Facts of the Case

The petitioner, M/s Chenab Textile Mills, was an industrial unit registered with the Department of Industries and Commerce. It had been established and permanently registered in 1966 and had undertaken substantial expansions from time to time.

In 2005, the Director, Industries and Commerce, J&K, Jammu, declared the petitioner as a “prestigious unit” for availing benefits envisaged under the Industrial Policy, 2004. Thereafter, the petitioner obtained permission and approval for expansion of its existing spinning mill from 102,992 spindles to 128,336 spindles, involving an investment of approximately Rs. 108 crore in 2006.

The petitioner claimed that this substantial expansion entitled it to exemption from payment of additional toll on plant and machinery imported from outside the State under the New Industrial Policy, 2004, Government Order No. 21-Ind of 2004 dated 27.01.2004, read with SRO 22 of 2004 dated 31.01.2004, issued under Section 5 of the Jammu and Kashmir Levy of Tolls Act, Samvat 1995.

When the exemption claim was not accepted, the petitioner earlier filed OWP No. 161/2007, seeking toll tax exemption for its ninth expansion programme. That writ petition was disposed of with a direction to the authorities to examine the petitioner’s claim.

Pursuant thereto, the Deputy Excise Commissioner, Toll Post Lakhanpur, by order dated 03.04.2013, rejected the petitioner’s claim for exemption from additional toll on components, plant and machinery, building material and other equipment procured from outside the State for substantial expansion. The petitioner challenged that rejection order in the present proceedings.

Issues Involved

The principal issues before the High Court were:

  1. Whether the petitioner, being an existing industrial unit registered in 1966 and later declared a prestigious unit, was entitled to exemption from additional toll on capital goods imported for substantial expansion in 2006.
  2. Whether Clause 3.14 of the Industrial Policy, 2004, relating to prestigious units, independently conferred a legally enforceable right to full exemption from additional toll tax.
  3. Whether the exemption claim was governed by the executive Industrial Policy, 2004 or by the statutory notification SRO 22 of 2004, issued under Section 5 of the Act.
  4. Whether substantial expansion of an existing industrial unit could be treated at par with construction or establishment of a factory for purposes of the five-year exemption under Clause 3 of SRO 22 of 2004.
  5. Whether SRO 85 of 2008 indicated that exemption for capital goods imported by existing units for substantial capacity expansion was introduced only subsequently and for a limited period.
  6. Whether interdepartmental communications and recommendations of the Industries Department could confer an enforceable right to tax or toll exemption contrary to the governing statutory notification.

Petitioner’s Arguments

The petitioner contended that the rejection order was contrary to the earlier interim order passed by the High Court and inconsistent with SRO 22 of 2004.

It was argued that the Deputy Excise Commissioner had failed to properly consider the New Industrial Policy, 2004, and that the impugned order suffered from non-application of mind.

The petitioner further contended that it had been formally declared a prestigious unit by the competent authority and was therefore entitled to exemption from additional toll on plant, machinery, construction material and other items imported from outside the State for its substantial expansion.

Strong reliance was placed upon Clause 3.14 of the Industrial Policy, 2004, which provided special benefits to prestigious units, including full exemption from GST/CST and additional toll tax until 31.03.2015 or until the amount of exemption reached 150% of capital investment in the project, whichever occurred earlier.

Accordingly, the petitioner maintained that its prestigious-unit status and substantial investment in expansion supported its claim for toll exemption.

Respondents’ Arguments

The respondents opposed the writ petition and contended that SRO 22 of 2004, issued under Section 5 of the Jammu and Kashmir Levy of Tolls Act, did not grant the petitioner exemption for capital goods imported for its ninth substantial expansion programme.

They emphasised that the petitioner had been registered as an industrial unit in 1966, whereas Clause 3 of SRO 22 of 2004 granted exemption on specified goods imported for construction of a factory only for five years from the date of registration of the unit.

The respondents further argued that it was only through SRO 85 of 2008 dated 24.03.2008 that exemption was specifically introduced for additional toll chargeable on capital goods imported by existing industrial units for substantial capacity expansion.

That exemption was available only for a limited period from 01.04.2008 to 31.03.2009, subject to stipulated conditions. Therefore, according to the respondents, no such exemption existed for the petitioner’s substantial expansion undertaken in 2006.

The respondents maintained that the Deputy Excise Commissioner had correctly rejected the claim through a reasoned and lawful order.

Court Order / Findings

The High Court dismissed the writ petition and held that the petitioner was not entitled to exemption from payment of additional toll on components, plant and machinery, building material and other equipment procured from outside the State for substantial expansion undertaken in 2006.

The Court recorded the following important findings:

First, Clause 3.11 of the Industrial Policy, 2004 contemplated exemption from additional toll on components, machinery, plant and other equipment procured from outside the State for building a factory for five years from the date of registration of the industrial unit. Since the petitioner had been registered in 1966, this provision did not support its claim.

Second, Clause 3 of SRO 22 of 2004 specifically exempted additional toll on components, plant and machinery, building material and other equipment procured from outside the State for construction of a factory for five years from the date of registration of units in the Small, Medium or Large Scale Sector, including prestigious units. The petitioner, being a unit registered in 1966, was outside the prescribed five-year period.

Third, although Clause 3.14 of the Industrial Policy, 2004 contemplated full exemption for prestigious units, that policy provision had to be read subject to SRO 22 of 2004, because SRO 22 was a statutory notification issued under Section 5 of the Act.

Fourth, the Court held that SRO 22 of 2004 was statutory in nature and governed exemption from additional toll to the exclusion of inconsistent policy decisions or executive instructions.

Fifth, the Court relied upon SRO 85 of 2008 to observe that exemption for capital goods imported by existing industrial units for substantial capacity expansion was specifically introduced only in 2008 and was available for the period 01.04.2008 to 31.03.2009. This supported the conclusion that such exemption was not available for the petitioner’s expansion undertaken in 2006.

Sixth, interdepartmental communications made by the Industries Department in favour of the petitioner could not confer a legal right to exemption from additional toll contrary to the governing statute and statutory notification.

Accordingly, the High Court found the rejection order dated 03.04.2013 to be in consonance with law and dismissed the petition for lack of merit.

Important Clarification

The most significant clarification arising from the judgment is that an Industrial Policy or Government Order does not, by itself, override the statutory framework governing a tax or levy exemption.

The Court clarified that where a levy is imposed under legislation and the power to grant exemption is conferred by statute, the exemption must operate through legally valid statutory authority, including delegated legislation issued under the enabling provision.

The Court specifically applied Article 265 of the Constitution of India, observing that no tax can be imposed, levied or collected except by authority of law. The Court further explained that “authority of law” means an Act of the legislature or valid delegated legislation; a Government order, executive instruction or interdepartmental communication cannot substitute for such legal authority.

Therefore, even though the Industrial Policy, 2004 contained beneficial provisions for prestigious units, the enforceable scope of additional toll exemption had to be determined in accordance with SRO 22 of 2004, issued under Section 5 of the Act.

The judgment also clarifies that substantial expansion of an existing unit is not automatically equivalent to fresh construction or fresh registration of a factory for claiming a new five-year exemption period under SRO 22 of 2004.

Sections / Statutory Provisions Involved

  • Section 3, Jammu and Kashmir Levy of Tolls Act, Samvat 1995 – Charging provision governing levy of toll.
  • Section 5, Jammu and Kashmir Levy of Tolls Act, Samvat 1995 – Government’s statutory power to grant exemption from toll.
  • Article 265, Constitution of India – No tax shall be levied or collected except by authority of law.
  • Clause 3.11, New Industrial Policy, 2004 – Toll tax exemptions under the industrial incentive framework.
  • Clause 3.14, New Industrial Policy, 2004 – Special provisions for prestigious units.
  • Clause 3, SRO 22 of 2004 dated 31.01.2004 – Additional toll exemption on specified goods procured from outside the State for construction of a factory, limited to five years from registration.
  • SRO 85 of 2008 dated 24.03.2008 – Limited exemption for capital goods imported by existing industrial units for substantial capacity expansion during 01.04.2008 to 31.03.2009.

Link to download the order - https://mytaxexpert.co.in/uploads/1783328307_1119compressed.pdf

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