1 hvn IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 290 OF 2001 1. The Associated Cement Companies Limited, a Company incorporated under the provisions of the Companies Act having its registered office at Cement House, 121, Maharshi Karve Road, Mumbai 400 020. 2. Mr. Madan Lal Narula, a Shareholder and Director of Petitioner No. 1 – Company, having his office at the Associated Cement Companies Limited, Cement House, 121, Maharshi Karve Road, Mumbai 400 020. ... Petitioners Versus 1. The State of Maharashtra, through the Secretary, Industries Department, Mantralaya, Mumbai 400 032. 2. The Deputy Commissioner of Sales Tax (Administration), Nariman Point Division, Mumbai having his office at 601/6th Floor, Vikrikar Bhavan, Mazgaon, Mumbai 400 010. 3. The State Industrial and Investment Corporation of Maharashtra Limited, (SICOM), a Corporation incorporated under the provisions of the Industrial Finance Corporation Act, carrying on business at Nirmal, 1st Flor, Nariman Point, Mumbai 400 021. ... Respondents Mr. R.A. Dada, Sr. Counsel with Mr. Pankaj A. Sawant, Mr. L. Ruben and Ms. Manisha Virkhare i/by M/s. Vigil Juris for the Petitioners. Ms. I. Calcuttawala, A.G.P. For R. Nos. 1 and 2. 2 CORAM : FERDINO I. REBELLO & D.G. KARNIK, JJ. DATED : JULY 31, 2009 ORAL JUDGMENT (Per Ferdino I. Rebello,J.): The State of Maharashtra with a view to promote industrial development in the backward and undeveloped regions of the State particularly those further away from Bombay, Thane Pune Belt, introduced a Package Scheme of incentives in the year 1964 which was amended from time to time. The last amended scheme commonly known as 1980 Scheme was operative from 1.10.1988 to 30.9.1993. With effect from 1.10.1993 the State Government brought into force a new scheme dated 7.5.1993 which is known as Package Scheme of Incentives 1993 which hereinafter shall be referred to as the 1993 scheme. By Notification of 6.7.1994 the Package Scheme of 1993 was amended. One of the amendments was the substitution of Para 3.8(1)(c). The Petitioner No. 1 had earlier set up Chanda Cement Works near Chandrapur whose capacity was increased from time to time under the Package Scheme of 2.4.1969. The Petitioner No. 1 was issued eligibility certificate on 3.7.1970 under 1969 scheme. 2. The Petitioner on 18.6.1998 applied under the scheme of 1993, for an eligibility certificate to start another unit. According to learned counsel, the Petitioner No. 1 was granted eligibility certificate by Respondent No. 3. In terms of 3 the eligibility certificate, Petitioner No. 1 was entitled to sales tax incentives by way of exemption in the sum of Rs. 198 Crores i.e. 110% of the capital investment in the project. Based on the eligibility certificate, Respondent No. 2 issued on 11.10.2000 a certificate of entitlement but reduced the total value of incentives from Rs. 198 Crores to Rs.148.50 Crores and to 74.31% of the total production. 3. Petitioner No. 1 by letter of 18.10.2000 addressed to Respondent No. 1 pointed out that the certificate of entitlement issued by Respondent No. 2 is contrary to the 1993 scheme and the eligibility certificate issued by Respondent No. 3 and hence, to that extent inoperative in law. Petitioner received no reply to letter dated 18.10.2000. Petitioners however, received a demand notice from Sales Tax Officer calling upon them to pay tax on sales to the extent of 25.61%. Petitioner by its reply requested the Sales Tax Officer to withdraw the said notice. Though justice was demanded from the Respondents, the same having been denied, the Petitioners have filed the present petition. 4. It is submitted on behalf of the Petitioners that the Petitioners having an existing unit in respect of their new unit, became eligible for the status of pioneer unit as the area fell in D category area. Investment in the fixed capital by the Petitioners as pioneer unit would be covered under Para 3.8(1)(a), since the said para covers pioneer unit. It is further submitted on behalf of the Petitioners that SICOM the Implementing Agency had issued the Eligibility Certificate dated 4.10.2000 fixing the Value Cap of incentive to 110% as available to a Pioneer unit investing in “D” category area. The Petitioners have made the investments in the sum of Rs. 180 4 Crores for which they have have been granted an Eligibility Certificate. According to Petitioners, the respondents have also admitted that they are pioneer unit since the Revenue has itself applied 110% incentives to the Petitioner but has allowed only 75% of 110% of the incentive. It is therefore, submitted that once the Petitioners are Pioneer unit they are entitled to 110% incentive on the fixed capital investment. 5. On behalf of the Respondents it has been contended that the Petitioner No. 1 was admittedly an existing unit set up earlier and enjoying the benefits of the Package Scheme of Incentives of 1969 Scheme and had undertaken expansion under the 1993 scheme by investing Rs. 180 Crores in the “D” category area. Under the said scheme the expansion was recognized as Pioneer Unit under Para 3.12(b) of the 1993 scheme. Reliance is placed on the definition of existing unit, new unit and pioneer unit. It is set out that the State had two pronged purpose in setting out the Package Scheme of Incentives for attracting investment in backward areas namely : (i)it sought the development of backward areas by the investing Companies and (ii) it had to accomplish its main purpose of recovering revenue for the State, which is the main function of the Respondent No. 2. According to Respondents the Petitioner was an existing unit and had enjoyed the benefits of the Package Scheme of Incentives 1969, but since the Petitioner had undertaken expansion in the said backward area and had further invested Rs. 180 Crores towards expansion, the expansion of the Petitioner was given 5 Pioneer Status under Clause 3.12(b) of the 1993 scheme whereby the Petitioner became entitled to a slab of 110% incentives under Para 5.1(2) of the said scheme. However, since the Petitioners existing unit had undertaken further investment exceeding Rs. 30 Crores in Group D category area the expansion attracted clause 3.8(1)(i)(c) explanation as amended by Government Resolution dated 6th July, 1994. Para 3.8(1)(i)(c) as amended by the Government Resolution dated 6th July, 1994. This is a specific provision for any type of Existing Unit undertaking expansion, whereby if such unit further invests by acquiring new fixed assets of not less than 24% of the gross fixed investment at the end of the previous financial year such expansion is entitled to 75% of the Sales Tax incentives of that admissible to the new unit in the relevant area and for the relevant category of units as per the scheme. Petitioners have been given the same. Hearing was also given to Petitioners on 10.10.2000 by Respondent No.2 before issuing the entitlement certificate dated 11.10.2000. It is therefore, submitted that the claim of the Petitioner is devoid of merit and consequently ought to be dismissed. 6. The following points arise for our consideration : (a) Whether the ceiling of entitlement in respect of a pioneer unit can be curtailed by provisions contained in Para 3.8(1)(i)(c) of the 1993 Scheme as amended on 6.7.1994 because earlier the company had started another unit in the same taluka under the 1969 scheme? 6 (b) Whether the incentives available to the Petitioner can be restricted to the ratio of fixed capital investment on the alleged ground that the Petitioner can not maintain separate records for production from the expanded capacity? 7. As far as point (b) is concerned, considering the judgment of this Court in The Commissioner of Sales Tax Versus Vs. M/s. Pee Vee Textiles Limited, 2008 Vol.110(10) Bom. L.R. 3547 which has dealt with the same, the point stands concluded in favour of the Petitioners. 8. Let us therefore, consider the first point. For that purpose we may refer to some of the provisions of 1993 scheme to understand the scheme. An existing unit is defined in Para 3.5 as under : “3.5 Existing Unit : An Existing Unit shall mean and include :- (i) An industrial Unit which has been set up and is in production on or any time prior to 30th September, 1993, for any period whatsoever, or (ii) (ii) An industrial Unit which has been granted an EC or availed of any incentives in an Earlier 7 Scheme, or (iii)(iii) An industrial Unit which has filed a valid application for grant of an EC under 1988 Scheme with any of the implementing agencies on or before 30th September, 1993, after completion of all initial effective Steps.” A New Unit is defined in Para 3.10 as under : “3.10. New Unit : A new Unit shall mean an Industrial Unit which is set up for the first time by an entity in the Private Sector/Co-operative Sector/State Public Sector/Joint Sector in any Taluka where there is no Existing Unit set up by the said entity provided that the Unit satisfies the following conditions : (a) It is not an Existing Unit. (b) At least one of the Final Effective Steps is completed on or after 1st October, 1993 for setting up the Unit. (c) It is not formed as a result of re-establishment, mere change of ownership, (ci)change in the constitution, reconstruction or revival of an Existing Unit. (cii)Explanation – The incentives available to a 8 New Unit under the 1993 Scheme shall, however, be available to Units which get established as a result of purchase of assets of Existing/Defunct/Closed Sick Units subject to and to the extent mentioned in the Annexure II to this Resolution.” A Pioneer Unit is defined under Para 3.12 as under : “3.12 Pioneer Unit : A Pioneer Unit shall mean and include a large scale New Unit set up or a large scale Fixed Capital investment made by an Existing Unit after 1st October, 1993 in Group B/C/D/D + areas for which at least one Final Effective Step is taken after 1st October, 1993, provided it is - (a) a New Unit with the Fixed Capital Investment exceeding Rs.100 crore in Group B area or Rs.30 Crore in Group C area or Rs. 15 Crore in Group D area or Rs. 5 Crore in Group D + area, being set up as the first Unit in point of time in a Taluka where there is, as on 1st October, 1993 no such Existing Unit in the Taluka, or (b) a New Unit being set up with, or an Existing Unit undertaking in the same Taluka the Fixed Capital Investment exceeding Rs. 30 Crore in Group D area or Rs. 10 Crore in Group D+ area. “ 9 The amendment brought by Notification on 6th July, 1994 in Para 3.8(1)(i)(c) reads as under : “The existing para 3.8(I)(i)(c) should be substituted by “Any acquisition of new Fixed Assets outside the project scheme accepted by the implementing Agency can be considered for incentives, other than Special Capital Incentives, provided such acquisition is not less than 25% of the Gross Fixed Capital Investment at the end of the previous financial year. A separate Eligibility Certificate will be issued for availing in the relevant category units as per the scheme. However, for the purpose of sales tax benefits the quantum of entitlement will be limited to 75% of that admissible to a new unit in the relevant area and for the relevant category of units as per the scheme. A Unit cannot however, claim benefits for acquisition of new Fixed Assets under this Clause more than twice. Explanation : Existing units will also be entitled for benefits under this clause, provided acquisition of new Fixed Assets by such units is not less than 25% of the Gross Fixed Investment at the end of the previous year.” (emphasis supplied). 10 9. On behalf of the Petitioner, their learned counsel submits that on proper construction of the scheme it will be clear that when an unit is set up, if it falls within the definition of a pioneer unit under the 1993 scheme, irrespective of the fact whether the earlier unit had been set up under another scheme that would not deprive the petitioner of being treated as pioneer unit. In the instant case, in fact respondents have accepted that the Petitioner is a pioneer unit as they had set up an independent unit. Once it is accepted that Petitioner was a pioneer unit then, if Para 3.8(l)(i)(c) is read as substituted, it would be clear that in respect of capital expenditure incurred outside the project scheme, accepted by the implementing agency, even that can be considered. That would mean that even if in the scheme as approved, and the sanctioned scheme was say for 100 Crores and thereafter additional expenditure is involved, which does not form part of the sanctioned scheme, even in respect of such additional expenditure the pioneer unit would be entitled to incentive but at reduced rates. Also if there was already an existing unit in production prior to 30th September, 1993, that would also be entitled and investments are made in that unit as required, it would be entitled to benefit at a relevant rate of 75%. It is therefore, submitted that this would be proper construction of the aforesaid paragraph. 10. On behalf of the Respondents, their learned counsel submits that though Petitioner No. 1 is a Pioneer Unit as it was an existing unit, the sales tax benefits will be allowed to the extent of 75% of that admissible to a new unit as set out in the amended paragraph. Therefore, the respondent was right in issuing entitlement 11 certificate in terms of this paragraph. 11. To decide the controversy, the following facts may be noted. The Petitioner had an earlier unit which was enjoying the benefits of the 1969 scheme. The Petitioner set up a new unit at a different location. The investments were not in the existing unit. The respondents admit that Petitioner is a pioneer unit in terms of Para 5.1(ii) and the incentive would be 110%. The limited question therefore, is whether Petitioner No. 1 is entitled to 110% or 75% incentive. We have already reproduced the definition of pioneer unit which includes a large scale new unit or large scale investment made in an existing undertaking in the same taluka and in which fixed capital investment has been made as set out. In so far as Group D area is concerned, the fixed capital investment must be minimum Rs. 30 Crores. It is not disputed that the Petitioner No. 1 has invested more than that amount but in a new unit. 12. Para 3.8(i)(c) as now substituted and if properly read would mean if fixed assets are acquired for the project outside the scheme already approved by the implementing Agency, they can also be considered for the purposes of proportionate incentives during the residual eligible period provided such acquisition is not less than 25% of the Gross Fixed Capital Investment at the end of the previous financial year of the Eligible Unit. In other words, normally understood it would mean, if any further fixed assets are acquired outside the scheme already sanctioned, then to such additional investment also tax incentives would be available but limited to 75% of that admissible to the new unit in the relevant area and for the relevant category 12 of units as per the scheme. The object being it could be additional costs involved or the need to provide for additional capacity and the like. The explanation sets out that if an existing unit makes acquisition of a new fixed assets that will also be entitled to sales tax of 75%. 13. In our opinion, therefore, a proper construction of this paragraph, would only mean that if under the 1993 scheme, a scheme has already been sanctioned and if additional amounts are to be invested in the form of fixed assets, then though it was not a part of the scheme as sanctioned, such additional investment will also be entitled but subject to a ceiling of 75% of sales tax benefits of that admissible to a new unit. The explanation also gives the benefit to existing unit if they make investments as provided. The benefit of sales tax in such cases are restricted to 75%. In Paragraph 5.1(II)(i) the benefits eligible under the non-pioneer and pioneer units are set out. Once pioneer unit includes new unit, but limited in the sense to investments exceeding Rs. 30 Crores in Group “D” area, it can apply for the eligibility certificate under 1993 scheme, in which event it would be entitled to tax incentives of 110%. Considering the definition of the new unit which is an industrial unit set up for the first time by an entity in the Private Sector/Cooperative Sector/State Public Sector/Joint Sector in any Taluka where there is no Existing Unit set up by the said entity. The Petitioner had an existing unit. It isthen not a new unit. The Petitioners unit thus, cannot be a new Unit under Para 3.10, but as admitted by Respondents themselves is a Pioneer Unit under Para 3.12 which can be both a new unit or investment in an existing unit. 13 A proper construction of Para 3.8(I)(i) makes it clear that it only applies in the event the company in respect of which a scheme has been sanctioned under the 1993 scheme or by virtue of the explanation to an existing unit, if it seeks to make any additional investment outside the project scheme, then it would be entitled to 75% of the investment and not 110%. That does not mean that when the Petitioner sets up a new unit under the 1993 scheme and has eligibility certificate as pioneer unit under the 1993 scheme, merely because it had an earlier unit which had availed the benefit of the another scheme in 1969, it will not be entitled to 110% incentives. The submission therefore on behalf of the Respondents that as the Petitioners unit was an existing unit, considering it was set up in the year 1969 and availed of the benefits under that scheme, it would be entitled to only 75% of that admissible to a new unit has to be rejected. 14. In that light of the matter, rule made absolute in terms of Prayer Clauses (a), (b) and (c). (D.G. KARNIK,J.) (FERDINO I. REBELLO,J.)