STATE OF ORISSA AND ORS.versusVIJAY LAXMI OIL INDUSTRIES

                           STATE OF ORISSA AND ORS.                                     A
                                       v.
                          VIJA Y LAXMI OIL INDUSTRIES

                                 SEPTEMBER 18, 1998
                                     '   I
                     [S.P. BHARUCHA AND V.N. KHARE, J.T.]                               B

            Orissa Industrial Policy Resolution, I989, Part If Clauses 7.2.3, 2.17
      and 2.I8.

             Sales Tax--Exemption-Small-scale industrial unit.1~Set up under            C
      I986 policy but not eligible for sales tax exemption-Eligibility under 1989
      policy-..;.Held : Only those small scale continuing units of 1986 policy which
      were eligible and received concessions/incentives, entitled to sales tax exemp-
      tion 011 finished products for an additional period of two yew~'"--l-Ience, the
      said units not entitled for sales tax exemption under Cl. 7.2.3 of I989
      PolicJ-Said unit:~ are not continuing industry under Cl. 2.18 of I989             D
      policy-Therefore, High Cowt erred in holding otherwise--Orissa Industrial
      Policy Resolution, I986 Part B. definition (f).

            Sales Tax-Clause 7. I. I-Exemption under-Smull-scale indusllial
      wzits-Set up under IPR 1986 but commenced production under IPR                    E
      1989--Eligibilitr-Held : Only those new Units set up under IPR 1989 eligible
      for exemption under Pt. I Cl. 7. I.1-Hence, said units not eligible for sales
      tax exemption.

             Sales ta>.-Exemption-Small-scale industrial wzits---Set up under IPR
       I986 but commenced production under IPR I989--Entitlcment to-State               F
      Govcmment Notification dated 23.4.I976-Item 30-FF (as amended by
      notification dated I6.8.I990f-Provided for exemption for a period of seven
      years from date of commencement of production for industries having a
      capacity of more than JO MT-Held : The said notification has to be read
      along with IPR I989--17zerefore, only those units having capacity and of more     G
      than JO MT which were set up under IPR 1989 eligible for sales tax exemption
      under item 30-FF---Hence, units set up under IPR 1986 not entitled to sales
' ·   tax exemption.

            lndust1ial Policy Resolutions-Object and purpos~Held : To main-
      tain and enhance the growth of indust1ialization in the State by giving incen-    H
                                             659
    660                    SUPREME COURT REPORTS (1998) SUPP. 1 S.C.R.

A tives/co11cessions to the i11dust1ies set up within the State.
        The respondent set up an industry and made the first investment in
  fixed capital (land, building, plant and machinery) on 17.7.1989 when the
  Industrial Policy Resolution (IPR), 1986 was operative. The respondent
  commenced commercial production on 9.6.1990 with an input capacity of
B more than 10 MT when IPR 1989 was operative.

          The respondent's application for concessions/incentives in the form
    of sales tax exemption under IPR 1989 was rejected. The respondent filed
    a writ application before the High Court challenging the aforesaid rejec-
C   tion. The High Court held that the respondent was eligible for sales tax
    exemption under Part II (Clause 7.2) of IPR 1989 as the respondent-unit
    was a continuing industry as it was covered by Clause 2.18 of IP,R 1989
    and directed the appellants to issue sales tax exemption certificate to the
    respondent. Hence this appeal.

D         On behalf of the appellant it was contended that the continuing
    small-scale industrial units of IPR 1986 which were otherwise eligible for
    sales tax exemption for a period of five years were only allowed to avail of
    the concessions for additional 2 years i.e. in all 7 years under Clause 7.2.2
    of IPR 1989 and since the respondent-unit was not eligible for sales tax
E   exemption under IPR 1986 it was not entitled for sales tax exemption under
    IPR 1989.

            On behalf of the respondent it was contended that since respondent-
     unit commenced commercial production on 9.6.1990, it was entitled to
     sales tax exemption under Part-I Clause 7.1.1 of IPR 1989; and that in view
F    of the notification dated 16.8.1990 amending Item 30-FI<' under the exemp-
     tion notification dated 23.4.1976, the respondent-unit was entitled to have
     exemption from sales tax for a period of seven years from the date of
     commercial production under the said amended notification.

           Allowing the appeal, the Court
G
           HELD : 1.1. The High Court's finding that the respondent- unit is a
     continuing unit under Clause 2.18 of the Industrial Policy Resolution
     (IPR), 1989 is factually incorrect. Clause 2.18 of IPR 1989 provides that
     any industrial unit where fixed capital investment commenced on or after
H    1.8.1980 and prior to 1.4.1986 could be given the status of "Continuing
          STATEv. VIJAYLAXMIOILINDUS.[V.N.KHARE,J.]                        661

industry of1980 Policy". In the present case, the respondent made the first       A
investment in fixed capital (land, building, plant and machinery) on
17.7.1989 and as such it would be governed by the provisions of IPR 1986
and would fall within the definition of "Continuing industry of 1986 Policy"
as defined in Clause 2.17 of IPR 1989 if it fulfilled the eligibility criteria.
                                                                     [664-C-D]
                                                                                  B
       1.2. A plain reading of Clause 7.2.3 of IPR 1989 shows that only those
Small-scale Continuing Units of 1986 Policy which were eligible to get
concession/incentive and further have received such concession for five
years would be given exemption of sales tax on finished product for an
additional period of two years. Although the respondent set up its unit on
17.7.1989, it was not eligible to get incentives/concessions in the form of       c
sales tax exemption under IPR 1986 as it was in the "ineligible list" for
grant of incentive/concession irrespective of input capacity according to
the provision of Part B definition (t) of IPR 1986. Thus, in view of Clause
7.2.3, the respondent-unit was not entitled to the benefit of incentives/con-
cessions in the form of sales tax exemption under IPR 1989 as a continuing        D
unit of 1986 policy. [665-B-C]

       2.1. Under Part-I Clause 7.1.1 of IPR 1989 only those new industries
which were set up under IPR 1989 were entitled to incentives/concessions.
Hence, the respondent-unit, which was set up under IPR 1986 but com-
menced production on 9.6.1990 when IPR 1989 was operative, is not                 E
entitled to sales tax exemption. [665-D]

      2.2. The notification referred to by the respondent has to be read
along with the IPR 1989 Policy because the State Government's notification
on sales tax exemption is amended from time to time with reference to p
changes in the Industrial Policy of the State Government, described in the
Industrial Policy Resolutions. No doubt, Oil Mills of more than 10 MT
capacity were shown in the list of industries eligible to get exemption of
sales tax in the notification dated 16.8.1990, but this amendment related
to the industries which have commenced investment after 1.12.1989 which
is the effective date of IPR 1989. Admittedly, respondent-unit was set np G
prior to 1.12.1989 when the IPR 1986 was operative. The respondent-unit,
therefore, cannot be treated as a new unit under IPR 1989 and notification
dated 16.8.1990 granting sales tax exemption to Oil Mills having output of
more than 10 MT, was not applicable to the respondent-unit which is an
unit under IPR of 1986. [666-A-C]                                          H
    662                   SUPREME COURT REPORTS [1998) SUPP.1 S.C.R.

A         3. The basic purpose for issuing Industrial Policy Resolutions by the
    State is to maintain and enhance the growth of industrialization in the
    State by giving incentives/concessions to the industries, which are set up,
    within its State. [662-G]

         CIVIL APPELLATE JURISDICTION : Civil Appeal No. 364 of
B   1994 Etc.

         From the Judgment and Order dated 15.4.93 of the Orissa High
    Court in O.J.C. No. 7377 of 1992.

          P.N. Misra, R.B. Masodkar, A.K. Gupta and Farrukh Rasheed for
C the Appellants.
          Dushyant A. Dave, Ms. Bina Gupta, Rakhi Ray and Ramesh Singh
    for the Respondents.

          The Judgment of the Court was delivered by
D
          V.N. KHARE, J. teave granted.

          This group of Civil Appeals is directed against the separate judg-
    ments and orders passed by the High Court of Orissa whereby the High
    Court has allowed the Writ Applications filed by the respondents, and
E   further directed the appellants herein to issue necessary sales tax exemp-
    tion certificate in favour of the respondents under Industrial Policy Resolu-
    tion 1989 (in short IPR 1989), issued by the State of Orissa. Since common
    questions of facts and law are involved in this group of appeals, we propose
    to decide these appeals by a common judgment, noticing the facts of
F   leading case Civil Appeal No. 364/94.

        The State of Orissa, appellant No.1, herein, had been issuing IPRs
  from time to time and for the purpose of the present case we are concerned
  with IPR 1986 and IPR 1989. The basic purpose for issuing IPRs by the
  State of Orissa was to maintain and enhance the growth of industrialization
G in the State by giving incentives/concessions to the inc!ustries which were
  set up within its State. Each one of these Policy Resolutions has a cut off
  date called "effective date" and it remained valid till the announcement of
  next policy Resolution, except to the extent the new IPR allowed con-
  tinuance of the provisions of the earlier Policy Resolutions. In such Resolu-
  tions, certain categories of industries were kept outside the purview of
H incentives/concessions provided in the IPR. Only those industries were
          STATE v. VUAY LAXMI OIL INDUS. [V.N. KHARE, J.]                663

entitled to incentives/concessions in the form of sales tax exemption which     A
were set up within the framework of the provisions of IPR. The industries
which did not come under the purview of the aforesaid IPR were not
entitled to incentives/concessions in the farm of sales tax exemption during
the operative period of one IPR and thereby could not avail themselves of
the benefits under subsequent IPR.
                                                                                B
        In the present case, the respondent, M/s. Vijay Laxmi Oil Industries
made the first investment on fixed capital (Land, building, plant and
machinery) on 17.7.89 when IPR 1986 was operative. The IPR 1989 came
into effect on 1.12.89. The respondent herein commenced commercial
production on 9.6.90 when IPR 1989 was operative. The respondent filed
an application for incentives/concessions in the form of sales tax exemption
                                                                                c
under IPR 1989 but the same was rejected by the General Manager,
District Industries Centre, Balasore (appellant No.3) by an order dated
29.9.92. Under such circumstances, the respondent was informed that its
unit was of IPR 1986 and that under the said IPR its unit was not eligible
to get sales tax exemption either on purchase of raw material or on sale of     D
its finished products and hence the respondent was not entitled to sales tax
concession under IPR 1989.

       This led the respondent filing a Writ Application before the Orissa
High Court challenging the order whereby the General Manager, District
Industries Centre, Balasore had refused to extend sales tax exemption to        E
it under IPR 1989. The High Court while allowing the Writ Application
filed by the respondent, issued directions to the appellants herein, to issue
sales tax exemption certificate in favour of the respondent. Aggrieved, the
appellants have come to this Court by filing Special Leave Petition.
                                                                                F
       Learned counsel for the appellants urged that the respondent which
is an Oil Mill, irrespective of input capacity, was ineligible for IPR incen-
tives/concessions in the form of sales tax exemption under IPR 1986 vide
item B-Definition (f) of IPR 1986 and as such was not entitled to have any
incentives/concessions under IPR 1989. Elaborating his arguments, learned
counsel further argued that the continuing small scale industrial units of G
1986 Policy which were otherwise eligible for sales tax exemption on
finished product for a period of 5 years, were only allowed to avail of the
concessions for additional 2 years i.e. in all 7 years under 1989 Policy vide
clause 7.2.2 of IPR 1989 and the view taken by the High Court in allowing
the Writ Applications is erroneous.                                           H
    664                   SUPREME COURT REPORTS (1998] SUPP. 1 S.C.R.

A          Before we advert to the arguments of learned counsel for the appel-
    lant, it is necessary to examine the reasoning given by the High Court in
    allowing the Writ Application as the arguments advanced before us were
    not advanced strictly in this form.before the High Court. The High Court
    has held that the respondent was eligible for sales tax exemption under
    Part II (clause 7.2) of IPR 1989 in view of the fact that the respondent's
B   unit was a continuing industry as it was covered by clause 2.18 of IPR 1989
    and secondly, that the input capacity of the unit being more than 10 M.T.
    per day/per 8 hrs. shift, the respondent Unit was entitled to sales tax
    exemption. The finding recorded by the High Court that the respondent
    Unit is a continuing Unit under clause 2.18 of IPR 1989 is factually
C   incorrect. Clause 2.18 of IPR 1989 provides that any industrial unit where
    fixed capital investment commenced on or after 1.8.80 and prior to 1.4.86
    could be given the status of "continuing industry of 1980 Policy''. In the
    present case, the respondent made the first investment in fixed capital
    (Land, Building, Plant or machinery) on 17.7.89 and as such it would be
D   governed by the provisions of IPR 1986 and would fall within the definition
    of "Continuing industry of 1986 Policy" as defined in clause 2.17 of IPR
    1989 if it fulfilled the eligibility criteria.

           Coming to the arguments of learned counsel for the appellant, it is
    necessary to examine the relevant provisions of IPR 1989. IPR 1989 is in
E   two parts. While Part I deals with concessions/incentives in the form of
    sales tax exemption to the new industries which were set up under 1989
    Policy, Part II deals with concessions/incentives to continuing industries of
    1986 policy. Clause 7.2.3 falling under Part II of IPR 1989 provides that
    Small Scale Continuing Units of 1986 Policy will be allowed exemption of
F   sales tax on finished product for an additional period of two years over and
    above five years allowed under 1986 Policy, i.e., in all seven years. Clause
    7.2.3 of 1989 Policy runs as under:

            "7.2.3. Exemption/Defennent of Sales Tax on finished products.
            Small scale continuing units of 1986 Policy will be allowed exemp-
G           tion of Sales Tax on finished products for an additional period of
            2 years over and above 5 years allowed in 1986 Policy i.e. in all 7
            years. Medium and large-scale continuing units of 1986 Policy shall,
            in lieu of incentive relating to Sales Tax on finished products
            under 1986 Policy, be allowed such incentive as is applicable
H           to corresponding new industrial units under Part-I after the
               STATE v. VIJAY LAXMI OIL INDUS. [V.N. KHARE, J.]                  665

              effective date."                                                          A
            A plain reading of above-said clause shows that only those small scale
     continuing Units of 1986 Policy which were eligible to get concession/in-
     centive and further has received such concession for five years would be
     given exemption of sales tax on finished product for additional period of
     two years. As stated above, although the respondent set up its unit on             B
     17.7.89, but it was not eligible to get incentives/concessions in the form of
     sales tax exemption under IPR 1986 as it was in the "ineligible list" for grant
     of incentive/concessions irrespective of input capacity accordir.g to the
     provision of Part B definition (t) of IPR 1986. Thus, in view of clause 7.2.3,
     the respondent's unit was not entitled to the benefit of incentives/conces-        c
     sions in the form of sales tax exemption under IPR 1989 as a continuing
     unit of 1986 Policy and it is here that the High Court fell in error in treating
     the respondent's unit as entitled to the benefit of sales tax exemption under
     IPR 1989.

                                                                                        D
            It was argued on behalf of the respondent that since the respondent's
     unit commenced commercial production on 9.6.90, it was entitled to sales
     tax 'exemption under Part-I clause 7.1.1 of IPR 1989. This argument of
     learned counsel is totally misplaced. Under Part-I clause 7.1.1. of IPR 1989
     only those new industries which were set up under IPR 1989 were entitled
     to incentives/concessions. This implies that under Part II, only eligible          E
     continuing industries of 1986 Policy were entitled to sales tax exemption
     for further period of two years. The respondent Unit being ineligible to
     receive sales tax exemptions under 1986 Policy was precluded to entitle-
     ment of sales tax exemption under IPR 1989.
                                                                                        F
            Learned counsel for the respondent then urged that in view of the
     notification dated 16.8.90 amending the exemption notification dated
     23.4.76, the respondent's unit was entitled to have exemption from sales tax
     for a period of seven years from the date of commercial production and
     further, respondent industry was entitled to sales tax exemptions, as per
••   proviso of column iii of item No. 30 FF, oil mills having input capacity of G
     more than 10 M.T. were also included in the list of industries entitled for
     sales tax exemption which were not entitled for such exemption before.
     Learned counsel. also referred to Annexure-I to IPR 1989 as the
     respondent's unit having more than 10 M.T. input capacity, was entitled to
     sales tax exemption. The notification referred to by learned counsel for the H
    666                   SUPREME COURT REPORTS (1998] SUPP. 1 S.C.R.

A respondent has to be read along with the IPR 1989 Policy because the State
    Government's notification on sales tax exemption is amended from time to
    time with reference to change in the Industrial Policy of the State Govt.,
    described in the Industrial Policy Resolutions. No doubt, Oil Mills of more
    than 10 M.T. were shown in the list of industries eligible to get exemption
B   of sales tax in the notification dated 16.8.1990, but this amendment related
    to the industries which have commenced investment after 1.12.1989 which
    is effective date of IPR 1989. Admittedly, respondent Unit was set up prior
    to 1.12.1989 when the IPR 1986 was operative, the respondent Unit there-
    fore cannot be treated as new Unit under IPR 1989 and notification dated
    16.8.90 granting sales tax exemption to Oil Mills having output of more
C   than 10 M.T. was not applicable to the respondent Unit which is a Unit
    under IPR of 1986. Since the respondent Unit was not eligible to get
    concession in the form of sales tax exemption under IPR 1986 it was not a
    continuing Unit of 1986 Policy under Part II of IPR 1989 and further was
    not a new industry under IPR 1989, as such was not entitled to sales tax
D   exemption under Notification dated 16.8.1990.

           For the foregoing reasons, we are of the opinion that the judgment
    and order of the High Court in allowing the Writ Application of the
    respondent is not sustainable in law. We, accordingly set aside the im-
    pugned judgments and allow the appeals. All the three Writ Applications
E   filed by the respondents shall stand dismissed. There shall be no order as
    to costs.

    v.s.s.                                                    Appeals allowed.




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