Upholding the Gujarat tax department’s levy of Rs 480 crore purchase tax on Arcelor Mittal Nippon Steel India (erstwhile Essar Steel), the Supreme Court on Friday held that the company was not entitled to any exemption from payment of the tax as it violated the 1992 incentive policy.
While Gujarat government sources said that the new company will be liable to pay the government dues, lawyers for Arcelor Mittal Nippon said the tax demand has already been extinguished after its takeover of Essar Steel. However, the judgment hasn’t dealt with the liability part.
A bench comprising justices MR Shah and Sanjiv Khanna set aside the Gujarat high court’s May 2016 judgment that had upheld the Gujarat Value Added Tax Tribunal’s order that held Essar Steel (ESL) was entitled to the exemption from payment of purchase tax.
ESL, the manufacturer of hot briquetted iron and hot rolled coil at its two units at Hazira in Surat, by transferring raw materials like naphtha and natural gas from its eligible unit to Essar Power after availing the exemption from payment of purchase tax can be said to be violating the eligibility criteria/condition mentioned in the 1992 incentive policy notifications issued by the Gujarat Industries, Mines and Energy department, the apex court said. It added that the HC has committed an error in holding that the company did not commit any breach and fulfilled all the conditions.
As per its incentive policy, the state government had provided benefit of exemption from payment of purchase tax to the specific class of industries including steel and such exemption was not available to ‘ineligible’ industries like power producing industries. While ESL was required to use the goods within the state as raw materials for manufacturing purposes, the company did not use the raw materials after taking the benefit but sold them to its electricity generating entity – Essar Power (EPL) – which in turn sold it back to ESL, thus failing to comply with the eligibility conditions.
While holding that the levy of penalty by the tax department is “justified and warranted”, the judges said that the modus operandi which was adopted by Essar Steel warrants a penalty. By such a transfer/sale from the eligible unit to another unit the benefit of exemption is availed by the ‘ineligible’ industry, which is wholly impermissible and that cannot be said to be the intention of the government, the bench said, adding there is no question of applicability of principle of promissory estoppel.
Stating that ESL had furnished wrong and false declarations, the judges said that the wordings and the language used in the exemption notifications are “very clear, simple and unambiguous.”
According to the top court, the notification has to be read as a whole and “an exception and/or an exempting provision in a taxing statute should be construed strictly and it is not open to the court to ignore the conditions prescribed in industrial policy and the exemption notifications,” the judgment stated.