A FORTNIGHTLY VAT/GST LAW REPORTER 2003 NTN 22) [ALLAHABAD HIGH COURT]

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1 2003 (Vol. 22) [ALLAHABAD HIGH COURT] Hon'ble R.B. Misra, J. Trade Tax Revision No. 677 of 2000 M/s Rotomac Electricals Private Limited, Noida vs. Trade Tax Tribunal and others Date of Decision : 25th March, 2003 For the Revisionist : Shri Naveen Sinha, Shri Vinit Sinha & Shri Vipin Sinha, Advocates For the Respondent : Shri B.K. Pandey, S.C. Exemption - New unit - Acquire for use -Opportunity of hearing - U. P. Trade Tax Act, 1948 Section 4-A - The petitioner company is a private limited company and set up a new unit for manufacturing of Traction electric motors at Noida - The Company has two more manufacturing units at Sahibabad and Calcutta where different goods are manufactured - The machinery purchased for the Noida unit was stored in other units of the Company as civil work was in progress in Noida unit - This was done to protect the machines during civil work - The exemption application moved by the company was rejected on the ground that plant machinery etc. was already used or acquired for use in other factory or work shop in India - The matter went upto Supreme Court and the Court accepted the SLP and remanded the case to High Court for decision in light of principle of law in the case of SLC vs. Morgardshammer India Ltd. case - Whether storing the plant and machinery in the other units amounts to "acquire for use" disentitling the unit as new unit? - Held - No - Mere storing of machinery in other unit does not amount to acquire for use - No opportunity given to petitioner to explain storing of machinery - DLC directed to decide application after giving opportunity of hearing. I have heard learned counsel for the parties and perused the record the 'explanation new unit' as defined in IInd Explanation appended to Section 4A, the applicant could be excluded only if it was establish that the plant and machinery installed by it was already used or acquired for use in other factory and other work shop in India. The words relevant for the present controversy being "acquired for use in other factory". Thus before the applicant could be dis-entitled of the benefit of exemption, it was incumbent upon the committee to record a categorical finding to the effect that the plant and machinery installed in the unit had not only been purchased in the name of other units of the company but in fact they had been "acquired for use by those factories" such a finding is conspicuous by its absence. The appropriate authority, in fact has proceeded in a manner to decide the application and rejected the applicants claim on grounds which are even beyond the scope of the 'Act'. Before rejecting the application it was incumbent upon the authority to give an opportunity of hearing to the applicant, in order to enable the applicant to substantiate its claim that the plant and machinery which has been installed in the unit Noida was a new one and it had only been stored for the purposes of safety in the other three units while the construction work was going at Noida and that these plant and machinery had never been acquired for use in either of the other units. (Para 5)

2 In fact in the course of hearing even the counsel for the department had fairly submitted that the opportunity of hearing was not given by the appropriate authority (refer to the judgment dated ) and so is also the finding recorded by this Court in its judgment and order dated 7th May, However, the said contention was brushed summarily by saying that the applicant had the opportunity before the tribunal. According to the applicant the reasoning on that aspect is not appropriate. It worth to be noticed that even this Court has accepted the contention of the applicant that in so far as the storage of plant and machinery, stored in other two units of M/s Rotomac Electricals Private Limited is concerned that would not deprive the applicant of the benefit of exemption but as regards M/s Eastern Coils Private Limited the Court observed that the applicant failed to bring on record the material to show that the said company was a sister concern of M/s Rotomac Electricals Private Limited or that the plant and machinery in question could not have been used by the said unit of M/s Eastern Coils Private Limited. In view of the above observations, the order dated , passed by the Committee and the Tribunal is set aside and the matter is remanded to the Committee/Appropriate Authority for deciding the Exemption Application under Section 4A of 'Act' afresh after giving an opportunity of personal hearing to the applicant/revisionist. Cases referred : State Level Committee & Anr. vs. Morgardshammar India Ltd. JUDGMENT (Para 7, 8, & 9) 1995 (Vol. 7) 101 (SC) Heard Sri Naveen Sinha along-with Vinit Sinha, learned counsel for the applicant as well as learned Standing Counsel for the respondents. 1. This revision has been preferred before this court under Section 11 of U. P. Trade Tax Act (In short called 'Act') against the order dated passed by Trade Tax Tribunal (Full Bench) in appeal No. 156 of 1998 in reference to Section 4-A of the 'Act' but said revision No. 677 of 2000 was dismissed by this court on The applicant/revisionist preferred special leave petition No of 2001 before Supreme Court and the Supreme Court by its order dated decided the special appeal No of 2002 arising from special leave petition above mentioned and has been pleased to pass an order as below : "Leave granted. Upon hearing submissions made on behalf of the parties, it appears that the attention of the High Court has not been drawn to a decision of this Court in State Level Committee & Anr. vs. Morgardshammar India Ltd (Vol. 7) 101 (SC) ;1996 (1) SCC 103. Wherein the expression 'new unit' in terms of Section 4 (a) stand explicitly defined and explained. On the wake of the aforesaid, we deem it fit to remand the matter back to the High Court for being dealt with appropriately. The High Court would do well to record its observations vis-a-vis the applicability of the judgment of this court in State Level Committee & Anr. (Supra) and express its opinion as regards the merits of the matter. Let it

3 be clarified that we are not expressing any opinion as regards the merits of the matter and the High Court would be at liberty to deal with the matter in accordance with law. The civil appeal is allowed. The order impugned stands set aside. The appellant herein, however, be at liberty to move the High Court for appropriate order in the event of there being any other being any other grievance. Sd/- (U.C. Banerjee) New Delhi February 11, 2002 Sd/- (Y.K. Sabharwal) 2. In view of the foregoing order, the present petition has been filed by the present revisionist, was revived and has come to the court for hearing. "During the pendency of the said revision petition No. 677 of 2000, this Court had also been pleased to direct stay of assessment proceedings for the assessment years and in the following terms: Admit. Issue notice. Further proceedings for the assessment year and in respect of the revisionist shall remain stayed, if the same has not been already finalised. Sd/- R.K. Agarwal " 3. In view of the above order, it has been submitted on behalf of the applicant revisionist that in view of the revival of the revision petition No. 677 of 2000, the said order dated also stands revived. 4. In order to deal the said controversy it is relevant to consider the submissions of the applicant revisionist as follows : a. M/s Rotomac Electricals Private Limited having its registered office at Calcutta established a "New Unit" for the purposes of manufacturing Traction Electric Motors at B-34, Sector-59, Noida. The said Company has two more units-one at Calcutta where it manufacturers Coil Components and 2nd unit situate at B-16 Site IV Sahibabad where it manufacturers Chemicals, Varnish and Special Tapes. The promoters of M/s Rotomac Electricals Private Limited have also incorporated one more company namely M/s Eastern Coils Private Limited, Calcutta, engaged in the business of repairs of Coils. b. M/s Eastern Coils Private Limited and M/s Rotomac Electricals Private Limited, as the name indicates are companies limited by shares and the entire share holding

4 is being owned and possessed by the persons who are closely unit together. They are basically sister concerns. c. For the purposes of establishing the new unit at Noida plant and machineries was purchased by M/s Rotomac Electricals Private Limited with the financial assistance of U.P. Financial Corporation. While the civil construction work was going on at the factory site in Noida, plant and machinery purchased for the said unit with the object to protect it in general and particularly from dust etc. Was only stored not used in the other two units of M/s Rotomac Private Limited at Calcutta and Sahibabad and the unit of M/s Eastern Coils Private Limited. On the civil work being completed the said plant and machinery was brought to the unit at Noida and had admittedly been installed there. d. On completion of new unit at Noida in March 1996 an application was filed claiming exemption under the Provisions of Section 4A of 'Act' According to the applicant it was entitled for exemption to the extent of 15% of investment of Rs. 1,64,89,945/-. e. The Explanation-II appended to Section 4A defines new unit and excludes those units which are using plant and machinery etc. "already used or "acquired for use in other factory or work shop in India". Incidentally it may be worthwhile to point out that the words or acquired for use omitted vide U.P. Act No. 26 of 1998 w.e.f. 25th July 1998." f. The appropriate authority rejected the exemption application on without assigning any valid reasons and without affording an opportunity of hearing to the applicant and without recording any finding to the effect that the plant and machinery so purchased by the applicant was acquired by it for use by any other factory or unit. The only finding recorded by the authority was that the applicant has acquired machines in the name of other units and that subsequently these machines have been installed in the unit located in Noida i.e. the unit for which the exemption was being sought. g. An application was moved on by the applicant seeking review of the order of 15th September The Rule 25 (3)(c) of the rules framed under the 'Act' Provide that such an application shall be decided by the Committee after examining the relevant records and after giving a reasonable opportunity to the unit. Till today neither any notice has been received by the applicant giving it an opportunity of hearing nor has the review applicant been decided and for all purposes the said review application is still pending. h. In order to save the limitation, an appeal under Section 10 of the U. P. Trade Tax was filed before the Trade Tax Tribunal at Lucknow and was numbered as appeal No. 159 of Specific reference may kindly be made to ground No. 5 and the grounds as pleaded in paragraph Nos. 10 to 14 of the memo of appeal which forms part of the record as Annexure 3 to the affidavit filed in support of the said application along with memo of revision in this court. i. The appeal was on dismissed by the Tribunal with a reasoning which is totally incoherent and without appreciating the contentions as pleaded and raised

5 before the Tribunal. It may be worth while to point out that even the tribunal has failed to appreciate the ingredients of the explanation which were relevant for the purposes of treating or not treating the unit as a new unit. The reasoning and the findings recorded by the tribunal fall short of the requisite parameters as laid down in the relevant clause of the 'Act'. j. The tribunal even failed to appreciate that the committee did not afford any opportunity to the applicant to explain and to bring on record the material in order to obviate the suspicion, which were lurking in their mind. The applicant was never put to notice of the material on which the committee seeking to rely for the purposes of rejecting the application and the order was passed by the committee without any opportunity of hearing to the applicant. k. The revision No. 677/2000 preferred against order of Tribunal was dismissed on with observations that appropriate authority had not given any opportunity of personal hearing to the applicant at the time when it proceeded to decide the exemption application. His Lordship however, proceeded to further and brushed aside the effect thereof by stating that the applicant had the opportunity to present his case before Tribunal. l. The Hon'ble Supreme Court by its Judgment and order of 11th July 2002 set aside the judgment dated 7th May, 2001 passed by this court in Civil Appeal No. 1178/2000 (arising from the SLP No of 2001 preferred) and remanded the matter for deciding the same afresh on merits specially with reference to the definition of new unit as i.e. occurs in the IInd Explanation appended to Section 4A of the Act. m. Incidentally at this juncture it may be worthwhile to point out that consequent to the rejection of the exemption application the authorities under the 'Act' have proceeded to make ex-parte assessment for the financial year , , and and notices and citations were issued for recovery of the said amount through coercive measures, details of which have been given in the application for ad interim orders filed in this Court on 11th July, I have heard learned counsel for the parties and perused the record the 'explanation new unit' as defined in IInd Explanation appended to Section 4A, the applicant could be excluded only if it was establish that the plant and machinery installed by it was already used or acquired for use in other factory and other work shop in India. The words relevant for the present controversy being "acquired for use in other factory". Thus before the applicant could be dis-entitled of the benefit of exemption, it was incumbent upon the committee to record a categorical finding to the effect that the plant and machinery installed in the unit had not only been purchased in the name of other units of the company but in fact they had been "acquired for use by those factories" such a finding is conspicuous by its absence. The appropriate authority, in fact has proceeded in a manner to decide the application and rejected the applicants claim on grounds which are even beyond the scope of the 'Act'. Before rejecting the application it was incumbent upon the authority to give an opportunity of hearing to the applicant, in order to enable the applicant to substantiate its claim that the plant and machinery which has been installed in the unit Noida was a new one and it had only been stored for the purposes of safety in the other three units while the

6 construction work was going at Noida and that these plant and machinery had never been acquired for use in either of the other units. 6. Had opportunity been given to the applicant it would have demonstrate that the plant and machinery installed at Noida unit for the purposes of manufacturing of the Electric Traction Motors could not have been used in any other unit of the company or the unit of M/s Eastern Coils Private Limited. If it can be shown that the plant the machinery in question were just not capable of being used in the said three units, no inference against the applicant could have been drawn but the applicant had no such opportunity to rebut the apprehensions in the mind of the member of the committee. This ground regarding opportunity of hearing not being given was specifically pleaded in the appeal before the Tribunal and also in revision before this Court. 7. In fact in the course of hearing even the counsel for the department had fairly submitted that the opportunity of hearing was not given by the appropriate authority (refer to the judgment dated ) and so is also the finding recorded by this Court in its judgment and order dated 7th May, However, the said contention was brushed summarily by saying that the applicant had the opportunity before the tribunal. 8. According to the applicant the reasoning on that aspect is not appropriate. It worth to be noticed that even this Court has accepted the contention of the applicant that in so far as the storage of plant and machinery, stored in other two units of M/s Rotomac Electricals Private Limited is concerned that would not deprive the applicant of the benefit of exemption but as regards M/s Eastern Coils Private Limited the Court observed that the applicant failed to bring on record the material to show that the said company was a sister concern of M/s Rotomac Electricals Private Limited or that the plant and machinery in question could not have been used by the said unit of M/s Eastern Coils Private Limited. 9. In view of the above observations, the order dated , passed by the Committee and the Tribunal is set aside and the matter is remanded to the Committee/Appropriate Authority for deciding the Exemption Application under Section 4A of 'Act' afresh after giving an opportunity of personal hearing to the applicant/revisionist. 10. It is therefore further observed that during the pendency of the application and till its final disposal no coercive measures shall be adopted for the recovery of the alleged trade tax dues in respect of the financial year , , and