ASSESSMENT Khadi & Village Industries benefit not granted after 1-4-06 - Decisions of Kishorekumar Prabhudas Tanna 23 VST 298 (Guj.) and Jan Seva Khadi Gramodyog (SCA No. 1863 of 2011) dt. 29-4-11 discussed - Revision confirmed. IN THE GUJARAT VALUE ADDED TAX TRIBUNAL AT AHMEDABAD. Before: Hon. Mr. Justice K.A. Puj, (Retd.) President REVISIONAL APPLICATION NO. 120 & 122 OF 2011 M/S. KHADI GRAMODYOG DEVELOPMENT TRUST...Applicant v/s THE STATE OF GUJARAT... Opponent Appearance Shri H.L. Bhatt, the learned STP for the applicant Shri C.D. Parmar, the learned Govt. Agent for the Opponent Date: 05/07/2013 JUDGEMENT Per Hon ble Mr. Justice K. A. Puj, (Retd.) President: The applicant has filed the Revision Application No.120 of 2011 against the order passed by the learned Deputy Commissioner of Commercial Tax, Circle-7, Gandhinagar on 13/06/2011 whereby the learned Deputy Commissioner has rejected the revision application filed against the order passed by the Commercial Tax Officer, Gandhinagar canceling the certificate of exemption on the ground that the applicant has failed to satisfy the conditions laid down in the circular issued by the Commissioner of Commercial Tax on 07/03/2009. 2. Simultaneously the applicant has filed Revision Application 122 of 2011 against the order passed by the learned Joint Commissioner of Commercial Tax, Appeal-1, Ahmedabad holding therein that the Deputy Commissioner of Commercial Tax, Division-7, Gandhinagar has passed the order dated 04/02/2011 ab initio canceling the certificate issued on 19/05/2007 by the Khadi Gramodyog Development Trust and hence the applicant has to file revision application before the Gujarat VAT Tribunal. 3. It is the case of the applicant that the applicant Trust is holding the eligibility certificate issued by Khadi & Village Industries Commission for the period from 01/04/1998 to 31/03/1999, from 01/04/1999 to 31/03/2006 and from 01/04/2006 to 31/03/2011. The products manufactured by the applicant were exempt from tax as per entry 74 of Schedule I to the Gujarat Sales Tax Act, 1969 and entry 36B to Schedule I of Gujarat VAT Act, 2003. Under the GST Act, the applicant was purchasing goods against form PP and hence there was no question of any refund, however, under the Gujarat VAT Act the Notification issued under Section 49(2) were cancelled on 31/03/2006. The applicant was to get refund of tax paid on purchases made from registered dealers. The applicant has made applications in Form 9 to the Commercial Tax Officer, Unit-24, Gandhinagar on different dates which were rejected by the Asst. Commissioner of Commercial Tax, Unit-24, Gandhinagar vide his letter dated 30/07/2009 on the ground that the applicant was not possessing the eligibility certificate issued by KVIC and hence the applicant was not falling within the ambit of the Notification GHN-93-94 dated 18/08/2006 and considering the Notification No. GHN 9-10 dated 27/02/2009 the applicant is not entitled to the benefit. The Deputy Commissioner of Commercial Tax, Circle-7, Gandhinagar has issued notice in Form No.503 on 25/08/2008 for cancellation of KVIC Certificate No.13 of 2006-07 and No. 17 of 2007-08. the applicant has given reply to the said notices on 06/09/2008. The applicant has informed vide its letter dated 24/11/2009 to the authorities to give benefit as per the decision of the Hon. Gujarat High Court in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others [2009[ 23 VST 298 (Guj.). In response to the same, the applicant was informed by the authority vide its letter dated 24/04/2010 that the notification no. 93-94 issued on 18/08/2006 were cancelled and hence no further proceedings should be made and even notice
issued under Form no.503 was also withdrawn. Subsequently vide letter dated 30/12/2010 the applicant was asked to remain present on 17/01/2011 in response to the notice issued in Form no.503. The applicant has filed its reply on 17/01/2011 and thereafter on 04/02/2011 the order was passed canceling the certificate no.17 of 2007 against which the appeal was filed before the learned Joint commissioner of Commercial Tax which has directed the applicant to prefer revision application before this Tribunal. 4. Heard Mr. H.L. Bhatt the learned STP appearing for the applicant and Mr. R.S. Parmar, the learned Govt. Agent appearing for the opponent. 5. This Tribunal has passed an order on 12/01/2012 and directed the applicant to approach the State Government on the strength of the certificate dated 10/01/2012 issued by Khadi & Village Industries Commission. The applicant thereafter filed an application dated 04/02/2012 to the Commissioner of Commercial Tax for exemption from tax in view of the KVIC Certificate dated 10/01/2012. The said application was decided by the Deputy Commissioner of Commercial Tax on 16/01/2013 observing therein that the applicant is not entitled to the exemption from tax even on the basis of the certificate dated 10/01/2012 issued by KVIC. While taking the said view, the Deputy Commissioner has referred to the Notification No. (GHN-8) VAT-2009/S-40(1)(5)-TH dated 27/02/2009 wherein it is stated that a registered dealer who is a manufacturer of specified goods and who has obtained the Eligibility Certificate prior to the 1 st April 2006 from the Khadi and Village Industries Commission or Gujarat Rajya Khadi and Gramodhyog Board and the Exemption Certificate from the Commissioner under the provisions of earlier law is entitled to the benefit of exemption. After considering the decision of the Hon. Gujarat High Court in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (Supra) and after considering the fact that the applicant was given the exemption certificate only for the period 01/04/1999 to 31/03/2006 and there was no spill over of the benefit after the Gujarat VAT Act has come into force the applicant is not entitled to the benefit of exemption. In response to the said order of the Deputy Commissioner dated 16/01/2013 the applicant has stated in its letter dated 26/06/2013 that all other units are enjoying the benefit and that the applicant has produced continuity Certificate of KVIC office Ahmedabad and that the applicant was possessing eligibility certificate issued by the Department and on that basis it was requested that the benefit granted to the applicant should be continued. 6. Mr. R.S. Parmar, the learned Govt. Agent appearing for the opponent, on the basis of the submissions filed on 14/02/2012 submitted that before 01/04/2006, the date on which Gujarat VAT Act, 2003 came into force, the products of Khadi & Village Industries were fully exempted from the sales tax and purchase tax under Section 5 (Entry 74 of Schedule I) and under Entry no.95 (1) of the Notification issued under Section 49(2) of the GST Act, 1969 respectively. These benefits were available to the units who were engaged in different type of 230 activities covered under KVIC Act, 1956. By Finance Department Notification No. (GHN-93) VAT 2006/S.40(1)(2)TH dated 18/08/2006 issued under Section 40 of the Gujarat VAT Act, 2003, the benefits of tax exemptions which were available under the GST Act, 1969 were also made available by way of granting refund of tax paid on purchases restricting to only such units as were engaged in 47 different activities as shown in annexure I to the said notification. Para 1 of the said Notification prescribes the eligibility criteria. Consequent upon the judgment of the Hon. Gujarat High Court in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (supra) the Finance Department issued another Notification on 27/02/2009 in supersession of its earlier notification dated 18/08/2006 so as to make all the dealers/units who were getting the benefit of tax exemption on products of Khadi & Village Industries under the GST Act, 1969, eligible for tax exemption under the Gujarat VAT Act, 2003. Mr. Parmar, however, submitted that the conditions of eligibility remain the same as was there in the earlier notification dated 18/08/2006. In short these benefits were continued to be given only for once to those units who were granted the Eligibility Certificate by the appropriate authority and the Exemption Certificate by the Commissioner prior to 01/04/2006 under the provisions of the GST Act, 1969, irrespective of the fact whether such units were engaged in these 47 activities or not. He has submitted that in the case of the applicant, the applicant has been granted eligibility certificate with effect from 01/04/2006 to 31/03/2011 by KVIC and thereby the said Eligibility Certificate was not effective prior to 01/04/2006 and hence the applicant was not qualified for obtaining Certificate of Entitlement as provided in the Notification
dated 18/08/2006. Despite this fact, the applicant was granted Certificate of Entitlement i.e. Form KVIC-2 on 06/09/2006 for the period of exemption from 01/04/2007 to 31/03/2008 by the Commercial Tax Officer (1), Unit-24, Gandhinagar which is absolutely illegal and against the provisions of the Act. The revisional authority has therefore cancelled the Certificate of entitlement issued by the Commercial Tax Officer on the ground that the activities undertaken by the applicant did not cover under the list of 47 activities attached with the Notification dated 18/08/2006. He has further submitted that the applicant could not have been issued Certificate of Entitlement even if its activity was covered in the list of 47 activities because the applicant was holding the Eligibility Certificate issued by KVIC Ahmedabad with effect from 01/04/2006 and thereby it was not prior to 01/04/2006 as was required under the Notification dated 18/08/2006. He has, therefore, submitted that the Certificate of Entitlement wrongly issued by the Commercial Tax Officer on 06/09/2006 was illegal and hence it was rightly cancelled by the revisional authority. 7. In the rejoinder Mr. Bhatt the learned STP has submitted, that in the certificate dated 10/01/2012 issued b y KVIC Ahmedabad, it is specifically mentioned that Certificate is for the period from 01/04/2006 to 31/03/2011 and it was issued in continuation of the earlier certificate. He has further submitted that similar Certificate of Entitlement was issued by KVIC Ahmedabad to other dealers and even then the benefits have been given to them under the Gujarat VAT Act as per Notification dated 27/02/2009 and refund was also granted to them. He has further submitted that prior to supersession of the earlier Notification dated 18/08/2006, the applicant s product was falling within entry no.27 as fiber (Resha) of Notification No. GHN- 93 dated 18/-8/2006 and on the basis of the said Notification the Commercial Tax Officer, Gandhinagar has granted refund to the applicant of Rs.2,16,109/-. The learned Deputy Commissioner, Gandhinagar has cancelled the Entitlement Certificate on the basis that the applicant s unit did not fall in the category of 47 industries prescribed in Annexure-I to the Notification dated 18/08/2006. The question of date was not raised. After the date of cancellation of earlier notification, the order dated 23/08/2010 was issued canceling the applicant s Entitlement Certificate No.13 of 2006-07 and issued the order dated 04/02/2011 canceling the Entitlement Certificate No.17 of 2007-08. He has, therefore, submitted that the Exemption Certificate was illegally cancelled and the orders passed by the authorities in this regard are required to be quashed and set aside. 8. At this stage the Tribunal s attention was also drawn to the recent decision of the Hon. Gujarat High Court in the case of Jan Seva Khadi Gramodhyog Sangh Vs. State of Gujarat and Others (in Special Civil Application No. 1863 of 2011 decided on 29/04/2011 wherein the Hon. Gujarat High Court has issued the direction to the respondent authorities to consider the application of the said petitioner dated 26/03/2009 for Exemption Certificate under Government Circular dated 07/03/2009 and the prevailing policy. Till such time it is done, there shall be no recovery of tax already availed of, for the period from 26/03/2009, the date on which the application was made, till such exemption was enjoyed. Such period of exemption was to be governed by the final decision of the Government on the application of the petitioner for exemption and there shall be no recovery of exempted tax pertaining to the period between 31/03/2008 to 26/03/2009. The Hon. Gujarat High Court, however, made it clear that till the Government decides the application afresh, as directed, the petitioner shall not be entitled to any tax exemptions and the same shall be governed by the final decision of the Government. 9. Considering the rival submissions and the facts of the case, in light of two Notifications issued by the State government on 18/08/2006 as well as 09/02/2009 and the decision of the Hon. Gujarat High Court in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (supra), this Tribunal is of the view that the petitioner in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (supra) sought intervention for quashing the Notification dated 31/03/2006 by which exemption had been withdrawn. The respondents contented, interalia, that the Government had the right to withdraw the exemption or benefit in exercise of the power under which it was granted, that the benefit of exemption granted under the erstwhile Gujarat Sales Tax Act, 1969 had been rescinded or withdrawn even before the Gujarat VAT Act, 2003 came into force i.e. with effect from 01/04/2006, that the provision of Section 100 of 2003 Act which is a repeal and saving clause did not apply to the facts of the case and that while interpreting and construing a statute particularly a fiscal statute there is little scope for
judicial review. Dealing with these issues the Hon. Gujarat High Court has held in that case that exemption from tax for a fixed period is an accrual of right and withdrawal of exemption cannot affect the right. Further the objects and reasons of the Khadi and Village Industries Commission Act, 1956 under which the petitioner units were established revealed the basic idea for establishment of the unit and the enactment itself is to permit industries for the development of rural areas. It is in a way a kind of promise held out for attracting establishment of such industries or units under the Act to achieve such object and if a detriment is caused as a result of the promisor resiling from his promise it would certainly be detriment attracting promissory estoppel. Even if the Sales Tax Act had been repealed, the benefit granted under it of the exemption by Notification which was to remain valid from December 2005 to November 2008. could have continued or remained and it was only for taking care of such eventualities, Section 100 of the Gujarat VAT Act providing for the repeal and saving clause had been made. When there was no explanation or justification for rescinding the benefit of exemption before the expiry of the period therefore it would attract the doctrine of promissory estoppel irrespective of the fact that it has been rescinded in exercise of the same statutory power under the Act. Once the notification has been issued in favour of the party in exercise of powers under the statute, an equity is created and thereafter it is no longer a legislative function, but it would be an executive or it can be delegated legislation by which such notification granting exemption has been issued. Even assuming that it is a legislative function by delegated legislation, it has to be tested on the touchstone of Article 14 which has reference to fairness, equity and justice. When the VAT Act was brought into force having similar power of granting exemption and there is entry 36B referring to similar products for which exemption ought to be granted and still when the notifications are not issued in respect of the petitioner units, the doctrine of legitimate expectation would come into play. Such benefits were granted to other industries set up by the industrial groups or companies. Denying the benefit of exemption to the petitioners would, in fact, run counter to the very object and purpose of the statute enacted for promotion and development of the Khdi and Village Industries and also rural employment and the development of industries in rural areas. Thus the government authorities were estopped from withdrawing the benefit of exemption already granted in exercise of the powers under Section 49(2) of the GST Act, which created an equity if not right in favour of the petitioners. Therefore the notifications dated 31/03/2006 were liable to be quashed. 10. Even in this Judgment the Hon. Gujarat High Court has observed that the rest of the prayers regarding issuance of writ of Mandamus or writ in the nature of mandamus directing the respondents to grant exemption or to make available to the petitioners the exemption under the newly substituted VAT Act, and also seeking prayer to grant exemption to the industries of the petitioners under the provisions of the VAT Act from the date of coming into force of the VAT Act, cannot be granted, nor any such prayer with regard to extension of benefit granted under Entry 95 or Entry 74 of the Schedule of the Sales Tax Act to be made applicable to the VAT Act could be granted. It was further observed that as the issue regarding grant of benefit of exemption under the newly substituted VAT Act would be either a legislative function by issuance of notification in exercise of power conferred under the statute, or it would be a matter of policy to be decided by the respondent Government as to how the benefit of exemption should be extended, for which, while substituting the VAT Act, the entries have been deleted and some of the entries are specified, it may not be proper for this court to issue directions granting relief as prayed for regarding the exemption under the newly substituted VAT Act. However, it will be open for the petitioners to apply to the respondent Government by making a representation highlighting the fact that the industries are established under the KVIC Act and also the new scheme also has the same object of development and therefore the core idea remains the same for which the benefit of exemption granted earlier should also continue and it will be for the respondent Government to decide it afresh in accordance with law. 11. The Hon. Gujarat High Court in the case of Jan Seva Khadi Gramodhyog Sangh Vs. State of Gujarat (Supra) after considering the above decision of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (supra) observed that it is equally undisputed on 07/03/2009 that the State Government issued a circular providing for exemption from payment of value added tax to khadi and village industries on certain terms and conditions. The said petitioner applied for exemption certificate under the
said circular vide application dated 22/06/2009 for the period between 1 st April 2008 to 31 st March 2013. The respondents vide Certificate dated 09/04/2013 granted such exemption certificate for the period from 01/04/2006 to 31/03/2013. Subsequently the respondent formed an opinion that such certificate was wrongly issued and that the benefit of exemption to the petitioner could not have been granted beyond 31/03/2008. The respondent thereafter unilaterally ignored the exemption circular dated 09/04/2009 and proceeded to issue communication dated 20/08/2010 informing the petitioner that the tax relief has been wrongly granted and hence the petitioner should refund the amount. It is in this context the Hon. Gujarat High court has held that although the court, in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (supra), did was to prevent the Government from withdrawing the tax exemption already granted under the Sales tax Act, till the validity of the period of such exemption certificate. The Court limited the relief to this extent, declining thereafter, to issue mandamus to the Government to issue fresh exemptions under the Gujarat VAT Act. This, by no means, was to limit the Government s discretion of granting fresh exemptions on such conditions, as found necessary. The Hon. Gujarat High Court, therefore, did not approve the act of the respondents of unilaterally and without any hearing, withdrawing the exemption already granted. The anxiety of the Government, however, was taken note of and it was observed that such extension was granted erroneously without examining the case of the petitioner within the parameters of the Government policy and hence the Hon. Gujarat High Court permitted the Government to consider the application of the petitioner dated 26/03/2009 in terms of its circular dated 07/03/2009 and other circular which may be holding the field and in this context the aforesaid directions were issued by the Court. 12. If the facts of the present case are examined in light of the aforesaid two judgments of Hon. Gujarat High court, it is very clear that the applicant was holding eligibility certificate up to 31/03/2006. Under the Notification dated 18/08/2006 the Commissioner was authorized to grant refund to the certified manufacturer of the amount of tax separately charged by a registered dealer from whom he has purchased the goods, subject to the condition that such manufacturer of goods is in the industries specified in the annexure appended to the said notification and has obtained the Eligibility Certificate prior to the 1 st April 2006, from the Khadi and Village Industries Commission or Gujrat Rajya Khadi and Gramodhyog Board which are considered to be the appropriate authority, and the Exemption Certificate from the commissioner under the provisions of earlier law. The procedure prescribed in this notification was that the eligible dealer shall apply in Form KVIC-1 appended to the said notification to the Commissioner within 30 days from the date of issue of the said notification. Annexure appended to the said notification contains the list of 47 industries. The applicant was admittedly not falling in that list. However, the matter went up to the Hon. Gujarat High Court and restriction made only to 47 industries was removed and fresh notification was issued by the State Government on 27/02/2009. However, in this fresh notification dated 27/02/2009 the eligibility criteria remained the same. The registered dealer was supposed to obtain the certificate prior to 1 st April 2006. Admittedly this was not done by the present applicant. Despite this fact, the Commercial Tax Officer (1), Unit-24, Gandhinagar has granted Eligibility Certificate No.13 of 2006 on 06/09/2006 for the year 2006-07 and Eligibility Certificate No.17 of 2007 on 19/05/2007 for the year 2007-08. These two matters were taken in suo motto revision by the learned Deputy Commissioner of Commercial Tax, Circle- 7, Gandhinagar who, vide his two separate orders dated 23/08/2010 and 04/02/2011 had cancelled the KVIC-2 certificates issued by the Commercial Tax Officer. This was done by the learned Deputy Commissioner after issuance of notice and after hearing the applicant. It is also an admitted position that the Eligibility Certificate issued to the applicant prior to coming into force of the Gujarat VAT Act was only up to 31/03/2006 and no certificate was issued prior to 01/04/2006 under the provisions of the Gujarat VAT Act. Thus, the decision of the Hon. Gujarat High Court in the case of Kishorkumar Prabhudas Tanna and Another Vs. State of Gujarat and Others (supra) can be made applicable to the facts of the present case only if the benefit of exemption already granted in exercise of the powers under Section 49(2) of the GST Act, which created an equity, if not right in favour of the applicant, is sought to be withdrawn. However, there is no question of such withdrawal in the present case. The Hon. Gujarat High Court has also made it very clear in this very judgment that the issue regarding grant of benefit of exemption under the newly
substituted VAT Act would be either a legislative function by issuance of notification in exercise of power conferred under the statute, or it would be a matter of policy to be decided by the Government as to how the benefit of exemption should be extended, and the Court has not thought it proper to issue directions granting relief as prayed for regarding the exemption under the newly substituted VAT Act. 13. On the same line in subsequent decision of the Hon. Gujarat High Court in the case of Jan Seva Khadi Gramodhyog Sangh Vs. State of Gujarat (Supra) the Hon. Gujarat High Court has made it clear that exemption once granted cannot be unilaterally and without hearing the affected person should be withdrawn. If the exemption or extension was granted erroneously without examining the case of the applicant within the parameters of the Government policy, the same can be done after hearing the affected party and appropriate decision can be taken in light of the Government policy. Precisely for this reason, the petitioner before the Hon. Gujarat High Court was permitted to move an application before the authority which was required to be considered in terms of the circular dated 07/03/2009 and other circular which may be holding the field. In the present case, the Eligibility Certificate was granted erroneously by the Commercial Tax Officer which is contrary to the notification issued by the State Government and also contrary to the Government policy. Though there was no certificate prior to 01/04/2006, the benefit was granted under the new Act. The Deputy Commissioner has therefore exercised his revisional powers and set aside the orders passed by the Commercial Tax Officer. This Tribunal, therefore, does not find any infirmity in the orders passed by the authorities below and the following order is accordingly passed. ORDER 14. Both these revision applications are rejected without any order as to cost. Pronounced in open court on this 5 th day of July, 2013. Sd/- (Mr. Justice K.A. Puj) President