2004 (9) TMI 611 - HC - VAT and Sales Tax

Issues Involved:
1. Withdrawal of sales tax incentives by the State Government of Orissa.
2. Applicability of the principle of promissory estoppel against the State Government.
3. Requirement of public interest for withdrawal of incentives.
4. Necessity of notice before withdrawal of incentives.
5. Validity of notifications issued without prior approval of the State Cabinet.
6. Discrimination and violation of Article 14 of the Constitution.
7. Scope of powers under Sections 6 and 7 of the Orissa Sales Tax Act.

Detailed Analysis:

1. Withdrawal of Sales Tax Incentives:
The primary issue in these cases was the withdrawal of sales tax incentives granted under various Industrial Policy Resolutions (IPRs) by the State Government of Orissa. The incentives included exemptions from sales tax on purchases of raw materials, spare parts, and packing materials, and deferment of payment of sales tax on finished products. The State Government issued notifications on July 30, 1999, withdrawing these benefits with effect from August 1, 1999, citing fiscal constraints and the need for revenue mobilization.

2. Applicability of Promissory Estoppel:
The petitioners argued that the State Government was bound by the principle of promissory estoppel to honor the incentives promised under the IPRs. They cited several Supreme Court decisions to support their contention that the government could not withdraw the promised incentives after the industries had acted upon them. However, the court noted that promissory estoppel is an equitable doctrine that must yield to overriding public interest. The court referred to the Supreme Court's decisions in cases like Kasinka Trading v. Union of India and Shree Durga Oil Mills, which held that the government could withdraw incentives if public interest demanded it.

3. Requirement of Public Interest:
The court examined whether the withdrawal of incentives was justified by supervening public interest. The State Government argued that the fiscal position had deteriorated, leading to a revenue deficit of Rs. 2,625 crores in 1998-99. The government had to take corrective measures, including withdrawing fiscal incentives, to improve its financial position. The court accepted this argument, holding that severe resource-crunch and review of financial position constituted overriding public interest justifying the withdrawal of incentives.

4. Necessity of Notice:
The petitioners contended that the government should have given notice before withdrawing the incentives. The court referred to the doctrine of legitimate expectation and the Supreme Court's decision in Union of India v. Hindustan Development Corpn., which held that legitimate expectation could not be enforced if overriding public interest required otherwise. The court concluded that since the withdrawal was due to supervening public interest, there was no need for prior notice to the affected parties.

5. Validity of Notifications Without Prior Cabinet Approval:
The petitioners argued that the notifications were invalid as they were issued without prior approval of the State Cabinet. The court noted that the notifications were issued with the approval of the Chief Minister in anticipation of Cabinet approval and were subsequently ratified by the Cabinet on April 22, 2000. The court held that the ratification made the notifications valid from the moment they were issued, and they could not be considered still-born or dead.

6. Discrimination and Violation of Article 14:
The petitioners claimed that the withdrawal of incentives was discriminatory as it treated industries set up under IPRs 1980, 1986, and 1989 differently from those set up under IPRs 1992 and 1996. The court examined the classification and found that it had a rational nexus with the objective of improving the financial position of the State Government. The court held that the classification was reasonable and not violative of Article 14 of the Constitution.

7. Scope of Powers Under Sections 6 and 7 of the Orissa Sales Tax Act:
The petitioners contended that while Section 6 of the Orissa Sales Tax Act allowed the government to withdraw exemptions, Section 7 did not expressly provide for the withdrawal of deferment of payment of tax. The court referred to Section 22 of the Orissa General Clauses Act, which allows the government to rescind notifications issued under any Orissa Act. The court concluded that the State Government had the power to withdraw both exemptions and deferments under Sections 6 and 7 of the Orissa Sales Tax Act.

Conclusion:
The court upheld the validity of the notifications dated July 30, 1999, and February 17, 2000, withdrawing the sales tax incentives. The court found that the withdrawal was justified by overriding public interest and that the notifications were not discriminatory. The court also held that the State Government had the power to issue and rescind such notifications under the Orissa Sales Tax Act and the Orissa General Clauses Act. The writ petitions were disposed of accordingly.

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