Whether a priority industry eligible to avail sale tax benefits and exemptions contemplated under IPR-1996: Odisha High Court

IN THE HIGH COURT OF ORISSA AT CUTTACK WRIT PETITIONNo.54909 An Application under Articles 226 & 227 of the Constitution of India) M s. Protection Manufacturers Pvt. Ltd. Petitioner versus State of Orissa and others Opposite Parties Advocates appeared in the case by Video Conferencing mode: For Petitioner Mr. S. P. Misra Senior Advocate along with Miss. S. Mishra Mr. B. Mohanty Mr. B. S. Panigrahi and Mr. S. K. Sahoo versus For Opposite Parties Mr. P. K. Muduli Additional Government Advocate for the State THE CHIEF JUSTICE JUSTICE B. P. ROUTRAY 31st May 2021 Dr. S. Muralidhar CJ. 1. The Petitioner challenges the decision dated 18th January 2008 of the Director of Industries Orissa (Opposite Party No.2) holding that the Petitioner is not a new unit under the Industrial Policy Resolution 1996not entitled to priority industry W.P.(C) No.54909 status and is also not entitled to claim sales tax incentives under Clause 5.6 of IPR 1996 thereby upholding cancellation of the Sales Tax Eligibility Certificate issued in favour of the Petitioner on 15th October 2005. 2. The background facts are that the Petitioner was initially a Small Scale Industry having been registered as such on 21st December 1996 with the District Industries Center Bhubaneswar DIC)apart from the existing products being manufactured by it. It accordingly invested Rs.4 08 35 710 and communicated this fact of diversification modernization to the DIC Bhubaneswar stating that it had in the process qualified as a Medium Scale Industryindicating the project cost in the aforementioned sum after due verification. 4. At this stage it requires to be noticed that Clause 2.7 of IPR 1996 defines „priority industry‟ to mean an industrial unit in certain W.P.(C) No.54909 specified categories having a project cost of not less than Rupees 1 5. By communication dated 8th January 2002 the DoI issued a production certificate in favour of the Petitioner stating inter alia that after the expansion and modernization drive the unit had come under the purview of "Large and Medium sector" and its date of commercial production is determined as 12th November 2001. By another communication dated 24th January 2002 the DoI certified the Petitioner s unit to be a priority industry as defined in Para 2.7 i) and Part II of the IPR 1996. In the said certificate it was the unit was to avail exemption deferment as applicable under IPR 1996 subject to fulfillment of all other conditions as laid down if any." 6. On 7th March 2002 the DoI further issued in favour of the Petitioner under Form II A a certificate of eligibility for sales tax concession "on sale of finished products." Para 5 of the said certificate noted the annual installed capacity of production in respect of various products as under: Particulars of finished products Installed capacity of E M Dcapacity of T. V. SetsT. V. Sets4. Moulded furniture household particular 15000 pcs. P.A. 18000 pcs. P.A. 6000 pcs. P.A. W.P.(C) No.54909 cabinet of assorted 5. Air Cooler 8000 pcs. 2400 pcs. P.A. existing unit)" 7. The aforementioned certificate was valid from 12th November 2001 to 11th November 2006. 8. The Petitioner contended that on the basis of the Eligibility Certificate issued to it in terms of Clause 5.6and Clause 5.7 of IPR 1996 it was to be given the benefit of sales tax concession not only for five years but for two additional years. However the Joint Director of Industries Orissa in a communication dated 3rd July 2002 addressed to the Petitioner took the view that there was no provision under IPR 1996 to extend the sales tax benefit for an additional two years. The Petitioner contended that this was contrary to a notification dated 2nd February 1999 issued by the State Government which clarified that all priority industries would be entitled to an additional two years of sales tax exemption. 9. The Petitioner also refers to a Notification No. SRO 141 2000 dated 17th February 2000 issued by the Finance Department Government of Odisha in terms of which existing industrial units already in receipt of incentives under an earlier notification dated 23rd April 1976 as amended from time to time "immediately before the 1st January 2000" would continue to avail incentives for the period of their eligibility under the notification. This notification further stipulated that where an industrial unit was „in the pipeline‟ W.P.(C) No.54909 as on 1st January 2000 it would be entitled to the incentive under the notification on same terms and conditions if it fulfilled the following criteria as on 1st January 2000: i. Industrial unit which is regd. under the Orissa Sale Tax Industrial Unit which has been allotted land for the iii. The industrial unit which has applied for finance from regular financial institution. iv. Industrial unit which will start commercial production before the 1st January 2000." 10. The Petitioner contended that it fulfilled each of the above criteria spelt out in SRO 141 2000. The Petitioner pointed out that Opposite Party No.3 by its letter dated 24th March 2003 had put out a list of industries that were „in the pipeline‟ as on 1st January 2000. The name of the Petitioner s unit was at Serial No. 24 of the said list. Further it was pointed out by the Petitioner that in exercise of powers conferred on it under Section 6 of the Orissa Sales Tax Act the Government of Orissa had brought out an amendment to Notification No. 206 dated 23rd April 1996 stipulating that for priority industries the period of exemption from payment of sales tax shall be extended by two additional years and that "there shall be no maximum limit on such exemption during the eligibility period." 11. On the above basis the Petitioner contended that it was not justified for the Opposite Party No.3 by communication dated 3rd July 2002 to hold that there was no provision to extend the sales tax benefit to the Petitioner for an additional two years. The W.P.(C) No.54909 Petitioner is stated to have made several representations. By communication dated 15th September 2004 the Commissioner cum DoI Orissa requested the Special Secretary to Government the Government to examine whether an existing SSI unit having graduated to Medium Scale could still avail the sales tax exemption available to the priority sector. 12. When thereafter the Government did not take any decision the Petitioner filed W.P.No.56705 in this Court. While the said writ petition was pending Opposite Party No.3 by a communication dated 15th October 2005 informed the Petitioner that the Department of Industries had reviewed the Petitioner s case and had come to the conclusion that the Petitioner unit could not be treated as an "industry in pipeline" as on 1st January 2000 and was therefore not entitled to any exemption in the capacity. It was indicated therein that the Petitioner had not satisfied the eligibility criteria since the item "moulded manufacturer" incorporated under the OST Act on 17th January 2000 i.e. after 1st January 2000. Accordingly the sales tax exemption certificate issued on 11th March 2002 was sought to be revoked and cancelled. 13. This led the Petitioner to file another W.P. No.13181 of 2005 in this Court challenging the order of cancellation. Both the above writ petitions were disposed of by this Court by an order dated 16th November 2005 the operative portion of which reads Under the aforesaid premises without expressing any opinion on the merit of both the cases we quash the order dt. 15.10.2005 passed by the Director of Industries Orissa Opposite Party No.2 under Annexure 7 and direct Opposite W.P.(C) No.54909 Party No.2 to take a decision afresh after giving a notice of show cause to the petitioner within a period of 4 weeks from today. The Petitioner shall file reply to the show cause within a period of one month from the date of receipt of the same. Thereafter Opposite Party No.2 shall decide the matter on its own merit with accordance with the law. The claims of the Petitioner is that the Industry is a priority Industry and entitled to get the benefit of sales tax exemption for seven years or otherwise shall also be decided by the Authorities dealing with the representation. In the meantime no coercive action shall be taken against the Petitioner till a decision is taken. The writ petitions are disposed of accordingly." 14. Thereafter a show cause notice dated 5th December 2005 was issued by the DoI to the Petitioner recording the prima facie view that the eligibility certificate granted to the Petitioner on 7th 11th March 2002 was erroneous and contrary to the various notifications issued by the Government of Odisha. The Petitioner replied to the SCN on 12th January 2006 explaining why it was entitled to the exemption. Thereafter by the impugned order dated 18th January 2008 the DoI held that the Petitioner s unit was not a new unit in terms of IPR 1996 and therefore not entitled to priority industry status thereby upholding the cancellation of the sales tax eligibility certificate issued on 15th October 1995. 15. In response to the notice issued in the present petition a counter affidavit has been filed on behalf of the Opposite Parties reiterating the impugned order and contesting the claim of the Petitioner to avail sales tax incentives under Clauses 5 6of IPR 1996. According to the Opposite Parties the said exemption was meant for „new‟ SSI Medium Large Industry. Accordingly W.P.(C) No.54909 the Petitioner‟s reply to the SCN was found to be without merit. The DoI upheld the cancellation of sales tax eligibility certificate issued vide order No.13193 dated 15th October 2005 in favour of the Petitioner. 16. The running theme of the counter affidavit is that the Petitioner s unit was not a „new‟ one under IPR 1996 and therefore was not eligible for the benefit of the sales tax exemption. It is stated by the Opposite Parties that the Petitioner s industry had executed an agreement with M s. Nilkamal Plastic Private Limited Nasik Maharashtra on 14th May 2001 with a view to undertake manufacture and sale of its own product i.e. moulded to avail sales tax exemption "giving the wrong representation." The item of moulded furniture was inserted by an amendment in the registration certificate with effect from 17th July 2001. There was no indication that the Petitioner was a registered dealer of moulded furniture on 1st January 2000. This led to review of the eligibility certificate issued earlier and its consequent cancellation. 17. The Petitioner filed a rejoinder pointing out that there were two notifications i.e. SRO 141 2000 which applied to existing units that had expanded and SRO 140 2000 which applied to new units and that both were dated 17th February 2000. It was pointed how since the Petitioner had graduated to a Medium Scale Industry and was an industry in the pipeline it was covered under SRO 141 2000. It was further pointed out that the tax exemption certificate dated 11th March 2002 was issued in terms of a Finance Department s notification No. SRO 475 dated 20th July 1996 which W.P.(C) No.54909 became effective on 1st February 1996. In the aforementioned notification dated 20th July 1996 a new serial number 44 was introduced which stated thus: State of finished products of an existing industrial unit where fixed capital investment has been commenced after 1st day of March 1996." 18. The Petitioner also pointed out in its rejoinder that it was a unit „in the pipeline‟ as it satisfied all the conditions stipulated in SRO 141 2000 dated 17th February 2000 and in fact the Petitioner figured at Serial No. 24 of a list of such industries prepared by the DoI on 24th March 2003. 19. This Court has heard submissions of Mr. S. P. Misra learned Senior Counsel appearing for the Petitioner and Mr. P. K. Muduli learned Additional Government Advocate for the State. 20. There appears to be a factual misconception on the part of the DoI about the status of the Petitioner which admittedly graduated from an SSI unit to a Medium Scale unit having undertaken the expansion and modernization drive. There also appears to be a misconception as regards the eligibility of the Petitioner for sales tax exemption for an additional two years since it is recognized as a priority industry." 21. While it is true that the Petitioner as a new unit was in the SSI category it graduated to a Medium Scale industry after the expansion and modernization drive. It satisfied the description of existing unit" that had undertaken expansion and modernization. It is the Opposite Parties themselves that had W.P.(C) No.54909 recognized the Petitioner as a "priority industry" by the order issued on 24th October 2002. 22. Once the Petitioner has been declared as a priority industry in terms of IPR 1996 Clause 2.7 and Part II the Petitioner s unit was eligible to get an additional two years of sales tax exemption. The Petitioner is right in its contention that the Opposite Parties are mistaken in their stand that IPR 1996 was meant only for a New SSI Medium Large industry. The notification issued by the Opposite Parties themselves belies this contention. SRO 475 96 dated 26th July 1996 referred to hereinbefore envisages an existing industrial unit undertaking fixed capital investment" and having commenced after 1st March 1996. Clearly this would include an existing unit which undertakes expansion and modernization after 1st March 1996. The certificate issued by the DoI on 7th March 2002 in Form II A granting the Petitioner eligibility for sales tax concession "on sale of finished products” acknowledges both the new products as well as the existing product viz. „air coolers‟. 23. The Petitioner has also pointed out how it satisfied all the requirements of being declared as a unit „in the pipeline‟ in terms of SRO 141 2000. This has not been able to be countered by the Opposite Parties. In particular they have been unable to dispute that the Petitioner was first registered as an SSI under the OST Act on 30th January 1997 which registration was kept renewed from time to time. The Petitioner for the purpose of its expansion purchased a land on 20th July 1998 i.e. prior to 1st January 2000. In other words the expansion drive was undertaken by an W.P.(C) No.54909 investment made after 1st March 1996. The Petitioner also applied to the State Bank of India on 8th December 1999 for finance i.e. prior to 1st January 2000. It was to commence its production before 1st January 2002. In fact it commenced its commercial production on 12th November 2001. 24. Further the Petitioner is a multiproduct industry. The dates of production of its various products as modified by a letter dated 15th September 2004 of the DoI reads thus: Emergency light b. UPS c. Moulded Furniture & other household goods TV setsDate of production 25. Indeed the Opposite Parties have no answer to the above contention of the Petitioner that it was a unit „in the pipeline‟ in terms of SRO 141 2000. The Petitioner has also clarified how its agreement with M s. Nilkamal Plastic Private Limited had no relevance to its claim for sales tax exemption. The machineries for the manufacture of moulded plastic furniture were purchased from M s. Nilkamal Plastic Private Limited under proper invoices challans and excise gate passes. It was the Petitioner that produced the finished products. That it was an industry in the pipeline as on 1st January 2000 has been admitted by the Opposite Parties themselves as its figures at Serial No. 24 of the list dated prepared by the DoI on 24th March 2003. With the Petitioner satisfying all the requirements of the applicable notifications there appears to be no justification in the Opposite Parties seeking to revoke the sales W.P.(C) No.54909 tax exemption thereby cancelling the certificate issued for that 26. For all the aforementioned reasons the Court sets aside the impugned decision dated 18th January 2008 of the DoI Opposite Party No.2 and revives the sales tax exemption certificate dated 15th October 2005 granted in its favour. In other words it is held that the Petitioner as a priority industry is eligible to avail sales tax benefit as contemplated under IPR 1996 in terms of notification dated 2nd February 1999 and therefore is entitled to sales tax exemption for an additional two years as claimed by the Petitioner. 27. The writ petition is allowed in the above terms but in the circumstances with no order as to costs. 28. As the restrictions due to resurgence of COVID 19 situation are continuing learned counsel for the parties may utilize a printout of the order available in the High Court‟s website at par with certified copy subject to attestation by the concerned advocate in the manner prescribed vide Court‟s Notice No.4587 dated 25th March 2020 as modified by Court‟s Notice No.4798 dated 15th April Chief Justice Judge M. Panda W.P.(C) No.54909 

Summary: If the industry complies with all the requirements of the applicable notifications, then there is no justification for denying the sale tax exemptions. A single bench comprising of Chief Justice B.P. Routray adjudicating the matter in Protection Manufacturers Pvt. Ltd. v. State of Odisha &amp; Ors (WRIT PETITION (CIVIL) No.5491 of 2009) dealt with the issue of whether the Petitions is a priority industry and is entitled to claim sales tax incentives under Clause 5.6 (Part-II) of IPR 1996. The Petitioner was a Small Scale Industry(SSI) and was set up for manufacturing air coolers. It started its commercial production on 10th April 1994 and had availed the benefit of IPR1989 which was withdrawn from 1st July 1999. The petitioner expanded its business by undertaking diversification programs under IPR 1996 and manufactured emergency lights, molded furniture, TV sets (both black and white and color) apart from the existing products being manufactured by it. It accordingly invested Rs.4,08,35,710/- and communicated this fact of diversification/modernization to the DIC, Bhubaneswar stating that it had in the process qualified as a Medium Scale Industry (MSI). The DIC, Bhubaneswar by its letter dated 29th December 2001, recommended to the DoI that the Petitioner’s unit should be issued a Priority Industries Certificate (PIC) indicating the project cost. The DoI issued a production certificate on 8th Jan 2002 and stated that the unit had come under the purview of “Large and Medium sector” and its date of commercial production is determined as 12th November 2001 and on 24th Jan 2002the DoI certified the Petitioner’s unit to be a priority industry as defined in Para-2.7 (i) and (xii) Part-II of the IPR 1996. In the said certificate it was noted that the unit was “eligible to avail sales tax exemption/deferment as applicable under IPR 1996. The DoI issued, a certificate of eligibility for sales tax concession “on sale of finished products on 7th March 2002  which was valid from 12th November 2001 to 11th November, 2006. The Petitioner contended that based on the Eligibility Certificate issued to it in terms of Clause 5.6 (ii) and Clause 5.7 of IPR 1996, it was to be given the benefit of sales tax concession not only for five years but for two additional years which was denied by the Opposite Party. The Petitioner asserted that the denial is unjustified as it is contrary to the notification dated on 2nd February 1999, issued by the State Government, which clarified that all priority industries would be entitled to an additional two years of sales tax exemption. Also, the Petitioner referred to a Notification No. SRO 141/2000 which was issued by the  Finance Department of Govt. of Odisha on 17th February 2000 which stated that the existing industrial units already in receipt of incentives under an earlier notification dated 23rd April 1976, as amended from time to time “immediately before the 1 st January 2000” would continue to avail incentives for the period of their eligibility under the notification. This notification further stipulated that where an industrial unit was “in the pipeline‟ as on 1st January 2000, it would be entitled to the incentive under the notification on same terms and conditions if it fulfilled the following criteria as on 1st January 2000: “  The Petitioner submitted that it fulfills all the conditions of the above criteria spelled under SRO 141/2000 and also The name of the Petitioner’s unit was at Serial No. 24 of the said list. Further, it was pointed out by the Petitioner that in the exercise of powers conferred on it under Section 6 of the Orissa Sales Tax Act (the OST Act), the Government of Orissa had brought out an amendment to Notification No. 206 dated 23rd April 1996 stipulating that for priority industries, the period of exemption from payment of sales tax shall be extended by two additional years and that “there shall be no maximum limit on such exemption during the eligibility period. Based on the above-stated contention, the Petitioner asserted that he was eligible to extend the sales tax benefit to the Petitioner for an additional two years. After various prolonged attempts and court proceedings, the petitioner in the present case pointed out that there were 2 notifications of 17th February 2000 i.e. SRO 141/2000, which applied to existing units that had expanded, and SRO 140 /2000, which applied to new units. Also, he pointed out how he had graduated to a Medium Scale Industry and was an industry in the pipeline it was covered under SRO 141/2000. It was further pointed out that the tax exemption certificate dated 11th March 2002 was issued in terms of a Finance Department’s notification No. SRO 475 dated 20th July 1996, which W.P.(C) No.5491 of 2009 Page 9 of 12 became effective on 1st February 1996. After looking into the submissions of both the parties, the court concluded that “a factual misconception on the part of the DoI about the status of the Petitioner, which admittedly graduated from an SSI unit to a Medium Scale unit having undertaken the expansion and modernization drive. There also appears to be a misconception as regards the eligibility of the Petitioner for sales tax exemption for an additional two years since it is recognized as a “priority industry.”  Adding to it the court said that “The Petitioner is right in its contention that the Opposite Parties are mistaken in their stand that IPR 1996 was meant only for a New/SSI/Medium/Large industry. The notification issued by the Opposite Parties themselves belies this contention.”