Allahabad High Court
Kumar Fuels vs State Of Uttar Pradesh And Anr. on 20 February, 1986
Equivalent citations: [1986]63STC467(ALL)
Author: A.P. Misra
Bench: A.P. Misra
JUDGMENT A. Banerji, J.
1. An important question of law as to the interpretation of Section 4-A(2)(d) of the U.P. Sales Tax Act, 1948, is involved in this petition. The Sales Tax Officer issued a show cause notice under Rule 41(5) of the U.P. Sales Tax Rules dated 24th January, 1986. He has observed in the said notice that the petitioner was not a new unit at the time of the commencement of business, had not obtained an institutional loan nor was the factory of the petitioner registered at that time and, as such, the petitioner's unit was not entitled to exemption under Section 4-A of the Act. He, therefore, desired the petitioner to appear on the 28th January, 1986, and satisfy the Sales Tax Officer as to why orders be not passed for assessment of tax against the petitioner.
2. The petitioner aggrieved by the above notice has come up to this Court under Article 226 of the Constitution and has prayed for the quashing of the aforesaid notice raising the question that the Sales Tax Officer had no jurisdiction whatsoever to find out whether the petitioner's unit is entitled to exemption under Section 4-A of the Act particularly when the petitioner had obtained an eligibility certificate under Clause (d) of Sub-section (2) of Section 4-A of the Act.
3. Since this question is arising frequently in a large number of cases and involves interpretation of a provision of law, we have heard the learned Counsel for the petitioner and the learned Standing Counsel representing the respondents at some length and we propose to dispose of the writ petition at the admission stage finally under the provisions of Chapter XXII of the Rules of the Court.
4. First, the essential facts: The petitioner's unit, which is engaged in manufacturing coal briquette (block of compressed coal-dust) is a small-scale industry in the district of Rampur. The petitioner applied for registration as a small-scale industry with the Director of Industries, U.P. The General Manager, District Industries Centre, Rampur, on behalf of the Director of Industries, U.P., granted a registration certificate dated 24th February, 1984. The date of commencement of production has been stated to be the 13th January, 1984, in the above certificate. The petitioner has also alleged that he had constructed a building on a piece of land, which he had taken on rent, installed new machineries in the said unit, which have not been used anywhere else in India and has also obtained credit facilities from the Central Bank of India. The petitioner had also applied to the General Manager, District Industries Centre in prescribed form for grant of exemption from payment of sales tax by the petitioner. Originally, the petitioner had eight workmen but on coming into force of the Notification No. 6468 dated 27th August, 1984, which required the unit to be registered under the Factories Act for getting exemption from payment of sales tax, the petitioner made an application in the prescribed form. A certificate dated 29th May, 1985, was duly issued to the petitioner showing that the petitioner's unit had been registered under the Factories Act. The Director of Industries, Moradabad Region, Moradabad, had granted an eligibility certificate to the petitioner on 6th February, 1985, certifying that the petitioner is entitled to exemption from payment of sales tax for a period of four years from 24th December, 1983. This was done after consideration of the recommendation sent by the General Manager, District Industries Centre, Rampur. The petitioner was filing returns before the Sales Tax Officer, Sector I, Rampur, but was not depositing sales tax, as the petitioner was recommended for exemption from payment of sales tax by the Joint Director of Industries. The petitioner is a registered dealer under the U.P. Sales Tax Act. According to the petitioner, he had not realised any sales tax, as he had applied for exemption under Section 4-A of the Act.
5. On the basis of these facts, learned Counsel for the petitioner urged that the petitioner was not liable to pay any sales tax for a period of four years from 24th December, 1983, and, as such, the notice under Rule 41(5) by the Sales Tax Officer was wholly unwarranted, without jurisdiction and liable to be quashed.
6. On behalf of the State a preliminary objection was taken about the maintainability of the petition on the ground that the petitioner had only been asked to appear and give reply to the notice given under Rule 41(5) of the Sales Tax Rules and that was adequate remedy under the statute and even if the petitioner was made liable to pay sales tax, he could go upon appeal against that order.
7. We are not impressed by the preliminary objection in the present case. If the notice under Rule 41(5) is wholly without jurisdiction then in that event this Court would be perfectly justified in quashing the said notice. If an authority has no jurisdiction to initiate a particular proceeding or to decide the same in law then in that event to direct the petitioner to appear before the said authority and contest the notice would only mean prolongation of the proceeding unnecessarily. Since this question is being raised frequently, we are of the view that it would be proper to decide the question raised in this petition as to the jurisdiction of the Sales Tax Officer to sit in judgment over the grant of an eligibility certificate by the Joint Director of Industries or the authorities empowered so to do under the Act. If it is found that the Sales Tax Officer has jurisdiction to do so, of course, the petitioner would be directed to seek his remedy in the proceedings under Rule 41(5) and if need be in the appeal therefrom.
8. In case it is held that the Sales Tax Officer or the appellate authority has no such power then in that event it will be in the interest of justice that such a notice should be quashed at the very outset. We, therefore, overrule the preliminary objection and proceed to decide the question of law in this case.
9. Section 4-A of the Act underwent two amendments in the year 1985. The first was by U.P. Sales Tax (Amendment) Act, 1985 (U.P. Act No. 6 of 1985) which made certain changes in Section 4-A(1) and in the Explanation to that Section. The second amendment came into effect from 13th of August, 1985, which was introduced by U.P. Sales Tax (Amendment and Validation) Act, 1985, which introduced change in Section 4-A(2)(c) and added a new Clause (d) and thereafter a new Sub-section (3). After amendment, Section 4-A(1), (2) Sub-clauses (a), (b), (c) and (d), read as follows:
4-A. Exemption from sales tax of certain goods for specified period.--(1) Notwithstanding anything contained in Section 3 or Section 3-A, where the State Government is of the opinion that it is necessary so to do for increasing the production of any goods or for promoting the development of industry in the State generally or in any districts or parts of districts in particular, it may on application or otherwise, by notification, declare that the turnover of sales in respect of such goods by the manufacturer thereof shall, during such period not exceeding seven years from the date of first sale by such manufacturer if such sale takes place within six months from the date of starting production and in any other case from the date following the expiration of six months from the date of starting production and subject to such conditions as may be specified, be exempt from sales tax or be liable to tax at such reduced rate as it may fix.
(2) It shall be lawful for the State Government to specify in the notification under Sub-section (1) that the exemption from, or reduction in the rate of tax, shall be admissible--
(a) generally in respect of all such goods manufactured subsequent to the date of such notification; or
(b) in respect of such of those goods only as are manufactured in a new unit, the date of starting production whereof falls on or after the first day of October, 1982; or
(c) only if the manufacturer had not discontinued production of such goods for a period exceeding six months at a stretch.
(d) only if the manufacturer furnishes to the assessing authority an eligibility certificate granted by such officer, in accordance with such procedure, as may be specified.
(3) Where the Commissioner of Sales Tax is of the opinion that facility of exemption from, or reduction in the rate of, tax obtained on the basis of an eligibility certificate referred to in Clause (d) of Sub-section (2) has been misused in any manner whatsoever, he may, by order in writing, cancel the eligibility certificate from such date, whether before or after the date of such order, as may be specified therein:
Provided that no order under this sub-section shall be passed without giving the dealer concerned a reasonable opportunity of being heard.
10. A perusal of Section 4-A(1) shows that exemption from sales tax for specified period can be granted only by the State Government where the State Government is of opinion that it is necessary for increasing the production of any goods or for promoting the development of industry in the State generally or in any district or in any part of any district. The State Government may issue, on an application or even otherwise, a notification declaring that the manufacturer would be exempt from sales tax or liable to tax at a reduced rate on the turnover of sale in respect of such goods during the period not exceeding seven years from the date of first sale by such manufacturer. This would be subject to such conditions as may be stated. Sub-section (2) of Section 4-A further indicates that the State Government may specify in the notification under Sub-section (1) that exemption from tax or reduction in the rate of tax shall be admissible on one of the conditions mentioned in clauses (a), (b), (c) and (d).
11. It is not necessary to lay any emphasis on clauses (a), (b) or (c) of Sub-section (2) for there is no controversy that the petitioner did not fulfil the conditions contained in clauses (a), (b) and (c). However, Clause (d) is a newly added provision to Sub-section (2). It will be relevant to bear in mind that between clauses (a) & (b) and (b) & (c) to Sub-section (2), the disjunctive clause "or" has been used but significantly enough it has not been used after Clause (c) and before Clause (d). Clause (c) ends with the words "at a stretch". It is, therefore, evident that a unit seeking exemption has to satisfy Clause (d) separately to be eligible for exemption from payment of sales tax or to reduced rate of tax under Section 4-A of the Act. Clause (d) may be reproduced once again:
(d) only if the manufacturer furnishes to the assessing authority an eligibility certificate granted by such officer, in accordance with such procedure, as may be specified.
12. A perusal of this clause makes it clear that the exemption certificate can be issued only if the manufacturer furnishes to the assessing authority an eligibility certificate granted by a specified officer. It further lays emphasis that eligibility certificate has to be granted in accordance with the procedure which may be specified. Clause (d) came into effect from 13th September, 1985. Neither the officer nor the procedure was specified on that date. It was specified for the first time on the 26th December, 1985, by Notification No. S.T. II-7558/X-9 (208)-1981--U.P. Act-XV-48-Order-85. This notification specifies that the application for grant of eligibility certificate has to be submitted to the General Manager, District Industries Centre of the district in which the new unit has been established other than in Noida area where it has to be given to the Area Development Officer, Noida. The application has to be examined by a committee consisting of the District Magistrate of the district, as Chairman, the General Manager, District Industries Centre as member convenor and the concerned assessing authority as member and in Noida area, the Deputy Chief Executive Officer, Noida, as Chairman, the Deputy Commissioner (Executive), Sales Tax, Ghaziabad, as member and the Area Development Officer, Noida, as member convenor. The divisional Level Committee is to take a final decision regarding grant or otherwise of eligibility certificate to the unit concerned. Similarly, the application from small-scale unit is to be forwarded to the Chairman, Noida, for his final decision. Similar provision was made for medium and large scale units also. It was then provided that eligibility certificate shall be issued in the case of small-scale units by the Joint Director of Industries or as the case may be, by the Chairman, Noida, and in the case of medium and large scale units by the Director of Industries, U.P. It was further provided that if there was any disagreement between the Director of Industries and the Commissioner, Sales Tax, Uttar Pradesh, the matter would be referred to the Government for consideration by a committee headed by the Principal Secretary, Industries Department, with the secretaries of the Finance and Institutional Finance Department as members, whose decision shall be final.
13. In the present case, the eligibility certificate had been issued on the 6th February, 1985. At that time a party seeking exemption from sales tax or claiming reduced rate of sales tax had to make an application with full particulars to the General Manager, District Industries Centre. The latter after a consideration of all available material could recommend for a favourable order in favour of the applicant, if satisfied, to the Joint Director of Industries. The latter would examine the matter once again and if satisfied would recommend to the Government for according approval. The Government then passed appropriate orders. An officer empowered by the State Government would then pass the necessary orders granting eligibility certificate. This position underwent a change by notification dated 26th December, 1985, as mentioned above. The question, therefore, is:
Whether the eligibility certificate issued on the 6th February, 1985, which is prior to 26th December, 1985, would be considered effective.
14. The notification dated 26th December, 1985, has not been made retrospectively effective. It is effective from 26th December, 1985, and not before. Our answer to the above question would be that the contents of the notification dated 26th December, 1985, would apply to all eligibility certificates granted on or after 26th December, 1985, and would not affect those that had been granted earlier.
15. The next question to be considered is as to who is entitled to grant exemption under Section 4-A of the Act and whether the Sales Tax Officer has any competency to sit in judgment over the grant of eligibility certificate.
16. The exemption under Section 4-A is to be granted by the State Government or by any officer so authorised. Section 4-A was amended substantially with effect from 12th October, 1983, by U.P. Ordinance No. 46 of 1983. The State Government was authorised to exempt sales tax of any goods made by the manufacturer and it was also authorised to declare that the tax shall be levied at a reduced rate. The concession or exemption was to be granted if the State Government was of the opinion that it was necessary for increasing the production of any goods or for promoting the development of industry in the State generally or in any district or part of districts which are industrially backward. This position existed in February, 1985, when the eligibility certificate was granted in the present case. Therefore, at the relevant period of time, i.e., February, 1985, the State Government alone was empowered to grant exemption. Whether the applicant was an industrial unit or not, whether the applicant was eligible for exemption or not had to be considered by the State Government or by an officer empowered by the State Government. There was no power with any officer of the Sales Tax Department of the Government in this behalf. Neither the Sales Tax Commissioner nor the Assistant Commissioner nor the Sales Tax Officer had been conferred any power either to grant any exemption or sit in judgment over the grant of exemption.
17. The Commissioner of Sales Tax has been given the power to cancel the eligibility certificate vide U.P. Sales Tax (Amendment and Validation) Act, 1985 (U.P. Act No. 25 of 1985) where facility of exemption from, or reduction in the rate of tax obtained on the basis of an eligibility certificate has been misused in any manner whatsoever. It has also been made clear that before any order for cancellation of eligibility certificate is passed, a reasonable opportunity of being heard is to be afforded to the party concerned. It would thus be seen that the limited power, which has been given to the Commissioner of Sales Tax is available to be used only in the case where there has been misuse of facility of exemption from or reduction in the rate of tax. Where it is found that the party has misused the exemption or reduction in the rate of tax, the eligibility certificate can be cancelled. It will be noticed that the Commissioner of Sales Tax has not been given any power to sit in judgment over the grant of eligibility certificate by the Government. In other words, whether the eligibility certificate has been properly granted or not is not within the purview of the Commissioner - of Sales Tax. He is empowered to exercise the power under Section 4-A(3) of the Act where there is an act of commission, viz., misuse of the advantage granted by the Government.
18. There is no mention of any such power having been granted to the Sales Tax Officer under Section 4-A of the Act. Our attention has not been drawn to any other provision of the Act under which the Sales Tax Officer is empowered to question the eligibility certificate or cancel it. On the contrary Section 8(2-A) of the U.P. Sales Tax Act recognises the grant of eligibility certificates by the Director of Industries, Uttar Pradesh.
19. Learned Standing Counsel appearing for the respondents urged that the Sales Tax Officer is entitled to go into the question whether eligibility certificate had been granted in accordance with the prescribed Rules or procedure and also whether the unit came within the definition of "industrial unit" holding permanent registration with the Directorate of Industries, Uttar Pradesh, as a small, handloom or handicraft industry or an industrial licence granted by the Iron and Steel Controller or registered under the Indian Factories Act, 1948, or established after obtaining a term loan from the U.P. Financial Corporation or a scheduled Commercial Bank, in the case of units with a capital investment not exceeding three lakh rupees and in the case of other units whether it has applied for registration under the Factories Act, 1948, and deposited the required fee for the purpose. We have not been shown any provision of law in the Act or Rules empowering the Sales Tax Officer to raise these questions in assessment proceedings against such units. The contention of the learned Standing Counsel was that although the Sales Tax Officer has not been mentioned as having such power specifically, but it was there impliedly, for the unit would not be entitled to all the benefits of Section 4-A if it had not fulfilled the requisite mentioned in the explanation of notification dated 27th August, 1984. The explanation in the aforesaid notification reads as follows:
Explanation:--For the purposes of this notification:--
(1) 'Industrial unit' means an industrial unit holding permanent registration with the Directorate of Industries, Uttar Pradesh, as a small, handloom or handicraft industry or an industrial licence granted by the Iron and Steel Controller, or the Textile Commissioner or the Director, Sugar or the Director-General of Technical Development or the Government of India, and
(a) registered under the Indian Factories Act, 1948, or established after obtaining a term loan from the U.P. Financial Corporation or a Scheduled Commercial Bank, in the case of units with capital investment not exceeding three lakh rupees; or
(b) registered under the Indian Factories Act, 1948, or having applied for registration under the said Act and deposited the required fee for the purpose, in the case of units other than those referred to above;
(2) 'date of starting production' and 'new unit' shall have the same meaning as assigned to them in the explanation to Section 4-A of the U.P. Sales Tax Act, 1948; and (3) 'Capital investment' means investment in land, building, plant, machinery, equipments and apparatuses.
20. We are unable to accept the contention. The explanation in the above notification sets down the requisite provision for the grant of exemption or the facility of reduced rate of tax for such industrial units which fulfil the conditions. This power is to be exercised by the State Government through Directorate of Industries, Uttar Pradesh, as a small, handloom or handicraft industry or an industrial licence granted by the Iron and Steel Controller or the Textile Commissioner or the Director, Sugar, or the Director-General of Technical Development or the Government of India. There is nothing in the above notification to show that the above power is to be exercised by the Sales Tax Commissioner or any of the officers of the sales tax department. If a party does not fulfil the requirements for the grant of exemption or reduced rate of tax, it would not be granted such exemption or even the eligibility certificate. In case it was wrongly issued, the power to cancel it would be with the State Government or the officers mentioned above. It is well established that the power to grant includes the power to cancel. The Sales Tax Officer or the Sales Tax Commissioner have no such power to cancel the eligibility certificate, for they do not have the power to grant the same. The Commissioner of Sales Tax has a limited power to cancel the eligibility certificate where there is a misuse of facility for exemption or grant of a reduction of tax. But that is an entirely different matter than the power to cancel eligibility certificate on the ground that it was obtained on wrong premises. That power vested only in the State Government.
21. We are, therefore, of the view that the Sales Tax Officer, has no jurisdiction to call in question the grant of eligibility certificate. Various notifications preceding the notification dated 26th December, 1985, are notifications which are prior to the introduction of Section 4-A(2)(d). They would not be relevant for the purposes of this case. The provision requiring a manufacturer furnishing to the assessing authority an eligibility certificate granted by such officer was enforced only from 13th September, 1985. Therefore, the concluding words of the aforesaid subsection viz., "in accordance with such procedure as may be specified" would only be such procedure as has been specified after coming into force of Section 4-A(2)(d). Prior to the coming into force of this section the stand of the respondents is that even if a matter was in consideration for grant of exemption or declaration that it is a new unit, no assessment was made. The position even after the amendment has been clarified by means of the notification dated 26th December, 1985. This notification has been issued under Section 4-A of the Act which is exclusively in the domain of the State Government. It is relevant to mention here that in none of the notices issued by the sales tax authorities it has been mentioned that the person who granted the eligibility certificate was not empowered to grant it or in granting it he has not followed the procedure prescribed. In fact these notices mention such irregularities which are to be considered and are in the exclusive domain of the State Government while granting such certificate is beyond his jurisdiction.
22. As seen above, the eligibility certificate granted on the 6th February, 1985, was granted by an officer authorised to issue the same only after due consideration. It had neither been cancelled nor withdrawn by the said officer or the State Government. It would, therefore, remain valid until it is so cancelled or withdrawn. We are, therefore, of the view that the Sales Tax Officer, who has issued the show cause notice to the petitioner, was not competent to call in question the eligibility certificate in this case.
23. We are, therefore, of the view that the Sales Tax Officer had no jurisdiction whatsoever to call in question the eligibility certificate issued in this case under the provisions of Section 4-A(2)(d) of the Act. We are further of the view that the show cause notice issued in the present case is without jurisdiction and is liable to be quashed. We order accordingly. The petition is allowed accordingly. Costs will be easy.