Arcelor Mittal holds up tax dispute with Gujarat Tax Department

Arcelor Mittal holds up tax dispute with Gujarat Tax Department

The Gujarat tax department's levy of Rs 480 crore in purchase tax has been upheld by th    e Supreme Court, dealing a setback to Arcelor Mittal.

Respondent-assessee Essar Steel Ltd, located at Hazira in Surat, Gujarat, manufactures and sells Hot Briquetted Iron (HBI) and Hot Rolled Coil (HRC) at its two plants. In addition to being registered under the Gujarat Sales Tax Act, 1969, the respondent holds a registration certificate under the Central Sales Tax Act, 1956. By Resolution on 7th May, 1986 issued by the Industries, Mines and Energy Department of the Gujarat Government, the respondent made an eligible investment in Unit No. 1. Accordingly, the respondent is qualified to avail incentives during the period of eligibility beginning on 1st August, 1990 and ending on 31st July, 2004, up to a maximum of Rs.237.59 crores.

Gujarat, via its resolution on 26th July, 1991, announced a scheme promoting investments in core sectors industries through the "Scheme for Special Incentives to Prestigious Units 1990-95 (modified)". A prestigious unit could receive incentives up to 90percent of its fixed capital investment under the said scheme. It has been reported that Essar Steel Ltd. invested approximately Rs.5000 crores in the manufacture of HRC in compliance with the said Scheme. Those exemptions were granted in accordance with Entry 255 of the notification of the government of Gujarat issued pursuant to Section 49(2) of the Act, 1969. In terms of Entry No.255(2) of the Notification on 5th March, 1992 issued under Section 49(2) of the Act, 1969, Unit No.2 of ESL was provided a Tax Exemption from Sales Tax up to a maximum monetary limit of Rs. 2050 crores for the period from 22nd February, 1993 to 21st Feb 2007.

In fact, the EPL was completely excluded from exemption from payment of purchase tax under the incentive scheme, since power generating companies were put on a list of excluded industries. In this way, Essar Steel Ltd. has transferred raw materials to Essar Power Limited, which gained benefits that were otherwise not available to the EPL. There is an identical violation of the declaration in Form No.26 as well. Thus, the levying of a penalty is justifiable and warranted in light of the facts and circumstances of the case. In setting aside the penalty imposed by the Assessing Officer, both the Joint Commissioner, the Tribunal and the High Court have failed to do their jobs.

Justice M.R.Shah and Justice Sanjeev Khanna found that the eligible unit - Essar Steel, the respondent, was not entitled to the exemption from payment of purchase tax under the original Entry for two reasons: firstly, it did not fulfil the eligibility condition/criteria mentioned in the original Entry No.255 (2) on 5th March, 1992 and secondly, it did not make a declaration in Form No.26 as required by law. This judgment also quashes and sets aside the penalties imposed by the Assessing Officer. We restore the order passed by the Assessing Officer which imposed the penalty and demanded the payment of purchase tax.