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TMI Blog2019 (4) TMI 1633X X X X Extracts X X X X X X X X Extracts X X X X ..... paid the same by adjusting the input tax credit. Thus it is a no win situation for the petitioners. In the opinion of this court, under the Gujarat Textile Policy which is in the nature of an incentive scheme, there is also an obligation cast upon the Government to grant refund/reimbursement of the amount due and payable to the dealers. However, for the purpose of considering as to whether there is due compliance with the provisions of the scheme, it is only the obligation cast upon the dealer which has been taken into consideration, ignoring the fact that such failure has occasioned on account of the non-fulfillment of the reciprocal obligation cast upon the Government authorities to refund/reimburse the amounts due to the dealers. The controversy in the present case is therefore, required to be amicably resolved by ensuring that while the Government does not have to compromise insofar as recovery of taxes is concerned, a balance is maintained, whereby the petitioners are also in a position to continue with the business to fulfil the object of the textile policy - the amount due and payable by the petitioners works out to approximately ₹ 2,75,26,130/- and in terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mediate product within entire value chain from cotton to Garment and on end made ups to the extent of 100% the eligible fixed capital investments in plant machinery made within one year (two years in case of investment more than 500 crores) from the date of production or during the operative period of the scheme whichever is earlier. 2.1 By an amendment dated 11.10.2013, the word remission was replaced by the word reimbursement . In nutshell, the scheme is that a dealer is entitled to the benefits of the policy on the basis of eligible investment made in the textile industry. While the dealer is entitled to refund of tax paid on purchase of raw material and intermediate products, he is entitled to claim reimbursement from the Industries Department of output tax paid on sales. 2.2 The Finance Department of the State of Gujarat issued a notification dated 11.10.2013 to implement the Textile Policy as declared by the Industries and Mines Department. The petitioners established a new unit for manufacture and sale of technical textiles for which investment of ₹ 20.11 crore was made in plant and machinery and other assets considered to be eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey would be in a position to immediately discharge their tax liability under the GVAT Act. 2.7 The Commercial Tax Officer, however, issued recovery notice dated 9.10.2015 for recovery of alleged dues of ₹ 2,09,45,536/- under section 44 of the GVAT Act. A further show cause notice dated 30.10.2015 came to be issued by the Commercial Tax Officer alleging that since the petitioners had claimed input tax credit paid on purchases, they are not entitled to refund of such tax. Thus, while on the one hand refund was sought to be disallowed on the ground that input tax credit had been claimed by the petitioners, by the very same notice, the petitioners were asked to pay output tax liability without benefit of input tax credit since as per the respondents this was the requirement of the textile policy. The petitioners immediately responded by a letter dated 3.11.2015 pointing out that the entire situation had arisen because the certificate was actually granted to the petitioners only on 7.3.2015. The petitioners thereafter, made a representation in this regard to the State Government pleading that their only error was that they by bona fide mistake continued to pay tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the order cancelling the registration certificate of the petitioners. Accordingly, the registration number was ordered to be restored with effect from the date of cancellation. 2.11 Immediately thereafter on 28.1.2016, the Commercial Tax Officer issued a garnishee notice under section 44 of the GVAT Act to the petitioners' bank for recovery of alleged dues of ₹ 79,36,350/-. Thereafter another notice dated 28.1.2016 was issued to the petitioners once again proposing to cancel the registration certificate of the petitioners. The petitioners wrote a letter to the Commercial Tax Officer on 5.2.2016 informing him that they were entitled for refund under the textile policy for the years 2013-14 to 2015-16 for which they submitted necessary details and requested him to expedite the process of release of refund. The Commercial Tax Officer thereafter withdrew the bank attachment by an order dated 11.2.2016. 2.12 It is the case of the petitioners that apart from the refund of tax paid on purchases which was to be obtained from the Finance Department, the textile policy also required the Industries Department to reimburse the amount of output tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... due to severe financial crunch and because of the fact that refund was not released in time by the Industries Department as well as the Finance Department, by an order dated 14.6.2016 the registration certificate of the petitioners came to be cancelled with effect from 1.6.2016. 2.15 Against the said order, the petitioners preferred a first appeal before the Deputy Commissioner of Commercial Tax on 23.6.2016, who required the petitioners to submit challan showing payment of outstanding tax. The petitioners conveyed to the first appellate authority that their refund claim was higher than the outstanding dues and, therefore, the registration certificate was eligible to be restored. The departmental authority, however, orally conveyed to the petitioners that the refund claim had been rejected. Since the petitioners had not received any order regarding such rejection, the petitioners addressed a letter dated 20.8.2016 to provide such order passed, if any. 2.16 It is the case of the petitioners that they had noticed that they had erroneously claimed input tax credit in the year 2015-16 which was not admissible to them as per the provisions of the textile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d claims. A letter requesting release of refund was again addressed to the Commercial Tax Officer on 7.6.2017. The petitioners also requested the Deputy Commissioner of Commercial Tax to give necessary clarification in respect of query raised by the Industries Commissioner so that refund could be released to the petitioners at the earliest. On the same day, the Commercial Tax Officer gave clarification in this regard to the Deputy Commissioner, a copy of which was marked to the petitioners. 2.20 The Assistant Commissioner of Commercial Tax forwarded further claim of refund amounting to ₹ 79,64,378/- admissible to the petitioners under the textile policy for the year 2015-16 to the Additional Commissioner of Industries vide a letter dated 23.6.2017. The Commercial Tax Officer again wrote a letter to the Commissioner of Industries on 31.7.2017 to adjust the refund of the petitioners towards the outstanding assessed dues of the petitioners for the years 2011-12 and 2012-13. It is the case of the petitioners that even though the Commercial Tax Department was aware that the petitioners were not able to discharge the tax liability under the GVAT Act in time due to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal came to be admitted by the Gujarat Value Added Tax Tribunal and stay came to be granted against the assessed dues on condition of pre-deposit of ₹ 7,00,000/-. The petitioners have complied with the condition of pre-deposit on the basis of which the stay order has come into operation. 2.22 It is the case of the petitioners that the Deputy Commissioner of Commercial Tax has erred in retrospectively cancelling the certificate of entitlement of the petitioners on the ground of outstanding dues under the GVAT Act. It is the case of the petitioners that the dues are outstanding only because of extreme lethargy and inaction on the part of the Industries Department in releasing refund due under the textile policy. According to the petitioners, in fact, refund is due even under the GVAT Act in respect of input tax in connection with which the petitioners had duly filed an application. It is the case of the petitioners that cumulatively the refund due to the petitioners from the Industries Department and Value Added Tax Department is higher than the outstanding dues of the petitioners and even if the outstanding dues are recovered, the same would ultimately be req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy, it was formally declared that only net tax would be payable for such interregnum period and that refund of input tax credit as well as the net tax paid would be granted by the Industries Department. However till date, such refund has not been released by the Industries Department. It was urged that even for the subsequent period, the petitioners are clearly entitled to refund of tax paid on purchases of raw materials used in the manufacturing process; however, the Finance Department has not released a single rupee of such refund till date nor have they given any explanation for non-release of such refund. It was submitted that retrospective cancellation of certificate of entitlement by the impugned order on the ground of arrears of tax dues under the GVAT Act without taking into consideration the huge refund due to the petitioners under the GVAT Act is arbitrary, bad and illegal. 3.1 Next, it was submitted that in an investment linked incentive scheme, the Government is bound to give incentives under principle of promissory estoppel and promise cannot be ordinarily resiled from. The petitioners made investment of ₹ 20.11 crore relying on the promise given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. The court held that it is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law. Everyone is subject to the law as fully and completely as any other and the Government is no exception. 3.2 It was further submitted that the provisions of the textile policy and the notifications issued thereunder being investment linked incentive scheme have to be read liberally. It was submitted that the textile policy provides for investment based incentives scheme. Therefore, the provisions of the said policy and the notifications issued thereunder have to be read liberally and for furtherance of the objectives of the textile policy which is to promote the textile sector. It wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true that issuance of such notifications entitles the industrial units to avail of the incentives and benefits declared by the State Government in its own industrial incentive policy. But in exercise of such power it would not be permissible for the State Government to deny any benefit which is otherwise available to an industrial unit under the Incentive Policy itself. The Industrial Incentive policy is issued by the State Government after such policy is approved by the Cabinet itself. The issuance of the notification under Section 7 of the Bihar Finance Act is by the State Government in the Finance Department which notification is issued to carry out the objectives and the policy decisions taken in the industrial policy itself. In this view of the matter, any notification issued by the Government order in exercise of power under Section 7 of the Bihar Finance Act, if is found to be repugnant to the Industrial Policy declared in a Government resolution, then the said notification must be held to be bad to that extent. In the case in hand, the notification issued by the State Government on April 4, 1994, has been examined by the High Court and has been found, rightly, to be contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Department is still in force and, therefore, the Industries Department still considers the petitioner to be an eligible unit under the textile policy. According to the learned advocate for the petitioners, all the departments of the Government are required to speak in one voice. Since in the case of the present incentive scheme, the parent policy is floated by the Industries Department, the voice of the Industries department is paramount and, therefore, the Finance Department cannot take a contrary stand by retrospectively cancelling the certificate of entitlement even though the eligibility certificate is still in force. Reliance was placed upon the decision of the Supreme Court in the case of Vadilal Chemicals Ltd. v. State of Andhra Pradesh, (2005) 142 STC 76 (SC), wherein the court followed the principles settled in M.R.F. Ltd. (2006) 148 STC 225 , and held that as the petitioner-company has made substantial investment and in fact enjoyed tax benefits for certain periods, the impugned action of the opposite parties holding that the petitioner's industrial unit is not entitled to the exemptions in terms of entry 43A of the Sales Tax Exemption Notification dated Jul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was paid by the eligible unit was required to be refunded/reimbursed. It was submitted that the entire mechanism would however work only if refund of tax paid on purchases was given as promised since the eligible units such as the petitioners would not consider tax element as a cost while arranging their affairs relying on the promise of the Government. It was emphatically argued that the petitioners have landed in difficulty because of reluctance on the part of the authorities to disburse refund validly due to them. It was urged that cancellation of certificate of entitlement of the petitioners on the ground of tax arrears even though ultimately the said amount of tax was to be reimbursed to the petitioners is mechanical, arbitrary and illegal. 3.9 The learned advocate for the petitioners has put forth an alternative contention without prejudice to the contentions advanced hereinabove, to the effect that retrospective cancellation of the certificate of entitlement is arbitrary, bad and illegal. It was submitted that although the registration certificate under the GVAT Act was cancelled by an order dated 14.6.2016, second appeal against the same is pending before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners are in accordance with law and errors committed in some of the returns have already been rectified. 3.12 In conclusion, it was urged that the petition deserves to be allowed by granting reliefs prayed for therein. 4. Opposing the petition, Mr. Utkarsh Sharma, learned Assistant Government Pleader for the respondents, submitted that the petitioners have not cleared their dues and could not comply with the conditions of the policy and, therefore, the certificate of entitlement has been cancelled. It was further submitted that by an order dated 12.12.2017, the registration number of the petitioner has also been cancelled. It was submitted that the registration under the GVAT Act has been cancelled with effect from 2016, which indicates that there has been persistent breach of the provisions of the GVAT Act and, therefore, the impugned order which is passed on the basis of clauses 7(i) and 7(ii) of the Notification dated 11.10.2013 is duly substantiated. It was submitted that there is a breach in fulfilling the conditions under the scheme as well as the provisions of the GVAT Act. 4.1 The learned Assistant Government Pleader also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers but has not been paid in the Government treasury till today. 4.2 It is also averred in the affidavit-in-reply that for the year 2015-16, the petitioner had to file return as per incentive dealer; however, the petitioner had defaulted. After default, the petitioner was given option to make payment as per installments granted by the Commissioner of Commercial Tax, however, the total value added tax payable by the petitioner for claiming reimbursement was not at all paid. The petitioner had filed returns which were factually incorrect and that for the months of April 2015 to August 2015, the petitioner had adjusted input tax credit which comes to ₹ 1,47,95,689/- and, therefore, the petitioner had breached the conditions of the policy. It is further stated that there is also a liability of CST of ₹ 31,79,249/- for the year 2015-16 and that during the financial year 2015-16, there was a demand of ₹ 26,93,440/- for assessment year 2011-12, ₹ 49,22,047/- under the CST Act for the year 2013-14, ₹ 55,59,662/- under the CST Act for the year 2014-15, ₹ 31,29,397/- for the year 2015-16 under the CST Act. It is further averred that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of refund by the Industries Department and the Finance Department under the textile policy, for which now recourse is taken by the Government to retrospective cancellation of certificate of entitlement. It was submitted that the petitioners will be able to revive the registration certificate and pay outstanding dues only if refund is released to the petitioners at least for the period prior to cancellation of registration certificate. 5.1 Mr. Sheth invited the attention of the court to the computation of Value Added Tax and Central Sales Tax payable/refundable to the petitioner year-wise as annexed along with the affidavit-in-rejoinder. It was submitted that the total payable outstanding amount as computed by the respondent is ₹ 6,22,08,565/- out of which recovery of an amount of ₹ 2,10,00,000/- has been stayed by the Tribunal. The central sales tax dues are to the tune of ₹ 1,36,73,870/-. It was submitted that if this amount is deducted from the total amount, the outstanding value added tax dues come to around ₹ 2.75 crore approximately. It was submitted that the Commercial Tax Officer in the communication to the Industrial Officer has as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken against tax payable by you. Besides you have made textile sales. You were required to pay VAT payable thereon. On which you are required to obtain refund from the Industries Department. During the above period, you have availed of credit for tax paid on the purchased goods against the tax payable by you. Also you have not paid any tax during that period due to which you are also a defaulter in respect of challans for more than three weeks. Therefore, you are informed to pay the entire tax by 8.10.2015, failing which an ex parte decision shall be taken. 8. Thus, by virtue of the above notice, the petitioners are called upon to discharge the output tax liability which was paid against the input tax credit on the goods purchased by it for the period 14.7.2013 to 31.8.2015, which the petitioners would otherwise not have been liable to pay under the normal provisions. 9. According to the petitioners, at the time when the show cause notice was issued they were entitled to refund of ₹ 97,07,397/- under the textile policy and if such refund would have been granted forthwith, they would have been able to discharge the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on that such certificate was given with effect from 14.7.2013 and, therefore, they were required to pay the full amount of output tax liability and then claim refund, on the other hand by an order dated 3.12.2015, the registration certificate came to be cancelled. Thereafter, the Additional Commissioner of Commercial Tax addressed a communication dated 29/31.12.2015 to the petitioner providing facility for payment of installments whereby 30% was to be paid immediately together with interest and hearing on facility for installments after such payment was made, was granted. Thereafter, by a communication dated 19.1.2016 of the Commissioner of Commercial Tax addressed to the Assistant Commissioner of Commercial Tax, facility of payment by six installments was granted to the petitioners in accordance with which six post-dated cheques were required to be furnished by the petitioners. Accordingly, the petitioners issued post-dated cheques in terms of the said communication. Thereafter, by an order dated 21.1.2016, the registration of the petitioners came to be restored from the date on which it was cancelled. Soon thereafter, by a notice dated 28.1.2016 the petitioners were called upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on account of outstanding dues of ₹ 1,43,03,621/- towards GVAT dues and ₹ 15,05,452/- towards central sales tax dues for the period from 1.10.2015 to 31.3.2016. By a communication dated 10.6.2016 addressed to the Deputy Commercial Tax Commissioner, the petitioners informed him that their company had filed an application for refund for the period January 2016 to March 2016 under textile incentive scheme for input tax of local purchases. The petitioners also enclosed therewith a local purchase statement with invoice copies for the refund application period and requested him to take note of the same and finalise their refund application. By an order dated 14.6.2016 which appears to have been received by the petitioners on 18.6.2016, the registration certificate of the petitioner came to be cancelled with effect from 1.6.2016. Thus, the cancellation of registration certificate was with prospective effect. 12. Along with a letter dated 21.6.2016, the petitioners forwarded the documents required for process of refund of commercial tax paid for the financial year 2015-16 to the Deputy Commissioner, Range 1. 13. It appears that the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d incorrect on-line statements and as the time of filing revised statements had lapsed, they could not file revised online statements. Therefore, they had asked the Commercial Tax Officer-1, Unit-2, Ahmedabad, in this regard and he had told them to file manual revised statements which they had submitted. Despite the aforesaid representation, the Deputy Commissioner of Commercial Tax has rejected their on-line refund application. Moreover, the Commercial Tax Officer has raised a demand of ₹ 2,60,93,445/- for local sales for assessment year 2011-12 and ₹ 2,10,52,600/- for assessment year 2012-13 and ₹ 14,201/- towards CST. Against the said assessment order, they had preferred appeal before the Deputy Commissioner of Commercial Tax, Circle-1, Ahmedabad, which is pending adjudication. They have further stated that due to financial hardship, they are not able to discharge their tax liability and that they are entitled to get refund of approximately ₹ 4 crore from the Sales Tax Department but on account of non-receipt of the same, the company is in doldrums. The petitioner also addressed a communication to the Assistant Commercial Tax Officer to furnish a certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected that the stay against recovery proceedings shall continue till the final disposal of the appeal. Thereafter, by the impugned order dated 12.12.2017, the certificate of entitlement of the petitioner has been cancelled under Para 7(2) of the Notification dated 11.10.2013 with effect from 14.7.2013. 20. The relevant contents of the impugned order dated 12.12.2017, as translated into English read thus:- As the petitioner has not complied with the provisions of Para 7(1) and 7(2) of the Notification dated 14.7.2013 whereby the Certificate of Entitlement was issued in favour of the petitioner, its Certificate of Entitlement is required to be cancelled. For nonpayment of more than three installments of tax, the dealer's registration number had been cancelled under section 27(5) of the Gujarat Value Added Tax Act, 2003 with effect from 1.6.2016. Thus, the dealer has not paid taxes within time. Thereafter, the dealer had filed an appeal before the said office on 23.6.2018 against the cancellation of registration number. Despite adequate opportunities having been granted to the dealer, the dealer has not paid the tax payable on the state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect from 1.6.2016, the Certificate of Entitlement has been cancelled with retrospective effect from 14.7.2013. 21. The case of the petitioners is that the refund amount due to the petitioners under the textile policy is more than the outstanding dues of the petitioner. From the outstanding dues as shown in the statement at page 487 of the petition, it emerges that the total outstanding dues payable by the petitioners are to the tune of ₹ 6.22 crore, out of which, recovery of ₹ 2.10 crore has been stayed by the Tribunal. Therefore, the balance amount comes to ₹ 4.12 crore. Out of this amount, ₹ 1,36,73,870/- is payable towards CST dues, upon deducting the same, the balance amount comes to ₹ 2,75,26,130/-. Thus, it appears that approximately ₹ 2.75 crore is outstanding and payable by the petitioners towards VAT dues to the respondents. The petitioner is also entitled to refund from the respondent which from the communication addressed by the Commissioner of Commercial Tax to the Industries Department appears to be to the tune of ₹ 5 crore. 22. In the facts of the present case, on account of the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stayed by the Tribunal and part of the amount is in respect of the Central Sales tax dues. Insofar as non-payment of CST dues is concerned, the same cannot be treated as violation of the provisions of section 29 and 30 of the Act and rules 19 and 26 of the rules, all of which relate to compliance of the provisions of the GVAT Act. Thus, impugned order dated 12.12.2017 passed by the Deputy Commissioner of Commercial Tax whereby he has cancelled the entitlement certificate of the petitioners with retrospective effect from 14.7.2013 suffers from the vice of non-application of mind to the relevant factors and stands vitiated as being based on incorrect facts, which renders the same unsustainable. 25. In this case, even after the entitlement certificate was granted, the Government has not released any refund for the year 2013-14. Even for the subsequent period, while the Industries Department has granted partial reimbursement, the Finance Department has not given any refund on the tax paid on the purchases. It cannot be gainsaid that when a dealer avails of benefit of an incentive scheme, he would manage his affairs accordingly. In the present case, in view of the manne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is sought to be denied to the petitioners on the ground that prior to such addendum being introduced, the registration certificate of the petitioner had been cancelled. 28. In the opinion of this court, under the Gujarat Textile Policy which is in the nature of an incentive scheme, there is also an obligation cast upon the Government to grant refund/reimbursement of the amount due and payable to the dealers. However, for the purpose of considering as to whether there is due compliance with the provisions of the scheme, it is only the obligation cast upon the dealer which has been taken into consideration, ignoring the fact that such failure has occasioned on account of the non-fulfillment of the reciprocal obligation cast upon the Government authorities to refund/reimburse the amounts due to the dealers. All the dice are loaded against the dealers inasmuch as it is the Government authorities who decide whether the dealer has complied with the provisions of the scheme, while turning a blind eye to the reciprocal obligations cast upon them under the scheme. Now, they take shelter behind the cancellation of the certificate of registration of the petitioners for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld out under the scheme, the petitioners set up a new unit for manufacture and sale of technical textiles for which investment of ₹ 20.11 crore was made in plant and machinery and other assets considered to be eligible under the textile policy. However, certain unanticipated problems arose due to grant of certificate of eligibility with retrospective effect and the manner in which the respondents sought to implement the same as discussed hereinabove. Now things have come to such an impasse that unless the petitioners pay the outstanding dues, its registration certificate would not be restored and unless its registration certificate is restored the petitioners would not be entitled to refund/reimbursement under the scheme. Thus, while it appears that the amount of refund/reimbursement due to the petitioners exceeds the outstanding dues payable by them, it is the petitioners who are first required to clear the outstanding dues for getting the certificate of registration restored. The ultimate effect is that the petitioners who are financially not in a position to discharge the tax dues unless they receive the refund/reimbursement under the scheme, would be ruined, all because ..... X X X X Extracts X X X X X X X X Extracts X X X X
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