The Supreme Court bench comprising Justices M.R. Shah and Sanjiv Khanna was hearing a case on Friday, wherein the bench held that since power generating companies were put in the list of ‘ineligible industries’, hence it cannot claim for exemption from payment of purchase tax.
In the present case, as the difference between the total tax paid and the purchase tax was more than twenty-five percent, the respondent was deemed to have failed to pay the tax as per sub-section (5) of Section 45 and, therefore, liable to pay the penalty not exceeding one and one-half times. The words used in sub-section (6) of Section 45 is “there shall be levied on such dealer a penalty not exceeding one and one-half times the difference”.
It was submitted that the respondent was previously named as Essar Steel Ltd., which was then changed to Essar Steel India Limited (ESIL). It is submitted that Essar Steel India Limited was admitted into insolvency under the Insolvency and Bankruptcy Code, 2016 ("IBC") on 02.08.2017 and the Corporate Insolvency Resolution Process has been concluded in the approval of a Resolution Plan for ESIL submitted by Arcelor Mittal India Private Limited, which has been upheld by this Court vide its judgment and order in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors., REED 2019 SC 11505. It is submitted that pursuant to the same, the 100% shareholding of the respondent- Essar Steel India Limited now vests with the Arcelor Mittal India Private Limited. It is submitted that even subsequently, the name of ESIL has been changed to Arcelor Mittal Nippon Steel India Limited.
The Apex Court noted in the present case, the modus operandi which was adopted by the respondent – Essar Steel warrants a penalty. Though the raw material was required to be used by itself for the manufacture of their goods, after availing the exemption as an eligible unit and instead of using the same for itself/himself, the ESL sold the raw materials to an ‘ineligible’ entity – EPL, who used it for the manufacture of its own goods – generating the electricity, which again came to be sold to ESL under the power purchase agreement.
As observed by the Supreme Court, as such the EPL, under the incentive scheme, was not eligible at all for exemption from payment of purchase tax as in fact power generating companies were put in the list of ‘ineligible industries’.
"Therefore, by such a modus operandi, the benefit, which was not available to the EPL was made available by such transfer of raw materials by Essar Steel Ltd. to Essar Power Limited", the Bench observed.
As observed hereinabove, there is a breach of declaration in Form No.26 also. Therefore, in the facts and circumstances of the case, the levy of penalty is justified and warranted. The Joint Commissioner, the Tribunal as well as the High Court have committed a grave error in quashing and setting aside the penalty imposed by the Assessing Officer.
In view of the above and for the reasons stated above, the impugned common judgment and order passed by the High Court as well as that of the Tribunal quashing and setting aside the demand of purchase tax from the respondent were quashed and set aside.
It was held that the respondent -Essar Steel Ltd. – the eligible unit was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it did not fulfil the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and secondly that there was a breach of declaration in Form No.26 furnished by the respondent – eligible unit – Essar Steel Ltd.
The orders setting aside the penalty imposed by the Assessing Officer were also quashed and set aside. The order passed by the Assessing Officer levying the demand of purchase tax and imposing the penalty was hereby restored. Appeals were accordingly allowed.