Case: State Of Jharkhand  Vs. Tata Cummins Ltd.

In the year 1993, the Government of Bihar had announced an Industrial Policy with a view to attract investments and setting up of industries in the State. In the year 1995, the policy was modified partially. In its introduction, the policy set out the aims and objectives of the policy as to create an environment for optimum utilization of the State resources, to provide quality infrastructure for rapid industrialization, to attract investments to generate economic activities, reviving potentially viable and closed industries, to boost exports of goods manufactured in the State and to simplify procedures of decision making. As part of the incentives, the policy envisaged allotment of land in Growth Centres to corporates for setting up industrial units on lease for 99 years with option for renewal. It also envisaged sales tax exemptions to attract investment and to sustain industrial development in the State. Accordingly, new units were allowed the facility of either set off or exemption at their choice, of sales tax on purchase of raw materials during the period envisaged in clause 16(1) of the policy. Similarly, by clause 16(2), the benefit of exemption/set off on sales tax on sale of finished goods was allowed with option to the new units either to choose deferment of payment of sales tax or exemption of sales tax for the period mentioned therein. This policy regarding sales tax incentive was sought to be implemented by two notifications, SO nos.478 and 479 both dated 22.12.1995. One of the pre-conditions for the grant of the benefit of the Industrial Policy, 1995 under the above notifications was that the proprietor/partner/holding company must have its exclusive ownership over the building in which the factory of the unit is situated. However, if the factory of the unit was installed on a leased land or in a building taken on lease, exemption would be admissible when such land or building or both have been acquired by way of a registered lease for a minimum period of 15 years. The lease was to be in favour of the proprietor of the unit or any partner of the firm or in favour of the holding companyAccording to Tata Cummins Ltd, it had taken a lease of the land from TELCO, its partner in the joint venture, though a formal lease had not been executed. TELCO had a registered lease for a term of 99 years from TISCO which had a valid lease from the government at the time when lease was granted by TISCO to TELCO. Since the land was held by TELCO, which had 50% interest in Tata Cummins Ltd., the unit was eligible for the benefit. Its more important claim was that it was the owner of the building in which its factory was set up and under the first part of the notification, the exclusive ownership of the building being with Tata Cummins Ltd., it was entitled to the benefit of exemption regarding sales tax as envisaged in clauses 16.1 and 16.2 of the policy. Tata Cummins Ltd. applied to the Deputy Commissioner of Commercial Taxes claiming the benefit of exemption under the above two notificationsOn 2.12.1998, the Deputy Commissioner rejected the claim of Tata Cummins Ltd. on the ground that the Head lease from the government in favour of TISCO had expired and until and unless the Head lease in favour of TISCO stood renewed, Tata Cummins Ltd. was not entitled to claim the benefit of exemption from payment of sales tax. Consequently, the claim made by Tata Cummins Ltd. was rejected. Since then, the Head lease has been renewed. Thereafter, Tata Cummins Ltd. challenged the decision of the Deputy Commissioner in writ petition no.2689 of 2000. The Division Bench held that Tata Cummins Ltd. not having a valid lease from the State Government or from TELCO, it could not claim the benefit of the exemption under the above two notifications. Thus, the order of Deputy Commissioner was upheld. Tata Cummins Ltd. thereafter challenged the decision of the Division Bench in this Court by way of petition for special leave to appeal nos.20375 and 20376 of 2000. During the pendency of the petitions for special leave to appeal, it was found that the Deputy Commissioner had passed the above order without the approval of the Joint Commissioner as required under the above two notifications. Therefore, the Joint Commissioner called for the records of the case to examine the question of exemption afresh after issuing notices to the Deputy Commissioner and Tata Cummins LtdWhen the Supreme Court, thus, took up the petitions for special leave to appeal for final decision, the proceedings initiated by the Joint Commissioner (Administration) were brought to its notice. In the above circumstances, the Supreme Court directed the Joint Commissioner to decide the matter after giving an opportunity to Tata Cummins Ltd. to make a representation and file necessary documents and to decide the matter without being influenced by the impugned decision of the High Court which was challenged in appeal before this court.

Court's reasoning:
Before analyzing the above Policy read with the notifications, it is important to bear in mind the connotation of the word tax. A tax is a payment for raising general revenue. It is a burden. It is based on the principle of ability or capacity to pay. It is a manifestation of the taxing power of the State. An exemption from payment of tax under an enactment is an exemption from the tax liability. Therefore, every such exemption notification has to be read strictly. However, when an assessee is promised with a tax exemption for setting up an industry in the backward area as a term of the industrial policy, we have to read the implementing notifications in the context of the Industrial Policy. In such a case, the exemption notifications have to be read liberally keeping in mind the objects envisaged by the Industrial Policy and not in a strict sense as in the case of exemptions from tax liability under the taxing statuteApplying the above tests to the facts of the present case, the object behind enactment of the Industrial Policy, 1995 was to confer incentives on industries set up in the State. As part of the incentives, the Industrial Policy envisaged allotment of land/building in growth centres to companies for setting up industrial units on lease for 99 years with an option for renewal. As a part of the incentives, it was also envisaged under clause 16 that sales tax benefit/exemption shall be granted to attract investments in order to sustain industrial development in the State. It is in this background, that we have to consider clause 16.1 and clause 16.2 of the Industrial Policy, 1995. The two notifications are merely instruments giving effect to the policy envisaged under the Industrial Policy, 1995Before concluding, we may reiterate that at one stage of the matter the department had taken the position that Tata Cummins Ltd. was not entitled to the benefit as the Head lease in favour of TISCO was pending renewal by the State Government and till such time as the State renews the lease in favour of TISCO, Tata Cummins Ltd. was not entitled to the benefit of concession. We are now informed that the State Government has renewed the Head lease in favour of TISCO who in turn has sub-leased a portion thereof to TELCO, which has 50% interest in the joint venture, namely, Tata Cummins Ltd. In the circumstances, we are not required to consider whether the above two notifications are repugnant to the incentive policy. We have, however, noted the ratio of the decision of this court in the case of State of Bihar & others etc. v. Suprabhat Steel Ltd. & others etc. reported in (1999) 1 SCC 31 , in which it has been held that the notifications meant for implementing the Industrial Policy of the State government, cannot override the incentive policyOn the facts of the present case, we need not examine the question as to whether the said two notifications no.478 and 479, quoted hereinabove, are repugnant to the incentive policy. Before concluding, we may point out that vide order dated 26.3.2004, this court, by way of interim measure, directed the appellant herein to adjust the refundable amount of Rs.40 crores, for the accounting year commencing from 1.4.2004, the balance amount was ordered to be refunded to Tata Cummins Ltd. who undertook to pay back to the appellant the balance payment with interest at the rate of 9% in the event of the State succeeding in this civil appeal. However, since we are dismissing the appeal filed by the State, the question of refund by Tata Cummins Ltd. to the State, of the balance amount i.e. Rs.14.5 crores with interest, does not arise.