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TMI Blog2009 (5) TMI 529X X X X Extracts X X X X X X X X Extracts X X X X ..... SINHA J. Leave granted. Interpretation of an exemption notification dated November 3, 1992 issued by the State of Kerala dated November 3, 1993 as modified by notifications dated December 31, 1999 and March 31, 2000 is in question herein. The said question arises in the following factual matrix: Appellant is a private limited company. It intended to set up a medium-scale industrial unit at Kanjikode, Palakkad in the State of Kerala for manufacturing soft drinks under the brand name "Pepsi". Such a decision was taken purported to be relying on or on the basis of a policy decision taken by the State of Kerala to grant exemption from payment of sales tax with a view to attract more investment in the State. The said policy decision was issued by way of a Notification bearing S.R.O. No. 1729 of 1993 issued under section 10 of the Kerala General Sales Tax Act, 1963 (hereinafter referred to for the sake of brevity as, "the said Act") providing for exemption to new industrial units set up in the State of Kerala, the relevant clauses whereof read as under: "4. In the case of new industrial units under medium and large scale industries, there shall be an exemption for a period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... range of Pepsi brands. We expect the project will generate substantial direct/indirect employment opportunities and also stimulate other related economic activities. The greenfield unit will either be set up directly or, by assisting a local entrepreneur. Confirmation requested 1.. Availability of sales tax exemption benefit As per the State Government's Industrial Policy, new industrial units under the medium and large scale sector are eligible for exemption from sales tax, purchase tax, surcharge and Central sales tax for a period of seven years, up to aggregate financial limit of up to 100 per cent of the value of fixed capital investments of the unit. Soft drinks has been notified as a thrust industry in the list of food processing industries notified by the Government. We request your confirmation that the proposed greenfield unit, which will be set by the company directly, or through a nominee entrepreneur, will be eligible for sales tax exemption. 2.. Allotment of land for setting up new unit In our discussions with the honourable Finance Minister and the State Industries Development Corporation, we were assured that the Government would speedily allocate land (appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment's industrial policy will be extended to the new venture you are planning to set up. Please rest assured that our co-operation, KINFRA, and the District Industries Centre, Palakkad will extend their co-operation to your executives concerned." Pursuant to or in furtherance of the said assurance given to the appellant, it entered into an agreement for lease in respect of 50 acres of land for setting up the new industrial unit at Kanjikode in the district of Palakkad on Decem-ber 28, 1999. For the aforementioned purpose, a sum of Rs. 2,77,64,000 towards the amount of consideration for acquisition of the said land was paid on December 24, 1999 by a demand draft. It furthermore took steps for procurement of machinery, etc., being: (a) Filed IEM with SIA vide SIA ACK/2655/SIA/IMO/1999 dated December 28, 1999. (b) Obtained the necessary consent from the Kerala State Pollution Control Board on December 20, 1999. (c) Placed firm orders for supply of large number of plant and machinery and in some cases made advance payments through cheques. The fact that in cases where advance payments were made, the payment was credited prior to January 1, 2000 which was confirmed by Deuts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing shall be substituted, namely: '(b) owned or acquired or has been allotted land for establishing the industrial units and applied for financial support from any regular financial institution/Government before January 1, 2000 or (c) in the case of self-financed units acquired or placed firm orders for the purchase of the necessary plant and machinery, before January 1, 2000 provided that the unit commences commercial production on or before the 31st day of December, 2001'. (ii) in sub-clause (iii), for the words, figures 'acquired necessary plant and machinery' and equipment before the first day of January 2000, provided that such units 'commences commercial production under such diversification, expansion or modernization on or before the 31st day of December 2000', the following shall be substituted, namely: '(a) or acquired necessary plant and machinery and/or equipment or (b) has owned or acquired or has been allotted land and has applied for loan from any regular financial institution and/or (c) has placed firm orders for the purchase of such plant and machinery and equipments before the 1st day of January 2000 provided that such unit commences commercial productio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ping the original petition pending. Therefore, the original petition is disposed of directing the second respondent to take up for consideration exhibit P6 application on merits and pass appropriate orders thereon, in accordance with law, within a period of two months from today. Petitioner will immediately produce a copy of this order along with a copy of this judgment before the second respondent. It is made clear that exhibit P7 order will be subject to the orders passed by the second respondent on exhibit P6 application. Till such time orders are passed by the second respondent, interim order passed by this court will continue." Pursuant thereto or in furtherance thereof, the matter was placed before the Special Secretary (Taxes) who by reason of a letter dated November 15, 2001 addressed to the Commissioner of Commercial Taxes clarified that the appellant was eligible for grant of sales tax exemption. The Principal Secretary (Industries) also wrote a letter to the Director of Industries and Commerce on or about December 21, 2001 reconfirming that it was eligible for sales tax exemption. Yet again, the said authority by a letter dated July 25, 2002 informed the Director o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.R.O. No. 295 of 2000. ORDER In the above circumstances and for the foregoing reasons, the claim of M/s. Pepsicola India Marketing Company, Kanjikode, Palakkad for getting eligibility certificate for STE vide their application dated May 30, 2001 (exhibit P6 in O.P. No. 20675 of 2001) stands rejected." A learned single judge of the High Court disposed of the writ petition filed by the appellant being O.P. No. 8563 of 2003 Reported as Pepsico India Holding Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker).. In coming to its conclusion, the learned judge took into consideration the averments contained in paragraphs 6, 7, 8, 9, 12 and 13 of the counter-affidavit filed on behalf of the State that the appellant had not complied with the essential conditions for grant of exemption from payment of sales tax as advance payment in the specified manner had not been made by it before January 1, 2000 having regard to the fact that the notification required such payments in respect of "necessary plant and machinery and/ or equipments" and not to any or "certain or a small portion of the plant and machinery necessary for the project", to hold: "31. The latter part of sub-clause ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... day of January, 2000. Here it must be noted that sub-clauses (ii) and (iii) provide for the circumstances under which an industrial unit can be considered/deemed to have taken effective steps but it is not exhaustive. The burden is on the industrial unit to establish that the unit had placed firm orders for purchase of plant, machinery and equipments prior to January 1, 2000." The learned judge furthermore opined that the doctrine of promissory estoppel shall be applicable in a case of this nature. Respondents preferred a writ appeal thereagainst which was dismissed by the Division Bench of the said court by an order dated June 15, 2004 Reported as State of Kerala v. Pepsico India Holding Pvt. Ltd. [2006] 144 STC 442. A Special Leave Petition being S.L.P. No. 17308 of 2004 filed there against has also been dismissed. The Director of Industries and Commerce thereafter granted an eligibility certificate to the appellant stating that it was also eligible for grant of sales tax exemption. Despite the same, however, the Deputy Commissioner (General) Commercial Taxes denied the grant of benefit of sales tax exemption on the premise that it had failed to take effective steps in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit in appeal over their decisions particularly when the High Court itself had gone into the issues. (ii) Grant of eligibility certificate could have been denied only when the conditions other than those noticed by the Kerala Finance Corporation were not satisfied. (iii) Having regard to the findings of the High Court in Writ Petition being O.P. No. 8563 of 2003 Reported as Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker)., the writ appeal and the special leave petition whereagainst were dismissed, the State could not have taken a contrary stand. (iv) The State having regard to the promises made to the appellant pursuant whereto it altered its position was bound thereby. (v) The amended notifications and in particular the notification dated March 31, 2000 being benevolent ones, the same should have been construed liberally. (vi) Appellant, pursuant to or in furtherance of the promise, having not collected any tax from its consumers, a purposive interpretation to the said notification should have been rendered by the High Court. Mr. Dushyant Dave, learned Senior Counsel appearing on behalf of the respondents, on the other hand, would contend: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificance to note that the Director of Industries and Commerce is the appellate authority of the Deputy Commissioner (General), Commercial Taxes, as would appear from a notification dated November 3, 1993. On the one hand, in relation to the grant of exemption, the power of the Board of Revenue is being exercised by the Deputy Commissioner (General), Commercial Taxes, the Director of Industries and Commerce was the appellate authority; on the other, the latter's decision was made subject to the ultimate grant of exemption by the former. The effect of such a dichotomy merits serious consideration. It stands admitted that the contention raised by the respondents herein in the first round of litigation that the investment in the plant and machinery must be substantial was for all intent and purport rejected. Interpreting clauses (a), (b) and (c) of the notification, it was held that the conditions imposed thereby are not absolute. Clauses (b) and (c) of the notification were read together. It was furthermore held that the term "any" referring to advance payment is linked up with all the clauses. The said writ application had to be filed by the appellant as the Director of Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the unit. Deducting the above, the actual advance payment before January 1, 2000 towards identifiable constituents/component of necessary plant and machinery is only Rs. 13.75 lakhs and this is advance paid prior to January 1, 2000 towards part of the plant and machinery costing 105 lakhs as against the total cost of Rs. 3210.13 lakhs involved in the necessary plant and machinery required for starting commercial production in the unit. It, therefore, shows that plant and machinery costing Rs. 3105.13 lakhs were not paid of any advance to machinery suppliers prior to January 1, 2000 and they all were acquired on different dates after January 1, 2000. During May 2000, amendments were made by the unit in the earlier placed purchase orders to accommodate in the purchase/ supply orders additional machineries as well as items varying in specifications/with different capacities than the particular ones for which orders were placed prior to January 1, 2000. As per this amendment, the total value of the machinery for which the advance payment was made changes from Rs. 105 lakhs to Rs. 285.80 lakhs. It shows that final 'firm orders' even for the items for which advances were paid prior to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it by way of exception should be construed in a reasonable and purposive manner so as to advance the object of the provision. In this case, the Government when they took a decision to discontinue the incentive provided in Notification S.R.O. No. 1729 of 1993 with effect from January 1, 2000 by way of exception decided to extend the benefit of the said notification to the four categories mentioned in paragraph 21 supra. These exceptions, as already noted, are based on the principle of promissory estoppels as considered by the Supreme Court in Mahaveer Oil Industries' case [1999] 115 STC 29. The circumstances under which a unit can be considered to have taken effective steps were incorporated in Notifications S.R.O. Nos. 1092 of 1999 and 295 of 2000 only as a measure to help the units which have taken effective steps for setting up the industrial unit based on Notification S.R.O. No. 1729 of 1993. I have also observed that the notification itself gives sufficient clues regarding the meaning to be given to the expression 'have taken effective steps' in paragraph 33 supra. According to me sub-clauses (ii) and (iii) of clause 1 of Notification S.R.O. No. 1092 of 1999 as amended by Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertified by the Director as per exhibit R1(a) and consequently it was not open to the Deputy Commissioner of Commercial Taxes, the third respondent to again consider that question. The third respondent had the jurisdiction only to quantify the exemption that the petitioner was entitled to, eligibility having been already certified. (2) That at any rate, the petitioner had taken effective steps for setting up a new industrial unit prior to the first day of January, 2000, being a self-financing unit it had placed firm orders for the purchase of necessary plant and machinery before January 1, 2000. It has commenced commercial production before December 31, 2001. (3) The finding in exhibit P24 that the activity carried on by the petitioner does not tantamount to manufacture is fundamentally erroneous." We are herein concerned with contention Nos. 1 and 2. So far as contention No. 1 is concerned, he determined the said question in paragraph Nos. 21 to 32, inter alia, stating: "24.... Should the certificate of eligibility issued by the competent authority necessarily be a certificate of exemption. Firstly, clause 10(d) states that the eligibility certificate referred to in clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout jurisdiction. It is with jurisdiction and the finding therein to the effect that the petitioner has not satisfied the conditions mentioned in S.R.O. No. 1729 of 1993 as amended by S.R.O. No. 1092 of 1999 and modified by S.R.O. No. 295 of 2000 is correct and justified. The said finding does not require any interference. (v) Exhibit P24 is therefore upheld subject to the finding in para (i) above, viz., the activity carried on by the petitioner in its unit for the production of soft drinks is a manufacturing activity within the meaning of S.R.O. No. 1729 of 1993." It was opined: "... In my view exhibit P2 judgment See [2006] 144 STC 409 (Ker). obviously cannot be con- strued as conferring authority on the second respondent to decide the question of eligibility entitlement of the petitioner for sales tax exemption. If the direction issued in exhibit P2 judgment See [2006] 144 STC 409 (Ker). is construed in such a fashion, it will amount to altering the scheme for tax exemption as provided in the statutory application." Although a contention has been raised before us that despite opportunities granted, the appellant had not adduced the additional evidence to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction has been created stating that if such unit had made any advance payments therefor by means of demand draft or cheque, the requirements would stand satisfied. The Director of Industries and Commerce, as noticed hereinbefore, opined that apart from a few items, firm orders have been placed in respect of some machineries by means of demand draft or cheques and the same has been credited to the account of the seller prior to the first day of January, 2000. It is also of some significance to notice that the exemption notification appears to have been drafted having regard to the decision of this court in State of Rajasthan v. Mahaveer Oil Industries [1999] 4 SCC 357 See [1999] 115 STC 29 (SC). . A comparative chart placed before us by Mr. Billimoria may be noticed: Mahaveer oil See [1999] 115 STC 29 (SC). This court's observation Notification No. 1092 of 1999 as amended The respondent-firm got its provisional registration certificate on February 15, 1990 This is merely a provisional registration issued by the Directorate of Industries Mere registration would be good enough for SSI units. They applied for allotment of land and land was allotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of grant of financial exemption was to be received from the Deputy Commissioner (General), Commercial Taxes, the same, in our opinion, would not mean that the conditions had not been satisfied. In any event, the certificate granted by the Director deserved serious consideration. Both the learned single judge as also the Division Bench did not consider this aspect of the matter. Although payment of advance in respect of some machinery and plant would subserve the requirements for the purpose of obtaining the eligibility certificate, the learned single judge read the word "any" to be synonymous to the word "all", whereas the Division Bench considered it to be "substantial". It is in that view of the matter the opinion of the learned single judge in O.P. No. 8563 of 2003 Reported as Pepsico India Holdings Pvt. Ltd. v. State of Kerala [2006] 144 STC 409 (Ker). assumes importance wherein, as noticed hereinbefore, it was categorically held See page 431 of [2006] 144 STC.: "... Regarding the third situation, it is stated that a unit shall be deemed to have placed firm orders for the purchase of plant, machinery and equipment if such units had made any (emphasis supplied) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to have placed firm orders for the purchase of plant, machinery and equipment if such units had made any (emphasis(3) supplied) The said principle was reiterated in Badri Kedar Paper Pvt. Ltd. v. U.P. Electricity Regulatory Commn. [2009] 1 SCALE 137 See [2009] 3 SCC 754. in the following terms: "It is furthermore well known that even a right under a mandatory provision can be waived. (See Babulal Badriprasad Varma v. Surat Municipal Corporation).See [2008] 12 SCC 401; [2008] 8 SCALE 206. If it had made a representation pursuant whereto or in furtherance whereof a consumer of electrical energy had altered its position, the doctrine of promissory estoppel shall apply. The doctrine of promissory estoppel, it is now well-settled, applies also in the realm of a statute." An exemption notification and a notification withdrawing the benefit granted would, however, stand on different footings. For the said purpose, the industrial policy is required to be kept in mind. It must also be taken into consideration for the purpose of construing the exemption notification. In A.P. Steel Re-Rolling Mill Ltd. v. State of Kerala [2007] 2 SCC 725, this court held: "32. The general pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abolish purchase tax on milk and the taxing authority therefore raised a demand for assessment year 1996-97. On these facts, the court held that in absence of proof of any overriding public interest rendering the enforcement of estoppel against the Government was inequitable, notwithstanding that no exemption notification as required by the statute was issued, the State Government cannot resile from its decision to exempt milk and raise a demand for the aforesaid assessment year. However, the same principle of estoppel was not invoked after assessment year 1996-97. The court enforced the principle of estoppel. All the earlier cases on the subject were reviewed by the court and ultimately it was concluded as follows: (SCC pages 481-82, para 47 See page 56 of [2004] 136 STC, para 47) '47. The appellant has been unable to establish any overriding public interest which would make it inequitable to enforce the estoppel against the State Government. The representation was made by the highest authorities including the Finance Minister in his budget speech after considering the financial implications of the grant of the exemption to milk. It was found that the overall benefit to the Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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