2009 (5) TMI 529 - SC - VAT and Sales Tax

Interpretation of an exemption notification dated November 3, 1992 issued by the State of Kerala dated November 3, 1993 as modified by notifications dated December 31, 1999 and March 31, 2000 is in question herein Held that - The appeal is allowed. However, in view of the fact that the appellant had instructed the Senior Counsel not to appear in the matter despite the fact that the same was heard in part, we not only deny cost to it but also direct that the appellant must pay a sum of rupees one lakh to the Kerala State.

Issues Involved:
1. Interpretation of an exemption notification dated November 3, 1992, issued by the State of Kerala and its subsequent amendments.
2. Eligibility for sales tax exemption for a new industrial unit set up by the appellant.
3. Application of the doctrine of promissory estoppel.
4. Jurisdiction and authority of the Director of Industries and Commerce and the Deputy Commissioner (General), Commercial Taxes.
5. Compliance with the conditions precedent for the grant of eligibility certificate.

Detailed Analysis:

1. Interpretation of Exemption Notification:
The primary issue revolves around the interpretation of the exemption notification dated November 3, 1992, and its amendments on December 31, 1999, and March 31, 2000. The notification provided sales tax exemptions to new industrial units in Kerala for seven years, subject to certain conditions. The amendments aimed to clarify the conditions under which the exemptions would apply, particularly for units set up before January 1, 2000.

2. Eligibility for Sales Tax Exemption:
The appellant, a private limited company, intended to set up a medium-scale industrial unit in Kerala for manufacturing soft drinks under the brand name "Pepsi." The appellant sought confirmation from the State regarding the availability of sales tax exemptions. The Kerala Industrial Infrastructure Development Corporation and KSIDC confirmed the eligibility for sales tax exemption, subject to certain conditions. The appellant took several steps, including acquiring land, procuring machinery, and commencing commercial production by March 6, 2001. Despite these steps, the eligibility certificate was not granted, leading to revenue recovery proceedings and subsequent legal challenges.

3. Application of Doctrine of Promissory Estoppel:
The appellant argued that the State's assurances and the subsequent actions taken based on those assurances invoked the doctrine of promissory estoppel. The doctrine was considered applicable as the appellant altered its position based on the State's promises, investing significantly in the new unit. The court emphasized that the State, having made promises that induced the appellant to act, could not withdraw from those promises, especially when the appellant had not collected any tax from its consumers.

4. Jurisdiction and Authority:
The court examined the roles of the Director of Industries and Commerce and the Deputy Commissioner (General), Commercial Taxes. The Director of Industries and Commerce, who initially granted the eligibility certificate, was considered the appellate authority over the Deputy Commissioner (General), Commercial Taxes. The court noted the dichotomy in the powers exercised by these authorities and emphasized that the eligibility certificate granted by the Director deserved serious consideration.

5. Compliance with Conditions Precedent:
The court scrutinized whether the appellant had complied with the conditions precedent for the grant of the eligibility certificate. The Director of Industries and Commerce opined that the appellant had taken effective steps, including placing firm orders for machinery and making advance payments before January 1, 2000. The court highlighted that the conditions for exemption should be interpreted liberally, especially when the appellant had made substantial investments and commenced commercial production within the stipulated timeframe.

Conclusion:
The Supreme Court set aside the impugned judgment, allowing the appeal. The court emphasized the importance of the doctrine of promissory estoppel and the need for the State to honor its commitments. The court directed the appellant to pay a sum of one lakh rupees to the Kerala State Legal Services Authority within four weeks, considering the appellant's conduct during the proceedings.

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