Allowed

M/S Coromandel Sugars Ltd. v. the Principal Secretary

Karnataka HC3 Mar 2023WP/15174/2018

Case brief

AI extract

What is this about?

Petitioner challenged a rejection of sales tax exemption on sugar by-products, arguing discrimination against another similar unit that received the benefit. High Court held the rejection discriminatory and quashed the impugned order, directing the department to issue necessary certificate for exemption.

What did the court decide?

Order dated 22.02.2018 quashed; Second Respondent directed to issue Certificate to enable claim of sales tax exemption on by-products.

M/S Coromandel Sugars Ltd. Vs the… — Constitutional and Fundamental Rights | Karnataka HC (2023)

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W.P No.15174 OF 2018

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 3^RD DAY OF MARCH 2023

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PRESENT

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THE HON’BLE MR. JUSTICE P.S.DINESH KUMAR

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AND

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THE HON’BLE MR. JUSTICE T.G.SHIVASHANKARE GOWDA

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WRIT PETITION NO. 15174 OF 2018 (T-KST)

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BETWEEN :

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M/s. COROMANDEL SUGARS LTD. (FORMERLY KNOWN AS M/S I.C.L.SUGARS LTD) REPRESENTED BY ITS SENIOR MANAGER (FINANCE AND ACCOUNTS) SRI. VENKATARAMAN NO.1, "MIDFORD GARDENS" MIDFORD GARDENS OFF M.G.ROAD BENGALURU-560 001. ... PETITIONER

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(BY SHRI. S.S. NAGANAND, SENIOR ADVOCATE FOR SHRI. M.N. SHANKARE GOWDA, ADVOCATE)

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AND :

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THE PRINCIPAL SECRETARY (INDUSTRIAL DEVELOPMENT) (CHAIRMAN, STATE LEVEL

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CO-ORDINATION COMMITTEE) INDUSTRIES DEPARTMENT GOVERNMENT OF KARNATAKA BENGALURU-560 001

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THE JOINT DIRECTOR (INDUSTRIAL DEVELOPMENT) DEPARTMENT OF INDUSTRIES AND COMMERCE "KHANIJA BHAVAN" RACE COURSE ROAD BENGALURU-560 001.

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THE STATE OF KARNATAKA THROUGH ITS SECRETARY MINISTRY OF FINANCE VIDHANA SOUDHA BENGALURU-560 001.

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THE ADDITIONAL DEPUTY COMMISSIONER OF COMMERCIAL TAXES (ASSESSMENTS-14) BENGALURU-560 009.

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THE ADDITIONAL CHIEF SECRETARY INDUSTRIES & COMMERCE DEPARTMENT GOVERNMENT OF KARNATAKA VIDHANA SOUDHA

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BENGALURU-560 001.

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THE ADDITIONAL CHIEF SECRETARY FINANCE DEPARTMENT GOVERNMENT OF KARNATAKA VIKASA SOUDHA BENGALURU-560 001.

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THE DEPTUTY COMMISSIONER OF COMMERCIAL TAXES (ASSESSMENTS-13) BENGALURU-560 009. …RESPONDENTS

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(BY SHRI. R.SUBRAMANYA, AAG A/W SHRI. JEEVAN J. NEERALGI, AGA)

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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 22.02.2018 PASSED BY THE R-5 IN NO. CI 51 SPI 2015 IN THE PETITIONER'S CASE AT ANNEX-Z12 AND ETC.

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THIS WRIT PETITION, HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 29.11.2022, COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, P.S. DINESH KUMAR J., PRONOUNCED THE FOLLOWING:-

W.P No.15174 OF 2018

ORDER

This writ petition is presented with following

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prayers:

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(i) This Hon'ble High Court may be pleased to issue a writ of certiorari or a direction in the nature of writ of certiorari quashing the order dated 22.02.2018 passed by the 5th Respondent in NO CI 51 SPI 2015 in the Petitioner's case (Annexure Z12).

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(ii) This Hon'ble High Court may be pleased to declare that the Petitioner is entitled for exemption from payment of sales tax on the sales turnover of finished products namely molasses, bagasse and filter mud as per G.O. No. CI 30 SPC 96 dated 15-03-1996 read with notification No. FD 32 CSL 96 (I) dated 15-11-1996 despite the Petitioner enjoying the benefit of purchase tax deferment as per G.O. No. CI 140 FMI 71 dated 06-06-1973 in the Petitioner's case (Annexure "G") and for the consequential order restraining the respondent from levying or collecting any sales tax from the Petitioner on the sales turnover of molasses, bagasse and filter mud for any assessment year or years from the very inception and to direct the refund of the sales tax so collected from the Petitioner with such reasonable interest as the Hon'ble Court may be pleased to direct in this behalf.

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(iii) This Hon'ble High Court may be pleased to direct the second respondent to issue FAVC enabling the Petitioner to claim exemption from payment of sales tax

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on finished products namely molasses, bagasse and filter mud in the Petitioner's case.

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(iv) This Hon'ble Court may be pleased to issue such other writ or directions in the nature of a writ as it may deem fit to grant in the facts and circumstances of the Petitioner's case.

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Heard Shri. S.S. Naganand, learned Senior

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Advocate for the Petitioner and Shri. R. Subramanya,

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learned Additional Advocate General for the State.

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Brief facts of the case are, petitioner, M/s. Coromandel Sugars Ltd., a Public Limited Company is registered under the Karnataka Sales Tax Act, 1957¹ . It commenced its commercial production from August 02,

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1999 as new unit. It is engaged in the manufacture of sugar, molasses, bagasse and filter mud.

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The Government of Karnataka vide Order²

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dated March 15, 1996 (Annexure B) issued a package of incentives and concessions in terms of the New Industrial

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1 ‘KST Act’ for the short

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2Government Order No. CI 30 SPC 96

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Policy 1996, effective from 1996 ending with 2001 and classified sugar industry as a ‘thrust sector’. In pursuance of the Order, the Government of Karnataka issued a notification³ dated November 15, 1996 (Annexure C) granting exemption and deferment of the tax payable under the KST Act in respect of goods manufactured.

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On December 12, 1999 (Annexure D), Petitioner made an application to the Joint Director, District Industries Centre, Mandya, for sales tax and purchase tax incentives and it was forwarded to the Joint Director, Industries & Commerce, Bengaluru for issuance of New Unit Certificate and FAVC⁴ to claim purchase tax deferral and sales tax exemption benefits and the same was issued. Thereafter, the second respondent issued a letter dated December 29, 2000 stating that since sugar industries are eligible for deferment of purchase tax, they are not eligible for exemption with respect to sales tax on the sales turnover of by-products manufactured. By virtue of Government

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3Notification No. FD 32 CSL 96(1)

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4Fixed Assets Valuation Certificate

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Orders⁵ , the benefit of converting the purchase tax into an interest free loan was extended to sugar industries and thus they became eligible for the deferment of purchase tax for first ten years.

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The Petitioner then made a request to SLCC⁶ vide letter dated January 31, 2001 seeking for sales tax exemption on the turnover of molasses and bagasse and filter mud, however, no sales tax exemption was extended to molasses, bagasse and filter mud on the premise that they are by-products of sugar and the Industrial Policy covered only finished products. Aggrieved, the petitioner filed W.P. Nos. 32700-32702/2002 before this Court, with a prayer inter alia for quashing the said letter. The writ petition was allowed and the matter was remitted for reconsideration.

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5 GO NO. CI 140 FMI 71 dated 06-06-1973 (Annexure G), G.O. NO. CI 200 SGF 84 dated 23-03-1985 (Annexure H), Notification No. FD 373 CSL D dated 01-01-1975 (Annexure J) and G.O. No. CI 23 SGF 97 dated 18-02-1897 as (Annexure K). 6State Level Co-ordination Committee

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After the remand, the AO⁷ disallowed the

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claim for exemption from payment of sales tax on molasses,

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bagasse and filter mud for the A.Y.⁸ 1999-2000 to 2003-04. The First Appellate Authority [JCCT(A)⁹ ] and Karnataka Appellate Tribunal [KAT] dismissed the petitioner’s appeals and confirmed AO’s Order. The petitioner has challenged KAT’s Order in STRP No. 353-356/2017 considered simultaneously with this writ petition.

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Further, vide communications dated March 15,

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2004 (Annexure P) and 02.12.2004 by the Secretary, Industries and Commerce Department, the SLCC once again rejected the petitioner’s claim for sales tax exemption for by-products of sugar. Petitioner has challenged the same in W.P.Nos. 24501-04/2004. During the pendency of writ petition, the DCCT¹⁰ , for A.Y. 2004-05 disallowed the claim

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on a ground that Petitioner has not filed FAVC which

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7 Assessing Officer

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8 Assessment Year

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9 Joint Commissioner of Commercial Taxes (Appeals)

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10Deputy Commissioner of Commercial Taxes

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certifies that the Petitioner is eligible for exemption of sales tax on the sales of Molasses & Pressmud.

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On September 30, 2011, the

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Nos. 24501-04/2004 have been disposed of quashing the SLCC order and remitting the matter to the SLCC.

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The SLCC vide Order¹¹ dated May 30, 2012 held that petitioner is not entitled for sales tax exemption on the sale of by-products under New Industrial Policy 1996-2001 because petitioner was already enjoying the benefit of purchase tax deferment for ten years as interest free loan and also held that no sugar industries were allowed to enjoy the benefit sales tax exemption/ deferment, on the products or by-products as per the Industrial Policy.

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11. In the year 2000, the Joint Director issued FAVC to one M /s. Chamundeshwari Sugars Ltd. (Hereinafter referred to as ‘Chamundeshwari’) and granted sales tax

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11 Order NO.CI 454 SPI 2010 (Annexure Z)

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exemption on the sale of by-products in accordance with Industrial Policy 1993-1998. At that time, Chamundeshwari was enjoying the benefit of deferral of purchase tax on sugarcane as interest free loan from 2000 to 2010. On December 08, 2010, the said benefit was withdrawn. Again the State Government vide order (Annexure Z3) dated February 23, 2013 re-granted the sales tax exemption benefit on the by-products to Chamundeshwari.

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12. On February 22, 2018, the Industries & Commerce Department passed the impugned communication¹² , rejecting petitioner’s claim for sales tax exemption on by-products of sugar holding that a purchase tax deferment on sugarcane, along with sales tax exemption on the by- products of the sugar factories, would amount to a "double benefit" leading to unjust enrichment and unintentional extra benefit to the sugar units . Feeling aggrieved, petitioner has filed this writ petition.

12NO CI 51 SPI 2015

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Shri. Naganand, for the Petitioner, praying to

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allow the appeal, contended inter-alia that:

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the Tribunal erred in not granting exemption from payment of tax on the sale of molasses, bagasse etc., inspite of exemption granted under the Industrial Policy 1996-2001;

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the Tribunal erred in holding that dual benefit of tax is not available to the petitioner. Petitioner being a ‘thrust’ industry was entitled for the benefit of deferral of purchase tax on sugarcane which is independent and distinct;

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the Industrial Policy 1996-2001 does not specifically prohibit the availment of sales tax exemption if purchase tax deferral benefit has been availed;

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therefore, it is incorrect to say that granting of sales tax exemption if petitioner is already enjoying the benefit of deferral of purchase

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tax on sugarcane would amount to dual benefit.

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the petitioner has to pay back the purchase tax as interest free loan to the Commercial Tax Department after expiry of ten years moratorium period;

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petitioner’s FAVC is unjustly denied resulting in the denial of benefit of sales tax exemption;

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in the year 2000, SLCC has granted FAVC to Chamundeshwari for sales tax exemption on molasses, bagasses etc., even though

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Chamundeshwari was enjoying the benefit of deferral on sugarcane as interest free loan, under 1993-98 Industrial Policy which is identical to 1996-2001 Industrial Policy and this amounts to gross discrimination and violation of Article 14 of the Constitution of India.

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Shri. Naganand has placed reliance on the following

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authorities:

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Padmausundara Rao (Dead) & Ors Vs. State of

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TN & Ors;¹³

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Deputy Commissioner, Sales Tax (Law) Board of Revenue (Taxes), Ernakulam Vs Pio Food Packers¹⁴ ;

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Y. Moideen Kunhi and Ors. Vs. Collector of Central Excise, Bangalore & Ors¹⁵ ;

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South Bihar Sugar Mills Ltd. and Anr Vs. UIO and Anr;¹⁶

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UOI and Anr Vs. Delhi Cloth and General Mills Co. Ltd & Ors¹⁷ .

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Opposing the writ petition, the learned

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Additional Advocate General contended that:

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13(2002) 3 SCC 533

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141980 AIR 1227

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15(1986) 23 ELT 293

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16(1968) 3 SCR 21

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17AIR 1963 SC 761

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the claim of the petitioner seeking Sales Tax exemption on byproducts like molasses,

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bagasse has been rejected vide Government Order dated May 30, 2012. The same has not been challenged;

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the communication dated 22.02.2018 is not an order, but it is an inter-departmental communication. Thus, the petitioner’s claim based on inter-departmental communication does not merit any consideration;

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the Industrial Policy 1996 does not provide for exemption of byproducts such as molasses, bagasses, etc. Hence, its scope cannot be enlarged by construing it liberally;

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exemption notification is a departure from regular rule and a person claiming benefit under such notification shall establish that his claim falls within contours of Exemption

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Notification and the same cannot be

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subjected to any interpretation by the Court;

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 the notification dated March 15, 1996 categorically states that the incentives and concessions shall be available only for manufacturing units;

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 the petitioner’s industry manufactures sugar. The New Unit Certificate issued by Government of Karnataka dated July 18, 2001, specifically mentions that the factory is established for the manufacture of white crystal sugar and co- generation of power. Hence, the byproducts cannot be considered as products manufactured;

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 since only the manufacturing units are exempted, the byproducts generated while manufacturing the main product i.e., white crystal sugar, the exemption cannot be extended to the byproducts;

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it is settled that fiscal statutes have to be construed strictly. Therefore, the exemption notification has to be construed strictly and where there is any ambiguity, the interpretation shall be in favour of Revenue;

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petitioner’s contention that an exemption from payment of Sales Tax has been extended to another industry is untenable;

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further, the exemption granted in favor of another factory is under a different policy i.e., Industrial Policy, 1993, which is not applicable to the petitioner in the present case;

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the expression "manufacture" and "production" are distinctively considered. The word "production" is wider in ambit and it has a wider connotation than the word "manufacture". The word "production" takes into fold all byproducts, inter-mediatory

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products and residual products which emerge

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in the course of manufacture of goods;

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the petitioner have approached this Court belatedly. Therefore, the court before granting relief has to satisfy itself that delay or latches in approaching court under Article

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226 of Constitution of India is justified.

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He has placed reliance on the following authorities:

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Commissioner of Income Tax, Orrisa Vs. M/s Budharaja¹⁸ ;

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Bussa Overseas & properties (P) Ltd. & Anr Vs. UOI and Anr¹⁹ ;

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 ITO Vs. Arihant Tiles and Marbles Pvt Ltd²⁰ ;

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 Commissioner of Customs (Import), Mumbai

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Vs. Dilip Kumar & Company & Others²¹ ;

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Municipal Corporation of Delhi Vs. Yashwant Singh Negi²² ;

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181994 Supp (1) SCC 280

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19(2016) 4 SCC 696

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20(2010) 2 SCC 699

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21(2018) 9 SCC 1

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22(2020) 9 SCC 815

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Sanghvi Reconditioners (P) Ltd. Vs. UOI & Ors²³ ;

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 UOI Vs. Murugeshan²⁴ ;

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Commercial Tax Officer Vs. M/s. Anitha Cashew Industries²⁵ .

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We have carefully considered the rival

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contentions and perused the records.

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The sum and substance of Shri. Naganand’s

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argument is, SLCC has granted FAVC to Chamundeshwari for sales tax exemption on molasses, bagasse etc., though Chamundeshwari was enjoying the benefit of deferral on sugarcane as interest free loan, under 1993-98 Industrial Policy which is identical to 1996-2001 Industrial Policy.

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The Revenue’s specific case is, the exemption notification specifically mentions the word ‘manufacture’, hence, the byproducts cannot be considered as products manufactured. The exemption granted in favor of

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23(2010) 2 SCC 733

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24(2022) 2 SCC 25

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251996 41 Kar LJ 499

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Chamundeshwari is under a different policy i.e., Industrial Policy, 1993, which is not applicable to the petitioner’s case.

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Undisputed facts of the case are, petitioner i s a Public Limited Company engaged in the manufacture of sugar, molasses, bagasse and filter mud. It is claiming sales tax exemption on the sale of by-products of sugar under Industrial Policy 1996-2001 and petitioner w as enjoying the benefit of purchase tax deferment for ten years as interest free loan.

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Thus, the main question that arises for our consideration in this petition is, whether the petitioner is entitled for exemption from payment of tax on molasses, bagasse and filter mud under 1996-2001 Industrial Policy?

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One of the main grounds urged by Shri. Naganand in this writ petition is that the sales tax exemption on by-products provided to the Chamundeshwari would equally apply to petitioner’s case.

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23. We may record that in his communication dated February 22, 2018 (Annexure Z-12) addressed to the Commissioner of Industries & Commerce, the

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Secretary to the Government has noted thus:

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“8) Since subsequently the Government in its Order No. CI 103 SPI 2011, dated 23.02.2013 has decided that Chamundeshwari Sugar Industries Limited is eligible for Sales Tax exemption on the by- products, the issue of providing Sales Tax exemption to ICL sugars, if it is on the same footing as Chamundeshwari, would need to be addressed by the State Level Co-ordination Committee. Further, the issue of double benefit that has arisen in the present case would equally apply to the Sales Tax exemption provided in the case of Chamundeshwari sugars.”

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and conveyed that petitioner’s request cannot be considered. A careful perusal of the above text clearly indicates that the Commerce Secretary has conceded that the petitioner’s claim of parity with that of Chamundeshwari needs to be considered by the SLCC. If that be so the matter ought to have been referred to SLCC, whereas the Commerce Secretary has stated that petitioner’s case cannot be considered. On the face of it, the State Government have discriminated among two

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similarly situated sugar manufacturing and it amounts to violation of Article 14 of the Constitution of India.

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A principal ground urged by the learned Additional Advocate General while defending the concession given to Chamundeshwari is that the Certificate issued by the Joint Director, Department of Industries & Commerce, to the petitioner is for ‘manufacture’ of white crystal sugar. According to him, as held in ITO Vs. Arihant Tiles and Marbles Pvt. Ltd²⁶ , petitioner’s activity falls within the definition of manufacture and it has a narrow connotation limiting to manufacture of sugar only. On the other hand, Shri. Naganand also placing reliance on the very same authority submitted that there is absolutely no difference in the activity of petitioner and Chamundeshwari and hence, the interpretation suggested by learned Additional Advocate General is not correct. According to him, the correct interpretation is the word manufacture

26 (2010) 2 SCC 699

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takes in bringing into existence new goods by a process which may or may not amount to manufacture.

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We may record that the Certificate issued by Joint Director, Department of Industries & Commerce, (Annexure A) is for ‘manufacture’ of sugar. It is also relevant to note that the Commerce Secretary in the impugned communication has opined that matter require consideration by SLCC.

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We may record that it is not disputed that the activities of both petitioner and Chamundeshwari are identical. We may further record that there is no pleading on behalf of the State Government that the benefit is denied to the petitioner based on the interpretation of the words ‘manufacture’ and ‘production’. It is only at the time of final hearing of this writ petition the learned Additional Advocate General sought to justify the action of the State Government by placing reliance of Arihant Tiles . The indubitable fact remains that, according to both petitioner and the State Government, the activities of petitioner and

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Chamundeshwari are one and the same. As noticed hereinabove, the State Government’s action amounts to conscious discrimination between two similarly situated industrial units.

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It is relevant to note that Chamundeshwari Industry was granted sales tax exemption on sale of byproducts of sugar under Industrial Policy 1993-98 and it also enjoyed the benefit of deferral of purchase tax as interest free loan from 2000 to 2010.

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We have also perused the 114^th SLCC (Annexure-Z6) meeting held on February 03, 2015, wherein the SLCC has recorded that Chamundeshwari Industry has been granted tax deferral on purchase of sugarcane and sales tax exemptions on its by-products like molasses and bagasse.

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We may also record that the learned Additional Advocate General has urged the ground of delay while opposing the writ petition. The said contention is

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noted only to be rejected because there is no pleading with regard to delay in the statement of objections, but mentioned in the synopsis of the case submitted at the time of argument.

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Having regard to the facts and circumstances

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of the present case, we are of the considered opinion that the petitioner being similarly situated as that of Chamundeshwari shall be entitled for e xemption from payment of sales tax on by-products namely molasses, bagasse and filter mud.

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