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Judgment
K. Chandru, J.—The petitioner is a Company situated in SIPCOT Industrial Park, Irungattukottai, Sriperumbudur, Kanchipuram District,
manufacturing Sheet Metal components, assemblies and sub-assemblies for automobiles. They are also enjoying IFST Deferral Scheme introduced
by the Government of Tamil Nadu.
By the order in G.O.Ms. No. 92, Commercial Taxes and Religious Endowment Department dated 22.2.1991, the Government of Tamil Nadu /
fourth respondent, issued a Scheme called as Remission of Sales Tax payable by new Industries set up in 30 Most Backward Taluks in certain
districts. Under that scheme, which grants benefit in the matter of payment of Sales Tax, by exercising the power u/s 17-A of the Tamil Nadu
General Sales Tax Act 1959 (for short, ''TNGST Act''), the Government deferred payment of tax on the sale of products manufactured by the
units situated in the backward areas, for a period of nine years from the date of commencement of the production or on or after 14.5.1990 up to a
ceiling of total investment made in fixed assets, after deducting the quantum of Act under the Central Sales Tax Act for the same period subject to
the condition that these units produce to the Assessing Authority the eligibility certificate issued by the General Manager, District Industries Centre
in the case of Small Scale Industries and by the SIPCOT in the case of medium and major industries and subject to the condition that the tax so
deferred shall be paid after the completion of deferral period along with the tax assessed for that year. As can be seen from the notification, the first
respondent is the authority to grant such certificate for availing the benefit of scheme.
In the present case, the first respondent has given a Certificate dated 10.4.2001 in respect of the writ petitioner industry and the same is not
disputed and paragraph 4 and 4.1(a) of the Certificate reads as follows:
The actual shall however be the least of the amounts mentioned in 4.1 and 4.2 below:
4.1(a). Actual sales tax liability on account of General Sales Tax, Central Sales Tax, Additional Sales Tax, Surcharge and Additional Surcharge
liability accruing in favour of the Government during the period of deferral on the sale of finished goods manufactured by the unit.
It is stated by the writ petitioner that while producing the sheet metal components, assemblies and sub-assemblies of automobile parts, steel
scrap also come as a by-product and it gets accumulated in the industry and since it is not wanted, it has to be sold in the market. Therefore, the
income derived from that is sought to be taxed.
I have heard Mr. N. Prasad, the learned Counsel appearing for the petitioner as well as Mr. Devaraj, learned Counsel for the first respondent
and Mr. Shanmuga Sundaram, the learned Government Advocate representing the respondents 2 to 4, and perused the records.
The contention of the learned Counsel for the petitioner is that the said steel scrap is a by-product of the main product which they are
manufacturing and they have also approached the Government that the by-product also should be included as part of deferral scheme which they
are enjoying.
It is seen from the records that the Government directed the Standing Committee on Incentives for Industrial Promotion in respect of this issue.
Even though the first respondent is the authority to grant Certificate as per the statutory notification, it is not clear as to why the matter was sent to
the Standing Committee. It transpires that the matter was pending before Standing Committee and as stated in the counter affidavit filed on behalf
of the first respondent that on 16.4.2004, the Standing Committee felt that the product is not indicated in the application for deferral / waiver and,
therefore, it should not be qualified for IFST concession and directed the first respondent to declare accordingly. Instead of applying their mind, as
directed by the Committee, the first respondent simply issued the impugned order dated 11.5.2004 stating that the writ petitioner is not entitled for
deferral concession in the matter of steel scrap, which are found available after the manufacturing process are over.
The only short question before this Court is that having granted deferral concession for the product manufactured by the writ petitioner, whether
the steel scrap, which is the by-product, should also be covered by the term ''product''. In fact, the entire concession was conceived and executed
only because the Industries were directly located in backward regions and the scheme itself does not wipe out the tax liability of the dealer but only
postpones the payment by certain years. If it is viewed in this context, there will not be any difficulty on the part of the first respondent, who is
empowered to grant Certificate, to consider the case of the petitioner in objective manner and also having the purpose behind the grant of deferral
benefit.
The learned Counsel for the petitioner brought to the notice of this Court the decision reported in 134 STC 58 [Commercial Tax Officer,
Thirupparangundram Assessment Circle and Ors. v. Thiagarajar Mills Ltd.]. A Division Bench of this Court had an occasion to consider whether
the cotton waste is a by-product in a Spinning Mill. After elaborately setting out the manufacturing process in a cotton mill, the Division Bench in
paragraph 5 and 6 of the judgment held as follows:
The word ""product"" has not been defined in G.O. P. No. 92. It only refers to the products manufactured by the new units established in the
backward taluks to which the G.O. applies. The G.O. clearly recognises that the unit may manufacture more than one product. In the absence of
any definition limiting the scope for the product only to the principal product, for the manufacturing of which the unit is established, the term
product"" is capable of comprehending within its by-product as well, especially when such by-products are themselves distinct commercial goods,
which are capable of being marketed separately and which are also subjected to tax as an item of taxation.
Moreover, the scheme of incentives formulated by the State is one which is intended to encourage establishment of new industries. The deferral
on sales tax liability, while it would not include the liability, if any, on the purchase or raw material extends to all the products manufactured, is
intended to enable the industries to become financially viable and to encourage entrepreneurs to set up new units in backward taluks. In the
context, in which the word ""product"" is used widen meaning to the term is to be assigned with a view to subserve the purpose of the scheme of
incentives. There is nothing in the G.O. which would come in the way of the products mentioned in the G.O. being regarded as comprehending by-
products, which are distinct commodities as well, especially when such by-product is also the result of the process which renders that by-product
distinct and different from the material from which that by-product is obtained.
While considering the deferral scheme, the Supreme Court had an occasion to consider a similar issue in the decision reported in ITC
Bhadrachalam Paper Boards Ltd. Vs. State of A.P., wherein the main production activity was manufacture of paper and paper products and the
coal ash, which was left over as a residue because burning coal was used as fuel, would be a by-product was considered and the Supreme Court
found that the coal ash was produced as a result of burning of the coal as part of the appellant industry and held that though it may not be the
principal product for which the industry was established but, yet, it will be a by-product qualifying for the concessional scheme. When there is a
clear authoritative pronouncement of this Court and the Supreme Court, it is not understandable as to why the first respondent should shirk the
responsibility imposed on them when deciding the elementary issue, which has been projected in this writ petition.
In the light of the above, the writ petition succeeds and will stand allowed.
The impugned order of the first respondent dated 11.5.2004 is hereby quashed and the first respondent is directed to re-consider the steel scrap
produced in the writ petitioner industry as coming within the meaning of the word ""product"" so as to enjoy the Eligibility Certificate as per Section
4(1)(a) of the Certificate dated 10.4.2001 in accordance with the law laid down herein and accord all the necessary benefits arising out of the
same. This exercise shall be done within four weeks from the date of receipt of a copy of this order. However, the parties are directed to bear their
own costs. In view of the same, no further orders are necessary in W.P.M.P. No. 7423 of 2005 and the same shall stand closed.