2008 (12) TMI 692 - HC - VAT and Sales Tax

Writ of mandamus issued directing the respondents to make the earlier exemption granted to the petitioners by the certificates issued by respondent No. 2 under the provisions of the Gujarat Sales Tax Act, 1969 - also prayed to quash and set aside Notification No. (GHN-27) GST2006 (section 49)(404)TH dated March 31, 2006 and Notification No. (GHN-27) GST-2006 (section 49)(405) dated March 31, 2006 - Writ of mandamus directing the respondents to grant exemption or to make available to the petitioners the exemption under the newly substituted VAT Act - Held that - The petitioner may make a representation directly or through the Commission under the KVIC Act or the Board for issuance of such exemption under the VAT Act inasmuch as there is already a provision for exercise of such discretion for grant of exemption under the newly substituted VAT Act. Therefore, in light of the discussion made hereinabove, the present petitions are hereby allowed partly. Prayer in terms of para 7(c) in Special Civil Application No. 23720 of 2006 is granted. The impugned notifications dated March 31, 2006, by which the earlier notifications dated April 29, 1970 and April 1, 1992 have been rescinded, are hereby quashed and set aside in all these petitions and the original certificate at annexure G granting exemption for the period from December 1, 2005 to November 30, 2008 would remain in force till it expires. 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 the reliefs 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.

Issues Involved:
1. Continuation of tax exemption under the Gujarat Value Added Tax Act, 2003, for village industries previously exempt under the Gujarat Sales Tax Act, 1969.
2. Validity of the notifications dated March 31, 2006, rescinding earlier tax exemptions.
3. Application of the doctrine of promissory estoppel.
4. Legitimate expectation for continued tax exemption under the new VAT Act.
5. Scope of judicial review in legislative and policy matters.

Detailed Analysis:

1. Continuation of Tax Exemption:
The petitioners sought a writ of mandamus to direct the respondents to continue the tax exemptions granted under the Gujarat Sales Tax Act, 1969, for the duration specified in the exemption certificates, even after the enactment of the Gujarat Value Added Tax Act, 2003 (VAT Act). They argued that the VAT Act's Section 100 (repeal and saving clause) should allow the continuation of these benefits.

2. Validity of Notifications Rescinding Exemptions:
The petitioners challenged the notifications dated March 31, 2006, which rescinded the tax exemptions granted under the Sales Tax Act. The court examined whether the rescission was justified. The respondents argued that the rescission was within their powers under Section 49(2) of the Sales Tax Act and Section 21 of the Bombay General Clauses Act, 1904. However, the court found no public interest justification for the rescission, deeming it arbitrary and unjustified.

3. Doctrine of Promissory Estoppel:
The petitioners contended that the doctrine of promissory estoppel should prevent the government from rescinding the tax exemptions. The court upheld this doctrine, stating that the government could not withdraw the exemptions without a valid justification, as the petitioners had relied on these promises to set up their industries. The court cited several precedents, including *Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.* and *Mahabir Vegetable Oils Pvt. Ltd. v. State of Haryana*, to support the application of promissory estoppel.

4. Legitimate Expectation:
The court also considered the doctrine of legitimate expectation, which suggests that the petitioners had a reasonable expectation that the exemptions would continue under the VAT Act. The court noted that the VAT Act provided for exemptions similar to those under the Sales Tax Act, and the petitioners' industries were similarly situated to others that received continued exemptions. The court found that the petitioners' expectation was legitimate and should be honored.

5. Scope of Judicial Review:
The respondents argued that the court should not interfere in legislative and policy matters, particularly regarding tax exemptions. However, the court emphasized that judicial review is a basic feature of the Constitution and can be exercised to ensure fairness and prevent arbitrariness. The court cited *I.R. Coelho (dead) by L.Rs. v. State of Tamil Nadu* and other cases to affirm its authority to review executive actions, even in fiscal matters.

Conclusion:
The court quashed the notifications dated March 31, 2006, rescinding the tax exemptions and held that the original exemption certificates would remain valid until their expiration on November 30, 2008. The court directed the state government to refund the tax paid by the petitioners due to the rescinded exemptions within 30 days. The court did not grant the petitioners' request for a writ of mandamus to extend the exemptions under the VAT Act but allowed them to make representations to the government for reconsideration.

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