2022 (1) TMI 309 - HC - VAT and Sales Tax

Constitutional Validity of amendment to the Industrial Policy Resolution 2007 (IPR 2007) - principal ground of challenge is that the said amendment to the heading of paragraph18.4 of the IPR 2007 has been made effective retrospectively from 1st July 2017 with a view to preventing Petitioner No.1 from availing the State Goods and Service Tax (SGST) reimbursement - HELD THAT - In the case on hand, without cancelling the eligibility certificate and thrust sector certificate, the Opposite Parties have recalled the sanction order by the impugned cancellation order dated 6th October, 2018. Admittedly, the Opposite Parties recognized expanded cement manufacturing unit of Petitioner No.1 as eligible for the production incentives as a downstream industrial unit under the thrust sector . Opposite Parties do not deny that Petitioner No.1 fulfils the triple test under the IPR 2007 and has made an eligible fixed capital investment of ₹ 183.75 crores. There can be no doubt that there is a vested accrued and crystallized right in favour of Petitioner No.1 in terms of paragraph 18.4 of IPR 2007 to avail the incentives. That is why the sanction order dated 6th June 2017 was issued in the first place. No valid justification has been provided by the Opposite Parties for retrospectively cancelling the said sanction order and that too well over a year after it was issued. In the present case, no material whatsoever has been placed on record by the Opposite Parties to establish that the impugned resolution retrospectively amending the heading to paragraph 18.4 of IPR 2007 is in public interest - there was no justification in singling out cement manufacturing units for denial of the SGST reimbursement. The Court sets aside the order dated 6th October 2018 issued by the Director of Industries withdrawing the earlier order dated 6th June 2017 granting Petitioner No.1 the exemption. The Court also sets aside the resolution dated 18th August 2020 retrospectively amending IPR 2007 - Petition allowed.

Summary

Issues Involved:
1. Constitutionality and legality of the retrospective amendment to the Industrial Policy Resolution 2007 (IPR 2007).
2. Eligibility of the Petitioner for State Goods and Service Tax (SGST) reimbursement.
3. Application of the doctrine of promissory estoppel.
4. Discriminatory treatment vis-à-vis similarly placed units.
5. Judicial review of policy decisions.

Detailed Analysis:

1. Constitutionality and Legality of the Retrospective Amendment:
The Petitioners challenged the resolution dated 18th August 2020, which retrospectively amended paragraph 18.4 of the IPR 2007, making it effective from 1st July 2017. This amendment excluded cement manufacturing/grinding units from SGST reimbursement. The Court found that the retrospective amendment lacked a convincing justification and was arbitrary and discriminatory. It was noted that the amendment was made over three years after the introduction of the GST regime, targeting only cement manufacturing/grinding units and blast furnace slag-based units without a rational basis.

2. Eligibility for SGST Reimbursement:
The Petitioners argued that they qualified as a downstream industry under the "thrust sector" of IPR 2007, which entitled them to financial incentives, including VAT reimbursement. The Court observed that the Petitioner had been issued eligibility and verification certificates confirming their status as a thrust sector unit. The Court rejected the Opposite Parties' contention that the Petitioner’s unit was merely a "standalone cement grinding unit" falling in the negative list, noting the sophisticated manufacturing process involved.

3. Doctrine of Promissory Estoppel:
The Petitioners invoked the doctrine of promissory estoppel, arguing that they had made significant investments based on the assurances provided in IPR 2007. The Court agreed, citing the Supreme Court's decision in MRF Limited v. Assistant Commissioner (Assessment) Sales Tax, which held that a vested right to tax exemption cannot be withdrawn retrospectively if the conditions for the exemption have been fulfilled. The Court found that the Petitioners had a crystallized right to the incentives and that the retrospective amendment was unjust and arbitrary.

4. Discriminatory Treatment:
The Petitioners contended that they were subjected to discriminatory treatment compared to another cement manufacturing unit, KCMW, which was granted incentives under IPR 2007. The Court found merit in this argument, noting that KCMW was similarly situated but was not excluded from the benefits. The Court held that the Opposite Parties had failed to provide a valid justification for this differential treatment.

5. Judicial Review of Policy Decisions:
The Opposite Parties argued that the State had the right to review and amend policies and that the doctrine of promissory estoppel was not applicable. The Court rejected this argument, stating that it was not reviewing a policy decision but examining the reasonableness of retrospectively taking away benefits already extended. The Court emphasized that policy changes must be justified by public interest, which was not demonstrated in this case.

Conclusion and Directions:
The Court set aside the order dated 6th October 2018, which withdrew the earlier sanction order granting the Petitioner VAT reimbursement. It also annulled the resolution dated 18th August 2020, clarifying that the amendment would only have prospective effect. The Court directed the State to refund the tax paid by the Petitioner along with interest and awarded costs of ?10,000 in each writ petition to the Petitioner, to be paid within four weeks.