IMPORTANT POINT
Notifications meant for implementation of Industrial Policy of State cannot override the incentive policy.

Headnote:INDUSTRIAL POLICY—State Govt. announced an Industrial Policy with a view to attract investment and setting up of industries in State—Policy envisages incentives in during sales tax exemptions—Pre-conditions for grant of benefit of policy under Notifications was that proprietor/partner/ holding Company must have its ownership over building in which factory of unit was situated—If factory was installed on lease hold land or in a building taken on lease, exemption could be claimed when such registered lease was for minimum period of 15 years—Respondent had taken a lease of land from TELCO, its partner though a formal lease was not executed—TELCO had a registered lease for 99 years from TISCO which had valid lease from State Govt.—Joint Commissioner held that land on which factory was constructed by respondent was sub-leased land of TELCO and assessee had neither legal title nor ownership right over land and thus respondent was not entitled to benefit of exemption—High Court held respondent had fulfilled/complied with clause 6 of notification and was entitled to benefit of policy—Appeal—Object of insisting on ownership of building or a lease for 15 years was only to ensure that industy did not run away after taking benefit under the policy—In the factual context assessee found was not a fly by-night operator—No reason to interfere.
       Held : The facts found by the High Court are, that, after obtaining 37.19 acres of land from TELCO, out of the lands held by TELCO from TISCO under a sub-lease, Tata Cummins Ltd. established its factory in its building. The building was constructed by Tata Cummins Ltd. The industry started its production on and from 1.1.1996. TELCO was the 50% owner in the Joint Venture known as Tata Cummins Ltd. The object of insisting on the ownership of the building or a lease for 15 years, was only to ensure that the industry did not run away after taking the advantage of the benefit granted under the Policy and that the company was really a bona fide investor of capital in the industry intended to be run in the State for a reasonable length of time. It is in this background that one has to see the investments made by Tata Cummins Ltd.. As stated above, Rs. 302 crores were invested by Tata Cummins Ltd. which employs more than 800 workmen and which has paid taxes of about Rs. 600 crores. In the context of these facts, we are of the view that the assessee herein is not a fly-by-night operator. We are confining this judgment to the facts of the present case. The above figures are not disputed. We are satisfied on the basis of the above figures that the industry set up by the Tata Cummins Ltd. will contribute to the industrial growth and development of the State.(Para 13)
       Before analyzing the above Policy read with the notifications, it is important to bear in mind the connotation of the word “tax”. A tax is a payment for raising general revenue. It is a burden. It is based on the principle of ability or capacity to pay. It is a manifestation of the taxing power of the State. An exemption from payment of tax under an enactment is an exemption from the tax liability. Therefore, every such exemption notification has to be read strictly. However, when an assessee is promised with a tax exemption for setting up an industry in the backward area as a term of the industrial policy, we have to read the implementing notifications in the context of the Industrial Policy. In such a case, the exemption notifications have to be read liberally keeping in mind the objects envisaged by the Industrial Policy and not in a strict sense as in the case of exemptions from tax liability under the taxing statute. (Para 16)

JUDGMENT

Kapadia, J.—Civil Appeal No. 10272 of 2003

This civil appeal by grant of special leave is directed against the judgment and order dated 31.07.2003 passed by a Division Bench of the High Court of Jharkhand by which it has been declared that Tata Cummins Ltd., an assessee under Bihar Finance Act, 1981 is entitled to the benefit of the Industrial Policy, 1995 read with the notifications no. 478 and 479 both dated 22.12.1995. By the impugned judgment the appellant-State and Commercial Taxes Department under the Bihar Finance Act are directed to adjust the refundable amount of Rs. 54.5 crores towards sales tax dues from the assessee for the accounting year commencing on and from 1.4.2004.

2. The facts giving rise to this civil appeal, briefly, are as follows :

In the year 1993, the Government of Bihar had announced an Industrial Policy with a view to attract investments and setting up of industries in the State. In the year 1995, the policy was modified partially. In its introduction, the policy set out the aims and objectives of the policy as to create an environment for optimum utilization of the State resources, to provide quality infrastructure for rapid industrialization, to attract investments to generate economic activities, reviving potentially viable and closed industries, to boost exports of goods manufactured in the State and to simplify procedures of decision making. As part of the incentives, the policy envisaged allotment of land in Growth Centres to corporates for setting up industrial units on lease for 99 years with option for renewal. It also envisaged sales tax exemptions to attract investment and to sustain industrial development in the State. Accordingly, new units were allowed the facility of either “set off” or “exemption” at their choice, of sales tax on purchase of raw materials during the period envisaged in clause 16(1) of the policy. Similarly, by clause 16(2), the benefit of exemption/set off on sales tax on sale of finished goods was allowed with option to the new units either to choose deferment of payment of sales tax or exemption of sales tax for the period mentioned therein. This policy regarding sales tax incentive was sought to be implemented by two notifications, SO nos. 478 and 479 both dated 22.12.1995. One of the pre-conditions for the grant of the benefit of the Industrial Policy, 1995 under the above notifications was that the proprietor/partner/holding company must have its exclusive ownership over the building in which the factory of the unit is situated. However, if the factory of the unit was installed on a leased land or in a building taken on lease, exemption would be admissible when such land or building or both have been acquired by way of a registered lease for a minimum period of 15 years. The lease was to be in favour of the proprietor of the unit or any partner of the firm or in favour of the holding company.

3. According to Tata Cummins Ltd., it had taken a lease of the land from TELCO, its partner in the joint venture, though a formal lease had not been executed. TELCO had a registered lease for a term of 99 years from TISCO which had a valid lease from the government at the time when lease was granted by TISCO to TELCO. Since the land was held by TELCO, which had 50% interest in Tata Cummins Ltd., the unit was eligible for the benefit. Its more important claim was that it was the owner of the building in which its factory was set up and under the first part of the notification, the exclusive ownership of the building being with Tata Cummins Ltd., it was entitled to the benefit of exemption regarding sales tax as envisaged in clauses 16.1 and 16.2 of the policy.

4. Tata Cummins Ltd. applied to the Deputy Commissioner of Commercial Taxes claiming the benefit of exemption under the above two notifications.

5. On 2.12.1998, the Deputy Commissioner rejected the claim of Tata Cummins Ltd. on the ground that the Head lease from the government in favour of TISCO had expired and un

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2006 Supreme(SC) 272

IMPORTANT POINT Notifications meant for implementation of Industrial Policy of State cannot override the incentive policy.

Cases Referred (1)

IMPORTANT POINT
Notifications meant for implementation of Industrial Policy of State cannot override the incentive policy.