Case: State Of Bihar  Vs. Steel City Beverages

The Company is engaged in the business of manufacturing softdrinks and beverages. It is a registered dealer under the Bihar Finance Act, 1981. It filed a writ petition being Civil Writ Jurisdiction Case No. 1118 of 1992, through its Director-respondent No.2 in Patna High Court for a direction to the State Government and its officers, appellants herein, to accord permission under Rule 42 (7) of the Bihar Sales Tax Rules, 1983 and exempt it from using Form No. XXVIII-B. White the petition was pending before the High Court, it made an application under the Deferment Rules to the competent authority for grant of an eligibility certificate which would enable it to claim benefit of deferment of payment of sales-tax scheme declared under the Deferment Rules. It was stated in the application that under the Resolution of the State Government dated 6.9.1989 and the * Deferment Rules, it was qualified to seek the benefit of deferment. The High Court by its order dated 13.7.1992 directed the Deputy Commissioner of Commercial Taxes, respondent No.4, to place that application before the District Level Committee for Singhbhum District for its consideration. The District Level Committee decided on 9.1.1995 that the Company was entitled to the benefit of deferment of payment of sales-tax to the extent of 90% of its fixed capital investment in fixed-capital assets. However, it rejected the Companys claim that investment in bottles, crates, electrification and tools was an investment in "Plant" and, therefore, it was also a "fixed capital investment". The Company, therefore, amended the writ petition and challenged that part of the decision of the District Level Committee which was against it.The High Court after considering that under the Deferment Rules "fixed capital investment" means investment inland, building, plant and machinery and that they do not define the word "Plant", observed that it was required to be construed according to its dictionary meaning or as understood in common parlance and not in its technical sense. It then held that the word "Plant" would include whatever apparatus is Used by a businessman for carrying on his business; not his stock in trade which he buys or makes for sales, but all goods and chattels fixed or movable which he keeps for employment in his business and which have some degree of durability. Considering the nature of business of the Company, namely, manufacturing soft drinks and beverages, the High Court held that bottles and crates employed by it for its business are also Plant and, therefore, the Company is entitled to get the benefit of deferment on the investment made in them. The High Court quashed the decision of the District Level Committee which was under challenge and directed the State and its officers to grant the benefit of deferment after taking into account the investment made in bottles and crates also. The claim in relation to electrification and tools was not pressed before the High Court. Aggrieved by the decision of the High Court, the State has filed this appeal. *

Court's reasoning:
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.