IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH MONDAY, THE 15TH SEPTEMBER 2008 / 24TH BHADRA 1930 WP(C).No. 37931 of 2007(N) ---------------------------------------------- PETITIONER: ------------------ M/S. PARAGON RUBBER INDUSTRIES, PARAGON BUILDINGS, SREENIVASA IYER ROAD, CHALUKUNNU, KOTTAYAM-686001, REPRESENTED BY MANAGING PARTNER, REGI ABRAHAM. BY ADV. SRI.C.K.THANU PILLAI RESPONDENTS: ----------------------- 1. THE ASSISTANT COMMISSIONER-1, COMMERCIAL TAXES, SPECIAL CIRCLE, KOTTAYAM. 2. THE DEPUTY COMMISSIONER (APPEAL), COMMERCIAL TAXES, KOLLAM. 3. THE GENERAL MANAGER, DISTRICT INDUSTRIES CENTRE, KOTTAYAM. BY GOVERNMENT PLEADER SHRI C.K. GOVINDAN THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 15/09/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K. M. JOSEPH, J. -------------------------------------- W.P.C. NO. 37931 OF 2007 N -------------------------------------- Dated this the 15th September, 2008 JUDGMENT Petitioner calls in question Exts.P5 and P6. Briefly put, the case of the petitioner is as follows: Petitioner is a small scale industrial unit registered as such under the Industries (Development and Regulation) Act, 1951 vide Ext.P7. It is manufacturing hawai chappals. The assessments for the years 2002 - 2003 and 2003 - 2004 were completed vide Exts.P1 and P2 orders in the year 2005. The assessments were completed on the basis that the petitioner is entitled to pay concessional rate of tax on the basis that it is enjoying exemption as a small scale industrial unit. Subsequently, Exts.P5 and P6 notices were issued under Section 19(1) of the KGST Act, 1963, proposing to reopen the matter for the years 2002 - 2003 and 2003 - 2004. The basis of the re-assessment notices is that a perusal of the Balance Sheet would reveal that the investment in the Plant & Machinery for WPC.37931/07 N 2 the year 2002 - 2003 is in excess of Rs.3 Crores. In Ext.P5, it is stated that the value of the Plant and Machinery (Office) is shown as Rs.51,27,888/= and further, Machinery & Equipments is shown as Rs.2,92,06,799/=. In Ext.P6, the value of Plant and Machinery (Office) is shown as Rs.58,93,976/= and the value of Machinery & Equipments is shown as Rs.3,32,25,842/=. According to the assessing authority, the petitioner was illegally granted the benefit of concessional rate of tax, treating it as a small scale industrial unit and entitled to exemption. It is accordingly that Exts.P5 and P6 notices were issued. 2. I heard shri C.K. Thanupillai, learned counsel appearing for the petitioner and the learned Government Pleader. Learned counsel for the petitioner would submit that the notices are issued without jurisdiction. It is his case that the matter is governed by the Industries (Development And Regulation) Act, 1951. He refers to Section 3(c), (d) and (j) which define "Factory", "Industrial Undertaking" and "Small Scale Industrial Undertaking". He then pointed out that Section 11B refers to WPC.37931/07 N 3 factors which render a unit as eligible for being treated as small scale unit. He also points out that there is authority with the Central Government to revoke the Certificate. He would further refer to Section 25 of the Act to contend that it is open to the Central Government to delegate the power in this regard to the State Government or to any Officer of the State Government. He would point out Ext.P9. Ext.P9 is dated 3.12.2007, It was issued by the General Manager, District Industries Centre, Kottayam to the assessing authority. Therein, it is stated as follows: "Kindly refer the above cited letters. M/s. Paragon Rubber Industries, Kottayam is a Small Scale Industrial Unit as per Reg. No.09-04-1398 dated 15-04-1974. In reply to your letter cited first, we intended that no financial assistance for SSI units like Sales Tax Exemption, State Investment Subsidy etc. had not enjoyed by M/s. Paragon Rubber Industries during the period 2002 - 03 and 2003 - 04. I may clarify that M/s. Paragon Rubber Industries, Kottayam had SSI status during 2002 - WPC.37931/07 N 4 03 and 2003 - 04. Unit is keeping the SSI status till now." He would also take me through Exts.P10 to P16. According to him, the petitioner's unit was granted registration way back in 1975 and was enjoying the status of "small scale Industrial Unit" since then. The authority competent to determine whether the Unit is entitled to enjoy the status of "Small Scale Industrial Unit" is the General Manager of the District Industries Centre. After having issued Ext.P9 dated 3.12.2007, which would conclusively show that the Unit of the petitioner continued to enjoy the status of "Small Scale Industrial unit" during the years 2002 - 2003 and 2003 - 2004, the action of the assessing authority in purporting to proceed to re-assess the matter disregarding the communication issued by the General Manager is illegal, he contends. Counsel for petitioner also relied on the decisions of the Apex Court in Vadilal Chemicals Ltd. v. State of Andhra Pradesh and Others (142 STC 76) and Pondicherry State Co-operative Consumer Federation Ltd. v. Union Territory WPC.37931/07 N 5 of Pondicherry ((2007) 10 VST 630). 3. A Statement is filed on behalf of respondents 1 and 2, wherein the case of the respondents is as follows: Petitioner filed audited Statement of Accounts for the year ended on 31.3.2003 and 31.3.2004 before the first respondent and it disclosed investment in Plant and Machinery exceeding Rs.3 Crores and, therefore, it is a Medium Scale Industry and not a Small Scale Industry. From 2002 - 2003 onwards the petitioner is not at all a SSI Unit and it is not entitled to claim as such from 1.4.2002 onwards. During the year 2002 - 2003, investment exceeded the limit prescribed by the Industries Department. It is stated that the third respondent informed the first respondent that the Unit is not a SSI Unit vide letter dated 11.10.2007. It is stated that the case was pointed out by the Accountant General while auditing the files. It is stated that it was issued as a pre-assessment notice and what all objections are raised by the petitioner will be verified judiciously and finality made. WPC.37931/07 N 6 4. A Reply Affidavit is filed by the petitioner, essentially taking the stand that the first respondent cannot take an independent decision in the light of the direction issued by the Accountant General and that the matter has already been decided and no purpose will be served. It is stated that the first respondent has no powers or jurisdiction to decide whether the petitioner is a Small Scale Industrial Unit and the power is vested with the third respondent General Manager who has issued Exts.P9 and P10 Certificates. This Court came to pass an interim order dated 30.7.2008. Therein, it was noted that the petitioner on the one hand relied on Ext.P9 dated 3.12.2007 and Ext.P10 dated 14.12.2007 which confirmed Ext.P9 and the learned Government Pleader relied on a letter dated 11.10.2007 issued by the third respondent General Manager to the first respondent, Assistant Commissioner. In that letter, which had been made available to this Court, it was stated as follows: "With reference to the above, M/s. Paragon Rubber Industries, Kottayam is a permanently registered SSI Unit bearing No.09-04-1398 dated 15- WPC.37931/07 N 7 04-1974. They have not enjoys the status of SSI unit during the period 2002-03 and 2003-04 as per the prescribed norms of the Ministry of Industry. This is for your information." Noting this, this Court directed the third respondent, namely the General Manager, District Industries Centre, Kottayam to file an Affidavit. Accordingly, the third respondent filed an Affidavit on 14.8.2008. Therein, it is, inter alia, stated as follows: "In the case of M/s. Paragon Rubber Industries, the Gross Block of investment in plant & machinery as mentioned in the audited balance sheet for the years 2002 - 03 and 2003 - 04 was Rs.292.07 lakhs and Rs.332.26 lakhs respectively. However, for computing the value of plant & machinery for determining the status of SSI, the investment in the heads as per the note 2 to the SO 857(E) dated 10/12/97 should be excluded. After excluding the same, the investment in plant & machinery of M/s. Paragon Rubber Industries comes within the prescribed limit of Rs.3 crores. Therefore, the factory of M/s. Paragon Rubber Industries situated at Kumaranalloor, Kottayam enjoys the status of SSI during the years 2002-03 WPC.37931/07 N 8 and 2003-04, as per the norms prescribed by Government of India." It is further stated in paragraph 9 as follows: "In this respect, it is to be submitted that the status of SSI as mentioned above is applicable only to the factory run by the petitioner unit at Kumaranallur, the plant & machinery of which have been accounted for in the balance sheet and the production activities undertaken in the industrial unit, and does not cover any business that may be done by the petitioner in the same name and style utilising any other external production facilities, the plant and machinery of which are not accounted for in the books of the petitioner unit." 5. There is no dispute before me by the respondents that the matter is to be decided actually by the General Manager and the assessing authority cannot go beyond the Certificate issued by the General Manager or the concerned authority under the Central Act. In the light of the stand of the third respondent before this Court, it would appear to be clear that the very basis WPC.37931/07 N 9 of the notice that the investment in plant and machinery in the unit of the petitioner exceeds Rs.3 Crores, may not stand scrutiny and it may not be open to the assessing authority to proceed with the notice, in view of the position in law that the assessing authority cannot go beyond the Certificate issued by the General Manager. In the light of this, Exts.P5 and P6 have no legs to stand on and accordingly Exts.P5 and P6 are quashed. But, this will be without prejudice to any action which the first respondent or the competent authority may take in accordance with law in the light of the statements contained in paragraph 9 of the Affidavit filed by the third respondent. The Writ Petition is allowed as above. Sd/= K. M. JOSEPH, JUDGE kbk. // True Copy // PS to Judge