LAWS(ORI)-2006-8-4

TATA SPONGE IRON LTD Vs. STATE OF ORISSA

Decided On August 09, 2006
TATA SPONGE IRON LTD Appellant
V/S
STATE OF ORISSA Respondents

JUDGEMENT

(1.) M /s. Tata Sponge Iron Ltd. (in short, 'TSIL') which has set up a sponge iron factory at Bileipada, Joda, in the district of Keonjhar, Orissa, the petitioner herein, has filed this writ application, challenging different orders passed by various authorities, more particularly: (A) Restriction of the period of sales tax benefits as per IPR, 1992 as an 'EMD' unit (annexure 1) (B) Order of the Director of Industries in not amending the eligibility certificate to take into account the entire investment made by the petitioner on plant and machinery and for fixing the limit of sales tax concession below the amount that the petitioner was otherwise entitled to under the IPR, 1992, (annexure 2) (C) Non -grant of capital investment subsidy by the Government as per IPR, 1992 (annexure 3).

(2.) CONSEQUENTLY , challenging the unlawful action/inaction of the State of Orissa in preventing the petitioner from obtaining all the benefits to which it claimed to be entitled under the Industrial Policy Resolution, 1992 (hereinafter referred to as 'IPR, 1992'), the petitioner in support of the challenges noted hereinabove, submitted as follows: (a) The petitioner set up a large scale industrial unit for manufacture of sponge iron at Bileipada, Joda in the district of Keonjhar and was classified as a large scale industry under IPR, 1980. It availed sales tax loans as benefits under IPR, 1980. (b) The Government of Orissa published IPR, 1989 wherein it granted benefits for existing industries classified under IPR, 1980 wherein benefits of exemption from payment of sales tax on finished products was available subject to the loans availed under IPR, 1980 policy being repaid. The petitioner repaid the loans and applied for necessary eligibility certificates so that it could avail the benefits of exemption from payment of sales tax on finished products for a period of five years from the effective date of IPR, 1989, i.e., December 1, 1989. (c) However, in absence of an operation guideline, the petitioner could not avail the benefits and it came up in a writ petition before this honourable court being O.J.C. No. 6198 of 1994. This honourable court disposed of the aforesaid writ petition on May 5,19951, wherein it directed that the petitioner would be entitled to the benefit of exemption from payment of sales tax under IPR, 1989 as a continuing industry of 1980 policy and the said benefit would accrue for a period of five years with effect from June 10, 1992. (d) In the meantime the Government of Orissa brought out the 'Industrial Policy Resolution of 1992' wherein it was stated that if any existing industrial unit goes for an expansion/modernisation/diversification (hereinafter for short mentioned as, 'EMD') then certain benefits will be available to the said industry. (e) The definition of 'EMD' unit as per Clause 2.4 of the IPR, 1992 is as follows: 2.4 Expansion/modernisation/diversification of an existing industrial unit' means additional investment of 50 per cent or more of the undepreciated book value of fixed capital investment of an existing unit in acquisition of plant and machinery for expanding/modernising/ diversifying the production of the said unit.(f) Clause 7.5 of the IPR, 1992 is quoted below: Expansion/modernisation/diversification : The incentive by way of exemption or deferment of sales tax on finished products shall be available for expansion/modernisation/diversification of existing units taken up after the effective date subject to a limit of 60 per cent of the additional capital investment in plant and machinery only in Zone C, 75 per cent in Zone B and 100 per cent in Zone A, provided that such expansion/modernisation/diversification has been undertaken on the basis of separate project report duly appraised by the financial institutions and provided further that, subject to the provisions of the Sales Tax Act, the benefit of exemption/deferment shall not have the effect of reducing the sales tax paid by the unit prior to commencement of the expansion/modernisation/diversification programmes. In other words, the benefit shall be applicable to incremental sales.(g) Under Clause 7.5 an 'EMD' unit was eligible to avail the benefit of exemption or deferment of sales tax on finished products taken up after the effective date, i.e., August 1,1992 subject to a limit of 75 per cent of the additional capital investment in plant and machinery only. (75 per cent in Zone B and the petitioner's unit falls in Champua subdivision under Zone B). The proviso to the said Clause 7.5 was that 'provided further that the benefit of exemption/deferment shall not have the effect of reducing the sales tax paid by the unit prior to the commencing of the expansion/modernisation/diversification programmes. In other words, the benefits shall be applicable to 'incremental sales'.' (h) The corresponding Finance Department notification was published vide Notification No. 41261 -CAT -106/92 -F on September 23, 1992 with effect from August 1,1992 wherein entry 44 of the Tax Free Schedule List (A) was inserted. (i) That in pursuance to the said promises and/or notifications published by the Government of Orissa, both in the Industries Department as well as in the Finance Department as far as 'EMD' of existing large scale industries was concerned, the petitioner made an additional investment of Rs. 70.48 crores by way of expansion on the basis of a separate project report duly appraised by the financial institutions. The expanded unit went into commercial production with effect from September 7, 1988. Therefore, the petitioner claimed that it was entitled to the benefit of exemption from payment of sales tax on finished goods for an amount of Rs. 49.45 crores (being 75 per cent of Rs. 65.93 crores invested in plant and machinery as per the IPR, 1992) and the corresponding notifications of the Industries Department and Finance Department read with entry 44 of the Tax Free Schedule of the Orissa Sales Tax Act. There was no limit of the period within which the benefit was to be availed. It was only the amount of sales tax on finished goods calculated at 75 per cent of the investment in plant and machinery for expansion that was the relevant factor for availing the benefit of exemption from payment of sales tax. (j) The petitioner approached the Director of Industries for the concerned eligibility certificate and the Director of Industries granted a certificate which limited the period of benefit to five years from the date of commercial production, i.e., from September 7, 1998 till September 6, 2003. The petitioner was therefore constrained to challenge the aforesaid eligibility certificate and the corresponding denial of benefits beyond September 6, 2003 in this writ petition. (k) The petitioner vide its application dated November 17, 1999 in annexure 5 series requested the Director of Industries to amend the certificate of eligibility bearing No. 6948 dated May 26,1999 in annexure 4 issued by the Director of Industries by amending the correct figures of investment in the said certificate to include Rs. 70.48 crores as the total value of fixed capital investment and Rs. 65.92 crores as the total value of fixed capital investment in plant and machinery including pollution control machinery. The petitioner enclosed a certificate of a chartered accountant. However, the Director of Industries vide its letter dated May 24, 2000 in annexure 2 has rejected the petitioner's application for amendment of eligibility certificate on the ground that the operational guidelines of IPR, 1992 framed by the Government do not contain a provision to reassess the eligibility certificate due to frequent change of fixed capital investment after starting production. (l) The petitioner as an expansion/modernisation/diversification project is entitled to capital investment subsidy as per para 5.1 of the IPR, 1992 for a sum of Rs. 20 lakhs and the said subsidy was to be released within thirty days after the petitioner's expanded unit completed trial production. Since the petitioner's expanded unit has completed trial production in the year 1998, the petitioner was entitled to capital investment subsidy in the year 1998 and since the same was not granted, the petitioner has challenged the said non -grant of subsidy in this petition. (m) The provisions of para 7.5 of the IPR, 1992, the corresponding operational guidelines for availing the benefits and the entry 44 of the Tax Free Schedule of the Orissa Sales Tax Act, 1947 do not prescribe of a period by which the exemption is to be availed. They only prescribe the ceiling limit, i.e., 75 per cent of the fixed capital investment of plant and machinery. Therefore, up to the said limit, the petitioner can avail the exemption from payment of sales tax on finished goods and only on incremental sales. Therefore, it can be seen that it is a clear cut provision and the Government of Orissa while making the provision have applied its mind and the said decision not to impose a time period is a conscious decision of the Government. (n) Para 7 of the IPR, 1992 deals with the benefits to be given to different classes of industries both new as well as existing, on exemption from payment of sales tax on raw materials and packing materials as well as on sale of finished products. The Government has also classified the percentage of the investment which different categories of industries will avail and the period for which they will avail it. Para 7.1 is a general declaration that the incentives under IPR, 1992 are available to both existing as well as new industries of different categories from the effective date, i.e., August' 1, 1992. (o) Para 7.2 relates to exemption of sales tax on raw materials and spare parts for all new khadi, village and cottage industries, i.e., the exemption will be for a period of seven years from the date of commercial production. (p) Para 7.3 relates to exemption of sales tax on finished products of existing and new khadi and village industries in perpetuity. (q) Under the Orissa Sales Tax Act, 1947 entry 30 -F of List A of the Tax Free Schedule grants benefit on sale of finished products of existing and new khadi and village industries till perpetuity. The said notification was inserted on September 23, 1992 and is still in force. (r) This clearly shows that the authorities in Government, before formulating the policy, have applied their mind and a conscious distinction and decision has been made in case of different categories of industries and the benefits they are entitled to, and the period for which they may be entitled. (s) A similar situation arises with regard to paras 7.4 and 7.5. Under para 7.4 incentives have been given to new small, medium and large scale industrial units including pioneer units. The exemption/ deferment of sales tax in both on raw materials, spare parts and finished products for a limited period of 5/7 years respectively. The other condition laid down is a percentage of whole of capital investment in different zones. The fixing of period of 5/7 years and zonal classification are two different conditions; one relating to time and another relating to location of industries. They are two independent conditions. (t) Para 7.5 deals with only EMD industries, irrespective of whether they are small, medium or large scale. While ordaining such incentives, Government of Orissa in its wisdom laid down only modalities for availing percentage of incentives on the additional investment on plant and machinery taking into consideration the Zones 'A', 'B' and 'C'. It may be mentioned here that no time -limit has been fixed for availing such exemptions. The condition of period of exemption made for new small, medium and large scale industries in para 7.4 is in no way similar or comparable to the exemptions/deferment allowed to EMD industries in para 7.5. (u) The objectives of the IPR, 1992 under para 7.4 and 7.5 are different. They are as follows: 7.4 New industries 7.5 Expansion of existing industries(a) Exemption/deferment of sales tax for (a) Expansion, modernisation, diversi -new industries. fication of existing units.(b) Eligibility for exemption of sales tax (b) Eligibility for exemption of saleson raw materials, spare parts and tax on finished products only.finished products.(c) Percentages fixed for different zones. (c) Percentages fixed for differentzones.(d) Ceiling of certain percentage of fixed (d) Ceiling of certain percentage ofcapital investment. additional capital investment in plant and machinery.(e) Exemption period 5 + 2 years. Defer - (e) Exemption period is still percent - ment period 7 years. ages of investment in serial (d) is exhausted.(f) Exemption from payment of sales (f) Exemption from payment of sales tax on finished products for entire tax on finished products for incre -sales. mental sales only.(g) Government does not get any reve (g) Government gets revenue by way nue by way of sales tax on finished of sales tax on finished products of products. existing turnover before expansion.Hence, Clauses 7.4 and 7.5 are distinct and different from each other. The averment of the Industries Department in annexure 1 that paras 7.4 and 7.5 of the IPR, 1992 are co -related, is not correct. (v) The Director of Industries is authorised to issue the eligibility certificate but as per the conditions envisaged under the IPR, 1992, as the IPR was silent on the 'period', the Director of Industries acted beyond his powers by limiting the period of eligibility to 'five years'. Hence, it was not permissible for the Director of Industries to insist for a period of five years for grant of exemption. (w) Entry 44 of the tax -free entry is still valid and has not been modified or withdrawn. Reasonable time concept can be introduced only when there is ambiguity in the statute or subordinate legislation. In the present case the petitioner submits that there is no ambiguity in the provisions of the IPR or in the entries under the Orissa Sales Tax Act, 1947. Hence, a question of reading down the provision to include a 'time -limit' does not arise. (x) Therefore, in view of para 7.5 of the IPR, 1992, operational guidelines issued by the Government of Orissa, Industries Department Letter No. 4068/1 dated February 8, 1993 para 7 and entry No. 44 of List A of the Tax Free Schedule issued vide Notification No. 41261 -CTA -106/92 -F dated September 23, 1992 with effect from August 1,1992 issued vide SRO No. 1091/92, the petitioner is entitled to the benefit of exemption from payment of sales tax on finished products in respect of incremental sales over and above the sale of the immediate preceding year as it existed prior to expansion of the industrial unit up to a ceiling limit of Rs. 49.44 crores (being 75 per cent of the fixed capital investment in plant and machinery). (y) The petitioner is also eligible for capital investment subsidy as per para 5 of IPR, 1992. The relevant provision is quoted below: 5. Capital investment subsidy: 5.1 New industrial units as well as expansion/modernisation/diversification projects as defined earlier, shall be allowed capital investment subsidy in the following manner: Zone 'A' 30 per cent of the fixed capital investment subject to a limit of Rs. 30 lakhs. Zone 'B' 20 per cent of the fixed capital investment subject to a limit of Rs. 20 lakhs. Zone 'C' 10 per cent of the fixed capital investment subject to a limit of Rs. 10 lakhs. (z) The definition of 'EMD' unit as per Clause 2.4 of the IPR, 1992 is as follows: 2.4 'Expansion/modernisation/diversification of an existing industrial unit' means additional investment of 50 per cent or more of the undepreciated book value of fixed capital investment of an existing unit in acquisition of plant and machinery for expanding/modernising/diversifying the production of the said unit.(z). 1. The petitioner's expansion project being located in Zone B is entitled to a capital investment subsidy of 20 per cent of the fixed capital investment of Rs. 70.48 crores amounting to Rs. 14.096 crores and subject to a limit of Rs. 20 lakhs. The petitioner is, therefore, entitled to subsidy of Rs. 20 lakhs.

(3.) BEFORE proceeding any further, it would be appropriate to take note of the relevant Industrial Policy Resolution, 1992, which arises for consideration in the present case. (I) The IPR, 1992 dated August 1, 1992 was published in the Orissa Gazette on August 14, 1992 contains the following objectives: 1. Introduction The Industrial Policy of Orissa, 1992 has been formulated in this background and keeping in mind the State's unique assets as well as special problems. The State has vast mineral resources -iron ore, manganese ore, chromite, coal, bauxite, gemstones and granite used for decorative purposes -to mention only a few. Barring a few areas, the State is blessed with fertile land and adequate rainfall. Perennial rivers, large tracts of forests, lakes, backwaters and a long coastline rich in marine life are its other natural advantages. The State also has a long tradition of meticulous and sophisticated craftmanship. The policy outlined in the following paragraphs are intended at encouraging the flow of investment and development of entrepreneurship in the State of Orissa. While financial assistance to potential entrepreneurs in the form of subsidies and post -production benefits is envisaged, the main thrust of the policy is on creating an environment conducive to the smooth setting up and successful functioning of industries. Beginning with identification of suitable investment proposals, all steps will be taken to provide expeditious clearances for setting up industries, through a single window. A separate dispensation is envisaged for foreign and NRI investors, whose proposals will receive special attention and 'fast track' treatment. 2. Thrust Areas The following have been identified as thrust areas which would be imparted special care, attention and help from the Government:. (4) Industries producing pig iron, sponge iron, ferro -alloys and steel (including special steels). (5) Electronics (hardware and software) excluding entertainment electronics. 2. Definitions: 2.4 'Expansion/modernisation/diversification of an existing industrial unit means additional investment of 50 per cent or more of the undepreciated book value of fixed capital investment of an existing unit in acquisition of plant and machinery for expanding/modernising/diversifying the production of the said unit. 3. Classification of areas: ZONE -B. - Bhadrak, Nayagarh, Koraput, Rayagada, Jeypore, Baripada, Keonjhar, Anandpur, Champua Sundargarh, Chhatrapur, Bhanjnagar, Banki, Atahgarh, Jagatsinghpur, Kendrapara, Jajpur, Titilagarh, Puri and Bolangir sub -divisions. 4. Eligibility for incentives: 4.3 Expansion/modernisation and diversification will be eligible for specific incentives as mentioned against the concerned incentive. However, defaulters of OSFC/IPICOL dues shall be eligible only after they have cleared such dues. INCENTIVES