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2013 (1) TMI 695 - HC - VAT and Sales TaxWhether the State Government after having participated in the proceedings before the Board for Industrial and Financial Re-Construction (BIFR) can resile from giving sales tax exemption and concessional Central Sales Tax (CST) for a further period in the light of the sickness of the appellant-company and proceed to act in a manner contrary to the directions contained in the order of BIFR without having preferred an appeal against the said order? Held that - Though it was strenuously argued by the Special Government Pleader (Taxes) that the Board as per exhibit P6 scheme and exhibit P7 order has left the matter to the discretion of the State Government we are not impressed by the said argument. What was directed by the Board as per exhibit P7 was that the sales tax authorities would consider the reliefs in order to ensure long term viability of the appellant-company and would also not raise any further demand (emphasis added). The discretion whatever left with the respondent-Government as per exhibit P6 scheme and exhibit P7 had to be exercised in a reasonable manner. Thus no hesitation to hold that the refusal of the State Government to exercise its discretion to extend the benefit as envisaged by exhibit P6 scheme and exhibit P7 order to the appellant-company was not reasonably exercised. The impugned judgment is set aside. Exhibit P9 order as well as exhibits P11 to P16 and subsequent notices issued consequently are quashed. We direct the respondent-State to reconsider the matter and pass fresh orders
Issues Involved:
1. Whether the State Government can resile from providing sales tax exemption and concessional CST after participating in BIFR proceedings without appealing against BIFR's order. 2. The legality and arbitrariness of the State Government's actions in light of BIFR's directions. 3. The applicability of the doctrine of promissory estoppel against the State Government. Detailed Analysis: Issue 1: State Government's Ability to Resile from BIFR Orders The primary question addressed was whether the State Government, after participating in BIFR proceedings, could withdraw from providing sales tax exemption and concessional CST without appealing BIFR's order. The appellant-company, a medium-scale industrial undertaking, was declared sick by BIFR and placed under its control. BIFR approved a rehabilitation scheme, which included sales tax exemptions and concessional CST, and directed the State Government to consider extending these benefits. Despite this, the State Government raised tax demands and initiated recovery actions against the appellant-company, which the company argued was in contravention of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Issue 2: Legality and Arbitrariness of State Government's Actions The appellant-company contended that the State Government's actions were illegal and arbitrary, violating the directions contained in BIFR's orders. The learned single judge dismissed the writ petition on the grounds that BIFR's scheme only directed the Government to consider the matter without providing a positive order for exemption. Moreover, a precedent case (Prima Industries Ltd. v. State of Kerala) was cited, where similar claims for exemption were denied. However, the appellant-company argued that the State Government, having participated in BIFR proceedings, could not act contrary to BIFR's directions without appealing the order. Issue 3: Applicability of Promissory Estoppel The appellant-company invoked the doctrine of promissory estoppel, arguing that the State Government could not resile from its promise after participating in BIFR proceedings. The Special Government Pleader countered that the beneficiary of a concession has no enforceable right against the Government. The court examined precedents, including Mahabir Vegetable Oils Pvt. Ltd. and State of Punjab v. Nestle India Ltd., which discussed the doctrine of promissory estoppel. The court found that the State Government's refusal to extend benefits as directed by BIFR was not reasonably exercised, and there was no overriding public interest to justify the Government's actions. Conclusion: The court concluded that the State Government's refusal to extend sales tax exemption and concessional CST was inequitable and contrary to BIFR's directions. The plea of promissory estoppel raised by the appellant-company was upheld. The court set aside the impugned judgment, quashed the State Government's orders and notices, and directed the State to reconsider the matter in light of BIFR's directions. Judgment: 1. The impugned judgment is set aside. 2. Exhibit P9 order and exhibits P11 to P16 notices are quashed. 3. The respondent-State is directed to reconsider and pass fresh orders guided by BIFR's directions. Parties shall bear their own costs.
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