IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22-12-2006 CORAM: THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA W.P.No.13697 and 13698 of 2002 The India Cements Limited, 'Dhun Building', No.827, Anna Salai, Chennai 600 002. ... Petitioner in both petns. vs. 1. The Assistant Commissioner (CT), Fast Track Assessment Circle -II, Greams Road, Chennai 600 006. 2. State Industries Promotion Corporation of Tamil Nadu Limited, No.19A, Rukmani Lakshmipathy Road, Egmore, Chennai 600 008. 3. The State of Tamil Nadu, rep. by the Secretary to Government, Department of Commercial Taxes and Religious Endowments, Fort St. George, Chennai 600 009. 4. The Tamil Nadu Taxation Special Tribunal, rep. by its Registrar, Second Floor, Singaravelar Maaligai, Chennai 600 001. ... Respondents in both petns. W.Ps. filed under Article 226 of the Constitution of India for the issue of a Writ of Certiorari as stated therein. In both petns.: For petitioner ::Mr.C.Natarajan, Sr. Counsel for M/s.N.Inbarajan For respondents::Mr.P.S.Raman, Addl. Advocate General assisted by Mr.Haja Nazirudeen, Spl.GP(T) for R - 1 & 3 Mr.Devaraj for R2 W.P.Nos.37042, 40030, 40031 & 44733 of 2002 and 3230, 3231, 3232, 3233, 3234 & 21162 of 2003 W.P.No.40030 of 2002: Hindustan Motors Limited, Chennai Car Plant, Adhigathur, Kadambathur P.O., Tiruvellore District. .. Petitioner vs. 1. The Assistant Commissioner (CT), Fast Track Assessment Circle -III, Chennai 600 006. 2. State Industries Promotion Corporation of Tamil Nadu Ltd., No.19A, Rukmani Lakshmipathy Road, Egmore, Chennai 600 008. ... Respondents W.Ps. filed under Article 226 of the Constitution of India for the issue of a Writ of Certiorari as stated therein. For petitioner :: Mr.C.Natarajan, Sr. Counsel & Mr.Sriprasath for M/s.N.Inbarajan For respondents:: Mr.P.S.Raman,Addl. Advocate General assisted by Mr.Haja Nazirudeen, Spl.GP(T) for R - 1 Mr.Devaraj for R2 COMMON ORDER P.D.DINAKARAN,J. I. THE CONTROVERSIES 1.1. In the case of expansion unit of an existing industry, whether the industry will be eligible for sales tax deferral in any financial year if the production exceeds the Base Production Volume (in short, 'BPV') for the sales made in that year in excess of the Base Sales Volume (in short, 'BSV'), is the issue that arises for our consideration in W.P.Nos.13697 and 13698 of 2002. 1.2. In the case of diversified unit of an existing industry, whether the industry will be eligible for sales tax waiver in any financial year if the production exceeds the Base Production Volume (in short, 'BPV') for the sales made in that year in excess of the Base Sales Volume (in short, 'BSV'), despite the fact that the production of the existing unit and diversified unit are totally different and the existing unit was subsequently sold to a third party, is the issue that arises for our consideration in W.P.Nos.37042, 40030, 40031 & 44733 of 2002 and 3230, 3231, 3232, 3233, 3234 & 21162 of 2003. II. GOVERNMENT ORDERS THAT ARE RELEVANT TO DECIDE THE CONTROVERSIES 2. Before touching the facts and circumstances pertaining to these two batches of writ petitions, it is apt to refer the Government Orders which are relevant to decide the controversies referred to above, based on which, both the petitioners, viz., India Cements and Hindustan Motors claim the benefit under the deferral of sales tax in the case of India Cements and waiver of sales tax in the case of Hindustan Motors. 2.1. The Government of Tamil Nadu, with a view to promote industrialization, introduced an Interest free Sales Tax Deferral Scheme in G.O.Ms.No.500, Industries (MIG-II) Department, dated 14.5.1990, as per which the State Industries Promotion Corporation of Tamil Nadu Ltd., the second respondent herein (in short 'SIPCOT') is the authorised agency to receive applications, sanction and disburse for medium and major industries and also to assess the eligibility of a new industry and issue eligibility certificate under the scheme. The said G.O.Ms.No.500, Industries (MIG-II) Department, dated 14.5.1990 reads as under: "GOVERNMENT OF TAMIL NADU ABSTRACT Industries  Declaration of Most backward taluks  Incentive schemes for industries  Interest free sales tax scheme  Further liberalisation  order  issued. ----------------------------------------------- INDUSTRIES (MIG-II) DEPARTMENT G.O.Ms.No.500 Dated: 14.5.1990 Read: 1. G.O.Ms.No.305, Industries, dated 22.5.1989 2. G.O.Ms.No.423, Industries, dated 7.7.1989 3. G.O.Ms.No.563, Industries, dated 19.8.1989 4. G.O.Ms.No.564, Industries, dated 19.8.1989 ORDER: The Government in the order second read above declared 105 taluks of this State as industrially backward for the purposes of grant of interest free sales tax loan, interest free sales tax deferral,state capital subsidy, etc. 2. With a view to correct regional imbalances in the industrialisation in the State by giving further incentives to more backward areas, the Government direct that 30 taluks, from among the 105 industrially backward taluk be declared as industrially most backward taluks. The names of 30 taluks are annexed to this order. 3. The Government direct that the new industries to be set up in the 30 most backward taluks ordered in para 2 above and also in the three industrial complexes of State Industries Promotion Corporation of Tamil Nadu at Pudukottai, Cuddalore and Manamadurai be eligible apart from other existing concessions for full waiver of sales tax dues for a period of five years upto a ceiling of the total investment made in fixed assets. Existing industries in the most backward taluks and in the three State Industries Promotion Corporation of Tamil Nadu (SIPCOT) complexes, undertaking expansion / diversification are also eligible for full waiver of sales tax dues for a period of five years subject to a ceiling of the total investment in fixed assets under expansion / diversification. 4. With a view to encourage more industries in Tamil Nadu, the Government direct that the following concessions also be made available to the industries: (a) For the industries to be started in the 75 backward taluks i.e. Other than the 30 most backward taluks, from among the 105 backward taluks, and in the industrial estates developed by any of the Government agencies including Madras Export Processing Zone, Madras Metropolitan Development Authority, the scheme of interest free sales tax loan/deferral ordered in the Government order first, third and fourth read above is modified as follows: (i) For the existing units undertaking expansion or diversification, deferral of sales tax will be given for nine years and the total amount thus given shall not exceed 80% of the additional investment made in fixed assets. (ii) For the new units, the total amount of deferral of sales tax will be given for nine years to the full extent of the total investment made in fixed assets. (b) The interest free sales tax deferral scheme is extended to the expansion (Part-I) as well as to the starting of new industries (Part-II) in the other areas also, where this scheme was not in vogue hitherto. The deferral of sales tax for the industries in these area will be for five years subject to a maximum of 60% of the total investment made in fixed assets in the case of new industries and 50% of the additional investment in fixed assets made in the case of expansion/diversification, of the existing industries. (c) As a gesture to the industries to be set up in any part of Tamil Nadu with an invest in fixed assets of more than Rs.50 crores, a special incentive of deferral of sales tax for a period of 9 years to the extent of total investment made in fixed assets will be given. This deferral concession will also be available to the existing industries going in for expansion / diversification with an additional investment in fixed assets for more than Rs.50 crores. 5. The sales tax deferral / waiver of expansion / diversification ordered in paras 3-4 above is subject to the sales tax payable on products manufactured by the capacity created by expansion / diversification units only. 6. The industries in the Most backward taluks and in the SIPCOT Complexes at Cuddalore, Manamadurai and Pudukottai can opt either for the full waiver of sales tax for a period of five years ordered in para 3 above or for the deferral of sales tax for nine years as applicable to the industries in the backward taluks ordered in para 4(a) above. The option should be exercised along with the application to be submitted to the authority for issuing eligibility certificate. The option once exercised and accepted will be final and cannot be changed. 7. The application for interest free sales tax deferral should be filed before the General Manager, District Industries Centre concerned in the case of small scale industries and before SIPCOT in the case of medium and major industries before the commencement of commercial production. 8. The above scheme will be applicable to small, medium and major industries as the case may be. The deferral / waiver period will commence from the date of commencement of commercial production after the completion of the envisaged project. Such commencement shall be on or after the date of issue of this order, for eligible units. 9. The General Manager, District Industries Centre and SIPCOT will be the competent authorities to issue eligible certificates in respect to Small Scale industries and major and medium industries respectively. The respective sales tax assessing authority will assess the sales tax liability of the units for each year. The sales tax authorities concerned, based on the assessments will raise demands for deferral of sales tax without interest or waiver of sales tax after commencement of production by the units. But the tax payable for the year will be deferred / waived within the overall ceiling for which the eligibility certificate issued by the authority. The deferred instalments shall be payable by the assessed units after the completion of the period of deferral together with the sales tax of the current year, without any interest thereon. In the case the units avails the complete deferral / waiver benefit before the completion of specified deferment period of 5 years or 9 years as the case may be, the unit has to pay the normal sales tax immediately after the date of full availment of eligible deferral amount. The assessee of the unit for which the sales tax has been waived will start paying the current sales tax dues after the completion of the waiver period or immediately after the full availment of eligible waiver amount, whichever is earlier. However, the deferred amount of sales tax for 5 years or 9 years as the case may be, has to be paid after the completion of the deferral period along with the current dues, i.e. In the case of deferral of 9 years the amount deferred in the first year being payable along with the sales tax due in the 10th year, the amount deferred in the second year being payable along with the sales tax dues in the 11th year and so on. 10. All eligible units which have commenced production before the date of issue of this order will be eligible for interest free sales tax loan / deferral, as per the order existing on the date of commencement of production. Units which have availed interest free sales tax loan under existing schemes, may opt for the deferral facility to the extent of uncompleted period and unutilised amount of the earlier scheme. 11. The original project in a taluk may go in for expansion / diversification in the same taluk where the original project is located or in any other taluk and avail the interest free sales tax deferral / waiver concession. However, this concession would be granted for one expansion / diversification only if carried out in the same taluk where the original project is located. 12. Second-hand machinery will not be part of the investment eligible to the computation of deferral or waiver of sales tax. 13. This order modifies all the previous orders available on the subject matter, to the extent to which the scheme has been covered by this order. 14. This order issued with the concurrence of Commercial Taxes and Religious Endowment and Finance Department vide their U.O.No.20626/B2-90-1 dated 2.5.1990 and U.O.No.2674/F9/P/90, dated 7.5.1990 respectively. /By order of the Governor/ M.M.Rajendran, Chief Secretary to Government" (emphasis supplied) 2.2. By proceedings in G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991, in exercise of powers conferred under section 17(4) of the Tamil Nadu General Sales Tax Act, 1959 (for brevity, the "TNGST Act"), Government of Tamil Nadu granted remission of sales tax payable by new industries, set up in 30 most backward taluks specified in the annexure thereunder and in three industrial complexes of SIPCOT at Pudukottai, Cuddalore and Manamadurai, on the sale of the products manufactured by the units for a period of five years from the date of commencement of production on or after 14.5.1990 upto a ceiling of total investment made in fixed assets after deducting the quantum of tax under the Central Sales Tax Act (in brief 'CST Act') subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small scale industries and by the SIPCOT in the case of medium and major industries. 2.3. In the same G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991, in respect of the existing industries in the abovesaid most backward taluks and in three industrial complexes, the Government granted remission of sales tax on the sale of products manufactured by the capacity created by expansion/ diversification only for a period of five years from the date of commencement of production on or after 14.5.1990 subject to the ceiling of the total investment made in fixed assets under expansion/diversification subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small scale industries and by the SIPCOT in the case of medium and major industries and it is made clear that such remission shall be granted for only one expansion or diversification of the existing unit, if carried out in the same taluk where the original project is located. 2.4. Similarly, by the same G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991, the Government granted deferment of payment of sales tax payable by new industries in 75 backward taluks annexed thereto on the sale of products manufactured by the units for a period of nine years from the date of commencement of production on or after 14.5.1990 upto a ceiling of total investment made in fixed assets, after deducting the quantum of tax under CST Act for the same period (i) subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small scale industries and by the SIPCOT in the case of medium and major industries; and (ii) subject to the condition that the tax deferred shall be paid after the completion of deferral period along with the tax assessed for that year. 2.5. The Government, under the same G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991, also granted deferment of payment of sales tax payable by the existing industries in abovesaid 75 backward taluks on the sale of products manufactured by the capacity created by expansion/diversification only for a period of nine years from the date of commencement of production on or after 14.5.1990 upto a ceiling of 80% of additional investment made in fixed assets, after deducting the quantum of tax under CST Act, for the same period subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small scale industries and by the SIPCOT in the case of medium and major industries and on condition that the tax so deferred shall be paid after the completion of the deferral period along with the tax assessed for that year and that the deferral of sales tax shall be eligible for only one expansion/diversification of the existing unit, if carried out in the same taluk where the original project is located. 2.6. The Government also, by the same G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991, granted deferment of payment of sales tax payable by new or existing industries within the State of Tamil Nadu other than 30 most backward or 75 backward taluks notified by the Government or the abovesaid industrial complexes on the sale of products manufactured by these units for a period of nine years from the date of commencement of production on or after 14.5.1990 upto a ceiling of total investment or additional investment made in fixed assets after deducting the quantum of tax under CST Act for the same period subject to the production of eligibility certificate issued by the General Manager, District Industries Centre in the case of small scale industries and by the SIPCOT in the case of medium and major industries and on condition that the tax so deferred shall be paid after the completion of the deferral period along with the tax assessed for that year and that the deferral of sales tax shall be eligible for only one expansion/diversification of the existing unit, if carried out in the same taluk where the original project is located. 2.7. Thereafter, by notification in G.O.P.No.396, Commercial Taxes and Religious Endowments, dated 10.9.1991, the Government in exercise of the powers conferred by sub-section (1) of section 17A of the TNGST Act granted deferral of payment of tax payable by any industry having an investment of Rs.100 crores and above to be set up anywhere in Tamil Nadu on the sale of the products manufactured by the industry for a period of twelve years from the date of commencement of production on or after 18.7.1991 up to a ceiling of 100 per cent of the value of fixed assets after deducting the quantum of tax under the CST Act for the same period subject to the production of eligibility certificate issued by the SIPCOT and on condition that the industry shall not have availed the remission of sales tax under sub-section (4) of section 17 of the TNGST Act. 2.8. In G.O.Ms.No.376, Commercial Taxes and Religious Endowments, dated 27.10.1992, in exercise of powers conferred by clause (a) of sub-section (5) of section 8 and sub-section 2 of section 9 of the CST Act, the Government extended the benefits of remission/ deferral of tax payable under the CST Act, as similar to G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991 to the new industries as well as existing industries, on the same conditions prescribed under G.O.P.No.92, Commercial Taxes and Religious Endowments, dated 22.2.1991. 2.9. Independent of G.O.Ms.No.500, Industries (MIG-II) Department, dated 14.5.1990 which applies to industries set up anywhere in Tamil Nadu and entitles such industries to waiver or deferral of sales tax, the Government of Tamil Nadu by G.O.Ms.No.43, Industries (MIG-II) Department, dated 13.12.1992 introduced special incentives for mega investments in the State and liberalised the incentives to major industries subject to satisfaction of the conditions prescribed thereunder. 2.10. Thereafter, the Government by G.O.Ms.No.90, Commercial Taxes and Religious Endowments Department, dated 18.3.1994, in order to remove the loopholes in the operation of Sales-tax Deferral Scheme referred to above, issued the following directions: "(i) Deferral scheme is applicable only to products manufactured by a particular industry. Therefore, a provision may be made in the eligibility certificate to the effect that if any industry indulges in malpractices of trade being disguised as manufactured goods, then the deferral scheme could be foreclosed by Commercial Taxes Department and the tax assessed for all the years covered by the scheme be recovered in one lumpsum after issue of show cause notice. (ii) In the IFST loan scheme there was a condition to the effect that if the unit availing the loan stopped normal production for a period exceeding six continuous months except in condition of force majeure, the entire outstanding loan will become recoverable in one lumpsum. Similar condition may be incorporated in the agreement form in respect of deferral of sales tax. (iii) It may be prescribed that the Assessing Officers must keep a close watch over the performance of the industry and foreclose the scheme and enforce the recovery of the tax assessed for all the years covered by the scheme if the monthly returns or check of accounts during assessment or otherwise show that the industry has stopped production in excess of the permitted period. (iv) Special arrangements may be made in the offices of the Commissioner of Commercial Taxes and Deputy Commissioners to ensure that the relief given in each case is entirely in terms of the Eligibility Certificate issued, that the terms and conditions are complied with and recoveries when due, strictly enforced. (v) The benefit of deferral of sales tax may be restricted to diversification only where the end products can be distinguished from the products of the old unit." (emphasis supplied) 2.11. Then, the Government, by G.O.Ms.No.119, Commercial Taxes and Religious Endowments Department, dated 13.4.1994, in order to protect the revenue and also to increase the production level of industries which propose to avail the concession of deferral of sales tax, imposed certain conditions and issued directions that are required to be complied with by the expansion / diversification units for claiming sales tax benefits and the G.O.Ms.No.119, Commercial Taxes and Religious Endowments Department, dated 13.4.1994, reads as follows: "GOVERNMENT OF TAMIL NADU ABSTRACT Tamil Nadu General Sales Tax Act, 1959  Deferral of Sales Tax Incremental turnover eligible for deferral  condition imposed on M/s.Ashok Leyland Limited  Extension to other Industries - orders  issued. ------------------------------------------------ COMMERCIAL TAXES AND RELIGIOUS ENDOWMENTS DEPARTMENT G.O.Ms.No.119 Dated: 13.4.1994 Read: 1. G.O.Ms.No.464, Industries Department, dated 14.9.1992 2. Letter Ms.No.113, Industries department dated 15.3.1993. 3. From the Special Commissioner & Commissioner of Commercial Taxes D.O.Lr.No.03/73787/93, dated 22.7.1993. ORDER: At present sales tax deferral is allowed for 10, 12 years to the major industries for their expansion and diversification units based on the investment made by them in such expansion or, diversification. 2. In the G.O. first read above, Tvl. Ashok Leyland Limited were granted incentive of sales tax deferral for a period of 10 years in respect of their project for manufacture of HINO/IVECO engines and expansion of capacity of existing vehicle assembly units at Ennore and Hosur. They were also granted sales tax deferral for 14 years in respect of their programme for introduction of new range of vehicles with State of the art technology to be obtained from M/s.IVECO at an estimated cost of Rs.438 crores. Subsequently, the Special Commissioner and Commissioner of Commercial Taxes, Madras raised a presumption that the company will be eligible for deferral only in an year when the annual actual production of a particular unit exceeds the benchmark figure for production in their units, as specified by SIPCOT (as a corollary, naturally the company would not be eligible for deferral where the actual production is lower). In the connection, the Government after detailed examination have issued clarifications in their letter Ms.second read above by fixing the Base Production volume and Base sales volume as eligibility for claiming deferral of sales tax by M/s.Ashok Leyland Limited for their expansion schemes. As these clauses protect the past revenue of the Commercial Taxes Department before the expansion, it was considered that the above conditions, i.e., fixing of base production volume and base sales volume may be insisted in all industries seeking the benefits of deferral of sales tax to their taking up of expansion projects. The Special Commissioner and Commissioner of Commercial Taxes, Madras has now reported that while issuing Eligibility certificate for expansion cases, SIPCOT alone adds a clause that past revenue before the expansion should be protected as other organisations, particularly District Industries Centre do not seem to be aware of this system and issue very open ended eligibility certificates, which often causes problems the Commercial Taxes Department, especially when some industries tend to take on more and more of the manufacture and same in the expanded units and decrease it in the old units. Accordingly, Taxes for the reason stated above, has recommended that the principles laid down for the Ashok Leyland Limited referred to in Government Letter