No Exemption from Payment of Purchase Tax to be Allowed on Account of Breach of Declaration in Form 26: SC

Supreme Court: The respondent -Essar Steel Ltd held to be not entitled to the exemption from payment of purchase tax on account of breach of declaration in Form No. 26.

The state has preferred appeal feeling aggrieved by the common judgment and order by the High Court of Gujarat which dismissed the appeals filed by the State against the judgment by Gujarat Value Added Tax Tribunal, Ahmedabad (hereinafter referred to as the “Tribunal”) in Second Appeal by which the Tribunal held that the respondent is entitled to the exemption from payment of the amount of sales tax as per the original Entry No.255(2) vide F.D.’s Notification dated 05.03.1992, which was issued under Section 49(2) of the Gujarat Sales Tax Act, 1969 (hereinafter referred to as “Act, 1969”), the State of Gujarat has preferred the present appeals.  

Facts:

• The respondent herein – assessee -dealer (earlier known as Essar Steel Ltd.) is engaged in the activity of manufacture and sale of Hot Briquetted Iron (HBI) and Hot Rolled Coil (HRC) at its two units located at Hazira in Surat, Gujarat. The respondent holds a registration certificate under the Gujarat Sales Tax Act, 1969 and also under the Central Sales Tax Act, 1956.
• The Government of Gujarat vide Resolution dated 26.07.1991 announced a scheme known as “The Scheme for Special Incentives to Prestigious Units 1990-95 (modified)” for attracting investments in core sector industries. Under the said scheme, a prestigious unit was eligible for incentives up to 90% of the fixed capital investment. That pursuant to the said Scheme, the respondent invested approximately Rs.5000 crores for the manufacture of HRC.
• As per the original Entry No.255(2) dated 05.03.1992, condition No.6 required the eligible units to actually use the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods for sale within the State of Gujarat or outside the State of Gujarat or as packing materials in packing of the goods so manufactured.
• That thereafter, vide Government Notification dated 14.11.2000, Entry No.255(2) came to be amended w.e.f. 14.11.2000 whereby it was provided that the goods were to be actually used by the eligible units as raw materials, processing materials or consumable stores in its industrial units for which it has obtained the eligibility certificate.
• That thereafter Entry no.255(2) came to be further amended vide Notification dated 16.01.2002, which provided that the eligible units, who claim exemption from purchase tax on purchase of the goods even if the goods are used as raw materials, processing materials or consumable stores in its industrial units for which it has obtained the eligibility certificate in the manufacturing of goods for dispatch to its another unit or division situated within the State of Gujarat or outside the State of Gujarat for use in the manufacture of other goods for sale by such other unit.
• At this stage, it is required to be noted that under all the aforesaid three notifications, one of the main requirements was that the eligible unit furnishes to the selling dealer a certificate in Form No. 26 and obtained from the registering authority, declaring inter alia that the goods shall be used by it as raw materials, processing materials or consumable stores in its industrial unit for which it has obtained the eligibility certificate, for the manufacture of goods in its industrial unit as per the conditions provided under the three notifications.
• On commissioning of the Unit No.2, the Natural Gas and Naphtha purchased by the respondent – ESL, against declarations in Form No.26 were sold to Essar Power Limited (another company) (hereinafter referred to as “EPL”) and the EPL utilized the Natural Gas and Naphtha purchased from ESL for the purpose of generating/manufacturing electricity, which came to be sold to the ESL by the EPL. It is the case on behalf of the respondent – ESL that the said electricity generated by EPL was used by it for the purpose of manufacturing HRC in its industrial unit.
• On inspection by the Officers of the Sales Tax at the premises of the respondent – ESL in the month of July, 2001, a notice was issued by the Sales Tax Officer calling for certain information including details of branch transfers, deemed exports, transfer of finished goods etc.

Appellant/State’s Contention:

The Sales Tax Department thereafter raised a dispute inter alia regarding breach of declaration given in Form No.26 while purchasing Naphtha/Natural Gas having been committed by the respondent – ESL on the ground that the goods so purchased were transferred to EPL for generation of electricity, which was then used in Unit No.2 for the manufacture of HRC. A notice was issued on 30.06.2002 by the Sales Tax Officer calling upon the Respondent to give clarification in respect of the purported breach of conditions of exemptions, including the transfer of Naphtha/Natural Gas to EPL for generation of electricity.

Observations and Findings:

• After perusal of the original Entry No.255(2) vide Notification dated 05.03.1992 and the subsequent amended Entry No.255(2) amended by Notifications dated 14.11.2000 and 16.01.2002 and the conditions/eligibility criteria mentioned in the said notifications and Form No.26 applicable in 1992 the bench was pleased to find that only in a case where the raw materials, processing materials or consumable stores are used by the eligible unit and the eligible unit actually uses the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods, there shall be exemption from payment of purchase tax/sales tax to the extent provided in the said Entry.
• The submission on behalf of the respondent that as Naphtha and Natural Gas were transferred to EPL for generating the electricity, which in turn came to be used by the respondent – ESL for manufacture of HRC, and it cannot be said that there is a breach of conditions of original Entry No.255(2) dated 05.03.1992, cannot be accepted.
• The original Entry No.255(2) dated 05.03.1992 does not provide that the eligible unit after purchase of the raw materials instead of using the same by itself or himself can transfer/sold to another unit and the another unit can use the said raw materials.
• The original notification does not at all permit such transfer and use of the raw materials after availing the exemption for use of another unit, who, as such is otherwise not entitled to any exemption as per the incentive policy.
• The incentive policy, the actual benefit of exemption was available to certain industries as per the list of ‘eligible’ industries. The power producing companies were specifically put in the list of ‘ineligible’ industries for any exemption from sale/purchase tax on procurement of raw materials. Thus, the Essar Power Limited being a power producing company was not eligible at all for any exemption from sale/purchase tax on procurement of raw materials.
• Therefore, as such, by such transfer and sale of raw materials by ESL to EPL, EPL got the benefit of exemption, which otherwise being a power producing company was not eligible for such an exemption.
• Thus, by transfer of Naphtha and Natural Gas by the eligible unit – ESL to another unit – EPL, after availing the exemption from payment of purchase tax and not using the Naphtha and Natural Gas (raw materials) for its own use for manufacture of the goods so manufactured by it, it can be said to be violating the eligibility criteria/condition mentioned in the original Entry No.255(2) dated 05.03.1992 and it can be said that the respondent -Essar Steel Ltd. Committed a breach of the declaration given in Form No.26.
• Therefore, the High Court has committed an error in holding that the respondent did not commit any breach of any of the conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and that the respondent fulfilled all the conditions provided in the said Entry and that there was no breach of any of the conditions provided in the original Entry No.255(2) dated 05.03.1992.
• While the exemption notification should be liberally construed, beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise.
• It is settled law that the notification has to be read as a whole. If any of the conditions laid down in the notification is not fulfilled, the party is not entitled to the benefit of that notification. An exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications.
• The exemption notification should be strictly construed and given meaning according to legislative intendment. The Statutory provisions providing for exemption have to be interpreted in the light of the words employed in them and there cannot be any addition or subtraction from the statutory provisions.
• As per the law laid down by this Court in catena of decisions, in the taxing statute, it is the plain language of the provision that has to be preferred, where language is plain and is capable of determining defined meaning. Strict interpretation to the provision is to be accorded to each case on hand. Purposive interpretation can be given only when there is an ambiguity in the statutory provision or it alleges to absurd results, which is so not found in the present case.
• In the present case, the intention of the State to provide the incentive under the incentive policy was to give benefit of exemption from payment of purchase tax was to the specific class of industries and, more particularly, as per the list of ‘eligible industries’. Exemption was not available to the industries listed in the ‘ineligible’ industries. It was never the intension of the State Government while framing the incentive policy to grant the benefit of exemption to ‘ineligible industries’ like the power producing industries like the EPL, which as such was put in the list of ‘ineligible’ industries.

Held:

• In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court as well as that of the Tribunal quashing and setting aside the demand of purchase tax from the respondent was quashed and set aside.
• Held that the respondent -Essar Steel Ltd. – the eligible unit was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it did not fulfill the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and secondly that there was a breach of declaration in Form No.26 furnished by the respondent – eligible unit – Essar Steel Ltd.

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