ACC Ltd. Vs Secretary Industries Department & Others (Orissa High Court)
Summary: The Orissa High Court, in ACC Ltd. Vs The Secretary, Industries Department & Others, considered whether ACC Ltd. was entitled to Value Added Tax (VAT) reimbursement under the Industrial Policy Resolution, 2007 (IPR 2007), in respect of the expansion of its Bargarh Cement Works. The dispute arose after the Odisha Industries Department withheld consideration of the company’s application for recognition as a downstream Thrust Sector industry on the ground that the original cement unit was not a new industrial undertaking. The Court examined the policy provisions governing existing industrial units undertaking expansion, the retrospective amendments to the eligibility criteria, the contemporaneous inspection reports and the applicability of its earlier decision in Ultratech Cement Limited v. State of Odisha.
ACC Ltd. had acquired IDCOL Cement Ltd., Bargarh, on 22 December 2003, and the unit was merged with ACC with effect from 6 December 2005. Its installed cement production capacity before expansion was 0.96 million tonnes per annum. Following the introduction of IPR 2007 on 2 March 2007, ACC commenced investment in an expansion project on 6 March 2007 by purchasing machinery from Bharat Heavy Electricals Limited. The company invested approximately ₹585.57 crore up to 31 December 2010, increasing installed production capacity to 2.5 million tonnes per annum. Commercial production from the expanded facility commenced on 1 January 2011. ACC asserted that its investment and increased capacity fulfilled the conditions for incentives relating to expansion of an existing industrial undertaking.
The company applied for Thrust Sector recognition and other incentives on 29 June 2011. Following inspection, the General Manager, District Industries Centre, issued a status report and Certificate of Verification dated 5 July 2011 recording fixed capital investment of ₹585.57 crore and direct employment of 118 persons. The verification indicated that the unit satisfied the criteria for a downstream Thrust Sector industry. Subsequently, the Regional Industries Centre, Sambalpur, inspected the facility and reported that slag accounted for 52.6% and fly ash for 26.2% of the materials recorded during inspection. These findings supported ACC’s contention that its manufacturing operations involved value addition of industrial waste products rather than merely standalone grinding or mixing.
ACC’s claim was forwarded through several administrative authorities. The Assistant Commissioner of Sales Tax certified payment of net VAT amounting to ₹50,75,34,438 for financial year 2011-12. IPICOL, by communication dated 17 October 2013, indicated that VAT reimbursement might be available under Clause 18.4(iv) of IPR 2007, subject to issuance of the requisite sector certificate. However, no final order sanctioning a specified reimbursement amount had been passed. On 4 March 2015, the Additional Director of Industries communicated that ACC’s application for Thrust Sector status could not be considered because the unit was not a new industrial undertaking. The company challenged this position by filing its writ petition on 17 April 2015.
An important subsequent development was the Government Resolution dated 9 December 2015, which deleted the word “new” from Serial Nos. 17 and 19 of Annexure-I to IPR 2007 with retrospective effect from 2 March 2007. ACC argued that the amendment removed the very objection on which its application had been withheld. It also relied upon Clause 18.4(iv), which specifically contemplated VAT reimbursement for existing industrial units undertaking expansion, modernisation or diversification. The company further maintained that the amendment dated 3 March 2015 prescribing a minimum 50% utilisation by weight of specified industrial products as base raw material did not defeat its claim, particularly when the inspection report recorded slag utilisation of 52.6%.
The State opposed the petition, contending that ACC’s original undertaking had been established before IPR 2007 and that expansion alone did not automatically confer entitlement to reimbursement. It disputed the company’s eligibility for Priority Sector or Thrust Sector status and maintained that the prescribed policy conditions had to be satisfied independently. ACC relied upon Ultratech Cement Limited v. State of Odisha, 2022 SCC OnLine Ori 13, where the Court had examined the classification of cement manufacturing operations under the Negative List of IPR 2007.
The High Court held that the reasoning in Ultratech Cement was relevant insofar as an industrial undertaking could not be categorised merely by describing one component of its manufacturing process as grinding or mixing. The actual industrial activity and the value addition involved had to be examined. However, the Court distinguished ACC’s case because, in Ultratech Cement, the relevant eligibility certificates had been issued and VAT reimbursement had already been sanctioned before withdrawal of the benefit. In ACC’s case, there was no final sanction. Consequently, Ultratech Cement did not establish an automatic right to payment, and ACC’s entitlement required independent determination under the applicable policy.
The Court found that the principal ground stated in the letter dated 4 March 2015 could not survive in view of the retrospective deletion of the word “new” by the Resolution dated 9 December 2015. It also considered the contemporaneous verification reports significant. The investment of ₹585.57 crore, direct employment of 118 persons, enhanced installed capacity and recorded utilisation of slag and fly ash constituted substantial material supporting ACC’s application for downstream Thrust Sector recognition. The 52.6% slag utilisation recorded by the inspecting authority was particularly relevant to the amended requirement of 50% utilisation by weight. Nevertheless, the Court emphasised that these reports did not themselves establish that reimbursement had been finally sanctioned or that every eligibility criterion had been conclusively satisfied.
Accordingly, the High Court set aside the communication dated 4 March 2015 insofar as it declined consideration of ACC’s claim on the ground that its original industrial unit was not new. The competent authority was directed first to reconsider ACC’s application for recognition as a downstream Thrust Sector industry, taking into account the inspection reports and the Government Resolutions dated 3 March 2015 and 9 December 2015. Any finding of ineligibility must identify the specific unfulfilled criterion and provide reasons supported by the record. The claim could not be rejected merely because the original unit predated IPR 2007 or because cement manufacturing involved grinding or mixing.
If ACC is recognised as a downstream Thrust Sector industry, the authorities must thereafter process its VAT reimbursement claim under Clause 18.4(iv), determine the amount admissible in relation to increased commercial production, and apply the relevant requirements concerning net VAT after input tax credit adjustment, applicable reimbursement percentage and prescribed ceiling. The entire determination must be completed through a reasoned order within three months from receipt of the judgment, and any amount found admissible must be released within four weeks thereafter. The writ petition was allowed in these terms, without an order as to costs. The judgment therefore grants ACC a right to fresh consideration under the applicable industrial policy rather than unconditional reimbursement of the amount claimed.
Cases Discussed
1. Ultratech Cement Limited v. State of Odisha and Others (Orissa High Court); W.P.(C) Nos. 29253 of 2020 and 12435 of 2019; 04/01/2022; 2022 SCC OnLine Ori 13. The Court relied upon the principle that a cement manufacturing unit cannot be classified as an excluded standalone grinding unit merely by reference to one manufacturing process. The decision was distinguished because Ultratech had obtained eligibility certificates and a reimbursement sanction, whereas ACC’s claim had not been finally sanctioned. The judgment records that the challenge before the Supreme Court was dismissed on 14/10/2022. Read the judgment.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. The Petitioner has approached this Court seeking a direction to the opposite parties to grant and disburse Value Added Tax (VAT) reimbursement in terms of the Industrial Policy Resolution, 2007 (hereinafter referred to as “IPR 2007”). The claim arises out of the “expansion” undertaken by the Petitioner at its Bargarh Cement Works and the incentives which, according to the Petitioner, became available under the policy upon such expansion. The present Writ Petition was instituted on 17.4.2015, challenging the withholding of the claim and seeking grant and disbursement of VAT reimbursement under IPR 2007.
I. FACTAUL MATRIX OF THE CASE:
2. The Petitioner acquired M/s. IDCOL Cement Ltd., Bargarh, an undertaking of the Industrial Development Corporation of Odisha, on 22.12. 2003. The unit was merged with the Petitioner with effect from 6.12.2005 and came to be known as Bargarh Cement Works. At the time preceding the expansion in question, the unit had an installed capacity of 0.96 million tonnes per annum.
3. The State Government notified IPR 2007 on 2.3.2007. The policy sought to promote industrial investment in the State by extending incentives to eligible industrial undertakings, particularly those falling within the identified “Priority” and “Thrust” Sectors. Paragraph 18.4 dealt with reimbursement of VAT. Sub-clauses (ii) and (iii) prescribed the benefits available to “new” industrial units in the relevant categories, whereas sub-clause (iv) specifically addressed “existing” industrial units undertaking “expansion, modernisation or diversification”. The latter provision is of particular relevance because the Petitioner’s claim is founded upon the “expansion” of an industrial undertaking which was already in existence when the policy came into force.
4. According to the Petitioner, investment in the expansion project commenced on 6.3.2007 with the purchase of plant and machinery from Bharat Heavy Electricals Limited. The Petitioner claims to have invested approximately ₹585.57 crore up to 31.12.2010. The installed capacity of the unit was thereafter enhanced from 0.96 million tonnes per annum to 2.5 million tonnes per annum, and commercial production following the expansion commenced on 1.1.2011. The petitioner relies upon these particulars to contend that the investment was made after the effective date of IPR 2007 and resulted in a substantial increase in the production capacity of the unit.
5. On 29.6.2011, the petitioner submitted applications before the General Manager, District Industries Centre (DIC), seeking, inter alia, recognition as a Thrust Sector industry under IPR 2007. Upon inspection, the General Manager, DIC, issued a status report dated 5.7.2011 recording that the unit could be considered under the Thrust Sector for incentives under the policy. The certificate of verification issued on the same date recorded fixed capital investment of ₹585.57 crore and direct employment of 118 persons. It further stated that the unit satisfied the prescribed criteria for a downstream Thrust Sector industry. The inspection report was also to the same effect.
6. The claim was thereafter taken up by the concerned authorities. On 8.8.2011, the General Manager, DIC, forwarded the petitioner’s claim for VAT reimbursement to the Industrial Promotion and Investment Corporation of Odisha Limited (IPICOL), opposite party No. 4. Subsequently, the Regional Industries Centre (RIC), Sambalpur, conducted an inspection on 7.6.2012 and submitted its report on 23.6.2012. The report recorded that the unit was effectively engaged in value addition of waste products, with slag accounting for 52.6 per cent and fly ash for 26.2 per cent of the material recorded in the inspection. The RIC requested issuance of a certificate recognising the unit as a downstream industry.
7. The General Manager, DIC, also communicated with the Commercial Tax Officer in October 2012, stating that the unit could be considered for VAT reimbursement under Clause 18.4 of IPR 2007. The Assistant Commissioner of Sales Tax certified payment of net VAT amounting to ₹50,75,34,438 for the financial year 2011-12. The claim was thereafter forwarded to the Director of Industries. On 4.7.2013, the General Manager, DIC, again forwarded the claim for the financial year 2011-12 to IPICOL for sanction, noting that the claim for the first year had already been recommended on 8.8.2011.
8. By communication dated 17.10.2013, IPICOL informed the Director of Industries that VAT reimbursement might be applicable to the petitioner under Clause 18.4(iv), subject to issuance of a Priority Sector certificate, and requested a decision in the matter. The General Manager, DIC, subsequently forwarded the petitioner’s claim for the financial year 2012-13 on 15.11.2013. Thus, the claim had been examined by the inspecting authorities and had moved through the administrative machinery well before the impugned letter was issued. Pertinently, however, the record, does not disclose that a final order sanctioning a specified amount of reimbursement had been passed.
9. On 3.3.2015, the Government amended the definition of “Downstream Industry” in Annexure-I to IPR 2007 by introducing a requirement that a minimum of 50 per cent by weight of the relevant intermediate, final or waste products of industrial undertakings be utilised as base raw material. The amendment was stated to take immediate effect.
10. On the following day, i.e., 4.3.2015, the Additional Director of Industries issued the impugned letter bearing No. 2294/Ind. The petitioner was informed that its application for Thrust Sector status could not be considered as the unit was not a ‘new’ industrial unit. The letter further stated that the matter was under active consideration of the Government for a necessary amendment and that the claim would be processed thereafter. The present writ petition was instituted on 17.4.2015, challenging the withholding of the claim and seeking grant and disbursement of VAT reimbursement under IPR 2007.
11. During the pendency of the writ petition, the Government issued the Resolution dated 9.12.2015 deleting the word “new” from Serial Nos. 17 and 19 of Annexure-I to IPR 2007, with effect from 2.3.2007. The State itself referred to this Resolution in paragraph 57 of its counter affidavit, although a copy was not annexed thereto. The petitioner subsequently placed the Resolution on record by filing a memorandum. The subsequent amendment is thus not a matter extraneous to the proceedings; it is a development which directly concerns the ground on which the petitioner’s claim was originally kept in abeyance.
II. SUBMISSIONS ON BEHALF OF THE PETITIONER:
12. Learned Sr. Counsel appearing for the petitioner submits that the claim has been withheld on a ground which no longer survives. It is contended that the Resolution dated 9.12.2015 deleted the word “new” from the relevant entries in Annexure-I to IPR 2007 with retrospective effect from 2.3.2007. The petitioner, therefore, cannot be denied consideration of its claim merely because the original industrial unit was established before the policy came into force.
13. It is further submitted that Clause 18.4(iv) expressly recognises the eligibility of “existing” industrial units undertaking expansion, modernisation or diversification. The petitioner commenced its expansion after IPR 2007 came into force and made substantial investment in plant and machinery, resulting in an increase in installed capacity from 0.96 million tonnes per annum to 2.5 million tonnes per annum. It is argued that the claim must be examined with reference to the expansion and the increased commercial production resulting therefrom, rather than by treating the date of establishment of the original unit as conclusive of its eligibility.
14. Reliance is placed upon the status report and certificate of verification dated 5.7.2011 issued by the General Manager, DIC, as well as the report of the RIC, Sambalpur dated 23.6.2012. According to the petitioner, these documents establish that the investment and employment criteria prescribed for a downstream Thrust Sector industry were satisfied and that the unit was engaged in value addition of waste products. The petitioner also relies upon the subsequent correspondence of the General Manager, DIC, and IPICOL to submit that its claim was processed and recommended for consideration, and was not rejected on account of any deficiency in investment or employment.
15. It is also submitted that the amendment dated 3.3.2015 to the definition of a downstream industry does not disentitle the petitioner from the benefit claimed. The RIC’s report records the use of slag at 52.6 per cent and fly ash at 26.2 per cent. It is contended that the unit’s manufacturing activity cannot be equated with that of a low-investment grinding or mixing unit merely because the process of manufacturing cement involves grinding or mixing. The nature of the activity, the substantial investment in plant and machinery and the recorded utilisation of industrial waste products must, according to the petitioner, be considered together.
16. Learned counsel also relies upon the judgment of this Court in Ultratech Cement Limited v. State of Odisha1. It is submitted that this Court examined the application of the Negative List under IPR 2007 to cement manufacturing activity and found the State’s classification of the unit as a standalone grinding unit to be misconceived in the facts of that case. The challenge to the said judgment before the Hon’ble Supreme Court was dismissed on 14.10.2022 and the same has thus attained finality. The petitioner contends that the reasoning adopted in the said judgment is applicable to the present dispute and seeks a direction for grant and disbursement of the reimbursement admissible under the policy.
III. SUBMISSIONS ON BEHALF OF THE OPPOSITE PARTIES:
17. The State, in its counter affidavit filed on behalf of Opposite Party Nos.1 to 3, has opposed the claim of the Petitioner on the ground that the unit does not satisfy the eligibility criteria prescribed under the Industrial Policy Resolution, 2007 (IPR 2007). It is contended that the Petitioner acquired M/s. IDCOL Cement Ltd., Bargarh, on 22.12.2003, which was subsequently merged with ACC Ltd. with effect from 6.12. 2005. Since IPR 2007 came into force on 2.3.2007, the State submits that the Petitioner cannot be treated as a “New Industrial Unit”, its first fixed capital investment having been made prior to the effective date of the policy. Although the State acknowledges that the Petitioner made its first fixed capital investment towards expansion on 6.3.2007 and commenced production following expansion on 1.1.2011, it maintains that such expansion does not, by itself, confer entitlement to VAT reimbursement.
18. It is further contended that the Petitioner does not fulfil the requirements of either the Priority Sector or the Thrust Sector as defined under Annexure-I to IPR 2007. According to the State, the Petitioner does not satisfy the requirement of being a new industrial unit and, therefore, cannot claim the incentives available to units falling within those categories. The State submits that even if the Petitioner’s unit is considered to have acquired downstream status following expansion, it would not be eligible for VAT reimbursement under Clause 18.4, as it does not fall within the prescribed categories. The State has also denied that the General Manager, District Industries Centre, Bargarh, had given any assurance regarding the grant of incentives to the Petitioner.
19. The State has further submitted that the grant of incentives is governed by the conditions stipulated under IPR 2007 and that only industrial units satisfying those conditions can claim the corresponding benefits. It is accordingly contended that the Petitioner is not entitled to reimbursement under Clause 18.4 of the policy.
IV. THIS COURT’S REASONONG AND ANALYSIS:
20. Having heard learned counsel for the parties and perused the materials on record, the following questions arise for consideration:
(i) Whether, and to what extent, the decision in Ultratech Cement Ltd. v. State of Odisha applies to the Petitioner’s claim for VAT reimbursement under IPR 2007.
(ii) Whether the Petitioner is entitled to consequential relief in respect of its claim for VAT reimbursement under Clause 18.4(iv) of IPR 2007.
21. The Petitioner relies upon the decision in Ultratech Cement (supra), to contend that its claim for VAT reimbursement is covered by the said judgment. The State, however, disputes the Petitioner’s eligibility under IPR 2007. The applicability of Ultratech Cement (supra) must, therefore, be examined in the context of the facts of the present case.
22. In Ultratech(supra), this Court considered the State’s treatment of a cement manufacturing unit as a standalone grinding unit falling within Serial No. 51 of the Negative List under IPR 2007. The Court examined the nature of the manufacturing activity and held that the classification could not be sustained merely by describing the unit as a grinding unit, without considering the activity undertaken and the value addition involved. The decision supports the principle that the classification of an industrial undertaking cannot rest merely on the description of one process forming part of its manufacturing activity. The judgment is relevant to the present case to this extent: the Petitioner’s unit cannot be classified by reference to grinding or mixing alone, without examining its actual operations and the applicable policy provisions.
23. The facts, however, are not identical. In Ultratech(supra) the unit had obtained the relevant eligibility and Thrust Sector certificates, and VAT reimbursement had been sanctioned before the State sought to withdraw the benefit. In the present case, the Petitioner’s claim had not culminated in a final sanction. Ultratech(supra) cannot, therefore, be treated as conclusively establishing the Petitioner’s entitlement to reimbursement. The Petitioner’s claim must be examined on the basis of its own record and the provisions of IPR 2007.
24. The record shows that the Petitioner acquired M/s. IDCOL Cement Ltd., Bargarh, on 22.12.2003, and the unit was merged with the Petitioner with effect from 6.12.2005. Its installed capacity before expansion was 0.96 million tonnes per annum. IPR 2007 came into force on 2.3.2007, and the Petitioner’s first fixed capital investment towards expansion was made on 6.3.2007, through the purchase of machinery worth ₹72,68,352 from BHEL, Hyderabad. The total investment recorded up to 31.12.2010 was ₹585.57 crore. Following expansion, the installed capacity increased to 2.5 million tonnes per annum, and commercial production commenced on 1.1.2011.
25. The claim relates to the expansion undertaken after IPR 2007 came into force, and not merely to the original unit acquired in 2003. More importantly, the impugned letter dated 4.3.2015 did not reject the claim upon a finding that the investment, employment or production requirements had not been met. It declined to consider the application for Thrust Sector status on the ground that the unit was not a new industrial unit.
26. That objection must be considered in the light of the Government Resolution dated 9.12.2015, which deleted the word “new” from Serial Nos. 17 and 19 of Annexure-I to IPR 2007 with effect from 2.3.2007. The amendment was thus made retrospective. The State has itself referred to the Resolution in its counter affidavit. The ground stated in the impugned letter, therefore, cannot survive as a basis for declining consideration of the Petitioner’s claim.
27. The contemporaneous verification material also requires consideration. On 5.7.2011, following inspection, the General Manager, DIC, issued a status report stating that the unit might be considered under the Thrust Sector for incentives under IPR 2007. The accompanying Certificate of Verification recorded capital investment of ₹585.57 crore, direct employment of 118 persons, and that the unit satisfied the criteria for a downstream Thrust Sector industry. The General Manager, DIC, thereafter forwarded the Petitioner’s claim for VAT reimbursement to IPICOL on 8.8.2011.
28. The RIC, Sambalpur, inspected the unit on 7.6.2012 and, in its report dated 23.06.2012, recorded that the unit was engaged in value addition of waste products. The report recorded the use of slag at 52.6 per cent and fly ash at 26.2 per cent and requested issuance of a downstream industry certificate. The figures assume significance in view of the Resolution dated 3.3.2015, which introduced a requirement of minimum 50 per cent utilisation by weight of the relevant intermediate, final or waste products as base raw material. Slag alone was recorded at 52.6 per cent. The report, therefore, provides material support for the Petitioner’s claim under the amended definition, though the other applicable criteria must also be considered.
29. The subsequent correspondence however, does not establish that reimbursement was finally sanctioned. By its communication dated 17.10.2013, IPICOL stated that reimbursement might be applicable under Clause 18.4(iv), subject to issuance of the requisite certificate, and sought a decision from the Director of Industries. This correspondence, read with the inspection and verification reports, shows that the claim was under consideration and that the requisite status determination remained outstanding. It does not, however, dispense with the need to determine the amount admissible under the policy.
30. The distinction between the two cases must accordingly be maintained. Ultratech(supra) does not entitle the Petitioner to automatic reimbursement merely because both cases concern cement units. It does, however, support the requirement that the nature of the industrial activity be examined before applying the Negative List. In the present case, that examination must also take account of the investment made in the expansion, the increased capacity, the use of waste products and the findings recorded by the inspecting authorities. The Petitioner’s claim cannot be rejected merely by describing the unit as one involving grinding or mixing.
31. The combined effect of the record and the subsequent Resolution dated 9.12.2015 is that the Petitioner’s claim requires determination under the applicable provisions of IPR 2007, and cannot be declined on the ground that the original unit was not new. The existing reports provide substantial material in support of the Petitioner’s claim to downstream Thrust Sector status. The competent authority must consider those reports and the applicable criteria, and identify any specific requirement which remains unfulfilled, if that is its conclusion.
VI. CONCLUSION:
32. The impugned letter dated 4.3.2015 is accordingly set aside insofar as it declines consideration of the Petitioner’s application on the ground that the unit is not a new industrial unit.
33. The competent authority shall first consider the Petitioner’s claim for recognition as a downstream Thrust Sector industry in light of the Certificate of Verification dated 5.7.2011, the RIC report dated 23.6.2012, and the Resolutions dated 3.3.2015 and 9.12.2015. The findings recorded in the inspection and verification reports shall be duly considered. The claim cannot be rejected merely on the ground that the original unit was established before IPR 2007 or that the manufacturing process involves grinding or mixing. If the authority finds any prescribed eligibility criterion to remain unfulfilled, it shall identify that criterion and record specific reasons denying such claims with reference to the material on record.
34. In the event such determination with regard to it being a downstream “Thrust Sector industry” is in the affirmative, the authorities shall process the claim for VAT reimbursement under Clause 18.4(iv) of IPR 2007 and determine the amount, if any, admissible in respect of increased commercial production, after accounting for the net VAT paid following adjustment of input tax credit, the applicable percentage and the prescribed ceiling. The exercise shall be completed by a reasoned order within 3 months from receipt of this judgment. Any amount found admissible, if any, shall be released within four weeks thereafter.
35. The Writ Petition is allowed in the above terms. There shall be no order as to costs.
Notes:
1 2022 SCC OnLine Ori 13
