2005 (11) TMI 443 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of Exhibit P9 Notice and Exhibit P13 Letter.
2. Entitlement to Tax Exemption under S.R.O. No. 1729/93.
3. Impact of Amendments to S.R.O. No. 1729/93.
4. Applicability of Promissory Estoppel.
5. Authority of the Board of Revenue's Orders.

Detailed Analysis:

1. Validity of Exhibit P9 Notice and Exhibit P13 Letter:
The appellant sought to quash Exhibit P9 notice issued under section 45A of the Kerala General Sales Tax Act, 1963 (KGST Act) proposing a penalty of Rs. 49,39,45,410 for failing to pay tax on the purchase turnover from 1997-98 to 2001-02. The notice stated that the turnover was not exempt as it did not constitute "manufacture" after January 15, 1998, due to amendments under S.R.O. No. 39 of 1998. The first respondent rejected the appellant's objection (Exhibit P12) and directed the appellant to file further objections by January 31, 2002.

2. Entitlement to Tax Exemption under S.R.O. No. 1729/93:
The appellant argued that they were entitled to tax exemption based on Exhibit P4 eligibility certificate and Exhibit P5 order issued by the Board of Revenue (Taxes). Exhibit P5 granted sales tax exemption for compound rubber and other products, purportedly under S.R.O. No. 1729/93. Clause 5 of S.R.O. No. 1729/93 provided a seven-year exemption for medium and large-scale industrial units undertaking diversification, expansion, or modernization.

3. Impact of Amendments to S.R.O. No. 1729/93:
The Government of Kerala amended S.R.O. No. 1729/93 via S.R.O. No. 38/98 and S.R.O. No. 491/98, effective from January 15, 1998. These amendments excluded the process of converting rubber into compound rubber from the definition of "manufacture." The court held that the appellant could only benefit from the unamended S.R.O. No. 1729/93 until January 14, 1998. Post this date, the amended notification applied, and the appellant's processes did not qualify for exemption.

4. Applicability of Promissory Estoppel:
The appellant invoked the doctrine of promissory estoppel, arguing that the government's notifications and orders induced them to make substantial investments. However, the court noted that no factual foundation or evidence supported this claim. The court also emphasized that statutory notifications cannot be overridden by estoppel, especially when the government retains the power to amend or cancel notifications under section 10(3) of the KGST Act.

5. Authority of the Board of Revenue's Orders:
The court examined whether the Board of Revenue's order (Exhibit P5) could override statutory amendments. It concluded that Exhibit P5, issued based on the eligibility certificate (Exhibit P4), was valid only until January 14, 1998. After this date, the statutory amendments took precedence. The court cited precedents affirming that subordinate authorities must comply with statutory notifications, and the Board of Revenue's orders cannot contravene statutory provisions.

Conclusion:
The court dismissed the appeal, upholding the validity of Exhibit P9 notice and the amendments to S.R.O. No. 1729/93. It ruled that the appellant was not entitled to tax exemption for the period after January 14, 1998, and rejected the plea of promissory estoppel. The Board of Revenue's orders were deemed subordinate to statutory amendments, and the appellant's processes did not qualify as "manufacture" under the amended notification.