2016 (12) TMI 424 - HC - VAT and Sales Tax

Notifications dated 17.06.2002 and 12.09.2002 (Annexures P-17 and P-20) be treated as inoperative qua the petitioner-Company on the doctrine of promissory estoppel and that the respondent State of Punjab be restrained from going back on its promise of providing sales-tax exemption to the petitioner Company as per the Industrial Policy, 1996 and subsequent notifications - Held that - the petitioner had made substantial progress towards completion of the project before the issuance of the notification dated 17.6.2002 and the amendment dated 12.9.2002 to the Deferment & Exemption Rules, 1991. This is further evidenced by the fact that it was able to commence production within a short period after these notifications i.e., on 21.10.2002, and within four months of 30.06.2002, the date specified in these notifications - In these circumstances, in our view, Ld. Counsel for the petitioner is right in urging that as the petitioner had irretrievably altered its position in pursuance of the promise of the Government and made substantial investment before the issuance of the later notifications, they could not operate to its detriment and it could not be denied the promised benefit. The petition deserves to succeed. We do not find any merit in the arguments on behalf of the State in justification of the rejection of the claim of the petitioner, namely the consensus at the Empowered Committee of State Finance Minister or that the State has the liberty to withdraw the promised incentive at any time. Nor, on the facts as they have emerged, is it possible to agree with the Ld. State Counsel the the petitioner has been lax or took no timely steps in proceeding to set up the unit - petition allowed. It is held and declared that the petitioner company would be entitled to the benefit of sales tax exemption as per the Industrial Policy 1996, Incentives Code, 1996 and the notification dated 30.4.2000 on the ground of promissory estoppel and the said benefit cannot be denied to the petitioner on the basis of the subsequent notifications dated 17.6.2002 and 12.9.2002. - The letters dated 24.9.2002 and 04.12.2002 rejecting the claim of the petitioner for sales tax exemption are quashed - The respondents are directed to re-consider the claim of the petitioner for grant of sales tax exemption as per the Industrial Policy 1996, Incentives Code, 1996 and the notification dated 30.4.2000.

Issues Involved:
1. Applicability of the doctrine of promissory estoppel.
2. Eligibility for sales tax exemption under the Industrial Policy, 1996.
3. Legality of subsequent notifications dated 17.06.2002 and 12.09.2002.
4. Validity of rejection letters dated 24.09.2002 and 04.12.2002.

Issue-wise Detailed Analysis:

1. Applicability of the Doctrine of Promissory Estoppel:
The court elaborated on the doctrine of promissory estoppel, emphasizing that when the government makes a promise, knowing or intending that it would be acted upon, it is bound by that promise if the promisee alters their position based on it. The court cited *Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P.*, stating, "The Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee." The court also referenced *Manuelsons Hotels (P) Ltd. v. State of Kerala*, reiterating that the doctrine prevents an unconscionable departure from an assumption adopted by the other party.

2. Eligibility for Sales Tax Exemption under the Industrial Policy, 1996:
The petitioner company was incorporated and took several steps to set up its unit based on the incentives promised in the Industrial Policy, 1996, and the Incentives Code, 1996. The company acquired land, obtained an industrial license, and commenced significant construction activities. The General Manager, District Industries Centre, Ludhiana, confirmed the company's eligibility for sales tax exemption in a letter dated 7.5.2001, assuring the petitioner of the promised benefits.

3. Legality of Subsequent Notifications Dated 17.06.2002 and 12.09.2002:
The court noted that these notifications imposed a new condition that units must come into production by 30.06.2002 to be eligible for sales tax exemption. The court found that the petitioner had made substantial progress towards setting up the unit before these notifications were issued, and thus, the new conditions could not be applied retroactively to the petitioner's detriment. The court cited *Mahabir Vegetable Oils Pvt. Ltd. v. State of Haryana*, where it was held that amendments could not take away accrued rights with retrospective effect.

4. Validity of Rejection Letters Dated 24.09.2002 and 04.12.2002:
The court held that the rejection of the petitioner's claim for sales tax exemption based on the subsequent notifications was illegal. The petitioner had altered its position and made substantial investments based on the government's promise, and thus, the subsequent notifications could not negate the promised benefits. The court referenced *State of Bihar v. Kalyanpur Cement Ltd.*, where the Supreme Court held that discontinuance of promised benefits based on a change in policy was arbitrary and indefensible.

Conclusion:
The court allowed the writ petition, declaring that the petitioner company was entitled to sales tax exemption as per the Industrial Policy, 1996, and the notification dated 30.4.2000, on the ground of promissory estoppel. The subsequent notifications dated 17.06.2002 and 12.09.2002 could not be applied to the petitioner. The rejection letters dated 24.09.2002 and 04.12.2002 were quashed, and the respondents were directed to reconsider the petitioner's claim for sales tax exemption.

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