The Delhi High Court, on Thursday held that the exemption given under a scheme for revival of the sick company to encourage industrialization cannot be equated with refund of tax.
In the instant case, the petitioner, M/s. Ultratech Cement Limited, approached the High Court challenging an order passed by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), whereby its claim for refund of Value Added Tax and Sales Tax as well as Electricity duty from the Governments of Maharashtra and Gujarat was dismissed.
Earlier, the BIFR has held that the sanctioned scheme is not binding on the Gujarat Government since the exemption from payment of taxes and duties under the sanctioned scheme were incorporated without the consent of the Government by ignoring the specific objections raised by it. According to it, the sanctioned scheme only provided for exemption of payment of Sales Tax/VAT and electricity duties and was not a refund. Refund of taxes already collected and paid to the State was different from exemption from its payment. It said that a refund claim was a new relief, which was not provided under the scheme. Lastly, provision of the sanctioned scheme cannot be interpreted to allow the company to collect taxes and retain the same as levying and collection of taxes is a sovereign function. Lastly, it was held that BIFR and AAIFR ceased to have jurisdiction as the appellant company has already been discharged from the purview of SICA on 19.12.2007.
Before the High Court, the petitioners contended that the sanctioned scheme permitted it to collect and retain the taxes for its own use and having deposited the taxes with the State, it is entitled to its refund which will not amount to undue enrichment as the scheme has an overriding effect over other laws by virtue of Section 32(1) of SICA.
This Court opined that the sanctioned scheme was not binding on both the States for want of consent on part of the State authorities rendering financial assistance.
“Exemption from tax to encourage industrialization cannot be equated with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason. The underlying intention of exemption is to incentivize production and economic activity. VAT is an indirect tax passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacturer and consumer gain one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or Orders issued by government are neither illegal nor against public policy. A provision or agreement to refund tax due or realized in accordance with law is not justified. Refund is directed only when the amount collected is excessive, or there is no levy or for wrongful collection. In all such cases, a fault must be located within the revenue before the courts order refund.”
