1973 (12) TMI 78 - SC - VAT and Sales Tax

Whether the Government would be justified in refusing to consider the question of exemption to all factories other than co-operative sugar factories? Held that - Appeal dismissed. Here from the point of view of the object of the exempting provision co-operative societies of sugarcane growers and other new or substantially expanded industries stand on the same footing and there can be no justification for specially favouring the former class of industries by confining the benefit of exemption to them and leaving out of the exemption the latter class of industries. Picking out co-operative societies of sugarcane growers for favoured treatment to the exclusion of other new or substantially expanded industries is wholly unrelated to the object of the exempting provision and the policy or rule adopted by the State Government is not legally relevant to the exercise of the power of granting exemption.

Summary

Issues Involved:
1. Interpretation of Section 21(3) of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961.
2. Discretion of the Government in granting tax exemptions.
3. Legitimacy of Government policy favoring co-operative sugar factories.
4. Application of promissory estoppel and exemption to Sarvaraya Sugars Ltd.
5. Whether the Government's policy decision fettered its discretion.

Detailed Analysis:

1. Interpretation of Section 21(3) of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961:
The main issue revolves around the interpretation of Section 21(3) of the Andhra Pradesh Sugarcane (Regulation of Supply and Purchase) Act, 1961. The section allows the Government to exempt new or substantially expanded sugar factories from tax. The petitioners, sugar factories in Andhra Pradesh, argued that they were entitled to exemptions due to substantial expansion. The Government had denied these exemptions, leading to the appeal and writ petitions.

2. Discretion of the Government in Granting Tax Exemptions:
The court examined whether the Government's discretion under Section 21(3) was obligatory or discretionary. It was argued that the word "may" in the section should be interpreted as "shall," making it mandatory for the Government to grant exemptions if conditions were met. However, the court concluded that the discretion was indeed given to the Government and it was not obligatory to grant exemptions. The Government could decide based on various factors, including the state of the industry and regional considerations.

3. Legitimacy of Government Policy Favoring Co-operative Sugar Factories:
The petitioners contended that the Government's policy of granting exemptions only to co-operative sugar factories was discriminatory and lacked a nexus to the Act's objectives. The court noted that co-operative sugar factories, consisting of cane-growers, formed a distinct category deserving special treatment. The Government's policy was seen as a legitimate exercise of discretion, considering the historical and economic context of the sugar industry in India.

4. Application of Promissory Estoppel and Exemption to Sarvaraya Sugars Ltd.:
Two contentions-promissory estoppel and exemption to Sarvaraya Sugars Ltd.-were not pressed before the court. Therefore, these issues were not considered in the judgment.

5. Whether the Government's Policy Decision Fettered Its Discretion:
The court examined whether the Government had fettered its discretion by adopting a policy that exempted only co-operative sugar factories. The petitioners argued that their applications were not considered on individual merits due to this policy. The court found that the Government had indeed considered each application on its merits, as evidenced by the careful consideration mentioned in the Government's letter. The policy was not seen as an absolute rule but a guideline that could be adjusted based on circumstances.

Separate Judgments:
Majority Judgment:
The majority judgment upheld the Government's policy, stating that it was within the Government's discretion to grant exemptions only to co-operative sugar factories. The court dismissed the appeal and writ petitions, concluding that the Government had not fettered its discretion and had acted within the framework of the law.

Minority Judgment by Mathew, J.:
Mathew, J. disagreed with the majority, arguing that the Government's policy decision to confine exemptions to co-operative sugar factories was not justified by the Act or its objectives. He emphasized that the policy lacked relevance to the Act's purpose and was arbitrary. He would have quashed the Government's policy and mandated reconsideration of the applications on their merits without the influence of the policy decision.

Conclusion:
The appeal and writ petitions were dismissed with costs, one set, based on the majority judgment. The court upheld the Government's discretion in granting tax exemptions and validated the policy favoring co-operative sugar factories as a legitimate exercise of that discretion.