit:

Provided  further  that  a  unit  shall  not  be  called upon to  pay any sum under  this  clause  without

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having been given reasonable opportunity of being heard.

8. As  the  scheme  of  Rule  28A  shows that  there  are  two

certificates provided for.  One is the eligibility certificate and

the  other  is  the  exemption  certificate.   Clause  4(a)

deals  with the  benefit  of  tax exemption  or  deferment  to  an

eligible  industrial  unit  holding  exemption  or  entitlement

certificate.   In  Clauses  2  (j),  (k)  &  (l)  the  certificates  are

defined:

“(j)  “eligibility  certificate”  means  a certificate  granted  in  Form  S.T.  72  by  the appropriate  Screening  Committee  to  an eligible  industrial  unit  for  the  purpose  of grant of exemption/deferment.

(k)  “exemption  certificate”  means  a certificate  granted  in  Form  S.T.  73  by  the Deputy Excise and Taxation Commissioner of the  District  to  the  eligible  industrial  unit holding eligibility certificate which entitles the unit to avail of exemption from the payment of sales or purchase tax or both, as the case may be;

(l)  “entitlement  certificate”  a  certificate granted in Form S.T. 72 by the Deputy Excise and Taxation Commissioner of the district to

17

the  eligible  industrial  unit  holding  eligibility certificate which entitles it to get deferment of sales tax;”

9. The  eligibility  certificate  is  issued  by  the  appropriate

screening committee while the exemption certificate and the

entitlement certificate are issued by the DETC in Forms 73

and 72 respectively.  As the High Court has rightly observed,

that there is  scope for automatic cancellation in view of the

fact that after January, 1997 there was no production.  Sub

rule (8) deals with the withdrawal of the eligibility certificate.

Under  sub-rule  8(b)  when  the  eligibility  certificate  is

withdrawn,  the  exemption/entitlement  certificate  is  also

deemed  to  have  been  withdrawn  from  the  first  day  of  its

validity and the unit shall be liable to payment of tax, interest

or penalty under the Act as if no entitlement certificate had

been  ever  granted  to  it.   The  only  other  question  which is

required to be examined is the benefit of Rule 11(a).  A bare

reading  of  the  same  shows  that  the  benefit  of  tax

exemption/deferment under the Rule shall be subject to the

condition  that  the  beneficiary/industrial  unit  after  having 18

availed all the benefit shall continue its production for at least

next  five  years  not  below  the  average  production  for  the

preceding  five  years.   Clause  (b)  of  the  sub  rule  is  of

considerable  significance;  it  shows  that  in  case  the  unit

violates any of the conditions laid down in clause (a) it shall be

liable  to make in addition to the full  amount of  the benefit

availed  of  by  it  during  the  period  of  exemption/deferment,

payment  of  interest  chargeable  under  the  Act  as  if  no  tax

exemption/deferment was ever available to it.  The proviso is

also of significance. It provides that the provisions of clause (b)

shall not come into play if the loss in production is explained

to  the  satisfaction  of  the  DETC concerned  as  being  due  to

reasons beyond the control of the unit.  Thus there are several

conditions which are relevant; firstly there is a requirement of

continuing the production of at least next five years; secondly

consequences flowing in case of violation of the conditions laid

down  in  clause  (a).  In  other  words,  in  case  of   non-

continuance of production for next five years, the result is that

it  shall  be  deemed  as  if  there  was  no  tax

exemption/entitlement available to it.  The proviso permits to 19

the dealers to explain satisfactorily to the DETC that the loss

in production was because of the reasons beyond the control

of the unit.  The materials have to be placed in this regard by

the party.  The High Court seems to have completely lost sight

of Rule 11(b).  In any event, we find that the High Court had

permitted  the  authorities  to  go  before  the  Screening

Committee  to  get  the  eligibility  certificate  cancelled.

Undisputedly  that  has  been  done,  and  the  appeal  against

cancellation has been dismissed.

10. It is stated that a writ petition is pending before the High

Court.  As  in  the  instant  case  the  writ  petition  filed  by  the

respondent has been allowed without examining effect of Rule

11, the order of the High Court cannot be maintained.  It is to

be noted that in terms of clause (b) of Rule11 if the conditions

stipulated in clause (a) are not fulfilled, it shall be deemed that

exemption/entitlement  was not  ever  availed.  Therefore,  the

High Court was not justified in its view that demand cannot be

maintained.  In view of the conclusions, Civil Appeal No. 676

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of  2005  is  without  merit  and is  dismissed,  while  the  other

appeals are allowed.  

...........................................J   (Dr. ARIJIT PASAYAT)

……………............................J (P. SATHASIVAM)

New Delhi, August 20, 2008

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