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Legal Case Shots

Court judgements broken down into the case type, how the decision played out, and the lesson worth remembering, with the full judgement available as a PDF.

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Legal Case Shots is a searchable database of Supreme Court of India judgments, each broken down into the case type, the court's key holding, and a practical lesson learnt, with the full judgment available as a PDF for citation or deeper reading.

Tax & Customs LawSupreme Court of India

State of Kerala vs M/s Akay Flavours and Aromatics Ltd.

Civil Appeal · 2023 INSC 716Decided 2 Feb 2023
Civil Appeal No. 7330 of 2009
S. Ravindra Bhat · Dipankar Datta

Background

Kerala's notification SRO 1727/1993 exempted 100% export-oriented units from sales tax on purchases of raw materials, plant and machinery "for a period of five years from the date of approval of such units by the Central Government". Akay Flavours, a spice-extract exporter, received a letter of permission from the Central Government on 16 December 1993, a "Green Card" approving it as an export-oriented unit on 27 October 1994, and started production on 1 October 1995. The company claimed exemption on purchases of pepper, ginger, turmeric and the like; the assessing authority first granted it and then reopened the assessments, counting the five years from 16 December 1993, and imposed penalties. The Kerala Tribunal sided with the company's view that the period could not start before the unit was even set up; the State's revision to the High Court was dismissed as time-barred, and the High Court sent the penalty question back for fresh consideration. Both the State and the company appealed to the Supreme Court.

Decision Breakdown

The Court held that the word "approval" in the notification means an unambiguous approval by the Central Government. The 16 December 1993 letter was, on a plain reading, only a conditional permission, it was itself described as a "letter of intent" and hinged on the unit meeting export and value-addition conditions, so it was not the "approval". The actual approval was the Green Card of 27 October 1994, from which date the five-year exemption ran. The Court rejected the company's argument that the clock should start only from the commencement of production (1 October 1995): a unit that delays setting up should not be "rewarded for such inaction", and tying the exemption to production start would inject subjectivity into tax assessments. The appeals were partly allowed, fixing 27 October 1994 as the reckonable date.

Lesson Learnt

When a tax concession is tied to "the date of approval", the clock starts when the government issues its definitive approval, not from an earlier conditional letter of intent, and not from the later date on which the business actually gets going. Businesses planning around such exemptions should identify the precise approving document and not assume the benefit waits for them to begin production.

Official source (sci.gov.in)View Judgment (PDF)
State of Kerala vs M/s Akay Flavours and Aromatics Ltd. – Legal Case Shots | LegalAware