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TMI Blog2016 (2) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... d cannot deny extending the exemption benefit agreed upon, on the pretext that it has no powers under KVAT Act to extend such exemption. The terms agreed in the FWA amounts to promissory estoppel. - It is settled law that the doctrine of promissory estoppel being an equitable doctrine, it must yield when the equity so requires. At this juncture, it is significant to note that admittedly, Appellant Company No.4 is not an affiliate of the appellant company No.1. As per the terms of FWA, the benefit of tax exemption is available only to the appellant company, and its affiliates. - We cannot direct the State Government to issue any notification exempting the nonaffiliates of the appellant company from the tax payable under the provisions of the KVAT Act in terms of FWA. The fourth appellant, if aggrieved by any assessment/reassessment order, has to take recourse of statutory appeal available under the KVAT Act. Writ Appeals are allowed in part. - State Government is directed to issue appropriate exemption notifications under section 5(1) of the KVAT Act on the sale of goods to/by the appellants No.1 to 3 in terms of Framework Agreement dated: 03.04.1997. - Decided party in favor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , award and/or make available to the Company and its Affiliates in connection with the Project or any Component thereof or asset related thereto the following concessions, incentives and holidays in respect of the state and local taxes, duties including stamp duties, registration fee, levies and conversion fine - [collectively, the 'Assessments'] indicated below. 12.1.1 Each part of the Toll Road, the roads in the Townships and the public utilities and common facilities in the Townships shall be exempt from all state and local Assessments. 12.1.2 All assessments that otherwise may be due with respect to any residential housing contemplated in the Townships shall be deferred until such time as each such residential housing or part thereof is sold to public on prorata basis at the same rate as was originally would have been. 12.1.3 The minimum invoice value for application of the entry tax waiver shall be ₹ 2,500,000, on a single invoice basis. 12.1.4 All assessments shall be subject to CAP/Ceiling the amount of taxes to be paid on annual basis. 7. As per the said Article 12.1, the Government of Karnataka has extended concessions, incentives and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssary loans, and therefore unilateral withdrawal of the exemptions in the FWA is contrary to the doctrine of promissory estoppel. In other words, having led the appellants to believe by virtue of the FWA as well as subsequent exemption granted until 2005 that the project was exempted from value added tax and other taxes, appellants invested huge sums of money in the project with the expectation that the exemption would be granted without demur. Therefore, the respondent No.1 is estopped from unilaterally modifying the exemption accorded to the detriment of the appellants and action in this regard is contrary to the principles of promissory estoppel. The respondent No.1 has not made out any case for supervening public interest for it to change its stand and withdraw the exemption granted under the FWA and is on the contrary, bound to carry out its promise under the FWA dated 3.4.1997. The FWA envisaged total exemption from all taxes i.e., exemption of payment of value added tax on purchases as well as on sales and is clear from the conduct of the respondent No.1 from the years 1999 to 2005 when the appellants, including the sub-contractors, were granted complete exemption from payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In such circumstances, the Government of Karnataka cannot turn around and issue an order only to reimburse the net VAT paid by the assessee, that too after six years. The assessee has neither collected the taxes nor paid the same on the assurance/promise of the Government of Karnataka to exempt the taxes. The stance of the Government now taken would attract payment of tax by the assessee-company from its pocket as the assessee has not collected output tax, besides attracting the levy of penalty and interest which would be detrimental to the interest of the company. The Department initiating the proceedings against the company after issuing the Government Order dated 7.12.2011 belatedly would amount to breach of terms and conditions of the FWA and fastening the tax liability on the assessee-company along with interest and penalty is not called for. Given the circumstances, the Government of Karnataka has to honour the promises or assurances and act according to the FWA dated 03.04.1997. The silence on the part of the Government of Karnataka from 1.4.2005 to 7.12.2011 not coming out with its stance would indicate inaction on the part of the Government of Karnataka to issue necessar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the appellant company, are the assessees having no beneficial equity interest and are not falling within the definition of 'Affiliate' as per Clause 1.2, thus, are not entitled for any benefit flowing out from the FWA. The contention of the assessee company to extend the benefits even to the contractors and sub-contractors placing reliance on the FWA is contrary to the terms and conditions of the FWA since no promise or assurance was made by the Government to extend such benefit to the contractors and sub-contractors who are working under the assessee-company. It is restricted only to the assesseecompany and its affiliates as defined under clause 1.2 of the FWA. Admittedly, appellant No.4 is not an affiliate of the assessee-company and is not entitled for any tax concession or tax holiday or incentive as provided under clause 1.2 of the FWA. 17. The main arguments advanced by the learned counsel appearing for the State is that under the KST regime, a general notification dated 1.8.1998 was issued by the Government of Karnataka exercising the powers under section 8-A of the KST Act exempting the tax payable by a dealer under section 5 of the KST Act on the sale of mac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HERS reported in 2015 [80] VST 26 [T AP]. 21. It is the arguments of the learned Counsel that though the FWA specifies for extending tax benefit/incentives/holidays, the exemption cannot be extended as provided under the KST regime, since no specific provision is available under the KVAT Act as that of the KST Act. In the absence of any power conferred on the Government of Karnataka to extend exemption under the KVAT Act, the Government of Karnataka, in its wisdom, has taken a policy decision to reimburse the net value added tax paid by the assessee-company and the value added tax paid on purchase of goods made from local registered dealers for use in BMIC project, provided no input tax credit is claimed on the same which is in accordance with the provisions of the KVAT Act read with FWA, and as such prays for dismissal of the appeals and to relegate the assessee-company to avail the alternative statutory appeal, which is the efficacious remedy to challenge the re-assessment orders. 22. We have heard the learned Counsel appearing for the parties and we have given careful consideration to the points advanced at the Bar. We have also perused the terms and conditions of FWA al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a new industrial unit. We are not inclined to accept this argument advanced by the State. The assessee-company is declared as a unit carrying on the infrastructure project from 18.01.1999 as per the certificate issued by the Karnataka Government Secretariat, Public Works Department. There is no definition clause of 'New of Industrial Unit' neither in the notification dated 1.8.1998 nor in the Government Order dated 7.12.2011. We cannot construe the Assesseecompany as a 'New Industrial Unit' to which the tax benefit under the KST Act was extended, it was for the infrastructure project in terms of Government Order dated 26.12.1997. It is also made clear in the notification dated 1.8.1998 that the dealer undertaking an infrastructure project shall obtain and produce a certificate issued by the Infrastructure Development Department of Government of Karnataka or its authorized nominee certifying that the project is recognized by the Infrastructure Development Department in terms of the Government Order No.IDD/1UIP/97-Bangalore dated 26.12.1997. Thus, by no stretch of imagination, the assessee-company could be construed as a new industrial unit to attract the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a dealer on the sale of machinery and equipments and on the sale of construction material to a dealer undertaking an infrastructure project. The exemption that was granted under the KST regime by issuing notifications under section 8-A of the KST Act is in respect of the goods i.e., machinery, equipments and construction material, granting of exemption is subject to the sale effected to a dealer undertaking an infrastructure project. Such power of granting exemption is very well embedded in the latter portion of Section 5(1) of the KVAT Act, which specifics granting of exemption subject to such restrictions and conditions as may be specified in the notifications . Hence, State Government is empowered to grant exemption under section 5(1) of the KVAT Act on the sale of machinery, equipments and construction material to a dealer undertaking an infrastructure project. State cannot contend that it has no power to exempt the dealer unlike KST Act. It is virtually exemption of tax on the goods, subject to certain restrictions and conditions. 29. An identical issue was before the Hon'ble Apex Court in the case of the ORIENT WEAVING MILLS PRIVATE LIMITED cited supra, which examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance owned by the members of the Co-operative Society. It has not been contended before us that the conditions laid down for granting the exemption have not been fulfilled by the members of the Cooperative Society, the respondent No. 5. Hence, the exemption granted is within the terms of the notifications aforesaid, which have effect as if enacted as a part of the Statute. The vires of the Statute, as already indicated, has not been questioned. Thus, it was held that Rule 8(1) of the Central Excise Rules, 1944, does not suffer from the vice of excessive delegation of power to exempt nor the notifications were bad in so far as they exempt certain classes of persons from the excise duty. 30. In the light of the said Judgment, we are of the considered opinion that the State is empowered to issue exemption notification to the appellant company on the sale of goods and cannot deny extending the exemption benefit agreed upon, on the pretext that it has no powers under KVAT Act to extend such exemption. The terms agreed in the FWA amounts to promissory estoppel. 31. Considering several Judgments of the Hon'ble Apex Court holding the field on the issue of doctrine of promis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e State Government to resile from its decision to exempt purchase tax on milk and demand purchase tax with retrospective effect from 01.04.1996 so that the respondents cannot in any event readjust the expenditure already made. This Judgment is squarely applicable to the facts of the present case. 34. In the given circumstances, the appellant No.1 and its affiliates having set up their establishment on the promises/assurances made by the State Government of extending the tax benefits to the project, now cannot resile from its decision and demand the payment of taxes with retrospective effect from 1.4.2005, which was not made known to the respondents, to collect output taxes, thereafter to make the payment of the net tax after deducting the input tax as enumerated in the Government Order dated 7.12.2011. There is no bar under the scheme of the KVAT Act to deny the benefit of exemption as extended under the KST Act. It is only in the circumstances, where the promise or assurance made is contrary to law or is outside the authority or power of the Government or the statute, such promise or assurance cannot be enforced. In the event of there being no statutory prohibition, issuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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