Case: Janta Machine Tools Vs. State Of U.P. &amp; Ors

incurred by our company by purchasing raw material for its own expenses under the agreement dated May 15, 1981 entered into. M/s. Janta Machine Tools was assured by the company to supply very soon all the remaining machines and installing them and making its trial production at its own expenses." The Division Level Committee, while rejecting the application dated February 9, 1987, essentially gave only one reason for the rejection. It was stated that the date of the alleged trial production was really the date of commencement of production and this fell prior to October 1, 1982. As stated earlier the assessee preferred a review application pointing out that the trial production could not be treated as commencement of actual production. This review application was disposed of on October 27, 1987. In its order the Committee observed : "On joint inquiry into the reality of your unit being conducted by the General Manager and Sales Tax Officer of Deoband Industries Department they have reported that Shri Suresh Datt Sharma, the proprietor of M/s. Janta Machine Tools, is partner of one-third share in M/s. Krishna Trading Company also. No purchase of raw material was declared by M/s. Krishna Trading Company in the year 1981-82, and therefore, the certificate of trial production issued by M/s. Krishna Trading Company on December 4, 1981 is baseless and untrue. In joint inquiry report it is also clear that your unit has purchased from M/s. Krishna Trading Company, kupla, etc., of Rs. 69, 000 on May 21, 1981, whereas M/s. Krishna Trading Company have declared sale of Rs. 13, 035 only in 1981-82 as per file of the Sales Tax Department. In the joint inquiry report it is also mentioned that your unit got electricity on November 21, 1982 and on inquiry the unit informed that the trial production was done with the help of a generator. Your unit could not give any certificate for purchasing or hiring a generator and now it has declared to have hired the generator for 4-5 hours from M/s. Mitra Industries, Deoband. In the inquiry report it is also made clear that a unit cannot use a generator of other unit without prior permission of the Electricity Department ......On the above discussion it is concluded that the unit in question wants to (get) illegal benefit of exemption from sales tax by producing wrong facts. The trial production done by M/s. Krishna Trading Company on December 4, 1981 is proved to have been done by the unit in question itself and not by them. Thus, the unit was established before October 1, 1982. The unit established before October 1, 1982 is, therefore, not entitled to exemption from sales tax." 4. In our opinion, the rejection of the assessees application proceeds on a total misconception of the facts. The conclusion of the Division Level Committee is that production was commenced by the appellant on December 4, 1981 but this conclusion is based on no evidence. It is true that the appellant produced a certificate showing that some production was done on December 4, 1981 but the appellants case was that this was merely a trial production. It is not quite clear whether the Division Level Committee completely doubts any trial production having taken place at all, or whether its conclusion is that there was a trial production, on December 4, 1981. If its conclusion is the former one, it does not affect the appellants claim. Assuming that the Committee has come to the conclusion that the production on December 4, 1981 was conducted not by M/s. Krishna Trading Company but by the appellant itself, the fact still remains that what had happened on that date was only trial production. The mere fact that a certificate by M/s. Krishna Trading Company is disbelieved cannot lead to the conclusion that the assessee had produced goods on December 4, 1981. If one is to go by the definition contained in the explanation to section 4-A for determining when the production started, one has to concentrate on the date of purchase of raw materials or on the date on which the electricity was brought into use for commercial production. The appellants claim that it had manufactured goods by September 30, 1984 is not denied. Production had, therefore, commenced before March 31, 1985. There is no suggestion by the Department or the Committee, and there is no material to show that the appellant had purchased raw materials sufficient to carry out normal commercial production at any time prior to October 1, 1982. It is an admitted fact that the assessee was able to obtain electricity for use for commercial production only in November, 1982. This lends support to the appellants contention that the production could not have been effected by the assessee prior to that date. In fact, this is a point on which emphasis is laid in the order dated October 27, 1987. That being so, there is no iota of evidence or material on the basis of which the appellants claim that it had started production in December, 1982 could have been rejected. On the other hand, the recommendation and endorsement of the General Manager, District Industries Centre, which has been extracted earlier, also supports the appellants contention that it had started production on December 4, 1982 and this report was given after verifying the actual position on the spot.For the reasons above-mentioned we are of the opinion that the denial of the exemption to the appellant under the notification dated September 30, 1982 was not justified. The rejection of the appellants application in this regard is quashed and the appellant is declared entitled to the exemption in terms of the notification. We should not be understood, however, to have expressed any opinion as to the amount of exemption available to the appellant under the notification. That will be a matter for consideration of the authorities in respect of each of the years concerned in respect of which the claim is made for exemption. 5.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]In our opinion, the rejection of the assessees application proceeds on a total misconception of the facts. The conclusion of the Division Level Committee is that production was commenced by the appellant on December 4, 1981 but this conclusion is based on no evidence. It is true that the appellant produced a certificate showing that some production was done on December 4, 1981 but the appellants case was that this was merely a trial production. It is not quite clear whether the Division Level Committee completely doubts any trial production having taken place at all, or whether its conclusion is that there was a trial production, on December 4, 1981. If its conclusion is the former one, it does not affect the appellants claim. Assuming that the Committee has come to the conclusion that the production on December 4, 1981 was conducted not by M/s. Krishna Trading Company but by the appellant itself, the fact still remains that what had happened on that date was only trial production. The mere fact that a certificate by M/s. Krishna Trading Company is disbelieved cannot lead to the conclusion that the assessee had produced goods on December 4, 1981. If one is to go by the definition contained in the explanation to section 4-A for determining when the production started, one has to concentrate on the date of purchase of raw materials or on the date on which the electricity was brought into use for commercial production. The appellants claim that it had manufactured goods by September 30, 1984 is not denied. Production had, therefore, commenced before March 31, 1985. There is no suggestion by the Department or the Committee, and there is no material to show that the appellant had purchased raw materials sufficient to carry out normal commercial production at any time prior to October 1, 1982. It is an admitted fact that the assessee was able to obtain electricity for use for commercial production only in November, 1982. This lends support to the appellants contention that the production could not have been effected by the assessee prior to that date. In fact, this is a point on which emphasis is laid in the order dated October 27, 1987. That being so, there is no iota of evidence or material on the basis of which the appellants claim that it had started production in December, 1982 could have been rejected. On the other hand, the recommendation and endorsement of the General Manager, District Industries Centre, which has been extracted earlier, also supports the appellants contention that it had started production on December 4, 1982 and this report was given after verifying the actual position on the spot.For the reasons above-mentioned we are of the opinion that the denial of the exemption to the appellant under the notification dated September 30, 1982 was not justified. The rejection of the appellants application in this regard is quashed and the appellant is declared entitled to the exemption in terms of the notification. We should not be understood, however, to have expressed any opinion as to the amount of exemption available to the appellant under the notification. That will be a matter for consideration of the authorities in respect of each of the years concerned in respect of which the claim is made for exemption.