Karnataka High Court
Mangalore Chemicals & Fertilizers Ltd. vs Deputy Commissioner Of Commercial ... on 14 August, 1990
Equivalent citations: [1991]83STC228(KAR)
JUDGMENT M.P. Chandrakantaraj Urs, J.
1. Petitioner is Mangalore Chemicals and Fertilizers Ltd., Bangalore. It is aggrieved by the letter of demand as at annexure R which is dated 3rd November, 1978. Pursuant to annexure R, demand in form 5, under the Karnataka Sales Tax Rules, 1957 has been issued as at annexure S. Thereafter it has been followed by a further notice proposing to take action against the writ petitioner under sub-section (3) of section 13 of the Karnataka Sales Tax Act, 1957, if the demand is not met within the specified time therein. Therefore, the writ petition seeking the following reliefs :
(a) a writ in the nature of certiorari or such other writ order or direction as this Honourable Court deems fit quashing the demand notices, exhibits R, S and T bearing Nos. 3010206/78-79 issued by the second respondent dated 3rd November, 1978, 31504838/78-79 and assessment No. 31504838/79 issued by the third respondent dated 20th August, 1979 and 20th January, 1980, respectively declaring that the demands made therein are illegal, opposed to law and ultra vires of the powers of third respondent;
(b) a writ in the nature of mandamus or such other writ order or direction as this Honourable Court deems fit directing respondents 1 to 3 to grant to the petitioner the concession for adjustment of the sales tax payable on the raw materials purchased by it as applied for by the petitioner under exhibits F, H and J and to continue to grant the same for the period to which it is entitled to on the basis of the Government Orders, exhibits A and B.
2. Before we proceed further to dispose of the petition, we must notice that the matter has come before the Division Bench on account of the direction issued some time in 1987 by a learned single Judge in view of the decision rendered in Writ Petition No. 939 of 1980 which followed the decision in Writ Petition No. 373 of 1977. We have not been able to find any specific reference order in terms of section 9 of the Karnataka High Court Act referring the matter to a Division Bench.
3. The facts relating to the petition may be stated and they are as follows :
"Petitioner has asserted that it is a company registered under the Companies Act, 1956 and carries on the business of manufacturing chemical fertilisers. It appears it went into production on 15th March, 1976 though the company was incorporated in the year 1971. By a notification issued by the Government as at annexure A in the purported exercise of power under section 8-A of the Karnataka Sales Tax Act (hereinafter referred to as "the Act"), the company was entitled to certain benefits concerning sales tax. Therefore pursuant to the Notification dated 30th June, 1969, it was followed by Notification dated 11th August, 1975, providing for procedure to derive the benefit in regard to refund of sales tax on raw material purchased by certain new industries set up after the date of notification in 1969 the company was withholding payment of the sales tax due to the Government to be adjusted against the refund available to it under the 1969 notification as at exhibit A. By the 1975 notification as at exhibit B, a procedure was provided by which industrial units which were entitled to get the benefit under 1969 order were required to make an application each year seeking permission to withhold the payment of sales tax and could so withhold if the permission was granted by the concerned assessing authority. As such, as evidenced by annexure H an application was filed seeking permission to withhold sales tax payable against tax paid on purchase of raw materials used in the manufacture as per the monthly return filed by the company for the period May 1976 to March 1977 and similarly by letter dated 27th March, 1977, the permission sought for and obtained earlier was requested to be renewed for the year 1977-78. When permission was awaited by the company, exhibit R, demanding the sum of Rs. 19,08,364.90 was received which in turn gives rise to the issuance of exhibits S and T the formal demand notice as well as the threat to impose penalty under sub-section (2) of section 13 of the Act."
4. We do not purpose to advert to other averments in the petition in the light of the undisputed facts which we have stated.
5. The respondent-State of Karnataka in its statement of objections has taken the extreme stand that the petitioner was not entitled to the benefits of the 1969 notification as at exhibit A because the petitioner-company was only a successor-in-interest to an earlier company called "Malbar Chemical Fertilizers" incorporated as early as 1964 having its registered office at New Delhi and therefore merely because it commenced its activity in 1976, it would not be eligible to the benefits or incentives under order as at exhibit A.
6. In the reply filed to the statement of objection, the company has clarified as to how a new company was formed in 1971 pursuing the object for which the earlier company had been incorporated and new capital structure was provided for and raised and it was only in or about 1973 after obtaining the loan, the factory was erected partly on account of the incentives offered by the 1969 notification of the State Government as at exhibit A and therefore, the company was and is entitled to the benefits or incentives offered for a period of 5 years which according to the company would have ended in the year 1980-81. We must not at this state fail to notice that a further notification came to be issued by the respondent-State of Karnataka in the year 1977 as at exhibit G bearing the date 12th January, 1977. Pursuant to that notification of 1977 several industrial units came to be denied the incentives and refund of sales tax paid by the industries so eligible on the ground that industries had abused or misused the incentive offered and those industrial units challenged the legality and correctness of the denial in several batch of writ petitions, first of which were decided by this Court in the case of Dharmendra Trading Co. v. Assistant Commissioner of Commercial Taxes ILR (1979) 2 Kar 1909. That decision rendered by a learned single Judge of this Court was affirmed by a Division Bench and on appeal to the Supreme Court, the said appeal came to be dismissed affirming the views of the learned single Judge and the Division Bench of this Court. The decision of the Supreme Court is reported in [1978] 70 STC 59. In that view of the matter having regard to the decision of this Court earlier, affirmed by the Supreme Court as noticed by us, the petitioner contended that annexure R was clearly without the authority of law and therefore liable to be quashed as it had denied the benefit of the incentive offered to the new industry set up by it after 30th June, 1969. We must hold that the stand taken by the Government that the petitioner was not entitled to the benefit on account of not being a new industry is not well-founded. It is not a company or individual who is given the benefit of the incentive offered by the 1969 notification as at exhibit A. The condition precedent for deriving the benefit of incentive offered is that it should go into production after commencement of the operation of the notification extending the incentive. The very purpose of offering incentive was for encouraging the setting up of industries in the State. Therefore that petitioner had succeeded in some manner to the name and objects of the earlier company will not disentitle it to the benefits of the incentive offered by the 1969 notification. The State cannot deny that it went into production only in 1976 which is very much after the notification as at exhibits A and B. In fact it cannot be disputed for the simple reason, permission was indeed granted for the six months preceding 1st April, 1977 to withhold the sales tax payable for the previous year, namely, 1976-77. We have already noticed, it was only for the year 1977-78 though permission was applied for, the same was not granted and exhibit R, the letter demanding the payment of tax was issued. Therefore, we have no doubt in our mind, ordinarily the petitioner would have the benefit of the judgment which clearly stated that benefit could not be denied merely on the ground that some units were abusing it. That is the ratio of the judgment of the Supreme Court in Dharmendra's case [1988] 70 STC 59.
7. It was however argued by Sri Kumar, appearing for M/s. King and Partridge that whatever was extended to the other units should also be extended to petitioner's unit. It had been clarified, the incentives, particularly in view of the observations of the learned single Judge in para 15 of Dharmendra's case as reported in ILR (1979) 2 Kar 1909 at page 1928, would continue in favour of all eligible units. The passage relied upon reads as follows :
"In the result, I declare and direct by issue of a writ in the nature of mandamus to the respondents in each of the writ petition, as under :
(i) that Order Nos. CI 58 FMI 69 and FD 396 CSL 74 dated 30th June, 1969 and 11th August, 1975, respectively, and any other order made thereto by the Government of Karnataka dealing with mode and form of exemption from payment of sales tax on the new industrial units started on and after 30th June, 1969, continue to be valid and binding on the respondents and they are not abrogated by the Order No. CI 141 FMI 76 dated 12th January, 1977, which order will apply only to the new industries that have been started by the petitioner on or after that date;
(ii) that the claim of each of the petitioner in respect of a new industrial unit started on or after 30th June, 1969, but on or before 12th January, 1977, for refund, adjustment and exemption from payment of sales tax under the Karnataka Sales Tax Act, 1957 (Karnataka Act No. 25 of 1957), shall be considered and disposed by the competent authority/authorities in accordance with Order Nos. CI 58 FMI 69 and FD 396 CSL 74 dated 30th June, 1969 and 11th August, 1975, respectively, and any other order made thereto by the Government of Karnataka from time to time dealing with the mode and form of exemption from payment of sales tax and not in accordance with the Order No. CI 141 FMI 76 dated 12th January, 1977;
(iii) that the respondents shall not enforce and of the demands made against any of the petitioners without re-examining their claims as directed by this order."
8. But we cannot accede to the contentions that the decision rendered by this Court, affirmed by the Supreme Court covers the petitioner. But under exhibit B, the 1975 notification, a clear procedure was provided in order to claim the benefit of refund on the sales tax paid on raw materials purchased by the industrialists. The industrialists claiming the benefit had to secure the prior permission of the assessing authority to withhold the tax subject to the Government's permission. In other words prior permission was a condition precedent. In the instant case Mr. Kumar was not able to satisfy us, permission had indeed been granted. On the other hand, he fairly conceded that though an application was made, no permission was actually granted to withhold the payment. Therefore, in view of the 1975 notification prescribing the procedure for claiming the benefit under the 1969 notification as at exhibit A, there has been no compliance and as such, the petitioner will not be entitled to withhold the tax, with the result the demand at annexure R, S and T would be justifiable and legal.
9. There is yet another fact which persuades us to deny the relief prayed for by the petitioner and that is the notification as at annexure G dated 12th January, 1977, in clauses (iv) and (v) specifically excluded the incentive offered to new industrial units if the units had an investment of fixed asset in excess of Rs. 10 lakhs. That was not a question considered in Dharmendra's case and ILR (1979) 2 Kar 1909, either by this Court or the Supreme Court as it was never pleaded nor argued. Clauses 4 and 5 read as follows :
"(iv) Industrial units with an investment on fixed assets of Rs. 10 lakhs and above and who are entitled to a development loan under the Government order dated 4th April, 1975, will not be entitled to the concession of refund of sales tax on raw materials.
(v) This scheme will continue to be implemented by the Commissioner of Commercial Taxes based on a certificate issued by the Directorate of Industries and Commerce as regards the value of fixed assets."
Mr. Kumar did not dispute that the assets of the petitioner-company run to crores of rupees and therefore is far in excess of the amount specified in clause (iv) of the order as at exhibit G. Unless the petitioner challenged the legality or otherwise the exclusion of the benefit to it the authority was bound to give effect to the Government Order. It would not be open to the authority to sit in judgment over the Government Order and it is not possible to make out in this writ petition that there was any plea made questioning the legality or validity of the order as at annexure G with reference to units with over Rs. 10 lakhs invested in machinery. In that view of the matter, the letter of demanding payment followed by exhibits S and T which are consequential cannot be said to be without the authority of law.
10. No doubt, Mr. Kumar, the learned counsel appearing for the petitioner, submitted that he may be permitted to amend the petition and challenge the validity of the order with reference to clauses (iv) and (v). We have declined to grant that permission having regard to the enormous lapse of time. The period of benefit has expired long ago, which is nearly 8 years. It was however contended that the passage extracted from the order of the learned single Judge in Dharmendra's case ILR (1979) 2 Kar 1909 clearly held that the 1977 notification had not in any way abrogated the notification issued earlier as at annexure A in 1969. But then a careful reading of the passage which we have extracted earlier in the course of this order clearly goes to show that observation was made with reference to the petitioners before the court in that batch of writ petitions and it was not a general observation in regard to the other contents of the order made in 1977 as at exhibit G.
11. In the result, we have no choice but to sustain the demand made for the reasons we have given and dismiss this writ petition. There will be no order as to costs.
12. Writ petition dismissed.