IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 2034 of 2001 For Approval and Signature: Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- SMPS CONSULTANTS, ARCHITECTS AND ENGINEERS Versus STATE OF GUJARAT -------------------------------------------------------------- Appearance: 1. Special Civil Application No. 2034 of 2001 MR ASHOK L SHAH for Petitioner No. 1 GOVERNMENT PLEADER for Respondent No. 1 NOTICE SERVED for Respondent No. 2 -------------------------------------------------------------- CORAM : MR.JUSTICE D.A.MEHTA Date of decision: 06/12/2001 C.A.V. JUDGEMENT 1. The petitioner, a partnership firm, carries on business as Consultants, Architects and Engineers and such other business as may be mutually decided by the partners. By this petition under Article 226 of the Constitution of India, the petitioner prays to the following effect :- [a] A writ of mandamus or any other order or direction in the nature of mandamus be issued to the 2nd Respondent to grant registration to the new Infotech Division of the Petitioner as an Eligible New Information Technology Unit under the Incentive Scheme - Exhibit "E" hereto. 2. The respondent No.1 i.e. State of Gujarat through its Information Technology Division, General Administration Department framed a scheme to accelerate development of Information Technology Industry in the State of Gujarat and the said scheme was titled as "Information Technology Industry Incentive Scheme - 1999 - 2004" (hereinafter referred to as "The Scheme"). In light of the pronouncement of the scheme, the petitioner firm believed that there were good prospects in the field of Information Technology Software Development and other related fields because of the vast scope and the fast developments in this field and hence, the petitioner firm decided on 30th March, 2000 to set up a new Infotech Division accordingly. The partners of the petitioner firm entered into an agreement whereby it was recorded that they were desirous of starting a new Infotech Division and thus, venture into business activity of Technology Software Development, Information Technology and other Information Technology/Computer related services. After carrying out the requisite formalities as necessary under The Scheme, the petitioner made an application on 16th September, 2000 for registration for capital subsidy with the Commissioner of Technology. On 9th November, 2000, the petitioner was informed by respondent No.2 that the petitioner was required to apply as an existing unit and seek registration accordingly and not as "Eligible New Information Technology Unit". The petitioner wrote a letter to the respondent No.2 on 24th January, 2001 highlighting various facts as well as the provisions of The Scheme whereby it sought registration as the "New Unit". However, the said was responded on 17th February, 2001 by reiterating what was stated in the earlier letter, namely that the petitioner could apply for registration only as an Existing Unit. The petitioner once again wrote a letter to the respondent No.2 on 9th March, 2001, but as there was no response, hence this petition. 3. In response to the notice issued by this Court on 30th July, 2001, the respondent has filed affidavit-in-reply dated 20th August, 2001. At the time of hearing elaborate contentions were made by Mr.A.L.Shah learned advocate appearing on behalf of the petitioner and Mr.U.R.Bhatt, learned AGP appearing on behalf of the respondents. Taking into consideration the fact that The Scheme is operative for a limited period and 2 years out of the five years' period have already elapsed and as the pleadings are complete the matter was taken up for final hearing and disposal at the notice stage itself. 4. Mr.A.L.Shah, learned advocate for the petitioner has contended that the petitioner - firm has been carrying on business as Consultants, Architects and Engineers, R.C.C. Steel/Designers, Electrical and Mechanical Consultants. That the partners have mutually agreed to commence a new unit known as Infotech Unit and accordingly, entered into an agreement on 30th March, 2000 (Exh.A). It was submitted that the new Infotech Division also got (1) registered with the Software Technology Park of India on 16th March, 2000, (2) Obtained Bonded Warehouse Clearance from Customs Authorities, on 24th March, 2000, (3) was registered as Small Scale Industrial Unit on 28th August, 2000, (4) has an ear-marked and separately demarcated floor area as required for Bonded Warehouse Clearance, (5) has employed separate personnel, (6) has installed computers, paraphernalia, equipments, air-conditioners, furnitures and fittings, etc. solely and exclusively for the said new unit, (7) is maintaining separate books of accounts from which separate identifiable capital investment attributable to the activities of a new Infotech Division is available, (8) has no linkage (financial or otherwise) with any existing manufacturing/IT unit. 5. Therefore, it was submitted by Mr.A.L.Shah, learned advocate for the petitioner that taking into consideration the aforesaid factors as well as the definition of new unit under The Scheme, the Court must hold that the respondent-authority committed patent error of law by directing the petitioner to apply as an existing unit instead of granting registration as a new unit. It was further submitted by Mr.Shah that in the two communications addressed by the respondent No.2, no reasons were assigned as to why the application of the petitioner for registration as a new unit was being denied and why the petitioner was being asked to apply in the category of an existing unit. That the action of the respondent-authority was arbitrary and capricious and was required to be struck down. 6. In reply, Mr.U.R.Bhatt, learned AGP for the respondent submitted that the respondent-authority had rightly denied the claim of the petitioner as a new unit, in view of the fact that the petitioner partnership firm was in existence with effect from 29th May, 1997, as could be evidenced from the partnership deed, and hence it would come under the definition of an existing unit. It was further contended that there was a financial linkage between the petitioner and the existing company namely SMPS Consultants Pvt. Ltd. formed in the Year 1989. The third factor, according to Mr.Bhatt, which weighed with the respondent-authority was that as per the application made by the petitioner, the production of Information Technology items would commence on or after March, 2000, while as per The Scheme, the cut off date was 1st April, 1999. Mr.Bhatt has also relied on the minutes of the meeting of the State Level Committee and contended that in similar circumstances, the SLC had decided that it was not necessary to review the case of the petitioner. However, Mr.Bhatt hastened to add that if the petitioner desires it can yet make a fresh application and the respondent-authority would take the same into consideration. 7. Having heard both the sides at length, the Court feels that in light of the provisions of The Scheme and the facts that have come on record this petition requires to be allowed for the following reasons. 8. The Government of Gujarat Information Technology Division, General Administration Department has framed Information Technology Industry Incentive Scheme 1999-2004 and the salient features of The said Scheme are as under :- 8.1 The Scheme is operative with effect from 1st April, 1999 (which is also defined as cut off date) and is to remain in force for a period of five years from that date. The definition Clause-(e) and (f) define "Eligible New Information Technology Unit" and "Eligible IT Unit" respectively in the following terms :- "e) The "Eligible New Information Technology Unit" means a new unit in IT industry set up after the cut-off date. It should also fulfil the following criteria: The new project should have obtained SSI registration from concerned District Industries Centre or obtained the Letter of Incent, Letter of Approval or obtained receipt against filing of Industrial Entrepreneur Memorandum. The new project should have a separate identifiable capital investment means that, it should not have any linkage with an existing manufacturing/IT industry unit. f) Eligible IT Unit It is an existing IT Unit which registers itself as an IT industry after the cut-off date. Such a unit should have commenced production before the cut-off date." Under The Scheme, there are various incentives offered by way of Capital Incentive Subsidy, Turnover incentive, Other incentives, etc. The petitioner had applied for registration for Capital Incentive Subsidy. 8.2. As can be seen the "Eligible New Information Technology Unit" definition requires that a new unit in IT Industry should be set up after the cut-off date. Such new unit should have obtained SSI registration from concerned District Industries Centre or obtained a Letter of Incent, Letter of Approval etc. Furthermore, such new unit should have a separate identifiable capital investment, and what is identifiable separate capital investment is clarified to mean that it should not have any linkage with an existing manufacturing/IT Industry Unit. As against this, an Eligible IT Unit is defined to mean an existing IT Unit which registers itself as IT Industry after the cut-off date and is one which should have commenced production before the cut-off date. 9. As against the case of the petitioner, from the requirements of the definition clause (f), it is apparent that the petitioner would not be "Eligible IT Unit" because : (i) it is not an existing IT Unit and, (ii) it is not a unit which commenced production before the cut-off date. Therefore, the insistence by the respondent that the petitioner should apply for registration as an existing unit is not warranted because the petitioner does not fullfil the test laid down in the definition clause for being an existing unit. 10. In juxta position, for being "Eligible New Information Technology Unit", the petitioner should be a new unit in the IT Industry set up after the cut-off date. The new Infotech Division of the petitioner firm has come into existence only in March, 2000, which is after the cut-off date, namely, 1st April, 1999. This can be seen from the fact that the petitioner has been granted a letter of permission on 16th March, 2000 by Software Technology Parks, Gandhinagar, which is part of Software Technology Parks of India (An Autonomous Society under the Ministry for Information Technology, Government of India). The said permission stipulates 100% export of Computer Software and further that the establishment undertakes to export for at least a period of five years; and the said letter of permission is valid for three years from the date of issue i.e. it would expire by 15th March, 2003. Thus the petitioner has to establish a new undertaking within the specified time frame. From the said letter of permission, it is apparent that the requirements of the petitioner for its new Infotech Division are of Imported Capital Goods worth Rs.22.5 lacs and Indigenous Capital Goods worth Rs.62.5 lacs for the project. The conditions Nos.(viii) and (ix) of the said letter of permission specify that separate account shall have to be maintained for the unit and that unit shall be custom-bonded. As already seen from the details available on record, the petitioner is maintaining separate accounts. In so far as the licence for Private Bonded Warehouse is concerned, the same has already been issued by the Deputy Commissioner, Central Licence Division-VI, Ahmedabad on 24th March, 2000 and it has specified the dimensions and other particulars. What is more important is that this licence is to remain in force upto 23rd March, 2005 from the date of issue of licence unless specially revoked before the expiry of that period under Section 58 of the Custom Act, 1962. The petitioner is registered as a SSI unit on 28th August, 2000 by the District Industrial Centre, Ahmedabad District. Therefore, on facts, it is seen that the petitioner fulfilled all the pre-requisite conditions necessary under the definition clause of the "Eligible new Information Technology Unit". 11. The contentions raised in the affidavit-in-reply filed by the respondent that because the partnership firm is in existence from 29th May, 1997, the petitioner would fall within the definition of existing unit is to be stated to be rejected. As already noticed, the petitioner does not fall within the definition of Eligible IT unit, which is relatable to an existing unit. Even otherwise, the requirement is setting up of a new unit in IT Industry and it has no relevance with the existence of a partnership firm or any other entity. Even an existing entity like a partnership firm, a limited Company or any other Association of persons could set up a new unit. There is no prohibition under the Act. The definition under The Scheme requires that there should not be any linkage with an existing manufacturing/IT Industry Unit. The petitioner firm, as it existed before setting up a new Infotech Division was neither an existing manufacturing unit nor was it an IT Industry unit; and this is borne out from the nature of business, which was carried on by the petitioner-firm prior to setting up a new Infotech Division. The requirement of separate identifiable capital investment also stands fulfilled by virtue of maintaining of separate account. 12. Other objection raised on behalf of the respondents to the effect that there is a financial linkage between the petitioner and the existing company namely SMPS Consultants Pvt. Ltd. formed in 1989 also requires to be rejected. The reason is, the petitioner partnership firm was comprised of three partners namely, (1) Mr.Sukumar M. Parikh, (2) Mr.Gautam H. Oza and, (3) SMPS Consultants Pvt. Ltd. Therefore, the company was already a partner of the petitioner - firm and there is no question of there being or not being any financial linkage amongst the partners. The petitioner firm has set up a new Infotech Division, i.e. all the three partners, including the limited Company, have jointly one for all and all for one, mutually agreed to venture into this line of business for the first time. What provisions of The Scheme envisage, is a financial linkage between the new unit and an existing manufacturing/IT Industry unit. As already noted, the existing firm was neither a manufacturing unit nor an IT Industry unit and hence, there is no question of any financial linkage. Moreover, it is nobody's case that the limited Company, a partner, was independently an existing manufacturing unit or IT Industry unit. 13. The contention that the commencement of production of IT related items would be after March,2000, while the cut-off date is 1st April, 1999 is misconceived. The Scheme itself envisages that the new unit has been set up after the cut-off date and hence, there cannot be any production before the cut-off date. This contention also cuts at the very root of the stand of the respondent that the petitioner is an existing unit - which requires that the unit should have commenced production before the cut-off date. 14. To sum up : The petitioner fulfills all the pre-requisite conditions to be an "Eligible New Information Technology Unit", while at the same time the petitioner does not satisfy a single condition necessary for being termed as an "Eligible IT Unit", and the respondents have failed to show how the petitioner is an existing unit (the phrase used by the respondents, though under The Scheme there is no such term defined). 15. In view of what is stated hereinbefore, this petition is allowed. The respondents are directed to grant registration for Capital Incentive Subsidy to the new Infotech Division of the petitioner as an "Eligible New Information Technology Unit" under the Incentive Scheme (Exhibit "E"). The Registration shall be granted with effect from the date of the application namely 30th September, 2000. There shall be no order as to costs. (D.A.Mehta,J.) vijay