IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE P.BHAVADASAN FRIDAY, THE 4TH FEBRUARY 2011 / 15TH MAGHA 1932 WA.No. 1477 of 2003() --------------------- ( AGAINST THE JUDGEMENT/ORDER IN OP.36769/2001 Dated 10/04/2003) .................... APPELLANT/PETITIONER: -------------------------------------- PREMIUM FERRO ALLOYS LTD., RAVIPURAM, ERNAKULAM, COCHIN - 682 016, REPRESENTED BY ITS MANAGING DIRECTOR. BY ADVS. SRI.JOSEPH MARKOSE SRI.JOSEPH KODIANTHARA RESPONDENTS/RESPONDENTS: --------------------------------------------- 1. SALES TAX OFFICER, IIND CIRCLE, ERNAKULAM. 2. GENERAL MANAGER, DISTRICT INDUSTRIES CENTRE, ERNAKULAM. 3. STATE LEVEL COMMITTEE, REPRESENTED BY THE MEMBER SECRETARY, DIRECTOR OF INDUSTRIES & COMMERCE, VIKAS BHAVAN, THIRUVANANTHAPURAM. 4. DEPUTY TAHSILDAR (RR), TALUK OFFICE, KANAYANNUR. BY GOVT.PLEADER, SRI.VINOD CHANDRAN THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 23.12.2010 THE COURT ON 04/02/2011 DELIVERED THE FOLLOWING: VK THOTTATHIL B. RADHAKRISHNAN & P. BHAVADASAN, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - W.A. No. 1477 of 2003 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 4th day of February, 2011. JUDGMENT Bhavadasan, J, This Writ Appeal is directed against the judgment in O.P. 36769 of 2001, by which the learned Single Judge had dismissed the original petition filed by the petitioner. 2. The petitioner started a small scale industry in the light of various concessions notified by the Government as per S.R.O. No.1729/93, produced as Ext.P2. Provisional registration was obtained by the petitioner for his unit on 2.6.1994 and permanent registration on 1.9.1995. Commercial production commenced on 6.7.1995. In pursuance to Ext.P2 the petitioner applied for sales tax exemption for Rs. 1.77 crores. Petitioner was granted sales tax exemption for Rs.1,15,13,171/- for a period of seven years commencing from 6.7.1995 to 5.7.2002. The exemption originally granted got exhausted on 31.3.1998. As per Ext.P2 notification there was no limit to the number of expansion/diversification/modernisation that the unit may undertake, W.A.1477/2003. 2 provided each of those matters meet the prescribed criteria. Before the exemption was exhausted, the petitioner had made additional investment to the tune of Rs,1,37,35,131.55 and applied for sales tax exemption as per Ext.P2. As per Ext.P3, benefit was granted. The second additional investment was made for the expansion of the unit for the period from 1.9.1999 to 30.11.1999 well within the time and the petitioner is therefore entitled to sales tax exemption. The application filed for the said purpose is Ext.P4. That was rejected by the second respondent by Ext.P5 order. An appeal was preferred before the State Level Committee and that is marked as Ext.P6. During the pendency of Ext. P6, it appears that revenue recovery proceedings were initiated for collecting an amount of Rs.21,31,458/- being the balance tax as per the return for 1999-2000. Ext.P7 is the notice. Petitioner approached this court by way of O.P.22652 of 2001 and this court by judgment dated 1.8.2001 directed the third respondent to dispose of Ext.P7 within two months and till then revenue recovery proceedings were kept in abeyance. It is claimed by the petitioner that in the meantime he made additional investment and filed another application for exemption, which is marked as Ext.P8. While that application was pending, the second respondent, W.A.1477/2003. 3 at the instance of the first respondent, initiated revenue recovery proceedings for collection of Rs.68,00,917/- being the tax for the period 2000-2001 and Rs. 6,63,601/- for 2001-2002 as per the return submitted by the petitioner. The notices so issued to the petitioner is produced as Exts.P9 and P10. Again the petitioner approached this court by way of O.P.32809 of 2001 and there was a direction to dispose of Ext.P8 within a period of one month and till then kept the proceedings in abeyance. Ext.P6 appeal was rejected by Ext.P11 order and Ext.P8 application was disposed of by Ext.P12 order. 3. The petitioner would assail Exts.P11 and P12 as arbitrary and contrary to the relevant government orders. The copy of the Government Order dated 24.11.1998 is marked as Ext.P14. According to the petitioner, the petitioner is entitled to the benefits offered by the Government under various Government Orders and it was contended that the Government Order dated 24.11.1998 can have only prospective operation. The specific contention was that the investment made by the petitioner was only towards the capital investment and does not fall within the category of expansion, diversification and modernisation. It was therefore contended that W.A.1477/2003. 4 the rejection of his application was illegal and cannot be sustained in law. 4. The State resisted the petition on several grounds. It was pointed out that the unit run by the petitioner fell within the negative list and therefore was not entitled to tax exemption. 5. Learned Single Judge dismissed the original petition holding that the views taken by the sales tax authorities are justified in law. The petitioner carried the matter in writ appeal. Initially this court allowed the appeal in the light of the fact that the State had represented before the Division Bench that they had withdrawn the impugned orders in view of the judgment in similar matters rendered by the Division Bench of this court. However, the State along with the other matters carried the matter before the Apex Court and Civil Appeal No.8034 of 2004 arises from judgment in W.A. 1477 of 2003. The Apex Court disposed of the connected matters along with Civil Appeal No.8034 of 2004 by judgment dated 3.4.2007. The Apex Court remanded the matter to this court for fresh consideration. This is how the matter is before us. 6. Two contentions were raised before this court. They are i) Ext.P14 G.O. is prospective and therefore cannot affect the W.A.1477/2003. 5 rights of the petitioner and ii) the authorities below have erroneously formed the opinion that the additional investment amount fall within the category of expansion,diversification or modernisation and thereby declined to grant tax exemption to the petitioner. That is incorrect. There was no expansion, diversification and modernisation, but only an additional capital investment. 7. The first issue does not arise for consideration in view of the decision of the Apex Court in S.L.P. 8034 of 2004 and other connected matters. The contention before the Apex Court was that G.O. No. 169/98/ID dated 24.11.1998, which is produced as Ext.P14 in this case was prospective. Rejecting the contention, it was held that the said Government Order was only clarificatory and there is no merit in the contention that it is only prospective and not retrospective. So, the first point stands concluded by the said judgment. 8. However, there seems to be considerable merit in the second contention. The rejection of the applications filed by the petitioner by Exts.P11 and P12 does not appear to be correct. Ext.P2 may be referred to in this context. In Ext.P2 Clause 11 defines expansion, diversification and modernisation as follows: W.A.1477/2003. 6 “(ii) 'Expansion' shall mean a total additional investment in fixed assets of not less than 25% of the 'Gross Block' as on the last day of the financial year immediately preceding the year in which the expansion was started and a minimum 25% increase in installed capacity compared to that the year immediately preceding the year in which the expansion was started. (iii) 'Modernisation' shall mean a total additional investment of not less than 25% in fixed assets compared to the 'Gross Block' as on the last day of the financial year immediately preceding the year in which such modernisation was started. (iv) 'Diversification' shall mean production of at least one new product and a total additional investment of not less than 25% in fixed assets compared to the 'Gross Block' as on the last day of the financial year immediately preceding the year in which such diversification was started.” 9. The appellant has contended that the additional investment is towards capital investment and does not involve expansion, diversification or modernisation. The investment so made does not fall within the ambit of these three items. 10. The petitioner seems to be justified in his contention. There is nothing in Ext.P11 and P12 order to show that the capital W.A.1477/2003. 7 investment, which the petitioner is entitled to make to enhance the capacity of the unit, may not fall within the three terms made mention of above. However, this is essentially a question of fact. This aspect has not been gone into by the authorities below. They have simply proceeded on the basis that since the petitioner's unit falls within the negative list, it is not entitled to tax exemption benefit. That approach does not appear to be correct. In the result, this Writ Appeal is allowed, Exts.P11 and P12 are quashed and the second respondent is directed to consider the matter afresh in accordance with law and in the light of what is stated above. Thottathil B. Radhakrishnan, Judge P. Bhavadasan, Judge sb.