2009 (6) TMI 1028 - HC - Indian Laws

Summary

Issues Involved:
1. Calculation of entertainment tax for setting off eligible capital investment.
2. Legality and interpretation of the impugned Circulars dated 23.11.2000 and 05.12.2000.
3. Application of the doctrine of promissory estoppel.
4. Extension of time for completion of multiplex projects under the incentive scheme.
5. Determination of eligible capital investment for tax exemption purposes.
6. Discrimination in extending the operative period of the scheme.

Issue-wise Detailed Analysis:

1. Calculation of Entertainment Tax for Setting Off Eligible Capital Investment:
The court held that the respondent-State is not justified in considering the entire amount of the value of the ticket as the capital value for the purpose of setting off the eligible capital investment. The amount collected by the multiplex owners includes an element of tax, and only the applicable rate of tax should be set off against the eligible investment. The entire ticket value cannot be considered for this purpose.

2. Legality and Interpretation of the Impugned Circulars:
The court found that the method of calculating tax liability prescribed by the impugned Circulars is inconsistent with Section 3 of the Gujarat Entertainment Tax Act. The Circulars cannot mandate the inclusion of notional tax to determine the gross amount for setting off against the incentive limit. This would be contrary to the charging section and the basis of the incentive scheme. The Circulars, therefore, were deemed illegal and contrary to the provisions of the Act and the exemption notification.

3. Application of the Doctrine of Promissory Estoppel:
The court held that the doctrine of promissory estoppel applies in this case. The government is estopped from changing the basis of calculation of tax liability for calculating set-off against the incentive limit, as the multiplex owners made investments based on the terms of the notification. Changing the calculation method would breach public faith and the principles of promissory estoppel.

4. Extension of Time for Completion of Multiplex Projects:
The court addressed the issue of extending the time for completing multiplex projects under the incentive scheme. The petitioners argued that the delay was due to unforeseen circumstances like the earthquake and communal riots. The court noted that the State Level Committee had recommended extensions considering these factors. However, the Commissioner of Tourism rejected the extension applications based on extraneous grounds. The court found that the rejection was not justified and was based on irrelevant considerations.

5. Determination of Eligible Capital Investment for Tax Exemption Purposes:
The court remanded the cases of certain petitioners to the State authorities to decide afresh the issue of eligible capital investment made by them up to 30.11.2002. The authorities were directed to issue the final eligibility certificate and raise the demand or grant a refund, as the case may be, within six weeks.

6. Discrimination in Extending the Operative Period of the Scheme:
The court found that the State Government's decision not to extend the operative period of the scheme beyond 30.11.2000 only for multiplexes was discriminatory. The extension was granted to other tourism projects, but not to multiplexes, which was deemed unfair. The court directed the State to reconsider this aspect and ensure that multiplex owners are not unfairly denied the benefits of the scheme.

Conclusion:
The court concluded that the State's actions in calculating the entertainment tax and rejecting the extension applications were not justified. The impugned Circulars were found to be illegal, and the doctrine of promissory estoppel was applied to protect the investments made by the multiplex owners. The court directed the State authorities to reconsider the eligible capital investment and the extension of the operative period of the scheme.