S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 1/18 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR O R D E R Shiv Ganpati Marmo Tiles vs. ACTO, Rajsamand Pvt. Ltd. S.B.CIVIL SALES TAX REVISION NO. 852/2003 DATE OF ORDER : 21st January, 2010 P R E S E N T HON'BLE DR.JUSTICE VINEET KOTHARI REPORTABLE Mr.Sharad Kothari for Mr.Dinesh Mehta, for the petitioner – assessee. Mr.Vinit Kumar Mathur for the respondent - Revenue BY THE COURT:- 1. This revision petition has been filed by the assessee being aggrieved by the order of Tax Board dated 28/4/2003, whereby, the Tax Board held against the petitioner assessee that it was not entitled to exemption from tax in respect of two machineries purchased by it for setting up of a new industrial unit for manufacture of marble slabs and tiles since the commercial production has been commenced by S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 2/18 the petitioner Unit on 2/12/1996, whereas, the two machineries in question were purchased on 21/12/1996 and 28/12/1996 about 20 days after the commencement of commercial production by the petitioner unit. 2. The Notification which is required to be interpreted in the present revision petition reads like this:- “S.No.972 : F.4(11)FDGr.IV/95-53 dated 27/3/1995 S.O.403. - In exercise of the powers conferred by S.4(2), RST Act, 1954, and in supersession of this deptt. Notfn No.F.4(66)FDGr.IV/82-84 dated 6/12/1990 (S.No.827), the State Govt. hereby exempts from tax, the sale of all plants and machinery for setting up of a new industry in Rajasthan, on the following conditions:- 1. that only those units which come into production between 27.3.95 and 31.3.1997 shall be eligible to avail of this facility. 2. that such plant and machinery is sold to a manufacturer who holds a valid certificate of registration under the RST Act, 1954. S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 3/18 3. that the manufacturer so purchasing the plant and machinery furnishes to the selling dealer, a declaration in writing that the machinery shall be used in the setting up of a new industry in the State. 4. that the selling dealer holds a valid Exemption Certificate, for which a fixed annual fee of Rs.100/- is payable. 5. that the dealer claiming exemption proves to the satisfaction of the AA that he has neither charged nor demanded any tax on sale of such goods. This notfn. Shall remain in force upto 31.3.1997.” 3. Learned counsel for the petitioner assessee submitted that these two machineries namely; Block Dressing Machine and Transformer, though were included in the list of plant of machineries in the project report given by the assessee to the concerned authorities and were very much part of the project but mere slight delay in delivery of these machines to the petitioner assessee, even though orders for the same were placed by the petitioner assessee on the seller/manufacturer of such machineries prior to the commencement of its commercial production, which occurred for the reasons beyond S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 4/18 the control of the petitioner assessee, cannot deprive the petitioner assessee from exemption from sales tax, which it is otherwise entitled under the aforesaid Notification dated 27/3/1995. He submitted that process of setting up of an industrial unit is a continuous process spread over a period of time and is not like a purchase of any commodity, which transaction is over within no time. He, therefore, submitted that beneficial Legislation in the form of Notification dated 27/3/1995 enure to the benefit of new industry and cannot be denied by adopting pedantic approach as has been taken by the Tax Board in the impugned order. He relied upon the judgments of this Court in the case of ACTO, Ward-1, Sirohi vs. M/s Shri Vijaya Industries, Kesarpura, Sheoganj – 2007 (18) Tax-up-Date 97 & CTO, Rajsamand vs. M/s Shri Rolex Marbles Pvt. Ltd. - 2009 (23) Tax- Up-Date 201. 4. On the other hand, Mr. V.K.Mathur, learned counsel appearing for the Revenue relying upon the decision of Supreme Court in the case of Tamil Nadu Electricity Board & Anr. vs. Status Spinning Mills Ltd. & Anr.- AIR 2008 SC 2838 submitted that process of setting up of an industry was over as soon as it commenced the S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 5/18 commercial production on 2/12/1996 and, therefore, any purchase of machinery thereafter would not be eligible for exemption under the said Notification dated 27/3/1995. 5. I have heard the learned counsels at length and given my thoughtful consideration to the impugned order of the Tax Board & case laws cited at the bar. 6. Firstly, case law relied upon by the Revenue may be discussed here. 7. In the aforesaid case of Tamil Nadu Electricity Board (supra), the Apex Court was seized of the controversy as to whether an industry set up before the cut off date 15/2/1997 will be entitled to concessional tariff of power supply even though it had not obtained the power connection from the State Electricity Board before the said cut off date, as defined in the said proviso that the Unit will be deemed to be set up before the said cut off date 15/2/1997 if they have obtained the service connection from the State Electricity Board before the cut off date. The Units which had though set up their S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 6/18 industries prior to said cut off date and also applied for power connection to the State Electricity Board but were not given the service connection by the State Electricity Board prior to said cut off date 15/2/1997 approached the Court and when the matter reached before the Apex Court, the Apex Court held as under:- “The notification dated 31.01.1995 must be interpreted in a broad based manner, as a promise was made to grant the concessional tariff not only for the new industries which were to be set up thereafter but also to the pre-existing industries. By the 1997 amendment, the right accrued to them is sought to be taken away w.e.f. 15.02.1997. After the 1997 amendment the concession is limited to industries set up before 15.2.1997. The term `set up' has been explained as industries to which service connection has been granted. The proviso is an exception to the main clause whereas all industries which were set up on or after 15th February become wholly ineligible for any tariff concession but those who had set up prior thereto shall continue to avail themselves of the said tariff concession. Legally, those who had not become consumer of electrical energy, but were the potential consumers, they had not only applied for it but they were and, in fact, some of them has also been gone S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 7/18 into commercial production. Once they have set up the high tension industries and who had gone up for commercial production must be held to have set up the high tension industries. Once they have set up the high tension industries after 31st March, 1995, they became entitled to the benefit of concessional tariff for a period of three years. Such concession was to be availed by them from the date of grant of service connection. If they had already been granted service connection, they would continue to avail themselves of the said tariff concession. However, the difficulty arises only in cases where despite applying for grant of electrical communication, actual service connection had not been granted. If a literal interpretation of the proviso is taken recourse to, the same may result in an anomaly in the sense that in one case, connection may be granted in one day and in another case, connection may not be granted for a long time. Because of the acts of discrimination on the part of the officers of the Board or the state, the entrepreneurs would suffer. It is in the aforementioned limited sense, the doctrine of promissory estoppel will have application. If doctrine of promissory estoppel applies, the right accrued in terms of thereof cannot be withdrawn with a retrospective effect. Some of the industries had even installed generators. They had to do it. They inevitably S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 8/18 had to do it because the Board would not supply power. It would be too much to contend that even those industries have not been set up as they have not become consumers. For the said purpose, the proviso has to be read down. It must be made applicable to them who not only had started commercial production before the said date, namely , 14.2.1997 but also had applied and were otherwise ready to take electrical connections having deposited the amount asked for.” The Apex Court also observed in para 28 that: “It may true that exemption Notification should receive a strict construction but it is also true that once it is found that the industry is entitled to the benefit of exemption notification, it would receive a broad construction.” 8. There is no dispute about the legal position that exemption Notification has to be strictly construed but once a Unit or assessee falls within the four corners of exemption Notification, liberal interpretation is called for. It is called `play in the joints'. The Notification in question before this Court dated 27/3/1995 grants S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 9/18 exemption from sales tax on plants and machineries for setting up new industrial units in respect of purchase of said plants and machineries. In the present case, the petitioner assessee had admittedly set up a new industrial unit for manufacture of marble slabs and tiles after installation of gang saw machine & it appears that it also obtained the certificate from the concerned authority that it had commenced the commercial production w.e.f. 2/12/1996. However, two machines included in the said project namely Block Dressing Machine and Transformer, orders of which were placed even prior to 2/12/1996, were received after few days on 21/12/1996 and 28/12/1996. 9. The question before this court is as to whether the process of setting up of industrial unit should be treated as continuous or over on the said date 2/12/1996 and whether the purchase of plant & machinery after the said date is not entitled to exemption from tax under the said Notification? 10. The answer by this Court is in negative, in favour of assessee and against the Revenue. The reasons are as follows. S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 10/18 11. As observed above, the process of setting up of an industry is a continuous process which takes a period of time and it is not a thing or description of position like that of `switch on & switch off'. The petitioner assessee before this court had admittedly set up the industrial unit during the validity of Notification so also placed the order for the two machines to be used in setting up the said industrial unit & had also purchased these two machineries during the operative period of the Notification. Obtaining of the certificate from the competent authority of the Industries Department that after installation of some of the plant and machinery, it commenced the commercial production on 2/12/1996, does not make the said Notification dated 27/3/1995 inapplicable to the said Industry altogether. The project report of setting up of new industrial unit had admittedly covered these two machines also which are integral part of plant & machinery for setting up of an industrial unit for manufacture of marble slabs and tiles. For the delay of few days and even of few months would not make the purchase of said machineries disjuncted from the project itself. More so, when these plant and machinery were also purchased by the petitioner assessee S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 11/18 during the validity of Notification itself, which held the field between 27/3/1995 to 31/3/1997, vide clause (i) of the said Notification, the petitioner cannot be denied the said exemption taking a very narrow and pedantic approach in the matter. The process of setting up of industry as per project report does not come to an end on 2/12/1996 when such certificate for commencement of commercial production was obtained by the industry. The said process of setting up of industry can continue even thereafter. 12. The following judgments relied upon by the learned counsel for the assessee petitioner are direct answer to the controversy in hand. 13. In ACTO vs. M/s Shri Vijaya Industries, Kesarpur, Sheoganj (supra), the facts were also similar to the one involved in the present case. The assessee had purchased some machineries by submitting declaration in form ST-17 and claimed tax exemption benefit for the machineries purchased on 28/12/1987 and 26/3/1988. The assessing authority held that since the assessee started commercial production from the industrial unit prior to the purchase of the machineries on S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 12/18 28/12/1987 and 26/3/1998, therefore, the assessee in fact already set up the industrial unit and purchased the machinery for expansion of existing industry, as such, has not utilized the subsequently purchased machinery for setting up a new industrial unit and, therefore, the assessee is not entitled to the tax exemption benefit under the Notification 575 dated 25/9/1985. 14. Negativing the said contention of the Assessing Authority and learned counsel for the Revenue, this Court held as under:- “......in the order of the Deputy Commissioner (Appeals), it is clearly mentioned that the original plan of the assessee was to set up industry for manufacturing granite and marble slabs from the marble blocks as well for manufacturing of the granite and marble tiles. It is also mentioned in the order itself that before start of the production even of marble slabs and granite slabs, the assessee gave order for the machinery for manufacturing of marble and granite tiles. In that view of the matter, the Deputy Commissioner (Appeals) as well as the Tax Board, Ajmer rightly held that the assessee purchased all the machineries for manufacturing of S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 13/18 the marble and granite tiles for which order was placed prior to start of production of marble and granite slabs and it is not a case of expansion of the assessee's industrial unit but is a case of setting up the industry by the assessee by installing the machines for manufacturing of granite and marble slabs and manufacturing of the marble and granite tiles. Here in this case, it may be noticed that not only the order for purchase of machinery was placed prior to production from the earlier purchased machines but there is no much gap in getting another machines for manufacturing of the marble and granite tiles. In the circumstances, I do not find any merit in this revision and the same is hereby dismissed.” 15. Similarly, this Court in CTO, Rajsamand vs. M/s Shri Rolex Marbles Pvt. Ltd., Gomati Choraha, Rajsamand (supra) also held as under:- “7............... The continuous tense of the verb “setting up” used in the notification in question itself indicates that the words “ setting up of industry” are intended to be a process of setting up of plant and S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 14/18 machinery for the purpose of production of certain things. It is only proper and conducive to construe this word “setting up of industries” as a continuous process rather than a 'switch on and switch off' thing. Setting up of industry takes its own time and can only be construed to be a continuous process which begins on a particular date and ends after a gap of time which may take months or years depending upon the nature of industries which is to be set up at any place. Though it is not endless or limitless process, but so long as it is commenced within the operative period of the notification and closed within a reasonable period thereafter, it can continue to be covered within the ambit and scope of the Notification dtd.6.12.1990. There is no need to take a narrow and pedantic approach in the matter and the beneficial legislation in the form of subordinate legislation contained in the notification in question does not call for any such narrow construction at all......... 8. Be that as it may, since other facts are not in dispute that the machinery in question was purchased during the operative period of notification dtd.6.12.1990 and the words “new industry” is conspicuous by its absence in the notification dtd.6.12.1990, the judgment relied upon by the S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 15/18 learned counsel for the Revenue is of little help to the Revenue. On the contrary, the judgments relied upon by the learned counsel for the respondent in the case of M/s Shurvi Colour Chem (P.) Ltd. (supra) and ACTO M/s Shri Vijaya Industries, Kesarpura, Sheoganj (supra) clearly support the contention raised by Mr. Mehta. The judgment of learned Single Judge in Srinath Minerals' case did not take into account earlier Division Bench decision of Taxation Tribunal in Shurvi Colour Chem's case. It is also distinguishable from the facts of the present case, as it is not the claim of the assessee here that such exemption was claimed under expansion category, as it was in Srinath Minerals' case. The judgment of this Court in Vijaya Industries' case which turned in favour of the assessee on akin facts, is applicable on all fours to the facts of the present case and therefore, Division Bench decision of Taxation Tribunal in Shurvi Colour Chem's case and decision of coordinate bench decision in Vijaya Industries case are respectfully followed in the present case. 9. The commencement of commercial production on 17.7.1990 does not militate against the concept of setting up of industry in the State of Rajasthan under S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 16/18 the notification dtd.6.12.1990, even if some part of the machinery to complete the process of 'setting up of industry” is received later than the date of commencement of commercial production which is verified and certified by the Dist. Industries Centre for variety of purposes like grant of subsidy etc. Even otherwise, this Court is of the opinion that the process of expansion of industry is also not excluded from the ambit and scope of notification dtd.6.12.1990 which is included within the scope of words 'setting up of industry”. There is no such exclusion in the notification. Thus, the concept of expansion and setting up of industry are not two different concepts militating against each other for the purpose of the said notification. One fails to understand for what purpose the assessee would have purchased the machinery in question except for 'expansion of its production capacity' or 'setting up of industry' itself. The exemption from tax is really on purchase of machinery which is on one single day depending upon the nature of purchase of contract like F.O.R. Destination or Ex-works etc. and fulfillment of condition of purchase of such machinery being for 'setting up of an industry' is an ex-post facto condition which is required to be fulfilled by the assessee industry. If the purchase of machinery is within the life period of the S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 17/18 Notification, the basic condition of exemption is fulfilled. This does not, in the opinion of this Court, do any violence to the well settled cannons of interpretation of exemption under taxing statutes viz. strict scrutiny at the point of entry into the arena of exemption and thereafter useful play in the joints concept to give purposive interpretation to achieve the objective of exemption itself. Since no such cut off date or water tight compartment is sought to be placed in the said notification, this Court is not inclined to take a narrow view of the matter. The Courts must incline towards purposive interpretation rather than being in denying mode. Therefore, this Court is of the clear opinion that the assessee was entitled for exemption on the purchase of machinery in question under the said notification dtd.6.12.1990.” 16. In view of the aforesaid legal position, this Court is of the clear opinion that Tax Board has erred in rejecting the claim of petitioner assessee of tax exemption in respect of part of plant and machinery delivered to it after a few days from the date of commencement of commercial production on 2/12/1996 and the process of setting up of a new industrial unit cannot be said to be over merely on the date of S.B.Sales Tax Revision No. 852/2003 - Shiv Ganpati Marmo Tiles Pvt.Ltd. vs. ACTO, Rajsamand Order dt: 21/1/2010 18/18 commencement of commercial production, as certified by competent authority, particularly when the order for the said plant and machinery in question was placed during the process of setting up of the said industrial unit and the said plant and machinery were procured and installed for the same industrial unit. 17. Consequently, this revision petition of petitioner assessee is allowed and the orders passed by all the tax authorities below dated 31/3/1999 (Annex.4) of Assessing Authority, 9/6/2000 (Annex.5) of Deputy Commissioner (Appeals) and 28/4/2003 (Annex.6) of Tax Board are set aside and the assessee is held entitled to exemption of tax under the Notification dated 27/3/1995 in respect of aforesaid two machineries purchased by the assessee. The assessee would be entitled to refund of such tax, if any, realized by the Revenue Department in pursuance of the impugned orders with interest. No order as to costs. (DR. VINEET KOTHARI), J. item no.6 baweja/-