Case: State of Haryana &amp; Another Vs. M/s. Polar Industries Ltd

4. The State Government in exercise of its powers under Section 13–B of the Haryana General Sales Tax Act, 1973or short), has promulgated an exemption scheme, inter alia, granting certain exemptions to the industries which are set up in the specified areas in the State of Haryana. For the purpose of granting exemption from payment of sales tax under Section13B of theAct, the legislature has incorporated Ruleproviding conditions for availing exemption from payment of sales tax to eligible industrial units. We will advert to these provisions once over again after noticing the facts of the case in nutshell.5. The respondent company is a public limited company engaged in the business of manufacturing electrical motors, fans, etc. The industry was granted Eligibility Certificate on 25.1.1993 and was granted Sales Tax Exemption Certificate in the prescribed form on 28.01.1994. The exemption that was granted was for the period 20.04.1991 to 19.04.1996 and the same was subject to a ceiling of Rs.The Eligibility Certificate provides certain conditions which requires to be complied by the respondent company in order to take benefit of the exemption granted. Clause 3 of the Certificate provides that the unit shall remain in production for a period of not less than six years after availing the benefits. Clause 4 of the said Certificate envisages that the Certificate shall cease to be operative with effect from the date the unit reaches the ceiling of deferred/exempted amount of tax prescribed in the Eligibility Certificate. Clause 7 is relevant for the purpose of this case, and therefore it is extracted and reads asThe eligibility certificate can be cancelled on contravention of any condition mentioned herein above or in Ruleafter affording an opportunity to the party of being heard.Since the Assessing Authority was of the view that the assessee/respondent company has violated/breached the conditions incorporated in the Eligibility Certificate, the said authority had issued a show cause notice dated 30.12.1996, inter alia, directing the respondent to show cause why the Eligibility Certificate granted earlier should not be cancelled and the tax for the assessment years5 and(upto 7.9.1995) should not be demanded and collected with interest and penalty. In the show cause notice so issued, the Assessing Authority had specifically noticed that the respondent industry has contravened Rule 28A(11)(a)(ii) of the Rules.7. After receipt of the reply to the show cause notice issued, the Assessing Authority has passed the order dated 31.1.1997 by confirming the show cause notice issued earlier. In the order passed, the Assessing Authority has stated that the respondent industry has availed tax exemption from 20.04.1991 to 07.09.1995 for Rs.2,21,87,594/but made sales outside the State of Haryana by way of transfer of goods manufactured by it and therefore, the industry has contravened the provisions of Rule 28A(11)(a)(ii) of the Rules.8. Being aggrieved by the order so passed, the assessee had filed Writ Petition before the High Court, numbered as Writ Petition No. 2545 of 1997. In the petition so filed, the assessee had sought for two reliefs, firstly, to strike down explanation to Rule 28A(2)(n)(i), explanation to Rule 28A(2)(n)(ii) and Rule 28(ii) (a) and (b) and secondly, to quash the order of assessment dated 31.01.1997, primarily on the ground that no tax can be imposed on the goods transferred by the respondent company to its godown outside the State of Haryana by way of transfer of consignment of goods manufactured by it. The Court, while considering the issue that fell for its consideration and decision has come to the conclusion that the State is imposing tax on thesales transaction or branch transfers which is impermissible in view of the specific bar under the Constitution of India and Central Sales Tax Act and accordingly has allowed the petition and has set aside the order of assessment passed by the Assessing Authority. However, the High Court has not adverted to the vires of Rules Explanation to Rule 28A(2)(n)(i), Explanation to Rule 28A(2)(n)(ii) and Rule 28A(2)(ii)(a) and (b) of the Rules.

Court's reasoning:
13. If there is a violation of any one of the conditions stipulated in Sub Rule 11(i) and (ii), the Sales Tax Authorities are at liberty to cancel the Exemption Certificate issued under the scheme and call upon the assessee to make payment of the exemption availed with interest thereon.14. Having noticed the relevant rules, we will revert back to the facts in the present case. Thehad availed benefit of the sales tax exemption under the Exemption Scheme issued by the State Government. The Eligibility Certificate for sales tax exemption provides for certain conditions which requires to be complied by theto take benefit of exemption under the Scheme. The Condition No. 7 of the Eligibility Certificate provides that the certificate can be cancelled if there is contravention of any condition mentioned in the certificate or Ruleafter affording an opportunity to the party of being heard.In the show cause notice it is specifically alleged that the assessee had dispatched goods on consignment basis during the assessment period98 and therefore the assessee has breached Rule28A of the Rules and in particular11(a)(ii) of the Rules, which prescribes that the benefit of tax exemption shall be subject to the condition that the assessee having availed the benefit of tax exemption shall not make sales outside the State for next five years by way of transfer or consignment of goods manufactured by it. Since the assessee did not dispute the specific contravention pointed out by the assessing authority after cancelling the exemption certificate issued has quantified the tax liability and the interest payable thereon. The order so passed, in our view, is in consonance with the scheme of exemption notified by the State Government and also in accordance with the rules prescribed under SectionAct.15. The High Court while allowing the petition filed by the assessee has proceeded on a wrong assumption, that, the assessing authority has levied tax onsales and on consignment transfer and accordingly has quashed the assessment order passed by the assessing authority. In view of our conclusion stated earlier, we cannot sustain the judgment and order passed by the High Court.