IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE THE CHIEF JUSTICE MR.H.L.DATTU & THE HONOURABLE MR. JUSTICE K.M.JOSEPH FRIDAY, THE 25TH JANUARY 2008 / 5TH MAGHA 1929 WA.No.183 of 2008 ------------------------------------- AGAINST THE JUDGEMENT IN WPC.21265/2007 Dated 05/09/2007 .................... APPELLANT: PETITIONER:- -------------------------------------- NICE RUBBER INDUSTRIES, DEVELOPMENT PLOT, POOVANTHURUTH, KOTTAYAM, REPRESENTED BY MANAGING PARTNER T.P.PHILIP. BY ADV. SRI.K.M.VARGHESE RESPONDENTS: RESPONDENTS:- ---------------------------------------------- 1. STATE OF KERALA, REPRESENTED BY SECRETARY, TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 2. DIRECTOR OF INDUSTRIES AND COMMERCE, THIRUVANANTHAPURAM. 3. THE GENERAL MANAGER, DISTRICT INDUSTRIES CENTRE, KOTTAYAM. BY SENIOR GOVERNMENT PLEADER SRI.MUHAMMED RAFIQ. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON 25/01/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: H.L.DATTU, C.J. & K.M.JOSEPH, J. ------------------------------------------------------ W.A.No.183 of 2008 ------------------------------------------------------- Dated, this the 25th day of January, 2008 JUDGMENT H.L.Dattu, C.J. The petitioner/appellant is a small scale industrial unit registered with the District Industries Centre, Kottayam. It is engaged in the production of rubber related goods. The unit had acquired necessary machineries for the production of the goods and had started commercial production of rubber moulded 'V' straps from 30th September, 1995 onwards. The investment that was made by the industrial unit for starting of the unit was to the tune of Rs.4.63 lakhs. (2). The petitioner industry had approached the General Manager, District Industries Centre, Kottayam for grant of exemption in respect of sales tax for the period from 30-9-1995 to 29-9-2002. The said claim of the petitioner unit was accepted by the General Manager, District Industries Centre, Kottayam and necessary certificates had been issued. (3). The petitioner unit claims that in order to take advantage of sales tax exemption granted in S.R.O.No.1092/99, had made additional investment for expansion of the small scale industrial unit and thereafter, had approached the General Manager, District Industries Centre, Kottayam for modification of the certificate issued earlier by granting additional sales tax exemption for making additional investment for modernisation, expansion etc., and the General Manager of District Industries Centre, Kottayam has rejected the application by his order dated 9-9-2005 mainly on the ground that the W.A.No.183/2008 -2- additional investment made by the petitioner was not by way of cheque or demand draft and therefore, the petitioner industrial unit is not entitled to the benefit of the Notification S.R.O.No.1092/99. The order passed by the General Manager, District Industries Centre is as under: “ The additional manufacturing facilities required for the purpose are moulds for mats. These mat moulds were purchased on 06-07-2000 ie. after 01-01-2000. Date of additional investment in moulds and date of starting additional products are after 01-01-2000. But advance payment by cash for moulds were made prior to 31-12-1999. The Director of Industries and Commerce, Thiruvananthapuram has been requested to clarify whether additional products (coloured mat) started production after 31-12-1999 is also for Sales Tax Exemption in the contest or withdrawal of Sales Tax Exemption with effect from 01-01- 2000 vide SRO No.1029/99 & SRONo.295/00. Director of Industries and Commerce, Thiruvananthapuram informed that it has been clarified by the Government (vide 3rd reference) that if the unit had acquired necessary plant and machinery for the production of the new product prior to 01-01-2000, then only the unit will be eligible for exemption to the product. In this case required machinery and equipments for the new product were acquired only after 31-12-1999. The District Level Committee on Sales Tax Exemption held on 18-08-2005 therefore decided to reject the application of the unit.” (4). Aggrieved by the said order, the petitioner had filed an appeal before the State Level Committee. The State Level Committee being W.A.No.183/2008 -3- of the view that additional equipments (moulds) required for the activity were purchased in July 2000 and no advance payment to machinery suppliers was made by cheque or demand draft for those items prior to 1-1-2000, and accordingly has rejected the appeal filed by the petitioner's unit. The order passed by the State Level Committee reads as follows: “The State Level Committee discussed the case in detail. Facts of the case showed that the new product was an item started after 1-1-2000. Additional equipments (moulds) required for the activity were purchased in July 2000. No advance payment to machinery suppliers was given by Cheque or DD for these items prior to 1-1-2000. Hence there is no fulfilment of the notified condition of effective step as required under SRO No.1092/99 as modified by SRO No.295/2000. In the circumstance, the additional investments made after 1-1-2000 and the additional product of coloured mat manufacturing of which was started after 1-1-2000 do not qualify for sales tax exemption. In the above circumstances, the appeal filed by M/s.Nice Rubber Industries, D.P.Poovanthuruthu, Kottayam for Sales Tax Exemption for additional investments stands rejected by the State Level Committee.” (5). Aggrieved by these two orders, the petitioner industrial unit was before this Court in W.P.(C) No.21265/2007. The learned Single Judge has rejected the writ petition. That is how the petitioner industry is before us in this appeal. (6). We have heard the learned counsel for the petitioner and the learned Government Pleader for Taxes. W.A.No.183/2008 -4- (7). The issue that would arise for our consideration is, whether the authorities were justified in rejecting the request made by the petitioner's S.S.I. unit for grant of additional Sales Tax exemption primarily on the ground that the advance payment to machinery suppliers was not made by cheque or demand draft prior to 1.1.2000? (8). In order to answer the issue we have raised for our consideration, it is necessary to extract clause (iii) of S.R.O.No.1092/99. The same is as under: “an existing unit other than public sector undertaking which has taken effective steps, for diversification, expansion or modernisation prior to the Ist day of January 2000. An existing industrial unit shall be considered to have taken effective steps for diversification, expansion or modernisation, if such industrial unit has, (a) or acquired necessary plant and machinery and/or equipments or (b) has owned or acquired or has been allotted land and has applied for loan from any regular financial institution and/or © has placed firm orders for the purchase of such plant and machinery and equipments before the Ist day of January, 2000 provided that such unit commences commercial production of such diversification, expansion or modernisation on or before the 31st day of December, 2001. A unit shall be deemed to have placed firm orders for the purchase of plant, machinery and equipments if such unit had made any advance payments therefor by means of demand draft or cheque which has been credited to the account of the seller prior to Ist January 2000. The onus of proving that an industrial unit had placed firm order for W.A.No.183/2008 -5- purchase of such plant, machinery and equipments prior to Ist January, 2000 shall be on such industrial unit.” (9). Clause (iii) of the Notification apart from others provides for one of the condition that requires to be satisfied by industrial unit for claiming exemption under the Notification No.1092/99. The condition is that the industrial unit must be existing industrial unit other than public sector undertaking and such industrial unit must have taken effective steps for diversification, modernisation or expansion prior to the 1st day of January, 2000. Clause (iii) also speaks of under what circumstances an existing industrial unit is said to have taken effective steps for diversification, modernisation or expansion. They are, if the industrial unit has acquired necessary plant and machinery and/or equipments or has owned or acquired or has been allotted land and has applied for loan from any regular financial institution and/or has placed firm orders for the purchase of plant and machinery and equipments before the 1st day of January, 2000 and lastly, such industrial unit commences commercial production on or before 31st day of December, 2001. These conditions requires to be satisfied by an existing industrial unit to be eligible for consideration for granting benefit of the notification. Clause (iii) also provides for a deeming provision, in so far as sub clause (c) of clause (iii) of the notification. The deeming provision only says, it shall be deemed that the unit has placed firm orders for the purchase of plant and machinery and equipments, if the existing industrial unit had W.A.No.183/2008 -6- made advance payment for the purchase of plant and machinery or equipments by means of a demand draft or cheque, which has been credited to the account of the seller prior to 1st January, 2000. The entire burden of proving that an industrial unit had placed firm orders for purchase of machinery and equipments prior to 1st January, 2000 is on the industrial unit claiming exemption under the notification. (10). Keeping in view the possible construction that could be placed on clause (iii) of S.R.O.No.1092/99, now the question that would arise for our consideration and decision is whether the General Manager, District Industries Centre, Kottayam and the State Level Committee were justified in denying the claim of the petitioner industrial unit for sales tax exemption provided under S.R.O.No.1092/99, only on the ground that the petitioner unit had not placed firm orders for purchase of plant, machinery and equipments by making advance payment by way of cheque or demand draft. (11). It is the case of the petitioner before the authorities that it had placed firm orders for purchase of plant, machinery and equipments prior to first day of January, 2000 by making advance payment by way of cash. To substantiate the plea it had produced cash receipt dated 14.12.1999 said to have been issued by its supplier. The State Level Committee without any discussion on the claim made by the industrial unit has rejected the claim primarily on the ground that the advance payment to machinery suppliers is not given by cheque or demand draft. In order to sustain an order passed by the quasi judicial authority, the order should W.A.No.183/2008 -7- contain reasons. Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They should disclose how the mind is applied to the subject mater for a decision. The duty to give satisfactory reasons for coming to a decision is a duty of decisive importance which cannot be lawfully disregarded. Recording the reasons is also an assurance that the authority concerned has applied its mind to the facts on record. It also aids the superior forum to see whether the authority concerned acted fairly and justly to meet out justice to the aggrieved person. It is pertinent to note that any action, decision or order of any statutory authority or public authority functioning bereft of reasoning would be arbitrary, unfair and unjust. (12). In our opinion, clause (iii) of the Notification provides for different situations where an existing industrial unit other than public sector undertaking is considered to have taken effective steps for diversification, expansion or modernisation prior to 1st day of January, 2000. The existing industrial unit shall be considered to have taken effective steps for modernisation, expansion etc., provided if such industrial unit has acquired necessary plant and machinery or equipments or has owned or acquired or has been allotted land and has applied for loan from any regular financial institution or has placed firm orders for the purchase of such plant and machinery and equipments before the 1st day of January, 2000, provided that such unit commences commercial production of such diversification, expansion or modernisation on or before 31st day of December, 2001. W.A.No.183/2008 -8- (13). In clause (iii) of the notification, different situations are envisaged to arrive at a conclusion, whether an existing industrial unit has taken effective steps for diversification, modernisation, expansion in order to apply the notification for grant of additional sales tax exemption. One of the criteria is that the industrial unit has placed firm orders for the purchase of plant and machinery and equipments before 1st day of January, 2000. (14). In clause (iii), a deeming provision is also provided to deem that an industrial unit has placed firm orders for the purchase of plant and machinery and equipments, if such industrial unit has made any advance payments therefor by means of a cheque or demand draft or cheque which has been credited to the seller's account prior to 1st January, 2000. The use of the word 'deemed' in clause (iii) of the notification is for the purpose of creating a fiction to include what is obvious or what is uncertain. In the context in which it is used, in our view, it can only mean that an existing industrial unit presumed to have placed firm orders for purchase of plant, machinery and equipments, if the advance payment is made for purchase of such machinery by way of cheque or demand draft or the cheque which has been credited to the account of the seller prior to 1st January, 2000. In the main clause, as we have already noticed different criteria are mentioned to identify whether an existing industrial unit has taken effective steps for modernisation, expansion etc., of an existing industrial unit. One such criteria is placing of firm orders for purchase of plant, machinery and equipments before the first day of January, 2000, whereas the clause (iii) presumes by introducing a deeming W.A.No.183/2008 -9- fiction that an existing industrial unit has taken effective steps for modernisation or expansion if such industrial unit has placed firm orders for the purchase of plant, machinery and equipments if such unit has made advance payment by way of cheque or demand draft, which has been credited to the account of the seller prior to 1st January,2000 and secondly, such unit commences commercial production of such diversification, expansion or modernisation on or before the 31st day of December, 2001. The deeming provision is interlinked with the placing of firm orders by an existing industrial unit for modernisation or expansion of existing unit in order to take the benefit of the notification, SRO No.1092/99. Since these aspects are not properly considered by the State Level Committee, it is difficult to sustain the order passed by the State Level Committee dated 27.2.2007. Accordingly, the order so passed requires to be set aside and the matter requires to be remanded back to the State Level Committee to re-do the matter, in accordance with law, in the light of the observations made by us in the course of the order. While considering the application of the petitioner, the respondent authority shall afford an opportunity of being heard to the petitioner. We make it clear that we are not expressing any opinion as to whether the petitioner has made any investments for diversification, expansion or modernisation prior to Ist January, 2000. The onus is on the petitioner to prove that it has placed such orders on or before the date W.A.No.183/2008 -10- mentioned in the Notification. Ordered accordingly. (H.L.DATTU) CHIEF JUSTICE (K.M.JOSEPH) JUDGE MS/DK.