9100120080820008

SUPREME COURT OF INDIA

State of Haryana

M/s. A.S. Fuels Pvt. Ltd.

Civil Appeal No.5386 of 2002

(Dr. Arijit Pasayat and P. Sathasivam)

20/08/2008

JUDGMENT

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 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 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 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 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 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 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

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

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

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

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.

(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.

(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.

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;

(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

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:

(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

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

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

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

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

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

appeals are allowed.