CWP No.19116 of 2006 1 In the High Court for the States of Punjab and Haryana at Chandigarh … CWP No.19116 of 2006 Date of decision: 31.03.2008 M/s A.S.Fuels Pvt. Ltd. & another Petitioners Versus State of Haryana and others Respondents Coram: Hon’ble Mr.Justice Satish Kumar Mittal Hon'ble Mr.Justice Rakesh Kumar Garg Present: Mr.J.K.Sibal, Sr.Advocate with Mr.Sapan Dhir, Advocate for the petitioner. Mr.Sanjeev Kaushik,Addl.A.G.Haryana for respondents. .. Rakesh Kumar Garg,J The petitioner is a private limited company registered under the Haryana General Sales Tax Act. The petitioner company set up an industrial unit in the State of Haryana for the purpose of manufacturing coal tar and smokeless coal. In accordance with the provisions of Section 13-B of the Haryana General Sales Tax Act (hereinafter as the Act) read with Section 28-A of the Haryana General Sales Tax Rules, 1975 (hereinafter as the Rules), the petitioner company was granted a certificate of eligibility for availing of exemption from sales tax on 5.6.1995 for a period of nine years with effect from 31.12.1994 to 12.12.2003. The industrial unit was run CWP No.19116 of 2006 2 by the petitioner company for some time and the company also availed of sales tax exemption till 1996. However, the petitioner company stopped its operations of the units in January, 1997. As per the averments made by the company in the writ petition, it was forced to shut down its operations because of no allocation of coal by the State Government and the request of the petitioner for allocation of coal did not meet any response from the State Government. The Deputy Excise and Taxation Commissioner, Rohtak (for short “the DETC”) cancelled the exemption certificate granted to the petitioner- company and raised a demand of Rs.40,45,324/- in addition to interest against the exemption already availed by the petitioner company. The petitioner challenged the action of the Deputy Excise and Taxation Commissioner by filing Civil Writ Petition No.19870 of 1998. The said writ petition was disposed of vide judgment dated 4.7.2000. While disposing of the writ petition, the demand of Rs.40,45,324/- raised by the respondent was held to be illegal for the reasons given in the judgment. However, this Court permitted the respondents to proceed in accordance with law,if they want to withdraw the eligibility certificate from the petitioner-company. The respondents filed Special Leave Petition in the Hon'ble Supreme Court of India against the said judgment dated 4.7.2000, which is pending now as Civil Appeal No.5386 of 2000. The case for withdrawal of eligibility certificate of the petitioner company was placed before the Lower Level Screening Committee (for short the “LLSC”). The petitioner was informed CWP No.19116 of 2006 3 regarding the date of hearing before the said committee. However, no one appeared before the Committee on behalf of the petitioner and after discussion, the LLSC decided to withdraw the eligibility certificate vide order dated 27.6.2001(Annexure P-7). Pursuant to the said order of the LLSC, the Deputy Excise and Taxation Commissioner, Rohtak passed an order dated 15.10.2001 (Annexure P-10), whereby exemption certificate granted to the petitioner was withdrawn. Vide this order, the assessing authority was also directed to recover the exempted amount along with interest by working out tax liability with interest in which exemption was already availed by the petitioner-company. The petitioner company filed an appeal befopre the High Level Screening Committee(for short the “HLSC”) on 7.11.2001 against the order of the LLSC dated 27.6.2001 (Annexure P-7). On 31.12.2001, an assessment order was passed raising demand against Central Sales Tax and Haryana General Sales Tax for the exempted period of Rs.83,16,852/- vide demand notice dated 8.1.2002. The HLSC vide its order dated 13.3.2003 (Annexure P-15) dismissed the appeal filed by the petitioner being filed beyond the limitation period prescribed under the rules. The petitioner further averred that on receipt of the order Annexure P-15, he moved an application before the HLSC on 5.9.2003 requesting for an opportunity of hearing by the HLSC in order to defend the case and for setting aside its order dated 13.3.2003/20.6.2003. However, vide letter dated 1.12.2003, the respondents informed the petitioner that no second appeal lies to HLSC as the matter has already been decided. The respondent CWP No.19116 of 2006 4 issued recovery certificate against the petitioner-company and its director for recovering the amount as arrears of land revenue vide Annexure P-19. The petitioner filed CWP No.147 of 2004 in this Court. The said writ petition was disposed of vide judgment dated 12.7.2004 on the basis of agreement reached between the counsel for the parties that the order dated 20.6.2003 be set aside and the matter be remanded to the HLSC for disposal of the appeal on merits. In pursuance of the order dated 12.7.2004 passed by this Court, the HLSC heard the appeal on merits on 8.6.2006, the order was pronounced on 27.7.2006 and the petitioner was informed vide letter dated 13.9.2006 (Annexure P-22) that the appeal of the petitioner has been dismissed. The petitioner has filed the present writ petition challenging the order of the LLSC dated 27.6.2001(Annexure P-7) and the impugned letter/order dated 27.7.2006 and 13.9.2006 of HLSC (Annexure P-22) praying for quashing the same and consequently action for recovery of dues of the exempted sales tax for the petitioner-company inter alia on the ground that the impugned orders are illegal, arbitrary and unsustainable in law as no proper hearing was granted to the petitioner by the LLSC at the time of passing of the order Annexure P-7, which was in violation of principle of natural justice. No show cause notice was issued to the petitioner- company by the LLSC and further no reason had been given for cancelling the said eligibility certificate. The writ petition has been hotly contested by the respondent-State. In the written statement filed by the respondent Nos.1,2,7 CWP No.19116 of 2006 5 and 8, it has been stated that the scheme of tax incentives offered under Rule 28-A of the Rules is optional and industrial unit desirous to avail of such concessions is required to submit an application in form ST-70. In the said application, the applicant makes a declaration to abide by the rules and based on this application an eligibility certificate was issued to the petitioner. The said certificate was issued to the petitioner subject to the conditions stated therein. It is specifically stated in those conditions that the unit shall not go out of production for a period exceeding six months in a year. It is also made clear in this condition that the eligibility certificate can be canceled/withdrawn on contravention of any conditions mentioned therein or in Rule 28-A after affording an opportunity to the parties of being heard. Still further, a condition has been mentioned that rights of the petitioner under the certificate are in accordance with law and subject to the provisions of Rule 28-A of the Rules. Having accepted these conditions as mentioned above, the petitioner submitted an application for issue of an exemption certificate in Form 71 on the basis of eligibility certificate issued by the LLSC. In this application, the petitioner had undertaken to abide by the terms and conditions contained in Rule 28-A of the rules. Thus, the entire scheme of tax incentives envisaged under Rule 28-A constituted under the Act between the beneficiary and the State Government, after accepting the same. and after making declaration and undertakings, the petitioner who has been benefited cannot now call in question the legality of the provisions of Rule 28-A and if the provisions of Rule 28-A (8)(a)(ii) were not acceptable to the petitioner, he could have CWP No.19116 of 2006 6 well abstained from seeking the said benefits. It is further submitted by the respondents that the petitioner has availed the exemption from payment of tax to the tune of Rs.40,79,129/- for the period from 13.12.1994 to 31.3.1997 and he is bound to pay back to the State the amount of benefits availed of with interest in accordance with the provisions of Rule 28-A)8)(b) of the Rules. The petitioner in the present case has availed the tax benefit of Rs.40,79,129/- and has not paid any tax without explaining reasonable ground with the result, the State has suffered a loss in the revenue. The petitioner has no legal right to withhold the payment which he is liable to pay along with interest to the State and the recovery certificate issued by the State on account of exemption already availed by the petitioner is legal and valid and thus, the writ petition deserves to be dismissed. In the written statement filed by the respondent Nos.5,6 and 9 through Shri R.S. Sehrawat,General Manager, District Industries Centre, Rohtak, it has been stated that eligibility certificate granted to unit can be withdrawn on the ground, inter alia, that the beneficiary unit has discontinued its business for a continuous period exceeding six months or it is discovered that the said certificate was obtained by fraud etc. or the unit has disposed of any of its fixed assets adversely affecting its manufacturing or production capacity. It has further been clarified that in case the eligibility certificate is withdrawn, the exemption certificate shall also be deemed to have been withdrawn from the first date of its validity and the unit will have to make the tax, interest or penalty under the Act as if no exemption certificate had ever been granted to it. It has been also averred in the CWP No.19116 of 2006 7 said written statement that constitutional validity of these rules have already been upheld by this Court in CWP No.3540 of 2003 vide judgment dated 6.4.2004. Mr.J.K.Sibal,learned Senior Advocate has vehemently argued that the impugned orders are illegal and arbitrary as no proper hearing was granted to the petitioner by the LLSC at the time of passing of the order Annexure P-7, which is in violation of principles of natural justice. It has also been argued that the said order Annexure P-7 is a non-speaking order and no reasons have been given for cancelling the eligibility Certificate. Shri Sibal has further argued that under Rule 28-A, the statutory authority for cancelling the eligibility certificate is with the LLSC which has to pass any such order only after giving proper opportunity of hearing to the effective party and further the right of appeal before the HLSC is a statutory right and the appellate authority has no power to decide a matter which is the statutory function of LLSC as has been done in the instant case. Mr. Sibal has further argued that there exists no condition as envisaged under the Rules to withdraw the eligibility certificate of the petitioner as the petitioner was forced to shut down the operation of the unit because of non availability of coal to the unit as the respondent-State did not allocate the coal supply to the unit and therefore, the withdrawal of eligibility certificate vide Annexure P- 7 and order of the HLSC (Annexure P-22) and subsequent action of withdrawing the exemption certificate and recovery of tax amount from the petitioners are liable to be quashed. Mr.Sanjeev Kaushik, learned Addl.A.G.Haryana has CWP No.19116 of 2006 8 controverted the arguments raised by the learned counsel for the petitioner by referring to the various documents on the record and contended that the eligibility certificate was withdrawn legally as the petitioner had shut down its operation in January, 1997 and had also disposed of the machinery and Plant of the Unit and even the factory premises were dismantled and therefore, there was no chance of commencement of the production in the said unit. Mr. Kaushik has also referred to the affidavit dated 20.2.2007 of the General Manager,District Industries Centre, in which, it has been stated that the unit was availing the coal from the Government of India and the said coal had been mis-utilized by the petitioner and due to mis- utilization of the coal, the unit was asked repeatedly vide memo. dated 30.10.1996 and 18.11.1996 (Annexures R-1 and R-2 with the affidavit) to show cause and accordingly, vide letter dated 28.11.1996 and 16.12.1996 (Annexures R-3 and R-4), the Director of Industries, Haryana was recommended to stop the supply of coal to the petitioner. A joint inspection team comprising technical specialists, QMC, Faridabad and GM,DIC, Sirsa was constituted to ascertain the facts regarding mis-utilization of raw material and this team after making inspection and ascertaining the facts submitted the report vide letter dated 27.9.1997 to the Director of Industries, Haryana confirming that the unit has mis-utilized the raw material and that the unit was lying closed and was not working since long. On the basis of this report, it was decided to take action for de-registration of the petitioner unit and it was de-registered and the registration of the unit by the department of Industries, Haryana was cancelled vide CWP No.19116 of 2006 9 order dated 25.11.1997. The General Manager, DIC, Rohtak also wrote to the DETC, Rohtak vide letter dated 28.11.1997 requesting therein that unit has been de-registered by the Industries Department due to mis-utilization of raw material and therefore, the unit of the petitioner may not be allowed further tax exemption and further action for recovery of availed sales tax exemption may also be taken. Thereafter, the DETC, Rohtak wrote to the G.M.DIC, Rohtak for putting up the case before the LLSC for withdrawal of eligibility certificate under Sub Rule 8 of Rule 28-A of the Rules, 1975. Thereafter, the matter for withdrawal of eligibility certificate of the petitioner's unit was put up before the LLSC and the petitioner was informed vide registered letter dated 23.2.2001 regarding the meeting of the LLSC to be held on 9.3.2001. The petitioner sent a telegram dated 9.3.2001 requesting for an adjournment. The petitioner was again informed by the respondents that the meeting of the LLSC will be held on 27.6.2001. A notice issued by the GM,DIC, Rohtak dated 12.6.2001 was also pasted on the gate of the unit on 18.6.2001. No one appeared on behalf of petitioner before the LLSC and the LLSC passed the impugned order Annexure P-7 withdrawing the eligibility certificate. Mr. Kaushik has further argued that the right to appeal is a right in the nature of re-hearing before the HLSC both on merits as well as law and a perusal of the order Annexure P-22 would show that all the contentions raised by the petitioner have been discussed by the HLSC and no fault can be found with the findings of the said decision. CWP No.19116 of 2006 10 We have heard learned counsel for the parties and find no force in the arguments raised by Shri J.K. Sibal, learned Senior counsel. From the various documents on record, i.e., Annexures R-1 to R-16 attached with the affidavit of Shri R.S.Sehrawat, G.M.DIC, Rohtak, it is crystal clear that the petitioner had mis-utilized the raw material and for those reasons, the competent authority decided to take action for withdrawal of eligibility certificate under the rules and thereafter, proper opportunity was given to the petitioner to defend his case before the LLSC. The petitioner has not placed on record any material to controvert the factum of mis-utilization of coal by him. There is nothing on record to show that the petitioner has raised any objection against the recommendation of stopping of coal supply to him by the Department of Industries, Haryana or to the Government of India. Even the factum of disposal of plant and machinery of the unit has not been disputed. Therefore, in view of Rule 28-A(8)(a)(ii) of the Rules, the respondent authorities were competent to withdraw the eligibility certificate of the petitioner on the ground that the beneficiary has discontinued its business for a continuous period exceeding six months. In view of the uncontroverted factum of mis- utilization of coal and the fact that the petitioner has not challenged the recommendation of stoppage of coal supply to him at any stage, the petitioner cannot take a defence that he had discontinued the operation of the unit for the reasons beyond its control. From the overwhelming documentary evidence on record, it is crystal clear that the petitioner was given enough opportunity to show cause and to defend himself before the LLSC. However, he CWP No.19116 of 2006 11 has not availed the said opportunity. The petitioner cannot be allowed to say that he was not given a proper opportunity before passing the said order. Even before this Court, the petitioner has failed to controvert the factual position leading to the withdrawal of eligibility certificate vide Annexure P-7. Further the contention raised by Shri J.K. Sibal, to the effect that the HLSC has no power to decide the matter on merits i.e., withdrawal of the eligibility certificate and the HLSC should have remanded the matter to the LLSC to decide the issue on merits is without any force. It is well settled that an appeal is a continuation/rehearing of the suit/dispute. Thus, the HLSC was well within its statutory right to hear the case on merits without remanding the same to the LLSC. A perusal of Annexure P- 22 would show that all the contentions raised by the petitioner have been discussed and it has been found by the HLSC that the petitioner was having knowledge that the LLSC has initiated proceedings for withdrawal of eligibility certificate on the ground of closure of business and at no stage, the petitioner bothered to bring forth the reasons for closure of business to the notice of the LLSC and did not participate in the meeting of the LLSC just to delay the decision. The HLSC further found that the petitioner after availing full amount of tax benefit closed down the business and left the State. The HLSC also found that even before it no reasons have been stated for closure of business and while passing the order Annexure P-22, the Committee had given a finding that it is a case of fly by night operator, who after availing the tax concession closed down the business without any permissible reasons and therefore, the benefit CWP No.19116 of 2006 12 availed of cannot be allowed to be retained by him in the absence of establishing any reason for closure falling within the ambit of exceptions enumerated under the rules. In the present writ petition, the petitioner has failed to find fault with the above said findings of the HLSC and no effort has been made by the petitioner to bring his case within the exemption clause for closure of his business under the Rule 28-A(8)(a)(ii) of the Rules. Thus, the orders Annexures P-7 and P-22 have been passed in accordance with law and therefore, the action of recovery of amount of sales tax benefit along with interest taken by the authorities against the petitioner is in accordance with law. We find no merit in the instant writ petition and the same is hereby dismissed with no order as to costs. (RAKESH KUMAR GARG) JUDGE March 31,2008 (SATISH KUMAR MITTAL) nk JUDGE