By TIOL News Service

NEW DELHI, FEBRUARY 13, 2016: THE issue is, whether where the benefit of sales tax exemption is converted to a scheme of deferment, thereby providing for repayment of exempted sum for the unexpired period within a span of 5 years but not exceeding 13 years from the date of start of deferment, is it open to the beneficiary to claim that the period of 13 years will commence from the expiration of eligibility period as per previous exemption policy? NO answers the Apex Court

Facts of the case

The assessee had established a manufacturing unit for production of HRP, rounds, structural and other iron and steel products in Dhanbad situated in erstwhile Bihar. During concerned period, the State of Bihar formulated an industrial policy for tax exemption to such industrial units which started production between 1st Sep, 1995 and 31st Aug, 2000. Keeping in view the purpose incorporated in the policy, exemption notification under the Bihar Finance Act, 1981 Act was issued. The assessee in pursuence of installing a cold rolling mill in Jamshedpur, sought a confirmation from the State of Bihar to assure the commitment to grant sales tax exemption as stated in the policy as an incentive. When the matter stood thus, the Bihar Reorganisation Act, 2000 came into existence as a result of which Jamshedpur became part of a newly carved out State, namely, Jharkhand. After coming into force of the new State, the Governor of Jharkhand by notification ordered that the 1981 Act, the Central Sales Tax (Bihar) Rules, 1956 and the notifications made thereunder, etc. amongst other Acts, Rules and Regulations, shall be deemed to be in force in the entire State of Jharkhand. Subsequently, the successor State issued an exemption certificate as contemplated in earlier notification issued by the Bihar State Finance and Commercial Taxes Department exempting the new units which also included the unit established by the assessee, from the purchase tax as well as the sales tax on purchase and sales made in regard to the cold rolling mill. Hence, the cold-rolled products manufactured by the new unit being different from the hot-rolled product manufactured by the old unit, the assessees were entitled to exemption of sales tax as provided under the industrial policy. On that score, the assessee was approved issuance of the certificate. However, the Commissioner of Commercial Taxes, Jharkhand initiated a suo motu revision u/s 46(4) of 1981 Act and held that the two products must be treated as the same commodity and the products not being different commodities, the benefit of exemption was not available.

When the matter came before this court, the proposal made by the Joint Commissioner for grant of exemption certificate to the company was restored and also the exemption certificate granted subsequently. In pursuance of the aforesaid judgment, the assessee availed the benefit of exemption. In the meanwhile, Jharkhand VAT Act, 2005 came into force. Prior to that, through a notification issued u/s 7(3) of 1981 Act, the State of Jharkhand had withdrawn earlier notification, as a result of which the facility of exemption from payment of sales tax on the purchase of raw materials and also facility of exemption of sales tax on its finished products was withdrawn. Thereafter, in pursuance of the statutory provision and the rules, the assessee submitted an application for registration under deferment of payment of tax. The said application seeking deferment of tax was however rejected. On appeal, the High Court directed the State of Jharkhand to allow the benefit of deferment of tax to the assessees for the remaining period under 1995 Industrial Policy, in accordance with the provisions of Section 95(3) of the JVAT Act. Accordingly, the Revenue had preferred the present SLP.

After hearing the parties, the Supreme Court has held:

1. It is seen that the assessee had enjoyed the benefit of exemption from payment of sales tax on cold rolling mills products w.e.f 1st Aug, 2000 to 31st Mar, 2006. Since, initially the exemption was granted till 31st July, 2008, the assessee had applied for conversion from 'exemption of tax' to 'deferment of tax' for the remaining period. The High Court therein while quashing the notifications had directed the State to grant deferment of tax to the assessee u/s 95(3)(ii) of JVAT Act. It has been appraised the said amount was paid by adhering to the said order. Thus, the issue of exemption is not alive and it has been fairly accepted assessee's counsel. Hence, the only issue that has arisen for consideration is the interpretation of the deferment policy in the context of provisions enumerated under the JVAT Act. Section 95(3)(ii) of JVAT envisages that a registered dealer who was enjoying the benefit of exemption of tax is allowed to convert the facility of exemption from payment of tax under the JVAT Act into the facility of deferment of payment of tax for the unexpired period. The assessee has availed the deferment and paid the amount of tax. The grievance pertains to the period within which the amount was liable to be paid. Pertaining to same, the Revenue's counsel submitted that the deferment of tax has to be computed in such a manner so that the period of thirteen years as provided in the notification is calculated from the year 2000 ending with the year 2013. In essence, his argument is, as the assessee had failed to make the repayment of deferred tax within the prescribed period, the assessee is obligated to pay the interest for the delayed period. Relying on the language employed in the notification, it is submitted by Revenue's counsel that deferment of tax as contemplated in the said notification has to commence from 31st Aug, 2000 for the purpose of computation of 13 years. The words used in para 5(1) "from the date of start of deferment" are not to be interpreted to convey to be determinative on the foundation of individual case of deferment but they have to be understood that the grant of benefit of deferment is associated with the repayment of deferred tax and in that context it has to be so done that the period of repayment is completed within 13 years. Refuting the said submission, the assessee's counsel contended that the date of start of deferment has to be the date when deferment commences and the span of 13 years has to be computed from that date. On that basis, it is urged by him that the period of repayment will come to end only after expiry of 13 years from 2006, the year in which the deferment of the tax commenced as per the order of the High Court;

2. It is clear that in a taxing statute there is no room for any intendment but regard must be had to the clear meaning of the words. The entire matter is governed wholly by the language of the notification. It has been held by the Constitution Bench that if the tax-payer is within the plain terms of the exemption, it cannot be denied its benefits by calling in aid any supposed intention of the exempting authority. Keeping in view the aforesaid principle, the language employed in the notification has to be appreciated. Benefit of deferment of tax is granted under certain terms and conditions. One of the terms and conditions pertains to repayment of deferment of tax amount by the industrial unit. It is stipulated therein, that the repayment of deferred tax amount shall have to be done after the completion of eligibility period of deferment or the prescribed percentage limit of fixed capital investment, whichever reaches earlier. In the case at hand, the period of exemption has been converted to period of deferment of tax, which is for 8 years. There is no dispute that the assessee had availed the exemption for a period of 6 years and he is entitled to deferment of tax for the rest of the period which commenced in 2006. The notification lays a clear postulate that repayment of total deferred amount shall have to be done in ten equal six monthly instalments in such a manner so as to be completed within 13 years from the date of start of deferment. The words "from the date of start of deferment" have to have nexus with the policy stated in the beginning. It is noted that the policy would apply if the unit has commenced between 1st Sep, 1995 and 31st Aug, 2000; that it has a registration certification from the prescribed authority and that, most importantly, it has been given an eligibility certificate for the said purpose. The policy would come into play only if these conditions are satisfied and then the assessee will be allowed to have the benefit of deferment of sales tax on the sale of manufactured finished goods for a prescribed period. Therefore, the authority has been given the power to lay down the prescribed period for grant of deferment;

3. The concept of exemption is distinct from the concept of deferment of tax. After the JVAT Act came into force, under the statutory provisions, there was no exemption and beneficiaries were entitled to convert to the scheme of deferment. The period remains intact, that is, 8 years. The repayment has to be done in equal six monthly instalments and that period is 5 years. The repayment commences after completion of eligibility period of deferment or the prescribed percentage limit of fixed capital investment, whichever is earlier. The prescribed authority can grant an eligibility certificate but he has to keep in view the terms and conditions stipulated in the notification. The said authority cannot travel beyond the stipulations of the notification. The language employed in the notification conveys that the grant of certificate has to be such that after expiration of the eligibility period, the amount has to be paid back within a span of 5 years but the gap cannot exceed 13 years from the date of start of deferment. The postulate enshrined therein has to be appositely appreciated. It does not flow from the notification that if a benefit is granted for 8 years or for a lesser period, the assessee cannot claim that the repayment has to be completed within 13 years from the date of grant. In the case at hand, the claim of the assessee that the repayment schedule has to continue for a period of 13 years from 2006, for the deferment commenced only in 2006. Such an interpretation not only causes serious violence to the language employed in the notification but if it is allowed to be understood in such a manner, it shall lead to an absurd situation. That apart, the intention can be gathered from the notification that it has to relate back to the date of eligibility with a maximum limit of 13 years. It cannot be construed to mean 13 years from the date of completion of the eligibility period. The repayment schedule is 5 years from the expiry of eligibility period of deferment. The period of 5 years has to be so arranged that it does not go beyond 13 years from the date of deferment. Thus analysed, the irresistible conclusion is that the repayment schedule has to end on 31st Aug, 2013 within a span of 5 years from the expiration of the eligibility period. Having said that, we may proceed to deal with the imposition of interest and penalty under the JVAT Act. Rule 66 of the Rules provides for payment for breach of the Rules. Regard being had to the special features of the case and taking note of the fact that the assessee had already deposited the amount in pursuance of the order of this Court and regard being had to the nature of litigation, we direct that the assessee shall pay 12% interest per annum and the said amount shall be deposited with the competent authority of the revenue. The appeals are accordingly disposed of.

(See 2016-TIOL-12-SC-VAT)