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Judgment
Chitra Venkataraman, J.—The Petitioner herein availed of the benefit of interest-free sales tax deferral as a new industry under G.O. Ms.
No. 500 dated May 14, 1990. The facility was available for a period of nine years commencing from 1992-2001. The Petitioner stated that it had
also started repaying the loan from the year 2001. Thereafter, the Petitioner once again moved for interest-free sales tax deferral in respect of the
expanded unit by making additional investment of Rs. 45.49 lakhs. The TIIC accordingly issued the eligibility certificate dated February 19, 1999
as per which, the deferral was to cover the period 1998 to 2007 repayable from the year 2007 to 2016.
In terms of the eligibility certificate, the Petitioner also entered into an agreement with the territorial Assistant Commissioner for the said deferral.
The Petitioner states that neither the eligibility certificate nor the agreement stipulated that the benefit of deferral for the expanded unit would be
over and above the base volume of production in the parent unit. Accordingly, the Petitioner filed the returns and claimed the deferral as per the
eligibility certificate on the turnover over and above the base volume production.
By notice dated January 9, 2001, the first Respondent informed the Petitioner that the Petitioner had to pay tax on the highest production and
sales which existed in the three years preceding the expansion. Since the Petitioner had not reached the taxable turnover of Rs. 60,76,828, the
benefit of deferral was not available to the Petitioner. Consequently, the Petitioner was called upon to pay a sum of Rs. 14,32,908 within three
days from the date of receipt of notice. The Petitioner filed a reply on January 11, 2001 contending that the Petitioner had reached the base
volume of production from March, 1999 to December, 2000 and consequently the demand was drawn. The Petitioner once again wrote a letter
on June 6, 2001 reiterating the abovesaid fact.
Ignoring the letters issued, the first Respondent went ahead with the issuance of notice of recovery of interest u/s 24(3) of the Act. It is stated by
the Petitioner''s counsel that the Petitioner had already remitted the tax portion. The grievance herein is only as regards the demand for interest u/s
22(3) of the Act. Challenging the said demand as contrary to the eligibility certificate and to the agreement, the Petitioner is before this Court.
Referring to Clauses 4.1 and 4.2 of the eligibility certificate, learned Counsel pointed out that when the agreement does not specify as a
condition for grant of deferral that the Petitioner should maintain the base volume of production/sales, the insistence on compliance with the said
conditions by the first Respondent is totally illegal and unsustainable.
The learned Counsel took me through the various clauses in the eligibility certificate and submitted that the demand for interest is liable to be set
aside.
A perusal of the impugned notice shows that the demand for payment of penal interest was made on the premise that the Petitioner had remitted
the tax belatedly for the assessment years 1998-99, 1999-2000 and 2000-01.
As seen from the documents produced before this Court, the Petitioner had the benefit of deferral first as a new unit from the year 1992 for a
period of nine years and the repayment starts from the year 2001. When the expanded unit was granted the benefit of deferral on February 19,
1999, the principal unit was already under the cover of the deferral scheme. A reading of Clauses 4.1 and 4.2 as given in the eligibility certificate
shows that the sales tax liability deferred was with reference to the actual sales tax liability on account of general sales tax, Central sales tax,
additional sales tax, surcharge and additional surcharge liability on the sale of finished goods manufactured by the unit ; that the deferral would be
on a sum of Rs. 36.39 lakhs which would be 80 per cent of the value of fixed assets created under the expansion scheme, namely, Rs. 45.49
lakhs. The provisions contained in paragraphs 4.1 and 4.2 read as follows:
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.
4.2 80 per cent of the value of the initial gross fixed assets, i.e., Rs. 36.39 lakhs. (Fixed assets created under expansion scheme Rs. 45.49 lakhs.
80 per cent works out at Rs. 36.39 lakhs).
The agreement entered into with the Sales Tax Department in respect of the expanded unit shows that the Petitioner would be entitled to the
deferral scheme from September 11, 1998 to September 10, 2007 and that the repayment schedule starts from 2007-08 to 2015-16. The
agreement also fixed the monetary ceiling on the deferral at Rs. 36.39 lakhs of actual sales tax payable by the dealer. The agreement further states
that the company is eligible for deferral of sales tax for the increased volume of production. For the purpose of determining the increased volume of
production, the base figure shall be the highest of the volume of production or sales in the company in any one of the years during the last nine year
period preceding the date of commencement of deferral. In the face of the said agreement, the notice dated January 9, 2001 stated that since the
Petitioner had not reached the base volume of production for the year 1997-98, the eligibility was rejected. Hence the Petitioner was called upon
to settle the arrears of Rs. 14,32,908. The Petitioner replied in its letter dated June 6, 2001 that on account of the dull market condition, the sales
had fallen locally. However, the export had increased during 1999-2000.
A perusal of the agreement reached consequent on the grant of deferral for the expanded unit shows that although the agreement stipulates the
requirement of reaching the highest volume of production or sales in any one of the years during the last nine year period preceding the date of
commencement of deferral, given the fact that the parent unit itself was under deferral for the period 1992 to 2001 when the second eligibility
certificate was given on February 19, 1999, rightly the agreement mentioned no base volume production/sales to be maintained as a condition for
enjoying the deferral. In the absence of any benchmark fixed for the purpose of compliance, it is difficult to accept the stand of the Revenue that
the Petitioner had failed to maintain the base volume of production or sales. When there is no indication in the agreement entered as to the extent of
tax payable as a benchmark, given the fact that the parent unit was a new unit and was under the scheme of deferral when the expanded unit was
granted the eligibility certificate and hence there could be no benchmark, the proceedings initiated demanding interest, hence, has to be set aside.
The learned Counsel appearing for the Petitioner, however, pointed out that the Petitioner had paid the entire deferral liability in order to avoid
further precipitation in the matter even before the payment schedule started.
I agree with the submission of the Petitioner that in the absence of any benchmark fixed either as to the production or sales as a condition for
enjoying the deferral and rightly so, in the context of the parent unit enjoying the deferral when the expanded unit was granted the eligibility, I have
no hesitation in quashing the demand for interest payment from the Petitioner. Having regard to the fact that the deferral conditions are binding on
the Petitioner as well as on the Respondent, the notice levying interest u/s 24(3) of the Act has to be set aside. Consequently the writ petition is
allowed and the impugned order is quashed. No costs.