R.C.S. Vanaspati Limited vs State of Rajasthan and Others

Prem Shanker Asopa, J.—By this writ petition, the petitioner has challenged the order dated February 11, 1991 and the minutes of the meeting dated November 22, 1991 and has further sought direction to the District Level Screening Committee to grant eligibility certificate to the petitioner-company under the Sales Tax Incentive Scheme for Industries, 1987. The petitioner-company has also prayed for a direction to the effect that clause 7(e) inserted by notification dated May 28, 1991 is not retrospective. Briefly stated, the facts of the case are that the petitioner-company is a manufacturer of hydrogenated vegetable oil (vanaspati) and refind oil and is registered under the provisions of the Rajasthan Sales Tax Act and Central Sales Tax Act. The respondent-State announced Sales Tax Incentive Scheme for Industries, 1987 (in short, "The Incentive Scheme") by notification dated May 23, 1987. In view of the aforesaid notification dated May 23, 1987, the petitioner-company made expansion by installing new plant and machinery and also invested in construction of buildings. In view of the increased capacity of production, the petitioner-company was entitled to exemption of sales tax under the Incentive Scheme, 1987, for which the petitioner-company submitted an application on December 5, 1987. When the said application was pending, a notification was issued by the respondents on May 28, 1991 whereby clause 7(e) was inserted in the notification dated May 23.1987, according to which an industrial unit covered by the Scheme shall not be entitled to claim any benefit under it if it has been penalised for avoidance or evasion of tax or any case of avoidance or evasion of tax is pending against it, at any forum of hearing. The application filed by the petitioner-company was rejected by the District Level Screening Committee in the meeting held on November 22, 1991 on the ground of tax evasion which was ultimately compounded which makes the company ineligible under clause 7(e) of notification dated May 28, 1991. In pursuance to the said meeting dated November 22, 1991, an order was passed on November 30, 1991 whereby the eligibility certificate was denied on the ground of ineligibility and communication in this respect was issued to the petitioner-company on December 11, 1991.

Respondent Nos. 1 and 2 filed reply to the writ petition and stated therein that since case of evasion of tax was pending against the petitioner-company, therefore, its application had been rightly rejected in view of clause 7(e) inserted vide notification dated May 28, 1991 in the notification dated May 23, 1987.

Submission of counsel for the petitioner-company is that the alleged case of evasion of lax was compounded on January 5, 1991, i.e., much prior to the aforesaid rejection dated December 11, 1991 and therefore, the compounding of tax would not entail the consequences as referred to in clause 7(e). Counsel for the petitioner-company further submits that clause 7(e) was inserted in the notification dated May 23, 1987 vide notification dated November 28, 1991 and the same is not retrospective in nature and would not apply to the pending application of the petitioner-company. In support of the said submission, counsel for the petitioner-company placed reliance on paras 7, 8 and 9 of the judgment of this court in District Level Screening Committee, Kota v. Vardhman Industries, Kota [2008] 20 Tax Up-date 3.

Since no one appeared from the respondents to oppose the writ petition, therefore, the contents of the reply are taken as submissions of the respondents which are to the effect that case of evasion of tax was pending against petitioner, therefore, his application has been rightly rejected.

I have gone through record of the writ petition and further considered submission of counsel for the petitioner as also contents of the reply to the writ petition.

Before proceeding further, it is relevant to reproduce paras 7, 8 and 9 of the judgment in District Level Screening Committee, Kota v. Vardhman Industries, Kota [2008] 20 Tax Up-date 3. The same are as under:

The relevant clause 7(e) of the Incentive Scheme, 1987 in this regard as well as clause 9(c) is reproduced hereunder for ready reference:

7(e) An industrial unit covered by this Scheme shall not be entitled to claim any benefits under it, if it has been penalised for avoidance or evasion of tax or any case of avoidance or evasion of tax is pending against it, at any forum of hearing. (emphasis supplied)

Provided that where the offence of avoidance or evasion of tax is technical or venial in nature, the State Level Screening Committee in case of large scale units suo motu or otherwise and in case of medium or small scale units on the reference made by the District Level Screening Committee or otherwise, may for reasons to be recorded in writing, waive the condition mentioned in sub-clause (e) above.

9(c) The Screening Committee shall be empowered to amend, suspend, restore or cancel the sanction for eligibility certificate accorded by it and copies of such orders shall be endorsed to the assessing authority.

The relevant clause 7(e) of the Scheme merely stipulates that the industrial unit covered by this scheme shall not be entitled to claim any benefits under it if it has been penalised for avoidance or evasion of tax or any case of avoidance, or evasion of tax is pending against it at any forum. The proviso gives power to the Screening Committee to waive such condition in appropriate cases. The proviso was inserted in clause 7(e) with effect from March 4, 1992. Obviously, if an avoidance or alleged evasion of tax is compounded by the assessee and determined composition amount is paid by him, neither the offence nor penalty survives.

(Emphasis supplied)

The assessee under the provisions of the Act is free to compound such cases warning his right to litigate in the matter and the assessing authority is also spared the labour of holding enquiry and passing the penalty orders. In such matter, it cannot be said that the assessee has been penalised for avoidance or evasion of tax. Therefore, neither of the conditions stipulated in clause 7(e) of the Incentive Scheme can be said to be available if a case of alleged evasion of tax is compounded by the assessee and duly determined amount of composition is paid by him. Clause 9(e) of the Scheme merely permits the Screening Committee to amend suspend, restore or cancel the sanction of eligibility certificate. The said clause also does not specifically authorise the Screening Committee to revoke the eligibility certificate with retrospective effect.

(Emphasis supplied)

In view of the above, since the matter of evasion of tax was compounded on January 5, 1991, therefore, it could not be said that the petitioner-company had been penalised for avoidance or evasion of tax or any case of avoidance or evasion of tax was pending against it. The said compounding order dated January 5, 1991 was passed prior to the rejection of the application for the eligibility certificate on December 11, 1991. Therefore, the rejection of the application of the petitioner-company by invoking clause 7(e) is illegal. The issue of retrospective application of clause 7 (e) of the notification dated May 23, 1987 is insignificant as per the aforesaid finding on the issue of compounding of tax evasion prior to the rejection of the eligibility certificate. In the result, the writ petition is allowed. The rejection order dated December 11, 1991, issued pursuant to the meeting dated November 22, 1991, is quashed and set aside. So far as denial of eligibility certificate to the petitioner-company is concerned, the case is remanded back to the District Level Committee with the direction to reconsider the case in the light of the aforesaid judgment, within a period of three months from the date of receipt of copy of this order.