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3.4 It is submitted that while introducing the incentive scheme, the Department issued the list of industries of ‘eligible units’ and ‘non eligible units’ for any exemption from sale/purchase tax on procurement of raw materials. It is submitted that in the present case the power generating companies were specifically put in the ‘non eligible units’ category. It is submitted that in the present case despite being fully aware of the clear and unambiguous terms and conditions of the notifications wherein the power producing companies were specifically made ‘ineligible’ for availing the exemptions and though ESL was required to use the raw materials - Naphtha and Natural Gas in their own unit, after availing the exemption from payment of purchase tax, the ESL did not use the said raw materials in its unit but sold the said raw materials to another company – EPL, and EPL used the said raw materials – Naphtha and Natural Gas for generating the electricity, which came to be subsequently sold to the ESL. It is submitted that, thus, through such circuitous method, the ESL passed on the benefit of exemption to EPL, which otherwise the EPL was not eligible and/or entitled to. 3.5 It is submitted that, thus, the interpretation advanced by the assessee – ESL accepted by the High Court and the Tribunal would completely defeat the purpose of exemption notifications and would be giving premium to such dishonest assessee/dealer, who after availing the exemption would sell the raw materials to another industry/entity, who as such are not entitled to and/or eligible for such an exemption. It is submitted that if the interpretation advanced by the assessee is accepted, in that case, it would permit industries, which are eligible for exemption to simply purchase the raw materials; not use them for any manufacturing in their own units, and then simply transmit them for use and manufacture by other units, even though such units are not eligible for exemption under the notification/policy.

3.15 It is further submitted that in the present case, considering the modus operandi adopted by the ESL and the EPL and despite being fully aware of the clear and unambiguous terms of the exemption notification and despite the power producing companies were specifically made ‘ineligible’ for availing the exemption and despite the fact that as per the conditions provided in the parent Entry, the raw materials – Naphtha and Natural Gas were required to be used by the assessee – ESL in its own unit, the raw materials came to be sold to an ‘ineligible’ entity – EPL and the ‘ineligible unit’ indirectly/directly got the benefit of exemption though not entitled to and/or eligible and used the said raw materials in their own unit for generation of electricity, the respondent – assessee is liable to pay the penalty in terms of Section 45(5). It is submitted that therefore the orders passed by the Joint Commissioner setting aside the penalty confirmed by the Tribunal and the High Court also deserve to be quashed and set aside.

10.1 Therefore, only in a case where the raw materials, processing materials or consumable stores are used by the eligible unit and the eligible unit actually uses the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods, there shall be exemption from payment of purchase tax/sales tax to the extent provided in the said Entry.

11. In the present case, it is an admitted position that after furnishing a declaration in Form No.26, the goods - raw materials, processing materials or consumable stores so purchased were to be used by ESL, but the respondent - ESL after purchase of raw materials – Naphtha and Natural Gas and after availing the benefit of exemption from the payment of purchase tax did not himself/itself used the same, but, instead, sold the same to another entity – EPL and the said another entity – EPL used the said raw materials for generating the electricity, which thereafter came to be sold to the respondent - ESL pursuant to the power purchase agreement. The submission on behalf of the respondent that as Naphtha and Natural Gas were transferred to EPL for generating the electricity, which in turn came to be used by the respondent – ESL for manufacture of HRC, and it cannot be said that there is a breach of conditions of original Entry No.255(2) dated 05.03.1992, cannot be accepted.

14. Thus, by transfer of Naphtha and Natural Gas by the eligible unit – ESL to another unit – EPL, after availing the exemption from payment of purchase tax and not using the Naphtha and Natural Gas (raw materials) for its own use for manufacture of the goods so manufactured by it, it can be said to be violating the eligibility criteria/condition mentioned in the original Entry No.255(2) dated 05.03.1992 and it can be said that the respondent -Essar Steel Ltd. Committed a breach of the declaration given in Form No.26. Therefore, the High Court has committed an error in holding that the respondent did not commit any breach of any of the conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and that the respondent fulfilled all the conditions provided in the said Entry and that there was no breach of any of the conditions provided in the original Entry No.255(2) dated 05.03.1992.