LG Electronics wins tax exemption battle; Court quashes notice cancelling eligibility certificate for investment in moulds, dyes, and jigs given to vendors.

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Case Name:

M/s. LG Electronics(India) Pvt. Ltd. Vs. State Of U.P. And 04 Others (High Court of Allahabad)

Writ Tax No. 615 of 2018

Date: 12th April 2019

Key Takeaways:

- The court upheld the principle that tax authorities cannot re-examine issues already decided by judicial precedents or higher authorities.

- It reinforced the limited scope of the Commissioner’s power under Section 4A(3) of the U.P. Trade Tax Act to correct errors in eligibility certificates.

- The decision provides clarity on the treatment of investments made by manufacturers in tools/equipment provided to vendors for component manufacturing.

Issue:

Whether the Commissioner of Commercial Tax had the power to issue a notice under Section 4A(3) of the U.P. Trade Tax Act to cancel LG’s eligibility certificate for tax exemptions, after the matter had been remanded and decided by higher authorities.

Facts:

LG Electronics had established a new unit and availed tax exemptions under Section 4-A of the U.P. Trade Tax Act. The company had made investments in moulds, dyes, and jigs, which were provided to vendors for manufacturing components used in LG’s products. Initially, this investment was not included in LG’s fixed capital investment for the exemption.

After a series of appeals and remands, the Divisional Level Committee directed the inclusion of this investment in LG’s fixed capital investment, based on reports confirming the exclusive use of these tools for LG’s components. However, the Commissioner of Commercial Tax issued a notice proposing to cancel LG’s eligibility certificate under Section 4A(3), which prompted LG to file the present writ petition.

Arguments:

- LG argued that after the Tribunal’s remand order, detailed inquiries were conducted, and reports confirmed the exclusive use of moulds, dyes, and jigs for LG’s components. The Divisional Level Committee’s order to include this investment became final, and the Commissioner had no power to re-agitate the matter under Section 4A(3).

- LG cited several precedents, including Mansarovar Bottling Co. Ltd. vs. CTT and Sunny Packagers Pvt. vs. State of U.P., which limited the Commissioner’s power under Section 4A(3) to correcting clerical or arithmetical errors, not debatable issues.

- The Commissioner argued that LG was not entitled to exemptions for investments in tools provided to vendors outside the factory premises. He contended that the Tribunal’s remand order required a detailed inquiry, which was not conducted, giving him the power to proceed under Section 4A(3).

Key Legal Precedents:

- Mansarovar Bottling Co. Ltd. vs. CTT, 1999 UPTC 864.

- Sunny Packagers Pvt. vs. State of U.P., 2015 (85) VST 253.

- Chetna Chemcials Pvt. Ltd. vs. CCT, MANU/UP/0165/2007.

- Kumar Fuels vs. State of UP, 1986 SCC Online All 801.

- Anil Kumar Ramesh Chandra Glass vs. State of U.P. 2000 (119) STC 305.

- Appeal No. 38 of 2000 M/s Honda CL Cars India Limited vs. Commissioner Trade Tax U.P., Lucknow.

These precedents established the limited scope of the Commissioner’s power under Section 4A(3) to correct clerical or arithmetical errors, not debatable issues already decided by higher authorities.

Judgement:

- The court ruled in favor of LG Electronics and quashed the notice issued by the Commissioner under Section 4A(3). The court held that:

- Detailed inquiries were conducted as per the Tribunal’s remand order, and independent reports confirmed the exclusive use of moulds, dyes, and jigs for LG’s components.

- The Divisional Level Committee rightly directed the inclusion of this investment in LG’s fixed capital investment based on these reports.

- The Commissioner had no power to re-agitate the matter by issuing a notice under Section 4A(3) after the Tribunal’s order became final.

- If aggrieved, the Commissioner should have filed a revision before the High Court or an appeal before the Tribunal, not proceeded under Section 4A(3).

- The Commissioner’s power under Section 4A(3) is limited to correcting clerical or arithmetical errors, not debatable issues already decided by judicial precedents or higher authorities.

FAQs:

Q1: What is the significance of this case?

A1: This case reinforces the limited scope of the Commissioner’s power under Section 4A(3) of the U.P. Trade Tax Act to correct errors in eligibility certificates. It clarifies that the Commissioner cannot re-examine issues already decided by judicial precedents or higher authorities through this provision.

Q2: Why did the court rule in favor of LG Electronics?

A2: The court ruled in favor of LG because detailed inquiries were conducted as per the Tribunal’s remand order, and reports confirmed the exclusive use of moulds, dyes, and jigs for LG’s components. The Divisional Level Committee’s order to include this investment became final, and the Commissioner had no power to re-agitate the matter under Section 4A(3).

Q3: What is the impact of this case on manufacturers?

A3: This case provides clarity on the treatment of investments made by manufacturers in tools/equipment provided to vendors for component manufacturing. It establishes that such investments can be included in the fixed capital investment for tax exemption purposes, subject to the exclusive use of these tools for the manufacturer’s components.

Q4: Can the Commissioner appeal this decision?

A4: The court’s judgment does not mention the possibility of an appeal. However, if the Commissioner is aggrieved by the decision, they may have the option to file an appeal before a higher court, subject to the applicable laws and procedures.

We have heard Mr. Tarun Gulati along with Mr. Nishant Mishra, learned counsels for the petitioner, Mr. C.B. Tripathi, Special Counsel for the respondent Nos. 1,2 & 5 and Mr. Ramendra Pratap Singh for the respondent Nos. 3 &4.

By means of present writ petition the petitioner prays for quashing of the notice dated 2.4.2018 issued by the Commissioner of Commercial Tax, U.P., Lucknow under Section 4-A(3) of U.P. Trade Tax Act, 1948 proposing to cancel/recall the order No. 2926 dated 19.2.2018 passed by the Additional CEO/ Ex-Officio Additional Director Industries giving effect to the decision dated 25.10.2017 passed by the Divisional Level Industrial Development Authority Committee.

The facts of the case are that the petitioner is a registered company

incorporated under Indian Companies Act and engaged in the business of manufacture and sales of electric and electronic goods such as Colour Television, Washing Machine, Printed Circuit Board, Microwave, Refrigerator etc.

The petitioner has established a new unit and availed exemption under Section 4-A of the U.P. Trade Tax Act, 1948 under expansion, diversification, modernization or backward integration as provided under the Act /notification.

The State Government from time to time has issued various notifications granting exemption from payment of tax to the new unit or to the units undertaken expansion, diversification, modernization within a period

prescribed and condition mentioned there under.

The petitioner established a new unit with the investment of more than Rs. 50 crores and commenced its commercial production on 9.3.1998. The petitioner was granted Eligibility Certificate for a period of 15 years from the date of first sale i.e. 27.3.1998 or to the extent of 200% of the fixed capital investment i.e. Rs. 1,02,75,90,892/-, whichever is earlier.

The petitioner undertook the expansion within a period of five years from the date of original investment enhancing monetary limit of

exemption mentioned in the Eligibility Certificate dated 23.10.1999 was enhanced to Rs. 2,03,73,52,192/- for production of Colour Television, Air Conditioner and Washing Machine.

By order dated 7.3.2003 passed by respondent No. 4, further investment of Rs.39,47,00,000/-made within the period of 2001-02, which further enhanced the fixed capital investment of Rs.79,94,00,000/- was added in the Eligibility Certificate dated 23.10.1999.

The petitioner further made an investment of Rs. 14,45,08,638/- for manufacture of Printed Circular Board (PCB) and Microwave by order dated 27.9.2000 in turn the fixed capital investment was enhanced by Rs. 28,90,17,276/- and exemption was granted for a period of ten years i.e. from 4.12.1998 to 3.12.2008 and 12.2.1999 to 11.2.2009 for PCB and Microwave respectively.

The petitioner has also undertaken expansion from manufacture of Refrigerator and after fulfilling all the conditions as mentioned in the notification applied for granted of exemption from payment of Sales Tax.

The Additional Director, Industries by order dated 12.5.2003 granted exemption for the period of fifteen years from the date of first sale i.e. 10.6.2001 or 200% of the fixed capital investment i.e. Rs. 75,76,96,000/-

whichever is earlier.

As the petitioner, during the period 2001-2002 to 2005-06 made additional fixed capital investment of Rs. 1,13,47,48,270/- in plant and machinery for manufacture of Refrigerator, the same was not added in the fixed capital investment while granting Eligibility Certificate dated 12.5.2003, therefore, moved an application for review under Rules 25(3)(C).

By order dated 25.4.2008 the review application of the petitioner was partly allowed and fixed capital investment of Rs.87,91,30,721/- was allowed as additional fixed capital investment and 200% of such FCI i.e. Rs. 1,75,82,61,442/- was directed to be added in the monetary limit of exemption in Eligibility Certificate dated 12.5.2003.

The investment of Rs. 19,99,91,721/- made by the petitioner in moulds, dyes and jigs which was given to vendors/suppliers for manufacture of components to be used in the manufacture of Refrigerator, was rejected. The reason given for rejecting the said investment, was that the petitioner has not used these above items directly within the factory for production but, the same was given to its vendors and suppliers from manufacture of components.

The petitioner filed a review application under Rule 25(3)(C) before the authorities. The respondent by order dated 11.7.2013 rejected the review application of the petitioner on the ground that the Tribunal in the case of Samsung India Electronics Limited, had rejected the claim of exemption in respect of investment made on moulds, dyes and jigs which was given to the suppliers for use outside the factory.

The petitioner assailed the said order by way of appeal before Full Bench of Commercial Tax Tribunal, U.P., Lucknow. The Tribunal by its order dated 17.12.2013 allowed the appeal of the petitioner and has remanded the matter to respondent No. 3 with the direction as to make an inquiry to the effect that moulds, dyes and jigs were being exclusively used for manufacture of components to be used by the petitioner along with any other documents or materials.

In pursuance of the remand order dated

17.12.2013, a show cause notice dated 2nd

December, 2014 was issued seeking

explanation from the petitioner to clarify and

provide material to show as to how moulds,

dyes and jigs given to its suppliers/vendors for

manufacture of components to be supplied

only to the petitioner and such manufactured

components were exclusively used by the

petitioner. In reply to the said show cause

notice the petitioner submitted a detailed reply

along with the affidavits of the suppliers and

various material to demonstrate moulds, dyes

and jigs provided by it were used for

manufacture of components for the petitioner

only and such manufacture components were

supplied back to the petitioner only and not to

any other person. The petitioner also filed

assessment orders of such suppliers and

vendors.

The Deputy Commissioner, Industries

Center, G. B. Nagar also issued notice to the

petitioner on 12.1.2015. The petitioner filed

detail reply on various dates to bring on record

all material documents and evidence to

demonstrate that the moulds, dyes and jigs

provided to its vendors for manufacture of

components were used exclusively by such

vendors for manufacture of component to be

supplied back only to the petitioner.

The General Manager, District Industries

Center (in short “G.M.D.I.C.”), Gautam Budh

Nagar, after examining the assessment orders,

affidavits and material brought on record

specifically submitted his report mentioning

moulds, dyes and jigs provided by the

petitioner were used for manufacture of

components for the petitioner only and such

manufacture components were supplied back

to the petitioner only and not to any other

person by such vendors.

The Joint Commissioner (Executive) also

submitted its report after considering

agreement executed between the petitioner

and the vendors/suppliers and other material

on record which goes to show that moulds,

dyes and jigs were used exclusively for

manufacture of components of the petitioner

and after manufacturing the components,

same was used by the petitioner only.

Therefore, the petitioner is entitled for addition

of investment of Rs. 19,93,91,721/- in the

fixed capital investment.

Thereafter, the Divisional Level Committee

by order dated 25.10.2017 considered all

reports of G.M.D.I.C. and Joint Commissioner

(Executive) and material brought on record

and directed the addition of investment of Rs.

19,93,91,721/- made towards moulds, dyes

and jigs in the fixed capital investment and

modified the Eligibility Certificate.

The Commissioner-respondent No. 2,

issued the impugned notice dated 2.4.2018

under Section 4-A(3) of the U.P. Trade Tax Act.

Hence, the present writ petition.

It has been argued by counsel for the

petitioner that in pursuance of the Tribunal's

remand order the Divisional Level Industrial

Development Authority Committee has passed

the order after due verification of material on

record i.e. Chartered Accountant Certificate,

agreement with the supplier, affidavit of the

suppliers, assessment orders of the supplier,

supplier invoice, supplying component back to

the petitioner etc. Thereafter, a detailed

inquiry was made by the G.M.D.I.C., Gautam

Budh Nagar and Joint Commissioner

(Executive), Commercial Tax, Gautam Budh

Nagar and these two authorities have

submitted a detailed report in favour of the

petitioner. These reports have not been

disputed by the respondent No. 2. It was also

argued that no contrary evidence has been

produced on record by respondent No.2

disputing the material brought on record by

the petitioner to show the order granting

addition of investment made towards moulds,

dyes and jigs were not exclusively used for

manufacture of components of the petitioner

by the respective vendors.

It was also argued by the counsel for the

petitioner that the order of the Tribunal has

become final. The petitioner is legally entitled

for addition of investment made in moulds,

dyes and jigs, as provided under Section 4-A

of the U.P. Trade Tax Act, 1948 and the

respondent No. 2 can not to be permitted to

re-agitate the proceeding again under Section

4-A(3) of the Act.

The counsel for the petitioner has relied

upon various judgments, which are quoted as

below:-

(i) In the case of Mansarovar Bottling Co. Ltd. vs. CTT,

1999 UPTC 864, this Court has held in para 6 as under:

“6. Thus, by the amendment it has been clarified that the

Commissioner can correct a legal or factual error made by the

authority granting the eligibility certificate. Thus, we have two

provisions on the statute book; one is section 10(2) which

provides for an appeal to the Tribunal by any person aggrieved

by an order granting or refusing to grant an eligibility certificate

and under which power the Tribunal can correct all errors

whether of law or of fact made by the authority concerned and

we have also sub-section (3) of section 4-A which confers

jurisdiction on the Commissioner to correct legal or factual error

in issuing the eligibility certificate. Patently, it is not a case of

misuse of a facility and by cancelling the eligibility certificate on

the ground that Coca Cola and Fanta were of the same nature

as the products being manufactured by the dealer from before,

the Commissioner purports to rectify a legal or factual error in

the issue of the eligibility certificate. The question is whether the

Commissioner having a right of appeal before the Tribunal has

also the right to bring about the same result by himself

exercising the powers under section 4-A(3) of the Act. Learned

Standing Counsel asserted that the two provisions being placed

at different places confer powers on different authority to bring

about the same result and that the Commissioner instead of

filing an appeal to the Tribunal can himself rectify the mistake of

the Tribunal irrespective of the nature of the mistake. In my

view such an interpretation of the law is not feasible. As pointed

out above, the Divisional Level Committee consists of senior

officers and is presided over by an officer of the same rank as

the Commissioner and it is inappropriate to assume that under

section 4-A(3) of the Act the Legislature intended to vest in the

Commissioner the powers of an appellate authority that could

correct all mistakes whether of law or of fact in the matter of

the grant of an eligibility certificate. If that be the position, the

provisions of section 10(2) of the Act in so far as they provide

an appeal against an order granting or refusing to grant an

eligibility certificate would become redundant and the

Commissioner would become a Judge in his own cause. In my

view the two provisions have to be given a harmonious

interpretation and when the provisions of sub-section (3) confer

powers of correcting legal or factual error made by the authority

granting an eligibility certificate, this power has to be restricted

to clerical or arithmetical errors which are patent and apparent

from record and not errors about which there can be a rational

debate. As stated above, in the present case, there is a debate

between the parties as to whether the new products Coca Cola

and Fanta which admittedly have different composition from the

earlier products can be described to be goods of the same

nature or they are of a nature different from those

manufactured earlier and since the notification dated July 27,

1991 also provides for exemption in the case of a unit

undertaking expansion, there has also to be a debate whether

even if the two type of goods were of the same nature the

eligibility certificate granted to the revisionist should have been

for expansion and not for diversification. Such an assumed

mistake on which there is debate, and on which aspect of the

matter, the Divisional Level Committee has taken a conscious

decision, cannot be said to be an error apparent on the face of

record and free from debate and the Commissioner can have no

jurisdiction under section 4-A(3) of the Act to correct the error

himself and must avail the procedure of appeal to the Tribunal.

In my view, therefore, the Commissioner had no jurisdiction to

correct the alleged error and cancel the eligibility certificate on

the ground that the new products were of the same nature as

the products being manufactured from before. It may be

mentioned that there was debate between the learned counsel

for the parties whether Coca Cola and Fanta were of the same

nature as the other products and reference was made to Malviya

Chemicals & Pharmaceuticals (P.) Ltd., Ghaziabad v. State of

Uttar Pradesh, [1991] 83 STC 436 (All.) : 1991 UPTC 830 in

which an existing unit manufactured Paracetamol. It established

a new unit for the manufacture of antibiotics and this Court has

held that the two things were different. Whether the two

products are of the same nature has to be determined on the

facts of each individual case and in view of my conclusion that

the Commissioner had no jurisdiction to invoke this ground, I do

not think it necessary to go into the question whether Coca Cola

and Fanta were of a different nature or of the same nature as

the goods produced from before.

(Emphasis Supplied)”

(ii) Further, in the case of Sunny Packagers Pvt. vs. State

of U.P., 2015 (85) VST 253, in para 14, the principle laid down

in Mansarovar's Case (supra) was agreed and followed. Further

in the Judgment of Chetna Chemcials Pvt. Ltd. vs. CCT,

MANU/UP/0165/2007. This Hon'ble at para 18 has noted that

the scope of jurisdiction of the Commissioner is limited to

correction of arithmetical or clerical errors as stated in Jai

Duraga Detergents, 1994 SCC Online All 726 [which was

reiterated in Mansarovar Bottling (supra)] has been accepted by

the Department and a Circular to this effect has been issued by

it. In view of the above noted judgments, there is no dispute on

the fact that the jurisdiction under Section 4A(3) is extremely

limited and cannot be exercised in debatable cases.

(iii) Reliance in this regard is also placed on Kumar Fuels

vs. State of UP. 1986 SCC Online All 801

“18. 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 fulfill 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.”

(iv) Further, this Hon'ble Court in the case of Anil Kumar

Ramesh Chandra Glass vs. State of U.P. 2000 (119) STC 305

has held in para 10 as under:-

“10. It is an admitted position that the Joint Director of

Industries, Agra, recommended exemption from sales tax to the

petitioners’ unit for a period of five years with effect from

September 16, 1983. It is also admitted position that no

proceeding under section 4-A(3) of the Act has been initiated

against the petitioners for having either misused or committing

any breach of the eligibility certificate and thereby rendering

themselves ineligible to get benefit of facility of exemption from

the payment of sales tax. It is not, in dispute that on the

application of the petitioners with full particulars to the General

Manager, District Industries Centre, who after examination of all

available material made recommendation in favor of the

petitioners to the Joint Director of Industries for grant of

eligibility certificate in favour of the petitioners’ unit. The Joint

Director of Industries who was empowered to grant such

certificate, having been satisfied that the petitioners’ unit is

entitled to get benefit under section 4-A of the Act, after

following the prescribed procedure, issued the certificate. The

only stand taken by the respondents before this Court is that

the date of production of the unit furnished by the petitioners

was wrong, hence they cannot get benefit of the certificate

based on wrong information.

11. The Commissioner of Sales Tax or the Officers of the

Sales Tax Department have not been empowered to issue

eligibility certificate under section 4-A of the Act granting

exemption from the payment of sales tax nor they have been

given power to cancel or amend the same except the

Commissioner who has been given limited power under section

4-A(3) to cancel where it has been misused or breached and not

otherwise. The proviso to section 4-A(3) of the Act further

provides that no order under subsection (3) cancelling the

eligibility certificate shall be passed without giving the dealer a

reasonable opportunity of being heard. Learned Standing

Counsel could not place before us any provision in the Act which

empowers the Sales Tax Officer to examine the validity of

eligibility certificate granted under section 4-A of the Act or to

cancel the same and, therefore, respondent No. 2 had no

jurisdiction to ignore the eligibility certificate issued under

section 4-A of the Act so long it was not cancelled or withdrawn

by the competent authority. The contention of the learned

Standing Counsel that since by suppressing the material facts,

the petitioners have obtained the certificate, in our view, does

not give handle to the Sales Tax Officer to ignore the certificate

until it is cancelled by the competent authority, i.e., the State

Government or any officer empowered by the State Government

in this regard. In our view, if an applicant or industrial unit has

wrongly obtained eligibility certificate by furnishing wrong

information, it is open to the Sales Tax Officer to move the

authority who has granted the eligibility certificate or any

appropriate authority empowered in this regard to review or to

cancel the same but he cannot embark upon a fresh enquiry for

himself as to whether the petitioners were entitled to the grant

of eligibility certificate or not. Further till the certificate is not

cancelled, it is binding on the taxing authority and no tax can be

realised from such small-scale industry on its turnover. Even the

Sales Tax Commissioner has limited power to cancel the

eligibility certificate only where the facility of exemption has

been misused but not on the ground that it has been obtained

on wrong premises by furnishing wrong information.

(v) Similar view was taken by a division Bench of this

Court in the case of Kumar Fuels, Pucca Bagh, Puranaganj,

Rampur v. State of Uttar Pradesh [1986] 63 STC 467 : 1986

UPTC 357 fact of which was more or less similar to the case in

hand wherein it has been held as under:

It was asserted by the petitioner counsel

that in the both the aforementioned

judgments, it was held that since the issue of

exercise of power under Section 4A is a

jurisdiction issue, the alternate remedy under

the Trade Tax Act will not be an impediment

for this Hon'ble Court to exercise writ

jurisdiction against a notice issued under

Section 4-A(3).

Counsel for the respondent Mr. C.B.

Tripathi, has argued that the notice under

Section 4-A(3) had rightly been issued as the

petitioner was not entitled for grant of

exemption on the investment made in moulds,

dyes and jigs, which were not used by the

petitioner within its factory but, the same was

given to various vendors situated outside the

factory premises.

He further argued that the Tribunal by

order dated 17.12.2013 has remanded the

matter back to Divisional Level Committee to

re-examine the matter and to make an inquiry

in detail which has not been done. But, still the

benefit of additional investment made towards

moulds, dyes and jigs have been allowed and

therefore, the Commissioner of Commercial

Tax- respondent No. 2, is empowered under

the Act to initiate proceeding under Section 4-

A(3) of the Act.

In support of his contention, he had relied

upon the judgments passed in the case of

Alpha Chem And Another vs. State of U.P. And

Others reported in 1999 (114) STC page 472,

Gurunank Surgical Private Limited v. DLC,

1991 UPTC 622.

It was further argued by Mr. Tripathi that

only show cause notice has been issued and if

aggrieved there is remedy to file an appeal

before the Tribunal and writ petition is not

maintainable. He relied upon the judgment of

Apex Court reported in AIR 2013 SC 3518 CIT

vs. Vijaybhai N. Chandani.

Mr. R.P. Singh, counsel for the Respondent

Nos. 3 & 4, has relied upon the report of

G.M.D.I.C. and argued that District Level

Committee has rightly granted the Eligibility

Certificate, as there is no infirmity in the order

We have heard the counsel for the parties

and perused the record.

We also take judicial notice that the

exemption from payment of Sales Tax was

initially granted by the State Government

through U.P. Act No. 22 of 1984 with effect

from 12.10.1983 by introducing Section 4A

which provides that “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 [any] industry

in the State generally or in any districts or

parts of districts in particular, it may on

application or otherwise, [in any particular

case or generally, by notification,] declare that

the turnover of sales in respect of such goods

by the manufacture thereof shall, during such

period not exceeding [ten years] [from such

date on or after the date of starting production

as may be specified by the State Government

in such notification, which may be the date of

the notification or a date prior or subsequent

to the date of such notification, and where no

date is so specified] from the [date of first sale

by such manufacture 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,

by exempt from the sales tax [whether wholly

or partly] or be liable to tax at such reduced

rate as it may fix.”

The Sale Tax regime came to an end on 13th

May, 1994. Thereafter, Trade Tax regime came

into force by U.P. Act No. 31 of 1995 with

effect from 14.5.1994 but, the scheme of the

erstwhile that continued without any change

in exemption scheme under Section 4A of the

Act. This continued up to 31st December, 2007

from 1st January, 2008. U.P. VAT Act was

introduced in which Section 42 provides for

treatment of industrial units availing

exemption or reduction in the rate of tax under

erstwhile Act and sub-section (4) of Section 42

provides that the units were required to

deposit the tax and on the strength of

entitlement certificate they shall be entitled for

exemption by way of refund of net tax paid

along with the return of the Tax period in

prescribed manner and on fulfilling the

conditions.

In other words, under U.P. VAT Act regime

the units were entitled for exemption only

after they deposit the Tax and then a refund of

only net tax paid only with the return of the

remaining amount mentioned on the

Entitlement Certificate were refunded or

within the period as mentioned therein.

Now, after introduction of Goods and

Service Tax ( in short “GST”) with effect from

1st July, 2017 there is no scheme of

exemption. The matter in question relates to

the grant of exemption initially granted under

Sales Tax Act then under Trade Tax Act and

then under U.P. VAT Act but, no exemption

under GST Act. It is not appropriate to accept

the contention of respondent that the

petitioner has an alternative remedy and the

petitioner be relegated back as if aggrieved by

the order passed by the Commissioner, as

presently only notice under Section 4A-(3) of

the Act is issued.

The case of grant or rejection of

exemption, should be decided at the earliest

so that businessman can plan his business

accordingly. The case in hand shows that four

tax regime have changed and presently

country in under new G.S.T. Regime, the old

pending cases should be decided at the

earliest which will be in the interest of both the

parties i.e. petitioner as well as the State and

we, therefore, reject the contention of the

respondent for relegating back the petitioner

to approach the Commissioner in pursuance of

notice issued under Section 4-A(3) of the Act.

Now, we proceed to examine the matter

on merit.

It is admitted between the parties that the

investment of Rs. 19,93,91,721/- has been

made by the petitioner is Fixed Capital

Investment towards moulds, dyes and jigs.

These items have been given by the petitioner

to its vendors to use for manufacture of

components.

The Tribunal by order dated 17.12.2013

has remanded the matter back to Divisional

Level Committee with the direction to make an

inquiry as to whether the moulds, dyes and

jigs which were given by the petitioner to

various vendors for manufacture of

components were exclusively been used for

manufacture of components of the petitioner

and after manufacture of such components

were supplied back only to the petitioner.

After remand order of the Tribunal, notices

were issued by G.M.D.I.C. and Joint

Commissioner (Executive), respondent Nos. 4

and 5. A detail investigation and inquiry of the

record supplied by the petitioner (i.e.,

certificate of Chartered Accountant, agreement

with the buyers, affidavits, suppliers invoices,

list of moulds specification design &

specification of parts to be manufactured from

moulds and disputed assessment orders,

vendors suppliers invoices etc.) were made by

the two said authorities.

The two authorities i.e. G.M.D.I.C. and

Joint Commissioner (Executive) had submitted

their independent reports in detail in favour of

the petitioner. In their report it has specifically

been mentioned that moulds, dyes and jigs

were used exclusively from manufacture of

components of the petitioner and after

manufacturing the component, same were

used by the petitioner only.

The Divisional Level Committee, after

considering the report submitted by the two

independent authorities has rightly directed to

include the investment made by the petitioner

in fixed capital investment towards moulds,

dyes and jigs, which were given by the

petitioner to various vendors for manufacture

of components, which were exclusively being

used for manufacture of components of the

petitioner and, thereafter, manufacture of such

components were supplied back only to the

petitioner.

The detailed inquiry has been conducted by

the competent authority. Neither any adverse

material nor any documents were brought on

record to support that the moulds, dyes and

jigs given by the petitioner to its vendors were

not exclusively being used for manufacture of

components of the petitioner and after such

manufacture components were not supplied

back to the petitioner but, to some other

refrigerating company.

The commissioner- respondent No. 2 has not

disputed the reports submitted by the two

authorities i.e. G.M.D.I.C. and Joint

Commissioner (Executive) respondent Nos. 4

and 5 respectively.

The Commissioner while exercising the power

under Section 4-A(3) by way of impugned

notice has only alleged the inquiries has not

been properly made as per the direction of the

Tribunal's order dated 17.12.2013.

After the remand order, the record shows

various documents, certificates, aggregate

with the suppliers affidavit, supply invoices,

list of moulds, specific design and specific of

parts to be manufactured from moulds,

Chartered Accountant Certificate, assessment

orders and vendor supply invoices etc. were

brought on record and the same was duly

verified by the two independent authorities i.e.

G.M.D.I.C. and Joint Commissioner

(Executive), respondent Nos. 4 and 5, no

discrepancy whatsoever, has been pointed out

in their reports.

The Hon'ble Supreme Court in the case of

Vadilal Chemicals Ltd. vs. State of A.P. And

others reported in (2005) 6 SCC 292 while

entertaining the writ petition has held in

paragraph Nos. 12, 13, 18, 22 and 23 as

under:-

“12. The appellant replied to the show cause notices in

which the jurisdiction of the DCCT to issue the notices was

questioned. It was clarified that the appellant was liable to duty

under the Central Excise Tariff Act 1985 and that the appellant

had been paying 16% Excise Duty on both Anhydrous Ammonia

and Liquor Ammonia manufactured by it in accordance with the

procedure prescribed under that Act. The details of the

processes undertaken in producing the products were also

given. It was also drawn to the attention of the DCCT that the

authority to determine the eligibility under the G.O. Ms. was not

the Commercial Taxes Department, but the Department of

Industries & Commerce.

13. Subsequently, the appellant filed a writ petition in the

Andhra Pradesh High Court for a declaration that the appellant

was entitled to the benefits notified by the 1993 G.O. and that

the pre-revision show cause notices issued by the DCCT for the

years 1995-1996 up to the 1999-2000, were illegal, void and

unenforceable.

In the present case, the grant of the eligibility certificate was

not the outcome of an unconsidered decision based on

extraneous considerations. The matter was considered in depth

and sanctioned by the District Level Committee of which, as we

have already noted, the DCCT was a part. The appellant had

made a full disclosure of the process undertaken in respect of

which sales tax exemption was granted. No malafides has been

alleged against the appellant nor is it the case of the

respondents.

22. Furthermore, under the incentive scheme in question,

there was only one method of verifying the eligibility for the

various incentives granted including sales tax exemption. The

procedure was for the matter to be scrutinized and

recommended by the State Level Committee and District Level

Committee and the certification by the Department of

Industries & Commerce by issuing an Eligibility Certificate.

There was no other method prescribed under the scheme for

determining an industrial unit's eligibility for the benefits

granted. The Department of Industries & Commerce having

exercised its mind, and having granted the final eligibility

certificate (which was valid at all material times), the

Commercial Taxes Department could not go beyond the

same..

23..The only question was what was the proper conclusion to be drawn

from these. The Department of Industries and Commerce which

was responsible for the issuance of the 1993 G.O. accepted the

appellant as an eligible industry for the benefits. Apart from the

fact that it can be assumed that the Department of Industries

was in the best position to construe its own order, we can also

assume that in framing the scheme and granting eligibility to

the appellant all the departments of the State Government

involved in the process had been duly consulted. The State,

which is represented by the Departments, can only speak with

one voice. Having regard to the language of the 1993 G.O. it

was the view expressed by the Department of Industries which

must be taken to be that voice.”

In view of the above judgment we look

into the background of the present case which

is apparently clear that District Level

Committee, respondent No. 3 after

considering the report submitted by G.M.D.I.C.

and the Sales Tax department i.e. Joint

Commissioner (Executive) respondent Nos. 4

and 5 have rightly came to the conclusion by

including investment made by the petitioner

in moulds, dyes and jigs in the fixed capital

investment.

In other words, there is no infirmity in the

order of District Level Committee (Respondent

No. 3) in addition of Rs. 19,93,91,721/- in the

monetary limit of exemption mentioned in

Eligibility Certificate dated 12.05.2013.

The power of the Commissioner under

Section 4-A (3) is not in dispute in the present

case but, such a power has to be exercised

judicially only. The judgment relied upon by

the parties are not of any help.

The Tribunal while remanding the matter

back to the Divisional Level Committee, has

relied upon the judgment passed in Appeal No.

38 of 2000 M/s Honda CL Cars India Limited

vs. Commissioner Trade Tax U.P., Lucknow

wherein the similar controversy has been

decided in favour of the assessee.

Once a legal issue which was already

settled by judicial pronouncement in the case

of Honda CL Cars (supra) the same cannot be

permitted to be re-agitated by using the power

under Section 4-A(3) of the Act.

If the respondent No. 2 was aggrieved with

the order passed by the Tribunal dated

17.12.2013, it was always open for them to

file a revision under Section 11 of U.P. Trade

Tax read with Section 58 of U.P. VAT Act before

the High Court.

Once the respondent No. 2 chooses not to

file revision before the High Court against the

Tribunal's order of remand dated 17.12.2013,

the same cannot be permitted to re-agitate

the matter by way of a proceeding under

Section 4A-(3) of the Act.

Further, the Commissioner-respondent No.

2, even could have filed appeal under Section

10(2) of U.P. VAT Act before the Full Bench of

Tribunal against the order dated 25.10.2017

passed by Divisional Level Committee. The

Tribunal is a superior Authority than the

Commissioner. In an appeal by the

Commissioner the Tribunal may upheld the

grant of an eligibility certificate or can direct to

modify Eligibility Certificate.

In view of the above stated facts, the

Commissioner has not exercised its power

judicially in issuing the impugned notice dated

02.04.2018 under Section 4-A(3) of the Act.

The impugned notice dated 02.04.2018 is

here by quashed and writ petition is allowed.

Order date: 12.4.2019

Sushma