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Judgment
Dhirendra Mishra, J.—The aforesaid STRs are being answered by this common order as the same arise out of a common order of reference dated 30th July, 1996 passed by the Board of Revenue, M.P., Gwalior (in short "the Board") and the Board has referred the following questions of law u/s 44(1) of the Chhattisgarh General Sales Tax Act, 1958 (in short "the State Act") for our opinion:
Whether under the facts and circumstances of the case, the Tribunal was justified in holding that exemption given to a dealer under an Eligibility Certificate issued under a statutory notification cannot be withdrawn by amending such E.C. retrospectively after its expiry.
Whether under the facts and circumstances of the case, the Tribunal was justified in holding that the Eligibility Certificate relates to the dealer as such i.e. in respect of all goods sold or purchased by him and not limited to the specific goods in specific quantities as mentioned in the E.G. in view of the provisions of the notifications:
F.A. 3-41-81(35) ST-V dated 23.10.81
F.A. 3-41-81 (31) ST-V dated 29.6.82
No. 422 - 6596 -V-ST dated 9.2.77
Brief facts of the cases are that the non - applicant is a new industrial unit eligible for Eligibility Certificate (in short "EC") for exemption from the State Tax, Entry Tax and the Central Tax. The non - applicant was granted EC on 3.7.1985 under the State Act valid from 21.8.1982 to 20.7.1989. In the EC, the packing materials were not specified. On the application made by the non - applicant, packing materials like Bardana, drum and tins were specified in the E.C. The non - applicant manufactured oil and oil - cakes, packed them either in the drums, tins or the gunny bags sold them either within the State or in the curse of inter - State trade or commerce. The original assessment orders were completed during the validity of the E.C. The last of such assessment order was passed on 15.5.1989 in respect of the year 1986 - 87. After the expiry of EC, it was amended on 25.9.1989 giving the amendment retrospective effect. As a result of retrospective amendment, the original assessments were reopened u/s 19(1) of the State Act and the sales tax authorities held that in view of the amended EC, packing materials were never specified in the EC and were liable to tax. The sales tax authorities also held that the declarations issued by the non - applicant on the strength of the EC were violative of the provisions of Section 14-A of the State Act and accordingly, they were reassessed and penalties were also imposed.
The non - applicant filed appeals against the appellate orders of the Appellate Deputy Commissioner, before the Tribunal and the Tribunal set aside these appellate orders and held that the E.C. could not be amended retrospectively and reopening of the cases u/s 19(1) of the State Act after amending the EC retrospectively after the expiry, was illegal. The non - applicant belonged to the class of dealers exempted from payment of tax under the State Act, Central Act and under the Entry Tax Act and cannot be assessed to tax under any of the three Acts during the validity of the EC. The class of dealers, being exempted from payment of tax, cannot be restricted to certain class of goods. However, the instant references have been made by the Board on the application of the revenue.
Shri Vinay Harit, learned Dy. Advocate General appearing for the State/applicant, would argue that the Notification dated 1.5.1982 was brought to the notice of the Commerce & Industries Department, as a result of which, EC was amended with retrospective effect on the ground that packing materials are not covered and the cases were reopened u/s 19(1) of State Act, as a result of deletion of packing materials from EC. The packing materials, after the amendment, did not form part of the EC and hence, were liable to tax. In view of Section 2(o) of the State Act, packing materials sold with the goods, are taxable. Initially, EC was issued by the Industries Department only for raw materials. However, subsequently, EC was amended to include raw materials and incidental goods, such as empty tin, jute, twine, gunny bag, polythene and other containers and in view of the above, corrigendum was issued on 25.9.1989 and EC was amended and items - gunny bags, jute, twine, empty tin, polythene and other containers - under the head - raw material and incidental goods - were deleted and it was made clear that the corrigendum shall be effective from 21.7.1982 - the date of commencement of production of the unit.
On the other hand, Shri N. K Vyas, learned counsel for the non -applicant/assessee, argued that the State Government vide notification dated 23.10.1981 issued u/s 12 of the State Act exempted from payment of Sales Tax for the period mentioned in column (2) of the Notification. As per clause 3(c) of this notification, the dealers, who are the first to set up industry in any tehsil of the district of Madhya Pradesh specified in category ''B'' of Part - II of the Annexure, are exempted from payment of Sales Tax for seven years. Vide notification dated 29.6.1982 issued u/s 8(5) of the Central Sales Tax Act, 1956, the State Govt. also exempted from payment of central sales tax for seven years. Similarly, vide notification dated 9.2.1977 issued u/s 10 of the Entry Tax Act, 1976, the State Govt. exempted from payment of entry tax for five years. Since the non - applicant was first to establish industry in Betul (category ''B'' of Part - II of Annexure), it was issued EC on 3.7.1985 for exemption from payment of Sales Tax for a period of seven years i.e., from 21.7.1982 to 20.7.1989. Similar EC for exemption from payment of central sales tax and from payment of entry tax was granted under the Central Sales Tax and the Entry Tax Act. However, the EC was subsequently amended on 25.9.1989 with retrospective effect.
Relying upon the decision of the Supreme Court in the matter of State of UP & others Vs. Deepak Fertilizers & Petrochemical Corporation Ltd. Reported in AIR 2007 SCW 3646, it was argued that Section 12 of the State Act empowers the State Govt. to exempt prospectively or retrospectively any class of dealers or any goods or class of goods from payment of tax. It also empowers the State Govt. to rescind any notification of exemption before expiry of the period for which it was to have remained in force. However, a notification rescinding the earlier notification is to have prospective effect and therefore, amendment of EC on 25.9.1989 i.e. after expiry of the period for which EC was issued, could not be given retrospective effect.
With respect to issue No. 2, it was argued that EC was granted to the registered dealer because it was the first unit established in the Tehsil of Betul and because the assessee belonged to the class of dealers exempted from payment of sales tax under the State Act, Central Sales Tax Act and the Entry Tax Act. The assessee being exempted industrial unit, the packing materials used by it, cannot be taxable under the definition of "sales price" u/s 2(o) of the State Act as the packing materials had become part of the tax free goods and therefore, no part of the purchase and sale is taxable under any of the tree Acts. Reliance is placed on the decision of the Supreme Court in the matter of Pondicherry State Co-operative Consumer Federation Ltd. Vs. Union Territory of Pondicherry reported in AIR 2007 SCW 7012.
We have heard learned counsel for the respective parties, perused the original order of the Board as also the order of the reference.
The State vide notification dated 23rd October, 1981 issued in exercise of power u/s 12 of the State Act, exempted the class of dealers from payment of tax under the State Act for the period specified in the notification subject to certain restrictions and conditions. Under clause 3 (c) of the Notification, dealers who are the first to set up industry in any tehsil of the district of Madhya Pradesh specified in category ''B'' of Part - II of the Annexure, were exempted from payment of sales tax for seven years under that Act without any restriction and conditions. The Directorate of Industries, Govt. of M.P., vide its EC dated 3.7.1985, certified that the non - applicant/dealer is a new unit having gone into production after 1st April, 1981; it commenced its production from 21.7.1982 and was the first industrial unit in Tehsil - Betul of District - Betul and thus, it was eligible for exemption for a period of seven years i.e., up to 20.7.1989. under the above, EC, gunny bags, jute twins, empty tins, polythene and others containers were added against the raw materials and incidental goods for which the registered dealer in manufacturer.
It appears that the aforesaid EC was amended vide Corrigendum dated 25.9.1989 issued by the Industries Commissioner and the items - gunny bags, jute twins, empty tins, polythene and other containers - under the head - raw materials and incindental goods - mentioned in the EC dated 3.7.1985 were deleted w.e.f. 21.7.1982 i.e. the date of commence of production of the unit. After issuance of the above corrigendum, re-assessment was carried out and tax and penalties were imposed by the appellate Dy. Commissioner, Sales Tax, which was subsequently set aside by the Tribunal.
Under the Notification dated 23rd October, 1981, a dealer first to set up an industry in any of the tehsils of the district specified in category ''B'' of Part - II of the Annexure, was eligible for exemption from payment of tax under the State Act for seven years without any restriction and conditions. It is not in dispute that the non - applicant/industry was eligible for exemption under clause 3(c) of the Notification dated 23rd October, 1981 as EC to that effect was issued by the Industries Department in favour of the non - applicant. From the EC dated 3.7.1985, it is also clear that the packing materials described therein were used by the non-applicant in the manufacturing process and accordingly, the non-applicant was granted exemption from payment of tax under the State Act by the Sales Tax Department. However, Industries Department vide Corrigendum dated 25.9.1989 deleted the packing materials from the EC and also directed that the deletion shall have retrospective effect from the date of commencement of the industry.
In the matter of Deepak Fertilizers & Petrochemical Corporation Ltd. (supra), the assessee was entitled for exemption from taxes on the sale of potassium phosphatic fertilizers from 1st november, 1994 to 31st March, 1995 as per notification issued by the State of UP dated 2nd November, 1994. However, it was withdrawn by the notification dated 10th April, 1995. The Hon''ble Supreme Court, considering Section 25 of the UP Trade Tax Act para materia to Section 12 of the State Act, held that the above notification amounted to increasing the liability to tax of the dealer with retrospective effect and the same cannot be issued in view of the proviso to Section 25 of the Act and denying exemption retrospectively is illegal and invalid.
In the instant case, the non-applicant, being the first to set up industry in the tehsil of Betul, was exempted from payment of sales tax for a period of seven years from the date of commencement of production. The EC of 1985 certifies that the non-applicant''s industry is located in the tehsil of specified district, it is first industry in the tehsil; it is engaged in the production of materials specified in the certificate; it commenced production from a particular date and as such, entitled for exemption from payment of tax under the Act for the specified period as per notification. The Notification has been withdrawn in the instant case and re-assessment was done only because the Industries Department vide Corrigendum dated 25.9.1989 retrospectively deleted packing material from the EC. In our view, reassessment on the basis of retrospective amendment of the EC issued by the Industries Commissioner after expiry of the period of eligibility, is impermissible and the Tribunal was justified in holding that exemption given to a dealer under EC under the statutory notification, cannot be withdrawn by amending the EC retrospectively after its expiry.
In the matter of Pondicherry state co-operative consumer federation Ltd. (supra), the assessee was engaged in purchase of Palmolive oil in bulk and packing of the oil in small packages for the purpose of selling in retail. It was also certified to be a small scale industry and subsequently, granted exemption under the GO dated 25.6.1974. The department denied exemption on the ground that the assessee does not manufacture any goods. The High Court answered the issued against the assessee. The Hon''ble Supreme Court, referring to the decision of Vadilal Chemicals Ltd. Vs. State of UP & Ors. [ (2006) 6 SCC 292 ] with approval, held that the State Sales Tax Act contains no provision relating to "manufacture". The concept only finds place in the 1993 GO issued by the Department of Commerce and Industries. It appears from the context of the other provisions of 1993 GO that the word "manufacture" had been used to exclude dealers who merely purchased the goods and resold the same on retail price. What the State Government wanted was investment and industrial activity. It is in this background that the 1993 GO must be interpreted (See CST v. Industrial Coal Enterprises)......The exemption was granted in terms of 1993 GO, the thrust of which was to increase industrial development in the State.
In the instant case, from bare perusal of the Notification it is manifestly clear that the assessee was entitled for exemption from payment of tax under the State Act for a period of seven years as it was the first industry established in the specified area in the Notification. The EC relates to all goods sold or purchased by the assessee and not limited to the specific goods in specific quantities as mentioned in the EC in view of the provisions of the Notification.
On the basis of aforesaid discussions, we answer the questions of law referred to us in the affirmative i.e., in favour of the assessee and against the revenue.
Accordingly, all the above references stand disposed of.