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State Of Haryana v. Samtel India Limited .
Factual and Procedural Background
The respondent was granted an eligibility certificate on 23-2-1995 under Rule 28-A of the Haryana General Sales Tax Rules, 1975, for exemption from sales tax up to Rs. 276.95 lakhs for seven years (23-2-1995 to 22-2-2002). The certificate covered only “monochrome monitors and black & white TV sets.”
Subsequently, on 13-3-1996 the respondent applied for benefits on an additional investment of Rs. 26.74 lakhs to diversify into the manufacture of “colour monitors.” A new eligibility certificate dated 15-9-1997 granted exemption of Rs. 122.85 lakhs for the period 15-12-1995 to 14-12-2001.
On 1-2-1998 the respondent sought insertion of “colour monitor” into the earlier 1995 certificate. The competent authority rejected the request on 11-10-1999, citing lack of power under Rule 28-A to amend an existing certificate.
The respondent’s appeal succeeded before the Haryana Tax Tribunal on 30-11-2005, which directed the Department to add “colour monitor” to the 1995 certificate. The High Court affirmed this decision on 9-7-2007 (CWP No. 9764 of 2007). The Department appealed to the Supreme Court, which has issued the present order.
Legal Issues Presented
- Whether Rule 28-A of the 1975 Rules permits the addition of a new product (“colour monitor”) to an existing eligibility certificate that originally covered only monochrome monitors and black & white TV sets.
Arguments of the Parties
Department’s Arguments
- Rule 28-A confines an eligibility certificate to the manufacture of the “same product”; therefore “colour monitor” cannot be added to a certificate limited to monochrome monitors.
- Sub-rule (4)(a) establishes different scales and durations of tax benefits for new units versus expansion/diversification, negating any liberal interpretation.
Respondent’s Arguments
- A colour monitor is merely an improved version of a monochrome monitor; hence the certificate should be modified accordingly.
- Technological advancement justifies a liberal interpretation of Rule 28-A.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| State of Haryana v. Bharti Teletech Ltd., CWP No. 11884 of 2003 | High Court had earlier dismissed the Department’s writ petition on the ground of laches. | The Supreme Court held the precedent irrelevant because it turned on laches, not on the interpretation of Rule 28-A. |
Court's Reasoning and Analysis
The Supreme Court noted that exemption provisions must be interpreted strictly. It found that the High Court failed to:
- Analyse the text of Rule 28-A(2)(d), particularly the phrase “for manufacture of the same product.”
- Consider the monetary ceiling of Rs. 276.95 lakhs specified in the 1995 certificate.
- Evaluate the effect of sub-rule (4)(a), which differentiates between new units and expansion/diversification in both quantum and duration of benefits.
The Court criticised the High Court for relying on two extraneous factors: (i) the fact that a modified certificate had already been issued pursuant to the Tribunal’s order, and (ii) its earlier decision in Bharti Teletech (which involved laches rather than statutory interpretation).
Because the High Court provided no substantive reasoning on the construction of Rule 28-A, the Supreme Court determined that the judgment was unsustainable and required reconsideration.
Holding and Implications
Holding: The Supreme Court set aside the High Court’s judgment dated 9-7-2007, restored CWP No. 9764 of 2007 to the High Court’s file, and allowed the Department’s civil appeal with no order as to costs.
Implications: The matter is remitted to the High Court for a fresh decision strictly on the interpretation of Rule 28-A. No definitive precedent on the substantive question was established; the immediate effect is that the respondent’s right to include colour monitors in the 1995 certificate remains unresolved pending further adjudication.
Order
1. Delay condoned. Leave granted.
2. A short point which arises for determination in this civil appeal is: whether the respondent herein was entitled to addition of colour monitors in eligibility certificate dated 23-2-1995 entitling it to sales tax exemption under Rule 28-A of the Haryana General Sales Tax Rules, 1975 (for short “the 1975 Rules”) for the manufacture of monochrome monitors and black and white TV sets? In other words, whether the respondent was entitled to claim addition of a new item (colour monitor) in the eligibility certificate given to it, which certificate was restricted to the manufacture of monochrome monitors and black and white TV sets?
3. On 23-2-1995, the respondent was granted “eligibility certificate” entitling it to avail of sales tax exemption under Rule 28-A of the 1975 Rules to the extent of Rs. 276.95 lakhs for a period of 7 years commencing from 23-2-1995 to 22-2-2002 for the manufacture of monochrome monitors and black and white TV sets alone. In other words, the said eligibility certificate did not cover colour monitors. At that time, the capital investment of the company was Rs. 55.39 lakhs.
4. On 13-3-1996, the respondent submitted an application claiming tax benefit for an investment of Rs. 26.74 lakhs made for diversification of extending the unit to manufacture “colour monitor”. The said application was allowed. The respondent was granted a new eligibility certificate on 15-9-1997 entitling it to avail the benefit of exemption from sales tax to the extent of Rs. 122.85 lakhs for the period commencing from 15-12-1995 to 14-12-2001.
5. On 1-2-1998, however, the respondent submitted an application requesting for insertion of “colour monitor” in the earlier eligibility certificate dated 23-2-1995. By the order dated 11-10-1999 the competent authority rejected the application on the ground that there was no provision under Rule 28-A authorising such addition in the eligibility certificate already granted.
6. Suffice it to state that the decision of the competent authority dated 11-10-1999 ultimately came to be challenged before the Haryana Tax Tribunal. By its order dated 30-11-2005, the Tribunal accepted the appeal inter alia on the ground that a liberal approach needs to be taken while interpreting the said Rule 28-A and, accordingly, directed the Department (the appellant herein) to add “colour monitor” to the eligibility certificate dated 23-2-1995. The decision of the Tribunal has been affirmed by the High Court by the impugned judgment dated 9-7-2007 in CWP No. 9764 of 2007.
7. At the outset, we quote hereinbelow sub-rule (2)(d) of Rule 28-A of the 1975 Rules, which reads as under:
“28-A. (2)(d) ‘expansion/diversification of industrial unit’ means a capacity set up or installed during the operative period which creates additional production/manufacturing facilities for manufacture of the same product/products as of the existing unit (expansion) or different products (diversification) at the same or new location; and
(i) in which the additional fixed capital investment made during the operative period exceeds 25% of the fixed capital investment of the existing unit; and
(ii) which results into increase in annual production by 25% of the installed capacity of the existing unit in case of expansion.”
8. In this case, the High Court was concerned with interpretation of the above Rule. It was not concerned with interpretation of a notification. Be that as it may, it is well settled, that, in a matter of exemption the rule/notification is required to be interpreted strictly.
9. The question raised by the Department before the High Court was that the above Rule confines the certificate of eligibility to the manufacture of the same product. Before the High Court inter alia it was contended that expansion/diversification of the industrial unit meant creation of additional manufacturing facility for the manufacture of the same product (monochrome monitors). That, there was no scope for addition of colour monitor in existing eligibility certificate dated 23-2-1995, which was granted only in respect of manufacture of monochrome monitors. Further, according to the Department, under sub-rule (4)(a), different scales of tax benefit and different duration of exemption period have been provided for new industrial units and units undertaking expansion/diversification. Therefore, according to the Department, there was no question of liberal interpretation of Rule 28-A.
10. According to the respondent herein, colour monitor was an improved version of monochrome monitor and, therefore, it was entitled to the modification of eligibility certificate dated 23-2-1995. It was further urged on behalf of the respondent that, with the improved technology, liberal interpretation of the Rule was warranted.
11. In this case we find that, while deciding the writ petition filed by the Department, the above Rule has not been analysed by the High Court. No reason has been given by the High Court in its impugned judgment as to what weightage should be given to the words used in the above Rule, particularly, the expression “for manufacture of the same product”. Similarly, the High Court has failed to consider the effect of a cap/ceiling being put on the capital investment which, in the present case, stood at Rs. 276.95 lakhs vide eligibility certificate dated 23-2-1995.
12. Similarly, the High Court has not discussed the scope of sub-rule (4)(a) which provides for different scales of tax benefit and different duration of exemption period. In this case, the High Court has primarily proceeded to dismiss the Department's writ petition on the ground that it had already issued modified eligibility certificate in terms of the directions given by the Tribunal. Secondly, the High Court has proceeded on the basis of its earlier judgment in State of Haryana v. Bharti Teletech Ltd., Gurgaon in CWP No. 11884 of 2003.
13. In our view, the High Court had erred in relying upon the fact that modified eligibility certificate stood granted as it was granted pursuant to the impugned judgment of the Tribunal. Similarly, the High Court has relied upon its earlier judgment in Bharti Teletech Ltd. in which the writ petition filed by the Department stood dismissed on the ground of laches. Therefore, in our view, both the above circumstances were irrelevant. As stated above, High Court should have considered the matter on interpretation of Rule 28-A of the 1975 Rules. It has not considered the said Rule. It has not considered the above arguments.
14. For the aforestated reasons, we set aside the impugned judgment dated 9-7-2007 dismissing the Department's CWP No. 9764 of 2007 and, consequently, we remit the matter to the High Court for fresh consideration in accordance with law. Accordingly, we direct restoration of CWP No. 9764 of 2007 on to the file of the High Court.
15. Accordingly, the Department's civil appeal stands allowed with no order as to costs.
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