2006 (12) TMI 449 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Eligibility for sales tax exemption under the Industrial Policy Resolution, 1996 (IPR, 1996).
2. Validity of the eligibility certificate issued by the Director of Industries.
3. Legal implications of the "mistaken notion" claimed by the State.
4. Application of principles of legitimate expectation and promissory estoppel.
5. Authority of the Sales Tax Department versus the Industries Department.

Issue-wise Detailed Analysis:

1. Eligibility for Sales Tax Exemption under IPR, 1996:
The petitioner, M/s. Lingaraj Pipes Private Limited, claimed eligibility for sales tax exemption under the IPR, 1996, having fulfilled the required terms and conditions regarding capital investments and commenced commercial production on January 8, 2000. The petitioner was certified by the Director of Industries as a "priority industry" and issued the necessary certificate in form E(96), declaring eligibility for all sales tax incentives under IPR, 1996.

2. Validity of the Eligibility Certificate Issued by the Director of Industries:
The petitioner argued that the certificate issued by the Director of Industries was valid and had not been withdrawn. Despite this, the sales tax authorities raised tax demands against the petitioner, which the petitioner contended was illegal. The Director of Industries had consulted the Ministry of Chemical and Fertilisers, which certified that manufacturing PVC pipes from PVC resins is a downstream process of the petrochemical industry, thus qualifying as a petrochemical processing industry.

3. Legal Implications of the "Mistaken Notion" Claimed by the State:
The State, in its counter-affidavit, claimed that the eligibility certificate was issued based on a "mistaken notion" that manufacturing PVC pipes from PVC resins qualifies as a petrochemical industry. The State argued that the industry is only a downstream process and not a petrochemical industry per se. The court found that the certificate remained valid until January 7, 2005, and any retrospective withdrawal based on the "mistaken notion" would be unjust and arbitrary, violating Article 14 of the Constitution.

4. Application of Principles of Legitimate Expectation and Promissory Estoppel:
The petitioner relied on principles of legitimate expectation and promissory estoppel, arguing that the State had induced them to invest based on the promise of tax exemptions. The court referenced the Supreme Court judgment in MRF Ltd. v. Assistant Commissioner (Assessment), Sales Tax, where it was held that the State cannot deprive a company of tax exemptions after enjoying the benefits of its investment. The court found the State's action in this case similarly unfair and arbitrary.

5. Authority of the Sales Tax Department versus the Industries Department:
The petitioner argued that the Industries Department's interpretation of the IPR, 1996, is final and binding. The court agreed, noting that the Industries Department had issued the eligibility certificate and subsequent clarifications affirming the petitioner's status as a priority industry. The Sales Tax Department's denial of benefits was found to be in excess of its authority.

Conclusion:
The court quashed the impugned assessment orders and consequential demands, directing the Sales Tax Officer to reassess the petitioner, granting the benefits of exemption in accordance with the eligibility certificate issued by the Director of Industries. The court emphasized that any correction of the "mistaken notion" should be prospective, not retrospective, to avoid injustice. The writ application was allowed with no order as to costs.