1990 (9) TMI 70 - SC - VAT and Sales Tax

Whether the Director of Industries can refuse the exemption certificate on a consideration not specified in the notification? Held that - It does seem likely that the State Government had not intended the exemption to be availed of by certain categories of industries. But it has failed to achieve this purpose on account of the wide language in which it couched the exemption notification. We find ourselves unable, for the reasons discussed above, to discover any valid legal basis on which the exemption clearly granted can be withheld from the assessees here. We, therefore, dismiss the appeals of the State and allow the appeals preferred by the assessees and hold them entitled to the exemption under the 1981 notification.

Issues Involved:

1. Exemption from sales tax under Section 12 of the M.P. General Sales Tax Act, 1958.
2. Validity and interpretation of the notification dated October 23, 1981.
3. Applicability of executive instructions and rules to the statutory notification.
4. Doctrine of promissory estoppel.
5. Retrospective effect of the notification dated July 3, 1987.

Issue-wise Detailed Analysis:

1. Exemption from Sales Tax under Section 12 of the M.P. General Sales Tax Act, 1958:
The core issue revolves around the interpretation of Section 12 of the M.P. General Sales Tax Act, 1958, which empowers the State Government to grant exemptions from sales tax. The State issued a notification on October 23/26, 1981, exempting certain classes of dealers from sales tax for specified periods. The assessees claimed they were eligible for this exemption, but the Director of Industries denied the exemption certificates on the grounds that the industries run by the assessees were "traditional industries," which were not eligible for exemption.

2. Validity and Interpretation of the Notification Dated October 23, 1981:
The notification was challenged on the grounds that it did not specify the exclusion of "traditional industries." The High Court initially accepted the assessees' contention in G.S. Dall and Flour Mills' case, ruling that the authorities had no jurisdiction to deny exemption based on criteria not mentioned in the notification. However, a Full Bench later took a different view, emphasizing the historical context and consistent government policy of excluding traditional industries from such exemptions. The Supreme Court, however, found that the notification did not explicitly exclude traditional industries and that the Director of Industries should grant exemption certificates based on the conditions specified in the notification alone.

3. Applicability of Executive Instructions and Rules to the Statutory Notification:
The Full Bench had relied on various executive instructions and rules issued before and after the 1981 notification to argue that traditional industries were consistently excluded from exemptions. The Supreme Court, however, held that these executive instructions could not override the statutory notification. The notification's language was clear and did not exclude traditional industries. The Court emphasized that executive instructions could supplement but not contradict statutory provisions.

4. Doctrine of Promissory Estoppel:
The assessees argued that the State was estopped from denying the exemption based on the doctrine of promissory estoppel, given the representations made by the State's instrumentalities. The Supreme Court rejected this argument, noting that the assessees had set up their industries after the issuance of the 1983 instructions, which explicitly excluded traditional industries from exemptions. The Court found no basis for the application of promissory estoppel as the assessees were aware of the instructions and had taken a calculated risk.

5. Retrospective Effect of the Notification Dated July 3, 1987:
The State issued a notification on July 3, 1987, amending the 1981 notification to explicitly exclude traditional industries from the exemption, with retrospective effect. The Supreme Court held that while a notification under Section 12 could be retrospective, a notification rescinding an exemption could only be prospective. Therefore, the 1987 notification could not take away the exemption already granted by the 1981 notification.

Conclusion:
The Supreme Court concluded that the assessees were entitled to the exemption under the 1981 notification. The Court dismissed the State's appeals and allowed the assessees' appeals, holding that the notification did not warrant the denial of exemption solely on the ground that the applicant was running a traditional industry. The Full Bench decision was overruled, and the Court emphasized that the State's failure to explicitly exclude traditional industries in the notification could not be remedied by executive instructions or retrospective amendments.

← Previous Next →