2022 (1) TMI 1013 - SC - VAT and Sales Tax

Exemption from payment of amount of purchase tax - Applicability of original Entry No.255(2) vide F.D. s Notification dated 05.03.1992, which was issued under Section 49(2) of the Gujarat Sales Tax Act, 1969 - subsequent amended Entry No.255(2) issued vide Notifications dated 14.11.2000 and 16.01.2002 in any way alters or amends the basic requirements/conditions stipulated as per the first notification dated 05.03.1992 - subsequent amended Entry vide Government Notifications dated 14.11.2000 and 16.01.2002 in any way takes away the right of the respondent to avail the exemption under the first/parent Entry No.255(2) issued vide Notification dated 05.03.1992 or not - breach of the declaration filed by the respondent as per Form No.26 - demand of the purchase tax on and after 14.11.2000 was hit by the principle of promissory estoppel - non-application of mind or adjudication - HELD THAT - Only in a case where the raw materials, processing materials or consumable stores are used by the eligible unit and the eligible unit actually uses the goods purchased within the State of Gujarat as raw materials, processing materials or consumable stores in the manufacture of goods, there shall be exemption from payment of purchase tax/sales tax to the extent provided in the said Entry. In the present case, it is an admitted position that after furnishing a declaration in Form No.26, the goods - raw materials, processing materials or consumable stores so purchased were to be used by ESL, but the respondent - ESL after purchase of raw materials Naphtha and Natural Gas and after availing the benefit of exemption from the payment of purchase tax did not himself/itself used the same, but, instead, sold the same to another entity EPL and the said another entity EPL used the said raw materials for generating the electricity, which thereafter came to be sold to the respondent - ESL pursuant to the power purchase agreement - the submission on behalf of the respondent that as Naphtha and Natural Gas were transferred to EPL for generating the electricity, which in turn came to be used by the respondent ESL for manufacture of HRC, and it cannot be said that there is a breach of conditions of original Entry No.255(2) dated 05.03.1992, cannot be accepted. The original Entry No.255(2) dated 05.03.1992 does not provide that the eligible unit after purchase of the raw materials instead of using the same by itself or himself can transfer/sold to another unit and the another unit can use the said raw materials - the original notification does not at all permit such transfer and use of the raw materials after availing the exemption for use of another unit, who, as such is otherwise not entitled to any exemption as per the incentive policy. The High Court has committed an error in holding that the respondent did not commit any breach of any of the conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and that the respondent fulfilled all the conditions provided in the said Entry and that there was no breach of any of the conditions provided in the original Entry No.255(2) dated 05.03.1992 - While the exemption notification should be liberally construed, beneficiary must fall within the ambit of the exemption and fulfill the conditions thereof. In case such conditions are not fulfilled, the issue of application of the notification does not arise. In the present case, the intention of the State to provide the incentive under the incentive policy was to give benefit of exemption from payment of purchase tax was to the specific class of industries and, more particularly, as per the list of eligible industries . Exemption was not available to the industries listed in the ineligible industries. It was never the intension of the State Government while framing the incentive policy to grant the benefit of exemption to ineligible industries like the power producing industries like the EPL, which as such was put in the list of ineligible industries - Eligibility clause, it is well settled, in relation to exemption notification must be given effect to as per the language and not to expand the scope deviating from the language. There is a vast difference and distinction between a charging provision in a fiscal statute and an exemption notification. Whether the subsequent amended Entries vide notifications dated 14.11.2000 and 16.01.2002 can be said to be clarificatory and/or take away any of the rights under the original Entry No.255(2) dated 05.03.1992 and/or the subsequent notifications modifies/amends the basic conditions for availing the exemption under the original Entry No.255(2) dated 05.03.1992? - HELD THAT - The eligibility criteria/condition that the eligible unit shall actually use the goods remain the same even in the said amended Entry No.255(2) dated 16.01.2002. Therefore, the subsequent notifications/amended Entries cannot be said to be in any way in conflict with the first/parent notification/Entry No.255(2) - Even as per Form No. 26 (Entry No.255), as per the declaration filed by the respondent, being eligible unit while purchasing goods for use in manufacturing goods, it was declared that the raw materials so purchased will be used by it in the manufacture of goods for sale. Thus, by not using the raw materials so purchased by it, the respondent eligible unit ESL has violated the declaration given in Form No.26. Therefore, the respondent was not entitled to the exemption even under the first/parent notification. Even the reasoning given by the Tribunal and the High Court that the demand of purchase tax is hit by the principle of promissory estoppel also cannot be accepted. In the present case, first of all, the principle of promissory estoppel to the exemption sought ought not to have been applied at all. Each assessment year/period is independent. Even otherwise, in the facts and circumstances of the case, the principle of promissory estoppel shall not be applicable. In the present case, the respondent eligible unit as such was not entitled to the exemption even under the first notification as it violated the declaration given in Form No.26 as well as did not comply with and/or fulfilled the eligibility criteria/conditions required to be fulfilled while availing benefit of exemption - the respondent did not actually use the raw materials purchased by him/it and availed the exemption and after availing the exemption sold the said raw materials to ineligible unit - EPL and the EPL used the same for manufacture of its goods generating the electricity, which subsequently again sold to the ESL eligible unit on payment of sale consideration. The principle of promissory estoppel shall not be applicable. ESL had furnished wrong and false declarations. In the original notification/entry, it was not provided that even if the raw materials so purchased is not used by itself after availing the exemption, the same can be sold to another entity, which is ineligible industry. It did not provide that in such a situation also and despite the fact that raw material is not actually used by the eligible unit, which was required to be used even as per the declaration in Form No.26, such eligible unit shall be entitled to the exemption. No such promise was given - when there was no such promise and/or representation, the demand cannot be said to be hit by the principle of promissory estoppel as observed and held by the Tribunal as well as the High Court in the impugned judgment and order. The doctrine of promissory estoppel is an equitable remedy and has to be moulded depending on the facts of each case and not straitjacketed into pigeonholes. In other words, there cannot be any hard and fast rule for applying the doctrine of promissory estoppel but the doctrine has to evolve and expand itself so as to do justice between the parties and ensure equity between the parties. In the present case, the principle of promissory estoppel shall not be applicable - the principle of promissory estoppel shall not be applicable contrary to the Statute. Merely because erroneously and/or on misinterpretation, some benefits in the earlier assessment years were wrongly given, cannot be a ground to continue the wrong and to grant the benefit of exemption though not eligible under the exemption notification. It is held that the respondent -Essar Steel Ltd. the eligible unit was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) dated 05.03.1992, firstly, on the ground that it did not fulfill the eligibility criteria/conditions mentioned in the original Entry No.255(2) dated 05.03.1992 and secondly that there was a breach of declaration in Form No.26 furnished by the respondent eligible unit Essar Steel Ltd. The orders setting aside the penalty imposed by the Assessing Officer are also hereby quashed and set aside. The order passed by the Assessing Officer levying the demand of purchase tax and imposing the penalty is hereby restored. Appeal allowed - decided in favor of Revenue.

Summary

Issues Involved:
1. Entitlement to exemption from payment of purchase tax as per original Entry No.255(2) dated 05.03.1992.
2. Effect of subsequent amended Entry No.255(2) issued via Notifications dated 14.11.2000 and 16.01.2002 on the original conditions.
3. Breach of declaration filed by the respondent as per Form No.26.
4. Applicability of the principle of promissory estoppel on the demand of purchase tax post 14.11.2000.
5. Legitimacy of the penalty imposed on the respondent.

Detailed Analysis:

1. Entitlement to Exemption from Payment of Purchase Tax:
The respondent, Essar Steel Ltd. (ESL), claimed exemption from purchase tax under the original Entry No.255(2) dated 05.03.1992, which required the eligible unit to furnish a certificate in Form No.26 and to actually use the goods purchased within the State of Gujarat for manufacturing goods. However, ESL transferred the purchased raw materials (Naphtha and Natural Gas) to Essar Power Limited (EPL) for electricity generation, which was then used by ESL. The court found this arrangement to be a breach of the conditions stipulated in the original notification, as the raw materials were not used directly by ESL but by another entity, EPL, which was not eligible for the exemption.

2. Effect of Subsequent Amended Entry No.255(2):
The subsequent notifications dated 14.11.2000 and 16.01.2002 were found to be clarificatory and expanding the scope of eligibility rather than taking away any rights under the original Entry No.255(2). The amended notifications explicitly stated that the raw materials must be used in the industrial unit for which the eligibility certificate was obtained, reinforcing the condition that the eligible unit must use the goods directly. Therefore, the amendments did not alter the basic requirement that the eligible unit must use the raw materials itself.

3. Breach of Declaration in Form No.26:
The respondent's declaration in Form No.26 stated that the raw materials would be used by ESL for manufacturing goods. However, ESL's transfer of raw materials to EPL constituted a breach of this declaration. The court concluded that ESL did not comply with the eligibility criteria, as it did not use the raw materials directly in its manufacturing process, thus violating the conditions of the exemption.

4. Applicability of Promissory Estoppel:
The court rejected the application of the principle of promissory estoppel, stating that the respondent was not entitled to the exemption even under the original notification due to the breach of conditions. The principle of promissory estoppel does not apply in taxation matters where statutory provisions are clear and unambiguous. The respondent's actions did not align with the conditions of the exemption, and thus, the demand for purchase tax was not barred by promissory estoppel.

5. Legitimacy of the Penalty Imposed:
The penalty was imposed under Section 45 of the Gujarat Sales Tax Act, 1969, due to the significant difference between the tax paid and the tax assessed. The court found that the respondent's actions, including the transfer of raw materials to an ineligible entity, warranted the penalty. The Joint Commissioner, Tribunal, and High Court had erred in setting aside the penalty, and the court restored the Assessing Officer's order imposing the penalty.

Conclusion:
The Supreme Court quashed and set aside the High Court and Tribunal's judgments, holding that ESL was not entitled to the exemption from payment of purchase tax under the original Entry No.255(2) due to non-fulfillment of eligibility criteria and breach of declaration in Form No.26. The court also reinstated the penalty imposed by the Assessing Officer. The appeals were allowed, and no costs were awarded.