New Delhi, Jan 21 (PTI) The Supreme Court Friday allowed the Gujarat government’s appeal and upheld its demand of purchase tax to the tune of Rs 480.99 crore and the penalty on ArcelorMittal Nippon Steel India Limited, previously known as Essar Steel Ltd (ESL), for wrongly availing the tax exemption. The apex court said the state’s exemption notification should be “strictly construed and given meaning according to legislative intendment” and “there cannot be any addition or subtraction from the statutory provisions”.
A bench of Justices M R Shah and Sanjiv Khanna delivered the verdict on the appeal of the Gujarat government against the 2016 decision of the High Court by which it had upheld the common order passed by the Gujarat Value Added Tax Tribunal, Ahmedabad in favour of the private firm.
It set aside the verdicts of the tribunal and the high court which had held that ESL, now known as ArcelorMittal Nippon Steel India Limited, was entitled to the exemption from payment of the amount of sales tax as per the original entry number of the 1992 state notification.
“The impugned common judgement and order passed by the High Court as well as that of the Tribunal quashing and setting aside the demand of purchase tax from the respondent (state) are hereby quashed and set aside.
“It is held that the respondent — Essar Steel Ltd. -– the eligible unit was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated March 05, 1992, firstly, on the ground that it did not fulfill the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated March 05, 1992, and secondly that there was a breach of declaration in Form No.26 furnished by the respondent – eligible unit – Essar Steel Ltd,” Justice Shah, writing the judgment, said.
The apex court restored the order passed by the Assessing Officer levying the demand of purchase tax and imposing the penalty on the firm.
A notice on May 30, 2005, was issued by the Deputy Commissioner of Sales Tax for initiating levy of purchase tax of Rs 480.99 crores and for levying penalty for the period 1995-1996 to 2005-2006 on the ground that the ESL availed tax exemption wrongly.
The state government had come out with a scheme known as “The Scheme for Special Incentives to Prestigious Units for attracting investments in core sector industries.
A notification was issued in 1992 and under it, the purchase tax exemption was granted to Essar Steel Ltd on raw materials, Naphtha, and natural gas.
“The exemption was made available to steel manufacturing units and the units/entities engaged in generating electricity were specifically excluded from this exemption by placing them in the list of industries “Not Eligible” for this incentive,” the 53-page verdict noted.
It was alleged that Naphtha and natural gas purchased by the eligible unit, ESL, was sold to Essar Power Ltd (EPL), which was ineligible as per the scheme.
EPL used these raw materials for the generation of electricity, which came to be sold to the ESL under the power purchase agreement.
The state government had said that the electricity generation companies were as such put in the ‘not eligible’ list and, therefore, the EPL was not eligible for tax exemption and, thus, through the “circuitous methodology or modus operandi, the EPL got the benefit of exemption though ‘not eligible’”.
“In the present case, it is an admitted position that after furnishing a declaration in Form No.26, the goods – raw materials, processing materials or consumable stores so purchased were to be used by ESL, but the respondent – ESL after purchase of raw materials – Naphtha and Natural Gas and after availing the benefit of exemption from the payment of purchase tax did not himself/itself used the same, but, instead, sold the same to another entity – EPL and the said another entity – EPL used the said raw materials for generating the electricity, which thereafter came to be sold to the respondent – ESL pursuant to the power purchase agreement,” it noted.
The submission that there was no breach of conditions as Naphtha and Natural Gas, which were transferred to EPL for generating the electricity, was finally used by ESL in the production of steel, cannot be accepted, the bench said. PTI SJK SJK RKS RKS
