IN THE HIGH COURT OF KERALA AT ERNAKULAM
WA.No. 1001 of 2009()
1. THE SALES TAX OFFICER,
... Petitioner
2. THE COMMISSIONER OF COMMERCIAL
Vs
1. AKAY FLAVOURS & AROMATICS LIMITED,
... Respondent
For Petitioner :GOVERNMENT PLEADER
For Respondent : No Appearance
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice C.K.ABDUL REHIM
Dated :28/05/2009
O R D E R
C.R.
C.N.RAMACHANDRAN NAIR &
C.K.ABDUL REHIM, JJ.
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Writ Appeal No.1001 of 2009
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Dated this the 28th day of May, 2009.
JUDGMENT
Ramachandran Nair, J.
Writ Appeal is filed by the State against judgment of the learned
Single Judge cancelling the penalty levied on the respondent under
Section 45A of the KGST Act for irregular claim of sales tax
exemption for period beyond the period of eligibility under notification
SRO 1727/1993. We have heard Government Pleader appearing for
the appellant and Senior counsel Sri.Joseph Markose appearing for the
respondent.
2. Respondent-assessee set up a new 100% export oriented unit
within Kerala which was entitled to 5 years exemption from payment of
sales tax under notification SRO 1727/1993. The relevant provision
namely, item 8 of Schedule 6 of the notification is extracted hereunder
for easy reference:
2
————————————————————————————
Sl. Name of goods and the name of Industrial Conditions
No. undertakings/manufacturers to which
such goods are sold/by which such
goods purchased.
————————————————————————————
8. Industrial raw-materials, plant and 1. The exemption shall
machinery(including components), be for a period of five
spare parts, tools and Consumables, years from the date of
other than petroleum products failing approval of such units
under item 97 of the First Schedule by the Central Govern-
to the Kerala General Sales Tax Act, ment.
in relation thereto to 100% export 2. The seller shall obtain
oriented Units for use in the manu- and produce a certifi-
facture of goods. cate in the Form in
Annexure-I.
————————————————————————————
3. The unit got initial permission to set up the industry from the
Central Government on 16.12.1993. However, the case of the
respondent is that this is not the date of approval of the unit by Central
Government, but later date i.e. 27.10.1994 when the green card for
approval for commencement of operation of the industry was issued by
the Central Government. The crucial question is what is the date with
reference to which the five years’ sales tax exemption is available to the
100% export oriented unit. While the case of the respondent is that the
approval is the later communication issued from Central Government
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which is after the unit commenced commercial production, the case of
the Government Pleader is that date of approval of the unit by Central
Government means the first letter of permission issued on 16.12.1993.
Counsel for the respondent pointed out similar notifications granting
tax benefits provide for exemption from date of commencement of
commercial production. According to him, in order to have effective
exemption for five years, the exemption has to be from the date of
commencement of commercial production. However, we are unable to
accept this contention because exemption available under the
notification is not only for raw materials purchased for manufacture
and products manufactured for sale, but on plant and machinery, spare
parts, tools etc. The scope of the terms “date of approval of the unit”
has to be considered with reference to the scope of exemption
visualised in the notification. After getting permission, the industrial
unit necessarily has to purchase plant and machinery for setting up the
industry and commercial production starts only after setting up of the
plant and machinery and after successful trial runs. An export oriented
unit gets statutory exemption on product sales because sales are mostly
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export sales falling under Sections 5(1) and 5(3) of the CST Act.
Therefore, effectively the exemption under notification has to be
claimed for the raw materials purchased on which tax is payable either
at sale point or at purchase point. Of course exemption on product
sales under notification can be claimed for permissible quantity of
domestic area sales available to export oriented units. Therefore, in
our view, the Government consciously granted exemption from the date
of approval of the unit so that the unit gets exemption on purchase of
plant and machinery which goes to reduce the capital cost. This is
clear from the notification which specifically provides exemption for
plant and machinery which would not otherwise be available, if
notification is given the interpretation claimed by the respondent i.e.
from date of commencement of commercial production, which is the
subsequent approval granted by the Government through issue of a
green card. When exemption is granted for plant and machinery, the
date of approval referred to in the notification necessarily has to be the
date on which Government permitted setting up of the plant pursuant to
which plant and machinery are purchased. The contention of the
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Government Pleader is that date of approval of the unit by the Central
Government for the purpose of notification is the date of initial
approval pursuant to which plant and machinery are purchased so that
benefit of notification is fully and effectively available to the
respondent. In fact, in our view this interpretation serves the
respondent better because they could have availed sales tax exemption
on purchase of plant and machinery as well. In any case we do not
think penalty could be sustained in this case without a finding that the
respondent availed exemption for period during which they were not
entitled to benefit under the notification. The learned Single Judge
assumed that exemption is claimed only for the five years in terms of
the notification and infraction happened to be there only because of the
bonafide interpretation of the date of approval by the respondent. This
will be disclosed only by looking at the purchase bills of plant and
machinery and if it is shown that the respondent has claimed exemption
for purchase of plant and machinery by issuing declaration in terms of
the notification to the suppliers, then respondent cannot contend that
period of exemption does not commence from date of initial approval
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granted by the Central Government as contended by the State. Even
though counsel for the respondent brought to our notice judgment in
Writ Appeal No.2241/2008 (against the very same judgment impugned
in this appeal i.e. W.P.(C) No.32677/2004) by another Division Bench
of this court, we notice that this court has only rejected respondent’s
appeal for the reason that the contested amount is as low as Rs.8,000/-
and the merits of the case is not gone into. So much so, this Writ
Appeal by the State is maintainable. Since none of the authorities have
considered tax exemption, if any, claimed by the respondent in regard
to purchase of plant and machinery, we set aside the judgment of the
learned Single Judge and penalty orders and restore the matter to the
Assessing Officer to call for records and verify the purchase bills
pertaining to plant and machinery and if respondent has not claimed
benefit of exemption for such purchases, then cancellation of penalty
will stand sustained and there is no need to levy penalty on the
respondent because claim of exemption is only for five years and based
on the bonafide interpretation of the notification. On the other hand if
the respondent has availed tax exemption on purchase of machinery
7
under same notification by issuing declaration, then certainly penalty
will be considered for claiming exemption for purchases for any period
beyond five years from the date of initial approval. Fresh orders will
be issued after giving opportunity to the respondent. The Writ Appeal
is disposed of as above.
C.N.RAMACHANDRAN NAIR
Judge
C.K.ABDUL REHIM
Judge
pms