New Delhi, February 8
The mediators, appointed by the Supreme Court to find a solution to Punjab’s complaint against the Centre for extending tax sops to industrial units in Jammu and Kashmir, Himachal Pradesh and Uttarakhand, today informed the court that their efforts had gone in vain.

After going through their report submitted in a sealed cover, a Bench of Justices CK Prasad and FMI Kalifulla said the mediation had not been successful and “no settlement” had been reached on the issue.

As a result, the Bench issued notice to the Centre and the three states seeking their response to Punjab’s suit within eight weeks.

Appearing for the Centre, Additional Solicitor General Mohan Jain said Punjab’s suit taking exception to the duty exemption packages offered to new industrial units in the three hill states for 10 years had become infructuous.

The packages offered to industries in Jammu and Kashmir through an order on June 14, 2002 and to those in HP and Uttarakhand on January 67, 2003 had ceased to exist at the conclusion of 10 years, he contended.

However, Punjab said it had filed an amended suit objecting to the December 12, 2010 circular issued by the Centre offering continued excise duty exemption for 10 years from the date of commencement of commercial production even by plants that were added or upgraded by the industrial units to step up output.

The Centre could not have enlarged the scope of the 2003 notification which “is untenable in law” and “is violative of Articles 301 to 303” of the Constitution, besides being contrary to the Union Finance Minister’s assurance to Punjab that tax exemption would be applicable only to those units that had carried out additions/modifications prior to the cut-off date.

Unconvinced, the Bench said Punjab “is a rich state” and was not expected to compete with states like HP and J&K where the level of unemployment was quite high.

“How can Punjab compare itself with the hilly states? We don’t know who decides to file this kind of suits. If the Centre wants to help Himachal what is wrong in it,” the Bench remarked.

In the amended suit, Punjab said continuation of the tax sops to the three states was “detrimental to the economy of Punjab and will have a cascading effect on the growth of industrial units as it will not only discourage new units from coming to Punjab but will also lead to transposition of existing industrial units from Punjab to neighbouring states where tax concessions are available resulting in unemployment and loss of government revenue.”

In a chart, Punjab said the Centre’s discriminatory tax sops to the hilly states had already resulted in as many as 274 industrial units involving an investment of Rs 3,675 crore moving out its territory.

Ludhiana was the worst hit as investment worth Rs 2,027 crore moved out of the district with 33 units packing up. Following are the figures for other areas: Mohali (Rs 742.5 crore), Gurdaspur/Batala (461 crore), Hoshiarpur (Rs 66 crore) Patiala (Rs 60 crore) and Malerkotla (Rs 50 crore).

On April 25, 2011, the SC had appointed senior advocates JP Singh Sadhna Ramachandran as mediators to resolve the problem. It had then taken note of the fact that the Punjab Chief Minister had made representations to the Prime Minister as well as Union Ministers for Finance and Commerce and Industry, drawing their attention to the fact that the incentives granted to the adjacent states were having an adverse impact on Punjab.

The Punjab Vidhan Sabha also passed a resolution on April 1, 2003 urging the Centre to provide similar incentives to the industrial units in Punjab.

The Union Commerce and Industry Minister wrote to the state government subsequently stating that “it is not possible” to extend such benefits to Punjab.