Important Point
Neither Section 4A of the U.P. Sales Tax Act nor the Notification No. ST-11-604/X-9(208)/81-U.P. Act 15/48-Order/85 dated 25.1.1985 contains any condition that if the capital investment of the unit exceeds Rs. 3 lakhs after the grant of exemption, such exemption would cease to operate unless and until the conditions prescribed for units having capital investment exceeding Rs. 3 lakhs are fulfilled.

Headnote:U.P. Sales Tax Act, 1948-Section 4A - Notification No. ST-11-604/X-9(208)/81-U.P. Act 15/48-Order/85, dated 29.1.1985-Exemption from Sales-tax-Unit became eligible for exemption w.e.f 9.8.85 -Capital investment was below 3 lakhs-Unit established in rented building-Application for exemption made on 20.12.1985-Meanwhile place of manufacturing changed to own premises constructed on new site purchased-Capital investment increased to 3.86 lakhs-Registration under factories Act granted w.e.f 11.8.89-Exemption for sales tax granted from 9.8.1985 to 22.7.1987 till which capital investment of unit was below 3 lakhs-Refusal to grant exemption thereafter on ground 4 years period expired before registration under factories Act obtained which was essential to grant exemption as capital investment exceeded Rs. 3 lakhs-Not correct-Relevant date for fulfilling condition for grant of exemption is date from which unit became eligible in first instance-No condition in section or notification if capital investment exceeds Rs. 3 lakhs after grant of exemption, such exemption would cease to operate unless condition prescribed for units havings capital investment exceeding Rs. 3 lakhs as fulfilled-Unit entitled to exemption for continuous four years from date of grant of exemption.
       Held : Admittedly the provisions for exemption from sales tax have been introduced in the Act for the purpose of increasing the production of goods and for promoting the development of industries in the State. In fact, when the scheme called, “Grant of Sales-tax Exemption Scheme 1982 to industrial units under Section 4-A of the Sales-tax Act” was originally framed, it was expressly stated that the Government granted the facility of exemption in order to encourage the capital investment and establishment of industrial units in the State. The Scheme contained various rules for grant of such exemption. The Section itself has referred to the purpose for which the Government could grant such exemption. Sub-s. (1) of Section 4-A prescribes the maximum period for which the exemption could be granted as 7 years. As per the section, such exemption should commence 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. The expression “date of starting production” has been defined in the Explanation as the date on which any raw material required for use in the manufacture or packing of the goods is purchased for the first time. The term “new unit” used in the Section has also been defined in the Explanation. It is admitted that the respondent fulfilled the relevant conditions at the time when it applied for exemption as its capital investment did not exceed Rs. 3 lakhs. Under the Notification extracted earlier, the period of exemption in case of unit with capital investment not exceeding Rs. 3 lakhs was for years. Such period was to be reckoned from the date of first sale if such sale took place not later than six months from the date of starting production and in other cases from the date following the expiration of six months from the date of starting production subject to the condition that the unit had not discontinued production of such goods for a period exceeding six months at a stretch in any assessment year. Neither the Section nor the Notification contains any condition that if the capital investment of the unit exceeds Rs. 3 lakhs after the grant of exemption, such exemption would cease to operate unless and until the conditions prescribed for units having capital investment exceeding Rs. 3 lakhs are fulfilled. In the absence of such express provision there is no warrant for the stand taken by the appellant that after 23.7.1986 the unit was not entitled to the benefit of exemption as its capital investment exceeded Rs. 3 lakhs from such date. (Para 6)
       The object of granting exemption from payment of sales tax has always been for encouraging capital investment and establishment of industrial units for the purpose of increasing production of goods and promoting the development of industry in the State. If the test laid down in Bajaj Tempo Ltd. Bombay v. C.I.T. Bombay City-III, Bombay, (1992) 3 SCC 78 is applied, there is no doubt whatever that the exemption granted to the respondent from 9.8.85 when it fulfilled all the prescribed conditions will not cease to operate just because the capital investment exceeded the limit of Rs. 3 lakhs on account of the respondent becoming the owner of land and building to which the unit was shifted. If the construction sought to be placed by the appellant is accepted, the very purpose and object of the grant of exemption will be defeated. After all, the respondent had only shifted the unit to its own premises which made it much more convenient and easier for the respondent to carry on the production of the goods undisturbed by the vagaries of the lessor and without any necessity to spend a part of its income on rent. It is not the case of the appellant that there was any mala fides on the part of the respondent in obtaining exemption in the first instance as a unit with a capital investment below Rs. 3 lakhs and increasing the capital investment subsequently to an amount exceeding Rs. 3 lakhs with a view to defeat the provisions of any of the relevant statutes. The bona fides of the respondent have never been questioned by the appellant. (Para 12)

Judgment

Srinivasan, J.-The decision in this case depends upon the construction of the relevant provisions of the U.P. Sales Tax Act, 1948 (hereinafter referred to as the ‘Act’) and the Government Notification issued thereunder granting exemption from sales tax of certain goods for specified period. Section 4-A is the Section with which we are concerned and for the purpose of this case the Section as it stood at the relevant time reads as follows:

"4.A. Exemption from sales tax of certain goods for specified period.-(1) Notwithstanding anything contained in Section 3 or 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 condition as may be specified, be exempt from sales tax or be liable to tax at such reduced rate as it may fix”.

Cl. 2..........

Explanation:-For the purposes of this section:

(1) ‘new unit during the period ending with March 31, 1990’ means an industrial undertaking set-up by a dealer on or after October 1, 1982 but not later than March 31, 1990,-

(a) which is licenced or in respect whereof a letter of intent has been issued or which is registered, permanently or otherwise by the appropriate authority in accordance with any law for the time being in force relating to licensing or registration of industrial undertakings;

(b) (i) which is registered under the Factories Act, 1948; or

(ii) an application for registration in respect whereof has been made under that Act; or

(iii) after making an application for a Term Loan from the Uttar Pradesh Financial Corporation or a Scheduled Commercial Bank whether such Term Loan is sanctioned and disbursed before or after the undertaking is set-up (where the capital investment in the undertaking does not exceed three lakh rupees);

(c) on land or building or both owned or taken on lease for a period of not less than seven years by such dealer or allotted to such dealer by any Government company or any corporation owned or controlled by the Central or the State Government;

(d) using machinery, accessories or components not already used, or acquired for use, in any other factory workship in India;

(e) fulfilling all the conditions specified in this Act or the rules; or notifications made thereunder in regard to grant of facility under this section on the date from which such facility may be granted to him;

and includes an industrial undertaking fulfilling the conditions laid down in clauses (a) to (e) set-up by a dealer-

(i) already having an industrial undertaking manufacturing the same goods at any other place in the State, or

(ii) on or adjacent to the site of an existing factory or workshop manufacturing any other goods,

but does not include,-

(i) any factory or workshop manufacturing the same goods established by a person on or adjacent to the site of an existing factory or workshop wherein such person has interest as proprietor or partner or agent or promotor or holding company or subsidiary company, so however that where the date of starting production of such factory or workshop falls before January 19, 1985 this clause shall be construed as if the words or adjacent to, were omitted, or

(ii) any addition to or extension of an existing factory or worksho

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1999 Supreme(SC) 250

Cases Referred (6)