Samanthu Business Forms Private Limited vs State of Karnataka

K. Sreedhar Rao, J.—The assessee/petitioner herein is a small scale industry unit and it commenced the commercial production on 23-12-1997. The assessee as per the industrial policy 1996-2001 made applications to the Department of Industries and Commerce for issue of permanent small scale industry certificate as well as Fixed Assets Valuation Certificate (for short, ''FAVC''). The Department of Industries and Commerce, in the first instance, issued a permanent registration certificate vide Annexure-E to the effect that the unit is a service unit. The assessee made a representation to the Department of Industries and Commerce contending that the unit is not a service unit but it is a manufacturing unit. The department after considering the case of the assessee issued a permanent small scale industrial unit certificate vide Annexure-F, dated 7-10-1998. The Department of Industries and Commerce also issued FAVC vide Annexure-G, dated 17-10-1998. The assessee before the issue of certificates of small scale industrial unit certificate and FAVC had commenced production for selling the products. Since there was discrepancy in the issuance of certificates by the Department of Industries and Commerce, the assessee did not like to run the risk and therefore collected tax on the product sold. The tax collected has been remitted to the Government. The assessee becomes eligible for exemption on CST and KST after issuing Annexure-G, dated 17-10-1998. The assessee after receipt of Annexure-G has not collected any tax and sought for tax exemption of CST and KST. The AO in the assessment order at Annexure-D has held in favour of the assessee granting exemption and subsequently the AO invoked the provision of Section 12-Aof the Karnataka Sales Tax Act, 1957 and held that the assessee has violated the conditions of the notification dated 15-11-1996 in No. FD 32 CSL 96(1). It was the opinion of the AO that the assessee has collected the tax after issuance of FAVC and therefore not eligible for exemption. The Joint Commissioner of Commercial Taxes (Appeals) confirmed the order of AO. The Karnataka Appellate Tribunal has also confirmed the order of AO.

The question No. 1 framed in the memorandum of appeal is taken up for consideration.

The Government Advocate submits that the Joint Commissioner in Appeal in his order has found that the FAVC was amended on 17-10-1998 and taxes were collected upto the said date. Therefore, the assessee is ineligible for exemption. The Counsel also submitted that the Appellate Authority in Para 9 has made similar observation that the assessee has violated the terms and conditions and the taxes were collected after availing exemption. On stern scrutiny of the fact and material, we find that the AO in his earlier order has found that the assessee is eligible for exemption. It is well-founded the contention of the assessee that the Department of Industries and Commerce committed a mistake in categorizing the unit as service unit and later on issued the amended certificate categorising the unit as manufacturing unit. The Department of Industries and Commerce also issued FAVC only for the first time on 17-10-1998. The records do not disclose that earlier to 17-10-1998 FAVC was issued and that FAVC vide Annexure-G is amended one as observed by the Joint Commissioner. The assessee during the period from 23-12-1997 upto 16-10-1998 has collected taxes and remitted the same to the department. However, after becoming eligible, the assessee has not collected any tax. Therefore, the material does not suggest violation of conditions of the notification dated 15-11-1996. The earlier view of the AO is sound and proper. In that view of the matter, the finding of Tribunal and Joint Commissioner of Commercial Taxes that the assessee has violated the conditions of the notification dated 15-11-1996 is incorrect. Hence, we answer the question of law in favour of the petitioner in both the petitions.

Accordingly, the petitions are allowed.