Case: State Of Orissa  Vs. M/S Tata Sponge Iron Ltd

Before embarking upon the said question, we may notice the basic fact of the matterRespondent herein which is a large industrial unit had set up a Sponge Iron Factory at Bileipada, Joda in the district of Keonjhar, Orissa. Indisputably, it is classified as a large scale industry in terms of Industrial Policy Resolution (IPR), 1980 adopted by the State. In or about 1989, IPR was adopted for existing industries classified under IPR, 1980 wherein benefits for exemption from payment of sales tax on finished products were to be granted subject to the terms and conditions laid down therein including repayment of loan availed under IPR, 1980. Before the benefits of the said IPR could be obtained by the respondent, the Government of Orissa announced IPR, 1992 in terms whereof the existing industrial units could obtain exemption or deferment of sales tax on finished products and capital investment subsidy provided it had undergone an expansion/ modernization/ diversification of its unitFor our purpose, we may only notice paragraphs 7.4 and 7.5 of IPR, 1992 which are in the following terms:7.4 Exemption / Deferment of Sales Tax on raw materials, spare parts, and finished products of small, medium large scale and Pioneer Industrial UnitsNew Small, medium & Large scale industrial units including, pioneer units will be eligible for exemption of sales tax on raw materials, spare parts, & finished products for a period of 5 years subject to a ceiling of 100 per cent of fixed capital investment if the unit is located in zone-A 75 per cent. If located in zone B and 60 per cent if located in zone-C. New medium and large industrial units may also opt to defer payment of sales tax on their finished products for a period of 5 years subject to a maximum of 100 per cent of fixed capital investment if the unit is located in zone-A 75 per cent if located in zone-B and 60 per cent if located in zone-C from the date of commercial production. Deferred amounts in respect of each year will be repaid in full after the expiry of the period of deferment annually. Period of exemption / deferent allowed for different zones shall be extended by two years for Pioneer units. However, defaulters of OSFC/IPI COL dues shall be eligible only after they clear such dues7.5 Exemption / Modernization / DiversificationThe incentive by way of exemption or deferment of sales tax on finished products shall be available for expansion / modernization / diversification of existing units taken up after the effective date subject to a limit of 60 per cent of the additional capital investment in plant and machinery only in zone-C, 75 per cent in zone-B and 100 per cent in zone-A provided that such expansion / modernization / diversification has been undertaken on the basis of separate project report duly appraised by the financial institutions and provided further that subject to the provisions of the Sales Tax Act, the benefit of exemption / deferment shall not have the effect of reducing the sales tax paid by the unit prior to commencement of the expansion / modernization / diversification programmes. In other words, the benefit shall be applicable to incremental salesRespondent contended that in view of paragraph 7.5 of IPR, 1992 it was entitled to the benefit of deferment of payment of sales tax on finished products in respect of incremental sale over and above the immediate preceding year as it existed prior to expansion of the industrial unit upto a limit of Rs. 49.45 crores being 75% of the fixed capital investment in the plant and machinery. It was furthermore claimed to be entitled to capital investment subsidy. As the said benefits were denied to the respondent, it filed a writ petition before the High Court of Orissa, Cuttack which was marked as O.J.C. No. 2213 of 2001By reason of the impugned judgment, a Division Bench of the Orissa High Court allowed the said writ petition directing:1. Opposite party No.2 The Director of Industries, Orissa is directed to reconsider the petitioners application for re-evaluation of its investment for expansion of the unit and determine afresh, the extent to which the petitioner is entitled to the sales tax incentives and also to make necessary amendment to the eligibility certificate granted by it in accordance with the IPR, 19922. The stipulation of a time period in the certificate of eligibility granted to the petitioner in Form No.II-A under Annexure-4 to the writ petition is declared ultra vires the IPR, 1992 and shall have no effect. Necessary amended Eligibility Certificate in terms of directions in Paragraphs 1 & 2, be issued to the petitioner, within two months from the date of communication of this judgment3. After issue of the revised eligibility certificate as directed above, the petitioner company is directed to produce the same before the Sales Tax Officer, Keonjhar Circle, who on receipt of the same along with the revised returns that may be filed by the petitioner as a consequence of revision of the eligibility certificate, shall pass appropriate order of assessment and direct refund of excess tax deposited on ascertainment of the assertion of the petitioner that it has not collected sales tax from the purchasers but had paid the same from its own re-source, within a period of two months from the date of production of the Revised Eligibility Certificate4. Opposite part No.1 is directed to reconsider the petitioner-companys application for grant of capital investment subsidy in terms of the direction contained herein and release the Capital Investment Subsidy as is due to the petitioner within a period of two months from the date of communication of this order.

Court's reasoning:
9. Indisputably, pursuant to or in furtherance of the aforementioned IPR, 1992, the State Government amended the provisions of the Orissa Sales Tax Act. Section 6 of the said Act reads as under:6. Tax Free Goods The State Government may, by notification, subject to such conditions and exceptions, if any, exempt from tax the sale or purchase of any goods, or class of goods and likewise withdraw any such exemption10. Indisputably, again pursuant to or in furtherance of the aforementioned provision, the Finance Department of the State of Orissa had issued notification bearing SRO No. 1091 of 1992 dated 23.09.1992 and inserted Entry 44 in terms whereof the respondent became entitled to exemption. Entry 44 of the said notification reads as under:44. Sale of finished products of an existing industrial unit, located in Orissa i.e. an industrial unit which has gone into production before 1st August, 1992, and which has undertaken expansion / modernization / diversification of the said unit after the 1st day of August, 1992 on the basis of separate project report duly appraised by the financial institution, and a certificate to this effect that is, regarding expansion / modernization / diversification of the unit is produced from the concerned General Manager, Project Manager, District Industries; Centre in case of Small Scale Units and a certificate in Form E (92) is produced from the Director of Industries, Orissa in case of Medium, Large and pioneer UnitsThe exemption of sales tax shall be limited to 60 per cent of the additional capital investment, in plant and machinery only in Zone-C, 75 per cent of the additional capital investment in plant and machinery only in Zone-B and 100 per cent of additional capital investment in plant and machinery only in Zone-AExplanation I:- Additional capital investment in plant and machinery means additional investment of 50 per cent of more of the undepreciated book value of fixed capital investment of an existing unit in acquisition of plant and machinery for expanding / modernization / diversifying the production of the said unitProvided that the benefit of exemption is admissible only on the incremental sales arising out of such expansion / modernization and diversificationProvided further that no exemption as indicated above shall be allowed to the following categories of industries, namely:1. Rice Hullers and Rice Mills2. Flour Mills including manufacture of Besan, Pulse Mill and chuda mills5. Further, the eligibility certificate granted for sales tax concession on sale of finished products categorically states that exemption may be available as per Finance Department Notification No. SRO 1091 of 1992 as amended from time to time up to a ceiling amount of:1. 100% of the additional capital investment in plant and machineries being located in ......Zone-A11. It is not in dispute that in the said entry, during which the same would remain operative, no period far less the period of five or seven years had been mentioned. The only limitation prescribed thereby was that only 75% of the additional capital investment in Zone B would be allowed where the unit of the respondent is situate12. In terms of Clause 5 of IPR, 1992, the respondent became entitled to exemption from payment of sales tax on finished products for an amount of Rs. 49.45 crores being 75% of Rs. 63.95 crores invested in plant and machinery13. We may notice that the Finance Department of the State of Orissa passed a consequential order in IPR, 1992 bearing SRO No. 1091 of 1992 dated 23.09.1992 which was given effect from 1.08.1992. A bare perusal of the said notification would clearly show that whenever the period upto which the exemption, could be obtained was required to be stated had specifically been done therein, as for example Sl.Nos. 30A, 41, 42A and 43A etc. We may, furthermore, notice that against the Entry 44, however, what is mentioned is the extent to which such exemption would be granted. No period during which such exemption is to be obtained was stated. In other words, no period of limitation was fixed thereby14. In view of the clear legal provision as also the aforementioned notification dated 23.09.1992, there cannot be any doubt whatsoever that the exemption in respect of deferment of sales tax having been provided for under the Orissa Sales Tax Act as also the notification issued thereunder, the High Court, in our opinion, is correct in taking its view15. It is furthermore a well settled principle of law that an exemption notification must be liberally construed. [See Commissioner of Customs (Imports), Mumbai v. Tullow India Operations Ltd., (2005) 13 SCC 789,  Tata Iron & Steel Co. Ltd. v. State of Jharkhand and Others, (2005) 4 SCC 272,  Government of India and Ors. v. Indian Tobacco Association, (2005) 7 SCC 396,  Commnr. Of Central Excise, Raipur v. Hira Cement, JT 2006 (2) SC 369 . and P.R. Prabhakar v. Commnr. of Income Tax, Coimbatore, 2006 (7) SCALE 191 ]. The said principle, therefore, applies in all fours in the present case16. For the reasons aforementioned, there is no merit in this appeal which is dismissed accordingly with costs. Counsels fee assessed at Rs. 25,000/-.