2020 (5) TMI 391 - HC - VAT and Sales Tax

Benefits of Investment subsidy - Chhattisgarh State Infrastructure Cost Fixed Capital Investment Subsidy Rules, 2004 framed and published with retrospective effect from 01.11.2004 - entitlement for a subsidy adjustment / reimbursement of 25% of the infrastructure cost for establishing industry outside industrial area, upto a maximum amount equivalent to the amount of commercial tax / central sales tax paid in the State for 5 years - subsequently issued Annexure-P/9 Notification dated 10.08.2011, virtually curtailing the benefit of concession payable under the Investment Subsidy Scheme, whereby the maximum limit (which was originally fixed as 25% of the investment subject to a maximum of 5 years' sales tax paid) was restricted as '₹ 3 crores'. HELD THAT - There is no dispute with regard to the sequence of events. It was based on the specific need felt of the newly formed State that the 'Industrial Policy (2001-2006', later substituted by 2004-2009) was formulated and notified inviting entrepreneurs to set up industries in the State to achieve rapid economic growth offering to make use of the advantages available in the State and the concessions assured. This offer was acted upon by the Petitioners to set up the industries, making huge investments under the firm belief that they were entitled to have the benefit of investment subsidy to an extent of 25% of the infrastructure cost, subject to maximum of the Sales Tax / CST paid in the State during the first 'five' years. Obviously, there is a cap / ceiling fixed already with regard to the extent of benefit payable as per the Industrial Policy notified at the first instance, as incorporated in the Rules notified subsequently, to the effect that it would be 25% of the infrastructure cost made by the entrepreneurs subject to maximum of the Sales Tax / CST paid in the State for the first 'five' years. The commodity thus manufactured fixing the 'sale price' (based on the above factors, also reckoning the element of 'investment subsidy' surely to get as offered / assured as per the notified Industrial Policy / Rules) has already been marketed and as such, if the amount payable towards the Investment Subsidy as per the original terms of the Policy / Rules is sought to be denied after expiry of the Policy period, it will simply result in rupturing the financial base of the Petitioners, as the unconscionable financial burden cannot be recovered by them 'by resetting the sale price' of the commodity which they had already sold out - The Petitioners have made out a case that they were having 'Legitimate Expectation' to have had the benefits flowing from the Industrial Policy for year 2004-2009 and incorporated as part of the Rules notified and existed throughout the Policy period. This is more so since, similar terms of benefit were offered in the Industrial Policy originally notified for the period 2001-2006, in respect of which, no plea is raised from the part of the State as to any mistake having occurred therein. Admittedly, the said Policy was prematurely terminated and a new Policy was introduced for the period 2004-2009; when also the need to fix any additional capping of benefit was never felt by the Government. As such, the explanation now offered from the part of the Government, that it was only a mistake, which required to be rectified in 'public interest' does not hold any water at all. The course of action pursued by the Respondent-State in the case of the Petitioners herein, curtailing the benefit of Investment Subsidy, which ought to have been extended to them on the strength of the original Industrial Policy 2004-2009 and declared in the Investment Subsidy Rules, 2005 (as originally notified in the Gazette) is not correct or proper - It is declared that the Petitioners are entitled to have the benefit of Investment Subsidy to an extent of 25% of the infrastructure cost , subject to a ceiling of the Sales Tax / VAT / CST paid in the State for the first ' five ' years . In the said circumstances, all the orders / proceedings passed in the case of the Petitioners, insofar as they stand against said declaration are set aside. The State might be permitted to set off the subsidy amount to be disbursed to the Petitioners against subsequent / remaining the tax liability to be cleared by the Petitioners, considering the totality of the facts and circumstances involved, the Respondents-State are permitted to set off / adjust the investment subsidy payable to the Petitioners, against the tax liability to be cleared by the Petitioners in respect of any past, present or future transactions - Petition allowed.

Summary

Issues Involved:
1. Withdrawal of benefits after the expiry of the Industrial Policy period.
2. Rectification of mistake by the State.
3. Deviation/correction of policy in respect of past transactions.
4. Application of principles of Legitimate Expectation and Promissory Estoppel.

Detailed Analysis:

1. Withdrawal of Benefits Post-Policy Period:
The primary issue was whether the State could withdraw benefits promised under the Industrial Policy 2004-2009 after its expiry and the commencement of a new policy for 2009-2014. The court noted that the State had initially promised various concessions to attract investment, including a subsidy adjustment/reimbursement of 25% of the infrastructure cost for establishing industries outside industrial areas. The Petitioners had acted upon these promises, making significant investments based on the policy. The court held that the benefits offered under the expired policy could not be unilaterally altered or withdrawn by the State, as it would constitute a breach of the concluded contract between the State and the entrepreneurs.

2. Rectification of Mistake:
The State argued that the reduction in benefits was a rectification of a mistake, purportedly to protect public interest and state revenue. However, the court found that the alleged mistake was not adequately substantiated. The court emphasized that the rectification of a mistake must be bona fide and not arbitrary. In this case, the State's action of capping the subsidy at ?3 crores, years after the policy period had ended, was deemed inappropriate and unjustifiable.

3. Deviation/Correction of Policy for Past Transactions:
The court held that policy changes could not retroactively affect transactions that had already been completed under the previous policy. The benefits and concessions promised under the Industrial Policy 2004-2009 had already been acted upon by the Petitioners, and any subsequent change could not alter the rights and obligations that had crystallized during the policy period. The court asserted that a new policy could not navigate or guide actions that had already been implemented based on the terms of the expired policy.

4. Legitimate Expectation and Promissory Estoppel:
The Petitioners argued that they had a legitimate expectation to receive the promised benefits and that the State was estopped from reneging on its promises. The court upheld these principles, noting that the Petitioners had made substantial investments based on the State's assurances. The court referred to various judgments, including Manuelsons Hostels Private Limited vs. State of Kerala and Others, and MRF Ltd. vs. Assistant Commissioner (Assessment), Sales Tax and Others, which supported the application of Promissory Estoppel and Legitimate Expectation against the State. The court concluded that the State's action of curtailing benefits was contrary to these principles and could not be justified in the absence of a compelling public interest.

Conclusion:
The court declared that the Petitioners were entitled to the benefits as originally promised under the Industrial Policy 2004-2009, which included a subsidy of 25% of the infrastructure cost, subject to a ceiling of the Sales Tax/VAT/CST paid in the State for the first five years. The court set aside the State's orders that curtailed these benefits and directed the Respondents to compute and grant the benefits as per the original terms of the policy and the agreement executed between the parties. Additionally, the court allowed the State to set off the subsidy amount against the Petitioners' tax liabilities. The writ petitions were allowed with no costs.