Holding

Vijay Enterprises is entitled to a five‑year sales‑tax exemption under Section 4‑A of the Uttar Pradesh Sales Tax Act, 1948, commencing from 30 March 1985.

Summary

Vijay Enterprises, a small‑scale unit manufacturing cycle stands, began manual production on 1 March 1985 and made its first sale on 30 March 1985. It purchased a diesel generator on 4 March 1985 for Rs 72,800, bringing its total capital investment to more than Rs 3,00,000 as of the date of first sale. Under Section 4‑A of the Uttar Pradesh Sales Tax Act, 1948 and the 29 January 1985 notification, a unit with capital investment exceeding Rs 3,00,000 is entitled to a five‑year sales‑tax exemption, whereas a lower investment warrants only three years. The Divisional Joint Director granted only a three‑year exemption starting from 1 March 1985, and the High Court upheld this on the ground that the capital investment at the time of first sale was not proven to exceed the threshold. On appeal, the Supreme Court held that the diesel generator was purchased before the first sale and must be counted in the capital investment, making the total exceed Rs 3,00,000. Consequently, the Court granted Vijay Enterprises a five‑year exemption from 30 March 1985.

Issues considered

The correct commencement date for the exemption period under Section 4‑A – whether it is the date of first sale or the date of power connection.
Whether the cost of the diesel generator purchased on 4 March 1985 should be included in the capital investment for determining the exemption period.
Whether the exemption period should be three years or five years based on the total capital investment as of the date of first sale.

Legislation cited

Subjects

sales tax exemptionSection 4-Acapital investmentdiesel generatorfirst saleindustrial unitUttar Pradesh

Judgment

A VUAY ENTERPRISES AND ORS.
v.
SALES TAX OFFICER AND ORS.

FEBRUARY 11, 1992

B [K. JAYACHANDRA REDDY AND R.C. PATNAIK; JJ.)

Uttar Pradesh Sales Tax Ac4 1948:

Section 4-A and Notification dated 29.J.1985-Exemption of Sales tax
c to new industrial units-First sale of manufactured goods made within six
months from date of production-Diesel set purchased before date of first
-r-
sale-Whether cost of diesel set to be included in capital investment and
exemption granted for five years from date of first sale.

The petitioners were a smail scale industrial unit manufacturing
D cycle stands and carriers. They applied for power connection in December,
1984, but it was given only on 20.S.86, thongb it was sanctioned on 19.1.86.
Meanwhile, the petitioners started production manually with effect from
1.3.85 and effected first sale of the manufactured goods on 30.3.85. On their
application for e.xemption from the payment of sales tax under Section 4-A
of t~e U.P. Sales Tax Act, 1948, and. the Notifications issued thereunder
E
from time to time, the Divisional Joint Director of the Sales Tax Depart-
men! granted exemption for a period of three years only commencing from
1.3.85.

The petitioners filed a review application contending that the exemp·
F lion should be with effect from 20.S.86, on which date the power connection
was given and production commenced with the help of electricity and that
the exemption should be for five years from 20.S.86; since on that date their
capital investment was more than Rs. 3,00,000 including Rs. 72,800, the
:4
cost of diesel set purchased by them. The petitioners' plea that 30.3.85 as
the date of first sale was accepted, but their plea that the date of starting
G of production should be 20.S.86 was rejected. Hence. the petitioners filed a
Writ Petitio~ before the High Court.

Rejecting the petitioners' pleas that the date or getting power con·
nection, i.e. 20.S.86 should be taken as the date of starting production, and
H that the capital investment in the unit was more than Rs. 3,00,000 during .....
594
VUAY EN1ERPRISES v. S.T.O. 595

the period between 1.3.85 i.e. the date of starting production, and 30.3.85, A
i.e. the date of first sale, the High Court held that the date of first sale, i.e.
30.3.1985, should be taken as date of commencement of the period of
exem.Ption and that the petitioners were entitled for exemption only for a
priod of three years from that c,late in view of Section 4-A of the Act and
the relevant notifications.
B
In the special leave Petition before this Court, the petitioners con·
tended that once it .yas accepted that the date of first sale was 30.3.85, the
cost of-diesel unit amounting to Rs. 72,800 should also be included in the
capital investment, in which case the total capital investment would be
above Rs. 3 lakhs and accordingly, the exemption should be for five years C
as per the relevant provisions.

Disposing of the Special I.eave Petition, this Court,

HELD: 1. :I'he petitioners are entitled for exemption under Section
4-A of the U.P. Sales Tax Act, 1948, for five years from 30.3.1985 and D
accordingly they should be given the benefit.

2.1. Section 4-A of the Act provides for granting exemption to the
new industrial units with a view to increase the production of any goods
and the period of exemption should be from the date of first sale within E
the six months' time from the date of starting production. The Notification
dated 29.1.1985 issued by .the State Government under Section 4-A
specified the date of commencement of the period of exemption as the date
of first sale, if such sale took place not later than six months from the date
of starting production, or, in other cases, from the date following the
expiration of six months from the date of starting production. Column 3 F
of the Table appended to the Notification shows that in respect of the nnits
mentioned therein in Serial No. 3, the exemption should be for three years
if the total capital investment does not exceed Rs. 3,00,000 and if it exceeds
Rs. 3,00,000 it should be five years. [598A-B, El

2.2. In the instant case, the petitioners' case has been that they G
purchased and installed a diesel unit on 4.3.1985 amounting to Rs. 72,800
and as such, it must be held that the cost of the diesel unit should be
included in the capital investment, in which case the total capital invest·
ment would be more than Rs. 3,00,000 on the date of first sale, namely,
30.3.1985, and therefore, the exemption should be for five years. The Joint H
596 SUPREME COURT REPORTS [1992) 1 S.C.R.

A Director rejected the claim to include the cost of diesel unit on the sole
ground that it Was purchased after starting production. However, before
the High Court the State Government alongwith their counter-affidavlt
have annexed the bill dated 4.3.1985, which shows that the diesel set was
purchased by the petitioners for total cost of Rs. 72,800. Therefore, it
B cannot be in dispute that the diesel set was purchased by the petitioners
on 4.3.1985. [598E, 601D]

2.3. In view of the categorical finding of the High Court that the date
of commencement of produc!!lln was 1.3.1985 and the date of first sale was
30.3.1985, the date of purchase of diesel set which is 4.3.1985, Was clearly
C prior to the date of first sale, and, therefore, the cost of the diesel set
should also be included in the capital investment as on 30.3.1985, and then
it would be more than Rs. 3,00,000. Thus, it is clear that the exemption
should be for live years from 30.3.1985 i.e. date of first sale, as per the
relevant provisions. [601E·F]

D CIVIL APPELLATE JURISDICTION Special Leave Petition
(Civil) No. 8543 of 1990.

From the Judgment and Order dated 25.5.1990 of the Allahabad
High Court in Civil Misc. Writ No. 36 (Tax) of 1989.

E P .P. Rao and A.S. Pundir for the Petitioners.

Ashok K. Srivastava for the Respondents.

· The following Order of the court was delivered:

F The matter is being disposed of at the stage of admission after
hearing both sides.

The petitioners in these appeals have filed the S.L.P.. against the
0

order of the Allahabad High Court. Th e petitioners belong to a re-estab-
li,IJed small scale industrial unit for manufacturing cycle stands and car-
G ricr,, during the year 1984-85. They applied for power connection in
December, 1984 but it was sanctioned on 19.1.86. Meanwhile the
petitioners, however, started production manually with effect from 13.85.
They ·effected their first sale of the manufactured goods on 30.3.85. It is
their case that they purchased a diesel unit and installed it on 4.3.85.
H According to them the total investment including the cost of diesel unit
VUAY ENTERPRISES v. S.T.O. 597

was more than Rs. 3,00,000 as on 30.3.85, when the first sale was effected. A
The petitioners applied for exemption from the payment of sales tax under
Section 4-A of the U.P. Sales Tax Act and the Notifications thereunder
issued from time to time. The Divisional Joint Director by his Order dated
26.4.1988 informed the petitioners that exemption was granted under Sec-
tion 4-A for a period of three years only commencing from 1.3.85. A review B
was filed by the petitioners eontending that the exemption should be with
effect from 20.5.86 on which date the power connection was given and
production commenced with the help of electricity and on that date their
· capital investment was more than Rs. 3,00,000 and therefore the exemption
should be for five years. By proceedings ·dated 23.12.1988 the petitioners
were informed that 30.3.85 has been accepted as the date of first sale, but C
their plea that the date of starting of production should be 20.5.85 was
rejected. Questioning the same a Wrif Petition was filed before the High
Court.

The High Court accepted the petitioners' plea that 30.3.85 is the date D
of first sale of manufactured goods by the petitioners. However, the plea
of the petitioners that the date of getting power connection i.e. 20.5.86
should be taken as the date of starting production was rejected. The High
Court also observed that the date of first sale, namely 30.3.85, should be
taken as the date of commencement of the period of exeipption. Having
thus found, the High court, however, was not prepared to accept the E
petitioners' plea that the capital investment in the unit was more than Rs.
3,00,000 during the period between 1.3.85, i.e. the date of starting produc-
tion; and 30.3.85, i.e. the date of first sale. In the result, it was declared
that the petitioners were entitled for exemption only for a period of three
years from the date of first sale, namely 30.3.85, in view of Section 4-A of F
the Act and the relevant notifications.

The learned counsel for the petitioners contended that when once it .
is accepted that the date of first sale is 30.3.85, then the exemption should
be on the basis of the capital investment as it stood on that date and since
the petitioners have already installed the diesel unit and the cost of diesel G
unit amounting to Rs. 72,800 should also be included in ·the capital invest-
ment, then the total capital investment would be above Rs. 3,00,000 and on

- ~
which the exemption should be for five years as per the relevant provisions.
To appreciate this contention it becomes necessary to refer to some of the
provisions and the notifications thereunder. H
.
'

598 SUPREME COURT REPORTS · [1992] 1 S.C.R.

A Section 4-A of the Act provides for granting exemption to the new
industrial units with a view to increase the production of any goods and
the period of exemption should be from the date of the first sale within the
six months' time from the date of starting production. A Notification was ....
L

B
issued by the State Government on 29.1.85 under Section 4-A of the Act
specifying the date of commencement of the period of exemption as "the "
!Iii

date of first sale, if such sale takes place not later than six months from
the date of starting production, or, in other cases, from the date followii;tg
the expiration of six months from the date of starting production". In the ·
light of the above provisions and the notifications thereunder, the date of
exemption in the instant case. should be taken as 30.3.1985, namely the date
c of first sale. This aspect is not in dispute. Then the question is whether the
exemption should be for three years or five years? It depends upon the
question as to what was the total capital investment on 30.3.1985; was it
less than Rs. 3,00,000 or more?

D Column 3 of the Table appended to the Notification dated 29.1.1985
issued under Section 4-A of the Act shows that in respect of the units
mentioned therein in Serial No., 3, the exemption should for three years if
the total capital investment does not exceed Rs. 3,00,000 and if it exceeds
Rs. 3,00,000 it should be five years. The petitioners' case throughout has
been that they purchased and installed a diesel unit on 4.3.1985 amounting
E to Rs. 72,800 and that since the same is not in dispute at all, it must be
held tha.t the cost of the diesel unit should be included in the capital
investment, and then the total capital investment would be more than Rs.
3,00,000 as on the date of first sale namely 30.3.1985, in which case the

F
exemption should be for five years. We may mention here that this point
was not considered by the High Court in the manner it is submitted by the
petitioners. No doubt, before the High Court the petitioners' contention
was that the date 20.5.86, when the power was supplied, should be the date
•
of starting of production and from that date the exemption should be for
five years. The High Court rejected this contention by observing:

G "The petitioners did not aver specifically that even on 1.3.19851
30.3.li>85, their investment was more than rupees three lacks.
In such a situation, we cannot find fault with the authority for

H
not rec?rding a· clear find on this issue."

In observing so, the High Court relied on two paragraphs in the
...
~
VUAY ENTERPRISES v. S.T.O. 599
_,
review petition filed before the Sales Tax Authorities. A
The learned counsel submitted that even if the period of exemption
cannot be reckoned from 20.5.86 (the date on which the power was
supplied), yet the same should be reckoned atleast from 30.3.1985, on
which date the total capital fuvestment was above Rs. 3,00,000 undoubtedly.
The learned counsel.for the State submitted that such a contention was not B
put forwa.rd by the petitioners before the High Court and, therefore, the
petitioners cannot raise the same before this Court.
i........
.
The High Court has given a categorical finding as under:

"In the circumstances of the present case, we find that the date
c
of starting production in the petitioners unit is 1.3.1985 and in
view of sub-section (1) of section 4-A, the date of the first sale,
i.e., 30.3.1985, should be taken as the date of commencement of
the period of exeinption, the same falling within six months of
the date of starting production". (emphasis supplied) D
Therefore, 30.3.1985 should be the date of commencement of the
period of exemption. In the review petition filed before the Joint Director
of Industries, no doubt, it is clearly mentioned that on 19.4.1986 the capital
fuvestment was Rs. 5,26,273 and that the Sales Tax Officer cannot reduce
the capital fuvestment by excluding the cost of diesel set. But in the E
counter-affidavit filed by the State Government before ·the High Court, it
is mentioned thus:

"The dealer filed a review application before the Joint Director .

'
)..
... of Industries statfug that exemption should be granted w.e.f. F
30.3.85, the date of first sale. It was also stated· that capital
investment upto 30.3.85 was more than 3 lacks fucludfug gen-
erator for Rs. 72,800 purchase vide Bill No. 107/84-85 dt. 4.3.85.
Regarding this application enquiries were made and it was
found that dealer started production from 1.3.85 manually and
he had not purchased any machine driven by power befqre G
1.3.85 and generator was purchased locally on 4.3.85 i.e. after
the date of startfug production vide Bill No. 107/84-85 dated
4.3.85 for Rs. 72,800 by transfer of documents against form 'C'.
• Therefore, fuvestment in the generator cannot be included in
the machinary fuvestment because the generator was not used H
600 SUPREME COURT REPORTS [1992) 1 s.C.R.

A for production."

Relying on these admissions, the learned counsel submitted that. it is
an admitted fact that the l'lill dated 4.3.85 which is for Rs. 72,800 in respect
of the diesel set purchased should be included in the capital inveSt;ment
and that the Joint Director excluded that amount on the wrong assumption
B that the exemption period should be counted from the date of production
and the total investment as on that day alone is relevant which is erroneous.
From the above material it cannot be said that this aspect was not an issue
before the High Court but the same lost its significance in view of the larger
claim made by the petitioners that the exemption should be from 20.5.86.
C The learned counsel for the State, however, submits that the matter may
be remanded. We do not think it is necessary to do so in view of the cogent
and clear material, which cannot be controverted.

Before proceeding we may extract the order which was impugned
before the High Court:.
D
"Letter No. 8971 DS/8/Sales Tax/88-89

Office
Joint Director Industries {D.S.)
Dated: 29th Dec. 1988
E
M/s. Vijay Enterprises,
93, A Cooperative Ind. Estate
Kanpur.

p· Kindly refer to your letter dated 16.6.1988 which is on the subject of
reconsideration of relief of exemption of Sales Tax-granted to your unit.

The Division of Committee in meeting dated 23.12.1988 having con-
sidered in this respect has decided as follows:

G 1. Sales Tax exemption 'is hereby amended with effect from date of.
first sale 30.3.1985 instead of date of production 1.3.1985 for 3 years. The
other terms relating to exemption shall be according to eligibility certificate
dated 26.4.1988 ..

2. Investment on land/building exceeds the necessity. The generator •
H is not utilised for starting production and the permission of the Electricity
VUAY ENTERPRI.SES v.S..T.O. 601

- Department for this is also not there. The Generator has been purchased A
after starting production. hence investment of generator amou!Jting to Rs.
72,800 till the dote of starting production is. not acceptable as capital invest,
ment. Thus on the date of starting production investment on Land/Building
and Mac/Jines is less than Rs. 3 laks. Hence the demand for 5 years tax
exemption is rejected.
B
sd/-
Joint Director !J:idustries (DS)'
[emphasis supplied)
I
The last few lines in the above Order which are underlined show that C
the Joint Director rejected the claim to include the cost of diesel unit on
the sole ground that it was purchased after starting production. Before the
High Court the State Government alongwith their counter-affidavit have
annexed the Bill dated 4.3.1985 which· shows that the diesel set was pur-
chased by the petitioners for total cost of Rs. 72,800. lf we take into the
account the above admission made in the counter-affidavit by the State D
Government and the contents of this bill it cannot be in dispute that the
diesel set was purchased by the petitioners on.1.3.1985. Now, in view of the
categorical finding of the High Court that the date of commencement of
production was 1.3.1985 and the date of first sale was 30.3.85, the dat~ of
purchase of diesel set which is 4.3.1985 was clearly prior to the date of first E
sale, and therefore, the cost ofthe diesel set should also be included in the
capital investment as on 30.3.1985, and then it would be more than Rs .
. 3,00,000. Thus the position becomes clear that the exemption should be for
five years from the date. of 30.3.1985 as per the relevant provisions men-
tioned above. We are satisfied that the petitioners are entitled for exemp'
tion under Section 4-A of the U:P. Sales Tax Act for five years from F
30.3.1985 and accordingly they should be given the benefit.

With this direction the SpeCial Leave Petition is disposed of. There
will be no order as to costs.

N.P.V. Petition disposed of.

. •