STATE OF KERALA versus M/S AKAY FLAVOURS AND AROMATICS LTD. on 2 February 2023

1. Leave granted in SLP(C) No. 36394/2011.

2. This Court while issuing notice and admitting the appeals hadobserved that an important question of law with respect to interpretation H

Aof SRO 1727/1993 which is an exemption notification issued by the Stateof Kerala, is involved.

3. The appeals have been preferred both by the State (Revenue)as well as by the Industrial unit. The short controversy is with respect tothe entitlement to exemption. The Revenue contends that the exemptionlimit by five years in point of time was to commence from the date ofBapproval by the Central Government, to the approval to the project. Theassesses had on the other hand contended that the exemption wouldcommence from the date of commencement of production.

4. The relevant notification, granting the exemption in question,reads as follows:

“SCHEDULE -VI

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Goods the sale of which to Industrial undertakings/ manufacturers/dealers or the purchase of goods by industrial undertakings/manufacturers is exempt under sub-clause (5) Clause I.

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5. The assessees claimed exemption from levy of tax on purchaseof raw material such as pepper, ginger, turmeric, etc. to several years.The assessing authority completed assessment of those years grantingexemption. Thereafter, it attempted to re-open assessment. Ultimately,penalty was imposed in the reassessment proceedings. In the meanwhileGthe State had questioned the observations of the Tribunal with respect tothe interpretation of the notification. The Tribunal had concluded thatthere was no logic in the stand of the revenue that the period of exemptionfrom sales tax on purchase of raw materials should be commuted priorto the setting of the unit. The assessing authority had commuted theperiod of five years from 16.12.1993. The Revision to the High CourtH

was time barred. The High Court refused to condone the delay.Consequently the Revenue is in appeals and the appeal arising out ofSLP(C) No.36394 of 2011 is filed by the assessee. The Division Benchhad remitted the matter for fresh consideration, even though the singleJudge had granted some measure of relief by reducing the penalty.

6. It is contended on behalf of the Revenue by relying on theterms of the notification that in the present case, the Central Governmenthad in fact, granted its approval when the permission letter was issuedon 16.12.1993 to the assessees which enabled it to proceed further toimport capital goods and start exporting the finished product. It was alsohighlighted that the assessee appears to have even purchased rawmaterials as well as plant and machinery after December, 1993 and inthis circumstance to allow it the benefit of such exemption for the periodbefore 1995 would be contradictory. Therefore, it was submitted by Mr.Pallav Sisodia, learned Senior Advocate that the date of commencementis an irrelevant factor in the present case. Mr. Joseph Markas, learnedSenior Advocate appearing on behalf of respondent-assessee urged thatthe letter dated 16.12.1993 is only one of permission and was in fact, aletter of intent. Final approval had not been granted by the CentralGovernment as is evident in its terms. Learned counsel in fact reliedupon a copy of the “Green Card” dated 27.10.1994 which expresslystates that the unit was approved under the special Scheme of the Govt.of India for export oriented unit. He submitted that given that thisdocument was issued in 1994 the assessee took some time to put up itsplant after which it commenced production on 01.10.1995 and that thelast date is determinative for the commencement of exemption.

7. The key to deciding the controversy in this case is the meaningto be attached to the term approved by the central government whichoccurs in SRO 1727 of 1993. The relevant part of the exemptionnotification, which relieves the assessee from paying tax on raw material,plant and machinery including component parts, tools, etc. of item 97 ofthe First Schedule of the Kerala General Sales Tax Act in relation to100% EO used for manufacture of goods reads as follows:

“Exemption shall be for a period of five years on the date ofapproval of such units by the Central Government.”

8. In this case, letter dated 16.12.1993 on a plain reading appearsto be a mere permission. Apart from setting out the items in respect ofwhich the EOU or the Unit could claim exemption, other conditionsincluded, inter alia, that the entire production had to be exported to GeneralCurrency Area/Hard Currency Area countries and that the value additionwould be a minimum of 67 percent and that the unit had to maintainvalue addition in case external commercial borrowing is resorted to.

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9. Furthermore, the capital goods limit exemption was alsoindicated. Importantly, the letter of permission contained standardconditions which described the commercial assent “letter of intent”.

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10. It is evident from the overall reading of the document issuedby the department of Industrial Development, Central Government on16.12.1993 to the assessee that it was a mere permission conditionedBupon fulfilment of certain specified requirements. Therefore, it wasdescribed as a letter of intent. The actual approval in clear terms enablingthe benefit of exemption was issued on 27.10.1994, when “Green Card”was issued by the Central government. Therefore, this Court is of theopinion that the term “approval” in the present case was issued in theletter dated 27.10.1994.C

11. In these circumstances, this Court is of the opinion that theterm “approval” has to relate to unambiguous approval by the CentralGovernment which in the present case was given on 27.10.1994.12. Therefore, the assessee could have availed exemption after27.10.1994.

D13. The assessee’s contention that it commenced production onlyon 01.10.1994 which is the reckonable date in the opinion of this Court,is not persuasive. This is because while granting approval, in all mannerthe assessee was made known of the requirement it has to fulfil. If in agiven case the unit holder chooses not to go ahead or start production,he should not be rewarded for such inaction.

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E14. In these circumstances, the assessee’s contention that thedate of commencement should be the date when the exemption alsobecomes determinable cannot be accepted. Another reason why such acontention is unfeasible is that it injects subjectivity with regard toassessment of proceedings itself. In a given case, the unit holder may bevigilant and set up his or its unit early whereas in another case, theFconcerned unit-holder may be laid back or drags its feet resulting in theunit not commencing production. In the latter case, though it might havesecured approval, the delay in the commencement of production shouldnot be rewarded with an exemption.

15. For the above-reasons, the court holds that date of approval inthis case was 27.10.1994 and that would be the reckonable date forGgrant of exemption under the notification SRO 1727/1993.

16. The appeals are partly allowed in above terms.

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Nidhi Jain(Assisted by : Shashwat Jain, LCRA)

Appeals partly allowed.