IN THE HIGH COURT OF KARNATAKA, BANGALORE BEFORE THE HON'BLE MR.JUSTICE RAM MOHAN REDDY

Transcription

1 1 IN THE HIGH COURT OF KARNATAKA, BANGALORE DATED THIS THE 18 TH DAY OF MARCH, 2013 BEFORE THE HON'BLE MR.JUSTICE RAM MOHAN REDDY WRIT PETITION NOS OF 2012 (T-KST) BETWEEN: M/S. SOUMYA POLYMERS No. 199, D.I.C. LAYOUT HEBBAL INDUSTRIAL AREA BELAVADI POST, MYSORE BY ITS MANAGING PARTNER C R RAGHU, 35 YEARS, MAJOR. PETITIONER (BY SRI. B G CHIDANAND URS, ADVOCATE) AND : 1 THE PRINCIPAL SECRETARY TO GOVERNMENT OF KARNATAKA COMMERCE AND INDUSTRIES DEPT VIKAS SOUDHA, BANGALORE PRINCIPAL SECRETARY TO GOVERNMENT OF KARNATAKA FINANCE DEPARTMENT (COMMERCIAL TAX-1) VIDHAN SOUDHA, BANGALORE DIRECTOR (TECHNICAL CELL) COMMERCE AND INDUSTRIES DEPT GOVERNMENT OF KARNATAKA VIKAS SOUDHA, BANGALORE

2 2 4 THE COMMISSIONER FOR INDUSTRIAL DEVELOPMENT AND DIRECTOR INDUSTRIES AND COMMERCE No. 49, 2 ND FLOOR, KHANIJA BHAVAN RACE COURSE ROAD BANGALORE THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES (ASSESSMENTS)-II SESHADRI BHAVAN MYSORE RESPONDENTS (BY SRI. K M SHIVAYOGISWAMY, AGA) THESE WRIT PETITIONS ARE FILED UNDER ARTICLE 226 OF CONSTITUTION OF INDIA PRAYING TO QUASH THE ORDER DT ISSUED BY THE R3, UNDER ANN-F, WHEREIN THE CLAIM OF SALES TAX EXEMPTION IS REJECTED ONLY ON THE GROUND THAT THE LEASE DEED IS EXECUTED ON & NOT EXECUTED ON OR BEFORE ; AND ETC. THESE WRIT PETITIONS ARE COMING ON FOR PRL.HEARING THIS DAY, THE COURT MADE THE FOLLOWING: ORDER This is the second round of litigation by the petitioner, who in the earlier round in W.P. Nos /2010, having questioned the order dated , of the State Government informing the petitioner of not being eligible for sales tax exemption, this Court, by order dated Annexure `D` quashed the order and remitted the proceeding for a

3 3 consideration afresh recording a specific finding that the exemption from sales tax was applicable to the petitioner, since it had commenced production before the cut off date mentioned in the letter Annexure `A1`. On remand, the State Government by order dated Annexure `F`, rejected the claim of the petitioner for sales tax exemption, in terms of the Government orders in force. Hence this petition. 2. There is no dispute that petitioner, a partnership firm secured a certificate of provisional registration as a Small Scale Industry, from the Department of Industries and Commerce, on , and obtained a loan of `.50,00,000/- on and an additional loan of `.5,00,000/- on from the Karnataka State Financial Corporation (for short, KSFC ), to set up the plant and machinery on the industrial plot No.199 at Hebbal Industrial Area, Mysore, possession of which was taken

4 4 on lease on , for a period of 10 years under the lease deed dated Annexure `C`. Petitioner commenced commercial production of High Density Polythene packets on Yet another fact not in dispute is that commencing from , invoices were raised for procurement to set up the industry. 3. There is no dispute that the State of Karnataka formulated a new Industrial Policy 1996 and Package Of Incentives & Concessions available for Small Scale Industries for the period from 1996 to 2001 under Government orders dated and for short, Policy Sales tax exemption, thereunder, for Small Scale Industries is 100% of value of fixed assets for a period of six years from the date of commercial production in Developing areas falling within Zone-II, defined as, all the remaining parts of State-173 Talukas while Zone-I: Developed area is

5 5 classified as those falling within Bangalore South and North Talukas and Bangalore Urban agglomeration areas as per 1991 census. In Annexure III to the said Policy , a Small Scale Industry is defined as an Industrial Undertaking in which the investment in fixed assets in plant and machinery whether held on ownership terms or on lease or by hire purchase does not exceed `.60,00,000/- while the limit of investment in fixed assets in plant and machinery is `.75,00,000/- provided the unit undertakes to export atleast 25% of the annual production by the end of the third year from the date of its commencing production. Fixed asset is defined as the total investment made on land, building and plant and machinery and such other productive assets like tools, jigs and fixtures, dies, utilities like boilers, compressors, diesel generating sets, cranes, material handling equipments and such other equipments directly related to production purposes.

6 6 4. Thus, petitioner having initiated the process of establishing a Small Scale Industry as on by securing a certificate of provisional registration from the department of Industries and Commerce, followed by a term loan from the KSFC., and the purchase of plant and machinery as well as taking possession of the land on lease on , the land being an industrial shed at Mysore, petitioner was entitled to the benefits of the Policy A copy of the Policy is made available by the Petitioner along with Index of cases and documents dated The Government of Karnataka by order dated Annexure `A` sought to discontinue sales tax based incentives for new investments as well as for expansion/modernization/diversification, from the first day of January 2000 under all policies of incentives and concessions in respect of: (a) incentives that have been already offered and committed by the

7 7 Government until the period of eligibility of such incentives are completed or otherwise decided and (b) all pipeline cases of investments registered (e.g. a tiny or SSI unit having obtained provisional registration certificate from the Directorate of Industries and Commerce before or the project has been cleared by District or State Single Window Agency before ) with the concerned department as on and where the investors have taken any of the following effective steps by : (i) Investor has availed a loan for the project from the Bank or Financial Institution or (ii) Investor has purchased the land and registered the same or has been allotted land by the Government or KIADB or (iii) Where the investment is more than Rs crores and the Government had cleared the proposal in high level committee would be eligible to avail the tax

8 8 related concessions as eligible under respective Incentive Policy or In respect of items above, it is said that commercial production should commence before failing which, such pipeline investments will not be eligible for tax incentives and concessions under respective policies. In addition, it is stated that the fulfillment of the above conditions has to be verified jointly by Commerce and Industries Department and Commercial Taxes Department and on certification, eligibility will be confirmed. 6. The State Government by yet another order dated Annexure A1, in matters relating to pipeline cases of investment, required fulfilling the following conditions: (a) If the unit is registered with Director of Industries and Commerce, and (b) The unit has been allotted with land for the factory, and

9 9 (c) The unit has applied for finance from a regular financial; institution, and (d) The unit would commence production on or before Learned counsel for the petitioner is correct in his submission that by the time the Government order dated Annexure `A` had come into existence, petitioner was entitled to the benefits of Policy in the matter of sales tax exemption, being a Small Scale Industry, the subsequent Government Orders Annexures A and A1, amending the Policy has no application to the case of the petitioner, since it would not fall under the pipeline cases of investments. 8. Even otherwise, the Government order Annexure A if applicable, then too, petitioner would be entitled to the benefit because, assuming that the petitioner`s case falls within pipeline cases of investments, its registration as a SSI Unit on

10 , was prior to and the petitioner took steps to avail a loan for the project from a financial institution i.e., KSFC., as on though the cut off date is Indeed applicability of the said Government Order is subject to the subsequent Government Order Annexure A1, bringing about a change in the conditions to be fulfilled in cases falling under pipeline cases of investments. 9. There is force in the submission of the learned counsel for the petitioner that Annexure A1, Government Order dated requiring the petitioner, if found to fall under the pipeline cases of investments to have obtained an allotment of land and factory which is impossible of compliance since the petitioner on took possession of the industrial plot under a term lease executed on Annexure `C`. In other words, having obtained the lease of the industrial plot from its earlier

11 11 owner, an allottee from the KIADB., and the plant and machinery installed, could not have obtained a plot on ownership or allotment at the hands of KIADB in order to be eligible for sales tax exemption in terms of Government Orders Annexure A or Annexure A1. In my considered opinion, the Government Order has no application to the case of the petitioner. 10. The Addl. Commissioner of Commercial Taxes (Policy and Law), Bangalore, though addressed a letter dated (in the list of index of cases and documents dated 18 th March 2013) opining that the petitioner is entitled to sales tax exemption in terms of the Policy , with a request to accept the proposal of the State Level Co-ordination Committee, nevertheless, the State Government fell in error in not taking into consideration that aspect of the matter while passing the order impugned.

12 Learned counsel for the petitioner submits that the Doctrine of Promissory Estoppel applies to the facts of the case and the State Government is estopped from extending the benefit of Sales Tax exemption to the petitioner under the Policy In A.P. Steel Re-Rolling Mill Ltd. vs. State of Kerala & Ors 1, the Apex Court observed thus :- 32. The general principles with regard to construction of exemption notification are not of much dispute. Generally, an exemption notification is to be construed strictly, but once it is found that the entrepreneur fulfils the conditions laid down therein, liberal construction would be made. 33. x x x 34. A question as to whether, in a given situation, an entrepreneur was entitled to the benefit under an exemption notification or not, thus, would depend upon the fact of each case. A bare perusal of the notification dated issued by the 1st respondent would show that the 1 (2007) 2 SCC 725

13 13 purport and object thereof was to grant benefit of a concessional power tariff which came into force on and from The phraseology used in the said notification postulates that the benefit was to be granted in regard to the 'enhanced power tariff'. Thus, where the new units had started production between and , such exemption was available to the entrepreneurs. 35. Evidently, except in a situation as might have been existing in Hitech Electrothermics ((2003) 2 SCC 716) that any application filed by the entrepreneur had not been processed within a reasonable time, in which case benefit might not be denied on equitable ground; in cases where there has been a substantial failure on the part of the industrial unit to obtain such benefit owing to acts of omission and commission on its part, in our opinion, no such benefit can be given.

14 14 So also in U.P.Power Corporation Ltd., and Another v. Sant Steels and Alloys (P) Ltd., & Ors. 2, it was observed thus :- 24. Learned senior counsel invited our attention to a decision of this Court in State of Punjab V. Nestle India Ltd. & Anr. [ (2004) 6 SCC 465] in which a representation was made by the Government in the manner dehors the Rules but a statement was made by the Finance Minister in his Budget speech for making representation to the effect that the State Government had abolished purchase tax on milk. The manufacturers of milk products, therefore, were not paying the purchase tax on milk for Assessment Year and mentioned this fact in their returns. The taxing authority entertained such returns. The manufacturers passed on the benefit of exemption to the dairy farmers and milk producers. However, after expiry of the said assessment year, the Government took a 2 (2008) 2 SCC 777

15 15 decision not to abolish purchase tax on milk and the taxing authority therefore raised a demand for Assessment Year On these facts, the Court held that in absence of proof of any overriding public interest rendering the enforcement of estoppel against the Government was inequitable, notwithstanding that no exemption notification as required by the statute was issued. It was held that the State Government cannot resile from its decision to exempt milk and raise a demand for the aforesaid assessment year. However, the same principle of estoppel was not invoked after Assessment Year The Court enforced the principle of estoppel. All the earlier cases on the subject were reviewed by the Court and ultimately it was concluded as follows : " 47. The appellant has been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities including the

16 16 Finance Minister in his Budget speech after considering the financial implications of the grant of the exemption to milk. It was found that the overall benefit to the State's economy and the public would be greater if the exemption were allowed. The respondents have passed on the benefit of that exemption by providing various facilities and concessions for the upliftment of the milk producers. This has not been denied. It would, in the circumstances, be inequitable to allow the State Government now to resile from its decision to exempt milk and demand the purchase tax with retrospective effect from so that the respondents cannot in any event readjust the expenditure already made. The High Court was also right when it held that the operation of the estoppel would come to an end with the 1997 decision of the Cabinet." xxxxx 35. In this 21st century, when there is global economy, the question of faith is very important. The Government offers certain benefits to attract the entrepreneurs and the entrepreneurs act on those beneficial offers.

17 17 Thereafter, the Government withdraws those benefits. This will seriously affect the credibility of the Government and would show the short-sightedness of governance. Therefore, in order to keep the faith of the people, the Government or its instrumentality should abide by their commitments. In this context, the action taken by the appellant Corporation in revoking the benefits given to the entrepreneurs in the hill areas will sadly reflect their credibility and people will not take the word of the Government. That will shake the faith of the people in the governance. Therefore, in order to keep the faith and maintain good governance it is necessary that whatever representation is made by the Government or its instrumentality which induces the other party to act, the Government should not be permitted to withdraw from that. This is a matter of faith.

18 18 The aforesaid opinions were followed in Pepsico India Holdings (P) Ltd., vs. State of Kerala In M/s. Motilal Padampat Sugar Mills Co. Ltd., Vs. The State of Uttar Pradesh & Ors 4, the Apex Court having considered all its earlier decisions observed that the Doctrine of Promissory estoppel is a principle evolved by equity to avoid injustice, and is neither in the realm of contract nor of estoppel. Where one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so 3 AIR 2009 SC (supp) AIR 1979 SC 621

19 19 having regard to the dealings which have taken place between the parties, and this would be so irrespective of whether there is any pre-existing relationship between the parties or not. In order to invoke the said doctrine, what is necessary is only that the promisee should have altered his position in reliance or the promise. Where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Art.299 of the Constitution. The Government cannot claim to be exempt from the liability to carry out the promise on some indefinite and undisclosed ground of necessity or expediency, nor can the Government claim to be the

20 20 sole judge of its liability and repudiate it on an ex-parte appraisement of the circumstances. Mere change of policy would not be sufficient to exonerate the Government from the liability. 14. See also, Pournami Oil Mills Etc. Vs. State of Kerala and Another 5, State of Bihar Vs. Kalyanpur Cements Ltd., 6 ; M.R.F Ltd., Vs. Asst. Commissioner (Assessment) Sales Tax 7 and Mahabir Vegetable Oils Pvt. Ltd., and Another Vs. State of Haryana and others An examination of the order dated Annexure `F` discloses non-application of mind over to material particulars by the authorities. Had the authority delved into relevant material particulars of the case of the petitioner and applied the Doctrine of Promissory estoppel, there would have been 5 AIR 1987 SC TIOL-02-SC-ST (206) E.L.T. 6(SC) 8 (2006) Vol. 145 STC 350

21 21 no reason to decline the benefit of sales tax exemption to the petitioner under the Policy Suffice it to state that the order Annexure F is arbitrary, illegal and unsustainable. In the result, these petitions are allowed. The Government order dated Annexure F is quashed. It is declared that the petitioner is entitled to sales tax exemption under the Policy Sd/- JUDGE sma