2003 (4) TMI 548 - HC - VAT and Sales Tax

Issues Involved:
1. Withdrawal of sales tax exemption for Khadi and Village Industries (KV industries).
2. Validity of Government Notification S.R.O. No. 291 of 2000.
3. Applicability of the principle of promissory estoppel.
4. Alleged discrimination and violation of Article 14 of the Constitution of India.
5. Consequential reliefs and directions.

Detailed Analysis:

1. Withdrawal of Sales Tax Exemption:
The petitioners, associations of KV industries, challenged the withdrawal of sales tax exemption previously enjoyed by them. The contested Government Notification S.R.O. No. 291 of 2000, effective from April 1, 2000, limited the sales tax exemption to 21 KV industries, making other KV industries liable to pay sales tax at a lower rate of four percent as per S.R.O. No. 292 of 2000.

2. Validity of Government Notification S.R.O. No. 291 of 2000:
The court reviewed the history of sales tax exemptions provided to KV industries, noting several changes and inconsistencies in the government's stance. The court found that the government aimed to identify specific KV industries for complete exemption while subjecting others to a concessional tax rate. However, the court criticized the government's inconsistent handling of the matter, leading to the current dispute.

3. Applicability of the Principle of Promissory Estoppel:
The petitioners argued that the withdrawal of the exemption violated the principle of promissory estoppel, as they had established their industries based on the government's promise of tax exemption. The court, however, held that the government did not promise perpetual tax exemption and was within its rights to amend or cancel exemptions as per Section 10(3) of the K.G.S.T. Act. The court cited several Supreme Court decisions, concluding that there was no violation of promissory estoppel.

4. Alleged Discrimination and Violation of Article 14:
The petitioners contended that the notification was discriminatory and violated Article 14 of the Constitution, as it arbitrarily granted exemptions to only 21 out of 115 KV industries. The court found no rational basis for the classification, stating that the distinction based on the date of declaration as KV industries did not satisfy the test of reasonable classification. The court held that S.R.O. No. 291 of 2000 was arbitrary and discriminatory, thus violating Article 14.

5. Consequential Reliefs and Directions:
The court declined to extend the benefit of the notification to all KV industries, emphasizing that granting tax exemptions falls within the government's purview. The court directed that all KV industries should enjoy the sales tax exemption up to March 31, 2000, as per previous notifications. From April 1, 2000, KV industries other than the 21 listed in S.R.O. No. 291 of 2000 were liable to pay tax at a concessional rate of four percent.

The court struck down S.R.O. No. 291 of 2000 as invalid but allowed the 21 exempted industries to continue enjoying the exemption until July 31, 2003, to provide them time to adjust to the new tax liability. The court directed the government to notify this decision in the Gazette and granted the petitioners time until August 31, 2003, to file returns and remit tax without penal interest.

Conclusion:
The court disposed of the petitions, striking down S.R.O. No. 291 of 2000 as invalid due to its arbitrary and discriminatory nature. However, it upheld the government's right to withdraw or amend tax exemptions and provided specific directions for the transition period and future tax liabilities of KV industries.

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