Holding

The date of commencement of production is the later of the first purchase of raw material or the installation of power connection; trial production does not count, so the appellant is entitled to the exemption.

Summary

Janta Machine Tools applied for exemption from sales tax under the Uttar Pradesh Sales Tax Act, 1948 (Section 4A) based on a notification dated 30 September 1982, which granted exemption to units established between 1 October 1982 and 31 March 1985. The appellant claimed that actual production began on 4 December 1982, the date electricity was first used for manufacturing, and that earlier trial production on 4 December 1981 should not be treated as commencement. The Division Level Committee, and subsequently the High Court, rejected the claim, treating the trial run as the start of production, thus pre‑dating the unit. The Supreme Court held that "date of starting production" under Section 4A is the later of the first purchase of raw material or the installation of power connection, and that trial production does not constitute commencement. Since the appellant obtained electricity only in November 1982 and began commercial production thereafter, it qualified for the exemption. The Court allowed the appeal, quashing the earlier rejections.

Issues considered

The meaning of 'date of starting production' under Section 4A of the Uttar Pradesh Sales Tax Act, 1948.
Whether trial production can be treated as commencement of production for the purpose of the exemption.
Whether Janta Machine Tools' production started after 1 October 1982, making it eligible for exemption.

Legislation cited

Uttar Pradesh Sales Tax Act, 1948s. 4A

Subjects

sales tax exemptionSection 4Acommencement of productiontrial productionUttar Pradeshindustrial unitraw material purchaseelectricity connection

Judgment

,.I..
JANTA MACHINE TOOLS A
v.
STATE OF U.P. & ORS.

JANUARY 19, 1989
B
~ [K. JAGANNATHA SHETTY ANDS. RANGANATHAN, JJ.I

Uttar Pradesh Sales Tax Act, 1948: Section 4A and Notification
dated September 30, 1982 issued thereunder-Exemption from sales

> tax-Determination of date of commencement of production-Date of
purchase of raw. materials, obtaining electricity connection relevant-
Not trial production. c
)I.,
The State Government in pursuance of Section 4A of the Act
formulated and published a scheme for grant of exemption from Sales
Tax, to encourage capital investment and establishment of new in-
dustrial units which were established during the period from l.10.1982
D
to 31.3.1985 and producing certain categories of goods. Though the
scheme referred to units established, it actually referred to the date of
commencement of production .
•
+ The appellant, a concern engaged in the business of electric
motors, pump sets and their parts, applied for the exemption. The
E
appellant claimed that the date of actual commencement of use of
electricity for production was 4th December, 1982 and that was the
actual date of commencement of production. The same was endorsed by
the General Managers, District Industrial Centres and the Assistant

t Engineer concerned, while recommending the application. But the
difficulty had arisen on account of a certificate attached to the applica-
lion for exemption. It was given by a firm which had entered into an
F
agreement with the appellant for snpply of machines and installation.
According to the certificate, trial production commenced on 4.12.1981.
The Division Level Committee, before which the ap-lication was filed,
rejected it, saying that the date of trial production was·really the date of
commencement of production and it fell prior to l.10.1982. The appel-
G
.... !ant preferred a review claiming that trial production could not he
treated as commencement of actual production. The review application
was also dismissed and it was held that the unit was established before
l. I0.1982 and, therefore, was not entitled to the exemption. Thereafter,
the appellant filed a writ petition before the High Court. It was
rejected.
H

273
274 SUPREME COURT REPORTS [1989] I S.C.R.

A Claiming that it is entitled to the exemption, the appellant has ·.~
preferred this appeal, by special leave.

Allowing the appeal,

HELD: 1.1 The appellant is entitled to the exemption, in terms of
B
the notification dated 30.9.1982. The rejection of the application for
exemption proceeds on a total misconception of facts. The conclusion
that production was commenced on 4.12.1981 is not based. on any
evidence. It does not affect the appellant's claim even if there was any
doubt about the trial production having taken place at all. ~hether
trial was conducted by the other firm or the appellant itself, the fact
c remains that only trial production took place on 4.12.1981. The mere
fact that the certificate is disbelieved cannot lead to the conclusion that
the appellant had produced the goods on 4.12.1981. [279A-D) )

J.2 To go by Section 4A of the Act to determine the date of
commencement of production, the date of purchase of raw material or
D the date on which electricity was brought into use would be relevant.
The appellant's claim that it had manufactured goods by 30.9.1984 is
not denied. Production had, therefore, commenced. before 31.3.1985.
There is no sugestion by the Department or the Committee, and there is
no material to show that the appellant had purchased raw materials
sufficient to carry out normal commercial production at any time prior
E to 1.10.1982. It is an admitted fact that the assessee was able to obtain
electricity for use for commercial production only in November 1982.
This lends support to the appellant's contention that the production
could not have been effected by the assessee prior to that date. In fact,
this is a point on which emphasis is laid. That being so, there is no iota
of evidence or material on the basis of which the appellant's claim that
F it had started production in December 1982 could have been rejected.
On the other hand, the recommendation and endorsement of the
General Manager, District Industries Centre also supports the ap-
pellant's contention that it had started production on 4.12.1982 and this
report was given after verifying the actual position on the spot. 12790-G l
G 2. As regards the amount of exemption available to the appellant,
it is a matter for consideration of the authorities in respect of each of the
years concerned in respect of which the claim is made for exemp· l'
tion._l280B)
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 830
of 1988.
H
JANTA MACHINE TOOLS v. STATE OF U.P. [RANGANATHAN, J.] 275

From the Judgment and Order Dated 7 .12.1987 of the Allahabad
A
High Court in Civil Misc. No. Nil 1987.

A.K. Ganguli and Sunil Kumar Jain for the Appellant.

Gopal Subramanium and Ashok K. Srivastava for the Res-
pondents. B

The Judgment of the Court was delivered by

RANGANATHAN, J. The petitioner is a concern engaged in the
business of manufacture of electric motors, pump sets and their parts.
It applied for exemption from sales tax in respect of the goods . C
manufactured by it in terms of a notification issued by the State
Government on 30.9.1982 under section 4A of the Uttar Pradesh Sales
Tax Act, 1948 (hereinafter called the 'Act'). This application was
rejected by a Division Level Committee by an order dated 9.2.1987
and a further review application was also dismissed on 27 .10.1987.
Thereupon the appellant filed a writ petiti()n which was also rejected D
by the High Court by a short order dated 7 .12 .1987. Aggrieved by this
denial of the exemption, which it claims it is entitled to, the appellant
has preferred this appeal.

Section 4A of the Act reads as under:
E
"4-A. Exemption from sales tax of certain goods for
specified period-

(1) Notwithstanding anything cotained in section 3 or
section 3-A, where the State Government is of the opinion
that it is necessary so to do for increasing the production of F
any goods or for promoting the development of in any dis-
tricts or parts of districts in particular, it may on application
or otherwise, by notification, declare that the turnover of
sales in respect of such goods by the manufacturer thereof
shall, during such period not exceeding seven years from
the date of starting production by such manufacturer, and G
subject to such conditions as may be specified, be exempt
from sales tax or be liable to tax at such reduced rate as it
may fix.

(2)1! shall be lawful for the State Gc>Vem,!llent to
specify in the notification under s11b-sec!iC1n (1) that t!ie H
276 SUPREME COURT REPORTS [1989] 1 S.C.R.

exemption from, or reduction in, the rate of tax shaIJ be
A
admissibie-

(a) generaIJy in respect of aIJ such goods manufactured
subsequent to the date ~f such notification; or

B (b) in respect of such of those goods only as are manufac-
tured in a new unit, the date of starting production whereof
falls on or after the first day of October, 1982; or

(c) only if the manufacturer had not discontinued produc-
tion of such goods for a period exceeding six months at a
stretch in any assessment year.
c
Explanation-For the purposes of this section-

(i) 'new unit' means a factory or workshop using machi-
nery, accessories or components not already used or
D acquired for use in any other factory or workshop in India
but does not include any factory or workshop established
on the site of an existing factory or workshop manufactur-
ing the same goods or any addition to or extension of an
existing factory or workshop; and

E (ii) 'date of starting production' means the date on which
any raw material required for use in the manufacture or
packing of the specified goods is purcahsed for the first
time or the date of installation of power connection, where
needed, whichever is later.

F In pursuance of the above section, the State Government
published a scheme for the grant of exemption from sales tax to certain
industrial units in the State. The scheme, according to its introduction,
had been introduced "in order to encourage capital investment and
establishment of new industrial units in the State''. It granted exemp-
tion to the industrial units established in certain areas of the State
G during the period from '1.10.1982 to 31.3.1985 and producing certain
categories of goods. It is not necessary to refer in detail to the pro- );
visions of the scheme or other conditions of exemption. It is sufficient
to say that this exemption was conferred only on units established on
or after 1.10.1982 but before 31.3.1985. The scheme also makes it
clear that though it referred to units "established" this really is a
H reference to the date of commencement of production by the industrial
jANTA MACHINE TOOLS v. STATE OF U.P. IRANGANATHAN, J.{ 277

unit. This is also in accord with the terms of the statute and in par-
A
ticular sub-section (2) of 4A. The appellant's claim to exemption has
been rejected on a very short ground, namely, that it had not com-
menced production after 1.10.1982.

fn the application filed by the appellant for exemption the appel-
lant had mentioned that the date of actual commencement of use of B
electricity for production was the 4th of December, 1982, which was
also the actual date of commencement of production. The appellant
aiso claimed that upto 30.9.1984 it had produced and sold electric
motor parts for Rs.2,70,590. The General Managers of the District
Industrial Centres at Deoband and Saharanpur and the Assistant
Engineer of the Industrial State of Roorkee endorsed the following
recommendation on the application: c

" ....... I have checked with the use of power and other
sources that the unit started actual production from
4.12.1982 and the production made is self manufactured
and is within the prescribed production capacity. I am fully D
satisfied with the facts produced by the Unit and I recom-
mend that this unit is eligible to get exemption from sales
tax/inter state sales tax ...... with effect from date of
'':;4.. production commencement for 5-6-7 years under section
4-A of the Sales Tax Act vide G.O. No. 8244-Bha/18-11-
231(A) Bha/39, dated30.9.82." E
. The difficulty in the appellant's way appears to have been
created by a certificate which had been produced by it before the
Division Level Committee along with its application. This purported
to be a certificate by a firm known as Krishnna Trading Co. (in which
the proprietor of the appellant was a partner). This certificate dated F
4.12.1981 reads as follows:

"It is certified that the Trial Production of Kupla Bhatti
was made today is 4.12.1981 expenses for which were in-
curred by our company by purchasing raw material for its
own expenses under the agreement dated 15.5.1981 en- G
tered into. M/s Janta Machine Tools was assured by the
company to supply very soon all the remaining machines
and installing them and making its trial production at its
own expenses."

The Division Level Committee, while rejecting the application H
278 SUPREME COURT REPORTS [1989] l S.C.R.

dated 9.2.1987, essentially gave only one reason for the rejection. It
A
was stated that the date of the alleged trial production was really the
date of commencement of production and this fell prior to 1.10.1982.

As stated earlier the assessee preferred a review application
pointing out that the trial production could not be treated as com-
B mencement of actual production. This review application was disposed
of on 27 .10.1987. In its order the Committee observed:

"On joint inquiry into the reality of your unit being con-
ducted by the General Manager and sales tax officer of
Deoband Industries Department they have reported that
Sliri Suresh Datt Sharma the proprietor of Mis Jania
c Machine Tools is partner of one third share in M/s Krishna
Trading Company also. No purchase of raw material was
declared by Mis Krishna Trading Company in the year
1981-82, and therefore, the certificate of trial production
issued by M/s Krishna Trading Company on 4.12.1981 is
D baseless and untrue. In joint inquiry report it is also clear
that your unit has purchased from Mis Krishna Trading
Company Kupla etc. of Rs.69,000 on 21.5.81, whereas Mis
Krishna Trading Company have declared sale of Rs.13,035
only in 1981-82 as per file of the Sales Tax Department. In
the joint inquiry Report it is also mentioned that your unit
E got electricity on 21.11.1982 and on inquiry the unit
informed that the trial production was done with the help
of a generator. Your unit could not give any certificate for ,.
purchasing or hiring a generator and now it has declared to
have hired the generator for 4-5 hours from Mis Mitra
Industries Deoband. In the inquiry report it is also made
-
F clear that a unit cannot use a generator of other unit with-
out prior permission of the electriciy department.

xx xx xx

On the above discussion it is concluded that the unit in
G question wants to (get) illegal benefit of exemption from
sales tax by producing wrong facts. The trial production
done by M/s. Krishna Trading Company on 4.12.1981 is
proved to have been done by the unit in question itself and
not by them. Thus, the unit was established before 1.10.82.
The unit established before 1.10.82 is therefore opt entitl~\I
H to exemption from sales tax."
JANTA MACHINE TOOLS v. STATE OF U.P. [RANGANATHAN, J.] 279

~- In our opinion, the rejection of the assessee's application
A
proceeds on a total misconception of the facts. nie conclusion of the
Division Level Committee is that production was commenced by the
appellant on 4.12.81 but this conclusion is based on no evidence. It is
true that the appellant produced a certificate showing that some pro-
ductiOn was done on 4.12.1981 but the appellant's case was that this
)I, was merely a trial production. It is not quite clear whether the District B
' Level Committee completely doubts any trial production having taken
place at all, or whether its conclusion is that there was a trial produc-
lion, on 4.12.1981. If its conclusion is the former one, it does not affect

i the appellant's claim. Assuming that the Committee has come to the
conclusion that the production on 4.12.81 was conducted not by M/s
Krishna Trading Company but by the appellant itself, the fact still
remains that what had happened on that date was only trial pro- c
·~ duction. The mere fact that a certificate by M/s Krishna Trading is
disbelieved cannot lead to the conclusion that the assessee had pro-
duced goods on 4.12.81. If one is to go by the definition contained in
the explanation to section 4A for determining when the production
started, one has to concentrate on the date of purchase of raw D
materials or on the date on which the electricity was brought into use
for commercial production. The appellant's claim that it had manu-
factured goods by 30.9.1984 is not denied. Production had, therefore,
':..l.... commenced before 31.3.1985. There is no suggestion by the Depart-
men! or the Committee, and there is no material to show that the
appellant had purchased raw materials sufficient to carry out normal E
commercial production at any time prior to 1.10.82. It is an admitted
fact that the assessee was able fo obtain electricity for use for commer-
cial production only in November 1982. This lends support to the

~
appellant's contention that the production could not have been
effected by the assessee prior to that date. In fact, this is a point on
which emphasis is laid in the order dated 27.10.1987. That being so, F
there is no iota of evidence or material on the basis of which the
appellant's claim that it had started production in December 1982
could have been rejected. On the other hand, the recommendation
and endorsement of the General Manager, District Industries CentTe,
which has been extracted earlier, also supports the appellant's con ten-
tion that it had started production on 4.12.1982 and this report was G
given after verifying the actual position on the spot.
-{
For the reasons above mentioned we are of the opinion that the
denial of the exemption to the appellant under the notification dated
3_0.9.82 was not justified. The rejection of the appellant's application
in this regard is quashed arid the appellant is declated entitled to the H
280 SUPREME COURT REPORTS [1989] 1 S.C.R.

A exemption in terms of the notification. We should not be understood, A:
however, to have expressed any opinion as to the amount of exemp-
tion available to the appellant under the notification. That will be a
matter for consideration of the authorities in respect of each of the
years concerned in respect of which the claim is made for exemption.
B The appeal stands allowed, but in the circumstances, we make no
order as to costs.

G.N. Appeal allowed.

x