2006 (2) TMI 605 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Validity and scope of Notification S.R.O. No. 291 of 2000 and S.R.O. No. 292 of 2000.
2. Doctrine of promissory estoppel.
3. Hostile discrimination and violation of Article 14 of the Constitution of India.

Detailed Analysis:

1. Validity and Scope of Notification S.R.O. No. 291 of 2000 and S.R.O. No. 292 of 2000:
The judgment addresses the validity and scope of Notifications S.R.O. No. 291 of 2000 and S.R.O. No. 292 of 2000, which pertain to the exemptions and concessions from the payment of sales tax to khadi and village industries (KV industries). Initially, all KV industries were exempted from sales tax under S.R.O. No. 1727 of 1993. Subsequent notifications modified these exemptions, with S.R.O. No. 1090 of 1999 restricting exemptions to units with a turnover not exceeding Rs. 10 lakhs. S.R.O. No. 291 of 2000 granted full exemption to 21 specified industries, while S.R.O. No. 292 of 2000 imposed a concessional rate of four per cent on products from other KV industries.

2. Doctrine of Promissory Estoppel:
The petitioners argued that the withdrawal of exemptions violated the doctrine of promissory estoppel. The court held that the doctrine of promissory estoppel could not be applied to set aside the notification imposing a concessional rate of four per cent tax. Section 10 of the Kerala General Sales Tax Act, 1963, empowers the Government to grant or withdraw exemptions prospectively or retrospectively. The court cited several precedents, including Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, to establish that the Government can withdraw exemptions if it is in the public interest and does not promise eternal exemption.

3. Hostile Discrimination and Violation of Article 14:
The petitioners contended that the notifications discriminated between the 21 industries granted full exemption and other KV industries, violating Article 14 of the Constitution. The learned single Judge found the classification arbitrary and discriminatory, lacking a reasonable basis. However, the appellate court disagreed, stating that the classification was based on the Schedule to the Khadi and Village Industries Commission Act, 1956, and the consensus among State Governments to avoid unhealthy competition. The court emphasized that in taxation matters, the State has wide discretion in classification, and the burden of proving discrimination lies heavily on the complainant. The court cited several Supreme Court judgments, including East India Tobacco Company v. State of Andhra Pradesh and Ganga Sugar Corporation Ltd. v. State of Uttar Pradesh, to support the validity of the classification.

Separate Judgments:
The judgment also addresses appeals and writ petitions filed by various parties. The State's appeals contended that there was no reason to set aside the notification granting benefits to 21 industries. Petitioners argued for full exemption based on promissory estoppel. Parties from the 21 exempted industries contended that they were denied exemption without being heard. The court set aside the learned single Judge's direction that the 21 industries should pay a four per cent tax prospectively, as they were not heard before passing such an order.

Conclusion:
The court concluded that there was no hostile discrimination or palpable arbitrariness in the Government notifications. The classification of different kinds of industries among the KV sector was valid for taxation purposes. The court upheld the validity of S.R.O. No. 291 of 2000 and S.R.O. No. 292 of 2000 and disposed of the writ appeals and writ petition accordingly. The court directed the Government to consider the representation for exemption by the furniture industry within three months.