Case: State Of Bihar  Vs. Steel City Beverages

in respect of sale of goods manufactured by new industrial units and existing industrial units under expansion. The deferment is limited to 90 per cent of the fixed capital investment in fixed capital assets at the time of grant of eligibility in the case of new industrial units and 90 per cent of the additional fixed capital investment in the case of an existing industrial unit undertaking expansion. For claiming the benefit of deferred payment, an eligible unit has to apply for a certificate of eligibility. The District Level Committee or the State Level Committee, as the case may be, adjudges the eligibility of the industrial unit. An application for grant of eligibility certificate made by a small-scale industrial unit is required to be considered by the District Level Committee of the district in which the industrial unit is situated. The District Level Committee, after considering the report prepared by the District Industries Centre or the Director of Industries and any other relevant information, decides whether and to what extent the industrial unit is entitled to the benefit of deferment. The extent of benefit is partly made dependent upon the Fixed Capital Investment made by the industrial unit and also upon its status viz. whether it is a large scale industrial unit or a small-seals industrial unit, As disclosed by the industrial policy and the Deferment Rules, the State agrees to suffer temporary loss of revenue by not requiring immediate payment of sales-tax on sale of goods produced or manufactured by an industrial unit if it makes new fixed capital investment in the State. What the State desires and what the Deferment Rules require for getting the benefit thereunder, is not capital investment but fixed capital investment. Rule 2(v) defines fixed capital investment to mean investment in land, building, plant and machinery. Thus, the nature of investment contemplated by the Deferment Rules is investment in fixed assets which are ordinarily considered essential for production or manufacture of goods and have some degree of permanency. The second proviso to Rule 3 makes this position further clear. It states that "Deferment shall be limited to 90 per cent of the fixed capital investment in fixed capital assets". To explain how in business accounting "fixed capital" and "fixed assets" are understood, Mr. Singh, learned counsel for the State, drew our attention to the book titled "Advanced Accounting" by Jamshed R. Batliboi. Therein, it is stated that "fixed capital of a business consists of its fixed assets" and "fixed assets are those which are acquired and intended to be retained permanently for the purpose of carrying on a business, such as land, buildings, plant and machinery etc. Therefore, the context in which the word plant is used in Rule 2(v) indicates that it is not used in its wider sense and does not include within its meaning land, building and machinery. It also appears that the rule-making authority did not intend plant to mean what is not a fixed asset. For all these reasons, we are of the view that by plant what is intended by the rule-making authority is that apparatus which is used by the industry for carrying on its industrial process of manufacture. In respect of an industry manufacturing soft-drinks and beverages, it can be said that plant would mean that apparatus which is used for manufacturing soft-drinks or beverages and not articles like crates and bottles used for storing the manufactured product.It is also relevant to refer to the two notifications of the Government of India in the Ministry of Industry (Department of Industrial Development) dated 2.4.1991 and 1.1.1993 issued under Section 11-B of the Industries (Development &Regulation) Act, 1951. Notification No.232 dated 2.4.1991 while staling what has to be included under fixed assets while ascertaining whether a small-scale industrial units investment has exceeded the limit of Rs.60 lakhs has clarified that the cost of storage tanks which store raw material or finished products is to be excluded. The 1993 notification has amended the notification of 2.4.1991 and clarified by adding Note No.2 that in calculating the value of plant and machinery, the cost of storage tanks which store raw materials/finished products only and which are not linked with the manufacturing process shall be excluded. On 8.5.1995, the Government of India again issued a Circular, after having received representations from the industry seeking clarification whether bottles and crates are to be taken into account for determining the SSI status of the units engaged in manufacture of soft drinks/concentrates, clarifying that investment in bottles and crates in such units is in the nature of storage of finished products and, therefore, such investment has to be excluded while computing the value of plant and machinery. 3. As pointed out in the affidavit in rejoinder, the Company had applied for an Eligibility Certificate claiming the status of a small scale industry. It is, in fact, registered as a small scale industrial unit. While declaring Its investment at the time of seeking registration as a smallscale industrial unit it did not include investment in bottles and crates under the head Plant and Machinery. The investment in bottles and crates was shown under a separate head. It is further pointed out in the said affidavit that if the investment of the Company in bottles and crates is included under the head Plant then its total fixed capital investment will reach the level of 137.36 lakhs and it can no longer be regarded as a small scale industrial unit. As the Company had applied as a SSI unit, the District Level Committee had to verify the status of the Company as SSI Unit and, therefore, it was bound to take into account the above referred two notifications of years 1991 and 1993 if under these circumstances, the District Level Committee came to the conclusion that the Company is not entitled to the benefit of deferment in respect of its investment in bottles and crates, it cannot be said that it has acted contrary to law. 4.

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

Explanation:
1[ds]The extent of benefit is partly made dependent upon the Fixed Capital Investment made by the industrial unit and also upon its status viz. whether it is a large scale industrial unit or a small-seals industrial unit, As disclosed by the industrial policy and the Deferment Rules, the State agrees to suffer temporary loss of revenue by not requiring immediate payment of sales-tax on sale of goods produced or manufactured by an industrial unit if it makes new fixed capital investment in the State. What the State desires and what the Deferment Rules require for getting the benefit thereunder, is not capital investment but fixed capital investment. Rule 2(v) defines fixed capital investment to mean investment in land, building, plant and machinery. Thus, the nature of investment contemplated by the Deferment Rules is investment in fixed assets which are ordinarily considered essential for production or manufacture of goods and have some degree of permanency. The second proviso to Rule 3 makes this position further clear. It states that "Deferment shall be limited to 90 per cent of the fixed capital investment in fixed capital assets". To explain how in business accounting "fixed capital" and "fixed assets" are understood, Mr. Singh, learned counsel for the State, drew our attention to the book titled "Advanced Accounting" by Jamshed R. Batliboi. Therein, it is stated that "fixed capital of a business consists of its fixed assets" and "fixed assets are those which are acquired and intended to be retained permanently for the purpose of carrying on a business, such as land, buildings, plant and machinery etc. Therefore, the context in which the word plant is used in Rule 2(v) indicates that it is not used in its wider sense and does not include within its meaning land, building and machinery. It also appears that the rule-making authority did not intend plant to mean what is not a fixed asset. For all these reasons, we are of the view that by plant what is intended by the rule-making authority is that apparatus which is used by the industry for carrying on its industrial process of manufacture. In respect of an industry manufacturing soft-drinks and beverages, it can be said that plant would mean that apparatus which is used for manufacturing soft-drinks or beverages and not articles like crates and bottles used for storing the manufactured product.It is also relevant to refer to the two notifications of the Government of India in the Ministry of Industry (Department of Industrial Development) dated 2.4.1991 and 1.1.1993 issued under Section 11-B of the Industries (Development &Regulation) Act, 1951. Notification No.232 dated 2.4.1991 while staling what has to be included under fixed assets while ascertaining whether a small-scale industrial units investment has exceeded the limit of Rs.60 lakhs has clarified that the cost of storage tanks which store raw material or finished products is to be excluded. The 1993 notification has amended the notification of 2.4.1991 and clarified by adding Note No.2 that in calculating the value of plant and machinery, the cost of storage tanks which store raw materials/finished products only and which are not linked with the manufacturing process shall be excluded. On 8.5.1995, the Government of India again issued a Circular, after having received representations from the industry seeking clarification whether bottles and crates are to be taken into account for determining the SSI status of the units engaged in manufacture of soft drinks/concentrates, clarifying that investment in bottles and crates in such units is in the nature of storage of finished products and, therefore, such investment has to be excluded while computing the value of plant and machineryAs pointed out in the affidavit in rejoinder, the Company had applied for an Eligibility Certificate claiming the status of a small scale industry. It is, in fact, registered as a small scale industrial unit. While declaring Its investment at the time of seeking registration as a smallscale industrial unit it did not include investment in bottles and crates under the head Plant and Machinery. The investment in bottles and crates was shown under a separate head. It is further pointed out in the said affidavit that if the investment of the Company in bottles and crates is included under the head Plant then its total fixed capital investment will reach the level of 137.36 lakhs and it can no longer be regarded as a small scale industrial unit. As the Company had applied as a SSI unit, the District Level Committee had to verify the status of the Company as SSI Unit and, therefore, it was bound to take into account the above referred two notifications of years 1991 and 1993 if under these circumstances, the District Level Committee came to the conclusion that the Company is not entitled to the benefit of deferment in respect of its investment in bottles and crates, it cannot be said that it has acted contrary to law.