Holding

The relevant date for granting exemption under Section 4‑A is the first sale by the industrial unit, i.e., 5 March 1986, and the unit is entitled to a six‑year exemption.

Summary

Continental Chemicals Ltd. obtained a sales tax registration in November 1985 and made a trial sale on 1‑Nov‑1985, but only acquired permanent registration as an industrial unit on 11‑Sep‑1986 and began actual production on 3‑Mar‑1986, with its first sale on 5‑Mar‑1986. The company applied for a six‑year sales‑tax exemption under Section 4‑A of the U.P. Sales Tax Act, 1948, claiming the exemption period should start from the 5‑Mar‑1986 sale. The Sales Tax Officer, relying on the first sale in 1985 and a capital‑investment threshold of Rs 3 lakhs, granted only a four‑year exemption from 1‑Nov‑1985, a decision upheld by the High Court. The Supreme Court held that the unit became an "industrial unit" only after permanent registration on 11‑Sep‑1986; therefore the relevant date for exemption is the first sale by that unit, 5‑Mar‑1986, and because the capital investment exceeded Rs 3 lakhs, the company is entitled to a six‑year exemption. The appeal was allowed, setting aside the High Court order.

Issues considered

Whether the date of "starting production" for the purpose of Section 4‑A exemption is the date of the trial sale in November 1985 or the date of first sale by the industrial unit in March 1986.
Whether the capital‑investment threshold of Rs 3 lakhs applicable at the time of commencement determines the period of exemption.

Legislation cited

Factories Act, 1948

Subjects

sales tax exemptionindustrial unitdate of starting productioncapital investment thresholdU.P. Sales Tax ActSection 4-Anotificationpermanent registrationSupreme Court

Judgment

..... -
A M/S. CONTINENTAL CHEMICALS LTD.
v.
SALES TAX OFFICER AND ANR.
-t
FEBRUARY 2, 1999
B
[M. SRINIVASAN AND U.C. BANERJEE, JJ.) •
.
U.P. Sales Tax Act, 1948 :

Section 4-A-2nd Explanatiort-Applicability of
c
Sales Tax-Exemption from-Notification dated 26.12.1985--Ap-
plicability of-Expression 'Industrial Unit' and 'Date of Starting
Production'--Meaning of

Sales Tax-Appellallt-assesseee-Commencement of ManufacturingC
D
unit by-First sale effected on 1.11.1985 and sales tax registration Certificate y
obtained 011 23.11.1985--Thereafter assessee started manufacturing unit 011 its
own property and obtained permanent registration certificate on
11.9.1986-That unit started production 011 3.3.1986 and first sale effected on
5.3.1986-Application by assessee for exemption from sales tax under section
E 4A-Competent authority held as the first sale was effected on 1.11.1985 and
at that time, the appellant had not invested amounts in excess of Rs. 3 lakhs,
the appellant was entitled to exemption only for a period offour years from
the date of first sale, namely, 1.11.1985--0n that basis, the claim of the
appellant for exemption for six years from 5.3.1986 was rejected-Assessee
F preferred a writ petition before the High Court-The High Court relied upon
the 2nd Explanation to Section 4-A of the Act by which the "date of produc-
tion" was defined-It took the view that the appellant had started production
as required by the Notification on 1.11.1985 with a capital investment below
Rs. 3 lakhs and, therefore, the appellant was entitled to exemption for a period
G of four years only from 1.11.1985--Appeal preferred before this Court-Held
the appellant got permanent registration with the Directorate of Industries only ,_..,, -
...,.
on 11.9.1986 and became an industrial unit as defined by the Notifica-
tion-That industrial unit had commenced production only on 3.3.1986 and
the first sale was effected by that unit on 5.3.1986-Hence, the relevant date
H for the purpose ofgranting exemption is 5.3.1986 and not 1.11.1985 as decided
340
-.. + CONTINENTAL CHEMICALS LTD. v. SALES TAX OFFICER 341

by the competent authority and the High Court-That industrial unit had a A
capital investment of much more than Rs. 3 lakhs-Consequently, the appel-
Zant is entitled to get exemption for a period of six years from 5.3.1986.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3850 of
)' 1996.
:...· B
From th~ Judgment and Order dated 5.1.96 of the Allahabad High
Court in C.W.P. No. 657 of 1990.

Avadh Behari Rohtagi, R.B. Mishra (Sunil Kumar) (NP), Jitendera
Mohan Sharma, Dr. Meera Aggarwal and Ramesh Chandra Mishra for the
appearing parties.
c
The following Order of the Court was delivered :

The appellant commenced a manufacturing unit with manual labour
~
without getting it registered under the Factories Act or before the Direc- D
torate of Industries .. It got a sales tax registration certificate on 23.11.1985.
Earlier it had purchased raw material and started trial run pursuant to
which the first sale was effected on 1.11.1985.

2. The appellant, however, purchased land and building and started
manufac•uring unit on a property of its own and at that time it applied for E
and obtained permanent registration from the Deputy Director of In-
dustries as small scale unit. The actual registration certificate was issued
on 11.9.1986 by the Deputy Director of Industries. That unit started
production on 3.3. 1986 and the first sale was effected on 5.3.1986. The
appellant had also applied for a loan from the U.P. Financial Corporation F
for a sum of Rs. 49 lakhs in October 1986 of which a sum of Rs. 35 lakhs
was sanctioned. On December 6, 1986, the appellant applied for exemption
under Section 4-A of the U.P. Sales Tax Act, 1948 (for short "the Act") for
a period of six years from payment of sales tax under the Notification dated
26.12.1985 stating that the date of first sale was 5.3.1986.
. ._·-) G
,.,
3. The 2nd respondent issued a sales tax exemption certificate on
25.7.1989 for a period of four years from 1.11.1985. The reasoning of the
2nd respondent was that the appellant had on its own showing commenced
trial run, purchased raw material and started production in November 1985
and the first sale was effected on 1.11.1985. At that time, as the. appellant H
342 SUPREME COURT REPORTS [1999] 1 S.C.R.

A had not invested amounts in excess of Rs. 3 lakhs, the a!Jpellant was
entitled to exemption only for a period of four years from the date of first
sale, namely 1.11.1985. On that basis, the claim of the appellant for exemp-
tion for six years from 5.3.1986 was rejected.

4. Aggrieved by the same, the appellant filed civil miscellaneous writ
B petition in the High Court. That writ petition was dismissed by the High
Court.

5. We are very sorry to note that the High Court has not written a
judgment but only passed an order dismissing the writ petition. In support
C of that dismissal, the High Court has relied upon the 2nd Explanation to
Section 4-A of the Act by which the "date of production" was defined. But
as rightly pointed out by learned counsel for the appellant, that definition
was introduced for the first time by Amendment Act 28 of 1991 which came
into force long after the relevant date in the present case. By utilising that
definition and the last part of the reasoning found in the order of the 2nd
D respondent, the High Court took the view that the appellant had started
production as required by the Notification on 1.11.1985 with a capital
investment .below Rs. 3 lakhs and, therefore, the appellant was entitled to
•
exemption for a period of four years only from 1.11.1985. ·

E 6. Unfortunately, the High Court has overlooked the definition of
'industrial unit' found in the Notification of Exemption dated 26.12.1985
which was passed in supersession of earlier Notification dated 29.1.1985.
'Industrial Unit' has been defined in the Notification as follows :

"Industrial Unit" means an industrial unit holding permanent
F registration with the Directorate of Industries, Uttar Pradesh as
ori small, handloom or handicraft industry or an industrial licence
registration granted by the Iron & Steel Controller or the Textile
Commissioner or the Director, Sugar or the Director-General of
Technical Development or the Government of India; and (a)
registered under the Factories Act, 1948 or established after ob-
G taining a Term Loan from the U.P. Financial Corporation or from
a Scheduled Commercial Bank, in the case of units with a capital
investment not exceeding three lakh rupees; or (b) registered
under the Factories Act, 1948 or having applied for registration
under the said Act and deposited the required fee for the purpose,
H in the case of units other than those referred to above;
CONTINENTAL CHEMICALS LTD. v. SALES TAX OFFlCER 343

... + 7. The 'date of starting production' has also been defined in the A
Notification as follows :

"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;
B
~
>- 8. There is no dispute that the appellant got permanent registration
with the Directorate of Industries only on 11.9.1986 and became an in-
dustrial unit as defined by the Notification. That industrial unit had com-
menced production only on 3.3. 1986 and the first sale was effected by that
unit on 5.3.1986. Hence, the relevant date for the purpose of granting C
exemption is 5.3.1986 and not 1.11.1985 as decided by the 2nd respondent
and the High Court. That industrial unit had a capital investment of much
more than Rs. 3 lakhs. Consequently, the industrial unit is entitled to get
exemption for a period of six years from 5.3.1986 provided the other
~ conditions are satisfied. There is no dispute in this case that all the other D
conditions are satisfied and the appellant is entitled to get exemption under
the relevant Notification.

9. Learned counsel for the respondents contends that the appellant
purchased raw material in 1985 and utilised the same for the purpose of
manufacture and consequently, the relevant date will be 1.11.1985, the date E
of first sale for this purpose. Learned counsel places reliance on the
definition of 'date of starting production' found in Act No. 22 of 1984 as
was in force from 12th October, 1983. The definition was in the following
terms :
F
'"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 purchased for the first time or the date of
installation of power connection where needed, whichever is later."

10. There is a fallacy in this contention. The date of starting produc- G
tion as defined in that Explanation would be relevant only if the unit
applying for exemption is an industrial unit within the meaning of the
Notification. As already pointed out by us, the appellant became an in-
dustrial unit as defined by the Notification only from 11.9.1986. Hence the
relevant date will be only 5.3.1986 and not 1.11.1985. H
344 SUPREME COURT REPORTS (1999) 1 S.C.R.
A 11. Learned counsel for the respondents also contends that none of
the contentions urged by the appellant in this Court were put forward
before the High Court. We are unable to accept this contention. As stated
already, the judgment of the High Court is wholly unsati&factory and it is
not a judgment at all. The writ petition filed by the appellant before the
B High Court contained all the relevant facts and the contentions. The High l

Court has not dealt with any of them. On the other hand, the High Court
has framed only one question for determination as to 'whether the
petitioner before it was entitled to exemption for six years or for four years'.
That question was wide enough to consider all the relevant facts and decide
the case. The High Court has failed to take into account the relevant facts
C in this matter. Nor has the High Court adverted to the· relevant provisions
in law. The High Court has chosen to refer to a provision of law which
came into force much later than the relevant date, which ought not to have
been done.

12. In the result, we have no hesitation to set aside the judgment of
D the High Cou~t and allow this appeal with costs.

T.N.A. Appeal allowed.

_._