1999 (2) TMI 648 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Grant of exemption from payment of sales tax under Government notifications.
2. Eligibility of the petitioner as a small-scale industrial unit.
3. Authority of the Deputy Commissioner to cancel previously granted exemptions.
4. Interpretation of "manufacture" versus "production" under the Kerala General Sales Tax Act.
5. Application of the principle of promissory estoppel.

Issue-wise Detailed Analysis:

1. Grant of Exemption from Payment of Sales Tax:
The petitioner, a private limited company engaged in the manufacture and sale of various powders, sought exemption from sales tax under multiple Government notifications. The eligibility certificate was issued by the General Manager, District Industries Centre, and the exemption was initially granted by the Deputy Commissioner of Agricultural Income-tax and Sales Tax. However, the exemption was later canceled by the successor officer on the grounds that the products did not qualify as "manufactured" goods, based on judicial precedents.

2. Eligibility of the Petitioner as a Small-Scale Industrial Unit:
The petitioner was registered as a small-scale industrial unit with the Industries Department and had both provisional and permanent registration certificates. The petitioner argued that it was entitled to exemption based on the Government notifications in force at the time of setting up the unit. The eligibility certificate confirmed the petitioner's investment and the period for which the exemption was applicable.

3. Authority of the Deputy Commissioner to Cancel Previously Granted Exemptions:
The Deputy Commissioner initially granted the exemption but later canceled it, citing a Full Bench judgment that redefined the criteria for "manufacture." The petitioner contended that the Deputy Commissioner had no authority to cancel the exemption once granted, especially in light of the principle of promissory estoppel. The court found that the Deputy Commissioner acted without jurisdiction in canceling the exemption, as the power to grant and revoke exemptions was vested in the Government notifications and not in the Deputy Commissioner's discretion.

4. Interpretation of "Manufacture" versus "Production":
The crux of the dispute was whether the conversion of raw spices into powders constituted "manufacture" or "production." The court examined various notifications and judicial precedents, noting that earlier notifications used the term "produced" while later ones used "manufactured." The court held that the terms were not interchangeable and that the petitioner's activities fell under "production," which was sufficient for exemption under the earlier notifications.

5. Application of the Principle of Promissory Estoppel:
The petitioner argued that the principle of promissory estoppel prevented the respondents from canceling the exemption, as the petitioner had acted based on the initial exemption order. The court agreed, noting that the petitioner had not collected sales tax during the exemption period and that canceling the exemption retrospectively would be unjust and contrary to the principle of promissory estoppel.

Conclusion:
The court quashed the order canceling the exemption, holding that the Deputy Commissioner acted without jurisdiction and that the petitioner was entitled to the exemption based on the eligibility certificate and the Government notifications in force at the time. The court emphasized the need for finality in exemption orders to avoid prejudicial effects on the parties involved. The petition was allowed, and the exemption was reinstated.