D.K. Jain, J. - (1.) This appeal is directed against the final judgment and order dated 22nd December, 2006 rendered by the High Court of Judicature at Madras in W.P. Nos. 13697 and 13698 of 2002. By the impugned judgment, while setting aside the order dated 19th April, 2002 passed by the Taxation Special Tribunal (for short "the Tribunal") in O.P. Nos. 322 and 351 of 2002, the High Court has held that the first Respondent viz. M/s India Cements Ltd. is entitled to the benefit of deferral of sales tax as claimed by them under the interest free sales tax deferral scheme, introduced by the State of Tamil Nadu under G.O. Ms. No. 119 dated 13th April, 1994 issued by the Commercial Taxes & Religious Endowments Department of the State.
(2.) Before we traverse the facts, which have given rise to the present appeal, in order to appreciate the issue involved, it would be expedient to refer to the relevant State Government orders/memorandum notified from time to time, in exercise of powers conferred under Section 17A of the Tamil Nadu General Sales Tax Act, 1959 (for short "the TNGST Act") and Section 9(2) of the Central Sales Tax Act, 1956 (for short "the CST Act"). 2.1 With a view to promote industrialization, the Government of Tamil Nadu had declared 105 talks of the State as industrially backward for the purpose of grant of interest free sales tax loan, interest free sales tax deferral, state capital subsidy etc. In furtherance thereof and to correct regional imbalances in industrialization, vide G.O. Ms. No. 500 dated 14th May, 1990, the Government declared 30 talks from amongst the 105 industrially backward talks to be industrially most backward talks, offering them further incentives. It was directed that the new industries to be set up in these 30 most backward talks as also in the three industrial complexes of State Industries Promotion Corporation of Tamil Nadu (for short "the SIPCOT") at three named places, in addition to the existing concessions, would be entitled to full waiver of sales-tax dues for a period of five years up to a ceiling of the total investment made in the fixed assets. It was also stipulated that existing units in these areas/complexes undertaking expansion/diversification shall also be entitled to deferral of sales tax for nine years, limited to 80% of the additional investment made in fixed assets. However, the benefit of sales tax deferral to the new units was to the full extent of the total investment made in the fixed assets. The scheme was subject to the sales tax payable on products manufactured by the capacity created by expansion/diversification units only. 2.2 Subsequently, certain clarifications were issued vide G.O.P. No. 92 CT dated 22nd February, 1991 and G.O.P. No. 396 dated 10th September, 1991 whereby benefit of deferral of payment of sales-tax payable was extended to all industries to be set up anywhere in Tamil Nadu having an investment of Rs. 100 crores and above on sale of the products manufactured by the industry for a period of twelve years from the date of commencement of production on or after 18th July, 1991 up to a ceiling of 100% of the value of fixed assets, after deducting the quantum of tax under the CST Act for the same period and subject to production of eligibility certificate to be issued by SIPCOT. By G.O. Ms. No. 376, dated 27th October, 1992, in exercise of powers conferred by Clause (a) of Sub-Section 5 of Section 8 and Sub-Section 2 of Section 9 of the CST Act, the Government extended the benefit of remission/deferral of tax payable under the CST Act, as similar to G.O.P. No. 92 dated 22nd February 1991, to the new industries as well as to the existing industries, on the same conditions prescribed under G.O.P. No. 92. These government orders were followed by another G.O.M. No. 43, Industries (MIG-II) Department, dated 13th December, 1992 whereby special incentives were introduced for mega industries, subject to fulfilment of the prescribed conditions. 2.3 It appears that with a view to protect the revenue and also to increase the production level of industries which were interested in availing concessions of deferral of sales tax, the State Government vide G.O. Ms. No. 119, dated 13th April, 1994, imposed certain conditions and issued directions that were required to be complied with by the expansion/diversification units for availing sales tax benefits. For the sake of ready reference, the relevant portion of the said G.O. is extracted below: 3. The Government after careful examination, have decided to accept the suggestions of the special Commissioner and Commissioner of Commercial Taxes as they protect the Revenue and also help to increase the production level of the industries availing the concession. Accordingly, the Government direct that i) The industry will be eligible for sales tax deferral only if in a financial year production exceeds the base production volume which is the highest annual production in the 3 years prior to expansion. ii) When the actual production in the industry in any financial year exceeds the base production volume, the industry would be eligible for deferral of sales tax for sales made in that year in excess of the base sales volume under Tamil Nadu General Sales Tax, which is the highest of the actual annual sales in the last 3 years prior to expansion. iii) The above conditions are applicable in cases where expansion unit is a separate unit located elsewhere or a part of the existing plant. iv) The specifications of base production/sales volumes are applicable even in the case of allegedly new unit having been started by the same management or ownership or where the substantial controlling capital is put in by the same group of companies. v) The base production volume and the base sales volume will have to be worked out and incorporated in the eligibility certificates at the time of issue by SIPCOT and District Industries Centres.
(3.) The first Respondent, engaged in the manufacture and marketing of cement in the States of Tamil Nadu and Andhra Pradesh was having manufacturing units at Sankari and Sankar Nagar. By their letters dated 13th March, 1996, 4th March, 1997 and 24th September, 1997 they proposed to set up an expanded unit at Dalavoi village, Sendurai taluk to avail the benefit of sales tax deferral scheme under G.O. Ms. No. 119, dated 13th April 1994. On being approached, on 13th February, 1998, SIPCOT issued the requisite eligibility certificate to the first Respondent, inter-alia, mentioning that: (i) the first Respondent will be eligible for deferral of sales tax not exceeding Rs. 205.13 crores (later on revised to Rs. 270.21 crores), interest free for a period of twelve years from the month in which the first Respondents unit commenced its commercial production i.e. from 1st July, 1997 to 31st May, 2009 (cl.3); (ii) deferral of sales tax will only be on the increased volume of production/sales; (iii) for the purpose of determining the increased volume of production, the base figure would be the highest of the volume of production/sale in the company in any one of the year during the last three years; (iv) till reaching the volume of production/sale specified earlier, the company would continue to pay tax and any liability in excess of the production/sale specified therein alone will be eligible for deferment (cl.5.3); (v) the deferral scheme will be applicable to the unit/company only as long as it manufactures products for which the essentiality certificate had been issued (cl.6) and (vi) violation of any of the conditions as stipulated in the eligibility certificate and the connected government orders will result in withdrawal of deferral facility in entirety (cl.7). In compliance of Clause 5.2 of the eligibility certificate, on 12th April, 2000, the first Respondent entered into an agreement with the Zonal Assistant Commissioner, Commercial Taxes, undertaking to comply with the Base Production Volume and Base Sales Volume (hereinafter referred to as "BPV" and "BSV" respectively) as indicated in the essentiality certificate.;