M/s. Bhoomi Bottling Gas Company Private Limited v. The Assistant Commissioner Commercial Taxes (CT) Zone-IV & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 06.09.2007CORAMTHE HONOURABLE MR. JUSTICE K. RAVIRAJA PANDIANANDTHE HONOURABLE MRS JUSTICE CHITRA VENKTARAMANWRIT PETITION NO.41299 OF 2002ANDW.P.M.P.NO.61152 OF 2002M/s. Bhoomi Bottling Gas CompanyPrivate Limitedrep. by Mr. K.V.P.BhoominathanProprietorNo.648, Anna SalaiThousand Lights, Madras-6.... PetitionerVs.

The Assistant Commissioner Commercial Taxes (CT) Zone-IV, Madras – 6.

The Commercial Tax Officer Nungambakkam Assessment Circle Spurtank Road, Madras – 31.... RespondentsWrit Petition filed under Article 226 of the Constitution of India praying for the issuance of a Writ of Certiorari calling forthe records in O.P.No.840 of 2002 on the file of the Tamil NaduTaxation Special Tribunal, Madras and quash the order dated28.10.2002.For Petitioner : Mr. Ramani for Mr.V.BhimanFor Respondents : Mr. R. Tholgappian, G.A. https://hcservices.ecourts.gov.in/hcservices/

O R D E R(Order of the Court was made byK. Raviraja Pandian, J.)This writ petition is filed seeking for the issuance of aWrit of Certiorari calling for the records in O.P.No.840 of 2002 onthe file of the Tamil Nadu Taxation Special Tribunal, Madras andquash the order dated 28.10.2002.2. The petitioner filed the O.P. Before the Tamil NaduTaxation Special Tribunal challenging the order of the AssistantCommissioner of Commercial Taxes, Zone-IV, Madras made in hisproceedings No.Rc.1377/A2, dated Nil May, 2002, whereby the Assistant Commissioner cancelled the agreement entered by him on28.6.1996 with the petitioner for breach of certain covenantscontained in the agreement. The correctness of the said order wascanvassed before the Taxation Special Tribunal, which rejected thecontention and confirmed the order of the Assistant Commissioner byits order dated 28.10.2002. The facts are as follows:-The writ petitioner is the Proprietor of the company BhoomiBattling, which carried on the business of purchasing the bulkliquified petroleum gas and stored the gas in its storage point fromthere it refilled the LPG gas in the cylinders and sold the same tothe consumers through dealers appointed by it.

The petitionerapplied for and obtained an Eligibility Certificate from the District Industries Centre for sales tax deferral not exceedingRs.75,53,400/- as interest free sales tax for nine years from themonth in which the petitioner's unit commenced commercial productioni.e. from 23.6.1995 to 22.6.1996. Pursuant to the same, thepetitioner entered into an agreement with the territorial AssistantCommissioner, the first respondent herein on 28.6.1996. Theagreement provides for various conditions that has to be observed bythe petitioner and also provides for repayments schedules. Accordingto the petitioner, the petitioner was carrying on its activity from2000 onwards till 2002. Subsequently, the Government liberalisedpolicy and LPG was easily available to the public. The business ofthe petitioner was not lucrative. Hence, stopped the business ofpurchasing LPG from Reliance Petroleum and refilling it in thecylinders.

However, continued the job work for the same purpose, with HPCL, which is also an oil company. In the end of 2002, therewas an inspection by the Enforcement Wing Officers of therespondents of the factory premises of the petitioner. During theinspection, it was found that the petitioner has violated conditionNos.5, 7 and 9 of the agreement entered by the petitioner. Based onthe inspection, a show cause notice was issued to the petitioner andupon hearing the objection raised by the petitioner, by the order https://hcservices.ecourts.gov.in/hcservices/ dated Nil, May, 2002, the Assistant Commissioner cancelled theagreement entered into for availment of IFST Deferral Scheme.

It is contended by Mr. Ramani, learned counsel for thepetitioner that the show cause notice contained three violations. One is that the petitioner has not filed the insurance policy foreach year as required in Clause 5 of the agreement and the other isthat the petitioner has not filed the audited balance sheet for eachof the year as per terms and conditions No.6 and the third one isthat the petitioner has violated the condition No.9(11), whichdisentitles the petitioner's unit for the IFST deferral, if stoppednormal production for the continuous period of six months. Accordingto the learned counsel appearing for the petitioner, whilesubmitting the objection to the show cause notice, the defectspointed out by the respondents as 1 and 2 that is non production ofthe insurance policy and the non production of the audited balancesheet has been complied with that has been accepted by therespondents. However, the explanation offered by the petitioner forthe third violations has been rejected. The reasoning stated forrejection of the explanation offered is not in accordance with thestatutory provision and not in accordance with the agreement. According to Mr.Ramani, learned counsel appearing for thepetitioner, the petitioner never stopped production for a continuousperiod of six months but was carrying on the business operation, ofcourse, a minor deviation in the transaction, in the sense, originally the petitioner has purchased bulk LPG gas from Relianceand it was stored and after refilling in the cylinders sold thesame to the general public through distributors. However, from 2002onwards, he was doing the same activity of refilling the gas incylinders as a job work to HPCL and hence, the activity of thepetitioner cannot be regarded as a violation of condition Nos.9 or11. On that ground, the order of the Assistant Commissioner is notin accordance with the agreement and the order of the Tribunalconfirming the order is also not sustainable. Hence, the order hasto be set aside.

On the other hand, learned Government Advocateappearing for the respondents submitted that once the petitionerentered into an agreement with the respondent authorities that wouldtantamount to a concluded contract and any breach or violation hasto be dealt with as per the agreed covenant. He further contendedthat the consequence of breach of agreement has been categoricallystated in the agreement. The petitioner having agreed to theconditions contemplated in the agreement and signed the same, cannot now come out and say that the condition contained isotherwise. He further contended that the benefit has been granted tothe petitioner for manufacture of taxable goods, the violationalleged is that the petitioner was not manufacturing any taxablegoods from 2002 onwards. Hence, the action of the respondents in https://hcservices.ecourts.gov.in/hcservices/ cancelling the agreement entered with the petitioner is strictly inaccordance with the covenants contained therein. The confirmationorder passed by the Tribunal is also strictly in accordance withlaw.

We heard the learned counsel appearing on either sideand perused the materials available on record.

The very scheme of the deferral of interest free salestax as contemplated in G.O.Ms.No.500, Industries (MIG.II)Department, dated 14.5.1990 is very categorical in its terms. Inorder to resolve the issue in the present case, the relevant clauseis required to be reproduced which reads as follows:- " The Government in the order second read abovedeclared 105 taluks of this State as Industriallybackward for the purpose of grant of Interest FreeSales Tax Loan, Interest Free Sales Tax Deferral, state capital subsidy, etc.2. With a view to correct regional imbalances inthe industrilisation in the State, by giving furtherincentives to more backward areas, the Governmentdirect that 30 taluks, from among the 105industrially backward taluks, be declared asindustrially most backward taluks. The names of the30 taluks are annexed to this order.3. The Government direct that the new industriesto be set up in the 30 most backward, taluks orderedin para 2 above and also in the three industrialcomplexes of State Industries Promotion Corporationof Tamil Nadu at Pudukottai Cuddalore and Manamaduraibe eligible, apart from other existing concessions, for full waiver of sales tax dues for a period offive years upto a ceiling of the total investmentmade in fixed assets.

On the reading of the above clause, it is very clearthat the sales tax deferral or wavier was granted subject to thesales tax payable on the products manufactured by the capacitycreated by expansion/diversification units only. Having itsidealogy on background, if we consider the case of the petitioner, it is clear that the petitioner was granted a deferral schemebenefit for nine years on the sales tax payable by it on the saleof the goods handled by the petitioner. It is an admitted case, from 2002 onwards, there is no tax liability on the petitioner ashe has switched over his activity of the refilling and sale of LPGgas through dealers to job work for HPCL only. So, the very https://hcservices.ecourts.gov.in/hcservices/ activity of the petitioner is not earning any sales tax to therevenue. When there is no earning on the part of the petitioner inthe form of sales tax revenue, there is no deferral of sales taxwhich arise for consideration. Hence, the switching over of theactivity in which no sales tax revenue involved i.e. job work ofrefilling of LPG can definitely be regarded as violation of theagreement entered into between the respondents and the petitioner.

Learned counsel appearing for the petitioner has arguedmaking reliance on the judgment of the Taxation Special Tribunalreported in the case of GHOUSEIYA GRAM FLOUR MILLS VS. DEPUTYCOMMERCIAL TAX OFFICER, KRISHNAGIRI AND OTHERS reported in 101 STC149. The facts of the above case is not similar to the facts of thepresent case, in the sense that the activity was continuously goingon in the sense that instead of gram dhall flour maize flour hasbeen manufactured by the petitioner therein. In that case, thescheme of interest free deferral has not been taken intoconsideration for resolution of the dispute therein but mere thecovenant contained in the agreement has been taken intoconsideration and held that the covenant has not stated that thereshould be a manufacturing activity. Hence, the above decision isnot applicable to the facts of the present case particularly whenthe scheme as extracted above required the activity of thepetitioner to generate the sales tax, then only they are entitledto get the deferral or waiver of the sales tax that is postponementof the sales tax for a later period.

The counsel also relied on the decision of the SupremeCourt in COMMERCIAL TAXES OFFICER, JODHPUR VS. VISHNU METALSreported in 146 STC 634. We are of the view that the above case isalso not advancing the case of the petitioner as that was held in adifferent context. In that case, under the Sales Tax IncentiveScheme for Industries, 1989 issued under Section 4(2) of the Rajasthan Sales Tax Act, 1954, exemption was granted from sales taxon the expansion of sales within the State of goods manufactured byindustrial units. Clause 2(f) of the Scheme defined "expansion" asincrease in value of fixed capital investment of the existingproject and accompanied by an increase in the production to theextent of at least 25 per cent of the original licensed/registeredcapacity. In those situations of the case, the Supreme Court heldthat the increase in production contemplated by the Scheme wouldinclude also production by the assessee of goods for others on jobwork provided that those goods were of the same nature as of thoseproduced by the assessee for sale. The Supreme Court further heldthat it was not proper to proceed only on assumption in the absenceof material to indicate the nature of the job work undertaken bythe assessee. It is evident from the above for the purpose ofincreasing the value as required under the Scheme, the job workdone by the assessee was directed to be taken into consideration. https://hcservices.ecourts.gov.in/hcservices/ That is not the issue in this case. Hence, the reliance of thejudgment cannot advance the case of the petitioner any further.

Learned Government Advocate appearing for therespondents argued on the basis of the reasoning required in thedecision of the Special Tribunal in PREMIER POLY SACKS (P) LTD.,VS. ASSISTANT COMMISSIONER (CT) AND ANOTHER reported in 125 STC430.The facts of the case is also not identical as in the present case. However, reference has been made to the Government Order inG.O.Ms.No.500, Industries, dated 24.5.1990 with which we relied inthis case. Apart from mere reliance of the Government Order, the Tribunal has not considered the significance of the GovernmentOrder. We are of the view that decision also no way helpful fordeciding the issue. We have already come to the conclusion that thedeferral granted is nothing but postponing the payment of sales taxliable to be paid for the current period to a future period. Unlessthe petitioner generating the sales tax for the current period, thepetitioner is not entitled to have tax benefit under the IFSTdeferral. Hence, we do not find any illegality or irregularity inthe order passed by the Tamil Nadu Taxation Special Tribunal. Accordingly, the writ petition fails and the same is dismissed. Consequently, connected miscellaneous petition is also dismissed. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.kbTo1. The Assistant Commissioner Commercial Taxes (CT) Zone-IV, Madras – 6.2. The Commercial Tax Officer Nungambakkam Assessment Circle Spurtank Road, Madras – 31.1 cc to Mr.V. Bhiman, Advocate, Sr. 55962W.P.No.41299 of 2002SSV (CO)kk 18/9