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TMI Blog2010 (7) TMI 921X X X X Extracts X X X X X X X X Extracts X X X X ..... wn exemption nor does it seek to justify the benefit conferred on the petitioner having been rendered illusory, but only assigns a dispassionate reasoning, that it is the misfortune of the petitioner to be faced with the circumstance of the incentive becoming redundant for the reasons stated above. It is therefore necessary for the State Government to reconsider the request made by the petitioner and to evolve measures in order to address the petitioner's plight and to afford such relief as may be warranted. The writ petition is accordingly allowed. The order at annexure M is quashed and the State Government is directed to reconsider the request of the petitioner in the light of the observations made hereinabove - Writ Petition No. 30303 of 2009 - - - Dated:- 15-7-2010 - ANAND BYRAREDDY , J. ORDER:- ANAND BYRAREDDY J. Heard the learned counsel for the petitioner and the learned Government Advocate. The facts briefly stated are as follows: The petitioner is a company registered under the Companies Act, 1956 and a dealer registered under the Karnataka Sales Tax Act, 1957 (hereinafter referred to as, the KST Act , for brevity) under the Central Sales Tax Act, 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned. By a certificate dated May 20, 2004, the Department of Industries and Commerce, endorsed that the petitioner had invested Rs. 223.73 crores on fixed assets in respect of phase III of the project and that the petitioner was eligible for deferment on payment of sales tax, both under the KST Act and the CST Act, on the sale of goods manufactured by it for a period of twelve years from the date of commencement of commercial production, from June 26, 2002 to the extent of 80 per cent of the value of fixed assets. With the ushering in of reforms to bring about a uniform system of taxation known as goods and services tax by the year 2010, the rate of tax payable under the CST Act was sought to be reduced in order to bring about uniformity and it was this object that the Taxation Laws (Amendment) Act, 2007, to amend certain provisions of the CST Act was introduced. By virtue of that, with effect from April 1, 2007, in respect of the sale of goods referred to in sub-section (3) of section 8 of the CST Act, by a dealer to a registered dealer in the course of inter-State trade, the rate of tax was fixed at three per cent. It also substituted section 8, whereby sub-section (1) ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.44 crores plus average tax liability of three years prior to September 2006 over and above Rs. 4.44 crores, whichever is higher . And that by application of the above formula, the base tax liability, pursuant to the commissioning of phase III of the petitioners' project, works out to a sum of Rs. 11.21 crores per annum. Since this is higher than Rs. 8.84 crores per annum fixed, as per the Government order dated April 26, 2000, the petitioner is liable to discharge the base tax liability at the higher figure of Rs. 11.21 crores, or Rs. 93.46 lakh per month instead of Rs. 73.68 lakhs per month, if the base liability was at Rs. 8.84 crores in accordance with the Government order dated April 26, 2000. It is contended that prior to April 1, 2007, the petitioner had effected sales of paper and paper boards in the course of inter-State trade to the extent of 62 per cent of its total sales as against its sale eligible to tax under the KVAT Act. Further, the petitioner has effected inter-State sales to the extent of 60 per cent to 71 per cent of its total sales for the succeeding assessment years. In view of the fact that the rate of tax payable under the KST Act stood reduced t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntend that while rejecting the request of the petitioner seeking a modification of the Government order dated April 26, 2000, the Finance Department has observed that there was no promise extended to the effect that if there is a change in the rate of tax under the CST Act, the incentives offered in the above order would be modified accordingly. It was also stated that the State Government cannot grant any interest-free loan sought by the petitioner only on account of the change in the CST Act. This, it is contended, is illegal as such a rejection completely takes away the incentive offered and on the basis of which the petitioner has made investments. There is a complete denial of incentive on the additional capacity created by it. It is contended that if the rate of tax prescribed at four per cent under the CST Act, at the time that the incentive was granted was continued at the same rate, the petitioner would have been in a position to claim incentive by way of collection of tax over and above the base tax liability which would have been repaid after the period of moratorium. However, with the reduction in the rate of tax under the CST Act, the incentive available to the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act, to various industrial units, prior to April 1, 2005. It is pointed out that though the notifications were issued under the provisions of the KST Act, the period of exemption spilled over to the period governed by the VAT regime. Pursuant to the introduction of the VAT Act, on and with effect from April 1, 2005, in order to obviate the difficulties faced by the industrial units enjoying the benefits under the above notifications, the Government had issued certain further notifications in exercise of its power under the VAT Act. These notifications are detailed by the petitioner at paragraphs 41(a) and (b) of the petition. In other words, the Government has, in order to continue to give effect to exemptions or deferment granted earlier under the KST Act and to give effect to the industrial policy of the State, the above notifications have been issued. This is also on the footing that the Government took into account that under the scheme of the VAT Act, the units enjoying the benefits granted under the KST Act, would not be in a position to avail of the balance portion of the exemption or deferment, the Government had issued the above notifications. It is also contended tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification. It is therefore contended that the Government of Karnataka has stepped in, from time to time, invoking the provisions of the KST Act to ensure that incentives in the form of exemptions and deferment which were made available under the KST Act, could be continued under the KVAT Act. It is also contended that there would be no loss of revenue to the State if the relevant Government Order is modified, as the State is compensated for the loss of revenue on account of reduction of the rate of tax under the CST Act. It is also pointed out that under the impugned order, it is erroneously found that the petitioner had sought for reduction of the base tax liability from Rs. 11.21 crore to Rs. 8.84 crore. On the contrary, the petitioner has sought that the base tax liability be fixed on a pro rata basis, consequent to the reduction in the rate prescribed under the CST Act. It is therefore prayed that the petition be allowed. Per contra, it is contended on behalf of the Revenue as follows: While reiterating the above facts and events and reproducing the reasons assigned by the Department of Finance in rejecting the request of the petitioner, it is contended th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. When the Government of Karnataka itself is in a financial crisis due to global recession, special concession requested by the petitioner cannot be considered by the Government and the petitioner has to repay the taxes deferred since 1994 as per the terms and conditions of the relevant Government orders and notifications issued thereto. The counsel for the respondent relies on the decision of the Supreme Court in Rajasthan Spinning and Weaving Mills Ltd. v. Collector of Central Excise, Jaipur, Rajasthan [1996] 102 STC 476, wherein the Supreme Court has held that exemption notification must be strictly construed and the manufacturer should bring himself squarely within the ambit of the notification and that no extended meaning can be given to the exempted notification and it has to be construed strictly. A request for modification of notification at the middle of availment period is nothing but a prayer for special concession over and above what was offered and accepted by the petitioner. As such, the petitioner cannot seek for special concession as a matter of right. It is contended that the Government of Karnataka, by issuing the Government order referred to supra, has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment period is nothing but a prayer for special concession over and above what was offered and accepted by the petitioner. As such, the petitioner cannot seek for special concession as a matter of right. It is contended that the Government of Karnataka, by issuing the Government order referred to supra, has not promised anything with regard to the special concession and had not held out a promise of modification in case of any change in the rate of tax under the CST Act and there is no estoppel against such statute. It is contended that the concession granted by the Government of Karnataka to the petitioner is a beneficial one which cannot be questioned or challenged before this court. It is also contended that, by virtue of the said Government order, the Government of Karnataka has not offered or promised to the petitioner interest-free loan to the extent of reduction of Central sales tax of expanded capacity. Therefore, the petitioner cannot seek any relief as a matter of right. By way of reply, it is pointed out by the counsel for the petitioner that the respondents are in error in stating that the total deferment of tax availed is in a sum of Rs. 75.57 crores whereas t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the context, by reading the exemption notification as a whole and by keeping in view, the object and purpose of the exemption and the consequences of the different interpretations. (iv) An interpretation which makes the exemption illusory and has the effect of giving by one hand and taking away by the other, should be avoided; at the same time a liberal interpretation which will do violence to the language employed or which will lead to absurd results, should not also be resorted to. (v) It is always for the person claiming the benefit of exemption to clearly establish that he is entitled to the exemption and this burden cannot be shifted on the Revenue. Further, the apex court in the case of State of Jharkhand v. Tata Cummins Ltd. [2006] 145 STC 340, has held thus (page 347 in 145 STC): . . . An exemption from payment of tax under an enactment is an exemption from the tax liability. Therefore, every such exemption notification has to be read strictly. However, when an assessee is promised with a tax exemption for setting up an industry in the backward area as a term of the industrial policy, we have to read the implementing notifications in the context of the industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to hold the land in perpetuity included an immunity from payment of rent. Patanjali Sastry, J., differed. Chandrasekhara Aiyar, J., concurred with the conclusion of Das, J., but based his reasoning on the fact that by the resolution, representations had been made to the Corporation by the Government and the accident that the grant was invalid did not wipe out the existence of the representation nor the fact that it was acted upon by the Corporation. What has since been recognised as a signal exposition of the principle of promissory estoppel, Chandrasekhara Aiyar, J., said: '. . . The invalidity of the grant does not lead to the obliteration of the representation . . . Can the Government be now allowed to go back on the representation, and if we do so, would it not amount to our countenancing the perpetration of what can be compendiously described as legal fraud which a court of equity must prevent being committed. If the resolution can be read as meaning that the grant was of rent-free land, the case would come strictly within the doctrine of estoppel enunciated in section 115 of the Indian Evidence Act, 1872. But even otherwise, that is if there was merely the hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating and implementing its policies in public interest. 28.. This court rejected all the three pleas of the Government. It reiterated the well-known preconditions for the operation of the doctrine: (1) a clear and unequivocal promise knowing and intending that it would be acted upon by the promisee; (2) such acting upon the promise by the promisee so that it would be inequitable to allow the promiser to go back on the promise. 29. As for its strengths it was said: 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. To put it in the words of the court: 'The law may, therefore, now be taken to be settled as a result of this decision, that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in the above decision in Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh [1979] 44 STC 42 (SC); [1979] 2 SCC 409 and has referred to the following decisions: (1)Here italicised. (i) Century Spinning and Manufacturing Company Limited v. Ulhasnagar Municipal Council [1970] 3 SCR 854. (ii) Jit Ram Shiv Kumar v. State of Haryana [1980] 3 SCR 689. (iii) Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574 (SC); [1985] 4 SCC 369. (iv) Bakul Cashew Company v. Sales Tax Officer [1986] 62 STC 122 (SC); [1986] 2 SCC 365. (v) Surya Narain Yadav v. Bihar State Electricity Board [1985] 3 SCC 38. and has pointed out that the view expressed by Chandrasekhara Aiyar, J., in the case of Collector of Bombay v. Municipal Corporation of the City of Bombay [1952] SCR 43, still holds the field. The court has referred to the judgment in Kasinka Trading v. Union of India [1995] 1 SCC 274, which is an authority for the proposition that mere issuance of an exemption notification under a provision in a fiscal statute such as section 25 of the Customs Act, 1962, could not create any promissory estoppel because, such an exemption by its very nature, is suscepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t right to be existing in the appellants. Legitimate expectation 146.. We may also notice the emerging doctrine in this behalf, viz., legitimate expectation of substantive benefit. Ordinarily, the said principle would not have any application where the Legislature has enacted a statute. As, according to us, the Legislature in this case allowed the parties to take benefit of their existing rights having regard to the repeal and saving clause contained in section 20(1) of the 2003 Act, the same would apply. If, thus, principle of promissory estoppel would apply, there may not be any reason as to why the doctrine of legitimate expectation would not. 147.. Legitimate expectation is now considered to be a part of principles of natural justice. If by reason of the existing state of affairs, a party is given to understand that the other party shall not take away the benefit without complying with the principles of natural justice, the said doctrine would be applicable. The Legislature, indisputably, has the power to legislate but where the law itself recognises existing right and did not take away the same expressly or by necessary implication, the principles of legitimate expectati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to play. And the circumstance that the rate of tax under the CST Act having been reduced by virtue of a statutory amendment and the same being in aid of tax reforms introduced by the Central Government commencing during the year 2000, there was no reciprocal promise by the State Government to the effect that if there was any change in the rate of tax under the CST Act, that there would be a corresponding modification of the tax incentives offered by the Government under its order dated April 26, 2000 and as there can be no promissory estoppel against a statute, there is no ground made out to consider the request of the petitioner. It is also stated that the availment of incentives by the petitioner is optional. If it is no longer beneficial to the company, then it is at liberty not to avail of the same and pay taxes in accordance with law. Conversely, if the rate of tax under the CST Act was to be increased, the petitioner would have certainly benefited by the increased deferment of tax and in which event, the Government would not have been in a position to refix the base tax at a higher level. It is this reasoning of the State Government on the basis of which the request has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raged to make the substantial investments that it has, in phase III of its expansion project thereby providing an avenue for large scale employment and to provide a source of revenue to the State Government. The benefit that is conferred on the petitioner is by way of sales tax deferment, meaning thereby that the petitioner is not totally absolved of bearing the burden of tax. The same is only postponed. By virtue of the effect of taxation reforms brought in by the Union Legislature, if the incentive is rendered illusory, it was for the State Government to have evolved a measure to temper the hardship and misfortune that has resulted in the petitioner's venture being rendered unfruitful and unprofitable, which was prompted largely by the incentive offered. This is evident from the fact that the petitioner who intended the expansion project only in phase I and phase II, was encouraged to implement phase III of the project, thereby requiring substantial additional investment which is duly endorsed by the Department of Industries and Commerce. The terse reasoning of the authority of the State Government vide annexure M, to the effect that the reduction in the rate of tax is only o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Government was pleased to issue a notification bearing No. FD 56 CSL 2005(1), dated April 18, 2005 with effect from April 1, 2005, under the VAT Act wherein the net tax payable by the said industrial units was exempted by a scheme where under the said units were liable to collect the tax payable under the VAT Act. Thereafter, the net tax paid by the industrial unit was refunded to it. In respect of those industrial units which were eligible for deferment of payment of taxes on the sale of goods manufactured by them, the Government of Karnataka was pleased to issue a notification bearing No. FD 56 CSL 2005(2), dated April 18, 2005 deferring the output tax payable by the said industrial unit under a scheme whereby the unit claiming deferment of tax would be eligible for input tax rebate which was refunded to the said industrial unit subject to fulfilling the conditions specified in the said notification. Therefore, the Government in order to continue to give effect to the exemption granted earlier under the Act in respect of the abovesaid industrial units to encourage rapid industrial growth and achieve the twin objective of employment generation and utilisation of local resources ..... X X X X Extracts X X X X X X X X Extracts X X X X
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