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Judgment
Rajes Kumar, J.—Present revision u/s 11 of the U.P. Trade Tax Act (hereinafter referred to as the "Act") is directed against the order of the Full Bench of the Tribunal dated 1st December, 2006. The brief facts of the case giving rise to the present revision are that the applicant is a proprietorship concern and established a factory at village Raibha, Bodla Bichpuri Achhnera Road, Tehsil Kerawal, District Agra for the manufacture of thinner, rubber solution and varnish. The applicant was registered under the U.P. Trade Tax Act and Central Sales Tax Act. It was claimed that in the unit, first purchase of the raw material was made on 15th January, 2001. The first production was made on 26.09.2001 and first sale was made on 11.10.2001. The applicant claimed that it was new unit as contemplated u/s 4-A of the Act and for the exemption on the turnover of the manufactured product an application u/s 4-A of the Act was moved on 30th October, 2001. It was claimed that the land and building were taken on lease initially vide agreements dated 6.7.1999 and 21.07.1999 which were not the registered lease deed, but subsequently, a registered lease deed was executed on 29.09.2001. The total investment claimed to have been made on the land, building, machinery etc was at Rs. 24,45,176.45 paise which includes investment towards land and building at Rs. 8,60,262/- and the balance amount relates to the machinery, pumping set, tanks, pipe fitting, mixture etc. It was claimed that in the unit six tanks have been installed. It was claimed by the applicant that it had carried on test production on 5.4.2000 by mixing material manually by hand and whatever the goods have been prepared in test production, the same was sold for Rs. 4,800/- on 5.4.2000 on the same day. Thereafter the machinery were installed and the electricity connection was also installed on 10.9.2001. The General Manager, District Industries Centre, Agra initially issued provisional Registration Certificates as S.S.I. Unit on 15.07.1999 and later on when the production was started in the Unit and a permanent Registration Certificate was issued on U0.2001 showing the date of production as 27.09.2001.
The exemption was claimed under Notification dated 24.08.2000 issued u/s 4-A of the Act. The exemption application was rejected ex-parte by the Divisional Level Committee. Against the order of the Divisional Level Committee, applicant filed appeal before the Tribunal which was allowed vide order dated 16.01.2004 and the matter was remanded back to the Divisional Level Committee for decision afresh. Tribunal has remanded back the matter with the direction to the Divisional Level Committee to issue show cause notice showing the grounds on which it preferred to reject the application. In pursuance thereof, appears that show cause notice was issued by the Divisional Level Committee or 27.02.2004 which has been replied by the applicant on 31.03.2004. The Divisional Level Committee has again rejected the application vide order dated 25.01.2005. Against the said order, the applicant preferred an appeal before the Tribunal which was decided vide order dated 5.7.2005. Tribunal by the aforesaid order again remanded back the matter to the Divisional Level Committee. Being aggrieved by the said order, applicant filed Trade Tax Revision No. 1152 of 2005 before this Court. This Court vide order dated 14.09.2005 allowed the revision, set aside the order of the Tribunal and remanded back the matter to the Tribunal to decide the appeal afresh on merit. Tribunal by the impugned order dismissed the appeal Tribunal has held as follows:
We have gone through the copy of the lease deed, filed by the appellant. The first lease deed was executed on 6.7.1999 by Baleshwar Prasad Agarwal as first party and Asian Petro Chemicals through its proprietor Pankaj Kumar Agarwal S/O Baleshwar Prasad Agarwal as second party. The first party is the owner and the second party is tenant. In this lease deed, which was executed before the notary, Agra, there is no description of any tank. Subsequently on 21.07.1999 a deed was executed as an agreement deed and a clarification has been added to the deed that on the plot, which has been lease out, an old tank is situated which is embedded to earth. The second party will have the right to use of the tank and if necessary may be removed by the second party and the first party will have no objection. So it appears that only after 15 days, this deed was executed. This deed has been executed for the purpose of showing the existence of tank on plot No. 1040 which belong to the father of the proprietor of the unit Sri Baleshwar Prasad Agarwal. In the first deed dated 6.7.1999 which was executed, pointing out this fact in para-3 that the tenancy will start from 1.5.1999 for twenty years. It is a permanent lease and u/s 17(b) of the Indian Registration Act, 1908, this document is compulsorily registrable. The lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent will be required registration and affect of non registration has been dealt with u/s 49 of Indian Registration Act, which contains as follows:
No document required by Section 17 (or by any provision of the Transfer of Property Act, 1982) to be registered shall-
(a) affect any immovable property comprised therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any transaction effecting such property or conferring such power, unless it has been registered.
(provided that an unregistered document affecting immovable property and required by this Act, or the Transfer of Property Act, 1882, to be registered may be received as evidence of a contract in a suit for specific performance under Chapter II of the Specific Relief Act, 1877, or as evidence of part performance of a contract for the purposes of Section 53-A of the Transfer of Property Act, 1882, or as evidence of any collateral transaction not required to be effected by registered instrument.
So, it appears that the deed dated 6.7.1999 is inadmissible in evidence and the addition in that deed by agreement dated 21.07.1999 is also inadmissible. The appellant was realizing the legal lacunae and subsequently has executed a registered lease deed from Balashwar Prasad Agarwal, the first party on 24.09.2001. In that deed there is no description of the old tank. So from the perusal of the registered deed it transpires that on 24.09.2001, there was no tank in existence. But at the time of survey dated 25.07.1999 and 11.05.2000 the tank was found in which there was storage of 12,000 ltrs. Imported kerosene oil Shows the existence of the old tank has been established by the two survey dated 25.07.1999 and 11.05.2000. At the time of survey dated 24.01.2003, the said old tank was removed, but in the first unregistered lease deed dated 6.7.1999, there is no mention of the old tank. For correction of the mistake an agreement was executed dated 21.07.1999 which is unregistered and both the agreements are inadmissible for want of evidence and on 24.09.2001 subsequently a registered lease deed was executed by Sri Baleshwar Prasad Agarwal, the owner of the plot number 1040 and Pankaj Kumar Agarwal, the proprietor of the Unit. In that deed there is no mention of the old tank so it appears that after the date of production, the old tank was removed, but it is proved that the tank was not part of the plot, at the time of lease. It was procured or purchased by the appellant and the old tank was being used for production purposes.
The learned Counsel for the appellant has argued that the tank is not a machinery. No doubt, the tank is not a machinery. The argument of the learned Counsel for the appellant is correct. u/s 4-A(2), "New Unit" has been defined as after March 31,1999 means a factory or workshop set up by a dealer after such date and satisfying the conditions laid down under this Act or rules or notifications made there under with regard to such factory or workshop and includes an industrial unit manufacturing the same goods at any other place in the state or an industrial unit manufacturing any other goods on, or adjacent to, the site of an existing factory or workshop, but does not include (a) any factory or workshop using machinery, plant, equipment, apparatus or components already used or acquired for use in any other factory or workshop in India other than boilers and generators and other than any machinery, plant, equipment, apparatus or components sold to it by any Government Company or any Corporation owned or controlled by the Central or State Government.
So it appears that not only machinery, but the plant, equipment, apparatus or components, already used or acquired for use in any other factory or workshop in India, other than boilers and generators and other than any machinery, plant, equipment, apparatus or components sold to it by any Government Company or any Corporation owned or controlled by the Central or State Government, will not be entitled to exemption u/s 4 of the Act. No doubt, the tank is not a machinery, but it is a part of plant. So the old tank which naturally has been used in any other factory, debars the appellant from availing the benefit of Section 4 of the Act.
No other point have been pressed before us. As the old tank was used which was part of the plant and which had been already used in other unit so there is no need to decide any other point.
So considering the entire facts and circumstances of the case, we are of the view that this appeal has got no force and must be dismissed.
The appeal is dismissed and the order dated 25.1.2005, passed by the Additional Director of Industries, Agra Division, Agra is confirmed.
Heard Sri R.R. Agrawal, learned Counsel for the applicant and Sri B.K. pandey, learned Standing Counsel.
Learned Counsel for the applicant submitted that the old tank was embedded to earth which came to the applicant along with land which was taken on lease. He submitted that the said tank was not used in the manufacturing. For the purposes of manufacturing six new tanks have been installed. He submitted that the old tank was found at the time of surveys dated 25.07.1999 and 11.05.2000, but subsequently it was removed and was not found at the time of surveys dated 20.04.2002 and 30.01.2003. He submitted that on the date of production and first sale i.e. on 26.09.2001 and 11.10.2001 respectively, the old tank was not available. It is also submitted that the old tank was never used in the manufacturing of the product. The value of the old tank has also not been included in the capital investment. The old tank was removed and it was lying as a scrap. He submitted that the value of the old tank in the form of scrap was very nominal and thus, having regard to the total investment, its value being negligible is liable to be ignored. He further submitted that it has to be examined whether the new unit in substance had come into existence or not. In support of his claim, he relied upon the decision in the case of Progressive Components (Pvt.) Ltd., Agra v. Commissioner of Trade Tax reported in 2000 UPTC 131, Sonar Metal Industries v. The State of U.P. and Ors. reported in 2003 (22) NTN 103, H.M. Industries and Anr. v. Sales Tax Officer and Anr. reported in 2003 NTN (22) 354, Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax, Bombay reported in 1992 UPTC 857, Kanta Granites Pvt. Ltd v. Commissioner of Trade Tax, U.P. reported in (2004) 40 STR 1077 and Mahabir Paints and Adhesives Pvt. Ltd., Kanpur v. Commissioner of Sales Tax reported in (2006) 43 STR 236.
Sri B.K. Pandey, learned Standing Counsel submitted that the trial production was started on 5.4.2000. The trial production was also covered within the definition of production as contemplated u/s 4-A of the Act. He submitted that at the time of survey dated 11.5.2000 old tank was found filled with Kerosene Oil, which was the raw material for the manufacture of thinner and, therefore, it is clear that the old tank had been used in the manufacturing and since the old tank has been used in the manufacturing, the unit is not eligible for exemption in view of the definition of the new unit provided in Explanation-II of Section 4-A of the Act.
Provisions of Section 4-A(1) and Section 4-A(6) (Explanation 1 and 2) are extracted below.
Section 4-A. Exemption from sales Tax of certain goods for specified period.
(1) Notwithstanding anything contained in this Act, where the State Governments is of the opinion that it is necessary so to do for increasing the production of any goods or for promoting the development of any industry in the State generally or in any districts or parts of districts in particular, it may on application or otherwise, in any particular case or generally, by notification, declare that the turnover of sales in respect of such goods by the manufacturer thereof shall, during such period not exceeding seven years from such date on or after the date of starting production as may be specified by the State Government in such notification which may be the date of the notification or a date prior or subsequent to the date of such notification and where no date is so specified from the date of first sale by such manufacturer, if such sale takes place within six months from the date of starting production and in any other case from the date following the expiration of six months from the date of starting production, and subject to such conditions as may be specified, be exempt from sales tax whether wholly or partly or be liable to tax at such reduced rate as it may fix.
Explanation - For the purpose of this Section-
(1) "New Unit" during the period ending with 31s'' March, 1990, means an industrial undertaking set-up by a dealer on or after October 1, 1982 but not later than March 31, 1990-
(a) ...
(b)(i) ...
(ii) ...
(iii) ...
(c) ...
(d) Using machinery, accessories or components not already used, or acquired for use, in any factory or workshop in India.
(e) ...
And includes on industrial undertaking fulfilling the conditions laid down in Clauses (a) to (e) set up by a dealer.
(i) ...
(i) ...
(i) ...
(i) ...
(i) ...
(i) ...
(i) ...
(i) ...
(2) "New Unit" after 31st March, 1990 means a factory or workshop set up by a dealer after such date and satisfying the conditions laid down under this Act or Rules or Notification made thereunder with regard to such factory or workshop and includes an industrial unit manufacturing the same goods at any other place in the State or an industrial unit manufacturing any other goods on or adjacent to the site of an existing factory or workshop, but does not include-
(a) any factory or workshop using machinery, plant, equipment, apparatus, or components already used or acquired for use in other factory or workshop in India other than boilers, generators, moulds and dyes and other than any machinery, plant, equipment, apparatus or components sold to it by any Government Company or any Corporation owned or controlled by the Central Government or State Government: or
(b) ...
(c) ...
Relevant notification No. TT-2-780/XI-9(226)/94-UP Act-15/48-Order-95 dated 31.03.1995 reads as follows:
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 from or reduction in rate of tax to new units and also to units which have undertaken expansion, diversification, modernization or backward integration.
NOW, THEREFORE, in exercise of the powers u/s 4-A of the Uttar Pradesh Trade Tax Act, (UP Act NO. XV of 1948), hereinafter referred to as the Act, the Governor is pleased to declare that:
1 (A) In respect of any goods manufacture in a ''new unit'', other than the units of the type mentioned in Annexure II, established in the areas mentioned in column 2 of Annexure I, the ''date of starting production'' whereof falls on or after first day of April, 1995 but not later than 31sdt day of march, 2000, no tax shall be payable, or, as the case may be, the tax shall be payable at the reduced rates, as specified in column 4 of Annexure I, by the manufacturer thereof on the turnover of sales of such goods, for the period specified in column 3 o the said Annexure I, or till the maximum amount of tax relief by such exemption from or reduction in the rate of tax as specified in column 5 of Annexure I is achieved, whichever is earlier. The period specified in column 3 of the said Annexure shall be reckoned from the date of the first sale, or the dale following the expiration of six months from the date of starting production, whichever is earlier.
1 (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, 1995 but not later than march 31, 2000 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 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:
(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.
1(c) ...
...
...
...
''Fixed Capital Investment'' or, as the case may be, additional fixed capital investment may, unless otherwise established, be determined in the case of an industrial undertaking financed by a term loan advanced by a public financial institution or a Scheduled Bank according to the certificate to that effect issued by such institution or the Bank and in any other case, according to-
(a) the value of the land certified by the Collector in accordance with the procedure laid down for determination of the value of land for the purpose of payment of stamp duty under the Indian Stamp Act, 1899.
(b) the value of building certified by an evaluator approved by the Income Tax Department for the purpose.
(c) the value of plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures certified by a Chartered Accountant.
In determining the fixed capital investment'' in case of ''new units'' or ''additional capital investment'' referred to in Clause (d) of Explanation (5) or Clause (ii) of Explanation (7) of Section 4-A in case of units which have undertaken expansion, diversification or modernization or backward integration, the investment in only, such land, building, plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures shall be taken into account as were acquired on or before the relevant date of commencement of the period of facility notified under Sub-section (1) of Section 4-A of the Act.
(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 facility of exemption from or reduction in the rate of tax.
ANNEXURE-I ------------------------------------------------------------------------------------ Sl. No. Location of unit Total Exemption from or Monetary Period of reduction in rate of tax limit upto exemption/ (denoted as percentage which the reduction of the rate of tax benefit of in the rate normally applicable exemption of tax. under the UP Act to the from or good concerned) reduction in Which, on any the rate of transaction of sale, shall tax under the not exceed five percent act together of the sale price. With the Year In case of in case benefit of units with a of other exemption fixed capital units from or investment exceeding reduction in 50 crores the rate of tax under the Central Sales Tax Act, 1956 is admissible ------------------------------------------------------------------------------------ 1 2 3 4 5 ------------------------------------------------------------------------------------ 1.(i) The districts of Twelve 1st year 100% 100% 250% of the Almora Bamda years 2nd year 100% 100% fixed capital Chamoli, Dehradun 3rd year 100% 100% investment Hamirpur,jalaun, 4th year 100% 100% or, as the Jaunpur, Kanpur, 5th year 100% 75% case may be (Dehat) Mahoba 6th year 100% 75% the Nainital pauri- 7th year 100% 75% additional Garhwal Sultampur 8th year 100% 50% fixed capital Uttarkashi 9th year 100% 50% investment. Pithoragarh and 10th year 100% 25% Tehri-Garhwal 11th year 100% 25% 12th year 100% 25% ------------------------------------------------------------------------------------ 2.(i) The districts of Ten year 1st year 100% 100% 200% of the Azamgarh 2nd year 100% 100% fixed capital Baharaiach, Ballia 3rd year 100% 100% investment Barabank Basti 4th year 100% 75% or, as the Budaun 5th year 100% 75% case may be Bulandshahr, Deoria 6th year 100% 75% the additional Etah, Etaeah, 7th year 100% 50% fixed capital Faizabad 8th year 100% 50% investment Farrukhabad 9th year 100% 25% Ghazipur Gonds, 10th year 100% 25% Hardoi jhansi, Lalitpur, Mainpuri, Mathura, Mau, Moradanad, Padrauna, Pilibhit Pratapgrah, Raebareli, Rampur Shahjahanpur, Sidharthnagar Sitapur and Unnao, (ii)The area of Allahabad. Districts in south of The river jamuna and Confluent Ganga (excluding the area included under Municipal Corporation Allahabad). (iii)The Taj Trapezium area. (iv) Greater NOIDA Industrial Development are. ------------------------------------------------------------------------------------ 3. The districts of Eight 1st year 100% 100% 175% of the Agra (excluding Taj years 2nd year 100% 100% fixed capital Trapezium Area), 3rd year 100% 75% investment Aligarh (excluding 4th year 100% 75% or as the Taj Trapezium Area), 5th year 100% 50% case may be, Allahabad (excluding 6th year 100% 50% additional The area in south of 7th year 100% 25% fixed capital Rivers Jamuna and 8th year 100% 25% investment Confluent Ganga but in case of Including the area small scale Included under units and Municipal 250% of the Corporation fixed capital Allahabad), investment Bareilly Bhadohi or additional Bijnor. Firozabad fixed capital (excluding Taj investment Trapesium area) in case of Ghaziabad (excluding the other The Greater NOIDA units. Industrial Development Area) Gorakhpur, Haridwar, kanpur (Nagaro, Lakhimpur- kheri, Lucknow, Mahrajganj, Meerut, Mirapur, Muzaffarnagar, Saharanpur, Sonbhadra and Varanadi. ------------------------------------------------------------------------------------
EXPLANATION:
"Taj Traplezium Area" means the area within the Trapezium formed by joining the following points with each other:
(1) inter-section of 27 45'' North latitude and 7715'' East longitude.
(2) inter-section of 27 45'' North latitude and 7715'' East longitude.
(3) inter-section of 27 00'' North latitude and 78 30'' East longitude.
(4) inter-section of 27 30'' North latitude and 78 30'' East longitude.
"Small scale unit", means an industrial undertaking certified by the Director of Industries. Uttar Pradesh in accordance with the guidelines, issued in this behalf by the Government of India to be:
(a) a small scale industrial undertaking the fixed capital investment whereof does not exceed sixty lakh rupees:
(b) an ancillary industrial undertaking the fixed capital investment whereof does not exceed seventy-five lakh rupees.
"Greater NOIDA Industrial Development Area" means the area declared as such by Government Notification No.7436 Bhau/XVIII-11-107-Bha-85, dt. January 28, 1991.
For the purposes of this notification the expression "Other Backward Classes of Citizens" shall have the meaning assigned to it in the Uttar Pradesh Public Services (Reservation for Scheduled Castes, Scheduled Tribes and Other Backward Classes) Act, 1994 and the expression "Minorities" shall have the meaning assigned to it under Article 30 of the Constitution.
KA.NI.-2-2591/XI-9 (116)/94-U.P. Act-15-48-Order (28)-2000 Dated:
Lucknow: August 24, 2000.
(Gazette dt. 25.8.2000)
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 from, or reduction in rate of tax to new units.
NOW, THEREFORE, in exercise of the powers u/s 4-A and Section 25 of the Uttar Pradesh Trade Tax Act, 1948 (Act No. XV of 1948), the Governor is pleased to declare that in respect of any goods manufactured in a new unit (not being the units which have undertaken expansion, diversification, modernization or backward integration) whose date of starting production falls on or after April 1, 2000 but not later than December, 31, 2001 no tax shall be payable, or as the case may be, the tax shall be payable at the reduced rate by the manufacturer thereof on the turnover of sales of such goods from the date of first sale or the date following the expiration of six months from the date of starting of production whichever is earlier, subject to the conditions and restrictions referred to in Section 4-A of the said Act and in notifications issued from time to time thereunder and subject to the modification that the unit should also fulfil the following conditions on "January 17, 2000:
(a) the unit is registered under the said Act;
(b) the unit has applied for a term loan from any Financial Corporation or Company owned or controlled by the Central or State Government or any bank;
(c) the unit has been allotted land for the factory.
Perusal of Explanation 1 and 2 shows that there is difference in the definition of the new unit established prior to 31.03.1990 and the unit established after 31.03.1990. From the perusal of the definition of the new unit for the purpose of the present case. Explanation I says that new unit during the period ending with 31.03.1990 means an industrial undertaking set-up by a dealer on or after 31.03.1990 using machinery, accessories or components not already used, acquired for use in any other factory or workshop in India. Explanation-II defines new unit after 31.03.1990 means a factory or workshop set up but does not include any factory or workshop using machinery, plant, equipment, apparatus or components already used or acquired for use in any other factory or workshop in India other than boilers, generators, moulds and dyes and other than any machinery, plant, equipment, apparatus or component sold to it by any Government Company or any corporation owned or controlled by the Central or State Government. In the definition of the new unit prior to 31.03.1990 all the machines, accessories or component should be new. In the definition of new unit after 31.03.1990 "accessories" has been excluded and was not required to be new and those unit using old boilers, generators, moulds and dyes have also been included in the new unit. As per the notification the benefit of exemption to the new unit established prior to 31.03.1990 was on the total turn over of the manufactured product in a specified period. However, to the unit established after 31.03.1990, the exemption was limited to the multiple to the value of fixed capital assets as the case may be. It is not unlimited.
The definition of the new unit established after 31.03.1990 came up for Consideration before this Court in the case of Progressive Components Private Limited v. CST reported in 2000 UPTC 131. This Court was of the view that the Explanation to Section 4-A covers those machines, which are essential for carrying out the manufacturing process. In that case one snuffing machine was found old since no finding was recorded that whether snuffing machine was essential for running out the manufacturing process. Matter was remanded back, However, learned Single Judge was of the view that under the Explanation only those machines, which are essential to carry out the manufacturing activity is to be considered and not all machines. In the case of Jawahar Metal Industries (P) Ltd., Shahibabad v. State of U.P. and Ors. reported in 1995 UPTC 812 out of the total investment towards machine for Rs. 19,24,891/-, the value of one old machine was of Rs. 11,325/- which was drill machine and bearings. The Division Bench of this Court held that in the circumstances unit can not be denied exemption. In the case of J.K. Steels, Ghaziabad v. State of U.P. and Ors. reported in 1994 UPTC 936 as against the total value of machines at Rs. 19,24,891/- value of old machine was Rs. 1,453/-. Division Bench of this Court held that the exemption can not be denied. In the case of Neel Kamal Oil Mills, Dadra, Ghaziabad v. State of U.P. and Ors. reported in 1994 UPTC 606, exemption u/s 4-A was refused on the ground that the unit was using old generator taken on hire. Petitioner was engaged in the business of manufacturing of oil and oil cakes. Division Bench of this Court held that generator, which was hired by the petitioner can not be said to be an integral part of the machinery purchased by the petitioner for the manufacture of oil and oil cakes nor can that be said to be the accessories or components of the machinery. It was held that generator, which is only a source of power, can not be said to be the part of machinery used in the manufacture of oil and oil cakes.
In the case of Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax reported in 1992 UPTC 857 as against the total investment of Rs. 1,04,104/- towards machine, one machine worth Rs. 1,453/- was old. Apex Court held that the exemption can not be denied.
The section, read as a whole, was a provision, directed towards encouraging industrialization by permitting an assessee setting up a new undertaking to claim benefit of not paying tax to the extent of six per cent in a year o the capital employed. But the legislature took care to restrict such benefit only to those undertakings which were new in form and substance, by providing that the undertaking should not be, formed'' in any manner provided in Clause (i) of Sub-section (2) of Section 15-C. Each of these requirements, namely, formation of the undertaking by splitting up or reconstruction of an existing business or transfer to the undertaking of building, raw material or plant in any previous business results in denial of the benefit contemplated under Sub-section (1). Since a provision intended for promoting economic growth has to be interpreted liberally the restriction on it, too, has to be construed so as to advance the objective of the section and not to frustrate it. But that turned out to be the, unintended, consequence of construing the clause literally, as was done by the High Court for which it cannot be blamed, as the provision is susceptible of such construction if the purpose behind its enactment, the objective it sought to achieve and the mischief it intended to control is lost sight of. One way of reading it is that the clause excludes any undertaking formed by transfer to it of any building, plant or machinery used previously in any other business. No objection could have been taken to such reading but when the result of reading in such plain and simple manner is analysed then it appears that literal construction would not be proper. Taking facts of this case as illustration the inherent fallacy surfaces. The Income Tax Officer found that tools and implements worth Rs. 3,500/- used in earlier business were transferred to it. They composed of machines which were of very minor nature. But for one spot welding machine the cost of which was Rs. 1,500/- the other 13 items were of value ofrs.100/-, Rs. 200/-, Rs. 300/- or at most Rs. 400/-. On plain reading the effect of such transfer was operation of the clause and denial of benefit to the assessee. But that would be denial of very purpose for which the provision was enacted. The Legislature by Clause (i) of Sub-section (2) of Section 15-C intended to control any attempt or effort to abuse the benefit intended for new undertaking by change of label. The intention was not to deny benefit to genuine new industrial undertaking but to control the mischief which might have otherwise taken place. The result was however just the contrary. Any use of building or plant or machinery howsoever nominal either because of compulsion or inadvertence or sheer necessity fell in the mischief and the departmental authorities, bound as they were with the provision of the section, refused to grant exemption. High Courts also differed in their approach. Various decisions which were placed before us leave no room. Some related to transfer of machinery to the new business and others to the building. In respect of machinery the High Courts appear to be nearly unanimous that where the value of transferred machinery was low or meager the assessee should not be denied the benefit. For instance the Calcutta High Court in COMMISSIONER OF Income Tax, WEST BENGAL II Vs. SAINTHIA RICE AND OIL MILLS., did not find any reason to deny the benefit to the assessee where the undertaking was formed by acquisition of part of machinery in second hand from open market. But the decision which became the leading decision on transfer of machinery was rendered by Delhi High Court in Commissioner of Income Tax Vs. Ganga Sugar Corporation, It has been followed in nearly all the decisions, given subsequently as it was approved by this Court. It was held that use of scrap and material of the old unit of the value of a small fraction of the expenditure involved in the setting up of the new unit did not attract the concluding words of Clause (i) of Section 15 (2). The Calcutta High Court in Commissioner of Income Tax, West Bengal-I v. Electric Construction and Equipment Company Ltd. (1976)ITR 104 , was of view that where machinery previously used was ''very small compared to the value of the machinery installed'' the assessee was well within Sub-section (1) of Section 15-C. Same view was taken by the Bombay High Court in Commissioner of Income Tax, Bombay City-I Vs. Asbestos, Magnesia and Friction Materials Ltd., and it was observed, that the important aspect to be ''considered must be the monetary value of the old assets transferred to and utilized in the new undertaking''. In Commissioner of Income Tax, Bombay City-I, Bombay Vs. Kopran Chemical Co. Ltd., the Court answered the question in favour of assessee as the machinery transferred to the new business was of ''insignificant value''. In another decision the Bombay High Court in Commissioner of Income Tax, Bombay City-ii Vs. Sawyer''s Asia Ltd., while construing analogous provision. Section 84 (2) of 1961 Act opined that where machinery taken on hire formed ''insignificant part of the total value'' the assessee could not be denied the benefit. In the case of L.G. Balakrishnan and Bros. Ltd. Vs. Commissioner of Income Tax, Madras, the Madras High Court decided against the assessee not on proportion or value of the machinery transferred but because lease of machinery amounted to transfer.
In the case of CST v. Industrial Coal reported in 1999 UPTC 250. Apex Court has examined Section 4-A of the Act and held as follows:
In Commissioner of Income Tax, Amritsar Vs. Straw Board Manufacturing Co. Ltd., this Court held that in taxing statutes, provision for concessional rate of tax should be liberally construed. So also in Bajaj Tempo Ltd., Bombay Vs. Commissioner of Income Tax, Bombay City-II, Bombay, , it was held that provision granting incentive for promoting economic growth and development in taxing statutes should be liberally construed and restriction placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the objective of the provision.
We find that the object of granting exemption from payment of sales tax has always been for encouraging capital investment and establishment of industrial units for the purpose of increasing production of goods and promoting the development of industry in the State. It the test laid down in Bajaj Tempo Ltd., case (supra) is applied, there is no doubt whatever that the exemption granted to the respondent from 9th August, 1985 when it fulfilled all the prescribed conditions will not cease to operate just because the capital investment exceeded the limit of Rs. 3 lakhs on account of the respondent becoming the owner of land and building to which the unit was shifted. If the construction sought to be placed by the appellant is accepted, the very purpose and object of the grant of exemption will be defeated. After all, the respondent had only shifted the unit to its own premises which made it much more convenient and easier for the respondent to carry on the production of the goods undisturbed by the vagaries of the lessor and without any necessity to spend a part of its income on rent. It is not the case of the appellant that there was any mala fides on the part of the respondent in obtaining exemption in the first instance as a unit with a capital investment below Rs. 3 lakhs and increasing the capital investment subsequently to an amount exceeding Rs. 3 lakhs with a view to defeat the provisions of any of the relevant statutes. The bona fides of the respondent have never been questioned by the appellant.
In the case of H.M. Industries and Anr. v. STO and Anr. reported in 2003 NTN 22 354, the exemption application u/s 4-A was rejected on the ground that the petitioner used old crucible. The Division Bench of this Court held that exemption can not be denied for this ground only. In this case decision of the Apex Court in the case of Bajaj Tempo Ltd., Bombay v. Commissioner of Income Tax, Bombay, (Supra), Division Bench of this Court in the case of Jawahar Metal Industries (P) Ltd., Shahibabad v. State of U.P. and Ors. and CST v. Industrial Coal reported in 1999 (Supra) have been relied upon. In the case of State Level Committee and Anr. v. Morgardshammar India Ltd. reported in 1996 UPTC 213, the word "acquired for use" was under consideration for interpretation. The question involved in the present case was not involved in that case, and therefore, the aforesaid judgment is not applicable to the present case. In the case of Kanta Granites Pvt. Ltd. v. Commissioner of Trade Tax (supra) unit was involved in the cutting and polishing granite rocks into various shapes and sizes. In the establishment of the Unit, the total capital investment was Rs. 40,58,322.20 paise, which comprise of the value of the machinery for Rs. 23,80,950.20 paise. One old zip crane-valuing Rs. 62,400/- was used in the unit for transportation of boulders from one place to another and for putting the boulders on cutting slicing machine. Exemption u/s 4-A of the Act was disallowed on the ground that in the unit, the old zip crane machine was used. In the case of Mahabir Paints and Adhesives Pvt. Ltd., Kanpur v. Commissioner of Trade Tax (supra), the claim of exemption u/s 4-A of the Act was denied on the ground that the unit was found using old mixer machine valuing Rs. 1,500/- in the laboratory for mixing purposes. This Court held that mixer was not essentially required for manufacturing inasmuch as the manufacturer was carrying on the manufacturing for the period of two years without mixer and, thus, it has been held that on this ground the period of exemption could not be curtailed. u/s 4-A of the Act and the notification issued thereunder, the relevant date of commencement of period of facility is the date of first sale. I Therefore, in my view for the purposes of exemption, it is to be seen whether the I unit fulfills all the requirements of being a new unit as contemplated u/s 4-A of the Act and the relevant notification issued thereunder on the date of commencement of the facility i.e. the date of first sale. The above view is supported by Clause (e) to Explanation-1 of Section 4-A of the Act which says that fulfilling all the conditions specified in this Act or rules or notification made thereunder in regard to grant of facility under this section on the date from which such facility may be granted to him. Even though, this clause is under Explanation-1 which defines new unit established prior to 31st March, 1990 and such clause is not available in Explanation-II which defines new unit established after 31st March, 1990, but in the absence of anything to the contrary for the unit established after 31st March, 1990 it can be viewed that the condition specified in the Act should be fulfilled on the date from which the facility commences. This view m also finds support from the definition of the fixed capital investment as defined in Clause 6 of the notification of 1995 which says that investment in only, such land, building, plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures shall be taken into account as were acquired on or before the relevant date of commencement of the period of facility notified under Sub-section (1) of Section 4-A of the Act. In the present case, applicant claimed that the old tank embedded to earth came to the unit under the lease agreement dated 21.07.1999, which was subsequently removed and was not available when the production was started and the first sale was made. It was also claimed that such tank was used only for the purposes of filling of water etc and not in the manufacturing. It is submitted that for the manufacturing six new tanks have only been used which have been installed in the factory on the date of production. The plea of the applicant was denied on the ground that the lease deed dated 21.07.1999 wherein there was a mention about the old tank, was unregistered and, therefore, is not admissible. Tribunal held that at the time of suvey dated 25.07.1999 old tank was found having 20,000 litres of capacity and at the time of survey dated 11.05.2000, 12,000 litres of kerosene oil which was the raw material was found filled in the old tank.
In my opinion, the view of the Tribunal rejecting the plea of the applicant is not sustainable. In the unregistered lease deed dated 21.07.1999, there is a mention of old tank. This old tank is not mentioned in a registered lease deed dated 24.09.2001.The old tank was found at the time of surveys dated 25.07.1999 and 11.05.2000, but the old tank was not found at the time of survey dated 20.04.2002, which is annexed as Annexure 4 to the revision petition and at the time of survey dated 30.01.2003, shows that the old tank was removed and since it was removed Lf prior to 29.09.2001, therefore, in the lease deed, it was not mentioned. In this view of the matter, the old tank was not available on 26.09.2001, the date of starting of production and 11.10.2001 the date of first sale. It may be mentioned here that the on 05.04.200, the test production was carried on manually and by that time, machinery etc have not been installed, power connection has also not been installed and the new unit has not come into being. Therefore, the test production carried on 05.04.2000 is wholly irrelevant for the purposes of exemption to the present new unit. The S.S.I. Permanent Registration Certificate dated 1.10.2001 also reveals that the Industry Department has taken the date of production as 27.09.2001. In view of the above, in my view on the date of production i.e. 26.09.2001 and on the date of first sale on I 1.10.2001, the old tank was not available in the factory and only six new tanks were available which were installed and used in the manufacturing. There is absolutely no reason to dispute the above position. There is also absolutely no reason to disbelieve the plea of the applicant that the old tank was not available on the date of production and has not been used in the production. Moreso, six new tanks were available for use in the manufacturing on the date of production. It may be mentioned here that it is claimed by the applicant that the old tank was removed and was lying as a scrap. Its value was very nominal and has also not been considered as a capital investment. Therefore, having regard to the total investment of Rs. 24,45,176.45 and Rs. 15,84,914/- towards machinery, pumping set, tanks, pipe fitting, mixture, the exemption cannot be denied. In view of the above, I am of the view that the unit is entitled for exemption u/s 4-A of the Act read with Notification Nos. TT-2-780/XI-9(226)/94-UP Act-15/48-Order-95 dated 31.03.1995 and KA.NI.-2-2591/XI-9 (116)/94-U.P. Act-15-48-Order (28)-2000 Dated : Lucknow : August 24, 2000 being a new unit. The Divisional Level Committee is directed to issue the eligibility certificate in accordance to law treating the unit of the applicant as new unit as defined in Section 4-A of the Act. In the result, revision is allowed. The order of the Full Bench of the Tribunal dated 1st December, 2006 is set aside. The Divisional Level Committee is directed to issue the eligibility certificate in accordance to law treating the unit of the applicant as new unit as defined in Section 4-A of the Act.