Holding

The sales‑tax exemption under the 1989 Incentive Scheme is available only on the basis of the unit’s actual production; job‑work cannot be presumed to be similar in nature and cannot be counted towards the required increase in production.

Summary

Vishnu Metals, a manufacturer of stainless steel sheets, expanded its installed capacity and claimed a sales‑tax exemption under the Rajasthan Sales Tax New Incentive Scheme, 1989, on the ground that its total production—including job‑work performed for others—had increased by more than 25% of the original capacity. The District Level Screening Committee rejected the claim, but the Rajasthan Tax Board and the Rajasthan High Court allowed it, treating the job‑work as part of the unit’s production. The Supreme Court held that the incentive is conditioned on the actual production of the unit itself; job‑work cannot be presumed to be similar in nature and cannot be counted unless proved. Consequently, the Court set aside the decisions of the Tax Board and the High Court and allowed the Department’s appeal. The same principle was applied in a later related appeal, which was also allowed.

Issues considered

Whether job‑work performed by an industrial unit for others can be counted towards the increase in production required under clause 2(t) of the Sales Tax New Incentive Scheme, 1989.
Whether the term ‘expansion’ in the incentive scheme mandates that the increase in production be from the unit’s own manufacturing only.

Legislation cited

Rajasthan Sales Tax Act, 1954s. 4(2)
Rajasthan Sales Tax Act, 1994s. 86(2)

Subjects

sales taxincentive schemeexpansionproduction increasejob workexemptionRajasthantax boardpresumption

Judgment

COMMERCIAL TAXES OFFICER, JODHPUR A
v.
MIS. VISHNU METALS

NOVEMBER 7, 2006

[ASHOK BHAN, AL TAMAS KABIR AND DALVEER BHANDARI, JJ.] B

Rajasthan Sales Tax Act, 1954; Section 4(2)/Sales Tax New Incentive
Scheme for Industries, 1989; Clause 26:

Assessee manufacture steel sheets-Claiming exemption from payment C
of sales tax in terms of Sales Tax Incentive Scheme on ground of increase in
production-Taking into account job-work undertaken-Job work-Nature

- of-Eligibility for the purpose of claiming exemption -Held: Tax exemption
as provided under the Incentive Scheme requires actual production of the
unit/goods in question-Both the Rajasthan Tax Board and the High Court D
erred in proceeding on the basis ofpresumption, that the job work undertaken
by the assessee is similar in nature to the production of goods by the
assessee, while allowing the exemption to assessee-Hence, orders passed by
the Rajasthan Tax Board and the High Court set aside.

E
I

Respondent-company manufactures stainless steel sheets. Its original
installed capacity was 1300 M.T. per annum, which was subsequently
expanded to 1600 M.T. per annum. It utilized more than 85% of its installed
capacity during certain period. Taking into account the goods manufactured
and the job work undertaken by it for others, total increase in the production
was 25% during certain period. The assessee claimed exemption of sales
tax in terms of Sales Tax New Scheme for Industrial Unit, 1989 on ground of F
increase in production. The District Level Screening Committee did not grant
Eligibility Certificate for claiming exemption under the provisions of the
Incentive Scheme. Aggrieved, the assessee filed an appeal before the
Rajasthan Tax Board. Allowing the appeal. the Tax Board held that the
assessee was entitled to add the job work performed in the production to qualify G
for the Eligibility Certificate under the 1989 Incentive Scheme. The same
view was reiterated by the High Court in the Revision petition preferred by
· the Revenue. Hence the present appeal and the connected appeals.

653
H
654 SUPREME COURT REPORTS [2006] SUPP. 8 S.C.R.

A Allowing the appeal and the connected appeals, the Court

HELD: Both the Rajasthan Tax Board and the High Court laboured under
the presumption that the job work performed by the respondent-assessee
involved manufacture of goods which were similar in nature to its own goods
for sale. Such an approach was erroneous, since the very nature of the
B incentive given under the 1989 Incentive Scheme involves calculation of the
actual production of the unit in question. In the absence of any material to
indicate the nature of job work undertaken, it w~mld be improper to proceed
only on the basis of presumption. [656-G-H; 657-A)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4944 of2001.
c
From the Judgment and Final Order dated 18.1.2000 of the High Court
of Judicature for Rajasthan at Jodhp4r in S.B. Sales Tax Revision No. 1165/
1999.

Sushi! Kr. Jain, Puneet Jain and Sarad Singhania for the Appellant.
D
Dr. Manish Singhvi (for K.K. Gupta) and P.V. Yogeswaran for the
Respondent.

The Judgment of the Court was delivered by

E ALTAMAS KABIR, J. Civil Appeal No. 4944 of200 I is directed against
the judgment of the Rajasthan High Court at Jodhpur dated 18th January,
2000, in S.B. Sales Tax Revision No. 1165 of 1999 under Section 86(2) of the
Rajasthan Sales Tax Act, 1994. The said revision was directed against the
judgment dated 9th February, 1999 passed by the Rajasthan Tax Board, Ajmer,
allowing the appeal preferred by the respondent I assessee and setting aside
F the decision of the District Level Screening Committee taken on 19th March,
1998, rejecting the assessee's application for Eligibility Certificate under the
Sales Tax New Incentive Scheme for Industries, 1989.

The assessee, which is the respondent in the present appeal,
G manufactures stainless steel sheets. Its original installed capacity was 1300
M.T. per annum prior to 16th February, 1995. Subsequently, the assessee
expanded its production capacity to 1600 M.T. per annum and achieved the
production of more than 85% of the installed capacity between 16th February,
1995 artd 16th June, 1996. According to the materials on record, the production
of the assessee between April, 1994 to 15th February, 1995 was 1292.913 M.T.
H
COMMERCIAL TAXES OFFICER, JODHPUR '" VISHNU METALS [ALTAMAS KABIR, J.] 655

and during the year following the date of expansion, the assessee manufactured A
· its own goods to the extent of 1447.489 M.T. It is the case of the assessee
that apart from manufacturing its own goods, the assessee had also
manufactured goods by doing job work for others and the entire production,
taking into account che goods manufactured for its own purposes and the job
work, would amount to a total of2193.76 M.T. In other words, ifthe job work
undertaken by the assessee for others is also taken into consideration, along B
with the production for its own purpo'ses, such production would constitute
an increase in the production to more than 25% of the original installed
capacity.

On 6th July, 1989, the Rajasthan Government, in exercise of its powers C
conferred by Section 4(2) for the Rajasthan Sales Tax Act, 1954, notified the
"Sales Tax New Incentive Scheme of Industries, 1989" which exempted the
industrial units from payment of tax on the sale of goods manufactured by
them within the State in the manner and to the extent and for the period as
covered by the notification. Clause 2(t) dealt with expansion of units and
i
defined such expansion in the following terms:- D
"2(t) Expansion means increase in the value of fixed capital
investment by not less than 25% of the net fixed assets of the existing
project and accompanied by an increase in the production to the
extent of at least 25% of the original licensed /registered capacity.
E
Explanation: The benefits of Sales Tax incentive for Expansion
shall be admissible to the eligible units only after they have achieved
at least 85% of their licensed/registered capacity before expansion."

The assessee applied to the District level Screening Committee for grant
of Eligibility Certificate under the provisions of the said 1989 Incentive Scheme F
on account of expansion of its installed capacity. The said Committee came
to the conclusion that since the production by the assessee had been raised
during the period in question from 1292.913 M.T. to 1447.489 M.T., it had
utilized more than 85% capacity, but the production had not increased to the
extent of 25% of the licensed I registered capacity and accordingly rejected G
the claim of the assesse~. Against the said decision of the District Level
Screening Committee, the assessee went before the Rajasthan Tax Board by
way of Appeal No. 798/98/S.T./Jodhpur, wherein it was contended that apart
from the production for its own purposes, the assessee had also undertaken
"job work" and that the two taken together would far exceed the required
H
656 SUPREME COURT REPORTS [2006) SUPP. 8 S.C.R.

A increase in the production to the extent of at least 25% of the licensed/
registered capacity.

Accepting the submissions made on behalf of the assessee that since
the definition of the expression "expansion" .did not stipulate that the
B production had to be for its own purposes, the Tax Board held that the
assessee was entitled to add the job work perfonned to its own production
for its own purposes to qualify for the Eligibility Certificate under the 1989
Incentive Scheme.

The same view was reiterated by the High Court in the revision preferred
C by the Department.
The question that, therefore, falls for detennination in this appeal is
whether the job work perfonned by the assessee in addition to its production
for its own purposes can be taken into consideration for the purposes of
clause 2(t) of the 1989 Incentive Scheme, as had been held both by the
D Rajasthan Tax Board and the High Court. Although, the Rajasthan Tax Board
was of the view that the job work performed by the assessee would have to
be added to the production capacity of the assessee's unit, there is no
reasoning in support thereof. The said lacuna has been addressed by the
High Court by holding that the expression used in the statute did not indicate
E that the manufacture of goods for sale must be by any particular individual
and that the entire production in order to make the unit eligible for grant of
benefit under the 1989 Incentive Scheme must be on its own account and not
by way oi doing job work. On such interpretation of clause 2(t) of the 1989
Incentive Scheme, the High Court affirmed the finding of the Rajasthan. Tax
Board and directed the District Level Sci ::ening Committee to issue necessary
F Eligibility Certificate to the respondent assessee.

While arriving at a conclusion that job work would also have to be
taken into considerat:on for grant of eligibility certificate under Clause 2(f),
both the. Rajasthan Tax Board and th(; High Court omitted to take into
consideration the nature of job v. ork performed by the respondent-assessee
G and whether the same would amount to production as r.ontemplated in the
said clause. Learned counsel appearing for the respondent assessee was a!so
unable to specify the nature of job work said to have been undertaken by the
respondent-assessee. Both the Rajasthan Tax Board and the High Court
laboured under the presumption that the job work performed by the respondent-
H assessee involved manufacture of goods which were similar in. nature to its
... COMMERCIAL TAXES OFFICER, JODHPUR 1·. VISHNU METALS [AL TAMAS KABIR, J.] 657

own goods for sale. Such an approach, in our view, was erroneous, since the A
very nature of the incentive given under the aforesaid 1989 Incentive Scheme
involves calculation of the actual production of the unit in question. In the

- absence of any material to indicate the nature of job work undertaken it would
be improper to proceed only on the basis of presumption.

The Department's appeal must, therefore, succeed and is allowed and B ,
the judgments of both the Rajas than Tax Board and the High Court dated 18th
January, 2000 and 9th February, 1999, respectively, are set aside.

There will, however, be no order as to costs.

Civil"Appeal No. 47001/2006 c
(Arising out of SLP (C) No. 2165 of 2003)

Leave granted.

The Civil Appeal arising out of S.L.P. (Civil) No. 2165 of 2003 involves D
the same question as in Civil Appeal No. 4944 of 200 I and is directed against
the judgment of the Rajasthan High Court at Jodhpur dated 14th August,
2002, in S.B. Sales Tax Revision No. 457 of 2002 under Section 86(2) of the
Rajasthan Sales Tax Act, 1994. The said revision :was directed against the
judgment dated 3rd October, 200 I, passed by the Rajasthan Tax Board, Ajmer,
allowing the appeal preferred by the respondent I assessee and setting aside E
the decision of the District Level Screening Committee taken on 7th August,
1999.

Relying on its decision in the Vishnu Metals' case in S.B. Sales Tax
Revision No. 1165 of i 999, the High Court dismissed the revisional application
of the appellant in the instant appeal as well. F

As the issue involved is the same in both these appeals, the decision
in Civil Appeal No. 4944 of2001 will govern this appeal as well. Consequently,
the Department's appeal succeeds and the judgments of both the Rajasthan
Tax Board and the High Court dated 14th August, 2002, and 3rd October, 2001, G
respectively, are set aside.

There will be no order as to costs.

S.K.S. Appeals allowed.