2025 (2) TMI 797 - HC - VAT / Sales Tax

Doctrine of promissery estoppel - Rejection of the respective eligibility certificates applied under the relevant provisions of the Industrial Policy of 2008 - rejection of eligibility certificates without due and proper appreciation of the facts and materials available before the respondent-Department of Industries - industrial unit was non-functioning or not - validity of assessments made by the Department of Finance and Taxation during the pendency of eligibility certificate applications. Whether the rejection of eligibility certificates by the Department of Industries and Commerce under the Industrial Policy of Assam 2008 on the grounds of being non-functioning was justified? - HELD THAT - The period of validity of the Industrial Policy of 2008 was for a period of five years with effect from 01.10.2008 till 30.09.2013. The eligibility criteria as per the said Policy was all new units as well as existing units which go in for substantial expansion and which had commenced commercial production within the period of validity will be eligible for the incentives from the date of commencement of commercial production for the period applicable for each incentive. In the said Industrial Policy of 2008 various fiscal incentives such as interest subsidy on term loan power subsidy subsidy of quality certification/technical knowhow and subsidy on drawal of power line were given. The respondents were permitted to place before the Court the materials on the basis of which the General Manager DICC submitted its report of non-functioning unit. The Court considered it apposite to permit the respondent authorities to place such materials to show the relevant date(s) when the physical inspection was made and the said unit was found to be non-functioning. On the other hand the Sales Tax Department completed the assessments and raised the demand on the petitioner and other similarly situated petitioners. The assessment order clearly reveals that the assessment and the consequential demand was made after due examination of the books of accounts. The assessment of tax was made on the turnover of the unit/industry. Consequently there appears to be a contrary stand reflected by the two departments of the Government namely the Industries and the Finance Department. It is trite to mention here that in the State Level Committee constituted to examine and issue eligibility certificates representatives of both the industries as well as the Finance and Taxation Department are members and which fact is not disputed by the respondents. Under such circumstances it cannot be understood as to how a unit which was found to be non-functioning by the industries department could have reflected the turnover of goods manufacture and on the basis of which the assessments were carried out and demands were raised by the Finance and Taxation Department. In Duroply Industries Limited Vs. The Union of India 5 Ors 2023 (11) TMI 1353 - GAUHATI HIGH COURT the Co-ordinate Bench of this Court held that the Petitioner s unit was duly functioning at the time when the claims for Transport Subsidy were made and the said unit has to be closed down subsequently due to the financial crisis and shortage of raw material and thereby the State Level Committee ought not to have rejected the claims of the Petitioner on the ground that with effect from January 2018 the Petitioner unit was not functioning. In Sukhamoy Paul Vs. State of Tripura Ors. 2021 (5) TMI 1077 - TRIPURA HIGH COURT while dealing with a similar situation with regard to the Transport Subsidy Scheme the Tripura High Court held that the eligibility period for claiming subsidy may be 5 years the scheme nowhere provides that only if a new industrial unit continues such manufacturing activity for a period of 5 years that it can claim the transport subsidy. Therefore even if as pointed out by the respondents the petitioner at some later point of time after commencing its production got engaged into the same activity as a job worker this would not amount to breach of any of the eligibility conditions of the scheme. The aforesaid two judgments of this Hon ble Court and that of Tripura High Court are squarely applicable in the present case. Whether the doctrine of promissory estoppel applies to prevent the government from denying benefits promised under the Industrial Policy of Assam 2008 after the petitioners had altered their position based on those promises? - HELD THAT - Under the doctrine of promissory estoppels where the Government has made a promise and the prose relying on the promise has altered it s position to its detriment the Government is not exempt from it s liability to carry out the representation made by it as to its future conduct and it cannot on some undefined and undisclosed ground of necessity or expediency fail to carry out the promise solemnly made by it nor claim to be the judge of its own obligation to the citizen on an ex-parte appraisement of the circumstances in which the obligation has arisen - The Apex Court in Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. 1978 (12) TMI 45 - SUPREME COURT observed that that the doctrine was not limited only to cases where there was some contractual relationship or other pre-existing legal relationship between the parties. The principle would be applied even when the promise is intended to create legal relations or affect a legal relationship which would arise in future. The Government was held to be equally susceptible to the operation of the doctrine in whatever area or field the promise is made contractual administrative or statutory. The Doctrine of Promissory Estoppel has been repeatedly applied by the Apex Court in statutory notifications. In Pournami Oil Mills v. State of Kerala 2020 (12) TMI 1241 - SUPREME COURT the Government of Kerala by an order dated 11-4-1979 invited small-scale units to set up their industries in the State of Kerala and with a view to boost industrialization exemption from sales tax and purchase tax was extended as a concession for a period of five years which was to run from the date of commencement of production. By a subsequent notification dated 29-9-1980 published in the gazette on 21-10-1980 the State of Kerala withdrew the exemption relating to the purchase tax and confined the exemption from sales tax to the limit specified in the proviso of the said notification. After elaborate discussions of the law on Promissory Estoppel as laid down by the Apex Court it is seen that the State authorities as well as its limbs covered under the sweep of Article 12 of the Constitution of India being treated as State within the meaning of the said article can be made subject to the equitable doctrine of promissory estoppel in cases where because of their representation the party claiming estoppel has changed its position and if such an estoppel does not fall under any statutory prohibition absence of power and authority of the promisor and/or is otherwise not opposed to public interest and also when equity in favour of the promisee does not outweigh equity in favour of the promisor entitling the latter to legally get out of the promise. Whether the assessments made by the Department of Finance and Taxation during the pendency of eligibility certificate applications were valid? - HELD THAT?- The assessment orders itself reflects that the books of accounts etc were examined and pursuant to which the assessment orders and the consequential demands were raised. Therefore in the facts of the present case besides the other departments which had the occasion to examine the papers submitted for establishment of the industry as well as assessment order and the consequential demands raised by the Finance Department the fact remains that there is no mala fide alleged against the industry or unit by the respondent authorities. There is also no allegation that undue advantage has been sought to be taken by the industries in respect of Industrial Policy concerned. Under such circumstances the department of Finance as well as the Industries Department being representatives of different department but a part of the same Government and a constituent members of the State Level Committee, - the State Level Committee being the mouth piece of the Government in so far as the Industrial Policy is concerned they must speak in one voice by taking into various views and evaluations undertaken by each of the constituent members. The sole ground for assailing the assessment orders in these writ petitions is that the Finance Department ought not to have proceeded with the assessments in question as the relevant applications for grant of eligibility certificates in respect of the industries or units were pending before the appropriate authority under the relevant Industrial Policy. As a consequence thereof the benefit of exemptions by the petitioners could not be availed off as the returns could not be filed on the online mode supported by the eligibility certificate as is required under the procedure. These returns were filed in the physical mode with due representations that the claims for eligibility are under consideration and the department is required to await the grant of eligibility certificate by the Industries Department. Conclusion - i) The rejection of eligibility certificates on the grounds of being non-functioning is contrary to the objectives of the Industrial Policy and the evidence of operational status as indicated by tax assessments. ii) The assessments conducted by the Finance Department without awaiting the outcome of eligibility applications are procedurally flawed and must be reconsidered. iii) The doctrine of promissory estoppel applies binding the government to its promises under the Industrial Policy as the petitioners relied on these promises to their detriment. iv) The Court directed the State Level Committee to reconsider the eligibility applications and issue certificates ensuring that the petitioners receive the benefits they are entitled to under the Industrial Policy. v) The Court ordered that once eligibility certificates are granted the petitioners should receive tax exemptions and any necessary refunds or adjustments. Petition disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered by the Court were:

a) Whether the rejection of eligibility certificates by the Department of Industries and Commerce under the Industrial Policy of Assam, 2008, on the grounds of being "non-functioning," was justified.

b) Whether the assessments made by the Department of Finance and Taxation, during the pendency of eligibility certificate applications, were valid.

c) Whether the doctrine of promissory estoppel applies to prevent the government from denying benefits promised under the Industrial Policy of Assam, 2008, after the petitioners had altered their position based on those promises.

2. ISSUE-WISE DETAILED ANALYSIS

a) Rejection of Eligibility Certificates

- Relevant Legal Framework and Precedents: The Industrial Policy of Assam, 2008, aimed to promote industrial growth by offering various fiscal incentives, including tax exemptions. Eligibility for these benefits was contingent on the units being operational and contributing to economic development and employment.

- Court's Interpretation and Reasoning: The Court noted that the rejection of eligibility certificates was based on reports stating that the units were "non-functioning." However, the Court found inconsistencies between the reports from the Industries Department and the assessments made by the Finance Department, which indicated that the units were operational.

- Key Evidence and Findings: The evidence showed that the petitioners had commenced commercial production and had been assessed for taxes based on sales, contradicting the claim of being "non-functioning."

- Application of Law to Facts: The Court applied the doctrine of promissory estoppel, emphasizing that the petitioners had relied on the Industrial Policy to make substantial investments, and the government could not retract its promises without valid justification.

- Treatment of Competing Arguments: The Industries Department argued that eligibility certificates were rightly denied due to non-functioning status. However, the Court found this argument inconsistent with the tax assessments conducted.

- Conclusions: The Court concluded that the rejection of eligibility certificates was unjustified and contrary to the Industrial Policy's objectives.

b) Validity of Tax Assessments

- Relevant Legal Framework and Precedents: Under the Assam Industries (Tax Remission) Scheme, 2005, eligible units were entitled to tax exemptions. The assessments were challenged on the grounds that they were conducted while eligibility applications were pending.

- Court's Interpretation and Reasoning: The Court observed that the assessments were conducted without considering the pending eligibility applications, which was procedurally unfair.

- Key Evidence and Findings: The tax assessments were based on sales records, indicating that the units were operational, contradicting the Industries Department's claim of non-functioning.

- Application of Law to Facts: The Court held that the assessments should have awaited the outcome of the eligibility applications, as the units were potentially entitled to exemptions.

- Treatment of Competing Arguments: The Finance Department maintained that assessments were valid in the absence of eligibility certificates. The Court disagreed, emphasizing the need for coordination between departments.

- Conclusions: The Court found the tax assessments to be procedurally flawed and directed that they be reconsidered in light of the eligibility determinations.

c) Doctrine of Promissory Estoppel

- Relevant Legal Framework and Precedents: The doctrine of promissory estoppel prevents a party from going back on a promise that has been relied upon by another party to their detriment.

- Court's Interpretation and Reasoning: The Court applied this doctrine, noting that the petitioners had relied on the government's promises in the Industrial Policy to make substantial investments.

- Key Evidence and Findings: The petitioners had invested significantly based on the policy's promises, and denying them the benefits would be inequitable.

- Application of Law to Facts: The Court held that the government could not retract its promises without demonstrating overriding public interest or statutory prohibition.

- Treatment of Competing Arguments: The government did not provide sufficient justification for retracting the promised benefits.

- Conclusions: The Court concluded that the doctrine of promissory estoppel applied, and the government was bound by its promises.

3. SIGNIFICANT HOLDINGS

- "The rejection of eligibility certificates on the grounds of being 'non-functioning' is contrary to the objectives of the Industrial Policy and the evidence of operational status as indicated by tax assessments."

- "The assessments conducted by the Finance Department without awaiting the outcome of eligibility applications are procedurally flawed and must be reconsidered."

- "The doctrine of promissory estoppel applies, binding the government to its promises under the Industrial Policy, as the petitioners relied on these promises to their detriment."

- The Court directed the State Level Committee to reconsider the eligibility applications and issue certificates, ensuring that the petitioners receive the benefits they are entitled to under the Industrial Policy.

- The Court ordered that once eligibility certificates are granted, the petitioners should receive tax exemptions and any necessary refunds or adjustments.