P.K. Jain, J.
1. These two revisions arise out of the order passed by the Full Bench of the Trade Tax Tribunal, Lucknow in Second Appeal No. 73 of 1996 (Kajaria Ceramics Ltd. v. Divisional Level Committee). The appeal was partly allowed and partly dismissed by the Tribunal. Revision No. 700 of 1997 has been filed by the assesses being aggrieved by part dismissal of the appeal. Revision No. 53(LX.of 1997 has been filed by the Commissioner of Trade Tax, U.P., Lucknow against the order of partly allowing the appeal.
2. After Revision No. 700 of 1997 was heard by the court, it was pointed out by Sri B.K. Pandey, learned Standing Counsel, that the department has also filed a revision against the impugned order before the Lucknow Bench of this Court and both the revisions deserve to be decided by common judgment. The Commissioner of Trade Tax, U.P., Lucknow moved Civil Misc. Application No. 68823 of 1999 before the honourable Chief Justice with a prayer that the honourable Chief Justice be pleased to direct that Revision No. 700 of 1997 (Kajaria Ceramics Ltd. v. Trade Tax Tribunal) pending in the High Court of Judicature at Allahabad and Trade Tax Revision No. 53(L) of 1997 (Commissioner of Trade Tax v. Kajaria Ceramics Ltd.) pending before the Lucknow Bench of this Court may be heard and decided together. Honourable the Chief Justice passed the following order on September 29, 1999 on the said application :
'Heard learned counsel for the parties. The record pertaining to the Trade Tax Revision No. 53(L) of 1997 pending before Lucknow Bench be summoned to this Court immediately and the same be placed before honourable P.K. Jain, J., for hearing.
Dated 29-9-99
Sd/-
N.K. Mitra.'
That is how Trade Tax Revision No. 53(L) of 1997 came up for hearing before this Court.
3. The dealer, Kajaria Ceramics Limited, carries on the business of manufacture and sale of ceramics wall and floor tiles having its factory situated in industrial area, Sikandarabad, district Bulandshahar, Uttar Pradesh. It set up a new unit and its date of first sale was August 16, 1988. The investment in the unit up to August 12, 1988 was Rs. 16,21,54,452. On December 26, 1985, the State of Uttar Pradesh issued Notification No. ST-II-7558/X-9(208)-1981-U.P. Act 15/48-Order-85, dated December 26, 1985, Under Section 4-A of the then existing U.P. Sales Tax Act with a view to promote development of certain industries in the State of Uttar Pradesh granting exemption from or reduction in rate of tax to new units in certain districts and parts of the districts of Uttar Pradesh. The dealer, Kajaria Ceramics Limited was granted eligibility certificate for a period of 6 years with effect from August 16, 1988 by order dated May 5, 1990. The fixed capital investment of the unit of the dealer was Rs. 16,21,54,852 at the time of commencement of the sale, i.e., August 16, 1988. Thereafter came the notification dated July 27, 1991 being Notification No. ST-II-1093/XI-7(42)-68-U.P. Act XV/48-Order-91 published in the official gazette on July 27, 1991 which provided further exemption from payment of tax in case of units established after first day of April, 1990, and also to already existing units which have undertaken an expansion, diversification or modernisation on or after April 1, 1990 but not later than March 31, 1995. The case of the dealer is that in view of the said notification for further exemption it had undertaken a programme for expansion by making additional fixed capital investment to the tune of Rs. 54,51,03,544 in addition to the original fixed capital investment as on March 31, 1990 which was to the tune Rs. 16,96,27,581 with depreciation. The dealer applied for exemption under the 1991 scheme in the prescribed form for grant of exemption Under Section 4-A of the U.P. Sales Tax Act, 1948 read with notification dated July 27, 1991. The Divisional Level Committee-respondent No. 2, granted eligibility certificate by its order dated March 7, 1996 to the tune of Rs. 24,15,05,019 and rejected the claim of the dealer in respect of remaining fixed capital investment vide order of the Divisional Level Committee/eligibility certificate dated March 7, 1996. The claim of the revisionist was that it was entitled to exemption on the total investment, i.e., the original fixed capital investment of Rs. 16,21,54,852--as on August 12, 1988 plus additional investment of Rs. 54,51,03,544 made on expansion between the period April 1, 1990 to March 28, 1994 the total amount being Rs. 76,17,87,532.
4. Aggrieved by the order passed by the Divisional Level Committee, the dealer filed appeal before the Trade Tax Tribunal, Lucknow. The Trade Tax Tribunal by its judgment and order dated April 10, 1997 partly allowed the appeal accepting the claim of the dealer in respect of additional fixed capital investment to the tune of Rs. 54,48,34,341.70 paise, it rejected the claim of the dealer with regard to Rs. 16,21,54,852 the original fixed capital investment as on August 12, 1988. By such rejection of claim, the dealer felt aggrieved and filed Trade Tax Revision No. 700 of 1997.
5. The Divisional Level Committee had rejected the claim of the dealer in respect of additional fixed capital investment during the period April 1, 1990 to March 28, 1994 to the tune of Rs. 30,35,98,525.00. But the Tribunal while partly allowing the appeal, accepted the claim of the assessee in respect of additional fixed capital investment to the tune of Rs. 30,33,29,323.70 paise. The revenue feeling aggrieved by such acceptance of the claim of the dealer, has filed Trade Tax Revision No. 53(L) of 1997.
6. Sri Bharat Ji Agrawal, learned Senior Counsel for the revisionist in T.T.R. No. 700 of 1997 and Sri B.K. Pandey, learned Standing Counsel for the Revenue were heard. Later on Sri Ashok Mehta, who argued T.T.R. No. 53(L) of 1997 was also heard. In T.T.R. No. 53(L) of 1997, Sri Ashok Mehta, learned Chief Standing Counsel assisted by Sri B.K. Pandey have been heard on behalf of the Revenue and Sri Bharat Ji Agrawal, learned Senior Counsel for the assessee has been heard.
7. Before adverting to the rival arguments and appreciating the same in the light of the material placed before the court it would be relevant to reproduce the relevant provisions of the notifications and Section 4-A of the U.P. Trade Tax Act, 1948 (hereinafter called as 'the Act').
'Notification No. St-II-7558/X-9(208)-1981-U.P. Act XV-48-Order-45 dated December 26, 1985.
Whereas the State Government is of the opinion that it is necessary so to do for promoting the development of industry in the State generally and in certain districts and parts of districts in particulars ;
Now, therefore, in exercise of the powers Under Section 4-A of the Uttar Pradesh Sales Tax Act, 1948 (U.P. Act No. XV of 1948), read with Section 21 of the Uttar Pradesh General Clauses Act, 1904 (U.P. Act No. 1 of 1904), and in supersession of Notification No. ST-II-604/X-9(208)-1981-U.P. Act XV-48 Order-45, dated January 29, 1985 (S.No. 869), the Governor is pleased to declare that, in respect of any goods manufactured in an industrial unit, which is a new unit as defined in the aforesaid Act of 1948, established in the areas mentioned in column 2 of the Table given below, the date of starting production whereof falls on or after the first day of October, 1982 but not later than the thirty-first day of March, 1990, no tax under the aforesaid Act of 1948 shall be payable by the manufacturer thereof on the turnover of sales of suck goods for the period specified in column 3 against each, which shall be reckoned from the date of first sale, if such sale takes place not later than six months from the date of starting production or, in other cases from the date following the expiration of six months from the date of starting production, subject to the following conditions :--
(1).................
(2)(a) to (g).............................
Table
Sl. No.
Locationof unit
Period of exemption
In thecase of units with capital investment not exceeding three lakh rupees.
In thecase of units with capital investment exceeding three lakh rupees.
1
2
3(a)
3(b)
(1)...........
Fiveyears
Sevenyears
(2)
Bulandshahar
Fouryears
Sixyears
(3)...........
Threeyears
Fiveyears
Explanation.--For the purposes of this notification :--
(1)...................
(a) and (b)...................
(2) 'Date of starting production' and 'new unit' shall have the meaning assigned to them in the explanation to Section 4-A of the Uttar Pradesh Sales Tax Act, 1948 ; and
(3) 'Capital investment' means investment in land, building, plant, machinery, equipment and apparatuses.'
English translation of Vitta (Bikri-kar) Anubhag-2, Notification No. S.T.-2-1093/XI-7(42)-68-U.P. Act XV-48-Order-90, dated July 27, 1991.
Whereas the State Government is of the opinion that for promoting the development of certain industries in the State it is necessary to grant exemption from or reduction in rate of tax to new units and also to units which have undertaken expansion, diversification or modernisation ;
Now, therefore, in exercise of the powers Under Section 4-A of the Uttar Pradesh Sales Tax Act, 1948 (U.P. Act No. XV of 1948), hereinafter referred to as the Act, the Governor is pleased to declare that--
(1-A)..................
(1-B) In respect of any goods manufactured in a unit other than the units of the type mentioned in Annexure II, which 'has undertaken expansion, diversification or modernisation' on or after April 1, 1990 but not later than March 31, 1995, in the areas mentioned in column 2 of Annexure I, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates specified in column 4 of Annexure I, by the manufacturer thereof for the period specified in column 3 of the said Annexure I, or till the maximum amount of tax relief by such exemption from or reduction in rate of tax as specified in column 5 of Annexure I is achieved, whichever is earlier, on the turnover of sales--
(a) of the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernisation ; and
(b) of goods manufactured by the unit which are of a nature different from those manufactured earlier by such unit in the case of units undertaking diversification.
(2) The period of such facility shall be reckoned from the first date of production--
(i) of goods of a nature different from those manufactured earlier by such unit in case of diversification ; and
(ii) of the goods manufactured in excess of the base production in the case of units undertaking expansion or modernisation.
2..............
(i) to (iv).............
3. 'Fixed capital investment' may, unless otherwise established, be determined in the case of an industrial undertaking financed by a term loan advanced by a public financial institution or a scheduled bank according to the certificate to that effect issued by such institution or the bank and in any other case, according to--
(a) the value of the land certified by the Collector in accordance with the procedure laid down for determination of the value of land for the purpose of payment of stamp duty under the Indian Stamp Act, 1899 ;
(b) the value of building certified by an evaluator approved by the Income-tax Department for the purpose ;
(c) the value of plant, machinery, equipment, apparatus and components certified by a chartered accountant.
4. In determining the fixed capital investment as defined in clause (4) of the Explanation in case of 'new units' or 'additional fixed capital investment' referred to in sub-clause (d) of clause (5) of the Explanation in case of 'units which have undertaken expansion, diversification or modernisation' the investment in only such land, building, plant, machinery, equipment, apparatus and component or, as the case may be, such additional land, building, plant, machinery, equipment, apparatus and component shall be taken into account as were acquired on or before the relevant date of commencement of the period of facility notified under Sub-section (1) of Section 4-A of the Act.
5....................................
(a) and (b)....................
6(a) and (b)......................
Annexure I
No.
Positionof unit
Total period of ex-emption/ reduction in therate of tax.
Rate oftax applicable (denoted as percentage of the rate of tax normally applicableunder the Act to the goods concerned)
Monetarylimit up to which exemption from or reduction in the rate of tax isadmissible
Year
In case ofunits with a fixed capital investmentexceeding 50 crores.
In caseof other units.
1
2
3
4
5
A
BC
1......
Tenyears
.
.
175 per cent of the fixed capital investment in the case of small-scale units and 150 per cent of the fixed capital investment in case of other units.
2(i)
Bulandshahar;
Nine years
.
.
.
150 percent of the fixed capital investment in the case of small-scale units and 125 per cent of thefixed capital investment in the case of other units.
(ii) & (iii).....
3....
'
TT-2-780/XI-9(226)/94-U.P. Act 15-48-Order-95,
dated March 31, 1995
Gazette dated March 31, 1995.
'Whereas, the State Government is of the opinion that for promoting the development of certain industries in the State, it is necessary to grant exemption from or reduction in rate of tax to a new units and also to units which have undertaken expansion, diversification, modernisation or backward integration ;
Now, therefore, in exercise of the powers Under Section 4-A of the Uttar Pradesh Trade Tax Act, 1948 (U.P. Act No. XV of 1948), hereinafter referred to as the Act, the Governor is pleased to declare that :
1(A)....................
1(B) in respect of any goods manufactured in a unit, other than the units of the type mentioned in Annexure II, which has undertaken 'expansion, diversification or modernisation' on or after April 1, 1995 but not later than March 31, 2000 in the areas mentioned in column 2 of Annexure I, no tax shall be payable or, as the case may be, the tax shall be payable at the reduced rates specified in column 4 of Annexure I, by the manufacturer thereof for the period specified in column 3 of the Annexure I, or till the maximum amount of tax relief by such exemption from or reduction in rate of tax as specified in column 5 of Annexure I is achieved, whichever is earlier, on the turnover of sales :
(a) of the quantity of goods manufactured in excess of the base production in the case of units undertaking expansion or modernisation ; and
(b) of goods manufactured by the unit which are of a nature different 'from those manufactured earlier by such unit in the case of units undertaking diversification.
1(C)................
2...................
3....................
4....................
5....................
6....................
7....................
Annexure I
S.No.
Locationof unit
Totalperiod of exemption/ reduction in the rate of tax.
Exemptionfrom or reduction in the rate of tax (denoted as percentage of the rate oftax normally applicable under the Act to the goods concerned) which, on anytransaction of sale, shall not exceed five per cent of the sale price.
Monetarylimit up to which the benefit of exemption from or reduction in the rate oftax under the Act together with the benefit of exemption from or reduction inthe rate of tax under the Central Sales Tax Act, 1956 isadmissible
Year
In caseof unit with a fixed capital investment exceeding 50 crores.
In caseof other units.
1
2
3
4
5
A
B
C
1.
Twelveyears...
250 per cent of the fixed capital investmentor, as the case may be, the additional fixed capital investment
2.(i)
Buland-shahar
Tenyears...
200 percent of the fixed capital investment or as the case may be, additional fixed capital investment.
(ii)..
(iii)...
(iv)..
3....
Section 4-A(l) of the Act as was applicable for the relevant period reads as follows :
'4-A. Exemption from trade tax in certain cases.--(1) Notwithstanding anything contained in this Act, 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 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 manufacturer thereof shall, during such period not exceeding twelve 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 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 conditions as may be specified, be exempt from trade tax on sale of goods whether wholly or partly or be liable to tax at such reduced rate as it may fix.
Provided .........................'.
Explanation 4 to Section 4-A of the Act defines 'Fixed capital investment' and provides the procedure for determining the fixed capital investment which read as follows :
'(4) 'Fixed capital investment' means investment in land and building and such plant, machinery, equipment, apparatus, components, moulds, dyes, jigs, and fixtures as have not been used or acquired for use in any other factory or workshop in India ;
Provided that--
(a) for the purposes of determining investment in land and building only the following shall be taken into account,--
(i) investment in only such portion of land and building as is necessary for the establishment or running of the factory or workshop of the unit ;
(ii) expenses incurred in registration of land and building under the provisions of the Registration Act, 1908 and in development of land as development charges payable to any statutory body ;
(iii) the value of land or building already owned and given by the proprietor, partner, managing director, promoter, director, or holding company as his or its share in the capital in case the unit is established in such land or building ;
(iv) the amount or proportionate amount paid or payable as premium for the period for which exemption Under Section 4-A is granted on account of lease and the expenses incurred on registration of the lease deed under the Registration Act, 1908 in case the unit is established in land or building taken on lease ;
(v) the investment in land or building which is necessary for establishing or running the unit under some statutory obligation.
(b) for the purposes of determining investment in plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures only the following shall be taken into account :
(i) investment whether by means of purchase, hire or lease in such plant, equipment, apparatus, components and machinery as is necessary for the establishment or running of the factory or workshop ;
(ii) investment as is necessary under some statutory obligation ; and
(iii) expenses incurred in erection and installation of such plant and machinery and bringing it to the site.
(c) the State Government may, by notified order specify the procedure for determining fixed capital investment.'
Explanation 5 to Section 4-A of the Act provides for eligibility of units for availing facility of exemption on ground of undertaking expansion, diversification or modernization which reads as follows :
'5. 'Unit which has undertaken expansion, diversification or modernisation' means an industrial undertaking--
(a) of a dealer who is not a defaulter in payment of any dues under this Act or the Central Sales Tax Act, 1956 or under any loan scheme administered by the Pradeshiya Industrial and Investment Corporation of Uttar Pradesh regarding trade tax on sale or purchase of goods ;
(b) whose first date of production of goods,--
(i) of a nature different from those manufactured earlier by such undertaking in case of units undertaking diversification ; and
(ii) manufactured in excess of base production in such undertaking in case of units undertaking expansion or modernisation,
falls at any time after March 31, 1990.
(c) the production capacity whereof has increased by at least twenty-five per cent as a result of expansion or modernisation or wherein goods of a nature different from those manufactured earlier are manufactured after diversification ;
(d) wherein an additional fixed capital investment of at least twenty-five per cent of such original fixed capital investment (without providing for depreciation) is made ;
(e) which has been established within the same district in which the existing industrial unit is established.'
Since in both the revisions questions involved are different it would be convenient to deal with them separately. Hence they are being dealt with separately.
Trade Tax Revision No. 700 of 1997
8. The submission of Sri Bharat Ji Agarwal, learned Senior Counsel appearing for the revisionist, is that the revisionist had applied for exemption from payment of sales tax in view of the notification dated July 27, 1991 extract of which has been reproduced above. His submission is that since the revisionist had undertaken expansion of his unit between April 1, 1990 to March 28, 1994, the unit was entitled to exemption on the total fixed capital investment as it existed prior to the date of the making of the application or the total fixed capital investment which included the fixed capital investment prior to April 1, 1990 and additional fixed capital investment made between the period from April 1, 1990 to March 28, 1994. He further submits that the Tribunal has committed error in not granting the benefit claimed by the revisionist by adverting to the provisions of subsequent notification dated March 31, 1995 extract of which has been reproduced above. His submission is that when the revisionist was granted eligibility certificate in view of the notification of 1985 as reproduced above, the exemption from payment of tax was on the total turnover of sales and was not relatable to the fixed capital investment by the dealer. By notification dated July 27, 1991 the benefit in exempting the dealer from payment of sales tax was curtailed by making it relatable to the fixed capital investment which in the case of new units means the capital investment made after April 1, 1990 and not later than 31st day of March, 1995 whereas in the case of existing units which had undertaken expansion, diversification or modernisation on or before April 1, 1990 but not later date of March 31, 1995 it meant total fixed capital investment, i.e., original fixed capital investment plus additional fixed capital investment. The benefit granted was curtailed to 150 per cent of the fixed capital investment in the case of small-scale units and 125 per cent of the fixed capital investment in the case of other units so far as the district Bulandshahar was concerned. He further points out that by notification dated March 31, 1995 the exemption from payment of tax Under Section 4-A of the Act was further curtailed by making the distinction between fixed capital investment and additional fixed capital investment. In the case of new units the exemption was to the extent of 200 per cent of the fixed capital investment and in other cases, i.e., in cases where already existing units had undertaken expansion, diversification and modernisation after April 1, 1995 but not later than March 31, 2000 the benefit of exemption from payment of sales tax was curtailed to the amount of additional fixed capital investment. Similarly under notification dated December 26, 1985, the period of exemption to be enjoyed by the unit situated in district Bulandshahar having fixed capital investment exceeding Rs. 3 lakhs was six years whereas under notification dated July 27, 1991 it was for nine years in respect of industries/units with fixed capital investment exceeding Rs. 50 crores. By notification dated March 31, 1995 the benefit of exemption to be enjoyed was to the extent of 10 years in cases of units with a fixed capital investment exceeding Rs. 50 crores which were situated in district Bulandshahar or in other districts as described in the Schedule appended to the notification. It is submitted that the Tribunal had committed error in making a distinction between the fixed capital investment and the additional fixed capital investment by adverting to the provisions of notification dated March 31, 1995 which has nothing to do in the case of the revisionist.
9. Shri B.K. Pandey, learned Standing Counsel, appearing for the respondents has submitted that the revisionist had never applied for exemption in respect of original investment of Rs. 16,21,54,852. He has also submitted that even before the Tribunal also no claim for relief in respect of original fixed capital investment to the tune of Rs. 16,21,54,852 was made which is evident from the reading of the opening paragraph of the judgment of the Tribunal. It is also submitted that in the grounds of appeal before the Tribunal several issues might have been raised but if the revisionist did not opt to press the grounds in question relating to the fixed capital investment of Rs. 16,21,54,852 at the time of arguments before the Tribunal it cannot be permitted to raise those grounds in this revision before this Court. In case the point was pressed and canvassed before the Tribunal and the Tribunal omitted to notice the same, the revisionist ought to have approached the Tribunal. It is also submitted that the letter dated January 24, 1997 by the convener of the Divisional Level Committee addressed to the applicant also reiterates that the revisionist had disagreed with treating the capital investment of Rs. 24 crores 15 lakhs and odd as fixed capital investment as the revisionist had claimed exemption in respect of Rs. 54.51 crores as fixed capital investment and the revisionist's own case is that he was claiming exemption on the basis of Rs. 54.51 crores as fixed capital investment. It is next submitted that otherwise also the revisionist is not entitled to claim benefit of investment of Rs. 16,21,54,852. It is submitted that a new unit after March 31, 1990 is defined in explanation (2) of Section 4-A of the Act whereas a unit which has undertaken expansion, diversification and modernisation is defined in explanation (5) to Section 4-A of the Act. He has submitted that the fixed capital investment defined in explanation (4) to Section 4-A of the Act is relatable to a new unit as also to the unit which has undertaken expansion, modernisation and diversification and the same has to be suitably read in case of new unit or in the case of expanded unit. In the case of the unit undertaking expansion, etc., the fixed capital investment should be taken as fixed capital investment made in expansion, diversification and modernisation. Since the notification dated July 27, 1991 deals with a new unit as also the unit which has undertaken expansion, diversification and modernisation, the expression 'fixed capital investment' in the case of units undertaking expansion, diversification and modernisation should be treated to mean the capital investment made in respect of such modernisation, expansion or diversification and not the total investment including the investment as it stood before undertaking expansion, modernisation or diversification, etc. It is submitted that the words 'by the manufacturers thereof' either in sub-clause (1-A) and sub-clause (1-B) of the notification dated July 27, 1991 clearly refer to the goods manufactured by the new unit or the goods manufactured by the expanded unit and in the case of expansion the facility will commence when the goods are manufactured in excess of the base production. In nutshell the submission of Shri B.K. Pandey, learned Standing Counsel and Shri Ashok Mehta, learned Chief Standing Counsel is that fixed capital investment in the case of expanded unit is additional fixed capital investment and not total fixed capital investment and the facility of exemption is to be granted only in respect of the goods manufactured by the expanded units and not by the existing units. A reference has also been made to a circular dated June 30, 1993 being circular No. New Delhi, Sa.Ka.Mu.-18(93-94)/467/Bikrikar Karyalaya Ayukta Bikrikar Uttar Pradesh (Nai Ikai Anubhag), Lucknow, and it is argued that exemption under the scheme of expansion shall be limited to additional fixed capital investment only.
10. In reply Sri Bharat Ji Agrawal, learned Senior Counsel, has submitted that the application for exemption Under Section 4-A of the Act copy whereof is appended to the revision application as annexure 1 is in statutory pro forma.. Para 6 of the said application relates to giving of particulars of the fixed capital investment, production capacity, production in the last five consecutive assessment years and dues, if any, payable by the unit under the U.P. Trade Tax Act and the Central Sales Tax Act, etc. It is submitted that under heading 'a' fixed capital investment four columns are provided, one relates to particulars, the other relates to original investment without giving margin for depreciation on August 12, 1988, third relates to additional investment in expansion, etc., on the date of commencement of the period of facility and the fourth column relates to certificate of valuation of additional fixed capital investment. It is submitted that there is no column in the statutory pro forma for making an application as to in respect of how much amount the exemption is claimed. The exemption is to be granted in accordance with the provisions contained in the Act or as notified by the relevant notification which in the present case (notification dated July 27, 1991), speaks of fixed capital investment and not of additional fixed capital investment whereas a distinction was made by the subsequent notification dated March 31, 1995 in fixed capital investment and additional fixed capital investment. It is further submitted by him that in the memo of appeal filed before the Tribunal a specific ground being ground No. 1 of the appeal the appellant had stated that the fixed capital investment of the appellant unit is Rs. 7,617.87 lakhs and in ground No. 3 of the grounds of appeal it was specifically stated that the appellant had given the details of each and every investment made under the head fixed capital investment as defined Under Section 4-A of the Act. Hence the Divisional Level Committee ought to have mentioned the fixed capital investment as Rs. 7,617.87 lakhs which includes original fixed capital investment and additional fixed capital investment. It is submitted that original fixed capital investment includes both original investment as well as additional investment and both are part and parcel of the fixed capital investment of the entire unit and the benefit of exemption in the notification dated July 27, 1991 was to the monetary limit to the extent of entire fixed capital investment of the industrial unit. As to the second leg of argument of the learned Chief Standing Counsel the submission of Sri Bharat Ji Agrawal is that clause (4) of the notification dated July 27, 1991 only provides that in determining the additional fixed capital investment referred to in sub-clause (d) of clause (5) of the explanation in the case of units which have undertaken expansion, etc., investment up to the date of commencement of the period of facility that shall be taken into account. This clause (d) is only for the purposes of determining the field of eligibility of 25 per cent investment as mentioned in sub-clause (4) of the explanation to Section 4-A of the Act and not for the purposes of determining the fixed capital investment to the extent of which the benefit is to be granted to a new unit. As to the reference of the circular Shri Bharat Ji Agrawal has submitted that the circular issued by the department is contrary to the notification dated July 27, 1991. In view of the decision of the Division Bench of this Court in the case of Hindustan Reprographics Limited v. State of Uttar Pradesh [1989] 72 STC 424 ; 1988 UPTC 1232 the statutory notification cannot be overridden by clause (2) of circular dated June 13, 1993.
11. As already pointed out above, the preliminary objection taken on behalf of the Revenue is that the revisionist had applied for exemption in respect of the original investment of Rs. 16,21,54,852. In support of this submission reference has been made to the application as contained in annexure 1 to the revision application, letter by Joint Director of Industries, Western Region, Meerut, as contained in annexure 3 to the revision application and to the order of the Tribunal. It is submitted that in the application it is nowhere stated that the exemption was being claimed in respect of total fixed capital investment of Rs. 76,17,87,532. It is not disputed that application as contained in annexure 1 to the revision application is in statutory form provided under the Rules. Column No. (6) of the application relates to furnishing of details of--(a) fixed capital investment, (b) production capacity, (c) production of last five consecutive assessment years and (d) dues, if any, payable by the unit under the U.P. Trade Tax Act or Central Sales Tax Act or under the Sales Tax Loan Scheme administered by Pradeshiya Industrial and Investment Corporation of Uttar Pradesh. A perusal of this form would show that it does not provide any column wherein the applicant is required to make mention of the total amount with regard to which the exemption is claimed. Under sub-clause (a), i.e., fixed capital investment of para 6 of the application four columns are given. The first column refers to the investment in land, investment in building and investment in plant and machinery, etc. Second column relates to the amount of original investment as on August 12, 1988. Third column relates to additional investment in expansion, diversification or modernisation on the date of commencement of the period of facility which in the case of applicant is March 28, 1994 and column No. 4 relates to certificate of valuation of additional fixed capital investment. There is nothing in the application from which it can be inferred that the revisionist had applied for grant of facility of exemption Under Section 4-A in respect of additional fixed capital investment on modernisation only. The other document, annexure 3, is copy of a letter written by the Joint Director of Industries which is addressed to the revisionist. This cannot be said to be an admission of revisionist although it is stated that by the said application the revisionist had requested for grant of eligibility certificate in respect of Rs. 54,51,03,544. Copy of the said application has not been filed by the respondents nor any reference to the said application was made during arguments.
12. It is true that in the opening para of the judgment the Full Bench of the Tribunal had made a reference that the claim of the dealer is that his unit should have been granted exemption from payment of tax with regard to Rs. 54,51,03,544 on account of expansion of unit taken by him. But it has been rightly pointed out by Shri Bharat Ji Agrawal that this was not correctly stated by the Tribunal. He has drawn attention of the court to the memo of appeal, copy of which has been filed with supplementary affidavit dated September 23, 1999. The first prayer made in the said memo of appeal was that the order passed by the Divisional Level Committee be modified and the fixed capital investment of the unit be mentioned as Rs. 7617.87 lakhs in place of Rs. 24,15.05 lakhs in the eligibility certificate issued Under Section 4-A of the Act. Perusal of grounds Nos. 3 and 4 also shows that the revisionist had claimed before the Tribunal that he was entitled to benefit of additional fixed capital investment as defined Under Section 4-A of the Act and the Divisional Level Committee ought to have mentioned the fixed capital investment of Rs. 76,17.87 lakhs which includes the original fixed capital investment. It appears that the Tribunal has misread the prayer of the revisionist in the memo of appeal and has wrongly stated in para first of the order that the appellant claimed exemption in respect of Rs. 54,51,03,544 only. It may further be seen that the Tribunal was under the wrong impression that the revisionist was entitled to apply for exemption only in respect of fixed capital investment/additional fixed capital investment and in concluding para of the judgment the Tribunal having made a reference to notification dated March 31, 1995 wrongly observed that under the said scheme fixed capital investment or additional fixed capital investment both have been included in respect of units having capital investment of more than Rs. 50 crores and both the exemptions to the scheme are similar. It held that since in the case of the appellant a sum of more than Rs. 50 crores have been invested under the expansion scheme, a unit was entitled to benefit of additional fixed capital investment only in both the schemes. It appears that the Tribunal has confused that the schemes of July 27, 1991 and March 31, 1995 were similar schemes and the same benefit was available in both the schemes.
13. Extracts of the three schemes dated December 26, 1985, July 27, 1991 and March 31, 1995 have been reproduced above. A perusal of the December 26, 1985 scheme would show that the exemption from payment of tax for the period specified in column 3(b) in respect of units with capital investment exceeding three lakh rupees was 6 years which were situated within the local limits of district Bulandshahar. There was no limit of exemption and the exemption was in respect of total tax liability for the said period. There was no co-relation between the benefit granted and the fixed capital investment except that the fixed capital investment should have been exceeding Rs. 3 lakhs. In the second scheme dated July 27, 1991 the benefit of exemption granted under the earlier scheme of 1985 was curtailed to some extent. A distinction was made between the new units and the already existing units which have undertaken expansion, diversification and modernisation on or after April 1, 1990 but not later than March 31, 1995. The benefit of exemption was available to certain percentage of the fixed capital investment. So far as the units situated in district Bulandshahar were concerned, the exemption was to the extent of 150 per cent of the fixed capital investment in the case of small-scale units and 125 per cent fixed capital investment in the case of other units. In the third scheme dated March 31, 1995 the benefit of exemption was further curtailed. It also made distinction between the new units and the units which have undertaken expansion, diversification and modernisation on or after April 1, 1995 but not later than March 31, 2000. From perusal of annexure 1 to the said scheme it would be evident that a distinction was made between the fixed capital investment and additional fixed capital investment. In the case 'of new units the exemption was to the extent of 250 per cent or 200 per cent of the fixed capital investment whereas in the case of units undertaking expansion, diversification or modernisation the benefit was only to the extent of additional fixed capital investment. Therefore, observation of the Tribunal that similar benefit was granted under the two schemes of 1991 and 1995 is apparently erroneous and based upon wrong assumption of facts. It is clear from the comparison of the two schemes that benefit of exemption Under Section 4-A under the scheme of 1991 was in respect of fixed capital investment whereas under the scheme of 1995 the exemption to the units undertaking expansion, modernisation or diversification, the limit of exemption was only to the extent of additional fixed capital investment.
14. The submission of Sri Bharat Ji Agrawal, learned counsel for the revisionist is that since the notification dated July 27, 1991 grants exemption in respect of fixed capital investment and does not make only distinction between the fixed capital investment and the additional fixed capital investment, the revisionist was entitled to exemption on total fixed capital investment which includes the fixed capital investment as on August 16, 1988 and additional fixed capital investment made by the revisionist between April 1, 1990 till March 28, 1994. On the other hand, the submission of Sri B.K. Pandey, learned Standing Counsel and Shri Ashok Mehta, learned Chief Standing Counsel is that fixed capital investment in the case of expanded unit is additional fixed capital investment and not the total fixed capital investment and the facility of exemption is to be granted only in respect of additional fixed capital investment. In support of their submissions reference is made to explanation (2) and explanation (5) of Section 4-A which define and explain 'new unit' after March 31, 1990 and unit which has undertaken expansion, diversification or modernisation. They have also referred to definition of 'fixed capital investment' as given in explanation (4) to Section 4-A of the Act. It is also submitted that the department had also issued a circular dated June 30, 1993 referred to above and it is argued that according to the circular exemption under the scheme shall be limited to fixed capital investment.
15. The controversy is whether the words 'fixed capital investment' employed in column 5 of Annexure 1 to notification dated July 27, 1991 should be interpreted to mean the total fixed capital investment, viz., investment as on August 16, 1988 plus additional fixed capital investment from April 1, 1990 to March 28, 1994 by a unit which has undertaken modernisation or in case of such unit it should be interpreted to mean only additional fixed capital investment made by the unit from April 1, 1990 to March 28, 1994. Section 4-A of the Act has made distinction between a new units during the period ending with March 31, 1990 and new unit after March 31, 1990 but to my mind, that does not have any bearing on the controversy in hand. Similarly explanation (5) of Section 4-A explains what would be meant by the expression 'the unit which has undertaken expansion, diversification or modernisation'. Learned Chief Standing Counsel has drawn the attention of the court to sub-clause (d) of the aforesaid explanation which provides that such a unit means wherein an additional fixed capital investment of at least twenty five per cent of such original fixed capital investment (without providing for depreciation) is made. On the strength of the above provision it is argued that sub-clause (d) of explanation (5) clearly provides that additional fixed capital investment in case of a unit undertaking modernisation should be at least 25 per cent of such original fixed capital investment. Shri Bharat Ji Agrawal, learned counsel for the revisionist, has rightly pointed out that the explanation as aforesaid provides only with regard to the field of eligibility. By explaining as to what would be meant by a unit which has undertaken expansion, etc., the explanation provides as to which unit shall be eligible for facility of exemption Under Section 4-A of the Act. In my view also sub-clause (d) of explanation (5) has nothing to do with the extent of benefit of exemption which can be granted to a unit undertaking modernisation, expansion or diversification. Then learned Standing Counsel and the learned Chief Standing Counsel have made a reference to explanation (4) of Section 4-A of the Act and have pointed out that the expression 'fixed capital investment' is relatable to a new unit as also to the new unit which has undertaken expansion. Therefore, fixed capital investment should be suitably read in the case of new unit and in the case of unit undertaking expansion to mean total fixed capital investment in the case of new unit arid additional fixed capital investment in the case of unit undertaking expansion. Explanation (4) to Section 4-A of the Act has been reproduced above. In first part of it explanation (4) provides that what would be meant by the fixed capital investment. According to the explanation it means that the investment in land, building and such plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures as have not been used or acquired for use in any other factory or workshop in India. Second part of the explanation provides how the fixed capital investment may be computed or determined. Clause (c) of explanation (4), however, provides that the State Government may, by notified order, specify the procedure for determining the fixed capital investment. The notification dated July 27, 1991 has provided as to how the fixed capital investment as defined in clause (4) of the explanation in the case of new units or in the case of additional fixed capital investment referred to sub-clause (d) of explanation (5) is to.be computed. It provides that in determining the fixed capital investment the investment in only such land, building, plant, machinery, equipment, apparatus, components or as the case may be such additional land, building, plant, machinery, equipment, apparatus and components shall be taken into account as were acquired on or before the. relevant date of commencement of the period of facility notified under Sub-section (1) of Section 4-A of the Act. This clause (4) of the notification thus provides only as to how the fixed capital investment in the case of new unit and additional fixed capital investment are to be computed. It does not provide that in the case of unit undertaking modernisation, expansion or diversification only additional fixed capital investment shall be considered and the limit of exemption as provided in column 5 of annexure 1 shall be the limit to the extent of additional fixed capital investment in the case of unit undertaking modernisation, diversification or expansion. It may be seen here that such a distinction was made in the subsequent notification dated March 31, 1995 where the benefit of exemption in payment of tax in the case of unit undertaking modernisation, expansion or diversification was relatable to additional fixed capital investment. Column 5 of annexure 1 to the notification dated March 31, 1995 provided the monetary limit up to which exemption from or reduction in the rate of tax is admissible. It provides the monetary limit of 200 per cent of the fixed capital investment, in case of new units and the limit of additional fixed capital investment in the case of units undertaking modernisation, diversification and expansion. This is with respect to industries or units situated in district Bulandshahar or other areas of the like category. It is argued on behalf of the opposite parties that subsequent notification cannot be taken into consideration for construing the provisions of the notification under which the benefit of exemption is being claimed. In reply Shri Bharat Ji Agrawal has made a reference to a decision of the honourable Supreme Court in Pappu Sweets and Biscuits v. Commissioner of Trade Tax, V.P., reported in [1998] 111 STC 425 ; 1998 UPTC 1086 and has submitted that in case of doubt subsequent notification can be looked into to interpret the notification dated July 27, 1991. He has also submitted that the object of the notification providing for exemption is to increase industrial activities and encourage new unit or the units undertaking modernisation, diversification or expansion. It is submitted that the notification should be construed in a reasonable and purposive manner so as to advance the objective of the provisions. In support of his submission Shri Agrawal has referred to the decision of the honourable Supreme Court in Commissioner of Sales Tax v. Industrial Coal Enterprises [1999] 114 STC 365 ; 1999 UPTC 250.
16. In the first case of Pappu Sweets and Biscuits [1998] 111 STC 425 ; 1998 UPTC 1086, the honourable Supreme Court was considering whether toffee is sweetmeat or a commodity, of a like nature and therefore, the appellant's industrial units making toffees, though newly set-up, were not entitled to the benefit of exemption from payment of sales tax under notification dated July 27, 1991, issued by the State of Uttar Pradesh. Annexure II provided list of the industries not entitled to the facility of exemption from or reduction in rate of tax and entry 18 of the said annexure II included unit making sweetmeat, namkin, reori, gazak and commodities of like nature and restaurants. Similar annexure II is the notification dated March 31, 1995 which contained list of units not entitled to facility of exemption. Entry 8 in the said notification included making sweetmeats, namkin, reori, gazak (but excluding such confectionery manufacturing units as are registered under the Factories Act, 1948) and restaurant. While arguing before the honourable Supreme Court that sweetmeats does not include confectionery items like toffee a reference was made to the subsequent notification. It was observed by the honourable Supreme Court in para 13 of the judgment (para 12 in STC) that : 'learned counsel submitted that subsequent legislation can be looked at in order to see what is the proper interpretation to be put upon the earlier legislation when the earlier legislation is found to be obscure or ambiguous or capable of more than one interpretation. In support of his contention, he relied upon the decisions of this Court in State of Bihar v. S.K. Roy [1996] Supp. SCR 259 and Jogendra Nath Naskar v. Commissioner of Income-tax, Calcutta [1969] 3 SCR 742. In Naskar's case [1969] 3 SCR 742, this Court quoted with approval the following observations made in Cape Brandy Syndicate v. Inland Revenue Commissioners [1921] 2 KB 403 :
'I think it is clearly established in Attorney-General v. Clarkson (1900) 1 QB 156 at pages 163, 164 that subsequent legislation may be looked at in order to see the proper construction to be put upon an earlier Act where that earlier Act is ambiguous. I quite agree that subsequent legislation if it proceeded on an erroneous construction of previous legislation cannot alter that previous legislation; but if there be any ambiguity in the earlier legislation, then the subsequent legislation may fix the proper interpretation which is to be put upon the earlier Act'.'
Thus the honourable Supreme Court took the view that subsequent legislation may be looked into in order to see the proper construction to be
put upon an earlier Act where that earlier Act is ambiguous. Therefore, subsequent notification can be looked into for interpreting the true meaning of expression 'fixed capital investment' as employed in column 5 of annexure I to the notification dated July 27, 1991. It has already been found above that earlier under the notification of 1985 the exemption was unlimited and was not related to fixed capital investment except that the period of exemption in case of units with capital investment not exceeding three lakhs rupees was different than the units with capital investment exceeding Rs. 3 lakhs. The notification dated July 27, 1991 curtailed the monetary; limit to certain percentage of fixed capital investment as provided in. column 5 of the annexure I. The notification dated March 31, 1995 further curtailed the monetary limit by making a distinction between fixed capital investment and the additional fixed capital investment. The benefit to new units was available to the monetary limit of certain percentage of fixed capital investment as provided in column 5 of annexure I whereas in the case of unit undertaking modernisation, expansion or diversification the monetary limit of exemption available was to the extent of additional fixed capital investment only. Thus under notification dated July 27, 1991 the intention of the Government appeared to be to grant exemption with regard to fixed capital investment which included in the case of the revisionist fixed capital investment as on August 16, 1988 and additional fixed capital investment between April 1, 1990 to March 28, 1994.
17. Shri Bharat Ji Agrawal, learned counsel for the revisionist has rightly pointed out that the provisions for exemption are meant for the purposes of increasing the production of the goods and promoting the development of the industries in the State. Such provisions though to be construed strictly but should be construed in reasonable and purposive manner so as to advance the objective of the provision. The honourable Supreme Court in the case of Commissioner of Sales Tax v. Industrial Coal Enterprises [1999] 114 STC 365 ; 1999 UPTC 250 made the following observations in paras 6, 11 and 12 of the judgment :
'6. 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...........
11. In Commissioner of Income-tax, Amritsar v. Strawboard . : [1989]177ITR431(SC) this Court held that in taxing statutes, provision for concessional rate of tax should be liberally construed. So also in Bajaj Tempo Ltd., Bombay v. Commissioner of Income-tax, Bombay City-Ill, Bombay : [1992]196ITR188(SC) , it was held that provision granting incentive for promoting economic growth and development in taxing statutes should be liberally construed and restriction placed on it by way of exception should be construed in a reasonable and purposive manner so as to advance the objective of the provision.
12. We find that 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. case : [1992]196ITR188(SC) , is applied, there is no doubt whatever that the exemption granted to the respondent from August 9, 1985 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.'
18. Therefore, the provisions of the Act as well as the notification issued Under Section 4-A of the Act have to be construed though strictly but also in a reasonable and purposive manner so as to advance the objective of the provisions. I agree with the learned Standing Counsel that various provisions of the Act as well as the notification issued Under Section 4-A of the Act have to be construed harmoniously but in view of the discussions made above the court does not agree with the submission of the learned Standing Counsel that 'fixed capital investment' used in column 5 of annexure 1 of the notification has to be read as 'fixed capital investment' in the case of new units and additional fixed capital investment only in the case of units undertaking expansion, diversification or modernisation. Column 5 of annexure 1 to the notification does not admit of such an interpretation or construction and does not provide separately for monetary limit of exemption in case of new units and in the case of units undertaking modernisation, expansion or diversification. As against this a distinction has been made between small-scale units and other units. In the case of small-scale units the percentage of monetary limit of benefit is higher than the percentage of monetary limit of benefit in the case of other units. Had it been the intention of the State Government to treat the fixed capita investment in the case of new units and in the case of units undertaking expansion, modernisation or diversification differently, this would have been provided in Clause (3) of the notification where provision is made as to how fixed capital investment is to be computed or determined, or in column 5 of annexure 1 to notification as was done in notification of 1995.
19. The last submission on behalf of the respondents is that a circular was issued by the Commissioner of Trade Tax dated June 30, 1993 whereby it was clarified that the facility of exemption to the units undertaking expansion, modernisation or diversification shall be to the extent of 100 per cent to 150 per cent of the additional fixed capital investment. It is submitted that in view of the above clarification also the fixed capital investment used in column 5 of annexure 1 to the notification dated. July 27, 1991 fixed capital investment in respect of units undertaking modernisation, etc., shall be only relatable to additional fixed capital investment. Shri Bharat Ji Agrawal has, however, pointed out that if the contention of the revisionist that fixed capital investment as used in column 5 of annexure 1 to notification dated July 27, 1991 is construed as additional fixed capital investment then the circular letter shall be in contravention to the notification which is statutory notification. There is substance in the submission of Shri Agrawal Notification dated July 27, 1991 was issued in exercise of the powers given Under Section 4-A of the Act. Therefore, the notification has statutory effect. A circular issued by the department is only clarificatory or in the nature of administrative instructions. It cannot override the provisions of the statute or the notifications issued under the statute. Similar question came up for consideration before a division Bench of this Court in the case of Hindustan Reprographics Limited v. State of Uttar Pradesh reported in [1989] 72 STC 424 ; 1988 UPTC 1232. That was a case in which several notifications were issued by the State Government providing for the period for which the benefit of exemption could be availed of or granted. However, by letter dated May 23, 1988 the Commissioner of Sales Tax reduced the period of exemption from seven years to five years on the ground that by virtue of clarifications received under the Government letters dated March 17, 1988 and March 23, 1988, the defined date of production of the petitioner's unit being prior to January 29, 1985, the petitioner was entitled to exemption only for a period of five years under Government notification dated August 27, 1984. This order dated May 23, 1988 was challenged in the writ petition before the High Court. The question that arose for consideration before the Division Bench was whether the period of exemption of seven years granted to the petitioners by various notifications could be modified by the Government as per Government instructions contained in letters dated March 17, 1988 and March 23, 1988. The division Bench referred to the decision of the Supreme Court in K.M.Chikkaputtaswamy v. State of Andhra Pradesh : [1985]3SCR890 and placing reliance on the said decision the court held that :
'Thus, the legislative mandate Under Sub-Sections (1) and (2) of Section 4-A of the Act is that the exercise of powers by the State Government must be by notification only and in no other way. 'Notification' is defined under Section 4(29-A) of the Uttar Pradesh General Clauses Act, 1904 as follows :
'(29-A) 'Notification' or 'public notification' shall mean a notification published in the Gazette of the State, and the word 'notified' shall be construed accordingly.'
Further, it is worthy of note that notifications dated 29th January, 1985 (annexure 2) and 26th December, 1985 (annexure 4) were issued by the State Government in exercise of powers Under Section 4-A of the Act read with Section 21 of the Uttar Pradesh General Clauses Act and notifications dated 29th January, 1985 (annexure 3) and 26th December, 1985 (annexure 5) were issued by the State Government in exercise of powers Under Sub-section (5) of Section 8 of the Central Sales Tax Act, 1956 read with Section 21 of the General Clauses Act.................Thus the period of exemption of seven years having been specified by the State Government by notification, and the said notification being a statutory instrument, could not be modified or reduced to a lesser period by administrative instructions or clarifications issued by the Government under letters, dated 17th March, 1988 and 23rd March, 1988.'
Therefore, in my view, the circular cannot override the statutory notification.
20. For the foregoing discussions T.T.R. No. 700 of 1997 deserves to be allowed.
Trade Tax Revision No. 53(L) of 1997
21. In this revision dispute relates to the benefit to which the dealer was entitled as additional fixed capital investment made during the period from April 1, 1990 to March 28, 1994. The dealer had claimed benefit of Rs. 54,51,03,544. The Divisional Level Committee allowed it to the tune of Rs. 24,15,05,019 and rejected the claim of the dealer with respect to the remaining amount. The dealer filed appeal before the Trade Tax Tribunal, Lucknow. The Tribunal by the impugned order by partly allowing the appeal accepted the claim of the revisionist to the tune of Rs. 54,48,34,341.70 and directed that a modified eligibility certificate be issued to the dealer. Aggrieved by the order of the Tribunal the department has filed this revision.
22. Shri Mehta, learned Chief Standing Counsel has pressed this revision on the following grounds :
The Tribunal has directed to include preoperative expenses and interest payable to financial institution on the basis of the various decisions under the Income-tax Act whereas Explanation (2) of Section 4-A of the Act provides how the fixed capital investment shall be computed. It is submitted that the list given in Explanation (4) is exhaustive and the use of the words only in provisos (a) and (b) excludes preoperative expenses and expenses incurred in respect of interest payable to financial institution and the Tribunal has wrongly relied upon certain decisions under the Income-tax Act which will not be applicable in the instant case. It is submitted that the decisions under the Income-tax Act could be availed of if the manner of computation of the fixed capital investment was not provided under Explanation (4) and the list of item to be included was not found to be exhaustive.
23. Second submission of Sri Mehta is that the dealer had undertaken three separate and distinct expansions in the following manner :
Table
Sl. No.
The dateof completion of expansion
Additionalfixed capital investment
Increasein base production capacity.
1
2
3
4
1.
15-8-90
11,14,95,641
From 12,000 M.T. to 26,000 M.T.
2.
28-12-91
12,50,66,080
From 26,000 M.T. to 40,000 M.T.
3.
28-3-94
29,95,20,778
From 40,000 M.T. to 60,000 M.T.
His further submission is that in respect of three expansions which were distinct three separate applications could have been moved in accordance with the provisions of Section 4-A(5)(a) which provides that the facility of exemption can be granted within six months from the relevant date of commencement of the period of facility. He further submits that in the alternative if the dealer had not applied Under Sub-section (5)(a) within six months from the relevant date of the commencement of the facility and applies for such facility later than the date specified in Clause (a) then the notified Under Sub-section (1) shall be computed from the date of the application till the end of the period of such facility. It is also submitted by Shri Mehta that the company had undertaken expansions on August 15, 1990 and December 28, 1991 and had increased production capacity from 12,000 M.T. to 26,000 M.T. and 26,000 M.T. to 40,000 M.T. respectively. It is submitted that on September 16, 1994 three separate applications for these expansions were filed though subsequently the same were withdrawn on November 21, 1994 and revised combined application was filed. It is further pointed out that from time to time separate industrial licences to raise production capacity were obtained. This clearly indicates that there were three separate distinct expansions, the last being dated March 28, 1994. His submission is that since no separate applications for availing of the facility of exemption as required by Section 4-A(5)(a) and (b) are moved the Divisional Level Committee has rightly rejected the claim of the dealer for grant of benefit in respect of additional fixed capital investment in first expansion and second expansion.
24. The last submission of Sri Mehta is that under notification dated December 26, 1985 the dealer obtained eligibility certificate dated May 15, 1990 for a new unit for a period of six years. After the first expansion as well as after the second expansion the dealer got the eligibility certificate modified by getting original base production capacity increased from 12,000 M.T. to 26,000 M.T. and 40,000 M.T. respectively. He submits that the facility of exemption was availed of by the dealer as a new unit. It could not be permitted to avail of double benefit of a 'new unit' as well as of 'a new unit undertaking expansion' in respect of additional fixed capital investment in the first expansion and the second expansion. He also refers to exclusion of Clause (c) of explanation (2) to Section 4-A of the Act which provides that any addition to or extension of an existing factory or workshop not being an expansion, diversification or modernisation within the meaning of Clause (5) of this explanation shall not be included in the definition of 'new unit' after March 31, 1990.
25. Shri Bharat Ji Agrawal, learned Senior Counsel appearing for the opposite party, the dealer in reply to the first argument submits that Explanation (4) to Section 4-A of the Act provides how the fixed capital investment shall be computed and Clause (c) of the said explanation provides that the State Government may, by notified order, specify the procedure for determining fixed capital investment. He then refers to Clause (c) of the notification dated July 27, 1991 which prescribes the manner in which the fixed capital investment is to be computed. He submits that for determining the value that is, the fixed capital investment relating to building shall be fixed according to the value of building certified by a evaluator approved by the Income-tax department. For the purposes of fixing capital investment in plant and machinery, etc., it will be fixed according to the value of the plant and machinery, etc., certified by a chartered accountant. Thus, in view of the Explanation 4(c) to Section 4-A read with Clause (3) of the notification dated July 27, 1991 the dealer had filed relevant certificate authenticity whereof is not challenged nor any defect in the same is pointed out. Therefore, the value of the fixed capital investment in respect of the building, plant and machinery, etc., has been rightly accepted by the Tribunal.
26. As to the second submission of Sri Mehta the reply of Shri Bharat Ji Agrawal is that the expansion was undertaken under one integrated plan though in phases. It is submitted that this is evident from annexure 4, letter dated January 28, 1997 written by the convener of the Divisional Level Committee wherein the expansion in first phase and second phase is stated. It is further submitted that the argument is substantiated by the report of the Trade Tax Department, i.e., the report of the assessing authority as contained in annexure 5 to the counter-affidavit in which it was specifically mentioned that the total investment under the scheme of expansion was Rs. 54,46,59,544 and the unit was entitled for exemption for a period of 9 years on the turnover in the excess of the base production. It is also submitted that the department has admitted before the Tribunal that the expansion was made in three phases. Besides this he has relied upon a circular dated September 26, 1996 copy whereof is enclosed with the written arguments which provided that in the proposed scheme introduced in 1990 prior to the issuance of the notification dated July 27, 1991 and even after the issuance of the notification dated July 27, 1991 the unit shall not be entitled to apply for exemption under expansion scheme unless five years are completed from the date of establishment of the unit. His submission is that this was a promise made by the State Government by issuing aforesaid circular which cannot be withdrawn or retracted. He submits that the application filed by the dealer for the first two phases of expansion was even otherwise not maintainable, and no exemption could have been granted under the scheme of expansion within five years from August 16, 1988 during which period the first and second phase of expansions were undertaken. As to the binding effect of the circular reliance is placed upon the decision of the honourable Supreme Court in the case reported in (1996) 10 SCC 387 (Ranadey Micro-nutrients v. Collector of Central Excise). It is also submitted that even otherwise the unit is claiming exemption only in respect of production in excess of base production of 40,038 M.T. No exemption was claimed prior to July 17, 1995 that is, the date of the filing of the revised application for exemption. The exemption has been claimed on the turnover in excess of the base production of 40,038 M.T. after July 17, 1995 and no exemption has been claimed either prior to it or for the turnover up to 40,038 M.T. which has been achieved before completion of third phase of expansion. He submits that the Tribunal's order is, therefore, correct and needs no interference. annexure 4 is the order of the Divisional Level Committee. The dealer had claimed benefit of the facility of exemption on the ground that the scheme for expansion had been prepared much before and that scheme was completed in the assessment year 1993-94. The Divisional Level Committee observed that this statement of the dealer was not correct on account of the following observations :
'Vyapari dwara kai charano mein vistarikaran kiya gaya hai........... parntu us vistarikaran ke labh ke liye prathana patra nahi diya gaya. Uprokta 40,000 M.T. ke utpadan ke liye vyapari ne pratham avam dwitiya charano me vistarikaran ke dauran krmasaha Rs. 11,14,95,641 va Rs. 12,50,66,080 ki punji viniyojan pahle hi kar diya tha. Atha is punji viniyojan ki vartman vistarikaran ke liye nahi kiya ja sakta.'
He submits that from the above observations and findings of the Divisional Level Committee it appears that the contention of the dealer that integrated expansion scheme had been prepared much before was not disputed by the Divisional Level Committee. It had rather observed that the expansion was made in phases but denied the claim on two grounds, viz., (i) application phasewise expansion was not given and (ii) for obtaining production of 40,038 M.T. investment was made earlier in two phases which cannot be included in the instant expansion scheme. No other ground was taken by the Divisional Level Committee for rejecting the claim of the unit under the expansion scheme with regard to additional fixed capital investment of 40,038 M.T. in earlier first phase and second phase. It appears from the order passed by the Tribunal that the argument was placed before the Tribunal that the provisions of Section 4-A(5) being not clear, separate applications were moved for grant of eligibility certificate in respect of expansion undertaken in three phases. However, subsequently the definition of fixed capital investment was modified and therefore, an amendment application dated July 17, 1995 was moved. On the said application the assessing authority had submitted an enquiry report wherein the entire expansion was treated to be under one integrated scheme of expansion for increasing production from 12,000 M.T. to 60,000 M.T. and recommendation was made for granting eligibility certificate in respect of Rs. 54,51,03,544 relating to additional fixed capital investment. It was also recommended that the facility shall be available on the additional production/production in excess of base production in accordance with the provisions contained in Section 4-A(2){c) of the Act. On behalf of the revisionist an argument was made that the third expansion was the last expansion. Therefore, whatever investment was made in third expansion, facility of exemption can be granted only in respect of the same and no facility of exemption could be granted in respect of additional fixed capital investment in first and second phase of expansions.
The Tribunal in its order at page 19 has observed as follows :
^^fu%lansg foLrkjhdj.k dh ;kstuk esa ,slh dksbZ'krZ ugha gS vkSj u ,slh dksbZ lhek dk gh mYys[k gS ,d bdkbZ fdrus ckj viukfoLrkjhdj.k dj ldrh gSA vihykFkhZ }kjk viuk foLrkjhdj.k rhu pj.kksa esa fd;kD;kA izFke 3 pj.k esa mlus viuh okf'kZd mRiknu {kerk 12]000 feOVu lsc<+kdj 26]000 nwljs pj.k esa 26]000 feOVu ls c<+kdj 40]000 feOVu rFkkr`rh; o vafre pj.k esa 40]000 ls c<+kdj 60]000 feOVu dj nhA bl rjgfoLRkjhdj.k ;kstuk dh lekfIr rHkh gksxh tc r`rh; pj.k dk foLrkjhdj.k iwjk gkstk;sA ;fn vihykFkhZ blls vkxs Hkh pkSFks foLrkjhdj.k djus dh lksprs vkSj ogfoLrkjhdj.k 28-3-1994 ds ckn fdlh frfFk esa iw.kZ gksrk gS rks tc ;g pkSFkkfoLrkjhdj.k iw.kZ gksrk rks mlh esa foLrkjhdj.k iw.kZ gqvk ekuk tkrkA bl ifjizs{;esa pwafd fnukad 28-3-1994 dks foLrkjhdj.k dk r`rh; pj.k iwjk gks x;k vkSjvihykFkhZ blh ij ykHk pkgrs gSa vkSj blds fy;s vihykFkhZ }kjk iwoZ izkFkZuk i=okil ysdj fnukad 17-7-1995 dks fn;k x;kA foLrkjhdj.k fofHkUu pj.kksa esa gksldrk gS ysfdu foLrkjhdj.k dh ;kstuk ,d gh gksxh blfy, tc 99 ;kstuk vafre:i ls iw.kZ gks tk;sxh rHkh foLrkjhdj.k dk dk;Z iwjk ekuk tk;sxkA
,slh n'kk esa gekjs fopkj ls fdoy vafre pj.kesa iwath fofu;kstu gqvk gS mldks gh foLrkjhdj.k esa 'kkfey fd;k tkuk fdlh Hkhrjg ls mfpr ugha gSA**
27. The Tribunal also relied upon the circular dated February 27, 1993 issued by the Commissioner of Sales Tax according to which in case of expansion, diversification made by a unit, the maximum production obtained by such a unit in any of the preceding 5 years shall be treated as base production. The Tribunal also relied upon the definition of the base production given in explanation (6) to Section 4-A which provided that base production for the purposes of this section means :
'(a) maximum production achieved during any one of the preceding five consecutive assessment years ; or
(b) eighty per cent of the installed annual production capacity, whichever is higher.'
Thus the circular of 1993 referred to by the Tribunal in its order was in accordance with the explanation (6) to Section 4-A of the Act.
28. Now the arguments advanced by the learned counsel for the parties have to be looked into in the light of the findings of the Divisional Level Committee as also of the Tribunal.
29. As already pointed out above, three submissions have been made by Sri Mehta in support of the revision. The third submission is that under notification dated December 26, 1985 the dealer obtained eligibility certificate dated May 15, 1990 on the ground of his unit being a new unit. The eligibility certificate was effective from August 16, 1988, the date of first sale. The declared base production was 12,000 M.T. After first expansion in the year 1990 the eligibility certificate was got amended and production capacity was got increased from 12,000 M.T. to 26,000 M.T. Similarly after carrying out second expansion in the year 1991 the capacity was got increased from 26,000 M.T. to 40,000 M.T. He has submitted that this facility was availed of by the dealer as a 'new unit'. Once the unit had availed of the facility of exemption by increasing the base production capacity as a new unit, the unit of the assessee cannot avail of the same benefit as a unit undertaking expansion in respect of additional fixed capital investment in the first and second expansions. Shri Bharat Ji Agrawal, learned Senior Counsel appearing for the dealer has challenged the submission of Shri Mehta on the ground that there was only one integrated scheme of expansion which was carried out in phases. He has next submitted that the present benefit of exemption was on being availed of beyond 40,038 M.T. base production.
30. Explanation (2) to Section 4-A of the Act defines and clarifies as to which unit can be termed as a new unit after March 31, 1990. It specifically provides that the new unit after March 31, 1990 will not include any addition to, or extension of an existing factory or workshop not being an expansion, diversification or modernisation within the meaning of Clause (5) of this explanation. Admittedly, the unit of the dealer was a new unit during the period ending with March 31, 1990. Therefore, it could not have been treated as a new unit after March 31, 1990 and any modification in the eligibility certificate getting the base production capacity increased could not be treated as facility availed of by the new unit after March 31, 1990. It could only be availed of under Sub-Clause (5) of the explanation as a new unit undertaking expansion, diversification or modernisation. A new unit during the period ending with March 31, 1990 has also been defined and explained in explanation (1) to Section 4-A of the Act. The definition of new unit during the period ending with March 31, 1990 does not have such exclusionary clause as contained in Clause (2)(c) of the explanation. It has already been found above that under notification dated December 26, 1985 a new unit enjoying benefit of eligibility certificate was free to enjoy benefit of exemption from payment of sales tax to unlimited turnover. Besides this, as has been pointed out by Sri Bharat Ji Agrawal, learned Senior Counsel appearing for the dealer that the present eligibility certificate has been granted w.e.f. March 28, 1994 for increasing base production from 40,038 M.T. to 60,000 M.T. only. Therefore, no question of availing of double benefit by the dealer arises. While deciding T.T.R. No. 700 of 1997 it has already been held above that under the scheme for notification dated July 27, 1991 the exemption is relatable to the total fixed capital investment which includes existing fixed capital investment and additional fixed capital investment. Therefore, in my view the argument that by first getting the eligibility certificate granted to the dealer w.e.f, August 18, 1988 amended and thereafter claiming exemption on the total fixed capital investment the dealer was availing of the double benefit cannot be accepted.
31. The next submission of Sri Mehta, learned Chief Standing Counsel appearing for the revenue, is that the Divisional Level Committee rightly did not grant eligibility certificate in respect of first and second expansions dated August 15, 1990 and December 28, 1991 in respect of additional fixed capital investment to the tune of Rs. 11,14,95,641 and Rs. 12,50,66,080 respectively when base production was increased from 12,000 M,T. to 26,000 M.T. and from 26,000 M.T. to 40,000 M.T. In this regard his first submission is that the three expansions dated August 15, 1990, December 28, 1991 and March 28, 1994 were distinct and separate expansions and if the unit wanted to avail of the facility of exemption from tax on the ground of exemption, distinct and separate applications ought to have been moved in accordance with the provisions of Section 4-A(5)(a) of the Act which provides that the application for availing of the facility can be moved within six months from the relevant date of the commencement of the period of facility. In the alternative his argument is that if this is not done then the total period of facility to be availed of has to be curtailed. In reply Shri Bharat Ji Agrawal, learned Senior Counsel has submitted that the expansion was undertaken under one integrated plan though in phases. Shri Agrawal refers to annexure 4 to the revision application which is letter dated January 28, 1997 written by the convener of the Divisional Level Committee wherein the expansion is said to have been carried out in phases. He further submits that the report of the assessing authority, annexure 5 to the counter-affidavit also supports the contention of the assessee. It is also pointed out that before the Tribunal also the case of the department was that the expansion was made in three phases and besides this he has relied upon a circular dated September 26, 1996 copy whereof is enclosed with the written arguments. The circular provided that in the proposed scheme introduced in the year 1990 prior to the issuance of notification dated July 27, 1991 and even after issuance of the notification dated July 27, 1991 the unit shall not be entitled to apply for exemption under expansion scheme unless five years are completed from the date of establishment of the unit. His submission is that though first and second phase of expansions were carried out on August 15, 1990 and December 28, 1991, no application for availing the facility of exemption under notification dated July 27, 1991 could have been moved before the expiry of five years from the date of the establishment of the unit, i.e., no application could have been moved within five years from August 16, 1988. He submits that at the time of the introduction of 1990 scheme a promise was made by the State Government which cannot be withdrawn or retracted.
32. As already pointed out above, the Tribunal in para 19 of its judgment extract of which has been reproduced above has categorically observed that the scheme does not provide and does not restrict as to how many times the expansion can be undertaken by the unit under the scheme. The categorical finding of the Tribunal is that the appellant had carried out expansion in three phases. In first phase it increased its base production capacity from 12,000 M.T. to 26,000 M.T., in second phase it increased its base production capacity from 26,000 M.T. to 40,000 M.T. and in the third and last phase of expansion it increased its base production capacity from 40,000 M.T. to 60,000 M.T. The Tribunal also recorded a finding that the scheme of expansion shall be deemed to have been completed only when the third phase of expansion is completed. It also observed that since the third and last phase of expansions were completed on March 28, 1994 and the appellant had claimed benefit for exemption on the entire fixed capital investment and in the opinion of the Tribunal it will not be proper and justifiable to grant benefit of fixed capital investment only in respect of last phase of expansion. Sri Mehta has submitted that these findings of the Tribunal are not correct. At the outset it may be stated that these are the findings of fact and cannot be reversed unless found to be perverse or based on no material. It may further be seen that even the Divisional Level Committee in its order as contained in annexure 4 to the revision application had categorically observed that the dealer had made expansion in several phases. The observations of the Divisional Level Committee have already been reproduced above. It was pleaded before the Divisional Level Committee that the scheme for expansion was prepared earlier and under one and the same scheme the entire expansion was completed in the year 1993-94. It was also pleaded before the Divisional Level Committee that the total fixed capital investment was up to March 28, 1994 and the first date of production in excess of the base production of 40,038 M.T. was March 28, 1994. The Divisional Level Committee did not dispute these facts but rejected the claim in respect of benefit regarding fixed capital investment relating to first and second phase of expansions on the ground that the application was not moved earlier.
33. There is no dispute between the parties and it is rather conceded by the department that if there is one integrated scheme of expansion then expansion in phases is permissible. The Divisional Level Committee has nowhere recorded a finding of fact that there were three separate and distinct schemes of expansion which were executed separately. The Divisional Level Committee, on the other hand, categorically observed in its order that the dealer had carried out or undertaken expansion in several phases. Even in the report as contained in annexure 5 to the counter-affidavit submitted by the assessing authority there was no such finding or observation that the unit had undertaken expansion in three separate and distinct schemes of expansion. On verification of the claim of the unit a detailed report was submitted and a recommendation was made for granting benefit of exemption on 125 per cent of the fixed capital investment of Rs. 54,46,59,789 for a period of 9 years over and above the base production of 40,038 M.T. In view of the above facts and circumstances the submission of Sri Mehta that there were three distinct and separate expansions cannot be accepted.
34. Sri Mehta has then referred to the provisions of Sub-section (5)(a) of Section 4-A of the Act and has submitted that three separate applications for availing of the facility of exemption ought to have been moved within a period of six months from the relevant date of commencement of facility of exemption. Sri Mehta has also submitted that three separate applications were also submitted for these expansions on September 16, 1994 but the same were subsequently withdrawn on November 21, 1994, and thereafter a revised combined application was filed. His submission is that the dealer himself treated that there were three separate and distinct schemes of expansion and, therefore, three separate applications were moved. His argument in the alternative is that in any case the benefit of exemption from payment of tax on the ground of expansion could at best have been granted by curtailing the period for which no application was moved. It has already been found above that the finding of fact arrived at by the Tribunal is that there was one expansion scheme which was carried out in three phases. In these circumstances moving of three distinct applications was not very material for concluding that there were three distinct separate expansion schemes and not three phases of one integrated expansion scheme under which the dealer had undertaken expansion of his unit. It is true that Sub-section (5) [Section 4-A Clauses (a) and (b)] provides that the facility of exemption from or reduction in rate of tax can be availed of if the manufacturer applies for such facility within six months from the relevant date of commencement of the period of facility or by September 13, 1992 whichever expires later in which case facility can be availed of for the entire period notified Under Sub-section (1) or in case he applies for such facility later than the date specified in the Clause (a) only for part of the period notified Under Sub-section (1) which shall be computed from the date of application and not from the relevant date of commencement for the period of facility referred to in Sub-section (1) till the end of the period of facility. So far as the revisionist is concerned the facility available to the revisionist is for a period of 9 years from the date of commencement of the facility, i.e., the first date of sale by the manufacturer on the increased base production over and above the existing base production as a result of the unit undertaking the scheme of expansion. The State Government had issued a circular letter dated September 26, 1996 in which it was categorically stated that in case any unit undertakes expansion/modernisation before the completion of five years of its establishment then the benefit of exemption scheme shall not be available unless five years are completed from the date of establishment of the unit. The circular is binding upon the Revenue and it cannot plead against the circular issued by the department. The honourable Supreme Court in the case of Ranadey Micronutrients v. Collector of Central Excise (1996) 10 SCC 387 observed in paras 14 and 15 of the judgment as follows :
'The first question, now, is whether the earlier and later circulars are orders, instructions or directions to Central Excise Officers within the meaning of Section 37-B, which the Central Excise Officers are bound to observe and follow..............
There can be no doubt whatsoever, in the circumstances, that the earlier and later circulars were issued by the Board under the provisions of Section 37-B, and the fact that they do not so recite does not mean that they do not bind Central Excise Officers or become advisory in character. There can be no doubt whatsoever, that after November 21, 1994, excise duty could be levied upon micronutrients only under the provisions of heading 31.05 as 'other fertilisers'. If the later circular is contrary to the terms of the statute, it must be withdrawn. While the later circular remains in operation the Revenue is bound by it and cannot be allowed to plead that it is not valid.
The court further observed in para 16 that
'the whole objective of such circulars is to adopt a uniform practice and to inform the trade as to how a particular product will be treated for the purposes of excise duty. It does not lie in the mouth of the revenue to repudiate the circular issued by the Board on the basis that it is inconsistent with a statutory provision. Consistency and discipline are of far greater importance than the winning or losing of court proceedings.'
35. In the instant case the unit of the dealer was established on August 16, 1988 when the first sale after establishment was made. The period of five years will come to an end in August, 1993. However, the last phase of expansion was completed on March 28, 1994 and the applications for availing of the benefit of exemption were moved within six months from March 28, 1994, i.e., September 16, 1994. These applications were subsequently withdrawn and revised combined application was moved on July 17, 1995. It cannot, therefore, be said that the applications for availing of the benefit of the scheme on the ground of expansion was not moved within the period provided Under Sub-section (5)(a) of Section 4-A of the Act. Therefore, the argument advanced by Sri Mehta cannot be accepted. At best the unit could avail of the facility of exemption from payment of tax on the ground of expansion from the date of revised application, i.e., July 17, 1995. In the written argument also it was categorically mentioned that no exemption was claimed prior to July 17, 1995. Besides this the exemption has been claimed on the turnover in excess of base production of 40,038 M.T. after July 17, 1995 and no exemption has been claimed prior to that. Following may be quoted from the written argument :
'No exemption was claimed prior to July 17, 1995, i.e., the date of filing of application for exemption (annexure No. 2 to the counter-affidavit) given on page 23 the exemption has been claimed but the turnover in excess of the base production of 40,038 M.T. after July 17, 1995 and no exemption has been claimed either prior to it or for the turnover up to 40,038 M.T. which has been achieved after completion of the 3rd phase of the expansion.'
36. In view of this categorical case of the dealer as pleaded during arguments the operative portion of the Tribunal's order deserves to be modified to the extent that the exemption over and above the turnover of base production of 40,038 M.T. shall be available to the revisionist/dealer from July 17, 1995 till the end of the period of facility in accordance with the provisions contained in Sub-section (5) of Section 4-A of the Act.
37. Next dispute relates to pre-operative expenses and interest payable to the financial institutions. The submission of Sri Mehta is that the definition of fixed capital investment in Explanation (4) of Section 4-A is exhaustive and in both Clauses (a) and (b) which relate to determination of the investment in land and building and investment in plant, machinery, equipment, etc., word 'only' has been used and various items have been given, the investment or value of which can be taken into consideration for arriving at fixed capital investment to the extent of which the unit is entitled to the benefit of exemption from payment of tax. Sri Mehta has pointed out that pre-operative expenses and interest paid to the financial institutions is not covered by the investment in various heads which are being considered. He submits that the decisions under the Income-tax Act could not have been availed of when the procedure of determining the fixed capital investment was provided in Explanation (4).
38. The dealer had claimed a sum of Rs 4,00,78,743.03 expenses which were capitalised by the unit and in respect of which claim of benefit of exemption from payment of tax as additional fixed capital investment was made. Some of the pre-operative expenses were as follows :
(A) Interest to financial institutions ... Rs. 2,26,07,777
(B) Right issue expenses ... Rs. 51,56,740
(C) Foreign technicians expenses ... Rs. 53,61,545
(D) Foreign travel expenses ... Rs. 21,47,781
39. Total being Rs. 4,00,78,747 including the other expenses. It appears that the unit had taken loans from various financial institutions and had paid interest to the tune of Rs. 2,26,07,777. The Tribunal referred to the book Compodium of Statements and Standards Accounting on page B.87 and quoted below B.25 which reads as follows :
'Interest on moneys which are specifically borrowed for the purchase of fixed asset may be capitalized prior to the asset coming under the production, i.e., during the erection stage. However once production starts under interest of borrowings for the purchase of machinery (whether for the replacement or renovation of existing plant), should be capitalised. For a extending business the interest paid for financing the completely new unit or a substantial expansion undertaken by the company may be capitalised. Only the interest on moneys specifically borrowed for the new expansion may be capitalised and that only for the period before production starts. Interest payable on the fixed assets purchased by the deferred credit basis, should not be capitalised after commencement of the production.'
40. When the Tribunal referred to the decision of honourable Supreme Court in Challapalli Sugars Ltd. v. Commissioner of Income-tax, A.P. : [1975]98ITR167(SC) in which the honourable Supreme Court held as follows :
'The question often arises as to whether interest on borrowings can be capitalised and added to the fixed assets which have been created as a result of such expenditure. The accepted view seems to be that in the case of a newly started company which is in the process of constructing and erecting its plant, the interest incurred before production commences may be capitalised. 'Interest incurred' means actual interest paid or payable in respect of borrowings which are used to finance capital expenditure. In no circumstances should imputed interest be capitalised, such as interest on equity or preference capital at a notional rate. Interest on capital during construction paid in accordance with the provisions of Section 208 of the Companies Act, 1956, may however, be capitalised as permitted by that section. Interest on monies which are specifically borrowed for the purchase of a fixed asset may be capitalised prior to the asset coming into production, i.e., during the erection stage.'
41. The Tribunal on consideration of the above decision and para 2.5 of book Compodium of Statements and Standards Accounting as reproduced above and para 2.22 of the book Statements on Auditing Practices published by the Institute of Chartered Accountant of India allowed the sum of Rs. 2,26,07,777 paid by way of interest to be included in additional fixed capital investment. The Tribunal further allowed the sum of Rs. 51,56,740 in respect of right issue to be included in the additional fixed capital investment. The Tribunal relied upon a decision of Karnataka High Court in Commissioner of Income-tax v. Motor Industries Company Ltd. : [1986]158ITR734(KAR) . The Tribunal further allowed the expenses of Rs. 53,61,545 and Rs. 21,47,781 in respect of foreign technicians expenses and foreign travel expenses and it relied upon the decisions of Bombay High Court in Commissioner of Income-tax, Bombay City-I v. Polychem Ltd. : [1975]98ITR574(Bom) . The Tribunal also relied upon certain other decisions. The Tribunal recorded finding that these expenses were necessary to undertake the expansion scheme.
42, Argument of Sri Mehta has to be considered in the light of the findings of the Tribunal. Explanation (4)(b) of Section 4-A provides that for the purposes of determining investment in plant, machinery, equipment, apparatus, components, moulds, dyes, jigs and fixtures 'only' the following shall be taken into accounts :
(i) Investment whether by means of purchase, hire or lease in such plant, equipment, apparatus, components and machinery as is necessary for the establishment or running of the factory or workshop ;
(ii) Investment as is necessary for some statutory obligation ; and
(iii) expenses incurred in erection and installation of such plant and machinery and bringing it to the site.
43. It may be noted that term investment has not been defined in the Act or in Section 4-A of the Act. It is well-settled that if a term is not defined in the Act its meaning in other similar enactments can be looked into. Explanation (4)(b)(i) further provides that the investment necessary for the establishment or running of the factory or workshop whether by means of purchase or hire or lease in the plant, equipment, etc., shall be taken into account. Thus, when an equipment or plant is taken on hire the lease amount and the hire amount has to be included in the term investment. Similarly, when the money is taken on loan the interest paid thereon has to be included in the term investment. It is not the case of the department that the claim made by the dealer in respect of pre-operative expenses and interest paid to the financial institutions, etc., were not necessary expenses. It is well-known that most of the industries at the time of their establishment or during the course of undergoing expansion, modernisation or diversification approach the financial institutions for financial help. There is no reason why the amount which they pay on such loan before the unit actually starts production after a new unit comes in being or production as a result of undertaking the scheme of expansion/modernization, etc., is increased, should not be treated as investment necessary for establishment or for running of the factory. Therefore, the Tribunal has not committed any error in granting the benefit in respect of pre-operative expenses and interest, etc. Besides this Sri Bharat Ji Agrawal has referred to Clause (3) of the Explanation 4 of Section 4-A which provides that State Government may by notified order specify a procedure for determining the fixed capital investment. In the instant case the notification dated July 27, 1991 has provided how the fixed capital investment or additional fixed capital investment may be determined or computed. Clause (3) of the notification reads as follows:
'3. 'Fixed capital investment' may, unless otherwise established, be determined in the case of an industrial undertaking financed by a term loan advanced by a public financial institution or a scheduled bank according to the certificate to that effect issued by such institution or the bank and in any other case, according to-
(a) the value of the land certified by the Collector in accordance with the procedure laid down for determination of the value of land for the purpose of payment of stamp duty under the Indian Stamp Act, 1899 ;
(b) the value of building certified by an evaluator approved by the Income-tax Department for the purpose;
(c) the value of plant, machinery, equipment, apparatus and components certified by a chartered accountant'.
44. The above procedure specifically provides that unless otherwise established the fixed capital investment in case of industrial undertaking financed by a term loan advanced by a public financial bank or scheduled bank shall be determined according to the certificate to that effect issued by such institution. In any other case it may be fixed in the manner provided in three clauses as reproduced above. So far as the value of plant, machinery, equipment, apparatus or component is concerned, it may be certified by a chartered accountant. Similarly, in the case of value of a building, it may be certified by a valuer approved by the Income-tax Department for the purpose. In the instant case, as is evident from the report of the assessing authority as contained in annexure 5 to the counter-affidavit, the dealer had produced necessary certificates from the chartered accountant as well as from the approved valuer. It was also stated in the report that Rs. 2,318.40 lakhs were obtained by the unit as loan from financial institutions or from the scheduled banks. In the circumstances, there was no reason for depriving the dealer of his claim in respect of fully operational expenses and interest paid to the financial institutions.
45. In view of the foregoing discussions, the Revision No. 53(L) of 1997 deserves to be dismissed.
46. The net result is that Revision No. 700 of 1997 filed by Kajaria Ceramics Ltd., is allowed and it is held that the unit was entitled to include the fixed capital investment of Rs. 16,21,54,462 as on August 12, 1988 in the fixed capital investment provided under notification dated July 27, 1991. The Department's Revision No. 53(L) of 1997 is hereby dismissed. The Divisional Level Committee is directed to issue a revised eligibility certificate to the revisionist in accordance with what has been held above.