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2022 (4) TMI 558 - SC - VAT and Sales TaxWithdrawal of benefit of tax exemption - works contract - benefit granted in the process of revival of the industry - whether the benefit granted under Sick Industrial Companies Act, 1985, can be withdrawn by the subsequent Government Order? - principle of promissory estoppel. As per Hrishikesh Roy, J. HELD THAT - Even though the 2004 Government Order, and the BIFR Sanctioned Scheme of 2005 were enacted in furtherance of 1994 Government Order, both these documents do not specify the time line for tax exemptions prescribed in the 1994 government order. Recently this Court in the case of STATE OF GUJARAT VERSUS ARCELOR MITTAL NIPPON STEEL INDIA LIMITED 2022 (1) TMI 1013 - SUPREME COURT has held that exemption provisions and notifications are to be strictly interpreted in accordance with legislative intent without any addition or subtraction. In the present matter, the 2004 government order granting tax exemptions should be read as a whole and in absence of any time line being prescribed, such a time line in our opinion, cannot be imported from the 1994 government order - Furthermore, Sales tax in the State of Kerala is chargeable under Section 5 of the KGST Act which makes it obligatory upon the State to realize the tax in respect of sales transaction. Section 10 deals with the power of exemption and sub-Section (3) thereof confers the power to have the order of exemption varied or modified , in the manner specified. The benefit of exemption to tax must therefore be traceable to powers conferred under the KGST Act and such benefits could not have been granted in terms of the BIFR Scheme dated 17.01.2005 giving effect to the Government Order issued on 20.3.2004. In the 2006 Government Order withdrawing the benefits, the government has specifically adverted to Section 10 of KGST Act and as such the non-mentioning of the provisions of Section 10(1) of the KGST Act in the 2004 Government Order, would not assist the appellant in any significant measure. The present dispute pertinently is only with regard to the exemption relatable to sales tax/works contract tax and it is nobody s case that past arrears of sales tax/works contract tax payable by the sick units, were completely waived. Factoring this, the writ court as well as the Division Bench opined that sub-clause (1)(b) of 2004 Government Order relating to waiver of tax in the State is of such wide amplitude that the same must be seen as uncertain and vague. Also importantly, such exemption cannot continue indefinitely and particularly not beyond the point at which the revival of the sick unit is seen - Section 10(1)(ii) of the KGST Act enables the State to grant exemption from sales tax only with respect to any specific class of persons in regard to the whole or any part of their turnover and since the 2004 Government Order benefitted only a single unit i.e. the appellant, it is difficult to accept that the solitary industrial unit which was being revived under the BIFR Scheme, would form a class by itself. Therefore, contention to the contrary by the appellant is considered and rejected with the reasoning that the exemption by 2004 Government Order was not made applicable to all sick industrial units of the state, engaged in the like activities of bleaching, dyeing etc. The equitable principle of promissory estoppel cannot be invoked for enforcing promises in the teeth of the provisions of law. Having concluded that the Government Order (20.03.2004), granting Sales Tax/ Works Contract Tax exemption was ultra vires the Section 10(1) of the KGST Act, the promise, in furtherance of Government Order, in the form of BIFR Scheme dated 17.01.2005 being unlawful, cannot be enforced on equitable consideration - As per K.M. JOSEPH, J. There is merit in the contention of the appellant that the exemption granted initially, dated 20.03.2004, was not one which is premised under Section 10 of the Act. The exemption was granted in terms of the scheme under Section 19 of the Act. This is an exemption which was given under statutory provisions. In other words, consent being forthcoming from the state, a scheme being sanctioned under section 19 providing for financial assistance in the form of tax exemption, inter alia, the Government became obliged to honour its consent and the dictate of the statute - It will be inequitable to the company and against public interest also, as it frustrates the object of law to allow a scheme to be sanctioned inducing all parties to proceed on the basis that a company would be redeemed from its financial dire-straits and the crucial financial assistance indispensable to the said process is not forthcoming from the State. The expression class of persons in Section 10 of the State Act, no doubt, acts as a limitation on the power of the state in exercise of its power. It also is an indication of the extent of the power. Then the question would arise as to whether a class of persons includes a single person. To break it down, whether the words persons is capable of comprehending a single person. Would the plural include the singular? - The High Court has proceeded on the basis that the power under Section 10(1) can be exercised in favour of only a class of persons and not qua an individual unit like the appellant. It has also proceeded on the basis that had the exemption been made applicable to all sick industrial units which is in the activity of bleaching etc, there would have been force in the contention that the appellant would form a class by itself. The sick company, which falls to be dealt with under Section 17(3) read with Section 18 and finally Section 19, is clearly distinct from the generality of sick companies both under the definition of a sick company and even those which are covered by Section 17(1) and 17(2) of the Act. It is quite clear that the appellant cannot pitch its case higher than at the limit under Order dated 25.11.1994 referred to in paragraph-14. Therefore, exemption of sales tax is contemplated for a period of two years. However, it further provides that it cannot be for more than five years or beyond the date the net worth of the company becomes positive whichever is earlier. Therefore, the maximum period in any case is 5 years. In the case of the appellant, the appellant enjoyed the benefit of the exemption till it was withdrawn on 21.11 2006. The said order in turn was withdrawn on 01.10.2007. It is no doubt true that on 29.02.2008, the order dated 01.10.2007 came to be withdrawn. The writ petition was filed by the appellant. It would appear that for a period of nearly 4 years, the appellant enjoyed the benefit of exemption in all. Appeal dismissed.
Issues Involved:
1. Whether the tax exemption granted under the Sick Industrial Companies Act, 1985 (SICA) can be withdrawn by a subsequent government order. 2. Applicability and interpretation of Section 10 of the Kerala General Sales Tax Act, 1963 (KGST Act). 3. The binding nature of the BIFR Sanctioned Scheme under Section 19(3) of SICA. 4. The principle of promissory estoppel in the context of tax exemptions. 5. Whether a single industrial unit can be considered a class by itself for the purpose of tax exemption. Issue-wise Detailed Analysis: 1. Withdrawal of Tax Exemption: The core issue was whether the tax exemption benefits granted under SICA could be withdrawn by a subsequent government order. The appellant had taken over a sick industrial unit and was granted tax exemptions as part of a revival scheme. However, a subsequent government order withdrew these exemptions. The court examined whether such withdrawal was legally permissible, especially considering the revival efforts and the initial government promises. 2. Applicability and Interpretation of Section 10 of KGST Act: The court analyzed Section 10 of the KGST Act, which deals with the power of the government to grant and withdraw tax exemptions. It was argued that the exemptions granted were not under Section 10(1) of the KGST Act, and thus could not be withdrawn under Section 10(3). The court held that the exemption must be traceable to the powers conferred under the KGST Act, and since the 2004 government order did not specifically mention Section 10(1), it did not assist the appellant. The court emphasized that the exemption provisions must be strictly interpreted according to legislative intent. 3. Binding Nature of BIFR Sanctioned Scheme: The appellant contended that the tax exemptions were part of a BIFR Sanctioned Scheme under Section 19(3) of SICA, which should be binding on all stakeholders, including the state. The court examined whether the state could withdraw from its promise given under a sanctioned scheme. It was noted that the scheme did not specify a timeline for the exemptions, and the court concluded that the exemption could not continue indefinitely. 4. Principle of Promissory Estoppel: The appellant argued that the state should be held to its promise under the principle of promissory estoppel. The court referenced previous judgments, stating that promissory estoppel cannot be invoked to compel the government to act contrary to law. Since the exemption was granted to a single unit, contrary to Section 10 of the KGST Act, the principle of promissory estoppel was not applicable. 5. Single Industrial Unit as a Class: The court addressed whether the appellant could be considered a unique class by itself for the purpose of tax exemption. It was noted that the exemption was granted only to the appellant and not to other similar units in the state. The court concluded that the appellant did not form a separate class of its own and that the exemption was arbitrary and unreasonable. Conclusion: The court upheld the withdrawal of the tax exemptions, emphasizing that the exemptions were ultra vires Section 10(1) of the KGST Act and could not be continued indefinitely. The appeal was dismissed, with the court highlighting that the equitable principle of promissory estoppel could not be invoked to enforce promises contrary to statutory provisions. The appellant's contention that it formed a unique class was rejected, and the withdrawal of the exemption was deemed necessary to remedy the arbitrary nature of the initial grant.
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